ANNUAL
REPORT
2019
IN ALL SUCCESSFUL BUSINESSES
THE KEY TO SUCCESS RELIES
ON MANAGEMENT’S ABILITY TO
MASTER THREE FUNDAMENTALS:
• COMMITMENT TO CUSTOMER
• CLEAR VISION OF GOALS
• CORRECT TIMING OF ACTIONS
OUR SENIOR MANAGEMENT
TEAM KNOWS, UNDERSTANDS
AND LIVES BY THESE
BUSINESS FUNDAMENTALS.
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, 2019 and 2018. 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, 2019 and 2018.
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 16, 2020.
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.
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 audited consolidated financial statements for the years ended December 31,
2019 and 2018.
IFRS 16, Leases
Effective January 1, 2019, Imaflex adopted IFRS 16, Leases, (“IFRS 16”) as described in note 2.18 to the audited consolidated
financial statements for the year ended December 31, 2019 and 2018. Under IFRS 16, which replaces IAS 17, lessees are
required to account for leases on their balance sheet by recognizing a “right of use” asset and a lease liability, essentially
removing the distinction between an operating and finance lease. Certain exemptions exist for short-term leases and leases
of low value assets. Imaflex applied the modified retrospective method of application and as such, comparative prior-year
information has not been restated.
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, amongst 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
Annual Report – December 31, 2019
1
MANAGEMENT DISCUSSION AND ANALYSIS
FORWARD LOOKING STATEMENTS (continued)
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 previous list of important factors that may affect future results is not exhaustive. When
relying on our forward-looking statements to make decisions with respect to the Company, investors and others should
carefully consider the foregoing factors and other uncertainties and potential events. Unless otherwise required by the
securities authorities, we do not undertake to update any forward-looking statement that may be made from time to time
by us or on our behalf. The forward-looking statements contained herein are based on information available as of
April 16, 2020.
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.
Annual Report – December 31, 2019
2
MANAGEMENT DISCUSSION AND ANALYSIS
GROWTH STRATEGY (continued)
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 – Citrus Film
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.
Shine N' Ripe XL’s unique ability to reflect up to 80% of solar ultraviolet (UV) light intercepts 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.
A multi-year trial conducted by the Florida Research Centre for Agricultural Sustainability (FLARES), 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 citrus greening (“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.
Imaflex is dedicated to the film’s success given the proven benefits it offers growers worldwide in crop protection, tree
growth and yield enhancement. This said, uncertainties on the timing of its buildout exist as the take-up rate to date has
been lower than expected.
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 essential for reducing pests, weeds and fungi in the soil, thus supporting good
growth of new crop seedlings. Currently, fumigants offer the greatest efficacy for soil disinfestation, but they also have the
highest health and environmental risk due to their volatility, toxicity and required application rates that can run into the
hundreds of pounds per acre.
The original U.S. Environmental Protection Agency (EPA) approved ADVASEAL® (ADVASEAL® HSM) contained only an
herbicide for weed control. The new enhanced ADVASEAL®, which is under development, also includes three fungicides
and a nematicide to control soil borne pathogens, thus becoming a complete non-fumigant alternative for soil
disinfestation. With ADVASEAL®, these modern non-volatile crop protection products can be applied more effectively and
safely than with fumigants. The crop protection products are incorporated into a coating, which is then applied to a mulch
Annual Report – December 31, 2019
3
MANAGEMENT DISCUSSION AND ANALYSIS
GROWTH STRATEGY (continued)
Grow the Agriculture Business (continued)
film. Once the coated film is applied to the ground, the active ingredients are released into the soil under controlled
conditions, preventing the over/under-dosing found with current soil disinfestation practices. This new technology
dramatically reduces the amount of crop protection products required. The catalyst to trigger the release of the active
ingredients is soil moisture. When the film is applied to the soil, the active ingredients are efficiently and safely discharged
into the ground, resulting in heightened productivity, lower costs and notable environmental benefits. The underlying
technology is patent-protected in the top 20 major vegetable and fruit producing countries worldwide until 2028.
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 drift of fumigants 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, which should improve crop quality and yields. Management estimates that ADVASEAL® will reduce the chemicals
required by over 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.
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 space that offer opportunity for increased
profitability. In 2019, 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
advanced crop protection and yield enhancement products, such as 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 U.S. 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 and growers are increasingly turning to other industries to help them do more
with less.
Annual Report – December 31, 2019
4
MANAGEMENT DISCUSSION AND ANALYSIS
ADVASEAL® COMMERCIALIZATION
Imaflex successfully completed the design of a new coating line, customized specifically for the cost effective production
of ADVASEAL®. In addition, the Company sourced all the active ingredients (herbicide, nematicide and fungicides) to be
coated on the film.
In order to obtain sufficient quantities of ADVASEAL® film for field trials, the Company also worked closely with FUJIFILM
Manufacturing U.S.A. Inc. (FUJIFILM) on the development of the coating process for the active ingredient mixture. In
February 2020, Imaflex obtained sufficient quantities of ADVASEAL and subsequently commenced an Efficacy Field Trial.
The trial is evaluating ADVASEAL®’s ability to release its crop protection products into the soil and achieve soil
disinfestation, prior to planting tomato seedlings. Concurrently, the trial is monitoring plant growth, yield and quality,
compared to a crop grown under the current best Florida grower standard for fresh tomato production using fumigants.
The tomato plant was chosen as a model crop, because it is one of the most widely grown vegetables in the world.
Furthermore, if high yields can be achieved using ADVASEAL® with tomato plants, it can likely be used to produce high
yields for most other fruits and vegetables that require pre-plant soil disinfestation with fumigants.
On March 31, 2020, Imaflex announced positive interim results for the Efficacy Trial. Independent analytical lab results of
ADVASEAL® samples collected at the trial site, in the three-week period following the film being laid on the ground,
indicated that the active ingredients were being released into the soil in the desired manner. Full trial results, including
plant growth, yield and quality for both the ADVASEAL® test crop and grower reference will be released once the growing
season is complete and the independent report is available.
Given the positive interim results, the Corporation intends to continue its pre-registration meetings with the EPA and will
meet them to discuss results and next steps for the timely registration of ADVASEAL® as a new pesticide. The will include
discussions on the design of a trial to determine the exact timing for the complete release of each active ingredient used
with ADVASEAL®. This is required to show compliance with the pre-harvest interval legally established by the EPA for each
pesticide used, which is essentially the wait time between ADVASEAL®’s application on the soil and when a crop can first
be harvested for safe human consumption.
Management believes the trials and 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 market to protect and preserve.
Additionally, many of the Company’s customers deal in food related products, which are 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
Annual Report – December 31, 2019
5
MANAGEMENT DISCUSSION AND ANALYSIS
COMPETITIVE ENVIRONMENT (continued)
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 234 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.
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, Imaflex continues to improve its operational, financial and
management information systems, as well as its production procedures and controls. Our success is largely the result of
the continued contributions of our employees and the Company’s ability to attract and retain qualified management, sales
and operational personnel.
The overall market we compete in has historically shown resiliency and growth, even during difficult economic times. Our
customers predominantly operate in the food packaging and agriculture markets, which are somewhat resilient to
recessionary and seasonal pressures. This fact, coupled with expanding product lines and the introduction of newer and
faster equipment, should help Imaflex 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.
GENERAL SITUATION OF THE POLYETHYLENE BLOWN FILM MARKET – RESIN PRICING
Given the current geopolitical events surrounding oil, the impact of COVID-19 and expected capacity increases from new
plants coming on stream, Imaflex expects resin prices to remain flat to down for the immediate future. However, any
unexpected supply chain disruptions would give reason for resin producers to raise prices further. Since Imaflex does not
have major long-term contracts with its customers, resin price fluctuations are typically passed along to them.
Annual Report – December 31, 2019
6
MANAGEMENT DISCUSSION AND ANALYSIS
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
Certain products made at our Victoriaville and Thomasville facilities are subject to some seasonality due to 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 also remaining capable to seize market opportunities that may arise. Since 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. Furthermore,
the Corporation is not exposed to liability for personal injury or death arising from negligence in the manufacturing of the
films.
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 Imaflex participates; general
economic environment and normal business uncertainty; product mix; fluctuations in foreign currency exchange rates; the
availability and costs of raw materials; changes in Imaflex’s relationship with its suppliers; planned plant shutdowns for
preventative maintenance affecting production levels; and interest rate fluctuations along with other changes in borrowing
costs.
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 expected future movements and available economic data. Interest rate hikes, including those seen in recent
quarters, may affect the Company’s future cost of borrowing. However, management is currently not hedging its interest
rate exposure and expects this exposure to lessen as the outstanding balance on its long-term borrowings decreases.
Annual Report – December 31, 2019
7
MANAGEMENT DISCUSSION AND ANALYSIS
ABILITY TO ATTRACT AND RETAIN QUALIFIED PERSONNEL
Imaflex’s core operational management team has been historically stable 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 U.S. 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.
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
following table for the reconciliation of the Company’s EBITDA to its reported net income.
Reconciliation of EBITDA to net income:
($ thousands, except per share data)
Net income
Plus:
Income taxes
Finance costs
Depreciation and amortization
EBITDA1
Basic EBITDA per share2
Diluted EBITDA per share2
Three months ended
December 31,
Years ended
December 31,
2019
2018
2019
2018
303
$ 556
$ 1,536
$ 3,550
79
187
895
$ 1,464
$ 0.03
$ 0.03
411
170
657
$ 1,794
$ 0.04
$ 0.04
678
729
3,330
$ 6,273
$ 0.13
$ 0.12
1,477
571
2,201
$ 7,799
$ 0.16
$ 0.15
(1) Excluding the impact of IFRS 16 Leases, EBITDA was $1.2 million for the quarter and $5.1 million for the year ended
December 31, 2019.
(2) Basic weighted average number of shares outstanding of 50,013,637 for the quarter and year ended December 31,
2019. This compares to basic weighted average number of shares outstanding of 50,013,637 for the three-month period
ended December 31, 2018 and 49,915,829 for the year ended December 31, 2018. Diluted weighted average number of
Annual Report – December 31, 2019
8
MANAGEMENT DISCUSSION AND ANALYSIS
NON-IFRS FINANCIAL MEASURES (continued)
shares outstanding of 50,563,269 for the quarter ended December 31, 2019 (51,031,396 in 2018) and 50,684,870 for the
year ended December 31, 2019 (51,067,300 in 2018).
While EBITDA is not a standard IFRS measure, management, analysts, investors and others use it as an indicator of the
Company’s financial and operating management and performance. EBITDA should not be construed as an alternative to
net income determined in accordance with IFRS as an indicator of the Company’s performance. The Company’s method of
calculating EBITDA may be different from those used by other companies and accordingly it should not be considered in
isolation.
RESULTS OF OPERATIONS
During 2019, Imaflex continued to attract and retain customers, albeit at lower than historical sales prices, due to a
competitive pricing environment and decreased resin costs. Revenues, profitability and cash flows were respectable versus
2018, particularly given the impact of currency fluctuations on 2019 profitability compared to the prior year.
($ thousands)
Three months ended
December 31,
2019
2018
Years ended
December 31,
2019
2018
Sales
$18,740
$22,472
$81,071
$86,332
Revenues were $18.7 million for the fourth quarter of 2019, down 16.6% from $22.5 million in 2018. The decrease largely
reflects the impact on product pricing resulting from competitive pressures and lower resin prices. As well, sales of the
Corporation’s high margin citrus film were $nil for the current quarter, versus $1.4 million in 2018. Excluding citrus film
sales, revenues were down 11.1% versus 2018.
Fiscal 2019 sales totaled $81.1 million, down 6.1% from $86.3 million in the prior year. The decrease from 2018 was mainly
due to the same variables outlined for the quarter, partially offset by favourable movements in foreign exchange. Citrus
film sales totaled $0.9 million in 2019, down from $2.8 million in 2018. Excluding citrus film sales, revenues were down
4.0% year-over-year.
($ 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,
2019
2018
Years ended
December 31,
2019
2018
$3,449
$2,361
$14,008
$12,684
18.4%
10.5%
17.3%
14.7%
802
$2,647
14.1%
589
$1,772
7.9%
3,056
$10,952
13.5%
1,920
$10,764
12.5%
Gross profit before the amortization of production equipment was $3.4 million or 18.4% of sales in the fourth quarter of
2019, up from $2.4 million and 10.5% of sales in 2018. Similarly, the quarterly gross profit including amortization of
production equipment, was up year-over-year, coming in at $2.6 million or 14.1% of sales for the current quarter, versus
$1.8 million and 7.9% of sales in the fourth quarter of 2018. In the fourth quarter of 2018, the gross profit before and after
amortization of production equipment, was particularly impacted by resin price fluctuations. Resin price decreases are
normally reflected immediately in product pricing for Imaflex’s customers, while increases usually take about 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
Annual Report – December 31, 2019
9
MANAGEMENT DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS (Continued)
inventory previously purchased when resin prices were higher. As well, the 2019 quarterly gross margin benefited from a
year-over-year decrease in certain variable costs, such as transportation.
For fiscal 2019, the gross profit before amortization of production equipment was $14.0 million or 17.3% of sales, up from
$12.7 million or 14.7% of sales in 2018. The corresponding gross profit including amortization expenses was $11.0 million
or 13.5% of sales, versus $10.8 million and 12.5% of sales in 2018. The year-over-year improvement before and after
amortization of production equipment is largely attributable to the aforementioned quarterly variance explanation relating
to resin pricing.
($ thousands)
Selling and administrative
As a % of sales
Three months ended
December 31,
2019
2018
Years ended
December 31,
2019
$1,676
8.9%
$1,490
6.6%
$7,042
8.7%
2018
$6,493
7.5%
Selling and administrative expenses were $1.7 million or 8.9% of sales in the fourth quarter of 2019, up from $1.5 million
and 6.6% of sales in 2018. Fiscal 2019 expenses came in at $7.0 million or 8.7% of sales, compared to $6.5 million and 7.5%
of sales in the corresponding prior-year period. The year-over-year increases for the quarter and year-to-date were mainly
driven by an expanded sales team to stimulate demand for Imaflex’s products and new production equipment, namely the
five layer extruder.
($ thousands)
Three months ended
December 31,
2019
2018
Years ended
December 31,
2019
Finance costs
$187
$170
$729
2018
$571
Finance costs were $187 thousand for the current quarter, versus $170 thousand in 2018. For fiscal 2019, finance costs
totaled $729 thousand, up from $571 thousand in calendar 2018. The aforesaid year-over-year increases were largely due
to the incremental interest accretion on lease liabilities resulting from the adoption of IFRS 16 and increases in long term
debt associated with major equipment purchases, namely the five layer extruder.
($ thousands)
Three months ended
December 31,
2019
2018
Years ended
December 31,
2019
2018
Foreign exchange losses/(gains)
$374
($886)
$872
($1,340)
Due to unfavourable currency fluctuations, Imaflex recorded a foreign exchange loss of $0.4 million in the fourth quarter
of 2019, versus a $0.9 million gain in 2018. This resulted in a negative $1.3 million year-over-year variance.
For fiscal 2019, the Corporation similarly recorded a foreign exchange loss, versus a gain in 2018, resulting in a $2.2 million
negative year-over-year variance. The majority of the Corporation’s foreign exchange gains and losses are non-cash
impacting and largely relate to intercompany balances for which Imaflex can control the time of settlement.
Annual Report – December 31, 2019
10
MANAGEMENT DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS (Continued)
($ thousands)
Three months ended
December 31,
2019
2018
Years ended
December 31,
2019
Income taxes
As a % of income before taxes
$79
20.7%
$411
42.5%
$678
30.6%
2018
$1,477
29.4%
Fourth quarter 2019 income tax expenses were $0.1 million or 20.7% of income before taxes. This compares to
$0.4 million and 42.5% respectively in 2018.
For fiscal 2019, income taxes totaled $0.7 million, down from $1.5 million in 2018, reflecting the lower profitability in the
current year. Income taxes as a percentage of income before taxes was 30.6% for calendar 2019, up slightly from 29.4% in
2018. The Corporation’s statutory tax rate is currently 26.6%.
($ thousands, except per share data)
Net income
Basic earnings per share
Diluted earnings per share
Three months ended
December 31,
2019
2018
Years ended
December 31,
2019
$303
$0.01
$0.01
$556
$0.01
$0.01
$1,536
$0.03
$0.03
2018
$3,550
$0.07
$0.07
The Company recorded net income of $0.3 million in the fourth quarter of 2019, versus $0.6 million in the corresponding
prior-year quarter. The decrease was largely due to unfavourable movements in foreign exchange and higher 2019 selling
and administrative expenses, partially offset by the improved quarterly gross profit.
For calendar 2019, net income stood at $1.5 million, down from $3.6 million in the prior year. The decrease was largely
due to unfavourable year-over-year movements in foreign exchange and higher 2019 selling and administrative expenses,
partially offset by the higher gross profits in 2019 and lower income taxes versus 2018.
SUMMARY OF QUARTERLY RESULTS
Summary financial data derived from the Company’s unaudited quarterly financial statements for each of the eight most
recently completed quarters are as follows:
For the quarters ending March, June, September and December ($ thousands, except per share data):
Revenues
Net income
Earnings per share
Basic
Diluted
Q4/19
18,740
Q3/19
19,195
Q2/19
Q1/18
21,269 $21,867 $22,472 $21,316 $21,927 $20,617
Q4/18
Q1/19
Q3/18
Q2/18
303
470
205
558
556
594
727
1,673
0.006
0.006
0.009
0.009
0.004
0.004
0.011
0.011
0.011
0.011
0.012
0.012
0.015
0.014
0.034
0.033
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.
Annual Report – December 31, 2019
11
MANAGEMENT DISCUSSION AND ANALYSIS
FINANCIAL POSITION
December 31, 2019 vs. December 31, 2018
Working capital stood at $10.0 million as at December 31, 2019 ($11.0 million excluding the impact of IFRS 16), compared
to $11.0 million as at December 31, 2018.
LIQUIDITY
Cash Flows from Operating Activities
In the fourth quarter of 2019, net cash generated by operating activities stood at $2.7 million, up from $0.6 million in the
prior year. The $2.1 million increase over 2018 was largely due to favourable year-over-year movements in foreign
exchange, trade & other receivables and inventories, partially offset by lower profits in the current quarter and a decrease
in trade and other payables versus 2018.
For fiscal 2019, net cash generated by operating activities totaled $9.7 million, up from $1.1 million in the prior year. The
$8.5 million increase over 2018 was largely driven by favourable year-over-year movements in operating activities (foreign
exchange and depreciation and amortization) and working capital (trade & other receivables and inventories), partially
offset by lower profits in 2019 and a decrease in trade and other payables versus 2018.
Cash Flows from Investing Activities
During the fourth quarter of 2019, Imaflex contributed $1.3 million towards capital assets, down slightly from $1.5 million
in 2018. For fiscal year 2019, capital investments totaled $5.4 million, up from $3.7 million in the prior year. The year-
over-year variances for the quarter and year largely relate to the timing of payments for a new five-layer extruder and
other major equipment purchases. These investments were made to further enhance the Company’s production capacity
and capabilities in order to generate heightened sales and profitability.
Cash Flows from Financing Activities
During the fourth quarter of 2019, the Corporation had cash outflows from financing activities of $1.9 million, versus
$0.9 million of inflows in the corresponding prior-year period. The year-over-year decrease is largely due to changes in
bank indebtedness (reduction in the Company’s line of credit versus an increase in 2018), and reimbursements of lease
obligations versus 2018, partially offset by movements in long-term debt.
For calendar 2019, Imaflex had $4.5 million of cash outflows from financing activities, versus $2.8 million of cash inflows in
the prior year. The $7.3 million year-over-year decrease was mainly driven by changes in bank indebtedness (reduction in
the Company’s line of credit versus an increase in 2018) and movements in lease obligations, partially offset by an increase
in long-term debt versus 2018 resulting from funding for the major equipment projects.
CONTRACTUAL OBLIGATIONS
The contractual obligations as at December 31, 2019 were as follows:
($ thousands)
Payments due by period
Long-term debt
Bank indebtedness
Leases*
Total contractual obligations
Total
$ 9,130
4,538
3,878
$ 17,546
Less than 1 year
$ 2,235
4,538
1,273
$ 8,046
1 to 5 years
$ 6,881
-
2,587
$ 9,468
After 5 years
14
$
-
18
$ 32
*Based on IFRS 16, commitments previously captured under operating leases are now largely recorded on the balance
sheet as lease obligations.
These contractual obligations are sensitive to the fluctuation of interest rates. They are based on interest and foreign
exchange rates effective as at December 31, 2019.
Annual Report – December 31, 2019
12
MANAGEMENT DISCUSSION AND ANALYSIS
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, 2019, Imaflex was using approximately $4.5 million
on its line of credit ($8.1 million as at December 31, 2018) and had cash outstanding of $0.1 million ($0.3 million as at
December 31, 2018). Working capital stood at $10.0 million as at December 31, 2019 ($11.0 million excluding the impact
of IFRS 16), versus $11.0 million as at December 31, 2018. The Company controls its financial leverage, ensuring that its
borrowings reflect the asset base against which funds are borrowed as well as the profitability that is generated through
the operations.
EQUIPMENT LEASING FACILITY
In 2018, Imaflex entered into an equipment leasing facility of up to CDN $10.0 million with a leading global financial
institution to fund business expansion. During the third quarter of 2019, all funds borrowed under this lease agreement
were transferred to loan agreements, as described under note 15 (f and g) in the accompanying audited consolidated
financial statements and related notes. This new equipment allows the Corporation to increase its scale, broaden its
capabilities and drive revenue and margin expansion at attractive terms.
PROPOSED TRANSACTION
The Company is not currently contemplating any business acquisition or merger.
RELATED PARTY TRANSACTIONS
In the normal course of operations, the Company had routine transactions with related parties. These transactions are
measured at fair value, which is the amount of consideration established and agreed to by the related parties.
The following table reflects the related party transactions recorded for the periods ended December 31, 2019 and 2018.
For additional information, please refer to note 22, Related party transactions of the “Notes to the consolidated financial
statements” for the years ended December 31, 2019 and 2018.
($ thousands)
Professional fees and key
management personnel services
Rent
Remuneration
(a)
(b)
(c)
Three months ended
December 31,
Years ended
December 31,
2019
$ (4)
$ 278
$ 240
2018
2019
2018
$ 19
$ 336
$ 252
$ 174
$ 216
$ 1,112
$ 1,116
$ 975
$ 1,142
(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 lease agreements. The majority of these
payments are recorded as a lease obligation on the balance sheet, while the remainder covers the applicable interest and
is recorded under finance costs as an expense.
(c) Includes salaries, benefits and fees paid to key management personnel and directors.
Annual Report – December 31, 2019
13
MANAGEMENT DISCUSSION AND ANALYSIS
FINANCIAL INSTRUMENTS
Please refer to note 20, Financial instruments of the consolidated financial statements for the years ended December 31,
2019 and 2018 for disclosure on the Company’s financial instruments as well as note 21, Risk management for a discussion
on the risks the Company is exposed to and how they are managed.
As at December 31, 2019, the Company was not using any swap, forward or hedge accounting and there were no warrants
outstanding.
As at December 31, 2019, 2,725,000 options to purchase shares of the Company were outstanding at a weighted average
strike price of $0.521 of which 2,587,500 were exercisable.
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.
IMPACT OF CORONAVIRUS (COVID-19) – Imaflex considered an essential vendor
To date, Imaflex’s three plants in Canada and the U.S.A. have remained open, fully operational and running at normal
business levels. The Corporation is considered an essential vendor in both countries due to the important role its products
play in protecting and preserving food and consumer products. Presently, all manufacturing facilities have the ability to
take on more volume should it be required due to business interruption at another plant or heightened order flow.
Furthermore, Imaflex is not experiencing any delays with its suppliers. The Corporation believes it has sufficient capital to
fund its operations and grow the business, assuming business levels remain the same. Despite this, Imaflex has and will
utilize any available capital payment moratoriums on long term debt payments to maximize cash flows throughout the
crisis. We are monitoring developments closely and taking all necessary steps to protect our employees, customers and
business. For additional information see note 23, Subsequent Events, of the attached consolidated financial statements.
MANAGEMENT OUTLOOK
We continue to operate in a dynamic pricing environment, while resin prices also remain lower than historical levels. This
said, our strategy remains the same. We will continue to differentiate ourselves in advanced extrusion and innovative crop
protection films, building out our addressable markets with innovative products. With the investments in new production
equipment brought online in 2019, most notably the five-layer extruder, we are well positioned to do better in 2020.
Longer term, our next generation agriculture film, ADVASEAL®, offers some exciting opportunities for growth. We achieved
some important milestones in recent months, including positive interim results for our Efficacy Trial. This said, some key
milestones remain. If successful, the benefits of ADVASEAL ® for growers, the environment and shareholders, should justify
the wait.
We operate in an ever changing business environment, but we are well positioned to drive profitable growth and are
excited about our future potential. We look forward to providing updates on ADVASEAL® and our overall business as we
progress throughout the year.
OUTSTANDING SHARE DATA
As at December 31, 2019, the Company had 50,013,637 common shares outstanding, unchanged from 50,013,637
December 31, 2018.
Annual Report – December 31, 2019
14
MANAGEMENT DISCUSSION AND ANALYSIS
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 16, 2020
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, 2019
15
Consolidated Financial Statements of
IMAFLEX INC.
Years ended December 31, 2019 and 2018
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, 2019 and 2018, and the consolidated statements of
comprehensive income, the consolidated statements of changes in equity and the
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, 2019 and 2018, 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 information, other than the consolidated financial statements and
our auditor's report thereon, included in Management's Discussion and Analysis
and 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 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 and the Annual Report
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.
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
communication 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 16, 2020
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 losses (gains)
Other
Income before income taxes
Income taxes
NET INCOME
(Note 4.1)
(Note 7)
December 31,
2019
2018
$ 81,070,541
70,118,437
10,952,104
$ 86,332,093
75,568,464
10,763,629
1,616,422
5,425,689
729,343
872,048
95,158
8,738,660
1,605,374
4,887,531
571,487
(1,340,813)
13,266
5,736,845
2,213,444
5,026,784
(Note 8)
677,773
1,476,852
1,535,671
3,549,932
Other comprehensive income
Item that will be reclassified subsequently to net income
Exchange differences on translating foreign operations
(131,042)
263,803
COMPREHENSIVE INCOME
$
1,404,629
$ 3,813,735
Earnings per share
Basic
Diluted
(Note 9)
$
$
0.031
0.030
$
$
0.071
0.070
The accompanying notes are an integral part of these consolidated financial statements and note 5 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,
2019
December 31,
2018
(Note 10)
(Note 11)
$
60,942
11,520,049
11,751,039
236,528
23,568,558
$
310,874
15,922,044
14,656,483
220,500
31,109,901
(Note 12)
(Note 13)
28,573,231
1,219,813
29,793,044
21,183,335
1,345,038
22,528,373
$ 53,361,602
$ 53,638,274
Bank indebtedness and short‐term borrowings
Trade and other payables
Current tax liabilities
Long‐term debt, current portion
Lease obligations, current portion
Total current liabilities
Non‐current liabilities
Long‐term debt
Deferred tax liabilities
Lease obligations
Total non‐current liabilities
Total liabilities
Equity
Share capital
Reserves
Retained earnings
Total equity
(Note 15)
(Note 14)
(Note 15)
(Notes 15, 16)
(Note 15)
(Note 8)
(Notes 15, 16)
(Note 17)
(Note 18)
4,538,393
5,921,319
125,725
1,922,849
1,103,729
13,612,015
6,441,665
1,221,657
2,413,825
10,077,147
23,689,162
11,875,023
2,212,177
15,585,240
29,672,440
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
25,214,925
11,875,023
2,268,171
14,280,155
28,423,349
Total liabilities and equity
$ 53,361,602
$ 53,638,274
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, 2019 and 2018
(in Canadian dollars)
Reserves
Share capital (a)
$ 11,815,023
Share‐based
compensation
$ 951,536
‐
‐
‐
‐
‐
‐
Accumulated
foreign
currency
translation
$ 464,826
‐
263,803
263,803
60,000
‐
‐
122,832
‐
‐
Warrants
Total
reserves
Retained
earnings
$ 465,174 $ 1,881,536 $ 10,730,223
Total
$ 24,426,782
‐
‐
‐
‐
‐
‐
3,549,932
3,549,932
263,803
263,803
‐
3,549,932
263,803
3,813,735
‐
122,832
‐
‐
60,000
122,832
Balance at 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 17)
Share‐based compensation (Note 18)
Balance at December 31, 2018
Impact of IFRS 16 Adoption
Balance at January 1, 2019
$11,875,023
‐
11,875,023
$ 1,074,368
‐
1,074,368
$ 728,629
‐
728,629
$ 465,174 $ 2,268,171
‐
2,268,171
‐
465,174
$ 14,280,155
(230,586)
14,049,569
$ 28,423,349
(230,586)
28,192,763
Net income for the year
Exchange differences on translating
foreign operations
Comprehensive income for the year
Transactions with owners:
Share‐based compensation (Note 18)
Balance at December 31, 2019
‐
‐
‐
‐
‐
‐
‐
(131,042)
(131,042)
‐
‐
‐
‐
1,535,671
1,535,671
(131,042)
(131,042)
‐
1,535,671
(131,042)
1,404,629
‐
$11,875,023
75,048
$ 1,149,416
‐
$ 597,587
‐
75,048
$ 465,174 $ 2,212,177
75,048
$ 15,585,240 $ 29,672,440
‐
(a) Additional detail of share capital is provided in Note 17
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
Finance costs
Share‐based compensation
Unrealized foreign exchange loss (gain)
Net changes in working capital
Decrease (increase) in trade and other receivables
Decrease (increase) in inventories
(Increase) decrease in prepaid expenses
(Decrease) increase 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
Net cash used in investing activities
Financing activities:
Net change in bank indebtedness
Interest paid
(Decrease) increase in short‐term borrowings
Increase in long‐term debt
Repayment of long‐term debt
Net proceeds from issuance of share capital
Increase in lease obligations
Repayment of lease obligations
Net cash (used in) generated by financing activities
Net (decrease) increase in cash
Cash, beginning of the year
Effects of foreign exchange differences on cash
Cash, end of the year
Non‐cash transactions (Note 19)
December 31,
2019
2018
$ 1,535,671
677,773
3,330,140
729,343
75,048
849,393
7,197,368
4,228,629
2,650,392
(20,774)
(3,093,639)
3,764,608
10,961,976
(1,297,182)
9,664,794
$ 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
(5,408,742)
(5,408,742)
(3,692,883)
(3,692,883)
(3,575,325)
(749,560)
(804,419)
3,748,245
(2,061,900)
‐
‐
(1,060,887)
(4,503,846)
2,268,100
(574,237)
804,419
1,761,200
(2,629,503)
60,000
1,288,400
(200,813)
2,777,566
(247,794)
218,504
310,874
(2,138)
87,140
5,230
$ 60,942
$ 310,874
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, 2019 and 2018
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, unless specifically stated.
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, 2019. The consolidated financial statements were approved by the
board of directors and authorized for issue on April 16, 2020.
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, 2019 and 2018, 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 the 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, 2019 and 2018
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, 2019 and 2018
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, 2019 and 2018
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 10 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, 2019 and 2018
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).
In the case of right‐of‐use assets, expected useful lives are determined by reference to comparable owned
assets or the lease term, if shorter, when the lease does not transfer ownership of the asset or the Company
does not expect to exercice a purchase option.
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
The Company has applied IFRS 16 using the modified retrospective approach and therefore comparative
information has not been restated. This means comparative information is still reported under IAS 17 and
IFRIC 4.
Accounting policy applicable from January 1, 2019
At inception of a contract, the Company identifies whether it is or contains a lease based on whether the
contract, or part of the contract, conveys the right to control the use of an identified asset (the “underlying
asset”) for a period of time in exchange for consideration. To apply this definition the Company assesses
whether the contract meets three key evaluations which are whether:
the contract contains an identified asset, which is either explicitly identified in the contract or implicitly
specified by being identified at the time the asset is made available to the Company
the Company has the right to obtain substantially all of the economic benefits from use of the identified
asset throughout the period of use, considering its rights within the defined scope of the contract
the Company has the right to direct the use of the identified asset throughout the period of use. The
Company assesses whether it has the right to direct ‘how and for what purpose’ the asset is used
throughout the period of use
The Company recognizes a right‐of‐use asset on the balance sheet at the lease commencement date. The right‐
of‐use asset is initially measured at cost, which comprises the initial measurement of the lease liability, any lease
payments made before the commencement date, any initial indirect costs incurred by the Company, an estimate
of any costs to dismantle and remove the asset at the end of the lease, less any lease incentives received.
At the commencement date, the Company recognises the lease liability measured at the present value of the
lease payments that are not paid at that date, discounted using the interest rate implicit in the lease or, if that
rate cannot be readily determined, the Company’s incremental borrowing rate.
Lease payments include fixed payments and in‐substance fixed payments, variable lease payments that depend
on an index or rate, initially measured using the index or rate at the commencement date of the lease, amounts
expected to be paid by the Company under residual value guarantees, purchase options if the Company is
reasonably certain to exercise that option and penalties for terminating the lease if the lease term reflects the
Company using an option to terminate the lease.
14
Notes to the consolidated financial statements
for the years ended December 31, 2019 and 2018
2. Significant accounting policies (continued)
2.11 Leased assets (continued)
Subsequent to initial measurement, the lease liability is reduced for payments and increased for interest. It can
be remeasured by discounting the revised lease payments using a revised discount rate if there is a change in
the lease term or in the assessment of an option to purchase the underlying asset. The lease liability is
remeasured by discounting the revised lease payments using an unchanged discount rate if there is a change in
the amount payable under a residual value guarantee or if future lease payments are modified resulting from a
change in an index or rate used to determine those payments.
When the lease liability is remeasured, the corresponding adjustment is reflected in the right‐of‐use asset, or
directly in profit and loss if the right‐of‐use asset is already reduced to zero.
The Company has elected to account for short‐term leases and leases of low‐value assets using the practical
expedients. Instead of recognising a right‐of‐use asset and a lease liability, the payments in relation to these are
recognised as an expense in profit or loss on a straight‐line basis over the lease term.
On the statement of financial position, right‐of‐use assets have been included in property, plant and equipment.
Accounting policy applicable before 1 January 2019
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.
15
Notes to the consolidated financial statements
for the years ended December 31, 2019 and 2018
2. Significant accounting policies (continued)
2.12 Intangible assets other than goodwill (continued)
An intangible asset is derecognised on disposal, or when no future economic benefits are expected from its use
or disposal. Gains or losses arising from the derecognition of an intangible asset, measured as the difference
between the net disposal proceeds and the carrying amount of the asset, are recognised in 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).
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 prorated over 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.
16
Notes to the consolidated financial statements
for the years ended December 31, 2019 and 2018
2. Significant accounting policies (continued)
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.
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 16 – Leases
IFRS 16 – Leases replaces IAS 17 – Leases and related interpretations. IFRS 16 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.
Transition to IFRS 16
IFRS 16 has been applied with a date of initial application being January 1, 2019, using the modified
retrospective approach, with the cumulative effect of adopting IFRS 16 being recognized in equity as an
adjustment of the opening balance of retained earnings for the current period. Prior periods have not been
restated. For leases in existence at the date of initial application, the Company has elected not to include direct
costs in the measurement of the right‐of‐use asset. The Company has made use of the practical expedient
available on transition to IFRS 16 not to reassess whether a contract is or contains a lease and the definition of a
lease in accordance with IAS 17 and IFRIC 4 will continue to apply to those leases entered or modified before
January 1, 2019 (“the date of application”). Instead of performing an impairment review on the right‐of‐use
assets at the date of initial application, the Company has relied on its historic assessment as to whether leases
were onerous immediately before the date of initial application of IFRS 16.
17
Notes to the consolidated financial statements
for the years ended December 31, 2019 and 2018
2. Significant accounting policies (continued)
2.18 Adoption of new accounting standards (continued)
The Company has applied the optional exemptions not to recognize right‐of‐use assets for leases with a term of
less than 12 months and for leases of low‐value assets and opted to account for these leases on a straight‐line
basis over the remaining lease term. For leases previously classified as finance leases, the right‐of‐use asset and
lease liability are measured at the date of initial application at the same amounts as under IAS 17 immediately
before the date of initial application. The Company elected not to separate non‐lease components from lease
components in lease payments to determine the lease obligation under IFRS 16. Finally, the Company also used
hindsight in determining the term of the leases accounted for under IFRS 16 which resulted in the extension of
the term of certain leases for which the Company was reasonably certain to prevail itself of its extension option.
The Company also eliminated some non‐cash accrued amounts that were being amortized over the remaining
term of some leases.
As a result of the adoption of IFRS 16, the Company recorded a lease liability of $4,293,815, right‐of‐use assets
totalling $3,992,922 and a $230,586 reduction in retained earnings, which is net of the $ 70,307 reversal of
accrued expenses. On transition, the weighted average incremental borrowing rate applied to lease liabilities
applied under IFRS 16 was 5.6%.
Total operating lease commitment disclosed as at December 31, 2018
Other adjustments relating to commitment disclosures
Leases of low value
Operating lease liabilities before discounting
Discounting using incremental borrowing rates
Operating lease liability
Finance lease obligations recorded as at December 31, 2018
Total lease liabilities recognised under IFRS 16 as at January 1, 2019
$ 4,669,269
212,397
(36,441)
4,845,225
(551,410)
4,293,815
1,568,423
$ 5,862,238
3. Critical accounting judgments and key sources of estimation uncertainty
The preparation of these consolidated financial statements in conformity with IFRS and the application of the
Company’s accounting policies described in note 2, required management to make judgments, estimates and
assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other
sources. The estimates and associated assumptions are based on historical experience and other factors that are
considered to be relevant. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates
are recognised in the period in which the estimate is revised if the revision affects only that period, or in the
period of the revision and future periods if the revision affects both current and future periods.
3.1 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.
18
Notes to the consolidated financial statements
for the years ended December 31, 2019 and 2018
3. Critical accounting judgments and key sources of estimation uncertainty (continued)
3.2 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 10 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.
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.
19
Notes to the consolidated financial statements
for the years ended December 31, 2019 and 2018
4. 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.
4.1 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,
2019
December 31,
2018
$ 33,219,527
47,785,702
65,312
$ 81,070,541
$ 30,718,578
55,350,220
263,295
$ 86,332,093
4.2 Property, plant and equipment and intangible assets per geographic location
Canada
United States
Total
December 31,
2019
December 31,
2018
$ 9,037,306
20,755,738
$ 29,793,044
$ 9,197,143
13,331,230
$ 22,528,373
5. Additional information on the consolidated statements of comprehensive income
The Company’s consolidated statements of comprehensive income include depreciation of production
equipment of $3,056,781 for the year ended December 31, 2019 ($1,920,732 in 2018) classified in Cost of sales,
which includes the depreciation for right‐of‐use assets of $1,034,135 for the year ended December 31, 2019.
Depreciation of other property, plant and equipment and amortisation of intangible assets amounting to
$273,359 for the year ended December 31, 2019 ($280,305 in 2018) is included in Administrative expenses.
The Company’s consolidated statements of comprehensive income include salaries paid to its employees of
$10,174,103 for the year ended December 31, 2019 ($9,865,338 in 2018) classified in Cost of sales.
Administrative expenses include salaries paid to employees of $1,972,610 for the year ended December 31,
2019 ($1,841,908 in 2018) and Selling expenses include salaries paid to employees of $435,924 for the year
ended December 31, 2019 ($405,393 in 2018).
6. 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 $2,678,442
during the year ended December 31, 2019 ($2,538,987 in 2018). 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, 2019, the Company contributed $31,329 to this plan
($27,477 in 2018).
20
Notes to the consolidated financial statements
for the years ended December 31, 2019 and 2018
7. Finance costs
Interest on bank indebtedness and long‐term debt
Interest on finance lease obligations
Capitalized interest
8. Income taxes
8.1 Income tax recognised in net income
Year ended
December 31,
2019
December 31,
2018
$ 514,254
299,417
(84,328)
$ 590,866
27,821
(47,200)
$ 729,343
$ 571,487
Year ended
December 31,
2019
December 31,
2018
Income tax expense comprises:
Current tax expense
Deferred tax expense relating to the origination and
reversal of temporary differences
Total income tax expense
$ 924,445
$ 1,419,309
(246,672)
$ 677,773
57,543
$ 1,476,852
8.2 Reconciliation between the income tax expense and the statutory income tax rate
Year ended
December 31,
2019
December 31,
2018
Income before income taxes
$ 2,213,444
$ 5,026,785
Income tax expense calculated at 26.6% (26.7% in 2018)
Permanent differences
588,776
149,737
1,342,152
(102,820)
Effect of different tax rates of subsidiaries operating in
other jurisdictions
Other
28,938
(89,678)
14,978
222,542
Income tax expense recognised in net income
$ 677,773
$ 1,476,852
The tax rate used for the 2019 reconciliation above is the corporate tax rate of 26.6% (26.7% in 2018) payable by
corporate entities in Quebec, Canada on taxable income under tax law in those jurisdictions.
21
Notes to the consolidated financial statements
for the years ended December 31, 2019 and 2018
8. Income taxes (continued)
8.3 Deferred tax balances
Opening
balance
Impact of
IFRS 16
Recognised
in income
Closing balance
$ 1,246,548
(57,313)
(15,546)
77,945
112,184
1,363,818
$ (14,875)
1,050,275
‐
‐
‐
1,035,400
$ (119,670)
(2,338)
82,265
(4,672)
(112,184)
(156,599)
$ 1,112,003
990,624
66,719
73,273
‐
2,242,619
2019
Assets
Non‐capital losses
Lease obligations
Advance
Other assets
Inventory
Liabilities
Property, plant and
(2,832,147)
(1,035,400)
403,271
(3,464,276)
equipment
(2,832,147)
(1,035,400)
403,271
(3,464,276)
Deferred tax liabilities
$(1,468,329)
$ ‐
$ 246,672
$(1,221,657)
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)
22
Notes to the consolidated financial statements
for the years ended December 31, 2019 and 2018
8. Income taxes (continued)
8.4 Unrecognised deferred tax assets
The Company's subsidiary, Imaflex USA, has non‐capital losses available to carry forward to reduce future
taxable income of $25,580,528 in 2019 and $26,042,515 in 2018, for part of which a deferred tax asset has not
been recognised ($4,697,336 in 2019 and $4,743,231 in 2018), that expire as follows:
Expiring in
December 31,
2019
December 31,
2018
2026
2027
2028
2029
2030
2031
2032
2033
2034
2035
2036
2038
1,816,477
1,297,289
2,801,240
3,034,473
4,453,085
1,900,893
2,668,591
2,672,290
2,437,798
1,403,049
798,659
296,684
$25,580,528
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
9. Earnings per share
Year ended
December 31,
2019
December 31,
2018
Net income for basic and diluted earnings per share
$ 1,535,671
$ 3,549,932
Weighted average number of common shares
outstanding
Dilutive effect of share purchase options
Diluted weighted average common shares outstanding
50,013,637
671,233
50,684,870
49,915,829
1,151,471
51,067,300
Basic earnings per common share
Diluted earnings per common share
$ 0.031
$ 0.030
$ 0.071
$ 0.070
450,000 stock options outstanding as at December 31, 2019 were not included in the calculation of earnings per
share because they were antidilutive (200,000 in 2018).
23
Notes to the consolidated financial statements
for the years ended December 31, 2019 and 2018
10. 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,
2019
December 31,
2018
$ 12,186,862
(785,676)
11,401,186
$ 15,874,079
(584,410)
15,289,669
118,863
$ 11,520,049
632,375
$ 15,922,044
Year ended
December 31,
2019
December 31,
2018
$ (584,410)
$ (1,125,559)
(216,458)
‐
86
15,106
$ (785,676)
(21,827)
47,284
561,189
(45,497)
$ (584,410)
Credit risk
Credit risk is the risk that a counterparty fails to discharge an obligation to the Company. The Company’s
maximum exposure to credit risk is limited to the carrying amount of the financial assets, net of any provisions
for losses recorded on the Company’s consolidated statements of financial position.
Credit risk management
Credit risk associated with cash is 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, 2019, $6,200,071 ($8,280,051 as at December 31,
2018) 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.
24
Notes to the consolidated financial statements
for the years ended December 31, 2019 and 2018
10. Trade and other receivables (continued)
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, 2019 and 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.
11. Inventories
Raw materials and supplies
Finished goods
Work in process
Total
December 31,
2019
December 31,
2018
$ 7,108,673
4,122,254
520,112
$ 11,751,039
$ 8,913,092
5,298,178
445,213
$ 14,656,483
The cost of inventories recognised as an expense during the year was $63,334,593 ($69,525,363 in 2018). There
were no write‐downs of inventory recognised in the fiscal year ended on December 31, 2019 or 2018.
12. Property, plant and equipment
Cost
January 1, 2018
Additions
Foreign exchange
Land
Building
Production
equipment
Leasehold
improvements
Office
equipment
Computer
equipment
Equipment
under
finance lease
Total
$ 21,508
‐
1,881
$ 107,284
‐
9,381
$ 48,087,161
2,492,775
1,743,346
$ 2,482,340
247,698
97,275
$ 44,615
‐
1,531
$ 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, 2018
Additions
Foreign exchange
December 31, 2018
‐
‐
‐
‐
(8,471)
(5,840)
(1,040)
(30,991,431)
(1,826,649)
(831,286)
(2,106,298)
(160,146)
(71,676)
(44,615)
‐
(1,531)
(492,333)
(23,347)
(3,162)
(351,041)
(86,988)
(22,346)
(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)
Net book value
$ 23,389
$ 101,314
$ 18,673,916
$ 489,193
$
‐
$ 5,017
$ 1,890,506
$ 21,183,335
25
Notes to the consolidated financial statements
for the years ended December 31, 2019 and 2018
12. Property, plant and equipment (continued)
Cost
January 1, 2019
IFRS 16 Impact
Additions
Disposals
Foreign exchange
Land
Building
Production
equipment
Leasehold
improvements
Office
equipment
Computer
equipment
Rolling Stock
Total
23,389
‐
‐
‐
(1,121)
116,665
3,656,434
‐
‐
(33,240)
$ 54,674,163
67,891
7,133,966
(15,608)
(1,174,763)
$ 2,827,313
‐
87,484
‐
(60,371)
$ 46,146
40,779
7,570
‐
(913)
$ 523,859
‐
33,688
‐
(1,841)
$
‐
227,818
37,580
‐
(1,097)
$ 58,211,535
3,992,922
7,300,288
(15,608)
(1,273,346)
December 31, 2019
$ 22,268
$3,739,859
$ 60,685,649
$ 2,854,426
$ 93,582
$ 555,706
$ 264,301
$ 68,215,791
Accumulated depreciation
January 1, 2019
Additions
Disposals
Foreign exchange
December 31, 2019
Net book value, as at
December 31, 2019
‐
‐
‐
‐
‐
(15,351)
(934,606)
‐
6,786
(34,109,741)
(2,063,335)
2,096
558,984
(2,338,120)
(162,056)
‐
45,786
(46,146)
(9,233)
‐
913
(518,842)
(20,020)
‐
2,194
‐
(42,030)
‐
161
(37,028,200)
(3,231,280)
2,096
614,824
(943,171)
(35,611,996)
(2,454,390)
(54,466)
(536,668)
(41,869)
(39,642,560)
$ 22,268
$2,796,688
$ 25,073,653
$ 400,036
39,116
19,038
222,432
28,573,231
A portion of the Company’s production equipment with a carrying amount of approximately $ 15,000,000
(approximately $18,400,000 as at December 31, 2018) is pledged as collateral for the Company’s long‐term debt.
Included in the net carrying amount of property, plant and equipment as at December 31, 2019 are right‐of‐use
assets as follows
Buildings
Production equipment
Rolling stock
Office equipment
Total right‐of‐use asset
13. Intangible assets
December 31,
2019
$ 2,706,076
333,733
218,201
31,546
$ 3,289,556
Goodwill
$ 471,009
‐
41,189
Customer
relationships
Patents
Total
$ 101,926
(48,603)
6,359
$ 822,622
(49,464)
‐
$ 1,395,557
(98,067)
47,548
512,198
‐
(24,555)
59,682
(49,756)
(1,810)
773,158
(49,104)
‐
1,345,038
(98,860)
(26,365)
January 1, 2018
Amortisation
Foreign exchange
December 31, 2018
Amortisation
Foreign exchange
December 31, 2019
$ 487,643
$ 8,116
$
724,054
$ 1,219,813
26
Notes to the consolidated financial statements
for the years ended December 31, 2019 and 2018
14. Trade and other payables
Trade payables
Other payables and accrued liabilities
15. Borrowings
Bank indebtedness (a)
Short‐term borrowings (b)
December 31,
2019
December 31,
2018
$ 4,113,657
1,807,662
$ 5,921,319
$ 6,950,121
2,240,188
$ 9,190,309
December 31,
2019
December 31,
2018
$ 4,538,393
$ 8,113,718
‐
804,419
Total bank indebtedness and short term borrowings
$ 4,538,393
$ 8,918,137
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 and 2019),
secured by production equipment having a net book value of
approximately $6,000,000. (c)
Loan, bearing interest at the lender’s base rate plus 0.67%,
(effective rate of 6.72% as at December 31, 2018 and 2019) secured
by the same production equipment as the loan above. (d)
Loan, bearing interest at the lender’s base rate minus 1.0%,
(effective rate of 5.05% as at December 31, 2018 and 2019) secured
by production equipment having a net book value of approximately
$650,000. (e)
Loan, bearing interest at a fixed rate of 3.746% secured by a
$3.6 million hypothec on a piece of equipment. (f)
Loan, bearing interest at a fixed rate of 3.75% secured by a
$3.3 million hypothec on a piece of equipment. (g)
Loan (US$730,334 as at December 31, 2018), bearing interest at the
US prime rate, reset monthly, plus 3.00% (effective rate of 8.50% as
at December 31, 2018) 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. (h)
Total long‐term debt
Lease obligations (Note 16)
Total borrowings
1,419,250
1,905,850
222,080
250,000
308,210
408,170
3,334,085
3,080,889
‐
‐
‐
8,364,514
1,007,244
3,571,264
3,517,554
1,568,423
16,420,461
14,057,824
27
Notes to the consolidated financial statements
for the years ended December 31, 2019 and 2018
15. Borrowings (continued)
Current
Bank indebtedness
Short‐term borrowings
Long‐term debt, current portion
Lease obligations, current portion
Non‐current
Long‐term debt
Lease obligations
Total borrowings
December 31,
2019
December 31,
2018
$ 4,538,393
‐
1,922,849
1,103,729
7,564,971
$ 8,113,718
804,419
1,432,505
89,517
10,440,159
6,441,665
2,413,825
8,855,490
2,138,759
1,478,906
3,617,665
$ 16,420,461
$ 14,057,824
The interest expense on long‐term debt amounted to $265,849 for the year ended December 31, 2019
($260,440 in 2018).
(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, 2019 and 2018 for an effective interest rate of 4.35% at
December 31, 2019 and 2018. 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 and debt to equity covenants (as defined in the lending agreement), all of which
were respected as at December 31, 2019 and 2018 and during the years ended December 31, 2019 and
2018. As at December 31, 2019, the Company had drawn $4,538,393 ($8,113,718 as at December 31, 2018)
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. During the course of the 2019 fiscal year, when the equipment
was received and the long term loan related to this piece of equipment was funded, the banker’s
acceptance was fully reimbursed.
(c) The loan is repayable in monthly instalments of $40,550 until November 2022.
(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.
(e) The loan is repayable in one instalment of $8,530 followed by 59 monthly instalments of $8,330 through
January 2023.
(f) The Company borrowed $3,609,480 for payments towards a piece of equipment through a loan which is
repayable in blended monthly instalments of $66,072 through July 2024. This loan is secured by a hypothec
on a specific piece of equipment of the Company. The progressive payments made to the supplier for this
piece of equipment were initially borrowed under a lease agreement and all amounts were transferred to
this loan when the equipment was fully delivered.
(g) The Company borrowed $3,280,940 for payments towards a piece of equipment that was received during
the course of the 2019 fiscal year. This loan is repayable in blended monthly instalments of $60,061 through
August 2024. This loan is secured by a hypothec on a specific piece of equipment of the Company. The
banker’s acceptance that was outstanding as at December 31, 2018 was reimbursed with the proceeds of
this loan.
28
Notes to the consolidated financial statements
for the years ended December 31, 2019 and 2018
15. Borrowings (continued)
(h) This loan, initially repayable in 20 equal quarterly instalments through January 2020, was reimbursed in full,
including all interest due at the payment date, without incurring any penalties. 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 that were respected as at December 31, 2018.
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.
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
$ 1,922,849
6,427,785
13,880
$ 8,364,514
The changes in the Company’s liabilities arising from borrowings can be classified as follows:
Balance as of January 1, 2018
Cash flows:
Proceeds
Repayments
Non‐cash:
Amortization of debt
issuance costs
Foreign exchange and other
Balance as of December 31, 2018
Cash flows:
Proceeds
Repayments
Non‐cash:
Impact of IFRS 16 adoption
New leases or advances
Amortization of debt
issuance costs
Foreign exchange and other
Conversion to debt
Balance as of December 31, 2019
Short‐term
borrowings and
bank indebtedness
$ 5,827,182
Long‐term debt
$ 4,345,367
Lease obligations
$ 475,062
Total
$ 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)
‐
18,436
(4,875)
99,075
‐
5,774
(4,875)
123,285
8,918,137
3,571,264
1,568,423
14,057,824
16,990,385
(21,371,968)
3,748,245
(2,061,900)
‐
(1,060,887)
20,738,630
(24,494,755)
‐
‐
‐
‐
‐
1,839
‐
$ 4,538,393
(6,966)
(28,304)
3,142,175
$ 8,364,514
4,293,815
1,891,546
‐
(33,168)
(3,142,175)
$ 3,517,554
4,293,815
1,891,546
(6,966)
(59,633)
‐
$ 16,420,461
29
Notes to the consolidated financial statements
for the years ended December 31, 2019 and 2018
16.
Lease obligations
The Company has entered into certain finance lease agreements relating to their manufacturing plants, vehicles
and other machinery and equipment (see note 12). 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 5.4%
Present value of minimum lease payments
Less the long‐term portion
Current portion of lease obligations
$ 1,272,855
2,587,128
18,049
3,878,032
(360,478)
3,517,554
(1,103,729)
$ 2,413,825
These balances also include the lease obligations recognized on January 1, 2019 following the adoption of IFRS
16, as explained in note 2 of these consolidated financial statements.
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.
During the year ended December 31, 2019 the Company financed the acquisition of rolling stock for an amount
of $37,771 by entering into a lease. During the year ended December 31, 2019, the Company received additional
advances of $1,853,775 under a lease agreement. An amount of $3,142,175, including these advances as well as
those received during the year ended December 31l 2019, was converted into a long term when the piece of
equipment was received.
Total cash outflow for leases for the twelve months ended December 31, 2019 and 2018 was $1.3 million and
$1.2 million, respectively.
17. Share capital
The Company’s authorized share capital consists of an unlimited number of common shares, voting,
participating, without par value. At December 31, 2019 and 2018, there were 50,013,637 common shares
outstanding.
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 and 2019, there
were no warrants outstanding.
18. 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, 2019, the Company granted 100,000 options to a sales agent with an
exercise price of $0.55. The options are convertible into an equal number of shares with one quarter of the
options vesting immediately at issuance and an additional quarter vesting every six‐month period thereafter.
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 six‐month intervals.
The expense relating to the issue of option grants totalled $75,048 for the year ended December 31, 2019 and
$122,832 for the year ended December 31, 2018.
30
Notes to the consolidated financial statements
for the years ended December 31, 2019 and 2018
18. 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
10/09/2019 29/11/2018 29/11/2017 22/06/2017 06/09/2016
21/06/2016 16/06/2015
Total
Outstanding as at 01/01/2018
Issued
Exercised
Outstanding as at 31/12/2018
Exercised
Issued
Outstanding as at 31/12/2019
Exercisable as at 31/12/2018
Exercisable as at 31/12/2019
Remaining life of options (yrs)
Expected life of options (yrs)
Expiry
Expected share price volatility
Dividend yield
1,175,000
‐
‐
250,000
‐
250,000
‐
‐
250,000
62,500
187,500
3.92
2.5 to 3.25
150,000
‐
‐
150,000
‐
‐
150,000
112,500
150,000
2.92
2.5 to 3.25
‐
‐
(150,000)(1)
‐
1,025,000
‐
‐
‐
‐
100,000
1,025,000
100,000
1,025,000
‐
1,025,000
25,000
1.48
4.70
2.5 to 3.25
2.75 to 3.5
10/09/2024 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
500,000
500,000
1.69
2.5 to 3.25
50,000
‐
‐
50,000
‐
‐
50,000
50,000
50,000
2.48
2.5 to 3.25
61.21% ‐
64.47%
0%
80.01% ‐
83.03%
0%
67.14% ‐
70.41%
0%
79.13% ‐
80.17%
0%
76.59% ‐
79.60%
0%
2,525,000
250,000
(150,000)
2,625,000
‐
100,000
2,725,000
2,400,000
2,587,500
650,000
‐
‐
650,000
‐
‐
650,000
650,000
650,000
0.46
2.75 to 3.5
15/06/2020
83.19% ‐
98.85%
0%
Fair value assumptions
10/09/2019 29/11/2018 29/11/2017 22/06/2017 06/09/2016
21/06/2016 16/06/2015
Total
Risk free rate
1.44%
2.23%
1.62%
1.15%
0.51%
0.50%
Exercise price
Share price on grant date
Fair value of option at grant
$ 0.55
$ 0.55
$ 0.30
$ 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
0.55% to
0.65%
$ 0.52
$ 0.52
$ 0.30
(1) The fair value of the common shares at the exercise date was $0.88 per share.
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.
19. Non‐cash transactions
During the year ended December 31, 2019 the Company financed the acquisition of rolling stock for a value of
$37,771 by entering into a finance lease. Moreover, the Company made payments totalling $1,853,775 to a
supplier for a piece of machinery. Those amounts were advanced to the Company under a finance lease
agreement and were transferred to a long term loan when the pieces of equipement were received.
31
Notes to the consolidated financial statements
for the years ended December 31, 2019 and 2018
20. Financial instruments
20.1 Fair value and classification of financial instruments
Carrying amount and fair value
December 31,
December 31,
2018
2019
$ 60,942
11,409,112
11,470,054
$ 310,874
15,293,902
15,604,776
4,538,393
‐
4,685,742
8,364,514
17,588,649
8,113,718
804,419
8,029,262
3,571,264
20,518,663
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 that bears interest at floating and fixed 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. Over time, changes in
market interest rates may cause a difference between the fair value and the carrying value of long‐term
debt that bears interest at fixed rates.
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.
32
Notes to the consolidated financial statements
for the years ended December 31, 2019 and 2018
20. Financial instruments (continued)
20.2 Fair value hierarchy
The Company categorizes its financial instruments into a three‐level fair value measurement hierarchy as
follows:
Level–1 ‐ valuation based on quoted prices (unadjusted) in active markets for identical assets or liabilities;
Level–2 ‐ valuation techniques based on inputs other than quoted prices included in Level 1 that are observable
for the asset or liability, either directly (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, 2019 and 2018, the fair values of long‐term debt are categorised as Level 2.
21. Risk management
21.1 Capital management
The Company’s objective in managing capital is to ensure sufficient liquidity to pursue its growth while at the
same time taking a conservative approach towards financial leverage and financial risk.
The Company’s capital is composed of net debt and shareholders’ equity. Net debt consists of interest‐bearing
debt less cash. The Company’s primary uses of capital are to finance increases in non‐cash working capital and
capital expenditures for capacity expansion and integration.
The Company’s primary measure to monitor financial leverage is Debt to Earnings before Interest, Taxes,
Depreciation and Amortization (“EBITDA”).
Credit facility arrangements require that the Company meet certain financial ratios at fixed points in time. The
financial covenants are, as at December 31, 2019:
‐ 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;
21.2 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 debt in USD. The majority of the cash flows generated by the assets
financed by these borrowings in USD are in USD.
33
Notes to the consolidated financial statements
for the years ended December 31, 2019 and 2018
21. Risk management (continued)
21.2 Foreign currency risk management (continued)
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,
2019
38,968
3,032,910
(1,722,323)
(36,519)
$ 1,313,036
$
December 31,
2018
6,481
4,408,143
(3,233,428)
(946,707)
$ 234,489
A $0.05 appreciation of the Canadian dollar against the USD would decrease its financial position by $126,068 as
at December 31, 2019 (an increase of $48,568 as at December 31, 2018). 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 positive impact on the Company’s results of
approximately $7,452. Every $0.01 depreciation of the USD against the Canadian dollar would have the opposite
effect.
21.3 Interest rate risk management
The Company’s exposure to interest rate fluctuations is with respect to its short‐term and long‐term financing,
which bear interest at floating rates.
At the reporting date, the carrying value of the Company’s interest‐bearing financial liabilities was as follows:
Variable rate instruments
Financial liabilities
Gross financial position exposure
Sensitivity analysis
December 31,
2019
December 31,
2018
$ 6,487,933
$ 6,487,933
$ 12,973,383
$ 12,973,383
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, 2019 of approximately $74,291 ($ 117,000 for 2018). Conversely a decrease in interest
rates would have the opposite effect.
21.4 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.
34
Notes to the consolidated financial statements
for the years ended December 31, 2019 and 2018
21. Risk management (continued)
21.4 Liquidity risk management (continued)
The Company has an operating line of credit of up to $12,000,000, of which an amount of $4,538,393 was
utilized as at December 31, 2019. 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, 2019, the carrying amount and undiscounted contractual cash flows for the Company's
liabilities are as follows:
Carrying
amount
Contractual
cash flow
1 year or less
2‐5 years More than 5
Bank indebtedness
Long‐term debt (1)
Lease obligations (2)
Trade and other payables (3)
$ 4,538,393
8,364,513
3,517,554
4,685,742
$ 4,538,393
9,130,351
3,878,032
4,685,742
$ 4,538,393
2,235,341
1,272,855
4,685,742
$ ‐
6,880,938
2,587,128
‐
years
$ ‐
14,072
18,049
‐
$21,106,202
$22,232,518
$12,732,331
$ 9,468,066
$ 32,121
(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.
(3) Excludes employee benefits
22. 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:
Entities owned by key management
personnel or their family
members
Rent
Lease liability payments
Interest expense included in lease
payments above
Lease liability balance
Key management personnel services
Entities over which key management
personnel have significant
influence
Professional services
Transactions for the year
ended
Amounts owing as at
Non‐secured commitments
as at
December 31,
2019
December 31,
2018
December 31,
2019
December 31,
2018
December 31,
2019
December 31,
2018
$ ‐
1,111,683
$ 975,471
‐
$
‐
‐
$ ‐
‐
$ ‐
‐
$ 6,605,537
‐
197,728
3,036,345
142,245
‐
‐
146,628
‐
‐
13,773
‐
‐
12,689
31,400
69,351
31,400
69,351
‐
‐
‐
‐
‐
‐
‐
35
Notes to the consolidated financial statements
for the years ended December 31, 2019 and 2018
22. Related party transactions (continued)
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.
Year ended
December 31,
2019
$ 934,999
41,000
13,298
17,145
60,004
49,236
$ 1,115,682
December 31,
2018
$ 915,840
41,000
13,101
14,788
112,193
44,972
$ 1,141,894
Salaries
Director’s fees
Short‐term employee benefits
Post‐employment benefits – State‐run plans
Share‐based compensation
Other benefits
23. Subsequent events
Subsequent to year‐end, a global pandemic caused by an outbreak of a new strain of coronavirus (COVID‐19)
resulted in a major global health crisis which continues to have impacts on the global economy and the financial
markets at the date of completion of the financial statements.
These events may cause significant changes to the Company’s assets or liabilities in the coming year, particularly
to accounts receivables, although the Company’s initial assessment did not identify customers with a great
exposure to segments of the economy most impacted by the crisis. These events may also have an impact on
future operations, although for the moment all of the Company’s plants remain fully operational at normal
business levels given it is considered an essential supplier. The Company has taken and will continue to take
action to minimize the impact. However, it is impossible to determine the financial implications of these events
for the moment.
36