ANNUAL REPORT
2012
Committed to Excellence
À la recherche de l'excellence
2012
RAPPORT ANNUEL
IN ALL SUCCESSFUL BUSINESSES THE KEY TO
SUCCESS RELIES ON MANAGEMENT’S ABILITY TO
MASTER THREE FUNDAMENTALS:
> COMMITMENT TO CUSTOMER
> CLEAR VISION OF GOALS
> CORRECT TIMING OF ACTIONS
OUR SENIOR MANAGEMENT
TEAM KNOWS,
UNDERSTANDS AND LIVES BY THESE PILLARS OF
BUSINESS FUNDAMENTALS.
R E P O R T T O S H A R E H O L D E R S
ANNUAL REPORT - DECEMBER 31, 2012
It has been a very remarkable year.
Whereas the year 2011 necessitated that management focus strictly on the short term needs of a turnaround, the year
2012 was one of re-building for the future. Firstly money was raised for the asset purchase in February 2012. This was
followed in April by the announcement of a patent application. These stepping stones are the reasons why I believe
2013 will be viewed as a watershed year for our Company.
Imaflex has four manufacturing components to its business. Two of these have been reliable sources of profitability to
the Company for years. In this regard, 2012 was no exception as these two parts continued to perform well and in line
with expectations. Our U.S. subsidiary, which has been a challenge for years for reasons that have been expounded
upon in past reports to shareholders, has seen a marked reversal in fortunes since we completed the business
acquisition by way of an asset purchase in the first quarter of 2012. This acquisition will reverse this subsidiary’s
poor performance even if the process of integrating this business within Imaflex USA limited the contribution to
consolidated profitability during the year. Management fully expects that Imaflex USA will contribute to profits in 2013
which it has heretofore never done.
Furthermore, as previously reported, management has been active in preparing the groundwork to create a sales team
devoted to its agricultural products. This sales team should allow the Company’s weakest division to recapture the
revenues it gave up in 2010 with the additional benefit of also increasing revenues for our US entity. The additional
growth in revenues from these products, at both Canslit and Imaflex USA begins this year.
I am also pleased to report that Dr. Ralf Dujardin, the head engineer at Bayer Innovation GmbH with whom we
collaborated in the creation of new revolutionary agricultural film for which Imaflex and Bayer have jointly applied
for a Patent, will be joining Imaflex as of July 1 2013 as V.P. Innovations; Sales and Marketing for the agricultural
markets. His international experience, expertise, and contacts, are such that management believes he will prove to be
an invaluable asset for the Company. He will not only assist our Canslit division in recovering sales but also help our
US entity in expanding its sales as well as assuring our success in launching new products we have and will create.
Management has been busy preparing the groundwork for the superior profitability it expects to generate in the long term.
Imaflex invests heavily in research and development. These investments in R & D continue to create a distinction
between our Company and the polyethylene industry as a whole. The new active ingredient film for which we have
jointly applied for a patent with Bayer is but one example. Further developments will be announced in due course if
they prove to be material. By shifting to more innovative products a greater share of our revenues should be generated
from non-commodity segments of the market. Management expects that this will create higher margins of profitability.
Management is confident that 2013 will be our break out year.
These earnings will facilitate management‘s ability to make a reality of its acquisition strategy
I extend special thanks to our polymer engineers for their ingenuity. Our suppliers and employees are to be thanked for
their dedication and support in helping us achieve our objectives. Lastly, I wish to thank our board members for their
continuing contributions and our shareholders for the patience and trust they have exhibited in our management team.
I believe that the plan to aggressively grow Imaflex, that was conceived years ago but sidetracked by a series of
unfortunate circumstances, will soon be a reality. I am truly looking forward to the coming years as we are finally able
to execute our plan and resume the growth that marked the Company’s early years.
Regards,
Joe Abbadonato
President and CEO
1
F I N A N C I A L H I G H L I G H T S
ANNUAL REPORT - DECEMBER 31, 2012
($ thousands, except
per share data)
Operating summary
Sales
Net profit (loss)
Profit (loss) per share
EBIT(1)
EBITDA(2)
EBITDA per share
Financial Position
Working Capital
Capital assets
Total assets
Total long-term debt
(including finance leases)
Shareholder’s equity
2012
2011
Year ended December 31,
2009
2010
2008
2007
$ 47,269
(568)
(0.013)
201
1,462
0.034
$ 46,959
74
0.002
832
2,141
0.053
$ 46,489
(1,751)
(0.044)
(1,158)
189
0.005
$ 48,190
(403)
(0.010)
420
3,512
0.089
$ 54,570
(2,091)
(0.056)
(495)
2,901
0.078
$ 46,840
(56)
(0.002)
1,176
3,822
0.102
2,303
15,494
31,996
3,535
$ 14,772
1,748
14,602
31,102
3,133
14,926
(550)
15,663
33,005
5,573
14,026
249
16,631
35,515
7,196
15,944
(2,419)
20,337
39,468
11,250
16,591
6,525
22,900
39,301
13,717
18,130
(1) Earnings before interest and taxes
(2) Earnings before interest, taxes, depreciation and amortization
Q U A R T E R L Y F I N A N C I A L I N F O R M A T I O N
SALES
NET PROFIT (LOSS)
2012
$ 11,818
12,202
11,157
12,092
$ 47,269
2011
$ 14,343
11,554
10,461
10,601
$ 46,959
2012
$ (104)
149
(467)
(146)
$ (568)
2011
$ 117
70
82
(195)
$ 74
EBITDA
PROFIT (LOSS) PER SHARE
2012
$ 378
693
(86)
477
$ 1,462
2011
$ 742
686
615
98
2012
2011
$ (0.002)
0.003
(0.011)
(0.003)
$ 0.003
0.002
0.002
(0.005)
$ 2,141
$ (0.013)
$ 0,002
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
2
M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A L Y S I S ( “ M D & A ” )
ANNUAL REPORT - DECEMBER 31, 2012
As required by regulators, the purpose of this MD&A is to explain management’s point of view on Imaflex Inc.’s (the
“Company” or “Imaflex”) past performance and future outlook. This report also provides information to improve the
reader’s understanding of the consolidated financial statements and related notes. Please refer to the consolidated
financial statements for the years ending December 31, 2012 and 2011 when reading this MD&A. Unless otherwise
indicated, all financial data in this document is prepared in accordance with International Financial Reporting Standards
(“IFRS” hereafter) and all amounts are expressed in Canadian dollars. Differences may occur due to the rounding of
amounts for the presentation of information in thousands of dollars. In this MD&A we also use financial measures that
are not defined by IFRS. Please refer to the section entitled “Non-IFRS Financial Measures” for a complete description
of these measures. The consolidated financial statements include the accounts of the Company, those of its wholly-
owned subsidiary, Imaflex USA, Inc. (“Imaflex USA”) and its divisions, Canguard Packaging (“Canguard”) and Canslit
(“Canslit”). To facilitate the reading of this report, the terms “Imaflex”, “Company”, “we”, “our”, “us” all refer to Imaflex
Inc. together with its subsidiary. This MD&A is prepared in conformity with National Instrument 51-102 and Form
51-102F1 and has been approved by the board of directors prior to its release.
FORWARD LOOKING STATEMENTS
From time to time, we make forward-looking statements within the meaning of certain securities laws, including the
“safe harbor” provisions of the Securities Act (Ontario). We may make such statements in this document, in other
filings with Canadian regulators, in reports to shareholders or in other communications. These forward-looking
statements include, among others, statements regarding the business and anticipated financial performance of the
Company. The words “may”, “could”, “should”, “would”, “outlook”, “believe”, “plan”, “anticipate”, “expect”, “intend”,
“objective,” the use of the conditional tense and words and expressions of similar nature are intended to identify
forward-looking statements.
By their very nature, forward-looking statements involve inherent risks and uncertainties, both general and specific,
which give rise to the possibility that predictions, forecasts, projections and other forward-looking statements will not
be achieved. We caution readers not to place undue reliance on these statements, as a number of important factors
could cause our actual results to differ materially from the beliefs, plans, objectives, expectations, anticipations,
estimates and intentions expressed in such forward-looking statements. These factors include, but are not limited to,
the length and severity of the current economic downturn, management of credit, market dynamics, liquidity, funding
and operational risks; the strength of the Canadian and U.S. economies in which we conduct business; the impact of
the movement of the Canadian dollar relative to other currencies, particularly the U.S. dollar; the effects of changes
in interest rates; the effects of competition in the markets in which we operate; our ability to successfully align our
organization, resources, and processes; the availability and price of raw materials; failure to achieve planned growth
associated with the U.S. operations and future sales; changes in accounting policies and methods we use to report our
financial condition, including uncertainties associated with critical accounting assumptions and estimates; operational
and infrastructure risks; other factors may affect future results including, but not limited to, timely development and
introduction of new products and services; changes in tax laws, technological changes, new regulations; the possible
impact on our businesses from public-health emergencies, international conflicts and other developments; and our
success in anticipating and managing the foregoing risks.
We caution our readers that the foregoing list of important factors that may affect future results is not exhaustive.
When relying on our forward-looking statements to make decisions with respect to the Company, investors and
others should carefully consider the foregoing factors and other uncertainties and potential events. Unless otherwise
required by the securities authorities, we do not undertake to update any forward-looking statement that may be made
from time to time by us or on our behalf. The forward-looking statements contained herein are based on information
available as of April 16, 2013.
3
M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A L Y S I S ( “ M D & A ” )
( C O N T I N U E D )
ANNUAL REPORT - DECEMBER 31, 2012
COMPANY OVERVIEW
The Company operates in one reportable segment being the development, manufacture and sale of packaging
materials. The results herein include those of Imaflex, located in Montréal (Québec), its divisions Canguard and
Canslit, located in Victoriaville (Québec), and its wholly owned subsidiary, Imaflex USA, located in Thomasville (North
Carolina). All intercompany balances and transactions have been eliminated on consolidation.
Imaflex and Imaflex USA specialize in the manufacture and sale of custom-made polyethylene films and bags suited
for various packaging needs of our customers. Canguard specializes in the manufacture and sale of polyethylene
garbage bags for both the retail and industrial markets. Canslit specializes in the metallization of plastic film.
The common shares of the Company are listed for trading on the TSX Venture Exchange under the symbol “IFX”. The
Company’s head office is located in Montréal (Québec).
NON-IFRS FINANCIAL MEASURES
The Company’s management uses a non-IFRS financial measure in this MD&A, namely EBITDA. Management wishes
to specify that in the performance of the Company’s financial results, EBITDA is shown as “Earnings before interest,
taxes, depreciation and amortization”. The reader may refer to the table below for the reconciliation of the EBITDA used
by the Company to its reported profit or loss.
Reconciliation of EBITDA to profit or loss:
($ thousands)
Three month periods ended
Years ended
December 31
2012
December 31
2011
December 31
2012
December 31
2011
(Loss) profit
$ (146)
$ (195)
$ (568)
$ 74
Plus:
Income taxes
Finance expense
Depreciation and amortization
Change in fair value of derivative
financial instrument
195
122
313
(7)
(144)
122
329
(14)
EBITDA
$ 477
Basic and diluted EBITDA per share * $ 0.011
$ 98
$ 0.002
298
509
1,261
(38)
$ 1,462
$ 0.034
264
556
1,309
(62)
$ 2,141
$ 0.053
*Basic weighted average number of shares outstanding of 42,601,276 for the quarter ended December 31, 2012
(40,665,791 in 2011) and 42,437,341 for the year ended December 31, 2012 (40,103,426 in 2011). Diluted weighted
average number of shares outstanding of 42,649,519 for the quarter ended December 31, 2012 (40,706,240 in
2011) and 42,487,091 for the year ended December 31, 2012 (40,127,696 in 2011).
While EBITDA is not a standard IFRS measure, management, analysts, investors and others use it as an indicator
of the Company’s financial and operating management and performance. EBITDA should not be construed as
an alternative to profit determined in accordance with IFRS as an indicator of the Company’s performance. The
Company’s method of calculating EBITDA may be different from those used by other companies.
4
M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A L Y S I S ( “ M D & A ” )
( C O N T I N U E D )
ANNUAL REPORT - DECEMBER 31, 2012
BUSINESS OVERVIEW
Imaflex is primarily a provider of polyethylene films to converters, who process film into a finished product. The
converting process involves printing the required information on the film that Imaflex supplies them based on their
end-customer’s needs. Imaflex also manufactures bags that are sold for a variety of uses, including garbage bags.
Additionally, the Company produces specialized metallized film for specific agricultural usage.
Imaflex operates four manufacturing facilities, two of which are located in the Province of Québec, in Montréal and
in Victoriaville, and two others located in Thomasville, North Carolina, in the United States. The four facilities cover
a total area of approximately 22,800 square meters or 228,000 square feet.
MARKET OPPORTUNITY
The North American flexible packaging market is valued at approximately $25 billion. Although this market is
highly fragmented and commoditized in terms of pricing, there are niches within this larger market that offer the
opportunity of increased profitability.
Management believes that four factors will contribute to Imaflex’s long term growth and its ability to properly
position itself within the industry in which it operates.
The first is continued investment in research and development efforts allowing our research teams to develop on a
timely basis new products for highly profitable niche markets as the older niches gradually become price sensitive
with the entry of new participants.
The second is the efficiency of our equipment, and our commitment to sustain this efficiency with the required
capital investments. This will allow us to remain cost competitive in the marketplace.
The third is our access to capital. Being a publicly traded company we have the ability to tap into the equity markets
if the right opportunity comes along. This is in addition to the credit facilities currently provided to the Company
by its banks.
The fourth is our manufacturing presence in both Canada and the United States which confers to the Company a
competitive advantage in terms of logistics, currency, and manufacturing flexibility.
OUTSOURCING
Our industry is capital intensive. Labour is only a minor component in the total cost of production. As a result,
outsourcing production to countries with lower wages would not have a material impact on the cost of production,
especially when factoring in expenses related to freight and duty.
Furthermore, the risks associated with quality and on-time delivery would far outweigh any minimal benefit to
our customers that would be generated by lower labour costs. Accordingly, management does not currently
contemplate the establishment of an outsourcing strategy.
5
M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A L Y S I S ( “ M D & A ” )
( C O N T I N U E D )
ANNUAL REPORT - DECEMBER 31, 2012
BUSINESS STRATEGY
Imaflex is focused on providing its customers the highest quality products on a timely basis and at competitive
prices. This strategy has been the backbone of our growth and it has served us well.
Some competitors, experiencing idle operations or producing at below average capacity levels, may attempt to gain
market share through reduced pricing, particularly during difficult economic times.
Imaflex still believes that maintaining its focus on the quality of its products and the excellence of its customer
service remains its best long term strategy, as these two characteristics define our position and reputation in the
market, and this regardless of the fluctuations in the economic cycle.
GROWING CUSTOMER BASE
In our market, it becomes essential to sell value-added products and avoid producing highly commoditized
products generating lower margins. The key to the success of this strategy is to identify and build relationships
with customers having specific needs and eventually develop products that address their customized specifications.
Our sales force’s primary mandate is to find such clients.
RISK FACTORS
The Company is involved in a competitive industry and marketplace in which there are a number of participants. To
accommodate and effectively manage future growth, the Company continues to improve its operational, financial
and management information systems, as well as its production procedures and controls. The Company’s success
is largely the result of the continued contributions of its employees and the Company’s ability to attract and retain
qualified management, sales and operational personnel.
The market the Company competes in has historically shown resiliency and growth even at the worst economic
times. The Company’s customers operate predominantly in the food packaging and agriculture markets. This fact,
coupled with the expanding product lines and reliance on newer and faster equipment, should help it weather the
potential volatility caused by uncertainty in the North American economic climate.
Factors which can impact the Company include, but are not limited to: management of credit, market dynamics,
liquidity, funding and operational risks; the strength of the Canadian and U.S. economies in which we conduct
business; the impact of the movement of the Canadian dollar relative to other currencies, particularly the U.S.
dollar; the effects of changes in interest rates; the effects of competition in the markets in which we operate; our
ability to successfully align our organization, resources, and processes; the availability and price of raw materials;
failure to achieve planned growth associated with the U.S. operations; changes in accounting policies and methods
we use to report our financial condition, including uncertainties associated with critical accounting assumptions
and estimates; operational and infrastructure risks; other factors may affect future results including, but not limited
to, timely development and introduction of new products and services; changes in tax laws, technological changes
and new regulations; the possible impact on our businesses from public-health emergencies, international conflicts
and other developments; and our success in anticipating and managing the foregoing.
6
M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A L Y S I S ( “ M D & A ” )
( C O N T I N U E D )
ANNUAL REPORT - DECEMBER 31, 2012
GENERAL SITUATION OF THE POLYETHYLENE BLOWN FILM MARKET
Pricing was fairly flat in the fourth quarter of 2012 compared to the third quarter as polyethylene producers kept
production tightly in line with demand, thus avoiding increasing their inventory levels. As the export market
improved in the first quarter, pricing increased as well early in 2013. Prices are expected to remain relatively flat
for the second quarter of 2013.
LOSS OF BUSINESS FROM A SIGNIFICANT CUSTOMER
One of our business strategies has been to limit the purchases of any particular customer to less than 15% of our
revenues. This strategy ensures us that our profitability and financial well-being are not dependent on any one
client.
COMPETITION FROM OTHER COMPANIES
Competition in our market is at the moment quite intense due to the imbalance between supply and demand.
Nevertheless, because we are dealing in a $25 billion market; because we have highly skilled teams that are
quick to respond to customer needs; because we have a diversified manufacturing base; and because the bulk
of our customers deal in food related products, we believe that we have a competitive edge. It may not always
translate into a greater net profit, but it certainly does translate into customer loyalty should we decide to match
our competitors’ prices.
SEASONALITY OF OPERATIONS
Our operations in Victoriaville and in Thomasville are subject to seasonality as a result of their partial manufacturing
focus in the production of agricultural film products sold to fruit and vegetable growers. Customer demand in this
end-market peaks twice yearly. Inventory is managed in a way to optimize cash flow while remaining able to react
to any market opportunities that present themselves. However, because these locations also manufacture products
that are destined for other markets which are not affected by seasonal downturns, these two plants are still able to
operate all year, albeit at lower capacity levels.
EXPOSURE TO PRODUCT LIABILITY
Due to the nature of its operations, which consist of manufacturing polyethylene films transformed by our
customers for their end-customers, Imaflex’s exposure to product liability is low. Imaflex is not exposed to liability
for personal injury or death arising from negligence in the manufacturing of the films either.
The only market segment that exposes the Company to potential product liability claims is the agricultural market.
In this market, proof of negligence in our manufacturing process could entail some form of compensation in the
event that the expected crop yields do not materialize.
Although the likelihood of a claim in this market is low, we are nonetheless covered by a product liability insurance
policy in the amount of $ 25,000,000.
7
M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A L Y S I S ( “ M D & A ” )
( C O N T I N U E D )
ANNUAL REPORT - DECEMBER 31, 2012
FLUCTUATIONS IN OPERATING RESULTS
It is important to note that profitability may vary from quarter to quarter, irrespective of quarterly sales. This is due
to many factors, including and not limited to: competitive conditions in the businesses in which the Company
participates; general economic conditions and normal business uncertainty; product mix; fluctuations in foreign
currency exchange rates; the availability and costs of raw materials; changes in the Company’s relationship with its
suppliers; and interest rate fluctuations and other changes in borrowing costs.
EXPOSURE TO INTEREST RATE FLUCTUATIONS
We have not, nor do we expect to have, a significant increase in borrowing costs. Although it is possible that a
future increase in interest rates will impact our finance expense, the decrease in our current outstanding long term
debt should offset the increase in interest rates.
ABILITY TO ATTRACT AND RETAIN QUALIFIED PERSONNEL
Imaflex’s core operational management team has been stable over the past years and was able to keep key
competencies within the Company. This is because the three founders, who have more than 100 years of combined
experience in management and R & D, were and remain at the core of its management team. As the Company
has grown, it has strengthened its team with the addition of individuals having a variety of competencies, be it
accounting, operations, or engineering.
This has resulted in a work environment that allows for the free exchange of ideas in an effort to ensure that the
Company remains at the forefront of our industry. We are confident that we can retain and, if need be, attract
qualified individuals that will contribute to our quest of building shareholder value.
MANAGEMENT OF GROWTH
Imaflex’s history attests to its management’s ability to create and manage growth and to successfully adapt to
prevailing and continuously changing market conditions. Management believes that future success will also lie in
the ability to properly manage growth whether it comes from new markets and products, acquisitions, mergers, or
a combination of any or all three. This success will depend on the Company’s ability to seek out new opportunities
and to position itself such that it will be able to take advantage of them when they present themselves. Past
decisions have been made bearing this in mind and the Company is now in a better position to make this happen.
FOREIGN EXCHANGE FLUCTUATIONS
A portion of the Company’s sales and expenses as well as accounts receivable and payable are denominated in US
dollars. A portion of the revenue stream in US dollars acts as a natural hedge to cover expenses denominated in
US dollars. However management continuously monitors the Company’s foreign exchange exposure. The analysis
of the Company’s exposure for the fourth quarter of 2012 has resulted in management deciding not to hedge the
Company’s foreign exchange risk.
8
M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A L Y S I S ( “ M D & A ” )
( C O N T I N U E D )
ANNUAL REPORT - DECEMBER 31, 2012
ENVIRONMENTAL HAZARDS
The Company’s raw materials, processes and finished goods do not have any hazardous implications. However we
do buy a few items which are used in our production equipment such as cooling products which may be hazardous,
but their use and manipulation are controlled. Though these products actually pose very little risk, they are handled
in a manner that fully complies with existing safety regulations.
RESULTS OF OPERATIONS
The Company ended the year with a strong quarter after a sluggish beginning. Sales of existing products increased
as expected increases in polyethylene prices stimulated customer demand. Moreover, operational improvements
that were undertaken in 2011 and completed in 2012 as well as the integration of the acquired business helped
grow sales and brought improvements to the bottom line in the fourth quarter.
The fourth quarter has proven that with strong customer demand and with the expected completion of the integration
of the acquired business, Imaflex should generate additional growth and the Company will be capable of delivering
positive results. Coupled with expected growth in existing mulch products, results are expected to improve in
2013.
($ thousands)
Three month periods ended
Years ended
December 31
2012
December 31
2011
December 31
2012
December 31
2011
Sales
$ 12,092
$ 10,601
$ 47,269
$ 46,959
Sales increased for the three month period ended December 31, 2012 compared to 2011 due to the additional
sales generated by the acquired assets as well as an increase in Imaflex’s overall sales volume. Sales increased
by $ 310,160 for the year ended December 31, 2012 compared to 2011. The sales trend was relatively stable
throughout 2012 whereas in 2011, the very high sales in the first quarter of the year were followed by lower
sales for each of the following quarters. These variations are partly explained by the expectation of movements in
polyethylene prices. The fourth quarter, although not having the highest sales in 2012, was the quarter where the
variance over 2011 was most important.
The Company is still working on rebuilding the mulch film sales that were relinquished late in 2009. Although
progress has been made, the Company has yet to reach sales levels achieved prior to the 2010 fiscal year.
9
M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A L Y S I S ( “ M D & A ” )
( C O N T I N U E D )
ANNUAL REPORT - DECEMBER 31, 2012
RESULTS OF OPERATIONS (continued)
($ thousands)
Three month periods ended
Years ended
December 31
2012
December 31 December 31
2012
2011
December 31
2011
Gross Profit ($)
before amortization of production equipment
%
Amortization of production equipment
Gross profit ($)
Gross profit (%)
$ 1,555
$ 1,202
$ 5,843
$ 6,093
12.9%
257
$ 1,298
10.7%
11.3%
264
$ 938
8.8%
12.4%
1,039
$ 4,804
10.2%
13.0%
992
$ 5,101
10.9%
The gross profit before amortization increased for the three-month period ended December 31, 2012 compared
to 2011 mainly due to the stronger sales which generated additional profitability. The gross margin increased
from 11.3% to 12.9%. During the fourth quarter of 2012, sales from the acquired assets generated increased
contribution over raw material and permitted a higher utilization of the Company’s assets during the period.
The amortization decreased slightly for the three-month period ended on December 31, 2012 and the gross profit
increased by approximately $360,000 quarter over quarter.
The gross margin before amortization for the year ended December 31, 2012 decreased despite the increased sales
mainly due to the additional costs to run the acquired operations. The Company also incurred additional expenses
in its U.S. operations in order to fully complete the integration of the acquired assets and to prepare for 2013.
These additional costs were required in order to be able to reach the capacity level required for 2013. Lower sales
in mulch film were offset by cost reduction efforts which limited the decrease in profitability due to lower sales.
The amortization of production equipment increased slightly from $ 991,819 in 2011 to $ 1,039,086 in 2012. The
gross margin after the amortization of production equipment decreased from $ 5,101,076 in 2011 to $ 4,804,417
in 2012.
($ thousands)
Three month periods ended
Years ended
December 31
2012
December 31 December 31
2012
2011
December 31
2011
Selling and administrative
As a % of sales
$ 1,090
9.0 %
$ 1,044
9.8 %
$ 4,266
9.0%
$ 4,323
9.2%
Selling and administrative expenses increased slightly for the fourth quarter of 2012 compared to 2011, which was
expected given the increase in sales, which generated a higher commission expense. However, as a percentage of
sales, selling and administrative expenses decreased from 9.8% to 9.0% given the increase in sales and the fact
that the Company did not incur any significant additional administrative expenses.
For the year ended December 31, 2012, expenses also increased slightly compared to 2011 due to the slight
increase in sales, however overall expenses remained relatively constant, reaching 9.0% of sales in 2012 down
from 9.2% in 2011, given the overall cost structure of the Company remained comparable from 2011 to 2012.
10
M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A L Y S I S ( “ M D & A ” )
( C O N T I N U E D )
ANNUAL REPORT - DECEMBER 31, 2012
RESULTS OF OPERATIONS (continued)
($ thousands)
Three month periods ended
Years ended
December 31
2012
December 31 December 31
2012
2011
December 31
2011
Finance expense
$ 122
$ 122
$ 509
$ 556
Finance expenses remained constant for the three month period ended December 31, 2012 as the decreasing
finance expenses on the long term debts and the line of credit were offset by the interest expenses recorded on the
balance of sale of the business acquisition which does not have any impact on the Company’s cash flow. Increased
interest on the finance leases entered into in 2012 also had a minor impact on the Company’s finance expense.
Over the year, the finance expense decreased in 2012 over 2011 due to lower interest paid on long term debt
and the line of credit borrowings, which was offset by the interest expense recorded on the balance of sale for
the business acquisition. The interest rate paid on the Company’s line of credit borrowings remained constant
throughout most of 2011 and 2012, however payments on interest decreased slightly due to a generally lower
usage of the line of credit.
($ thousands)
Three month periods ended
Years ended
December 31
2012
December 31 December 31
2012
2011
December 31
2011
Foreign exchange (gain) loss
$ (94)
$ 193
$ 231
$ (95)
The strengthening of the US dollar against the Canadian dollar in the fourth quarter of 2012 resulted in a foreign
exchange gain compared to a foreign exchange loss due to the weakening of the US dollar in the fourth quarter of
2011. This led to a positive impact on the Company’s results of $287,000 in the fourth quarter of 2012 compared
to 2011.
For the year ended December 31, 2012 the Company incurred a loss due to the weakening of the US dollar over
the period compared to a gain for the same period in 2011 due to the strengthening of the US dollar in 2011. These
movements in foreign exchange led to a negative impact on the Company’s results of approximately $326,000 year
over year.
($ thousands)
Three month periods ended
Years ended
December 31
2012
December 31 December 31
2012
2011
December 31
2011
Income taxes
As a % of profit before taxes
$ 195
396.9%
$ (144)
42.6%
$ 298
(110.6)%
$ 264
78.2%
The income tax expense was approximately $195,000 for the quarter ended December 31, 2012 given the positive
net income before income taxes realized in the Canadian legal entity. It represents 396.9% of profit before taxes
mainly due to the losses suffered in the US subsidiary for part of which a tax benefit was not recorded as well as
the low profit before tax, which amplifies the income tax expense as a percentage of pretax income.
11
M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A L Y S I S ( “ M D & A ” )
( C O N T I N U E D )
ANNUAL REPORT - DECEMBER 31, 2012
RESULTS OF OPERATIONS (continued)
For the year ended December 31, 2012, the income tax expense increased from $263,827 to $298,458. This
is mainly due to the increase in taxable income due to items included in profit that are not deductible for the
calculation of taxable income. As a percentage of pretax income, the income tax expense represented 78.2% in
2011 compared to (110.6)% in 2012. Given the tax benefits of the taxable losses in the US operations are not
entirely recognized, an income tax expense was recorded despite the consolidated pretax loss.
($ thousands,
except per share data)
Three month periods ended
Years ended
December 31
2012
December 31 December 31
2012
2011
December 31
2011
(Loss) profit
Basic earnings per share
$ (146)
$ (0.003)
$ (195)
$ (0.005)
$ (568)
$ (0.013)
$ 74
$ 0.002
The Company’s results improved for the fourth quarter of 2012 compared to 2011 mainly due to the increase in
gross profit due to higher sales and the positive variance on foreign exchange movements. The increases were
offset by a significantly higher income tax expense and slightly higher selling and administrative expenses.
The operating results for the year decreased in 2012 compared to 2011 mainly due to the increased expenses
incurred following the business acquisition in the U.S., costs incurred in order to prepare for the growth in the U.S.
operations as well as unfavourable movements in foreign exchange and a higher income tax expense.
Financial Position
December 31, 2012 vs. December 31, 2011
From December 31, 2011 to December 31, 2012, current assets decreased by $ 638,368, mainly due to the
decrease of accounts receivable after part of them were used to finance the purchase of a piece of equipment. Cash
also decreased by $ 116,814 and inventories decreased slightly by $ 15,831. These decreases were offset by the
$ 100,588 increase in prepaid expenses year over year. The Company continued to optimize its inventory level
throughout the year in order to effectively manage its financial position.
Current liabilities decreased by approximately $ 1,193,291, mainly due to the long-term portion of term debt being
included in non-current liabilities, whereas all term debt was included in current liabilities in 2011. The current
portion of long-term debt decreased by approximately $ 2,031,152 year over year. The fair value of the derivative
financial instrument decreased by $ 39,323, due to the lower outstanding notional amount of the underlying debt.
This was offset by the $ 476,628 increase in bank indebtedness and the $ 382,917 increase in trade and other
payables. The current tax liability increased by $ 22,881.
12
M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A L Y S I S ( “ M D & A ” )
( C O N T I N U E D )
ANNUAL REPORT - DECEMBER 31, 2012
SUMMARY OF QUARTERLY RESULTS
Summary financial data derived from the Company’s unaudited quarterly financial statements and audited financial
statements for each of the eight most recently completed quarters are as follows:
For the quarters ending March, June, September and December ($ thousands, except per share data):
Q4/12 Q3/12
Q2/12 Q1/12
Q4/11
Q3/11
Q2/11 Q1/11
12,092
11,157
12,202
11,818
10,601
10,461
11,554
14,343
(146)
(467)
149
(104)
(195)
82
70
117
Sales
Profit (loss)
Earnings (loss) per share:
Basic and diluted
(0.003)
(0.011)
0.003
(0.002)
(0.005)
0.002
0.002
0.003
It is important to note that profitability may vary from quarter to quarter, irrespective of quarterly sales due to many
factors. These factors include and are not limited to: competitive conditions in the businesses in which the Company
participates; general economic conditions and normal business uncertainty; product mix; fluctuations in foreign
currency rates; the availability and costs of raw materials; changes in the Company’s relationship with its suppliers;
and interest rate fluctuations and other changes in borrowing costs.
LIQUIDITY
Working capital as at December 31, 2012 was $ 2,303,260 compared to $ 1,748,337 as at December 31, 2011.
Cash Flows from Operating Activities
Cash flows from operating activities before movements in working capital were $ 362,257 for the fourth quarter
of 2012 compared to approximately $ 278,000 in 2011. For the year ended December 31, 2012, cash flow from
operating activities before movements in working capital decreased by $418,988, which is mainly explained by
the $641,862 decrease in net income from 2011 to 2012. Other elements had an opposite impact of $222,874.
Movements in the Company’s working capital had a positive impact of $ 366,297 in 2012 compared to $ 972,337
in 2011. The Company paid $ 80,860 less in interest, but paid $ 286,247 more in income taxes, for a net effect of
$ 205,387.
The Company also entered into transactions that did not have an impact on cash flow by financing the acquisition
of machinery through the issuance of a credit note, thus reducing trade receivables.
Cash Flows from Financing Activities
Cash outflows relating to financing activities for the fourth quarter of 2012 were the repayment of term debt as per
the original debt repayment schedule of $ 149,776 and the repayments on finance leases of $ 5,820, which were
offset by the increase in bank indebtedness of $ 363,706. In 2011, the cash outflow related to financing activities was
$494,921, due mainly to the receipt of $250,000 in anticipation of the closing of a private placement, the issuance of
subordinated debt of $165,000, which was offset by the reimbursement of long term debt of $550,226, $2,778 on its
finance leases and $356,918 on its bank indebtedness.
For the 2012 fiscal year, the Company had cash inflows for $ 205,196. It repaid $739,642 on its long term borrowings
and $17,274 on finance leases. It increased borrowings on its line of credit by $476,628 and closed a private placement
which generated funds received in 2012 of $485,484. In 2011, the Company had total cash outflows of $2,212,611, as
it repaid $2,403,711 on its borrowings, $13,105 on finance leases and decreased borrowings on its line of credit by
$710,795. These outflows were offset by the closing of a private placement for $500,000 and the receipt of $250,000
in anticipation of the private placement that closed in the first quarter of 2012 and the issuance of subordinated debt
of $165,000.
13
M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A L Y S I S ( “ M D & A ” )
( C O N T I N U E D )
ANNUAL REPORT - DECEMBER 31, 2012
LIQUIDITY (CONTINUED)
Cash Flows from Investing Activities
During the quarter ended December 31, 2012, the Company incurred cash outflows relating to investing activities
mainly for the completion of leasehold improvements. During the fourth quarter of 2011, the Company incurred cash
outflows for investing activities for minor improvements to pieces of equipment. During the year ended December 31,
2012, the Company incurred cash outflows relating to investing activities of $ 1,547,989, representing a cash payment
for a business acquisition of $ 989,500 as well as payments of $ 558,489 for leasehold improvements and expenses
relating to equipment. In 2011, the Company only incurred $ 81,441 of cash outflows relating to investing activities
as no important purchases were required.
CONTRACTUAL OBLIGATIONS
The contractual obligations as at December 31, 2012 were as follows:
($ thousands)
Long-term debt
Finance leases
Operating leases
Bank Indebtedness
Interest rate swap
Payments due by period
Total
Less than 1 year
1 – 5 years
After 5 years
$ 3,730
$ 1,194
$ 2,536
$ -
66
3,433
6,104
10
39
845
6,104
10
27
1,920
-
-
-
668
-
-
Total contractual obligations $ 13,343
$ 8,192
$ 4,483
$ 668
These contractual obligations are sensitive to the fluctuation of interest rates. These obligations are based on
interest rates and foreign exchange rates effective as at December 31, 2012.
CAPITAL RESOURCES
The Company has an operating line of credit with its bankers to a maximum of $ 8,500,000 bearing interest at a rate
of prime plus 2.0%. The line of credit is secured by trade receivables and inventories. As at December 31, 2012, the
Company had drawn $ 6,103,876 on its line of credit ($ 5,627,248 as at December 31, 2011). The Company’s working
capital increased since December 31, 2011, going from $ 1,748,337 to $ 2,303,260, mainly explained by the inclusion
of the long term portion of term debt in non-current liabilities. During the first quarter of 2012, the Company issued
1,935,485 units, each comprising of one common share and one common share purchase warrant entitling the holder
to acquire one additional common share for $0.45, for a consideration of $735,484, of which $250,000 was received
during the course of the fourth quarter of 2011. The Company also invested $ 989,500 in cash for the acquisition
of operations in North Carolina during the first quarter. The Company believes it has sufficient capital to continue
operating efficiently through the liquidity available in its working capital and the liquidity that will be generated by its
operations. Within twelve months, only one bank debt will remain outstanding, in addition to the balance of sale on the
business acquisition. The Company’s current capital structure should therefore enable it to meet all of its short term
obligations. As part of its normal management process, the Company continuously monitors its capital structure and
considers the increase in indebtedness or the issuance of shares as possible options to optimize its capital structure.
14
M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A L Y S I S ( “ M D & A ” )
( C O N T I N U E D )
ANNUAL REPORT - DECEMBER 31, 2012
PROPOSED TRANSACTION
The Company is currently considering a potential business acquisition aimed to increase the Company’s profitability.
There are no agreements currently signed and the Company has no commitment to complete this transaction.
Management is still in the process of determining if the target is a proper fit for the Company’s operations and any
closing is conditional upon obtaining the required financing to complete the transaction.
RELATED PARTY TRANSACTIONS
In the normal course of operations, the Company had routine transactions with related parties. These transactions
are measured at fair value, which is the amount of consideration established and agreed to by the related parties.
The following table reflects the related party transactions recorded for the periods ended December 31, 2012
and 2011. For additional information, please refer to note 26, Related party transactions of the “Notes to the
consolidated financial statements” for the years ended December 31, 2012 and 2011.
($ thousands)
Three month periods ended
Years ended
December 31
2012
December 31 December 31
2012
2011
December 31
2011
Professional fees
Rent
(a)
(b)
$ 101
$ 218
$ 96
$ 182
$ 359
$ 798
$ 263
$ 724
(a) Professional fees include transactions with Polytechnomics Inc., of which Gerald R. Phelps, Imaflex’s Vice-
President – Operations, is the controlling shareholder and with Lavery de Billy L.L.P., of which Philip Nolan, director
of Imaflex, is a partner.
(b) Joseph Abbandonato, Imaflex’s President, Chief Executive Officer and Chairman of the Board, is the controlling
shareholder of Roncon Consultants Inc. (“Roncon”). The Company’s production facilities at Imaflex, Canslit, and
Imaflex USA are leased from Roncon and parties related to Roncon under long-term operating lease agreements (see
“Contractual Obligations”).
CRITICAL ACCOUNTING POLICIES
The Company’s significant accounting policies are disclosed in note 2, Significant accounting policies of the
consolidated financial statements for the years ended December 31, 2012 and 2011. This note explains the Company’s
accounting policies under IFRS.
15
M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A L Y S I S ( “ M D & A ” )
( C O N T I N U E D )
ANNUAL REPORT - DECEMBER 31, 2012
FINANCIAL INSTRUMENTS
Please refer to note 22, Financial instruments of the consolidated financial statements for the years ended December
31, 2012 and 2011 for disclosure on the Company’s financial instruments as well as note 24, Risk management for a
discussion on the risks the Company is exposed to and how they are managed.
As at December 31, 2012, the fair value of the interest rate swap of $ 9,745 (December 31, 2011 – $ 49,068) has been
recorded on the balance sheet under derivative financial instrument, with a charge to the income statement under other
gains and losses for all movements in the fair value of the swap since December 31, 2011. As at December 31, 2012,
the Company is not using any other swap, forward or hedge accounting.
Through the closing of private placements and share-based compensation, as at December 31, 2012, the Company
has 100,000 options to purchase shares of the Company at $0.125 and 3,251,274 warrants entitling the owner to
purchase common shares of the Company at $0.45 outstanding. A maximum of 1,000,000 shares can be issued
if the balance of sale of the recently completed business acquisition is settled in shares as the implied value of the
settlement is USD$ 1 per share.
MANAGEMENT OUTLOOK
Having completed the integration of the business acquired last spring by way of an asset purchase carried-out by our
US entity, management believes the fourth quarter growth is a trend which will continue in 2013.
Research and development efforts that the Company has invested in over the years are on the point of paying off with
new products allowing us to open niche markets as well as allowing us to have a competitive advantage over our
counterparts in competitive areas of the industry.
Management is now primarily focussed on its Canslit division. As stated in prior outlooks, management’s focus
has been on creating the conditions and a sales team to ensure that this division soon becomes profitable again.
Management believes this is imminent and is therefore optimistic about the Company’s future.
OUTSTANDING SHARE DATA
As of the date of this report, the Company had 42,601,276 common shares outstanding (40,665,791 as at December
31, 2011).
RISK FACTORS
The Company is involved in a competitive industry and marketplace in which there are a number of participants.
To effectively manage future growth, the Company continues to improve its operational, financial and management
information systems, procedures and controls. The Company’s success is largely the result of the continued
contributions of its employees and the Company’s ability to attract and retain qualified management, sales and
operational personnel.
16
M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A L Y S I S ( “ M D & A ” )
( C O N T I N U E D )
ANNUAL REPORT - DECEMBER 31, 2012
RISK FACTORS (CONTINUED)
The $25 billion market the Company competes in has historically shown resiliency and growth even at the worst
economic times. The Company’s customers operate predominantly in the food packaging and agricultural markets.
This fact, coupled with the expanding product lines and reliance on newer and faster equipment should help it weather
the potential volatility caused by uncertainty in the North American economic climate.
Factors which can impact the Company include, but are not limited to: management of credit, market dynamics,
liquidity, funding and operational risks; the strength of the Canadian and U.S. economies in which we conduct
business; the impact of the movement of the Canadian dollar relative to other currencies, particularly the U.S. dollar;
the effects of changes in interest rates; the effects of competition in the markets in which we operate; our ability
to successfully align our organization, resources, and processes; the availability and price of raw materials; failure
to achieve planned growth associated with the U.S. expansion; changes in accounting policies and methods we
use to report our financial condition, including uncertainties associated with critical accounting assumptions and
estimates; operational and infrastructure risks; other factors may affect future results including, but not limited to,
timely development and introduction of new products and services, changes in tax laws, technological changes, new
regulations; the possible impact on our businesses from public-health emergencies, international conflicts and other
developments; and our success in anticipating and managing the foregoing risks.
Additional information relating to our Company, including our Annual Report, can be found on SEDAR at
www.sedar.com.
Joseph Abbandonato
Giancarlo Santella, CPA, CA
President and Chief Executive Officer
Corporate Controller
April 16, 2013
For investor information, contact
JOSEPH ABBANDONATO
President and Chief Executive Officer
514 935-5710
17
5710 Notre-Dame West, Montreal, Quebec, Canada H4C 1V2
Telephone: 514 935-5710 | Fax: 514 935-0264
Email: info@imaflex.com
www.imaflex.com
Consolidated Financial Statements of
IMAFLEX INC.
Years ended December 31, 2012 and 2011
1
Deloitte LLP
1 Place Ville Marie
Suite 3000
Montreal QC H3B 4T9
Canada
Tel: 514-393-5194
Fax: 514-390-4104
www.deloitte.ca
INDEPENDENT AUDITOR’S REPORT
To the Shareholders of Imaflex Inc.
We have audited the accompanying consolidated financial statements of Imaflex Inc., which comprise the
consolidated statements of financial position as at December 31, 2012 and 2011, and the consolidated
statements of comprehensive (loss) income, the consolidated statements of changes in equity and the
consolidated statements of cash flows for the years ended December 31, 2012 and 2011, and a summary of
significant accounting policies and other explanatory information.
Management's Responsibility for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of these consolidated financial
statements in accordance with International Financial Reporting Standards, and for such internal control as
management determines is necessary to enable the preparation of consolidated financial statements that are
free from material misstatement, whether due to fraud or error.
Auditor's Responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with Canadian generally accepted auditing standards. Those
standards require that we comply with ethical requirements and plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are free from material
misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the
consolidated financial statements. The procedures selected depend on the auditor's judgment, including the
assessment of the risks of material misstatement of the consolidated financial statements, whether due to
fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's
preparation and fair presentation of the consolidated financial statements in order to design audit procedures
that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the entity's internal control. An audit also includes evaluating the appropriateness of
accounting policies used and the reasonableness of accounting estimates made by management, as well as
evaluating the overall presentation of the consolidated financial statements.
We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide a
basis for our audit opinion.
Opinion
In our opinion, the consolidated financial statements present fairly, in all material respects, the financial
position of Imaflex Inc. as at December 31, 2012 and 2011, and its financial performance and its cash flows
for the years ended December 31, 2012 and 2011 in accordance with International Financial Reporting
Standards.
____________________
1 CPA auditor, CA, public accountancy permit No. A109522
April 16, 2013
Consolidated statements of comprehensive (loss) income
for the years ended
(in Canadian dollars)
December 31,
2012
2011
Revenue
Cost of sales
Gross profit
Expenses:
Selling
Administrative
Finance costs
Other gains and losses
Other
(Note 5.1)
$ 47,268,941
42,464,524
4,804,417
$ 46,958,781
41,857,705
5,101,076
(Note 8)
(Note 9)
1,207,676
3,058,410
509,179
192,768
106,137
5,074,170
1,232,916
3,089,853
555,875
(156,889)
41,843
4,763,598
(Loss) profit before income taxes
(269,753)
337,478
Income taxes
(LOSS) PROFIT
(Note 10)
298,458
263,827
(568,211)
73,651
Other comprehensive income
Exchange differences on translating foreign
operation
(72,013)
66,499
TOTAL COMPREHENSIVE (LOSS) INCOME
$(640,224)
$140,150
(Loss) earnings per share
Basic and diluted
(Note 11)
$ (0.013)
$ 0.002
The accompanying notes are an integral part of these consolidated financial statements.
4
Consolidated statements of financial position
As at
(in Canadian dollars)
Assets
Current assets
Cash
Trade and other receivables
Inventories
Prepaid expenses
Total current assets
Non-current assets
Property, plant and equipment
Intangible assets
Total assets
Equity and liabilities
Current liabilities
Bank Indebtedness
Trade and other payables
Derivative financial instrument
Current tax liabilities
Long-term debt, current portion
Finance leases, current portion
Total current liabilities
Non-current liabilities
Long-term debt
Deferred tax liabilities
Finance leases
Total non-current liabilities
Total liabilities
Capital and reserves
Share capital
Reserves
Retained earnings
Total equity
December 31,
2012
December 31,
2011
(Note 12)
(Note 13)
$ 126,994
8,745,313
6,875,974
113,177
15,861,458
$ 243,808
9,351,624
6,891,805
12,589
16,499,826
(Note 14)
(Note 15)
15,493,915
640,920
16,134,835
14,602,453
-
14,602,453
$ 31,996,293
$ 31,102,279
(Note 17)
(Note 16)
(Note 17)
(Notes 17, 18)
(Note 17)
(Note 10)
(Notes 17, 18)
6,103,876
6,133,508
9,745
173,268
1,101,425
36,376
13,558,198
2,372,085
1,269,090
25,263
3,666,438
5,627,248
5,750,591
49,068
150,387
3,132,577
41,618
14,751,489
165,000
1,259,393
-
1,424,393
17,224,636
16,175,882
(Note 19)
8,568,452
655,967
5,547,238
14,771,657
8,092,323
718,625
6,115,449
14,926,397
Total equity and liabilities
$ 31,996,293
$ 31,102,279
Operating lease commitments (Note 23.3)
The accompanying notes are an integral part of these consolidated financial statements.
(s) Joseph Abbandonato
Joseph Abbandonato
Director
(s) Gilles Émond
Gilles Émond
Director
5
Consolidated statements of changes in equity
(in Canadian dollars)
Share
capital
$ 7,829,165
Share-based
compensation
$ 322,500
Reserves
Accumulated
Foreign
currency
translation Warrants
$ (167,615) $
-
-
-
-
-
-
-
-
66,499
66,499
-
-
-
263,158
-
-
10,399
-
-
236,842
-
Other
$
-
Total
Reserves
$ 154,885
Retained
Earnings
$ 6,041,798 $ 14,025,848
Total
-
-
-
-
-
-
73,651
73,651
66,499
66,499
-
73,651
66,499
140,150
236,842
10,399
-
-
500,000
10,399
Balance at January 1, 2011
Profit for the year
Exchange differences on translating
foreign operation
Issuance of share capital and warrants
(Note 19)
Share-based compensation (Note 20)
Future issuance of shares and warrants
(Note 19)
Balance at December 31, 2011
-
$8,092,323
-
$ 332,899
-
$ (101,116)
-
$ 236,842
250,000
$ 250,000
250,000
$ 718,625
-
$ 6,115,449
250,000
$ 14,926,397
Loss for the year
Exchange differences on translating
foreign operation
Issuance of share capital and warrants
-
-
-
-
-
-
-
(72,013)
(72,013)
-
-
-
-
-
-
-
(568,211)
(568,211)
(72,013)
(72,013)
-
(568,211)
(72,013)
(640,224)
(Note 19)
Balance at December 31, 2012
476,129
$8,568,452
-
$ 332,899
-
$ (173,129)
259,355
$ 496,197
(250,000)
$
-
9,355
$ 655,967
485,484
$ 5,547,238 $ 14,771,657
-
The accompanying notes are an integral part of these consolidated financial statements.
6
Consolidated statements of cash flows
for the years ended
(in Canadian dollars)
Cash flows from operating activities:
(Loss) profit for the year
Income tax expense
Change in fair value of derivative financial instrument
Depreciation of property, plant and equipment and intangible assets
Finance costs
Share-based compensation
Unrealized foreign exchange loss (gain)
Movements in working capital
Decrease (increase) in trade and other receivables
Decrease in inventories
(Increase) decrease in prepaid expenses
(Decrease) in trade payables and provisions
Cash generated by operations
Interest paid
Net income taxes (paid) received
Net cash generated by operating activities
Cash flows from investing activities:
Business acquisition (Note 27)
Payments for property, plant and equipment
Increase in deposits for property and equipment
Net cash used in investing activities
Cash flows from financing activities:
Increase (decrease) in bank indebtedness
Increase in long-term debt
Repayment of long-term debt
Issuance of share capital and warrants
Future issuance of shares and warrants
Repayment of finance leases
Net cash generated by (used in) financing activities
Net (decrease) increase in cash
Cash, beginning of the year
Effects of exchange rate changes on the balance of cash held in
foreign currencies
Cash, end of the year
Non cash transactions (Note 21)
December 31,
2012
2011
$ (568,211)
298,458
(38,441)
1,261,483
509,179
-
135,133
1,597,601
$ 73,651
263,827
(62,352)
1,309,689
555,875
10,399
(134,500)
2,016,589
228,238
291,745
(101,174)
(52,512)
366,297
1,963,898
(470,120)
(265,880)
1,227,898
(1,032,073)
2,127,925
1,711
(125,226)
972,337
2,988,926
(550,980)
20,367
2,458,313
(989,500)
(558,489)
-
(1,547,989)
-
(69,206)
(12,235)
(81,441)
476,628
-
(739,642)
485,484
-
(17,274)
205,196
(710,795)
165,000
(2,403,711)
500,000
250,000
(13,105)
(2,212,611)
(114,895)
164,261
243,808
82,031
(1,919)
(2,484)
$ 126,994
$ 243,808
The accompanying notes are an integral part of these consolidated financial statements.
7
Notes to the consolidated financial statements
for the years ended December 31 2012 and 2011
1. General information
Imaflex Inc. (“Imaflex” or “the Company”) is incorporated under the Canada Business Corporations Act. Its
registered office and headquarters are located at 5710 Notre-Dame Street West, Montreal, Quebec, Canada.
The principal activities of the Company consist in the manufacture and sale of products for the flexible
packaging industry, including polyethylene film and bags, as well as the metallization of plastic film for the
plasticulture and packaging industries. The common shares of the Company are listed for trading on the
TSX Venture Exchange under the symbol “IFX”.
2. Significant accounting policies
The accounting policies set out below have been applied consistently to all periods presented in these
consolidated financial statements.
2.1 Statement of compliance
The consolidated financial statements have been prepared in accordance with International Financial
Reporting Standards (“IFRS”) issued by the International Accounting Standards Board (“IASB”) and in
effect on December 31, 2012. The designation IFRS also includes the revised International Accounting
Standards (“IAS”) and the interpretations of the International Financial Reporting Interpretations Committee
(“IFRIC”).
2.2 Basis of preparation
The consolidated financial statements have been prepared using the historical cost basis except for the
revaluation of certain financial instruments at their fair value. Historical cost is generally based on the fair
value of the consideration given in exchange for assets. The Company elected to present the statement of
(loss) income and the statement of comprehensive (loss) income in the same statement and chose to present
expenses by function, which is how information is presented for internal reporting purposes and is consistent
with how management views and manages expenses in its operations. The statement of cash flows has been
prepared using the indirect method. The principal accounting policies are set out below.
2.3 Basis of consolidation
The consolidated financial statements include the accounts of the Company and its subsidiary Imaflex USA
Inc. (“Imaflex USA”), a wholly owned entity. All intercompany transactions and balances are eliminated on
consolidation.
2.4 Foreign currencies
The functional currency is the currency of the primary economic environment in which an entity operates.
The separate financial statements of the entities that are consolidated into the Company’s financial
statements are prepared in their individual functional currency. For the purpose of these consolidated
financial statements, the results and financial position are expressed in Canadian dollars (“CAD”), the
functional currency of Imaflex Inc. and the presentation currency for the consolidated financial statements.
8
Notes to the consolidated financial statements
for the years ended December 31 2012 and 2011
2. Significant accounting policies (continued)
2.4 Foreign currencies (continued)
The assets and liabilities of the Company’s foreign subsidiary, Imaflex USA, whose functional currency is
the US dollar (“USD”), are translated at the exchange rate in effect at the date of the consolidated statement
of financial position. Revenues and expenses are translated at the exchange rates in effect on the dates on
which such items are recognized into income during the period. Exchange gains or losses arising from the
translation of Imaflex USA’s financial statements are recognized as accumulated foreign currency
translation within Reserves.
In preparing the financial statements of the individual entities, transactions in currencies other than the
entity’s functional currency are recorded at the average exchange rate during the year. If exchange rates
fluctuated significantly within these periods, exchange rates in effect on the date of the transactions are used.
Monetary items denominated in foreign currencies are translated at the exchange rate prevailing at the end of
the reporting period. Non-monetary items carried at fair value that are denominated in foreign currencies are
translated at the rate prevailing at the date when the fair value was determined.
2.5 Revenue recognition
Revenue is measured at the fair value of the consideration received or receivable and is recognized when all
the following conditions are satisfied:
•
•
•
•
•
Imaflex has transferred to the buyer the significant risks and rewards of ownership of the goods;
Imaflex retains neither continuing managerial involvement to the degree usually associated with
ownership nor effective control over the goods sold;
the amount of revenue can be measured reliably;
it is probable that the economic benefits associated with the transaction will flow to the Company; and
the costs incurred or to be incurred in respect of the transaction can be measured reliably.
2.6 Income Tax
Income tax expense represents the sum of the tax currently payable and deferred tax. The tax currently
payable is based on taxable profit for the year. Taxable profit differs from profit as reported in the
consolidated statement of comprehensive (loss) income because of items of income or expense that are
taxable or deductible in other years and items that are never taxable or deductible. The Company’s liability
for current tax is calculated using tax rates that have been enacted or substantively enacted by the end of the
reporting period.
Deferred tax is recognized on temporary differences between the carrying amounts of assets and liabilities in
the financial statements and the corresponding tax basis used in the computation of taxable profit. Deferred
tax liabilities are generally recognized for all taxable temporary differences. Deferred tax assets are generally
recognized for all deductible temporary differences to the extent that it is probable that taxable profits will be
available against which those deductible temporary differences can be utilized.
9
Notes to the consolidated financial statements
for the years ended December 31 2012 and 2011
2. Significant accounting policies (continued)
2.6 Income Tax (continued)
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the period in
which the liability is settled or the asset realized, based on tax rates that have been enacted or substantively
enacted by the end of the reporting period. The measurement of deferred tax liabilities and assets reflects the
tax consequences that would follow from the manner in which the Company expects, at the end of the
reporting period, to recover or settle the carrying amount of its assets and liabilities.
Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax
assets against current tax liabilities, when they relate to income taxes levied by the same taxation authority
and when the Company intends to settle its current tax assets and liabilities on a net basis.
Current and deferred taxes are recognized as an expense or income in profit or loss, except when they relate
to items that are recognized outside profit or loss (whether in other comprehensive income or directly in
equity), in which case the tax is also recognized outside profit or loss.
2.7 Earnings per share
Earnings per share are calculated by dividing net earnings available for common shareholders by the
weighted average number of common shares outstanding during the period. Diluted earnings per share are
calculated by taking into consideration potentially issuable shares that would have a dilutive effect on the
earnings per share using the treasury stock method.
2.8 Financial assets and financial liabilities
Financial assets and financial liabilities are recognized when the Company becomes a party to the
contractual provisions of the instrument and initially measured at fair value. Transaction costs directly
attributable to the acquisition of financial assets or liabilities at fair value through profit or loss are
recognized immediately in profit or loss. Transaction costs directly attributable to the acquisition or issue of
financial assets and liabilities other than at fair value through profit or loss are added to or deducted from
their fair value, as appropriate, on initial recognition.
Financial assets are classified into the following specified categories:
•
•
•
fair value through profit or loss (FVTPL)
available-for-sale (AFS)
loans and receivables
The classification depends on the nature and purpose of the financial assets and is determined at the time of
initial recognition.
Financial assets are classified as FVTPL when the financial asset is either held for trading or it is designated
as FVTPL. The Company’s cash and trade receivables are classified as loans and receivables. Loans and
receivables are measured at amortized cost using the effective interest method, less any impairment.
10
Notes to the consolidated financial statements
for the years ended December 31 2012 and 2011
2. Significant accounting policies (continued)
2.8 Financial assets and financial liabilities (continued)
Impairment of financial assets
Financial assets, other than those at FVTPL, are assessed for indications of impairment on a regular basis.
Financial assets are considered to be impaired when there is objective evidence that, as a result of one or
more events that occurred after the initial recognition of the financial asset, the estimated future cash flows
of the asset have been affected.
Trade receivables that are assessed not to be impaired individually are, in addition, assessed for impairment
on a collective basis. Objective evidence of impairment for a portfolio of receivables could include past
experience of collecting payments, an increase in the number of delayed payments in the portfolio past the
average credit period, as well as observable changes in economic conditions that correlate with default on
receivables.
The carrying amount for most financial assets is reduced by the impairment loss directly. For trade
receivables, the carrying amount is reduced through the use of an allowance account. When a trade
receivable is considered uncollectible, it is written off against the allowance account. Subsequent recoveries
of amounts previously written off are credited against the allowance account. Changes in the carrying
amount of the allowance account are recognized in profit or loss.
Debt and equity instruments are classified as either financial liabilities or as equity in accordance with the
substance of the contractual arrangement. Financial liabilities are classified into the following specified
categories:
at FVTPL
•
• other financial liabilities
Other financial liabilities, including long term debt, are initially measured at fair value, net of transaction
costs, and then decreased by any principal payments made.
The Company derecognizes financial liabilities when, and only when, the Company’s obligations are
discharged, cancelled or they expire.
The issuance cost of debt is included as part of long term debt and is recorded at amortized cost, using the
effective interest method. The issuance cost of equity is presented in the statement of changes in equity as a
reduction of the proceeds received.
2.9 Inventories
Inventories are stated at the lower of cost and net realizable value. Costs, including an appropriate portion of
fixed and variable overhead expenses, are assigned to inventories by the method most appropriate to the
particular class of inventory, being valued on a first-in-first-out basis. Net realizable value represents the
estimated selling price for inventories less all estimated costs of completion necessary to make the sale.
2.10 Property, plant and equipment
Production equipment, office equipment and computer equipment are stated at cost less accumulated
depreciation and accumulated impairment losses. Depreciation of these assets, on the same basis as other
property assets, commences when the assets are ready for their intended use.
11
Notes to the consolidated financial statements
for the years ended December 31 2012 and 2011
2. Significant accounting policies (continued)
2.10 Property, plant and equipment (continued)
Depreciation is recognized so as to write off the cost of assets less their residual values over their useful
lives, using the straight-line method. The estimated useful lives, residual values and depreciation method are
reviewed at each year end, with the effect of any changes in estimate accounted for on a prospective basis.
Asset
Production equipment
Office equipment
Computer equipment
Basis
Straight-line
Straight-line
Straight-line
Period
20 years
5 years
3 years
Leasehold improvements are amortized on a straight-line basis over the lesser of the terms of the leases or
their useful lives.
An item of property, plant and equipment is derecognised upon disposal or when no future economic
benefits are expected to arise from the continued use of the asset. The gain or loss arising on the disposal or
retirement of an item of property, plant and equipment is determined as the difference between the sales
proceeds and the carrying amount of the asset and is recognized in profit or loss.
Assets under finance lease
Assets held under finance leases are depreciated over their expected useful lives on the same basis as owned
assets or, where shorter, the term of the relevant lease.
Impairment
At each reporting date, or sooner if there is an indication that an asset may be impaired, the Company
reviews the carrying amounts of its assets for each cash generating unit identified to determine whether there
is any indication that those assets have suffered an impairment loss. If any such indication exists, the
recoverable amount of the asset is estimated in order to determine the extent of the impairment loss, if any.
When it is not possible to estimate the recoverable amount of an individual asset, the Company estimates the
recoverable amount of the cash-generating unit to which the asset belongs.
The recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in
use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that
reflects current market assessments of the time value of money and the risks specific to the assets for which
the estimates of future cash flows have not been adjusted. If the recoverable amount of the assets is
estimated to be less than their carrying amount, the carrying amount is reduced to the recoverable amount.
An impairment loss is recognized immediately in profit or loss.
Where an impairment loss subsequently reverses, the carrying amount of the assets is increased to the
revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the
carrying amount that would have been determined had no impairment loss been recognized for the asset in
prior years. A reversal of an impairment loss is recognized immediately in profit or loss.
2.11 Intangible assets
Intangible assets acquired in a business combination and recognised separately from goodwill are initially
recognised at their fair value at the acquisition date, which is regarded as their cost. Subsequent to initial
recognition, intangible assets acquired in a business combination are reported at cost less accumulated
amortisation and accumulated impairment losses.
12
Notes to the consolidated financial statements
for the years ended December 31 2012 and 2011
2. Significant accounting policies (continued)
2.11 Intangible assets (continued)
An intangible asset is derecognised on disposal, or when no future economic benefits are expected from its
use or disposal. Gains or losses arising from the derecognition of an intangible asset, measured as the
difference between the net disposal proceeds and the carrying amount of the asset, are recognised in profit or
loss when the asset is derecognised.
2.12 Impairment of intangible assets other than goodwill
At the end of each reporting period, Imaflex reviews the carrying amounts of its intangible assets to
determine whether there is any indication that those assets have suffered an impairment loss. If any such
indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the
impairment loss. When it is not possible to estimate the recoverable amount of an individual asset, the
Company estimates the recoverable amount of the cash-generating unit to which the asset belongs.
Intangible assets with indefinite useful lives and intangible assets not yet available for use are tested for
impairment at least annually, and whenever there is an indication that the asset may be impaired. The asset’s
recoverable amount is the higher of its fair value less costs to sell and its value in use. In assessing value in
use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that
reflects current market assessments of the time value of money and the risks specific to the asset for which
the estimates of future cash flows have not been adjusted.
If the recoverable amount of an asset is estimated to be less than its carrying amount, the carrying amount of
the asset is reduced to its recoverable amount. An impairment loss is recognised immediately in profit or
loss, unless the relevant asset is carried at a revalued amount, in which case the impairment loss is treated as
a revaluation decrease.
When an impairment loss subsequently reverses, the carrying amount of the asset is increased to the revised
estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying
amount that would have been determined had no impairment loss been recognised for the asset in prior
years. A reversal of an impairment loss is recognised immediately in profit or loss, unless the relevant asset
is carried at a revalued amount, in which case the reversal of the impairment loss is treated as a revaluation
increase.
2.13 Borrowing costs
Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets,
which are assets that necessarily take a substantial period of time to get ready for their intended use or sale,
are added to the cost of those assets, until such time as the assets are substantially ready for their intended
use or sale.
Investment income earned on the temporary investment of specific borrowings pending their expenditure on
qualifying assets is deducted from the borrowing costs eligible for capitalization.
All other borrowing costs are recognized in profit or loss in the period in which they are incurred.
13
Notes to the consolidated financial statements
for the years ended December 31 2012 and 2011
2. Significant accounting policies (continued)
2.14 Business combinations
Acquisitions of businesses are accounted for using the acquisition method. The consideration transferred in a
business combination is measured at fair value, which is calculated as the sum of the acquisition-date fair
values of the assets transferred by the Company, liabilities incurred by the Company to the former owners of
the acquiree and the equity interests issued by the Company in exchange for control of the acquiree.
Acquisition-related costs are generally recognized in profit or loss as incurred.
At the acquisition date, the identifiable assets acquired and the liabilities assumed are recognized at their fair
value.
Goodwill is measured as the excess of the sum of the consideration transferred, the amount of any non-
controlling interests in the acquiree, and the fair value of the acquirer's previously held equity interest in the
acquiree (if any) over the net of the acquisition-date amounts of the identifiable assets acquired and the
liabilities assumed. If, after reassessment, the net of the acquisition-date amounts of the identifiable assets
acquired and liabilities assumed exceeds the sum of the consideration transferred, the amount of any non-
controlling interests in the acquiree and, if applicable, the fair value of the acquirer's previously held interest
in the acquiree, the excess is recognised immediately in profit or loss as a bargain purchase gain.
When the consideration transferred by the Company in a business combination includes assets or liabilities
resulting from a contingent consideration arrangement, the contingent consideration is measured at its
acquisition-date fair value and included as part of the consideration transferred in a business combination.
Changes in the fair value of the contingent consideration that qualify as measurement period adjustments are
adjusted retrospectively, with corresponding adjustments against goodwill. Measurement period adjustments
are adjustments that arise from additional information obtained during the ‘measurement period’, which
cannot exceed one year from the acquisition date, about facts and circumstances that existed at the
acquisition date.
The subsequent accounting for changes in the fair value of the contingent consideration that do not qualify
as measurement period adjustments depends on how the contingent consideration is classified. Contingent
consideration that is classified as equity is not remeasured at subsequent reporting dates and its subsequent
settlement is accounted for within equity. Contingent consideration that is classified as an asset or a liability
is remeasured at subsequent reporting dates.
2.15 Goodwill
Goodwill arising on an acquisition of a business is carried at cost as established at the date of acquisition of
the business less accumulated impairment losses, if any.
For the purposes of impairment testing, goodwill is allocated to each of the Company's cash-generating units
or groups of cash-generating units that is expected to benefit from the synergies of the combination.
A cash-generating unit to which goodwill has been allocated is tested for impairment annually, or more
frequently when there is indication that the unit may be impaired. If the recoverable amount of the cash-
generating unit is less than its carrying amount, the impairment loss is allocated first to reduce the carrying
amount of any goodwill allocated to the unit and then to the other assets of the unit pro rata based on the
carrying amount of each asset in the unit. Any impairment loss for goodwill is recognized directly in profit
or loss in the consolidated statement of comprehensive income. An impairment loss recognized for goodwill
is not reversed in subsequent periods.
14
Notes to the consolidated financial statements
for the years ended December 31 2012 and 2011
2. Significant accounting policies (continued)
2.16 Derivative financial instrument
The interest rate swap is a derivative financial instrument which was initially recognized at fair value at the
date the derivative contract was entered into and is subsequently remeasured to fair value at the end of each
reporting period. The resulting gain or loss is recognized in profit or loss immediately.
The derivative financial instrument is recognized as a financial asset when it has a positive fair value and as
a financial liability when it has a negative fair value.
2.17 Leasing
Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and
rewards of ownership to the lessee. All other leases are classified as operating leases.
Assets held under finance leases are initially recognized as assets of the Company at their fair value at the
inception of the lease or, if lower, at the present value of the minimum lease payments. The corresponding
liability to the lessor is included in the consolidated statement of financial position as a finance lease
obligation.
Lease payments are apportioned between finance expenses and reduction of the lease obligation so as to
achieve a constant rate of interest on the remaining balance of the liability. Finance expenses are recognized
immediately in profit or loss, unless they are directly attributable to qualifying assets, in which case they are
capitalized in accordance with the Company's general policy on borrowing costs. Contingent rentals are
recognized as expenses in the periods in which they are incurred.
Operating lease payments are recognized as an expense on a straight-line basis over the lease term, except
where another systematic basis is more representative of the time pattern in which economic benefits from
the leased asset are consumed. Contingent rentals arising under operating leases are recognized as an
expense in the period in which they are incurred.
2.18 Provisions
Provisions are recognized when the Company has a present obligation, legal or constructive, as a result of a
past event, it is probable that the Company will be required to settle the obligation, and a reliable estimate
can be made of the amount of the obligation. The amount recognized as a provision is the best estimate of
the consideration required to settle the present obligation at the end of the reporting period, taking into
account the risks and uncertainties surrounding the obligation.
2.19 Share-based compensation
Equity-settled share-based compensation to employees is measured at the fair value of the financial
instruments at the grant date, estimated using the Black-Scholes option pricing model.
The fair value determined at the grant date of the equity-settled share-based compensation is expensed over
the vesting period with a corresponding increase in contributed surplus.
Imaflex has not issued any share-based compensation to non-employees nor did it issue any share-based
compensation to be settled in cash.
15
Notes to the consolidated financial statements
for the years ended December 31 2012 and 2011
3. Future accounting changes
The following new and revised IFRSs have been issued but are not yet effective and are not yet applied by
the Company.
Financial instruments
IFRS 9, issued in November 2009, introduced new requirements for the classification and measurement of
financial assets. IFRS 9 was amended in October 2010 to include requirements for the classification and
measurement of financial liabilities and for derecognition.
IFRS 9, effective as of January 1, 2015, requires that all recognised financial assets that are within the scope
of IAS 39 Financial Instruments: Recognition and Measurement be subsequently measured at amortised
cost or fair value. Specifically, debt investments whose objective is to collect the contractual cash flows that
are solely payments of principal and interest on the principal outstanding are to be measured at amortised
cost at the end of the reporting periods. All other debt investments and equity investments are measured at
their fair value at the end of the reporting period. In addition, under IFRS 9, entities may make an
irrevocable election to present subsequent changes in the fair value of an equity investment that is not held
for trading in other comprehensive income, with only dividend income generally recognised in profit or loss.
With regard to the measurement of financial liabilities designated as fair value through profit or loss, IFRS 9
requires that the amount of change in the fair value of the financial liability attributable to changes in that
liability’s credit risk be presented in other comprehensive income, unless such presentation would create or
enlarge an accounting mismatch in profit or loss. Changes in fair value attributable to a financial liability's
credit risk are not subsequently reclassified to profit or loss. Previously, under IAS 39, the entire amount of
the change in the fair value of the financial liability designated as fair value through profit or loss was
presented in profit or loss.
The application of IFRS 9 may have an impact on the Company’s financial statements however the
Company has not yet assessed its extent.
Consolidation
In May 2011, a package of five Standards on consolidation, joint arrangements, associates and disclosures
was issued, including IFRS 10, IFRS 11, IFRS 12, IAS 27, as revised in 2011, and IAS 28, as revised in
2011, effective as of January 1, 2013.
IFRS 10 replaces the parts of IAS 27 Consolidated and Separate Financial Statements that deal with
consolidated financial statements. SIC-12 Consolidation – Special Purpose Entities will be withdrawn upon
the effective date of IFRS 10. Under IFRS 10, control is the only basis for consolidation. Under IFRS 10, the
definition of control contains three elements: power over an investee, exposure, or rights, to variable returns
from its involvement with the investee, and the ability to use its power over the investee to affect the amount
of the investor's returns.
IFRS 11 will replace IAS 31 Interests in Joint Ventures. IFRS 11 deals with how a joint arrangement over
which two or more parties have joint control should be classified. SIC-13 Jointly Controlled Entities – Non-
monetary Contributions by Venturers will be withdrawn upon the effective date of IFRS 11. Under IFRS 11,
joint arrangements are classified as joint operations or joint ventures, depending on the rights and obligations
of the parties to the arrangements as opposed to the three types of joint arrangements existing under IAS 31.
In addition, joint ventures under IFRS 11 are required to be accounted for using the equity method of
accounting.
16
Notes to the consolidated financial statements
for the years ended December 31 2012 and 2011
3. Future accounting changes (continued)
Consolidation (continued)
IFRS 12 is a disclosure standard and is applicable to entities that have interests in subsidiaries, joint
arrangements, associates or unconsolidated structured entities. In general, the disclosure requirements in
IFRS 12 are more extensive than those in the current standards.
In June 2012, the amendments to IFRS 10, IFRS 11 and IFRS 12 were issued to clarify certain transitional
guidance on the application of these IFRSs for the first time. These five standards together with the
amendments regarding the transition guidance are effective for annual periods beginning on or after
January 1, 2013, with earlier application permitted provided all of these standards are applied at the same
time.
Management does not expect the application of IFRS 10, IFRS 11 and IFRS 12 to have a material impact on
the presentation of its financial statements.
Fair value measurement
IFRS 13 establishes a single source of guidance for fair value measurements and disclosures about fair value
measurements. The Standard defines fair value, establishes a framework for measuring fair value and
requires disclosures about fair value measurements. The scope of IFRS 13 is broad and applies to both
financial instrument items and non-financial instrument items for which other IFRSs require or permit fair
value measurements and disclosures about fair value measurements, except in specified circumstances. In
general, the disclosure requirements in IFRS 13 are more extensive than those required in the current
standards.
IFRS 13 is effective for annual periods beginning on or after January 1, 2013, with earlier application
permitted.
The Company does not expect the application of IFRS 13 to have a material impact on amounts reported in
its financial statements although it may require additional disclosure in the presentation of its financial
statements.
Offsetting Financial Assets and Financial Liabilities and the related disclosures
New disclosure requirements that are intended to help investors and other users to better assess the effects or
potential effects of offsetting arrangements on a company’s statement of financial position have been issued
on December 16, 2011. The new requirements are set out in Disclosures-Offsetting Financial Assets and
Financial Liabilities (Amendments to IFRS 7). The IFRS 7 amendments are effective for annual reporting
periods beginning on or after January 1, 2013.
The Company does not expect the application of IFRS 7 to have a material impact on amounts reported in its
financial statements although it may require additional disclosure in the presentation of its financial
statements.
17
Notes to the consolidated financial statements
for the years ended December 31 2012 and 2011
4. Critical accounting judgements and key sources of estimation uncertainty
The preparation of these financial statements in conformity with IFRS and the application of the Company’s
accounting policies described in note 2, required management to make judgements, estimates and
assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other
sources. The estimates and associated assumptions are based on historical experience and other factors that
are considered to be relevant. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting
estimates are recognized in the period in which the estimate is revised if the revision affects only that period,
or in the period of the revision and future periods if the revision affects both current and future periods.
4.1 Critical judgements in applying accounting policies
The following are the critical judgements, apart from those involving estimations, that management has
made in the process of applying the Company's accounting policies and that have the most significant effect
on the amounts recognized in the consolidated financial statements.
Cash generating units
Management has identified only one cash generating unit (“CGU”) for Imaflex. Revenue generated by the
Company’s various product lines and facilities are generated through a single sales force whose ability to
cross sell products influences the level of sale for each product line.
4.2 Key sources of estimation uncertainty
The following are the key assumptions concerning the future, and other key sources of estimation
uncertainty at the end of the reporting period that have a significant risk of causing a material adjustment to
the carrying amounts of assets and liabilities within the next financial year.
Allowance for doubtful accounts
The Company analyzes its trade receivables on an account by account basis and on a portfolio basis. Any
impairment recognized on these assets is based on historical experience and management’s best estimate of
the recoverability of the account receivable.
Inventory
The Company analyzes its inventory in order to assess the carrying amount of inventory. This assessment is
based on management’s knowledge of the market and experience regarding obsolescence and valuation of
inventory.
Useful lives of property, plant and equipment
The Company reviews the estimated useful lives of property, plant and equipment at the end of each annual
reporting period in order to ensure that the amortization method used is appropriate.
Impairment of long-lived assets
The Company performs impairment tests on its long-lived assets by comparing the carrying amount of the
assets to their recoverable amount, which is calculated as the higher of the asset’s fair value less costs to sell
and its value in use. Value in use is calculated based on a discounted cash flow analysis, which requires the
use of estimates of future cash flow and discount rates. The Company also uses judgement to determine
whether it identifies any triggering event that may indicate that the long-lived assets have been impaired.
18
Notes to the consolidated financial statements
for the years ended December 31 2012 and 2011
4. Critical accounting judgements and key sources of estimation uncertainty (continued)
4.2 Key sources of estimation uncertainty (continued)
Income taxes
Management uses judgement and estimates in determining the appropriate rates and amounts in recording
deferred income taxes, giving consideration to timing and probability of realization. Actual taxes could
significantly vary from these estimates as a result of a variety of factors including future events, changes in
income tax laws or the outcome of reviews by tax authorities and related appeals. The resolution of these
uncertainties and the associated final taxes payable may result in adjustments to the Company’s deferred and
current tax assets and liabilities.
Warrants
The Company issues from time to time equity instruments, comprised of common shares and warrants.
Estimates based on market inputs are required in determining the attribution of gross proceeds received
between the different instruments issued.
Business combinations
In order to complete the purchase price allocation for the business combination concluded during the year,
management used judgement and used estimates in order to determine the value of the customer
relationships acquired through the business combination as well as the goodwill recorded as part of the
business combination.
5. Segment information
The Company operates in one reportable segment, comprising the development, manufacture and sale of
flexible packaging material in the form of film or bags, for various uses.
5.1 Revenues by geographical end market
The Company’s revenues by geographical end market are as follows:
Canada
United States
Other
Total
Year ended
December 31,
2012
$ 24,179,722
22,803,435
285,784
$ 47,268,941
December 31,
2011
$ 27,453,846
19,098,568
406,367
$ 46,958,781
5.2 Property, plant and equipment, and intangible assets net, per geographic location
Canada
United States
Total
December 31,
2012
December 31,
2011
$ 6,214,416
9,920,419
$ 6,816,452
7,786,001
$ 16,134,835
$ 14,602,453
19
Notes to the consolidated financial statements
for the years ended December 31 2012 and 2011
6. Additional information on the consolidated statements of comprehensive (loss) income
The Company’s consolidated statement of comprehensive (loss) income includes depreciation of production
equipment of $ 1,039,086 for the year ended December 31, 2012 ($ 991,819 in 2011) classified in cost of
sales. Depreciation of other property, plant and equipment and amortization of intangible assets amounting
to $ 222,397 for the year ended December 31, 2012 ($ 317,870 in 2011) is included in administrative
expenses.
The Company’s consolidated statement of comprehensive (loss) income includes salaries paid to its
employees of $ 5,643,441 for the year ended December 31, 2012 ($ 4,480,762 in 2011) classified in cost of
sales. Administrative expenses include salaries paid to employees of $ 986,030 for the year ended December
31, 2012 ($ 848,792 in 2011) and selling expenses include salaries paid to employees of $360,178 for the
year ended December 31, 2012 ($ 431,757 in 2011).
7. Employee benefits
The Company contributes to state-run pension plans, employment insurance, group insurance and social
security for its employees. The costs incurred for the employee benefits noted above amounted to
$1,594,401 during the year ended December 31, 2012 ($1,291,115 in 2011). These payments are expensed
as incurred and the Company does not recognize any gains or losses subsequent to the payment of these
benefits. These transactions do not result in any asset or liability on the consolidated statement of financial
position.
The Company also offers a defined contribution employee benefit plan to its employees located in North
Carolina. For the year ended December 31, 2012, the Company contributed $ 11,851 to this plan (nil in
2011).
8. Finance costs
Interest on bank indebtedness and long term debt
Interest on obligations under finance leases
9. Other gains and losses
Foreign exchange loss (gain)
Change in fair value of derivative financial
instrument
Year ended
December 31,
2012
December 31,
2011
$ 505,559
3,620
$ 509,179
$ 551,775
4,100
$ 555,875
Year ended
December 31,
2012
December 31,
2011
$ 231,209
$ (94,537)
(38,441)
(62,352)
$ 192,768
$ (156,889)
20
Notes to the consolidated financial statements
for the years ended December 31 2012 and 2011
10. Income taxes
10.1 Income tax recognized in profit or loss
Tax expense comprises:
Current tax expense in respect of the current year
Adjustments recognized in the current year relating to prior years
Deferred tax expense relating to the origination and reversal of temporary
differences
Effect of changes in tax rates and laws
Total income tax expense
10.2 Reconciliation of the income tax rate
The income tax expense for the year is reconciled as follows:
(Loss) profit before taxes
Year ended
December 31,
2012
December 31,
2011
$ 227,704
61,057
$ 136,617
(45,179)
9,697
298,458
-
170,904
262,342
1,485
$ 298,458
$ 263,827
Year ended
December 31,
2012
December 31,
2011
$ (269,753)
$ 337,478
Income tax (recovery) expense calculated at 26.9% (28.4% - 2011)
Permanent differences
Effect of unrecognized benefit of Imaflex USA’s losses
Adjustments to deferred income tax
Effect of different tax rates of subsidiaries operating in other jurisdictions
Other
(72,564)
53,409
374,570
-
(102,247)
45,290
95,844
(20,360)
251,800
52,261
(60,286)
(55,432)
Income tax expense recognized in profit or loss
$ 298,458
$ 263,827
The tax rate used for the 2012 reconciliation above is the corporate tax rate of 26.9% (28.4% in 2011)
payable by corporate entities in Quebec, Canada on taxable profits under tax law in those jurisdictions. The
combined applicable statutory tax rate has decreased by 1.50% resulting from the reduction in the Canadian
federal statutory tax rate.
21
Notes to the consolidated financial statements
for the years ended December 31 2012 and 2011
10. Income taxes (continued)
10.3 Deferred tax balances
2012
Assets
Non-capital losses
Finance leases
Financing costs
Intangible assets
Liabilities
Opening
balance
Recognized
in profit or
loss
Adjustment
to prior year
balance
Closing
balance
$ 1,057,664
11,007
-
7,157
1,075,828
$ 1,381,169
(756)
565
(501)
1,380,477
$ -
-
-
-
-
$ 2,438,833
10,251
565
6,656
2,456,305
Property, plant & equipment
Investment tax credits
(2,319,251)
(15,970)
(2,335,221)
(1,394,833)
9,551
(1,385,282)
(4,892)
-
(4,892)
(3,718,976)
(6,419)
(3,725,395)
Deferred tax liability
$(1,259,393)
$ (4,805)
$ (4,892)
$(1,269,090)
Opening
balance
Recognized
in profit or
loss
Adjustment
to prior year
balance
Closing
balance
2011
Assets
Non-capital losses
Finance leases
Provisions
Other assets
Liabilities
$ 1,571,528
13,140
28,127
7,695
1,620,490
$ (513,864)
(2,128)
(26,642)
(538)
(543,172)
$ -
(5)
(1,485)
-
(1,490)
$ 1,057,664
11,007
-
7,157
1,075,828
Property, plant & equipment
Investment tax credits
(2,707,494)
-
(2,707,494)
439,012
(15,970)
423,042
(50,769)
-
(50,769)
(2,319,251)
(15,970)
(2,335,221)
Deferred tax liability
$(1,087,004)
$ (120,130)
$ (52,259) $(1,259,393)
22
Notes to the consolidated financial statements
for the years ended December 31 2012 and 2011
10. Income taxes (continued)
10.4 Unrecognized deferred tax assets
The Company's subsidiary, Imaflex USA, has non-capital losses available to carry forward to reduce future
taxable income of $13,470,882 in 2012 and $11,818,253 in 2011 for part of which a deferred tax asset has
not been recognized ($2,565,541 in 2012 and $3,355,272 in 2011) that expire as follows:
Expiring in
December 31,
2012
December 31,
2011
2025
2026
2027
2028
2029
2030
2031
2032
$ 86,256
1,445,678
993,743
2,145,791
2,324,452
3,301,393
1,456,112
1,717,457
$13,470,882
$ 88,172
1,477,792
1,015,817
2,193,456
2,376,085
3,374,727
1,292,204
-
$11,818,253
Additionally, the Company has not recognized a deferred tax asset on its Canadian capital losses in the
amount of $ 174,677 which can be used indefinitely.
11. Earnings per share
Year ended
December 31,
2012
December 31,
2011
(Loss) profit for basic and diluted (loss) earnings per
share
$ (568,211)
$ 73,651
Weighted average number of common shares
outstanding
Dilutive effect of share-based compensation
Diluted weighted average common shares outstanding
42,437,341
-
42,437,341
40,103,426
24,269
40,127,695
Basic and diluted (loss) earnings per common share
$ (0.013)
$ 0.002
As at December 31, 2012 and 2011, the Company had 100,000 share options outstanding at a strike price of
$ 0.125. Because the Company incurred a net loss for the year ended December 31, 2012, they were not
included in the calculation of the diluted earnings per share.
As at December 31, 2012, there were 3,251,274 warrants entitling the holder to purchase common shares of
the Company at a strike price of $ 0.45 and a maximum of 1,000,000 shares may be issued following the
business combination given the seller may elect to settle the balance of sale in shares, at the implied strike
price is USD$ 1 per share. These instruments were not included as dilutive because the exercice price was
above the share trading price.
23
Notes to the consolidated financial statements
for the years ended December 31 2012 and 2011
12. Trade and other receivables
Trade receivables
Allowance for doubtful accounts
Other
Movement in the allowance for doubtful accounts
December 31,
2012
December 31,
2011
$ 8,933,296
(570,400)
8,362,896
$ 9,599,496
(527,876)
9,071,620
382,417
280,004
$ 8,745,313
$ 9,351,624
Year ended
December 31,
2012
December 31,
2011
Balance, beginning of year
Release of allowance for doubtful accounts
Impairment losses and adjustments recognized on
trade receivables
Amounts written off during the year as uncollectible
Foreign exchange variance
Balance, end of year
$ (527,876)
397,741
$ (495,651)
-
(473,083)
30,935
1,883
$ (570,400)
(40,290)
10,623
(2,558)
$ (527,876)
The Company’s maximum exposure to credit risk is limited to the carrying amount of the receivables in the
consolidated financial statements as the Company does not make any guarantees above the carrying value.
When a counterparty is bankrupt, insolvent or placed under receivership, the allowance for doubtful
accounts attributed to the customer is written-off against the account.
Credit risk management
In its normal credit risk management process, the Company uses an external credit service to assess the
potential customer’s credit quality and uses this information to define the allowed credit limits by customer.
The Company uses Export Development Canada to insure trade receivables. As at December 31 2012,
$ 4,009,259 ($ 4,065,338 as at December 31, 2011) of the total trade receivables are insured.
Trade receivables past due but not impaired
Trade receivables disclosed above include amounts that are past due at the end of the reporting period but not
impaired, because the amounts are still considered recoverable based on the Company’s analysis of
reimbursements. In situations where the Company believes there may be increased credit risk, netting
agreements are signed in order to be able to settle any payables to the same customer on a net basis. At the
end of the reporting period, there were $ 1,951,000 of past due receivables that were not impaired
($ 2,678,238 in 2011). Of that amount, $ 832,016 was over 90 days ($ 1,456,298 as at December 31, 2011).
Aging of accounts receivable
Current
31 days to 60 days
61 days to 90 days
Over 90 days
Total
Year ended
December 31,
2012
$ 3,501,492
3,161,599
1,118,984
963,238
$ 8,745,313
December 31,
2011
$ 3,726,576
2,729,332
1,222,217
1,673,499
$ 9,351,624
24
Notes to the consolidated financial statements
for the years ended December 31 2012 and 2011
13. Inventories
Raw materials and supplies
Finished goods
Work in process
Total
December 31,
2012
December 31,
2011
$ 3,997,193
2,771,312
107,469
$ 6,875,974
$ 4,337,113
2,554,692
-
$ 6,891,805
The cost of inventories recognized as an expense during the year was $27,286,421 ($28,400,577 in 2011).
There were no write-downs of inventory recognized in the fiscal year ended on December 31, 2012 (write-
downs of inventory represented an expense of $64,493 of cost of goods sold in 2011).
14. Property, plant and equipment
Production
equipment
Leasehold
improvements
Office
equipment
Computer
equipment
Equipment
under
finance
lease
Total
At cost,
January 1, 2011
Additions
Foreign exchange
$ 36,070,537
65,541
242,139
December 31, 2011
Additions
Business acquisition
Foreign exchange
36,378,217
849,775
1,088,450
(231,301)
$1,304,142
15,900
5,351
1,325,393
308,714
-
(8,698)
$ 40,987
-
313
$ 384,733
-
260
$ 70,500
-
-
$ 37,870,899
81,441
248,063
41,300
-
-
(308)
384,993
-
-
(257)
70,500
37,633
-
(264)
38,200,403
1,196,122
1,088,450
(240,828)
December 31, 2012
$ 38,085,141
$1,625,409
$ 40,992
$384,736
$ 107,869
$ 40,244,147
Accumulated depreciation
January 1, 2011
Depreciation expense
Foreign exchange
$(20,903,638)
(991,819)
(73,665)
$ (1,062,073)
(166,634)
(5,833)
$ (18,398)
(9,036)
(313)
$(193,464)
(128,100)
(327)
$ (30,550)
(14,100)
-
$(22,208,123)
(1,309,689)
(80,138)
December 31, 2011
Depreciation expense
Foreign exchange
(21,969,122)
(1,039,086)
72,406
(1,234,540)
(100,424)
5,224
(27,747)
(9,036)
308
(321,891)
(63,007)
162
(44,650)
(18,839)
10
(23,597,950)
(1,230,392)
78,110
December 31, 2012
$(22,935,802)
$(1,329,740)
$ (36,475)
$(384,736)
$ (63,479)
$(24,750,232)
Net book value, as at
December 31, 2011
14,409,095
90,853
13,553
63,102
25,850
14,602,453
December 31, 2012
$ 15,149,339
$ 295,669
$ 4,517
$ -
$ 44,390
$ 15,493,915
The Company’s production equipment with a carrying amount of approximately $ 7,000,000 (December 31,
2011: approximately $ 12,043,929) is pledged as collateral for the Company’s operating lines of credit and
long-term debt.
25
Notes to the consolidated financial statements
for the years ended December 31 2012 and 2011
15. Intangible assets
Balance, beginning of year
Additions:
Goodwill (Note 27)
Customer relationships (Note 27)
Foreign exchange variance
Amortization of customer relationships
Balance, end of year
16. Trade and other payables
Trade payables
Other payables and accrued liabilities
17. Credit facilities
Bank indebtedness (a)
Bank loans (b)
Subordinated debt (c)
Total long-term debt
Finance lease liabilities (Note 18)
Balance of sale on business acquisition (Note 27) (d)
Total borrowings
Current
Bank indebtedness
Bank loans and subordinated debt
Finance leases
Non-current
Long-term debt
Finance leases
Total credit facilities
Year ended
December 31,
2012
December 31,
2011
$
-
$
371,513
296,850
3,648
(31,091)
$ 640,920
$
-
-
-
-
-
-
December 31,
2012
December 31,
2011
$ 4,820,870
1,312,638
$ 6,133,508
$ 4,577,653
1,172,938
$ 5,750,591
December 31,
2012
December 31,
2011
$ 6,103,876
$ 5,627,248
2,370,604
165,000
2,535,604
61,639
937,906
3,132,577
165,000
3,297,577
41,618
-
9,639,025
8,966,443
6,103,876
1,101,425
36,376
7,241,677
2,372,085
25,263
2,397,348
$ 9,639,025
5,627,248
3,132,577
41,618
8,801,443
165,000
-
165,000
$8,966,443
Interest on long-term debt amounted to $ 191,870 for the year ended December 31, 2012 ($ 230,537 in
2011).
26
Notes to the consolidated financial statements
for the years ended December 31 2012 and 2011
17. Credit facilities (continued)
(a) The Company has an operating line of credit with its bankers to a maximum of $8,500,000, bearing
interest at prime plus 2.0% (5.0% effective interest rate at December 31, 2012). The line of credit is
secured by trade receivables and inventories. The line of credit may be reviewed periodically by the bank
and is repayable on demand. The operating line of credit is subject to working capital, debt to equity,
fixed coverage and interest bearing debt to EBITDA covenants (as defined in the lending agreement). As
at December 31, 2012, the Company had drawn $ 6,103,876 ($ 5,627,248 as at December 31, 2011) on
its line of credit and was in compliance with the bank covenants.
(b) The Company’s bank loans are comprised of the following :
Loan (December 31 2012 US$ 460,714, December 31 2011
US$ 1,075,000), bearing interest at the 30-day LIBOR rate (0.21% as
at December 31, 2012), reset monthly, plus 1.24%, repayable in
monthly principal installments of $ 50,929 (US$ 51,190) up to
September 2013 and secured by production equipment. (i)
December 31,
2012
December 31,
2011
$ 458,364
$ 1,093,275
Loan, bearing interest at the lender’s base rate (5.00% as at December
31, 2012) plus 0.25%, repayable in monthly principal installments of
$43,460 to September 2016, secured by production equipment.
1,912,240
1,955,700
Loans, bearing interest at rates varying between prime plus 1.50% and
the 30-day LIBOR rate plus 2.00%, retired during the year.
-
83,602
Current portion of bank loans (ii)
Long term portion of bank loans
2,370,604
(936,425)
3,132,577
(3,132,577)
$ 1,434,179
$ -
i. On September 28, 2006, the Company borrowed from Wachovia Corporation US$ 4,300,000 at a
variable interest rate for seven years by entering into a long-term debt facility entered into to fund its
capital expenditures. The Company then entered into an interest rate swap for the same amount and
maturity. Under the terms of this interest rate swap, the Company receives, on a monthly basis, a
variable interest rate and pays a fixed interest rate of 6.54%. The Company uses this derivative financial
instrument to manage the risk from fluctuations in interest rates. The intent is to fix the interest cost on
this long-term debt.
ii. As at December 31, 2011, the Company was in breach of the interest bearing debt to EBITDA covenant
relating to bank indebtedness of $ 5,627,248 and term debt totalling $ 50,000. All of the Company’s
credit agreements for term-debt and finance leases, with the exception of subordinated debt, include
cross default provisions, giving the right to demand repayment of the loan prior to the scheduled
maturity. Accordingly, the term debt, except subordinated debt, was presented with the current portion
of long-term debt for the year ended December 31, 2011.
The aggregate scheduled repayment of bank loans is as follows:
Not later than one year
Later than one year and not later than five years
Later than five years
$ 936,425
1,434,179
-
$ 2,370,604
27
Notes to the consolidated financial statements
for the years ended December 31 2012 and 2011
17. Credit facilities (continued)
c) On December 5, 2011, the Company received a subordinated loan of $165,000 from a significant
shareholder and officer of the Company pursuant to the Company’s agreement with a creditor. This loan
does not bear interest and matures on June 30, 2013, and may be prepaid by the Company with no
penalties subject to certain conditions.
d) During the year, the Company completed a business acquisition and assumed a non-interest bearing
balance of sale which was recorded at the discounted value of $894,096 (USD$904,584), payable on the
two-year anniversary date of the acquisition. The initially recorded discounted value is recorded at
amortized cost using the effective interest method with an effective rate of 5.2%.
18. Obligations under finance leases
The Company has entered into certain finance lease agreements. Finance lease payments are as follows:
Not later than one year
Later than one year and not later than five years
Later than five years
Total minimum lease payments
Less amount representing interest at approximately 6.4%
Present value of minimum lease payments
Less current portion
$ 39,298
26,942
-
66,240
(4,601)
61,639
(36,376)
$ 25,263
The fair value of the finance lease liabilities is approximately equal to their carrying amount.
19. Share capital
The Company’s outstanding share capital consists of an unlimited number of common shares, voting,
participating, without par value. During the 2012 fiscal year, the Company’s shareholders voted in favour of
cancelling the Company’s Class B shares without diminishing the existing rights and privileges associated
with the Class A shares of the Company. At the time of the cancellation, there were no Class B shares
outstanding.
At December 31 2012, there were 42,601,276 common shares outstanding (40,665,791 common shares at
December 31, 2011).
During the year, the Company issued, through a non-brokered private placement, 1,935,485 Units for
proceeds of $ 735,484, of which $ 250,000 had been received in advance in contemplation of this transaction
on December 30, 2011. Each Unit is comprised of one common share and one common share purchase
warrant entitling its holder to acquire one additional common share at a price of $ 0.45 per share until
February 1, 2015.
Each share issued was attributed a value of $ 0.246 and each warrant issued was attributed a value of
$ 0.134. Of the $ 250,000 received during the 2011 fiscal year and included in Other reserves as at
December 31, 2011, $ 161,842 was attributed to the shares issued and $ 88,158 was attributed to the
warrants issued. Of the $ 485,484 received during the course of the first quarter of 2012, $ 314,287 was
attributed to the shares issued and $ 171,197 was attributed to the warrants issued.
28
Notes to the consolidated financial statements
for the years ended December 31 2012 and 2011
19. Share capital (continued)
During 2011, the Company issued, through a non-brokered private placement, 1,315,789 Units to a
significant shareholder and officer of the Company for cash consideration of $ 500,000. Each unit consists of
one common share and one common share purchase warrant, entitling the holder to acquire one additional
common share of Imaflex at a price of $ 0.45 per share until June 6, 2014.
Each share issued was attributed a value of $ 0.20, for a total consideration for shares of $ 263,158. Each
warrant issued was attributed a value of $ 0.18, for a total consideration for warrants of $ 236,842.
20. Share-based compensation
Pursuant to the Stock Option Plan (the “Plan”) of the Company, 3,735,000 of the common shares are
reserved for options. The Plan provides that the term of the options shall be fixed by directors. Officers and
employees of the Company or its subsidiary are eligible to receive options. Options are granted at an
exercise price of not less than the fair value of the Company’s shares on the date the options are granted.
Options may be exercisable for a period no longer than five (5) years and the exercise price must be paid in
full upon exercise of the option.
The opening balance as at January 1, 2011 relates to stock options issued prior to 2009, which expired
unexercised. On May 27 2011, the Company issued 100,000 options to an officer of the Company, each
option entitling the holder to acquire, from the grant date, one common share of Imaflex at $0.125 for a
period of 5 years. These options, none of which were exercised, are the only options outstanding as at
December 31, 2012.
At the grant date, the fair value of the options was $ 10,399 ($ 0.10 per option) and was recognized as an
expense with a corresponding increase to the share-based compensation reserve. Options were valued using
the Black-Scholes option pricing model using assumptions based on management’s best estimate of when
the options are expected to be exercised. Expected volatility is based on the historic volatility of Imaflex’s
shares.
Fair value assumptions
Expected life of options
Expected share price volatility
Dividend yield
Risk free rate
Exercise price
Share price on grant date
May 27, 2011
issue
2.5 years
172.86%
0%
1.67%
$0.125
$0.125
The Company did not issue any share-based compensation for the fiscal year ended on December 31, 2012.
21. Non-cash transactions
During the year ended December 31, 2012, the Company financed the acquisition of equipment through the
issuance of a credit note of $600,000, decreasing its trade receivables.
The Company also financed the business acquisition completed during the year by assuming debt towards
the sellers for $894,096.
During the year, the Company acquired production and office equipment through capital leases. The amount
of capital leases entered into during the year totaled $37,633.
29
Notes to the consolidated financial statements
for the years ended December 31 2012 and 2011
22. Financial instruments
22.1 Categories of financial instruments
Financial assets
Cash
Trade and other receivables
Financial liabilities
Derivative financial instrument
Other financial liabilities
Bank Indebtedness
Long term debt and finance leases
Trade and other payables
22.2 Fair value of financial instruments
December 31,
2012
December 31,
2011
$ 126,994
8,745,313
$ 243,808
9,351,624
9,745
49,068
6,103,876
3,535,149
$ 6,133,508
5,627,248
3,339,195
$ 5,750,591
Fair value estimates are made as of the date of the consolidated statement of financial position, using
available information about the financial instrument. These estimates are subjective in nature and often
cannot be determined with precision. The Company has determined that the fair value of its current financial
assets and liabilities approximates their respective carrying amounts as at the date of the consolidated
statement of financial position because of the short-term maturity of those instruments. The fair value of the
bank debts, which bear interest at floating rates, approximates their carrying amounts due to the nature of the
financial liability and the Company’s ability to contract debt with similar rates and conditions. The balance
of sale on the business acquisition was initially recorded at a discounted value and is increased by applying
an interest rate which reflects the current time-value of money and risks associated with a counterparty like
Imaflex. It’s carrying value therefore approximates its fair market value. Finance leases, given the collateral
given as guarantee on the agreement, are also deemed to bear interest at rates which resemble rates the
Company could obtain on the market in current conditions.
23. Operating lease arrangements
23.1 Leasing arrangements
The Company leases its premises for manufacturing locations from related parties under operating leases.
Rent is paid monthly on a triple net basis. There are no restrictions imposed on the Company under these
leasing arrangements. There is no contingent lease under those leasing agreements and no sublease
payments received by the Company. The leases expire at various dates to August 2020, and include renewal
provisions.
23.2 Payments recognized as an expense
Lease payments for premises
Vehicles
Office equipment
Year ended
December 31,
2012
$ 850,967
21,105
6,702
December 31,
2011
$ 724,129
-
6,688
30
Notes to the consolidated financial statements
for the years ended December 31 2012 and 2011
23. Operating lease arrangements (continued)
23.3 Non-cancellable operating lease commitments
Not later than 1 year
Later than 1 year and not later than 5 years
Later than 5 years
24. Risk management
24.1 Capital management
Year ended
December 31,
2012
December 31,
2011
$ 844,530
1,920,125
668,287
$ 3,432,942
$ 741,186
2,120,373
814,973
$3,676,532
The Company’s objective in managing capital is to ensure sufficient liquidity to pursue its growth while at
the same time taking a conservative approach towards financial leverage and financial risk.
The Company’s capital is composed of net debt and shareholders’ equity. Net debt consists of interest-
bearing debt less cash. The Company’s primary uses of capital are to finance increases in non-cash working
capital and capital expenditures for capacity expansion and integration.
The Company’s primary measure to monitor financial leverage is Debt to Earnings before Interest, Taxes,
Depreciation and Amortization (“EBITDA”).
Credit facility arrangements require that the Company meet certain financial ratios at fixed points in time.
The financial ratios are, as at December 31, 2012:
- Working capital ratio, defined as current assets divided by current liabilities greater than or equal to
1.10:1.00;
- Debt to equity ratio, defined as total debt excluding deferred taxes divided by equity of less than or equal
to 2.50:1.00;
- Fixed charge coverage ratio, including all capital and interest payments on borrowings due, as defined,
greater than or equal to 1.00:1.00; and
- Interest bearing debt divided by EBITDA ratio less than or equal to 6.00:1.00.
As at December 31, 2012, the Company was in compliance with all these financial ratios.
24.2 Foreign currency risk management
The Company’s Canadian operations face foreign currency risk as a result of a significant portion of the
costs of raw material for these sales being in USD. The Company’s sales in U.S. dollars act as a hedge
against this risk, mitigating the risk.
The Company also faces foreign currency risk through its foreign subsidiary Imaflex USA, whose functional
currency is the USD. Imaflex does not specifically hedge this foreign currency risk.
The Company also has a portion of its long term debt in USD. The majority of the cash flows generated by
the assets financed by these borrowings in USD are in USD.
31
Notes to the consolidated financial statements
for the years ended December 31 2012 and 2011
24. Risk management (continued)
24.2 Foreign currency risk management (continued)
The Company’s management has decided not to hedge its foreign currency risks. The decision of whether or
not to hedge its foreign currency risk is determined by the Company’s net exposure, expected movements in
the main currencies in which the Company transacts, important changes in the mix of currencies in which
the Company transacts, the expected net cash flow in foreign currencies as well as availability of derivative
financial instruments or additional debt in foreign currency at reasonable terms.
The following is the Company’s financial assets and liabilities denominated in U.S. dollars in its statement
of financial position:
Cash
Trade receivables
Trade payables
Derivative financial instrument
Long term debt
Gross financial position exposure
December 31,
2012
$ 103,181
4,273,373
(4,110,600)
(9,745)
(1,419,921)
$ (1,163,712)
December 31,
2011
$ 53,890
4,043,946
(3,491,025)
(49,068)
(1,126,877)
$(569,134)
A 5% appreciation of the Canadian dollar against the USD would impact its financial position by $58,186 as
at December 31, 2012 (December 31, 2011 - $28,456). Conversely a 5% depreciation of the Canadian dollar
against the U.S. dollar would have the opposite effect. Management estimates that every $ 0.01 appreciation
of the U.S. dollar against the Canadian dollar would have a negative impact on the Company’s result of
approximately $60,000. Every $ 0.01 depreciation of the U.S. dollar against the Canadian dollar would have
the opposite effect.
24.3 Interest rate risk management
The Company’s exposure to interest rate fluctuations is with respect to its short-term and long-term
financing, which bear interest at floating rates.
At the reporting date, the carrying value of the Company’s interest-bearing financial liabilities was as
follows:
Variable rate instruments
Financial liabilities
Derivative financial instrument
Interest rate swap
Gross financial position exposure
Sensitivity analysis
December 31,
2012
December 31,
2011
$ 8,474,538
$ 8,924,825
9,745
$ 8,484,283
49,068
$ 8,973,893
The Company is exposed to interest rate risk with respect to its variable rate non-derivative financial
instruments and its interest rate swap. A 100 basis point increase in interest rates at the reporting date would
result in an increase in cash outflows for the year ended December 31, 2013 of approximately $78,166
($83,671 for 2012 as at December 31, 2011). Conversely a decrease would have the opposite effect.
32
Notes to the consolidated financial statements
for the years ended December 31 2012 and 2011
24. Risk management (continued)
24.4 Liquidity risk management
Liquidity risk, the risk that the Company will not be able to meet its financial obligations as they fall due, is
managed through the Company’s capital structure and financial leverage. The Company obtains financing
through a mix of share issuance on the capital markets and borrowing from financial institutions. An
analysis of financial leverage is used to determine the required mix between the different sources of liquidity
offered to the Company while keeping an acceptable risk level in the Company’s leverage.
The Company ensures that it maintains sufficient cash flow to pay its obligations within the next 12 months.
Cash flows generated from operations are matched to the liquidity required to meet its financial obligations
for the sources of financing used to generate that cash flow.
The Company has an operating line of credit of up to $8,500,000, of which an amount of $6,103,876 was
utilized as at December 31, 2012. Borrowings under the Company’s operating line of credit bear interest at
the bank’s prime rate plus 2.0%. In order to ensure that this line of credit is sufficient to fund the Company’s
obligations, management follows the movements in the collateral against which the line of credit is given.
As at December 31, 2012, the carrying amount and undiscounted contractual cash flows for the Company's
financial liabilities are as follows:
Non-derivative financial
liabilities
Bank indebtedness
Long term debt
Interest on borrowings (1)
Finance leases (2)
Trade Payables (3)
Balance of sale
Derivative financial liabilities
Interest rate swap (1,4)
Carrying
amount
Contractual
cash flow
1 year or less
2-5 years More than 5
years
$6,103,876
2,535,604
-
61,639
6,133,508
937,906
$ 6,103,876 $ 6,103,876
1,101,425
92,715
39,298
6,133,508
-
2,535,604
199,334
66,240
6,133,508
994,900
$ -
1,434,179
106,619
26,942
-
994,900
9,745
$15,782,278
9,796
$16,043,258
9,796
$13,480,618
-
$ 2,562,640
$ -
-
-
-
-
-
-
$ -
(1) The interest on the long term debt and derivative is based on prevailing interest rates at the date of the
consolidated statement of financial position.
(2) The contractual cash flow for finance leases includes interest on the borrowings.
(3) The accounts payable exclude the interest rate swap, presented separately and with payments settled on
a net basis.
(4) The interest rate swap’s undiscounted contractual cash flow is based on net settlements and assumes that
the derivative financial instrument will be held until maturity.
33
Notes to the consolidated financial statements
for the years ended December 31 2012 and 2011
24. Risk management (continued)
24.5 Fair value hierarchy
Financial instruments recorded at fair value on the consolidated statement of financial position are classified
using a fair value hierarchy that reflects the significance of the inputs used in making the measurements. The
fair value hierarchy has the following levels:
Level–1 - valuation based on quoted prices (unadjusted) in active markets for identical assets or liabilities;
Level–2 - valuation techniques based on inputs other than quoted prices included in Level 1 that are
observable for the asset or liability, either directly (ie as prices) or indirectly (ie derived from prices);
Level–3 - valuation techniques using inputs for the asset or liability that are not based on observable market
data (unobservable inputs).
The fair value hierarchy requires the use of observable market inputs whenever such inputs exist. A financial
instrument is classified to the lowest level of the hierarchy for which a significant input has been considered
in measuring fair value.
The Company has determined its interest rate swap using level 2 valuation techniques using forward interest
rates.
25. Subsidiaries
Details of the Company’s subsidiaries at December 31, 2011 and 2012 are as follows:
Name of subsidiary Principal activity
Place of incorporation
and operation
Proportion of ownership
interest and voting power held
Imaflex USA
Manufacturing of plastic film North Carolina, USA
100%
26. Related party transactions
Transactions with related parties
During the year, in the normal course of business, the Company had routine transactions with entities owned
by shareholders of the Company and with the Company’s directors and entities in which they hold an
interest. These transactions are measured at fair value, which is the amount of consideration established and
agreed to by the related parties. Details of these transactions not disclosed elsewhere in these financial
statements, are as follows:
Rent
Professional fees
Year ended
December 31,
2012
$ 798,475
358,572
$ 1,157,047
December 31,
2011
$ 724,129
263,079
$ 987,208
Rent is paid on the first day of the month for the current month. As at December 31, 2012, there was an
amount of $ 186 886 recorded as payable to related parties ($ 85 828 as at December 31, 2011).
34
Notes to the consolidated financial statements
for the years ended December 31 2012 and 2011
26. Related party transactions (continued)
Compensation of key management personnel
The table below details the compensation paid to the four key members of management, which include the
Company’s chief executive officer, the vice-president of operations, the production director and the
corporate controller.
Year ended
December 31,
2012
$ 422,103
171,686
3,467
-
9,050
22,667
$ 628,973
December 31,
2011
$ 429,623
177,251
2,981
10,399
8,093
26,065
$ 654,412
Salary
Management fees
Short-term employee benefits
Share based compensation
Post-employment benefits – State-run plans
Other benefits
27. Business acquisition
On February 29, 2012, Imaflex USA acquired the operations of a North Carolina-based converter enabling
partial vertical integration of its activities for a total consideration of $ 1,883,596 (USD$ 1,903,584). This
acquisition benefits from synergies from the greater usage of the Company’s extrusion equipment in its
Thomasville, North Carolina plant as well as lower production costs for the acquired business.
The acquisition is comprised of an immediate cash payment of $ 989,500 (USD$ 1,000,000), a non-interest
bearing balance of sale which was recorded at the discounted value of $ 894,096 (USD$ 904,584), payable
on the two-year anniversary date of the acquisition, accounted for using the effective interest method. The
balance of sale can be settled in cash or through the issuance of shares of the Company at a fixed value of
USD$ 1 per share at the option of the seller. The balance of sale was recorded as a liability.
The purchase price was as follows:
Immediate cash payment
Balance of sale
$ 989,500
894,096
$1,883,596
The final allocation of the purchase price to net assets acquired is as follows:
Accounts receivable
Inventory
Production equipment
Customer relationships
Goodwill
Debt related to equipment
Accounts payable
$ 573,574
330,076
1,088,450
296,850
371,513
(50,806)
(726,061)
$1,883,596
35
Notes to the consolidated financial statements
for the years ended December 31 2012 and 2011
27. Business acquisition (continued)
Based on the seller’s past history in collecting accounts receivable, all acquired accounts receivable were
expected to be collected. The Asset Purchase Agreement (“PA”) provides for a deduction from the balance
of sale for any material amount of uncollectable accounts receivable. Based on the open orders on hand, the
inventory was expected to be realizable in its entirety. The production equipment includes all the equipment
that the seller was using at its production facility.
The customer relationships represent the value of the seller’s current business relationships which are
expected to continue after the acquisition date. During the year, following the finalization of the analysis of
the useful life of the customer relationships, the Company revised the carrying value initially recognized at
$ 272,036 (USD$ 274,923). During the year, the Company recorded amortization of customer relationships
of $ 31,091.
Goodwill includes the value of the assembled workforce, the current organization of the plant for which the
Company did not have to incur any additional expenses and the synergies that can be created through the
combination of the production assets through cost savings. The goodwill was recorded at an amount of
$ 371,513 (USD$ 375,456) and was included in intangible assets in the consolidated statement of financial
position. The value of goodwill was decreased from the value initially reported in the prior period of
$ 389,632 following the increase in value of the customer relationships. The goodwill did not have any tax
impact at closing or on the reported income tax expense.
The Company did not have access to the information required to determine what sales or net income would
have been had the transaction taken place on January 1, 2012. During the year ended December 31, 2012,
the acquired business generated sales of $ 4,930,957 and a net income of $ 557,378.
28. Approval of the consolidated financial statements
The consolidated financial statements were approved by the board of directors and authorized for issue on
April 16, 2013.
36