Enhanced Investments - Financial Portal

Published: 2020-04-22

Village Farms International, Inc.
	Condensed Consolidated Interim Statements of Financial Position
(In thousands of United States dollars)
		(Unaudited)
			September 30, 2019	December 31, 2018
					ASSETS
					Current assets
						Cash and cash equivalents	$				6,726	$		11,920
						Trade receivables	9,970	11,292
						Inventories	19,353	24,956
						Amounts due from joint ventures	10,690	10,873
						Other receivables	265	332
						Prepaid expenses and deposits	1,892	889
					Total current assets		48,896	60,262
					Non-current assets
						Property, plant and equipment	63,971	72,188
						Operating lease right-of-use assets	3,702	—
						Finance lease right-of-use-assets	116	176
						Investment in joint ventures	39,555	6,341
						Note receivable - joint ventures	9,162	—
						Deferred tax asset	6,006	274
						Other assets	1,768	2,207
					Total assets	$				173,176	$		141,448
					LIABILITIES
					Current liabilities
						Line of credit	$				4,000	$		2,000
						Trade payables	9,270	14,601
						Current maturities of long-term debt	3,424	3,414
						Accrued liabilities	5,476	3,509
						Operating lease liabilities - current	1,068	—
						Finance lease liabilities - current	70	78
					Total current liabilities		23,308	23,602
					Non-current liabilities
						Long-term debt	29,784	32,261
						Deferred tax liability	4,983	—
						Operating lease liabilities - current	2,716	—
						Finance lease liabilities - current	46	102
						Other liabilities	1,236	1,050
					Total liabilities		62,073	57,015
					SHAREHOLDERS’ EQUITY
						Common stock, no par value per share - unlimited shares authorized; 49,340,335 shares
						issued and outstanding at September 30, 2019 and 47,642,672 shares issued and outstanding at December 31, 2018.
							76,484	60,872
						Additional paid in capital	3,689	2,198
						Accumulated other comprehensive loss	(504)	(562)
						Retained earnings	31,434	21,925
					Total shareholders’ equity		111,103	84,433
					Total liabilities and shareholders’ equity	$				173,176	$		141,448
									The accompanying notes are an integral part of these condensed consolidated interim financial statements.
										1

Condensed Consolidated Interim Statements of Income (Loss) and Comprehensive Income (Loss)
	(In thousands of United States dollars, except per share data)
		(Unaudited)
			Three Months Ended September 30,	Nine Months Ended September 30,
			2019		2018	2019		2018
							Sales	$	38,293		$	39,684	$	111,512		$	111,213
							Cost of sales	(38,904)		(36,862)	(114,418)		(103,914)
							Gross margin	(611) 2,822	(2,906) 7,299
							Selling, general and administrative expenses	(3,739)	(3,451)	(11,899)		(10,486)
							Share-based compensation	(666)	(181)	(2,663)		(447)
							Interest expense	(655)	(728)	(2,018)		(2,069)
							Interest income	304	91	651	105
							Foreign exchange gain	(183)	(73)					338	(87)
							Other income	69	17	219	61
							Gain on disposal of assets	(8)	—	13,558		—
							Loss before taxes and earnings of unconsolidated entities	(5,489)	(1,503)	(4,720)		(5,624)
							Recovery of income taxes	1,266	370					114	1,392
							Loss from consolidated entities after income taxes	(4,223)	(1,133)	(4,606)		(4,232)
							Equity in earnings (losses) from unconsolidated entities	3,519	(295)	14,115		(858)
							Net (loss) income	$					(704)	$	(1,428)	$		9,509	$	(5,090)
							Basic (loss) income per share	$					(0.01)	$	(0.03)	$		0.20	$	(0.11)
							Diluted(loss) income per share	$					(0.01)	$	(0.03)	$		0.19	$	(0.11)
							Weighted average number of common shares used in the computation of net (loss)
							income per share:
							Basic	48,845		44,475	48,650		44,473
							Diluted	48,845		44,475	50,451		44,473
							Net (loss) income	$					(704)	$	(1,428)	$		9,509	$	(5,090)
							Other comprehensive (loss) income:
							Foreign currency translation adjustment	(22)	40	58	(49)
							Comprehensive(loss) income	$					(726)	$	(1,388)	$		9,567	$	(5,139)
The accompanying notes are an integral part of these condensed consolidated interim financial statements.
												2

Condensed Consolidated Interim Statements of Changes in Shareholders’ Equity
	(In thousands of United States dollars, except for shares outstanding)
		(Unaudited)
			Three Months Ended September 30, 2019
		Number of			Accumulated Other	Total
		Common		Common	Additional paid	Comprehensive	RetainedEarnings	Shareholders’
		Shares		Stock	in capital	(Loss) Income		Equity
							Balance at July 1, 2019	49,273,786	$76,435	$			3,101	$	(482) $32,107	$ 111,161
							Shares issued on exercise of stock options	31,216	109		(78)	—	—	31
							Share-based compensation	35,333	—		666	—	—	666
							Share issuance costs	—	(60)		—	—	—	(60)
							Cumulative translation adjustment	—	—		—	(22)	—	(22)
							Net loss	—	—		—	—	(673)	(673)
							Balance at September 30, 2019	49,340,335	$76,484	$			3,689	$	(504)	$31,434	$ 111,103
			Three Months Ended September 30, 2018
		Number of			Accumulated Other	Total
		Common		Common	Additional paid	Comprehensive	RetainedEarnings	Shareholders’
		Shares		Stock	in capital	(Loss) Income		Equity
							Balance at July 1, 2018	44,472,138	44,133		1,982	(480) 25,777	71,412
							Shares issued on exercise of stock options	11,667	12		—	—	—	12
							Share-based compensation	—	—		191	—	—	191
							Cumulative translation adjustment	—	—		—	41	—	41
							Net loss	—	—		—	—	(1,428)	(1,428)
							Balance at September 30, 2018	44,483,805	$44,145	$			2,173	$	(439)	$24,349	$	70,228
			Nine Months Ended September 30, 2019
		Number of			Accumulated Other	Total
		Common		Common	Additional paid	Comprehensive	RetainedEarnings	Shareholders’
		Shares		Stock	in capital	(Loss) Income		Equity
							Balance at January 1, 2019	47,642,672	$60,872	$			2,198	$	(562) $21,925	$	84,433
							Shares issued on exercise of stock options	83,998	224		(116)	—	—	108
							Share-based compensation	313,665	908		1,755	—	—	2,663
							Shares issued pursuant to public offering of common shares,
							net of issuance costs	1,000,000	13,928		—	—	—	13,928
							Shares issued on exercise of warrants	300,000	614		(148)	—	—	466
							Share issuance costs	—	(62)		—	—	—	(62)
							Cumulative translation adjustment	—	—		—	58	—	58
							Net loss	—	—		—	—	9,509	9,509
							Balance at September 30, 2019	49,340,335	$76,484	$			3,689	$	(504)	$31,434	$ 111,103
			Nine Months Ended September 30, 2018
		Number of			Accumulated Other	Total
		Common		Common	Additional paid	Comprehensive	RetainedEarnings	Shareholders’
		Shares		Stock	in capital	(Loss) Income		Equity
							Balance at January 1, 2018	42,242,612	$36,115	$			1,726	$	(391) $29,439	$	66,889
							Shares issued on exercise of stock options	354,400	275		—	—	—	275
							Share-based compensation	—	—		447	—	—	447
							Shares issued pursuant to private placement of common
							shares, net of issuance costs	1,886,793	7,755		—	—	—	7,755
							Cumulative translation adjustment	—	—		—	(48)	—	(48)
							Net loss	—	—		—	—	(5,090)	(5,090)
							Balance at September 30, 2018	44,483,805	$44,145	$			2,173	$	(439)	$24,349	$	70,228
									The accompanying notes are an integral part of these condensed consolidated interim financial statements.
				3

Condensed Consolidated Interim Statements of Cash Flows
	(In thousands of United States dollars)
		(Unaudited)
			Nine Months Ended September 30,
			2019	2018
					Cash flows used in operating activities
					Net income (loss)	$			9,509	$	(5,090)
					Adjustments to reconcile net loss to net cash used in operating activities:
							Depreciation and amortization	5,587	5,271
							Amortization of deferred charges	57	57
							Share of (income) loss from joint ventures	(14,115)	857
							Interest expense	2,018	2,069
							Interest income	(651) (105)
							Lease payments	(784) —
							Gain on disposal of assets	(13,558) —
							Share-based compensation	2,663	447
							Deferred income taxes	(749) (2,180)
							Interest paid on long-term debt	(2,013) (1,873)
							Changes in non-cash working capital items	4,149	(5,255)
							Net cash used in operating activities	(7,887)	(5,802)
					Cash flows used in investing activities:
					Purchases of property, plant and equipment, net of rebate	(1,630)	(2,546)
					Advances to joint ventures	(9,499) (6,110)
					Proceeds from sale of asset	52	—
					Investment in joint ventures	(13) —
							Net cash used in investing activities	(11,090)	(8,656)
					Cash flows from financing activities:
					Proceeds from borrowings	3,000	7,000
					Repayments on borrowings	(3,591) (1,766)
					Proceeds from issuance of common stock pursuant to public offering, net	13,868	7,755
					Proceeds from exercise of stock options	109	275
					Payments on capital lease obligations	(69) (45)
					Proceeds from exercise of warrants	466	—
							Net cash provided by financing activities	13,783	13,219
					Effect of exchange rate changes on cash and cash equivalents	—		(2)
					Net decrease in cash and cash equivalents	(5,194) (1,241)
					Cash and cash equivalents, beginning of period	11,920	7,091
					Cash and cash equivalents, end of period	$			6,726	$	5,850
					Supplemental cash flow information:
					Income taxes paid	$			575	$	—
									The accompanying notes are an integral part of these condensed consolidated interim financial statements.
										4

Notes to Condensed Consolidated Interim Financial Statements
	(In thousands of United States dollars, except share and per share amounts, unless otherwise noted)
		(Unaudited)
			1	NATURE OF OPERATIONS
				Village Farms International, Inc. (“VFF” the parent company, together with its subsidiaries, the “Company”) is incorporated under the Canada Business Corporation Act. VFF’s principal operating subsidiaries as of September 30, 2019 are Village Farms Canada Limited Partnership (“VFCLP”), Village Farms, L.P. (“VFLP”), and VF Clean Energy, Inc. (“VFCE”). The address of the registered office of VFF is 4700 80th Street, Delta, British Columbia, Canada, V4K 3N3. VFF owns a 65% equity interest in Village Fields Hemp USA LLC (“VF Hemp”), a 60% equity interest in Arkansas Valley Green and Gold Hemp (“AVGG Hemp) and a 50% equity interest in Pure Sunfarms Corp. (“Pure Sunfarms”), all of which are recorded as Investments in Joint Ventures (note 8).
				The Company’s shares are listed on the Toronto Stock Exchange under the symbol VFF and are also listed in the United States on the Nasdaq Capital Market (“Nasdaq”) under the symbol VFF.
				The Company owns and operates sophisticated, highly intensive agricultural greenhouse facilities in British Columbia and Texas, where it produces, markets and sells premium-quality tomatoes, bell peppers, and cucumbers. The Company, through its subsidiary VFCE, owns and operates a 7.0 MW power plant that generates electricity. The Company’s joint venture, Pure Sunfarms, is a licensed producer and supplier of cannabis products to be sold to other licensed providers and provincial governments across Canada and internationally. The Company’s joint ventures, VF Hemp and AVGG Hemp, are cultivators of high cannabidiol (“CBD”) hemp in multiple states throughout the United States.
			2	BASIS OF PRESENTATION
				The accompanying unaudited Condensed Consolidated Financial Statements for the quarter and nine months ended September 30, 2019 have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information. Previously, the Company prepared its consolidated financial statements under International Financial Reporting Standards (“IFRS”) as permitted by securities regulators in Canada, as well as in the United States under the status of a Foreign Private Issuer as defined by the United States Securities and Exchange Commission (“SEC”). At the end of the second quarter of 2019, the Company determined that it no longer qualified as a Foreign Private Issuer under the SEC rules. As a result, beginning January 1, 2020 the Company is required to report with the SEC on domestic forms and comply with domestic company rules in the United States. The transition to US GAAP was made retrospectively for all periods from the Company’s inception.
				These interim consolidated financial statements do not include all information and notes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments of a normal recurring nature considered necessary for fair presentation have been included. Operating results for the three and nine months ended September 30, 2019 are subject to seasonal variations and are not necessarily indicative of the results that may be expected for the year ended December 31, 2019. For further information, refer to the Consolidated Financial Statements and notes thereto included in our annual report on Form 10-K for the fiscal year ended December 31, 2019 and 2018.
				Other than as described below, there were no changes to our significant accounting policies described in our Annual Financial Statements that had a material impact on our financial statements and related notes.
			3	NEW ACCOUNTING PRONOUNCEMENTS ADOPTED
				Prior to the adoption of ASU 2016-02, Leases, for leases where the Company assumed substantially all the risks and rewards of ownership were classified as finance leases. Upon initial recognition, the leased asset is measured at an amount equal to the lower of its fair value and the present value of the minimum lease payments. Subsequent to initial recognition, the asset was accounted for in accordance with the accounting policy applicable to that asset. Other leases are operating leases and rent expenses were recognized in the Company’s consolidated statements of (loss) income.
				In February 2016, the FASB issued ASU 2016-02, Leases, and has subsequently issued several supplemental and/or clarifying ASU’s (collectively, “Topic 842”), which requires a dual approach for lease accounting under which a lessee would account for leases as finance leases or operating leases. Both finance leases and operating leases may result in the lessee recognizing a right of use asset and a corresponding lease liability. For finance leases, the lessee would recognize interest expense and amortization of the right-of-use asset, and for operating leases, the lessee would recognize lease expense on a straight-line basis.
		5

Notes to Condensed Consolidated Interim Financial Statements
	(In thousands of United States dollars, except share and per share amounts, unless otherwise noted)
		(Unaudited)
			On January 1, 2019, the Company adopted Topic 842, using the modified retrospective method and did not restate prior periods. The Company’s classes of assets include land leases, building leases and equipment leases.
			On adoption, the Company recognized lease liabilities in relation to leases which had previously been classified as ‘operating leases’ under the principles of Topic 842. These lease liabilities were measured at the present value of the remaining lease payments, discounted using the borrowing rate of the Company. The weighted average incremental borrowing rate applied to the lease liabilities on January 1, 2019 was 6.25%. These leases are included in right-of-use assets, short-term lease liabilities and long-term lease liabilities in the condensed consolidated statements of financial position. Right-of-use assets are amortized on a straight-line basis over the lease term.
			For leases previously classified as finance leases the entity recognized the carrying amount of the lease asset and lease liability immediately before transition as the carrying amount of the right of use asset and the lease liability at the date of initial application.
			Additionally, the Company has elected the short-term lease exception for all classes of assets, and does not apply the recognition requirements for leases of 12 months or less, and recognizes lease payments for short-term leases as expense either straight-line over the lease term or as incurred depending on whether the lease payments are fixed or variable.
			These elections are applied consistently for all leases.
				2019
					Operating lease commitments disclosed as of December 31, 2018	$5,064
					Less: short-term leases recognized on a straight-line basis as expense	(210)
				4,854
					Discounted using the lessee’s incremental borrowing rate of 6.25% at the date of
					initial application	4,269
					Add: additional leases identified on adoption of Topic 842	88
					Add: finance lease liabilities recognized as of December 31, 2018	180
					Lease liability recognized as of January 1, 2019	$4,537
	Of which are:
	Current lease liabilities			871
	Non-current lease liabilities			3,666
				$4,537
			The recognized right-of-use assets relate to the following types of assets:
						December 31, 2018	January 1, 2019
							Land	$		—	$	140
							Building	—	4,017
							Equipment	176	380
							Total right-of-use assets	$		176	$	4,537
										4	NEW ACCOUNTING PRONOUNCEMENTS NOT YET ADOPTED
			In December 2019, the FASB issued ASU 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes.” ASU 2019-12 simplifies the accounting for income taxes by removing exceptions within the general principles of Topic 740 regarding the calculation of deferred tax liabilities, the incremental approach for intraperiod tax allocation, and calculating income taxes in an interim period. In addition, the ASU adds clarifications to the accounting for franchise tax (or similar tax). which is partially based on income, evaluating tax basis of goodwill recognized from a business combination, and reflecting the effect of any enacted changes in tax laws or rates in the annual effective tax rate computation in the interim period that includes the enactment date. The ASU is effective for fiscal years beginning after December 15, 2020, and will be applied either retrospectively or prospectively based upon the applicable amendments. Early adoption is permitted. The adoption of this standard is not expected to have a material impact on the Company’s consolidated financial statements and related disclosures.
		6

Notes to Condensed Consolidated Interim Financial Statements
	(In thousands of United States dollars, except share and per share amounts, unless otherwise noted)
		(Unaudited)
			In August 2018, the FASB issued ASU 2018-13, “Fair Value Measurement (Topic 820) - Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement.” ASU 2018-13 removes the disclosure requirement for the amount and reasons for transfers between Level 1 and Level 2 fair value measurements as well as the process for Level 3 fair value measurements. In addition, the ASU adds the disclosure requirements for changes in unrealized gains and losses included in other comprehensive income (loss) for recurring Level 3 fair value measurements held at the end of the reporting period as well as the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. The ASU is effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years and will be applied on a retrospective basis to all periods presented. Early adoption is permitted. The adoption of this standard is not expected to have a material impact on the Company’s consolidated financial statements and related disclosures.
			In June 2016, the FASB issued ASU 2016-13, “Financial Instruments - Credit Losses.” The standard, including subsequently issued amendments, requires a financial asset measured at amortized cost basis, such as accounts receivable and certain other financial assets, to be presented at the net amount expected to be collected based on relevant information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. This ASU is effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years, and requires the modified retrospective approach. Early adoption is permitted. Based on the composition of the Company’s trade receivables and other financial assets, current market conditions, and historical credit loss activity, the adoption of this standard is not expected to have a material impact on the Company’s consolidated financial statements and related disclosures.
				5	INVENTORIES
					September 30, 2019	December 31, 2018
							Crop inventory	$		18,838	$	24,249
							Purchased produce inventory	425	643
							Spare parts inventory	90	64
					$			19,353	$		24,956
				6	PROPERTY, PLANT AND EQUIPMENT
			Property, plant and equipment consist of the following:
					September 30, 2019	December 31, 2018
							Land	$		3,205	$	3,932
							Leasehold and land improvements	3,820	3,819
							Buildings	72,747	77,003
							Machinery and equipment	61,646	65,664
							Construction in progress	1,208	552
							Less: Accumulated depreciation	(78,655)	(78,782)
	Property, plant, and equipment, net				$			63,971	$		72,188
			Depreciation expense on property, plant and equipment, was $1,563 and $4,790 for the three and nine months ended September 30, 2019, respectively. Depreciation expense on property, plant and equipment, was $1,748 and $5,271 for the three and nine months ended September 30, 2018, respectively. On March 31, 2019, Pure Sunfarms exercised its option to acquire the Delta 2 assets and operations (note 8).
		7

Notes to Condensed Consolidated Interim Financial Statements
	(In thousands of United States dollars, except share and per share amounts, unless otherwise noted)
		(Unaudited)
			7	LEASES
				The components of lease related expenses are as follows:
					Three Months Ended	Nine Months EndedSeptember 30, 2019
					September 30, 2019
							Operating lease expense (a)	$			588	$		1,762
							Finance lease expense:
	Amortization of right-of-use assets				$			20	$			60
	Interest on lease liabilities							2	6
							Total finance lease expense	$			22	$		66
			(a)	Includes short-term lease costs of $315 and $943 for the three and nine months ended September 30, 2019, respectively.
				Cash paid for amounts included in the measurement of lease liabilities:
					Three Months Ended	Nine Months EndedSeptember 30, 2019
					September 30, 2019
							Operating cash flows from operating leases	$			256	$		778
							Operating cash flows from finance leases	$			2	$		6
							Financing cash flows from finance leases	$			21	$		69
										September 30, 2019
	Weighted average remaining lease term:
	Operating leases					4.4
	Finance leases					2.0
	Weighted average discount rate:
	Operating leases					6.25%
	Finance leases					6.25%
				Maturities of lease liabilities are as follows:
						Operating			Finance
						leases			leases
							Remainder of 2019	$	265			$	22
							2020	1,073			65
							2021	1,090			30
							2022	869			9
							2023	641			—
							Thereafter	389			—
							Undiscounted lease cash flow commitments	4,327			126
	Reconciling impact from discounting					(543)			(10)
							Lease liabilities on consolidated statement of financial position as of September 30, 2019	$ 3,784			$ 116
		8

Notes to Condensed Consolidated Interim Financial Statements
	(In thousands of United States dollars, except share and per share amounts, unless otherwise noted)
		(Unaudited)
			The following table presents the Company’s unadjusted lease commitments as of December 31, 2018 as a required disclosure for companies adopting the lease standard prospectively without revising comparative period information.
				Operating	Finance
				leases	leases
						2019	$ 1,253	$	78
						2020	1,039	62
						2021	1,052	30
						2022	841	10
						2023	618	—
						Thereafter	261	—
				$ 5,064	$ 180
							8	INVESTMENT IN JOINT VENTURES
			Pure Sunfarms Corp.
			On June 6, 2017, the Company entered into an agreement to form Pure Sunfarms, a B.C. corporation, with Emerald Health Therapeutics Inc. (“Emerald”). The purpose of Pure Sunfarms is to produce, market and distribute cannabis in Canada.
			The Company accounts for its investment in Pure Sunfarms, in accordance with Accounting Standards Codification (“ASC”) 323 - Equity Method and Joint Ventures (“ASC 323”), using the equity method. The Company has determined that Pure Sunfarms is a variable interest entity (“VIE”), however the Company does not consolidate Pure Sunfarms because the Company is not the primary beneficiary. Although the Company is able to exercise significant influence over the operating and financial policies of Pure Sunfarms through its 50.0% ownership interest and joint power arrangement with Emerald, the Company shares joint control of the Board of Directors and therefore is not the primary beneficiary. The Company’s maximum exposure to loss as a result of its involvement with Pure Sunfarms as of September 30, 2019 relates primarily to the recovery of the outstanding loan to Pure Sunfarms.
			The Company is required to apply the hypothetical liquidation at book value (“HLBV”) method to determine its allocation of the profits and loss in Pure Sunfarms. When determining its allocation of profits and losses, the HLBV method only considers shares that have been fully paid for. Therefore, due to the monthly escrow payments being made by Emerald in accordance with the Delta 2 Option Agreement, the ownership will change each month escrow payment(s) are made. Effective for the quarter and nine-month periods ended September 30, 2019, the Company under the hypothetical liquidation method received approximately 56.1% and 60.1%, respectively for each period.
			On July 5, 2018, the Company and Emerald Health Therapeutics Canada Inc. (a subsidiary of Emerald) (together, the “Shareholders”) entered into a Shareholder Loan Agreement (the “Loan Agreement”) with Pure Sunfarms, whereby, as of September 30, 2019, the Shareholders had each contributed $10,690 (CA$13,000) in the form of a demand loan to Pure Sunfarms. Effective January 1, 2019, the loan amounts bear simple interest at the rate of 6.2% per annum, calculated semi-annually. Interest will accrue and be payable upon demand being made by both Shareholders (see note 11).
			On March 31, 2019, Pure Sunfarms exercised its option to utilize the Delta 2 assets and operations. The contribution of the assets has been accounted for as a disposal of the land, greenhouse facility and other assets in exchange for 25,000,000 common shares of Pure Sunfarms. This was a non-cash transaction, and it was estimated that the fair value of the land, building and other assets was $18.7 million (CA$25 million) at the date of contribution. The Company recognized a gain of $13.6 million on the contribution of the fixed assets. As of September 30, 2019, the total investment in Pure Sunfarms of US$39.6 million is recorded in the interim statements of financial position.
			Following the adoption of ASC 606, the Company measures nonmonetary equity contributions at fair value, which provides for recognizing a gain or loss upon the de-recognition of the nonmonetary assets. This is contrary to the non-monetary contribution of Delta 3 whereby a gain could not be recognized and the investment was recognized at net book value, as at the time ASC 606 was not applicable.
		9

Notes to Condensed Consolidated Interim Financial Statements
	(In thousands of United States dollars, except share and per share amounts, unless otherwise noted)
		(Unaudited)
			Pursuant to the terms of a Supply Agreement that Pure Sunfarms has with Emerald, Emerald has a right to purchase 40% of Pure Sunfarms cannabis production at a fixed price, subject to the terms and conditions of the Supply Agreement. To the extent that Emerald does not fulfill its purchase obligation, Pure Sunfarms is able to sell that excess production to other parties in the open market. The Supply Agreement stipulates that Emerald is required to pay Pure Sunfarms the difference between the fixed price and the selling price realized from other parties. During the quarter ended September 30, 2019, Emerald did not fulfill its purchase obligation and Pure Sunfarms sold the product on the open market to arm’s length parties at prices lower than the fixed price in the Supply Agreement. As a result, under the terms of the Supply Agreement, Pure Sunfarms invoiced Emerald for the difference which amounted to approximately CA$7.2 million. On October 15, 2019, Emerald issued a press release that indicated they do not agree that they have any liability with respect to these amounts.
			Under ASC 606, Revenue from Contracts with Customers, a customer needs to have an intent and ability to pay in order for a company to recognize revenue. Given that Emerald has issued a press release indicating that they do not agree that they have a liability with respect to these amounts, Pure Sunfarms has determined that all of the criteria under ASC 606 to recognize this revenue were not met as Emerald has demonstrated that they do not have an intent to pay, and as a result has not recorded the revenue related to these amounts.
			The Company’s share of the joint venture consists of the following (in $000’s of USD):
	Balance, January 1, 2018			$ 6,511
	Share of net loss for the year			(171)
	Balance, December 31, 2018			$ 6,341
	Balance, January 1, 2019			$ 6,341
	Investments in joint venture			18,721
	Share of net income for the period			14,493
	Balance, September 30, 2019			$39,555
			Summarized financial information of Pure Sunfarms:
					September 30, 2019	December 31, 2018
						Current assets
	Cash and cash equivalents (including restricted cash)				$		12,178	$			1,731
	Trade receivables						17,351	962
	Inventory						11,433	5,101
	Other current assets						4,972	730
						Non-current assets	90,822	49,074
						Current liabilities
	Trade payables						(3,645)	(6,862)
	Borrowings due to joint venture partners						(21,045)	(21,686)
	Borrowings – short term						(1,588)
	Other current liabilities						(13,294)	(380)
						Non-current liabilities
	Borrowings – long term						(13,214)	—
						Net assets	$		83,970	$		28,670
			Summarized financial information of Pure Sunfarms:
					September 30, 2019	December 31, 2018
						Reconciliation of net assets:Accumulated retained earnings
					$		23,373	$			(734)
						Contributions from joint venture partners	60,934	31,008
						Currency translation adjustment	(337)	(1,604)
						Net assets	$		83,970	$		28,670
		10

Notes to Condensed Consolidated Interim Financial Statements
	(In thousands of United States dollars, except share and per share amounts, unless otherwise noted)
		(Unaudited)
			Summarized financial information of Pure Sunfarms:
				Three months ended	Nine months ended
				September 30,	September 30,
				2019		2018	2019		2018
			Revenue	$18,084		$ 190	$ 53,128		$	190
			Cost of sales*	(5,689) (143) (13,463) (143)
			Gross margin	12,395		47	39,665		47
			Selling, general and administrative expenses	(2,830)		(606)	(5,616)		(1,631)
			Income (loss) from operations	9,565		(559)	34,049		(1,584)
			Interest (expense) income	(302)		—	(596)		—
			Foreign exchange gain (loss)	14		(31)	28		(10)
			Other income					8	—	22	—
			Income (loss) before taxes	9,285		(590)	33,503		(1,594)
			Provision for income taxes	(2,600)		—	(9,397)		—
			Net income (loss)	$ 6,685		$(590)	$ 24,106		$(1,594)
									* Included in cost of sales for the three and nine months ended September 30, 2019 is $503 and $1,347 of depreciation expense.
			Village Fields Hemp USA LLC
			On February 27, 2019, the Company entered into a joint venture with Nature Crisp, LLC (“Nature Crisp”) to form VF Hemp for the objective of outdoor cultivation of high percentage cannabidiol (“CBD”) hemp and CBD extraction in multiple states throughout the United States. VF Hemp is 65% owned by the Company and 35% owned by Nature Crisp. Under the terms of the VF Hemp Joint Venture Agreement, the Company will lend up to approximately US$15 million to VF Hemp for start-up costs and working capital.
			The Company accounts for its investment in VF Hemp, in accordance with ASC 323, using the equity method because the Company is able to exercise significant influence over the operating and financial policies of VF Hemp through its 65% ownership interest and joint power arrangement with Nature Crisp.
			On March 25, 2019, the Company entered into a Grid Loan Agreement (the “Grid Loan”) with VF Hemp, whereby, as of September 30, 2019, the Company had advanced $7,977 in the form of a grid loan to VF Hemp. The Grid Loan has a maturity date of March 25, 2022, and bears simple interest at the rate of 8% per annum, calculated monthly (note 11).
			The Company’s share of the joint venture consists of the following:
	Balance, beginning of the period					$ —
	Investments in joint venture				7
	Share of net loss				(343)
	Share of losses applied against joint venture note receivable				336
	Balance, September 30, 2019					$ —
			Summarized financial information of VF Hemp:
						September 30, 2019
	Current assets
	Cash and cash equivalents					$	111
	Inventory									6,057
	Prepaid expenses and deposits				177
	Non-current assets									1,267
	Current liabilities				(3)
	Borrowings due to joint venture partner					(8,315)
	Other non-current liabilities				(342)
	Net assets					$	(1,048)
		11

Notes to Condensed Consolidated Interim Financial Statements
	(In thousands of United States dollars, except share and per share amounts, unless otherwise noted)
		(Unaudited)
			September 30, 2019
	Reconciliation of net assets:Net loss for the nine months ended September 30, 2019
			$	(1,058)
	Contributions from joint venture partners			10
	Net assets		$	(1,048)
					Three months ended	Nine months ended
					September 30, 2019	September 30, 2019
						General and administrative expenses	$		(197) (504)
						Interest expense	(75)	(209)
						Share of loss from JV	(1)	(3)
						Benefit (provision) for income taxes	68	186
						Net (loss)	$		(205)	$	(530)
									Arkansas Valley Green and Gold Hemp
									On May 21, 2019, the Company entered into a joint venture with Arkansas Valley Hemp, LLC (“AV Hemp”) for the objective of outdoor cultivation of high percentage cannabidiol (CBD) hemp and CBD extraction in Colorado. The joint venture, AVGG Hemp, is 60% owned by the Company, 35% owned by AV Hemp, and 5% owned by VF Hemp.
									Under the terms of the AVGG Hemp Joint Venture Agreement, the Company will lend approximately US$5 million to AVGG Hemp for start-up costs and working capital. The loans bear simple interest at the rate of 8% per annum, calculated monthly (note 10). To the extent cash is available from positive cash flow, the AVGG Hemp has agreed to repay the Company with respect to any such loans, in the range of $2 million to $5 million in the initial two years following the formation of AVGG Hemp. As of September 30, 2019, the Company had loaned AVGG Hemp approximately $1,156 (note 11).
									The Company accounts for its investment in AVGG Hemp, in accordance with ASC 323, using the equity method because the Company is able to exercise significant influence over the operating and financial policies of AVGG Hemp through its 60% ownership interest and joint power arrangement with AV Hemp.
									The Company is not legally obligated for the debts, obligations or liabilities of AVGG Hemp.
									The Company’s share of the joint venture consists of the following:
	Balance, beginning of the period			$ —
	Investments in joint venture			6
	Share of net loss			(35)
	Share of losses applied against joint venture note receivable			29
	Balance, September 30, 2019			$ —
									Summarized financial information of AVGG Hemp:
			September 30, 2019
	Current assets
	Cash and cash equivalents		$	39
	Inventory			707
	Non-current assets			362
	Borrowings due to joint venture partner			(1,185)
	Net assets		$	(77)
		12

Notes to Condensed Consolidated Interim Financial Statements
	(In thousands of United States dollars, except share and per share amounts, unless otherwise noted)
		(Unaudited)
	Reconciliation of net assets:Net loss for the nine months ended September 30, 2019
			$(87)
	Contributions from joint venture partners		10
	Net assets		$(77)
				Summarized joint ventures’ information:
		Investment in joint ventures			Investment in joint ventures
		as of September 30, 2019			as of December 31, 2018
						Pure Sunfarms	$					39,555	$			6,341
						VF Hemp	—	—
						AVGG Hemp	—	—
						Total	$					39,555	$			6,341
							Equity in earnings (losses) from unconsolidated entities
									Three months ended September 30,	Nine months ended September 30,
									2019	2018	2019						2018
				Pure Sunfarms	$					3,748			$	(295) $	14,493			$	(858)
				VF Hemp			(211)			—	(343)						—
				AVGG Hemp			(18)			—	(35)						—
				Total	$							3,519	$	(295)	$	14,115			$	(858)
												9	DEBT
				The Company has a term loan financing agreement with a Canadian creditor (“FCC Loan”). The non-revolving variable rate term loan has a maturity date of May 1, 2021 and a balance of $32,076 as of September 30, 2019. The outstanding balance is repayable by way of monthly installments of principal and interest based on an amortization period of 15 years, with the balance and any accrued interest to be paid in full on May 1, 2021. As of September 30, 2019, and December 31, 2018, borrowings under the FCC Loan agreement were subject to an interest rate of 6.787% and 7.082%, respectively, which is determined based on the Company’s Debt to EBITDA ratio and the applicable LIBOR rate.
				The Company’s subsidiary VFCE has two loan agreements in place with a Canadian Chartered bank. As of September 30, 2019 and December 31, 2018, the balance on the non-revolving fixed rate loan was US$1,117 and US$1,279, respectively, and the balance on the uncommitted credit facility for capital expenditures was US$113 and US$138, respectively.
				The Company has a line of credit agreement with a Canadian Chartered Bank (“Operating Loan”). The revolving Operating Loan has a line of credit up to CA$13,000 and variable interest rates with a maturity date on May 31, 2021 and is subject to margin requirements stipulated by the bank. As of September 30, 2019 and December 31, 2018, US$4,000 and US$2,000, respectively, was drawn on this facility, which is available to a maximum of CA$13,000, less outstanding letters of credit totaling US$150 and CA$38.
				The Company’s borrowings (“Credit Facilities”) are subject to certain positive and negative covenants. As of September 30, 2019 the Company was in compliance with all covenants on its Credit Facilities.
				Accrued interest payable on the credit facilities and loans as of September 30, 2019 and December 31, 2018 was $171 and $184, respectively, and these amounts are included in accrued liabilities in the interim statement of financial position.
				As collateral for the FCC Loan, the Company has provided promissory notes, a first mortgage on the VFF-owned greenhouse properties (excluding the Delta 3 and Delta 2 greenhouse facilities), and general security agreements over its assets. In addition, the Company has provided full recourse guarantees and has granted security therein. The carrying value of the assets and securities pledged as collateral as of September 30, 2019 and December 31, 2018 was $138,870 and $105,200, respectively.
				As collateral for the Operating Loan, the Company has provided promissory notes and a first priority security interest over its accounts receivable and inventory. In addition, the Company has granted full recourse guarantees and security therein. The carrying value of the assets pledged as collateral as of September 30, 2019 and December 31, 2018 was $28,475 and $36,248, respectively.
		13

Notes to Condensed Consolidated Interim Financial Statements
	(In thousands of United States dollars, except share and per share amounts, unless otherwise noted)
		(Unaudited)
			The aggregate annual principal maturities of long-term debt for the next five years and thereafter are as follows:
	Remainder of 2019			$	857
	2020			3,409
	2021			28,551
	2022			340
	2023			178
	Thereafter			—
				$33,335
					10	FINANCIAL INSTRUMENTS
			The Company records accounts receivable, accounts payable, accrued liabilities and debt at cost. The carrying values of these instruments approximate their fair value due to their short-term maturities.
					11	RELATED PARTY TRANSACTIONS AND BALANCES
			On February 13, 2019, the Company announced that Pure Sunfarms had entered into a credit agreement with Bank of Montreal, as agent and lead lender, and Farm Credit Canada, as lender, in respect of a CA$20 million secured non-revolver term loan (the “Credit Facility”). The Credit Facility, which matures on February 7, 2022, is secured by the Delta 3 facility, and contains customary financial and restrictive covenants. The Company is not a party to the Credit Facility but has provided a limited guarantee in the amount of CA$10 million in connection with the Credit Facility.
			As of September 30, 2019 and December 31, 2018, the Company had amounts due from its joint venture, Pure Sunfarms, totaling $218 and $1,079, respectively, primarily for consulting services. These amounts are non-interest bearing and due on demand. On July 5, 2018, the Shareholders entered into a Loan Agreement in the form of a demand loan to Pure Sunfarms. As of September 30, 2019, the balance Pure Sunfarms owed the Company, including interest was $10,472.
			On March 25, 2019, the Company entered into a Grid Loan Agreement (the “Grid Loan”) with VF Hemp, whereby, as of September 30, 2019, the Company had contributed $8,006 in the form of a grid loan to VF Hemp. The Grid Loan has a maturity date of March 25, 2022, and bears simple interest at the rate of 8% per annum, calculated monthly.
		14

Notes to Condensed Consolidated Interim Financial Statements
	(In thousands of United States dollars, except share and per share amounts, unless otherwise noted)
		(Unaudited)
			Under the terms of the AVGG Hemp Joint Venture Agreement, the Company agreed to lend approximately US$5 million to AVGG Hemp for start-up costs and working capital. The loan bears simple interest at the rate of 8% per annum, calculated monthly (note 7). As of September 30, 2019, the Company had loaned AVGG Hemp approximately $1,156 (note 8).
			Amounts due from the joint ventures, including interest, as of September 30, 2019 and December 31, 2018 and included in the statements financial position:
				September 30, 2019	December 31, 2018
						Pure Sunfarms	$			10,690	$	10,873
						VF Hemp	8,006	—
						AVGG Hemp	1,156	—
						Total	$			19,852	$	10,873
			One of the Company’s employees is related to a member of the Company’s executive management team and received approximately $83 and $86 in salary and benefits during the nine months ended September 30, 2019 and 2018, respectively.
			Included in accrued expenses and other current liabilities is $50 paid to the Company by an employee for taxes incurred on a stock option exercise. The Company paid the taxes in October 2019.
			Included in other assets as at December 31, 2018 is a $64 promissory note that represents the unpaid amount the Company advanced to an employee in connection with a relocation at the request of the Company. The promissory note was paid in full June 10, 2019.
									12	INCOME TAX
			Income tax expense is recognized based on management’s best estimate of the weighted average annual income tax rate expected for the full financial year. The estimated average annual rate used for the nine months ended September 30, 2019 and 2018 was 24% and 25%, respectively.
									13	SEGMENT AND GEOGRAPHIC INFORMATION
			Segment reporting is prepared on the same basis that the Company’s Chief Executive Officer, who is the Company’s Chief Operating Decision Maker, manages the business, makes operating decisions and assesses performance. Management has determined that the Company operates in three segments. The Company’s three segments include the Produce business, the Energy business and the Company’s cannabis and hemp segment. The Produce business produces, markets, and sells the product group which consists of premium quality tomatoes, bell peppers and cucumbers. The Energy business produces power that it sells per a long-term contract to its one customer. For segment information regarding the Company’s cannabis and hemp segment refer to Note 8 – Investments – Equity Method and Joint Ventures.
		15

Notes to Condensed Consolidated Interim Financial Statements
	(In thousands of United States dollars, except share and per share amounts, unless otherwise noted)
		(Unaudited)
			The Company’s primary operations are in the United States and Canada. Segment information for the three and nine months ended September 30, 2019 and 2018:
				Three months ended September 30,	Nine months ended September 30,
				2019		2018	2019		2018
			Sales
			Produce – U.S.	$	30,734		$	32,073	$	92,594		$	92,391
			Produce – Canada					7,072	7,139	17,874		17,371
			Energy – Canada					487	472			1,044	1,451
				$	38,293		$	39,684	$	111,512		$	111,213
			Interest expense
			Produce – U.S.	$				29	$	9	$				94	$	28
			Produce – Canada					608	697			1,869	1,972
			Energy - Canada					18	22			55	69
				$				655	$	728	$				2,018	$	2,069
			Interest income
			Corporate	$				304	$	91	$				651	$	105
				$				304	$	91	$				651	$	105
			Depreciation
			Produce – U.S.	$				1,006	$	1,130	$				3,031	$	3,463
			Produce – Canada					328	386			1,075	1,164
			Energy - Canada					229	232			684	644
				$				1,563	$	1,748	$				4,790	$	5,271
			Gross margin
			Produce – U.S.	$	(4,102)		$	(975)	$	(8,838)		$	279
			Produce – Canada					3,602	3,840			6,339	6,963
			Energy - Canada					(111)	(43)			(407)	57
				$				(611) $	2,822	$	(2,906) $		7,299
						September 30,	December 31,
						2019			2018
										Total assets
	United States					$	90,277	$				79,126
	Canada					79,736			58,690
	Energy - Canada					3,163			3,632
						$ 173,176	$ 141,448
						September 30,	December 31,
						2019			2018
										Property, plant and equipment
	United States					$	41,461	$				42,886
	Canada					19,623			25,933
	Energy - Canada					2,887			3,369
						$	63,971	$				72,188
											14	(LOSS) INCOME PER SHARE
			Basic and diluted net income per ordinary share is calculated as follows:
												Three months ended	Nine months ended
						September 30,			September 30,
												2019	2018	2019	2018
			Numerator:Net (loss) income
								$				(704)	$ (1,428)	$ 9,509		$ (5,090)
			Denominator:Weighted average number of common shares - Basic
												48,845	44,475			48,650	44,473
			Effect of dilutive securities- share-based employee options and awards			—	—				1,801	—

Antidilutive options and awards	310	2,186	310	2,186
Net (loss) income per ordinary share:Basic
	$ (0.01) $ (0.03) $		0.20	$ (0.11)
Diluted	$ (0.01) $ (0.03) $		0.19	$ (0.11)
					16

Notes to Condensed Consolidated Interim Financial Statements

(In thousands of United States dollars, except share and per share amounts, unless otherwise noted)

(Unaudited)

SHARE-BASED COMPENSATION PLAN

Share-based compensation expense for the three and nine months ended September 30, 2019 was $666 and $2,663, respectively. Share-based compensation expense for the three and nine months ended September 30, 2018 was $191 and $447, respectively.

Stock option activity for the nine months ended September 30, 2019 is as follows:

Weighted

Average

Weighted

Remaining

Number of

Average

Contractual

Aggregate

Options

Exercise Price

Term (years)

Intrinsic Value

Outstanding at December 31, 2018

2,164,999

CA$

2.10

5.69

CA$ 5,553

Granted

510,000

CA$ 16.32

9.44

—

Exercised

(83,998) CA$

1.26

5.58

CA$ $1,156

Forfeited

(10,001) CA$

2.20

—

CA$

128

Outstanding at September 30, 2019

2,581,000

CA$

4.92

5.80

CA$ 20,456

Exercisable at September 30, 2019

1,784,002

CA$

1.61

4.34

CA$ 18,525

During the nine months ended September 30, 2019, 355,000 performance-based shares were granted to Village Farms employees and directors involved with future developments of the Company. Once a performance target is met and the share units are deemed earned and vested, compensation expense based on the fair value of the share units on the grant date is recorded in selling, general and administrative expenses in the interim statements of income.

Performance-based shares activity for the nine months ended September 30, 2019 was as follows:

Number of

Weighted Average

Performance-

Grant Date

based Shares

Fair Value

Outstanding at December 31, 2018

1,056,666

CA$

5.56

Issued

355,000

CA$

14.94

Exercised

(313,666) CA$

5.36

Forfeited/expired

(5,000) CA$

5.79

Outstanding at September 30, 2019

1,093,000

CA$

9.04

Exercisable at September 30, 2019

159,000

CA$

8.20

COMMITMENT AND CONTINGENCIES

In the normal course of business, the Company and its subsidiaries may become defendants in certain employment claims and other litigation. The Company records a liability when it is probable that a loss has been incurred and the amount is reasonably estimable. The Company is not involved in any legal proceedings other than routine litigation arising in the normal course of business, none of which the Company believes will have a material adverse effect on the Company’s business, financial condition or results of operations.