ANNUAL REPORT
2018
Committed to Excellence
MANAGEMENT DISCUSSION AND ANALYSIS
PREFACE
This Management Discussion and Analysis (MD&A) comments on Imaflex Inc.’s (the “Parent Company”) operations,
financial performance, financial condition, future outlook and other matters for the three-month periods and years ended
December 31, 2018 and 2017. Unless otherwise indicated, the terms “Imaflex”, “Company”, “Corporation”, “we”, “our”,
and “us” all refer to Imaflex Inc., together with its divisions Canguard Packaging and Canslit, along with its wholly owned
subsidiary, Imaflex USA Inc. All intercompany balances and transactions have been eliminated on consolidation.
This MD&A also provides information to improve the reader’s understanding of the accompanying audited consolidated
financial statements and related notes. It should be read together with our audited consolidated financial statements for
the years ended December 31, 2018 and 2017.
Unless otherwise indicated, all financial data in this document was prepared in accordance with International Financial
Reporting Standards (“IFRS”), as issued by the International Accounting Standards Board (“IASB”) and all amounts in tables
are expressed in thousands of Canadian dollars unless otherwise indicated. Differences may occur due to rounding of
amounts. 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. This MD&A was reviewed by Imaflex’s Audit Committee
and approved by the Board of Directors on April 17, 2019. Disclosure contained within it is current to that date, unless
otherwise indicated.
Additional information on Imaflex is available on our website at www.imaflex.com and on SEDAR at www.sedar.com.
FORWARD LOOKING STATEMENTS
From time to time, we make forward-looking statements within the meaning of Canadian 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 an 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; and other factors that
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 17, 2019.
Annual Report – December 31, 2018
1
MANAGEMENT DISCUSSION AND ANALYSIS
COMPANY OVERVIEW
lmaflex is focused on the development and manufacturing of innovative solutions for the flexible packaging and agricultural
markets. The Company's flexible packaging products are largely used to protect and preserve and consist primarily of
polyethylene (plastic) films and bags, and metalized films. Our polyethylene films are mainly sold to printers known as
"converters", who process the film into a finished product to meet their end-customer needs. Additionally, our films are
sold directly to customers to protect and market their own products, or bought by distributors for re-sale.
Our agricultural films are finished products, predominantly sold directly to end-users by lmaflex. They are available in a
variety of formats and include both metalized and non-metalized films. Our portfolio includes common mulch and fumigant
barrier films, which are also available in a compostable plastic, as well as innovative crop protection films, that add
pest/weed control and/or accelerated growth benefits beyond those provided by our common mulch films.
Imaflex operates three manufacturing facilities. Two are located in the province of Quebec, including Montreal
(Imaflex Inc.) and Victoriaville (Canguard and Canslit), and one is located in Thomasville, North Carolina, USA (Imaflex USA).
The Company also has a warehouse in Thomasville. The four facilities cover a total area of approximately 23,412 square
meters or 252,000 square feet. lmaflex and lmaflex USA specialize in the manufacturing and sale of custom-made
polyethylene films and bags, along with non-metalized agricultural films. Canguard specializes in the manufacturing and
sale of polyethylene garbage bags, while Canslit specializes in the metallization of plastic film. We believe that our
manufacturing presence in both Canada and the United States provides a competitive advantage in terms of logistics,
currency, manufacturing flexibility and cost leadership.
The common shares of the Parent Company, Imaflex Inc., are listed on the TSX Venture Exchange under the symbol “IFX”.
The Company’s head office is located in Montréal (Québec).
GROWTH STRATEGY
Imaflex’s history attests to its management’s ability to successfully adapt to prevailing and continuously changing market
conditions. Management believes that success will also lie in the ability to properly manage future 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.
Management believes the following initiatives will contribute to Imaflex’s long term growth:
Strengthen and Grow the Core
We will continue to strengthen the core flexible packaging business. This includes revenue growth and margin expansion
through higher production volumes geared towards the most profitable markets and products, along with a focus on lean
operations (minimizing scrap, reducing production set-up times, etc.). In addition to growing organically, we will also
consider strategic acquisitions that make sense in terms of complementary fit, cost and ease of integration.
Grow the Agriculture Business
We will continue to build-out our agriculture business, driving awareness and exposure for our advanced crop protection
products, particularly our unique film, Shine N’ Ripe XL and our patented film, ADVASEAL® (under development). Our crop
protection films are mulch films surface coated with either metallic aluminum and/or chemical/biological active substances
aimed to protect plants from disease transmitting insects, to limit the growth of soil borne pests and weeds and/or to
accelerate the growth and yield of plants.
Shine N’ Ripe XL
Shine N’ Ripe XL is a long-lasting, heavy-duty, highly-reflective metalized mulch film designed specifically to fight citrus
greening (HLB), a bacterial disease transmitted by the Asian Citrus Psyllid (ACP). HLB has devastated the global citrus
industry, causing deformed off-flavored fruits, low yields and inevitably early tree death. Common insecticides have proven
to be ineffective in preventing HLB infestation in newly planted citrus groves.
Annual Report – December 31, 2018
2
MANAGEMENT DISCUSSION AND ANALYSIS
GROWTH STRATEGY (continued)
Grow the Agriculture Business (continued)
Shine N' Ripe XL’s unique ability to reflect up to 80% of solar ultraviolet (UV) light repels the ACP and hence helps deter
HLB infestation in young citrus trees. In addition, Shine N' Ripe XL significantly increases tree growth and yield by providing
more sunlight to the lower tree parts, usually hidden in the canopy’s shadow. Importantly, Shine N' Ripe XL also significantly
suppresses weeds and reduces water and fertilizer consumption compared to traditional growing methods. The film’s
proprietary anti-corrosion coating has also been shown to maintain its initial high UV reflectivity for at least 3 years, making
it one of the most environmentally-friendly and economically-viable tools for coping with citrus greening.
In a multi-year trial conducted by the Florida Research Centre for Agricultural Sustainability (FLARES), they repeatedly
found that Shine N’ Ripe XL demonstrated clear benefits over conventional production practices. In their January 2018
Florida Citrus Show presentation, FLARES reported that although approximately four years had passed since the trial began,
trees planted with Shine N’ Ripe XL continued to show less impact from the citrus greening disease (“HLB”) versus other
treatments. As well, material on-going benefits continued in crop yields, resulting in a significantly shorter pay-back time
for citrus growers. In both year three and year four, crops using Imaflex’s film remained the only ones in the comparative
group with a positive net return on invested capital. This ensued despite the higher initial investment costs for land
preparation and installation associated with the metalized film’s use.
ADVASEAL®
Today, agricultural films are used in the growing of fresh fruits and vegetables worldwide to cover soil treated with
fumigants - volatile and toxic pesticides, which are essential for providing a pest and weed free (disinfested) soil for the
undisturbed growth of new crop seedlings. ADVASEAL®, which is currently under development, simplifies the soil
disinfestation process, making it safer, more environmentally-friendly and cost effective by releasing modern non-volatile
crop protection products under controlled conditions from a coated plastic mulch, replacing the need for spraying.
ADVASEAL® will contain all the active ingredients, including a herbicide (HSM) to control weeds, fungicides to control soil
borne pathogens, and a nematicide to control nematodes (pre-plant) for soil disinfestation to replace hazardous fumigants
and conventional pesticide spray emissions. The catalyst to activate the release of these ingredients from the film is water.
When the film is applied to the moist soil, they are released, replacing the spray application currently being used by
growers. The underlying technology is patent protected in the top 20 major vegetable and fruit producing countries
worldwide until 2032.
ADVASEAL® is safe to transport, store and handle and its application is emission-free, eliminating the risk of inhalation and
environmental damage present with the spray drift of fumigants and herbicides under current agricultural practices. In
addition to being environmentally friendly, management estimates that ADVASEAL® will provide significant savings to
growers depending on the crop and fumigants currently being used. ADVASEAL® permits the precise application of a low
dose of crop protection products, improving crop quality and yields. Management estimates that ADVASEAL® will reduce
the chemicals required by up to 95% and eliminate many of the costly work steps currently being used. Collectively, this
puts Imaflex in a good position to capture market share worldwide as ADVASEAL® is commercialized.
Maintain focus on Research and Development
We will maintain our focus on enhancing the customer value proposition, while developing new capabilities and
leading-edge products for highly profitable niche markets. This will help support the build-out of our core flexible packaging
product portfolio. The Company’s research teams use the fields in which they have core-competencies in order to identify
innovative improvements and solutions where chemicals and polymers can offer added-value.
Maintain Efficiency of Equipment
Finally, we will focus on the efficiency of our equipment, making the required capital investments to maintain, upgrade and
expand into new areas. Our commitment to make the required investments, and our ability to deliver customized solutions,
on-time and at competitive prices should help to drive revenue and margin expansion, while allowing us to remain
competitive in the marketplace.
Annual Report – December 31, 2018
3
MANAGEMENT DISCUSSION AND ANALYSIS
MARKET OVERVIEW
The North American flexible packaging market is valued at approximately US $29 billion. Although this market is highly
fragmented and commoditized in terms of pricing, there are niches within the larger space that offer the opportunity for
increased profitability. In 2018, Imaflex was once again ranked in the top 100 North American film and sheet manufacturers
by sales.
The total addressable global agriculture mulch film market, excluding silage and green house films, is valued at
approximately US $3.5 billion. The Company has and continues to develop innovative and proprietary solutions for this
important market. Going forward, Imaflex hopes to capture a much larger share of the agriculture film market due to its
next generation crop protection and yield enhancement products, Shine N’ Ripe XL and ADVASEAL®. Management believes
the value of the global addressable market for an active ingredient release film like ADVASEAL® will be much larger than
that for traditional mulch films. In the US alone, the Company estimates that approximately 130 million pounds of mulch
film is being used, resulting in an estimated total addressable market for ADVASEAL® of approximately US $750 million.
With growing concerns over the scarcity of resources, the environment, lower crop yields due to disease, and a rising global
population, the Company believes that the macro-environment is also working in its favour. Sustainability and intelligent
farming are becoming increasingly important.
SHINE N’ RIPE XL BUILD-OUT
In 2017, a major international citrus producer began using Shine N’ Ripe XL, leading to multi-million dollars in citrus film
sales for the year. These purchases followed initial field trials by the grower and other multi-year independent studies, all
of which confirmed the biological, environmental and economic benefits associated with using the film.
In the first quarter of 2018, Imaflex saw some timing delays in citrus film sales, largely due to major storms in the
southeastern USA in late 2017. In the second quarter of 2018 orders resumed, however overall sales for 2018 were muted
year-over-year. Sales fluctuations are not unusual when a product and customer network is being built out. The
Corporation is actively pursuing new citrus film users and has a number of trials underway.
Imaflex is currently the only company with independent, long-term field trials showing that its long-lasting metalized film
effectively reduces the early onset of citrus greening, while also accelerating tree growth and increasing yield. Due to these
successes and trials underway with new growers, Imaflex is optimistic it will see a further broadening of its customer base
and revenue expansion going forward.
ADVASEAL® COMMERCIALIZATION
Imaflex has successfully completed the design of the coating line, customized for the cost effective production of
ADVASEAL®. As for the active ingredients to be used with the film, faced with merger and acquisition activity amongst crop
protection companies and the resulting delays in obtaining supply commitments, the Corporation decided to go directly to
the same manufacturers in Asia supplying them. Although all the registered active ingredients were eventually sourced,
Imaflex experienced unusually long delays obtaining the necessary import permits due to the recent partial U.S. federal
government shutdown. As a result, the chemicals were not received in time for the spring 2019 growing season. All of the
active ingredients have now been received and we are cautiously optimistic field tests will be completed by year-end 2019.
Imaflex has identified a potential manufacturer (coater) capable of supplying sufficient quantities of ADVASEAL® for
upcoming efficacy field trials. The contract manufacturer is a multi-national technology leader staffed with qualified
chemists, process engineers and production technicians that are adept at working with chemicals and developing new
products. Numerous trials have taken place at their facility and we are increasingly confident they will be able to provide
coated film for upcoming efficacy field trials. The manufacturer has also obtained the required regulatory approval to work
with the active ingredients associated with ADVASEAL®.
Annual Report – December 31, 2018
4
MANAGEMENT DISCUSSION AND ANALYSIS
ADVASEAL® COMMERCIALIZATION (continued)
The efficacy studies are required by the US Environmental Protection Agency (EPA) for the exclusive registration of
ADVASEAL®. Management believes the efficacy field trials and the pesticide registration process will be positive as the
generic active ingredients to be used with ADVASEAL are effectively used by growers today. As well, the Company
previously received EPA approval of its herbicidal active ingredient release film, ADVASEAL® HSM.
COMPETITIVE ENVIRONMENT
Although competition is high in all of our markets, Imaflex operates in a multi-billion dollar industry with a multitude of
product opportunities. Flexible packaging alone is used in almost every consumer product market to protect and preserve.
Additionally, many of the Company’s customers deal in food related products, which is somewhat recession resistant.
Imaflex believes it has a competitive edge since it is recognized as being an industry leader in the development of innovative
solutions. The Company focuses on offering customers unique high quality products on a timely basis and at competitive
prices. A key strength of ours is the ability to take on smaller orders with short lead times. Collectively, this helps create
customer loyalty.
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. This strategy has been the backbone of our growth and it has served us well.
We employ a staff of chemical & polymer engineers and a chemist, which allows us to develop unique solutions. In our
markets, we believe it is essential to sell value-added products and avoid producing highly commoditized offerings
generating lower margins. The key to this strategy is identifying and building relationships with customers having specific
needs and eventually developing products that address them. Our sales force is mandated to seek out such clients and the
Company works to ensure its sales team is technically accomplished and equipped to properly communicate the advantages
of all products.
EMPLOYEES AND CORPORATE OFFICE
Imaflex currently employs approximately 252 people in North America, including those at our corporate head office located
in Montreal, Canada. The Company currently has no unionized employees.
OUTSOURCING
Our industry is capital intensive and labour is only a minor component in the total cost of production. As a result,
outsourcing our manufacturing to countries with lower wages would not have a material impact on costs, especially when
factoring in expenses related to freight and duty. Furthermore, the risks associated with relinquishing our control over
quality and delays in delivery deadlines would far outweigh any minimal benefit that would be generated by lower labour
costs.
However, in the effort of eliminating bottlenecks in our production process when our capacity usage is very high,
management may consider the use of third-party (toll) manufacturers for certain activities in order to meet all production
deadlines and ensure the best service to our customers.
NON-IFRS FINANCIAL MEASURES
The Company’s management uses a non-IFRS financial measure in this MD&A, namely EBITDA, to assess its performance.
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.
Annual Report – December 31, 2018
5
MANAGEMENT DISCUSSION AND ANALYSIS
NON-IFRS FINANCIAL MEASURES (continued)
Reconciliation of EBITDA to net income:
($ thousands, except per share data)
Net income
Plus:
Income taxes
Finance costs
Depreciation and amortization
EBITDA
Basic EBITDA per share *
Diluted EBITDA per share *
Three months ended
December 31,
Years ended
December 31,
2018
2017
2018
2017
$ 556
$ 761
$ 3,550
$ 3,762
411
170
657
$ 1,794
$ 0.04
$ 0.04
225
154
617
$ 1,757
$ 0.04
$ 0.03
1,477
571
2,201
$ 7,799
$ 0.16
$ 0.15
1,386
572
2,091
$ 7,811
$ 0.16
$ 0.15
*Basic weighted average number of shares outstanding of 50,013,637 for the three-month period ended December 31,
2018 (49,744,072 in 2017) and 49,915,829 for the year ended December 31, 2018 (49,740,007 in 2017). Diluted weighted
average number of shares outstanding of 51,031,396 for the three-month period ended December 31, 2018 (51,185,931
in 2017) and 51,067,300 for the year ended December 31, 2018 (51,023,356 in 2017).
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 and accordingly it should not be considered in
isolation.
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 overall market the Company competes in has historically shown resiliency and growth, even during difficult economic
times. The Company’s customers predominantly operate in the food packaging and agriculture markets, which is
somewhat resilient to recessionary and seasonal pressures. This fact, coupled with expanding product lines and
introduction of newer and faster equipment, should help it weather any 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
from 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.
Annual Report – December 31, 2018
6
MANAGEMENT DISCUSSION AND ANALYSIS
GENERAL SITUATION OF THE POLYETHYLENE BLOWN FILM MARKET – RESIN PRICING
Despite routine monthly fluctuations, 2018 resin prices were down overall and pricing remained flat for the first quarter of
2019. The prevailing sentiment of resin buyers for the remainder of 2019 is for moderate downward pressure on pricing,
due largely to expected capacity increases from new plants coming on stream. This said, any supply chain disruptions
would allow resin producers to raise prices. Since Imaflex does not have major long term contracts with its customers,
resin price fluctuations are typically passed along to them.
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 10% of our revenues.
This strategy helps ensure that our profitability and financial well-being are not dependent on any one client.
COMPETITION FROM OTHER COMPANIES
Imaflex operates in the highly competitive multi-billion dollar flexible packaging and agricultural film markets. This said, we
believe the Company has a competitive edge over the competition due to our highly skilled teams that are quick to respond
to customer needs, a diversified manufacturing base and the fact that the bulk of our customers deal in food related
products which are less subject to recessionary and seasonal pressures. It may not always translate into greater net profit,
but it should result in customer loyalty if we decide to match our competitors’ prices.
SEASONALITY OF OPERATIONS
Some products produced at our Victoriaville and Thomasville facilities are subject to some seasonality as a result of the
plant’s partial manufacturing focus on the production of agriculture film for fruit and vegetable growers. 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, they are
not overly affected by seasonal downturns.
EXPOSURE TO PRODUCT LIABILITY
Due to the nature of our operations, which consist primarily of manufacturing polyethylene film for converters, who
process film into a finished product 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 agriculture space. 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; planned plant
shutdowns for preventative maintenance affecting production levels; and interest rate fluctuations and other changes in
borrowing costs.
Annual Report – December 31, 2018
7
MANAGEMENT DISCUSSION AND ANALYSIS
EXPOSURE TO INTEREST RATE FLUCTUATIONS
The Company’s borrowings which bear interest at a variable rate have some interest rate risk. Management assesses its
exposure to interest rate fluctuations and decides whether it may be favourable to enter into contracts to hedge this risk
based on expectation of future movements and the available economic data. Interest rate hikes, including those seen in
recent quarters, may affect the Company’s future cost of borrowing. However, for the moment, management is not
hedging any of its interest rate exposure and expects this exposure to lessen as the outstanding balance of its long term
borrowings decreases.
ABILITY TO ATTRACT AND RETAIN QUALIFIED PERSONNEL
Imaflex’s core operational management team has been stable over the past years and the Company was able to keep key
competencies within the firm. This includes its three founders, who have more than 100 years of combined experience in
management and research and development. As Imaflex has grown, it has also strengthened its team, adding individuals
having a variety of competencies, such as accounting, operations, or engineering.
Management promotes a work environment that allows for the free exchange of ideas in an effort to ensure that the
Company remains at the forefront of its industry. Management is confident that it can retain and, if need be, attract
qualified individuals that will contribute to its on-going goal of building shareholder value.
FOREIGN EXCHANGE FLUCTUATIONS
Some of the Company’s sales and expenses, as well as accounts receivable and payable, are denominated in US dollars. A
portion of the revenue stream in US dollars acts as a natural hedge to cover US denominated expenses. Imaflex can also
borrow funds on its line of credit in US dollars. The Company has increased its debt in US dollars in order to obtain
additional revenues in US dollars. As this additional US business fully materializes, the Company’s exposure to foreign
currency should 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 handling 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
Fiscal 2018 revenue was down versus 2017, largely due to reduced sales volumes in the first half of 2018, particularly citrus
films. This said, profitability was positively impacted by favourable movements in foreign exchange and lower selling and
administrative expenses. As a result, EBITDA was unchanged year-over-year, while net income came in at $3.6 million for
calendar 2018, versus $3.8 million in 2017.
($ thousands)
Three months ended
December 31,
2018
2017
Years ended
December 31,
2018
2017
Sales
$22,472
$21,395
$86,332
$88,297
Revenues were $22.5 million for the fourth quarter of 2018, up 5.0% from $21.4 million in 2017. The increase was driven
by higher sales volumes, improvements to product mix and favourable movements in foreign exchange. Citrus film sales
totaled $1.4 million for the quarter, versus $1.5 million in the corresponding period of 2017.
Annual Report – December 31, 2018
8
MANAGEMENT DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS (continued)
Sales for the year ended December 31, 2018 stood at $86.3 million, versus $88.3 million for calendar 2017. The decrease
was largely due to lower sales volumes in the first half of 2018, particularly citrus film, partially offset by improvements to
product mix. Citrus film sales totaled $2.8 million for calendar 2018, as compared to $6.4 million in the prior year. At the
end of 2018, the Corporation had $1.8 million of citrus film orders in its sales pipeline.
($ thousands)
Gross Profit ($) before amortization of
production equipment
Gross Profit before amortization of
production equipment (%)
Amortization of production equipment
Gross profit ($)
Gross profit (%)
Three months ended
December 31,
2018
2017
Years ended
December 31,
2018
2017
$2,361
$3,468
$12,684
$15,767
10.5%
16.2%
14.7%
17.9%
589
$1,772
7.9%
459
$3,009
14.1%
1,920
$10,764
12.5%
1,774
$13,993
15.8%
Quarterly gross profit before the amortization of production equipment was $2.4 million or 10.5% of sales for the quarter,
versus $3.5 million and 16.2% of sales in 2017. Including amortization of production equipment, the quarterly gross profit
was $1.8 million or 7.9% of sales, versus $3.0 million and 14.1% of sales in 2017. The decrease was largely due to product
pricing, stemming predominantly from a reduction in resin prices. Industry wide, resin price decreases are normally
reflected immediately in customer pricing, while increases usually take approximately 30 days to be priced in. As such, the
effect of a resin price decrease is that an immediate opportunity loss is incurred with respect to resin inventory previously
purchased when resin prices were higher.
For fiscal 2018, the gross profit before amortization of production equipment stood at $12.7 million or 14.7% of sales, down
from $15.8 million and 17.9% of sales in the prior year. Including amortization expenses, the gross profit was $10.8 million
or 12.5% of sales in 2018, versus $14.0 million and 15.8% of sales in 2017. The reduced year-to-date gross profit, before
and after amortization, was largely due to less sales of higher margin citrus films in 2018.
($ thousands)
Selling and administrative
As a % of sales
Three months ended
December 31,
2018
2017
Years ended
December 31,
2018
$1,490
6.6%
$1,884
8.8%
$6,493
7.5%
2017
$7,084
8.0%
Selling and administrative expenses were $1.5 million or 6.6% of sales in the fourth quarter of 2018, down from $1.9 million
and 8.8% of sales in 2017. The year-over-year expense decrease was largely due to lower professional service fees in 2018
and a one-time customer credit loss in 2017.
For the year ended December 31, 2018, selling and administrative expenses totaled $6.5 million or 7.5% of sales, down
from $7.1 million and 8.0% of sales in 2017. The expense decrease versus 2017 was largely due to the lower 2018 sales
base.
($ thousands)
Three months ended
December 31,
2018
2017
Years ended
December 31,
2018
Finance costs
$170
$154
$571
2017
$572
Annual Report – December 31, 2018
9
MANAGEMENT DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS (continued)
Year-over-year finance costs were up slightly for the quarter ended December 31, 2018, largely due to increased debt
levels, including greater usage of the Company’s line of credit, and higher 2018 interest rates. For fiscal 2018, year-over-
year finance costs remained essentially in-line, with debt repayments and the capitalization of interest on new borrowings
offsetting higher 2018 interest rates.
($ thousands)
Three months ended
December 31,
2018
2017
Years ended
December 31,
2018
2017
Foreign exchange (gains)/losses
$(886)
$(39)
($1,340)
$1,085
A stronger year-over-year appreciation of the US dollar against the Canadian dollar resulted in a foreign exchange gain of
$0.9 million in the fourth quarter of 2018, up from a slight gain of $39 thousand dollars in 2017.
For the year ended December 31, 2018, the appreciation of the US dollar against the Canadian dollar resulted in a foreign
exchange gain of $1.3 million. Conversely, in the prior year Imaflex recorded a foreign exchange loss of $1.1 million as a
result of unfavourable currency fluctuations. Collectively, this generated a positive year-over-year variance of $2.4 million.
The majority of these foreign exchange gains and losses are non-cash impacting and relate to intercompany balances for
which Imaflex can control the time of settlement.
($ thousands)
Three months ended
December 31,
2018
2017
Years ended
December 31,
2018
Income taxes
As a % of income before taxes
$411
42.5%
$225
22.8%
$1,477
29.4%
2017
$1,386
26.9%
Income tax expenses totaled $0.4 million for the fourth quarter of 2018, up from $0.2 million in 2017. The income tax
expense as a percentage of income before taxes also increased year-over-year, growing from 22.8% in 2017 to 42.5% in
2018.
Calendar 2018 income taxes came in at $1.5 million for the year, up from $1.4 million in 2017. The income tax expense as
a percentage of income before taxes was 29.4% for 2018, up from 26.9% in 2017. The Corporation’s statutory tax rate was
26.7% in 2018.
($ thousands, except per share data)
Net income
Basic earnings per share
Diluted earnings per share
Three months ended
December 31,
2018
2017
Years ended
December 31,
2018
$556
$0.01
$0.01
$761
$0.02
$0.01
$3,550
$0.07
$0.07
2017
$3,762
$0.08
$0.07
The Corporation realized net income of $0.6 million in the fourth quarter of 2018, down from $0.8 million in 2017. For
calendar 2018 and 2017, net income stood at $3.6 million and $3.8 million respectively. Year-over-year net income for
both the quarter and calendar year was down largely as a result of the lower gross profits and higher taxes in 2018. This
was partially offset by favourable currency fluctuations and lower selling and administrative expenses.
SUMMARY OF QUARTERLY RESULTS
Summary financial data derived from the Company’s unaudited quarterly financial statements for each of the eight most
recently completed quarters are as follows:
Annual Report – December 31, 2018
10
MANAGEMENT DISCUSSION AND ANALYSIS
SUMMARY OF QUARTERLY RESULTS (continued)
For the quarters ending March, June, September and December ($ thousands, except per share data):
Revenues
Q4/18
Q1/17
$22,472 $21,316 $21,927 $20,617 $21,395 $20,791 $24,055 $22,056
Q1/18
Q4/17
Q2/17
Q3/17
Q2/18
Q3/18
Net income (loss)
556
594
727
1,673
761
556
1,300
1,145
Earnings (loss) per share
Basic
Diluted
0.011
0.011
0.012
0.012
0.015
0.014
0.034
0.033
0.015
0.015
0.011
0.011
0.026
0.026
0.023
0.023
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; planned plant
shutdowns for preventative maintenance affecting production levels; along with interest rate fluctuations and other
changes in borrowing costs.
FINANCIAL POSITION
December 31, 2018 vs. December 31, 2017
Working Capital strengthened, growing from $9.2 million as at December 31, 2017, to $11.0 million as at December 31,
2018. The improvement was largely due to a $2.6 million year-over-year increase in inventories to meet heightened sales
expectations for both our core flexible packaging and agriculture products, along with higher trade and other receivables
of $3.5 million. This was partially offset by a $3.3 million increase in bank debt, including short-term borrowings to buy
equipment, and trade and other payables were higher by $1.5 million.
LIQUIDITY
Cash Flows from Operating Activities
Before movements in working capital and income taxes paid, Imaflex generated $1.0 million of cash flows from operating
activities during the fourth quarter of 2018, down from $1.7 million in 2017. The decrease was largely due to year-over-
year movements in foreign exchange and the lower profit in 2018.
Overall movements in working capital were relatively flat for the fourth quarter of 2018, with Imaflex recording
$46 thousand of cash outflows, versus $0.3 million of inflows in the corresponding prior year quarter. Including movements
in working capital and taxes paid, the net cash generated by operating activities totaled $0.6 million in the fourth quarter
of 2018, down from $1.8 million in 2017.
For fiscal 2018, net cash generated by operating activities, before movements in working capital and income taxes paid,
totaled $6.7 million, down from $8.9 million in 2017. The $2.2 million year-over-year decrease is largely explained by a
$2.1 million outflow due to movements in foreign exchange. Net cash generated from operating activities including
movements in working capital and taxes paid stood at $1.1 million for fiscal 2018, down from $3.3 million in 2017. The
decrease was due to the aforementioned movements in foreign exchange, and $1.1 million more taxes paid in 2018,
partially offset by favourable year-over-year movements in working capital of $1.1 million versus 2017.
Cash Flows from Investing Activities
During the fourth quarter of 2018, Imaflex contributed $1.5 million towards capital assets, up from $0.5 million in the
corresponding prior-year period, largely due to the purchase of additional equipment for the Corporation’s US operations.
For fiscal 2018, capital investments totaled $3.7 million, up from $2.4 million in the prior year. The majority of cash used
for investing activities during fiscal 2018 went towards the purchase of additional equipment for Imaflex’s US operations,
Annual Report – December 31, 2018
11
MANAGEMENT DISCUSSION AND ANALYSIS
Cash Flows from Investing Activities (continued)
including the purchase of a new 5-layer coextruder. These investments are aimed at improving the Company’s production
capacity and capabilities in order to generate heightened sales and profitability.
Cash Flows from Financing Activities
Cash flows generated from financing activities totaled $0.9 million for the fourth quarter of 2018, up from net cash outflows
of $1.3 million in the corresponding prior year quarter. The $2.2 million improvement over 2017 is largely due to a
$2.6 million variation in short term borrowings largely relating to the Corporation’s line of credit, along with a $1.3 million
increase in finance leases, partially offset by higher repayments of long-term debt of $1.4 million.
For fiscal 2018, Imaflex generated $2.8 million of cash flows from financing activities, as compared to cash outflows of
$0.9 million in 2017. The $3.7 million net year-over-year improvement is largely due to a $2.3 million increase in the
Corporation’s line of credit, and a $1.3 million increase in finance leases relating largely to the purchase of a new
coextruder.
CONTRACTUAL OBLIGATIONS
The contractual obligations as at December 31, 2018 were as follows:
($ thousands)
Payments due by period
Bank indebtedness
Short-term borrowings
Long-term debt
Finance leases*
Operating Leases
Total contractual obligations
Total
8,114
804
$ 3,933
311
4,669
$ 17,831
Less than 1 year
8,114
804
$ 1,602
104
1,194
$ 11,818
1 to 5 years
-
After 5 years
-
$ 2,273
207
3,294
$ 5,774
$
58
-
181
$ 239
*Finance leases exclude $1.3 million of interim advances for equipment related to the Company’s previously announced
equipment leasing facility. A payment schedule will be determined upon receipt of equipment.
These contractual obligations are sensitive to the fluctuation of interest rates. They are based on interest rates and foreign
exchange rates effective as at December 31, 2018.
CAPITAL RESOURCES
The Company’s $12 million operating line of credit, which is secured by trade receivables and inventories, bears interest at
a premium of 0.40% over the Canadian prime rate. As at December 31, 2018, Imaflex was using approximately $ 8.1 million
on its line of credit ($5.8 million as at December 31, 2017) and had cash outstanding of $0.3 million ($0.1 million as at
December 31, 2017). Working capital strengthened year-over-year, coming in at $11.0 million as at December 31, 2018,
up from $9.2 million as at December 31, 2017. The Company controls its financial leverage, ensuring that its borrowings
reflect the asset base against which the funds are borrowed as well as the profitability that is generated through the
operations. The Company has sufficient capital to fund its operations and to further grow the business in the near future.
EQUIPMENT LEASING FACILITY
In 2018, Imaflex entered into an equipment leasing facility of up to CDN $10.0 million with a leading global financial
institution to fund business expansion. Upon delivery of equipment to Imaflex, the specific lease will be repayable in 60
equal monthly installments, with the applicable interest rate being locked in at time of equipment delivery. At the end of
the 60-month period, Imaflex will own the equipment. This financing allows the Corporation to increase its scale, broaden
its capabilities and drive revenue and margin expansion at attractive terms.
Annual Report – December 31, 2018
12
MANAGEMENT DISCUSSION AND ANALYSIS
PROPOSED TRANSACTION
The Company is not currently contemplating any business acquisition or merger.
RELATED PARTY TRANSACTIONS
In the normal course of operations, the Company had routine transactions with related parties. These transactions are
measured at fair value, which is the amount of consideration established and agreed to by the related parties.
The following table reflects the related party transactions recorded for the periods ended December 31, 2018 and 2017.
For additional information, please refer to note 24, Related party transactions of the “Notes to the consolidated financial
statements” for the years ended December 31, 2018 and 2017.
($ thousands)
Three months ended
December 31,
2018
2017
Years ended
December 31,
2018
2017
Professional fees and key
management personnel services
Rent
Remuneration
(a)
(b)
(c)
$ 19
$ 336
$ 252
$ 78
$ 216
$ 284
$ 216
$ 256
$ 975
$ 1,142
$ 868
$ 1,113
(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”).
(c) Includes salaries, benefits and fees paid to key management personnel and directors.
CRITICAL ACCOUNTING POLICIES
The Company’s significant accounting policies, including the Company’s accounting policies under IFRS, are disclosed in
note 2, Significant accounting policies of the consolidated financial statements for the years ended December 31, 2018 and
2017. On January 1, 2018 the Company adopted IFRS 9 and 15, as explained in note 2.18 of the consolidated financial
statements for the year ended December 31, 2018.
FINANCIAL INSTRUMENTS
Please refer to note 21, Financial instruments of the consolidated financial statements for the years ended December 31,
2018 and 2017 for disclosure on the Company’s financial instruments as well as note 23, Risk management for a discussion
on the risks the Company is exposed to and how they are managed.
As at December 31, 2018, the Company was not using any swap, forward or hedge accounting and there were no warrants
outstanding.
As at December 31, 2018, 2,625,000 options to purchase shares of the Company were outstanding at a weighted average
strike price of $0.520 of which 2,400,000 were exercisable.
As at December 31, 2017, 2,525,000 options to purchase shares of the Company were outstanding at a weighted average
strike price of $0.489 of which 1,937,500 were exercisable.
Annual Report – December 31, 2018
13
MANAGEMENT DISCUSSION AND ANALYSIS
MANAGEMENT OUTLOOK
Business fundamentals for 2019, are expected to remain stable in a competitive market. Overall growth will be supported
by investments we have made to increase our production capacity and capabilities. Assembly and installation of the new
5-layer coextruder is well underway and the Corporation continues to expect it to be operational around the end of the
second quarter of 2019. Although we are expecting higher sales volumes for 2019, the total impact on revenues may be
moderated due to a possible reduction in resin prices. Since the Corporation does not have major long term contracts,
resin price fluctuations are passed along to customers.
With respect to our citrus film, Shine N’ Ripe XL, we have a number of trials underway with new growers. These trials are
progressing well, and we are hopeful it will result in a broadened customer base and heightened sales going forward.
Concerning ADVASEAL®, all of the active ingredients required for the film have now been received and we remain cautiously
optimistic field tests will be completed by year-end 2019.
OUTSTANDING SHARE DATA
As at December 31, 2018, the Company had 50,013,637 common shares outstanding, compared to 49,863,637 as at
December 31, 2017.
Additional information relating to our Company, including our quarterly and Annual Reports, can be found on SEDAR at
www.sedar.com.
(s) Joe Abbandonato
Joe Abbandonato
President and Chief Executive Officer
(s) Giancarlo Santella
Giancarlo Santella, CPA, CA
Chief Financial Officer
April 17, 2019
For investor information, contact
JOHN RIPPLINGER
Vice President Corporate Affairs
johnr@imaflex.com
T: 514.935.5710 ext. 157 | F: 514.935.0264
5710 Notre-Dame West
Montreal, Quebec, Canada H4C 1V2
T: 514.935.5710 | F: 514.935.0264
www.imaflex.com
Annual Report – December 31, 2018
14
Consolidated Financial Statements of
IMAFLEX INC.
Years ended December 31, 2018 and 2017
1
Independent Auditor's Report
To the Shareholders of
Imaflex Inc.
Opinion
We have audited the consolidated financial statements of Imaflex Inc. (hereafter
''the Company''), which comprise the consolidated statements of financial position
as at December 31, 2018 and 2017, and the consolidated statements of
comprehensive income, the consolidated statements of changes in equity and
consolidated statements of cash flows for the years then ended, and notes to
consolidated financial statements, including a summary of significant accounting
policies.
In our opinion, the accompanying consolidated financial statements present fairly,
in all material respects, the financial position of the Company as at December 31,
2018 and 2017, and its financial performance and its cash flows for the years then
ended in accordance with International Financial Reporting Standards (IFRS).
Basis for opinion
We conducted our audit in accordance with Canadian generally accepted auditing
standards. Our responsibilities under those standards are further described in the
"Auditor’s responsibilities for the audit of the consolidated financial statements"
section of our report. We are independent of the Company in accordance with the
ethical requirements that are relevant to our audit of the consolidated financial
statements in Canada, and we have fulfilled our other ethical responsibilities in
accordance with these requirements. We believe that the audit evidence we have
obtained is sufficient and appropriate to provide a basis for our opinion.
Information other than the consolidated financial statements and the
auditor’s report thereon
Management is responsible for the other information. The other information
comprises the Management's Discussion and Analysis, and the information, other
than the consolidated financial statements and our auditor's report thereon,
included in the Annual Report.
Raymond Chabot Grant Thornton LLP Suite 2000 National Bank Tower 600 De La Gauchetière Street West Montréal, Quebec H3B 4L8 T 514-878-2691 Member of Grant Thornton International Ltd rcgt.com 3
Our opinion on the consolidated financial statements does not cover the other
information and we do not and will not express any form of assurance conclusion
thereon. In connection with our audit of the consolidated financial statements, our
responsibility is to read the other information identified above and, in doing so,
consider whether the other information is materially inconsistent with the
consolidated financial statements or our knowledge obtained in the audit, or
otherwise appears to be materially misstated.
We obtained Management's Discussion and Analysis prior to the date of this
auditor’s report. If, based on the work we have performed on this other
information, we conclude that there is a material misstatement of this other
information, we are required to report that fact in this auditor’s report. We have
nothing to report in this regard.
The Annual Report is expected to be made available to us after the date of this
auditor’s report. If, based on the work we will perform on this other information, we
conclude that there is a material misstatement of this other information, we are
required to report that fact to those charged with governance.
Responsibilities of management and those charged with governance for the
consolidated financial statements
Management is responsible for the preparation and fair presentation of the
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.
In preparing the consolidated financial statements, management is responsible for
assessing the Company's ability to continue as a going concern, disclosing, as
applicable, matters related to going concern and using the going concern basis of
accounting unless management either intends to liquidate the Company or to
cease operations, or has no realistic alternative but to do so.
Those charged with governance are responsible for overseeing the Company’s
financial reporting process.
Auditor’s responsibilities for the audit of the consolidated financial
statements
Our objectives are to obtain reasonable assurance about whether the consolidated
financial statements as a whole are free from material misstatement, whether due
to fraud or error, and to issue an auditor’s report that includes our opinion.
Reasonable assurance is a high level of assurance, but is not a guarantee that an
audit conducted in accordance with Canadian generally accepted auditing
standards will always detect a material misstatement when it exists. Misstatements
can arise from fraud or error and are considered material if, individually or in the
aggregate, they could reasonably be expected to influence the economic
decisions of users taken on the basis of these consolidated financial statements.
4
As part of an audit in accordance with Canadian generally accepted auditing
standards, we exercise professional
judgment and maintain professional
skepticism throughout the audit. We also:
– Identify and assess the risks of material misstatement of the consolidated
financial statements, whether due to fraud or error, design and perform audit
procedures responsive to those risks, and obtain audit evidence that is
sufficient and appropriate to provide a basis for our opinion. The risk of not
detecting a material misstatement resulting from fraud is higher than for one
resulting from error, as fraud may involve collusion, forgery, intentional
omissions, misrepresentations, or the override of internal control;
– Obtain an understanding of internal control relevant to the audit in order to
design audit procedures that are appropriate in the circumstances, but not for
the purpose of expressing an opinion on the effectiveness of the Company’s
internal control;
– Evaluate
the appropriateness of accounting policies used and
the
reasonableness of accounting estimates and related disclosures made by
management;
– Conclude on the appropriateness of management’s use of the going concern
basis of accounting and, based on the audit evidence obtained, whether a
material uncertainty exists related to events or conditions that may cast
significant doubt on the Company's ability to continue as a going concern. If we
conclude that a material uncertainty exists, we are required to draw attention in
our auditor’s report to the related disclosures in the consolidated financial
statements or, if such disclosures are inadequate, to modify our opinion. Our
conclusions are based on the audit evidence obtained up to the date of our
auditor’s report. However, future events or conditions may cause the Company
to cease to continue as a going concern;
– Evaluate the overall presentation, structure and content of the consolidated
financial statements, including the disclosures, and whether the consolidated
financial statements represent the underlying transactions and events in a
manner that achieves fair presentation;
– Obtain sufficient appropriate audit evidence regarding the financial information
of the entities or business activities within the group to express an opinion on
the consolidated financial statements. We are responsible for the direction,
supervision and performance of the group audit. We remain solely responsible
for our audit opinion.
We communicate with those charged with governance regarding, among other
matters, the planned scope and timing of the audit and significant audit findings,
including any significant deficiencies in internal control that we identify during our
audit.
5
We also provide those charged with governance with a statement that we have
complied with relevant ethical requirements regarding independence, and to
communicate with them all relationships and other matters that may reasonably be
thought to bear on our independence, and where applicable, related safeguards.
The engagement partner on the audit resulting in this independent auditor’s report
is Antonia Psyharis.
Montréal
April 17, 2019
___________________________________
1 CPA auditor, CA public accountancy permit no. A119564
Consolidated statements of comprehensive income
(in Canadian dollars)
for the years ended
Revenues
Cost of sales
Gross profit
Expenses:
Selling
Administrative
Finance costs
Foreign exchange (gains) losses
Other
Income before income taxes
Income taxes
NET INCOME
(Note 5.1)
(Note 8)
December 31,
2018
2017
$ 86,332,093
75,568,464
10,763,629
$ 88,296,683
74,303,446
13,993,237
1,605,374
4,887,531
571,487
(1,340,813)
13,266
5,736,845
1,633,851
5,450,359
572,427
1,084,810
102,988
8,844,435
5,026,784
5,148,802
(Note 9)
1,476,852
1,386,462
3,549,932
3,762,340
Other comprehensive income
Item that will be reclassified subsequently to net income
Exchange differences on translating foreign operations
263,803
(217,994)
COMPREHENSIVE INCOME
$
3,813,735
$ 3,544,346
Earnings per share
Basic
Diluted
(Note 10)
$
$
0.071
0.070
$
$
0.076
0.074
The accompanying notes are an integral part of these consolidated financial statements and note 6 presents
additional information on consolidated comprehensive income.
6
Consolidated statements of financial position
(in Canadian dollars)
As at
Assets
Current assets
Cash
Trade and other receivables
Inventories
Prepaid expenses
Total current assets
Non‐current assets
Property, plant and equipment
Intangible assets
Total non‐current assets
Total assets
Liabilities and equity
Current liabilities
December 31,
2018
December 31,
2017
(Note 11)
(Note 12)
$
310,874
15,922,044
14,656,483
220,500
31,109,901
$
87,140
12,384,001
12,076,464
521,625
25,069,230
(Note 13)
(Note 14)
21,183,335
1,345,038
22,528,373
18,591,573
1,395,557
19,987,130
$ 53,638,274
$ 45,056,360
Bank indebtedness and short‐term borrowings
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 16)
(Note 15)
(Note 16)
(Notes 16, 17)
(Note 16)
(Note 9)
(Notes 16, 17)
8,918,137
9,190,309
498,463
1,432,505
89,517
20,128,931
2,138,759
1,468,329
1,478,906
5,085,994
5,827,182
7,702,182
868,999
1,250,481
194,684
15,843,528
3,094,886
1,410,786
280,378
4,786,050
25,214,925
20,629,578
(Note 18)
(Note 19)
11,875,023
2,268,171
14,280,155
28,423,349
11,815,023
1,881,536
10,730,223
24,426,782
Total liabilities and equity
$ 53,638,274
$ 45,056,360
Non‐cancellable operating lease commitments (Note 22.3)
The accompanying notes are an integral part of these consolidated financial statements.
(s) Joseph Abbandonato
Joseph Abbandonato
Director
(s) Mario Settino
Mario Settino
Director
7
Consolidated statements of changes in equity
For the years ended December 31, 2018 and 2017
(in Canadian dollars)
Reserves
Share capital (a)
$ 11,765,023
Share‐based
compensation
$ 755,829
‐
‐
‐
‐
‐
‐
Accumulated
foreign
currency
translation
$ 682,820
‐
(217,994)
(217,994)
50,000
‐
‐
195,707
‐
‐
Warrants
$ 465,174
Total
reserves
$ 1,903,823
Retained
earnings
$ 6,967,883
Total
$ 20,636,729
‐
‐
‐
‐
‐
‐
3,762,340
3,762,340
(217,994)
(217,994)
‐
3,762,340
(217,994)
3,544,346
‐
195,707
‐
‐
50,000
195,707
$11,815,023
$ 951,536
$ 464,826
$ 465,174 $ 1,881,536
$ 10,730,223
$ 24,426,782
‐
‐
‐
‐
‐
‐
‐
263,803
263,803
‐
‐
‐
‐
3,549,932
3,549,932
263,803
263,803
‐
3,549,932
263,803
3,813,735
60,000
‐
$11,875,023
‐
122,832
$ 1,074,368
‐
‐
$ 728,629
‐
‐
$ 465,174
‐
122,832
$ 2,268,171
‐
‐
$ 14,280,155
60,000
122,832
$ 28,423,349
Balance at January 1, 2017
Net income for the year
Exchange differences on translating
foreign operations
Comprehensive income for the year
Transactions with owners:
Issuance of share capital (Note 18)
Share‐based compensation (Note 19)
Balance at December 31, 2017 and
January 1, 2018
Net income for the year
Exchange differences on translating
foreign operations
Comprehensive income for the year
Transactions with owners:
Issuance of share capital (Note 18)
Share‐based compensation (Note 19)
Balance at December 31, 2018
(a) Additional detail of share capital is provided in Note 18
The accompanying notes are an integral part of these consolidated financial statements.
8
Consolidated statements of cash flows
(in Canadian dollars)
for the years ended
Operating activities:
Net income for the year
Income tax expense
Depreciation and amortisation of non‐current assets
Write‐off of property, plant and equipment
Finance costs
Share‐based compensation
Unrealized foreign exchange (gain) loss
Net changes in working capital
Increase in trade and other receivables
Increase in inventories
Decrease (increase) in prepaid expenses
Increase (decrease) in trade and other payables
Cash generated by operating activities
Net income taxes paid
Net cash 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 short‐term borrowings
Increase in long‐term debt
Repayment of long‐term debt
Net proceeds from issuance of share capital
Increase in finance leases
Repayment of finance leases
Net cash generated by (used in) financing activities
Net increase in cash
Cash, beginning of the year
Effects of foreign exchange differences on cash
Cash, end of the year
Non‐cash transactions (Note 20)
December 31,
2018
2017
$ 3,549,932
1,476,852
2,201,037
‐
571,487
122,832
(1,239,319)
6,682,821
(3,251,978)
(2,105,325)
304,371
1,293,777
(3,759,155)
2,923,666
(1,789,845)
1,133,821
$ 3,762,340
1,386,462
2,091,413
22,855
572,427
195,707
838,742
8,869,946
(1,271,657)
(2,245,638)
(389,222)
(925,628)
(4,832,145)
4,037,801
(709,382)
3,328,419
(3,692,883)
‐
(3,692,883)
(2,350,073)
(50,301)
(2,400,374)
2,268,100
(574,237)
804,419
1,761,200
(2,629,503)
60,000
1,288,400
(200,813)
2,777,566
774,912
(562,727)
‐
250,000
(1,204,574)
50,000
‐
(212,288)
(904,677)
218,504
23,368
87,140
5,230
68,100
(4,328)
$ 310,874
$ 87,140
The accompanying notes are an integral part of these consolidated financial statements.
9
Notes to the consolidated financial statements
for the years ended December 31, 2018 and 2017
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 agriculture 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, 2018. The consolidated financial statements were approved by the
board of directors and authorized for issue on April 17, 2019.
2.2 Basis of measurement
The consolidated financial statements have been prepared using the historical cost basis.
2.3 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, 2018 and 2017, Imaflex USA, the Company’s wholly owned subsidiary, manufactured flexible
packaging and plastic film out of its two North Carolina, USA plants.
2.4 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.
10
Notes to the consolidated financial statements
for the years ended December 31, 2018 and 2017
2. Significant accounting policies (continued)
2.4 Foreign currencies (continued)
In preparing the financial statements of the individual entities, transactions in currencies other than the entity’s
functional currency are recorded at the exchange rates in effect on the date of the transactions. Monetary items
denominated in foreign currencies are translated at the exchange rate prevailing at the end of the reporting
period. Resulting gains and losses on foreign exchange are recorded in the consolidated statement of
comprehensive income.
The foreign exchange gains and losses arising on inter‐company monetary non‐trade advances totalling
US$4,000,000, for which settlement is determined to be neither planned nor likely in the foreseeable future and
are therefore accounted for as forming part of the Company’s net investment in its foreign subsidiary, are
recognized in Accumulated foreign currency translation within reserves. The foreign exchange gains or losses on
trade receivables and other monetary advances continue to be included in Other gains and losses in the
consolidated statement of comprehensive income.
2.5 Revenue recognition
Revenues are generated almost exclusively from the sale of goods. Revenue is recognized when the control of a
product is transferred to a customer, which is typically when the customer takes possession of the goods, and
there are no other performance obligations to be completed under the contract.
Revenue is measured based on the consideration that has been agreed upon by all parties and that the Company
expects to be entitled to receive from the customer, net of variable considerations, including all returns, rebates
and discounts agreed to by all parties concerned and the information available relative to each customer.
Revenue recognition is based on the following steps:
identification of the contract with the customer;
identification of the performance obligations in the contract;
determination of the transaction price;
allocation of the transaction price to the performance obligations in the contract; and
recognition of revenue when the Company satisfies a performance obligation.
2.6 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
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.
11
Notes to the consolidated financial statements
for the years ended December 31, 2018 and 2017
2. Significant accounting policies (continued)
2.6 Income Tax (continued)
Deferred tax assets and liabilities are calculated using the tax rates and laws enacted or substantively 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.
2.7 Earnings per share
Earnings per share are calculated by dividing net 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.
2.8 Financial assets and financial liabilities
Financial assets and liabilities are recognized when the Company becomes party to the contractual provisions of
the financial instrument. Financial assets are derecognized when the contractual rights to the cash flows from
the financial asset expire, or when the financial asset and all substantial risks and rewards are transferred. A
financial liability is derecognized when it is extinguished, discharged, cancelled or expired.
Classification and initial measurement of financial assets
Financial assets are classified, at initial recognition, as subsequently measured at amortized cost, fair value
through earnings, or fair value through other comprehensive income.
The classification of financial assets at initial recognition depends on the financial asset's contractual cash flow
characteristics and the Company's business model for managing them. With the exception of trade receivables
that do not contain a significant financing component, the Company initially measures financial assets at fair
value plus, in the case of financial assets not a fair value through earnings, transaction costs. Transaction costs
directly attributable to the acquisition of financial assets or financial liabilities at fair value through earnings are
recognized immediately in earnings. Trade receivables that do not contain a significant financing component are
measured at the transaction price determined in accordance with IFRS 15.
Subsequent measurement
After initial recognition, cash and trade and other receivables (excluding sales taxes) are measured at amortized
cost using the effective interest method. The expense relating to the allowance for expected credit loss is
recognized in earnings in Administrative expenses in the statement of comprehensive income.
Impairment of financial assets
The Company recognizes a loss allowance for expected credit losses arising from financial assets. The amount of
expected credit losses is updated at each reporting date to reflect changes in credit risk since initial recognition
of the respective financial instrument.
12
Notes to the consolidated financial statements
for the years ended December 31, 2018 and 2017
2. Significant accounting policies (continued)
2.8 Financial assets and financial liabilities (continued)
The Company applies a simplified approach for calculating expected credit losses for trade and other receivables
(excluding sales taxes). The Company recognizes a loss allowance based on lifetime expected credit losses at
each reporting date. These are the expected shortfalls in contractual cash flows, considering the potential for
default at any point during the life of the financial instrument. In calculating, the Company uses its historical
experience, external indicators and forward‐looking information to calculate the expected credit losses using a
provision matrix. Note 11 provides a detailed analysis of how the impairment requirements of IFRS 9 are applied.
Classification and measurement of financial liabilities
The Company’s financial liabilities include bank indebtedness and short‐term borrowings, trade and other
payables (excluding employee benefits), and long‐term debt. Financial liabilities are initially measured at fair
value, and, where applicable, adjusted for transaction costs. Subsequently, financial liabilities are measured at
amortized cost using the effective interest method.
All interest related charges for financial liabilities measured at amortized cost are recognized in the consolidated
statement of comprehensive income under Finance costs.
2.9 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.
2.10 Property, plant and equipment
The Company’s building, land, 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
them 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
Land
Building
Production equipment
Office equipment
Computer equipment
Period
Indefinite
20 years
10 ‐ 20 years
5 years
3 years
13
Notes to the consolidated financial statements
for the years ended December 31, 2018 and 2017
2. Significant accounting policies (continued)
2.10 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, in Other in the consolidated
statement of comprehensive income.
2.11 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 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 rental payments 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 rental payments arising under operating leases are recognised as an
expense in the period in which they are incurred.
2.12 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 the 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 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).
14
Notes to the consolidated financial statements
for the years ended December 31, 2018 and 2017
2. Significant accounting policies (continued)
2.13 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 the 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.
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 assets in prior years.
A reversal of an impairment loss is recognised immediately in net income.
2.14 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
group 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 income. An impairment loss recognised for goodwill is not
reversed in subsequent periods.
2.15 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.
15
Notes to the consolidated financial statements
for the years ended December 31, 2018 and 2017
2. Significant accounting policies (continued)
2.16 Share‐based compensation
The Company uses equity‐settled share‐based compensation plans for its employees and consultants. 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.
2.17 Share capital and reserves
Share capital represents the amount received upon issuance of shares, net of transaction costs. Proceeds 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 2.16);
Accumulated foreign currency translation (see 2.4);
Warrants – comprises the value of outstanding and expired warrants;
Upon the exercise of options and warrants, the proceeds received less the transaction costs are credited to
share capital.
2.18 Adoption of new accounting standards
IFRS 9 – Financial Instruments
The Company has adopted IFRS 9 with date of initial application of January 1, 2018, and applied retroactively
with restatement of comparative periods. IFRS 9 replaced IAS 39 – Financial Instruments: Recognition and
Measurement and includes a revised model for the classification and measurement of financial assets and
liabilities, a forward‐looking ‘expected loss’ impairment model and a reformed approach to hedge‐accounting.
There was no material impact to the Company’s consolidated financial statements as a result of adopting IFRS 9,
with the exception of financial assets that were classified as Loans and Receivables that are now classified in the
amortized cost category and applied retroactively with restatement of comparative periods.
IFRS 15 ‐ Revenue from Contracts with Customers
The Company has adopted IFRS 15 with date of initial application of January 1, 2018. IFRS 15 replaced IAS 11 –
Construction Contracts and IAS 18 – Revenue as well as other revenue‐related interpretations and established a
new five‐step control‐based revenue recognition model based on the transfer of promised goods and services to
customers at a point in time or over time, provides new and more detailed guidance on specific topics and
provides additional requirements on the disclosures about revenue in the consolidated financial statements.
16
Notes to the consolidated financial statements
for the years ended December 31, 2018 and 2017
2. Significant accounting policies (continued)
2.18 Adoption of new accounting standards (continued)
The Company has applied IFRS 15 using the modified retrospective method of adoption and as a result
comparative information has not been restated and continues to be reported under IAS 11 and IAS 18. The
adoption of IFRS 15 did not result in any transition adjustment as of January 1, 2018.
The Company did not make any changes to the presentation of its consolidated financial statements following
the adoption of IFRS 15.
3. Future accounting changes
Certain new standards as well as amendments and improvements to existing standards have been published by
the International Accounting Standards Board (“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:
Leases
In January 2016, the IASB published IFRS 16 – Leases, which will replace the existing standard IAS 17 – Leases
and related interpretations. This IFRS eliminates the classification as an operating lease and requires lessees to
recognise a right‐of‐use asset and a lease obligation in the statement of financial position for all leases with
exemptions permitted for short‐term leases and leases of low value assets. In addition, IFRS 16 changes the
definition of a lease, sets requirements on how to account for the asset and liability, including complexities such
as non‐lease elements, variable lease payments and options periods, changes the accounting for sale and
leaseback arrangements, largely retains IAS 17’s approach to lessor accounting and introduces new disclosure
requirements. IFRS 16 is effective for annual reporting periods beginning on or after January 1, 2019 with early
application permitted in certain circumstances.
Management is finalizing its assessment of the impact of the adoption of this standard, but has identified facility
leases, vehicle leases and certain equipment leases that were previously accounted for as operating leases for
which a lease obligation will be recorded following the adoption of IFRS 16. The Company expects to use a
modified retrospective approach under which prior periods presented will not be restated and the cumulative
impact effect of the adoption of IFRS 16 will be reflected as an adjustment to the retained earnings as at
January 1, 2019.
While management continues to evaluate the impact of IFRS 16 on our consolidated financial statements, we
expect the right‐of‐use asset to be approximately $4,000,000, the increase lease obligation to be approximately
$4,400,000 and the adjustment to retained earnings to be approximately $400,000.
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.
17
Notes to the consolidated financial statements
for the years ended December 31, 2018 and 2017
4. Critical accounting judgments and key sources of estimation uncertainty (continued)
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 expected credit losses
During each reporting period, the Company makes an assessment of whether trade accounts receivable are
collectible from customers. Accordingly, management establishes an allowance for estimated losses arising from
non‐payment. The Company’s allowance for expected credit loss reflects expected credit losses using a provision
matrix model, supplemented by an allowance for individually impaired trade receivables. The provision matrix is
based on the Company’s historic credit loss experience, adjusted for any change in risk of the trade receivable
population based on credit monitoring indicators, and expectations of general economic conditions that might
affect the collection of trade receivables. The provision matrix applies fixed provision rates depending on the
number of days that a trade receivable is past due, with higher rates applied the longer a balance is past due.
Refer to Note 11 for more information regarding the allowance for expected credit losses.
Useful lives of depreciable and amortisable 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 depreciation and
amortisation methods used are 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.
18
Notes to the consolidated financial statements
for the years ended December 31, 2018 and 2017
4. Critical accounting judgments and key sources of estimation uncertainty (continued)
4.2 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‐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,
2018
December 31,
2017
$ 30,718,578
55,350,220
263,295
$ 86,332,093
$ 29,709,160
58,375,728
211,795
$ 88,296,683
5.2 Property, plant and equipment and intangible assets per geographic location
Canada
United States
Total
December 31,
2018
December 31,
2017
$ 9,197,143
13,331,230
$ 22,528,373
$ 7,909,095
12,078,035
$ 19,987,130
19
Notes to the consolidated financial statements
for the years ended December 31, 2018 and 2017
6. Additional information on the consolidated statements of comprehensive income
The Company’s consolidated statements of comprehensive income include depreciation of production
equipment of $1,920,732 for the year ended December 31, 2018 ($1,773,921 in 2017) classified in Cost of sales.
Depreciation of other property, plant and equipment and amortisation of intangible assets amounting to
$280,305 for the year ended December 31, 2018 ($317,492 in 2017) is included in Administrative expenses.
The Company’s consolidated statements of comprehensive income include salaries paid to its employees of
$9,865,338 for the year ended December 31, 2018 ($9,414,435 in 2017) classified in Cost of sales. Administrative
expenses include salaries paid to employees of $1,841,908 for the year ended December 31, 2018 ($1,746,402 in
2017) and Selling expenses include salaries paid to employees of $405,393 for the year ended December 31,
2018 ($470,505 in 2017).
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 $2,538,987
during the year ended December 31, 2018 ($2,576,398 in 2017). These payments are expensed as incurred and
the Company does not recognise any gains or losses subsequent to the payment of these benefits.
The Company also offers a defined contribution employee benefit plan to its employees located in North
Carolina, USA. For the year ended December 31, 2018, the Company contributed $27,477 to this plan
($31,582 in 2017).
8. Finance costs
Interest on bank indebtedness and long‐term debt
Interest on finance lease obligations
Capitalized interest
9. Income taxes
9.1 Income tax recognised in net income
Year ended
December 31,
2018
December 31,
2017
$ 590,866
27,821
(47,200)
$ 571,487
$ 540,488
31,939
‐
$ 572,427
Year ended
December 31,
2018
December 31,
2017
Income tax expense comprises:
Current tax expense
Deferred tax expense relating to the origination and
reversal of temporary differences
Total income tax expense
$ 1,419,309
$ 1,267,169
57,543
$ 1,476,852
119,293
$ 1,386,462
20
Notes to the consolidated financial statements
for the years ended December 31, 2018 and 2017
9. Income taxes (continued)
9.2 Reconciliation between the income tax expense and the statutory income tax rate (continued)
9.2 Reconciliation between the income tax expense and the statutory income tax rate
Year ended
December 31,
2018
December 31,
2017
Income before income taxes
$ 5,026,785
$ 5,148,802
Income tax expense calculated at 26.7% (26.8% in 2017)
Permanent differences
Effect of unrecognised benefit of Imaflex USA’s losses
Effect of different tax rates of subsidiaries operating in
other jurisdictions
Other
1,342,152
(102,820)
‐
14,978
222,542
1,379,879
80,127
‐
(9,447)
(64,097)
Income tax expense recognised in net income
$ 1,476,852
$ 1,386,462
The tax rate used for the 2018 reconciliation above is the corporate tax rate of 26.7% (26.8% in 2017) payable by
corporate entities in Quebec, Canada on taxable income under tax law in those jurisdictions.
9.3 Deferred tax balances
2018
Assets
Non‐capital losses
Inventory
Advance
Other assets
Liabilities
Finance leases
Property, plant and equipment
Advance
Investment tax credits
Opening balance
Recognised
in income
Closing balance
$ 1,217,286
111,379
51,303
132,900
1,512,868
(71,785)
(2,845,355)
‐
(6,514)
(2,923,654)
$ 29,262
805
(51,303)
(54,955)
(76,191)
14,472
13,208
(15,546)
6,514
18,648
$ 1,246,548
112,184
‐
77,945
1,436,677
(57,313)
(2,832,147)
(15,546)
‐
(2,905,006)
Deferred tax liabilities
$(1,410,786)
$ (57,543)
$(1,468,329)
21
Notes to the consolidated financial statements
for the years ended December 31, 2018 and 2017
9. Income taxes (continued)
9.3 Deferred tax balances (continued)
2017
Assets
Non‐capital losses
Advance
Inventory
Other assets
Liabilities
Finance leases
Property, plant and equipment
Investment tax credits
Opening balance
Recognised
in income
Closing balance
$ 2,422,003
36,489
207,646
273,221
2,939,359
‐
(4,217,393)
(13,459)
(4,230,852)
$ (1,204,717)
14,814
(96,267)
(140,321)
(1,426,491)
(71,785)
1,372,038
6,945
1,307,198
$ 1,217,286
51,303
111,379
132,900
1,512,868
(71,785)
(2,845,355)
(6,514)
(2,923,654)
Deferred tax liabilities
$(1,291,493)
$ (119,293)
$(1,410,786)
9.4 Unrecognised deferred tax assets
The Company's subsidiary, Imaflex USA, has non‐capital losses available to carry forward to reduce future
taxable income of $26,042,515 in 2018 and $23,366,963 in 2017, for part of which a deferred tax asset has not
been recognised ($4,743,231 in 2018 and $4,157,115 in 2017), that expire as follows:
Expiring in
December 31,
2018
December 31,
2017
2026
2027
2028
2029
2030
2031
2032
2033
2034
2035
2036
1,393,466
1,362,613
2,942,294
3,187,272
4,677,317
1,996,610
2,802,966
2,806,851
2,560,552
1,473,699
838,875
$26,042,515
803,890
932,408
2,172,071
2,548,797
4,233,862
2,096,673
2,904,447
2,894,894
2,558,608
1,404,350
816,963
$23,366,963
22
Notes to the consolidated financial statements
for the years ended December 31, 2018 and 2017
10. Earnings per share
Year ended
December 31,
2018
December 31,
2017
Net income for basic and diluted earnings per share
$ 3,549,932
$ 3,762,340
Weighted average number of common shares
outstanding
Dilutive effect of share purchase options
Diluted weighted average common shares outstanding
49,915,829
1,151,471
51,067,300
49,740,007
1,283,349
51,023,356
Basic earnings per common share
Diluted earnings per common share
$ 0.071
$ 0.070
$ 0.076
$ 0.074
200,000 stock options outstanding as at December 31, 2018 were not included in the calculation of earnings per
share because they were antidilutive (200,000 in 2017).
11. Trade and other receivables
Trade receivables
Allowance for expected credit losses
Other receivables
Total trade and other receivables
Movement in the allowance for expected credit losses
Balance, beginning of year
Expected credit losses losses recognised on trade
receivables
Release of allowance for expected credit losses
Account write‐offs during the year
Foreign exchange
Balance, end of year
December 31,
2018
December 31,
2017
$ 15,874,079
(584,410)
15,289,669
$ 13,164,807
(1,125,559)
12,039,248
632,375
$ 15,922,044
344,753
$ 12,384,001
Year ended
December 31,
2018
December 31,
2017
$ (1,125,559)
$ (757,497)
(21,827)
47,284
561,189
(45,497)
$ (584,410)
(445,468)
50,000
‐
27,406
$ (1,125,559)
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.
23
Notes to the consolidated financial statements
for the years ended December 31, 2018 and 2017
11. Trade and other receivables (continued)
Credit risk management
Credit risk associated with cash is 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.
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, 2018, $8,280,051 ($5,967,129 as at December 31,
2017) of the total trade receivables are insured. The Company’s management considers that all receivables that
are not impaired for each reporting date are of good credit quality.
Expected credit losses
The Company’s allowance for expected credit losses reflects expected credit losses using a provision matrix
model, supplemented by an allowance for individually impaired trade receivables. The provision matrix is based
on the Company’s historic credit loss experience, adjusted for any change in risk of the trade receivable
population based on credit monitoring indicators, and expectations of general economic conditions that might
affect the collection of trade receivables. The provision matrix applies fixed provision rates depending on the
number of days that a trade receivable is past due, with higher rates applied the longer a balance is past due.
Trade receivables outstanding longer than the agreed upon payment terms are considered past due. The
Company determines its allowance for individually impaired trade receivables by considering a number of
factors, including notices of liquidation, information provided by credit monitoring services, the length of time
trade receivables are past due, the customer’s current ability to pay its obligation to the Company, the
customer’s history of paying balances when they are past due, historical results and the condition of the general
economy and the industry as a whole. After considering the factors above, at December 31, 2018, the Company
has determined there is no significant increase or decrease in its trade receivable credit risk since its initial
recognition. The Company writes off trade receivables when they are determined to be uncollectible and any
payments subsequently received on such trade receivables are credited to the allowance for expected credit
loss.
12. Inventories
Raw materials and supplies
Finished goods
Work in process
Total
December 31,
2018
December 31,
2017
$ 8,913,092
5,298,178
445,213
$ 14,656,483
$ 6,851,440
4,212,889
1,012,135
$ 12,076,464
The cost of inventories recognised as an expense during the year was $69,525,363 ($68,458,873 in 2017). There
were no write‐downs of inventory recognised in the fiscal year ended on December 31, 2018 or 2017.
24
Notes to the consolidated financial statements
for the years ended December 31, 2018 and 2017
13. Property, plant and equipment
Cost
January 1, 2017
Additions
Write‐off
Foreign exchange
December 31, 2017
Additions
Foreign exchange
Land
Building
Production
equipment
Leasehold
improvements
Office
equipment
Computer
equipment
Equipment
under
finance lease
Total
$ 23,020
‐
‐
(1,512)
$ 114,827
‐
‐
(7,543)
$ 47,456,220
2,013,853
(28,780)
(1,354,132)
21,508
‐
1,881
107,284
‐
9,381
48,087,161
2,492,775
1,743,346
$ 2,217,021
330,130
‐
(64,811)
2,482,340
247,698
97,275
$ 45,846
‐
‐
(1,231)
44,615
‐
1,531
$ 510,728
6,090
‐
(2,483)
$ 1,079,946
309,989
‐
(61,416)
$ 51,447,608
2,660,062
(28,780)
(1,493,128)
514,335
6,435
3,089
1,328,519
945,975
76,387
52,585,762
3,692,883
1,932,890
December 31, 2018
$ 23,389
$ 116,665
$ 52,323,282
$2,827,313
$ 46,146
$523,859
$ 2,350,881
$ 58,211,535
Accumulated depreciation
January 1, 2017
Depreciation expense
Write‐off
Foreign exchange
December 31, 2017
Depreciation expense
Foreign exchange
December 31, 2018
Net book value, as at
‐
‐
‐
‐
‐
‐
‐
‐
(3,023)
(5,842)
394
(8,471)
(5,840)
(1,040)
(29,908,733)
(1,678,450)
5,925
589,827
(30,991,431)
(1,826,649)
(831,286)
(1,970,452)
(184,801)
‐
48,955
(2,106,298)
(160,146)
(71,676)
(45,846)
‐
‐
1,231
(44,615)
‐
(1,531)
(458,184)
(36,142)
‐
1,993
(492,333)
(23,347)
(3,162)
(275,662)
(88,217)
‐
12,838
(351,041)
(86,988)
(22,346)
(32,661,900)
(1,993,452)
5,925
655,238
(33,994,189)
(2,102,970)
(931,041)
$ (15,351)
$(33,649,366)
$ (2,338,120)
$ (46,146)
$(518,842)
$ (460,375)
$(37,028,200)
December 31, 2017
$ 21,508
$ 98,813
$ 17,095,730
$ 376,042
December 31, 2018
$ 23,389
$ 101,314
$ 18,673,916
$ 489,193
$
$
‐
‐
$ 22,002
$ 977,478
$ 18,591,573
$ 5,017
$ 1,890,506
$ 21,183,335
A portion of the Company’s production equipment with a carrying amount of approximately $ 18,400,000
(approximately $17,700,000 as at December 31, 2017) is pledged as collateral for the Company’s long‐term debt.
14. Intangible assets
January 1, 2017
Additions
Amortisation
Foreign exchange
December 31, 2017
Amortisation
Foreign exchange
Goodwill
$ 504,124
‐
‐
(33,115)
Customer
relationships
Patents
Total
$ 159,445
‐
(48,674)
(8,845)
$ 821,608
50,301
(49,287)
‐
$ 1,485,177
50,301
(97,961)
(41,960)
471,009
‐
41,189
101,926
(48,603)
6,359
822,622
(49,464)
‐
1,395,557
(98,067)
47,548
December 31, 2018
$ 512,198
$ 59,682
$
773,158
$ 1,345,038
25
Notes to the consolidated financial statements
for the years ended December 31, 2018 and 2017
15. Trade and other payables
Trade payables
Other payables and accrued liabilities
16. Borrowings
Bank indebtedness (a)
Short‐term borrowings (b)
December 31,
2018
December 31,
2017
$ 6,950,121
2,240,188
$ 9,190,309
$ 5,604,791
2,097,391
$ 7,702,182
December 31,
2018
December 31,
2017
$ 8,113,718
$ 5,827,182
804,419
‐
Total bank indebtedness and short term borrowings
$ 8,918,137
$ 5,827,182
Long‐term debt
Loan, bearing interest at the lender’s base rate minus 0.5%
(effective rate of 5.55% as at December 31, 2018, 4.80% as at
December 31, 2017), secured by production equipment having a
net book value of approximately $7,000,000. (c)
Loan, bearing interest at the lender’s base rate plus 0.67%,
(effective rate of 6.72% as at December 31, 2018, 5.97% as at
December 31, 2017) secured by the same production equipment
as the loan above. (d)
Loan (US$730,334, US$1,325,123 as at December 31, 2017),
bearing interest at the US prime rate, reset monthly, plus 3.00%
(effective rate of 8.50% as at December 31, 2018, 7.50% in 2017)
secured by the production equipment of the subsidiary having a
net book value of approximately $10,700,000 and a corporate
guarantee from the Parent Company. (e)
Loan, bearing interest at the lender’s base rate minus 1.0%,
(effective rate of 5.05% as at December 31, 2018) secured by
production equipment having a net book value of approximately
$700,000. (f)
Total long‐term debt
Finance leases (Note 17)
Total borrowings
Current
Bank indebtedness
Short‐term borrowings
Long‐term debt, current portion
Finance lease obligations, current portion
1,905,850
2,433,000
250,000
250,000
1,007,244
1,662,367
408,170
‐
3,571,264
4,345,367
1,568,423
475,062
14,057,824
10,647,611
$ 8,113,718
804,419
1,432,505
89,517
10,440,159
$ 5,827,182
‐
1,250,481
194,684
7,272,347
26
Notes to the consolidated financial statements
for the years ended December 31, 2018 and 2017
16. Borrowings (continued)
Non‐current
Long‐term debt
Finance lease obligations
Total borrowings
December 31,
2018
December 31,
2017
2,138,759
1,478,906
3,617,665
3,094,886
280,378
3,375,264
$ 14,057,824
$ 10,647,611
The interest expense on long‐term debt amounted to $260,440 for the year ended December 31, 2018
($279,452 in 2017).
(a) The Company has an operating line of credit with its bankers for a maximum of $12,000,000, bearing
interest at prime plus 0.40% as at December 31, 2018 (0.75% as at December 31, 2017) for an effective
interest rate of 4.35% at December 31, 2018 (3.95% as at December 31, 2017). 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), all of which were respected as at December 31,
2018 and 2017 and during the years ended December 31, 2018 and 2017. As at December 31, 2018, the
Company had drawn $8,113,718 ($5,827,182 as at December 31, 2017) on the line of credit.
(b) The Company borrowed by way of a three‐month bankers’ acceptance at an annualized rate of 2.32% to
make a down payment on a piece of equipment. This down payment is guaranteed by a letter of credit
issued by the supplier’s financial institution. Once the equipment is received, it is expected that the bankers’
acceptance will be transferred to the lease amount.
(c) The loan is repayable in monthly instalments of $40,550 until November 2022 and bears interest at the
lender’s base rate less 0.50% (effective rate of 5.55% as of December 31, 2018 and 4.80% as at
December 31, 2017).
(d) The loan is repayable in one instalment of $3,630 in May 2019 followed by 71 monthly instalments of
$3,470 until April 2025 and bears interest at 0.67% over the lender’s base rate for an effective rate of 6.72%
as December 31, 2018 (5.97% as at December 2017). This loan is secured by the same production
equipment as the loan detailed in (c).
(e) This loan is repayable in 20 equal quarterly instalments through January 2020 and bears interest at a rate of
3.00% over the US prime rate for an effective rate of 8.50% as at December 31, 2018 (7.50% as at
December 31, 2017). This loan was recorded at the effective interest rate method, net of all incremental
transaction costs directly attributable to the transaction. This loan is subject to certain covenants. As at
December 31, 2018 and 2017 and during the years ended Deember 31, 2018 and 2017, the Company was in
compliance with all covenants related to this loan.
(f) The Company borrowed $500,000 to finance the purchase of equipment purchased in 2017. The loan bears
interest at the lender’s base rate minus 1.0% (for an effective rate of 5.05% as at December 31, 2018) and is
repayable in one instalment of $8,530 followed by 59 monthly instalments of $8,330 and matures in January
2023.
During the year ended December 31, 2018, the Company received an amount of $1,261,200 to finance the
purchase of production equipment. This amount was reimbursed in full with no penalty during the course of the
year.
27
Notes to the consolidated financial statements
for the years ended December 31, 2018 and 2017
16. Borrowings (continued)
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
$ 1,432,505
2,083,239
55,520
$ 3,571,264
The changes in the Company’s liabilities arising from borrowings can be classified as follows:
Balance as of January 1, 2017
Cash flows:
Proceeds
Repayments
Non‐cash:
New finance leases
Amortization of debt
issuance costs
Foreign exchange and other
Balance as of December 31, 2017
Cash flows:
Proceeds
Repayments
Non‐cash:
Short‐term
borrowings
Long‐term
borrowings
$ 5,052,270
$ 5,483,801
Finance Leases
$ 392,714
Total
$ 10,928,785
5,700,000
(4,895,242)
250,000
(1,204,574)
‐
(212,288)
5,950,000
(6,312,104)
‐
‐
309,989
309,989
(29,846)
(4,875)
(178,985)
‐
(15,353)
(4,875)
(224,184)
5,827,182
4,345,367
475,062
10,647,611
6,572,519
(3,500,000)
1,761,200
(2,629,503)
1,288,400
(200,813)
9,622,119
(6,330,316)
New finance leases
Amortization of debt
issuance costs
Foreign exchange and other
‐
18,436
‐
(4,875)
99,075
‐
‐
5,774
‐
(4,875)
123,285
Balance as of December 31, 2018
$ 8,918,137
$ 3,571,264
$ 1,568,423
$ 14,057,824
17.
Obligations under finance leases
The Company has entered into certain finance lease agreements. Finance lease payments are due 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 6.1%
Present value of minimum lease payments
Less the long‐term portion
Current portion of obligations under finance leases
$ 103,933
1,495,163
‐
1,599,096
(30,673)
1,568,423
(1,478,906)
$ 89,517
28
Notes to the consolidated financial statements
for the years ended December 31, 2018 and 2017
17.
Obligations under finance leases (continued)
During the year ended December 31, 2018, the Company received $1,288,400 under a finance lease agreement
for interim payments made to a supplier for a piece of machinery. Interim payments under the lease agreement
bear interest at a variable rate of prime plus 0.25% (effective rate of 4.20% as at December 31, 2018). The lease
reimbursement schedule will be determined once the equipment is received and no reimbursements have been
agreed upon as at December 31, 2018. The lease inception date will be the date when the Company will be able
to use the equipment leased.
During the year ended December 31, 2017 the Company financed the acquisition of production equipment for
an amount of $309,989 by entering into finance leases.
18. Share capital
The Company’s authorized share capital consists of an unlimited number of common shares, voting,
participating, without par value. At December 31, 2018, there were 50,013,637 common shares outstanding
(49,863,637 common shares at December 31, 2017).
During the year ended December 31, 2018, the Company issued 150,000 shares for cash consideration totaling
$60,000 following the exercise of options that were issued in 2016. As at December 31, 2018, there were no
warrants outstanding.
During the year ended December 31, 2017, the Company issued 125,000 shares for cash consideration totaling
$50,000 following the exercise of options that were issued in 2016. As at December 31, 2017, there were no
warrants outstanding.
19. Share‐based compensation
Pursuant to the Stock Option Plan (the “Plan”) of the Company, 4,973,860 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.
During the year ended December 31, 2018, the Company granted 250,000 options to directors of the Company
to acquire an equal amount of shares at $0.76 for a period of 5 years. These options vest in 4 tranches over 18
months, the first vesting at issuance and the other tranches vest at 6‐month intervals.
During the year ended December 31, 2017, the Company granted 50,000 options to an employee to acquire
shares at $1.03 for a period of 5 years and 150,000 options to an employee to purchase shares at a price of
$1.11. These options vest in 4 tranches over 18 months, the first vesting at issuance and the other tranches vest
at 6‐month intervals.
The expense relating to the issue of option grants totalled $122,832 for the year ended December 31, 2018 and
$195,707 for the year ended December 31, 2017.
29
Notes to the consolidated financial statements
for the years ended December 31, 2018 and 2017
19. Share‐based compensation (continued)
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
29/11/2018 29/11/2017 22/06/2017 06/09/2016
21/06/2016
16/06/2015
Total
Outstanding as at 01/01/2017
Issued
Exercised
Outstanding as at 31/12/2017
Exercised
Issued
Outstanding as at 31/12/2018
Exercisable as at 31/12/2017
Exercisable as at 31/12/2018
Remaining life of options (yrs)
Expected life of options (yrs)
Expiry
Expected share price volatility
Dividend yield
Fair value assumptions
(125,000)(1)
1,175,000
(150,000)(2)
1,300,000
‐
‐
150,000
‐
150,000
‐
‐
150,000
37,500
112,500
3.92
2.5 to 3.25
‐
‐
50,000
‐
‐
‐
50,000
‐
‐
‐
‐
‐
250,000
1,025,000
50,000
250,000
850,000
25,000
‐
1,025,000
50,000
62,500
2.48
3.48
4.92
2.75 to 3.5
2.5 to 3.25
2.5 to 3.25
29/11/2023 29/11/2022 22/06/2022 06/09/2021 21/06/2021
75.95% ‐
82.15%
0%
500,000
‐
‐
500,000
‐
‐
500,000
375,000
500,000
2.69
2.5 to 3.25
67.14% ‐
70.41%
0%
79.13% ‐
80.17%
0%
80.01% ‐
83.03%
0%
76.59% ‐
79.60%
0%
Risk free rate
2.23%
1.62%
1.15%
0.51%
0.50%
Exercise price
Share price on grant date
Fair value of option at grant
$ 0.76
$ 0.76
$ 0.35
$ 1.11
$ 1.11
$ 0.57
$ 1.03
$ 1.03
$ 0.53
$ 0.42
$ 0.42
$ 0.21
$ 0.40
$ 0.40
$ 0.21
(1) The fair value of the common shares at the exercise date was $1.00 per share.
(2) The fair value of the common shares at the exercise date was $0.88 per share.
2,450,000
200,000
(125,000)
2,525,000
(150,000)
250,000
2,625,000
1,937,500
2,400,000
650,000
‐
‐
650,000
‐
‐
650,000
650,000
650,000
1.46
2.75 to 3.5
15/06/2020
83.19% ‐
98.85%
0%
0.55% to
0.65%
$ 0.52
$ 0.52
$ 0.30
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.
20. Non‐cash transactions
During the year ended December 31, 2017, the Company financed the acquisition of a chiller of a value totalling
$263,950 and plant equipment of a value of $46,039 by entering into finance leases. Additional information on
finance leases is provided in note 17.
30
Notes to the consolidated financial statements
for the years ended December 31, 2018 and 2017
21. Financial instruments
21.1 Fair value and classification of financial instruments
Carrying amount and fair value
December 31,
December 31,
2017
2018
$ 310,874
15,293,902
15,604,776
$ 87,140
12,045,694
12,132,834
8,113,718
804,419
8,029,262
3,571,264
20,518,663
5,827,182
‐
6,693,995
4,345,367
16,866,544
Financial assets
Amortised cost
Cash
Trade and other receivables (1)
Financial liabilities
Financial liabilities, at amortised cost
Bank indebtedness
Short‐term borrowings
Trade and other payables (2)
Long‐term debt
(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, bank indebtedness, short‐term borrowings and
trade and other payables 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 long‐term debt, which mainly bears 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.
21.2 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;
31
Notes to the consolidated financial statements
for the years ended December 31, 2018 and 2017
21. Financial instruments (continued)
21.2 Fair value hierarchy (continued)
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 (as prices) or indirectly (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, 2018 and 2017, the fair values of long‐term debt are categorised as Level 2.
22. Operating lease arrangements
22.1 Leasing arrangements
The Company leases its premises for manufacturing 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 rent under those leasing agreements and no sublease payments received by the Company. The
leases expire at various dates to May 2024, and include renewal provisions.
22.2 Payments recognised as an expense
Year ended
December 31,
2018
December 31,
2017
$ 975,471
43,973
22,054
$ 867,766
35,311
16,679
Year ended
December 31,
2018
December 31,
2017
$ 1,194,608
3,293,847
180,814
$ 4,669,269
$ 908,312
2,870,414
1,295,841
$ 5,074,567
Lease payments for premises
Vehicles
Office equipment
22.3 Non‐cancellable operating lease commitments
Not later than 1 year
Later than 1 year and not later than 5 years
Later than 5 years
23. Risk management
23.1 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.
32
Notes to the consolidated financial statements
for the years ended December 31, 2018 and 2017
23. Risk management (continued)
23.1 Capital management (continued)
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, 2018:
‐ 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 taxes divided by equity and deferred taxes less intangible
assets of less than or equal to 2.50:1.00;
‐ Interest bearing debt divided by EBITDA ratio (as defined) less than or equal to 4.00:1.00;
‐ Fixed charge coverage ratio calculated on a yearly basis equal to or greater than 1.10:1.00;
‐ To maintain a minimum EBITDA (as defined) of $3,100,000 for the fiscal year ended December 31, 2018.
23.2 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 following is a summary of the Company’s financial assets and liabilities that are denominated in USD, which
is in a currency other than the Company’s functional currency:
Cash
Trade receivables
Trade payables
Bank indebtedness
Net financial position exposure
$
December 31,
2018
6,481
4,408,143
(3,233,428)
(946,707)
234,489
$
$
December 31,
2017
1,195
3,527,502
(2,439,700)
(312,580)
$ 776,417
A $0.05 appreciation of the Canadian dollar against the USD would increase its financial position by $48,568 as
at December 31, 2018 (a decrease of $22,700 as at December 31, 2017). Conversely a $0.05 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 $2,527. Every $0.01 depreciation of the USD against the Canadian dollar would have the opposite
effect.
23.3 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.
33
Notes to the consolidated financial statements
for the years ended December 31, 2018 and 2017
23. Risk management (continued)
23.3 Interest rate risk management (continued)
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,
2018
December 31,
2017
$ 12,973,383
$ 12,973,383
$ 10,172,549
$ 10,172,549
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, 2018 of approximately $117,000 ($ 115,000 for 2017). Conversely a decrease in
interest rates would have the opposite effect.
23.4 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 borrowings 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 $12,000,000, of which an amount of $8,113,718 was
utilized as at December 31, 2018. Borrowings under the Company’s operating line of credit bear interest at the
bank’s prime rate plus 0.40%. In order to ensure that this line of credit is sufficient to fund the Company’s cash
requirements, management follows the movements in the collateral against which the line of credit is given.
As at December 31, 2018, 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
Short‐term borrowings
Long‐term debt (1)
Finance leases (2)
Trade and other payables (3)
$ 8,113,718
804,419
3,571,264
1,568,423
8,029,262
$ 8,113,718
804,419
3,932,764
310,696
8,029,262
$ 8,113,718
804,419
1,601,584
103,933
8,029,262
$ ‐
‐
2,273,026
206,763
‐
years
$ ‐
‐
58,154
‐
‐
$22,087,086
$21,190,859
$18,652,916
$ 2,479,789
$ 58,154
(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. The finance lease for
which the reimbursement schedule has yet to be agreed to (Note 17) has not has not been included in the
contractual cash flow.
(3) Excludes employee benefits
34
Notes to the consolidated financial statements
for the years ended December 31, 2018 and 2017
24. Related party transactions
Entities in which key management personnel has an interest
During the year, in the normal course of business, the Company had routine transactions with entities owned by
shareholders and key management personnel of the Company. 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:
Transactions for the year
ended
Amounts owing as at
Non‐secured commitments
as at
December 31,
2018
December 31,
2017
December 31,
2018
December 31,
2017
December 31,
2018
December 31,
2017
$ 975,471
146,628
$ 867,766
149,691
$
‐
12,689
$ ‐ $ 6,605,537
‐
12,689
$ 4,990,249
‐
69,351
134,298
69,351
134,298
‐
‐
$ 1,191,450
$ 1,151,755
$
82,040
$ 146,987
$ 6,605,537
$ 4,990,249
Entities owned by key management
personnel or their family
members
Rent
Key management personnel services
Entities over which key management
personnel have significant
influence
Professional services
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 marketing and innovation, the production director, the
vice president of corporate affairs, the chief financial officer and members of the board of directors.
Salaries
Director’s fees
Short‐term employee benefits
Post‐employment benefits – State‐run plans
Share‐based compensation
Other benefits
Year ended
December 31,
2018
$ 915,840
41,000
13,101
14,788
112,193
44,972
$ 1,141,894
December 31,
2017
$ 859,122
40,250
13,405
14,990
139,589
45,441
$ 1,112,797
35