UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): April 22, 2020
VILLAGE FARMS INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
Canada | 001-38783 | 98-1007671 | ||
(State or Other Jurisdiction of Incorporation) |
(Commission File No.) |
(IRS Employee Identification No.) |
4700-80th Street
Delta, British Columbia, Canada
V4K 3N3
(Address of Principal Executive Offices)
(604) 940-6012
(Registrants telephone number, including area code)
(Former name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
☐ |
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
☐ |
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
☐ |
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
☐ |
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class |
Trading Symbol(s) |
Name of Each Exchange on Which Registered |
||
Common Shares, without par value | VFF | The Nasdaq Stock Market LLC |
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company ☒
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Item 5.02 |
Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers. |
On April 22, 2020, Village Farms International, Inc. (the Company or Village Farms) entered into indemnification agreements (each, an Indemnification Agreement) with each of its directors and officers (each, an Indemnified Party). Under the Indemnification Agreements, the Company has agreed to indemnify each Indemnified Party, subject to certain limited exceptions, (i) from and against all costs, charges and expenses reasonably incurred by the Indemnified Party in respect of any civil, criminal, administrative, investigative or other proceeding to which the Indemnified Party is involved by reason of being or having been a director or officer of the Company; and (ii) from and against all liabilities, damages, costs, charges and expenses whatsoever that the Indemnified Party may sustain or incur as a result of serving as a director or officer of the Company in respect of any act, matter, deed or thing whatsoever made, done, committed, permitted or acquiesced in by the Indemnified Party as a director or officer of the Company, whether before or after the effective date of the Indemnification Agreements. The obligations of the Company under the Indemnification Agreements shall continue after each Indemnified Party ceases to be a director or officer of the Company and shall survive indefinitely.
The form of Indemnification Agreement is filed herewith as Exhibit 10.1 and is incorporated herein by reference.
Item 7.01 |
Regulation FD Disclosure. |
The Company historically qualified as a foreign private issuer for purposes of reporting under the Securities Exchange Act of 1934, as amended (the Exchange Act) and filing registration statements under the Securities Act of 1933. As of the end of the Companys second fiscal quarter in 2019, Village Farms ceased to qualify as a foreign private issuer and accordingly, effective as of January 1, 2020, the Company became obligated to file reports with the SEC as a domestic issuer. As a result of the Companys status change, Village Farms was also required to change the accounting standards in which it prepares its financial statements from IFRS to generally accepted accounting principles in the United States, or US GAAP.
In accordance with Canadian securities laws, the Company restated and re-filed its unaudited condensed consolidated interim financial statements, now prepared in accordance with US GAAP rather than IFRS, for the three months ended March 31, 2019 and 2018, for the three and six months ended June 30, 2019 and 2018, and for the three and nine months ended September 30, 2019 and 2018. Copies of these restated financial statements are attached hereto as Exhibits 99.1, 99.2 and 99.3, respectively, and are incorporated herein by reference.
The information contained in this Current Report on Form 8-K under Item 7.01, including Exhibits 99.1, 99.2 and 99.3, is being furnished pursuant to Item 7.01 of Form 8-K and shall not be deemed to be filed for purposes of Section 18 of the Exchange Act, or otherwise subject to the liabilities of that section. The information contained in this Current Report on Form 8-K under Item 7.01, including Exhibits 99.1, 99.2 and 99.3, shall not be incorporated by reference into any filing under the Securities Act of 1933, as amended, whether made before or after the date hereof, except as shall be expressly set forth by specific reference in such a filing.
Item 9.01 |
Financial Statements and Exhibits |
(d) Exhibits.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
Date: April 22, 2020
VILLAGE FARMS INTERNATIONAL, INC. | ||
By: |
/s/ Stephen C. Ruffini |
|
Name: | Stephen C. Ruffini | |
Title: | Executive Vice President and Chief Financial Officer |
Exhibit 10.1
INDEMNIFICATION AGREEMENT
THIS AGREEMENT is made as of this day of April, 2020,
B E T W E E N:
VILLAGE FARMS INTERNATIONAL, INC., a corporation existing under the Canada Business Corporations Act
(the Corporation)
- and -
∎ [Name of director/officer]
(the Indemnified Party)
RECITALS:
A. |
The Canada Business Corporations Act (the CBCA) permits, and in some cases requires, the Corporation to indemnify individuals who are or were directors and officers of the Corporation, or who act or acted at the Corporations request as directors or officers or in a similar capacity of other entities (an Other Entity, a term which, for the purposes of this indemnification agreement (the Agreement) shall include a corporation or other entity that becomes an Other Entity in the future). In this Agreement: |
(i) |
all such individuals, including those acting in a capacity similar to a director and/or officer of an Other Entity, are referred to as Directors and Officers, respectively, and the phrase Director and Officer means an individual who is or was either, or both, a Director and/or an Officer; |
(ii) |
unless the context otherwise requires, words importing the singular include the plural and vice versa and words importing gender include all genders; and |
(iii) |
unless otherwise indicated, references to sections are to sections in this Agreement; |
B. |
The Corporations By-Laws require the Corporation to indemnify Directors and Officers; |
C. |
It is generally agreed that, because of the uncertainties in relying upon an indemnity in a corporations by-laws, it is desirable for Directors and Officers to obtain a contractual indemnity from the corporations they serve; |
D. |
It is in the best interests of the Corporation to attract and retain responsible and capable Directors and Officers, and the entering into of an agreement containing broad indemnification provisions of the kind contained in this Agreement is of vital importance to achieving these goals. Accordingly, the Corporation and the Indemnified Party wish to enter into this Agreement, and in so doing affirm that they intend that all the provisions of this Agreement be given legal effect to the full extent permitted by applicable law. |
NOW THEREFORE in consideration of the sum of $1.00 now given by the Indemnified Party to the Corporation, and of the mutual covenants and agreements contained in this Agreement and other good and valuable consideration (the receipt and sufficiency of which are hereby acknowledged), the parties agree as follows:
1. |
Subject to sections 2 and 3, the Corporation agrees to indemnify and save harmless the Indemnified Party: |
1.1 from and against all costs, charges and expenses reasonably incurred by the Indemnified Party in respect of any civil, criminal, administrative, investigative or other proceeding to which the Indemnified Party is involved by reason of being or having been a Director and Officer; and
1.2 from and against all liabilities, damages, costs, charges and expenses whatsoever that the Indemnified Party may sustain or incur as a result of serving as a Director and Officer in respect of any act, matter, deed or thing whatsoever made, done, committed, permitted or acquiesced in by the Indemnified Party as a Director and Officer, whether before or after the effective date of this Agreement.
2. |
Indemnification under section 1 shall be made only if the Indemnified Party: |
2.1 acted honestly and in good faith with a view to the best interests of either the Corporation or the Other Entity, as the case may be; and
2.2 in the case of a criminal or administrative proceeding that is enforced by a monetary penalty, the Indemnified Party had reasonable grounds for believing that the Indemnified Partys conduct was lawful.
Sections 2.1 and 2.2 are referred to in this Agreement as the Standards of Conduct.
3. |
In respect of an action by or on behalf of the Corporation or an Other Entity to procure a judgment in its favour to which the Indemnified Party is made a party by reason of being or having been a Director and Officer of the Corporation or the Other Entity, indemnification under section 1, including the making of Expense Advances under section 7, shall be made only after obtaining approval of the court having jurisdiction. |
4. |
For the purposes of this Agreement: |
4.1 proceeding shall include a claim, demand, suit, action, proceeding or investigation, whether anticipated, threatened, pending, commenced, continuing or completed, and any appeal or appeals therefrom;
4.2 costs, charges and expenses shall include:
4.2.1 subject to section 10, an amount paid to settle an action or satisfy a judgment, except in respect of an action to which section 3, above, is applicable;
4.2.2 a fine, penalty, levy or charge paid to any domestic or foreign government (federal, provincial, state, municipal or otherwise) or to any regulatory authority, agency, commission or board of any domestic or foreign government, or imposed by any court or any other law, regulation or rule-making entity having jurisdiction in the relevant circumstances (collectively, a Governmental Authority), including as a result of a breach or alleged breach of any statutory or common law duty imposed on directors or officers or of any law, statute, rule or regulation or of any provision of the articles, by-laws or any resolution of the Corporation or an Other Entity;
4.2.3 an amount paid to satisfy a liability arising as a result of the failure of the Corporation or an Other Entity to pay wages, vacation pay and any other amounts that may be owing to employees or to make contributions that may be required to be made to any pension plan, retirement income plan or other benefit plan for employees or to remit to any Governmental Authority payroll deductions, income taxes or other taxes, or any other amounts payable by the Corporation or an Other Entity; and
4.2.4 legal costs on a solicitor and his own client basis, including those incurred in enforcing the Indemnified Partys rights under this Agreement; and
4.3 the Indemnified Party shall be considered to be involved in any proceeding if the Indemnified Party has any participation whatsoever in such proceeding, including merely as a witness.
5. |
Upon the Indemnified Party becoming aware of any proceeding which may give rise to indemnification under this Agreement, the Indemnified Party shall give written notice to the Corporation, directed to its Chief Executive Officer, as soon as is practicable, provided, however, that failure to give notice in a timely fashion shall not disentitle the Indemnified Party to indemnification unless the Corporation suffers actual prejudice by reason of the delay. |
6. |
The Corporation may conduct any investigation it considers appropriate of any proceeding of which it receives notice under section 5, and shall pay all costs of that investigation. |
7. |
The parties wish to facilitate the payment by the Indemnified Party of ongoing costs in connection with matters for which indemnification under this Agreement is provided. Accordingly, the parties agree as follows: |
7.1 subject to section 7.2 below, the Corporation shall, upon demand, make advances (Expense Advances) to the Indemnified Party of all reasonable amounts for which the Indemnified Party seeks indemnification under this Agreement before the final
disposition of the relevant proceeding. In connection with such demand, the Indemnified Party shall provide the Corporation with a written affirmation of the Indemnified Partys good faith belief that the Indemnified Party has met the Standards of Conduct, along with sufficient particulars of the costs, charges and expenses to be covered by the proposed Expense Advance to enable the Corporation to make an assessment of its reasonableness;
7.2 the Corporation shall have no obligation to make Expense Advances to the Indemnified Party unless and until a majority of those members of the Corporations board of directors who have no interest in the relevant proceeding, authorize the making of such advances to the Indemnified Party. The board of directors may, before authorizing Expense Advances, retain independent counsel or make any inquiries it considers appropriate in the circumstances for the purpose of confirming the Indemnified Partys compliance with the Standards of Conduct and entitlement to indemnity. The board of directors shall have discretion in deciding whether or not to authorize such advances, but shall exercise its discretion reasonably, in light of all relevant circumstances, and in good faith; and
7.3 the Indemnified Party shall repay to the Corporation, upon demand, all Expense Advances if and to the extent that it is determined, either by the Corporations board of directors or by a court of competent jurisdiction, that the Indemnified Party had not met the Standards of Conduct or is otherwise not entitled to indemnification.
8. |
The indemnities in section 1 shall not apply in respect of any proceeding initiated by the Indemnified Party against: |
8.1 the Corporation or an Other Entity, unless it is brought to establish or enforce any right under this Agreement;
8.2 any Director or Officer unless the Corporation or the Other Entity, as the case may be, has joined in or consented to the initiation of such proceeding; or
8.3 any other corporation, partnership, trust, joint venture, unincorporated entity or person, unless it is a counterclaim.
9. |
The Corporation shall be entitled to participate, at its own expense, in the defence of the Indemnified Party in any proceeding. If the Corporation so elects after receipt of notice of a proceeding, or the Indemnified Party in that notice so directs, the Corporation shall assume control of the negotiation, settlement or defence of the proceeding, in which case the defence shall be conducted by counsel chosen by the Corporation and reasonably satisfactory to the Indemnified Party. If the Corporation elects to assume control of the defence, the Indemnified Party shall have the right to participate in the negotiation, settlement or defence of the proceeding and to retain counsel to act on the Indemnified Partys behalf, provided that the fees and disbursements of that counsel shall be paid by the Indemnified Party. The Indemnified Party and the Corporation shall cooperate fully with each other and their respective counsel in the investigation related to, and defence of, any proceeding and shall make available to each other all relevant books, records, documents and files and shall otherwise use their best efforts to assist each others counsel to conduct a proper and adequate defence. |
10. |
The parties wish to encourage the settlement of any proceeding. Accordingly, the parties agree as follows: |
10.1 the Corporation may, with the prior written consent of the Indemnified Party (which consent shall not be unreasonably withheld or delayed), enter into an agreement to settle any proceeding;
10.2 if the Indemnified Party refuses after requested by the Corporation, acting reasonably, to give consent to the terms of a proposed settlement which is otherwise acceptable to the Corporation, the Corporation may require the Indemnified Party to negotiate or defend the Claim independently of the Corporation. In that case, any amount recovered by the claimant in excess of the amount for which settlement could have been made by the Corporation shall not be recoverable under this Agreement, and the Corporation will only be responsible for costs, charges and expenses up to the time at which settlement could have been made;
10.3 the Corporation shall not be liable for any settlement of any proceeding effected without its prior written consent (which consent shall not be unreasonably withheld or delayed);
10.4 the Indemnified Party shall have the right to negotiate a settlement in respect of any proceeding, provided that unless the Corporation has approved the settlement, the Indemnified Party shall pay any compensation or other payment to be made under the settlement and the costs of negotiating and implementing the settlement, and shall not seek indemnity from the Corporation in respect of such compensation, payment or costs; and
10.5 the settlement of a proceeding shall not create a presumption that the Indemnified Party did not meet or would not have met the Standards of Conduct.
11. |
The Corporation shall make reasonable best efforts to ensure that all liabilities of the Corporation under this Agreement are at all times covered by directors and officers liability insurance with a responsible insurer. In this regard, the parties agree that: |
11.1 the responsibility for obtaining and maintaining directors and officers liability insurance shall rest with a senior manager of the Corporation, who shall retain an insurance broker or other person having expertise and experience in directors and officers liability insurance;
11.2 the Corporation shall provide to the Indemnified Party a copy of each policy of insurance providing the coverages contemplated by this section 11 promptly after such coverage is obtained, and shall promptly notify the Indemnified Party if the insurer cancels or refuses to renew such coverage (or any part of such coverage);
11.3 coverage need not be obtained by of the Corporation if the coverage is not generally available from responsible insurers, or is available from one or more responsible insurers but at a cost which, in the opinion of the Corporation, acting reasonably and taking into account the financial condition and size of the Corporation and the nature of its business, is excessive (for greater certainty, the board of directors of the Corporation determined that, effective as of April 30, 2020, coverage would not be obtained for the reason of excessive cost); and
11.4 the Corporation shall not do any act or thing (including changing insurers) or fail to do any act or thing, that could cause or result in a denial of insurance coverage or of any claim under such coverage; without limiting the generality of the foregoing, the Corporation shall give prompt and proper notice to the insurer of any claim against the Indemnified Party.
12. |
Should any payment made pursuant to this Agreement, including the payment of insurance premiums or any payment made by an insurer under an insurance policy, be deemed to constitute a taxable benefit or otherwise be or become subject to any tax or levy, then the Corporation shall pay any amount as may be necessary to ensure that the amount received by or on behalf of the Indemnified Party, after the payment of or withholding for such tax, fully reimburses the Indemnified Party for the actual cost, expense or liability incurred by or on behalf of the Indemnified Party. |
13. |
Each of the provisions contained in this Agreement is distinct and severable and a declaration of invalidity or unenforceability of any such provision or part thereof by a court of competent jurisdiction shall not affect the validity or enforceability of any other provision hereof. To the extent permitted by applicable law, the parties waive any provision of law which renders any provision of this Agreement invalid or unenforceable in any respect. The parties shall engage in good faith negotiations to replace any provision which is declared invalid or unenforceable with a valid and enforceable provision, the economic effect of which comes as close as possible to that of the invalid or unenforceable provision which it replaces. |
14. |
This Agreement shall be governed by and construed in accordance with the laws of the Province of Ontario and the laws of Canada applicable therein. |
15. |
The obligations of the Corporation under this Agreement shall continue after the Indemnified Party ceases to be a Director or Officer and shall survive indefinitely. |
16. |
Except as expressly provided in this Agreement, no amendment or waiver of this Agreement shall be binding unless executed in writing by the party to be bound thereby. No waiver of any provision of this Agreement shall constitute a waiver of any other provision nor shall any waiver of any provision of this Agreement constitute a continuing waiver unless otherwise expressly provided. |
17. |
This Agreement shall enure to the benefit of the Indemnified Party and the Indemnified Partys heirs, administrators, executors and personal representatives and shall be binding upon the Corporation and its successors. |
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first written above.
VILLAGE FARMS INTERNATIONAL, INC. | ||||
by: | ||||
Name: | Stephen C. Ruffini | |||
Title: | Senior Vice-President and Chief Financial Officer | |||
[Insert name of applicable Director/Officer here] |
[Signature page to Director/Officer Indemnity Agreement of VFF]
Exhibit 99.1
Village Farms International, Inc.
Condensed Consolidated Interim Statements of Financial Position
(In thousands of United States dollars)
(Unaudited)
March 31, 2019 | December 31, 2018 | |||||||
ASSETS |
||||||||
Current assets |
||||||||
Cash and cash equivalents |
$ | 6,188 | $ | 11,920 | ||||
Trade receivables |
9,789 | 11,292 | ||||||
Inventories |
26,799 | 24,956 | ||||||
Amounts due from joint ventures |
11,223 | 10,873 | ||||||
Other receivables |
267 | 332 | ||||||
Prepaid expenses and deposits |
1,030 | 889 | ||||||
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|
|
|
|||||
Total current assets |
55,296 | 60,262 | ||||||
|
|
|
|
|||||
Non-current assets |
||||||||
Property, plant and equipment |
65,589 | 72,188 | ||||||
Operating lease right-of-use assets |
4,156 | | ||||||
Finance lease right-of-use-assets |
154 | 176 | ||||||
Investment in joint ventures |
27,699 | 6,341 | ||||||
Deferred tax asset |
817 | 274 | ||||||
Amounts due from joint ventures |
2,227 | | ||||||
Other assets |
1,718 | 2,207 | ||||||
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|
|
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Total assets |
$ | 157,656 | $ | 141,448 | ||||
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|
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LIABILITIES |
||||||||
Current liabilities |
||||||||
Line of credit |
$ | 5,000 | $ | 2,000 | ||||
Trade payables |
11,208 | 14,601 | ||||||
Current maturities of long-term debt |
3,449 | 3,414 | ||||||
Accrued liabilities |
3,455 | 3,509 | ||||||
Operating lease liabilities - current |
1,092 | | ||||||
Finance lease liabilities - current |
79 | 78 | ||||||
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|
|
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Total current liabilities |
24,283 | 23,602 | ||||||
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|
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Non-current liabilities |
||||||||
Long-term debt |
31,446 | 32,261 | ||||||
Deferred tax liability |
5,366 | | ||||||
Operating lease liabilities - non-current |
3,080 | | ||||||
Finance lease liabilities - non-current |
74 | 102 | ||||||
Other liabilities |
1,134 | 1,050 | ||||||
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|
|
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Total liabilities |
65,383 | 57,015 | ||||||
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SHAREHOLDERS EQUITY |
||||||||
Common stock, no par value per share - unlimited shares authorized; 47,812,003 shares issued and outstanding at March 31, 2019 and 47,642,672 shares issued and outstanding at December 31, 2018. |
61,832 | 60,872 | ||||||
Additional paid in capital |
2,568 | 2,198 | ||||||
Accumulated other comprehensive loss |
(518 | ) | (562 | ) | ||||
Retained earnings |
28,391 | 21,925 | ||||||
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Total shareholders equity |
92,273 | 84,433 | ||||||
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Total liabilities and shareholders equity |
$ | 157,656 | $ | 141,448 | ||||
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|
|
The accompanying notes are an integral part of these condensed consolidated interim financial statements.
1
Village Farms International, Inc.
Condensed Consolidated Interim Statements of Income (Loss) and Comprehensive Income (Loss)
(In thousands of United States dollars, except per share data)
(Unaudited)
Three Months Ended March 31, | ||||||||
2019 | 2018 | |||||||
Sales |
$ | 31,890 | $ | 29,490 | ||||
Cost of sales |
(31,215 | ) | (25,902 | ) | ||||
|
|
|
|
|||||
Gross margin |
675 | 3,588 | ||||||
Selling, general and administrative expenses |
(4,242 | ) | (3,357 | ) | ||||
Share-based compensation |
(1,296 | ) | (118 | ) | ||||
Interest expense |
(694 | ) | (631 | ) | ||||
Interest income |
136 | 14 | ||||||
Foreign exchange gain |
278 | 7 | ||||||
Other (expense) income |
(130 | ) | 18 | |||||
Gain on disposal of assets |
13,564 | | ||||||
|
|
|
|
|||||
Income (loss) before taxes and earnings (losses) of unconsolidated entities |
8,291 | (479 | ) | |||||
(Provision for) recovery of income taxes |
(4,436 | ) | 175 | |||||
|
|
|
|
|||||
Loss from consolidated entities after income taxes |
3,855 | (304 | ) | |||||
Equity earnings (losses) from unconsolidated entities |
2,611 | (298 | ) | |||||
|
|
|
|
|||||
Net income (loss) |
$ | 6,466 | $ | (602 | ) | |||
|
|
|
|
|||||
Basic income(loss) per share |
$ | 0.14 | $ | (0.01 | ) | |||
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|
|
|||||
Diluted income (loss) per share |
$ | 0.13 | $ | (0.01 | ) | |||
|
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|
|
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Weighted average number of common shares used in the computation of net income (loss) per share: |
||||||||
Basic |
47,667 | 42,372 | ||||||
|
|
|
|
|||||
Diluted |
49,506 | 42,372 | ||||||
|
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|
|
|||||
Net income (loss) |
$ | 6,466 | $ | (602 | ) | |||
Other comprehensive income (loss): |
||||||||
Foreign currency translation adjustment |
44 | (55 | ) | |||||
|
|
|
|
|||||
Comprehensive income (loss) |
$ | 6,510 | $ | (657 | ) | |||
|
|
|
|
The accompanying notes are an integral part of these condensed consolidated interim financial statements.
2
Village Farms International, Inc.
Condensed Consolidated Interim Statements of Changes in Shareholders Equity
(In thousands of United States dollars, except for shares outstanding)
(Unaudited)
Number of | Accumulated Other | Total | ||||||||||||||||||||||
Common | Common | Additional paid | Comprehensive | Retained | Shareholders | |||||||||||||||||||
Shares | Stock | in capital | (Loss) Income | Earnings | Equity | |||||||||||||||||||
Balance at January 1, 2018 |
42,242,612 | $ | 36,115 | $ | 1,726 | $ | (391 | ) | $ | 29,439 | $ | 66,889 | ||||||||||||
Shares issued on exercise of stock options |
205,001 | 169 | | | | 169 | ||||||||||||||||||
Share-based compensation |
| | 118 | | | 118 | ||||||||||||||||||
Cumulative translation adjustment |
| | | (55 | ) | | (55 | ) | ||||||||||||||||
Net loss |
| | | | (602 | ) | (602 | ) | ||||||||||||||||
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|
|||||||||||||
Balance at March 31, 2018 |
42,447,613 | $ | 36,284 | $ | 1,844 | $ | (446 | ) | $ | 28,837 | $ | 66,519 | ||||||||||||
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|||||||||||||
Balance at January 1, 2019 |
47,642,672 | $ | 60,872 | $ | 2,198 | $ | (562 | ) | $ | 21,925 | $ | 84,433 | ||||||||||||
Shares issued on exercise of stock options |
15,999 | 54 | (18 | ) | | | 36 | |||||||||||||||||
Share-based compensation |
153,332 | 908 | 388 | | | 1,296 | ||||||||||||||||||
Issuance costs |
| (2 | ) | | | | (2 | ) | ||||||||||||||||
Cumulative translation adjustment |
| | | 44 | | 44 | ||||||||||||||||||
Net income |
| | | | 6,466 | 6,466 | ||||||||||||||||||
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|||||||||||||
Balance at March 31, 2019 |
47,812,003 | $ | 61,832 | $ | 2,568 | $ | (518 | ) | $ | 28,391 | $ | 92,273 | ||||||||||||
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The accompanying notes are an integral part of these condensed consolidated interim financial statements.
3
Village Farms International, Inc.
Condensed Consolidated Interim Statements of Cash Flows
(In thousands of United States dollars)
Three Months Ended March 31, | ||||||||
2019 | 2018 | |||||||
Cash flows used in operating activities: |
||||||||
Net income (loss) |
$ | 6,466 | $ | (602 | ) | |||
Adjustments to reconcile net loss to net cash used in operating activities: |
||||||||
Depreciation and amortization |
1,926 | 1,801 | ||||||
Amortization of deferred charges |
19 | 19 | ||||||
Share of (income) loss from joint ventures |
(2,611 | ) | 298 | |||||
Interest expense |
694 | 631 | ||||||
Interest income |
(136 | ) | (14 | ) | ||||
Interest paid on long-term debt |
(662 | ) | (598 | ) | ||||
Gain on disposal of assets |
(13,564 | ) | | |||||
Lease payments |
(257 | ) | | |||||
Share-based compensation |
1,296 | 118 | ||||||
Deferred income taxes |
4,823 | (177 | ) | |||||
Changes in non-cash working capital items |
(3,540 | ) | (7,408 | ) | ||||
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Net cash used in operating activities |
(5,546 | ) | (5,932 | ) | ||||
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|||||
Cash flows used in investing activities: |
||||||||
Purchases of property, plant and equipment, net of rebate |
(167 | ) | (348 | ) | ||||
Advances to joint ventures |
(2,251 | ) | | |||||
Proceeds from sale of asset |
60 | | ||||||
Investment in joint ventures |
(7 | ) | | |||||
|
|
|
|
|||||
Net cash used in investing activities |
(2,365 | ) | (348 | ) | ||||
|
|
|
|
|||||
Cash flows from financing activities: |
||||||||
Proceeds from borrowings |
3,000 | 3,000 | ||||||
Repayments on borrowings |
(837 | ) | (77 | ) | ||||
Proceeds from exercise of stock options |
34 | 169 | ||||||
Payments on capital lease obligations |
(18 | ) | (19 | ) | ||||
|
|
|
|
|||||
Net cash provided by financing activities |
2,179 | 3,073 | ||||||
|
|
|
|
|||||
Effect of exchange rate changes on cash and cash equivalents |
| (15 | ) | |||||
|
|
|
|
|||||
Net decrease in cash and cash equivalents |
(5,732 | ) | (3,222 | ) | ||||
Cash and cash equivalents, beginning of period |
11,920 | 7,091 | ||||||
|
|
|
|
|||||
Cash and cash equivalents, end of period |
$ | 6,188 | $ | 3,869 | ||||
|
|
|
|
|||||
Supplemental cash flow information: |
||||||||
Income taxes paid |
$ | | $ | | ||||
|
|
|
|
The accompanying notes are an integral part of these condensed consolidated interim financial statements.
4
VILLAGE FARMS INTERNATIONAL, INC.
Notes to the Condensed Consolidated Interim Financial Statements
(In thousands of United States dollars, except share and per share amounts, unless otherwise noted)
(Unaudited)
1 |
NATURE OF OPERATIONS |
Village Farms International, Inc. (VFF the parent company, together with its subsidiaries, the Company) is incorporated under the Canada Business Corporation Act. VFFs principal operating subsidiaries as of March 31, 2019 are Village Farms Canada Limited Partnership (VFCLP), Village Farms, L.P. (VFLP), and VF Clean Energy, Inc. (VFCE). The address of the registered office of VFF is 4700 80th Street, Delta, British Columbia, Canada, V4K 3N3. VFF owns a 65% equity interest in Village Fields Hemp USA LLC (VF Hemp) and a 50% equity interest in Pure Sunfarms Corp. (Pure Sunfarms), both of which are recorded as Investments in Joint Ventures (note 9).
The Companys shares are listed on the Toronto Stock Exchange under the symbol VFF and are also listed in the United States on the Nasdaq Capital Market (Nasdaq) under the symbol VFF.
The Company owns and operates sophisticated, highly intensive agricultural greenhouse facilities in British Columbia and Texas, where it produces, markets and sells premium-quality tomatoes, bell peppers, and cucumbers. The Company, through its subsidiary VFCE, owns and operates a 7.0 MW power plant that generates electricity. The Companys joint venture, Pure Sunfarms, is a licensed producer and supplier of cannabis products to be sold to other licensed providers and provincial governments across Canada and internationally. The Companys joint venture VF Hemp is in the start-up stage of becoming an outdoor cultivator of high cannabidiol (CBD) hemp and CBD extraction in multiple states throughout the United States.
2 |
BASIS OF PRESENTATION |
The accompanying unaudited Condensed Consolidated Financial Statements for the three months ended March 31, 2019 have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information. Previously, the Company prepared its consolidated financial statements under International Financial Reporting Standards (IFRS) as permitted by securities regulators in Canada, as well as in the United States under the status of a Foreign Private Issuer as defined by the United States Securities and Exchange Commission (SEC). At the end of the second quarter of 2019, the Company determined that it no longer qualified as a Foreign Private Issuer under the SEC rules. As a result, beginning January 1, 2020 the Company is required to report with the SEC on domestic forms and comply with domestic company rules in the United States. The transition to US GAAP was made retrospectively for all periods from the Companys inception.
These interim consolidated financial statements do not include all information and notes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments of a normal recurring nature considered necessary for fair presentation have been included. Operating results for the three months ended March 31, 2019 are subject to seasonal variations and are not necessarily indicative of the results that may be expected for the year ended December 31, 2019. For further information, refer to the Consolidated Financial Statements and notes thereto included in our annual report on Form 10-K for the fiscal year ended December 31, 2019 and 2018.
Other than as described below, there were no changes to our significant accounting policies described in our annual financial statements that had a material impact on our financial statements and related notes.
3 |
NEW ACCOUNTING PRONOUNCEMENTS ADOPTED |
Prior to the adoption of ASU 2016-02, Leases, for leases where the Company assumed substantially all the risks and rewards of ownership were classified as finance leases. Upon initial recognition, the leased asset is measured at an amount equal to the lower of its fair value and the present value of the minimum lease payments. Subsequent to initial recognition, the asset was accounted for in accordance with the accounting policy applicable to that asset. Other leases are operating leases and rent expenses were recognized in the Companys consolidated statements of (loss) income.
In February 2016, the FASB issued ASU 2016-02, Leases, and has subsequently issued several supplemental and/or clarifying ASUs (collectively, Topic 842), which requires a dual approach for lease accounting under which a lessee would account for leases as finance leases or operating leases. Both finance leases and operating leases may result in the lessee recognizing a right of use asset and a corresponding lease liability. For finance leases, the lessee would recognize interest expense and amortization of the right-of-use asset, and for operating leases, the lessee would recognize lease expense on a straight-line basis.
5
VILLAGE FARMS INTERNATIONAL, INC.
Notes to Condensed Consolidated Interim Financial Statements
(In thousands of United States dollars, except share and per share amounts, unless otherwise noted)
(Unaudited)
On January 1, 2019, the Company adopted Topic 842, using the modified retrospective method and did not restate prior periods. The Companys classes of assets include land leases, building leases and equipment leases.
On adoption, the Company recognized lease liabilities in relation to leases which had previously been classified as operating leases under the principles of Topic 842. These lease liabilities were measured at the present value of the remaining lease payments, discounted using the borrowing rate of the Company. The weighted average incremental borrowing rate applied to the lease liabilities on January 1, 2019 was 6.25%. These leases are included in right-of-use assets, short-term lease liabilities and long-term lease liabilities in the condensed consolidated statements of financial position. Right-of-use assets are amortized on a straight-line basis over the lease term.
For leases previously classified as finance leases the entity recognized the carrying amount of the lease asset and lease liability immediately before transition as the carrying amount of the right-of-use asset and the lease liability at the date of initial application.
Additionally, the Company has elected the short-term lease exception for all classes of assets, and does not apply the recognition requirements for leases of 12 months or less, and recognizes lease payments for short-term leases as expense either straight-line over the lease term or as incurred depending on whether the lease payments are fixed or variable.
These elections are applied consistently for all leases.
2019 | ||||
Operating lease commitments disclosed as of December 31, 2018 |
$ | 5,064 | ||
Less: short-term leases recognized on a straight-line basis as expense |
(210 | ) | ||
|
|
|||
4,854 | ||||
Discounted using the lessees incremental borrowing rate of 6.25% at the date of initial application |
4,269 | |||
Add: additional leases identified on adoption of Topic 842 |
88 | |||
Add: finance lease liabilities recognized as of December 31, 2018 |
180 | |||
|
|
|||
Lease liability recognized as of January 1, 2019 |
$ | 4,537 | ||
Of which are: |
||||
Current lease liabilities |
871 | |||
Non-current lease liabilities |
3,666 | |||
|
|
|||
$ | 4,537 | |||
|
|
The recognized right-of-use assets relate to the following types of assets:
December 31, 2018 | January 1, 2019 | |||||||
Land |
$ | | $ | 140 | ||||
Building |
| 4,017 | ||||||
Equipment |
176 | 380 | ||||||
|
|
|
|
|||||
Total right-of-use assets |
$ | 176 | $ | 4,537 | ||||
|
|
|
|
4 |
NEW ACCOUNTING PRONOUNCEMENTS NOT YET ADOPTED |
In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. ASU 2019-12 simplifies the accounting for income taxes by removing exceptions within the general principles of Topic 740 regarding the calculation of deferred tax liabilities, the incremental approach for intraperiod tax allocation, and calculating income taxes in an interim period. In addition, the ASU adds clarifications to the accounting for franchise tax (or similar tax). which is partially based on income, evaluating tax basis of goodwill recognized from a business combination, and reflecting the
6
VILLAGE FARMS INTERNATIONAL, INC.
Notes to Condensed Consolidated Interim Financial Statements
(In thousands of United States dollars, except share and per share amounts, unless otherwise noted)
(Unaudited)
effect of any enacted changes in tax laws or rates in the annual effective tax rate computation in the interim period that includes the enactment date. The ASU is effective for fiscal years beginning after December 15, 2020, and will be applied either retrospectively or prospectively based upon the applicable amendments. Early adoption is permitted. The adoption of this standard is not expected to have a material impact on the Companys consolidated financial statements and related disclosures.
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820) - Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement. ASU 2018-13 removes the disclosure requirement for the amount and reasons for transfers between Level 1 and Level 2 fair value measurements as well as the process for Level 3 fair value measurements. In addition, the ASU adds the disclosure requirements for changes in unrealized gains and losses included in other comprehensive income (loss) for recurring Level 3 fair value measurements held at the end of the reporting period as well as the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. The ASU is effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years and will be applied on a retrospective basis to all periods presented. Early adoption is permitted. The adoption of this standard is not expected to have a material impact on the Companys consolidated financial statements and related disclosures.
In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses. The standard, including subsequently issued amendments, requires a financial asset measured at amortized cost basis, such as accounts receivable and certain other financial assets, to be presented at the net amount expected to be collected based on relevant information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. This ASU is effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years, and requires the modified retrospective approach. Early adoption is permitted. Based on the composition of the Companys trade receivables and other financial assets, current market conditions, and historical credit loss activity, the adoption of this standard is not expected to have a material impact on the Companys consolidated financial statements and related disclosures.
5 |
SIGNIFICANT ACCOUNTING POLICIES |
The significant accounting policies set out below have been applied consistently to all periods presented in these consolidated financial statements.
Cash and Cash Equivalents
Cash and cash equivalents consist of cash deposits held with banks, and other highly liquid short-term interest bearing securities with maturities at the date of purchase of three months or less.
Inventories
Inventories, consisting of crop inventory, purchased produce inventory and spare parts inventory are valued at the lower of cost or net realizable value determined using weighted average cost or first-in first out methods. Costs included in crop inventory include but are not limited to raw material packaging, direct labor, overhead, and the depreciation of growing equipment and facilities determined at normal capacity. These costs are expensed as cost of sales when the crops are harvested and delivered throughout the various crop cycles, which end at various times throughout the year.
Equity Method Investments and Variable Interest Entities
The Company evaluates the method of accounting for investments in which it does not hold an equity interest of at least 50% based on the amount of control it exercises over the operations of the investee, exposure to losses in excess of its investment, the ability to significantly influence the investee and whether the Company is the primary beneficiary of the investee. Investments not qualifying for consolidation are accounted for under the equity method whereby the ongoing investment in the entity, consisting of its initial investment adjusted for distributions, gains and losses of the entity are classified as a single line in the consolidated statements of financial position and as a non-operating item in the consolidated statements of income (loss) and comprehensive income (loss).
7
VILLAGE FARMS INTERNATIONAL, INC.
Notes to Condensed Consolidated Interim Financial Statements
(In thousands of United States dollars, except share and per share amounts, unless otherwise noted)
(Unaudited)
The Company regularly monitors and evaluates the fair value of its equity investments. If events and circumstances indicate that a decline in the fair value of these assets has occurred and is other than temporary, the Company will record a charge in earnings from joint ventures in the consolidated statements of income (loss). The Companys investments do not have a readily determinable fair value as none of them are publicly traded. The fair values of the Companys equity investments are determined by discounting the estimated future cash flows of each entity. These cash flow estimates include assumptions on growth rates and future currency exchange rates (Level 3). The Company did not record an impairment charge on any of its equity investments for the period ended March 31, 2019 and the year ended December 31, 2018.
Prior to the adoption of Accounting Standards Codification (ASC) 606 - Revenues from Contracts with Customers the Company measured its nonmonetary equity contributions at the book value of the assets being contributed with no gain or loss being recognized. Following the adoption of ASC 606, the Company measures nonmonetary equity contributions at fair value, which provides for recognizing a gain or loss upon the derecognition of the nonmonetary assets.
Property, Plant and Equipment
Property, plant and equipment are stated at cost less accumulated depreciation and amortization. Depreciation is allocated between cost of sales and SG&A expenses depending on the type of asset and is determined using the straight-line method over the estimated useful lives of the assets. Leasehold improvements are amortized using the straight-line method over the remaining life of the lease or useful life of the asset, whichever is shorter. Maintenance and repairs are charged to cost of sales when incurred. Significant expenditures, which extend the useful lives of assets, are capitalized. Land is not depreciated. The estimated useful lives of the class of assets for the current and comparative periods are as follows:
Classification |
Estimated Useful Lives |
|
Leasehold and land improvements | 5-20 years | |
Greenhouses and other buildings | 4-30 years | |
Greenhouse equipment | 3-30 years | |
Machinery and equipment | 3-12 years |
Construction in process reflects the cost of assets under construction, which are not depreciated until placed into service.
Revenue Recognition
Prior to January 1, 2018, revenue from the sale of produce in the course of ordinary activities was measured at the fair value of the consideration received or receivable, net of returns, trade discounts and volume rebates. Revenue from the production and sale of power was measured at the fair value of the consideration received or receivable. Revenue was recognized when persuasive evidence existed that the significant risks and rewards of ownership have been transferred to the customer, recovery of the consideration was probable, the associated costs and possible return of goods could be estimated reliably, there was no continuing management involvement with the goods, and the amount of revenue could be measured reliably. If it was probable that discounts would be granted and the amount could be measured reliably, then the discount was recognized as a reduction of revenue as the sales were recognized. The timing of the transfer of risks and rewards occurred at the time the produce had been successfully delivered, the risk of loss had passed to the customer, and collectability was reasonably assured.
Following the adoption of ASC 606 on January 1, 2018 using the modified retrospective transition approach the Company now recognizes revenue when control of the promised goods or services is transferred to customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services. In order to achieve this core principle, the Company applies a five-step process. The Company generates its revenue through the sale of grown produce and third party produce, with standard shipping terms and discounts, and through the production and sale of power. The Companys produce revenue transactions consist of single performance obligations to transfer promised goods at a fixed price. Quantities to be delivered to the customer are determined at a point near the date of delivery through purchase orders they receive from the customer. The Company recognizes revenue when it has fulfilled a performance obligation, which is typically when the customer receives the goods and their performance obligation is complete. Revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring product. The amount of revenue recognized is reduced for estimated returns and other customer credits, such as discounts and rebates, based on the expected value to be realized. Payment terms are consistent with terms standard to the markets the Company serves. The Company maintains an allowance for doubtful accounts
8
VILLAGE FARMS INTERNATIONAL, INC.
Notes to Condensed Consolidated Interim Financial Statements
(In thousands of United States dollars, except share and per share amounts, unless otherwise noted)
(Unaudited)
for the loss that would be incurred if a customer was unable to pay amounts due. The Company initially estimates the allowance required at the time of revenue recognition based on historical experience and makes changes to the allowance based on various factors, including changes in the customers financial condition or payment patterns.
The Company sells electricity to British Columbia Hydro and Power Authority. Revenues are recognized as the electricity is delivered to/consumed by the customer and is based on contractual usage rates and meter readings that measure electricity consumption. The Company has elected to exclude taxes collected from its customers assessed by government authorities that are both imposed on and concurrent with a specific revenue-producing transaction from our determination of transaction price.
Revenue received from shipping and handling fees is reflected in net sales. Shipping and handling costs are included in cost of sales as incurred or at the time revenue is recognized for the related goods, whichever comes first.
Impairments of Long-Lived Assets
Long-lived assets, including intangible assets subject to amortization, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. Long-lived assets are grouped with other assets to the lowest level to which identifiable cash flows are largely independent of the cash flows of other groups of assets and liabilities. Management assesses the recoverability of the carrying cost of the assets based on a review of projected undiscounted cash flows. If an asset is held for sale, management reviews its estimated fair value less cost to sell. Fair value is determined using pertinent market information, including appraisals or brokers estimates, and/or projected discounted cash flows. In the event an impairment loss is identified, it is recognized based on the amount by which the carrying value exceeds the estimated fair value of the long-lived asset.
Segment Reporting
Operating segments are reported in a manner consistent with internal reporting provided to the chief operating decision-maker. The chief operating decision-maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the Chief Executive Officer (CEO). Based on the aggregation criteria in ASC 280, Segment Reporting, the Company has identified two operating segments, the Produce Business and the Energy Business.
Foreign Currency Translation
Monetary assets and liabilities denominated in foreign currencies are translated to the functional currency at the exchange rates in effect at the reporting date. Non-monetary assets and liabilities that are measured at fair value in a foreign currency are translated to the functional currency at the exchange rate in effect when the fair value was determined. Foreign currency differences are generally recognized in net income. Non-monetary items that are measured based on historical cost in a foreign currency are translated to the functional currency using the exchange rate in effect at the date of the transaction giving rise to the item.
Fair Value Measurements
Pursuant to the provisions of Accounting Standards Codification (ASC) 820, Fair Value Measurements and Disclosures (ASC 820), the Company measures certain assets and liabilities at fair value or discloses the fair value of certain assets and liabilities recorded at cost in the consolidated financial statements. Fair value is calculated as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (an exit price). ASC 820 establishes a fair value hierarchy which requires assets and liabilities measured at fair value to be categorized into one of three levels based on the inputs used in the valuation. The Company classifies assets and liabilities in their entirety based on the lowest level of input significant to the fair value measurement.
The three levels are defined as follows:
Level 1: Observable inputs based on quoted prices (unadjusted) in active markets for identical assets or liabilities.
9
VILLAGE FARMS INTERNATIONAL, INC.
Notes to Condensed Consolidated Interim Financial Statements
(In thousands of United States dollars, except share and per share amounts, unless otherwise noted)
(Unaudited)
Level 2: Observable inputs, other than those included in Level 1, based on quoted prices for similar assets and liabilities in active markets, or quoted prices for identical assets and liabilities in inactive markets.
Level 3: Unobservable inputs that reflect an entitys own assumptions about what inputs a market participant would use in pricing the asset or liability based on the best information available in the circumstances.
Transfers between levels of the fair value hierarchy are deemed to have occurred at the end of the reporting period in which the event or change in circumstances caused the transfer to occur.
Advertising
Advertising costs are included in selling, general and administrative expenses and are expensed as incurred. These expenses totaled $16 and $46 for the three months ended March 31, 2019, and 2018, respectively.
Share-Based Compensation
The Company grants stock options and performance-based shares (PS) to certain employees and directors.
The Company recognizes stock-based compensation using the fair value provisions prescribed by ASC Topic 718, Compensation Stock Compensation. Accordingly, compensation costs for awards of stock-based compensation settled in shares are determined based on the fair value of the share-based instrument at the time of grant and are recognized as expense over the vesting period of the share-based instrument. The Company recognizes forfeitures as they occur.
Stock options generally vest over three years (33% per year following the grant date) and expire after ten years. Each tranche in an award is considered a separate award with its own vesting period. The fair value of each tranche is measured at the date of grant using the Black-Scholes option pricing model. Compensation expense is recognized over the tranches vesting period by increasing additional paid-in capital based on the number of awards expected to vest. The number of awards expected to vest is reviewed at least annually, with any impact recognized immediately.
The PS granted will be settled using the Companys own equity and issued from treasury if the performance standard is met. The equity-settled share-based compensation is measured at the fair value of the Companys common shares as at the grant date in accordance with the terms of the Companys Stock Compensation Plan. The fair value determined at the grant date is charged to income when performance based vesting conditions are met, based on the number of RSUs that will eventually be converted to common shares, with a corresponding increase in equity.
Income Taxes
Deferred income taxes are provided to recognize temporary differences between the financial reporting basis and the income tax basis of the Companys assets and liabilities using currently enacted tax rates and laws. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment.
The Company evaluates uncertain income tax positions in a two-step process. The first step is recognition, where the Company evaluates whether an individual tax position has a likelihood of greater than 50% of being sustained upon examination based on the technical merits of the position, including resolution of any related appeals or litigation processes. For tax positions that are currently estimated to have a less than 50% likelihood of being sustained, zero tax benefit is recorded. For tax positions that have met the recognition threshold in the first step, the Company performs the second step of measuring the benefit to be recorded. The actual benefits ultimately realized may differ from the Companys estimates. In future periods, changes in facts and circumstances and new information may require the Company to change the recognition and measurement estimates with regard to individual tax positions. Changes in recognition and measurement estimates are recorded in results of operations and financial position in the period in which such changes occur.
10
VILLAGE FARMS INTERNATIONAL, INC.
Notes to Condensed Consolidated Interim Financial Statements
(In thousands of United States dollars, except share and per share amounts, unless otherwise noted)
(Unaudited)
Basic and Diluted Income (Loss) Per Share
Basic income per share is computed using the weighted average number of common shares outstanding during the period. The treasury stock method is used for the calculation of diluted income per share. Under this method, the weighted average number of common shares outstanding assumes that the proceeds to be received on the exercise of dilutive share options are applied to repurchase common shares at the average market price for the period. Share options are dilutive when the average market price of the common shares during the period exceeds the exercise price of the options. Options to purchase shares of common stock and RSUs are not included in the calculation of net income (loss) per share when the effect is anti-dilutive.
6 |
INVENTORIES |
March 31, 2019 | December 31, 2018 | |||||||
Crop inventory |
$ | 26,193 | $ | 24,249 | ||||
Purchased produce inventory |
535 | 643 | ||||||
Spare parts inventory |
71 | 64 | ||||||
|
|
|
|
|||||
$ | 26,799 | $ | 24,956 | |||||
|
|
|
|
7 |
PROPERTY, PLANT AND EQUIPMENT, NET |
Property, plant and equipment consist of the following:
March 31, 2019 | December 31, 2018 | |||||||
Land |
$ | 3,205 | $ | 3,932 | ||||
Leasehold and land improvements |
3,819 | 3,819 | ||||||
Buildings |
72,510 | 77,003 | ||||||
Machinery and equipment |
60,862 | 65,664 | ||||||
Construction in progress |
706 | 552 | ||||||
Less: Accumulated depreciation |
(75,513 | ) | (78,782 | ) | ||||
|
|
|
|
|||||
Plant, property and equipment, net |
$ | 65,589 | $ | 72,188 | ||||
|
|
|
|
Depreciation expense on property, plant and equipment, was $1,667 and $1,801 for the three months ended March 31, 2019 and 2018. On March 31, 2019, Pure Sunfarms exercised its option to acquire the Delta 2 assets and operations (note 9).
8 |
LEASES |
The components of lease related expenses are as follows:
Three Months Ended
March 31, 2019 |
||||
Operating lease expense (a) |
$ | 611 | ||
|
|
|||
Finance lease expense: |
||||
Amortization of right-of-use assets |
$ | 20 | ||
Interest on lease liabilities |
3 | |||
|
|
|||
Total finance lease expense |
$ | 23 | ||
|
|
(a) |
Includes short-term lease costs of $311 for the three months ended March 31, 2019. |
11
VILLAGE FARMS INTERNATIONAL, INC.
Notes to Condensed Consolidated Interim Financial Statements
(In thousands of United States dollars, except share and per share amounts, unless otherwise noted)
(Unaudited)
Cash paid for amounts included in the measurement of lease liabilities:
Three Months Ended
March 31, 2019 |
||||
Operating cash flows from operating leases |
$ | 254 | ||
Operating cash flows from finance leases |
$ | 3 | ||
Financing cash flows from finance leases |
$ | 18 |
March 31, 2019 | ||||
Weighted average remaining lease term: |
||||
Operating leases |
4.9 | |||
Finance leases |
2.5 | |||
Weighted average discount rate: |
||||
Operating leases |
6.25 | % | ||
Finance leases |
6.25 | % |
Maturities of lease liabilities are as follows:
Operating
leases |
Finance
leases |
|||||||
Remainder of 2019 |
$ | 788 | $ | 64 | ||||
2020 |
1,073 | 65 | ||||||
2021 |
1,090 | 30 | ||||||
2022 |
869 | 9 | ||||||
2023 |
641 | | ||||||
Thereafter |
389 | | ||||||
|
|
|
|
|||||
Undiscounted lease cash flow commitments |
4,850 | 168 | ||||||
Reconciling impact from discounting |
(678 | ) | (15 | ) | ||||
|
|
|
|
|||||
Lease liabilities on consolidated statement of financial position as of March 31, 2019 |
$ | 4,172 | $ | 153 | ||||
|
|
|
|
The following table presents the Companys unadjusted lease commitments as of December 31, 2018 as a required disclosure for companies adopting the lease standard prospectively without revising comparative period information.
Operating
leases |
Finance
leases |
|||||||
2019 |
$ | 1,253 | $ | 78 | ||||
2020 |
1,039 | 62 | ||||||
2021 |
1,052 | 30 | ||||||
2022 |
841 | 10 | ||||||
2023 |
618 | | ||||||
Thereafter |
261 | | ||||||
|
|
|
|
|||||
$ | 5,064 | $ | 180 | |||||
|
|
|
|
9 |
INVESTMENT IN JOINT VENTURES |
Pure Sunfarms Corp.
On June 6, 2017, the Company entered into an agreement to form Pure Sunfarms, a B.C. corporation, with Emerald Health Therapeutics Inc. (Emerald). The purpose of Pure Sunfarms is to produce, market and distribute cannabis in Canada.
12
VILLAGE FARMS INTERNATIONAL, INC.
Notes to Condensed Consolidated Interim Financial Statements
(In thousands of United States dollars, except share and per share amounts, unless otherwise noted)
(Unaudited)
The Company accounts for its investment in Pure Sunfarms, in accordance with Accounting Standards Codification (ASC) 323, Equity Method and Joint Ventures (ASC 323), using the equity method. The Company has determined that Pure Sunfarms is a variable interest entity (VIE), however the Company does not consolidate Pure Sunfarms because the Company is not the primary beneficiary. Although the Company is able to exercise significant influence over the operating and financial policies of Pure Sunfarms through its 50.0% ownership interest and joint power arrangement with Emerald, the Company shares joint control of the Board of Directors and therefore is not the primary beneficiary. The Companys maximum exposure to loss as a result of its involvement with Pure Sunfarms as of March 31, 2019 relates primarily to the recovery of the outstanding loan to Pure Sunfarms.
The Company is required to apply the hypothetical liquidation at book value (HLBV) method to determine its allocation of the profits and loss in Pure Sunfarms. When determining its allocation of profits and losses, the HLBV method only considers shares that have been fully paid for. Therefore, due to the monthly escrow payments being made by Emerald in accordance with the Delta 2 Option Agreement, the ownership will change each month escrow payment(s) are made. Effective for the quarter ended March 31, 2019, the Company under the hypothetical liquidation method received 60.0%.
On July 5, 2018, the Company and Emerald Health Therapeutics Canada Inc. (a subsidiary of Emerald) (together, the Shareholders) entered into a Shareholder Loan Agreement (the Loan Agreement) with Pure Sunfarms, whereby, as of March 31, 2019, the Shareholders had each contributed $9,959 (CA$13,000) in the form of a demand loan to Pure Sunfarms. Effective January 1, 2019, the loan amounts bear simple interest at the rate of 6.2% per annum, calculated semi-annually. Interest will accrue and be payable upon demand being made by both Shareholders (see note 12).
On March 31, 2019, Pure Sunfarms exercised its option to utilize the Delta 2 assets and operations. The contribution of the assets has been accounted for as a disposal of the land, greenhouse facility and other assets in exchange for 25,000,000 common shares of Pure Sunfarms. This was a non-cash transaction, and it was estimated that the fair value of the land, building and other assets was $18.7 million (CA$25 million) at the date of contribution. The Company recognized a gain of $13.6 million on the contribution of the fixed assets. As of March 31, 2019 and December 31, 2018, the total investment in Pure Sunfarms of US$27.7 million and US$6.3 million, respectively, was recorded in the consolidated statements of financial position. Following the adoption of ASC 606, the Company measures nonmonetary equity contributions at fair value, which provides for recognizing a gain or loss upon the de-recognition of the nonmonetary assets. This is contrary to the non-monetary contribution of Delta 3 whereby a gain could not be recognized and the investment was recognized at net book value, as at the time ASC 606 was not applicable.
The Companys share of the joint venture consists of the following:
Balance, January 1, 2018 |
$ | 6,511 | ||
Share of net loss for the year |
(171 | ) | ||
|
|
|||
Balance, December 31, 2018 |
$ | 6,341 | ||
|
|
|||
Balance, January 1, 2019 |
$ | 6,341 | ||
Investments in joint venture |
18,717 | |||
Share of net income for the period |
2,641 | |||
|
|
|||
Balance, March 31, 2019 |
$ | 27,699 | ||
|
|
Summarized financial information of Pure Sunfarms:
March 31, 2019 | December 31, 2018 | |||||||
Current assets |
||||||||
Cash and cash equivalents |
$ | 5,259 | $ | 1,731 | ||||
Trade receivables |
9,584 | 962 | ||||||
Inventory |
6,273 | 5,101 | ||||||
Other current assets |
653 | 730 | ||||||
Non-current assets |
75,343 | 49,074 | ||||||
Current liabilities |
||||||||
Trade payables |
(3,210 | ) | (6,862 | ) | ||||
Borrowings due to joint venture partners |
(23,591 | ) | (21,686 | ) | ||||
Other current liabilities |
(2,240 | ) | (380 | ) | ||||
Non-current liabilities |
| |||||||
Borrowings long term |
(13,844 | ) | | |||||
|
|
|
|
|||||
Net assets |
$ | 54,227 | $ | 28,670 | ||||
|
|
|
|
13
VILLAGE FARMS INTERNATIONAL, INC.
Notes to Condensed Consolidated Interim Financial Statements
(In thousands of United States dollars, except share and per share amounts, unless otherwise noted)
(Unaudited)
March 31, 2019 | December 31, 2018 | |||||||
Reconciliation of net assets: |
||||||||
Accumulated retained earnings |
$ | 3,668 | $ | (734 | ) | |||
Contributions from joint venture partners |
51,492 | 31,008 | ||||||
Currency translation adjustment |
(933 | ) | (1,604 | ) | ||||
|
|
|
|
|||||
Net assets |
$ | 54,227 | $ | 28,670 | ||||
|
|
|
|
|||||
Three Months Ended
March 31, 2019 |
Three Months Ended
March 31, 2018 |
|||||||
Revenue |
$ | 10,801 | $ | | ||||
Cost of sales* |
(3,818 | ) | | |||||
|
|
|
|
|||||
Gross margin |
6,983 | |||||||
Selling, general and administrative expenses |
(999 | ) | (436 | ) | ||||
|
|
|
|
|||||
Income (loss) from operations |
5,984 | (436 | ) | |||||
Interest expense |
(1 | ) | | |||||
Foreign exchange gain |
39 | (39 | ) | |||||
Other income, net |
10 | | ||||||
|
|
|
|
|||||
Income (loss) before taxes |
6,032 | (475 | ) | |||||
Provision for income taxes |
(1,629 | ) | | |||||
|
|
|
|
|||||
Net income (loss) |
$ | 4,403 | $ | (475 | ) | |||
|
|
|
|
* |
Included in cost of sales for the three months ended March 31, 2019 and 2018 is $458 and $0, respectively, of depreciation expense. |
Village Fields Hemp USA LLC
On February 27, 2019, the Company entered into a joint venture with Nature Crisp, LLC (Nature Crisp) to form VF Hemp for the objective of outdoor cultivation of high percentage cannabidiol (CBD) hemp and CBD extraction in multiple states throughout the United States. VF Hemp is 65% owned by the Company and 35% owned by Nature Crisp. Under the terms of the VF Hemp Joint Venture Agreement, the Company will lend up to approximately US$15 million to VF Hemp for start-up costs and working capital.
The Company accounts for its investment in VF Hemp, in accordance with ASC 323, using the equity method because the Company is able to exercise significant influence over the operating and financial policies of VF Hemp through its 65% ownership interest and joint power arrangement with Nature Crisp.
On March 25, 2019, the Company entered into a Grid Loan Agreement (the Grid Loan) with VF Hemp, whereby, as of March 31, 2019, the Company had advanced $2,227 in the form of a grid loan to VF Hemp. The Grid Loan has a maturity date of March 25, 2022, and bears simple interest at the rate of 8% per annum, calculated monthly (note 12).
14
VILLAGE FARMS INTERNATIONAL, INC.
Notes to Condensed Consolidated Interim Financial Statements
(In thousands of United States dollars, except share and per share amounts, unless otherwise noted)
(Unaudited)
The Companys share of the joint venture consists of the following:
Balance, beginning of the period |
$ | | ||
Investments in joint venture |
7 | |||
Share of net loss |
(30 | ) | ||
Losses applied against joint venture note receivable |
23 | |||
|
|
|||
Balance, March 31, 2019 |
$ | | ||
|
|
Summarized financial information of VF Hemp:
Current assets |
||||
Cash and cash equivalents |
$ | 10 | ||
Prepaid growing supplies |
2,125 | |||
Other current assets |
333 | |||
Non-current assets |
15 | |||
Current liabilities |
(268 | ) | ||
Non-current liabilities |
(2,250 | ) | ||
|
|
|||
Net assets |
$ | (35 | ) | |
|
|
Reconciliation of net assets: |
||||
Net loss for the three months ended March 31, 2019 |
$ | (45 | ) | |
Contributions from joint venture partners |
10 | |||
|
|
|||
Net assets |
$ | (35 | ) | |
|
|
Summarized joint ventures information:
Investment in joint ventures
as of March 31, 2019 |
Investment in joint ventures
as of December 31, 2018 |
|||||||
Pure Sunfarms |
$ | 27,699 | $ | 6,341 | ||||
VF Hemp |
| | ||||||
|
|
|
|
|||||
Total |
$ | 27,699 | $ | 6,341 | ||||
|
|
|
|
Equity earnings (losses) from
unconsolidated entities |
||||||||
Three months ended March 31, | ||||||||
2019 | 2018 | |||||||
Pure Sunfarms |
$ | 2,641 | $ | (298 | ) | |||
VF Hemp |
(30 | ) | | |||||
|
|
|
|
|||||
Total |
$ | 2,611 | $ | (298 | ) | |||
|
|
|
|
10 |
DEBT |
The Company has a Term Loan financing agreement with a Canadian creditor (FCC Loan). The non-revolving variable rate term loan has a maturity date of May 1, 2021 and a balance of $33,615 as of March 31, 2019. The outstanding balance is repayable by way of monthly installments of principal and interest based on an amortization period of 15 years, with the balance and any accrued interest to be paid in full on May 1, 2021. As of March 31, 2019 and December 31, 2018, borrowings under the FCC Loan agreement were subject to an interest rate of 7.233% and 7.082%, respectively, which is determined based on the Companys Debt to EBITDA ratio and the applicable LIBOR rate.
15
VILLAGE FARMS INTERNATIONAL, INC.
Notes to Condensed Consolidated Interim Financial Statements
(In thousands of United States dollars, except share and per share amounts, unless otherwise noted)
(Unaudited)
The Companys subsidiary VFCE has a loan agreement with a Canadian Chartered Bank that includes a non-revolving fixed rate loan of CA$3.0 million with a maturity date of June 2023 and fixed interest rate of 4.98%. As of March 31, 2019 and December 31, 2018, the balance was US$1,262 and US$1,279, respectively. The loan agreement also includes an uncommitted, non-revolving credit facility for up to CA$300 to cover Letters of Guarantee issued by the bank on behalf of the Company, with a maximum term of 365 days, renewable annually. The loan agreement also includes an uncommitted credit facility for up to CA$700 to support financing of certain capital expenditures. The Company received an initial advance of CA$250 in October 2017. Each advance is to be repaid on a five-year, straight-line amortization of principal, repaid in monthly installments of principal plus interest at an interest rate of CA$ prime rate plus 200 basis points. As of March 31, 2019 and December 31, 2018, the balance was US$134 and US$138, respectively.
The Company has a line of credit agreement with a Canadian Chartered Bank (Operating Loan). The revolving Operating Loan has a line of credit up to CA$13,000 and variable interest rates with a maturity date on May 31, 2021 and is subject to margin requirements stipulated by the bank. As of March 31, 2019 and December 31, 2018, US$5,000 and US$2,000, respectively, was drawn on this facility, which is available to a maximum of CA$13,000, less outstanding letters of credit totaling US$261 and CA$38.
The Companys borrowings (Credit Facilities) are subject to certain positive and negative covenants. As of March 31, 2019 the Company was in compliance with all covenants on its Credit Facilities.
Accrued interest payable on the credit facilities and loans as of March 31, 2019 and December 31, 2018 was $232 and $184, respectively, and these amounts are included in accrued liabilities in the interim statement of financial position.
As collateral for the FCC Loan, the Company has provided promissory notes, a first mortgage on the VFF-owned greenhouse properties (excluding the Delta 3 and Delta 2 greenhouse facilities), and general security agreements over its assets. In addition, the Company has provided full recourse guarantees and has granted security therein. The carrying value of the assets and securities pledged as collateral as of March 31, 2019 and December 31, 2018 was $120,251 and $105,200, respectively.
As collateral for the Operating Loan, the Company has provided promissory notes and a first priority security interest over its accounts receivable and inventory. In addition, the Company has granted full recourse guarantees and security therein. The carrying value of the assets pledged as collateral as of March 31, 2019 and December 31, 2018 was $36,588 and $36,248, respectively.
The aggregate annual principal maturities of long-term debt for the next five years and thereafter are as follows:
Remainder of 2019 |
$ | 2,571 | ||
2020 |
3,420 | |||
2021 |
28,560 | |||
2022 |
337 | |||
2023 |
172 | |||
Thereafter |
| |||
|
|
|||
$ | 35,060 | |||
|
|
11 |
FINANCIAL INSTRUMENTS |
The Company records accounts receivable, accounts payable, accrued liabilities and debt at cost. The carrying values of these instruments approximate their fair value due to their short-term maturities.
12 |
RELATED PARTY TRANSACTIONS AND BALANCES |
On February 13, 2019, the Company announced that Pure Sunfarms had entered into a credit agreement with Bank of Montreal, as agent and lead lender, and Farm Credit Canada, as lender, in respect of a CA$20 million secured non-revolver term loan (the Credit Facility). The Credit Facility, which matures on February 7, 2022, is secured by the Delta 3 facility, and contains customary financial and restrictive covenants. The Company is not a party to the Credit Facility but has provided a limited guarantee in the amount of CA$10 million in connection with the Credit Facility.
16
VILLAGE FARMS INTERNATIONAL, INC.
Notes to Condensed Consolidated Interim Financial Statements
(In thousands of United States dollars, except share and per share amounts, unless otherwise noted)
(Unaudited)
As of March 31, 2019 and December 31, 2018, the Company had amounts due from its joint venture, Pure Sunfarms, totaling $1,140 and $1,079), respectively, primarily for consulting services and the reimbursement of expenses which occurred in the year. These amounts are non-interest bearing and due on demand. On July 5, 2018, the Shareholders entered into a Loan Agreement with Pure Sunfarms, whereby, as of March 31, 2019, the Shareholders had each contributed CA$13,000 (US$10,082) in the form of a demand loan to Pure Sunfarms. Effective January 1, 2019, the loan amounts bear simple interest at the rate of 6.2% per annum, calculated semi-annually. Interest is accrued and payable on demand being made by either Shareholder. Prior to January 1, 2019, the loan amount bore interest at the rate of 8.0%. These amounts are included in amounts due from joint venture in the interim statements of financial position.
On March 25, 2019, the Company entered into a Grid Loan Agreement (the Grid Loan) with VF Hemp, whereby, as of March 31, 2019, the Company had contributed $2,227 in the form of a grid loan to VF Hemp. The Grid Loan has a maturity date of March 25, 2022, and will bear simple interest at the rate of 8% per annum, calculated monthly.
One of the Companys employees is related to a member of the Companys executive management team and received approximately $28 and $29 in salary and benefits during the three months ended March 31, 2019 and 2018, respectively.
Included in other assets as at December 31, 2018 is a $64 promissory note that represents the unpaid amount the Company advanced to an employee in connection with a relocation at the request of the Company.
Amounts due from the joint ventures, including interest, as of March 31, 2019 and December 31, 2018 and included in the statements financial position:
March 31, 2019 | December 31, 2018 | |||||||
Pure Sunfarms |
$ | 11,223 | $ | 10,873 | ||||
VF Hemp |
2,227 | | ||||||
|
|
|
|
|||||
Total |
$ | 13,450 | $ | 10,873 | ||||
|
|
|
|
13 |
INCOME TAXES |
A provision for income taxes is recognized based on managements best estimate of the weighted average annual income tax rate expected for the full financial year. The estimated average annual rate used for the three months ended March 31, 2019 and was 16%, and 25% for the three months ended March 31, 2018.
The provision for income taxes for the three months ended March 31, 2019 was ($4,436) compared to a recovery of income taxes of $175 for the three months ended March 31, 2018. The income tax provision increased due to deferred tax liabilities arising from the contribution of the Delta 2 assets to Pure Sunfarms.
14 |
SEGMENT AND GEOGRAPHIC INFORMATION |
Segment reporting is prepared on the same basis that the Companys Chief Executive Officer, who is the Companys Chief Operating Decision Maker, manages the business, makes operating decisions and assesses performance. Management has determined that the Company operates in three segments. The Companys three segments include the Produce business, the Energy business and the Companys cannabis and hemp segment. The Produce business produces, markets, and sells the product group which consists of premium quality tomatoes, bell peppers and cucumbers. The Energy business produces power that it sells per a long-term contract to its one customer. For segment information regarding the Companys cannabis and hemp segment refer to Note 8 Investments Equity Method and Joint Ventures.
17
VILLAGE FARMS INTERNATIONAL, INC.
Notes to Condensed Consolidated Interim Financial Statements
(In thousands of United States dollars, except share and per share amounts, unless otherwise noted)
(Unaudited)
The Companys primary operations are in the United States and Canada. Segment information for the three months ended March 31, 2019 and 2018:
March 31, 2019 | March 31, 2018 | |||||||
Sales |
||||||||
Produce U.S. |
$ | 28,199 | $ | 27,426 | ||||
Produce Canada |
3,379 | 1,539 | ||||||
Energy Canada |
312 | 525 | ||||||
|
|
|
|
|||||
$ | 31,890 | $ | 29,490 | |||||
|
|
|
|
|||||
Interest expense |
||||||||
Produce U.S. |
$ | 33 | $ | 10 | ||||
Produce - Canada |
643 | 597 | ||||||
Energy Canada |
18 | 24 | ||||||
|
|
|
|
|||||
$ | 694 | $ | 631 | |||||
|
|
|
|
|||||
Interest income |
||||||||
Corporate |
$ | 136 | $ | | ||||
|
|
|
|
|||||
$ | 136 | $ | | |||||
|
|
|
|
|||||
Depreciation |
||||||||
Produce U.S. |
$ | 1,020 | $ | 1,194 | ||||
Produce - Canada |
419 | 390 | ||||||
Energy Canada |
228 | 217 | ||||||
|
|
|
|
|||||
$ | 1,667 | $ | 1,801 | |||||
|
|
|
|
|||||
Gross margin |
||||||||
Produce U.S. |
705 | $ | 3,642 | |||||
Produce - Canada |
60 | (128 | ) | |||||
Energy Canada |
(90 | ) | 74 | |||||
|
|
|
|
|||||
$ | 675 | $ | 3,588 | |||||
|
|
|
|
|||||
Total assets | March 31, 2019 | December 31, 2018 | ||||||
United States |
$ | 81,428 | $ | 79,126 | ||||
Canada |
72,850 | 58,690 | ||||||
Energy - Canada |
3,398 | 3,632 | ||||||
|
|
|
|
|||||
$ | 157,676 | $ | 141,448 | |||||
|
|
|
|
|||||
Property, plant and equipment | March 31, 2019 | December 31, 2018 | ||||||
United States |
$ | 42,109 | $ | 42,886 | ||||
Canada |
20,268 | 25,933 | ||||||
Energy - Canada |
3,212 | 3,369 | ||||||
|
|
|
|
|||||
$ | 65,589 | $ | 72,188 | |||||
|
|
|
|
15 |
INCOME (LOSS) PER SHARE |
Basic and diluted net income per ordinary share is calculated as follows:
For the three months ended March 31, | ||||||||
2019 | 2018 | |||||||
Numerator: |
||||||||
Net income (loss) |
$ | 6,466 | $ | (602 | ) | |||
|
|
|
|
|||||
Denominator: |
||||||||
Weighted average number of common shares - Basic |
47,677 | 42,372 | ||||||
Effect of dilutive securities- share-based employee options and awards |
1,829 | | ||||||
|
|
|
|
|||||
Weighted average number of common shares - Diluted |
49,506 | 42,372 | ||||||
|
|
|
|
|||||
Antidilutive options and awards |
| 2,132 | ||||||
Net income (loss) per ordinary share: |
||||||||
Basic |
$ | 0.14 | $ | (0.01 | ) | |||
|
|
|
|
|||||
Diluted |
$ | 0.13 | $ | (0.01 | ) | |||
|
|
|
|
18
VILLAGE FARMS INTERNATIONAL, INC.
Notes to Condensed Consolidated Interim Financial Statements
(In thousands of United States dollars, except share and per share amounts, unless otherwise noted)
(Unaudited)
16 |
SHARE-BASED COMPENSATION PLAN |
Share-based compensation expense for the three months ended March 31, 2019 and 2018 was $1,296 and $118, respectively.
Stock option activity for the three months ended March 31, 2019 is as follows:
Number of
Options |
Weighted
Average Exercise Price |
Weighted
Average Remaining Contractual Term (years) |
Aggregate
Intrinsic Value |
|||||||||||||
Outstanding at December 31, 2018 |
2,164,999 | CA$ | 2.10 | 5.69 | $ | 5,553 | ||||||||||
Granted |
510,000 | CA$ | 16.32 | 9.94 | $ | | ||||||||||
Exercised |
(15,999 | ) | CA$ | 2.23 | 8.32 | $ | 183 | |||||||||
Forfeited |
(6,667 | ) | CA$ | 2.20 | $ | 110 | ||||||||||
|
|
|||||||||||||||
Outstanding at March 31, 2019 |
2,652,333 | CA$ | 4.83 | 6.28 | $ | 36,906 | ||||||||||
|
|
|||||||||||||||
Exercisable at March 31, 2019 |
1,716,002 | CA$ | 1.41 | 4.58 | $ | 29,730 | ||||||||||
|
|
During the three months ended March 31, 2019, 355,000 performance-based shares were granted to Village Farms employees and directors involved with future developments of the Company. Once a performance target is met and the share units are deemed earned and vested, compensation expense based on the fair value of the share units on the grant date is recorded in selling, general and administrative expenses in the interim statements of income.
Performance-based share activity for the three months ended March 31, 2019 was as follows:
Number of
Performance-based Shares |
Weighted Average
Grant Date Fair Value |
|||||||
Outstanding at December 31, 2018 |
1,056,666 | CA$ | 5.56 | |||||
Issued |
355,000 | CA$ | 14.94 | |||||
Exercised |
(153,333 | ) | CA$ | 5.66 | ||||
Forfeited/expired |
(5,000 | ) | CA$ | 5.79 | ||||
|
|
|||||||
Outstanding at March 31, 2019 |
1,253,333 | CA$ | 9.90 | |||||
|
|
|||||||
Exercisable at March 31, 2019 |
219,333 | CA$ | 5.92 | |||||
|
|
17 |
COMMITMENT AND CONTINGENCIES |
In the normal course of business, the Company and its subsidiaries may become defendants in certain employment claims and other litigation. The Company records a liability when it is probable that a loss has been incurred and the amount is reasonably estimable. The Company is not involved in any legal proceedings other than routine litigation arising in the normal course of business, none of which the Company believes will have a material adverse effect on the Companys business, financial condition or results of operations.
19
Exhibit 99.2
Village Farms International, Inc.
Condensed Consolidated Interim Statements of Financial Position
(In thousands of United States dollars)
(Unaudited)
The accompanying notes are an integral part of these condensed consolidated interim financial statements.
1
Village Farms International, Inc.
Condensed Consolidated Interim Statements of Income (Loss) and Comprehensive Income (Loss)
(In thousands of United States dollars, except per share data)
(Unaudited)
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||||||
Sales |
$ | 41,329 | $ | 42,039 | $ | 73,219 | $ | 71,529 | ||||||||
Cost of sales |
(44,299 | ) | (41,150 | ) | (75,514 | ) | (67,052 | ) | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Gross margin |
(2,970 | ) | 889 | (2,295 | ) | 4,477 | ||||||||||
Selling, general and administrative expenses |
(3,949 | ) | (3,688 | ) | (8,188 | ) | (7,045 | ) | ||||||||
Share-based compensation |
(701 | ) | (138 | ) | (1,997 | ) | (256 | ) | ||||||||
Interest expense |
(669 | ) | (710 | ) | (1,363 | ) | (1,341 | ) | ||||||||
Interest income |
211 | 0 | 347 | 14 | ||||||||||||
Foreign exchange gain |
243 | (21 | ) | 521 | (14 | ) | ||||||||||
Other income |
282 | 26 | 152 | 44 | ||||||||||||
Gain on disposal of assets |
| | 13,564 | | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
(Loss) before taxes and earnings of unconsolidated entities |
(7,553 | ) | (3,642 | ) | 741 | (4,121 | ) | |||||||||
Recovery of (provision for) income taxes |
3,284 | 847 | (1,152 | ) | 1,022 | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Loss from consolidated entities after income taxes |
(4,269 | ) | (2,795 | ) | (411 | ) | (3,099 | ) | ||||||||
Equity earnings (losses) from unconsolidated entities |
7,985 | (265 | ) | 10,593 | (563 | ) | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net income (loss) |
$ | 3,716 | $ | (3,060 | ) | $ | 10,182 | $ | (3,662 | ) | ||||||
|
|
|
|
|
|
|
|
|||||||||
Basic income(loss) per share |
$ | 0.08 | $ | (0.07 | ) | $ | 0.21 | $ | (0.09 | ) | ||||||
|
|
|
|
|
|
|
|
|||||||||
Diluted income (loss) per share |
$ | 0.07 | $ | (0.07 | ) | $ | 0.20 | $ | (0.09 | ) | ||||||
|
|
|
|
|
|
|
|
|||||||||
Weighted average number of common shares used in the computation of net income (loss) per share: |
||||||||||||||||
Basic |
48,825 | 43,336 | 48,322 | 42,894 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Diluted |
50,712 | 43,336 | 50,159 | 42,894 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net income (loss) |
$ | 3,716 | $ | (3,060 | ) | $ | 10,182 | $ | (3,662 | ) | ||||||
Other comprehensive income (loss): |
||||||||||||||||
Foreign currency translation adjustment |
36 | (34 | ) | 80 | (89 | ) | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Comprehensive income (loss) |
$ | 3,752 | $ | (3,094 | ) | $ | 10,262 | $ | (3,751 | ) | ||||||
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these condensed consolidated interim financial statements.
2
Village Farms International, Inc.
Condensed Consolidated Interim Statements of Changes in Shareholders Equity
(In thousands of United States dollars, except for shares outstanding)
(Unaudited)
Three Months Ended June 30, 2019 | ||||||||||||||||||||||||
Number of | Accumulated Other | Total | ||||||||||||||||||||||
Common | Common | Additional paid | Comprehensive | Retained | Shareholders | |||||||||||||||||||
Shares | Stock | in capital | (Loss) Income | Earnings | Equity | |||||||||||||||||||
Balance at April 1, 2019 |
47,812,003 | $ | 61,832 | $ | 2,568 | $ | (518 | ) | $ | 28,391 | $ | 92,273 | ||||||||||||
Shares issued on exercise of stock options |
36,783 | 61 | (20 | ) | | | 41 | |||||||||||||||||
Share-based compensation |
125,000 | | 701 | | | 701 | ||||||||||||||||||
Shares issued on exercise of warrants |
300,000 | 614 | (148 | ) | 466 | |||||||||||||||||||
Shares issued pursuant to public offering of common shares, net of issuance costs |
1,000,000 | 13,928 | 13,928 | |||||||||||||||||||||
Cumulative translation adjustment |
| | | 36 | | 36 | ||||||||||||||||||
Net income |
| | | | 3,716 | 3,716 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Balance at June 30, 2019 |
49,273,786 | $ | 76,435 | $ | 3,101 | $ | (482 | ) | $ | 32,107 | $ | 111,161 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Three Months Ended June 30, 2018 | ||||||||||||||||||||||||
Number of | Accumulated Other | Total | ||||||||||||||||||||||
Common | Common | Additional paid | Comprehensive | Retained | Shareholders | |||||||||||||||||||
Shares | Stock | in capital | (Loss) Income | Earnings | Equity | |||||||||||||||||||
Balance at April 1, 2018 |
42,447,613 | $ | 36,284 | $ | 1,844 | $ | (446 | ) | $ | 28,837 | $ | 66,519 | ||||||||||||
Shares issued on exercise of stock options |
137,732 | 94 | | | | 94 | ||||||||||||||||||
Shares issued pursuant to private placement of common shares, net of issuance costs |
1,886,793 | 7,755 | 7,755 | |||||||||||||||||||||
Share-based compensation |
| | 138 | | | 138 | ||||||||||||||||||
Cumulative translation adjustment |
| | | (34 | ) | | (34 | ) | ||||||||||||||||
Net loss |
| | | | (3,060 | ) | (3,060 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Balance at June 30, 2018 |
44,472,138 | $ | 44,133 | $ | 1,982 | $ | (480 | ) | $ | 25,777 | $ | 71,412 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Six Months Ended June 30, 2019 | ||||||||||||||||||||||||
Number of | Accumulated Other | Total | ||||||||||||||||||||||
Common | Common | Additional paid | Comprehensive | Retained | Shareholders | |||||||||||||||||||
Shares | Stock | in capital | (Loss) Income | Earnings | Equity | |||||||||||||||||||
Balance at January 1, 2019 |
47,642,672 | $ | 60,872 | $ | 2,198 | $ | (562 | ) | $ | 21,925 | $ | 84,433 | ||||||||||||
Shares issued on exercise of stock options |
52,782 | 113 | (38 | ) | | | 75 | |||||||||||||||||
Share-based compensation |
278,332 | 908 | 1,089 | | | 1,997 | ||||||||||||||||||
Shares issued on exercise of warrants |
300,000 | 614 | (148 | ) | 466 | |||||||||||||||||||
Shares issued pursuant to public offering of common shares, net of issuance costs |
1,000,000 | 13,928 | 13,928 | |||||||||||||||||||||
Cumulative translation adjustment |
| | | 80 | | 80 | ||||||||||||||||||
Net income |
| | | | 10,182 | 10,182 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Balance at June 30, 2019 |
49,273,786 | $ | 76,435 | $ | 3,101 | $ | (482 | ) | $ | 32,107 | $ | 111,161 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Six Months Ended June 30, 2018 | ||||||||||||||||||||||||
Number of | Accumulated Other | Total | ||||||||||||||||||||||
Common | Common | Additional paid | Comprehensive | Retained | Shareholders | |||||||||||||||||||
Shares | Stock | in capital | (Loss) Income | Earnings | Equity | |||||||||||||||||||
Balance at January 1, 2018 |
42,242,612 | $ | 36,115 | $ | 1,726 | $ | (391 | ) | $ | 29,439 | $ | 66,889 | ||||||||||||
Shares issued on exercise of stock options |
342,733 | 263 | | | | 263 | ||||||||||||||||||
Shares issued pursuant to private placement of common shares, net of issuance costs |
1,886,793 | 7,755 | ||||||||||||||||||||||
Share-based compensation |
| | 256 | | | 256 | ||||||||||||||||||
Cumulative translation adjustment |
| | | (89 | ) | | (89 | ) | ||||||||||||||||
Net loss |
| | | | (3,662 | ) | (3,662 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Balance at June 30, 2018 |
44,472,138 | $ | 44,133 | $ | 1,982 | $ | (480 | ) | $ | 25,777 | $ | 71,412 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these condensed consolidated interim financial statements.
3
Village Farms International, Inc.
Condensed Consolidated Interim Statements of Cash Flows
(In thousands of United States dollars)
(Unaudited)
Six Months Ended June 30, | ||||||||
2019 | 2018 | |||||||
Cash flows used in operating activities |
$ | 10,182 | $ | (3,662 | ) | |||
Net income (loss) |
||||||||
Adjustments to reconcile net loss to net cash used in operating activities: |
||||||||
Depreciation and amortization |
3,766 | 3,523 | ||||||
Amortization of deferred charges |
38 | 38 | ||||||
Share of (income) loss from joint ventures |
(10,593 | ) | 563 | |||||
Interest expense |
1,363 | 1,303 | ||||||
Interest income |
(347 | ) | (14 | ) | ||||
Gain on disposal of assets |
(13,564 | ) | | |||||
Share-based compensation |
1,997 | 256 | ||||||
Lease payments |
(517 | ) | | |||||
Deferred income taxes |
1,144 | (1,261 | ) | |||||
Interest paid on long-term debt |
(1,063 | ) | (1,289 | ) | ||||
Changes in non-cash working capital items |
(1,843 | ) | (6,237 | ) | ||||
|
|
|
|
|||||
Net cash used in operating activities |
(9,437 | ) | (6,780 | ) | ||||
|
|
|
|
|||||
Cash flows used in investing activities: |
||||||||
Purchases of property, plant and equipment, net of rebate |
(730 | ) | (1,440 | ) | ||||
Note receivables to joint ventures |
(5,806 | ) | | |||||
Proceeds from sale of asset |
60 | | ||||||
Investment in joint ventures |
(13 | ) | | |||||
|
|
|
|
|||||
Net cash used in investing activities |
(6,489 | ) | (1,440 | ) | ||||
|
|
|
|
|||||
Cash flows from financing activities: |
||||||||
Proceeds from borrowings |
3,000 | 7,000 | ||||||
Repayments on borrowings |
(1,709 | ) | (917 | ) | ||||
Proceeds from issuance of common stock pursuant to public offering, net |
13,928 | 7,755 | ||||||
Proceeds from exercise of stock options |
75 | 263 | ||||||
Payments on capital lease obligations |
(48 | ) | (34 | ) | ||||
Proceeds from exercise of warrants |
466 | | ||||||
|
|
|
|
|||||
Net cash provided by financing activities |
15,712 | 14,067 | ||||||
|
|
|
|
|||||
Effect of exchange rate changes on cash and cash equivalents |
| (5 | ) | |||||
|
|
|
|
|||||
Net decrease in cash and cash equivalents |
(214 | ) | 5,842 | |||||
Cash and cash equivalents, beginning of period |
11,920 | 7,091 | ||||||
|
|
|
|
|||||
Cash and cash equivalents, end of period |
$ | 11,706 | $ | 12,933 | ||||
|
|
|
|
The accompanying notes are an integral part of these condensed consolidated interim financial statements.
4
VILLAGE FARMS INTERNATIONAL, INC.
Notes to Condensed Consolidated Interim Financial Statements
(In thousands of United States dollars, except share and per share amounts, unless otherwise noted)
(Unaudited)
1 |
NATURE OF OPERATIONS |
Village Farms International, Inc. (VFF the parent company, together with its subsidiaries, the Company) is incorporated under the Canada Business Corporation Act. VFFs principal operating subsidiaries as of June 30, 2019 are Village Farms Canada Limited Partnership (VFCLP), Village Farms, L.P. (VFLP), and VF Clean Energy, Inc. (VFCE). The address of the registered office of VFF is 4700 80th Street, Delta, British Columbia, Canada, V4K 3N3. VFF owns a 65% equity interest in Village Fields Hemp USA LLC (VF Hemp), a 60% equity interest in Arkansas Valley Green and Gold Hemp (AVGG Hemp) and a 50% equity interest in Pure Sunfarms Corp. (Pure Sunfarms), all of which are recorded as Investments in Joint Ventures (note 7).
The Companys shares are listed on the Toronto Stock Exchange under the symbol VFF and are also listed in the United States on the Nasdaq Capital Market (Nasdaq) under the symbol VFF.
The Company owns and operates sophisticated, highly intensive agricultural greenhouse facilities in British Columbia and Texas, where it produces, markets and sells premium-quality tomatoes, bell peppers, and cucumbers. The Company, through its subsidiary VFCE, owns and operates a 7.0 MW power plant that generates electricity. The Companys joint venture, Pure Sunfarms, is a licensed producer and supplier of cannabis products to be sold to other licensed providers and provincial governments across Canada and internationally. The Companys joint ventures, VF Hemp and AVGG Hemp, are cultivators and extractors of high cannabidiol (CBD) hemp in multiple states throughout the United States.
2 |
BASIS OF PRESENTATION |
The accompanying unaudited Condensed Consolidated Financial Statements for the quarter and six months ended June 30, 2019 have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information. Previously, the Company prepared its consolidated financial statements under International Financial Reporting Standards (IFRS) as permitted by securities regulators in Canada, as well as in the United States under the status of a Foreign Private Issuer as defined by the United States Securities and Exchange Commission (SEC). At the end of the second quarter of 2019, the Company determined that it no longer qualified as a Foreign Private Issuer under the SEC rules. As a result, beginning January 1, 2020 the Company is required to report with the SEC on domestic forms and comply with domestic company rules in the United States. The transition to US GAAP was made retrospectively for all periods from the Companys inception.
These interim consolidated financial statements do not include all information and notes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments of a normal recurring nature considered necessary for fair presentation have been included. Operating results for the three and six months ended June 30, 2019 are subject to seasonal variations and are not necessarily indicative of the results that may be expected for the year ended December 31, 2019. For further information, refer to the Consolidated Financial Statements and notes thereto included in our annual report on Form 10-K for the fiscal year ended December 31, 2019 and 2018.
Other than as described below, there were no changes to our significant accounting policies described in our annual financial statements that had a material impact on our financial statements and related notes.
3 |
NEW ACCOUNTING PRONOUNCEMENTS ADOPTED |
Prior to the adoption of ASU 2016-02, Leases, for leases where the Company assumed substantially all the risks and rewards of ownership were classified as finance leases. Upon initial recognition, the leased asset is measured at an amount equal to the lower of its fair value and the present value of the minimum lease payments. Subsequent to initial recognition, the asset was accounted for in accordance with the accounting policy applicable to that asset. Other leases are operating leases and rent expenses were recognized in the Companys consolidated statements of (loss) income.
In February 2016, the FASB issued ASU 2016-02, Leases, and has subsequently issued several supplemental and/or clarifying ASUs (collectively, Topic 842), which requires a dual approach for lease accounting under which a lessee would account for leases as finance leases or operating leases. Both finance leases and operating leases may result in the lessee recognizing a right of use asset and a corresponding lease liability. For finance leases, the lessee would recognize interest expense and amortization of the right-of-use asset, and for operating leases, the lessee would recognize lease expense on a straight-line basis.
5
VILLAGE FARMS INTERNATIONAL, INC.
Notes to Condensed Consolidated Interim Financial Statements
(In thousands of United States dollars, except share and per share amounts, unless otherwise noted)
(Unaudited)
On January 1, 2019, the Company adopted Topic 842, using the modified retrospective method and did not restate prior periods. The Companys classes of assets include land leases, building leases and equipment leases.
On adoption, the Company recognized lease liabilities in relation to leases which had previously been classified as operating leases under the principles of Topic 842. These lease liabilities were measured at the present value of the remaining lease payments, discounted using the borrowing rate of the Company. The weighted average incremental borrowing rate applied to the lease liabilities on January 1, 2019 was 6.25%. These leases are included in right-of-use assets, short-term lease liabilities and long-term lease liabilities in the condensed consolidated statements of financial position. Right-of-use assets are amortized on a straight-line basis over the lease term.
For leases previously classified as finance leases the entity recognized the carrying amount of the lease asset and lease liability immediately before transition as the carrying amount of the right of use asset and the lease liability at the date of initial application.
Additionally, the Company has elected the short-term lease exception for all classes of assets, and does not apply the recognition requirements for leases of 12 months or less, and recognizes lease payments for short-term leases as expense either straight-line over the lease term or as incurred depending on whether the lease payments are fixed or variable.
These elections are applied consistently for all leases.
2019 | ||||
Operating lease commitments disclosed as of December 31, 2018 |
$ | 5,064 | ||
Less: short-term leases recognized on a straight-line basis as expense |
(210 | ) | ||
|
|
|||
4,854 | ||||
Discounted using the lessees incremental borrowing rate of 6.25% at the date of initial application |
4,269 | |||
Add: additional leases identified on adoption of Topic 842 |
88 | |||
Add: finance lease liabilities recognized as of December 31, 2018 |
180 | |||
|
|
|||
Lease liability recognized as of January 1, 2019 |
$ | 4,537 | ||
Of which are: |
||||
Current lease liabilities |
871 | |||
Non-current lease liabilities |
3,666 | |||
|
|
|||
$ | 4,537 | |||
|
|
The recognized right-of-use assets relate to the following types of assets:
December 31, 2018 | January 1, 2019 | |||||||
Land |
$ | | $ | 140 | ||||
Building |
| 4,017 | ||||||
Equipment |
176 | 380 | ||||||
|
|
|
|
|||||
Total right-of-use assets |
$ | 176 | $ | 4,537 | ||||
|
|
|
|
4 |
NEW ACCOUNTING PRONOUNCEMENTS NOT YET ADOPTED |
In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. ASU 2019-12 simplifies the accounting for income taxes by removing exceptions within the general principles of Topic 740 regarding the calculation of deferred tax liabilities, the incremental approach for intraperiod tax allocation, and calculating income taxes in an interim period. In addition, the ASU adds clarifications to the accounting for franchise tax (or similar tax). which is partially based on income, evaluating tax basis of goodwill recognized from a business combination, and reflecting the effect of any enacted changes in tax laws or rates in the annual effective tax rate computation in the interim period that includes the enactment date. The ASU is effective for fiscal years beginning after December 15, 2020, and will be applied either retrospectively or prospectively based upon the applicable amendments. Early adoption is permitted. The adoption of this standard is not expected to have a material impact on the Companys consolidated financial statements and related disclosures.
6
VILLAGE FARMS INTERNATIONAL, INC.
Notes to Condensed Consolidated Interim Financial Statements
(In thousands of United States dollars, except share and per share amounts, unless otherwise noted)
(Unaudited)
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820) - Disclosure FrameworkChanges to the Disclosure Requirements for Fair Value Measurement. ASU 2018-13 removes the disclosure requirement for the amount and reasons for transfers between Level 1 and Level 2 fair value measurements as well as the process for Level 3 fair value measurements. In addition, the ASU adds the disclosure requirements for changes in unrealized gains and losses included in other comprehensive income (loss) for recurring Level 3 fair value measurements held at the end of the reporting period as well as the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. The ASU is effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years and will be applied on a retrospective basis to all periods presented. Early adoption is permitted. The adoption of this standard is not expected to have a material impact on the Companys consolidated financial statements and related disclosures.
In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses. The standard, including subsequently issued amendments, requires a financial asset measured at amortized cost basis, such as accounts receivable and certain other financial assets, to be presented at the net amount expected to be collected based on relevant information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. This ASU is effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years, and requires the modified retrospective approach. Early adoption is permitted. Based on the composition of the Companys trade receivables and other financial assets, current market conditions, and historical credit loss activity, the adoption of this standard is not expected to have a material impact on the Companys consolidated financial statements and related disclosures.
5 |
INVENTORIES |
June 30, 2019 | December 31, 2018 | |||||||
Crop inventory |
$ | 20,758 | $ | 24,249 | ||||
Purchased produce inventory |
457 | 643 | ||||||
Spare parts inventory |
69 | 64 | ||||||
|
|
|
|
|||||
$ | 21,284 | $ | 24,956 | |||||
|
|
|
|
6 |
PROPERTY, PLANT AND EQUIPMENT, NET |
Property, plant and equipment consist of the following:
June 30, 2019 | December 31, 2018 | |||||||
Land |
$ | 3,204 | $ | 3,932 | ||||
Leasehold and land improvements |
3,820 | 3,819 | ||||||
Buildings |
72,457 | 77,003 | ||||||
Machinery and equipment |
61,574 | 65,664 | ||||||
Construction in progress |
737 | 552 | ||||||
Less: Accumulated depreciation |
(77,121 | ) | (78,782 | ) | ||||
|
|
|
|
|||||
Plant, property and equipment, net |
$ | 64,671 | $ | 72,188 | ||||
|
|
|
|
Depreciation expense on property, plant and equipment, was $1,560 and $3,227, respectively, for the three and six months ended June 30, 2019 and $1,722 and $3,523, respectively, for the three and six months ended June 30, 2018. On March 31, 2019, Pure Sunfarms exercised its option to acquire the Delta 2 assets and operations (note 8).
7
VILLAGE FARMS INTERNATIONAL, INC.
Notes to Condensed Consolidated Interim Financial Statements
(In thousands of United States dollars, except share and per share amounts, unless otherwise noted)
(Unaudited)
7 |
LEASES |
The components of lease related expenses are as follows:
Three Months Ended
June 30, 2019 |
Six Months Ended
June 30, 2019 |
|||||||
Operating lease expense (a) |
$ | 590 | $ | 1,174 | ||||
|
|
|
|
|||||
Finance lease expense: |
||||||||
Amortization of right-of-use assets |
$ | 20 | $ | 40 | ||||
Interest on lease liabilities |
2 | 5 | ||||||
|
|
|
|
|||||
Total finance lease expense |
$ | 22 | $ | 45 | ||||
|
|
|
|
(a) |
Includes short-term lease costs of $317 and $628 for the three and six months ended June 30, 2019, respectively. |
Cash paid for amounts included in the measurement of lease liabilities:
Three Months Ended
June 30, 2019 |
Six Months Ended
June 30, 2019 |
|||||||
Operating cash flows from operating leases |
$ | 259 | $ | 513 | ||||
Operating cash flows from finance leases |
$ | 2 | $ | 4 | ||||
Financing cash flows from finance leases |
$ | 21 | $ | 48 |
June 30, 2019 | ||||
Weighted average remaining lease term: |
||||
Operating leases |
4.6 | |||
Finance leases |
2.2 | |||
Weighted average discount rate: |
||||
Operating leases |
6.25 | % | ||
Finance leases |
6.25 | % |
Maturities of lease liabilities are as follows:
Operating
leases |
Finance
leases |
|||||||
Remainder of 2019 |
$ | 530 | 42 | |||||
2020 |
1,073 | 65 | ||||||
2021 |
1,090 | 30 | ||||||
2022 |
869 | 9 | ||||||
2023 |
641 | | ||||||
Thereafter |
389 | | ||||||
|
|
|
|
|||||
Undiscounted lease cash flow commitments |
4,592 | |||||||
Reconciling impact from discounting |
(613 | ) | (11 | ) | ||||
|
|
|
|
|||||
Lease liabilities as of June 30, 2019 |
$ | 3,979 | 135 | |||||
|
|
|
|
8
VILLAGE FARMS INTERNATIONAL, INC.
Notes to Condensed Consolidated Interim Financial Statements
(In thousands of United States dollars, except share and per share amounts, unless otherwise noted)
(Unaudited)
The following table presents the Companys unadjusted lease commitments as of December 31, 2018 as a required disclosure for companies adopting the lease standard prospectively without revising comparative period information.
Operating
leases |
Finance
leases |
|||||||
2019 |
$ | 1,253 | $ | 78 | ||||
2020 |
1,039 | 62 | ||||||
2021 |
1,052 | 30 | ||||||
2022 |
841 | 10 | ||||||
2023 |
618 | | ||||||
Thereafter |
261 | | ||||||
|
|
|
|
|||||
$ | 5,064 | $ | 180 | |||||
|
|
|
|
8 |
INVESTMENT IN JOINT VENTURES |
Pure Sunfarms Corp.
On June 6, 2017, the Company entered into an agreement to form Pure Sunfarms, a B.C. corporation, with Emerald Health Therapeutics Inc. (Emerald). The purpose of Pure Sunfarms is to produce, market and distribute cannabis in Canada.
The Company accounts for its investment in Pure Sunfarms, in accordance with Accounting Standards Codification (ASC) 323, Equity Method and Joint Ventures (ASC 323), using the equity method. The Company has determined that Pure Sunfarms is a variable interest entity (VIE), however the Company does not consolidate Pure Sunfarms because the Company is not the primary beneficiary. Although the Company is able to exercise significant influence over the operating and financial policies of Pure Sunfarms through its 50.0% ownership interest and joint power arrangement with Emerald, the Company shares joint control of the Board of Directors and therefore is not the primary beneficiary. The Companys maximum exposure to loss as a result of its involvement with Pure Sunfarms as of June 30, 2019 relates primarily to the recovery of the outstanding loan to Pure Sunfarms.
The Company is required to apply the hypothetical liquidation at book value (HLBV) method to determine its allocation of the profits and loss in Pure Sunfarms. When determining its allocation of profits and losses, the HLBV method only considers shares that have been fully paid for. Therefore, due to the monthly escrow payments being made by Emerald in accordance with the Delta 2 Option Agreement, the ownership will change each month escrow payment(s) are made. Effective for the quarter and six-month periods ended June 30, 2019, the Company under the hypothetical liquidation method received 62.3% and 61.7%, respectively for each period.
On July 5, 2018, the Company and Emerald Health Therapeutics Canada Inc. (a subsidiary of Emerald) (together, the Shareholders) entered into a Shareholder Loan Agreement (the Loan Agreement) with Pure Sunfarms, whereby, as of June 30, 2019, the Shareholders had each contributed $10,602 (CA$13,000) in the form of a demand loan to Pure Sunfarms. Effective January 1, 2019, the loan amounts bear simple interest at the rate of 6.2% per annum, calculated semi-annually. Interest will accrue and be payable upon demand being made by both Shareholders.
On March 31, 2019, Pure Sunfarms exercised its option to utilize the Delta 2 assets and operations. The contribution of the assets has been accounted for as a disposal of the land, greenhouse facility and other assets in exchange for 25,000,000 common shares of Pure Sunfarms. This was a non-cash transaction, and it was estimated that the fair value of the land, building and other assets was $18.7 million (CA$25 million) at the date of contribution. The Company recognized a gain of $13.6 million on the contribution of the fixed assets. As of June 30, 2019, and December 31, 2018, the total investment in Pure Sunfarms of US$35.8 million and US$6.3 million, respectively, was recorded in the consolidated statements of financial position. Following the adoption of ASC 606, the Company measures nonmonetary equity contributions at fair value, which provides for recognizing a gain or loss upon the de-recognition of the nonmonetary assets. This is contrary to the non-monetary contribution of Delta 3 whereby a gain could not be recognized, and the investment was recognized at net book value, as at the time ASC 606 was not applicable.
9
VILLAGE FARMS INTERNATIONAL, INC.
Notes to Condensed Consolidated Interim Financial Statements
(In thousands of United States dollars, except share and per share amounts, unless otherwise noted)
(Unaudited)
The Companys share of the joint venture consists of the following:
Balance, January 1, 2018 |
$ | 6,511 | ||
Share of net loss for the year |
(171 | ) | ||
|
|
|||
Balance, December 31, 2018 |
$ | 6,341 | ||
|
|
|||
Balance, January 1, 2019 |
$ | 6,341 | ||
Investments in joint venture |
18,717 | |||
Share of net income for the period |
10,747 | |||
|
|
|||
Balance, June 30, 2019 |
$ | 35,805 | ||
|
|
Summarized financial information of Pure Sunfarms:
June 30, 2019 | December 31, 2018 | |||||||
Current assets |
||||||||
Cash and cash equivalents (including restricted cash) |
$ | 14,249 | $ | 1,731 | ||||
Trade receivables |
11,812 | 962 | ||||||
Inventory |
9,653 | 5,101 | ||||||
Other current assets |
449 | 730 | ||||||
Non-current assets |
83,230 | 49,074 | ||||||
Current liabilities |
||||||||
Trade payables |
(1,981 | ) | (6,862 | ) | ||||
Borrowings due to joint venture partners |
(22,576 | ) | (21,686 | ) | ||||
Other current liabilities |
(8,077 | ) | (380 | ) | ||||
Non-current liabilities |
||||||||
Borrowings long term |
(13,754 | ) | | |||||
|
|
|
|
|||||
Net assets |
$ | 73,005 | $ | 28,670 | ||||
|
|
|
|
Summarized financial information of Pure Sunfarms:
June 30, 2019 | December 31, 2018 | |||||||
Reconciliation of net assets: |
||||||||
Accumulated retained earnings |
$ | 16,688 | $ | (734 | ) | |||
Contributions from joint venture partners |
55,762 | 31,008 | ||||||
Currency translation adjustment |
555 | (1,604 | ) | |||||
|
|
|
|
|||||
Net assets |
$ | 73,005 | $ | 28,670 | ||||
|
|
|
|
Summarized financial information of Pure Sunfarms:
Three months ended | Six months ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||||||
Revenue |
$ | 24,244 | $ | | $ | 35,045 | $ | | ||||||||
Cost of sales* | (3,956 | ) | | (7,774 | ) | | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Gross Margin | 20,288 | | 27,271 | | ||||||||||||
Selling, general and administrative expenses | (1,786 | ) | (589 | ) | (2,785 | ) | (1,025 | ) | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Income (loss) from operations | 18,502 | (589 | ) | 24,486 | (1,025 | ) | ||||||||||
Interest expense, net | (293 | ) | 1 | (293 | ) | 1 | ||||||||||
Foreign exchange gain | (25 | ) | 60 | 14 | 21 | |||||||||||
Other income, net |
4 | | 13 | | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Income (loss) before taxes | 18,188 | (528 | ) | 24,220 | (1,003 | ) | ||||||||||
(Provision for) recovery of income taxes | (5,169 | ) | | (6,798 | ) | | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net Income (loss) | $ | 13,019 | $ | (528 | ) | $ | 17,422 | $ | (1,003 | ) | ||||||
|
|
|
|
|
|
|
|
* |
Included in cost of sales for the three and six months ended June 30, 2019 is US$387 and USD$845, respectively, of depreciation expense. There was no depreciation included in cost of sales for the three and six months ended June 30, 2018. |
10
VILLAGE FARMS INTERNATIONAL, INC.
Notes to Condensed Consolidated Interim Financial Statements
(In thousands of United States dollars, except share and per share amounts, unless otherwise noted)
(Unaudited)
Village Fields Hemp USA LLC
On February 27, 2019, the Company entered into a joint venture with Nature Crisp, LLC (Nature Crisp) to form VF Hemp for the objective of outdoor cultivation of high percentage cannabidiol (CBD) hemp and CBD extraction in multiple states throughout the United States. VF Hemp is 65% owned by the Company and 35% owned by Nature Crisp. Under the terms of the VF Hemp Joint Venture Agreement, the Company will lend approximately US$15 million to VF Hemp for start-up costs and working capital.
The Company accounts for its investment in VF Hemp, in accordance with ASC 323, using the equity method because the Company is able to exercise significant influence over the operating and financial policies of VF Hemp through its 65% ownership interest and joint power arrangement with Nature Crisp.
On March 25, 2019, the Company entered into a Grid Loan Agreement (the Grid Loan) with VF Hemp, whereby, as of June 30, 2019, the Company had advanced $5,066 in the form of a grid loan to VF Hemp. The Grid Loan has a maturity date of March 25, 2022, and will bear simple interest at the rate of 8% per annum, calculated monthly (note 10).
The Companys share of the joint venture consists of the following:
Balance, beginning of the period |
$ | | ||
Investments in joint venture |
7 | |||
Share of net loss |
(133 | ) | ||
Share of losses applied against joint venture note receivable |
126 | |||
|
|
|||
Balance, June 30, 2019 |
$ | | ||
|
|
Summarized financial information of VF Hemp:
Current assets |
||||
Cash and cash equivalents |
$ | 73 | ||
Inventory |
2,486 | |||
Prepaid expenses |
1,439 | |||
Non-current assets |
2,805 | |||
Current liabilities |
(1,805 | ) | ||
Non-current liabilities |
(5,193 | ) | ||
|
|
|||
Net assets |
$ | (195 | ) | |
|
|
Reconciliation of net assets: |
||||
Net loss for the six months ended June 30, 2019 |
$ | (205 | ) | |
Contributions from joint venture partners |
10 | |||
|
|
|||
Net assets |
$ | (195 | ) | |
|
|
Arkansas Valley Green and Gold Hemp
On May 21, 2019, the Company entered into a joint venture with Arkansas Valley Hemp, LLC (AV Hemp) for the objective of outdoor cultivation of high percentage cannabidiol (CBD) hemp and CBD extraction in Colorado. The joint venture, AVGG Hemp, is 60% owned by the Company, 35% owned by AV Hemp, and 5% owned by VF Hemp.
Under the terms of the AVGG Hemp Joint Venture Agreement, the Company will lend approximately US$5 million to AVGG Hemp for start-up costs and working capital. The loans bear simple interest at the rate of 8% per annum, calculated monthly (note 10). To the extent cash is available from positive cash flow, the AVGG Hemp has agreed to repay the Company with respect to any such loans, in the range of $2 million to $5 million in the initial two years following the formation of AVGG Hemp. As of June 30, 2019, the Company had loaned AVGG Hemp approximately $542.
11
VILLAGE FARMS INTERNATIONAL, INC.
Notes to Condensed Consolidated Interim Financial Statements
(In thousands of United States dollars, except share and per share amounts, unless otherwise noted)
(Unaudited)
The Company accounts for its investment in AVGG Hemp, in accordance with ASC 323, using the equity method because the Company is able to exercise significant influence over the operating and financial policies of AVGG Hemp through its 60% ownership interest and joint power arrangement with AV Hemp.
The Companys share of the joint venture consists of the following:
Balance, beginning of the period |
$ | | ||
Investments in joint venture |
6 | |||
Share of net loss |
(16 | ) | ||
Losses applied against joint venture note receivable |
10 | |||
|
|
|||
Balance, June 30, 2019 |
$ | | ||
|
|
Summarized financial information of AVGG Hemp:
Current assets |
||||
Cash and cash equivalents |
$ | 10 | ||
Inventory |
533 | |||
Other current assets |
| |||
Current liabilities |
(17 | ) | ||
Non-current liabilities |
(560 | ) | ||
|
|
|||
Net assets |
$ | (34 | ) | |
|
|
Reconciliation of net assets: |
||||
Net loss for the six months ended June 30, 2019 |
$ | (44 | ) | |
Contributions from joint venture partners |
10 | |||
|
|
|||
Net assets |
$ | (34 | ) | |
|
|
Summarized joint ventures information:
Investment in joint ventures
as of June 30, 2019 |
Investment in joint ventures
as of December 31, 2018 |
|||||||
Pure Sunfarms |
$ | 35,805 | $ | 6,341 | ||||
VF Hemp |
| | ||||||
AVGG Hemp |
| | ||||||
|
|
|
|
|||||
Total |
$ | 35,805 | $ | 6,341 | ||||
|
|
|
|
Equity earnings (losses) from unconsolidated entities | ||||||||||||||||
Three months ended June 30, | Six months ended June 30, | |||||||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||||||
Pure Sunfarms |
$ | 8,105 | $ | (265 | ) | $ | 10,747 | $ | (563 | ) | ||||||
VF Hemp |
(104 | ) | | (133 | ) | | ||||||||||
AVGG Hemp |
(16 | ) | | (21 | ) | | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | 7,985 | $ | (265 | ) | $ | 10,593 | $ | (563 | ) | ||||||
|
|
|
|
|
|
|
|
9 |
DEBT |
The Company has a Term Loan financing agreement with a Canadian creditor (FCC Loan). The non-revolving variable rate term loan has a maturity date of May 1, 2021 and a balance of $32,845 as of June 30, 2019. The outstanding balance is repayable by way of monthly installments of principal and interest based on an amortization period of 15 years, with the balance and any accrued interest to be paid in full on May 1, 2021. As of June 30, 2019, and December 31, 2018, borrowings under the FCC Loan agreement were subject to an interest rate of 7.076% and 7.082%, respectively, which is determined based on the Companys Debt to EBITDA ratio and the applicable LIBOR rate.
12
VILLAGE FARMS INTERNATIONAL, INC.
Notes to Condensed Consolidated Interim Financial Statements
(In thousands of United States dollars, except share and per share amounts, unless otherwise noted)
(Unaudited)
The Companys subsidiary VFCE has a loan agreement with a Canadian Chartered Bank that includes a non-revolving fixed rate loan of CA$3.0 million with a maturity date of June 2023 and fixed interest rate of 4.98%. As of June 30, 2019, and December 31, 2018, the balance was US$1,219 and US$1,279, respectively. The loan agreement also includes an uncommitted, non-revolving credit facility for up to CA$300 to cover Letters of Guarantee issued by the bank on behalf of the Company, with a maximum term of 365 days, renewable annually. The loan agreement also includes an uncommitted credit facility for up to CA$700 to support financing of certain capital expenditures. The Company received an initial advance of CA$250 in October 2017. Each advance is to be repaid on a five-year, straight-line amortization of principal, repaid in monthly installments of principal plus interest at an interest rate of CA$ prime rate plus 200 basis points. As of June 30, 2019, and December 31, 2018, the balance was US$127 and US$138, respectively.
The Company has a line of credit agreement with a Canadian Chartered Bank (Operating Loan). The revolving Operating Loan has a line of credit up to CA$13,000 and variable interest rates with a maturity date on May 31, 2021 and is subject to margin requirements stipulated by the bank. As of June 30, 2019, and December 31, 2018, US$5,000 and US$2,000, respectively, was drawn on this facility, which is available to a maximum of CA$13,000, less outstanding letters of credit totaling US$150 and CA$38.
The Companys borrowings (Credit Facilities) are subject to certain positive and negative covenants. As of June 30, 2019 the Company was in compliance with all covenants on its Credit Facilities.
Accrued interest payable on the credit facilities and loans as of June 30, 2019 and December 31, 2018 was $177 and $184, respectively, and these amounts are included in accrued liabilities in the interim statement of financial position.
As collateral for the FCC Loan, the Company has provided promissory notes, a first mortgage on the VFF-owned greenhouse properties (excluding the Delta 3 and Delta 2 greenhouse facilities), and general security agreements over its assets. In addition, the Company has provided full recourse guarantees and has granted security therein. The carrying value of the assets and securities pledged as collateral as of June 30, 2019 and December 31, 2018 was $140,204 and $105,200, respectively.
As collateral for the Operating Loan, the Company has provided promissory notes and a first priority security interest over its accounts receivable and inventory. In addition, the Company has granted full recourse guarantees and security therein. The carrying value of the assets pledged as collateral as of June 30, 2019 and December 31, 2018 was $35,107 and $36,248, respectively.
The aggregate annual principal maturities of long-term debt for the next five years and thereafter are as follows:
Remainder of 2019 |
$ | 1,718 | ||
2020 |
3,426 | |||
2021 |
28,567 | |||
2022 |
344 | |||
2023 |
175 | |||
Thereafter |
| |||
|
|
|||
$ | 34,230 | |||
|
|
10 |
FINANCIAL INSTRUMENTS |
13
VILLAGE FARMS INTERNATIONAL, INC.
Notes to Condensed Consolidated Interim Financial Statements
(In thousands of United States dollars, except share and per share amounts, unless otherwise noted)
(Unaudited)
The Company records accounts receivable, accounts payable, accrued liabilities and debt at cost. The carrying values of these instruments approximate their fair value due to their short-term maturities.
11 |
RELATED PARTY TRANSACTIONS AND BALANCES |
On February 13, 2019, the Company announced that Pure Sunfarms had entered into a credit agreement with Bank of Montreal, as agent and lead lender, and Farm Credit Canada, as lender, in respect of a CA$20 million secured non-revolver term loan (the Credit Facility). The Credit Facility, which matures on February 7, 2022, is secured by the Delta 3 facility, and contains customary financial and restrictive covenants. The Company is not a party to the Credit Facility but has provided a limited guarantee in the amount of CA$10 million in connection with the Credit Facility.
As of June 30, 2019 and December 31, 2018, the Company had amounts due from its joint venture, Pure Sunfarms, totaling $168 and $1,079, respectively, primarily for consulting services and the reimbursement of expenses which occurred in the year. These amounts are non-interest bearing and due on demand. On July 5, 2018, the Shareholders entered into a Loan Agreement with Pure Sunfarms, whereby, as of June 30, 2019, the Shareholders had each contributed CA$13,000 (US$10,602) in the form of a demand loan to Pure Sunfarms. Effective January 1, 2019, the loan amounts bear simple interest at the rate of 6.2% per annum, calculated semi-annually. Interest is accrued and payable on demand being made by either Shareholder. Prior to January 1, 2019, the loan amount bore interest at the rate of 8.0%. These amounts are included in amounts due from joint venture in the interim statements of financial position.
On March 25, 2019, the Company entered into a Grid Loan Agreement (the Grid Loan) with VF Hemp, whereby, as of June 30, 2019, the Company had contributed $5,066 in the form of a grid loan to VF Hemp. The Grid Loan has a maturity date of March 25, 2022, and will bear simple interest at the rate of 8% per annum, calculated monthly.
Under the terms of the AVGG Hemp Joint Venture Agreement, the Company will lend approximately US$5 million to AVGG Hemp for start-up costs and working capital. The loans will bear simple interest at the rate of 8% per annum, calculated monthly. As of June 30, 2019, the Company had loaned AVGG Hemp approximately $542.
Amounts due from the joint ventures, including interest, as of June 30, 2019 and December 31, 2018 and included in the statements financial position:
June 30, 2019 | December 31, 2018 | |||||||
Pure Sunfarms |
$ | 10,602 | $ | 10,873 | ||||
VF Hemp |
5,066 | | ||||||
AVGG Hemp |
542 | | ||||||
|
|
|
|
|||||
Total |
$ | 16,210 | $ | 10,873 | ||||
|
|
|
|
One of the Companys employees is related to a member of the Companys executive management team and received approximately $56 and $58 in salary and benefits during the six months ended June 30, 2019 and 2018, respectively.
Included in other assets as at December 31, 2018 is a $64 promissory note that represents the unpaid amount the Company advanced to an employee in connection with a relocation at the request of the Company. The promissory note was paid in full June 10, 2019.
14
VILLAGE FARMS INTERNATIONAL, INC.
Notes to Condensed Consolidated Interim Financial Statements
(In thousands of United States dollars, except share and per share amounts, unless otherwise noted)
(Unaudited)
12 |
INCOME TAXES |
Income tax expense is recognized based on managements best estimate of the weighted average annual income tax rate expected for the full financial year. The estimated average annual rate used for the six months ended June 30, 2019 was 24%, and 25% for the six months ended June 30, 2018.
13 |
SEGMENT AND GEOGRAPHIC INFORMATION |
Segment reporting is prepared on the same basis that the Companys Chief Executive Officer, who is the Companys Chief Operating Decision Maker, manages the business, makes operating decisions and assesses performance. Management has determined that the Company operates in three segments. The Companys three segments include the Produce business, the Energy business and the Companys cannabis and hemp segment. The Produce business produces, markets, and sells the product group which consists of premium quality tomatoes, bell peppers and cucumbers. The Energy business produces power that it sells per a long-term contract to its one customer. For segment information regarding the Companys cannabis and hemp segment refer to Note 7 Investments Equity Method and Joint Ventures.
The Companys primary operations are in the United States and Canada. Segment information for the three and six months ended June 30, 2019 and 2018:
Three months ended June 30, | Six months ended June 30, | |||||||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||||||
Sales |
||||||||||||||||
Produce U.S. |
$ | 33,661 | $ | 32,892 | $ | 61,860 | $ | 60,318 | ||||||||
Produce Canada |
7,423 | 8,693 | 10,802 | 10,232 | ||||||||||||
Energy Canada |
245 | 454 | 557 | 979 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
$ | 41,329 | $ | 42,039 | $ | 73,219 | $ | 71,529 | |||||||||
|
|
|
|
|
|
|
|
|||||||||
Interest expense |
||||||||||||||||
Produce U.S. |
$ | 32 | $ | 9 | $ | 65 | $ | 19 | ||||||||
Produce Canada |
618 | 678 | 1,261 | 1,275 | ||||||||||||
Energy Canada |
19 | 23 | 37 | 47 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
$ | 669 | $ | 710 | $ | 1,363 | $ | 1,341 | |||||||||
|
|
|
|
|
|
|
|
|||||||||
Interest income |
||||||||||||||||
Corporate |
$ | 211 | $ | | $ | 347 | $ | 14 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
$ | 211 | $ | | $ | 347 | $ | 14 | |||||||||
|
|
|
|
|
|
|
|
|||||||||
Depreciation |
||||||||||||||||
Produce U.S. |
$ | 1,005 | $ | 1,139 | $ | 2,025 | $ | 2,333 | ||||||||
Produce Canada |
328 | 388 | 747 | 778 | ||||||||||||
Energy Canada |
227 | 195 | 455 | 412 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
$ | 1,560 | $ | 1,722 | $ | 3,227 | $ | 3,523 | |||||||||
|
|
|
|
|
|
|
|
|||||||||
Gross margin |
||||||||||||||||
Produce U.S. |
$ | (5,441 | ) | $ | (2,388 | ) | $ | (4,736 | ) | $ | 1,254 | |||||
Produce Canada |
2,678 | 3,251 | 2,738 | 3,123 | ||||||||||||
Energy Canada |
(207 | ) | 26 | (297 | ) | 100 | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
$ | (2,970 | ) | $ | 889 | $ | (2,295 | ) | $ | 4,477 | |||||||
|
|
|
|
|
|
|
|
15
VILLAGE FARMS INTERNATIONAL, INC.
Notes to Condensed Consolidated Interim Financial Statements
(In thousands of United States dollars, except share and per share amounts, unless otherwise noted)
(Unaudited)
Total assets | June 30, 2019 | December 31, 2018 | ||||||
United States |
$ | 86,418 | $ | 79,126 | ||||
Canada |
85,446 | 58,690 | ||||||
Energy - Canada |
3,447 | 3,632 | ||||||
|
|
|||||||
$ | 175,311 | $ | 141,448 | |||||
|
|
|||||||
Property, plant and equipment | June 30, 2019 | December 31, 2018 | ||||||
United States |
$ | 41,585 | $ | 42,886 | ||||
Canada |
19,952 | 25,933 | ||||||
Energy Canada |
3,134 | 3,369 | ||||||
|
|
|
|
|||||
$ | 64,671 | $ | 72,188 | |||||
|
|
|
|
14 |
INCOME (LOSS) PER SHARE |
Basic and diluted net income per ordinary share is calculated as follows:
Three months ended June 30, | Six months ended June 30, | |||||||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||||||
Numerator: |
||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net income (loss) |
$ | 3,716 | $ | (3,060 | ) | $ | 10,182 | $ | (3,662 | ) | ||||||
|
|
|
|
|
|
|
|
|||||||||
Denominator: |
||||||||||||||||
Weighted average number of common shares - Basic |
48,825 | 43,336 | 48,322 | 42,894 | ||||||||||||
Effect of dilutive securities- share-based employee options and awards |
1,887 | | 1,837 | | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Weighted average number of common shares - Diluted |
50,712 | 43,336 | 50,159 | 42,894 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Antidilutive options and awards |
2,612 | 2,197 | 310 | 2,197 | ||||||||||||
Net income (loss) per ordinary share: |
||||||||||||||||
Basic |
$ | 0.08 | $ | (0.07 | ) | $ | 0.21 | $ | (0.09 | ) | ||||||
|
|
|
|
|
|
|
|
|||||||||
Diluted |
$ | 0.07 | $ | (0.07 | ) | $ | 0.20 | $ | (0.09 | ) | ||||||
|
|
|
|
|
|
|
|
15 |
SHARE-BASED COMPENSATION PLAN |
Share-based compensation expense for the three and six months ended June 30, 2019 was $701 and $1,997, respectively. Share-based compensation expense for the three and six months ended June 30, 2018 was $138 and $256, respectively.
Stock option activity for the six months ended June 30, 2019 is as follows:
Number of
Options |
Weighted
Average Exercise Price |
Weighted
Average Remaining Contractual Term (years) |
Aggregate
Intrinsic Value |
|||||||||||||
Outstanding at December 31, 2018 |
2,164,999 | CA$ | 2.10 | 5.69 | $ | 5,553 | ||||||||||
Granted |
510,000 | CA$ | 16.32 | 9.94 | $ | | ||||||||||
Exercised |
(52,782 | ) | CA$ | 1.41 | 6.19 | $ | 789 | |||||||||
Forfeited |
(10,001 | ) | CA$ | 2.20 | | $ | 128 | |||||||||
|
|
|||||||||||||||
Outstanding at June 30, 2019 |
2,612,216 | CA$ | 4.88 | 6.04 | $ | 27,436 | ||||||||||
|
|
|||||||||||||||
Exercisable at June 30, 2019 |
1,815,218 | CA$ | 1.60 | 4.61 | $ | 24,321 | ||||||||||
|
|
During the six months ended June 30, 2019, 355,000 performance-based shares were granted to employees and directors involved with future developments of the Company. Once a performance target is met and the share units are deemed earned and vested, compensation expense based on the fair value of the share units on the grant date is recorded in selling, general and administrative expenses in the interim statements of income.
16
VILLAGE FARMS INTERNATIONAL, INC.
Notes to Condensed Consolidated Interim Financial Statements
(In thousands of United States dollars, except share and per share amounts, unless otherwise noted)
(Unaudited)
Performance-based share activity for the six months ended June 30, 2019 was as follows:
Number of
Performance-based Restricted Share Units |
Weighted Average
Grant Date Fair Value |
|||||||
Outstanding at December 31, 2018 |
1,056,666 | CA$ | 5.56 | |||||
Earned but unissued at December 31, 2018 |
175,333 | CA$ | 5.08 | |||||
Issued |
355,000 | CA$ | 14.94 | |||||
Exercised |
(278,333 | ) | CA$ | 5.72 | ||||
Forfeited/expired |
(5,000 | ) | CA$ | 5.79 | ||||
|
|
|||||||
Outstanding at June 30, 2019 |
1,128,333 | CA$ | 9.20 | |||||
|
|
|||||||
Exercisable at June 30, 2019 |
94,333 | CA$ | 6.09 | |||||
|
|
16 |
COMMITMENT AND CONTINGENCIES |
In the normal course of business, the Company and its subsidiaries may become defendants in certain employment claims and other litigation. The Company records a liability when it is probable that a loss has been incurred and the amount is reasonably estimable. The Company is not involved in any legal proceedings other than routine litigation arising in the normal course of business, none of which the Company believes will have a material adverse effect on the Companys business, financial condition or results of operations.
17
Exhibit 99.3
Village Farms International, Inc.
Condensed Consolidated Interim Statements of Financial Position
(In thousands of United States dollars)
(Unaudited)
September 30, 2019 | December 31, 2018 | |||||||
ASSETS |
||||||||
Current assets |
||||||||
Cash and cash equivalents |
$ | 6,726 | $ | 11,920 | ||||
Trade receivables |
9,970 | 11,292 | ||||||
Inventories |
19,353 | 24,956 | ||||||
Amounts due from joint ventures |
10,690 | 10,873 | ||||||
Other receivables |
265 | 332 | ||||||
Prepaid expenses and deposits |
1,892 | 889 | ||||||
|
|
|
|
|||||
Total current assets |
48,896 | 60,262 | ||||||
|
|
|
|
|||||
Non-current assets |
||||||||
Property, plant and equipment |
63,971 | 72,188 | ||||||
Operating lease right-of-use assets |
3,702 | | ||||||
Finance lease right-of-use-assets |
116 | 176 | ||||||
Investment in joint ventures |
39,555 | 6,341 | ||||||
Note receivable - joint ventures |
9,162 | | ||||||
Deferred tax asset |
6,006 | 274 | ||||||
Other assets |
1,768 | 2,207 | ||||||
|
|
|
|
|||||
Total assets |
$ | 173,176 | $ | 141,448 | ||||
|
|
|
|
|||||
LIABILITIES |
||||||||
Current liabilities |
||||||||
Line of credit |
$ | 4,000 | $ | 2,000 | ||||
Trade payables |
9,270 | 14,601 | ||||||
Current maturities of long-term debt |
3,424 | 3,414 | ||||||
Accrued liabilities |
5,476 | 3,509 | ||||||
Operating lease liabilities - current |
1,068 | | ||||||
Finance lease liabilities - current |
70 | 78 | ||||||
|
|
|
|
|||||
Total current liabilities |
23,308 | 23,602 | ||||||
|
|
|
|
|||||
Non-current liabilities |
||||||||
Long-term debt |
29,784 | 32,261 | ||||||
Deferred tax liability |
4,983 | | ||||||
Operating lease liabilities - current |
2,716 | | ||||||
Finance lease liabilities - current |
46 | 102 | ||||||
Other liabilities |
1,236 | 1,050 | ||||||
|
|
|
|
|||||
Total liabilities |
62,073 | 57,015 | ||||||
|
|
|
|
|||||
SHAREHOLDERS EQUITY |
||||||||
Common stock, no par value per share - unlimited shares authorized; 49,340,335 shares issued and outstanding at September 30, 2019 and 47,642,672 shares issued and outstanding at December 31, 2018. |
76,484 | 60,872 | ||||||
Additional paid in capital |
3,689 | 2,198 | ||||||
Accumulated other comprehensive loss |
(504 | ) | (562 | ) | ||||
Retained earnings |
31,434 | 21,925 | ||||||
|
|
|
|
|||||
Total shareholders equity |
111,103 | 84,433 | ||||||
|
|
|
|
|||||
Total liabilities and shareholders equity |
$ | 173,176 | $ | 141,448 | ||||
|
|
|
|
The accompanying notes are an integral part of these condensed consolidated interim financial statements.
1
Village Farms International, Inc.
Condensed Consolidated Interim Statements of Income (Loss) and Comprehensive Income (Loss)
(In thousands of United States dollars, except per share data)
(Unaudited)
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||||||
Sales |
$ | 38,293 | $ | 39,684 | $ | 111,512 | $ | 111,213 | ||||||||
Cost of sales |
(38,904 | ) | (36,862 | ) | (114,418 | ) | (103,914 | ) | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Gross margin |
(611 | ) | 2,822 | (2,906 | ) | 7,299 | ||||||||||
Selling, general and administrative expenses |
(3,739 | ) | (3,451 | ) | (11,899 | ) | (10,486 | ) | ||||||||
Share-based compensation |
(666 | ) | (181 | ) | (2,663 | ) | (447 | ) | ||||||||
Interest expense |
(655 | ) | (728 | ) | (2,018 | ) | (2,069 | ) | ||||||||
Interest income |
304 | 91 | 651 | 105 | ||||||||||||
Foreign exchange gain |
(183 | ) | (73 | ) | 338 | (87 | ) | |||||||||
Other income |
69 | 17 | 219 | 61 | ||||||||||||
Gain on disposal of assets |
(8 | ) | | 13,558 | | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Loss before taxes and earnings of unconsolidated entities |
(5,489 | ) | (1,503 | ) | (4,720 | ) | (5,624 | ) | ||||||||
Recovery of income taxes |
1,266 | 370 | 114 | 1,392 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Loss from consolidated entities after income taxes |
(4,223 | ) | (1,133 | ) | (4,606 | ) | (4,232 | ) | ||||||||
Equity in earnings (losses) from unconsolidated entities |
3,519 | (295 | ) | 14,115 | (858 | ) | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net (loss) income |
$ | (704 | ) | $ | (1,428 | ) | $ | 9,509 | $ | (5,090 | ) | |||||
|
|
|
|
|
|
|
|
|||||||||
Basic (loss) income per share |
$ | (0.01 | ) | $ | (0.03 | ) | $ | 0.20 | $ | (0.11 | ) | |||||
|
|
|
|
|
|
|
|
|||||||||
Diluted(loss) income per share |
$ | (0.01 | ) | $ | (0.03 | ) | $ | 0.19 | $ | (0.11 | ) | |||||
|
|
|
|
|
|
|
|
|||||||||
Weighted average number of common shares used in the computation of net (loss) income per share: |
||||||||||||||||
Basic |
48,845 | 44,475 | 48,650 | 44,473 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Diluted |
48,845 | 44,475 | 50,451 | 44,473 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net (loss) income |
$ | (704 | ) | $ | (1,428 | ) | $ | 9,509 | $ | (5,090 | ) | |||||
Other comprehensive (loss) income: |
||||||||||||||||
Foreign currency translation adjustment |
(22 | ) | 40 | 58 | (49 | ) | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Comprehensive(loss) income |
$ | (726 | ) | $ | (1,388 | ) | $ | 9,567 | $ | (5,139 | ) | |||||
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these condensed consolidated interim financial statements.
2
Village Farms International, Inc.
Condensed Consolidated Interim Statements of Changes in Shareholders Equity
(In thousands of United States dollars, except for shares outstanding)
(Unaudited)
Three Months Ended September 30, 2019 | ||||||||||||||||||||||||
Number of
Common Shares |
Common
Stock |
Additional paid
in capital |
Accumulated Other
Comprehensive (Loss) Income |
Retained
Earnings |
Total
Shareholders Equity |
|||||||||||||||||||
Balance at July 1, 2019 |
49,273,786 | $ | 76,435 | $ | 3,101 | $ | (482 | ) | $ | 32,107 | $ | 111,161 | ||||||||||||
Shares issued on exercise of stock options |
31,216 | 109 | (78 | ) | | | 31 | |||||||||||||||||
Share-based compensation |
35,333 | | 666 | | | 666 | ||||||||||||||||||
Share issuance costs |
| (60 | ) | | | | (60 | ) | ||||||||||||||||
Cumulative translation adjustment |
| | | (22 | ) | | (22 | ) | ||||||||||||||||
Net loss |
| | | | (673 | ) | (673 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Balance at September 30, 2019 |
49,340,335 | $ | 76,484 | $ | 3,689 | $ | (504 | ) | $ | 31,434 | $ | 111,103 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Three Months Ended September 30, 2018 | ||||||||||||||||||||||||
Number of
Common Shares |
Common
Stock |
Additional paid
in capital |
Accumulated Other
Comprehensive (Loss) Income |
Retained
Earnings |
Total
Shareholders Equity |
|||||||||||||||||||
Balance at July 1, 2018 |
44,472,138 | 44,133 | 1,982 | (480 | ) | 25,777 | 71,412 | |||||||||||||||||
Shares issued on exercise of stock options |
11,667 | 12 | | | | 12 | ||||||||||||||||||
Share-based compensation |
| | 191 | | | 191 | ||||||||||||||||||
Cumulative translation adjustment |
| | | 41 | | 41 | ||||||||||||||||||
Net loss |
| | | | (1,428 | ) | (1,428 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Balance at September 30, 2018 |
44,483,805 | $ | 44,145 | $ | 2,173 | $ | (439 | ) | $ | 24,349 | $ | 70,228 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Nine Months Ended September 30, 2019 | ||||||||||||||||||||||||
Number of
Common Shares |
Common
Stock |
Additional paid
in capital |
Accumulated Other
Comprehensive (Loss) Income |
Retained
Earnings |
Total
Shareholders Equity |
|||||||||||||||||||
Balance at January 1, 2019 |
47,642,672 | $ | 60,872 | $ | 2,198 | $ | (562 | ) | $ | 21,925 | $ | 84,433 | ||||||||||||
Shares issued on exercise of stock options |
83,998 | 224 | (116 | ) | | | 108 | |||||||||||||||||
Share-based compensation |
313,665 | 908 | 1,755 | | | 2,663 | ||||||||||||||||||
Shares issued pursuant to public offering of common shares, net of issuance costs |
1,000,000 | 13,928 | | | | 13,928 | ||||||||||||||||||
Shares issued on exercise of warrants |
300,000 | 614 | (148 | ) | | | 466 | |||||||||||||||||
Share issuance costs |
| (62 | ) | | | | (62 | ) | ||||||||||||||||
Cumulative translation adjustment |
| | | 58 | | 58 | ||||||||||||||||||
Net loss |
| | | | 9,509 | 9,509 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Balance at September 30, 2019 |
49,340,335 | $ | 76,484 | $ | 3,689 | $ | (504 | ) | $ | 31,434 | $ | 111,103 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Nine Months Ended September 30, 2018 | ||||||||||||||||||||||||
Number of
Common Shares |
Common
Stock |
Additional paid
in capital |
Accumulated Other
Comprehensive (Loss) Income |
Retained
Earnings |
Total
Shareholders Equity |
|||||||||||||||||||
Balance at January 1, 2018 |
42,242,612 | $ | 36,115 | $ | 1,726 | $ | (391 | ) | $ | 29,439 | $ | 66,889 | ||||||||||||
Shares issued on exercise of stock options |
354,400 | 275 | | | | 275 | ||||||||||||||||||
Share-based compensation |
| | 447 | | | 447 | ||||||||||||||||||
Shares issued pursuant to private placement of common shares, net of issuance costs |
1,886,793 | 7,755 | | | | 7,755 | ||||||||||||||||||
Cumulative translation adjustment |
| | | (48 | ) | | (48 | ) | ||||||||||||||||
Net loss |
| | | | (5,090 | ) | (5,090 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Balance at September 30, 2018 |
44,483,805 | $ | 44,145 | $ | 2,173 | $ | (439 | ) | $ | 24,349 | $ | 70,228 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these condensed consolidated interim financial statements.
3
Village Farms International, Inc.
Condensed Consolidated Interim Statements of Cash Flows
(In thousands of United States dollars)
(Unaudited)
Nine Months Ended September 30, | ||||||||
2019 | 2018 | |||||||
Cash flows used in operating activities |
||||||||
Net income (loss) |
$ | 9,509 | $ | (5,090 | ) | |||
Adjustments to reconcile net loss to net cash used in operating activities: |
||||||||
Depreciation and amortization |
5,587 | 5,271 | ||||||
Amortization of deferred charges |
57 | 57 | ||||||
Share of (income) loss from joint ventures |
(14,115 | ) | 857 | |||||
Interest expense |
2,018 | 2,069 | ||||||
Interest income |
(651 | ) | (105 | ) | ||||
Lease payments |
(784 | ) | | |||||
Gain on disposal of assets |
(13,558 | ) | | |||||
Share-based compensation |
2,663 | 447 | ||||||
Deferred income taxes |
(749 | ) | (2,180 | ) | ||||
Interest paid on long-term debt |
(2,013 | ) | (1,873 | ) | ||||
Changes in non-cash working capital items |
4,149 | (5,255 | ) | |||||
|
|
|
|
|||||
Net cash used in operating activities |
(7,887 | ) | (5,802 | ) | ||||
|
|
|
|
|||||
Cash flows used in investing activities: |
||||||||
Purchases of property, plant and equipment, net of rebate |
(1,630 | ) | (2,546 | ) | ||||
Advances to joint ventures |
(9,499 | ) | (6,110 | ) | ||||
Proceeds from sale of asset |
52 | | ||||||
Investment in joint ventures |
(13 | ) | | |||||
|
|
|
|
|||||
Net cash used in investing activities |
(11,090 | ) | (8,656 | ) | ||||
|
|
|
|
|||||
Cash flows from financing activities: |
||||||||
Proceeds from borrowings |
3,000 | 7,000 | ||||||
Repayments on borrowings |
(3,591 | ) | (1,766 | ) | ||||
Proceeds from issuance of common stock pursuant to public offering, net |
13,868 | 7,755 | ||||||
Proceeds from exercise of stock options |
109 | 275 | ||||||
Payments on capital lease obligations |
(69 | ) | (45 | ) | ||||
Proceeds from exercise of warrants |
466 | | ||||||
|
|
|
|
|||||
Net cash provided by financing activities |
13,783 | 13,219 | ||||||
|
|
|
|
|||||
Effect of exchange rate changes on cash and cash equivalents |
| (2 | ) | |||||
|
|
|
|
|||||
Net decrease in cash and cash equivalents |
(5,194 | ) | (1,241 | ) | ||||
Cash and cash equivalents, beginning of period |
11,920 | 7,091 | ||||||
|
|
|
|
|||||
Cash and cash equivalents, end of period |
$ | 6,726 | $ | 5,850 | ||||
|
|
|
|
|||||
Supplemental cash flow information: |
||||||||
Income taxes paid |
$ | 575 | $ | | ||||
|
|
|
|
The accompanying notes are an integral part of these condensed consolidated interim financial statements.
4
VILLAGE FARMS INTERNATIONAL, INC.
Notes to Condensed Consolidated Interim Financial Statements
(In thousands of United States dollars, except share and per share amounts, unless otherwise noted)
(Unaudited)
1 |
NATURE OF OPERATIONS |
Village Farms International, Inc. (VFF the parent company, together with its subsidiaries, the Company) is incorporated under the Canada Business Corporation Act. VFFs principal operating subsidiaries as of September 30, 2019 are Village Farms Canada Limited Partnership (VFCLP), Village Farms, L.P. (VFLP), and VF Clean Energy, Inc. (VFCE). The address of the registered office of VFF is 4700 80th Street, Delta, British Columbia, Canada, V4K 3N3. VFF owns a 65% equity interest in Village Fields Hemp USA LLC (VF Hemp), a 60% equity interest in Arkansas Valley Green and Gold Hemp (AVGG Hemp) and a 50% equity interest in Pure Sunfarms Corp. (Pure Sunfarms), all of which are recorded as Investments in Joint Ventures (note 8).
The Companys shares are listed on the Toronto Stock Exchange under the symbol VFF and are also listed in the United States on the Nasdaq Capital Market (Nasdaq) under the symbol VFF.
The Company owns and operates sophisticated, highly intensive agricultural greenhouse facilities in British Columbia and Texas, where it produces, markets and sells premium-quality tomatoes, bell peppers, and cucumbers. The Company, through its subsidiary VFCE, owns and operates a 7.0 MW power plant that generates electricity. The Companys joint venture, Pure Sunfarms, is a licensed producer and supplier of cannabis products to be sold to other licensed providers and provincial governments across Canada and internationally. The Companys joint ventures, VF Hemp and AVGG Hemp, are cultivators of high cannabidiol (CBD) hemp in multiple states throughout the United States.
2 |
BASIS OF PRESENTATION |
The accompanying unaudited Condensed Consolidated Financial Statements for the quarter and nine months ended September 30, 2019 have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information. Previously, the Company prepared its consolidated financial statements under International Financial Reporting Standards (IFRS) as permitted by securities regulators in Canada, as well as in the United States under the status of a Foreign Private Issuer as defined by the United States Securities and Exchange Commission (SEC). At the end of the second quarter of 2019, the Company determined that it no longer qualified as a Foreign Private Issuer under the SEC rules. As a result, beginning January 1, 2020 the Company is required to report with the SEC on domestic forms and comply with domestic company rules in the United States. The transition to US GAAP was made retrospectively for all periods from the Companys inception.
These interim consolidated financial statements do not include all information and notes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments of a normal recurring nature considered necessary for fair presentation have been included. Operating results for the three and nine months ended September 30, 2019 are subject to seasonal variations and are not necessarily indicative of the results that may be expected for the year ended December 31, 2019. For further information, refer to the Consolidated Financial Statements and notes thereto included in our annual report on Form 10-K for the fiscal year ended December 31, 2019 and 2018.
Other than as described below, there were no changes to our significant accounting policies described in our Annual Financial Statements that had a material impact on our financial statements and related notes.
3 |
NEW ACCOUNTING PRONOUNCEMENTS ADOPTED |
Prior to the adoption of ASU 2016-02, Leases, for leases where the Company assumed substantially all the risks and rewards of ownership were classified as finance leases. Upon initial recognition, the leased asset is measured at an amount equal to the lower of its fair value and the present value of the minimum lease payments. Subsequent to initial recognition, the asset was accounted for in accordance with the accounting policy applicable to that asset. Other leases are operating leases and rent expenses were recognized in the Companys consolidated statements of (loss) income.
In February 2016, the FASB issued ASU 2016-02, Leases, and has subsequently issued several supplemental and/or clarifying ASUs (collectively, Topic 842), which requires a dual approach for lease accounting under which a lessee would account for leases as finance leases or operating leases. Both finance leases and operating leases may result in the lessee recognizing a right of use asset and a corresponding lease liability. For finance leases, the lessee would recognize interest expense and amortization of the right-of-use asset, and for operating leases, the lessee would recognize lease expense on a straight-line basis.
5
VILLAGE FARMS INTERNATIONAL, INC.
Notes to Condensed Consolidated Interim Financial Statements
(In thousands of United States dollars, except share and per share amounts, unless otherwise noted)
(Unaudited)
On January 1, 2019, the Company adopted Topic 842, using the modified retrospective method and did not restate prior periods. The Companys classes of assets include land leases, building leases and equipment leases.
On adoption, the Company recognized lease liabilities in relation to leases which had previously been classified as operating leases under the principles of Topic 842. These lease liabilities were measured at the present value of the remaining lease payments, discounted using the borrowing rate of the Company. The weighted average incremental borrowing rate applied to the lease liabilities on January 1, 2019 was 6.25%. These leases are included in right-of-use assets, short-term lease liabilities and long-term lease liabilities in the condensed consolidated statements of financial position. Right-of-use assets are amortized on a straight-line basis over the lease term.
For leases previously classified as finance leases the entity recognized the carrying amount of the lease asset and lease liability immediately before transition as the carrying amount of the right of use asset and the lease liability at the date of initial application.
Additionally, the Company has elected the short-term lease exception for all classes of assets, and does not apply the recognition requirements for leases of 12 months or less, and recognizes lease payments for short-term leases as expense either straight-line over the lease term or as incurred depending on whether the lease payments are fixed or variable.
These elections are applied consistently for all leases.
2019 | ||||
Operating lease commitments disclosed as of December 31, 2018 |
$ | 5,064 | ||
Less: short-term leases recognized on a straight-line basis as expense |
(210 | ) | ||
|
|
|||
4,854 | ||||
Discounted using the lessees incremental borrowing rate of 6.25% at the date of initial application |
4,269 | |||
Add: additional leases identified on adoption of Topic 842 |
88 | |||
Add: finance lease liabilities recognized as of December 31, 2018 |
180 | |||
|
|
|||
Lease liability recognized as of January 1, 2019 |
$ | 4,537 | ||
Of which are: |
||||
Current lease liabilities |
871 | |||
Non-current lease liabilities |
3,666 | |||
|
|
|||
$ | 4,537 | |||
|
|
The recognized right-of-use assets relate to the following types of assets:
December 31, 2018 | January 1, 2019 | |||||||
Land |
$ | | $ | 140 | ||||
Building |
| 4,017 | ||||||
Equipment |
176 | 380 | ||||||
|
|
|
|
|||||
Total right-of-use assets |
$ | 176 | $ | 4,537 | ||||
|
|
|
|
4 |
NEW ACCOUNTING PRONOUNCEMENTS NOT YET ADOPTED |
In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. ASU 2019-12 simplifies the accounting for income taxes by removing exceptions within the general principles of Topic 740 regarding the calculation of deferred tax liabilities, the incremental approach for intraperiod tax allocation, and calculating income taxes in an interim period. In addition, the ASU adds clarifications to the accounting for franchise tax (or similar tax). which is partially based on income, evaluating tax basis of goodwill recognized from a business combination, and reflecting the effect of any enacted changes in tax laws or rates in the annual effective tax rate computation in the interim period that includes the enactment date. The ASU is effective for fiscal years beginning after December 15, 2020, and will be applied either retrospectively or prospectively based upon the applicable amendments. Early adoption is permitted. The adoption of this standard is not expected to have a material impact on the Companys consolidated financial statements and related disclosures.
6
VILLAGE FARMS INTERNATIONAL, INC.
Notes to Condensed Consolidated Interim Financial Statements
(In thousands of United States dollars, except share and per share amounts, unless otherwise noted)
(Unaudited)
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820) - Disclosure FrameworkChanges to the Disclosure Requirements for Fair Value Measurement. ASU 2018-13 removes the disclosure requirement for the amount and reasons for transfers between Level 1 and Level 2 fair value measurements as well as the process for Level 3 fair value measurements. In addition, the ASU adds the disclosure requirements for changes in unrealized gains and losses included in other comprehensive income (loss) for recurring Level 3 fair value measurements held at the end of the reporting period as well as the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. The ASU is effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years and will be applied on a retrospective basis to all periods presented. Early adoption is permitted. The adoption of this standard is not expected to have a material impact on the Companys consolidated financial statements and related disclosures.
In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses. The standard, including subsequently issued amendments, requires a financial asset measured at amortized cost basis, such as accounts receivable and certain other financial assets, to be presented at the net amount expected to be collected based on relevant information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. This ASU is effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years, and requires the modified retrospective approach. Early adoption is permitted. Based on the composition of the Companys trade receivables and other financial assets, current market conditions, and historical credit loss activity, the adoption of this standard is not expected to have a material impact on the Companys consolidated financial statements and related disclosures.
5 |
INVENTORIES |
September 30, 2019 | December 31, 2018 | |||||||
Crop inventory |
$ | 18,838 | $ | 24,249 | ||||
Purchased produce inventory |
425 | 643 | ||||||
Spare parts inventory |
90 | 64 | ||||||
|
|
|
|
|||||
$ | 19,353 | $ | 24,956 | |||||
|
|
|
|
6 |
PROPERTY, PLANT AND EQUIPMENT |
Property, plant and equipment consist of the following:
September 30, 2019 | December 31, 2018 | |||||||
Land |
$ | 3,205 | $ | 3,932 | ||||
Leasehold and land improvements |
3,820 | 3,819 | ||||||
Buildings |
72,747 | 77,003 | ||||||
Machinery and equipment |
61,646 | 65,664 | ||||||
Construction in progress |
1,208 | 552 | ||||||
Less: Accumulated depreciation |
(78,655 | ) | (78,782 | ) | ||||
|
|
|
|
|||||
Property, plant, and equipment, net |
$ | 63,971 | $ | 72,188 | ||||
|
|
|
|
Depreciation expense on property, plant and equipment, was $1,563 and $4,790 for the three and nine months ended September 30, 2019, respectively. Depreciation expense on property, plant and equipment, was $1,748 and $5,271 for the three and nine months ended September 30, 2018, respectively. On March 31, 2019, Pure Sunfarms exercised its option to acquire the Delta 2 assets and operations (note 8).
7
VILLAGE FARMS INTERNATIONAL, INC.
Notes to Condensed Consolidated Interim Financial Statements
(In thousands of United States dollars, except share and per share amounts, unless otherwise noted)
(Unaudited)
7 |
LEASES |
The components of lease related expenses are as follows:
Three Months Ended
September 30, 2019 |
Nine Months Ended
September 30, 2019 |
|||||||
Operating lease expense (a) |
$ | 588 | $ | 1,762 | ||||
|
|
|
|
|||||
Finance lease expense: |
||||||||
Amortization of right-of-use assets |
$ | 20 | $ | 60 | ||||
Interest on lease liabilities |
2 | 6 | ||||||
|
|
|
|
|||||
Total finance lease expense |
$ | 22 | $ | 66 | ||||
|
|
|
|
(a) |
Includes short-term lease costs of $315 and $943 for the three and nine months ended September 30, 2019, respectively. |
Cash paid for amounts included in the measurement of lease liabilities:
Three Months Ended
September 30, 2019 |
Nine Months Ended
September 30, 2019 |
|||||||
Operating cash flows from operating leases |
$ | 256 | $ | 778 | ||||
Operating cash flows from finance leases |
$ | 2 | $ | 6 | ||||
Financing cash flows from finance leases |
$ | 21 | $ | 69 |
September 30, 2019 | ||||
Weighted average remaining lease term: |
||||
Operating leases |
4.4 | |||
Finance leases |
2.0 | |||
Weighted average discount rate: |
||||
Operating leases |
6.25 | % | ||
Finance leases |
6.25 | % |
Maturities of lease liabilities are as follows:
Operating
leases |
Finance
leases |
|||||||
Remainder of 2019 |
$ | 265 | $ | 22 | ||||
2020 |
1,073 | 65 | ||||||
2021 |
1,090 | 30 | ||||||
2022 |
869 | 9 | ||||||
2023 |
641 | | ||||||
Thereafter |
389 | | ||||||
|
|
|
|
|||||
Undiscounted lease cash flow commitments |
4,327 | 126 | ||||||
Reconciling impact from discounting |
(543 | ) | (10 | ) | ||||
|
|
|
|
|||||
Lease liabilities on consolidated statement of financial position as of September 30, 2019 |
$ | 3,784 | $ | 116 | ||||
|
|
|
|
8
VILLAGE FARMS INTERNATIONAL, INC.
Notes to Condensed Consolidated Interim Financial Statements
(In thousands of United States dollars, except share and per share amounts, unless otherwise noted)
(Unaudited)
The following table presents the Companys unadjusted lease commitments as of December 31, 2018 as a required disclosure for companies adopting the lease standard prospectively without revising comparative period information.
Operating
leases |
Finance
leases |
|||||||
2019 |
$ | 1,253 | $ | 78 | ||||
2020 |
1,039 | 62 | ||||||
2021 |
1,052 | 30 | ||||||
2022 |
841 | 10 | ||||||
2023 |
618 | | ||||||
Thereafter |
261 | | ||||||
|
|
|
|
|||||
$ | 5,064 | $ | 180 | |||||
|
|
|
|
8 |
INVESTMENT IN JOINT VENTURES |
Pure Sunfarms Corp.
On June 6, 2017, the Company entered into an agreement to form Pure Sunfarms, a B.C. corporation, with Emerald Health Therapeutics Inc. (Emerald). The purpose of Pure Sunfarms is to produce, market and distribute cannabis in Canada.
The Company accounts for its investment in Pure Sunfarms, in accordance with Accounting Standards Codification (ASC) 323 - Equity Method and Joint Ventures (ASC 323), using the equity method. The Company has determined that Pure Sunfarms is a variable interest entity (VIE), however the Company does not consolidate Pure Sunfarms because the Company is not the primary beneficiary. Although the Company is able to exercise significant influence over the operating and financial policies of Pure Sunfarms through its 50.0% ownership interest and joint power arrangement with Emerald, the Company shares joint control of the Board of Directors and therefore is not the primary beneficiary. The Companys maximum exposure to loss as a result of its involvement with Pure Sunfarms as of September 30, 2019 relates primarily to the recovery of the outstanding loan to Pure Sunfarms.
The Company is required to apply the hypothetical liquidation at book value (HLBV) method to determine its allocation of the profits and loss in Pure Sunfarms. When determining its allocation of profits and losses, the HLBV method only considers shares that have been fully paid for. Therefore, due to the monthly escrow payments being made by Emerald in accordance with the Delta 2 Option Agreement, the ownership will change each month escrow payment(s) are made. Effective for the quarter and nine-month periods ended September 30, 2019, the Company under the hypothetical liquidation method received approximately 56.1% and 60.1%, respectively for each period.
On July 5, 2018, the Company and Emerald Health Therapeutics Canada Inc. (a subsidiary of Emerald) (together, the Shareholders) entered into a Shareholder Loan Agreement (the Loan Agreement) with Pure Sunfarms, whereby, as of September 30, 2019, the Shareholders had each contributed $10,690 (CA$13,000) in the form of a demand loan to Pure Sunfarms. Effective January 1, 2019, the loan amounts bear simple interest at the rate of 6.2% per annum, calculated semi-annually. Interest will accrue and be payable upon demand being made by both Shareholders (see note 11).
On March 31, 2019, Pure Sunfarms exercised its option to utilize the Delta 2 assets and operations. The contribution of the assets has been accounted for as a disposal of the land, greenhouse facility and other assets in exchange for 25,000,000 common shares of Pure Sunfarms. This was a non-cash transaction, and it was estimated that the fair value of the land, building and other assets was $18.7 million (CA$25 million) at the date of contribution. The Company recognized a gain of $13.6 million on the contribution of the fixed assets. As of September 30, 2019, the total investment in Pure Sunfarms of US$39.6 million is recorded in the interim statements of financial position.
Following the adoption of ASC 606, the Company measures nonmonetary equity contributions at fair value, which provides for recognizing a gain or loss upon the de-recognition of the nonmonetary assets. This is contrary to the non-monetary contribution of Delta 3 whereby a gain could not be recognized and the investment was recognized at net book value, as at the time ASC 606 was not applicable.
9
VILLAGE FARMS INTERNATIONAL, INC.
Notes to Condensed Consolidated Interim Financial Statements
(In thousands of United States dollars, except share and per share amounts, unless otherwise noted)
(Unaudited)
Pursuant to the terms of a Supply Agreement that Pure Sunfarms has with Emerald, Emerald has a right to purchase 40% of Pure Sunfarms cannabis production at a fixed price, subject to the terms and conditions of the Supply Agreement. To the extent that Emerald does not fulfill its purchase obligation, Pure Sunfarms is able to sell that excess production to other parties in the open market. The Supply Agreement stipulates that Emerald is required to pay Pure Sunfarms the difference between the fixed price and the selling price realized from other parties. During the quarter ended September 30, 2019, Emerald did not fulfill its purchase obligation and Pure Sunfarms sold the product on the open market to arms length parties at prices lower than the fixed price in the Supply Agreement. As a result, under the terms of the Supply Agreement, Pure Sunfarms invoiced Emerald for the difference which amounted to approximately CA$7.2 million. On October 15, 2019, Emerald issued a press release that indicated they do not agree that they have any liability with respect to these amounts.
Under ASC 606, Revenue from Contracts with Customers, a customer needs to have an intent and ability to pay in order for a company to recognize revenue. Given that Emerald has issued a press release indicating that they do not agree that they have a liability with respect to these amounts, Pure Sunfarms has determined that all of the criteria under ASC 606 to recognize this revenue were not met as Emerald has demonstrated that they do not have an intent to pay, and as a result has not recorded the revenue related to these amounts.
The Companys share of the joint venture consists of the following (in $000s of USD):
Balance, January 1, 2018 |
$ | 6,511 | ||
Share of net loss for the year |
(171 | ) | ||
|
|
|||
Balance, December 31, 2018 |
$ | 6,341 | ||
|
|
|||
Balance, January 1, 2019 |
$ | 6,341 | ||
Investments in joint venture |
18,721 | |||
Share of net income for the period |
14,493 | |||
|
|
|||
Balance, September 30, 2019 |
$ | 39,555 | ||
|
|
Summarized financial information of Pure Sunfarms:
September 30, 2019 | December 31, 2018 | |||||||
Current assets |
||||||||
Cash and cash equivalents (including restricted cash) |
$ | 12,178 | $ | 1,731 | ||||
Trade receivables |
17,351 | 962 | ||||||
Inventory |
11,433 | 5,101 | ||||||
Other current assets |
4,972 | 730 | ||||||
Non-current assets |
90,822 | 49,074 | ||||||
Current liabilities |
||||||||
Trade payables |
(3,645 | ) | (6,862 | ) | ||||
Borrowings due to joint venture partners |
(21,045 | ) | (21,686 | ) | ||||
Borrowings short term |
(1,588 | ) | ||||||
Other current liabilities |
(13,294 | ) | (380 | ) | ||||
Non-current liabilities |
||||||||
Borrowings long term |
(13,214 | ) | | |||||
|
|
|
|
|||||
Net assets |
$ | 83,970 | $ | 28,670 | ||||
|
|
|
|
Summarized financial information of Pure Sunfarms:
September 30, 2019 | December 31, 2018 | |||||||
Reconciliation of net assets: |
||||||||
Accumulated retained earnings |
$ | 23,373 | $ | (734 | ) | |||
Contributions from joint venture partners |
60,934 | 31,008 | ||||||
|
|
|
|
|||||
Currency translation adjustment |
(337 | ) | (1,604 | ) | ||||
|
|
|
|
|||||
Net assets |
$ | 83,970 | $ | 28,670 | ||||
|
|
|
|
10
VILLAGE FARMS INTERNATIONAL, INC.
Notes to Condensed Consolidated Interim Financial Statements
(In thousands of United States dollars, except share and per share amounts, unless otherwise noted)
(Unaudited)
Summarized financial information of Pure Sunfarms:
Three months ended | Nine months ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||||||
Revenue |
$ | 18,084 | $ | 190 | $ | 53,128 | $ | 190 | ||||||||
Cost of sales* | (5,689 | ) | (143 | ) | (13,463 | ) | (143 | ) | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Gross margin | 12,395 | 47 | 39,665 | 47 | ||||||||||||
Selling, general and administrative expenses | (2,830 | ) | (606 | ) | (5,616 | ) | (1,631 | ) | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Income (loss) from operations | 9,565 | (559 | ) | 34,049 | (1,584 | ) | ||||||||||
Interest (expense) income | (302 | ) | | (596 | ) | | ||||||||||
Foreign exchange gain (loss) | 14 | (31 | ) | 28 | (10 | ) | ||||||||||
Other income | 8 | | 22 | | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Income (loss) before taxes | 9,285 | (590 | ) | 33,503 | (1,594 | ) | ||||||||||
Provision for income taxes | (2,600 | ) | | (9,397 | ) | | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net income (loss) |
$ | 6,685 | $ | (590 | ) | $ | 24,106 | $ | (1,594 | ) | ||||||
|
|
|
|
|
|
|
|
* |
Included in cost of sales for the three and nine months ended September 30, 2019 is $503 and $1,347 of depreciation expense. |
Village Fields Hemp USA LLC
On February 27, 2019, the Company entered into a joint venture with Nature Crisp, LLC (Nature Crisp) to form VF Hemp for the objective of outdoor cultivation of high percentage cannabidiol (CBD) hemp and CBD extraction in multiple states throughout the United States. VF Hemp is 65% owned by the Company and 35% owned by Nature Crisp. Under the terms of the VF Hemp Joint Venture Agreement, the Company will lend up to approximately US$15 million to VF Hemp for start-up costs and working capital.
The Company accounts for its investment in VF Hemp, in accordance with ASC 323, using the equity method because the Company is able to exercise significant influence over the operating and financial policies of VF Hemp through its 65% ownership interest and joint power arrangement with Nature Crisp.
On March 25, 2019, the Company entered into a Grid Loan Agreement (the Grid Loan) with VF Hemp, whereby, as of September 30, 2019, the Company had advanced $7,977 in the form of a grid loan to VF Hemp. The Grid Loan has a maturity date of March 25, 2022, and bears simple interest at the rate of 8% per annum, calculated monthly (note 11).
The Companys share of the joint venture consists of the following:
Balance, beginning of the period |
$ | | ||
Investments in joint venture |
7 | |||
Share of net loss |
(343 | ) | ||
Share of losses applied against joint venture note receivable |
336 | |||
|
|
|||
Balance, September 30, 2019 |
$ | | ||
|
|
Summarized financial information of VF Hemp:
September 30, 2019 | ||||
Current assets |
||||
Cash and cash equivalents |
$ | 111 | ||
Inventory |
6,057 | |||
Prepaid expenses and deposits |
177 | |||
Non-current assets |
1,267 | |||
Current liabilities |
(3 | ) | ||
Borrowings due to joint venture partner |
(8,315 | ) | ||
Other non-current liabilities |
(342 | ) | ||
|
|
|||
Net assets |
$ | (1,048 | ) | |
|
|
11
VILLAGE FARMS INTERNATIONAL, INC.
Notes to Condensed Consolidated Interim Financial Statements
(In thousands of United States dollars, except share and per share amounts, unless otherwise noted)
(Unaudited)
September 30, 2019 | ||||
Reconciliation of net assets: |
||||
Net loss for the nine months ended September 30, 2019 |
$ | (1,058 | ) | |
Contributions from joint venture partners |
10 | |||
|
|
|||
Net assets |
$ | (1,048 | ) | |
|
|
Three months ended
September 30, 2019 |
Nine months ended
September 30, 2019 |
|||||||
General and administrative expenses |
$ | (197 | ) | (504 | ) | |||
Interest expense |
(75 | ) | (209 | ) | ||||
Share of loss from JV |
(1 | ) | (3 | ) | ||||
Benefit (provision) for income taxes |
68 | 186 | ||||||
|
|
|
|
|||||
Net (loss) |
$ | (205 | ) | $ | (530 | ) | ||
|
|
|
|
Arkansas Valley Green and Gold Hemp
On May 21, 2019, the Company entered into a joint venture with Arkansas Valley Hemp, LLC (AV Hemp) for the objective of outdoor cultivation of high percentage cannabidiol (CBD) hemp and CBD extraction in Colorado. The joint venture, AVGG Hemp, is 60% owned by the Company, 35% owned by AV Hemp, and 5% owned by VF Hemp.
Under the terms of the AVGG Hemp Joint Venture Agreement, the Company will lend approximately US$5 million to AVGG Hemp for start-up costs and working capital. The loans bear simple interest at the rate of 8% per annum, calculated monthly (note 10). To the extent cash is available from positive cash flow, the AVGG Hemp has agreed to repay the Company with respect to any such loans, in the range of $2 million to $5 million in the initial two years following the formation of AVGG Hemp. As of September 30, 2019, the Company had loaned AVGG Hemp approximately $1,156 (note 11).
The Company accounts for its investment in AVGG Hemp, in accordance with ASC 323, using the equity method because the Company is able to exercise significant influence over the operating and financial policies of AVGG Hemp through its 60% ownership interest and joint power arrangement with AV Hemp.
The Company is not legally obligated for the debts, obligations or liabilities of AVGG Hemp.
The Companys share of the joint venture consists of the following:
Balance, beginning of the period |
$ | | ||
Investments in joint venture |
6 | |||
Share of net loss |
(35 | ) | ||
Share of losses applied against joint venture note receivable |
29 | |||
|
|
|||
Balance, September 30, 2019 |
$ | | ||
|
|
Summarized financial information of AVGG Hemp:
September 30, 2019 | ||||
Current assets |
||||
Cash and cash equivalents |
$ | 39 | ||
Inventory |
707 | |||
Non-current assets |
362 | |||
Borrowings due to joint venture partner |
(1,185 | ) | ||
|
|
|||
Net assets |
$ | (77 | ) | |
|
|
12
VILLAGE FARMS INTERNATIONAL, INC.
Notes to Condensed Consolidated Interim Financial Statements
(In thousands of United States dollars, except share and per share amounts, unless otherwise noted)
(Unaudited)
Reconciliation of net assets: |
||||
Net loss for the nine months ended September 30, 2019 |
$ | (87 | ) | |
Contributions from joint venture partners |
10 | |||
|
|
|||
Net assets |
$ | (77 | ) | |
|
|
Summarized joint ventures information:
Investment in joint ventures
as of September 30, 2019 |
Investment in joint ventures
as of December 31, 2018 |
|||||||
Pure Sunfarms |
$ | 39,555 | $ | 6,341 | ||||
VF Hemp |
| | ||||||
AVGG Hemp |
| | ||||||
|
|
|
|
|||||
Total |
$ | 39,555 | $ | 6,341 | ||||
|
|
|
|
Equity in earnings (losses) from unconsolidated entities | ||||||||||||||||
Three months ended September 30, | Nine months ended September 30, | |||||||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||||||
Pure Sunfarms |
$ | 3,748 | $ | (295 | ) | $ | 14,493 | $ | (858 | ) | ||||||
VF Hemp |
(211 | ) | | (343 | ) | | ||||||||||
AVGG Hemp |
(18 | ) | | (35 | ) | | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | 3,519 | $ | (295 | ) | $ | 14,115 | $ | (858 | ) | ||||||
|
|
|
|
|
|
|
|
9 |
DEBT |
The Company has a term loan financing agreement with a Canadian creditor (FCC Loan). The non-revolving variable rate term loan has a maturity date of May 1, 2021 and a balance of $32,076 as of September 30, 2019. The outstanding balance is repayable by way of monthly installments of principal and interest based on an amortization period of 15 years, with the balance and any accrued interest to be paid in full on May 1, 2021. As of September 30, 2019, and December 31, 2018, borrowings under the FCC Loan agreement were subject to an interest rate of 6.787% and 7.082%, respectively, which is determined based on the Companys Debt to EBITDA ratio and the applicable LIBOR rate.
The Companys subsidiary VFCE has two loan agreements in place with a Canadian Chartered bank. As of September 30, 2019 and December 31, 2018, the balance on the non-revolving fixed rate loan was US$1,117 and US$1,279, respectively, and the balance on the uncommitted credit facility for capital expenditures was US$113 and US$138, respectively.
The Company has a line of credit agreement with a Canadian Chartered Bank (Operating Loan). The revolving Operating Loan has a line of credit up to CA$13,000 and variable interest rates with a maturity date on May 31, 2021 and is subject to margin requirements stipulated by the bank. As of September 30, 2019 and December 31, 2018, US$4,000 and US$2,000, respectively, was drawn on this facility, which is available to a maximum of CA$13,000, less outstanding letters of credit totaling US$150 and CA$38.
The Companys borrowings (Credit Facilities) are subject to certain positive and negative covenants. As of September 30, 2019 the Company was in compliance with all covenants on its Credit Facilities.
Accrued interest payable on the credit facilities and loans as of September 30, 2019 and December 31, 2018 was $171 and $184, respectively, and these amounts are included in accrued liabilities in the interim statement of financial position.
As collateral for the FCC Loan, the Company has provided promissory notes, a first mortgage on the VFF-owned greenhouse properties (excluding the Delta 3 and Delta 2 greenhouse facilities), and general security agreements over its assets. In addition, the Company has provided full recourse guarantees and has granted security therein. The carrying value of the assets and securities pledged as collateral as of September 30, 2019 and December 31, 2018 was $138,870 and $105,200, respectively.
As collateral for the Operating Loan, the Company has provided promissory notes and a first priority security interest over its accounts receivable and inventory. In addition, the Company has granted full recourse guarantees and security therein. The carrying value of the assets pledged as collateral as of September 30, 2019 and December 31, 2018 was $28,475 and $36,248, respectively.
13
VILLAGE FARMS INTERNATIONAL, INC.
Notes to Condensed Consolidated Interim Financial Statements
(In thousands of United States dollars, except share and per share amounts, unless otherwise noted)
(Unaudited)
The aggregate annual principal maturities of long-term debt for the next five years and thereafter are as follows:
Remainder of 2019 |
$ | 857 | ||
2020 |
3,409 | |||
2021 |
28,551 | |||
2022 |
340 | |||
2023 |
178 | |||
Thereafter |
| |||
|
|
|||
$33,335 | ||||
|
|
10 |
FINANCIAL INSTRUMENTS |
The Company records accounts receivable, accounts payable, accrued liabilities and debt at cost. The carrying values of these instruments approximate their fair value due to their short-term maturities.
11 |
RELATED PARTY TRANSACTIONS AND BALANCES |
On February 13, 2019, the Company announced that Pure Sunfarms had entered into a credit agreement with Bank of Montreal, as agent and lead lender, and Farm Credit Canada, as lender, in respect of a CA$20 million secured non-revolver term loan (the Credit Facility). The Credit Facility, which matures on February 7, 2022, is secured by the Delta 3 facility, and contains customary financial and restrictive covenants. The Company is not a party to the Credit Facility but has provided a limited guarantee in the amount of CA$10 million in connection with the Credit Facility.
As of September 30, 2019 and December 31, 2018, the Company had amounts due from its joint venture, Pure Sunfarms, totaling $218 and $1,079, respectively, primarily for consulting services. These amounts are non-interest bearing and due on demand. On July 5, 2018, the Shareholders entered into a Loan Agreement in the form of a demand loan to Pure Sunfarms. As of September 30, 2019, the balance Pure Sunfarms owed the Company, including interest was $10,472.
On March 25, 2019, the Company entered into a Grid Loan Agreement (the Grid Loan) with VF Hemp, whereby, as of September 30, 2019, the Company had contributed $8,006 in the form of a grid loan to VF Hemp. The Grid Loan has a maturity date of March 25, 2022, and bears simple interest at the rate of 8% per annum, calculated monthly.
14
VILLAGE FARMS INTERNATIONAL, INC.
Notes to Condensed Consolidated Interim Financial Statements
(In thousands of United States dollars, except share and per share amounts, unless otherwise noted)
(Unaudited)
Under the terms of the AVGG Hemp Joint Venture Agreement, the Company agreed to lend approximately US$5 million to AVGG Hemp for start-up costs and working capital. The loan bears simple interest at the rate of 8% per annum, calculated monthly (note 7). As of September 30, 2019, the Company had loaned AVGG Hemp approximately $1,156 (note 8).
Amounts due from the joint ventures, including interest, as of September 30, 2019 and December 31, 2018 and included in the statements financial position:
September 30, 2019 | December 31, 2018 | |||||||
Pure Sunfarms |
$ | 10,690 | $ | 10,873 | ||||
VF Hemp |
8,006 | | ||||||
AVGG Hemp |
1,156 | | ||||||
|
|
|
|
|||||
Total |
$ | 19,852 | $ | 10,873 | ||||
|
|
|
|
One of the Companys employees is related to a member of the Companys executive management team and received approximately $83 and $86 in salary and benefits during the nine months ended September 30, 2019 and 2018, respectively.
Included in accrued expenses and other current liabilities is $50 paid to the Company by an employee for taxes incurred on a stock option exercise. The Company paid the taxes in October 2019.
Included in other assets as at December 31, 2018 is a $64 promissory note that represents the unpaid amount the Company advanced to an employee in connection with a relocation at the request of the Company. The promissory note was paid in full June 10, 2019.
12 |
INCOME TAX |
Income tax expense is recognized based on managements best estimate of the weighted average annual income tax rate expected for the full financial year. The estimated average annual rate used for the nine months ended September 30, 2019 and 2018 was 24% and 25%, respectively.
13 |
SEGMENT AND GEOGRAPHIC INFORMATION |
Segment reporting is prepared on the same basis that the Companys Chief Executive Officer, who is the Companys Chief Operating Decision Maker, manages the business, makes operating decisions and assesses performance. Management has determined that the Company operates in three segments. The Companys three segments include the Produce business, the Energy business and the Companys cannabis and hemp segment. The Produce business produces, markets, and sells the product group which consists of premium quality tomatoes, bell peppers and cucumbers. The Energy business produces power that it sells per a long-term contract to its one customer. For segment information regarding the Companys cannabis and hemp segment refer to Note 8 Investments Equity Method and Joint Ventures.
15
VILLAGE FARMS INTERNATIONAL, INC.
Notes to Condensed Consolidated Interim Financial Statements
(In thousands of United States dollars, except share and per share amounts, unless otherwise noted)
(Unaudited)
The Companys primary operations are in the United States and Canada. Segment information for the three and nine months ended September 30, 2019 and 2018:
Three months ended September 30, | Nine months ended September 30, | |||||||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||||||
Sales |
||||||||||||||||
Produce U.S. |
$ | 30,734 | $ | 32,073 | $ | 92,594 | $ | 92,391 | ||||||||
Produce Canada |
7,072 | 7,139 | 17,874 | 17,371 | ||||||||||||
Energy Canada |
487 | 472 | 1,044 | 1,451 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
$ | 38,293 | $ | 39,684 | $ | 111,512 | $ | 111,213 | |||||||||
|
|
|
|
|
|
|
|
|||||||||
Interest expense |
||||||||||||||||
Produce U.S. |
$ | 29 | $ | 9 | $ | 94 | $ | 28 | ||||||||
Produce Canada |
608 | 697 | 1,869 | 1,972 | ||||||||||||
Energy - Canada |
18 | 22 | 55 | 69 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
$ | 655 | $ | 728 | $ | 2,018 | $ | 2,069 | |||||||||
|
|
|
|
|
|
|
|
|||||||||
Interest income |
||||||||||||||||
Corporate |
$ | 304 | $ | 91 | $ | 651 | $ | 105 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
$ | 304 | $ | 91 | $ | 651 | $ | 105 | |||||||||
|
|
|
|
|
|
|
|
|||||||||
Depreciation |
||||||||||||||||
Produce U.S. |
$ | 1,006 | $ | 1,130 | $ | 3,031 | $ | 3,463 | ||||||||
Produce Canada |
328 | 386 | 1,075 | 1,164 | ||||||||||||
Energy - Canada |
229 | 232 | 684 | 644 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
$ | 1,563 | $ | 1,748 | $ | 4,790 | $ | 5,271 | |||||||||
|
|
|
|
|
|
|
|
|||||||||
Gross margin |
||||||||||||||||
Produce U.S. |
$ | (4,102 | ) | $ | (975 | ) | $ | (8,838 | ) | $ | 279 | |||||
Produce Canada |
3,602 | 3,840 | 6,339 | 6,963 | ||||||||||||
Energy - Canada |
(111 | ) | (43 | ) | (407 | ) | 57 | |||||||||
|
|
|
|
|
|
|
|
|||||||||
$ | (611 | ) | $ | 2,822 | $ | (2,906 | ) | $ | 7,299 | |||||||
|
|
|
|
|
|
|
|
|||||||||
September 30,
2019 |
December 31,
2018 |
|||||||
Total assets |
||||||||
United States |
$ | 90,277 | $ | 79,126 | ||||
Canada |
79,736 | 58,690 | ||||||
Energy - Canada |
3,163 | 3,632 | ||||||
|
|
|
|
|||||
$ | 173,176 | $ | 141,448 | |||||
|
|
|
|
September 30,
2019 |
December 31,
2018 |
|||||||
Property, plant and equipment |
||||||||
United States |
$ | 41,461 | $ | 42,886 | ||||
Canada |
19,623 | 25,933 | ||||||
Energy - Canada |
2,887 | 3,369 | ||||||
|
|
|
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$ | 63,971 | $ | 72,188 | |||||
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14 |
(LOSS) INCOME PER SHARE |
Basic and diluted net income per ordinary share is calculated as follows:
Three months ended
September 30, |
Nine months ended
September 30, |
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2019 | 2018 | 2019 | 2018 | |||||||||||||
Numerator: |
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Net (loss) income |
$ | (704 | ) | $ | (1,428 | ) | $ | 9,509 | $ | (5,090 | ) | |||||
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Denominator: |
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Weighted average number of common shares - Basic |
48,845 | 44,475 | 48,650 | 44,473 | ||||||||||||
Effect of dilutive securities- share-based employee options and awards |
| | 1,801 | | ||||||||||||
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Weighted average number of common shares - Diluted |
48,845 | 44,475 | 50,451 | 44,473 | ||||||||||||
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Antidilutive options and awards |
310 | 2,186 | 310 | 2,186 | ||||||||||||
Net (loss) income per ordinary share: |
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Basic |
$ | (0.01 | ) | $ | (0.03 | ) | $ | 0.20 | $ | (0.11 | ) | |||||
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Diluted |
$ | (0.01 | ) | $ | (0.03 | ) | $ | 0.19 | $ | (0.11 | ) | |||||
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16
VILLAGE FARMS INTERNATIONAL, INC.
Notes to Condensed Consolidated Interim Financial Statements
(In thousands of United States dollars, except share and per share amounts, unless otherwise noted)
(Unaudited)
15 |
SHARE-BASED COMPENSATION PLAN |
Share-based compensation expense for the three and nine months ended September 30, 2019 was $666 and $2,663, respectively. Share-based compensation expense for the three and nine months ended September 30, 2018 was $191 and $447, respectively.
Stock option activity for the nine months ended September 30, 2019 is as follows:
Number of
Options |
Weighted
Average Exercise Price |
Weighted
Average Remaining Contractual Term (years) |
Aggregate
Intrinsic Value |
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Outstanding at December 31, 2018 |
2,164,999 | CA$ | 2.10 | 5.69 | CA$ | 5,553 | ||||||||||
Granted |
510,000 | CA$ | 16.32 | 9.44 | | |||||||||||
Exercised |
(83,998 | ) | CA$ | 1.26 | 5.58 | CA$ | $1,156 | |||||||||
Forfeited |
(10,001 | ) | CA$ | 2.20 | | CA$ | 128 | |||||||||
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Outstanding at September 30, 2019 |
2,581,000 | CA$ | 4.92 | 5.80 | CA$ | 20,456 | ||||||||||
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Exercisable at September 30, 2019 |
1,784,002 | CA$ | 1.61 | 4.34 | CA$ | 18,525 | ||||||||||
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During the nine months ended September 30, 2019, 355,000 performance-based shares were granted to Village Farms employees and directors involved with future developments of the Company. Once a performance target is met and the share units are deemed earned and vested, compensation expense based on the fair value of the share units on the grant date is recorded in selling, general and administrative expenses in the interim statements of income.
Performance-based shares activity for the nine months ended September 30, 2019 was as follows:
Number of
Performance- based Shares |
Weighted Average
Grant Date Fair Value |
|||||||
Outstanding at December 31, 2018 |
1,056,666 | CA$ | 5.56 | |||||
Issued |
355,000 | CA$ | 14.94 | |||||
Exercised |
(313,666 | ) | CA$ | 5.36 | ||||
Forfeited/expired |
(5,000 | ) | CA$ | 5.79 | ||||
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Outstanding at September 30, 2019 |
1,093,000 | CA$ | 9.04 | |||||
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Exercisable at September 30, 2019 |
159,000 | CA$ | 8.20 | |||||
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16 |
COMMITMENT AND CONTINGENCIES |
In the normal course of business, the Company and its subsidiaries may become defendants in certain employment claims and other litigation. The Company records a liability when it is probable that a loss has been incurred and the amount is reasonably estimable. The Company is not involved in any legal proceedings other than routine litigation arising in the normal course of business, none of which the Company believes will have a material adverse effect on the Companys business, financial condition or results of operations.
17