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

(Registrant’s 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 Company’s 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 Company’s 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.

 

Exhibit

  

Title

10.1    Form of Indemnification Agreement.
99.1    Unaudited condensed consolidated interim financial statements, prepared in accordance with US GAAP, for the three months ended March 31, 2019 and 2018.
99.2    Unaudited condensed consolidated interim financial statements, prepared in accordance with US GAAP, for the three and six months ended June 30, 2019 and 2018.
99.3    Unaudited condensed consolidated interim financial statements, prepared in accordance with US GAAP, for the three and nine months ended September 30, 2019 and 2018.


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 Corporation’s 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 Corporation’s 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 corporation’s 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 Party’s 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 Party’s 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 Party’s 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 Corporation’s 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 Party’s 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 Corporation’s 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 Party’s 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 other’s 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 Party’s 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  
  

 

 

   

 

 

 

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  
  

 

 

   

 

 

 

Total assets

   $ 157,656     $ 141,448  
  

 

 

   

 

 

 

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  
  

 

 

   

 

 

 

Total current liabilities

     24,283       23,602  
  

 

 

   

 

 

 

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  
  

 

 

   

 

 

 

Total liabilities

     65,383       57,015  
  

 

 

   

 

 

 

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  
  

 

 

   

 

 

 

Total shareholders’ equity

     92,273       84,433  
  

 

 

   

 

 

 

Total liabilities and shareholders’ equity

   $ 157,656     $ 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 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
  

 

 

   

 

 

 

Diluted income (loss) per share

   $ 0.13     $ (0.01
  

 

 

   

 

 

 

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  
  

 

 

   

 

 

 

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
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at March 31, 2018

     42,447,613      $ 36,284     $ 1,844     $ (446   $ 28,837     $ 66,519  
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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  
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at March 31, 2019

     47,812,003      $ 61,832     $ 2,568     $ (518   $ 28,391     $ 92,273  
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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
  

 

 

   

 

 

 

Net cash used in operating activities

     (5,546     (5,932
  

 

 

   

 

 

 

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. VFF’s 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 Company’s 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 Company’s 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 Company’s 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 Company’s 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 Company’s consolidated statements of (loss) income.

In February 2016, the FASB issued ASU 2016-02, Leases, and has subsequently issued several supplemental and/or clarifying ASU’s (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 Company’s 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 lessee’s 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 Company’s 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 Company’s 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 Company’s 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 Company’s 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 Company’s investments do not have a readily determinable fair value as none of them are publicly traded. The fair values of the Company’s 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 Company’s 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 customer’s 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 broker’s 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 entity’s 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 tranche’s 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 Company’s 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 Company’s common shares as at the grant date in accordance with the terms of the Company’s 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 Company’s 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 Company’s 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 Company’s 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 Company’s 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 Company’s 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 Company’s 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 Company’s 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 Company’s 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 Company’s 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 Company’s employees is related to a member of the Company’s 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 management’s 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 Company’s Chief Executive Officer, who is the Company’s Chief Operating Decision Maker, manages the business, makes operating decisions and assesses performance. Management has determined that the Company operates in three segments. The Company’s three segments include the Produce business, the Energy business and the Company’s 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 Company’s 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 Company’s 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 Company’s 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)

 

     June 30, 2019     December 31, 2018  

ASSETS

    

Current assets

    

Cash and cash equivalents

   $ 11,706     $ 11,920  

Trade receivables

     13,823       11,292  

Inventories

     21,284       24,956  

Amounts due from joint ventures

     10,602       10,873  

Other receivables

     819       332  

Prepaid expenses and deposits

     1,623       889  
  

 

 

   

 

 

 

Total current assets

     59,857       60,262  
  

 

 

   

 

 

 

Non-current assets

    

Property, plant and equipment

     64,671       72,188  

Operating lease right-of-use assets

     3,914       —    

Finance lease right-of-use-assets

     136       176  

Investment in joint ventures

     35,805       6,341  

Note receivable - joint ventures

     5,608       —    

Deferred tax asset

     3,602       274  

Other assets

     1,718       2,207  
  

 

 

   

 

 

 

Total assets

   $ 175,311     $ 141,448  
  

 

 

   

 

 

 

LIABILITIES

    

Current liabilities

    

Line of credit

   $ 5,000     $ 2,000  

Trade payables

     9,389       14,601  

Current maturities of long-term debt

     3,439       3,414  

Accrued liabilities

     5,886       3,509  

Operating lease liabilities - current

     839       —    

Finance lease liabilities - current

     69       78  
  

 

 

   

 

 

 

Total current liabilities

     24,622       23,602  
  

 

 

   

 

 

 

Non-current liabilities

    

Long-term debt

     30,645       32,261  

Deferred tax liability

     4,472       —    

Operating lease liabilities - current

     3,140       —    

Finance lease liabilities - current

     66       102  

Other liabilities

     1,205       1,050  
  

 

 

   

 

 

 

Total liabilities

     64,150       57,015  
  

 

 

   

 

 

 

SHAREHOLDERS’ EQUITY

    

Common stock, no par value per share - unlimited shares authorized; 49,273,786 shares issued and outstanding at June 30, 2019 and 47,642,672 shares issued and outstanding at December 31, 2018.

     76,435       60,872  

Additional paid in capital

     3,101       2,198  

Accumulated other comprehensive loss

     (482     (562

Retained earnings

     32,107       21,925  
  

 

 

   

 

 

 

Total shareholders’ equity

     111,161       84,433  
  

 

 

   

 

 

 

Total liabilities and shareholders’ equity

   $ 175,311     $ 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 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. VFF’s 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 Company’s 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 Company’s 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 Company’s 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 Company’s 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 Company’s consolidated statements of (loss) income.

In February 2016, the FASB issued ASU 2016-02, Leases, and has subsequently issued several supplemental and/or clarifying ASU’s (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 Company’s 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 lessee’s 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 Company’s 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 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 Company’s 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 Company’s 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 Company’s 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 Company’s 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 Company’s 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 Company’s 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 Company’s 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 Company’s 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 Company’s 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 Company’s 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 Company’s 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 Company’s employees is related to a member of the Company’s 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 management’s 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 Company’s Chief Executive Officer, who is the Company’s Chief Operating Decision Maker, manages the business, makes operating decisions and assesses performance. Management has determined that the Company operates in three segments. The Company’s three segments include the Produce business, the Energy business and the Company’s 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 Company’s cannabis and hemp segment refer to Note 7 – Investments – Equity Method and Joint Ventures.

The Company’s 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 Company’s 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