ANNUAL REPORT
2014
Committed to Excellence
À la recherche de l'excellence
2014
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.
MANAGEMENT DISCUSSION AND ANALYSIS (“MD&A”)
As required by regulators, the purpose of this MD&A is to explain management’s point of view on Imaflex
Inc.’s (the “Parent Company”) 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 audited consolidated financial statements for the years ended December 31, 2014 and 2013 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 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 21, 2015.
Fourth Quarter 2014
1
MANAGEMENT DISCUSSION AND ANALYSIS (“MD&A”)
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 Parent 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 for the analysis of the performance of the Company’s financial results,
EBITDA is determined 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 net income.
Reconciliation of EBITDA to net income:
($ thousands, except per share data)
Three months ended
Years ended
Net (loss) income
Plus:
Income taxes
Finance costs
Depreciation and amortization
Change in fair value of derivative
financial instrument
EBITDA
December 31,
2014
December 31,
2013
December 31,
2014
December 31,
2013
$ 231
$ (184)
$ (7)
380
193
414
-
$ 1,218
135
116
330
-
$ 397
682
577
1,416
-
$ 2,668
$ 207
469
444
1,222
(10)
$ 2,332
Basic and diluted EBITDA per share *
$ 0.027
$ 0.009
$ 0.060
$ 0.053
*Basic weighted average number of shares outstanding of 44,245,359 for the quarter ended December 31, 2014
(44,201,276 in 2013) and 44,212,387 for the year ended December 31, 2014 (43,644,564 in 2013). Diluted
weighted average number of shares outstanding of 44,333,959 for the quarter ended December 31, 2014
(44,279,934 in 2013) and 44,276,296 for the year ended December 31, 2014 (43,714,686 in 2013).
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 net income 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.
Fourth Quarter 2014
2
MANAGEMENT DISCUSSION AND ANALYSIS (“MD&A”)
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.
Fourth Quarter 2014
3
MANAGEMENT DISCUSSION AND ANALYSIS (“MD&A”)
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.
In order to accelerate the commercial adoption of its existing Environmental Protection Agency (“EPA”)
qualified ultrathin agricultural barrier films, Imaflex is ensuring that its internal sales organization is technically
accomplished and can properly communicate the competitive advantages of its barrier films.
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 risks.
Fourth Quarter 2014
4
MANAGEMENT DISCUSSION AND ANALYSIS (“MD&A”)
GENERAL SITUATION OF THE POLYETHYLENE BLOWN FILM MARKET
The price of polyethylene resins decreased at the end of the fourth quarter of 2014 as well as the beginning of
the first quarter of 2015, mostly due to the decrease in the price of crude oil. This had a negative impact on the
general demand for polyethylene products as participants are not increasing inventory levels in order to benefit
from anticipated further reductions. Prices are expected to increase in the near future, which would stimulate
purchases of polyethylene products.
LOSS OF BUSINESS FROM A SIGNIFICANT CUSTOMER
One of our business practices has been to limit the purchases by 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. 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
Some products produced in our Victoriaville and Thomasville facilities 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.
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.
Fourth Quarter 2014
5
MANAGEMENT DISCUSSION AND ANALYSIS (“MD&A”)
EXPOSURE TO INTEREST RATE FLUCTUATIONS
The Company’s borrowing costs have increased following financings that closed in January and October of
2014. However, the Company’s financial situation has led to a lower interest rate on its short term borrowings
and the recent financing should decrease the usage of the line of credit in order to obtain more flexibility in the
usage of its funds.
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 research and development, 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
USD. A portion of the revenue stream in USD acts as a natural hedge to cover expenses denominated in USD.
The Company has increased its debt in USD to obtain additional revenue streams in USD. Should this
additional business materialize, the Company’s exposure to foreign currency will be managed naturally.
Management continuously assesses its exposure to such risk and the Company does not currently use any
financial instruments to hedge its foreign currency position.
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 little risk, they
are handled in a manner that fully complies with existing safety regulations.
RESULTS OF OPERATIONS
The polyethylene market is showing signs of recovery; however resin price decreases at the end of the year and
expected decreases for the first quarter of 2015 have had a negative impact on demand, as customers are waiting
before replenishing inventory levels. Despite this, Imaflex was able to improve compared to the fourth quarter
of 2013, mainly as a result of increased sales in packaging film. The continued appreciation of the USD against
the CAD increased the cost of raw materials but the improvements in operational efficiency offset part of these
cost increases.
Fourth Quarter 2014
6
MANAGEMENT DISCUSSION AND ANALYSIS (“MD&A”)
RESULTS OF OPERATIONS (continued)
($ thousands)
Sales
Three months ended
Years ended
December 31,
2014
$ 15,857
December 31,
2013
$ 13,866
December 31,
2014
$ 60,861
December 31,
2013
$ 56,052
Sales increased $ 1,991,000 in the fourth quarter of 2014 compared to the fourth quarter of 2013, an increase of
14.4%, mainly due to the increase in packaging film sales in both the US and the Canadian operations as well as
the increase in sales of garbage bags. The higher foreign exchange rate throughout the quarter also had a
positive impact on sales denominated in USD. The Company has commercialized a new product destined to the
citrus industry and increases in the sales of this product will be a growth factor in 2015.
Sales increased by $ 4,809,000 or 8.6% in 2014 compared to 2013. This increase is mainly explained by the
higher average selling price of film, due to the product mix sold and the appreciation of the USD against the
CAD over the year. Despite considerably lower mulch film sales for the 2014 spring season, the Company was
able to recover and complete the year on a positive trend. Management is focusing on properly communicating
the advantages of its mulch films in order to further increase sales for these products.
($ thousands)
Gross Profit ($) before amortization of
production equipment
Three months ended
Years ended
December 31,
2014
$ 1,939
December 31,
2013
$ 1,416
December 31,
2014
$ 6,848
December 31,
2013
$ 6,893
(%)
Amortization of production equipment
Gross profit ($)
Gross profit (%)
12.2%
358
$ 1,581
10.0%
10.2%
305
$ 1,111
8.0%
11.3%
1,284
$ 5,564
9.1%
12.3%
1,130
$ 5,763
10.3%
Gross profit before amortization of production equipment increased by $ 523,000, or 36.9%, in the fourth
quarter of 2014 compared to 2013 and, as a percentage of sales, the gross margin increased from 10.2% to
12.2%. This improvement is attributable to an increase in sales and the increased efficiency in the US
operations. Management believes there are additional improvements to achieve, however the initial efforts were
successful and the possibility of increasing production without sacrificing profitability should lead to further
improvements in 2015. Due to investments in assets over the course of the year, the amortization of production
equipment also increased, generating a net increase in gross profit of $ 470,000 and, as a percentage of sales,
from 8.0% to 10.0%.
The gross margin as a percentage of sales decreased from 12.3% in 2013 to 11.3% in 2014. During the year, the
Company continually faced increasing raw material costs due to the appreciation of the USD against the CAD
and the decreases of polyethylene resin prices at the end of the year negatively impacted sales produced with
inventory from previous months. Despite this, management managed to keep its gross profit relatively stable by
improving efficiency in its operations and focusing marketing strategies on key products. Due to the investment
in capital assets throughout the year, the amortization of production equipment increased by $ 154,000 and the
gross profit consequently decreased by $ 199,000 or, as a percentage of sales, from 10.3% to 9.1%.
Fourth Quarter 2014
7
MANAGEMENT DISCUSSION AND ANALYSIS (“MD&A”)
RESULTS OF OPERATIONS (continued)
($ thousands)
Selling and administrative
As a % of sales
Three months ended
Years ended
December 31,
2014
$ 1,210
December 31,
2013
$ 1,316
December 31,
2014
$ 5,165
December 31,
2013
$ 5,035
7.6%
9.5%
8.5%
9.0%
Selling and administrative expenses decreased by $ 106,000 during the fourth quarter of 2014 compared to 2013
and, as a percentage of sales, from 9.5% of sales to 7.6%. Part of this decrease is due to the timing of certain
expenses that were incurred earlier in the year compared to the fourth quarter of 2013. However, the current
cost structure can support the current level of production and management believes that further growth can be
achieved without the need to increase administrative expenses, although certain projects may require a one-time
increase in expenses. For the year 2014, selling and administrative expenses increased compared to 2013, from
$ 5,035,000 to $ 5,165,000 but decreased from 9.0% of sales to 8.5% in 2014. The appreciation of the USD
against the CAD increased costs denominated in USD and the increase in sales led to an increase in commission
expenses, however the cost structure remained similar from one year to the other.
($ thousands)
Finance costs
Three months ended
Years ended
December 31,
2014
$ 193
December 31,
2013
$ 116
December 31,
2014
$ 577
December 31,
2013
$ 444
The increase of finance costs in the fourth quarter of 2014 compared to 2013 is due to additional long term
indebtedness obtained at the beginning of the first quarter of 2014 and in the fourth quarter of 2014 as well as to
a new capital asset acquisition by way of a finance lease in the first quarter of 2014. Finance costs on short term
borrowings remained constant as the important decrease in borrowings on the line of credit only occurred late in
the fourth quarter. For similar reasons, in addition to increased borrowings on the line of credit throughout the
period, finance costs increased by $ 133,000 over the twelve-month period.
($ thousands)
Foreign exchange gain
Three months ended
Years ended
December 31,
2014
$ (404)
December 31,
2013
$ (302)
December 31,
2014
$ (894)
December 31,
2013
$ (529)
The continuing appreciation of the USD against the CAD resulted in foreign exchange gains of $ 404,000 in the
fourth quarter of 2014 and, with the increases earlier in the year, the foreign exchange gain for the year
amounted to $ 894,000. In 2013, the similar currency trends led to a gain of $ 302,000 in the fourth quarter of
2013 and $ 529,000 for the year. The positive impact on the Company’s income in 2014 compared to 2013
amounts to $ 102,000 for the fourth quarter of 2014 and $ 365,000 for the year.
Fourth Quarter 2014
8
MANAGEMENT DISCUSSION AND ANALYSIS (“MD&A”)
RESULTS OF OPERATIONS (continued)
($ thousands)
Income taxes
Three months ended
Years ended
December 31,
2014
$ 380
December 31,
2013
$135
December 31,
2014
$ 682
December 31,
2013
$ 469
As a % of income before taxes
62.1 %
(275.5)%
101.1 %
69.4%
The income tax expense amounted to $ 380,000 for the fourth quarter of 2014 and $ 682,000 for the year ended
December 31, 2014. The income tax expense as a percentage of the consolidated income before income taxes
varies greatly due to losses being incurred by an entity for which no income tax benefit is recorded.
($ thousands, except per share data)
Three months ended
Years ended
Net (loss) income
December 31,
2014
$ 231
December 31,
2013
$(184)
December 31,
2014
$ (7)
Basic and diluted earnings per share
$ 0.005
$(0.004)
$ (0.0002)
December 31,
2013
$207
$0.005
Net income increased in the fourth quarter of 2014 compared to 2013 mainly due to the improvement of the
efficiency of the operations as well as a reduction of the administrative and selling expenses and the positive
impact of foreign exchange movements. Results were, however, negatively impacted by the income tax expense
as well as the increase in finance costs. Management is focusing on improving profitability following the
encouraging results that were achieved in the fourth quarter of 2014.
Over the year, net income decreased, mainly as a result of higher amortization of production equipment, selling
and administrative expenses, finance costs and income taxes. The increase in these expenses was partially offset
by the positive impact of foreign exchange movements. The Company has managed to keep its income before
taxes stable despite a difficult first quarter and continuous movements in raw material costs. As raw material
costs stabilize and growth is achieved in the US operations while maintaining productivity, management
believes that results can further improve.
Financial Position
December 31, 2014 vs. December 31, 2013
From December 31, 2013 to December 31, 2014, the Company’s cash decreased by $ 184,147, the Company’s
trade receivables increased by $ 701,821 and inventory increased by $ 2,644,258. The preparation for sales of
agricultural mulch films as well as the increase in the price of raw material led to this investment in working
capital.
Bank indebtedness decreased by $ 2,283,812 following the closing of a private placement at the end of the year
as well as the closing of two debt financings which all led to a decrease in the Company’s bank indebtedness.
The increase in the price of raw materials as well as the general increase in sales led to a $ 1,627,101 increase in
trade payables. Given the debt is presented in current and non-current liabilities as at December 31, 2014
whereas all debt was included in current liabilities at December 31, 2013, the current portion of long-term debt
decreased by $ 1,561,452. The Company entered into a new finance lease during the course of 2014 which led
to a $ 26,265 increase in the short term portion of finance lease obligations.
Fourth Quarter 2014
9
MANAGEMENT DISCUSSION AND ANALYSIS (“MD&A”)
SUMMARY OF QUARTERLY RESULTS
Summary financial data derived from the Company’s unaudited quarterly 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):
Q4/14 Q3/14 Q2/14 Q1/14 Q4/13 Q3/13 Q2/13 Q1/13
12,797
15,857
230
231
15,314 15,267
(355)
14,186
396
15,203
(235)
13,866
(184)
14,423
(57)
174
Sales
Net income
(loss)
Income (loss) per share:
Basic and
diluted
0.005
0.004
(0.008)
(0.001)
(0.004)
(0.005)
0.009
0.005
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
The Company’s working capital position as at December 31, 2014 was $ 5,493,261 compared to $ 143,234 as at
December 31, 2013, which is mainly explained by the presentation of long term debt in current and non-current
liabilities in 2014 whereas IFRS required that long term debt be presented entirely in current liabilities in 2013.
The closing of a financing early in 2014 and another in October 2014 as well as the issuance of shares and
warrants in December of 2014 also solidified the Company’s working capital position.
Cash Flows from Operating Activities
Operating activities generated cash outflows of $ 3,417 in the fourth quarter of 2014 compared to outflows of
$ 24,866 in 2013. Before movements in working capital, operating activities generated inflows of $ 557,180 in
2014 compared to $ 14,985 in 2013, mainly as a result of increased pre-tax income, which was partially offset
by a greater non-cash impacting unrealized gains on foreign exchange. The decrease in accounts receivable
generated inflows of $ 1,247,394, whereas the increase in inventories and the decrease in trade payables
generated outflows of $ 637,325 and $ 1,066,191 respectively. The decrease in prepaid expenses led to inflows
of $ 229,108. The Company paid $ 333,582 of income taxes during the fourth quarter of 2014 compared to net
income taxes paid of $ 9,339 in the fourth quarter of 2013.
Over the year, operating activities generated an outflow of $ 559,755 compared to an inflow of $ 1,505,498 in
2013. Before movements in working capital, operating activities generated inflows of $ 1,433,202 in 2014
compared to $ 1,663,277 in 2013. Pre-tax income remained relatively constant; however the greater unrealized
foreign exchange gain caused the cash flow to decrease. This was partially offset by the increase in non-cash
impacting expenses, such as amortization and depreciation. Movements in working capital generated an outflow
of $ 1,439,668 in 2014 compared to inflows of $144,348 in 2013 and income taxes paid amounted to $ 553,289
compared to $ 302,127 in 2013.
Fourth Quarter 2014
10
MANAGEMENT DISCUSSION AND ANALYSIS (“MD&A”)
LIQUIDITY (continued)
Cash Flows from Investing Activities
In anticipation of and following the closing of the debt financing obtained in the fourth quarter of 2014, the
Company made investments in capital assets over the year in order to increase the efficiency of its operations as
well as payments for leasehold improvements in order to improve its current plant locations. Also, the Company
acquired from Bayer AG the patents relating to active ingredient-releasing mulch films in order to add to its
current product offering, to better control the products it was intending to bring to market and to position the
Company as the sole owner of the technology it is looking to develop for these products. Over the course of the
2014 year, the Company invested $ 1,234,222 in machinery, equipment and leasehold improvements as well as
$ 681,320 in intangible assets.
In 2013, payments for investing activities amounted to $ 1,112,892 to improve and upgrade existing machinery
and equipment in order to increase efficiency as well as leasehold improvements.
Cash Flows from Financing Activities
During the fourth quarter, the Company closed a debt financing from which it drew $ 2,746,777 as well as a
private placement which generated net proceeds of $ 1,689,672. The debt financing enabled the Company to
invest in equipment and machinery whereas the funds from the private placement were raised primarily to
improve working capital. In anticipation of the exercise of options in 2015, the Company received a deposit of
funds totaling $ 296,053 and also received $ 203,947 from a shareholder and director. The Company paid
$ 2,910,540 on its bank indebtedness, $ 125,320 in interest, $ 125,730 on its long term borrowings and $ 31,234
on its finance-leases.
Additionally, earlier in the year, the Company refinanced a long term loan and closed a new financing
agreement, obtaining additional funds amounting to $ 4,312,597 for the year. Over the twelve-month period, the
Company paid $ 2,283,812 on its bank indebtedness, $ 500,941 in interest, $ 1,396,950 on its long term loans
and $ 104,551 on its finance-leases. During the year ended December 31, 2013, the Company made payments
of $ 1,114,633 on long term debts, $ 45,964 on finance leases and $ 393,014 in interest. The Company also
closed a non-brokered private placement for net proceeds of $ 800,000 and borrowed additional funds totaling
$ 1,334,806 on its line of credit.
CONTRACTUAL OBLIGATIONS
The contractual obligations as at December 31, 2014 were as follows:
($ thousands)
Long-term debt
Finance leases
Operating leases
Bank Indebtedness
Total contractual obligations
Total
$ 6,438
593
5,250
5,155
$ 17,436
Payments due by period
1 – 5 years
Less than 1
year
After 5 years
$ 1,227
150
951
5,155
$ 7,483
$ 4,857
443
2,619
-
$ 7,919
$ 354
-
1,680
-
$ 2,034
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, 2014.
Fourth Quarter 2014
11
MANAGEMENT DISCUSSION AND ANALYSIS (“MD&A”)
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 1.25%. The line of credit is secured by trade receivables and inventories. As at December 31,
2014, the Company had drawn $ 5,154,870 on its line of credit ($ 7,438,682 as at December 31, 2013). The
Company’s working capital was $ 5,493,261 as at December 31, 2014 compared to $ 143,234 as at December
31, 2013, mainly because the long term borrowings were classified as current and non-current. During the year,
the Company obtained new financing by entering into two new long term borrowing arrangements, the first
consisting in refinancing a debt in the first quarter of 2014 and the second by entering into a new financing
agreement in the fourth quarter of 2014. Moreover, on December 31, 2014, the Company closed a private
placement obtaining net proceeds of $ 1,689,672. This was completed with the goals of strengthening the
Company’s liquidity position and providing capital to fund the Company’s future growth. During the course of
the year, the Company also repaid the balance of purchase price of the business acquisition.
PROPOSED TRANSACTION
The Company is not currently contemplating any business acquisition or merger.
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 years ended December 31, 2014 and
2013. For additional information, please refer to note 25, Related party transactions of the “Notes to the
consolidated financial statements” for the years ended December 31, 2014 and 2013.
($ thousands)
Three months ended
Years ended
December 31,
2014
December 31,
2013
December 31,
2014
December 31,
2013
Professional fees
Rent
(a)
(b)
$ 7
$ 190
$ 29
$ 231
$ 274
$ 755
$ 305
$ 795
(a) Professional fees include transactions with Polytechnomics Inc., of which Gerald R. Phelps, Imaflex’s Vice-
President – Operations, is the controlling shareholder and with Philip Nolan, a director of Imaflex, who is also a
partner at Lavery de Billy L.L.P.
(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, 2014 and 2013. This note explains the
Company’s accounting policies under IFRS and all changes in accounting policies since the Company’s last
annual financial statements.
Fourth Quarter 2014
12
MANAGEMENT DISCUSSION AND ANALYSIS (“MD&A”)
FINANCIAL INSTRUMENTS
Please refer to note 22, Financial instruments of the consolidated financial statements for the years ended
December 31, 2014 and 2013 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, 2014, the Company is not using any swap, forward or hedge accounting.
As at December 31, 2014, 300,000 options to purchase shares of the Company were outstanding and exercisable
at a weighted average strike price of $0.295. As at December 31, 2014, 4,206,058 warrants entitling the owner
to purchase common shares at a weighted average price of $0.56 were outstanding. During the year ended
December 31, 2014, 1,315,789 warrants expired and 2,270,573 warrants were issued as part of a private
placement that closed on December 31, 2014.
MANAGEMENT OUTLOOK
The fourth quarter proved that the efforts made by management over the last few years should materialize into
results. The productivity of the operations increased, but mostly products that were several years in the making
have begun being commercialized. This speaks loudly of Imaflex’s capacity to find innovative solutions to
problems that our customers and partners are faced with.
As early as the summer of 2015, Imaflex will introduce a new product on the agricultural market after several
years of investments, while the Company has already started selling, in the fourth quarter of 2014, the film for
the citrus industry. The Company can now also rely on its legacy business to maintain a strong position in the
market which is waiting for these new products to be adopted in large quantities.
OUTSTANDING SHARE DATA
As at December 31, 2014, the Company had 48,256,942 common shares outstanding (44,201,276 as at
December 31, 2013).
EVENTS SUBSEQUENT TO THE REPORTING PERIOD
On February 2, 2015 the Company issued 1,381,695 common shares following the exercise of warrants that
entitled the holders to purchase shares of the Company at $ 0.45 per share. These warrants were issued as part
of a private placement that closed on February 1, 2012.
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.
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.
Fourth Quarter 2014
13
MANAGEMENT DISCUSSION AND ANALYSIS (“MD&A”)
RISK FACTORS (continued)
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, 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.
(s) Joseph Abbandonato
Joseph Abbandonato
President and Chief Executive Officer
(s) Giancarlo Santella
Giancarlo Santella, CPA, CA
Corporate Controller
April 21, 2015
Fourth Quarter 2014
14
Consolidated Financial Statements of
IMAFLEX INC.
Years ended December 31, 2014 and 2013
1
Independent Auditor’s Report
To the Shareholders of
Imaflex Inc.
Raymond Chabot Grant Thornton LLP
Suite 2000
National Bank Tower
600 De La Gauchetière Street West
Montréal, Quebec H3B 4L8
Telephone: 514-878-2691
Fax: 514-878-2127
www.rcgt.com
We have audited the accompanying consolidated financial statements of Imaflex Inc., which
comprise the consolidated statements of financial position as at December 31, 2014 and 2013
and the consolidated statements of comprehensive income, changes in equity and cash flows
for the years then ended, and a summary of significant accounting policies and other
explanatory information.
Management’s responsibility for the financial statements
Management is responsible for the preparation and fair presentation of these consolidated
financial statements in accordance with International Financial Reporting Standards (IFRS) 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
including the assessment of the risks of material misstatement of the
auditor’s judgment,
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
internal control. An audit also includes evaluating the
appropriateness of accounting policies used and the reasonableness of accounting estimates
the entity’s
Member of Grant Thornton International Ltd
2
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, 2014 and 2013 and its financial
performance and its cash flows for the years then ended in accordance with International
Financial Reporting Standards (IFRS).
Montreal
April 21, 2015
1 CPA auditor, CA public accountancy permit No. A105359
Consolidated statements of comprehensive (loss) income
for the years ended
(in Canadian dollars)
December 31,
2014
2013
Revenues
Cost of sales
Gross profit
Expenses:
Selling
Administrative
Finance costs
Other gains
Other
Income before income taxes
(Note 5.1)
$ 60,861,309
55,297,419
5,563,890
$ 56,051,618
50,288,863
5,762,755
(Note 8)
(Note 9)
1,369,502
3,795,683
576,521
(893,559)
41,606
4,889,753
1,384,124
3,650,636
443,708
(538,588)
147,288
5,087,168
674,137
675,587
Income taxes
(Note 10)
681,579
468,785
NET (LOSS) INCOME
(7,442)
206,802
Other comprehensive income, net of income taxes
Item that will be reclassified subsequently to net income
Exchange differences on translating foreign operations
48,327
142,811
COMPREHENSIVE INCOME
$
40,885 $
349,613
(Loss) earnings per share
Basic and diluted
(Note 11)
$ (0.0002)
$
0.005
The accompanying notes are an integral part of these consolidated financial statements and note 6 presents
additional information on consolidated comprehensive income.
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
Other receivables
Total non-current assets
Total assets
Liabilities and equity
Current liabilities
December 31,
2014
December 31,
2013
(Note 12)
(Note 13)
$
945,744
9,578,570
9,827,996
205,868
20,558,178
$ 1,129,891
8,876,749
7,183,738
88,801
17,279,179
(Note 14)
(Note 15)
(Note 12)
17,419,808
1,399,280
80,685
18,899,773
16,131,997
713,030
321,038
17,166,065
$ 39,457,951
$ 34,445,244
Bank indebtedness
Trade and other payables
Current tax liabilities
Long-term debt, current portion
Finance lease obligations, current portion
Total current liabilities
Non-current liabilities
Long-term debt
Deferred tax liabilities
Finance lease obligations
Total non-current liabilities
Total liabilities
Equity
Share capital
Reserves
Retained earnings
Total equity
(Note 17)
(Note 16)
(Note 17)
(Notes 17, 18)
(Note 17)
(Note 10)
(Notes 17, 18)
5,154,870
8,478,772
376,626
927,727
126,922
15,064,917
4,632,710
1,318,859
412,978
6,364,547
7,438,682
6,851,670
255,757
2,489,179
100,657
17,135,945
-
1,353,259
-
1,353,259
21,429,464
18,489,204
(Note 19)
10,945,614
1,336,275
5,746,598
18,028,487
9,368,452
833,548
5,754,040
15,956,040
Total liabilities and equity
$ 39,457,951
$ 34,445,244
Non-cancellable 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
For the years ended December 31, 2014 and 2013
(in Canadian dollars)
Reserves
Accumulated
foreign
currency
translation Warrants
Other
Share
capital (a)
$ 8,568,452
-
Share-based
compensation
$ 332,899
-
$ (173,129)
-
-
-
-
-
142,811
142,811
800,000
-
-
34,770
-
-
$ 496,197 $
-
-
-
-
-
Total
reserves
- $ 655,967
-
-
Retained
earnings
$ 5,547,238 $ 14,771,657
206,802
206,802
Total
-
-
-
-
142,811
142,811
-
206,802
142,811
349,613
-
34,770
-
-
800,000
34,770
$ 9,368,452
$ 367,669
$ (30,318)
$ 496,197 $
- $ 833,548
$ 5,754,040 $ 15,956,040
-
-
-
-
-
-
-
48,327
48,327
-
-
-
1,577,162
-
-
4,223
-
-
154,124
-
-
-
-
-
-
-
(7,442)
(7,442)
48,327
48,327
-
(7,442)
48,327
40,885
154,124
4,223
-
-
1,731,286
4,223
Balance at January 1, 2013
Net income for the year
Exchange differences on translating
foreign operations
Comprehensive income for the year
Transactions with owners:
Issuance of share capital (Note 19)
Share-based compensation (Note 20)
Balance at December 31, 2013 and
January 1, 2014
Net loss for the year
Exchange differences on translating
foreign operations
Comprehensive income for the year
Transactions with owners:
Issuance of share capital and warrants
net of transaction costs and taxes
(Note 19)
Share-based compensation (Note 20)
Deposit on future exercise of warrants
(Note 19)
Balance at December 31, 2014
-
$10,945,614
-
$ 371,892
-
$ 18,009
296,053
296,053
$ 650,321 $ 296,053 $ 1,336,275
-
296,053
$ 5,746,598 $ 18,028,487
-
(a) Additional detail of share capital is provided in Note 19
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)
Operating activities:
Net (loss) income for the year
Income tax expense
Change in fair value of derivative financial instrument
Depreciation and amortisation of non-current assets
Finance costs
Share-based compensation
Unrealized foreign exchange gain
Net changes in working capital
Increase in trade and other receivables
Increase in inventories
(Increase) decrease in prepaid expenses
Increase in trade and other payables
Cash (used in) generated by operations
Net income taxes paid
Net cash (used in) generated by operating activities
Investing activities:
Payments for property, plant and equipment
Payments for intangible assets
Net cash used in investing activities
Financing activities:
Net change in bank indebtedness
Interest paid
Increase in long term debt
Repayment of long-term debt
Net proceeds from issuance of share capital and warrants
Due to a shareholder and director (Note 16)
Deposit on future exercise of warrants (Note 19)
Repayment of finance leases
Net cash generated by financing activities
Net (decrease) increase in cash
Cash, beginning of the year
Effects of foreign exchange differences on cash
Cash, end of the year
Non-cash transactions (Note 21)
December 31,
2014
2013
$ (7,442)
681,579
-
1,415,703
576,521
4,223
(1,237,382)
1,433,202
(261,224)
(2,373,185)
(81,159)
1,275,900
(1,439,668)
(6,466)
(553,289)
(559,755)
$ 206,802
468,785
(9,958)
1,221,970
443,708
34,770
(702,800)
1,663,277
(374,940)
(123,853)
29,265
613,876
144,348
1,807,625
(302,127)
1,505,498
(1,234,222)
(681,320)
(1,915,542)
(1,045,155)
(67,737)
(1,112,892)
(2,283,812)
(500,941)
4,312,597
(1,396,950)
1,689,672
203,947
296,053
(104,551)
2,216,015
1,334,806
(393,014)
-
(1,114,633)
800,000
-
-
(45,964)
581,195
(259,282)
973,801
1,129,891
75,135
126,994
29,096
$ 945,744
$ 1,129,891
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, 2014 and 2013
1. General information
Imaflex Inc. (“the Parent 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 Parent Company and its subsidiary (together referred to as 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 Parent 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 Basis of presentation and statement of compliance
The consolidated financial statements have been prepared in accordance with International Financial
Reporting Standards (“IFRS”) in effect on December 31, 2014. The consolidated financial statements were
approved by the board of directors and authorized for issue on April 21, 2015.
2.2 Basis of measurement
The consolidated financial statements have been prepared using the historical cost basis.
2.3 Changes in accounting policies
Offsetting financial assets and financial liabilities
Effective January 1, 2014, the amendments to IAS 32 – Financial Instruments - Presentation clarifies the
definition of certain criteria required to offset financial assets and financial liabilities. The adoption of this
standard did not have any impact on the Company’s financial statements.
2.4 Basis of consolidation
The consolidated financial statements include the accounts of the Parent Company and its subsidiary Imaflex
USA Inc. (“Imaflex USA”), a wholly owned entity, which both have a reporting period of December 31.
Imaflex Inc. is the Company’s ultimate parent. The Parent Company controls a subsidiary if it is exposed, or
has rights, to variable returns from its involvement with the subsidiary and has the ability to affect those
returns through its power over the subsidiary. All intercompany transactions and balances are eliminated on
consolidation.
As at December 31, 2014 and 2013, Imaflex USA, the Company’s wholly owned subsidiary, manufactured
flexible packaging and plastic film out of its two North Carolina, USA, plants.
8
Notes to the consolidated financial statements
for the years ended December 31, 2014 and 2013
2. Significant accounting policies (continued)
2.5 Foreign currencies
The functional currency is the currency of the primary economic environment in which an entity operates.
The financial statements of the Parent Company and its subsidiary that are consolidated into the Company’s
financial statements are prepared in their respective functional currencies. The consolidated financial
statements are expressed in Canadian dollars (“CAD”), which is also the functional currency of the Parent
Company as well as the Company’s presentation currency.
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 monthly average exchange rates over the
reporting period. Exchange gains or losses arising from the translation of Imaflex USA’s financial
statements are recognised 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 monthly 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. Resulting
gains and losses on foreign exchange are recorded in the consolidated statement of comprehensive (loss)
income.
2.6 Revenue recognition
Revenues are generated almost exclusively from the sale of goods. Revenue is measured at the fair value of
the consideration received or receivable, net of estimated returns, rebates and discounts, and is recognised
when all the following conditions are satisfied:
The Company has transferred to the buyer the significant risks and rewards of ownership of the goods;
The Company 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.
Revenue is recognised in accordance with the terms of sale, generally when received by external customers.
2.7 Income Tax
Income tax expense comprises both current and deferred tax. Current tax is based on taxable income for the
year. Taxable income differs from net income as reported in the consolidated statement of comprehensive
(loss) income because of items of revenue 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 at the reporting period.
Deferred tax is recognised on temporary differences between the carrying amounts of assets and liabilities in
the consolidated statements of financial position and the corresponding tax basis used in the computation of
taxable income. Deferred tax liabilities are generally recognised for all taxable temporary differences.
Deferred tax assets are generally recognised for all deductible temporary differences to the extent that it is
probable that future taxable income will be available against which the underlying tax loss or deductible
temporary difference can be utilized.
9
Notes to the consolidated financial statements
for the years ended December 31, 2014 and 2013
2. Significant accounting policies (continued)
2.7 Income Tax (continued)
Deferred tax assets and liabilities are calculated using the tax rates and laws enacted or substantially enacted
at the reporting date and which are expected to apply in the period in which the liability is settled or the asset
realized.
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 recognised as an expense or income in net income, except when they relate to
items that are recognised outside net income (whether in other comprehensive income or directly in equity),
in which case the tax is also recognised outside net income.
2.8 Earnings per share
Earnings per share are calculated by dividing net (loss) income available for common shareholders by the
weighted average number of common shares outstanding during the period. Diluted earnings per share is
calculated by taking into consideration potentially issuable shares that would have a dilutive effect on
earnings per share.
2.9 Financial assets and financial liabilities
Financial assets and financial liabilities are recognised when the Company becomes a party to the
contractual provisions of the instrument. On initial recognition, financial instruments are measured at fair
value adjusted for transaction costs except if directly attributable to the acquisition of financial assets or
liabilities at fair value through profit or loss, in which case they are recognised immediately in net income.
Financial assets
For the purposes of subsequent measurement, financial assets are classified, upon initial recognition, in the
different categories depending on their nature and purpose.
The Company’s cash as well as trade and other receivables (excluding sales taxes) are classified as loans and
receivables. Loans and receivables are non-derivative financial assets with fixed or determinable payments
that are not quoted in an active market. After initial recognition, these are measured at amortised cost using
the effective interest method, less any impairment. Discounting is omitted where the effect of discounting is
immaterial.
Impairment of financial assets
Financial assets are assessed for indications of impairment at least at each reporting period. 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 and other 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.
10
Notes to the consolidated financial statements
for the years ended December 31, 2014 and 2013
2. Significant accounting policies (continued)
2.9 Financial assets and financial liabilities (continued)
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 recognised in net income. The expense relating to the allowance for
doubtful accounts is recognised in Administrative expenses in the statement of comprehensive (loss) income.
Financial liabilities
For the purpose of subsequent measurement, financial liabilities are classified in the following categories,
upon initial recognition:
at fair value through profit and loss (“FVTPL”)
at amortised cost
Financial liabilities are measured subsequently at amortised cost using the effective interest rate method,
except for financial liabilities designated at FVTPL, which are subsequently carried at fair value with gains
and losses recognised in net income. Discounting is omitted where the effect of discounting is immaterial.
The Company’s bank indebtedness, trade and other payables (excluding employee benefits) and long-term
debt are classified as financial liabilities measured at amortised cost. All interest-related charges are
recognised in the consolidated statement of comprehensive (loss) income under Finance costs.
The Company derecognises financial liabilities when, and only when, the Company’s obligations are
extinguished, discharged, cancelled or expired.
2.10 Inventories
Inventories are stated at the lower of cost and net realizable value. Costs, including raw materials and 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 and estimated selling expenses.
2.11 Property, plant and equipment
Production equipment, office equipment and computer equipment are stated at cost, including any costs
directly attributable to bringing the assets to the location and condition necessary for it to be capable of
operating in the manner intended by the Company’s management, less accumulated depreciation and
accumulated impairment losses.
Depreciation is recognised so as to write down the cost of assets less their residual values over their useful
lives, as outlined below, using the straight-line method. The estimated useful lives, residual values and
depreciation method are reviewed and adjusted, if necessary, at each reporting date, with the effect of any
changes in estimate accounted for on a prospective basis.
Asset
Production equipment
Office equipment
Computer equipment
Period
20 years
5 years
3 years
11
Notes to the consolidated financial statements
for the years ended December 31, 2014 and 2013
2. Significant accounting policies (continued)
2.11 Property, plant and equipment (continued)
Leasehold improvements are amortised on a straight-line basis over the lesser of the terms of the leases or
their useful lives (5 years).
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 from 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 recognised in net income, with Other gains in the
consolidated statement of comprehensive (loss) income.
2.12 Leased assets
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 recognised 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. Leases are initially recognised on the date from which the Company is entitled to exercise its
right to use the leased asset, referred to as the commencement of the lease term, which corresponds to the
date on which the equipment is received. Assets held under finance leases are depreciated over their
expected useful lives on the same basis as owned assets (between 3 and 5 years) or, where shorter, the term
of the relevant lease.
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 recognised
immediately in net income. Contingent rentals are recognised as expenses in the periods in which they are
incurred.
Operating lease payments are recognised 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 recognised as an
expense in the period in which they are incurred.
2.13 Intangible assets other than goodwill
Customer relationships 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. When intangible assets are purchased separately, as it was
the case for patents, the cost comprises its purchase price and any directly attributable cost of preparing the
asset for its intended use. When intangible assets are internally developed, as is the case with the Company’s
internally developed patents, the cost comprises the directly attributable costs in the development phase
necessary to create, produce and prepare the patent for the Company to be able to operate it for its intended
use.
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 net
income when the asset is derecognised. The amortisation of intangible assets, if any, is recognised in
Administrative expenses in the consolidated statement of comprehensive (loss) income over the useful life of
the intangible asset. Customer relationships are amortised on a straight-line basis over 8 years and patents
are amortised as of the moment they can be used over the life of the patent (14 years).
12
Notes to the consolidated financial statements
for the years ended December 31, 2014 and 2013
2. Significant accounting policies (continued)
2.14 Impairment of property, plant and equipment and intangible assets other than goodwill
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 property, plant and equipment and intangible assets, to determine
whether there is any indication that they 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 asset for which
the estimates of future cash flows have not been adjusted.
If the recoverable amount of an assets is estimated to be less than their carrying amount, the carrying amount
is reduced to the recoverable amount. An impairment loss is recognised immediately in net income, 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 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 recognised for the asset in prior
years. A reversal of an impairment loss is recognised immediately in net income, 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.
2.15 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 are 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 recognised directly in net
income in the consolidated statement of comprehensive (loss) income. An impairment loss recognised for
goodwill is not reversed in subsequent periods.
2.16 Provisions
Provisions are recognised 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 recognised as a provision is the best estimate of
the consideration required to settle the present obligation based on the most reliable evidence available at the
reporting date, taking into account the risks and uncertainties surrounding the obligation.
13
Notes to the consolidated financial statements
for the years ended December 31, 2014 and 2013
2. Significant accounting policies (continued)
2.17 Share-based compensation
The Company uses equity-settled share-based compensation plans for its employees and for one consultant.
None of the Company’s plans are cash-settled. Equity-settled share-based compensation is measured at the
fair value of the services received at the grant date indirectly by reference to the fair value of the equity
instruments granted, 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 Reserves.
2.18 Share capital and reserves
Share capital represents the nominal value of shares that have been issued. Proceeds, net of transactions
costs after taxes, from the issuance of units consisting of shares and purchase warrants are allocated based on
the relative fair values of each instrument. The fair value of the shares is based on the TSX share price at the
time of the issuance and the fair value of the warrants is determined using a Black & Scholes valuation
model.
Reserves include the following:
Share-based compensation (see 2.17);
Accumulated foreign currency translation (see 2.5);
Warrants – comprises the value of outstanding and expired warrants;
Other (see Note 19).
Upon the exercise of options and warrants, the proceeds received less the transaction costs attributable to the
limit of the nominal value of shares issued are credited to share capital.
3. Future accounting changes
Certain new standards as well as amendments and improvements to existing standards have been published
by the IASB but are not yet effective and have not been adopted early by the Company. Management
anticipates that all of the relevant pronouncements will be adopted in the first reporting date following the
date of application. The information on new standards as well as amendments and improvements to existing
standards that may impact the Company’s consolidated financial statements are as follows:
Financial instruments
The IASB recently released IFRS 9 – Financial intruments, representing the completion of its project to
replace IAS 39 – Financial Instruments: Recognition and Measurement. This IFRS includes a revised model
for the classification and measurement of financial assets and liabilities, a single ‘expected credit loss’
impairment model and a reformed approach to hedge-accounting. This IFRS is effective for periods starting
on or after January 1, 2018, although earlier application is permitted. Management is currently evaluating the
impact of this new standard on the Company’s consolidated financial statements.
Revenues from contracts
IFRS 15 – Revenue from Contracts with Customers will replace IAS 18 – Revenue, IAS 11 – Construction
Contracts and other revenue-related interpretations and will be effective for periods beginning on or after
January 1, 2017 although earlier application is permitted. It provides more detailed guidance on the basis for
deciding when to recognise revenue related to a contract with a customer as well as the relevant disclosures
that need to be presented in the financial statements. Management is currently evaluating the impact of this
new standard but does not expect it to have a material impact on its consolidated financial statements.
14
Notes to the consolidated financial statements
for the years ended December 31, 2014 and 2013
4. Critical accounting judgments and key sources of estimation uncertainty
The preparation of these consolidated financial statements in conformity with IFRS and the application of
the Company’s accounting policies described in note 2, required management to make judgments, 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 recognised 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 judgments in applying accounting policies
The following are the critical judgments, 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 recognised in the consolidated financial statements.
Cash-generating units
Management has identified only one cash-generating unit (“CGU”) for the Company. 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. Management has determined that the
cash flows of the Company’s production facilities are closely interrelated and not independent.
4.2 Key sources of estimation uncertainty
The following are the 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 recognised on these assets is based on historical experience and management’s best estimate of
the recoverability of the account receivable.
Inventory
The Company estimates the net realizable values of inventories taking into account the most reliable
evidence available at each reporting date. This assessment is based on management’s knowledge of the
market and experience regarding obsolescence and valuation of inventory.
Useful lives of depreciable assets
The Company reviews the estimated useful lives of property, plant and equipment and intangible assets other
than goodwill at the end of each annual reporting period in order to ensure that the amortisation method used
is appropriate.
Impairment of long-lived assets
If required, 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 uses judgment to
determine whether it identifies any triggering event that may indicate that the long-lived assets have been
impaired.
15
Notes to the consolidated financial statements
for the years ended December 31, 2014 and 2013
4. Critical accounting judgments and key sources of estimation uncertainty (continued)
Income taxes
Management uses 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 and share-based compensation
The Company issues equity instruments from time to time, which are comprised of options to purchase
common shares as well as common shares and warrants (units). The Company uses the Black and Scholes
pricing model in order to determine the value of these instruments or how proceeds are allocated between the
instruments. These methods require estimates based on market inputs.
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,
2014
December 31,
2013
$ 25,874,706
34,881,603
105,000
$ 60,861,309
$ 22,254,188
33,515,234
282,196
$ 56,051,618
5.2 Property, plant and equipment and intangible assets per geographic location
Canada
United States
Total
December 31,
2014
December 31,
2013
$ 6,752,362
12,066,726
$ 18,819,088
$ 6,244,399
10,600,628
$ 16,845,027
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 $ 1,283,665 for the year ended December 31, 2014 ($ 1,130,509 in 2013) classified in Cost of
sales. Depreciation of other property, plant and equipment and amortisation of intangible assets amounting
to $ 132,038 for the year ended December 31, 2014 ($ 91,461 in 2013) is included in Administrative
expenses.
16
Notes to the consolidated financial statements
for the years ended December 31, 2014 and 2013
6. Additional information on the consolidated statements of comprehensive (loss) income (continued)
The Company’s consolidated statement of comprehensive (loss) income includes salaries paid to its
employees of $ 6,813,329 for the year ended December 31, 2014 ($ 6,417,472 in 2013) classified in Cost of
sales. Administrative expenses include salaries paid to employees of $ 1,383,269 for the year ended
December 31, 2014 ($ 1,138,766 in 2013) and Selling expenses include salaries paid to employees of
$ 430,301 for the year ended December 31, 2014 ($ 428,361 in 2013).
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
$ 2,117,133 during the year ended December 31, 2014 ($ 1,909,847 in 2013). These payments are expensed
as incurred and the Company does not recognise 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, USA. For the year ended December 31, 2014, the Company contributed $ 15,130 to this plan
($ 14,458 in 2013).
8. Finance costs
Interest on bank indebtedness and long term debt
Interest on obligations under finance leases
Other interest
9. Other gains
Year ended
December 31,
2014
December 31,
2013
$ 515,158
24,973
36,390
$ 437,816
5,892
-
$ 576,521
$ 443,708
Year ended
December 31,
2014
December 31,
2013
Foreign exchange gain
Change in fair value of derivative financial instrument
$ (893,559)
-
$ (528,630)
(9,958)
$ (893,559)
$ (538,588)
10. Income taxes
10.1 Income tax recognised in net income
Year ended
December 31,
2014
December 31,
2013
Income tax expense comprises:
Current tax expense
Deferred tax expense relating to the origination and
reversal of temporary differences
Total income tax expense
$ 682,688
$ 384,616
(1,109)
$ 681,579
84,169
$ 468,785
17
Notes to the consolidated financial statements
for the years ended December 31, 2014 and 2013
10. Income taxes (continued)
10.2 Reconciliation between the income tax expense and the statutory income tax rate
Income before income taxes
Year ended
December 31,
2014
December 31,
2013
$ 674,137
$ 675,587
Income tax expense calculated at 26.9%
Permanent differences
Effect of unrecognised benefit of Imaflex USA’s
losses
Effect of different tax rates of subsidiaries operating in
other jurisdictions
Other
181,343
(95,267)
181,733
(79,803)
634,703
479,424
(166,294)
127,094
(148,745)
36,176
Income tax expense recognised in net income
$ 681,579
$ 468,785
The tax rate used for the 2014 reconciliation above is the corporate tax rate of 26.9% (26.9% in 2013)
payable by corporate entities in Quebec, Canada on taxable income under tax law in those jurisdictions.
10.3 Deferred tax balances
Opening
balance
Recognised
in equity
Recognised
in income
Adjustment
to prior year
balance
Closing
balance
2014
Assets
Non-capital losses
Finance leases
Inventory
Other assets
Liabilities
$ 2,454,562
15,983
223,932
90,350
2,784,827
$ -
-
-
33,291
33,291
$ 138,249
(4,503)
21,290
53,326
208,362
$ -
-
-
-
-
$ 2,592,811
11,480
245,222
176,967
3,026,480
Advance
Property, plant and equipment
Investment tax credits
(80,516)
(4,052,190)
(5,380)
(4,138,086)
-
-
-
-
(51,276)
(155,606)
-
(206,882)
-
(371)
-
(371)
(131,792)
(4,208,167)
(5,380)
(4,345,339)
Deferred tax liabilities
$(1,353,259)
$ 33,291
$ 1,480
$ (371)
$(1,318,859)
18
Notes to the consolidated financial statements
for the years ended December 31, 2014 and 2013
10. Income taxes (continued)
10.3 Deferred tax balances (continued)
Opening
balance
Recognised
in equity
Recognised
in income
Adjustment
to prior year
balance
Closing
balance
2013
Assets
Non-capital losses
Finance leases
Inventory
Other assets
Liabilities
Advance
Property, plant and equipment
Investment tax credits
$ 2,438,833
10,251
-
7,221
2,456,305
-
(3,718,976)
(6,419)
(3,725,395)
$ -
-
-
-
-
-
-
-
-
$ 15,729
5,732
223,932
83,694
329,087
$ -
-
-
(565)
(565)
$ 2,454,562
15,983
223,932
90,350
2,784,827
(80,516)
(334,699)
(242)
(415,457)
-
1,485
1,281
2,766
(80,516)
(4,052,190)
(5,380)
(4,138,086)
Deferred tax liabilities
$(1,269,090)
$ -
$ (86,370)
$ 2,201
$(1,353,259)
10.4 Unrecognised deferred tax assets
The Company's subsidiary, Imaflex USA, has non-capital losses available to carry forward to reduce future
taxable income of $ 20,651,478 in 2014 and $ 16,868,259 in 2013 for part of which a deferred tax asset has
not been recognised ($ 4,934,653 in 2014 and $ 4,124,059 in 2013) that expire as follows:
Expiring in
December 31,
2014
December 31,
2013
2025
2026
2027
2028
2029
2030
2031
2032
2033
2034
$ 100,578
1,685,728
1,158,751
2,502,093
2,710,419
3,977,536
1,697,894
2,383,876
2,386,914
2,047,689
$20,651,478
$ 92,212
1,545,505
1,062,363
2,293,963
2,484,960
3,646,675
1,556,659
2,207,521
1,978,401
-
$16,868,259
19
Notes to the consolidated financial statements
for the years ended December 31, 2014 and 2013
11. Earnings per share
Year ended
December 31,
2014
December 31,
2013
(Loss) income for basic and diluted earnings per share
$ (7,442)
$ 206,802
Weighted average number of common shares
outstanding
Dilutive effect of share purchase options
Diluted weighted average common shares outstanding
44,212,387
-
44,212,387
43,644,564
70,122
43,714,686
Basic and diluted (loss) earnings per common share
$ (0.0002)
$ 0.005
12. Trade and other receivables
Trade receivables
Allowance for doubtful accounts
Other receivables
Total receivables
Non-current other receivables
December 31,
2014
December 31,
2013
$ 9,915,500
(834,392)
9,081,108
$ 9,322,425
(620,539)
8,701,886
578,147
9,659,255
495,901
9,197,787
80,685
321,038
Current trade and other receivables
$ 9,578,570
$ 8,876,749
Movement in the allowance for doubtful accounts
Balance, beginning of year
Release of allowance for doubtful accounts
Impairment losses and adjustments recognised on
trade receivables
Foreign exchange
Balance, end of year
Year ended
December 31,
2014
December 31,
2013
$ (620,539)
90,000
$ (570,400)
55,000
(258,674)
(45,179)
$ (834,392)
(78,433)
(26,706)
$ (620,539)
Credit risk
Credit risk is the risk that a counterparty fails to discharge an obligation to the Company. The Company’s
maximum exposure to credit risk is limited to the carrying amount of the financial assets, net of any
provisions for losses recorded on the Company’s consolidated statements of financial position.
Credit risk management
Credit risk associated with cash is substantially mitigated by ensuring that these financial assets are
primarily placed with major American and Canadian financial institutions that have been accorded grade
ratings by a primary rating agency and qualify as creditworthy counterparties. The Company performs an
ongoing review and evaluation of the possible risks associated with cash.
20
Notes to the consolidated financial statements
for the years ended December 31, 2014 and 2013
12. Trade and other receivables (continued)
For trade receivables, 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. Moreover, the Company
uses credit insurance to mitigate credit risk. As at December 31 2014, $ 4,200,472 ($ 4,069,180 as at
December 31, 2013) of the total trade receivables are insured. The Company’s management considers that
all receivables that are not impaired or past due for each reporting dates are of good credit quality.
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 $ 2,201,230 of past due trade receivables that were not impaired
($ 1,841,664 in 2013). Of that amount, $ 343,425 was over 90 days ($ 826,141 as at December 31, 2013).
Aging of total receivables
Current
31 days to 60 days
61 days to 90 days
Over 90 days
Total
13. Inventories
Raw materials and supplies
Finished goods
Work in process
Total
Year ended
December 31,
2014
December 31,
2013
$ 4,348,179
2,917,291
1,857,804
535,981
$ 9,659,255
$ 3,756,814
3,325,812
1,139,164
975,997
$ 9,197,787
December 31,
2014
December 31,
2013
$ 6,116,872
3,284,600
426,524
$ 9,827,996
$ 4,233,033
2,603,107
347,598
$ 7,183,738
The cost of inventories recognised as an expense during the year was $ 37,898,939 ($ 33,145,289 in 2013).
There were no write-downs of inventory recognised in the fiscal year ended on December 31, 2014 or 2013.
21
Notes to the consolidated financial statements
for the years ended December 31, 2014 and 2013
14. Property, plant and equipment
Production
equipment
Leasehold
improvements
Office
equipment
Computer
equipment
Equipment
under
finance
lease
Total
Cost,
January 1, 2013
Additions
Foreign exchange
December 31, 2013
Additions
Foreign exchange
$ 38,085,141
1,010,681
895,742
39,991,564
907,732
1,318,364
$1,625,409
77,645
38,141
1,741,195
131,218
57,093
$ 40,992
-
959
$ 384,736
6,325
797
$ 107,869
83,290
2,568
$ 40,244,147
1,177,941
938,207
41,951
-
1,347
391,858
27,318
1,120
193,727
657,466
33,664
42,360,295
1,723,734
1,411,588
December 31, 2014
$ 42,217,660
$1,929,506
$ 43,298
$420,296
$ 884,857
$ 45,495,617
Accumulated depreciation
January 1, 2013
Depreciation expense
Foreign exchange
$(22,935,802)
(1,100,789)
(273,885)
$ (1,329,740)
(47,204)
(18,758)
$ (36,475)
(4,518)
(958)
$(384,736)
(1,054)
(796)
$ (63,479)
(29,720)
(384)
$(24,750,232)
(1,183,285)
(294,781)
December 31, 2013
Depreciation expense
Foreign exchange
(24,310,476)
(1,240,301)
(448,104)
(1,395,702)
(71,760)
(30,596)
(41,951)
-
(1,347)
(386,586)
(8,724)
(1,119)
(93,583)
(43,364)
(2,196)
(26,228,298)
(1,364,149)
(483,362)
December 31, 2014
$(25,998,881)
$ (1,498,058)
$ (43,298)
$(396,429)
$ (139,143)
$(28,075,809)
Net book value, as at
December 31, 2013
$ 15,681,088
$ 345,493
$ -
$ 5,272
$ 100,144
$ 16,131,997
December 31, 2014
$ 16,218,779
$ 431,448
$
-
$ 23,867
$ 745,714
$ 17,419,808
A portion of the Company’s production equipment with a carrying amount of approximately $ 13,600,000
(approximately $ 3,800,000 as at December 31, 2013) is pledged as collateral for the Company’s operating
line of credit and long-term debt.
22
Notes to the consolidated financial statements
for the years ended December 31, 2014 and 2013
15. Intangible assets
Goodwill
Customer
relationships
Patents
Total
January 1, 2013
Additions
Amortisation
Foreign exchange
December 31, 2013
Additions
Amortisation
Foreign exchange
$ 373,541
-
-
25,794
399,335
-
-
36,231
$ 267,379
-
(38,685)
17,264
245,958
-
(41,441)
20,253
$
-
67,737
-
-
$ 640,920
67,737
(38,685)
43,058
67,737
681,320
(10,113)
-
713,030
681,320
(51,554)
56,484
December 31, 2014
$ 435,566
$ 224,770
$ 738,944
$ 1,399,280
During the year ended December 31, 2014, the Company purchased the patents to ADVASEAL, a plastic
film formulation for controlled release of plant protection products, including all the rights and intellectual
property surrounding the co-extruded active ingredient-releasing agricultural film, which was co-developed
by Imaflex. It also further invested in its existing patents in order to be able to be able to obtain all required
registrations.
16. Trade and other payables
Trade payables
Other payables and accrued liabilities
Due to a shareholder and director (a)
December 31,
2014
December 31,
2013
$ 7,106,151
1,168,674
203,947
$ 8,478,772
$ 5,184,430
1,667,240
-
$ 6,851,670
(a) This loan does not bear interest and does not have any predetermined fixed repayment terms.
23
Notes to the consolidated financial statements
for the years ended December 31, 2014 and 2013
17. Credit facilities
Bank indebtedness (a)
Long term debt
Loan, refinanced during the course of the year ended December
31, 2014, bearing interest at the lender’s base rate (5.00% as at
December 31, 2014) plus 0.375%, repayable in monthly principal
installments of $41,670 to May 2020, secured by production
equipment. (b) (c)
Loan (US$ 2,458,311), bearing interest at the US prime rate, reset
monthly, plus 3.00% (effective rate of 6.25% as at December 31,
2014) secured by the production equipment of the subsidiary and a
corporate guarantee from the Parent Company. (d)
Balance of purchase price on business acquisition (US$ 991,913 as
at December 31, 2013) (e)
Total long term debt
Finance leases (b) (Note 18)
Total borrowings
Current
Bank indebtedness
Long-term debt, current portion
Finance leases
Non-current
Long-term debt
Finance leases
Total borrowings
December 31,
2014
December 31,
2013
$ 5,154,870
$ 7,438,682
2,708,550
1,434,180
2,851,887
-
5,560,437
-
1,054,999
2,489,179
539,900
100,657
11,255,207
10,028,518
5,154,870
927,727
126,922
6,209,519
4,632,710
412,978
5,045,688
7,438,682
2,489,179
100,657
10,028,518
-
-
-
$ 11,255,207
$ 10,028,518
Interest on long-term debt amounted to $ 187,895 for the year ended December 31, 2014 ($ 154,251 in
2013).
(a) The Company has an operating line of credit with its bankers to a maximum of $8,500,000, bearing
interest at prime plus 1.25% (4.25% effective interest rate at December 31, 2014). 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 and minimum EBITDA covenants (as defined in the lending agreement). As at December 31,
2014, the Company had drawn $ 5,154,870 ($ 7,438,682 as at December 31, 2013) on the line of credit
and was not in compliance with its minimum EBITDA covenant. However, the Company obtained a
waiver as at December 31, 2014 confirming tolerance for this breach until January 1, 2016. As at
December 31 2013, the Company was not in compliance with two financial covenants on its line of
credit and had obtained a waiver from its financial institution subsequent to year-end.
24
Notes to the consolidated financial statements
for the years ended December 31, 2014 and 2013
17. Credit facilities (continued)
(b) As at December 31, 2013, the Company was in breach of the interest bearing debt to EBITDA and
minimum EBITDA covenants under its operating line of credit (see (a)). All of the Company’s credit
agreements include cross default provisions which give the right to the creditor to demand repayment of
the loan prior to the scheduled maturity. As such, the balance of bank loans and finance lease obligations
were reclassified as current as at December 31, 2013.
(c) During the year ended December 31, 2014, the Company refinanced a loan in order to obtain additional
financing to replenish working capital. The Company obtained $ 1,565,820 of additional funds,
repayable in one monthly instalment of $ 41,430 and 71 monthly instalments of $ 41,670, starting on
June 23, 2014 and ending on May 23, 2020. The interest applicable to the refinanced loan increased
from a premium of 0.25% over the lender’s base rate to 0.375% (effective rate of 5.375% as at
December 31, 2014).
(d) During the year ended December 31, 2014, the Company entered into a credit agreement for a total of
USD $3,000,000 at a rate of 3.00% over the US prime rate for an effective rate of 6.25% as at December
31, 2014 repayable in 20 equal quarterly instalments. The Company can draw on this loan for capital
investments and working capital purposes for a period of 6 months following the date of the agreement.
The first payment of interest is due on the third month following the first draw on the loan and the first
payment of capital and interest is due 6 months after the date of the first draw. This loan was recorded at
the effective interest rate method, net of all incremental transaction costs directly attributable to the
transaction. As at December 31, 2014, the Company was not in compliance with its Interest-bearing-
debt-to-EBITDA and fixed-charge-coverage ratio covenants. However, the Company obtained waivers
as at December 31, 2014 confirming tolerance for these breaches for a period of more than one year.
(e) During the year ended December 31, 2012, the Company completed a business acquisition and assumed
a non-interest bearing balance of purchase price which was recorded at the discounted value of $894,096
(USD$904,584). This debt was reimbursed during the course of the year ended December 31, 2014.
The aggregate scheduled repayment of long term debt is as follows :
Not later than one year
Later than one year and not later than five years
Later than 5 years
$ 927,727
4,281,154
350,912
$ 5,559,793
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 the long term portion
Current portion of obligations under finance leases
$ 149,768
444,465
-
594,233
(54,333)
539,900
(412,978)
126,922
During the year ended December 31, 2014, the Company entered into a finance lease agreement for
$ 518,701 relating to production equipment worth $ 610,236. The lease is repayable over 5 years and the
Company also made a down payment totalling $ 91,535.
25
Notes to the consolidated financial statements
for the years ended December 31, 2014 and 2013
19. Share capital
The Company’s authorized share capital consists of an unlimited number of common shares, voting,
participating, without par value. At December 31, 2014, there were 48,256,942 common shares outstanding
(44,201,276 common shares at December 31, 2013).
During the year ended December 31, 2014, the Company issued, through a private placement,
4,055,666 Units for gross proceeds of $ 1,825,050. Each Unit is comprised of one common share and one
half common share purchase warrant. Each full warrant entitles the holder thereof to purchase one additional
common share at a price of $ 0.65 per share for a period of twelve months from the date of closing.
Each share issued was attributed a value of $ 0.415 and each half warrant issued was attributed a value of
$ 0.035. Transactions costs, net of income taxes, amounting to $ 113,183 were presented in equity against
the gross proceeds of the private placement. As part of the costs of the transaction, the Company also issued
242,740 warrants. Each warrant entitles the holder thereof to purchase one common share of the Company at
a price of $ 0.65 per share for a period of twelve months from the closing of the private placement. The
value attributed to warrants amounted to $ 19,419 which was entirely recorded in Warrants in the
Consolidated Statements of Changes in Equity. The following assumptions were used to determine the fair
value of the warrants:
Dividend yield
Risk free rate
Expected life of warrant
Expected share price volatility
0%
1.01%
1 year
70.0%
The variations in the Consolidated statement of changes in equity are as follows:
Gross proceeds
Transaction costs, net of taxes
Issuance of warrants
Total changes
Share capital
Warrants
1,681,439 $
(104,277)
-
1,577,162 $
143,611 $
(8,906)
19,419
154,124 $
Total
1 825,050 $
(113,183)
19,419
1,731,286 $
During the year ending December 31, 2014, 1,315,789 warrants expired. As at December 31, 2014,
4,206,058 warrants entitling the owners to purchase common shares at an average weighted price of $0.56
per share were outstanding (3,251,274 warrants at a price of $0.45 as at December 31, 2013).
During the year ending December 31, 2014, the Company received an amount of $ 296,053 in anticipation
of the exercise of warrants to purchase common shares of the Company (Note 26) at an exercise price of
$0.45 per share.
During the year ending December 31, 2013, the Company issued, through a non-brokered private placement,
1,600,000 common shares for total cash proceeds of $ 800,000.
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 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.
26
Notes to the consolidated financial statements
for the years ended December 31, 2014 and 2013
20. Share-based compensation (continued)
On July 15, 2013, the Company granted 100,000 options to acquire common shares to a counterparty who is
not an employee for services rendered as agreed to in a contract entered into on January 15, 2013. These
options vest in 4 tranches, the first vested immediately at issuance, and the others vesting at every following
quarter. The share-based compensation expense relating to this issuance amounted to $ 4,223 during the year
ended December 31, 2014 ($ 14,588 in 2013).
On January 15, 2013, the Company granted 100,000 options to acquire common shares to a counterparty
who is not an employee for services rendered. These options vest in 4 tranches, the first vested immediately
at issuance, and the others vesting at every following quarter. The share-based compensation expense
relating to this issuance amounted to $ 20,182 during the year ended December 31, 2013 and no expense was
recorded during the year ended December 31, 2014.
The following are the assumptions used in order to value the options as well as general information on each
outstanding option grant:
Fair value assumptions
July 15, 2013
January 15, 2013 May 27, 2011
Total
Outstanding as at 31/12/2013
and 31/12/2014
Exercisable as at 31/12/2013
Exercisable as at 31/12/2014
Remaining life of options
Expected life of options
Expiry
Expected share price volatility
Dividend yield
Risk free rate
Exercise price
Share price on grant date
100,000
100,000
100,000
300,000
250,000
300,000
50,000
100,000
0.54 years
0.99 to 1.37 years
July 15, 2015
100,000
100,000
100,000
100,000
1.41 years
0.04 years
0.99 to 1.37 years
2.5 years
January 15, 2015 May 27, 2016
172.86%
0%
1.67%
$0.125
$0.125
106.54% to 125.9% 134.8% to 191.1 %
0%
1.18%
$0.36
$0.32
0%
1.27%
$ 0.40
$ 0.40
The expected volatility was calculated using the average closing price change of the Company’s shares on
the TSX over the expected life of the options.
21. Non-cash transactions
During the year ended December 31, 2014, the Company financed the acquisition of certain operating assets
of a value totalling $ 610,236 by entering into finance leases for an amount totalling $ 518,701. Additional
information on finance leases is provided in Note 18.
During the year ended December 31, 2013, the Company financed the acquisition of certain operating assets
by entering into finance leases for an amount totalling $ 83,290. The Company also financed the acquisition
of equipment by issuing a credit note for goods shipped for approximately $ 50,000.
27
Notes to the consolidated financial statements
for the years ended December 31, 2014 and 2013
22. Financial instruments
22.1 Fair value and classification of financial instruments
Carrying amount and fair value
December 31,
December 31,
2013
2014
$ 945,744
9,273,665
$ 1,129,891
8,848,549
5,154,870
7,903,031
5,560,437
7,438,682
6,780,724
2,489,179
539,900
100,657
Financial assets
Loans and receivables
Cash
Trade and other receivables (1)
Financial liabilities
Financial liabilities, at amortised cost
Bank indebtedness
Trade and other payables (2)
Long term debt
Other liabilities
Finance lease obligations
(1) Excludes sales taxes
(2) Excludes employee benefits
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 following methods and assumptions were used to determine the estimated fair value of each class of
financial instruments:
The fair value of cash, trade and other receivables, trade and other payables and the balance of
purchase price on business acquisition 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 bank indebtedness, long-term debts and finance lease obligations, which mainly
bear interest at floating rates, is estimated using a discounted cash flows approach, which discounts
the contractual cash flows using discount rates derived from observable market interest rates of
similar loans with similar risks.
The Company ensures, to the extent possible, that its valuation techniques and assumptions incorporate all
factors that market participants would consider in setting a price and that it is consistent with accepted
economic methods for pricing financial instruments.
28
Notes to the consolidated financial statements
for the years ended December 31, 2014 and 2013
22. Financial instruments (continued)
22.2 Fair value hierarchy
The Company categorizes its financial instruments into a three-level fair value measurement hierarchy as
follows:
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).
As at December 31, 2014 and 2013, the fair values of bank indebtedness, other long-term debt and finance
lease obligations are categorised as Level 2.
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 and 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 recognised as an expense
Lease payments for premises
Vehicles
Office equipment
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
Year ended
December 31,
2014
December 31,
2013
$ 876,640
34,248
8,406
$ 803,666
34,248
8,406
Year ended
December 31,
2014
December 31,
2013
$
951,014
2,619,272
1,679,851
$ 5,250,137
$ 706,514
1,564,079
445,117
$ 2,715,710
29
Notes to the consolidated financial statements
for the years ended December 31, 2014 and 2013
24. Risk management
24.1 Capital management
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 covenants are, as at December 31, 2014:
- 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;
- Interest bearing debt divided by EBITDA ratio (as defined) less than or equal to 6.00:1.00;
- Fixed charge coverage ratio calculated on a yearly basis equal to or greather than 1.10:1.00;
- To maintain a minimum EBITDA (as defined) of $ 1,900,000 for the fiscal year ended December 31, 2014.
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 USD 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.
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 USD in its consolidated
statement of financial position:
Cash
Trade receivables
Trade payables
Long term debt
Gross financial position exposure
December 31,
2014
$ 903,976
4,112,356
(6,187,526)
(2,851,887)
$ (4,023,081)
December 31,
2013
$ 1,062,082
4,529,975
(4,511,646)
(1,096,276)
$ (15,865)
30
Notes to the consolidated financial statements
for the years ended December 31, 2014 and 2013
24. Risk management (continued)
A 5% appreciation of the Canadian dollar against the USD would impact its financial position by $ 201,154
as at December 31, 2014 (December 31, 2013 - $ 793). Conversely a 5% depreciation of the Canadian
dollar against the USD would have the opposite effect. Management estimates that every $ 0.01 appreciation
of the USD against the Canadian dollar would have a negative impact on the Company’s result of
approximately $ 30,000. Every $ 0.01 depreciation of the USD 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
Gross financial position exposure
Sensitivity analysis
December 31,
2014
December 31,
2013
$ 10,715,307
$ 10,715,307
$ 8,872,862
$ 8,872,862
A 100 basis point increase in interest rates at the reporting date would result in a decrease in income for the
year ended December 31, 2015 of approximately $ 102,946 ($ 86,335 for 2014 as at December 31, 2013).
Conversely a decrease would have the opposite effect.
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 $5,154,870 was
utilized as at December 31, 2014. Borrowings under the Company’s operating line of credit bear interest at
the bank’s prime rate plus 1.25%. 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.
31
Notes to the consolidated financial statements
for the years ended December 31, 2014 and 2013
24. Risk management (continued)
As at December 31, 2014, the carrying amount and undiscounted contractual cash flows for the Company's
liabilities are as follows:
Carrying
amount
Contractual
cash flow
1 year or less
2-5 years More than 5
Bank indebtedness
Long term debt
Interest on borrowings (1)
Finance leases (2)
Trade payables
$ 5,154,870
5,533,882
26,555
539,900
8,478,772
$ 5,154,870 $ 5,154,870
927,727
299,540
149,768
8,478,772
5,559,793
878,602
594,233
8,478,772
$ -
4,281,154
575,739
444,465
-
years
$ -
350,912
3,323
-
-
$19,733,979
$20,666,270
$15,010,677
$ 5,301,358
$ 354,235
(1) The interest on the long term debt 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 the interest on the borrowings.
25. 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 consolidated
financial statements, are as follows:
Rent
Professional fees
Year ended
December 31,
2014
$ 755,050
273,558
$ 1,028,608
December 31,
2013
$ 794,769
305,225
$ 1,099,994
Rent is paid on the first day of the month for the current month. During the year ending December 31, 2014
the Company renewed a lease with a related party for a duration of 10 years. These commitments are
presented in Note 23.3 on non-cancellable operating lease commitments.
As at December 31, 2014, there was an amount of $ 114,000 recorded as payable to related parties for
professional fees ($ 159,492 as at December 31, 2013).
Compensation of key management personnel
The table below details the compensation paid to the key members of management, which include the
Company’s chief executive officer, the vice-president of operations, the vice president of marketing and
innovation, the production director and the corporate controller.
32
Notes to the consolidated financial statements
for the years ended December 31, 2014 and 2013
25. Related party transactions (continued)
Salaries
Management fees
Short-term employee benefits
Post-employment benefits – State-run plans
Other benefits
Year ended
December 31,
2014
$ 639,126
173,558
3,985
12,029
35,177
$ 863,875
December 31,
2013
$ 527,066
160,866
5,365
13,627
29,009
$ 735,933
26. Events subsequent to the reporting period
On February 2, 2015 the Company issued 1,381,695 shares following the exercise of warrants that entitled
the holders to purchase shares of the Company at $ 0.45 per share. These warrants were issued as part of a
private placement that closed on February 1, 2012.
33