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Report of Independent Registered Public Accounting Firm |
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To the Board of Directors and Shareholders of Village Farms International, Inc. |
Opinions on the Financial Statements and Internal Control over Financial Reporting |
We have audited the accompanying consolidated statements of financial position of Village Farms International, Inc. and its subsidiaries (the “Company”) as of December 31, 2021 and December 31, 2020, and the related consolidated statements of income (loss) and comprehensive income (loss), of changes in shareholders’ equity and mezzanine equity, and of cash flows for each of the three years in the period ended December 31, 2021, including the related notes (collectively referred to as the “consolidated financial statements”). We also have audited the Company's internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). |
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company did not maintain, in all material respects, effective internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO because a material weakness in internal control over financial reporting existed as of that date related to the operation of effective controls over the calculation of debt covenants. |
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis. The material weakness referred to above is described in the accompanying Management’s Report on Internal Control over Financial Reporting. We considered this material weakness in determining the nature, timing, and extent of audit tests applied in our audit of the December 31, 2021 consolidated financial statements, and our opinion regarding the effectiveness of the Company’s internal control over financial reporting does not affect our opinion on those consolidated financial statements. |
Basis for Opinions |
The Company’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in management's report referred to above. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. |
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects. |
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions. |
As described in Management’s Report on Internal Control over Financial Reporting, management has excluded Balanced Health Botanicals, LLC and Rose Lifescience Inc. from its assessment of internal control over financial reporting as of December 31, 2021 because they were acquired by the Company during 2021. We have also excluded Balanced Health Botanicals, LLC and Rose Lifescience Inc. from our audit of internal control over financial reporting. Balanced Health Botanicals, LLC and Rose Lifescience Inc. are consolidated subsidiaries whose total assets and total revenues excluded from management’s assessment and our audit of |
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internal control over financial reporting represent approximately 15% and 10% of total assets, respectively and approximately 4% and 1% of total revenues, respectively, of the related consolidated financial statement amounts as of and for the year ended December 31, 2021. |
Definition and Limitations of Internal Control over Financial Reporting |
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. |
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. |
Critical Audit Matters |
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. |
Valuation of the intangible asset acquired in the acquisition of Balanced Health Botanicals, LLC (“BHB”) |
As described in Note 7 to the consolidated financial statements, the Company completed the acquisition of 100% of BHB in August 2021 for total consideration of $71.75 million. The acquisition of BHB resulted in an intangible asset related to the brand of $9.25 million. The fair value of the intangible asset was based on the relief from royalty method. This measure of fair value requires significant judgment about the value a market participant would be willing to pay to achieve the benefits associated with the brand. The method requires management to estimate future revenues for the related brand, the appropriate royalty rate, and an asset specific discount rate. |
The principal considerations for our determination that performing procedures relating to the valuation of the intangible asset acquired in the acquisition of BHB is a critical audit matter are (i) a high degree of auditor judgment and subjectivity in performing procedures relating to the fair value of the intangible asset acquired due to the significant judgment by management when developing the estimate; (ii) the significant audit effort in evaluating management’s estimates related to the future revenues for the related brand, the appropriate royalty rate, and an asset specific discount rate; and (iii) the audit effort involved the use of professionals with specialized skill and knowledge. |
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to the acquisition accounting, including controls over management’s valuation of the intangible asset and controls over management’s estimation process. These procedures also included, among others (i) reading the purchase agreement and (ii) testing management’s process for estimating the fair value of the intangible asset. Testing management’s process included evaluating the appropriateness of the valuation method, testing the completeness and accuracy of data provided by management, and evaluating the reasonableness of management’s estimates related to future revenues for the related brand, the appropriate royalty rate, and an asset specific discount rate. Evaluating the reasonableness of the future revenues for the related brand involved considering the past performance of the acquired business, as well as economic and industry forecasts. Professionals with specialized skill and knowledge were used to assist in the evaluation of the Company’s valuation method as well as management’s estimates related to the appropriate royalty rate and an asset specific discount rate. |
/s/PricewaterhouseCoopers LLP |
Chartered Professional Accountants |
Vancouver, Canada March 1, 2022 |
We have served as the Company’s auditor since 2006. |
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| | Village Farms International, Inc. |
| | | Consolidated Statements of Financial Position |
| | (In thousands of United States dollars) |
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| | | | December 31, 2021 December 31, 2020 |
ASSETS | | | | | |
Current assets | | | | | |
| | | | | | Cash and cash equivalents | $ | | | 53,417 $ | 21,640 |
| | | | | | Restricted cash (note 3) | 5,250 | 4,039 |
| | | | | | Trade receivables, less allowance for doubtful accounts of $39 and $13, respectively |
| | | | | | | | | | 34,360 | 23,222 |
| | | | | | Inventories (note 4) | 68,677 | 46,599 |
| | | | | | Other receivables | 616 | | | 145 |
| | | | | | Income tax receivable | 2,430 | 18 |
| | | | | | Prepaid expenses and deposits | 10,209 | 6,145 |
Total current assets | | | | | | | 174,959 | 101,808 |
Non-current assets | | | | | |
| | | | | | Property, plant and equipment (note 5) | 215,704 | 187,020 |
| | | | | | Investment in minority interests (note 9) | 2,109 | 1,226 |
| | | | | | Note receivable - joint venture (note 16) | 3,256 | 3,545 |
| | | | | | Goodwill (notes 6, 7 and 8) | 117,533 | 24,027 |
| | | | | | Intangibles (notes 6, 7, 8 and 10) | 26,394 | 17,311 |
| | | | | | Deferred tax asset (note 17) | 16,766 | 13,312 |
| | | | | | Right-of-use assets (note 13) | 7,609 | 3,832 |
| | | | | | Other assets | 2,581 | 1,950 |
Total assets | | | | $ | | | 566,911 $ | 354,031 |
LIABILITIES | | | | | |
Current liabilities | | | | | |
| | | | | | Line of credit | $ | | | 7,760 $ | 2,000 |
| | | | | | Trade payables | 22,597 | 15,064 |
| | | | | | Current maturities of long-term debt (note 11) | 11,416 | 10,166 |
| | | | | | Note payable (note 11) | — | | | 15,314 |
| | | | | | Accrued sales taxes | 3,899 | 12,071 |
| | | | | | Accrued loyalty program | 2,098 | — |
| | | | | | Accrued liabilities (note 12) | 14,168 | 10,367 |
| | | | | | Lease liabilities - current (note 13) | 962 | | | 1,134 |
| | | | | | Income tax payable | — | | | 4,523 |
| | | | | | Other current liabilities | 1,413 | 1,641 |
Total current liabilities | | | | | | | 64,313 | 72,280 |
Non-current liabilities | | | | | |
| | | | | | Long-term debt (note 11) | 50,419 | 53,913 |
| | | | | | Deferred tax liability (note 17) | 18,657 | 18,059 |
| | | | | | Lease liabilities - non-current (note 13) | 6,711 | 2,863 |
| | | | | | Other liabilities | 1,973 | 1,633 |
Total liabilities | | | | | | | 142,073 | 148,748 |
| | | | | | Commitments and contingencies (note 15) | |
MEZZANINE EQUITY | | | | | |
Redeemable non-controlling interests (note 8) | | | | | | | 16,433 | — |
SHAREHOLDERS’ EQUITY | | | | | |
| | | | | | Common stock, no par value per share - unlimited shares authorized; 88,233,929 and 66,911,811 shares issued and outstanding at December 31, 2021 and 2020, respectively. |
| | | | | | | | | | | 365,561 | 145,668 |
| | | | | | Additional paid in capital | 9,369 | 17,502 |
| | | | | | Accumulated other comprehensive loss | 6,696 | 6,255 |
| | | | | | Retained earnings | 26,779 | 35,858 |
Total shareholders’ equity | | | | | | | 408,405 | 205,283 |
Total liabilities, mezzanine equity and shareholders’ equity | | | | $ | | | 566,911 $ | 354,031 |
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| | | | | | | | | The accompanying notes are an integral part of these consolidated financial statements. |
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| | Village Farms International, Inc. | |
| | | | Consolidated Statements of Income (Loss) and Comprehensive Income (Loss) | |
| | | | | | For the Years Ended December 31, 2021, 2020 and 2019 | |
| | (In thousands of United States dollars) | |
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| | | 2021 | | | | | 2020 | | | | | 2019 |
Sales (note 18) | | | | | | | | | | $ | 268,020 | | | | $ | 170,086 $ | | | | 144,568 |
Cost of sales | | | (222,841) | | (159,126 ) | | | | (151,913) |
Gross margin (note 18) | | | 45,179 | | 10,960 | | | | (7,345) |
Selling, general and administrative expenses | | | (46,384) | | (19,086 ) | | | | (16,762) |
Share-based compensation | | | (7,533) | | (6,142 ) | | | | (4,714) |
Interest expense (note 18) | | | (2,835) | | (2,056 ) | | | | (2,614) |
Interest income (note 18) | | | 126 | | 625 | | | | | | 1,036 |
Foreign exchange (loss) gain | | | (476) | | (136 ) | | | | | | 433 |
Gain on settlement agreement (note 6) | | | | | | | | | | | | — | 4,681 | | | | | | — |
Gain on acquisition (note 6) | | | | | | | | | | | | — | 23,631 | | | | | | — |
Other (expense) income | | | (161) | | 49 | | | | | | 268 |
(Loss) gain on disposal of assets | | | (259) | | (922 ) | | | | 13,564 |
Loss on joint venture loans (note 9) | | | | | | | | | | | | — | (3,791 ) | | | | (1,184) |
(Loss) income before taxes and (loss) income from equity method investments |
| | | (12,343) | | 7,813 | | | | (17,318) |
Recovery of income taxes | | | 3,526 | | 2,790 | | | | | | 5,866 |
(Loss) income from equity method investments | | | (308) | | 1,005 | | | | 13,777 |
(Loss) income including non-controlling interests | | | (9,125) | | 11,608 | | | | | | 2,325 |
Less: net loss attributable to non-controlling interests, net of tax | | | | | | | | | | | | 46 | — | | | | | | — |
Net (loss) income attributable to Village Farms International, Inc. | | | | | | | | | | $ | (9,079) $ | | 11,608 $ | | | | | | 2,325 |
Basic (loss) income per share attributable to Village Farms International, Inc. shareholders (note 19) |
| | | | | | | | | | $ | (0.11) $ | | 0.20 $ | | | | | | 0.05 |
Diluted (loss) income per share attributable to Village Farms International, Inc. shareholders (note 19) |
| | | | | | | | | | $ | (0.11) $ | | 0.19 $ | | | | | | 0.05 |
Weighted average number of common shares used in the computation of net (loss) income per share (in thousands): |
| | | | | |
| | | | | | | | | | | | | Basic | 82,161 | | 58,526 | | | | 49,418 |
| | | | | | | | | | | | | Diluted | 82,161 | | 61,490 | | | | 51,179 |
(Loss) income including non-controlling interests | | | | | | | | | | $ | (9,125) $ | | 11,608 $ | | | | | | 2,325 |
Less: net loss attributable to non-controlling interests, net of tax (note 6) | | | | | | | | | | | | 46 | $ | — $ | | | | | | — |
Net (loss) income attributable to Village Farms International, Inc. | | | (9,079) | | 11,608 | | | | | | 2,325 |
Other comprehensive (loss) income: | | | | | |
| | | | | | | | | | | | | Foreign currency translation adjustment | 441 | | 6,730 | | | | | | 87 |
Comprehensive (loss) income attributable to Village Farms International, Inc. shareholders |
| | | | | | | | | | $ | (8,638) $ | | 18,338 $ | | | | | | 2,412 |
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| | | | The accompanying notes are an integral part of these consolidated financial statements. |
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| | Village Farms International, Inc. | |
| | | | Consolidated Statements of Changes in Shareholders’ Equity and Mezzanine Equity | |
| | | | | | For the Years Ended December 31, 2021, 2020 and 2019 | |
| | (In thousands of United States dollars) | |
|
| | | Accumulated | | Total |
| | | Other | | Permanent |
| | | | | | Number of | Additional | | Comprehensi | | Shareholder |
| | | | | | Common | Common | Paid In Capital | | ve (Loss) | | | | Retained Earnings | s’ | | | | Mezzani |
| | | | | | | Shares | | | | | | | Stock | Income | | Equity | | | | ne Equity |
Balance at January 1, 2019 | | | | | | | | | | 47,643 $ | 60,872 | $ | | | | | | | | | | 2,198 $ | (562) $ | | | | 21,925 $ 84,433 | | $ | | | — |
Shares issued in public offering, net of issuance costs |
| | | | | | | | | | 4,059 | 34,226 | | | — | | — | — | 34,226 | | | | | | | — |
Shares issued on exercise of stock options (note 20) |
| | | | | | | 212 | | | | | | 324 | | | (116) | | — | — | 208 | — |
Share-based compensation (note 20) |
| | | | | | | 443 | | | | | | 2,297 | | | 2,417 | | — | — | 4,714 | | | | | | | — |
Shares issued on exercise of warrants |
| | | | | | | 300 | | | | | | 614 | | | (148) | | — | — | 466 | — |
Cumulative translation adjustment | | — | — | | | | | | | | | | — | | 87 | — | 87 | — |
Net income | | | | | | | — | — | | | | | | | | | | — | | — | 2,325 | 2,325 | | | | | | | — |
Balance at December 31, 2019 | | | | | | | | | | 52,657 $ | 98,333 | $ | | | | | | | | | | 4,351 $ | (475) $ | | | | 24,250 $ 126,459 |
Shares issued in public offering, net of issuance costs |
| | | | | | | | | | 12,990 | 42,550 | | | — | | — | — | 42,550 | | | | | | | — |
Warrants issued in public offering | | — | — | | | | | | | | | | 11,369 | | — | — | 11,369 | | | | | | | — |
Shares issued on exercise of stock options (note 20) |
| | | | | | | | | | 1,265 | 692 | | | (267) | | — | — | 425 | — |
Share-based compensation (note 20) | | — | | | | | | 4,093 | | | 2,049 | | — | — | 6,142 | | | | | | | — |
Cumulative translation adjustment | | — | — | | | | | | | | | | — | 6,730 | | | | | | | | | | | — | 6,730 | | | | | | | — |
Net income | | | | | | | — | — | | | | | | | | | | — | | — | 11,608 | 11,608 | | | | | | | — |
Balance at December 31, 2020 | | | | | | | | | | 66,912 $ 145,668 | $ | | | | | | | | | | 17,502 $ | 6,255 $ | | | | 35,858 $ 205,283 | | $ | | | — |
Shares issued in public offering, net of issuance costs |
| | | | | | | | | | 10,887 127,489 | — | | — | — 127,489 | — |
Shares issued in acquisition | | | | | | | | | | 7,118 | 63,044 | | | — | | — | — | 63,044 | | | | | | | — |
Shares issued on exercise of warrants (note 20) |
| | | | | | | | | | 3,188 | 29,050 | (10,555) | | | | | | | | | | | | — | — | 18,495 | | | | | | | — |
Shares issued on exercise of stock options (note 20) |
| | | | | | | 177 | | | | | | 310 | | | (111) | | — | — | 199 | — |
Share re-purchases (note 20) | | | | | | | (535 ) | — | | | | | | | | | | (5,000) | | — | — | (5,000) | | | | | | | — |
Share-based compensation (note 20) | | 487 | — | | | | | | | | | | 7,533 | | — | — | 7,533 | | | | | | | — |
Recognition of non-controlling interest on acquisition |
| | | | | | | — | — | | | | | | | | | | — | | — | — | — | 16,479 |
Cumulative translation adjustment | | — | — | | | | | | | | | | — | 441 | | | | | | | | | | | — | 441 | — |
Net loss | | | | | | | — | — | | | | | | | | | | — | | — | (9,079 ) | (9,079) | | | | (46) |
Balance at December 31, 2021 | | | | | | | | | | 88,234 $ 365,561 | $ | | | | | | | | | | 9,369 $ | 6,696 $ | | | | 26,779 $ 408,405 | | $ 16,433 |
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| | | | The accompanying notes are an integral part of these consolidated financial statements. |
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| | Village Farms International, Inc. |
| | Consolidated Statements of Cash Flows |
| | | For the Years Ended December 31, 2021, 2020 and 2019 |
| | (In thousands of United States dollars) |
| | | | 2021 | | 2020 | | 2019 |
Cash flows (used in) provided by operating activities: | | | | | |
Net (loss) income attributable to Village Farms International, Inc. shareholders |
| | | | | | | | | $ | (9,079) $ | | 11,608 | $ | 2,325 |
Adjustments to reconcile net (loss) income to net cash provided by (used in) operating activities: |
| | | | | |
| | | | | | | | | | Depreciation and amortization | 12,709 | | 6,825 | | 7,366 |
| | | | | | | | | | Amortization of deferred charges | 300 | | | | | | | | 115 | 76 |
| | | | | | | | | | Share of loss (income) from joint venture (notes 6 and 9) | 308 | | (1,005) | | (13,777) |
| | | | | | | | | | Loss on joint venture loans (note 9) | — | | 3,791 | | 1,184 |
| | | | | | | | | | Interest expense | 2,835 | | 2,056 | | 2,614 |
| | | | | | | | | | Interest income | (126) | (625) | (1,036) |
| | | | | | | | | | Interest paid on long-term debt | (3,306) | | (1,295) | | (2,635) |
| | | | | | | | | | Gain on settlement agreement | — | | (4,681) | | | | | | | — |
| | | | | | | | | | (Gain) loss on disposal of assets | 259 | | | | | | | | 922 | (13,564) |
| | | | | | | | | | Gain on acquisition of Pure Sunfarms | — | | (23,631) | | | | | | | — |
| | | | | | | | | | Non-cash lease expense | (1,351) | | (1,150) | | (1,043) |
| | | | | | | | | | Other | 366 | | | — | | | | | | — |
| | | | | | | | | | Interest paid on finance lease | — | | | (4) | | | | | | — |
| | | | | | | | | | Share-based compensation | 7,533 | | 6,142 | | 4,714 |
| | | | | | | | | | Deferred income taxes | (2,866) | | (6,462) | | (5,855) |
| | | | | | | | | | Changes in non-cash working capital items (note 21) | (47,149) | | 13,072 | | 5,244 |
| | | | | | | | | | Net cash (used in) provided by operating activities | (39,567) | | 5,678 | | (14,387) |
Cash flows used in investing activities: | | | | | |
| | | | | | | | | | Purchases of property, plant and equipment, net of rebate | (21,656) | | (3,419) | | (2,287) |
| | | | | | | | | | Purchases of intangibles | — | | | (92) | | | | | | — |
| | | | | | | | | | Advances to joint ventures | (20) | | | | | | | (177) | (14,507) |
| | | | | | | | | | Proceeds from sale of assets | — | | | — | | | | | | 52 |
| | | | | | | | | | Acquisitions, net | (40,685) | | (34,603) | | | | | | | — |
| | | | | | | | | | Investment in minority interests | (1,109) | | (1,226) | | | | | | | — |
| | | | | | | | | | Investment in joint ventures | — | | (11,713) | | | | | | | (96) |
| | | | | | | | | | Net cash used in investing activities | (63,470) | | (51,230) | | (16,838) |
Cash flows provided by financing activities: | | | | | |
| | | | | | | | | | Proceeds from borrowings | 19,669 | | 10,619 | | 4,000 |
| | | | | | | | | | Repayments on borrowings | (9,454) | | (6,292) | | (7,423) |
| | | | | | | | | | Proceeds from issuance of common stock | 135,000 | | 57,212 | | 35,030 |
| | | | | | | | | | Issuance costs | (7,511) | | (3,293) | | | | | | | (338) |
| | | | | | | | | | Note payable paid to Emerald Health | (15,498) | | | — | | | | | | — |
| | | | | | | | | | Proceeds from exercise of stock options | 199 | | | | | | | | 425 | 208 |
| | | | | | | | | | Proceeds from exercise of warrants | 18,495 | | | — | | | | | | — |
| | | | | | | | | | Share re-purchases | (5,000) | | | — | | | | | | — |
| | | | | | | | | | Payments on capital lease obligations | (17) | | (63) | | | | | | (90) |
| | | | | | | | | | Net cash provided by financing activities | 135,883 | | 58,608 | | 31,387 |
Effect of exchange rate changes on cash and cash equivalents | | | | | | | | | | | 142 | | | | | | | | 634 | (93) |
Net increase in cash, cash equivalents and restricted cash | | | | 32,988 | | 13,690 | | | | | | | 69 |
Cash, cash equivalents and restricted cash, beginning of period | | | | 25,679 | | 11,989 | | 11,920 |
Cash, cash equivalents and restricted cash, end of period | | | | | | | | | $ | 58,667 | $ | 25,679 | $ | 11,989 |
Supplemental disclosure of non-cash activities: | | | | | |
Shares issued for acquisitions | | | | | | | | | $ | 63,044 | $ | | — | $ | | | | | | — |
Supplemental cash flow information: | | | | | |
Income taxes paid | | | | | | | | | $ | 1,801 | $ | | | | | | | 158 | $ | | | | | | 904 |
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| | | | | | | | | | | | | | The accompanying notes are an integral part of these consolidated financial statements. |
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| | VILLAGE FARMS INTERNATIONAL, INC. | |
| | Notes to Consolidated Financial Statements | |
| | | | (In thousands of United States dollars, except share and per share amounts and unless otherwise noted) | |
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1 | | | | | | NATURE OF OPERATIONS Village Farms International, Inc. (“VFF” and, together with its subsidiaries, the “Company”, “we”, “us”, or “our”) is |
| | | | | | incorporated under the Canada Business Corporations Act. VFF’s principal operating subsidiaries as of December 31, 2021 |
| | | | | | are Village Farms Canada Limited Partnership, Village Farms, L.P., Pure Sunfarms Corp. (“Pure Sunfarms” or “PSF”), and |
| | | | | | Balanced Health Botanicals, LLC (“Balanced Health” or “BHB”). VFF also owns a 70% equity interest in Rose LifeScience |
| | | | | | Inc. (“Rose”). |
| | | | | | The address of the registered office of VFF is 4700-80th Street, Delta, British Columbia, Canada, V4K 3N3. |
| | | | | | |
| | | | | | During 2021 through December 31, 2021, the Company’s shares were listed on both Toronto Stock Exchange (“TSX”) and |
| | | | | | the Nasdaq Capital Market (“Nasdaq”), in each case, under the symbol “VFF”. On December 14, 2021, the Company |
| | | | | | received approval to voluntarily delist from the TSX. Effective at the close of markets on December 31, 2021, the |
| | | | | | Company’s shares are no longer listed or traded on the TSX. | |
| | | | | | Village Farms 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. It’s wholly-owned |
| | | | | | subsidiary, Pure Sunfarms, is a vertically-integrated licensed producer and supplier of cannabis products to be sold to other |
| | | | | | licensed providers and provincial governments across Canada and internationally. Through its recent 70% acquisition of |
| | | | | | Rose, the Company adds a substantial presence in the Province of Quebec as a cannabis supplier, producer and |
| | | | | | commercialization expert. The Company’s wholly-owned subsidiary, BHB, develops and sells high-quality, cannabidiol |
| | | | | | (“CBD”) based products including ingestible, edible and topical applications. | |
| | | | | | Coronavirus Pandemic (“COVID-19”) |
| | | | | | In March 2020, the World Health Organization declared the outbreak of the COVID-19 virus a global pandemic. This |
| | | | | | outbreak continues to cause major disruptions to businesses and markets worldwide as the virus continues to spread. Several |
| | | | | | countries as well as certain states and cities within the United States and Canada have enacted temporary closures of |
| | | | | | businesses, issued quarantine or shelter-in-place orders and taken other restrictive measures. In response to the COVID-19 |
| | | | | | pandemic, the Company implemented safety protocols and procedures to protect its employees, its subcontractors, and its |
| | | | | | customers. These protocols include complying with social distancing and other health and safety standards as mandated by |
| | | | | | state and local government agencies, taking into consideration guidance from the Centers for Disease Control and Prevention |
| | | | | | and other public health authorities. |
| | | | | | In April 2020, the Government of Canada announced the Canada Emergency Wage Subsidy (“CEWS”) to help Canadian |
| | | | | | businesses to keep employees on the payroll in response to the challenges posed by the COVID-19 pandemic. During 2021 |
| | | | | | and 2020, Pure Sunfarms determined that it met the employer eligibility criteria and applied for the CEWS and received |
| | | | | | C$871 and C$2,470 of wage subsidies during the years ended December 31, 2021 and 2020, respectively. |
| | | | | | Currently, all of the Company’s operations are not impacted by COVID-19, however, the extent to which COVID-19 and the |
| | | | | | related global economic crisis affect the Company’s business, results of operations and financial condition, will depend on |
| | | | | | future developments that are highly uncertain and cannot be predicted, including the scope and duration of the pandemic and |
| | | | | | any recovery period, future actions taken by governmental authorities, central banks and other third parties (including new |
| | | | | | financial regulation and other regulatory reform) in response to the pandemic, and the effects on our produce, clients, vendors |
| | | | | | and employees. Village Farms continues to service its customers amid uncertainty and disruption linked to COVID-19 and is |
| | | | | | actively managing its business to respond to the impact. |
2 | | | | | | BASIS OF PRESENTATION |
| | | | | | The Consolidated Financial Statements reflect the accounts of the Company and our majority-owned and controlled subsidiaries. |
| | | | | | All intercompany accounts and transactions between our consolidated operations have been eliminated. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of |
| | | | | | America (“GAAP”) requires management to make estimates and assumptions that affect the amounts of assets and liabilities and |
| | | | | | the disclosures regarding contingent assets and liabilities at period end and the reported amounts of revenue and expenses during |
| | | | | | the reporting period. Actual results could differ from those estimates and those differences could be material. |
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| Notes to Consolidated Financial Statements | |
| | | (In thousands of United States dollars, except share and per share amounts and unless otherwise noted) | |
|
| | | | | | 3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | |
| | | | | | Revenue Recognition | | |
| | | | | | 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. |
| | | | | | Revenue from the sale of cannabis inventories in the course of ordinary activities is measured at the fair value of the |
| | | | | | consideration received or receivable, net of returns, trade discounts, volume rebates and excise duty. The Company recognizes |
| | | | | | revenue when it has fulfilled the performance obligation to the customer through the delivery and transfer of control of the |
| | | | | | promised goods. |
| | | | | | Under bill-and-hold arrangements, whereby the Company bills a customer for product to be delivered at a later date, control typically transfers when the product is still in the Company’s physical possession, and title and risk of loss has passed to the customer. Revenue is recognized when all specific requirements for transfer of control under a bill-and-hold arrangement have been met. 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. |
| | | | | | Direct-to-consumer product sales for loyalty members contain two distinct performance obligations for which the Company allocates the transaction price based on the relative stand-alone value of each performance obligation, such that both revenue related to the delivery of the underlying purchased goods and deferred revenue for loyalty points issued to the customer are recognized based on the allocated consideration of value, after giving consideration to loyalty point breakage. The loyalty liability represents a performance obligation to provide goods for free or at a discount to loyalty members in exchange for the redemptions of points earned from past activities. |
|
| | | | | | Judgment is required in determining whether the Company is the principal or agent in certain transactions. We evaluate the presentation of revenue on a gross or net basis based on whether we control the service provided to the end-user and are the principal (i.e. “gross”), or we arrange for other parties to provide the service to the end-user and are an agent (i.e. “net”). |
| | | | | | 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. |
| | | | | | Redeemable Non-Controlling Interest |
| | | | | | Non-controlling interest (“NCI”) in subsidiaries that are redeemable for cash or other assets outside of our control are classified as temporary mezzanine equity, outside of equity and liabilities. Initial measurement is at acquisition date fair value and subsequent measurement is at the greater of the carrying value or the redemption value. Changes in the redemption value are recognized immediately as they occur and the carrying amount of the redeemable NCI is adjusted to equal the redemption value at the end of each reporting period. This method views the end of the reporting period as if it were also the redemption date for the instrument. Increases or decreases in the estimated redemption amount are recorded with corresponding adjustments against equity and are reflected in the computation of earnings per share. However, the amount presented in temporary equity should be no less than the initial amount reported in temporary equity for the instrument. |
| | | | | | 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. |
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| Notes to Consolidated Financial Statements | |
| | | (In thousands of United States dollars, except share and per share amounts and unless otherwise noted) | |
|
| | | | | | Income Taxes |
| | | | | | The Company uses the asset and liability method of accounting for income taxes. Temporary differences arising between the tax basis of an asset or liability and its carrying amount on the Consolidated Statement of Financial Position are used to calculate future income tax assets and liabilities. This method also requires the recognition of deferred tax benefits, such as net operating loss carryforwards. Valuation allowances are recorded as appropriate to reduce deferred tax assets to the amount considered likely to be realized. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to the taxable income (losses) in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the date of enactment of the change. A tax benefit from an uncertain tax position is recognized only if we believe it is more likely than not that the position will be sustained on its technical merits. If the recognition threshold for the tax position is met, only the portion of the tax benefit that we believe is greater than 50 percent likely to be realized is recorded. |
| | |
| | | | | | 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. |
| | | | | | Restricted Cash | | |
| | | | | | Restricted cash, as of December 31, 2021, includes a cash deposit required by the Company’s directors’ and officers’ insurance policy which is managed by an insurer and held as a cell captive within a Bahamas-based financial institution. Restricted cash, as of December 31, 2020, includes a deposit reserved as a guarantee to support a letter of credit. |
| | | | | | Trade Receivables |
| | | | | | Trade receivables, net of the allowance for doubtful accounts, represent their estimated net realizable value, which approximates fair value. Provisions for doubtful accounts are recorded based on historical collection experience and the age of the receivables. Receivables are written off when they are deemed uncollectible. |
| | | | | | |
| | | | | | Inventories | |
| | | | | | Inventories are valued at the lower of cost or net realizable value. The cost of inventory includes capitalized production costs, including labor, materials, post-harvest costs and depreciation. Inventoriable costs are expensed to cost of goods sold on the Consolidated Statement of (Loss) Income in the same period as finished products are sold. The amount of any write-down of inventories to net realizable value and all losses of inventories are recognized as an expense in the period when the write-down or loss occurs. |
| | | | | | | | |
| | | | | | Intangible Assets |
| | | | | | The Company’s intangible assets are purchased and acquired through business combinations and have both finite and infinite useful lives. They are measured at cost less accumulated amortization and any accumulated impairment losses. Amortization is calculated based on the cost of the intangible assets less their estimated residual values using the straight-line method over their estimated useful lives and is generally recognized in profit or loss. Amortization methods, useful lives and residual values are reviewed at each reporting date and adjusted when necessary. |
| | | | | | |
| | | Classification | Estimated Useful Lives |
| | | Licenses | 22 years |
| | | Brand and trademarks | Indefinite |
| | | Computer software | 3-5 years |
| | | | | | |
| | | | | | Business Combinations The Company recognizes and measures the assets acquired and liabilities assumed, including contingent assets and liabilities, at their respective fair values on the date of acquisition. Any excess of the purchase consideration over the net fair value of tangible and identified intangible assets acquired less liabilities assumed is recorded as goodwill. The costs of business acquisitions, including fees for accounting, legal, professional consulting and valuation specialists, are expensed as incurred. Purchase price allocations may be preliminary and, during the measurement period not to exceed one year from the date of acquisition, changes in assumptions and estimates that result in adjustments to the fair value of assets acquired and liabilities assumed are recorded in the period the adjustments are determined. |
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| VILLAGE FARMS INTERNATIONAL, INC. | |
| Notes to Consolidated Financial Statements | |
| | | (In thousands of United States dollars, except share and per share amounts and unless otherwise noted) | |
|
| | | | | | For business combinations achieved in stages, the Company’s previously held interest in the acquiree is remeasured at its acquisition date fair value, with the resulting gain or loss recorded in the Statements of Net (Loss) Income. For a pre-existing relationship between the Company and the acquiree, that is not extinguished on the business combination, such a relationship is considered effectively settled as part of the business combination even if it is not legally cancelled. At the acquisition date, it becomes an intercompany relationship and is eliminated upon consolidation. Goodwill |
| | | | | | Goodwill represents the excess of the purchase price over the estimated fair value of the net assets acquired in a business acquisition. Goodwill is allocated to reporting units and tested for impairment annually as of December 31 each year and when events or changes in circumstances indicate that the carrying value of a reporting unit exceeds its fair value. The Company generally elects to utilize the optional qualitative assessment for goodwill to determine whether it is more likely than not that the carrying value of a reporting unit is higher than its fair value. If it is determined that the fair value is more likely than not to be lower than the carrying value, a quantitative goodwill impairment test is performed by determining the fair value of the reporting unit. The fair value of a reporting unit is determined using either the income approach utilizing estimates of discounted future cash flows or the market approach utilizing recent transaction activity for comparable properties. These approaches are considered level 3 fair value measurements. If the carrying amount of the reporting unit exceeds its fair value, an impairment loss is recognized in an amount equal to that excess, limited to the total amount of goodwill allocated to that reporting unit. |
| | | | | | |
| | | | | | Property, Plant and Equipment |
|
| | | | | | Property, plant and equipment is initially recorded at cost. Depreciation of plant and equipment is determined on the straight-line method over the following useful lives of the assets: |
| | | | | |
|
| | | Classification | Estimated Useful Lives |
| | | Leasehold and land improvements | 5-20 years |
| | | Buildings | 4-30 years |
| | | Machinery and equipment | 3-30 years |
| | | | | | 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”). The Company has identified four operating segments – Produce, Cannabis-Canada, Cannabis-U.S. and Energy. |
| | | | | | Fair Value Measurements |
| | | | | | | | |
| | | | | | Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. We utilize a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The following is a brief description of those three levels: |
| | |
| | | | | | Level 1: Observable inputs based on quoted prices (unadjusted) in active markets for identical assets or liabilities. | |
| | | | | | Level 2: Inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly. These include quoted prices for similar assets and liabilities in active markets, or quoted prices for identical assets and liabilities in markets that are not active. |
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| Notes to Consolidated Financial Statements | |
| | | (In thousands of United States dollars, except share and per share amounts and unless otherwise noted) | |
|
| | | | | | Level 3: Unobservable inputs that reflect our own assumptions. |
| | | | | | Share-Based Compensation | |
| | | | | | The Company grants stock options and performance-based restricted stock (“RS”) to certain employees and directors. | |
| | | | | | 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. |
| | | | | | | | | |
| | | | | | RS grants 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 RS that will eventually be converted to Common Shares, with a corresponding increase in equity. |
| | | | | | Advertising Advertising costs are presented within selling, general and administrative costs in the Consolidated Statements of Operations. The Company supports its products with advertising to build brand awareness of the Company’s various products in addition to other marketing programs executed by the Company’s marketing teams. Advertising costs for the years ended December 31, 2021 and 2020 were $3,473 and $918, |
| respectively. |
| | | | | | New Accounting Pronouncements |
| | | | | | In March 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting (“ASU 2020-04”). ASU 2020-04 provides optional expedients and exceptions for applying GAAP to debt instruments, derivatives, and other contracts that reference LIBOR or other reference rates expected to be discontinued as a result of reference rate reform. This guidance is optional and may be elected through December 31, 2022 using a prospective application on all eligible contract modifications. The Company has a line of credit that incorporates LIBOR as a referenced interest rate. It is difficult to predict what effect, if any, the phase-out of LIBOR and the use of alternative benchmarks may have on the Company’s business or on the overall financial markets. The Company has not adopted any of the optional expedients or exceptions through December 31, 2021 but will continue to evaluate the possible adoption of any such expedients or exceptions. |
| | | | | | | | | | |
4 | | | | | | INVENTORIES Inventories consisted of the following: |
| | | Classification | | December 31, 2021 | | | | | December 31, 2020 |
| | | Cannabis: | | | | | | | |
| | | Raw materials | | | | | | $ | 2,071 $ | | 615 |
| | | Work-in-process | 5,056 | | | | | | | | | 2,971 |
| | | Finished goods | 32,161 | | | | | | | | | 26,275 |
| | | Packaging | 5,877 | | | | | | | | | 2,360 |
| | | Produce and Energy: | | | | | | | |
| | | Crop inventory | 19,475 | | | | | | | | | 12,156 |
| | | Purchased produce inventory | 2,485 | | | | | | | | | 810 |
| | | Spare parts inventory and packaging | 1,552 | | | | | | | | | 1,412 |
| | | Inventory | | | | | | $ | 68,677 $ | | | | | | | | | 46,599 |
| | | | |
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| VILLAGE FARMS INTERNATIONAL, INC. | |
| Notes to Consolidated Financial Statements | |
| | | (In thousands of United States dollars, except share and per share amounts and unless otherwise noted) | |
|
| | | | | | For the years ended December 31, 2021 and 2020, there were no impairments of inventory relative to its net realizable value. | |
5 | | | | | | PROPERTY, PLANT AND EQUIPMENT |
| | | | | | Property, plant and equipment consisted of the following: | |
|
| | | Classification | | December 31, 2021 | December 31, 2020 |
| | | Land | | $ | | | 14,095 | $ | | | | | | | 10,447 |
| | | Leasehold and land improvements | | | | | 5,224 | 4,154 |
| | | Buildings | | | | | 184,444 | 142,060 |
| | | Machinery and equipment | | | | | 79,070 | 69,390 |
| | | Construction in progress | | | | | 39,206 | 52,960 |
| | | Less: Accumulated depreciation | | | | | (106,335) | (91,991 ) |
| | | Property, plant and equipment, net | | $ | | | 215,704 | $ | | | | | | | 187,020 |
| | | | | | | | | | |
|
| | | | | | Depreciation expense on property, plant and equipment, was $12,709, $6,825 and $7,366 for the years ending December 31, 2021, 2020 and 2019, respectively. |
| |
6 | | | | | | PURE SUNFARMS ACQUISITION |
| | | | | | On November 2, 2020, Village Farms consummated a definitive purchase and sale agreement with Emerald Health Therapeutics Inc. (“Emerald”), acquiring 36,958,500 Common Shares in the capital of Pure Sunfarms owned by Emerald, and increasing Village Farms’ ownership of Pure Sunfarms to 100%. The shares were acquired for a total purchase price of C$79.9 million (US$60.0 million), satisfied through an initial C$60.0 million (US$45.0 million) cash payment and a C$19.9 million (US$15.0 million) secured promissory note payable to Emerald, |
| | | | | | | | | | | which was repaid in full on February 8, 2021. |
| | | | | | The acquisition was deemed a business combination and the purchase price was allocated to the underlying assets acquired and liabilities assumed based upon their estimated fair values at the date of acquisition. The Company used information available to make fair value determinations and engaged independent valuation specialists to assist in the fair value determination of acquired intangible assets. The estimated fair value of licenses was determined using a multi-period excess earnings method. This earnings-based method considers the net present value of the licenses’ cash flows discounted at an asset specific discount rate. The net present value attributable to the licenses deducts the contributory asset charges used in connection with the licenses. The estimated fair value of the brand was determined using the relief-from-royalty method. This method assumes that the brand has value to the extent that their owner is relieved of the obligation to pay royalties for the benefits received from them. This method requires the Company to estimate the future revenues for the related brand, the appropriate royalty rate, and an asset specific discount rate. This measure of fair value requires significant judgment about the value a market participant would be willing to pay to achieve the benefits associated with the brand. Acquired property, plant and equipment and software were valued using the replacement cost method, which requires the Company to estimate the costs to construct an asset of equivalent utility at prices available at the time of the valuation analysis, with adjustments in value for physical deterioration and functional and economic obsolescence. Upon the acquisition of Pure Sunfarms, the Company identified goodwill of C$30,618 (US$24,108). This goodwill was calculated as the difference between the fair value of the consideration issued for the acquisition of Pure Sunfarms and the fair value of all assets and liabilities acquired. The goodwill is attributable to the acquired workforce and potential for growth through the conversion of the Delta 1 greenhouse facility and future accretive acquisitions. The Company is required to record a deferred tax liability for the difference between the assigned values and the tax bases of assets acquired and liabilities assumed. None of the goodwill is deductible for tax purposes. As a result of the acquisition, the Company also recognized a gain of $23.6 million due to the revaluation of its previously held investment in Pure Sunfarms to its fair value at the acquisition date. The accounting for the business combination was considered complete for the year ended December 31, 2020. |
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| VILLAGE FARMS INTERNATIONAL, INC. | |
| Notes to Consolidated Financial Statements | |
| | | (In thousands of United States dollars, except share and per share amounts and unless otherwise noted) | |
|
| | | | | | The following table shows the allocation of the purchase price to assets acquired and liabilities assumed, based on estimates of fair value, including a summary of the identifiable classes of consideration transferred, and amounts by category of assets acquired and liabilities assumed at the acquisition date: |
| | | Consideration paid | | Shares | | Share Price | Amount |
| | | Cash | | | | | $ | 45,259 |
| | | Promissory note | | | | | | 15,011 |
| | | Shareholder loan | | | | | | 4,529 |
| | | Promissory note owed to PSF from Emerald | | | | | | 439 |
| | | Due to related party | | | | | | 61 |
| | | Fair value of previously held investment shares held by Village Farms |
| | | | | | 52,569,197 $ | 1.767 | | | | | | | 92,881 |
| | | Total fair value of consideration | | | | | $ | 158,180 |
| | | | | | | | | | |
|
| | | | November 2, 2020 |
| | | ASSETS | | | | | | | |
| | | | | | | | | | | Cash and cash equivalents | $ | | | | | | | 10,860 |
| | | | | | | | | | | Trade receivables, net | 10,553 |
| | | | | | | | | | | Inventories | 32,393 |
| | | | | | | | | | | Prepaid expenses and deposits | 3,572 |
| | | | | | | | | | | Property, plant and equipment | 122,831 |
| | | | | | | | | | | Goodwill | 23,095 |
| | | | | | | | | | | Intangibles | 16,670 |
| | | Total assets | | | | | | 219,974 |
| | | LIABILITIES | | | | | | | |
| | | | | | | | | | | Trade payables | $ | | | | | | | 3,849 |
| | | | | | | | | | | Accrued liabilities | 13,062 |
| | | | | | | | | | | Income taxes payable | 2,173 |
| | | | | | | | | | | Current maturities of long-term debt | 2,306 |
| | | | | | | | | | | Deferred revenue | 77 |
| | | | | | | | | | | Long-term debt | 23,903 |
| | | | | | | | | | | Deferred tax liabilities | 16,424 |
| | | Total liabilities | | | | | | 61,794 |
| | | Net assets acquired | | | | | | 158,180 |
| | | | |
|
| | | | | | The change in goodwill between November 2, 2020 and December 31, 2021 is due to the effect of foreign currency translation. |
| | | | | | Prior to its acquisition on November 2, 2020, the Company accounted for its investment in Pure Sunfarms, using the equity method. The Company determined that Pure Sunfarms was a variable interest entity (“VIE”), however the Company did not consolidate Pure Sunfarms because the Company was not the primary beneficiary. Although the Company was able to exercise significant influence over the operating and financial policies of Pure Sunfarms through its then 58.7% majority interest, the Company shared joint control of the board of directors and therefore was not the primary beneficiary. For the three and nine months ended September 30, 2020, the Company’s equity earnings from Pure Sunfarms were $1,443 and $5,437, respectively. On March 2, 2020, pursuant to the Settlement Agreement, Emerald transferred to the Company 2.5% of additional equity in Pure Sunfarms. The Company determined the fair value of the equity received from Emerald to be C$6.5 million (US$4.7 million). The Company recorded this amount as a gain and included it as a gain on settlement agreement on the Consolidated Statement of Income (Loss) and Comprehensive Income (Loss) for the year ended December 31, 2020. For the period January 1, 2020 to November 1, 2020, the Company’s share of the joint venture consisted of the following: |
| | | Balance, January 1, 2020 | $ | | | | | | | 41,334 |
| | | Investments in joint venture | | | | | | 16,393 |
| | | Share of net income for the year | | | | | | 4,980 |
| | | Balance, November 1, 2020 | $ | | | | | | | 62,707 |
| | | | | | | | | | |
| | | | | 83 |
|
| VILLAGE FARMS INTERNATIONAL, INC. | |
| Notes to Consolidated Financial Statements | |
| | | (In thousands of United States dollars, except share and per share amounts and unless otherwise noted) | |
|
| | | |
7 | | | | | | BHB ACQUISITION |
| | | | | | On August 16, 2021, the Company entered into a Membership Interest Purchase Agreement (the “Purchase Agreement”), by and among Village Farms, Balanced Health and the other parties thereto, including the members of Balanced Health (collectively, the “BHB Sellers”). The Purchase Agreement provided for the acquisition of a 100% interest in Balanced Health (the “Balanced Health Acquisition”), for a total purchase price comprised of a cash purchase price of approximately $30 million, and an aggregate of 4,707,113 of our Common Shares, with a fair value of approximately $42 million, issued to the BHB Sellers on the closing date of the Balanced Health Acquisition (the “Closing Date”). |
| | | | | | In connection with the Balanced Health Acquisition, each of the BHB Sellers entered into a lock-up agreement with us, pursuant to which each such BHB Seller has agreed not to resell the Village Farms Common Shares received as consideration in the Balanced Health Acquisition until such Common Shares cease to be “Restricted Shares” (as defined in the Purchase Agreement) (“Restricted Shares”). Under the terms of the Purchase Agreement and the lock-up agreements, such Common Shares cease to be Restricted Shares, as follows: (i) with respect to one-fourth (1/4) of such Common Shares, on the Closing Date; (ii) with respect to an additional one-fourth (1/4) of such Common Shares, on the last day of the four (4) month period following the Closing Date; (iii) with respect to an additional one-fourth (1/4) of such Common Shares, on the last day of the eight (8) month period following the Closing Date; and (iv) with respect to an additional one-fourth (1/4) of such Common Shares, on the last day of the twelve (12) month period following the Closing Date. |
| | | | | | The acquisition was deemed a business combination and the purchase price was allocated to the underlying assets acquired and liabilities assumed based upon their estimated fair values at the date of acquisition. The Company used information available to make fair value determinations of acquired intangible assets. The estimated fair value of the brand was determined using the relief-from-royalty method. This method assumes that the brand has value to the extent that their owner is relieved of the obligation to pay royalties for the benefits received from them. This method requires the Company to estimate the future revenues for the related brand, the appropriate royalty rate, and an asset specific discount rate. This measure of fair value requires significant judgment about the value a market participant would be willing to pay to achieve the benefits associated with the brand. |
| | | | | | Based upon estimates, the Company identified goodwill of $60,008 and a brand intangible of $9,250. This goodwill was calculated as the difference between the fair value of the consideration issued for the acquisition of Balanced Health and the estimated fair value of all assets and liabilities acquired. The goodwill has been allocated to the U.S. Cannabis reporting segment. The accounting for the business combination was complete as of December 31, 2021. |
| | | | | | The following table shows the allocation of the purchase price to assets acquired and liabilities assumed, based on estimates of fair value, including a summary of the identifiable classes of consideration transferred, and amounts by category of assets acquired and liabilities assumed at the acquisition date: |
| | | Consideration paid | | Shares | | Share Price | | Amount |
| | | Cash | | | | | $ | | 30,000 |
| | | Village Farms common shares issued | | 4,707,113 | | $ | 8.87 | | | | | | | | 41,752 |
| | | Working capital adjustment | | | | | $ | (2) |
| | | Total fair value of consideration | | | | | | | | | | $ | | 71,750 |
| | | | |
| | | | | 84 |
|
| VILLAGE FARMS INTERNATIONAL, INC. | |
| Notes to Consolidated Financial Statements | |
| | | (In thousands of United States dollars, except share and per share amounts and unless otherwise noted) | |
|
|
| | | | | | August 16, 2021 |
| | | ASSETS |
| | | Cash and cash equivalents | $ | | 4,056 |
| | | Trade and other receivables, net | 1,030 |
| | | Inventories | 1,796 |
| | | Prepaid expenses and deposits | 667 |
| | | Property, plant and equipment | 1,900 |
| | | Right-of-use asset | 5,099 |
| | | Goodwill | | | | 60,008 |
| | | Intangibles | 9,394 |
| | | Other assets | 362 |
| | | Total assets | | | | 84,312 |
| | | LIABILITIES |
| | | Trade payables | 688 |
| | | Accrued liabilities | 6,659 |
| | | Other current liabilities | 192 |
| | | Lease liability | 5,023 |
| | | Total liabilities | | | | 12,562 |
| | | Net assets acquired | | | | 71,750 |
| | | | |
|
| | | | | | | | Pro Forma Financial Information (unaudited) |
| | | | | | | | The following unaudited pro forma information presents the Company’s consolidated results assuming the Balanced Health Acquisition occurred on January 1, 2020. |
| | | | | | | | |
| | | | | Year ended December 31, | | | | |
| | | | | 2021 | 2020 | | | | | | | |
| | | | | | | | | | Sales | $ | 287,378 | $ | 206,901 |
| | | | | | | | | | Net income | $ | (7,564) $ | 3,263 |
| | | | | | | | | |
| | | | | | | | |
8 | | | | | | | | ROSE ACQUISITION |
| | | | | | | | On November 15, 2021, the Company entered into a Share Purchase Agreement (the “Purchase Agreement”), with Rose and other parties, including the shareholders of Rose (collectively, the “Rose Sellers”), for the acquisition of a 70% interest in Rose pursuant to the terms of the Purchase Agreement (the “Acquisition”), for a total purchase price (the “Purchase Price”) of C$46.7 million, comprised of a cash purchase price of C$19.9 million and a total of 2,411,280 Common Shares of Village Farms (“Village Farms Shares”), subject to customary purchase price adjustments. The Village Farms Shares issued under the Purchase Agreement are subject to lock-up agreements, and subject to compliance with applicable securities laws, 33% of these shares will be released from lock-up restrictions four (4) months following the Closing Date, another 33% of these shares will be released from lock-up restrictions eight (8) months after the Closing Date and the remaining shares will be released from lock-up restrictions one (1) year after the Closing Date. |
| | | | | | | | Under the terms of the Purchase Agreement, we agreed to file a prospectus supplement under our existing shelf registration statement, on or before the date that is four (4) months following the Closing Date, to register for resale all of the Village Farms Shares issued to the Rose Sellers on the Closing Date. |
| | | | | | | | Put/Call Option |
| | | | | | | | Two of the co-founders of Rose (the “Management Shareholders”), who were among the Rose Sellers of Rose in the Acquisition, have remained in their current roles with Rose post-Acquisition and have retained a non-voting 30% interest in Rose (the “Retained Interest”). In conjunction with the Acquisition, Village Farms and the Management Shareholders have entered into a unanimous shareholders agreement (the “USA”) providing Village Farms with a call option to acquire the Retained Interest between December 31, 2024 and March 31, 2025 or upon the occurrence of certain liquidity events with respect to Village Farms (the “Call Option”). As part of the Call Option, Village Farms can also acquire 34% of the Retained Interest between December 31, 2022 |
| | | | | 85 |
|
| VILLAGE FARMS INTERNATIONAL, INC. | |
| Notes to Consolidated Financial Statements | |
| | | (In thousands of United States dollars, except share and per share amounts and unless otherwise noted) | |
|
| | | | | | and March 31, 2023. A put right has also been granted to the Management Shareholders to require Village Farms to complete the acquisition of the Retained Interest upon their death or disability or the occurrence of certain liquidity events with respect to Village Farms (the “Put Option”, and together with the Call Option, the “Put/Call Option”). The price for the Put/Call Option was set at a multiple solely based on Rose’s adjusted EBITDA performance of the applicable prior calendar year. If exercised upon a liquidity event, the Option Price is subject to a minimum amount which varies depending on the year on which it is exercised. |
| | | | | | The consideration for the acquisition of the Retained Interest may, at Village Farms’ sole discretion, be payable solely in cash or in a pre-determined combination of cash and Village Farms Shares based on a formula similar to that used for the issuance of the Village Farms Shares comprising part of the Purchase Price. |
| | | | | | Based upon preliminary estimates, the Company identified goodwill of $34,548 and a redeemable NCI classified as temporary mezzanine equity of $16,479. The goodwill was calculated as the difference between the fair value of the consideration issued for the acquisition of Rose and the estimated fair value of all assets and liabilities acquired. The goodwill has been allocated to the Canadian Cannabis reporting segment. The Company expects to recognize intangible assets but is still in the process of identifying and valuing them as well as the fair value of the Put Option identified and classified as redeemable non-controlling interest. The Company expects the accounting for the business combination to be complete by March 31, 2022. |
| | | | | | The change in goodwill between November 15, 2021, and December 31, 2021 is due to the effect of foreign currency translation. |
| | | Consideration paid | | Shares | Share Price | | | | | Amount |
| | | Cash | | | | | $ | 15,859 |
| | | Village Farms common shares issued | | 2,411,280 | | | | $ | 9.04 | 21,798 |
| | | Working capital adjustment | | | | | | 1,055 |
| | | Total fair value of consideration | | | | | | | $ | 38,712 |
| | | | |
|
| | | | | | | | | | | November 15, 2021 |
| | | ASSETS |
| | | Cash and cash equivalents | | | | | | | $ | 1,118 |
| | | Trade and other receivables, net | 1,595 |
| | | Inventories | 3,586 |
| | | Prepaid expenses and deposits | 498 |
| | | Property, plant and equipment | | | | 16,423 |
| | | Goodwill | | | | 34,548 |
| | | Total assets | | | | 57,768 |
| | | LIABILITIES |
| | | Trade payables | 774 |
| | | Accrued liabilities | 1,803 |
| | | Total liabilities | 2,577 |
| | | Mezzanine equity | | | | 16,479 |
| | | Total liabilities and mezzanine equity | | | | 19,056 |
| | | Net assets acquired | | | | | | | $ | 38,712 |
| | | | |
|
| | | | | | Pro Forma Financial Information (unaudited) |
| | | | | | The following unaudited pro forma information presents the Company’s consolidated results assuming the Rose Acquisition occurred on January 1, 2020. |
|
| | | | | | | | | | Year ended December 31, | |
| | | | | | | | | | | | | 2021 | 2020 |
| | | | | | | | | | | | Sales | $ | | | | 279,756 | $ | | | | | 173,214 |
| | | | | | | | | | | | Net income | $ | | | | (15,972) $ | (608 ) |
| | | | | 86 |
|
| VILLAGE FARMS INTERNATIONAL, INC. | |
| Notes to Consolidated Financial Statements | |
| | | (In thousands of United States dollars, except share and per share amounts and unless otherwise noted) | |
|
|
9 | | | | | | INVESTMENTS IN JOINT VENTURES AND MINORITY INTERESTS |
| | | | | | Village Fields Hemp USA | | |
| | | | | | The net assets of VF Hemp were negative $10,369 and $9,895 as of December 31, 2021 and 2020, respectively. The net loss for the years ending December 31, 2021 and 2020 was $474 and $6,114. |
| | | | | | | | |
| | | | | | Minority Interest |
| | | | | | In July 2020, the Company invested $226, for an approximate 16% minority interest ownership in DutchCanGrow Inc. (“DCG”), a Netherlands-based cannabis enterprise. The Company wrote off its investment in DCG in December 2021. |
| | | | | | In August 2020, the Company invested $1,000 for a 6.6% minority interest ownership in Australia-based Altum International Pty Ltd (“Altum”), with an option to increase its ownership in Altum on similar terms. During the year ended December 31, 2021, the Company exercised its option and purchased additional shares in Australia-based Altum International Pty Ltd (“Altum”), bringing the Company’s total investment in Altum to 11.9%. |
| | | | | | In September 2021, the Company entered into an option agreement whereby the Company received the irrevocable right to acquire an 80% ownership interest (the “Option Agreement”) in Netherlands-based Leli Holland B.V. (“Leli”) upon payment of EUR50,000 (the “Option”). The Option Agreement allows the Company to acquire 80% of Leli’s shares for EUR3,950,000, of which EUR950,000 is due and payable to Leli’s shareholders upon the exercise of the Option and the remainder due in three equal installments subject to the achievement of certain project development milestones. The option is exercisable at the sole discretion of the Company for a period of 5 years. |
| | | | | | Leli is one of ten applicants selected to receive a license (subject to customary government approval) to legally cultivate and distribute cannabis to retailers when the Dutch government implements its Experiment to Investigate Closed Cannabis Supply Chains (“Dutch Supply Chain Experiment”). |
| | | | | | | | | |
10 | | | | | | INTANGIBLES |
| | | | | | Intangibles consisted of the following: |
| | | | | | |
| | | Classification | | December 31, 2021 | | | | | December 31, 2020 |
| | | Licenses | | $ | | | | | | 12,835 | $ | | | | | | | | | | 12,870 |
| | | Brand and trademarks* | | | | | | | | 12,951 | 3,688 |
| | | Computer software | 2,014 | | 945 |
| | | Other* | 144 | | — |
| | | Less: Accumulated amortization | (1,550) | | (192) |
| | | Intangibles, net | | $ | | | | | | 26,394 | $ | | | | | | | | | | 17,311 |
| | | | |
| | | | | | *Indefinite-lived intangible assets. The expected future amortization expense for definite-lived intangible assets as of December 31, 2021 is as follows: |
|
| | | Fiscal period | | | | | | | | | | | | |
| | | 2022 | $ | | 1,130 |
| | | 2023 | 901 |
| | | 2024 | 767 |
| | | 2025 | 676 |
| | | 2026 | 606 |
| | | Thereafter | 9,219 |
| | | Intangibles, net | $ | | | | | | | | | | 13,299 |
| | | | |
| | | | | | Amortization expense for intangibles was $916 and $122 for the years ending December 31, 2021 and 2020, respectively. |
| | | | | 87 |
|
| VILLAGE FARMS INTERNATIONAL, INC. | |
| Notes to Consolidated Financial Statements | |
| | | (In thousands of United States dollars, except share and per share amounts and unless otherwise noted) | |
|
| | | | | | |
11 | | | | | | DEBT |
|
| | Balance outstanding as of |
| | | | | | | | | December 31, |
| | | | | | | | | 2021 | | | | | | | | | 2020 |
| | | Term Loan - ("FCC Loan") - repayable by monthly principle of payments of $164 and accrued interest at a rate of 3.79%; matures April 1, 2025 |
| | $ | 26,723 $ | | | | | | | | | 28,690 |
| | | Term Loan - VFCE: CA$3.0M - non-revolving fixed rate loan with fixed interest rate of 4.98%; matures June 2023 |
| | | | | | | | | 491 | 797 |
| | | Advance on term loan - VFCE: CA$250 - repayable in monthly installments of principle plus interest rate of CA$ prime rate plus 200 basis points - paid in full June 2021 |
| | | | | | | | | — | 69 |
| | | Term Loan - Pure Sunfarms - CA$19.0M - Canadian prime interest rate plus an applicable margin, repayable in quarterly payments equal to 2.50% of the outstanding principal amount, interest rate of 4.45%; matures February 2024 |
| | 11,870 | | | | | | | | | 13,385 |
| | | Term loan - Pure Sunfarms - CA$25.0 - Canadian prime interest rate plus an applicable margin, repayable in quarterly payments equal to 2.50% of the outstanding principal amount starting June 30, 2021, interest rate of 4.45%; matures February 2024 |
| | 17,806 | | | | | | | | | 16,535 |
| | | BDC Facility - Pure Sunfarms - non-revolving demand loan at prime interest plus 3.75%, matures December 31, 2031 |
| | | | | | | | | 4,946 | 4,905 |
| | | Unamortized deferred financing fees | | | | | | — | (302) |
| | | Total | $ | 61,836 $ | | | | | | | | | 64,079 |
| | | | |
| | | | | | Village Farms’ line of credit had no amount drawn on the facility as of December 31, 2021, while there was $2,000 drawn as of December 31, 2020. |
| | | | | | The carrying value of the assets and securities pledged as collateral for the FCC Loan as of December 31, 2021 and 2020 was $233,187 and $86,664, respectively. |
| | | | | | The carrying value of the assets pledged as collateral for the Operating Loan as of December 31, 2021 and 2020 was $34,741 and $23,443, respectively. |
| | | | | | The Company was not in compliance with one financial covenant under the FCC Loan. Subsequent to December 31, 2021, the Company received a waiver from FCC for the annual test on December 31, 2021 for the one financial covenant. The covenant will be reinstated for fiscal year 2022. FCC measures the Company’s financial covenants once a year on the last day of the year. As of December 31, 2021, Village Farms was in compliance with all of its remaining covenants under its other credit facilities. In December 2020, Village Farms amended the terms of its covenants with respect to its FCC Loan. The amended covenants were waived for the year ending December 31, 2020 and were reinstated for fiscal year 2021. |
| | | | | | On March 15, 2021, Pure Sunfarms entered into the Third Amended and Restated Credit Agreement (the “Third Amended and Restated PSF Credit Agreement) with Farm Credit Canada and two Canadian chartered banks, which extended the maturity date of each of the PSF Revolving Line of Credit, PSF Non-Revolving Facility and the PSF Term Loan through February 7, 2024, included an unlimited guarantee from Village Farms and changed certain financial covenants. The Third Amended and Restated PSF Credit Agreement amended and updated the previous three loan facilities. The PSF Revolving Line of Credit had $7,760 balance as of December 31, 2021. On December 31, 2020, the Company had outstanding a $4,039 letter of credit issued to BC Hydro against the revolving line of credit. |
| | | | | | The term loan held by the Company’s subsidiary Pure Sunfarms with an outstanding loan amount of C$15.0 million (US$11.8 million) was entered into on February 7, 2019 and amended on March 15, 2021 and is secured by a first-ranking security interest in respect of all present and future property, assets and undertakings of the Company. |
| | | | | 88 |
|
| VILLAGE FARMS INTERNATIONAL, INC. | |
| Notes to Consolidated Financial Statements | |
| | | (In thousands of United States dollars, except share and per share amounts and unless otherwise noted) | |
|
| | | | | | The term loan held by the Company’s subsidiary Pure Sunfarms with an outstanding loan amount of C$22.5 million (US$17.7 million) was entered into on April 2, 2020 and amended on March 15, 2021 and is secured by a first-ranking security interest in respect of all present and future property, assets and undertakings of the Company. On December 20, 2020 Pure Sunfarms entered into a C$6,250 non-revolving demand loan at prime interest plus 3.75% with a Canadian Chartered Bank with the financial support of the Business Development Bank of Canada (the “BDC Facility”). The BDC Facility, provided as part of COVID-19 relief, requires interest only payments monthly for the first twelve months, and commencing December 31, 2021 and maturing December 31, 2031, Pure Sunfarms will repay the outstanding principal amount in equal monthly installments. The outstanding amount on the loan was US$4,905 on December 31, 2021. Pure Sunfarms is required to comply with financial covenants, measured quarterly and annually. |
| | | | | | | As of December 31, 2021, Pure |
| | | | | | Sunfarms was in compliance with its financial covenants. The Company had a note payable due to Emerald Health of C$19.9 million (US$15.2 million), plus accrued interest in the statement of financial position that it originally issued to Emerald as partial consideration for the November 2, 2020 acquisition of Pure Sunfarms. The note and accrued interest were repaid to Emerald Health in full on February 8, 2021. |
| | | | | | The weighted average interest rate on short-term borrowings as of December 31, 2021 and 2020 was 5.15% and 5.11%, respectively. |
| | | |
| | | | | | Accrued interest payable on the credit facilities and loans as of December 31, 2021 and 2020 was $304 and $189, respectively, and these amounts are included in accrued liabilities in the statements of financial position. |
| | | | | | The aggregate annual principal maturities of long-term debt for the next five years and thereafter are as follows: | |
|
| | | | | | | | 2022 | $ | | | | | 7,890 |
| | | | | | | | 2023 | 7,540 |
| | | | | | | | 2024 | 26,072 |
| | | | | | | | 2025 | 22,282 |
| | | | | | | | 2026 | 689 |
| | | | | | | | Thereafter | 2,805 |
| | | | | | | | | $ | | | | | 67,278 | |
| | | | | | | |
12 |
| | | | | | ACCRUED LIABILITIES |
|
| | | | | December 31, 2021 | December 31, 2020 |
| | | Accrued payroll | | $ | | | | 3,552 | $ | | | | | | | | 2,865 |
| | | Accrued grower partner payables | | | | | | 2,248 | 882 |
| | | Other | | | | | | 8,368 | 6,620 |
| | | | | $ | | | | 14,168 | $ | | | | | 10,367 |
| | | | |
|
| | | | | 89 |
|
| VILLAGE FARMS INTERNATIONAL, INC. | |
| Notes to Consolidated Financial Statements | |
| | | (In thousands of United States dollars, except share and per share amounts and unless otherwise noted) | |
|
13 | | | | | | LEASES |
| | | | | | The Company leases a parcel of land in Marfa, Texas that one of its greenhouses resides on as well as two distribution centers located in Fort Worth, Texas and Surrey, British Columbia. The Company leases production-related equipment at its greenhouses in Texas and British Columbia. The Company also leases an office building located in Lake Mary, Florida for its corporate headquarters, and office and manufacturing space in Denver, Colorado for BHB’s headquarters and operations. Rose owns land and leases a building for headquarters and operations in Montreal, Quebec. |
| | | | | | The components of lease related expenses are as follows: |
| | | | | | | | | Year ended December 31, |
| | | | | | | | | 2021 | | | | | | | | 2020 |
| | | Operating lease expense (a) | $ | | | | | | | | | 2,926 $ | 2,244 |
| | | Finance lease expense: | | | | | | |
| | | Amortization of right-of-use assets | | | | | | 25 | 63 |
| | | Interest on lease liabilities | | | | | | — | 4 |
| | | Total finance lease expense | $ | | | | | | | 25 $ | 67 |
| | | | |
| | | | | | (a) |
| | | | | | Includes short-term lease costs of $680 and $461 for the year ended December 31, 2021 and 2020. |
| | | | | | Cash paid for amounts included in the measurement of lease liabilities: |
| | | | | | | | | Year ended December 31, |
| | | | | | | | | 2021 | | | | | | | | 2020 |
| | | Operating cash flows from operating leases | $ | | | | | | | | | 1,351 $ | 1,150 |
| | | Operating cash flows from finance leases | $ | | | | | | | — $ | 4 |
| | | Financing cash flows from finance leases | $ | | | | | | | 17 $ | 63 |
| | | | |
|
| | | | | | | | | | | | | | December 31, 2021 |
| | | | | | | | | | | | | Weighted average remaining lease term: | | |
| | | | | | | | | | | | | Operating leases | 6 years |
| | | | | | | | | | | | | Finance leases | 1 year |
| | | | | | | | | | | | | Weighted average discount rate: | | |
| | | | | | | | | | | | | Operating leases | 8.48 % |
| | | | | | | | | | | | | Finance leases | 6.25 % |
|
| | | | | | Maturities of lease liabilities are as follows: | |
|
| | Operating | | | | | | | Finance |
| | | | | | | | | leases | | | | | | | | leases |
| | | 2022 | $ | 2,137 $ | | | | | | | | 9 |
| | | 2023 | 1,900 | | | | | | | | — |
| | | 2024 | 1,386 | | | | | | | | — |
| | | 2025 | 1,145 | | | | | | | | — |
| | | 2026 | 1,166 | | | | | | | | — |
| | | Thereafter | 3,183 | | | | | | | | — |
| | | Undiscounted lease cash flow commitments | 10,917 | | | | | | | | 9 |
| | | | | | | | | | | | | Reconciling impact from discounting | (3,253 ) | | | | | | | | |
| | | Lease liabilities on consolidated statement of financial position as of December 31, 2021 |
| | $ | 7,664 $ | | | | | | | | 9 | |
| | | | | | | | | | |
|
| | | | | 90 |
|
| VILLAGE FARMS INTERNATIONAL, INC. | |
| Notes to Consolidated Financial Statements | |
| | | (In thousands of United States dollars, except share and per share amounts and unless otherwise noted) | |
|
14 | | | | | | FINANCIAL INSTRUMENTS |
|
| | | | | | Financial assets and liabilities are recognized on the consolidated statements of financial position at fair value in a hierarchy for those assets and liabilities measured at fair value on a recurring basis. |
|
| | | | | | At December 31, 2021 and 2020, the Company’s financial instruments included cash and cash equivalents, trade receivables, minority investments, trade payables, accrued liabilities, lease liabilities, note payables and debt. The carrying value of cash and cash equivalents, trade receivables, trade payables, and accrued liabilities approximate their fair values due to the short-term maturity of these financial instruments. The carrying value of lease liabilities, notes payable, and debt approximate their fair values due to insignificant changes in credit risk. There were no financial instruments categorized as Level 3 at December 31, 2021 and December 31, 2020, other than the minority investments discussed below. There were no transfers of assets or liabilities between levels during the years ended December 31, 2021 and 2020, respectively. For its minority investments, the Company has elected the practicability election to fair value measurement, under which the investment is measured at cost, less impairment, plus or minus any observable price changes of an identical or similar investment. |
15 | | | | | | COMMITMENTS 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. |
16 | | | | | | RELATED PARTY TRANSACTIONS AND BALANCES |
| | | | | | On March 25, 2019, the Company entered into a Grid Loan Agreement (the “Grid Loan”) with 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. As of December 31, 2021, and December 31, 2020 the Grid Loan balance was $3,256 and $3,545, respectively. |
| | | | | | | | |
| | | | | | One of the Company’s employees is related to a member of the Company’s executive management team and received approximately $114, $118 and $110 in salary and benefits during the years ended December 31, 2021, 2020 and 2019, respectively. During 2020, the Company advanced to an employee in connection with a relocation at the request of the Company, which was included in other assets on the Consolidated Statement of Financial Position. In January 2021, the employee repaid $124 of the outstanding loan balance. The remaining balance was forgiven following one year of service with the Company on July 7, 2021. |
17 | | | | | | INCOME TAXES |
| | | | | | The components of the provision for (recovery of) income tax for the years ended December 31, 2021, 2020 and 2019 are as follows: |
| | | |
|
| | | | 2021 |
| | | | | | | | Current | Deferred | | | | | | | Total |
| | | US Federal | | | | | $ | — $ | | | | | (3,278 ) $ | | (3,278) |
| | | US State | | | | | | | 135 | (176 ) | (41) |
| | | Canadian | | | | | | | (795) | 588 | (207) |
| | | | | | | | $ | | (660) $ | (2,866 ) $ | | (3,526) |
| | | | | 91 |
|
| VILLAGE FARMS INTERNATIONAL, INC. | |
| Notes to Consolidated Financial Statements | |
| | | (In thousands of United States dollars, except share and per share amounts and unless otherwise noted) | |
|
|
| | | | 2020 |
| | | | | | Current | Deferred | | | | | Total |
| | | US Federal | | | $ | — $ | | | | | | (4,879 ) $ | (4,879) |
| | | US State | | | | | | 260 | (434 ) | (174) |
| | | Canadian | | | 3,412 | | (1,149 ) | 2,263 |
| | | | | | $ | 3,672 $ | | (6,462 ) $ | (2,790) |
|
| | | | 2019 |
| | | | | | Current | Deferred | | | | | Total |
| | | US Federal | | | $ | — $ | | | | | | (5,922 ) $ | (5,922) |
| | | US State | 8 | | | | | | (751 ) | (743) |
| | | Canadian | (19) | | | | | | 818 | 799 |
| | | | | | $ | (11) $ | | | | | | (5,855 ) $ | (5,866) |
|
| | | | | | | | | | The provision for (recovery of) income taxes reflected in the consolidated statements of (loss) income for the years ended December 31, 2021, 2020 and 2019 differs from the amounts computed at the federal statutory tax rates. The principal differences between the statutory income tax (recovery) and the effective provision for (recovery of) income taxes are summarized as follows: |
| | | | | | | | | | | |
|
| | | | | | | | | Year Ended December 31, |
| | | | | | 2021 | 2020 | | | | | | | | | | | 2019 |
| | | (Loss) income before income taxes | | | $ | (12,651) $ | | 8,818 $ | (3,541) |
| | | Tax (recovery) calculated at US domestic tax rates | | | (2,592) | | 1,869 | (744) |
| | | State tax adjustments | | | | | | (230) | (310 ) | (350) |
| | | Non-deductible items | | | 1,516 | | (6,531 ) | 1,304 |
| | | True up of prior year income tax estimates | | | | | | (648) | (181 ) | 207 |
| | | Capitalized debt amortization costs | — | | | | | | — | (631) |
| | | Share of income from joint venture | — | | | | | | (228 ) | (4,367) |
| | | Unrealized foreign exchange | — | | | | | | — | (276) |
| | | Deferred adjustment | | | (2,429) | | 343 | (1,920) |
| | | Differences attributed to joint venture capital transactions | — | | | | | | — | (487) |
| | | Tax rate differences on deferred items | | | | | | 397 | 49 | (42) |
| | | Differences in Canadian tax rates | — | | | | | | 1,643 | 1,472 |
| | | Change in tax rates | 5 | | | | | | 37 | — |
| | | Change in valuation allowance | 57 | | | | | | | | | | 3 | (144) |
| | | Other | | | | | | 398 | 516 | 112 |
| | | Recovery of income taxes | | | $ | (3,526) $ | | (2,790 ) $ | (5,866) |
|
| | | | | | | | | | The statutory tax rate in effect in Canada and the United States for the year ended December 31, 2021, 2020 and 2019 was 27.0% and 21.0%, respectively. |
| | | | | | | | | | | | | |
| | | | | 92 |
|
| VILLAGE FARMS INTERNATIONAL, INC. | |
| Notes to Consolidated Financial Statements | |
| | | (In thousands of United States dollars, except share and per share amounts and unless otherwise noted) | |
|
| | | | | | The blended effective tax rate for 2021 was 27.9% | compared to (31.4%) and 165.6% in 2020 and 2019, respectively. | |
| | | | | | Deferred income taxes reflect the net tax effects of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. |
| | | | | | | | |
| | | | | | The deferred tax assets and liabilities presented on the consolidated statements of financial position are net amounts corresponding to their reporting jurisdiction. The deferred tax assets and liabilities presented in the note disclosure are grouped based on asset and liability classification without consideration of their corresponding reporting jurisdiction. |
| | | | |
| | | | | | Significant components of the Company’s net deferred income taxes at December 31, 2021 and 2020 are as follows: | |
|
| | | | | | | | 2021 | | | | | | | | 2020 | |
| | | Deferred tax assets: | | | | | | | | |
| | | | | | | | | | | | Other assets | $ | 5,140 $ | | | | | | | | 4,935 |
| | | | | | | | | | | | Long-term debt | 832 | | | | | | | | | 897 |
| | | | | | | | | | | | Tax losses: Non-capital and farm losses | 22,860 | | | | | | | | 14,336 |
| | | | | | | | | | | | Provisions: Debt and unit issuance costs | 2,194 | | | | | | | | 1,355 |
| | | | | | | | | | | | Tax losses: Valuation allowance | (1,708) | | | | | | | | | (35 ) |
| | | | 29,318 | | | | | | | | 21,488 |
| | | Deferred tax liabilities: | | | | | | | | |
| | | | | | | | | | | | Joint venture shares | (2,662) | | | | | | | | (2,651 ) |
| | | | | | | | | | | | Cash adjustment | (11,514) | | | | | | | | (7,604 ) |
| | | | | | | | | | | | Property, plant and equipment | (17,033) | | | | | | | | (15,980 ) |
| | | | (31,209) | | | | | | | | (26,235 ) |
| | | Net tax assets | | | | | $ | (1,891) $ | | | | | | | | (4,747 ) |
|
| | | | | | In assessing the ability to realize 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. Based upon available positive and negative evidence and future taxable income, the Company has recorded a $1,708 valuation allowance on its deferred tax assets for the year ended December 31, 2021. The valuation allowance reflected on the consolidated balance sheets is approximately $35 at December 31, 2020 |
| | |
| | | | | | Included in the schedule of deferred tax assets and liabilities above are US federal net operating loss carryforwards of approximately $74,607 and $58,780 as of December 31, 2021 and 2020, respectively, which will begin to expire in 2031. At the state level, the Company has a combined state net operating loss carry forwards of approximately $28,189 and $21,108 as of December 31, 2021 and 2020, respectively, which started to expire in 2021. The Canadian Non-Capital Loss carry forwards are $26,916 and $3,345 as of December 31, 2021 and 2020, respectively. The Canadian Provincial Non-Capital Loss carry forwards are $13,409 and $0, as of December 31, 2021 and 2020, respectively. |
| | | | | | | | | | | | | |
| | | | | | At December 31, 2021 and 2020, the balance of uncertain tax benefits is zero. The Company does not anticipate that the amount of the uncertain tax benefit will significantly increase within the next 12 months. The Company recognizes accrued interest related to uncertain tax benefits and penalties as income tax expense. As of December 31, 2021 and 2020, there are no recognized liabilities for interest or penalties. |
| | | | | | | | | | | | | | |
| | | | | | The Company is subject to taxation in the U.S. and various states, as well as Canada and its provinces. As of December 31, 2021, the Company’s tax years for 2018, 2019 and 2020 are subject to examination by the tax authorities. |
| | | | | | | | | | | |
18 | | | | | | 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 four segments. The Company’s four segments include Produce, Cannabis-Canada, Cannabis-U.S. and Energy. The Produce segment produces, markets and sells premium quality tomatoes, bell peppers and |
| | | | | 93 |
|
| VILLAGE FARMS INTERNATIONAL, INC. | |
| Notes to Consolidated Financial Statements | |
| | | (In thousands of United States dollars, except share and per share amounts and unless otherwise noted) | |
|
| | | | | | cucumbers. The Cannabis-Canada segment produces and supplies cannabis products to be sold to other licensed providers and provincial governments across Canada and internationally. The Cannabis-U.S. segment develops and sells high-quality, CBD-based health and wellness products including ingestible, edible and topical applications. The Energy business produces power that it sells pursuant to a long-term contract to its one customer. |
| | | | | | For years ended December 31, 2021 and 2020, approximately 48% and 79%, respectively, of the Company’s total sales were in the United States. In 2021 the Company had two customers that individually represented more than 10% of total sales, comprising of 20.1% and 10.6% of sales, respectively. In 2020, the Company had two customers that individually represented more than 10% of its sales, comprising of 12.7% and 12.5% |
| | | | | of sales, respectively. |
| | | | | | As of December 31, 2021, the Company’s trade receivables had one customer that represented more than 10% of the balance of trade receivables, representing 29.0% of the balance. As of December 31, 2020, the Company’s trade receivables had two customers that represented more than 10% of the balance of trade receivables, representing 26.3% of the balance. |
| | | | | | The Company’s primary operations are in the United States and Canada. Segment information as of and for the years ended December 31, 2021, 2020 and 2019: |
| |
|
| | | | | | | 2021 | 2020 | | | | | | | 2019 |
| | | Sales | | | | | |
| | | Produce | | | | $ | 159,778 $ | | | 156,891 $ | 143,419 |
| | | Cannabis – Canada | | | | 96,434 | | | 12,778 | — |
| | | Cannabis – United States | | | | 11,345 | — | — |
| | | Energy | | | | 463 | 417 | 1,149 |
| | | | | | | $ | 268,020 $ | | | 170,086 $ | 144,568 |
| | | Interest expense | | | | | |
| | | Produce | | | | $ | 561 $ | | | 1,759 $ | 2,543 |
| | | Cannabis – Canada | | | | 2,236 | 243 | — |
| | | Cannabis – United States | 1 | | | | | | — | — |
| | | Energy | 37 | | | | | | 54 | 71 |
| | | | | | | $ | 2,835 $ | | | 2,056 $ | 2,614 |
| | | Interest income | | | | | |
| | | Corporate | | | | $ | 117 $ | 623 $ | 1,036 |
| | | Cannabis – Canada | 9 | | | | | | 2 | — |
| | | | | | | $ | 126 $ | 625 $ | 1,036 |
| | | Depreciation and amortization | | | | | |
| | | Produce | | | | $ | 5,238 $ | | | 5,356 $ | 6,462 |
| | | Cannabis – Canada | | | | 5,875 | 822 | — |
| | | Cannabis – United States | | | | 299 | — | — |
| | | Energy | | | | 1,297 | 647 | 904 |
| | | | | | | $ | 12,709 $ | | | 6,825 $ | 7,366 |
| | | Gross margin | | | | | |
| | | Produce | | | | $ | 1,474 $ | | | 9,621 $ | (6,667) |
| | | Cannabis – Canada | | | | 37,209 | | | 2,193 | — |
| | | Cannabis – United States | | | | 7,947 | — | — |
| | | Energy | | | | (1,451) | (854 ) | (678) |
| | | | | | | $ | 45,179 $ | | | 10,960 $ | (7,345) |
| | | | | 94 |
|
| VILLAGE FARMS INTERNATIONAL, INC. | |
| Notes to Consolidated Financial Statements | |
| | | (In thousands of United States dollars, except share and per share amounts and unless otherwise noted) | |
|
|
| | | Total assets | 2021 | | | | | 2020 |
| | | | | | | | United States | $ | 116,654 $ | | | | | 110,107 |
| | | | | | | | Canada | 450,257 | | | | | 243,924 |
| | | | | | | | | $ | 566,911 $ | | | | | 354,031 |
| | | | | | | | | | |
| | | Property, plant and equipment, net | | | | | | | 2021 | | | | | 2020 |
| | | | | | | | United States | $ | 39,583 $ | | | | | 56,011 |
| | | | | | | | Canada | 176,121 | | | | | 131,009 |
| | | | | | | | | $ | 215,704 $ | | | | | 187,020 |
| | | | | | | | | | |
| | | | |
19 |
| | | | | | | | | | | (LOSS) INCOME PER SHARE |
| | | | | | | | | | | Basic net (loss) income per share is computed using the weighted average number of Common Shares outstanding for the period. Basic and diluted net income per ordinary share is calculated as follows: |
| | |
|
| | | | | | | | | For the Years Ended December 31, |
| | | | | | | | | 2021 | 2020 | | | | | | | | 2019 |
| | | Numerator: | | | | |
| | | Net (loss) income including non-controlling interests | | | | | | | | | $ | (9,125) $ | 11,608 $ | 2,325 |
| | | Less: Net loss attributable to non-controlling interests | 46 | | | | — | — |
| | | Net (loss) income attributable to Village Farms International, Inc. shareholders |
| | | | | | | | | | | | | $ | (9,079) $ | 11,608 $ | 2,325 |
| | | Denominator: | | | | |
| | | Weighted average number of common shares – basic | | | | | | 82,161 | 58,526 | | | | 49,418 |
| | | Effect of dilutive securities – share-based employee options and awards |
| | — | | | | 2,964 | 1,761 |
| | | Weighted average number of common shares – diluted | | | | | | 82,161 | 61,490 | | | | 51,179 |
| | | Antidilutive options and awards (1) | | | | | | 3,822 | 500 | 310 |
| | | Net (loss) income per ordinary share: | | | | |
| | | Basic | | | | | | | | | $ | (0.11) $ | 0.20 $ | 0.05 |
| | | Diluted | | | | | | | | | $ | (0.11) $ | 0.19 $ | 0.05 |
| | | | |
|
| | | | | | | | | | | (1) | Options to purchase shares of common stock and unvested RSUs are not included in the calculation of net income (loss) per share because the effect would have been anti-dilutive. |
20 | | | | | | | | | | | SHAREHOLDERS’ EQUITY AND SHARE-BASED COMPENSATION |
| | | | | | | | | | | On November 15, 2021, the Company acquired a 70% interest in Rose. Under the terms of the agreement, 2,411,280 Common Shares of the Company were issued to the owners of Rose as part of the consideration. |
| | | | | | | | | | | On August 16, 2021, the Company acquired Balanced Health. Under the terms of the Acquisition Agreement, 4,707,113 Common Shares of the Company were issued to the owners of Balanced Health as part of the consideration. |
| | | | | | | | | | | On January 20, 2021, the Company closed a registered direct offering with certain institutional investors for the purchase and sale of an aggregate of 10,887,097 Common Shares at a purchase price of $12.40 per common share for gross proceeds of approximately $135 million before placement agent fees and other offering expenses. |
| | | | | | | | | | | On September 10, 2020, the Company sold 9,396,226 units through a registered direct offering. Each unit that was sold consisted of one common share of the Company and one-half (0.5) of a warrant to purchase a common share of the Company at a price of $5.80. On March 10, 2021, the warrants became exercisable and will expire on September 10, 2025. As of December, 2021, 3,188,680 of the warrants have been exercised. ASC 480, Distinguishing Liabilities from Equity, requires that these warrants are classified as equity. The fair value of these warrants was determined using the Black-Sholes Merton valuation model. |
| | | |
| | | | | 95 |
|
| VILLAGE FARMS INTERNATIONAL, INC. | |
| Notes to Consolidated Financial Statements | |
| | | (In thousands of United States dollars, except share and per share amounts and unless otherwise noted) | |
|
| | | | | | The Company’s Share-Based Compensation Plan (the “Plan”) dated January 1, 2010 was most recently approved by Shareholders on June 10, 2021. The Plan provides that the number of Common Shares reserved for issuance upon the exercise or redemption of awards granted under the Plan is a rolling maximum of ten percent (10%) of the outstanding Common Shares at any point in time. Approximately 4,970,835 |
| | | | | | | shares remain available for issuance at December 31, 2021. | |
| | | | | | Stock options have been granted with an exercise price equal to the fair market value of the common stock on the date of grants and have a ten-year contractual term. The stock options vest ratably over a 3- year period. Compensation expense is recognized on a straight-line basis. |
| | | | | | | | | |
| | | | | | The fair market value of stock options is estimated using the Black-Scholes-Merton valuation model and the Company uses the following methods to determine its underlying assumptions: expected volatilities are based on the historical volatilities of the weekly closing price of the Company’s common stock; the expected term of options granted is based historical exercises and forfeitures; the risk-free interest rate is based on Canadian Treasury bonds issued with similar life terms to the expected life of the grant; and the expected dividend yield is based on the current annual dividend amount divided by the stock price on the date of grant. Forfeitures are recorded when incurred. |
| | | | | | | |
| | | | | | The following key assumptions were used in the valuation model to value stock option grants for each respective period: | | | | |
|
| | | | | | | | | | | | | | | | 2021 | | | | 2020 | 2019 |
| | | Expected volatility | | | | | | | 68.3% - 75.7% | 71.1% | | 60.7% |
| | | Dividend | | | | | $nil | $nil | | $nil |
| | | Risk-free interest rate | | | | | | | 1.07% - 1.54% | 0.52% | | 1.86% |
| | | Expected life | | 4.5 years - 6.9 years | | | | | | | | | | 7.1 years | 5.7 years |
| | | Fair value | | CA$5.45 - CA$9.28 | | | | | | | | | | CA$5.83 | CA$9.73 |
| | | | |
|
| | | | | | Stock option transactions under the Company’s plan for the years ended December 31, 2021, 2020 and 2019 are summarized as follows: |
| | | |
|
| | | | | | |
| | | | | | | | | | | | | | Weighted |
| | | | | | | | | | | | Average | |
| | Weighted | | | | | | | | | | | | Remaining | |
| | Average | | | | | | | | | | | | | Contractual | | Aggregate |
| | | | | Number of | Exercise | | | | | | | | | | | Term | Intrinsic | | | | | | |
| | | | | | | | | | | | | Options | Price | | | | | | | | | | | | | (years) | | Value |
| | | | | | Outstanding at January 1, 2019 | | | | | | | 2,164,999 | CA$2.10 | | | | | | | | | | 5.69 $ | 5,553 |
| | | | | | Granted during 2019 | | | | | | | 510,000 | CA$16.32 | | | | | | | | | | 9.19 |
| | | | | | Exercised during 2019 | | | | | | | (212,332) | CA$1.29 | | | | | | | | | | 4.85 |
| | | | | | Forfeited/expired during 2019 | | | | | | | (10,001) | CA$2.20 | | | | | | |
| | | | | | Outstanding at December 31, 2019 | | | | | | | 2,452,666 | CA$5.12 | | | | | | | | | | 5.60 $ | 11,435 |
| | | | | | Exercisable at December 31, 2019 | | | | | | | 1,707,337 | CA$1.78 | | | | | | | | | | 4.18 $ | 10,736 |
| | | | | | Granted during 2020 | | | | | | | 1,081,488 | CA$8.77 | | | | | | | | | | 9.75 |
| | | | | | Exercised during 2020 | | | | | | | (425,166) | CA$1.36 | | | | | | | | | | 1.62 |
| | | | | | Forfeited during 2020 | | | | | | | (41,666) | CA$6.93 | | | | | | |
| | | | | | Outstanding at December 31, 2020 | | | | | | | 3,067,322 | CA$6.91 | | | | | | | | | | 6.82 $ | 20,051 |
| | | | | | Exercisable at December 31, 2020 | | | | | | | 1,618,168 | CA$3.91 | | | | | | | | | | 4.58 $ | 15,119 |
| | | | | | Granted during 2021 | | | | | | | 792,236 | CA$10.62 | | | | | | | | | | 9.78 |
| | | | | | Exercised during 2021 | | | | | | | (177,000) | CA$1.34 | | | | | | | | | | 1.14 |
| | | | | | Forfeited during 2021 | | | | | | | (60,000) | CA$13.41 | | | | | | |
| | | | | | Outstanding at December 31, 2021 | | | | | | | 3,622,558 | CA$7.88 | | | | | | | | | | 7.89 $ | 8,293 |
| | | | | | Exercisable at December 31, 2021 | | | | | | | 2,042,663 | CA$6.09 | | | | | | | | | | 5.14 $ | 7,621 |
| | | | | | | | | | |
|
| | | | | | The weighted-average grant-date fair value of options granted during the years 2021, 2020 and 2019 was $7.52 | , $5.83 and |
| | | | | | $9.58, respectively. The total intrinsic value of options exercised during the years ended December 31, 2021, 2020 and 2019, was $2,273, |
| | | $2,732 and $1,999, respectively. | | | | |
| | | | | 96 |
|
| VILLAGE FARMS INTERNATIONAL, INC. | |
| Notes to Consolidated Financial Statements | |
| | | (In thousands of United States dollars, except share and per share amounts and unless otherwise noted) | |
|
| | | | | | A summary of the status of the Company’s non-vested stock options, and the changes during the year ended December 31, 2021 is presented below: |
| | | | | | | |
|
| | | | Weighted |
| | Average |
| | | | | | | | | Grant | | Aggregate |
| | | | | | | | Number of | Date Fair | | | | | | | | | Intrinsic |
| | | | | | | | Options | Value | | | Value |
| | | Non-vested at January 1, 2021 | | | | | 1,449,154 | CA$6.52 |
| | | Granted | | | | | 792,236 | CA$7.52 |
| | | Vested | | | | | (628,161) | CA$6.65 |
| | | Forfeited | | | | | (33,334) | CA$8.58 |
| | | Non-vested at December 31, 2021 | | | | | 1,579,895 | CA$6.93 | | CA$671 |
|
| | | | | | As of December 31, 2021, there was $10,941 of total unrecognized compensation cost related to non-vested share-based compensation arrangements granted under the stock option plan; that cost is expected to be recognized over a period of three years. |
| | | |
| | | | | | The Company has also issued performance-based restricted share units to Village Farms employees involved with future developments of the Company. Once a performance target is met and the share units are deemed earned and vested, compensation expense is recognized, based on the fair value of the share units on the grant date. |
| | | | | | | | | | |
| | | | | | Performance-based restricted share unit activity for the years ended December 31, 2021, 2020 and 2019 is as follows: | |
|
| | | | | | | | Number of |
| | | | | | | | Performance- |
| | | | | | | | based | | Weighted Average |
| | | | | | | | Restricted | Grant Date Fair |
| | | | | | | | Share Units | | Value | |
| | | Outstanding at January 1, 2019 | | | | | 1,056,666 | | CA$5.56 |
| | | | | | | Granted | | | | | 355,000 | CA$14.94 |
| | | | | | | Received | | | | | (442,666) | CA$7.82 |
| | | | | | | Forfeited/expired | | | | | (230,000) | CA$12.90 |
| | | Outstanding at December 31, 2019 | | | | | | | | | 739,000 | CA$7.92 |
| | | Exercisable at December 31, 2019 | 30,000 | | | | | | | | CA$12.87 |
| | | | | | | Granted | 1,068,000 | | CA$6.36 |
| | | | | | | Issued | | | | | (840,000) | CA$6.47 |
| | | | | | | Forfeited | | | | | (98,000) | CA$9.59 |
| | | Outstanding at December 31, 2020 | | | | | | | | | 869,000 | CA$7.51 |
| | | Exercisable at December 31, 2020 | 75,000 | | | | | | | | CA$6.10 |
| | | | | | | Granted | | | | | 158,000 | CA$9.68 |
| | | | | | | Exercised | | | | | (487,000) | CA$7.14 |
| | | | | | | Forfeited/expired | | | | | (310,000) | CA$8.35 |
| | | Outstanding at December 31, 2021 | | | | | | | | | 230,000 | CA$8.67 |
| | | Exercisable at December 31, 2021 | | | | | | | | | 200,000 | CA$8.24 |
|
| | | | | 97 |
|
| VILLAGE FARMS INTERNATIONAL, INC. | |
| Notes to Consolidated Financial Statements | |
| | | (In thousands of United States dollars, except share and per share amounts and unless otherwise noted) | |
|
| | | | | | A summary of the status of the Company’s non-vested performance-based restricted share units, and the changes during the year ended December 31, 2021, is presented below: |
| | | | | | | |
|
| | | | | | | | Number of |
| | | | | | | | Performance- |
| | | | | | | | based | | Weighted Average |
| | | | | | | | Restricted | Grant Date Fair |
| | | | | | | | Share Units | Value | |
| | | Non-vested at January 1, 2021 | 794,000 | | | | | | | | C$7.33 |
| | | | | | | | | | | Granted | 158,000 | | | | | | | | C$9.69 |
| | | | | | | | | | | Vested | (612,000) | | C$7.68 |
| | | | | | | | | | | Forfeited | (310,000) | | C$8.34 |
| | | Non-vested at December 31, 2021 | 30,000 | | | | | | | | C$10.46 |
|
| | | | | | Total share-based compensation expense for the years ended December 31, 2021, 2020 and 2019 of $7,533, | $6,142 and $4,714, |
| | | | | | respectively, was recorded in selling, general and administrative expenses and the corresponding amount credited to additional paid in capital. |
| |
21 | | | | | | CHANGES IN NON-CASH WORKING CAPITAL ITEMS |
|
| | | | | | | | For the Years Ended December 31, |
| | | | | | | | 2021 | 2020 | | | | | | | | | 2019 |
| | | Trade receivables | | | | | | | | | $ | (9,914) $ | (3,196 ) $ | 2,301 |
| | | Inventories | | | | | (16,761) | 2,997 | 9,042 |
| | | Note receivable | — | | | | | | | 765 | — |
| | | Due from joint ventures | 4 | | | | | | | 4,363 | | | | (3,530) |
| | | Other receivables | | | | | (399) | 199 | (448) |
| | | Prepaid expenses and deposits | | | | | (3,201) | (1,245 ) | (370) |
| | | Trade payables | | | | | 6,327 | (1,665 ) | | | | (1,953) |
| | | Accrued liabilities | | | | | (10,389) | 6,565 | (369) |
| | | Other assets, net of other liabilities | | | | | (12,816) | 4,289 | 571 |
| | | | | | | | | | | | $ | (47,149) $ | 13,072 $ | 5,244 |
| | | | |
|
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| | | | | 98 |