Village Farms International, Inc. 10-Q

Item 1. FINANCIAL STATEMENTS Village Farms International, Inc. Condensed Consolidated Sta tements of Financial Position (In thousands of United States dollars, except share data) (Unaudited) September 30, 2024 December 31, 2023 ASSETS Current assets Cash and cash equivalents $ 28,696 $ 30,291 Restricted cash — 5,000 Trade receivables 33,185 30,561 Inventories 60,022 78,472 Income tax receivable 8 — Other receivables 937 294 Prepaid expenses and deposits 5,218 7,150 Total current assets 128,066 151,768 Non-current assets Property, plant and equipment 200,271 205,613 Investments 2,656 2,656 Goodwill 44,996 55,918 Intangibles 27,494 32,275 Deferred tax asset 1,201 1,201 Right-of-use assets 10,978 12,596 Other assets 2,186 1,962 Total assets $ 417,848 $ 463,989 LIABILITIES Current liabilities Line of credit $ 4,000 $ 4,000 Trade payables 18,428 21,753 Current maturities of long-term debt 8,649 9,133 Accrued sales taxes 13,334 15,941 Accrued loyalty program 1,624 1,773 Accrued liabilities 12,407 15,076 Lease liabilities - current 2,489 2,112 Income tax payable — 28 Other current liabilities 1,694 2,340 Total current liabilities 62,625 72,156 Non-current liabilities Long-term debt 34,604 38,925 Deferred tax liability 23,954 23,730 Lease liabilities - non-current 9,453 11,335 Other liabilities 2,254 1,902 Total liabilities 132,890 148,048 MEZZANINE EQUITY Redeemable non-controlling interest 10,608 15,667 SHAREHOLDERS’ EQUITY Common stock, no par value per share - unlimited shares authorized; 112,337,049 shares issued and outstanding at September 30, 2024 and 110,248,929 shares issued and outstanding at December 31, 2023. 387,349 386,719 Additional paid in capital 30,338 25,611 Accumulated other comprehensive loss ( 6,951 ) ( 3,540 ) Retained earnings ( 136,386 ) ( 109,165 ) Total Village Farms International, Inc. shareholders’ equity 274,350 299,625 Non-controlling interest — 649 Total shareholders’ equity 274,350 300,274 Total liabilities, mezzanine equity and shareholders’ equity $ 417,848 $ 463,989 The accompanying notes are an integral part of these Condensed Consolidated Financial Statements. 2 Village Farms International, Inc. Condensed Consolidated Statements of O perations 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, 2024 2023 2024 2023 Sales $ 83,368 $ 69,510 $ 253,627 $ 211,378 Cost of sales ( 67,660 ) ( 54,889 ) ( 213,158 ) ( 172,958 ) Gross profit 15,708 14,621 40,469 38,420 Selling, general and administrative expenses ( 16,540 ) ( 15,822 ) ( 52,593 ) ( 49,980 ) Interest expense ( 784 ) ( 988 ) ( 2,606 ) ( 3,532 ) Interest income 229 262 757 741 Foreign exchange gain (loss) 352 ( 971 ) ( 929 ) ( 302 ) Other income (loss) 379 ( 19 ) 528 5,613 Goodwill and intangible asset impairments — — ( 11,939 ) — Loss before taxes ( 656 ) ( 2,917 ) ( 26,313 ) ( 9,040 ) (Provision for) recovery of income taxes ( 94 ) 1,664 ( 674 ) ( 269 ) Loss including non-controlling interests ( 750 ) ( 1,253 ) ( 26,987 ) ( 9,309 ) Less: net income attributable to non-controlling interests, net of tax ( 70 ) ( 46 ) ( 234 ) ( 6 ) Net loss attributable to Village Farms International, Inc. shareholders $ ( 820 ) $ ( 1,299 ) $ ( 27,221 ) $ ( 9,315 ) Basic loss per share attributable to Village Farms International, Inc. shareholders $ ( 0.01 ) $ ( 0.01 ) $ ( 0.25 ) $ ( 0.09 ) Diluted loss per share attributable to Village Farms International, Inc. shareholders $ ( 0.01 ) $ ( 0.01 ) $ ( 0.25 ) $ ( 0.09 ) Weighted average number of common shares used in the computation of net loss per share (in thousands): Basic 111,917 110,239 111,045 108,214 Diluted 111,917 110,239 111,045 108,214 Loss including non-controlling interests $ ( 750 ) $ ( 1,253 ) $ ( 26,987 ) $ ( 9,309 ) Other comprehensive income (loss): Foreign currency translation adjustment 2,595 ( 5,986 ) ( 3,655 ) ( 899 ) Comprehensive gain (loss) including non-controlling interests 1,845 ( 7,239 ) ( 30,642 ) ( 10,208 ) Comprehensive (income) loss attributable to non-controlling interests ( 222 ) 353 10 ( 50 ) Comprehensive gain (loss) attributable to Village Farms International, Inc. shareholders $ 1,623 $ ( 6,886 ) $ ( 30,632 ) $ ( 10,258 ) The accompanying notes are an integral part of these Condensed Consolidated Financial Statements. 3 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 September 30, 2024 Number of Common Shares (in thousands) Common Stock Additional Paid in Capital Accumulated Other Comprehensive (Loss) gain Retained Earnings Non-controlling Interest Total Shareholders’ Equity Mezzanine Equity Balance July 1, 2024 as previously reported 111,728 $ 386,719 $ 30,405 $ ( 9,394 ) $ ( 132,566 ) $ 517 $ 275,681 $ 10,358 Adjustments — - - - ( 3,000 ) - ( 3,000 ) - Balance July 1, 2024 111,728 386,719 30,405 ( 9,394 ) ( 135,566 ) 517 272,681 10,358 Share-based compensation 609 630 245 — — — 875 — Acquisition of non-controlling interest — — ( 312 ) — — ( 489 ) ( 801 ) — Cumulative translation adjustment — — — 2,443 — 27 2,470 125 Net (loss) income — — — — ( 820 ) ( 55 ) ( 875 ) 125 Balance at September 30, 2024 112,337 $ 387,349 $ 30,338 $ ( 6,951 ) $ ( 136,386 ) $ — $ 274,350 $ 10,608 Three Months Ended September 30, 2023 Number of Common Shares (in thousands) Common Stock Additional Paid in Capital Accumulated Other Comprehensive Loss Retained Earnings Non-controlling Interest Total Shareholders’ Equity Mezzanine Equity Balance at July 1, 2023 110,239 $ 386,719 $ 24,888 $ ( 3,284 ) $ ( 82,383 ) $ 668 $ 326,608 $ 16,223 Share-based compensation — — 747 — — — 747 — Cumulative translation adjustment — — — ( 4,903 ) — 29 ( 4,874 ) ( 1,111 ) Net (loss) income — — — — ( 1,299 ) ( 81 ) ( 1,380 ) 126 Balance at September 30, 2023 110,239 $ 386,719 $ 25,635 $ ( 8,187 ) $ ( 83,682 ) $ 616 $ 321,101 $ 15,238 Nine Months Ended September 30, 2024 Number of Common Shares Common Stock Additional Paid in Capital Accumulated Other Comprehensive Loss Retained Earnings Non-controlling Interest Total Shareholders’ Equity Mezzanine Equity Balance at January 1, 2024 as previously reported 110,249 $ 386,719 $ 25,611 $ ( 3,540 ) $ ( 106,165 ) $ 649 $ 303,274 $ 15,667 Adjustments — - - - ( 3,000 ) - ( 3,000 ) - Balance January 1, 2024 110,249 386,719 25,611 ( 3,540 ) ( 109,165 ) 649 300,274 15,667 Share-based compensation 2,088 630 2,846 — — — 3,476 — Acquisition of Redeemable non-controlling interest — — 2,193 — — — 2,193 ( 5,209 ) Acquisition of non-controlling interest ( 312 ) ( 489 ) ( 801 ) — Cumulative translation adjustment — — — ( 3,411 ) — — ( 3,411 ) ( 244 ) Net (loss) income — — — — ( 27,221 ) ( 160 ) ( 27,381 ) 394 Balance at September 30, 2024 112,337 $ 387,349 $ 30,338 $ ( 6,951 ) $ ( 136,386 ) $ — $ 274,350 $ 10,608 Nine Months Ended September 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 — — 3,135 — — — 3,135 — Cumulative translation adjustment — — — 184 — 29 213 ( 1,111 ) Net (loss) income — — — — ( 9,315 ) ( 180 ) ( 9,495 ) 185 Balance at September 30, 2023 110,239 $ 386,719 $ 25,635 $ ( 8,187 ) $ ( 83,682 ) $ 616 $ 321,101 $ 15,238 The accompanying notes are an integral part of these Condensed Consolidated Financial Statements. 4 Village Farms International, Inc. Condensed Consolidated Statements of Cash Flows (In thousands of United States dollars) (Unaudited) Nine Months Ended September 30, 2024 2023 Cash flows provided by (used in) operating activities: Net loss attributable to Village Farms International, Inc. shareholders $ ( 27,221 ) $ ( 9,315 ) Adjustments to reconcile net loss attributable to Village Farms International, Inc. shareholders to net cash provided by (used in) operating activities: Depreciation and amortization 14,507 11,726 Amortization of deferred charges 10 102 Net income attributable to non-controlling interest 234 6 Interest expense 2,606 3,532 Interest paid on long-term debt ( 3,128 ) ( 3,645 ) Unrealized foreign exchange loss 143 92 Goodwill and intangible asset impairments 11,939 — Non-cash lease expense 1,684 1,615 Share-based compensation 3,476 3,135 Deferred income taxes 384 1,748 Changes in non-cash working capital items 5,302 ( 2,191 ) Net cash provided by operating activities 9,936 6,805 Cash flows (used in) provided by investing activities: Purchases of property, plant and equipment ( 8,147 ) ( 4,358 ) Purchases of intangibles ( 80 ) — Repayment of note receivable — 835 Net cash used in investing activities ( 8,227 ) ( 3,523 ) Cash flows (used in) provided by financing activities: Repayments on borrowings ( 4,301 ) ( 7,858 ) Purchase of Non-controlling interest ( 3,817 ) — Proceeds from issuance of common stock and warrants — 24,772 Issuance costs — ( 1,437 ) Proceeds from exercise of stock options — 83 Net cash (used in) provided by financing activities ( 8,118 ) 15,560 Effect of exchange rate changes on cash and cash equivalents ( 186 ) ( 35 ) Net (decrease) increase in cash, cash equivalents and restricted cash ( 6,595 ) 18,807 Cash, cash equivalents and restricted cash, beginning of period 35,291 21,676 Cash, cash equivalents and restricted cash, end of period $ 28,696 $ 40,483 The accompanying notes are an integral part of these Condensed Consolidated Financial Statements. 5 VILLAGE FARMS INTERNATIONAL, INC. Notes to Condensed Consolidated Financial Statements (In thousands of United States dollars, except per share amounts, unless otherwise noted) 1. BUSINESS, BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES Nature of Business Village Farms International, Inc. (“VFF” and, together with its subsidiaries, the “Company”, “we”, “us”, or “our”) is a corporation existing under the Business Corporations Act (Ontario). VFF’s principal operating subsidiaries as of September 30, 2024 were Village Farms Canada Limited Partnership, Village Farms, L.P.(together, “Village Farms Fresh” or “VF Fresh”), Pure Sunfarms Corp. (“Pure Sunfarms”), Balanced Health Botanicals, LLC (“Balanced Health”) and VF Clean Energy, Inc. ("VFCE") and Leli Holland B. V. ("Leli"). VFF also owns an 80 % interest in Rose LifeScience Inc. (“Rose”). The address of the registered office of VFF is 79 Wellington Street West, Suite 3300, Toronto, Ontario, Canada, M5K 1N2. The address of the principal executive office of VFF is 90 Colonial Center Pkwy, Lake Mary, Florida, United States, 32746. The Company’s shares are listed on Nasdaq Capital Market (“Nasdaq”) under the symbol “VFF”. Village Farms Fresh 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. Its wholly owned subsidiary, Pure Sunfarms, is a vertically integrated Licensed Producer and supplier of cannabis products sold to customers throughout Canada and internationally. The Company’s wholly owned subsidiary, Balanced Health, develops and sells high-quality, cannabidiol (“CBD”) based products including ingestible, edible and topical applications within the U.S. Through its 80 % ownership of Rose, the Company has a substantial presence in the Province of Quebec as a cannabis supplier, producer and commercialization expert. Basis of Presentation The accompanying condensed consolidated financial statements are unaudited and have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) for interim financial information and with the instructions for Form 10-Q and Rule 10-01 of Regulation S-X. Pursuant to these rules and regulations, certain information and footnote disclosures normally included in the annual audited consolidated financial statements prepared in accordance with U.S. GAAP have been condensed or omitted. The accompanying condensed consolidated statement of financial position as of December 31, 2023 is derived from the Company’s audited financial statements as of that date. Because certain information and footnote disclosures have been condensed or omitted, these condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto as of and for the year ended December 31, 2023 contained in the Company’s 2023 Annual Report on Form 10-K. In management’s opinion, all normal and recurring adjustments considered necessary for a fair presentation of the financial position, results of operations, and cash flows for the periods presented have been included. When necessary, certain prior year amounts have been reclassified to conform with the current period presentation. Interim period operating results do not necessarily indicate the results that may be expected for any other interim period or for the full fiscal year. The Company believes that the disclosures made in these condensed consolidated financial statements are adequate to make the information not misleading. Principals of Consolidation The accompanying condensed consolidated financial statements include Village Farms International, Inc. and its subsidiaries and include the accounts of all majority-owned subsidiaries over which the Company exercises control and, when applicable, entities in which the Company has a controlling financial interest. All significant intercompany balances and transactions have been eliminated in consolidation. Other parties’ interests in entities that the Company consolidates are reported as non-controlling interests within equity, except for mandatorily redeemable non-controlling interests, which are recorded within mezzanine equity. Net income or loss attributable to non-controlling interests is reported as a separate line item below net income or loss. The Company applies the equity method of accounting for its investments in entities for which it does not have a controlling financial interest, but over which it has the ability to exert significant influence. For equity investees in which the Company has an undivided interest in the assets, liabilities and profits or losses of an unconsolidated entity, but does not exercise control over the entity, the Company consolidates its proportional interest in the accounts of the entity. Translations of Foreign Currencies The assets and liabilities of foreign subsidiaries with a functional currency other than the U.S. dollar are translated into U.S. dollars at period-end exchange rates, with resulting translation gains or losses included within other comprehensive income or loss. Revenue and expenses are translated into U.S. dollars at average rates of exchange during the applicable period. Substantially all of the Company’s foreign operations use their local currency as their functional currency. For foreign operations for which the local currency is not the functional currency, the operation’s non-monetary assets are remeasured into U.S. dollars at historical exchange rates. All other accounts are remeasured at current exchange rates, with both gains or losses from remeasurement and currency gains or losses from transactions executed in currencies other than the functional currency included in foreign exchange (loss) gain. 6 VILLAGE FARMS INTERNATIONAL, INC. Notes to Condensed Consolidated Interim Financial Statements (In thousands of United States dollars, except per share amounts, unless otherwise noted) In these condensed consolidated financial statements, “$” means U.S. dollars and "C$" means Canadians dollars, unless otherwise noted. Revision of Prior-Period Consolidated Financial Statements In connection with the preparation of our third quarter 2024 condensed consolidated interim financial statements, the Company identified an immaterial misstatement in its estimate of its deferred tax asset valuation allowance as of the year ended December 31, 2023. As a result, we recorded a decrease to deferred tax assets as of December 31, 2023 and increase in income tax expense for the year ended December 31, 2023 for $ 3,000 , which decreased total assets and retained earnings as of December 31, 2023 and increased our net loss for the year ended December 31, 2023 by $ 3,000 . Our revision had no impact to the Company’s consolidated statement of cash flows. Additionally, our revision had no impact to the Company’s segment profit measure, compliance with debt covenants, or performance metrics used in the calculation of executive compensation as the impacted line items are excluded from these calculations. We evaluated the materiality of the impact quantitatively and qualitatively and concluded it was not material to any of the prior periods. General Economic, Regulatory and Market Conditions The Company has experienced, and may continue to experience, direct and indirect negative effects on its business and operations from negative economic, regulatory and market conditions, including inflationary effects on fuel prices, labor and materials costs, elevated interest rates, potential recessionary impacts and supply chain disruptions that could negatively affect demand for new projects and/or delay existing project timing or cause increased project costs. The extent to which general economic, regulatory and market conditions could affect the Company’s business, operations and financial results is uncertain as it will depend upon numerous evolving factors that management may not be able to accurately predict, and, therefore, any future impacts on the Company’s business, financial condition and/or results of operations cannot be quantified or predicted with specificity. Recent Accounting Pronouncements No accounting pronouncements recently issued or newly effective have had, or are expected to have, a material impact on the Company’s condensed consolidated financial statements. 2. INVENTORIES Inventories consisted of the following as of: Classification September 30, 2024 December 31, 2023 Cannabis: Raw materials $ 668 $ 985 Work-in-progress 8,010 6,543 Finished goods 32,055 47,084 Packaging 7,175 7,641 Produce: Crop inventory 11,081 15,492 Purchased produce inventory 1,033 727 Inventory $ 60,022 $ 78,472 3. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment consisted of the following as of: Classification September 30, 2024 December 31, 2023 Land $ 14,411 $ 14,641 Leasehold and land improvements 5,515 5,525 Buildings 215,140 217,384 Machinery and equipment 92,057 86,674 Construction in progress 15,370 13,619 Less: Accumulated depreciation ( 142,222 ) ( 132,230 ) Property, plant and equipment, net $ 200,271 $ 205,613 7 VILLAGE FARMS INTERNATIONAL, INC. Notes to Condensed Consolidated Interim Financial Statements (In thousands of United States dollars, except per share amounts, unless otherwise noted) Depreciation expense on property, plant and equipment, was $ 4,360 and $ 12,108 for the three and nine months ended September 30, 2024, respectively, and $ 3,208 and $ 9,365 for the three and nine months ended September 30, 2023, respectively. Capitalized interest was $ 260 and $ 825 for the three and nine months ended September 30, 2024 , respectively, and $ 323 and $ 965 for the three and nine months ended September 30, 2023, respectively . 4. ACQUISITIONS On September 24, 2024 , the Company acquired the remaining 15 % equity ownership interest in Leli for a total cash purchase price of approximately $ 801 , which resulted in a reduction of non-controlling interest of ($ 489 ) and a decrease in additional paid in capital of ($ 312 ). The Company's ownership interest in Leli is now 100 %. On May 29, 2024 , the Company entered into a Share Purchase Agreement with Rose and non-controlling shareholders for the acquisition of an additional 10 % interest in Rose for a total cash purchase price of approximately $ 3,016 , which resulted in a reduction of mezzanine equity of ($ 5,209 ) and an increase in additional paid in capital of $ 2,193 . The Company's ownership interest in Rose is now 80 %. 5. GOODWILL AND INTANGIBLE ASSETS Goodwill The following table presents the changes in the carrying value of goodwill by reportable segment for the nine months ended September 30, 2024: Cannabis - Canada Cannabis - United States Total Balance as of January 1, 2024 $ 45,879 $ 10,039 $ 55,918 Impairments - ( 10,039 ) ( 10,039 ) Foreign currency translation adjustment ( 883 ) - ( 883 ) Balance as of September 30, 2024 $ 44,996 $ - $ 44,996 Intangible Assets Intangible assets consisted of the following as of: Classification September 30, 2024 December 31, 2023 Licenses $ 18,351 $ 18,540 Brand and trademarks* 12,727 12,795 Customer relationships 13,324 13,586 Computer software 2,037 1,974 Other* 144 144 Less: Accumulated amortization ( 9,840 ) ( 7,414 ) Less: Impairments* ( 9,249 ) ( 7,350 ) Intangibles, net $ 27,494 $ 32,275 * Includes indefinite-lived intangible assets The expected future amortization expense for definite-lived intangible assets as of September 30, 2024 was as follows: Fiscal period Remainder of 2024 $ 838 2025 3,267 2026 3,178 2027 3,178 2028 1,884 Thereafter 11,527 Intangibles, net $ 23,872 Assessment for Indicators of Impairment At the end of each reporting period, the Company assesses whether events or changes in circumstances have occurred that would indicate an impairment. The Company considers external and internal factors, including overall financial performance and relevant entity-specific factors, as part of this assessment. 8 VILLAGE FARMS INTERNATIONAL, INC. Notes to Condensed Consolidated Interim Financial Statements (In thousands of United States dollars, except per share amounts, unless otherwise noted) During the nine months ended September 30, 2024 and 2023, the Company considered qualitative factors in assessing for impairment indicators for the Company’s U.S. and Canadian Cannabis segments. Cannabis - U.S. At June 30, 2024, when the Company considered qualitative factors in assessing impairment indicators, it concluded that the Company's U.S. - Cannabis segment more likely than not was impaired. The Company reviewed the reportable segment's assets, including goodwill and intangible assets. Based on recent historical performance during the quarter which underperformed relative to budget, a revised June 30, 2024 forecast which resulted in a shortfall compared to the March 31, 2024 forecast, the new restrictions on CBD sales in an additional eight states at July 1, 2024, and the proliferation of unregulated hemp-derived products on the market which continues to challenge market share for the CBD industry, the Company concluded that as of June 30, 2024, the fair value of the brand intangible asset and goodwill was fully impaired and an impairment charge to goodwill of $ 10,039 and a charge to intangibles of $ 1,900 was allocated to the U.S. Cannabis reporting unit. Cannabis - U.S. - Goodwill The fair value of the reporting unit was determined based on a discounted cash flow projection using projections for the remainder of 2024 to 2028 with an average revenue growth rate of 6 % between 2025 to 2028 , followed by a terminal growth rate of 2 %. Management concluded that as of June 30, 2024, the fair value was lower than its carrying amount and as a result, an impairment charge to goodwill of $ 10,039 was recorded to the reporting unit. The significant assumptions applied to the determination of the fair value are described below: Post-tax discount rate: A market participant post-tax discount rate applied to the after-tax forecast cash flows was 12 %. A decrease of 1 % to the discount rate, would not result in a material change to the impairment charge. Terminal growth rate: An increase of 1 % in the terminal growth rate would not result in a material change to the impairment charge. Future cash flows: An increase in future cash flows by 10 % would not result in a material change to the impairment charge. Cannabis – U.S. Brand The fair value of the brand was determined based on a discounted cash flow projection. Specifically, the Company utilized a relief from royalty valuation technique to arrive at the fair value of the brand. Management concluded that as of June 30, 2024, the fair value was lower than its carrying value of $ 1,900 as the notional brand maintenance costs exceeded 9 VILLAGE FARMS INTERNATIONAL, INC. Notes to Condensed Consolidated Interim Financial Statements (In thousands of United States dollars, except per share amounts, unless otherwise noted) the incremental royalty of 3.5 %. Therefore, an impairment charge to the brand intangible of $ 1,900 was allocated to the reporting unit. Cannabis - Canada At September 30, 2024, when the Company considered qualitative factors in assessing impairment indicators for Canadian Cannabis, it concluded that no impairment indicators existed as no events or circumstances occurred that would, more likely than not, reduce the fair value of the reporting units to be below their carrying amounts. At September 30, 2023 , the Company concluded that no impairment indicators existed as no events or circumstances occurred that would, more likely than not, reduce the fair value of the reporting units to be below their carrying amounts. 6. LINE OF CREDIT AND LONG-TERM DEBT The following table provides details for the carrying values of debt as of: September 30, 2024 December 31, 2023 Term Loan - ("FCC Loan") - repayable by monthly principal payments of $ 164 and accrued interest at a rate of 8.81 %; matures May 3, 2027 $ 21,312 $ 22,788 Term Loan - Pure Sunfarms - C$ 19.0 M - Canadian prime interest rate plus an applicable margin, repayable in quarterly payments equal to 2.50 % of the outstanding principal amount, interest rate of 8.45 %; matures February 7, 2026 7,028 8,298 Term loan - Pure Sunfarms - C$ 25.0 M - Canadian prime interest rate plus an applicable margin, repayable in quarterly payments equal to 2.50 % of the outstanding principal amount, interest rate of 8.45 %; matures February 7, 2026 11,560 13,201 BDC Facility - Pure Sunfarms - non-revolving demand loan repayable by monthly principal payments of C$ 52 and accrued interest at a rate of 10.20 %, matures December 31, 2031 3,353 3,771 Total $ 43,253 $ 48,058 The Company’s line of credit with Bank of Montreal ("Operating Loan") had $ 4,000 drawn on the facility as of September 30, 2024 and December 31, 2023. The carrying value of the assets and securities pledged as collateral for the FCC Loan as of September 30, 2024 and December 31, 2023 was $ 74,942 and $ 117,293 , respectively. The carrying value of the assets pledged as collateral for the Operating Loan as of September 30, 2024 and December 31, 2023 was $ 23,233 and $ 28,034 , respectively. The Pure Sunfarms line of credit had a balance of $ 0 as of September 30, 2024 and December 31, 2023. The Company is required to comply with financial covenants, measured either quarterly or annually depending on the covenant. The Company was in compliance with all its credit facility covenants as of September 30, 2024. The weighted average annual interest rate on short-term borrowings as of September 30, 2024 and December 31, 2023 was 9.21 % and 9.44 % , respectively. Accrued interest payable on all long-term debt as of September 30, 2024 and December 31, 2023 was $ 405 and $ 390 , respectively, and these amounts are included in accrued liabilities in the Condensed Consolidated Statements of Financial Position. 10 VILLAGE FARMS INTERNATIONAL, INC. Notes to Condensed Consolidated Interim Financial Statements (In thousands of United States dollars, except per share amounts, unless otherwise noted) The aggregate annual principal maturities of long-term debt for the remainder of 2024 and thereafter are as follows: Remainder of 2024 $ 1,440 2025 5,759 2026 16,856 2027 17,348 2028 462 Thereafter 1,388 Total $ 43,253 7. FINANCIAL INSTRUMENTS The Company’s financial instruments include cash and cash equivalents, trade receivables, minority investments, line of credit, 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 line of credit, lease liabilities, notes payable, and debt approximate their fair values due to insignificant changes in credit risk. Carrying amounts of other long-term financial instruments, excluding the Company's term loans, approximate fair value, since the instruments bear interest at variable or fixed rates which approximate market rates. For its investments, the Company has selected the practicability election to fair value measurement, under which the investment is measured at cost, less impairment, plus or minus observable price changes of an identical or similar investment. 8. RELATED PARTY TRANSACTIONS AND BALANCES The Company leases its Rose office building from a Company employee who also owns a minority interest in Rose. For the three and nine months ended September 30, 2024, the Company paid C $ 40 and C $ 230 , respectively and for the three and nine months ended September 30, 2023 the Company paid C $ 80 and C $ 172 , respectively, to lease this office space. One of the Company’s employees is related to a member of the Company’s executive management team and received approximately $ 45 and $ 130 in salary and benefits during the three and nine months ended September 30, 2024, respectively, and $ 42 and $ 103 in salary and benefits during the three and nine months ended September 30, 2023, respectively. On May 29, 2024, the Company entered into a Share Purchase Agreement with Rose and non-controlling shareholders, which includes two company employees, for the acquisition of an additional 10 % interest in Rose for a total cash purchase price of approximately $ 3,016 (note 4). 9. INCOME TAXES The Company has recorded a provision for income taxes of ($ 94 ) and ($ 674 ) for the three and nine months ended September 30, 2024, respectively, compared with a recovery of (provision for) income taxes of $ 1,664 and ($ 269 ) for the same periods last year. The Company’s income tax provision is based on management’s estimate of the effective tax rate for the full year. The tax (provision) benefit in any period will be affected by, among other things, permanent, as well as discrete items, differences in the deductibility of certain items, changes in the valuation allowance related to net deferred tax assets, in addition to changes in tax legislation. As a result, the Company may experience significant fluctuations in the effective book tax rate (that is, tax expense divided by pre-tax book income) from period to period. In order to fully utilize the net deferred tax assets, the Company will need to generate sufficient taxable income in future years. The Company analyzed all positive and negative evidence to determine if, based on the weight of available evidence, it is more likely than not to realize the benefit of the net deferred tax assets. The recognition of the net deferred tax assets and related tax benefits is based upon the Company’s conclusions regarding, among other considerations, estimates of future earnings based on information currently available and current and anticipated customers, contracts, and product introductions, as well as historical operating results and certain tax planning strategies. Based on the analysis of all available evidence, both positive and negative, the Company has concluded that it does not have the ability to generate sufficient taxable income in the necessary periods to utilize the entire benefit for its deferred tax assets. Accordingly, the Company established a valuati on allowance of $ 48,742 as of September 30, 2024 and $ 42,530 as of December 31, 2023. The Company cannot presently estimate what, if any, changes to the valuation of its deferred tax assets may be deemed appropriate in the future. 11 VILLAGE FARMS INTERNATIONAL, INC. Notes to Condensed Consolidated Interim Financial Statements (In thousands of United States dollars, except per share amounts, unless otherwise noted) As of September 30, 2024, the Company’s net deferred tax assets totaled $ 1,201 a nd were primarily derived from a tax planning strategy to utilize a portion of its existing net operating loss carryforwards. 10. 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, assesses performance and allocates resources. As of September 30, 2024 , the Company’s four segments are as follows: Segment Description Produce The Produce segment produces, markets, and sells premium quality tomatoes, bell peppers and cucumbers. Cannabis – Canada The Cannabis – Canada segment produces and supplies cannabis products to be sold to other licensed providers and provincial governments across Canada and internationally. Cannabis – United States The Cannabis – United States segment develops and sells high-quality, CBD-based health and wellness products including ingestible, edible and topical applications. Energy The Energy business receives a royalty from a renewable natural gas facility that is located in Delta, B.C. The Company’s primary operations are in the United States and Canada. Segment information is summarized below: Three months ended September 30, Nine Months Ended September 30, 2024 2023 2024 2023 Sales Produce $ 42,770 $ 35,712 $ 125,883 $ 114,125 Cannabis - Canada 36,463 28,810 114,654 81,987 Cannabis - United States 3,943 4,988 12,777 15,266 Energy 192 — 313 — $ 83,368 $ 69,510 $ 253,627 $ 211,378 Gross profit Produce $ 3,481 $ 1,492 $ 2,627 $ ( 654 ) Cannabis - Canada 9,599 9,944 29,812 29,114 Cannabis - United States 2,500 3,185 7,824 9,981 Energy 128 — 206 ( 21 ) $ 15,708 $ 14,621 $ 40,469 $ 38,420 Income (loss) before taxes Produce $ 403 $ ( 1,172 ) $ ( 7,787 ) $ ( 4,497 ) Cannabis - Canada 1,600 1,918 4,689 5,003 Cannabis - United States ( 192 ) 79 ( 13,173 ) ( 125 ) Energy 297 ( 58 ) 338 ( 128 ) $ 2,108 $ 767 $ ( 15,933 ) $ 253 A reconciliation of the Company’s segment Income (loss) before taxes to the Condensed Consolidated Statements of Operations is summarized below: Three months ended September 30, Nine Months Ended September 30, 2024 2023 2024 2023 Segment operating income $ 2,108 $ 767 $ ( 15,933 ) $ 253 Other corporate expenses, net ( 2,764 ) ( 3,684 ) ( 10,380 ) ( 9,293 ) Total income (loss) before taxes $ ( 656 ) $ ( 2,917 ) $ ( 26,313 ) $ ( 9,040 ) 12 VILLAGE FARMS INTERNATIONAL, INC. Notes to Condensed Consolidated Interim Financial Statements (In thousands of United States dollars, except per share amounts, unless otherwise noted) 11. LOSS PER SHARE Basic and diluted net loss per common share is calculated as follows: Three months ended September 30, Nine Months Ended September 30, 2024 2023 2024 2023 Numerator: Net loss attributable to Village Farms International, Inc. shareholders $ ( 820 ) $ ( 1,299 ) $ ( 27,221 ) $ ( 9,315 ) Denominator: Weighted average number of common shares - basic 111,917 110,239 111,045 108,214 Effect of dilutive securities- share-based employee options and awards — — — — Weighted average number of common shares - diluted 111,917 110,239 111,045 108,214 Antidilutive options and awards 6,692 6,509 6,692 6,509 Net loss per ordinary share: Basic $ ( 0.01 ) $ ( 0.01 ) $ ( 0.25 ) $ ( 0.09 ) Diluted $ ( 0.01 ) $ ( 0.01 ) $ ( 0.25 ) $ ( 0.09 ) 12. SHAREHOLDERS’ EQUITY AND SHARE-BASED COMPENSATION Share-based compensation expense was $ 875 and $ 3,476 for the three and nine months ended September 30, 2024, respectively, and $ 747 and $ 3,135 for the three and nine months ended September 30, 2023, respectively. Stock option activity for the nine months ended September 30, 2024 was as follows: Number of Options Weighted Average Exercise Price Weighted Average Remaining Contractual Term (years) Aggregate Intrinsic Value Outstanding at January 1, 2024 6,946,576 $ 3.50 7.54 $ 83 Granted 170,000 $ 0.95 6.21 $ 5 Forfeited/expired ( 424,167 ) $ 3.43 Outstanding at September 30, 2024 6,692,409 $ 3.43 7.09 $ 294 Exercisable at September 30, 2024 3,600,055 $ 5.24 5.97 $ 57 Restricted shares activity for the nine months ended September 30, 2024 was as follows: Number of Restricted Stock Grants Weighted Average Grant Date Fair Value Outstanding at January 1, 2024 — $ - Granted 1,785,144 $ 1.20 Vested and Issued ( 1,479,024 ) $ 1.25 Outstanding at September 30, 2024 306,120 $ 0.98 Exercisable at September 30, 2024 — $ - On September 3, 2024, the Company granted 600,000 shares to a director of the Company. 13 VILLAGE FARMS INTERNATIONAL, INC. Notes to Condensed Consolidated Interim Financial Statements (In thousands of United States dollars, except per share amounts, unless otherwise noted) 13. CHANGES IN NON-CASH WORKING CAPITAL ITEMS AND SUPPLEMENTAL CASH FLOW INFORMATION Nine Months Ended September 30, 2024 2023 Trade receivables $ ( 625 ) $ ( 475 ) Inventories 16,000 ( 5,284 ) Other receivables ( 65 ) 9 Prepaid expenses and deposits 1,774 ( 845 ) Trade payables ( 3,231 ) ( 3,624 ) Accrued liabilities ( 3,136 ) 5,383 Lease liabilities ( 1,617 ) ( 1,574 ) Other assets, net of other liabilities ( 3,798 ) 4,219 $ 5,302 $ ( 2,191 ) The Company paid income taxes of $ 0 for the three and nine months ended September 30, 2024 and 2023. The Company paid interest expense of $ 955 and $ 3,128 for the three and nine months ended September 30, 2024 , respectively, and $ 1,008 and $ 3,645 for the three and nine months ended September 30, 2023 , respectively. 14