Infineon
Annual Report 2021

Plain-text annual report

ANNUAL REPORT 2021 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, 2021 and 2020. 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, 2021 and 2020. 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 13, 2022. 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, 2021 and 2020. 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 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 Annual Report – December 31, 2021 1 MANAGEMENT DISCUSSION AND ANALYSIS FORWARD LOOKING STATEMENTS (continued) 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 13, 2022. 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 deems that success will also lie in the ability to properly manage future growth whether it comes from new markets and products, acquisitions, mergers, or a combination of any or all three. This success will depend on the Company’s ability to seek out new opportunities and to position itself such that it will be able to take advantage of them when they present themselves. Past decisions have been made bearing this in mind and the Company is now in a better position to make this happen. Management believes the following initiatives will contribute to Imaflex’s long-term growth: Strengthen and Grow the Core We will continue to strengthen the core flexible packaging business. This includes revenue growth and margin expansion through higher production volumes geared towards the most profitable markets and products, along with a focus on lean operations (minimizing scrap, reducing production set-up times, etc.). In addition to growing organically, we will also consider strategic acquisitions that make sense in terms of complementary fit, cost and ease of integration. Annual Report – December 31, 2021 2 MANAGEMENT DISCUSSION AND ANALYSIS GROWTH STRATEGY (continued) 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 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. MARKET OVERVIEW The North American flexible packaging market is valued at more than US $30 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 2021, Imaflex was once again ranked in the top 100 North American film and sheet manufacturers by sales. Annual Report – December 31, 2021 3 MANAGEMENT DISCUSSION AND ANALYSIS MARKET OVERVIEW (continued) The total addressable global mulch film market, excluding silage and greenhouse films, is valued at approximately US $3.7 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 films, 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 progressively turning to other industries to help them do more with less. ADVASEAL® COMMERCIALIZATION PROCESS Prior to commercializing ADVASEAL®, Imaflex needs to submit a registration package to the U.S. Environmental Protection Agency (EPA) for approval. As part of the process, the Company conducted two independent field trials (an Efficacy Trial and a Release Study) to test the efficacy of ADVASEAL® and to ensure the release times of the active ingredients (herbicide, nematicide and fungicides) coated on the film are in compliance with the pre-harvest intervals established by the EPA. In order to obtain sufficient quantities of ADVASEAL® film for these trials, the Company 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. The first of the two trials – the Efficacy Trial – commenced in February 2020. It was 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 it is one of the most widely grown crops 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. Subsequently, 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. Plots using ADVASEAL® were shown to produce comparable marketable yields to the grower standard. Based on these positive findings, in October 2020 the Corporation commenced 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 coated on ADVASEAL® were in compliance with the pre-harvest intervals established by the EPA. 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 the film come from Asia and are not yet Annual Report – December 31, 2021 4 MANAGEMENT DISCUSSION AND ANALYSIS ADVASEAL® COMMERCIALIZATION PROCESS (continued) registered in the U.S. To simplify their registration as generic pesticides Imaflex has mandated a lab to prove their equivalence with active ingredients already registered and marketed in the U.S. Although the lab has made important progress in recent quarters, it has been slower than originally anticipated and there remains additional work. The Corporation remains focused on submitting the ADVASEAL® registration package to the U.S. Environmental Protection Agency (“EPA”) as soon as possible. Once the 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 services 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 232 people in North America, including those at its 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 our effort to eliminate 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, 2021 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 In recent years, production disruptions, tight supplies and COVID-19 driven demand resulted in resin demand outstripping supplies. Resin input costs began to rise at the end of the second quarter of 2020 and this trend accelerated for much of 2021 before leveling off in the third quarter. Prices subsequently declined throughout the fourth quarter of 2021, before once again flattening at the beginning of 2022. This said, in March 2022 resin prices rose due largely to geopolitical events which caused supply chain disruptions, rapid increases in oil prices and heightened demand as market participants looked to secure supplies in an already tight market. While North American resin production is expected to improve going forward, global events and any production issues could put additional pressure on resin supplies and pricing. Although the resin market is tight, Imaflex has so far avoided any material procurement issues. In addition, as the Corporation has no long term contracts with its customers, it is able to adjust product pricing as input costs change. There is usually a 30-day lag between a resin price increase and when customer product pricing can be revised. This said, resin price decreases 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, 2021 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 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 Annual Report – December 31, 2021 7 MANAGEMENT DISCUSSION AND ANALYSIS FOREIGN EXCHANGE FLUCTUATIONS (continued) borrow funds on its line of credit in US dollars. The Company has increased its debt in US dollars in order to obtain additional revenues in US dollars. As this additional U.S. business fully materializes, the Company’s exposure to foreign currency should be managed naturally. Management continuously assesses its exposure to such risk and the Company does not currently use any financial instruments to hedge its foreign currency position. ENVIRONMENTAL HAZARDS The Company’s raw materials, processes and finished goods do not have any hazardous implications. However, we do buy a few items which are used in our production equipment, such as cooling products, which may be hazardous, but their use and handling are controlled. Though these products actually pose little risk, they are handled in a manner that fully complies with existing safety regulations. NON-IFRS FINANCIAL MEASURES The Company’s management uses a non-IFRS financial measure in this MD&A, namely EBITDA, to assess its performance. EBITDA is determined as “Earnings before interest, taxes, depreciation and amortization”. The reader may refer to the following table for the reconciliation of the Company’s EBITDA to its reported net income. Reconciliation of EBITDA to net income: ($ thousands, except per share data) Net income Plus: Income taxes Finance costs Depreciation and amortization EBITDA1 Basic EBITDA per share2 Diluted EBITDA per share2 Three months ended December 31, Years ended December 31, 2021 2020 2021 2020 $ 1,640 $ 1,679 $ 8,365 $ 6,349 395 99 1,087 $ 3,221 $ 0.06 $ 0.06 239 116 773 $ 2,807 $ 0.06 $ 0.06 1,433 412 3,811 $ 14,021 $ 0.28 $ 0.27 1,862 545 3,593 $ 12,349 $ 0.25 $ 0.24 (1) Basic weighted average number of shares outstanding of 51,638,637 for the quarter and 50,659,253 for the year ended December 31, 2021. This compares to 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. Diluted weighted average number of shares outstanding of 51,888,917 for the quarter ended December 31, 2021 (50,971,441 in 2020) and 51,553,615 for the year ended December 31, 2021 (50,704,888 in 2020). 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 Imaflex closed 2021 with another strong quarter. In turn, the Company reported its second consecutive fiscal year of record net income and solid cash flows. The balance sheet remained healthy and the Company ended 2021 with approximately $18.0 million of cash available for operating activities, including a cash balance of $8.5 million and another $9.5 million under its $12.0 million revolving line of credit. Annual Report – December 31, 2021 8 MANAGEMENT DISCUSSION AND ANALYSIS RESULTS OF OPERATIONS (continued) ($ thousands) Three months ended December 31, 2021 2020 Years ended December 31, 2021 2020 Sales $25,707 $21,940 $107,477 $86,682 Revenues were $25.7 million for the current quarter, up 17.2% over 2020. Growth was driven by product pricing, which rose in-line with higher year-over-year resin costs, partially offset by unfavourable movements in foreign exchange. Overall sales volumes were down modestly year-over-year due mainly to timing differences. The Corporation expects first quarter 2022 sales volumes to surpass levels reached in the fourth quarter of 2021. For calendar 2021, sales were up 24% to $107.5 million, driven by product pricing and stronger sales volumes for higher margin products and garbage bags, partially offset by unfavourable movements in foreign exchange. As Imaflex has no long-term customer contracts, it is able to adjust product pricing in accordance with resin input costs. However, there is usually a 30-day lag between a resin price increase and when customer pass-through adjustments are made. This can temporarily impact margins, particularly in a rising raw material pricing environment. ($ 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, 2021 2020 Years ended December 31, 2021 2020 $4,917 $5,214 $21,003 $19,901 19.1% 23.8% 19.5% 23.0% 1,014 $3,903 15.2% 703 $4,511 20.6% 3,602 $17,401 16.2% 3,335 $16,566 19.1% Gross profit before amortization of production equipment was $4.9 million (19.1% of sales) for the fourth quarter of 2021, down slightly from $5.2 million (23.8%) of sales in 2020. The gross profit including amortization of production equipment came in at $3.9 million (15.2% of sales) for the current quarter versus $4.5 million (20.6% of sales) in the prior year. For calendar 2021, the gross profit before amortization of production equipment stood at $21.0 million (19.5% of sales), up 5.5% from $19.9 million (23.0% of sales) in 2020. Similarly, the gross profit including amortization of production equipment was up 5.0% year-over-year, coming in at $17.4 million (16.2% of sales) versus $16.6 million (19.1% of sales) in 2020. During 2021, the gross margin was impacted by the rapid rise in resin input costs, which also resulted in a higher revenue base due to the associated increases in product pricing. In addition, foreign exchange fluctuations were unfavourable year- over-year. This said, margins remained stronger than historical norms, reflecting the sale of higher value added products. Imaflex is also benefitting from its increasing scale, whereby incremental revenues lessen the impact of labor and overhead costs relative to sales. ($ thousands) Selling and administrative As a % of sales Three months ended December 31, 2021 2020 Years ended December 31, 2021 $1,673 6.5% $1,452 6.6% $6,940 6.5% Annual Report – December 31, 2021 2020 $7,149 8.2% 9 MANAGEMENT DISCUSSION AND ANALYSIS RESULTS OF OPERATIONS (continued) Selling and Administrative expenses came in at $1.7 million for the current quarter, up slightly from $1.5 million in 2020. However, as a percentage of sales they were essentially the same in both years, coming in at 6.5% in the fourth quarter of 2021, versus 6.6% in 2020. For fiscal 2021, Selling and Administrative expenses came in at $6.9 million (6.5% of sales) down from $7.1 million (8.2% of sales) in 2020. The higher revenue base for the current quarter and year, along with ongoing cost controls, reduced the impact of SG&A expenses as a percent of sales in 2021. ($ thousands) Three months ended December 31, 2021 2020 Years ended December 31, 2021 Finance costs $99 $116 $412 2020 $545 Finance costs totaled $99 thousand in the current quarter, down slightly from $116 thousand in 2020. This decrease was largely due to a reduction in long-term debt, partially offset by higher bank indebtedness relating to the Company’s line of credit. For fiscal 2021, finance costs totaled $412 thousand, down approximately $133 thousand versus 2020 mainly due to reduced overall debt levels year-over-year. ($ thousands) Three months ended December 31, 2021 2020 Years ended December 31, 2021 Foreign exchange & other losses 68 $965 165 2020 $533 Due to the depreciation of the US dollar against the Canadian dollar, Imaflex recorded a foreign exchange loss of $0.1 million in the fourth quarter of 2021. This compares to a loss of $1.0 million in 2020, resulting from movements in foreign exchange and the disposition of assets. Collectively, this resulted in a $0.9 million favourable year-over-year variance. For calendar 2021, Imaflex had a foreign exchange loss of $0.2 million, down from a $0.5 million loss in the prior year, resulting in a favourable year-over-year variance. A majority of the Corporation’s foreign exchange gains and losses are non-cash impacting and largely relate to intercompany balances for which Imaflex can control the time of settlement. ($ thousands) Three months ended December 31, 2021 2020 Years ended December 31, 2021 Income taxes As a % of income before taxes $395 19.4% $239 12.5% $1,433 14.6% 2020 $1,862 22.7% Income taxes were $0.4 million or 19.4% of income before taxes for the fourth quarter of 2021, versus $0.2 million and 12.5% respectively in the corresponding prior-year period. For fiscal 2021, income taxes stood at $1.4 million or 14.6% of income before taxes, versus $1.9 million and 22.7% respectively in 2020. An increasing share of profits is being generated by Imaflex’s US subsidiary due to multi-year capital investments to strengthen operations. At the same time, the Company is benefitting from prior year tax losses at its US subsidiary, which reduced income taxes for the year. The Corporation’s statutory tax rate is currently 26.5%. ($ thousands, except per share data) Net income Basic earnings per share Diluted earnings per share Three months ended December 31, 2021 2020 Years ended December 31, 2021 $1,640 $0.03 $0.03 $1,679 $0.03 $0.03 $8,365 $0.17 $0.16 2020 $6,349 $0.13 $0.13 Annual Report – December 31, 2021 10 MANAGEMENT DISCUSSION AND ANALYSIS RESULTS OF OPERATIONS (continued) Net income stood at $1.6 million for the fourth quarter of 2021, relatively unchanged from the $1.7 million recorded in the prior year. For fiscal 2021, net income came in at $8.4 million, up 31.8% over the $6.3 million achieved in calendar 2020. The increase was largely due to the higher gross profit and lower foreign exchange loss in 2021, along with lower selling and administrative and finance expenses. SUMMARY OF QUARTERLY RESULTS Summary financial data derived from the Company’s unaudited quarterly financial statements for each of the eight most recently completed quarters are as follows: For the quarters ending March, June, September and December ($ thousands, except per share data): Revenues Net income Earnings per share Basic Diluted Q4/21 25,707 Q3/21 29,459 Q2/21 27,391 Q1/21 24,920 Q4/20 21,940 Q3/20 22,904 Q2/20 20,807 Q1/20 21,031 1,640 2,774 1,999 1,952 1,679 1,236 342 3,092 0.032 0.032 0.055 0.054 0.040 0.039 0.039 0.038 0.034 0.033 0.025 0.024 0.007 0.007 0.062 0.061 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, 2021 vs. December 31, 2020 Working capital stood at $24.4 million as at December 31, 2021, up $7.6 million from the $16.8 million recorded for the corresponding prior-year period. The year-over-year improvement was largely due to increases in cash, trade and other receivables and inventories, partially offset by increases in bank indebtedness, along with trade and other payables. LIQUIDITY Cash Flows from Operating Activities Cash flows generated by operating activities, before movements in working capital and taxes paid, stood at $3.4 million for the fourth quarter of 2021, down modestly from $3.8 million in 2020. Including movements in working capital and taxes paid, net cash generated by operating activities was $1.4 million for the current quarter, versus $2.2 million in 2020. The year-over-year decrease for the quarter was largely due to movements in inventories, foreign exchange and income taxes paid, partially offset by movements in trade and other receivables. For calendar 2021, cash flows generated by operating activities, before movements in working capital and taxes paid, stood at $14.2 million, up from $12.8 million at the end of 2020, due largely to the heightened profitability in 2021. Including movements in working capital and taxes paid, net cash generated by operating activities stood at $8.0 million for the current year, down from $12.0 million in 2020. The decrease was largely driven by movements in trade & other receivables resulting from higher product pricing and stronger sales volumes in 2021. Inventory levels also fluctuated versus 2020, reflecting higher resin input costs and additional raw material purchases to accommodate stronger customer orders and ensure resin inventory in a tight market. As well, income taxes paid in 2021 were also higher. This was partially offset by the aforesaid profit increase in 2021, along with movements in trade and other payables. Annual Report – December 31, 2021 11 MANAGEMENT DISCUSSION AND ANALYSIS LIQUIDITY (continued) Cash Flows from Investing Activities Net cash used in investing activities was essentially in line year-over-year, coming in at $0.7 million for the fourth quarter of 2021, versus $0.6 million in 2020. For fiscal 2021, capital investments totaled $2.5 million, up from $1.6 million in the prior year. The higher outflows for 2021 went largely towards initiatives to further enhance the Company’s production capacity and capabilities in order to heighten sales and profitability. As well, the Corporation incurred some additional payments related to the EPA registration of ADVASEAL®. Cash Flows from Financing Activities The Corporation recorded net cash outflows from financing activities of $0.3 million for the current quarter, versus cash outflows of $0.6 million in the corresponding prior-year quarter. The lower outflows in 2021 largely relate to an increase in bank indebtedness (revolving line of credit) in the fourth quarter of 2021 versus nil in 2020, partially offset by net year- over-year movements in long-term debt. For calendar 2021, Imaflex recorded net cash outflows from financing activities of $0.3 million, down significantly from $7.2 million of outflows in 2020. The year-over-year reduction is predominantly due to $2.5 million of inflows in 2021 resulting from an increase in bank indebtedness, versus $4.5 million of outflows in 2020 to reduce bank indebtedness, resulting in a year-over-year variance of $7.0 million. The Company also generated $0.6 million more of cash flows through the issuance of share capital in 2021, although this was offset by net year-over-year movements in long term debt, including a $0.8 million increase in long-term debt in 2020 versus nil in 2021. CONTRACTUAL OBLIGATIONS The contractual obligations as at December 31, 2021 were as follows: ($ thousands) Payments due by period Long-term debt Bank indebtedness Leases Total contractual obligations Total $ 5,840 2,498 1,668 $ 10,006 Less than 1 year $ 2,175 2,498 925 $ 5,598 1 to 5 years $ 3,601 - 743 $ 4,344 After 5 years 64 $ - - $ 64 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, 2021. 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, 2021, Imaflex had $2.5 million outstanding on its line of credit (versus nil on December 31, 2020) and had cash outstanding of $8.5 million ($3.2 million as at December 31, 2020). Working capital stood at $24.4 million at the end of 2021, up from $16.8 million at the end of 2020. The Company controls its financial leverage, ensuring that its borrowings reflect the asset base against which funds are borrowed as well as the profitability that is generated through the operations. PROPOSED TRANSACTION The Company is not currently contemplating any business acquisition or merger. RELATED PARTY TRANSACTIONS In the normal course of operations, the Company had routine transactions with related parties. These transactions are measured at fair value, which is the amount of consideration established and agreed to by the related parties. Annual Report – December 31, 2021 12 MANAGEMENT DISCUSSION AND ANALYSIS RELATED PARTY TRANSACTIONS (continued) The following table reflects the related party transactions recorded for the periods ended December 31, 2021 and 2020. For additional information, please refer to note 23, Related party transactions of the “Notes to the consolidated financial statements” for the years ended December 31, 2021 and 2020. ($ thousands) Three months ended December 31, Years ended December 31, 2021 2020 2021 2020 Professional fees and key management personnel services Rent Remuneration (a) (b) (c) $ 18 $ 285 $ 308 $ 12 $ 277 $ 250 $ 133 $ 133 $ 1,135 $ 1,097 $ 1,118 $ 1,059 (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, 2021 and 2020 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, 2021, the Company was not using any swap, forward or hedge accounting and there were no warrants outstanding. As at December 31, 2021, 650,000 options to purchase shares of the Company were outstanding at a weighted average strike price of $0.822 of which 612,500 were exercisable. 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. MANAGEMENT OUTLOOK Although market forces remain competitive, we are well positioned to deliver continued profitable growth. Customer demand remains solid and we expect first quarter 2022 sales volumes to surpass levels reached in the fourth quarter of 2021. In turn, our strong financial underpinning and cash flow generation provides a solid backbone to further build out the business, thus assuring continued success. Barring any unforeseen events, we believe Imaflex is in the early stages of a multi-year growth cycle. This is an exciting time for the Corporation and its shareholders. To date, the impact of COVID-19 and geopolitical unrest on Imaflex’s operations, financial situation and results has not been material. This said, any viral outbreaks, raw material supply constraints or resin pricing pressures could affect the business. Fortunately, the Corporation has no long-term contracts and as such it is able to adjust product pricing, helping to mitigate business risks. Furthermore, with a strong balance sheet and dynamic team it is well positioned to meet any challenges ahead. Annual Report – December 31, 2021 13 MANAGEMENT DISCUSSION AND ANALYSIS OUTSTANDING SHARE DATA As at December 31, 2021, the Company had 51,638,637 common shares outstanding, up from 50,063,637 as at December 31, 2020. The increase follows the issuance of shares under Imaflex’s 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 13, 2022 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, 2021 14 Consolidated Financial Statements of   IMAFLEX INC.  Years ended December 31, 2021 and 2020  1   Independent Auditor's Report To the Shareholders of Imaflex Inc. Opinion We have audited the consolidated financial statements of Imaflex Inc. (hereafter the "Company"), which comprise the consolidated statements of financial position as at December 31, 2021 and 2020, 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, 2021 and 2020, 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. 3 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. 4 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. 1 Montréal April 13, 2022 1 CPA auditor, CA public accountancy permit no. A119564 5 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,            2021            2020  $   107,477,226  90,075,943  17,401,283    $   86,682,163 70,115,883  16,566,280 1,729,872  5,210,439  411,363  165,266  86,457  7,603,397  1,808,784  5,339,846 544,928  533,558  127,781  8,354,897  9,797,886  8,211,383  (Note 9) 1,432,584  1,862,081 8,365,302  6,349,302 Other comprehensive income  Item that will be reclassified subsequently to net income  Exchange differences on translating foreign operations  52,851  (113,013) COMPREHENSIVE INCOME    $  8,418,153    $   6,236,289  Earnings per share  Basic  Diluted   (Note 10)   $         $       0.165  0.162    $     $   0. 127  0.125  The accompanying notes are an integral part of these consolidated financial statements and note 5 presents  additional information on consolidated comprehensive income.  6                                                                                                       Consolidated statements of financial position  (in Canadian dollars) As at  Assets  Current assets  Cash  Trade and other receivables  Inventories  Prepaid expenses  Total current assets  Non‐current assets  Property, plant and equipment  Intangible assets  Total non‐current assets  Total assets  Liabilities and equity   Current liabilities  December 31,    2021  December 31, 2020 (Note 11)   (Note 12) $   8,465,061  15,072,610  14,919,901  204,811  38,662,383  $  3,219,258 11,522,262 11,650,539 238,922 26,630,981 (Note 13)   (Note 14)   24,507,190  1,822,391  26,329,581   25,862,617 1,568,474 27,431,091 $  64,991,964  $  54,062,072 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) 2,498,309  8,285,886  669,481  1,994,463  850,804  14,298,943  3,498,459  1,389,561  731,493  5,619,513  ‐ 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 19,918,456  18,083,904 (Note 18) (Note 19)   12,559,023  2,214,641  30,299,844  45,073,508  11,901,023 2,142,603 21,934,542 35,978,168 Total liabilities and equity  $  64,991,964  $  54,062,072 The accompanying notes are an integral part of these consolidated financial statements.  (s) Joseph Abbandonato  Joseph Abbandonato  Director  (s) Roberto Longo  Roberto Longo  Director  7                                                                                                                                 Consolidated statements of changes in equity  For the years ended December 31, 2021 and 2020  (in Canadian dollars)   Reserves  Share capital (a) Share‐based  compensation Accumulated  foreign  currency  translation  Warrants  Total  reserves  Retained  earnings  Total  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)  ‐ ‐ ‐ ‐ ‐ ‐ ‐  (113,013)  (113,013) 26,000 ‐ ‐ 43,439 ‐ ‐  ‐  ‐  ‐  ‐  ‐  ‐  6,349,302  6,349,302  (113,013) (113,013) ‐  6,349,302 (113,013) 6,236,289 ‐ 43,439 ‐ ‐  26,000 43,439 Balance at December 31, 2020  $ 11,901,023 $ 1,192,855 $  484,574  $ 465,174    $  2,142,603  $ 21,934,542  $ 35,978,168 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, 2021  ‐ ‐ ‐ ‐ ‐ ‐ ‐  52,851  52,851  ‐  ‐  ‐  ‐  8,365,302  8,365,302  52,851  52,851  ‐  8,365,302  52,851  8,418,153  658,000 ‐  $ 12,559,023 ‐ 19,187 $ 1,212,042 ‐  ‐  $  537,425  ‐  ‐  ‐  19,187  $ 465,174    $  2,214,641  658,000 19,187 $ 30,299,844  $ 45,073,508 ‐  ‐  (a) Additional detail of share capital is provided in Note 18  The accompanying notes are an integral part of these consolidated financial statements. 8                                                                      Consolidated statements of cash flows  (in Canadian dollars) for the years ended  Operating activities:  Net income for the year   Income tax expense  Depreciation and amortisation of non‐current assets  Finance costs  Share‐based compensation  Loss on disposition of property, plant and equipment  Unrealized foreign exchange loss  Net changes in working capital  Increase in trade and other receivables  (Increase) decrease in inventories    Decrease (increase) in prepaid expenses  Increase in trade and other payables  Cash generated by operating activities  Net income taxes paid  Net cash generated by operating activities  December 31,  2021  2020   $ 8,365,302  1,432,584  3,811,084  411,363  19,187  ‐  157,949  14,197,469  (3,541,810)  (3,259,118)  33,837  2,171,307  (4,595,784)  9,601,685  (1,556,058)  8,045,627  $  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 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  (2,467,812)  ‐  (2,467,812)  (1,660,381) 50,266 (1,610,115) Financing activities:  Net change in bank indebtedness  Interest paid  Increase in long‐term debt  Repayment of long‐term debt  Net proceeds from issuance of share capital  Repayment of lease obligations  Net cash used in financing activities  Net increase in cash  Cash, beginning of the year  Effects of foreign exchange differences on cash  Cash, end of the year  Non‐cash transactions (Note 20)  2,498,309  (411,363)  ‐  (1,881,688)  658,000  (1,167,314)  (304,056)  (4,538,393) (544,928) 750,000  (1,739,904) 26,000  (1,114,871) (7,162,096) 5,273,759  3,187,349  3,219,258  (27,956)  60,942 (29,033) $  8,465,061  $ 3,219,258  The accompanying notes are an integral part of these consolidated financial statements.  9                                                                               Notes to the consolidated financial statements  for the years ended December 31, 2021 and 2020  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, 2021. The consolidated financial statements were approved by the  board of directors and authorized for issue on April 13, 2022.  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, 2021 and 2020, Imaflex USA, the Company’s wholly owned subsidiary, manufactured flexible  packaging and plastic film out of its two North Carolina, USA plants.  2.4 Foreign currencies  The functional currency is the currency of the primary economic environment in which an entity operates. The  financial statements of the Parent Company and its subsidiary that are consolidated into the Company’s financial  statements  are  prepared  in  their  respective  functional  currencies.  The  consolidated  financial  statements  are  expressed in Canadian dollars (“CAD”), which is also the functional currency of the Parent Company as well as  the Company’s presentation currency.  The assets and liabilities of the Company’s foreign subsidiary, Imaflex USA, whose functional currency is the US  dollar  (“USD”),  are  translated  at  the  exchange  rate  in  effect  at  the  date  of  the  consolidated  statement  of  financial  position.  Revenues  and  expenses  are  translated  at  the  monthly  average  exchange  rates  over  the  reporting period. Exchange gains or losses arising from the translation of Imaflex USA’s financial statements are  recognised as Accumulated foreign currency translation within Reserves.  10                                   Notes to the consolidated financial statements  for the years ended December 31, 2021 and 2020  2. Significant accounting policies (continued)  2.4 Foreign currencies (continued)  In preparing the financial statements of the individual entities, transactions in currencies other than the entity’s  functional currency are recorded at the exchange rates in effect on the date of the transactions. Monetary items  denominated  in  foreign  currencies  are  translated  at  the  exchange  rate  prevailing  at  the  end  of  the  reporting  period.  Resulting  gains  and  losses  on  foreign  exchange  are  recorded  in  the  consolidated  statement  of  comprehensive income.  The  foreign  exchange  gains  and  losses  arising  on  inter‐company  monetary  non‐trade  advances  totalling  US$4,000,000, for which settlement is determined to be neither planned nor likely in the foreseeable future and  are  therefore  accounted  for  as  forming  part  of  the  Company’s  net  investment  in  its  foreign  subsidiary,  are  recognized in Accumulated foreign currency translation within reserves. The foreign exchange gains or losses on  trade  receivables  and  other  monetary  advances  continue  to  be  included  in  Other  gains  and  losses  in  the  consolidated statement of comprehensive income.  2.5 Revenue recognition  Revenues are generated almost exclusively from the sale of goods. Revenue is recognized when the control of a  product is transferred to a customer, which is typically when the customer takes possession of the goods, and  there are no other performance obligations to be completed under the contract.  Revenue is measured based on the consideration that has been agreed upon by all parties and that the Company  expects to be entitled to receive from the customer, net of variable considerations, including all returns, rebates  and discounts agreed to by all parties concerned and the information available relative to each customer.  Revenue recognition is based on the following steps:       identification of the contract with the customer;  identification of the performance obligations in the contract;  determination of the transaction price;  allocation of the transaction price to the performance obligations in the contract; and  recognition of revenue when the Company satisfies a performance obligation.  2.6 Income Tax  Income  tax  expense  comprises  both  current  and  deferred  tax.  Current  tax  is  based  on  taxable  income  for  the  year.  Taxable  income  differs  from  net  income  as  reported  in  the  consolidated  statement  of  comprehensive  income because of items of revenue or expense that are taxable or deductible in other years and items that are  never taxable or deductible. The Company’s liability for current tax is calculated using tax rates that have been  enacted or substantively enacted at the reporting period.  Deferred tax is recognised on temporary differences between the carrying amounts of assets and liabilities in the  consolidated statements of financial position and the corresponding tax basis used in the computation of taxable  income.  Deferred  tax  liabilities  are  generally  recognised  for  all  taxable  temporary  differences.  Deferred  tax  assets  are  generally  recognised  for  all  deductible  temporary  differences  to  the  extent  that  it  is  probable  that  future taxable income will be available against which the underlying tax loss or deductible temporary difference  can be utilized.    11                               Notes to the consolidated financial statements  for the years ended December 31, 2021 and 2020  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 at fair value through earnings, transaction costs. Transaction costs  directly attributable to the acquisition of financial assets or financial liabilities at fair value through earnings are  recognized immediately in earnings. Trade receivables that do not contain a significant financing component are  measured at the transaction price determined in accordance with IFRS 15.  Subsequent measurement  After initial recognition, cash and trade and other receivables (excluding sales taxes) are measured at amortized  cost  using  the  effective  interest  method.  The  expense  relating  to  the  allowance  for  expected  credit  loss  is  recognized in earnings in Administrative expenses in the statement of comprehensive income.  Impairment of financial assets  The Company recognizes a loss allowance for expected credit losses arising from financial assets. The amount of  expected credit losses is updated at each reporting date to reflect changes in credit risk since initial recognition  of the respective financial instrument.  12                                   Notes to the consolidated financial statements  for the years ended December 31, 2021 and 2020  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, rolling stock, 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  13                                               Notes to the consolidated financial statements  for the years ended December 31, 2021 and 2020  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.  14                         Notes to the consolidated financial statements  for the years ended December 31, 2021 and 2020  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.  15                         Notes to the consolidated financial statements  for the years ended December 31, 2021 and 2020  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.  16                                   Notes to the consolidated financial statements  for the years ended December 31, 2021 and 2020  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.  17                                     Notes to the consolidated financial statements  for the years ended December 31, 2021 and 2020  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,  2021 December 31,  2020  $ 37,294,723 70,180,963 1,540 $ 107,477,226 $ 30,500,829  56,181,334  ‐  $ 86,682,163  4.2 Property, plant and equipment and intangible assets per geographic location  Canada   United States  Total  December 31, 2021 December 31,  2020  $    8,219,158 18,110,423 $  26,329,581 $    8,088,548  19,342,543  $  27,431,091  18                                         Notes to the consolidated financial statements  for the years ended December 31, 2021 and 2020  5. Additional information on the consolidated statements of comprehensive income  The  Company’s  consolidated  statements  of  comprehensive  income  include  depreciation  of  production  equipment of $3,602,138 for the year ended December 31, 2021 ($3,334,585 in 2020) classified in Cost of sales,  which  includes  the  depreciation  for  right‐of‐use  assets  of  $1,080,538  for  the  year  ended  December  31,  2021  ($1,027,799 in 2020). Depreciation of other property, plant and equipment and amortisation of intangible assets  amounting to $208,946 for the year ended December 31, 2021 ($258,114 in 2020) is included in Administrative  expenses.  The  Company’s  consolidated  statements  of  comprehensive  income  include  salaries  paid  to  its  employees  of  $9,896,662 for the year ended December 31, 2021 ($9,928,051 in 2020) classified in Cost of sales. Administrative  expenses include salaries paid to employees of $1,877,345 for the year ended December 31, 2021 ($1,841,872 in  2020)  and  Selling  expenses  include  salaries  paid  to  employees  of  $431,111  for  the  year  ended  December  31,  2021 ($470,112 in 2020).  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 $2,749,973  during the year ended December 31, 2021 ($2,600,436 in 2020). 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, 2021, the Company contributed $8,220 to this plan ($25,473 in  2020).  7. Finance costs  Interest on bank indebtedness and long‐term debt  Interest on finance lease obligations  8. Other losses  Foreign exchange losses   Loss on disposition of property, plant and equipment Other losses  Year ended December 31,   2021 December 31,  2020  $   290,758 120,605 $   411,363 $   370,571  174,357  $   544,928  Year ended December 31,   2021 December 31,  2020  $   165,266 ‐ $   165,266 $   419,754  113,804  $   533,558  19                                                         Notes to the consolidated financial statements  for the years ended December 31, 2021 and 2020  9. Income taxes  9.1 Income tax recognised in net income  Year ended December 31,   2021 December 31,  2020  Income tax expense comprises:    Current tax expense    Deferred tax expense relating to the origination and  reversal of temporary differences  Total income tax expense  $    1,229,000 $  1,897,761  203,584  $   1,432,584 (35,680)  $ 1,862,081  9.2 Reconciliation between the income tax expense and the statutory income tax rate Year ended December 31,   2021 December 31,  2020  Income before income taxes  $ 9,797,886 $ 8,211,383  Income tax expense calculated at 26.5%  (26.5% in 2020) Permanent differences  2,596,440 11,070 2,176,016  (5,161)  Variation of valuation allowance  Effect of different tax rates of subsidiaries operating in  other jurisdictions  Other  (967,996) (305,505)  (147,304) (59,626) (46,490)  43,221  Income tax expense recognised in net income $ 1,432,584 $ 1,862,081  The  tax  rate  used  for  the  2021  and  2020  reconciliation  above  is  the  corporate  tax  rate  of  26.5%  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  2021  Assets  Non‐capital losses  Lease obligations  Advance  Other assets  Liabilities  $  679,568  640,348  40,564  116,049  1,476,529  $ 2,015,775 (567,176) 376,323 12,223 1,837,145 $  2,695,343 73,172 416,887 128,272 3,313,674 Property, plant and  (2,662,506)  (2,040,729) (4,703,235) equipment  (2,662,506)  (2,040,729) (4,703,235) Deferred tax liabilities  $(1,185,977)  $     (203,584)  $(1,389,561) 20                                                                                                                               Notes to the consolidated financial statements  for the years ended December 31, 2021 and 2020  9. Income taxes (continued)  9.3  Deferred tax balances (continued)  2020  Assets  Non‐capital losses  Lease obligation  Advance  Other assets  Liabilities  Opening balance Recognised in income  Closing balance  $ 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  Property, plant and equipment  (3,464,276) (3,464,276) 801,770 801,770 (2,662,506)  (2,662,506)  Deferred tax liabilities  $(1,221,657) 35,680 $(1,185,977)  9.4 Unrecognised deferred tax assets  The  Company's  subsidiary,  Imaflex  USA,  has  non‐capital  losses  available  to  carry  forward  to  reduce  future  taxable income of $25,704,331 in 2021 and $23,043,920 in 2020, for part of which a deferred tax asset has not  been recognised ($3,142,111 in 2021 and $4,553,706 in 2020), that expire as follows:  Expiring in  December 31,   2021  December 31,   2020 2027  2028  2029  2030  2031  2032  2033  2034  2035  2036  2038  Indefinite  ‐  755,660  2,962,046  4,346,798  1,855,522  2,604,897  2,608,507  2,379,612  1,369,561  779,597  289,602  5,752,529  $25,704,331  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 21                                                                                                     Notes to the consolidated financial statements  for the years ended December 31, 2021 and 2020  10. Earnings per share  Year ended December 31,  2021 December 31,  2020  Net income for basic and diluted earnings per share $ 8,365,302 $ 6,349,302  Weighted average number of common shares  outstanding   Dilutive effect of share purchase options  Diluted weighted average common shares outstanding 50,659,253 894,362 51,553,615 50,040,823  664,065  50,704,888  Basic earnings per common share  Diluted earnings per common share  $   0.165 $   0.162 $   0. 127  $   0. 125  No stock options outstanding as at December 31, 2021 were excluded from the calculation of earnings per share  because they were antidilutive (200,000 in 2020).  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  December 31, 2021 December 31,  2020  $ 15,290,334 (995,745) 14,294,589 $ 12,210,690  (936,959)  11,273,731  778,021 $ 15,072,610 248,531  $ 11,522,262  Year ended December 31, 2021 December 31,  2020  Balance, beginning of year  Expected credit losses recognised on trade receivables Foreign exchange  Balance, end of year  $ (936,959) (60,854) 2,068 $ (995,745) $ (785,676)  (159,093)  7,810  $ (936,959)  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.  22                                                                                   Notes to the consolidated financial statements  for the years ended December 31, 2021 and 2020  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, 2021, $6,411,038 ($6,943,305 as at December 31,  2020) 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,  2021  and  at  December  31,  2020,  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, 2021 December 31,  2020 $ 11,273,541 3,222,860 423,500 $ 14,919,901 $ 7,381,789 3,462,620 806,130 $ 11,650,539 The cost of inventories recognised as an expense during the year was $85,991,503 ($66,158,542 in 2020). During  the fiscal year ended on December 31, 2021, the Company increased the provision for inventory obsolescence  by $65,074  ($137,060 in 2020).  23                                 Notes to the consolidated financial statements  for the years ended December 31, 2021 and 2020  13. Property, plant and equipment  Cost  January 1, 2020  Additions  Disposals  Foreign exchange  December 31, 2020  Additions  Foreign exchange  December 31, 2021  Accumulated depreciation  January 1, 2020  Depreciation  Disposals  Foreign exchange  December 31, 2020  Depreciation  Foreign exchange  December 31, 2021  Net book value as at  December 31, 2020  December 31, 2021  Land  Building  Production  equipment  Leasehold  improvements Office  equipment Computer  equipment  Rolling Stock  Total  $ 22,268  ‐  ‐  (439)    $ 3,739,859  ‐  ‐  (13,011)    $ 60,685,649  1,174,038 (224,526) (575,495) 21,829  ‐  (93)  21,736    3,726,848  348,584  (4,005)  4,071,427  61,059,666  1,857,229  (133,192) 62,783,703  ‐  ‐  ‐  ‐  ‐  ‐  ‐  ‐  (943,171)  (938,067)  ‐  20,851  (1,860,387)  (997,287)  (1,539)  (2,859,213)  (35,611,996) (2,372,511) 60,456 314,630  (37,609,421) (2,555,235) 36,391  (40,128,265) $ 2,854,426  42,599 ‐  (23,980) 2,873,045  212,807  (5,820) 3,080,032  (2,454,390) (143,299) ‐ 21,750  (2,575,939) (112,249) 3,758  (2,684,430) $ 93,582  ‐ ‐  (357) 93,225  ‐  (75) 93,150  (54,466) (9,233) ‐ 357  (63,342) (9,233) 75  (72,500) $ 555,706  28,070  ‐  (865)  582,911  92,548  (182)  675,277  (536,668)  (26,358)  ‐  1,084  (561,942)  (39,634)  210  (601,366)  $ 264,301  ‐ ‐  (1,160) $ 68,215,791  1,244,707 (224,526) (615,307) 263,141  ‐  (245) 262,896  (41,869) (45,705) ‐ 557  (87,017) (48,162) (78) (135,257) 68,620,665  2,511,168  (143,612) 70,988,221  (39,642,560) (3,535,173) 60,456 359,229  (42,758,048) (3,761,800) 38,817  (46,481,031) $ 21,829  $ 21,736  $1,866,461  $1,212,214    $ 23,450,245    $ 22,655,438 $   297,106  $   395,602 $ 29,883  $ 20,650 $ 20,969  $ 73,911  $ 176,124  $ 127,639 $ 25,862,617  $ 24,507,190 A  portion  of  the  Company’s  production  equipment  with  a  carrying  amount  of  approximately  $ 15,400,000  (approximately $15,300,000 as at December 31, 2020) 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, 2021 and 2020 are  right‐of‐use assets as follows :  Buildings  Production equipment  Rolling stock  Office equipment  Total right‐of‐use assets  14. Intangible assets  December 31,  2021 December 31,  2020  $ 1,135,178   262,372 119,822 13,080 $  1,530,452 $ 1,783,367    293,266  171,119  22,313  $  2,270,065  January 1, 2020  Additions  Amortisation  Foreign exchange  December 31, 2020  Additions  Amortisation  Foreign exchange  Goodwill    $  487,643  ‐  ‐  (9,613)  478,030  ‐  ‐  (2,027)  Customer  relationships  Patents  Total  $  8,116 ‐ (8,242) 126 $      724,054 415,674 (49,284) ‐ $ 1,219,813  415,674  (57,526)  (9,487)  ‐ ‐ ‐ ‐ 1,090,444 305,228 (49,284) ‐ 1,568,474  305,228  (49,284)  (2,027)  December 31, 2021  $ 476,003  $             ‐ $  1,346,388 $ 1,822,391  24                                                                                                                                                                                                                                                                                                                                                                                                         December 31, 2021 December 31,  2020  $ 5,621,647 2,664,239 $ 8,285,886 $ 3,919,917  2,195,449  $ 6,115,366  Notes to the consolidated financial statements  for the years ended December 31, 2021 and 2020  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 0.75% as at  December 31, 2021 (effective rate of 3.80%) and minus 0.50% as at  Dember 31, 2020 (effective rate of 4.05%), secured by production  equipment having a net book value of approximately $6,700,000. (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, 2021 and December 31, 2020),  secured by production equipment having a net book value of  approximately $6,700,000. (e)  Total long‐term debt  Lease obligations (Note 17)   Total borrowings  Current  Bank indebtedness  Long‐term debt, current portion  Lease obligations, current portion  Non‐current  Long‐term debt  Lease obligations  Total borrowings  December 31,  2021  December 31,  2020 $  2,498,309  $                 ‐ 689,350    1,175,950 2,128,207  2,827,107 1,988,305  2,621,553 687,060  750,000 5,492,922  7,374,610 1,582,297  2,411,412 $ 9,573,528  $ 9,786,022 $  2,498,309  1,994,463  850,804  5,343,576  3,498,459  731,493  4,229,952   $                ‐ 1,881,689 824,092 2,705,781 5,492,921 1,587,320 7,080,241 $ 9,573,528  $  9,786,022 25                                                                                     Notes to the consolidated financial statements  for the years ended December 31, 2021 and 2020  16. Borrowings (continued)  The  interest  expense  on  long‐term  debt  amounted  to  $255,338  for  the  year  ended  December 31,  2021  ($307,700 in 2020).  (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, 2021 and 2020  for an effective interest rate of 2.85% at  December 31, 2021 and 2020.  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,  2021  and  2020  and  during  the  years  ended  December  31,  2021  and  2020.  As  at  December  31,  2021,  the  Company  was  borrowing  $2,498,309  on  its  line  of    credit  (nil as  at  December 31, 2020).  (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.  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  $ 1,994,463 3,435,999 62,460 $ 5,492,922 26                                                           Notes to the consolidated financial statements  for the years ended December 31, 2021 and 2020  16. Borrowings (continued)  The changes in the Company’s liabilities arising from borrowings can be classified as follows:  Short‐term  borrowings and  bank indebtedness  $    4,538,393  Long‐term debt  $ 8,364,514  Lease obligations  $ 3,517,554  Total  $ 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  34,097,885  (31,587,207)  ‐  (1,881,688)  ‐  (1,167,314)  34,097,885  (34,636,209)  ‐  ‐  (12,369)  $   2,498,309  ‐  ‐  ‐  $ 5,492,922  348,584  (3,521)  (6,864)  $ 1,582,297  348,584  (3,521)  (19,233)  $ 9,573,528  Balance as of January 1, 2020  Cash flows:  Proceeds  Repayments  Non‐cash:  Accrued interest  Foreign exchange and other  Balance as of December 31, 2020  Cash flows:  Proceeds  Repayments  Non‐cash:  New capital leases  Accrued interest  Foreign exchange and other  Balance as of December 31, 2021  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  $    925,038 743,119 ‐ 1,668,157 (85,860) 1,582,297 (731,493) $  850,804 During the year ended December 31, 2021, the Company renewed a lease for a production facility located in the  United  States.  This  resulted  in  an  increase  to  lease  obligations  and  right‐of‐use  assets  of  $348,584  at  the  inception of the lease.  Total cash outflow for leases for the years ended December 31, 2021 and 2020 was $1.2 million and $1.1 million,  respectively.  27                                                                                                            Notes to the consolidated financial statements  for the years ended December 31, 2021 and 2020  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,  2021,  there  were  51,638,637  common  shares  outstanding  (50,063,637 as at December 31, 2020). As at December 31, 2021 and 2020, there were no warrants outstanding.  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.   During the year ended December 31, 2021, the Company issued 50,000 common shares following the exercise of  options  issued  in  2018  for  cash  consideration  of  $38,000,  150,000  shares  for  cash  consideration  of  $60,000  following the exercise of options issued in 2016, 500,000 shares for cash consideration of $210,000 following the  exercise  of  options  issued  in  September  of  2016  and  875,000  shares  for  cash  consideration  of  $350,000  following the exercise of options issued in June of 2016.  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.  The expense relating to the issue of option grants totalled $19,187 for the year ended December 31, 2021 and  $43,439 for the year ended December 31, 2020.  The  following  are  the  assumptions  used  in  order  to  value  the  options  as  well  as  general  information  on  each  outstanding option grant:  Outstanding as at 31/12/2020  Exercised (1)  Outstanding as at 31/12/2021  Exercisable as at 31/12/2021  Exercisable as at 31/12/2020  Remaining life of options (yrs)  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  26/08/2020  10/09/2019  29/11/2018  29/11/2017  22/06/2017  06/09/2016  21/06/2016  Total  150,000  ‐  150,000  112,500  37,500  3.65  100,000  ‐  100,000  100,000  75,000  2.70  250,000 (50,000) 200,000 200,000 250,000 1.92 150,000 ‐ 150,000 150,000 150,000 0.92 50,000 ‐ 50,000 50,000 50,000 0.48 500,000 (500,000) ‐ ‐ 500,000 ‐ 1,025,000  (1,025,000)  ‐  ‐  1,025,000  ‐  2,225,000  (1,575,000) 650,000  612,500  2,087,500  2.5 to 3.25 2.5 to 3.25  2.5 to 3.25  2.5 to 3.25 26/08/2025  10/09/2024  29/11/2023 29/11/2022 22/06/2022 06/09/2021 21/06/2021  75.95% ‐  82.15%  0%  2.5 to 3.25 2.5 to 3.25 2.75 to 3.5    57.82 ‐   60.98%  0%  0.41%  $ 0.73  $ 0.73  $ 0.28  61.21% ‐   64.47%  0%  1.44%  $ 0.55  $ 0.55  $ 0.30  67.14% ‐ 70.41% 0% 2.23% $ 0.76 $ 0.76 $ 0.35 79.13% ‐ 80.17% 0% 1.62% $ 1.11 $ 1.11 $ 0.57 80.01% ‐ 83.03% 0% 1.15% $ 1.03 $ 1.03 $ 0.53 76.59% ‐ 79.60% 0% 0.51% $ 0.42 $ 0.42 $ 0.21 0.50%  $ 0.40  $ 0.40  $ 0.21  (1) The fair value of the shares at the exercise date was $1.10 per share for the 50,000 options issued on  November 29, 2018, $1.38 for the 150,000 options issued on June 21, 2016, $1.50 for the 500,000  options issued on September 6, 2016 and $1.42 and $1.35 for the 875,000 options issued on June 21,  2016 exercised on 2 dates.  28                                                   Notes to the consolidated financial statements  for the years ended December 31, 2021 and 2020  19. Share‐based compensation (continued)  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, 2021, the Company renewed a lease for a production facility, increasing its  lease obligations by $348,584 on January 1, 2021.  21. Financial instruments  21.1 Fair value and classification of financial instruments  December 31, 2021 Carrying amount  December 31,  2020 December 31,  2021  Fair value December 31,  2020 $      8,465,061 14,300,736 22,765,797 $   3,219,258 $      8,465,061  14,300,736  22,765,797  11,281,501 14,500,759 $  3,219,258 11,281,501 14,500,759 2,498,309 6,643,845 5,492,922 14,635,076 ‐ 4,773,846 7,374,610 12,148,456 2,498,309  6,643,845  5,495,668  14,637,822  ‐ 4,773,846 7,469,667 12,243,513 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  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.  29                                                               Notes to the consolidated financial statements  for the years ended December 31, 2021 and 2020  21. Financial instruments (continued)  21.1 Fair value and classification of financial instruments (continued)  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, 2021 and 2020, the fair values of long‐term debt are categorised as Level 2.  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, 2021:  ‐  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;  30                                                 Notes to the consolidated financial statements  for the years ended December 31, 2021 and 2020  22. Risk management (continued)  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, 2021 779 3,445,186  (2,103,457) (2,498,309) $  (1,155,801) $  December 31,  2020 112,595 3,015,357  (1,620,508) ‐ $     1,507,444  A $0.05 appreciation of the Canadian dollar against the USD would decrease its financial position by $63,920 as  at December 31, 2021 (an increase of $139,259  as at December 31, 2020).  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 $8,496. Every $0.01 depreciation of the USD against the Canadian dollar would have the opposite  effect.  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  Bank indebtedness  Financial liabilities   Gross financial position exposure  Sensitivity analysis  December 31, 2021 December 31,  2020 $ 2,498,309 1,376,410 $ 3,874,719 ‐ $ 1,925,950 $ 1,925,950 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, 2021 of approximately $23,183 ($ 27,104 for 2020). Conversely a decrease in interest  rates would have the opposite effect.  31                                       Notes to the consolidated financial statements  for the years ended December 31, 2021 and 2020  22. Risk management (continued)  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  $2,498,309  was  utilized  as  at  December 31, 2021 (nil 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,  2021,  the  carrying  amount  and  undiscounted  contractual  cash  flows  for  the  Company's  liabilities are as follows:  Carrying  amount  Contractual  cash flow  1 year or less 2‐5 years  More than 5  Bank indebtedness  Long‐term debt (1)  Lease obligations (2)  Trade and other payables (3)  $ 2,498,309 5,492,922 1,582,297 6,643,845 $ 2,498,309 5,839,875 1,668,157 6,643,845 $  2,498,309 2,175,166 925,038 6,643,845 $                 ‐  3,601,350  743,119  ‐  years  $               ‐ 63,359 ‐ ‐ $16,217,373 $16,650,186 $12,242,358 $ 4,344,469    $   63,359 (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  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:  32                                                     Notes to the consolidated financial statements  for the years ended December 31, 2021 and 2020  23. Related party transactions (continued)  Entities in which key management personnel has an interest (continued)  Transactions for the year  ended  Amounts owing as at  December 31,  2021 December 31,  2020 December 31,  2021 December 31,  2020  1,134,812 1,118,534 ‐ 97,730 1,348,128 121,841 139,371 2,041,754 132,598 ‐  ‐ 10,744 ‐  ‐  ‐  10,163  11,650 ‐ 11,650 ‐  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,  2021 $   958,333 45,750 6,282 16,257 6,078 64,188 $ 1,096,888 December 31,  2020 $   924,474 41,000 13,094 15,890 14,253 50,117 $ 1,058,828 33                                   

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