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