VFF Village Farms International Inc

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON D.C. 20549

 

FORM 10-Q

 

(Mark One)

☒	Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

For the quarterly period ended June 30, 2023

☐	Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

For the transition period from to

Commission File Number 001-38783

 

VILLAGE FARMS INTERNATIONAL, INC.

(Exact name of Registrant as Specified in its Charter)

 

Ontario		98-1007671
(State or other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)

4700-80th Street

Delta, British Columbia Canada

V4K 3N3

(Address of Principal Executive Offices) (Zip Code)

(604) 940-6012

Issuer’s phone number, including area code

N/A

(Former name, former address and former fiscal year, if changed since last report).

 

Securities registered pursuant to Section 12(b) of the Act:

Title of each class		Trading Symbol(s)		Name of each exchange on which registered
Common Shares, without par value		VFF		The Nasdaq Stock Market LLC

Indicate by checkmark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files. Yes ☒ No ☐ Not Applicable ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer”, “small reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer		☐		Accelerated filer		☒
Non-accelerated filer		☐		Smaller reporting company		☒
Emerging growth company		☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of August 9, 2023, 110,238,929 common shares of the registrant were outstanding.

 

 

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TABLE OF CONTENTS

 

			Page
PART I - FINANCIAL INFORMATION
Item 1.		Condensed Consolidated Financial Statements (Unaudited)
		Condensed Consolidated Statements of Financial Position		2
		Condensed Consolidated Statements of Operations and Comprehensive Loss		3
		Condensed Consolidated Statements of Changes in Shareholders’ Equity and Mezzanine Equity		4
		Condensed Consolidated Statements of Cash Flows		5
		Notes to Condensed Consolidated Financial Statements		6
Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations		15
Item 3.		Quantitative and Qualitative Disclosures About Market Risk		35
Item 4.		Controls and Procedures		35
PART II - OTHER INFORMATION				37
Item 1.		Legal Proceedings		37
Item 1A.		Risk Factors		37
Item 2.		Unregistered Sale of Securities and Use of Proceeds		37
Item 3.		Defaults Upon Senior Securities		37
Item 4.		Mine Safety Disclosures		37
Item 5.		Other Information		37
Item 6.		Exhibits		38
		Signatures		39

 

 

 

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Forward Looking Statements

 

As used in this Quarterly Report on Form 10-Q, the terms “Village Farms”, “Village Farms International”, the “Company”, “we”, “us”, “our” and similar references refer to Village Farms International, Inc. and our consolidated subsidiaries, and the term “Common Shares” refers to our common shares, no par value. Our financial information is presented in U.S. dollars and all references in this Quarterly Report on Form 10-Q to “$” means U.S. dollars and all references to “C$” means Canadian dollars.

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the United States Private Securities Litigation Reform Act of 1995, Section 27A of the U.S. Securities Act of 1933, as amended, (the "Securities Act") and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and is subject to the safe harbor created by those sections. This Quarterly Report on Form 10-Q also contains "forward-looking information" within the meaning of applicable Canadian securities laws. We refer to such forward-looking statements and forward-looking information collectively as "forward-looking statements". Forward-looking statements may relate to the Company's future outlook or financial position and anticipated events or results and may include statements regarding the financial position, business strategy, budgets, expansion plans, litigation, projected production, projected costs, capital expenditures, financial results, taxes, plans and objectives of or involving the Company. Particularly, statements regarding future results, performance, achievements, prospects or opportunities for the Company, the greenhouse vegetable or produce industry and the cannabis industry and market are forward-looking statements. In some cases, forward-looking information can be identified by such terms as "can", "outlook", "may", "might", "will", "could", "should", "would", "occur", "expect", "plan", "anticipate", "believe", "intend", "try", "estimate", "predict", "potential", "continue", "likely", "schedule", "objectives", or the negative or grammatical variation thereof or other similar expressions concerning matters that are not historical facts. The forward-looking statements in this Quarterly Report on Form 10-Q are subject to risks that may include, but are not limited to: our limited operating history in the cannabis and cannabinoids industry, including that of Pure Sunfarms, Inc. (“Pure Sunfarms”), Rose LifeScience Inc. (“Rose” or “Rose LifeScience”) and Balanced Health Botanicals, LLC (“Balanced Health”); the legal status of the cannabis business of Pure Sunfarms and Rose and the hemp business of Balanced Health; risks relating to the integration of Balanced Health and Rose into our consolidated business; risks relating to obtaining additional financing on acceptable terms, including our dependence upon credit facilities and dilutive transactions; potential difficulties in achieving and/or maintaining profitability; variability of product pricing; risks inherent in the cannabis, hemp, CBD, cannabinoids, and agricultural businesses; our market position and competitive position; our ability to leverage current business relationships for future business involving hemp and cannabinoids; the ability of Pure Sunfarms and Rose to cultivate and distribute cannabis in Canada; existing and new governmental regulations, including risks related to regulatory compliance and regarding obtaining and maintaining licenses required under the Cannabis Act (Canada), the Criminal Code and other Acts, S.C. 2018, C. 16 (Canada) for its Canadian operational facilities, and changes in our regulatory requirements; legal and operational risks relating to expected conversion of our greenhouses to cannabis production in Canada and in the United States; risks related to rules and regulations at the U.S. Federal (Food and Drug Administration and United States Department of Agriculture), state and municipal levels with respect to produce and hemp, cannabidiol-based products commercialization; retail consolidation, technological advances and other forms of competition; transportation disruptions; product liability and other potential litigation; retention of key executives; labor issues; uninsured and underinsured losses; vulnerability to rising energy costs; inflationary effects on costs of cultivation and transportation; recessionary effects on demand of our products; environmental, health and safety risks, foreign exchange exposure, risks associated with cross-border trade; difficulties in managing our growth; restrictive covenants under our credit facilities; natural catastrophes; rising interest rates; and tax risks.

The Company has based these forward-looking statements on factors and assumptions about future events and financial trends that it believes may affect its financial condition, results of operations, business strategy and financial needs. Although the forward-looking statements contained in this Quarterly Report on Form 10-Q are based upon assumptions that management believes are reasonable based on information currently available to management, there can be no assurance that actual results will be consistent with these forward-looking statements. Forward-looking statements necessarily involve known and unknown risks and uncertainties, many of which are beyond the Company's control, which may cause the Company's or the industry's actual results, performance, achievements, prospects and opportunities in future periods to differ materially from those expressed or implied by such forward-looking statements. These risks and uncertainties include, among other things, the factors contained in the Company's filings with securities regulators, including this Quarterly Report on Form 10-Q.

When relying on forward-looking statements to make decisions, the Company cautions readers not to place undue reliance on these statements, as forward-looking statements involve significant risks and uncertainties and should not be read as guarantees of future results, performance, achievements, prospects and opportunities. The forward-looking statements made in this Quarterly Report on Form 10-Q relate only to events or information as of the date on which the statements are made in this Quarterly Report on Form 10-Q. Except as required by law, the Company undertakes no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise, after the date on which the statements are made or to reflect the occurrence of unanticipated events.

1

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Village Farms International, Inc.

Condensed Consolidated Statements of Financial Position

(In thousands of United States dollars, except share data)

(Unaudited)

 

 

		June 30, 2023				December 31, 2022
ASSETS
Current assets
Cash and cash equivalents		$	26,659			$	16,676
Restricted cash			5,000				5,000
Trade receivables			29,509				27,558
Inventories			73,733				70,582
Other receivables			10,504				309
Income tax receivable, net			1,741				6,900
Prepaid expenses and deposits			9,563				5,959
Total current assets			156,709				132,984
Non-current assets
Property, plant and equipment			207,374				207,701
Investments			2,109				2,109
Goodwill			67,239				66,225
Intangibles			36,532				37,157
Deferred tax asset			4,201				4,201
Right-of-use assets			12,962				9,132
Other assets			1,976				5,776
Total assets		$	489,102			$	465,285
LIABILITIES
Current liabilities
Line of credit		$	4,000			$	7,529
Trade payables			20,551				24,894
Current maturities of long-term debt			9,373				9,646
Accrued sales taxes			13,211				11,594
Accrued loyalty program			1,821				2,060
Accrued liabilities			19,384				13,064
Lease liabilities - current			1,755				1,970
Other current liabilities			1,680				1,458
Total current liabilities			71,775				72,215
Non-current liabilities
Long-term debt			41,615				43,821
Deferred tax liability			19,138				19,756
Lease liabilities - non-current			11,816				7,785
Other liabilities			1,927				1,714
Total liabilities			146,271				145,291
Commitments and contingencies
MEZZANINE EQUITY
Redeemable non-controlling interest			16,223				16,164
SHAREHOLDERS’ EQUITY
Common stock, no par value per share - unlimited shares authorized;    110,238,929 shares issued and outstanding at June 30, 2023 and 91,788,929 shares issued and outstanding at December 31, 2022.			386,719				372,429
Additional paid in capital			24,888				13,372
Accumulated other comprehensive loss			(3,284	)			(8,371	)
Retained earnings			(82,383	)			(74,367	)
Total Village Farms International, Inc. shareholders’ equity			325,940				303,063
Non-controlling interest			668				767
Total shareholders’ equity			326,608				303,830
Total liabilities, mezzanine equity and shareholders’ equity		$	489,102			$	465,285

 

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

2

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Village Farms International, Inc.

Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)

(In thousands of United States dollars, except per share data)

(Unaudited)

 

		Three Months Ended June 30,								Six Months Ended June 30,
		2023				2022				2023				2022
Sales		$	77,212			$	82,903			$	141,868			$	153,059
Cost of sales			(65,713	)			(76,580	)			(118,069	)			(136,832	)
Gross margin			11,499				6,323				23,799				16,227
Selling, general and administrative expenses			(16,753	)			(18,516	)			(34,158	)			(36,451	)
Interest expense			(1,411	)			(665	)			(2,544	)			(1,348	)
Interest income			283				—				479				110
Foreign exchange gain (loss)			738				(527	)			669				(208	)
Other income (expense)			5,602				(30	)			5,632				(38	)
Write-off of joint venture loan			—				(592	)			—				(592	)
Impairments			—				(29,799	)			—				(29,799	)
Loss before taxes and loss from equity method investments			(42	)			(43,806	)			(6,123	)			(52,099	)
(Provision for) recovery of income taxes			(1,299	)			9,714				(1,933	)			11,380
Loss from equity method investments			—				(2,615	)			—				(2,667	)
Loss including non-controlling interests			(1,341	)			(36,707	)			(8,056	)			(43,386	)
Less: net (income) loss attributable to non-controlling interests, net of tax			(39	)			152				40				314
Net loss attributable to Village Farms International, Inc. shareholders		$	(1,380	)		$	(36,555	)		$	(8,016	)		$	(43,072	)
Basic loss per share attributable to Village Farms International, Inc. shareholders		$	(0.01	)		$	(0.41	)		$	(0.07	)		$	(0.49	)
Diluted loss per share attributable to Village Farms International, Inc. shareholders		$	(0.01	)		$	(0.41	)		$	(0.07	)		$	(0.49	)
Weighted average number of common shares used    in the computation of net loss per share (in thousands):
Basic			110,239				88,567				107,185				88,472
Diluted			110,239				88,567				107,185				88,472
Loss including non-controlling interests		$	(1,341	)		$	(36,707	)		$	(8,056	)		$	(43,386	)
Other comprehensive income (loss):
Foreign currency translation adjustment			4,225				151				5,087				612
Comprehensive income (loss) including non-controlling interests			2,884				(36,556	)			(2,969	)			(42,774	)
Comprehensive (income) loss attributable to non-controlling interests			(361	)			268				(403	)			430
Comprehensive income (loss) attributable to Village Farms International, Inc. shareholders		$	2,523			$	(36,288	)		$	(3,372	)		$	(42,344	)

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

3

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Village Farms International, Inc.

Condensed Consolidated Statements of Changes in Shareholders’ Equity and Mezzanine Equity

(In thousands of United States dollars, except for shares outstanding)

(Unaudited)

 

		Three Months Ended June 30, 2023
		Number of Common Shares				Common Stock				Additional Paid in Capital				Accumulated Other Comprehensive (Loss) Income				Retained Earnings				Non-controlling Interest				Total Shareholders’ Equity				Mezzanine Equity
Balance at April 1, 2023			110,239			$	386,719			$	24,232			$	(7,509	)		$	(81,003	)		$	718			$	323,157			$	16,134
Share-based compensation			—				—				656				—				—				—				656				—
Cumulative translation adjustment			—				—				—				4,225				—				—				4,225				—
Net loss			—				—				—				—				(1,380	)			(50	)			(1,430	)			89
Balance at June 30, 2023			110,239			$	386,719			$	24,888			$	(3,284	)		$	(82,383	)		$	668			$	326,608			$	16,223

 

		Three Months Ended June 30, 2022
		Number of Common Shares				Common Stock				Additional Paid in Capital				Accumulated Other Comprehensive (Loss) Income				Retained Earnings				Non-controlling Interest				Total Shareholders’ Equity				Mezzanine Equity
Balance at April 1, 2022			88,562			$	365,737			$	10,333			$	10,225			$	20,262			$	—			$	406,557			$	16,271
Shares issued on exercise of stock options			10				—				16				—				—				—				16				—
Share-based compensation			—				—				1,114				—				—				—				1,114				—
Cumulative translation adjustment			—				—				—				(6,660	)			—				—				(6,660	)			—
Net loss			—				—				—				—				(36,555	)			—				(36,555	)			(152	)
Balance at June 30, 2022			88,572			$	365,737			$	11,463			$	3,565			$	(16,293	)		$	—			$	364,472			$	16,119

 

		Six Months Ended June 30, 2023
		Number of Common Shares				Common Stock				Additional Paid in Capital				Accumulated Other Comprehensive (Loss) Income				Retained Earnings				Non-controlling Interest				Total Shareholders’ Equity				Mezzanine Equity
Balance at January 1, 2023			91,789			$	372,429			$	13,372			$	(8,371	)		$	(74,367	)		$	767			$	303,830			$	16,164
Shares issued in public offering, net of issuance costs			18,350				14,207				—				—				—				—				14,207				—
Warrants issued in public offering			—				—				9,128				—				—				—				9,128				—
Shares issued on exercise of stock options			100				83				—				—				—				—				83				—
Share-based compensation			—				—				2,388				—				—				—				2,388				—
Cumulative translation adjustment			—				—				—				5,087				—				—				5,087				—
Net loss			—				—				—				—				(8,016	)			(99	)			(8,115	)			59
Balance at June 30, 2023			110,239			$	386,719			$	24,888			$	(3,284	)		$	(82,383	)		$	668			$	326,608			$	16,223

 

 

Six Months Ended June 30, 2022

Number of Common Shares

Common Stock

Additional Paid in Capital