Enhanced Investments - Financial Portal

Published: 2021-03-16


Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of Village Farms International, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated statements of financial position of Village Farms International, Inc. and its subsidiaries (together, the Company) as of December 31, 2020 and 2019, and the related consolidated statements of income (loss) and comprehensive income (loss), of changes in shareholders’ equity and of cash flows for each of the three years in the period ended December 31, 2020, including the related notes (collectively referred to as the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020 in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements 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 of these consolidated financial statements in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audits 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. We believe that our audits provide a reasonable basis for our opinion.

/s/ PricewaterhouseCoopers LLP
Chartered Professional Accountants
Vancouver, Canada
March 15, 2021
We have served as the Company’s auditor since 2006.
	F-1


		Village Farms International, Inc.
			Consolidated Statements of Financial Position
		(In thousands of United States dollars)

				December 31, 2020 December 31, 2019
ASSETS
Current assets
					Cash and cash equivalents	$				21,640 $	11,989
					Restricted cash (note 3)					4,039	—
					Trade receivables, less allowance for doubtful accounts of $13 and $5					23,222	8,997
					Inventories (note 4)					46,599	15,918
					Amounts due from joint venture (note 14)		—				15,418
					Other receivables		145	342
					Income tax receivable		18	713
					Prepaid expenses and deposits					6,145	1,259
Total current assets						101,808	54,636
Non-current assets
					Property, plant and equipment (note 5)					187,020	63,158
					Investments in joint ventures (notes 6 and 7)		—				41,334
					Investments in minority interests (note 7)					1,226	—
					Note receivable - joint venture (note 14)					3,545	10,865
					Goodwill (note 6)					24,027	—
					Intangibles (notes 6 and 8)					17,311	—
					Deferred tax asset (note 15)					13,312	7,999
					Operating right-of-use assets (note 11)					3,797	3,485
					Finance right-of-use assets (note 11)		35	97
					Other assets					1,950	1,834
Total assets				$		354,031 $	183,408
LIABILITIES
Current liabilities
					Line of credit	$				2,000 $	2,000
					Trade payables					15,064	12,653
					Current maturities of long-term debt (note 9)					10,166	3,423
					Note payable (note 9)					15,314	—
					Accrued liabilities (note 10)					22,438	3,017
					Operating lease liabilities - current (note 11)					1,107	875
					Finance lease liabilities - current (note 11)		27	61
					Income tax payable					4,523	—
					Other current liabilities					1,641	—
Total current liabilities						72,280	22,029
Non-current liabilities
					Long-term debt (note 9)					53,913	28,966
					Deferred tax liability (note 15)					18,059	1,873
					Operating lease liabilities - non-current (note 11)					2,855	2,690
					Finance lease liabilities - non-current (note 11)		8	34
					Other liabilities					1,633	1,357
Total liabilities						148,748	56,949
					Commitments and contingencies (note 13)
SHAREHOLDERS’ EQUITY
					Common stock, no par value per share - unlimited shares authorized; 66,911,811 shares issued and outstanding at December 31, 2020 and

					52,656,669 shares issued and outstanding at December 31, 2019							145,668	98,333
					Additional paid in capital					17,502	4,351
					Accumulated other comprehensive loss					6,255	(475 )
					Retained earnings					35,858	24,250
Total shareholders’ equity						205,283	126,459
Total liabilities and shareholders’ equity				$		354,031 $	183,408

									The accompanying notes are an integral part of these consolidated financial statements.
	F-2



		Village Farms International, Inc.
			Consolidated Statements of Income (Loss) and Comprehensive Income (Loss)
				For the Years Ended December 31, 2020, 2019 and 2018
		(In thousands of United States dollars)

						2020					2019				2018
Sales (note 16)					$	170,086 $		144,568 $				150,000
Cost of sales						(159,126 )		(151,913 )				(140,683 )
Gross margin (note 16)						10,960		(7,345 )				9,317
Selling, general and administrative expenses						(19,086 )		(16,762 )				(14,108 )
Share-based compensation						(6,142 )		(4,714 )				(1,454 )
Interest expense (note 16)						(2,056 )		(2,614 )				(2,794 )
Interest income (note 16)									625	1,036					311
Foreign exchange (loss) gain									(136 )	433				(1,047 )
Gain on settlement agreement (note 6)						4,681		—					—
Gain on acquisition (note 6)						23,631		—					—
Other income						49	268					131
(Loss) gain on disposal of assets									(922 )	13,564					—
Loss on joint venture loans (note 7)						(3,791 )		(1,184 )					—
Income (loss) before taxes and earnings of unconsolidated entities						7,813		(17,318 )				(9,644 )
Recovery of income taxes						2,790		5,866				2,300
Income (loss) from consolidated entities after income taxes						10,603		(11,452 )				(7,344 )
Equity earnings from unconsolidated entities (notes 6 and 7)						1,005		13,777					(171 )
Net income (loss)					$	11,608 $		2,325 $				(7,515 )
Basic income (loss) per share (note 17)					$				0.20 $	0.05 $						(0.17 )
Diluted income (loss) per share (note 17)					$				0.19 $	0.05 $						(0.17 )
Weighted average number of common shares used in the computation of net income (loss) per share (in thousands):

											Basic	58,526		49,418			44,357
											Diluted	61,490		51,179			44,357
Net income (loss)					$	11,608 $		2,325 $				(7,515 )
Other comprehensive income (loss):
											Foreign currency translation adjustment	6,730		87				(171 )
Comprehensive income (loss)					$	18,338 $		2,412 $				(7,686 )

			The accompanying notes are an integral part of these consolidated financial statements.
	F-3


		Village Farms International, Inc.
			Consolidated Statements of Changes in Shareholders’ Equity
			For the Years Ended December 31, 2020, 2019 and 2018
		(In thousands of United States dollars)

				Number of	Accumulated
				Common				Additional	Other							Total
				Shares (in	Common	Paid In	Comprehensive					Retained Earnings	Shareholders’
					thousands)			Stock							Capital		(Loss) Income					Equity
Balance at January 1, 2018					42,243 $	36,115 $									1,726 $	(391 ) $		29,440 $		66,890
Shares issued in public offering, net of issuance costs
					3,097	15,737									—	—			—	15,737
Shares issued in private placement of common shares, net of issuance costs
					1,887	7,755									—	—			—	7,755
Shares issued on exercise of stock options (note 18)
					366	434									(151 )	—			—		283
Share-based compensation (note 18)					50	831									623	—			—	1,454
Cumulative translation adjustment					—	—									—	(171 )			—	(171 )
Net loss					—	—									—	—		(7,515 )		(7,515 )
Balance at December 31, 2018					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 18)
					212	324									(116 )	—			—		208
Share-based compensation (note 18)					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 18)
					1,265	692									(267 )	—			—		425
Share-based compensation (note 18)					—	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


										The accompanying notes are an integral part of these consolidated financial statements.
	F-4


		Village Farms International, Inc.
		Consolidated Statements of Cash Flows
			For the Years Ended December 31, 2020, 2019 and 2018
		(In thousands of United States dollars)

					2020		2019		2018
Cash flows provided by (used in) operating activities:
Net income (loss)				$	11,608 $		2,325 $		(7,515 )
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:

											Depreciation and amortization		6,825		7,366		7,027
											Amortization of deferred charges			115		76		76
											Share of (income) loss from joint venture (notes 5 and 6)		(1,005 )		(13,777 )			170
											Loss on joint venture loans (note 6)		3,791		1,184			—
											Interest expense		2,056		2,614		2,794
											Interest income			(625 )	(1,036 )			(311 )
											Interest paid on long-term debt		(1,295 )		(2,635 )		(2,417 )
											Gain on settlement agreement		(4,681 )			—		—
											Loss (gain) on disposal of assets			922	(13,564 )			—
											Gain on acquisition of Pure Sunfarms		(23,631 )			—		—
											Non-cash lease expense		(1,150 )		(1,043 )			—
											Interest paid on finance lease			(4 )		—		—
											Share-based compensation		6,142		4,714		1,454
											Deferred income taxes		(6,462 )		(5,855 )		(2,730 )
											Changes in non-cash working capital items (note 19)		13,072		5,244		(3,225 )
											Net cash provided by (used in) operating activities		5,678		(14,387 )		(4,677 )
Cash flows used in investing activities:
											Purchases of property, plant and equipment, net of rebate		(3,419 )		(2,287 )		(3,093 )
											Purchases of intangibles			(92 )		—		—
											Advances to joint ventures			(177 )	(14,507 )		(10,462 )
											Proceeds from sale of assets			—		52		65
											Investment in joint ventures		(11,713 )			(96 )		—
											Investment in minority interests		(1,226 )			—		—
											Acquisitions, net		(34,603 )			—		—
											Net cash used in investing activities		(51,230 )		(16,838 )		(13,490 )
Cash flows provided by financing activities:
											Proceeds from borrowings		10,619		4,000		7,000
											Repayments on borrowings		(6,292 )		(7,423 )		(7,706 )
											Proceeds from issuance of common stock and warrants		57,212		35,030		23,635
											Issuance costs		(3,293 )			(338 )		(143 )
											Proceeds from exercise of stock options			425		208		283
											Payments on capital lease obligations			(63 )		(90 )		(71 )
											Net cash provided by financing activities		58,608		31,387		22,998
Effect of exchange rate changes on cash and cash equivalents						634		(93 )		(2 )
Net increase in cash and cash equivalents					13,690			69	4,829
Cash and cash equivalents, beginning of period					11,989		11,920		7,091
Cash and cash equivalents, end of period				$	25,679 $		11,989 $		11,920
Supplemental cash flow information:
Income taxes paid				$		158 $		904 $		290


												The accompanying notes are an integral part of these consolidated financial statements.
	F-5


		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)

1				NATURE OF OPERATIONS
				Village Farms International, Inc. (“VFF”) the parent company, together with its subsidiaries (collectively, the “Company”,
				“we”, “us”, or “our”) is incorporated under the Canada Business Corporation Act. VFF’s principal operating subsidiaries as of December 31, 2020 are Village Farms Canada Limited Partnership (“VFCLP”), Village Farms, L.P. (“VFLP”), VF Clean
				Energy, Inc. (“VFCE”), and Pure Sunfarms Corp. (“Pure Sunfarms”). The address of the registered office of VFF is 4700 80th Street, Delta, British Columbia, Canada, V4K 3N3. VFF owns a 65% equity interest in Village Fields Hemp USA LLC
				(“VF Hemp”), which is recorded as an equity investment (note 7).
				The Company’s shares are listed on the Toronto Stock Exchange under the symbol VFF and are also listed in the United
				States on the Nasdaq Capital Market (“Nasdaq”) under the symbol VFF.
				The Company owns and operates sophisticated, highly intensive agricultural greenhouse facilities in British Columbia
				(“B.C.”) and Texas, where it produces, markets and sells premium-quality tomatoes, bell peppers, and cucumbers. The Company, through its subsidiary Pure Sunfarms, is a licensed producer and supplier of cannabis products to be sold to other licensed providers and provincial governments across Canada and internationally. The Company, through its subsidiary
				VFCE, owns and operates a 7.0 MW power plant that generates electricity. The Company’s joint venture, VF Hemp was a
				cultivator of high cannabidiol (“CBD”) hemp in multiple states throughout the United States.
				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 2020, Pure Sunfarms determined that it met the employer eligibility criteria and applied for the CEWS and received C$2,470 of wage subsidies during the year ended December 31, 2020.
				Currently, all of the Company’s operations are operating normally, 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
				Basis of Presentation
				The accompanying audited Consolidated Financial Statements for the year ended December 31, 2020 have been prepared in accordance with United States generally accepted accounting principles (“US GAAP”) and the following accounting policies have been consistently applied in the preparation of the Consolidated Financial Statements.

				Principles of Consolidation
				The Company’s consolidated financial statements include the accounts of its wholly owned subsidiaries. The Company consolidates variable interest entities (“VIEs”) when it has variable interests and is the primary beneficiary. The Company continually evaluates its involvement with VIEs to determine when these criteria are met.

				All intercompany transactions, balances and unrealized gains and losses from intercompany transactions are eliminated when consolidated.

				Functional and Presentation Currency
				The functional currency for each entity included in these consolidated financial statements is the currency of the primary economic environment in which the entity operates. These consolidated financial statements are presented in United States
	F-6


		dollars (“U.S. dollars”) which have been rounded to the nearest thousands, except share and per share amounts or when otherwise noted. Currency conversion to U.S. dollars is performed in accordance with Financial Accounting Standards Board
		Accounting Standards Codification (“ASC”) Topic 830, Foreign Currency Matters.


	F-7


	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)

3				SIGNIFICANT ACCOUNTING POLICIES, JUDGMENTS AND ESTIMATION UNCERTAINTY
				The significant accounting policies set out below have been applied consistently to all periods presented in these consolidated financial statements.

				Use of Estimates
				The preparation of the Company’s financial statements in accordance with US GAAP requires the Company to make estimates and assumptions that affect the amounts reported in its consolidated financial statements and accompanying notes. Actual results could differ from these estimates and those differences could be material.

				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 consists of cash 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, consisting of available for sale flower and trim, distilled oil, crop inventory, capitalized production costs and purchased produce inventory 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. Other inventory, including seed and packaging materials, and spare parts are valued at the lower of cost or net realizable value. Inventoriable costs are expensed to cost of goods sold on the consolidated statement of income (loss) 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.

				Short-term Deposits
				Short-term deposits consist primarily of a security deposit for excise tax.
				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			Indefinite
		Computer Software			5 years

				Business Combinations The Company recognizes and measures the assets acquired and liabilities assumed in a business combination based on their estimated fair values at the acquisition date, while transaction and integration costs related to business combinations are
			F-8


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)

			expensed as incurred. Any excess of the purchase consideration when compared to the fair value of the net tangible and intangible assets acquired, if any, is recorded as goodwill. The Company uses information available to it to make fair value determinations and engage independent valuation specialists, when necessary, to assist in the fair value determination of significant acquired long-lived assets. The estimated fair value of licenses is 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 is 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 considerable 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 is generally 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. If the initial accounting for the business combination is incomplete by the end of the reporting period in which the acquisition occurs, an estimate is recorded. Subsequent to the acquisition date, and not later than one year from the acquisition date, the Company will record any material adjustments to the initial estimate based on new information obtained that would have existed as of the date of the acquisition. Any adjustment that arises from information obtained that did not exist as of the date of acquisition will be recorded in the period the adjustments arise.
			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.
			Equity Method Investments and Variable Interest Entities
			The Company evaluates the method of accounting for investments in which it does not hold an equity interest of at least 50% based on the amount of control it exercises over the operations of the investee, exposure to losses in excess of its investment, the ability to significantly influence the investee and whether the Company is the primary beneficiary of the investee. Investments not qualifying for consolidation are accounted for under the equity method whereby the ongoing investment in the entity, consisting of its initial investment adjusted for distributions, gains and losses of the entity are classified as a single line in the consolidated statements of financial position and as a non-operating item in the consolidated statements of income (loss).

			The Company regularly monitors and evaluates the fair value of its equity investments. If events and circumstances indicate that a decline in the fair value of these assets has occurred and is other than temporary, the Company will record a charge in earnings from joint ventures in the consolidated statements of income (loss). The Company’s investments do not have a readily determinable fair value as none of them are publicly traded. The fair values of the Company’s equity investments are determined by discounting the estimated future cash flows of each entity. These cash flow estimates include assumptions on growth rates and future currency exchange rates (Level 3). The Company did not record an impairment charge on any of its equity investments in fiscal years 2020, 2019, or 2018, except as noted in Note 6.


			Property, Plant and Equipment
			a) Recognition and measurement

			Property, plant and equipment is initially recorded at cost. Cost includes expenditures that are directly attributable to the acquisition of the asset. Directly attributable costs incurred for major capital projects and site preparation are capitalized until the asset is brought to the location and condition necessary for it to be used in the manner intended by management. The cost of self-constructed assets includes the cost of materials and direct labour, any other costs directly attributable to
		F-9


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)

			bringing the assets to a working condition for their intended use, the costs of dismantling and removing the items and restoring the site on which they are located and borrowing costs. Where an item of property, plant and equipment comprises significant components with different useful lives, the components are accounted for as separate items of property, plant and equipment. Expenditures incurred to replace a component of an item of property, plant and equipment that is accounted for separately, including major inspection and overhaul expenditures, are capitalized. Subsequent costs are included in the asset’s carrying amount or recognized as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Company and the cost can be measured reliably. Repairs and maintenance costs are charged to the consolidated statement of income (loss) and comprehensive income (loss) during the period in which they are incurred.

			Items of property, plant and equipment acquired in a non-monetary transaction are measured at fair value, unless the transaction has no commercial substance or the fair value of both the asset received and the asset given up cannot be reliably measured. If an item of property, plant and equipment acquired in a non-monetary transaction cannot be measured at fair value, it is measured at the carrying amount of the asset given up in the exchange. Subsequent to initial recognition, property, plant and equipment is stated at cost less accumulated depreciation and accumulated impairment losses. The gain or loss on disposal of an item of property, plant and equipment is determined by comparing the proceeds from disposal with the carrying amount of the property, plant and equipment, and is presented net within gain/loss on disposal of assets in the consolidated statement of income (loss) and comprehensive income (loss).
			b) Depreciation

			Depreciation is based on the cost of an asset less its residual value. Significant components of individual assets are assessed, and if a component has a useful life that is different from the remainder of that asset, that component is depreciated separately.
			Depreciation expense is recognized on a straight-line basis over the estimated useful lives of each component of an item of property, plant and equipment. Leased assets are depreciated over the shorter of the lease term and their useful lives unless it is reasonably certain that the Company will obtain ownership by the end of the lease term. Land is not depreciated.


	Classification			Estimated Useful Lives
	Leasehold and land improvements			5-20 years
	Greenhouses and other buildings			4-30 years
	Greenhouse equipment			3-30 years
	Machinery and equipment			3-20 years

			Construction in process reflects the cost of assets under construction, which are not depreciated until placed into service.
			Revenue Recognition
			Following the adoption of ASC 606 on January 1, 2018 using the modified retrospective transition approach the Company now recognizes revenue when control of the promised goods or services is transferred to customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services. In order to achieve this core principle, the Company applies a five-step process. The Company generates its revenue through the sale of grown produce and third-party produce, with standard shipping terms and discounts, and through the production and sale of power. The Company’s produce revenue transactions consist of single performance obligations to transfer promised goods at a fixed price. Quantities to be delivered to the customer are determined at a point near the date of delivery through purchase orders they receive from the customer. The Company recognizes revenue when it has fulfilled a performance obligation, which is typically when the customer receives the goods and their performance obligation is complete. Revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring product. The amount of revenue recognized is reduced for estimated returns and other customer credits, such as discounts and rebates, based on the expected value to be realized. Payment terms are consistent with terms standard to the markets the Company serves. The Company maintains an allowance for doubtful accounts for the loss that would be incurred if a customer was unable to pay amounts due. The Company initially estimates the
		F-10


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)

			allowance required at the time of revenue recognition based on historical experience and makes changes to the allowance based
			on various factors, including changes in the customer’s financial condition or payment patterns. 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. The amount of revenue recognized is reduced by excise duty, estimated returns and other customer credits, such as discounts and rebates.
			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.

			Revenue received from shipping and handling fees is reflected in net sales. Shipping and handling costs are included in cost of sales as incurred or at the time revenue is recognized for the related goods, whichever comes first.

			Impairments of Long-Lived Assets
			Long-lived assets, including intangible assets subject to amortization, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. Long-lived assets are grouped with other assets to the lowest level to which identifiable cash flows are largely independent of the cash flows of other groups of assets and liabilities. Management assesses the recoverability of the carrying cost of the assets based on a review of projected undiscounted cash flows. If an asset is held for sale, management reviews its estimated fair value less cost to sell. Fair value is determined using pertinent market information, including appraisals or broker’s estimates, and/or projected discounted cash flows. In the event an impairment loss is identified, it is recognized based on the amount by which the carrying value exceeds the estimated fair value of the long-lived asset.

			Segment Reporting
			Operating segments are reported in a manner consistent with internal reporting provided to the chief operating decision-maker. The chief operating decision-maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the Chief Executive Officer (“CEO”). Based on the aggregation criteria in ASC Topic 280, Segment Reporting, the Company has identified three operating segments - cannabis, produce and energy.

			Foreign Currency Translation
			Monetary assets and liabilities denominated in foreign currencies are translated to the functional currency at the exchange rates in effect at the reporting date. Non-monetary assets and liabilities that are measured at fair value in a foreign currency are translated to the functional currency at the exchange rate in effect when the fair value was determined. Foreign currency differences are generally recognized in net income. Non-monetary items that are measured based on historical cost in a foreign currency are translated to the functional currency using the exchange rate in effect at the date of the transaction giving rise to the item.

			Fair Value Measurements
			Pursuant to the provisions of ASC 820, Fair Value Measurements and Disclosures, the Company measures certain assets and liabilities at fair value or discloses the fair value of certain assets and liabilities recorded at cost in the consolidated financial statements. Fair value is calculated as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (an exit price). ASC 820 establishes a fair value hierarchy which requires assets and liabilities measured at fair value to be categorized into one of three levels based on the inputs used in the valuation. The Company classifies assets and liabilities in their entirety based on the lowest level of input significant to the fair value measurement.

		F-11


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 three levels are defined as follows:
			Level 1: Observable inputs based on quoted prices (unadjusted) in active markets for identical assets or liabilities.
			Level 2: Observable inputs, other than those included in Level 1, based on quoted prices for similar assets and liabilities in active markets, or quoted prices for identical assets and liabilities in inactive markets.

			Level 3: Unobservable inputs that reflect an entity’s own assumptions about what inputs a market participant would use in pricing the asset or liability based on the best information available in the circumstances.

			Transfers between levels of the fair value hierarchy are deemed to have occurred at the end of the reporting period in which the event or change of circumstances caused the transfer to occur.

			Share-Based Compensation
			The Company grants stock options and performance-based restricted stock (“RS”) to certain employees and directors.
			The Company recognizes stock-based compensation using the fair value provisions prescribed by ASC Topic 718, Compensation — Stock Compensation. Accordingly, compensation costs for awards of stock-based compensation settled in shares are determined based on the fair value of the share-based instrument at the time of grant and are recognized as expense over the vesting period of the share-based instrument. The Company recognizes forfeitures as they occur.

			Stock options generally vest over three years (33% per year following the grant date) and expire after ten years. Each tranche in an award is considered a separate award with its own vesting period. The fair value of each tranche is measured at the date of grant using the Black-Scholes option pricing model. Compensation expense is recognized over the tranche’s vesting period by increasing additional paid-in capital based on the number of awards expected to vest. The number of awards expected to vest is reviewed at least annually, with any impact recognized immediately.

			The RS granted will be settled using the Company’s own equity and issued from treasury if the performance standard is met. The equity-settled share-based compensation is measured at the fair value of the Company’s common shares as at the grant date in accordance with the terms of the Company’s Stock Compensation Plan. The fair value determined at the grant date is charged to income when performance-based vesting conditions are met, based on the number of RS that will eventually be converted to common shares, with a corresponding increase in equity.

			Income Taxes
			Deferred income taxes are provided to recognize temporary differences between the financial reporting basis and the income tax basis of the Company’s assets and liabilities using currently enacted tax rates and laws. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment.

			The Company evaluates uncertain income tax positions in a two-step process. The first step is recognition, where the Company evaluates whether an individual tax position has a likelihood of greater than 50% of being sustained upon examination based on the technical merits of the position, including resolution of any related appeals or litigation processes. For tax positions that are currently estimated to have a less than 50% likelihood of being sustained, zero tax benefit is recorded. For tax positions that have met the recognition threshold in the first step, the Company performs the second step of measuring the benefit to be recorded. The actual benefits ultimately realized may differ from the Company’s estimates. In future periods, changes in facts and circumstances and new information may require the Company to change the recognition and measurement estimates with regard to individual tax positions. Changes in recognition and measurement estimates are recorded in results of operations and financial position in the period in which such changes occur.

		F-12


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)

			Basic and Diluted Income (Loss) Per Share
			Basic income per share is computed using the weighted average number of common shares outstanding during the period. The treasury stock method is used for the calculation of diluted income per share. Under this method, the weighted average number of common shares outstanding assumes that the proceeds to be received on the exercise of dilutive share options are applied to repurchase common shares at the average market price for the period. Share options are dilutive when the average market price of the common shares during the period exceeds the exercise price of the options. Options to purchase shares of common stock and RS are not included in the calculation of net income (loss) per share when the effect is anti-dilutive.
			Government Assistance Government assistance is recorded as a receivable when the Company qualifies under the terms of a government program and the amount of the assistance can be reasonably estimated. Government assistance for current expenses is recorded in cost of sales and selling, general and administrative expenses.
			New Accounting Pronouncements Not Yet Adopted
			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.” The amendments provide optional guidance for a limited time to ease the potential burden in accounting for reference rate reform. The new guidance provides optional expedients and exceptions for applying United States Generally Accepted Accounting Principles (“GAAP”) to contracts, hedging relationships and other transactions affected by reference rate reform if certain criteria are met. The amendments apply only to contracts and hedging relationships that reference London Interbank Offered Rate (“LIBOR”) or another reference rate expected to be discontinued due to reference rate reform. These amendments are effective immediately and may be applied prospectively to contract modification made and hedging relationships entered into or evaluated on or before December 31, 2022. The Company believes this guidance will not have a material impact on its financial statements.
			Adopted
			In December 2019, the FASB issued ASU 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes.” ASU 2019-12 simplifies the accounting for income taxes by removing exceptions within the general principles of Topic 740 regarding the calculation of deferred tax liabilities, the incremental approach for intraperiod tax allocation, and calculating income taxes in an interim period. In addition, the ASU adds clarifications to the accounting for franchise tax (or similar tax). which is partially based on income, evaluating tax basis of goodwill recognized from a business combination, and reflecting the effect of any enacted changes in tax laws or rates in the annual effective tax rate computation in the interim period that includes the enactment date. The ASU is effective for fiscal years beginning after December 15, 2020 and will be applied either retrospectively or prospectively based upon the applicable amendments. Early adoption is permitted. The adoption of this standard is not expected to have a material impact on the Company’s consolidated financial statements and related disclosures.
			In August 2018, the FASB issued ASU 2018-13, “Fair Value Measurement (Topic 820)—Disclosure Framework— Changes to the Disclosure Requirements for Fair Value Measurement.” ASU 2018-13 removes the disclosure requirement for the amount and reasons for transfers between Level 1 and Level 2 fair value measurements as well as the process for Level 3 fair value measurements. In addition, the ASU adds the disclosure requirements for changes in unrealized gains and losses included in other comprehensive income (loss) for recurring Level 3 fair value measurements held at the end of the reporting period as well as the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. The Company adopted ASU 2018-13 on January 1, 2020. The adoption of this standard did not have a material impact on the Company’s consolidated financial statements and related disclosures.
			In June 2016, the FASB issued ASU 2016-13, “Financial Instruments—Credit Losses.” The standard, including subsequently issued amendments, requires a financial asset measured at amortized cost basis, such as accounts receivable and certain other financial assets, to be presented at the net amount expected to be collected based on relevant information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. The Company adopted ASU 2016-13 on January 1, 2020. The adoption of this standard did not have a material impact on the Company’s consolidated financial statements and related disclosures.
		F-13


	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)

4				INVENTORIES Inventories consisted of the following:

					December 31, 2020 December 31, 2019
		Cannabis:
		Available for sale - flower and trim			$	12,720 $		-
		Distilled oil				13,511		—
		Capitalized production costs				3,438		—
		Other				2,552		—
		Produce and Energy:
		Crop inventory				13,441				15,281
		Purchased produce inventory				810		530
		Spare parts inventory				127		107
		Inventory			$	46,599 $				15,918

				As of December 31, 2020 and 2019, crop inventory was also impaired by nil and $218, respectively, to its net realizable value.

5				PROPERTY, PLANT AND EQUIPMENT
				Property, plant and equipment consist of the following:

		Classification	December 31, 2020 December 31, 2019
		Land	$				10,447 $	3,204
		Leasehold and land improvements					4,154	3,820
		Buildings					142,060	72,772
		Machinery and equipment					69,390	61,871
		Construction in progress					52,960	1,697
		Less: Accumulated depreciation					(91,991 )	(80,206 )
		Property, plant and equipment, net	$				187,020 $	63,158


				Depreciation expense on property, plant and equipment, was $6,703, $7,366 and $7,027 for the years ending December 31, 2020, 2019 and 2018, 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 a 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 (note 20).
				The acquisition is a business combination and has been accounted for in accordance with the measurement and recognition provisions of ASC Topic 805, Business Combinations. ASC Topic 805 requires that the purchase consideration be allocated to the assets acquired and liabilities assumed in a business combination based upon their estimated fair values at the date of acquisition. The purchase price has been 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
			F-14

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)

of fair value requires considerable 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 was 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 $23,095. 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 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 acquisition date. The initial accounting for the business combination was considered complete for the year ended December 31, 2020.

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

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

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

F-15


	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)


			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, 2020 is due to the effect of foreign currency translation. Pro Forma Financial Information (unaudited)
								The following unaudited pro forma financial information presents consolidated results assuming the Pure Sunfarms Acquisition occurred on January 1, 2019.
					December 31, 2020	December 31, 2019
		Sales		$					214,181 $	206,909
		Net income (loss) (1)					$					(1,817 ) $	31,475

								(1)
									The net income figures above include the impact of the $23.6 million gain on acquisition and the impact of the fair value adjustments to inventory through cost of sales, as well as the elimination of historical equity earnings related to Pure Sunfarms.

								Prior to its acquisition on November 2, 2020, the Company accounted for its investment in Pure Sunfarms, in accordance with ASC 323 – Equity Method and Joint Ventures (“ASC 323”), 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 58.7% ownership interest and joint power arrangement with Emerald, the Company shared joint control of the Board of Directors and therefore was not the primary beneficiary. As of November 1, 2020 and December 31, 2019 the total investment in Pure Sunfarms was $62.7 million and $41.3 million, respectively. For the period ended November 1, 2020 and the year ended December 31, 2020, the Company’s equity earnings from Pure Sunfarms was $4,980 and $16,276, respectively.
				F-16


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)

				During the period ending November 1, 2020, the Company was required to apply the hypothetical liquidation at book value (“HLBV”) method to determine its allocation of the profits and losses in Pure Sunfarms. When determining its allocation of profits and losses, the HLBV method only considers shares that have been fully paid for. Under the hypothetical liquidation method, the Company received 58.7% and 54.0% of Pure Sunfarms’ earnings for the period ending November 1, 2020 and the year ending December 31, 2019, respectively.
				On March 31, 2019, Pure Sunfarms exercised its option to utilize the Delta 2 assets and operations. The contribution of the assets has been accounted for as a disposal of the land, greenhouse facility and other assets in exchange for 25,000,000 common shares of Pure Sunfarms. This was a non-cash transaction, and it was estimated that the fair value of the land, building and other assets was $18.7 million (C$25.0 million) at the date of contribution. The Company recognized a gain of $13.6 million on the contribution of the fixed assets.
				On March 2, 2020, pursuant to the settlement agreement with Emerald (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 $4.7 million (C$6.5 million). The Company recorded this amount as a gain on settlement agreement in the Condensed Consolidated Interim Statement of Income (Loss) and Comprehensive Income (Loss) for the year ended December 31, 2020. In addition, Village Farms made additional equity contributions to Pure Sunfarms of C$16.0 (US$11.7) million in 2020, further increasing its majority ownership of Pure Sunfarms to 58.7% from 57.4%.

				The Company’s share of the joint venture consists of the following:
	Balance, January 1, 2019	$				6,341
	Investments in joint venture					18,717
	Share of net income for the year					16,276
	Balance, December 31, 2019	$				41,334
	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

				Summarized financial information of Pure Sunfarms:
					November 1, 2020 December 31, 2019
	Current assets
	Cash and cash equivalents		$	10,804 $	7,356
	Trade receivables			10,499	8,687
	Inventory			33,330				21,745
	Other current assets			4,234	6,964
	Non-current assets			119,415			108,652
	Current liabilities
	Trade payables			(3,829 )				(4,938 )
	Borrowings due to joint ventures			(10,912 )			(26,413 )
	Income taxes payable			—				(8,489 )
	Borrowings - current			(2,294 )				(1,423 )
	Other current liabilities			(15,381 )				(5,021 )
	Non-current liabilities
	Borrowings – long term			(23,780 )			(13,089 )
	Deferred tax liability			(11,391 )				(2,473 )
	Net assets		$	110,695 $				91,558
	Reconciliation of net assets:
	Accumulated retained earnings		$	35,310 $				26,679
	Contributions from joint venture partners			75,738				63,481
	Currency translation adjustment			(353 )	1,398
	Net assets		$	110,695 $				91,558

			F-17


	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)


				November 1,		December 31,	December 31,
							2020			2019			2018
			Revenue					$	44,097 $	62,341 $		3,691
			Cost of sales*						(27,038 )	(15,067 )			(1,154 )
			Gross margin						17,059	47,274		2,537
			Selling, general and administrative expenses						(8,717 )	(7,882 )			(2,584 )
			Income (loss) from operations						8,342	39,392		(47 )
			Interest expense						(947 )	(884 )		(72 )
			Foreign exchange gain (loss)						(209 )	(9 )	(176 )
			Write down of fixed assets						—	(144 )		—
			Other income, net**						4,223	26	18
			Income (loss) before taxes						11,409	38,381		(277 )
			Provision for income taxes						(2,778 )	(10,967 )		55
			Net income (loss)					$	8,631 $	27,414 $		(222 )

			Included in cost of sales for the period ended November 1, 2020 and years ended December 31, 2019 and 2018 is $3,120, $2,671 and $796 of depreciation expense. *The period ended November 1, 2020 includes a gain recognized on the settlement of net liabilities.
7 INVESTMENT IN JOINT VENTURES AND MINORITY INTERESTS
					Village Fields Hemp USA LLC
					On February 27, 2019, the Company entered into a joint venture with Nature Crisp, LLC (“Nature Crisp”) to form VF Hemp for the objective of outdoor cultivation of high percentage CBD hemp and CBD extraction in multiple states throughout the United States. VF Hemp is 65% owned by the Company and 35% owned by Nature Crisp.
		Under the terms of the VF Hemp Joint
					Venture Agreement, the Company will lend up to approximately US$15 million to VF Hemp for start-up costs and working capital.

					The Company accounts for its investment in VF Hemp, in accordance with ASC 323, using the equity method. The Company has determined that VF Hemp is a VIE, however it does not consolidate VF Hemp because the Company is not the primary beneficiary. Although the Company was able to exercise significant influence over the operating and financial policies of VF Hemp through its 65% ownership interest and joint power arrangement with Nature Crisp, the Company shares joint control of the Board of Directors and therefore is not the primary beneficiary. The Company’s maximum exposure to loss as a result of its involvement with VF Hemp relates directly to the recovery of the outstanding loan to VF Hemp of $3,545.

					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. During the fourth quarter of 2020, VF Hemp wrote its inventory to net realizable value and recognized a loss of $5,163. As a result of the inventory write-down, the Company also recognized an impairment of $3,791 on the outstanding grid loan with VF Hemp. As of December 31, 2020, the balance of the grid loan was $3,545 (note 14).

					The Company is not legally obligated for the debts, obligations or liabilities of VF Hemp.
				F-18


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)

			Summarized financial information of VF Hemp:
				December 31,			December 31,
					2020		2019
	Current assets
	Inventory			$	4,035 $		9,308
	Other current assets				302		546
	Non-current assets				937		1,476
	Current liabilities				(1,472 )				(1,788 )
	Non-current liabilities				(13,697 )				(13,323 )
	Net assets			$	(9,895 ) $				(3,781 )
	Reconciliation of net assets:
	Accumulated retained earnings			$	(3,791 ) $				(3,791 )
	Net loss for the year ended December 31, 2020				(6,114 )		—
	Contributions from joint venture partners				10		10
	Net assets			$	(9,895 ) $				(3,781 )

				December 31, 2020		December 31, 2019
	Revenue	$	348 $		106
	Cost of sales		(482 )		(121 )
	Depreciation		(244 )		(111 )
	General and administrative expenses		(631 )		(869 )
	Interest expense		(345 )		(440 )
	Write down of inventory		(5,038 )					(2,356 )
	Other		278		—
	Net loss	$	(6,114 ) $					(3,791 )

			Arkansas Valley Green and Gold Hemp
			On May 21, 2019, the Company entered into a joint venture with Arkansas Valley Hemp, LLC (“AV Hemp”) for the objective of outdoor cultivation of high percentage CBD hemp and CBD extraction in Colorado. The joint venture, AVGG Hemp, was 60% owned by the Company, 35% owned by AV Hemp, and 5% owned by VF Hemp. Subsequent to year end, all of the hemp was destroyed by a severe windstorm. As a result of the loss, the Company wrote off its $1,184 loan to AVGG Hemp during the year ended December 31, 2019.
			Minority Interest
			During 2020 the Company acquired minority interests in two international companies in order to leverage its experience and expand into international cannabis and CBD opportunities. In July 2020, the Company invested $226, for an approximate 16% minority interest ownership in DutchCanGrow Inc. (“DCG”), a Netherlands-based cannabis enterprise. 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. On February 8, 2021, the Company exercised an option to increase the equity investment of Altum from 6.6% to just under 10%. Altum is a cannabinoid platform with a focus on the distribution and marketing of CBD products in the Asia-Pacific region.

		F-19


	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)

8						INTANGIBLES
						Acquired intangibles consist of the following:
			Classification					December 31, 2020
			Licenses				$	12,870
			Branding					3,688
			Computer software					945
			Less: Accumulated amortization					(192 )
			Intangibles, net				$	17,311


						The expected future amortization expense for definite-lived intangible assets as of December 31, 2020 is as follows:

			Fiscal period
			2021	$		777
			2022			777
			2023			771
			2024			771
			2025			680
			Thereafter			9,847
			Intangibles, net	$					13,623

						Amortization expense for intangibles was $122 for the year ending December 31, 2020.

9						DEBT

		Balance outstanding as of
													December 31,
											2020			2019
			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
							$	28,690 $				31,306
			Term Loan - VFCE: CA$3.0M - non-revolving fixed rate loan with fixed interest rate of 4.98%; matures June 2023
										797	1,066
			Advance on term loan - VFCE: CA$250 - repayable in monthly installments of principle plus interest rate of CA$ prime rate plus 200 basis points
										69	106
			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 4.2%; matures February, 2022
								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 4.2%; matures February 2022
								16,535	—
			BDC Facility - Pure Sunfarms - non-revolving demand loan at prime interest plus 3.75%
										4,905	—
			Unamortized deferred financing fees							(302 )	(89 )
			Total				$	64,079 $				32,389

						The Company has a line of credit agreement with a Canadian Chartered Bank (“Operating Loan”). The revolving Operating Loan has a line of credit up to C$13,000, less outstanding letters of credit totaling US$150 and C$38, and variable interest rates with a maturity date on May 31, 2021. The Operating Loan is subject to margin requirements stipulated by the bank. As of December 31, 2020 and December 31, 2019, the amount drawn on this facility was US$2,000.

					F-20


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)

				As collateral for the FCC Loan, the Company has provided promissory notes, a first mortgage on the VFF-owned greenhouse properties (excluding the Delta 3 and Delta 2 greenhouse facilities), and general security agreements over its assets. In addition, the Company has provided full recourse guarantees and has granted security therein. The carrying value of the assets and securities pledged as collateral as at December 31, 2020 and 2019 was $86,664 and $155,548, respectively.
				As collateral for the Operating Loan, the Company has provided promissory notes and a first priority security interest over its accounts receivable and inventory. In addition, the Company has granted full recourse guarantees and security therein. The carrying value of the assets pledged as collateral as at December 31, 2020 and 2019 was $23,443 and $24,915, respectively.

				The Company’s borrowings (“Credit Facilities”), excluding Pure Sunfarms borrowings, are subject to certain positive and negative covenants, including debt ratios, and the Company is required to maintain certain minimum working capital. In December 2020, the Company amended the terms of its covenants with respect to its FCC Loan. The amended covenants have been waived for the year ending December 31, 2020 and will be reinstated for fiscal year 2021. As of December 31, 2020, the Company was in compliance with all of its other Credit Facility covenants under its Credit Facilities.

				Pure Sunfarms entered into a revolving line of credit on June 30, 2020 with a Canadian chartered bank up to a maximum of $15,000. Interest is payable at the Canadian prime rate plus an applicable margin. As of December 31, 2020, no advances were made on this facility. 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 of C$17.5 million (US$13.3 million) was entered into on February 7, 2019 and amended on June 30, 2020 and is secured by a first-ranking security interest in respect of all present and future property, assets and undertakings of the Company. The term loan held by the Company’s subsidiary Pure Sunfarms of C$22.5 million (US$16.5 million) was entered into on April 2, 2020 and amended on June 30, 2020 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, 2020. Pure Sunfarms is required to comply with financial covenants, measured quarterly.
	As of December 31, 2020, the Company was
				in compliance with the financial covenants. The Company has 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, 2020 (note 20).
				The weighted average interest rate on short-term borrowings as of December 31, 2020 and 2019 was 5.11% and 6.2%, respectively.

				Accrued interest payable on the credit facilities and loans as of December 31, 2020 and 2019 was $189 and $162, 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:

					2021	$	7,187
					2022		29,909
					2023		2,960
					2024		2,760
					2025		22,297
					Thereafter		3,468
						$	68,581

			F-21


	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)


10				ACCRUED LIABILITIES

			December 31, 2020 December 31, 2019
		Accrued taxes	$		12,071 $	527
		Accrued payroll			2,865	296
		Other			7,502	2,194
			$		22,438 $	3,017


11				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 also leases production related equipment at its greenhouses in Texas and British Columbia. In January 2020, the Company commenced leasing of an office building located in Lake Mary, Florida for its corporate headquarters.
				The components of lease related expenses are as follows:
							Year ended December 31,
								2020						2019
								Operating lease expense (a)	$	2,244 $					2,410
								Finance lease expense:
								Amortization of right-of-use assets		63			80
								Interest on lease liabilities		4			7
								Total finance lease expense
					$	67 $					87


				(a)		Includes short-term lease costs of $461 and $1,287 for the year ended December 31, 2020 and 2019.
				Cash paid for amounts included in the measurement of lease liabilities:
							Year ended December 31,
								2020						2019
								Operating cash flows from operating leases	$	1,150 $					1,043
								Operating cash flows from finance leases	$	4 $			—
								Financing cash flows from finance leases	$	63 $			90


							December 31, 2020
								Weighted average remaining lease term:
									Operating leases			4.3 years
									Finance leases			1.2 years
								Weighted average discount rate:
									Operating leases			5.75 %
									Finance leases			6.25 %

			F-22


	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)

				Maturities of lease liabilities are as follows:

					Operating
						leases	Finance leases
		2021			$	1,304 $				30
		2022				1,090				9
		2023				870				—
		2024				512				—
		2025				258				—
		Thereafter				—				—
		Undiscounted lease cash flow commitments				4,034				39
								Reconciling impact from discounting	(72 )		(4 )
		Lease liabilities on consolidated balance sheet as of December 31, 2020
					$	3,962 $				35


12 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, 2020 and 2019, the Company’s financial instruments included cash and cash equivalents, trade receivables, note 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, 2020 and December 31, 2019, other than the minority investments discussed below. There were no transfers of assets or liabilities between levels during the years ended December 31, 2020 and 2019, 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.
13				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.
				At December 31, 2020, Pure Sunfarms had a commitment of $1,000 in the event of a service agreement break up.
14				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, 2020, and December 31, 2019 the Grid Loan balance was $3,545 and $10,865, respectively. VF Hemp recognized a loss on inventory due to a write-down to net realizable value. As a result of the loss, the Company wrote down $3,791 of its loan to VF Hemp to $3,545.

				Under the terms of the AVGG Hemp Joint Venture Agreement, the Company agreed to lend approximately $5 million to AVGG Hemp for start-up costs and working capital. The loan bore simple interest at the rate of 8% per annum, calculated monthly. As
			F-23


	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)

				of December 31, 2019, the Company had loaned AVGG Hemp approximately $1,184. Immediately following AVGG Hemp’s 2019 fourth quarter harvest, all of the hemp was destroyed by a severe windstorm. As a result of the loss, the Company wrote off its $1,184 loan to AVGG Hemp during the year ended December 31, 2019.


				One of the Company’s employees is related to a member of the Company’s executive management team and received approximately $118, $110 and $115 in salary and benefits during the years ended December 31, 2020, 2019 and 2018, respectively. As of December 31, 2020, the Company had advanced $249 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 will be forgiven following on year of service with the Company.
15				INCOME TAXES
				The components of the provision for (recovery of) income tax for the years ended December 31, 2020, 2019 and 2018 are as follows:


						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 )

						2018
						Current Deferred	Total
		US Federal			$	— $				(1,786 ) $	(1,786 )
		US State				8				(187 )	(179 )
		Canadian				422		(757 )	(335 )
					$	430 $		(2,730 ) $	(2,300 )

				The provision for (recovery of) income taxes reflected in the consolidated statements of (loss) income for the years ended December 31, 2020, 2019 and 2018 differs from the amounts computed at the federal statutory tax rates. The principal
			F-24


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)

			differences between the statutory income tax (recovery) and the effective provision for (recovery of) income taxes are summarized as follows:


					Year Ended December 31,
					2020		2019							2018
	Income (loss) before income taxes			$	8,818 $			(3,541 ) $	(9,815 )
	Tax (recovery) calculated at US domestic tax rates				1,869	(744 )	(2,061 )
	State tax adjustments				(310 )	(350 )	—
	Non-deductible items				(6,531 )			1,304	394
	True up of prior year income tax estimates				(181 )	207	(206 )
	Capitalized debt amortization costs				—							(631 )	—
	Share of (income) losses from joint venture				(228 )			(4,367 )	(75 )
	Unrealized foreign exchange				—							(276 )	(309 )
	Deferred adjustment				343			(1,920 )	—
	Differences attributed to joint venture capital transactions				—							(487 )	—
	Tax rate differences on deferred items				49							(42 )	(56 )
	Differences in Canadian tax rates				1,643			1,472	92
	Change in tax rates				37							—	—
	Change in valuation allowance				3							(144 )	—
	Other				516	112	(79 )
	Provision for (recovery of) income taxes			$	(2,790 ) $			(5,866 ) $	(2,300 )

			The statutory tax rate in effect in Canada and the United States for the years ended December 31, 2020, 2019 and 2018 was 27.0% and 21.0%, respectively.

			The blended effective tax rate for 2020 was (31.4%)							compared to 165.6% and 23.4% in 2019 and 2018, 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, 2020 and 2019 are as follows:

												2020					2019
	Deferred tax assets:
											Other assets	$	4,935 $		2,536
											Long-term debt		897		1,040
											Tax losses: Non-capital and farm losses		14,336		11,553
											Provisions: Debt and unit issuance costs		1,355		800
											Joint venture shares		—		1,154
											Tax losses: Valuation allowance		(35 )		(31 )
						21,488							17,052
	Deferred tax liabilities:
											Joint venture shares		(2,651 )		(2,593 )
											Cash adjustment		(7,604 )			—
											Property, plant and equipment		(15,980 )		(8,333 )
						(26,235 )							(10,926 )
	Net tax assets				$	(4,747 ) $							6,126


			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
		F-25


	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)

				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 $35 valuation allowance on their deferred tax assets for the year ended December 31, 2020. The valuation allowance reflected on the consolidated balance sheets is approximately $35, $31 and $504 at December 31, 2020, 2019 and 2018 respectively.

				Included in the schedule of deferred tax assets and liabilities above are US federal net operating losses carryforwards of approximately $58,780 and $48,285 as of December 31, 2020 and 2019, respectively, which will begin to expire in 2031. At the state level, the Company has a combined state net operating loss carry forward of approximately $21,108 and $12,572 as of December 31, 2020 and 2019, respectively, which started to expire in 2020. The Canadian Non-Capital Losses carry forwards are $3,345 and $1,770 as of December 31, 2020 and 2019, respectively, which will begin to expire in 2027.

				At December 31, 2020 and 2019, 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, 2020 and 2019, 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, 2020, the Company’s tax years for 2017, 2018 and 2019 are subject to examination by the tax authorities. As of December 31, 2020, the Company is no longer subject to U.S. federal, state or local examinations by tax authorities for years before 2016.

16				SEGMENT AND GEOGRAPHIC INFORMATION
				Segment reporting is prepared on the same basis that the Company’s Chief Executive Officer, who is the Company’s Chief Operating Decision Maker, manages the business, makes operating decisions and assesses performance. Management has determined that the Company operates in three segments. The Company’s three segments include Cannabis, Produce and Energy. The Cannabis segment produces and supplies cannabis products to be sold to other licensed providers and provincial governments across Canada and internationally. The Produce segment produces, markets, and sells premium quality tomatoes, bell peppers and cucumbers. The Energy business produces power that it sells per a long-term contract to its one customer.
				For years ended December 31, 2020 and 2019, approximately 79% and 83%, respectively, of the Company’s total sales were in the United States. In 2020 the Company had two customers that individually represented more than 10% of total sales, comprising of 12.7% and 12.5% of sales, respectively. In 2019 the Company had three customers that individually represented more than 10% of its sales, comprising of 11.8%, 10.9% and 10.6% of sales, respectively.
				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. As of December 31, 2019, the Company’s trade receivables had one customer that represented more than 10% of the balance of trade receivables, representing 16.9% of the balance. The Company believes that its expected credit losses are limited due to the protection afforded to the Company by the Perishable Agricultural Commodities Act (the “PACA”) for its sales in the United States, which represents the majority of the Company’s annual sales and accounts receivable at year end. The PACA protection gives a claim filed under the PACA first lien on all PACA assets (which include cash and trade receivables of the debtor).
			F-26


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 primary operations are in the United States and Canada. Segment information as of and for the years ended December 31, 2020, 2019 and 2018:


					2020					2019		2018
	Sales
	Produce			$		156,891 $	143,419 $		148,054
	Cannabis – Canada					12,778	—	—
	Energy – Canada				417				1,149	1,946
				$		170,086 $	144,568 $		150,000
	Interest expense
	Produce			$		1,759 $	2,543 $	2,705
	Cannabis – Canada				243					—	—
	Energy – Canada				54					71	89
				$		2,056 $	2,614 $	2,794
	Interest income
	Corporate			$	623 $				1,036 $	311
	Cannabis – Canada				2					—	—
				$	625 $				1,036 $	311
	Depreciation and amortization
	Produce			$		5,356 $	6,462 $	6,155
	Cannabis – Canada				822					—	—
	Energy – Canada				647					904	872
				$		6,825 $	7,366 $	7,027
	Gross margin
	Produce			$		9,621 $	(6,667 ) $	9,153
	Cannabis – Canada					2,193	—	—
	Energy – Canada					(854 )	(678 )	164
				$		10,960 $	(7,345 ) $	9,317


	Total assets						2020						2019
							United States	$	110,107 $					180,462
							Canada		243,924					2,946
						$	354,031 $						183,408

	Property, plant and equipment, net						2020						2019
							United States	$	56,011 $					60,415
							Canada		131,009					2,743
						$	187,020 $						63,158


		F-27


	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)

17				INCOME (LOSS) PER SHARE
				Basic net income (loss) 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 (shares in thousands):


						For the Years Ended December 31,
		(shares in thousands)				2020		2019							2018
		Numerator:
		Net income (loss)			$		11,608 $	2,325 $		(7,515 )
		Denominator:
		Weighted average number of common shares – Basic					58,526	49,418		44,357
		Effect of dilutive securities – share-based employee options and awards
											2,964	1,761	—
		Weighted average number of common shares – Diluted					61,490	51,179		44,357
		Antidilutive options and awards (1)								500	310	2,175
		Net income (loss) per ordinary share:
		Basic			$		0.20 $	0.05 $	(0.17 )
		Diluted			$		0.19 $	0.05 $	(0.17 )

				(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.

18				SHAREHOLDERS EQUITY AND SHARE-BASED COMPENSATION
				On September 10, 2020 the Company closed a registered direct offering with certain institutional investors for the purchase and sale of an aggregate of 9,396,226 units at a purchase price of $5.30 per unit for gross proceeds of approximately $49.8 million before placement agent fees and other offering expenses.
				Each unit that was sold consists of one common share of the Company and a one-half (0.5) of a warrant to purchase a common share of the Company at an exercise price of $5.80. The warrants will be exercisable beginning on March 10, 2021 and will expire on September 10, 2025. 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.
				The Company’s Share-Based Compensation Plan (the “Plan”), dated January 1, 2010 was most recently approved by Shareholders on June 14, 2018. 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 2,175,000 shares remain available for issuance at December 31, 2020.

				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:

						2020		2019							2018
		Expected volatility					71.1 %	60.7 %	55.5 %
		Dividend					$nil	$nil	$nil
		Risk-free interest rate					0.52 %	1.86 %	2.30 %
		Expected life				7.1 years	5.7 years							5.9 years
		Fair value			C$5.8314 C$9.7259 C$3.2541

			F-28

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)

Stock option transactions under the Company’s plan for the years ended December 31, 2020, 2019 and 2018 are summarized as follows:

Weighted

Average

Weighted

Remaining

Average

Contractual

Aggregate

Number of

Exercise

Term

Intrinsic

Options

Price

(years)

Value

Outstanding at January 1, 2018

2,337,732

C$1.59

5.89 $

14,125

Granted during 2018

203,000

C$5.79

9.44

Exercised during 2018

(365,733 )

C$0.98

2.68

Forfeited/expired during 2018

(10,000 )

C$1.48

Outstanding at December 31, 2018

2,164,999

C$2.10

5.69 $

5,553

Exercisable at December 31, 2018

1,648,670

C$1.43

4.74 $

5,012

Granted during 2019

510,000

C$16.32

9.19

Exercised during 2019

(212,332 )

C$1.29

4.85

Forfeited during 2019

(10,001 )

C$2.20

Outstanding at December 31, 2019

2,452,666

C$5.12

5.60 $

11,435

Exercisable at December 31, 2019

1,707,337

C$1.78

4.18 $

10,736

Granted

1,081,488

C$8.77

9.75

Exercised

(425,166 )

C$1.36

1.62

Forfeited

(41,666 )

C$6.93

—

Outstanding at December 31, 2020

3,067,322

C$6.91

6.82 $

20,051

Exercisable at December 31, 2020

1,618,168

C$3.91

4.58 $

15,119

The weighted-average grant-date fair value of options granted during the years 2020, 2019 and 2018 was $5.83, $9.58 and $3.22, respectively. The total intrinsic value of options exercised during the years ended December 31, 2020, 2019 and 2018, was $2,732, $1,999 and $2,162, respectively.

A summary of the status of the Company’s non-vested stock options, and the changes during the year ended December 31, 2020, is presented below:

Weighted

Average

Grant

Aggregate

Number of

Date Fair

Intrinsic

Options

Value

Non-vested at January 1, 2020

745,329

C$7.43

Granted

1,081,488

C$5.83

Vested

(362,664 )

C$6.36

Forfeited

(14,999 )

C$6.05

Non-vested at December 31, 2020

1,449,154

C$6.52

C$4,931

F-29

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)

As of December 31, 2020, there was $9,449 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, 2020, 2019 and 2018 is as follows:

Number of

Performance-

based

Weighted Average

Restricted

Grant Date Fair

Share Units

Value

Outstanding at January 1, 2018

128,000

C$2.82

Granted

979,000

C$5.79

Received

(50,334 )

C$3.06

Forfeited/expired

—

Outstanding at December 31, 2018

1,056,666

C$5.56

Exercisable at December 31, 2018

175,333

C$5.08

Granted

355,000

C$14.94

Issued

(442,666 )

C$7.82

Forfeited

(230,000 )

C$12.90

Outstanding at December 31, 2019

739,000

C$7.92

Exercisable at December 31, 2019

30,000

C$12.87

Granted

1,068,000

C$6.36

Exercised

(840,000 )

C$6.47

Forfeited/expired

(98,000 )

C$9.59

Outstanding at December 31, 2020

869,000

C$7.51

Exercisable at December 31, 2020

75,000

C$6.10

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, 2020, is presented below:

Number of

Performance-

based

Weighted Average

Restricted

Grant Date Fair

Share Units

Value

Non-vested at January 1, 2020

709,000

C$7.72

Granted

1,068,000

C$6.36

Vested

(885,000 )

C$6.93

Forfeited

(98,000 )

C$9.59

Non-vested at December 31, 2020

794,000

C$7.33

Total share-based compensation expense for the years ended December 31, 2020, 2019 and 2018 of $6,142, $4,714 and $1,454, respectively, was recorded in selling, general and administrative expenses and the corresponding amount credited to additional paid in capital.

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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)

19				CHANGES IN NON-CASH WORKING CAPITAL ITEMS

						For the Years Ended December 31,
						2020	2019			2018
		Trade receivables			$		(3,196 ) $	2,301 $	(33 )
		Inventories					2,997	9,042	(5,435 )
		Note Receivable					765	—	—
		Due from joint ventures					4,363	(3,530 )	—
		Other receivables					199	(448 )	1,239
		Prepaid expenses and deposits					(1,245 )	(370 )	(79 )
		Trade payables					(1,665 )	(1,953 )	1,649
		Accrued liabilities					6,565	(369 )	(284 )
		Other assets, net of other liabilities					4,289	571	(282 )
					$		13,072 $	5,244 $	(3,225 )

20				SUBSEQUENT EVENTS
				On January 20, 2021, the Company closed its 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 US$12.40 (approximately C$15.70) per unit for gross proceeds of approximately US$135 million (approximately C$171 million) before placement agent fees and other offering expenses. The net proceeds from this offering are intended to be used for general working capital purposes.
				Upon closing of the offering there were 77,798,908 issued and outstanding common shares of Village Farms.
				On February 5, 2021, the Company repaid in full the C$19.9 million (approximately US$15.6 million) promissory note, plus accrued interest of C$622 (approximately US$487), that it originally issued to Emerald as partial consideration for the November 2020 acquisition from Emerald of the 36,958,500 common shares of Pure Sunfarms that Village Farms did not own.

				On September 10, 2020, the Company sold 9,396,226 units through a registered direct offering. Each unit that was sold consists of one common share of the Company and a one-half (0.5) of a warrant to purchase a common share of the Company at a price of US$5.80. On March 10, 2021 the warrants became exercisable, and they will expire on September 10, 2025. On March 10, 2021 1,773,585 of the warrants were exercised. Effective March 15, 2021, Pure Sunfarms renewed its aggregate loan facility with two Canadian chartered banks and Farm Credit Canada. The renewal extends the maturity date by two years, includes an unlimited guarantee from Village Farms, limits the use of funds for capital expenditures and changes certain financial covenants.


			F-31