Infineon
Annual Report 2020

Plain-text annual report

ANNUAL REPORT 2020 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, 2020 and 2019. 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, 2020 and 2019. 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 14, 2021. 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, 2020 and 2019. IFRS 16, Leases Effective January 1, 2019, Imaflex adopted IFRS 16, Leases, (“IFRS 16”). 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. 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, statements relating to the potential impacts on our business, financial condition, liquidity and financial results due to the COVID-19 pandemic, the length and severity of an economic downturn, management of credit, market dynamics, liquidity, funding and operational risks; the strength of the Canadian and U.S. economies in which we conduct business; the impact of the Annual Report – December 31, 2020 1 MANAGEMENT DISCUSSION AND ANALYSIS FORWARD LOOKING STATEMENTS (continued) 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 14, 2021. 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 the integrity of products 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 by lmaflex to growers. They are available in a variety of formats and include both metalized and non-metalized films. Our portfolio includes common mulch, compostable and fumigant barrier films, as well as innovative metalized 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 25,084 square meters or 270,000 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, 2020 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 films, particularly our metalized films and our patented active ingredient release film, ADVASEAL® (under development). Our metalized agriculture films are surface coated with metallic aluminum 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. ADVASEAL® (under development) 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 pre-plant 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 U.S. Environmental Protection Agency (EPA) originally approved ADVASEAL® (ADVASEAL® HSM), which 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 pre-plant 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 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. 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. 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 team uses the fields in which they have core-competencies in order to identify innovative improvements and solutions where chemicals and polymers can offer added-value. Continue Upgrading Equipment Finally, we will focus on the efficiency of our equipment, making the required capital investments to maintain, upgrade and expand into new areas. Our commitment to make the required investments, and our ability to deliver customized solutions, on-time and at competitive prices should help to drive revenue and margin expansion, while allowing us to remain competitive in the marketplace. Annual Report – December 31, 2020 3 MANAGEMENT DISCUSSION AND ANALYSIS MARKET OVERVIEW The North American flexible packaging market is valued at approximately US $29 billion. Although this market is highly fragmented and commoditized in terms of pricing, there are niches within the space that offer opportunity for increased profitability. In 2020, Imaflex was once again ranked in the top 100 North American film and sheet manufacturers by sales. The total addressable global mulch film market, excluding silage and greenhouse 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. ADVASEAL® COMMERCIALIZATION PROCESS Imaflex has successfully completed the design of a new coating line, customized specifically for the cost effective production of the new ADVASEAL®, containing all the active ingredients, not just a herbicide as originally approved by the EPA. 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) to develop and optimize the coating process for the application of the active ingredient mixture. In February 2020, Imaflex subsequently commenced an Efficacy Field Trial, designed to evaluate ADVASEAL’s® ability to release its crop protection products into the soil and achieve soil disinfestation, prior to planting tomato seedlings. Concurrently, the trial monitored plant growth, yield and quality, compared to a crop produced 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 generate 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. Similarly on May 19, 2020, Imaflex announced positive trial results from the first of three harvests comparing tomato production using ADVASEAL® to the grower standard. Finally, on September 10, 2020 the Corporation announced final independent results showing that ADVASEAL® was a viable soil fumigation alternative to the current best grower practice of using fumigants to improve yields of field grown vegetables. Based on these positive findings, in October 2020 the Corporation announced the commencement of a Release Study, the last and most comprehensive trial required for the U.S. Environmental Protection Agency (EPA) registration package. The Study was required to determine the exact timing each active ingredient coated on ADVASEAL® is released into the soil. This is needed to show compliance with the pre-harvest intervals established by the EPA, which is essentially the wait period required between the last application (release) of an active ingredient and when a crop can be harvested for safe human consumption. On January 25, 2021, the Company subsequently announced positive independent final results for the Release Study. The release times of all five crop protection products (“active ingredients” or “technical grade active ingredients - TGAI”) coated on ADVASEAL® were in compliance with the pre-harvest intervals established by the EPA. Annual Report – December 31, 2020 4 MANAGEMENT DISCUSSION AND ANALYSIS ADVASEAL® COMMERCIALIZATION PROCESS (continued) Imaflex has one remaining step before submitting the registration package to the EPA for approval of ADVASEAL® as a new physical pesticide formulation. Four of the five active ingredients used on ADVASEAL® come from Asia and are not yet registered in the U.S.A. To simplify their registration as generic pesticides Imaflex has mandated a lab to prove their equivalence with TGAIs already registered and marketed in the U.S.A. Going forward, holding our own TGAI registration should provide us with greater autonomy as we commercialize ADVASEAL®, while also making us less reliant on a particular supplier. The work is progressing well and Imaflex remains on track to submit the TGAI and ADVASEAL registration package around summer 2021. Once the ADVASEAL® and TGAI registration package is submitted, the EPA review process can take up to a year to complete. Management believes the 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 the integrity of a product. Many customers also deal in food related goods, which are somewhat recession resistant. Imaflex believes the Company’s ability to develop innovative solutions, while offering high quality products and service gives it a competitive edge. This combined with our ability to take on smaller orders with short lead times and at competitive prices helps creates customer loyalty Some competitors, experiencing idle operations or producing at below average capacity levels, may attempt to gain market share through reduced pricing, particularly during difficult economic times. Imaflex still believes that maintaining its focus on the quality of its products and the excellence of its customer service remains its best long-term strategy, as these two characteristics define our position and reputation in the market, and this regardless of the fluctuations in the economic cycle. This strategy has been the backbone of our growth and it has served us well. We employ a staff of chemical & polymer engineers and a chemist, which allows us to develop unique solutions. In our markets, we believe it is essential to sell value-added products and avoid producing highly commoditized offerings generating lower margins. The key to this strategy is identifying and building relationships with customers having specific needs and eventually developing products that address them. Our sales force is mandated to seek out such clients and the Company works to ensure its sales team is technically accomplished and equipped to properly communicate the advantages of all products. EMPLOYEES AND CORPORATE OFFICE Imaflex currently employs approximately 218 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. Annual Report – December 31, 2020 5 MANAGEMENT DISCUSSION AND ANALYSIS 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: the impact of the COVID-19 global pandemic on our current and future business, 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 Resin costs began to rise at the end of the second quarter of 2020 and this trend accelerated into 2021 due to a storm in Texas in February 2021 which shut down the vast majority of U.S. resin plants. It’s expected to take resin producers considerable time to back-fill orders, restock inventories and unwind force majeure declarations. While resin production is now ramping up again, any new production issues could compound the situation further, putting additional pressure on pricing. Assuming production continues to build, some pricing relief may be possible in the second half of 2021. As Imaflex has no long term contracts with its customers, it is able to adjust product pricing as resin input costs change. There is usually a 30-day lag between a resin price increase and when customer product pricing can be revised. However, decreases in resin prices are normally passed along to the customer immediately. Given that Imaflex is able to adjust product pricing, we do not expect it to have a material impact on our business. 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. Annual Report – December 31, 2020 6 MANAGEMENT DISCUSSION AND ANALYSIS 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 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 finished products 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 quarterly profitability may vary, 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. 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 Annual Report – December 31, 2020 7 MANAGEMENT DISCUSSION AND ANALYSIS FOREIGN EXCHANGE FLUCTUATIONS (continued) 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, 2020 2019 2020 2019 $ 1,679 303 $ 6,349 $ 1,536 239 116 773 $ 2,807 $ 0.06 $ 0.06 79 187 895 $ 1,464 $ 0.03 $ 0.03 1,862 545 3,593 $ 12,349 $ 0.25 $ 0.24 678 729 3,330 $ 6,273 $ 0.13 $ 0.12 (1) Basic weighted average number of shares outstanding of 50,063,637 for the quarter and 50,040,823 for the year ended December 31, 2020. This compares to basic weighted average number of shares outstanding of 50,013,637 for the three and twelve-month periods ended December 31, 2019. Diluted weighted average number of shares outstanding of 50,971,441 for the quarter ended December 31, 2020 (50,563,269 in 2019) and 50,704,888 for the year ended December 31, 2020 (50,684,870 in 2019). 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 the fourth quarter of 2020, Imaflex saw robust year-over-year growth in revenue and profitability. COVID-19 continued to have no material impact on operations. The solid results seen throughout 2020 resulted in strong top and bottom line growth for the year, with the Company achieving record profitability. Liquidity also remained strong and the Company ended the year with $3.2 million of cash and no debt on its short term credit facility. Annual Report – December 31, 2020 8 MANAGEMENT DISCUSSION AND ANALYSIS RESULTS OF OPERATIONS (continued) ($ thousands) Three months ended December 31, 2020 2019 Years ended December 31, 2020 2019 Sales $21,940 $18,740 $86,682 $81,071 Revenues were up 17.1% over the fourth quarter of 2019, reaching $21.9 million. Growth was driven by product mix, including heightened sales of 5-layer and metalized agriculture films. As well, sales of converted products were up materially over 2019. During the quarter, product pricing gradually firmed-up over 2019 levels as resin costs continued to rise above the market bottom reached earlier in 2020. As Imaflex has no long-term customer contracts, it is able to adjust product pricing in accordance with resin input costs, although there is usually a 30-day lag between a resin price increase and when customer pricing can be revised. Revenues came in at $86.7 million for fiscal 2020, up 6.9% over 2019, while overall extruded film sales volumes on a poundage basis were up 9% year-over-year. Growth was driven by robust flexible packaging sales volumes, along with heightened sales of agricultural films and converted products, partially offset by the lower pricing environment caused by on-going competitive pressures and lower resin prices. ($ 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, 2020 2019 Years ended December 31, 2020 2019 $5,214 $3,449 $19,901 $14,008 23.8% 18.4% 23.0% 17.3% 703 $4,511 20.6% 802 $2,647 14.1% 3,335 $16,566 19.1% 3,056 $10,952 13.5% Gross profit before the amortization of production equipment was $5.2 million or 23.8% of sales for the fourth quarter of 2020, up from $3.4 million and 18.4% of sales respectively in 2019. Similarly, the quarterly gross profit including amortization of production equipment was up markedly over 2019, coming in at $4.5 million or 20.6% of sales, versus $2.6 million and 14.1% of sales in the prior year. The improvement was largely driven by the positive impact of scale on our business, whereby incremental revenues have a fairly meaningful effect on margins due to the diminished impact of labor and overhead costs relative to sales. For fiscal 2020, the gross profit before amortization of production equipment came in at $19.9 million or 23.0% of sales, up from $14.0 million and 17.3% respectively in 2019. Similarly, gross profit including amortization of production equipment was notably higher, reaching $16.6 million or 19.1% of sales for calendar 2020, versus $11.0 million and 13.5% of sales in 2019. The increase was driven by the same factors outlined for the quarter. As well, during the front end of 2020 Imaflex also benefited from favourable fluctuations in foreign exchange. ($ thousands) Selling and administrative As a % of sales Three months ended December 31, 2020 2019 Years ended December 31, 2020 $1,452 6.6% $1,676 8.9% $7,149 8.2% 2019 $7,042 8.7% Annual Report – December 31, 2020 9 MANAGEMENT DISCUSSION AND ANALYSIS RESULTS OF OPERATIONS (continued) Selling and administrative expenses were $1.5 million for the fourth quarter of 2020, down 13.4% from $1.7 million in 2019, due largely to a decrease in administrative expenses. This, combined with the higher revenue base for the current quarter, also generated lower year-over-year selling and administrative expenses as a percent of sales, which came in at 6.6% for the fourth quarter of 2020, versus 8.9% in the prior year. For calendar 2020, selling and administrative expenses were $7.1 million, up slightly from $7.0 million in 2019 due to increased sales commissions resulting from stronger revenues year-over-year. As a result of the higher revenue base for fiscal 2020, selling and administrative expenses as a percentage of sales were down versus 2019, coming in at 8.2% for calendar 2020 versus 8.7% in 2019. ($ thousands) Three months ended December 31, 2020 2019 Years ended December 31, 2020 Finance costs $116 $187 $545 2019 $729 Finance costs came in at $116 thousand for the fourth quarter of 2020, down from $187 thousand in 2019. Similarly, calendar 2020 expenses were lower, coming in at $545 thousand for the year versus $729 thousand in 2019. The decreased cost for the quarter and calendar 2020 were largely due to a reduction in debt outstanding, particularly relating to the Corporation’s line of credit, along with lower interest rates. ($ thousands) Three months ended December 31, 2020 2019 Years ended December 31, 2020 Foreign exchange & other losses $965 $374 $533 2019 $872 Due essentially to the depreciation of the US dollar against the Canadian dollar, Imaflex recorded a foreign exchange & other loss of $1.0 million in the fourth quarter of 2020, compared to a loss of $0.4 million in 2019. This created an unfavourable year-over-year variance of $0.6 million. A one-time loss of $0.1 million is included in the current quarter relating to the disposition of assets. For fiscal 2020, Imaflex recorded a foreign exchange & other loss of $0.5 million, down from a loss of $0.9 million in 2019, culminating in a favourable year-over-year variance. A majority of the Corporation’s foreign exchange gains and losses are non-cash impacting and largely relate to intercompany balances for which Imaflex can control the time of settlement. ($ thousands) Three months ended December 31, 2020 2019 Years ended December 31, 2020 Income taxes As a % of income before taxes $239 12.5% $79 20.7% $1,862 22.7% 2019 $678 30.6% Income taxes were $0.2 million or 12.5% of income before taxes for the fourth quarter of 2020, versus $79 thousand and 20.7% in the corresponding prior-year period. For fiscal 2020, income taxes stood at $1.9 million or 22.7% of income before taxes, versus $0.7 million and 30.6%, respectively in 2019. The Corporation’s statutory tax rate is currently 26.5%. Annual Report – December 31, 2020 10 MANAGEMENT DISCUSSION AND ANALYSIS RESULTS OF OPERATIONS (continued) ($ thousands, except per share data) Net income Basic earnings per share Diluted earnings per share Three months ended December 31, 2020 2019 Years ended December 31, 2020 $1,679 $0.03 $0.03 $303 $0.01 $0.01 $6,349 $0.13 $0.12 2019 $1,536 $0.03 $0.03 Net income came in at $1.7 million for the fourth quarter of 2020, up 454.1% over the $0.3 million realized in the prior year. The year-over-year improvement was largely due to the higher gross profit and lower administrative expenses in the current quarter, partially offset by the higher foreign exchange and other losses versus 2019. Net income was $6.3 million for fiscal 2020, up 313.3% over the prior year. The increase was driven by the higher gross profit and lower foreign exchange losses in 2019. SUMMARY OF QUARTERLY RESULTS Summary financial data derived from the Company’s unaudited quarterly financial statements for each of the eight most recently completed quarters are as follows: For the quarters ending March, June, September and December ($ thousands, except per share data): Revenues Net income Earnings per share Basic Diluted Q4/20 21,940 Q3/20 22,904 Q2/20 20,807 Q1/20 21,031 Q4/19 18,740 Q3/19 19,195 Q2/19 Q1/19 21,269 $21,867 1,679 1,236 342 3,092 303 470 205 558 0.034 0.033 0.025 0.024 0.007 0.007 0.062 0.061 0.006 0.006 0.009 0.009 0.004 0.004 0.011 0.011 It is important to note that profitability may vary from quarter to quarter, irrespective of quarterly sales, due to many factors. These factors include and are not limited to: competitive conditions in the businesses in which the Company participates; general economic conditions and normal business uncertainty; product mix; fluctuations in foreign currency rates; the availability and costs of raw materials; changes in the Company’s relationship with its suppliers; planned plant shutdowns for preventative maintenance affecting production levels; along with interest rate fluctuations and other changes in borrowing costs. FINANCIAL POSITION December 31, 2020 vs. December 31, 2019 Working capital stood at $16.8 million as at December 31, 2020, up from $10.0 million as at December 31, 2019. The $6.8 million year-over-year improvement was largely due to a $3.2 million increase in cash, along with a $4.5 million decrease in bank indebtedness, partially offset by a $0.9 million increase in current tax liabilities. Imaflex has made significant progress reducing debt levels and enhancing cash flows, which is having an increasingly positive impact on its financial strength. Annual Report – December 31, 2020 11 MANAGEMENT DISCUSSION AND ANALYSIS LIQUIDITY Cash Flows from Operating Activities Cash flows from operating activities, before movements income taxes, stood at $3.8 million for the fourth quarter of 2020, up from $1.8 million in the prior year. Including movements in working capital and taxes paid, net cash generated by operating activities was $2.2 million for the current quarter, versus $2.7 million in 2019. The decrease over 2019 was largely driven by movements in trade and other receivables and inventories. in working capital and For fiscal 2020, cash flows from operating activities, before movements in working capital and income taxes, stood at $12.8 million, up from $7.2 million in 2019. Including movements in working capital and taxes paid, net cash generated by operating activities stood at $12.0 million for calendar 2020, versus $9.7 million in the prior year. Cash Flows from Investing Activities During the fourth quarter of 2020, Imaflex contributed $0.6 million towards capital assets, as compared to $1.3 million in 2019. For fiscal 2020, capital investments totaled $1.6 million, down from $5.4 million in 2019. The higher expenses in 2019 largely relate to the purchase of production equipment, including a five layer extruder. These investments were made to further enhance the Company’s production capacity and capabilities in order to heighten sales and profitability. Cash Flows from Financing Activities During the fourth quarter of 2020, the Corporation had cash outflows from financing activities of $0.6 million, versus outflows of $1.9 million in 2019. The increased outflows in the fourth quarter of 2019 were largely due to $0.9 million of payments to decrease the company’s bank indebtedness, versus nil in the corresponding quarter of 2020. For fiscal 2020, Imaflex had $7.2 million of outflows from financing activities, primarily to decrease bank indebtedness and long term debt, along with the repayment of lease obligations. This compares to net outflows of $4.5 million in 2019. The lower cash outflows in 2019 largely resulted from $3.7 million of cash inflows due to an increase in long term debt, versus $0.8 million in 2020. The Corporation has made significant progress in reducing debt levels and ended fiscal 2020 with no debt on its revolving line of credit (bank indebtedness), versus $4.5 million as at December 31, 2019. CONTRACTUAL OBLIGATIONS The contractual obligations as at December 31, 2020 were as follows: ($ thousands) Payments due by period Long-term debt Bank indebtedness Leases* Total contractual obligations Total $ 7,979 - 2,605 $ 10,584 Less than 1 year $ 2,139 - 937 $ 3,076 1 to 5 years $ 5,646 - 1,668 $ 7,314 After 5 years 194 $ - - $ 194 *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, 2020. 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, 2020, Imaflex had no outstanding balance on its line of credit ($4.5 million as at December 31, 2019) and had cash outstanding of $3.2 million ($0.1 million as at December 31, 2019). Working capital stood at $16.8 million as at December 31, 2020 versus $10.0 million as at December 31, 2019. Annual Report – December 31, 2020 12 MANAGEMENT DISCUSSION AND ANALYSIS CAPITAL RESOURCES (continued) The Company controls its financial leverage, ensuring that its borrowings reflect the asset base against which funds are borrowed as well as the profitability that is generated through the operations. PROPOSED TRANSACTION The Company is not currently contemplating any business acquisition or merger. RELATED PARTY TRANSACTIONS In the normal course of operations, the Company had routine transactions with related parties. These transactions are measured at fair value, which is the amount of consideration established and agreed to by the related parties. The following table reflects the related party transactions recorded for the periods ended December 31, 2020 and 2019. For additional information, please refer to note 23, Related party transactions of the “Notes to the consolidated financial statements” for the years ended December 31, 2020 and 2019. ($ thousands) Professional fees and key management personnel services Rent Remuneration (a) (b) (c) Three months ended December 31, Years ended December 31, 2020 $ 12 $ 277 $ 250 2019 2020 2019 $ (4) $ 133 $ 174 $ 278 $ 240 $ 1,118 $ 1,059 $ 1,112 $ 1,116 (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 self-employed tax lawyer. (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. FINANCIAL INSTRUMENTS Please refer to note 21, Financial instruments of the consolidated financial statements for the years ended December 31, 2020 and 2019 for disclosure on the Company’s financial instruments as well as note 22, Risk management for a discussion on the risks the Company is exposed to and how they are managed. As at December 31, 2020, the Company was not using any swap, forward or hedge accounting and there were no warrants outstanding. As at December 31, 2020, 2,225,000 options to purchase shares of the Company were outstanding at a weighted average strike price of $0.536 of which 2,087,500 were exercisable. 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. Annual Report – December 31, 2020 13 MANAGEMENT DISCUSSION AND ANALYSIS IMPACT OF COVID-19 – All plants remain fully operational and running at normal levels COVID-19 continues to have no significant impact on operations, nor is the Corporation experiencing any material issues with customer receivables or delays with suppliers and distribution channels. Imaflex is considered an essential vendor due to the important role its products play in protecting and preserving the integrity of products, particularly within the food and packaging industry. All plants remain fully operational and running at normal business levels, while no material capital project has been halted. Each plant has the ability to take on more volume should it be required due to business interruption at another location or heightened order flow. The Corporation is monitoring developments closely and taking strong preventative measures to protect its employees, customers and business. MANAGEMENT OUTLOOK Looking ahead, the impact of COVID-19 on our business, financial situation and results remains unclear and cannot be predicted. Any outbreak at one of our plants, deferrals in purchases, payment issues with customers, or supply and distribution delays could impact performance. However, these risks are considered temporary and with a strong balance sheet and dynamic team the Corporation is well positioned to meet any challenges ahead. Imaflex operates in a competitive pricing environment. This said, we believe our diversified customer base and multi-year investments in growth and innovation put us in a strong position, as reflected in the solid financials seen throughout 2020. The benefit and impact of our increasing scale should also continue, whereby incremental sales fall fairly meaningfully to the bottom line. Going forward, our sound balance sheet and strong cash flows also provides us with the financial flexibility to more readily purchase capital assets and look at possible acquisitions. OUTSTANDING SHARE DATA As at December 31, 2020, the Company had 50,063,637 common shares outstanding, compared to 50,013,637 as at December 31, 2019. The increase follows the issuance of shares under Imaflex’s employee stock option plan. Additional information on Imaflex, including 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 14, 2021 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, 2020 14 Consolidated Financial Statements of   IMAFLEX INC.  Years ended December 31, 2020 and 2019    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, 2020 and 2019, and the consolidated statements of comprehensive income, the consolidated statements of changes in equity and consolidated statements of cash flows for the years then ended, and notes to consolidated financial statements, including a summary of significant accounting policies. In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the financial position of the Company as at December 31, 2020 and 2019, 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 the 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 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. 17 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. 18 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 14, 2021 1 CPA auditor, CA public accountancy permit no. A119564 19 Consolidated statements of comprehensive income  (in Canadian dollars)  for the years ended  Revenues  Cost of sales  Gross profit  Expenses:  Selling   Administrative  Finance costs  Other losses  Other  Income before income taxes  Income taxes  NET INCOME  (Note 4.1) (Note 7) (Note 8) December 31,            2020            2019  $   86,682,163  70,115,883  16,566,280    $   81,070,541 70,118,437  10,952,104 1,808,784  5,339,846  544,928  533,558  127,781  8,354,897  1,616,422  5,425,689 729,343  872,048  95,158  8,738,660  8,211,383  2,213,444  (Note 9) 1,862,081  677,773 6,349,302  1,535,671 Other comprehensive income  Item that will be reclassified subsequently to net income  Exchange differences on translating foreign operations  (113,013)  (131,042) COMPREHENSIVE INCOME    $  6,236,289    $   1,404,629  Earnings per share  Basic  Diluted   (Note 10)   $         $       0.127  0.125    $     $   0.031  0.030  The accompanying notes are an integral part of these consolidated financial statements and note 5 presents  additional information on consolidated comprehensive income.  Annual Report – December 31, 2020 20                                                                                                       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,    2020  December 31, 2019 (Note 11)   (Note 12) $   3,219,258  11,522,262  11,650,539  238,922  26,630,981  $  60,942 11,520,049 11,751,039 236,528 23,568,558 (Note 13)   (Note 14)   25,862,617  1,568,474  27,431,091   28,573,231 1,219,813 29,793,044 $  54,062,072  $  53,361,602 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 16) (Note 15)   (Note 16) (Notes 16, 17)   (Note 16) (Note 9)   (Notes 16, 17) (Note 18) (Note 19)   ‐  6,115,366  996,539  1,881,689  824,092  9,817,686  5,492,921  1,185,977  1,587,320  8,266,218  18,083,904  11,901,023  2,142,603  21,934,542  35,978,168  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 Total liabilities and equity  $  54,062,072  $  53,361,602 The accompanying notes are an integral part of these consolidated financial statements.  (s) Joseph Abbandonato  Joseph Abbandonato  Director  (s) Mario Settino  Mario Settino  Director  Annual Report – December 31, 2020 21                                                                                                                                 Consolidated statements of changes in equity  For the years ended December 31, 2020 and 2019  (in Canadian dollars)   Reserves  Share capital (a) Share‐based  compensation Accumulated  foreign  currency  translation  Warrants  Total  reserves  Retained  earnings  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  $   14,280,155  (230,586) 14,049,569 ‐  2,268,171 ‐  465,174  Total  $ 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 19)  ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐  (131,042)  (131,042)  75,048 ‐  ‐  ‐  ‐  ‐  ‐  1,535,671  1,535,671  (131,042) (131,042) ‐  1,535,671  (131,042) 1,404,629 75,048 ‐  75,048 Balance at December 31, 2019  $ 11,875,023 $ 1,149,416 $  597,587  $ 465,174    $  2,212,177  $ 15,585,240  $ 29,672,440 Net income for the year  Exchange differences on translating  foreign operations  Comprehensive income for the year  Transactions with owners:  Issuance of share capital (Note 18)  Share‐based compensation (Note 19)  Balance at December 31, 2020  ‐ ‐ ‐ ‐ ‐ ‐ ‐  (113,013) (113,013) ‐  ‐    ‐    ‐  6,349,302  6,349,302  (113,013) (113,013) ‐  6,349,302  (113,013) 6,236,289  26,000 ‐  $ 11,901,023 ‐ 43,439 $ 1,192,855 ‐  ‐  $  484,574 ‐  ‐  $ 465,174  ‐  43,439  $ 2,142,603 ‐  ‐  $ 21,934,542 26,000 43,439 $ 35,978,168 (a) Additional detail of share capital is provided in Note 18  The accompanying notes are an integral part of these consolidated financial statements.                                                                         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  Loss on disposition of property, plant and equipment  Unrealized foreign exchange loss  Net changes in working capital  (Increase) decrease in trade and other receivables    Decrease in inventories  Increase in prepaid expenses  Increase (decrease) in trade and other payables Cash generated by operating activities  Net income taxes paid  Net cash generated by operating activities  Investing activities:  Payments for property, plant and equipment and intangible assets  Proceeds from disposition of property, plant and equipment Net cash used in investing activities  Financing activities:  Net change in bank indebtedness  Interest paid  Decrease in short‐term borrowings  Increase in long‐term debt  Repayment of long‐term debt  Net proceeds from issuance of share capital  Repayment of lease obligations  Net cash used in financing activities  Net increase (decrease) in cash  Cash, beginning of the year  Effects of foreign exchange differences on cash Cash, end of the year  Non‐cash transactions (Note 20)  December 31,  2020  2019   $ 6,349,302  1,862,081  3,592,699  544,928  43,439  113,804  341,096  12,847,349  (153,237)  37,835  (937)  255,508  139,169  12,986,518  (1,026,958)  11,959,560  $  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 (1,660,381)  50,266  (1,610,115)  (5,408,742) ‐ (5,408,742) (4,538,393)  (544,928)  ‐  750,000  (1,739,904)  26,000  (1,114,871)  (7,162,096)  (3,575,325) (749,560) (804,419) 3,748,245 (2,061,900) ‐  (1,060,887) (4,503,846) 3,187,349  (247,794) 60,942  (29,033)  310,874  (2,138) $  3,219,258  $      60,942 The accompanying notes are an integral part of these consolidated financial statements.  Annual Report – December 31, 2020 23                                                                         Notes to the consolidated financial statements  for the years ended December 31, 2020 and 2019  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, 2020. The consolidated financial statements were approved by the  board of directors and authorized for issue on April 14, 2021.  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, 2020 and 2019, 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.  Annual Report – December 31, 2020 24                                     Notes to the consolidated financial statements  for the years ended December 31, 2020 and 2019  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.    Annual Report – December 31, 2020 25                               Notes to the consolidated financial statements  for the years ended December 31, 2020 and 2019  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.  Annual Report – December 31, 2020 26                                   Notes to the consolidated financial statements  for the years ended December 31, 2020 and 2019  2. Significant accounting policies (continued)  2.8 Financial assets and financial liabilities (continued)  The Company applies a simplified approach for calculating expected credit losses for trade and other receivables  (excluding  sales  taxes).    The  Company  recognizes  a  loss  allowance  based  on  lifetime  expected  credit  losses  at  each  reporting  date.  These  are  the  expected  shortfalls  in contractual  cash  flows,  considering the potential  for  default  at  any  point  during  the  life  of  the  financial  instrument.  In  calculating,  the  Company  uses  its  historical  experience, external indicators and forward‐looking information to calculate the expected credit losses using a  provision matrix. Note 11 provides a detailed analysis of how the impairment requirements of IFRS 9 are applied.  Classification and measurement of financial liabilities  The  Company’s  financial  liabilities  include  bank  indebtedness  and  short‐term  borrowings,  trade  and  other  payables  (excluding  employee  benefits),  and  long‐term  debt.    Financial  liabilities  are  initially  measured  at  fair  value, and, where applicable, adjusted for transaction costs. Subsequently, financial liabilities are measured at  amortized cost using the effective interest method.  All interest related charges for financial liabilities measured at amortized cost are recognized in the consolidated  statement of comprehensive income under Finance costs.  2.9 Inventories  Inventories  are  stated  at  the  lower  of  cost  and  net  realizable  value.  Costs,  including  raw  materials  and  an  appropriate portion of fixed and variable overhead expenses, are assigned to inventories by the method most  appropriate  to  the  particular  class  of  inventory,  being  valued  on  a  first‐in,  first‐out  basis.  Net  realizable  value  represents the estimated selling price for inventories less all estimated costs of completion necessary to make  the sale and estimated selling expenses.  2.10 Property, plant and equipment  The Company’s building, land, production equipment, office equipment and computer equipment are stated at  cost, including any costs directly attributable to bringing the assets to the location and condition necessary for  them  to  be  capable  of  operating  in  the  manner  intended  by  the  Company’s  management,  less  accumulated  depreciation and accumulated impairment losses.   Depreciation is recognised so as to write‐down the cost of assets less their residual values over their useful lives,  as outlined below, using the straight‐line method. The estimated useful lives, residual values and depreciation  method  are  reviewed  and  adjusted,  if  necessary,  at  each  reporting  date,  with  the  effect  of  any  changes  in  estimate accounted for on a prospective basis.  Asset  Land  Building  Production equipment  Rolling stock  Office equipment  Computer equipment  Period  Indefinite  20 years  10 ‐ 20 years  10 years  5 years  3 years  Annual Report – December 31, 2020 27                                               Notes to the consolidated financial statements  for the years ended December 31, 2020 and 2019  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 exercise 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  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.  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.  Annual Report – December 31, 2020 28                         Notes to the consolidated financial statements  for the years ended December 31, 2020 and 2019  2. Significant accounting policies (continued)  2.11 Leased assets (continued)  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.  2.12 Intangible assets other than goodwill  Customer relationships acquired in a business combination and recognised separately from goodwill are initially  recognised  at  their  fair  value  at  the  acquisition  date,  which  is  regarded  as  their  cost.  Subsequent  to  initial  recognition,  intangible  assets  acquired  in  a  business  combination  are  reported  at  cost  less  accumulated  amortisation  and  accumulated  impairment  losses.  When  intangible  assets  are  purchased  separately,  as  it  was  the case for patents, the cost comprises the purchase price and any directly attributable cost of preparing the  asset for its intended use. When intangible assets are internally developed, as is the case with the Company’s  internally  developed  patents,  the  cost  comprises  the  directly  attributable  costs  in  the  development  phase  necessary to create, produce and prepare the patent for the Company to be able to operate it for its intended  use.   An intangible asset is derecognised on disposal, or when no future economic benefits are expected from its use  or  disposal.  Gains  or  losses  arising  from  the  derecognition  of  an  intangible  asset,  measured  as  the  difference  between the net disposal proceeds and the carrying amount of the asset, are recognised in net income when the  asset is derecognised. The amortisation of intangible assets, if any, is recognised in Administrative expenses in  the  consolidated  statement  of  comprehensive  income  over  the  useful  life  of  the  intangible  asset.  Customer  relationships  are  amortised  on  a  straight‐line  basis  over 8  years  and patents  are  amortised  as  of  the  moment  they can be used over the life of the patent (14 years).  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.  Annual Report – December 31, 2020 29                         Notes to the consolidated financial statements  for the years ended December 31, 2020 and 2019  2. Significant accounting policies (continued)  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.  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.  Annual Report – December 31, 2020 30                                   Notes to the consolidated financial statements  for the years ended December 31, 2020 and 2019  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.  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 11 for more information regarding the allowance for expected credit losses.  Useful lives of depreciable and amortisable assets  The Company reviews the estimated useful lives of property, plant and equipment and intangible assets other  than  goodwill  at  the  end  of  each  annual  reporting  period  in  order  to  ensure  that  the  depreciation  and  amortisation methods used are appropriate.  Annual Report – December 31, 2020 31                                     Notes to the consolidated financial statements  for the years ended December 31, 2020 and 2019  3. Critical accounting judgments and key sources of estimation uncertainty (continued)  3.2 Key sources of estimation uncertainty (continued)  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.  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,  2020 December 31,  2019  $ 30,500,829 56,181,334 ‐ $ 86,682,163 $ 33,219,527  47,785,702  65,312  $ 81,070,541  4.2 Property, plant and equipment and intangible assets per geographic location  Canada   United States  Total  December 31, 2020 December 31,  2019  $    8,088,548 19,342,543 $  27,431,091 $    9,037,306  20,755,738  $  29,793,044  Annual Report – December 31, 2020 32                                         Notes to the consolidated financial statements  for the years ended December 31, 2020 and 2019  5. Additional information on the consolidated statements of comprehensive income  The  Company’s  consolidated  statements  of  comprehensive  income  include  depreciation  of  production  equipment of $3,334,585 for the year ended December 31, 2020 ($3,056,781 in 2019) classified in Cost of sales,  which  includes  the  depreciation  for  right‐of‐use  assets  of  $1,027,799  for  the  year  ended  December  31,  2020  ($1,034,135 in 2019). Depreciation of other property, plant and equipment and amortisation of intangible assets  amounting to $258,114 for the year ended December 31, 2020 ($273,359 in 2019) is included in Administrative  expenses.  The  Company’s  consolidated  statements  of  comprehensive  income  include  salaries  paid  to  its  employees  of  $9,928,051  for  the  year  ended  December  31,  2020  ($10,174,103 in  2019)  classified  in  Cost  of  sales.  Administrative  expenses  include  salaries  paid  to  employees  of  $1,841,872  for  the  year  ended  December 31,  2020  ($1,972,610 in  2019)  and  Selling  expenses  include  salaries  paid  to  employees  of  $470,112  for  the  year  ended December 31, 2020 ($435,924 in 2019).  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 $2,600,436  during the year ended December 31, 2020 ($2,678,442 in 2019). 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,  2020,  the  Company  contributed  $25,473  to  this  plan  ($31,329 in 2019).  7. Finance costs  Interest on bank indebtedness and long‐term debt  Interest on finance lease obligations  Capitalized interest  8. Other losses  Foreign exchange losses   Loss on disposition of property, plant and equipment Other losses  Year ended December 31,   2020 December 31,  2019  $   370,571 174,357 ‐ $   544,928 $   514,254  299,417  (84,328)  $   729,343  Year ended December 31,   2020 December 31,  2019  $   419,754 113,804 $   533,558 $   872,048  ‐  $   872,048  Annual Report – December 31, 2020 33                                                       Notes to the consolidated financial statements  for the years ended December 31, 2020 and 2019  9. Income taxes  9.1 Income tax recognised in net income  Year ended December 31,   2020 December 31,  2019  Income tax expense comprises:    Current tax expense    Deferred tax expense relating to the origination and  reversal of temporary differences  Total income tax expense  $    1,897,761 $  924,445  (35,680) $  1,862,081 (246,672)  $ 677,773  9.2 Reconciliation between the income tax expense and the statutory income tax rate Year ended December 31,   2020 December 31,  2019  Income before income taxes  $ 8,211,383 $ 2,213,444  Income tax expense calculated at 26.5%  (26.6% in 2019) Permanent differences  Variation of valuation allowance  Effect of different tax rates of subsidiaries operating in  other jurisdictions  Other  2,176,016 (5,161) (305,505) (46,490) 43,221 588,776  149,737  ‐  28,938  (89,678)  Income tax expense recognised in net income $ 1,862,081 $ 677,773  The tax rate used for the 2020 reconciliation above is the corporate tax rate of 26.5% (26.6% in 2019) payable by  corporate entities in Quebec, Canada on taxable income under tax law in those jurisdictions.  9.3  Deferred tax balances  Opening  balance  Recognised in income  Closing balance  2020  Assets  Non‐capital losses  Lease obligations  Advance  Other assets  Liabilities  Property, plant and  equipment  $  1,112,003  990,624  66,719  73,273  2,242,619  $      (432,435) (350,276) (26,155) 42,776 (766,090) $  679,568 640,348 40,564 116,049 1,476,529 (3,464,276)  801,770 (2,662,506) (3,464,276)  801,770 (2,662,506) Deferred tax liabilities  $(1,221,657)  $     35,680  $(1,185,977) Annual Report – December 31, 2020 34                                                                                                                               Notes to the consolidated financial statements  for the years ended December 31, 2020 and 2019  9. Income taxes (continued)  9.3  Deferred tax balances (continued)  Opening balance Impact of  IFRS 16  Recognised  in income  Closing balance  2019  Assets  Non‐capital losses  Lease obligation  Advance  Other assets  Inventory  Liabilities  Property, plant and equipment  Deferred tax liabilities  9.4 Unrecognised deferred tax assets  $ 1,246,548 (57,313) (15,546) 77,945 112,184 1,363,818 (2,832,147) (2,832,147) $(1,468,329) $    (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 (1,035,400) (1,035,400) 403,271  403,271  (3,464,276) (3,464,276) ‐ $      246,672  $(1,221,657) The  Company's  subsidiary,  Imaflex  USA,  has  non‐capital  losses  available  to  carry  forward  to  reduce  future  taxable income of $23,043,920 in 2020 and $25,580,528 in 2019, for part of which a deferred tax asset has not  been recognised ($4,553,706 in 2020 and $4,697,336 in 2019), that expire as follows:  Expiring in  December 31,   2020  December 31,   2019 2026  2027  2028  2029  2030  2031  2032  2033  2034  2035  2036  2038  Indefinite  ‐  793,528  2,746,026  2,974,662  4,365,313  1,863,425  2,615,992  2,619,618  2,389,748  1,375,395  782,917  290,836  226,460  $23,043,920  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 Annual Report – December 31, 2020 35                                                                                                                                               Notes to the consolidated financial statements  for the years ended December 31, 2020 and 2019  10. Earnings per share  Year ended December 31,  2020 December 31,  2019  Net income for basic and diluted earnings per share $ 6,349,302 $ 1,535,671  Weighted average number of common shares  outstanding   Dilutive effect of share purchase options  Diluted weighted average common shares outstanding 50,040,823 664,065 50,704,888 50,013,637  671,233  50,684,870  Basic earnings per common share  Diluted earnings per common share  $   0.127 $   0.125 $   0.031  $   0.030  200,000 stock options outstanding as at December 31, 2020 were not included in the calculation of earnings per  share because they were antidilutive (450,000 in 2019).  11. Trade and other receivables  Trade receivables   Allowance for expected credit losses  Other receivables  Total trade and other receivables  Movement in the allowance for expected credit losses  Balance, beginning of year  Expected credit losses losses recognised on trade  receivables  Account write‐offs during the year  Foreign exchange  Balance, end of year  December 31, 2020 December 31,  2019  $ 12,210,690 (936,959) 11,273,731 248,531 $ 11,522,262 $ 12,186,862  (785,676)  11,401,186  118,863  $ 11,520,049  Year ended December 31, 2020 December 31,  2019  $ (785,676) $ (584,410)  (159,093) ‐ 7,810 $ (936,959) (216,458)  86  15,106  $ (785,676)  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.  Annual Report – December 31, 2020 36                                                                               Notes to the consolidated financial statements  for the years ended December 31, 2020 and 2019  11. Trade and other receivables (continued)  Credit risk management  Credit  risk  associated  with  cash  is  mitigated  by  ensuring  that  these  financial  assets  are  primarily  placed  with  major American and Canadian financial institutions that have been accorded grade ratings by a primary rating  agency and qualify as creditworthy counterparties. The Company performs an ongoing review and evaluation of  the possible risks associated with cash.  For  trade  receivables,  the  Company  uses  an  external  credit  service  to  assess  the  potential  customer’s  credit  quality and uses this information to define the allowed credit limits by customer. Moreover, the Company uses  credit insurance to mitigate credit risk. As at December 31, 2020, $6,943,305 ($6,200,071 as at December 31,  2019) of the total trade receivables are insured. The Company’s management considers that all receivables that  are not impaired for each reporting date are of good credit quality.  Expected credit losses  The  Company’s  allowance  for  expected  credit  losses  reflects  expected  credit  losses  using  a  provision  matrix  model, supplemented by an allowance for individually impaired trade receivables. The provision matrix is based  on  the  Company’s  historic  credit  loss  experience,  adjusted  for  any  change  in  risk  of  the  trade  receivable  population based on credit monitoring indicators, and expectations of general economic conditions that might  affect  the  collection  of  trade  receivables.  The  provision  matrix  applies  fixed  provision  rates  depending  on  the  number of days that a trade receivable is past due, with higher rates applied the longer a balance is past due.  Trade  receivables  outstanding  longer  than  the  agreed  upon  payment  terms  are  considered  past  due.  The  Company  determines  its  allowance  for  individually  impaired  trade  receivables  by  considering  a  number  of  factors, including notices of liquidation, information provided by credit monitoring services, the length of time  trade  receivables  are  past  due,  the  customer’s  current  ability  to  pay  its  obligation  to  the  Company,  the  customer’s history of paying balances when they are past due, historical results and the condition of the general  economy  and  the  industry  as  a  whole.  After  considering  the  factors  above,  at  December  31,  2020  and  at  December  31,  2019,  the  Company  has  determined  there  is  no  significant  increase  or  decrease  in  its  trade  receivable  credit  risk  since  its  initial  recognition.  The  Company  writes  off  trade  receivables  when  they  are  determined to be uncollectible and any payments subsequently received on such trade receivables are credited  to the allowance for expected credit loss.  12. Inventories  Raw materials and supplies  Finished goods  Work in process  Total  December 31, 2020 December 31,  2019 $ 7,381,789 3,462,620 806,130 $ 11,650,539 $ 7,108,673 4,122,254 520,112 $ 11,751,039 The cost of inventories recognised as an expense during the year was $66,158,542 ($63,334,593 in 2019). During  the fiscal year ended on December 31, 2020, the Company increased the provision for inventory obsolescence  by $137,060  (nil in 2019).  Annual Report – December 31, 2020 37                                 Notes to the consolidated financial statements  for the years ended December 31, 2020 and 2019  13. Property, plant and equipment  Cost  January 1, 2019  IFRS 16 Impact  Additions  Disposals  Foreign exchange  December 31, 2019  Additions  Disposals  Foreign exchange  December 31, 2020  Accumulated depreciation  January 1, 2019  Depreciation  Disposals  Foreign exchange  December 31, 2019  Depreciation  Disposals  Foreign exchange  December 31, 2020  Net book value as at  December 31, 2019  December 31, 2020  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) 22,268      ‐  ‐  (439)  21,829    3,739,859  ‐  ‐  (13,011)  3,726,848  ‐  ‐  ‐  ‐  ‐  ‐  ‐  ‐  ‐  (15,351)  (934,606)  ‐  6,786  (943,171)  (938,067)  ‐  20,851  (1,860,387)  60,685,649  1,174,038  (224,526) (575,495) 61,059,666  (34,109,741) (2,063,335) 2,096  558,984  (35,611,996) (2,372,511) 60,456  314,630 (37,609,421) $ 2,827,313  ‐ 87,484  ‐  (60,371) 2,854,426  42,599  ‐ (23,980) 2,873,045  (2,338,120) (162,056) ‐  45,786  (2,454,390) (143,299) ‐  21,750 (2,575,939) $ 46,146  40,779 7,570  ‐  (913) 93,582  ‐  ‐ (357) 93,225  (46,146) (9,233) ‐  913  (54,466) (9,233) ‐  357 (63,342) $ 523,859  ‐  33,688  ‐  (1,841)  555,706  28,070  ‐  (865)  582,911  (518,842)  (20,020)  ‐  2,194  (536,668)  (26,358)  ‐  1,084  (561,942)  $  ‐  227,818 37,580  ‐  (1,097) 264,301  ‐  ‐ (1,160) 263,141  ‐ (42,030) ‐  161  (41,869) (45,705) ‐  557 (87,017) $ 58,211,535  3,992,922 7,300,288  (15,608) (1,273,346) 68,215,791  1,244,707  (224,526) (615,307) 68,620,665  (37,028,200) (3,231,280) 2,096  614,824  (39,642,560) (3,535,173) 60,456  359,229 (42,758,048) $ 22,268  $ 21,829  $2,796,688  $1,866,461    $ 25,073,653    $ 23,450,245  $   400,036  $   297,106  $ 39,116  $ 29,883  $ 19,038  $ 20,969  $ 222,432  $ 176,124  $ 28,573,231  $ 25,862,617  A  portion  of  the  Company’s  production  equipment  with  a  carrying  amount  of  approximately  $ 15,300,000  (approximately $15,000,000 as at December 31, 2019) 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, 2020 and 2019 are  right‐of‐use assets as follows:  Buildings  Production equipment  Rolling stock  Office equipment  Total right‐of‐use assets  14. Intangible assets  December 31,  2020 December 31,  2019  $ 1,783,367   293,266 171,119 22,313 $  2,270,065 $ 2,706,076    333,733  218,201  31,546  $  3,289,556  January 1, 2019  Amortisation  Foreign exchange  December 31, 2019  Additions  Amortisation  Foreign exchange  Goodwill    $  512,198  ‐  (24,555)  487,643  ‐  ‐  (9,613)  Customer  relationships  Patents  Total  $  59,682 (49,756) (1,810) $      773,158 (49,104) ‐ $ 1,345,038  (98,860)  (26,365)  8,116 ‐ (8,242) 126 724,054 415,674 (49,284) ‐ 1,219,813  415,674  (57,526)  (9,487)  December 31, 2020  $ 478,030  $             ‐ $  1,090,444 $ 1,568,474  Annual Report – December 31, 2020 38                                                                                                                                                                                                                                                                                                                                                                                                                     December 31, 2020 December 31,  2019  $ 3,919,917 2,195,449 $ 6,115,366 $ 4,113,657  1,807,662  $ 5,921,319  Notes to the consolidated financial statements  for the years ended December 31, 2020 and 2019  15. Trade and other payables  Trade payables  Other payables and accrued liabilities  16. Borrowings  Bank indebtedness (a)  Long‐term debt  Loan, bearing interest at the lender’s base rate minus 0.5% (effective  rate of 4.05% as at December 31, 2020 and 5.55% as at  December 31, 2019), secured by production equipment having a net  book value of approximately $5,800,000. (b)  Loan, bearing interest at a fixed rate of 3.746% secured by a  $3.6 million hypothec on  a piece of equipment. (c)  Loan, bearing interest at a fixed rate of 3.75% secured by a  $3.3 million hypothec on a  piece of equipment. (d)  Loan, bearing interest at the lender’s base rate plus 0.4% (effective  rate of 4.95% as at December 31, 2020), secured by production  equipment having a net book value of approximately $5,800,000. (e)  Loan, bearing interest at the lender’s base rate plus 0.67%, (effective  rate of 6.72% as at December 31, 2019) repaid in full during the year  ended December 31, 2020. (f)  Loan, bearing interest at the lender’s base rate minus 1.0%,  (effective rate of 5.05% as at December 31, 2019) repaid in full  during the year ended December 31, 2020. (g)  Total long‐term debt  Lease obligations (Note 17)   Total borrowings  December 31,  2020  December 31,  2019 $   ‐  $  4,538,393 1,175,950    1,419,250 2,827,107  3,334,085 2,621,553  3,080,889 750,000  ‐ ‐  ‐  7,374,610  222,080 308,210 8,364,514 2,411,412  3,517,554 $ 9,786,022  $ 16,420,461 Annual Report – December 31, 2020 39                                                                                   Notes to the consolidated financial statements  for the years ended December 31, 2020 and 2019  16. Borrowings (continued)  Current  Bank indebtedness  Long‐term debt, current portion  Lease obligations, current portion  Non‐current  Long‐term debt  Lease obligations  Total borrowings  December 31,  2020  December 31,  2019 $  ‐  1,881,689  824,092  2,705,781  $   4,538,393 1,922,849 1,103,729 7,564,971 5,492,921  1,587,320  7,080,241  6,441,665 2,413,825 8,855,490 $ 9,786,022  $ 16,420,461 The  interest  expense  on  long‐term  debt  amounted  to  $307,700  for  the  year  ended  December 31,  2020  ($265,849 in 2019).  (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, 2020 and 2019  for an effective interest rate of 2.85% at  December 31, 2020 (4.35% as at December 31, 2019).  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,  2020  and  2019  and  during  the  years  ended  December 31, 2020 and 2019. As at December 31, 2020, the Company was not drawing on its line of  credit  and was drawing $4,538,393 as at December 31, 2019.  (b) The loan is repayable in monthly instalments of $40,550 until May 2023.  (c) The loan is repayable in blended monthly instalments of $66,072 through October 2024. This loan is secured  by a hypothec on a specific piece of equipment of the Company.  (d) The  loan  is  repayable  in  blended  monthly  instalments  of  $60,061  through  November  2024.  This  loan  is  secured by a hypothec on a specific piece of equipment of the Company.  (e) During  the  year  ended  December  31,  2020,  the  Company  entered  into  a  loan  agreement  for  $750,000  to  finance  research  and  development  expenses  related  to  Advaseal  product.  This  loan  bears  interest  at  the  lender’s  base  rate  plus  0.40%  and  is  repayable  in  one  payment  of  $10,890  in  July  2021  followed  by  71  monthly payments of $10,410 through July 2027.  (f) The  loan,  which  matured  in  October  2025,  was  repaid  in  full  during  the  year  ended  December  31,  2020  without encurring any penalties.  (g) The loan, which matured in July 2023, was repaid in full during the year ended December 31, 2020 without  encurring any penalties.  Annual Report – December 31, 2020 40                                                   Notes to the consolidated financial statements  for the years ended December 31, 2020 and 2019  16. Borrowings (continued)  The aggregate scheduled repayment of long‐term debt is as follows:  Not later than one year  Later than one year and not later than five years Later than 5 years  $ 1,881,689 5,305,541 187,380 $ 7,374,610 The changes in the Company’s liabilities arising from borrowings can be classified as follows:  Short‐term  borrowings and  bank indebtedness  $ 8,918,137  Long‐term debt  $ 3,571,264  Lease obligations  $ 1,568,423  Total  $ 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  14,524,147  (19,081,249)  750,000  (1,739,904)  ‐  (1,114,871)  15,274,147  (21,936,024)  ‐  18,709  ‐  $   ‐  ‐  $ 7,374,610  (2,915)  11,644  $ 2,411,412  (2,915)  30,353  $ 9,786,022  Balance as of January 1, 2019  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  Cash flows:  Proceeds  Repayments  Non‐cash:  Accrued interest  Foreign exchange and other  Balance as of December 31, 2020  17.  Lease obligations  The Company has entered into certain finance lease agreements relating to their manufacturing plants, vehicles  and other machinery and equipment (see note 13). 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  $    937,290 1,668,262 ‐ 2,605,552 (194,140) 2,411,412 (1,587,320) $  824,092 Annual Report – December 31, 2020 41                                                                                                              Notes to the consolidated financial statements  for the years ended December 31, 2020 and 2019  17.  Lease obligations (continued)  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  agreement.  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 31, 2019, was converted into a long term  loan when the piece of equipment was received.  Total cash outflow for leases for the years ended December 31, 2020 and 2019 was $1.1 million and $1.1 million,  respectively.  18. Share capital  The  Company’s  authorized  share  capital  consists  of  an  unlimited  number  of  common  shares,  voting,  participating,  without  par  value.  At  December  31,  2020,  there  were  50,063,637  common  shares  outstanding  (50,013,637 as at December 31, 2019).  During the year ended December 31, 2020, the Company issued 50,000 shares for cash consideration totaling  $26,000 following the exercise of options that were issued in 2015. As at December 31, 2020 and 2019, there  were no warrants outstanding.  19. Share‐based compensation  Pursuant to the Stock Option Plan (the “Plan”) of the Company, 4,973,860 of the common shares are reserved  for options. The Plan provides that the term of the options shall be fixed by directors. Officers and employees of  the Company are eligible to receive options. Options are granted at an exercise price of not less than the fair  value of the Company’s shares on the date the options are granted. Options may be exercisable for a period no  longer than five (5) years and the exercise price must be paid in full upon exercise of the option.  During the year ended December 31, 2020, the Company granted 150,000 options to employees at an exercise  price  of  $0.73.  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,  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.  The expense relating to the issue of option grants totalled $43,439 for the year ended December 31, 2020 and  $75,048 for the year ended December 31, 2019.  The  following  are  the  assumptions  used  in  order  to  value  the  options  as  well  as  general  information  on  each  outstanding option grant:  26/08/2020  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 31/12/2019  Expired  Exercised (1)  Issued  Outstanding as at 31/12/2020  Exercisable as at 31/12/2020  Exercisable as at 31/12/2019  Remaining life of options (yrs)  ‐  ‐  ‐  150,000  150,000  37,500  ‐  4.65  100,000  ‐  ‐  ‐  100,000  75,000  25,000  3.70  250,000 ‐ ‐ ‐ 250,000 250,000 187,500 2.92 150,000 ‐ ‐ ‐ 150,000 150,000 150,000 1.92 50,000 ‐ ‐ ‐ 50,000 50,000 50,000 1.48 500,000 ‐ ‐ ‐ 500,000 500,000 500,000 0.69 1,025,000  ‐  ‐  ‐  1,025,000  1,025,000  1,025,000  0.48  650,000 (600,000) (50,000) ‐ ‐  ‐  650,000 ‐  2,725,000 (600,000) (50,000) 150,000 2,225,000  2,087,500  2,587,500 Annual Report – December 31, 2020 42                                             Notes to the consolidated financial statements  for the years ended December 31, 2020 and 2019  19. Share‐based compensation (continued)  Fair value assumptions  26/08/2020  10/09/2019  29/11/2018 29/11/2017 22/06/2017 06/09/2016 21/06/2016  16/06/2015 Expected life of options (yrs)  Expiry  Expected share price volatility  Dividend yield  Risk free rate  Exercise price  Share price on grant date  Fair value of option at grant  2.5 to 3.25 2.5 to 3.25 2.5 to 3.25 2.5 to 3.25 2.5 to 3.25  2.5 to 3.25  2.75 to 3.5  57.82 ‐   60.98%  0%  0.41%  61.21% ‐   64.47%  0%  1.44%  2.75 to 3.5  26/08/2025  10/09/2024  29/11/2023 29/11/2022 22/06/2022 06/09/2021 21/06/2021  15/06/2020  83.19% ‐  98.85%  0%  0.55% to  0.65% $ 0.52 $ 0.52 $ 0.30 80.01% ‐  83.03% 0% 1.15% 79.13% ‐  80.17% 0% 1.62% 67.14% ‐  70.41% 0% 2.23% 76.59% ‐  79.60% 0% 0.51% 75.95% ‐  82.15%  0%  $ 0.73  $ 0.73  $ 0.28  $ 0.40  $ 0.40  $ 0.21  $ 0.55  $ 0.55  $ 0.30  $ 0.76 $ 0.76 $ 0.35 $ 1.03 $ 1.03 $ 0.53 $ 0.42 $ 0.42 $ 0.21 $ 1.11 $ 1.11 $ 0.57 0.50%  (1) The fair value of the common shares at the exercise date was $0.69 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.  20. 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 equipment were received.  21. Financial instruments  21.1 Fair value and classification of financial instruments  December 31, 2020 Carrying amount  December 31,  2019 December 31,  2020  Fair value December 31,  2019 $      3,219,258 11,281,501 14,500,759 $      60,942 $      3,219,258  11,281,501  11,409,112 14,500,759  11,470,054 $      60,942 11,409,112 11,470,054 ‐ 4,773,846 7,374,610 12,148,456 4,538,393 4,685,742 8,364,514 17,588,649 ‐  4,773,846  7,469,667  12,243,513  4,538,393 4,685,742 8,364,514 17,588,649 Financial assets  Amortised cost  Cash  Trade and other receivables (1)   Financial liabilities  Financial liabilities, at amortised cost  Bank indebtedness  Trade and other payables (2)  Long‐term debt  (1) Excludes sales taxes  (2) Excludes employee benefits  Annual Report – December 31, 2020 43                                                                     Notes to the consolidated financial statements  for the years ended December 31, 2020 and 2019  21. Financial instruments (continued)  21.1 Fair value and classification of financial instruments (continued)  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.  21.2 Fair value hierarchy  The  Company  categorizes  its  financial  instruments  into  a  three‐level  fair  value  measurement  hierarchy  as  follows:  Level–1 ‐ valuation based on quoted prices (unadjusted) in active markets for identical assets or liabilities;  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, 2020 and 2019, the fair values of long‐term debt are categorised as Level 2.  Annual Report – December 31, 2020 44                                                   Notes to the consolidated financial statements  for the years ended December 31, 2020 and 2019  22. Risk management  22.1 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, 2020:  ‐  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;  22.2 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.   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, 2020 112,595 3,015,357  (1,620,508) ‐  $  1,507,444  $  December 31,  2019 38,968 3,032,910  (1,722,323) (36,519) $     1,313,036  A $0.05 appreciation of the Canadian dollar against the USD would decrease its financial position by $139,259 as  at December 31, 2020 (an increase of $126,068  as at December 31, 2019).  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  $29,946.  Every  $0.01  depreciation  of  the  USD  against  the  Canadian  dollar  would  have  the  opposite effect.  Annual Report – December 31, 2020 45                                     Notes to the consolidated financial statements  for the years ended December 31, 2020 and 2019  22. Risk management (continued)  22.3 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, 2020 December 31,  2019 $ 1,925,950 $ 1,925,950 $ 6,487,933 $ 6,487,933 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, 2020 of approximately $27,104 ($ 74,291 for 2019). Conversely a decrease in interest  rates would have the opposite effect.  22.4 Liquidity risk management  Liquidity  risk,  the  risk  that  the  Company  will  not  be  able  to  meet  its  financial  obligations  as  they  fall  due,  is  managed  through  the  Company’s  capital  structure  and  financial  leverage.  The  Company  obtains  financing  through a mix of share issuance on the capital markets and borrowings from financial institutions. An analysis of  financial leverage is used to determine the required mix between the different sources of liquidity offered to the  Company while keeping an acceptable risk level in the Company’s leverage.  The  Company  ensures  that  it  maintains  sufficient  cash  flow  to  pay  its  obligations  within  the  next  12  months.  Cash flows generated from operations are matched to the liquidity required to meet its financial obligations for  the sources of financing used to generate that cash flow.  The Company has an operating line of credit of up to $12,000,000, of which $ nil was utilized as at December 31,  2020.  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,  2020,  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  Long‐term debt (1)  Lease obligations (2)  Trade and other payables (3)  7,374,610 2,411,412 4,773,846 7,979,094 2,605,552 4,773,846 2,138,191 937,290 4,773,846 5,646,186  1,668,262  ‐  years  194,717 ‐ ‐ $14,559,868 $15,358,492 $7,849,327 $ 7,314,448    $  194,717 (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  Annual Report – December 31, 2020 46                                             Notes to the consolidated financial statements  for the years ended December 31, 2020 and 2019  23. Related party transactions  Entities in which key management personnel has an interest  During the year, in the normal course of business, the Company had routine transactions with entities owned by  shareholders and key management personnel of the Company. These transactions are measured at fair value,  which  is  the  amount  of  consideration  established  and  agreed  to  by  the  related  parties.  Details  of  these  transactions not disclosed elsewhere in these consolidated financial statements are as follows:  Transactions for the year  ended  Amounts owing as at  December 31,  2020 December 31,  2019 December 31,  2020 December 31,  2019  1,118,534 1,111,683 ‐ 139,371 2,041,754 132,598 197,728 3,036,345 142,245 ‐  ‐ 10,163 ‐  ‐  ‐  13,773  ‐ 31,400 ‐ 31,400  Entities owned by key management  personnel or their family  members  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  Key management personnel  The  table  below  details  the  compensation  paid  to  the  key  members  of  management,  which  include  the  Company’s chief executive officer, the vice president of marketing and innovation, the production director, the  vice president of corporate affairs, the chief financial officer and members of the board of directors.  Salaries  Director’s fees  Short‐term employee benefits  Post‐employment benefits – State‐run plans  Share‐based compensation  Other benefits  Year ended December 31,  2020 $   924,474 41,000 13,094 15,890 14,253 50,117 $ 1,058,828 December 31,  2019 $   934,999 41,000 13,298 17,145 60,004 49,236 $ 1,115,682 Annual Report – December 31, 2020 47                                     

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