Annual Report
2020
0
2
0
2
–
T
R
O
P
E
R
L
A
U
N
N
A
E
P
A
C
S
N
I
2
Contents
4
Letter to Shareholders
6
Management’s Discussion & Analysis
8
Vision & Strategy
10
Overview
11
Financial Highlights
12
Results of Operations
14
Summary of Quarterly Results
15
Liquidity & Capital Resources
17
Contractual Obligations
18
Future Accounting Changes
21
Controls & Procedures
23
Management Report
24
Independent Auditor’s Report
26
Consolidated Financial Statements
30
Notes to the Consolidated Financial Statements
66
Corporate Information
3
INSCAPE 2020 ANNUAL REPORT Letter to
Shareholders
Unprecedented. It’s a word that has been used almost continuously by the media and members of
our industry, as well as most government leaders and economists, to describe the impact of the
COVID-19 pandemic. As it accelerated its influence throughout the world economy, in parallel to the
completion of our 2020 Fiscal Year ending April 30th, 2020 and our fourth quarter, your company
and its leadership team engaged in real time strategies to react and adapt to its impact.
During this time, the health and safety of our employees has been paramount. We were able to
provide enough infrastructure to continue operating our factories in compliance with government
restrictions while the balance of our employees primarily worked from home and continued to deliver
for our customers. We are proud of our accomplishments protecting our employees during this time.
Only some of our efforts are reflected in the results for the period presented at year-end: service our
customer’s needs; build cash; manage working capital; reduce expenses; and, remain debt free.
Other efforts will only start to become evident in future quarters including: adapt our product offering
to anticipated demand trends post “COVID”; explore new channels to reach our customers; actively
manage and reduce inventory levels; invest in rapid payback opportunities to drive plant efficiencies;
and, monitor government programs to help support the business now and in the future...
We look forward to demonstrating a new path forward and improved financial results as we begin to
effect the necessary changes, which will take time to be in evidence as the economy recovers during
our coming fiscal year.
We wish to thank Brian Mirsky, Inscape’s CEO until March 5, 2020, for his valued contributions to the
business and efforts to recruit a new generation of talent to the organization during his tenure.
We once again thank the leadership team, our employees and our partners for their commitment,
particularly during this time of economic uncertainty, and our Board of Directors for their
unparalleled support.
Bartley Bull,
Chair
Eric Ehgoetz,
Director and Chief Executive Officer
4
Letter to
Shareholders
5
Management’s
Discussion & Analysis
The following Management’s Discussion and Analysis (“MD&A”) of operating results and financial condition of
Inscape Corporation and its subsidiaries (“Inscape” or “the Company”) for the year ended April 30, 2020 should
be read in conjunction with the accompanying Consolidated Financial Statements and Notes for the years ended
April 30, 2020 and 2019.
The discussion and analysis
are as of June 25, 2020 unless
otherwise stated.
Additional information relating to the Company, including
the Annual Information Form, is available on SEDAR at
sedar.com or on our website myinscape.com.
Non GAAP Measures
In this MD&A, reference is made to EBITDA, which is not
a measure of financial performance under International
Financial Reporting Standards (“IFRS”). Inscape calculates
EBITDA as earnings or loss before interest, taxes,
depreciation and amortization. Management believes
EBITDA is a useful measure that facilitates period-to-
period operating comparisons and we believe some
investors and analysts use it as well. This measure,
as calculated by Inscape, does not have any
standardized meaning prescribed by IFRS and is not
necessarily comparable to similar measures presented
by other issuers.
Reference is also made to both adjusted net income
or loss before taxes and adjusted EBITDA. Adjusted
net income or loss before taxes excludes derivative fair
value adjustments, unrealized exchange gains or losses,
share-based compensation, severance and other non-
recurring expenses such as gains or losses on disposal of
capital assets and intangibles, restructuring expenses and
proceeds from government subsidies and grants. Adjusted
EBITDA is earnings before interest, taxes, depreciation
and amortization with the exclusion of derivative fair
value adjustments, unrealized exchange gains or losses,
share-based compensation, severance and other non-
recurring expenses such as gains or losses on disposal
of capital assets and intangibles, restructuring expenses
and proceeds from government subsidies and grants.
Management believes adjusted net income and loss
before taxes and adjusted EBITDA are useful measures
that facilitate period-to-period operating comparisons.
The adjusted net loss before taxes and adjusted EBITDA
are a non-GAAP measure, which does not have any
standardized meaning prescribed by GAAP and is
therefore unlikely to be comparable to similar measures
presented by other issuers.
6
Management’s
Discussion & Analysis
Forward‑looking Statements
Company Profile and Core Business
This report includes certain forward-looking statements
Inscape Corporation is a limited company incorporated
that are based on the Company’s best information and
in Ontario, Canada, with Class B common shares listed
judgments as at the date of this report. Readers are
on the Toronto Stock Exchange (TMX). The Company’s
cautioned not to place undue reliance on forward-looking
registered office and headquarters is at 67 Toll Road,
statements found throughout this document. These
Holland Landing, Ontario, Canada.
forward-looking statements are based on our plans,
intentions or expectations which are based on, among
Since 1888, Inscape has been designing products and
other things, assumptions about the rate of economic
services that are focused on the future, so businesses can
growth in North America, growth expectations for the
adapt and evolve without investing in their workspaces
contract office furniture business and currency fluctuations.
all over again. Our versatile portfolio includes systems
furniture, storage, and walls – all of which are adaptable
These forward-looking statements include known and
and built to last. Inscape’s wide dealer network,
unknown risks, uncertainties, assumptions and other
showrooms in the United States and Canada, along with
factors which may cause actual results or achievements
full service and support for all of our clients, enables us to
to be materially different from those expressed or implied.
stand out from the crowd. We make it simple. We make
The forward-looking statements are subject to risks and
it smart. We make our clients wonder why they didn’t
uncertainties that may cause the actual results to differ
choose us sooner.
materially from those anticipated in the discussion (see
“Risks and Uncertainties” for more information).
The Company reports in two business segments. The
Office Furniture segment includes storage, benching,
While management believes that the expectations
systems and seating solutions products. The Walls
expressed by such forward-looking statements are
segment includes architectural and movable walls.
reasonable, we cannot assure that they will be correct. In
Inscape’s products are manufactured in two facilities: a
evaluating forward-looking information and statements,
306,000 square foot plant in Holland Landing, Ontario,
readers should carefully consider the various factors which
and a 110,000 square foot plant in Falconer, New York.
could cause actual results or events to differ materially
The latter facility was recently sold and now leased back
from those indicated in the forward-looking information
by Inscape for its manufacturing. Inscape serves its
and statements. Readers are cautioned that the foregoing
clients through a network of dealers and representatives
list of important factors is not exhaustive. Furthermore,
supported by showrooms across North America.
the Company will update its disclosure upon publication
of each fiscal quarter’s financial results and otherwise
disclaims any obligations to update publicly or otherwise
revise any such factors or any of the forward-looking
information or statements contained herein to reflect
subsequent information, events or developments, changes
in risk factors or otherwise.
7
INSCAPE 2020 ANNUAL REPORT Vision & Strategy
Management has identified five key strategic initiatives which
focus on building a strong foundation for future growth.
1
2
3
Focus
the Portfolio
Develop the
Inscape Brand
Build
Distribution
Invest in new product development in
Emphasize the core attributes of
Focus investment on high opportunity
high growth and high profit product
our Brand, increase market
and high margin markets. Reinforce
categories. Review existing portfolio
awareness and continue to improve
existing Dealer presence and leverage
of product categories to determine
the customer experience both on site
Inscape showrooms in core markets.
long term viability.
and on the web.
Continue focus on growing the
number of large customers with
recurring annual sales. Develop
new channels for growth.
8
Vision & Strategy
4
5
Improve Capacity
Utilization
Build
Capability
Improve manufacturing efficiencies
Implement business process
and other costs relating to product
improvements and invest in new
fulfillment through tactical investments
equipment and technology to
to increase insourcing and modernize
enhance performance. Evaluate
production methods. Accelerate
strategic alliances that leverage
product rationalization efforts to
Inscape strengths and increase
eliminate low volume or unprofitable
our avenues for growth.
products. Focus on what customers
want and what sells.
9
INSCAPE 2020 ANNUAL REPORT
Overview
Fiscal year 2020 compared
to fiscal year 2019
Fiscal year 2019 compared
to fiscal year 2018
Fiscal year 2020 sales decreased by $14.8 million or
Fiscal year 2019 sales decreased by $3.4 million or 3.6%
16.3% compared to the prior year. Both the Furniture and
compared to the prior year. Furniture business unit sales
Walls business units contributed to the decline in sales
declined as the Company exited an unprofitable business
which stemmed from a general reduction in customer
which contributed $12.4 million in net sales in fiscal 2018.
demand, as well as, both shipment delays and pushouts
Excluding sales from the unprofitable business, fiscal 2019
of major projects to future quarters resulting from the
sales increased by 9.2% over the prior year.
economic impact of COVID-19.
In fiscal year 2019, the Company incurred a net loss of
In fiscal year 2020, the Company incurred a net loss of
$8.7 million or 61 cents per share, compared to a net
$5.4 million or 0.38 cents per share, compared to a net
loss of $3.0 million, or 21 cent per share a year ago.
loss of $8.7 million, or 61 cent per share a year ago. Both
Both reporting periods included unrealized derivative
reporting periods included unrealized derivative losses
losses or gains relating to fair value of outstanding
relating to fair value of outstanding derivative contracts
derivative contracts and other unusual items, which have
which have had a significant impact on the reported net
a significant impact on the reported net income or loss.
loss. In Fiscal 2020, there was a significant gain related to
With the exclusion of these items, fiscal year 2019 had an
the sale and leaseback and the proceeds related to the
adjusted net loss before taxes of $6.9 million compared
government forgivable loan. With the exclusion of these
with last year’s adjusted net loss before taxes of $5.1
items in addition to other items such as stock based
million. Unfavourable sales mix combined with incremental
compensation and severance expenses, fiscal year 2020
investments in sales, marketing and product development
had an adjusted net loss before taxes of $4.4 million
initiatives accounted for the majority of the increase in
compared with last year’s adjusted net loss before taxes
adjusted net loss.
of $6.9 million.
10
Overview
Financial Highlights
(In thousands, except for per share amounts)
Sales
Net loss
Basic and diluted loss per share
Adjusted net loss before taxes
Adjusted EBITDA
Sales
Net loss
Basic and diluted loss per share
Adjusted net loss before taxes
Adjusted EBITDA
Total assets
Total liabilities
THR EE M ONT HS ENDED APRIL 30
20 20
14,443
(5,196)
(0.36)
(2,288)
(1,038)
2019
18,629
(4,420)
(0.31)
(3,349)
(2,723)
$
$
$
$
$
Y EARS ENDED APRIL 30
20 20
75,818
(5,406)
(0.38)
(5,163)
(1,381)
37,804
29,127
2019
90,583
(8,746)
(0.61)
(6,851)
(4,710)
39,527
22,434
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
Weighted average number of shares for basic and diluted EPS
14,380,701
14,380,701
Cash
$
5,885
$
3,265
11
INSCAPE 2020 ANNUAL REPORT
Results
of Operations
SAL ES (In th o us ands )
FISCAL 202 0
FI SC AL 201 9
CHANGE
Three Months Ended April 30
Years Ended April 30
$
$
14,443
75,818
$
$
18,629
90,583
(22.5%)
(16.3%)
Sales in the fourth quarter were 22.5% lower than the same quarter of last year. The decline in the fourth quarter is
primarily due to the economic impact of COVID-19 which resulted in both shipment delays and customer order pushouts
in some of our major markets.
The fiscal 2020 annual sales of $75.8 million were 16.3% lower than the previous year’s sales of $90.6 million, due to the
timing of major customer projects in the prior year and reduced sales demand in the latter half of this year.
GROSS PROFI T (In thous an ds )
FISCAL 20 20
% OF SALES
FI SC AL 201 9
% OF SALES
Three Months Ended April 30
Years Ended April 30
$
$
3,877
20,791
26.8%
27.4%
$
$
4,090
24,382
22.0%
26.9%
The fourth quarter gross profit as a percentage of sales of 26.8% was 4.8 percentage points higher than the same quarter of last
year, primarily due to favourable product mix, improvements in quality expenses and cost efficiencies in the Walls business segment.
Fiscal year 2020 gross profit as a percentage of sales increased by 0.5 percentage points from last year’s 26.9% to the
current year’s 27.4%.
SELLING, GENERAL & ADMINISTRATIVE
EXP ENSES (SG & A) (In tho u sa nd s )
FISCAL 20 20
% OF SALES
FI SC AL 201 9
% OF SALES
Three Months Ended April 30
Years Ended April 30
$
$
6,565
26,382
45.5%
34.8%
$
$
7,879
31,767
42.3%
35.1%
SG&A for the quarter was 45.5% of sales compared with last year’s 42.3%. The current quarter SG&A of $6.6 million was
$1.3 million lower than the same quarter of last year primarily due to reduced headcount levels, a decrease in marketing
initiatives and lower selling and travel and entertainment expenses.
SG&A for the year was 34.8% of sales versus 35.1% last year. The SG&A expense of $26.4 million was $5.4 million or
17.0% lower than last year, mainly due to a reduction in marketing initiatives, lower variable and fixed selling expenses,
headcount reductions and cost savings from the exit of an unprofitable business unit.
NET LO SS (In tho u sa nds )
FISCAL 20 20
% OF SALES
FI SC AL 201 9
% OF SALES
Three Months Ended April 30
Years Ended April 30
$
$
(5,196)
(5,406)
(36.0%)
(7.1%)
$
$
(4,420)
(8,746)
(23.7%)
(9.7%)
The fourth quarter net loss of $5.2 million is higher than the net loss of $4.4 million in the same quarter of last year, primarily due
to a $2.3 million loss on the revaluation of derivative contracts and foreign exchange losses of $0.3 million. These were partially
offset by reductions in SG&A expenses noted previously and $0.5 million in other income from government grants.
12
Results
of Operations
Fiscal year 2020 ended with a net loss of $5.4 million compared to a net loss of $8.7 million in fiscal year 2019. This is primarily
due to a $5.4 million reduction in SG&A and $1.5 million reduction in non-operating or unusual items including the $1.8 million
gain on the sale and leaseback of the Falconer facility and sale of the DC Rollform business and $0.5 million of other income in
the form of a grant related to the forgivable government loan.
The adjusted net loss before taxes and adjusted EBITDA are non-GAAP measures, which do not have any standardized meaning
prescribed by GAAP and is therefore unlikely to be comparable to similar measures presented by other issuers.
The following is a reconciliation of net loss before taxes calculated in accordance with GAAP to adjusted net loss before taxes,
the non-GAAP measure:
(In th o us ands )
Net loss before taxes
Adjust non-operating or unusual items:
Unrealized loss on derivatives
Unrealized loss (gain) on
foreign exchange
(Gain) loss on disposal of PP&E
and intangibles
Other income – government grant
Stock based compensation
Severance obligation
Adjusted net loss before taxes
$
$
$
$
$
$
$
$
THR EE MONTH S ENDED APR I L 30
YE ARS ENDED APRIL 30
20 20
(5,237)
3,032
224
(188)
(517)
(102)
500
(2,288)
$
$
$
$
$
$
$
$
20 19
(4,400)
692
(78)
1
—
272
164
(3,349)
$
$
$
$
$
$
$
$
20 20
(5,391)
1,994
289
(1,957)
(517)
(379)
798
(5,163)
$
$
$
$
$
$
$
$
2019
(8,726)
1,746
(81)
(294)
—
256
248
(6,851)
The following is a reconciliation of net loss before taxes calculated in accordance with GAAP to EBITDA and adjusted
EBITDA, the non-GAAP measures:
(In th o us ands )
Net loss before taxes
Interest
Depreciation
Amortization
EBITDA
Adjust non-operating or unusual items:
Unrealized loss on derivatives
Unrealized loss (gain) on
foreign exchange
(Gain) loss on disposal of PP&E
and intangibles
Other income – government grant
Stock based compensation
Severance obligation
Adjusted EBITDA
THR EE MONTH S ENDED APR I L 30
YE ARS ENDED APRIL 30
20 20
(5,237)
191
602
457
(3,987)
3,032
224
(188)
(517)
(102)
500
(1,038)
$
$
$
$
$
$
$
$
$
$
$
$
20 19
(4,400)
(4)
630
—
(3,774)
692
(78)
1
—
272
164
(2,723)
$
$
$
$
$
$
$
$
$
$
$
$
20 20
(5,391)
184
2,158
1,440
(1,609)
1,994
289
(1,957)
(517)
(379)
798
(1,381)
$
$
$
$
$
$
$
$
$
$
$
$
2019
(8,726)
(30)
2,171
—
(6,585)
1,746
(81)
(294)
—
256
248
(4,710)
$
$
$
$
$
$
$
$
$
$
$
$
Income Tax
In accordance with IFRS requirements, deferred tax benefits relating to tax loss carry-forward were not recognized during
fiscal 2020. See the notes to the consolidated financial statements which include a reconciliation of the income tax
expense and valuation allowance.
Investment Income
The Company earned interest income and dividends from short-term investments of its excess cash in money market
instruments and preferred shares. The investments generated investment income of $9 in fiscal year 2020 and $30 in
fiscal year 2019.
13
INSCAPE 2020 ANNUAL REPORT
Summary of
Quarterly Results
Selected unaudited quarterly financial information for the previous eight quarters from July 31, 2018 through
April 30, 2020 is provided below:
Selected Quarterly Information
(in thousands, except per share amounts)
(Unaudited)
Sales
Gross profit
Gross profit %
Net (loss) income
Basic & diluted (loss) income per share
Adjusted net (loss) income before taxes
Adjusted EBITDA
QUAR TERS ENDED
APR 30, 2020
JAN 31 , 20 20
OCT 3 1, 20 19
JULY 31, 2019
$
$
$
$
$
$
14,443
3,877
26.84%
(5,196)
(0.36)
(2,288)
(1,038)
$
$
$
$
$
$
17,376
4,371
25.20%
142
0.01
(1,591)
(739)
$
$
$
$
$
$
23,322
6,765
29.00%
392
0.03
231
1,076
$
$
$
$
$
$
20,677
5,778
27.90%
(744)
(0.05)
(1,515)
(680)
APR 30, 2019
JAN 31 , 20 19
OCT 3 1, 20 18
JULY 31, 2018
QUAR TERS ENDED
Sales
Gross profit
Gross profit %
Net (loss) income
Basic & diluted (loss) income per share
$
$
$
$
Adjusted net (loss) income before taxes $
Adjusted EBITDA
$
18,629
4,090
22.00%
(4,420)
(0.31)
(3,349)
(2,723)
$
$
$
$
$
$
28,878
8,240
28.50%
1,300
0.09
1,055
1,606
$
$
$
$
$
$
21,850
6,560
30.00%
(2,421)
(0.17)
(2,098)
(1,609)
$
$
$
$
$
$
21,226
5,492
25.90%
(3,205)
(0.22)
(2,459)
(1,984)
Quarterly earnings per share may not add up to year-to-date earnings per share due to rounding
14
Liquidity &
Capital Resources
Cash Flow Summary
(i n t hous and s)
Net cash flow generated from (used in):
Operating activities before changes in working capital
Net change in working capital
Investing activities
Financing activities
Foreign exchange loss on cash
Net increase in cash
Cash, beginning of period
Cash, end of period
(i n t hous and s)
Net cash flow generated from (used in):
Operating activities before changes in working capital
Net change in working capital
Investing activities
Financing activities
Foreign exchange loss on cash
Net increase (decrease) in cash
Cash, beginning of year
Cash, end of year
THR EE M ONT HS ENDED APRIL 30
FISCAL 202 0
FISCAL 2019
$
$
$
$
$
$
$
$
(1,549)
4,093
(81)
454
246
3,163
2,722
5,885
$
$
$
$
$
$
$
$
(1,974)
3,277
(134)
—
(803)
366
2,899
3,265
TW ELVE M ONT HS ENDED APRIL 30
FISCAL 20 20
FISCAL 2019
$
$
$
$
$
$
$
$
(2,144)
402
3,799
454
109
2,620
3,265
5,885
$
$
$
$
$
$
$
$
(3,870)
1,162
1,315
—
(722)
(2,115)
5,380
3,265
The fourth quarter cash outflow from operations (before changes in working capital) was $1.5 million compared to the
previous year’s outflow of $2.0 million. The movement is primarily due to the economic impact of COVID-19 on interest
rates, exchange rate and share price which affected the valuation of derivative contracts, remeasurement of retirement
benefit obligations and share-based compensation.
Net increase in working capital of $4.1 million consisted primarily of improvement in working capital management
initiatives. Net cash inflow from financing activities of $0.5 million consisted of a forgivable government loan of $1.8 million
partially offset by $1.4 million payments of the principal portion of lease liabilities.
15
INSCAPE 2020 ANNUAL REPORT
On an annual basis, fiscal 2020 cash outflow from operations (before changes in working capital) was $2.1 million,
compared to a cash outflow of $3.9 million in the previous year, primarily due to lower operating expenditure in SG&A
during 2020 relative to prior year when there were incremental investments in marketing, sales coverage and supply chain
initiatives. Net working capital movement of $0.4 million is primarily due to movements in lease liabilities and inventories.
Cash inflow of $3.8 million from investing activities consisted of $4.4 million proceeds from the sale and leaseback and
sale of the DC Rollform business. Net cash inflow from financing activities of $0.5 million comprised lease liabilities and
the forgivable government loan.
Credit Facility
The Company has a demand credit facility for foreign exchange contracts of US $8.0 million and a demand operating
credit facility of $5.0 million. As at April 30, 2020, the Company had $4.5 million available in its borrowing base. The
interest rate on the demand operating credit facility is Prime Rate plus 1.00% for Canadian dollar loans, US Base Rate
plus 1.00% for US dollar loans and 2.5% for Canadian dollar Banker’s Acceptance and 2.5% for US dollar Libor loans.
The agreement is secured by the Company’s assets, including property related to both accounts receivable and inventory.
The credit facility agreement has the following covenants:
1. The ratio of “total liabilities less postponed debt,
2. Current ratio, excluding any derivative assets
non-cash provisions up to $1,000 and lease liabilities”
and liabilities, not to be less than 1.25 to 1.0,
to “shareholders’ equity less intangible assets”
measured quarterly.
does not exceed 1.60 to 1.0 at any time,
measured quarterly.
Although the Company had no borrowings as at April 30, 2020, the Company was not in compliance with one of its
financial covenants and received a waiver from its bank on June 18, 2020 (2019 – not in compliance with one
covenant but waiver received from bank).
16
Contractual
Obligations
The following is a summary of the Company’s contractual obligations as at April 30, 2020:
(i n m i l l io n s)
Lease liabilities
Foreign exchange contracts
TOTAL
1 YEAR OR LESS
1 – 5 YEARS
AFTER 5 YEARS
P AY ME NT S D UE BY PERIOD
$
$
3.9
3.4
7.3
$
$
2.0
2.1
4.1
$
$
1.4
1.3
2.7
$
$
0.5
—
0.5
Lease contracts are primarily in respect of the Company’s four showrooms and its US manufacturing facilities. See
“Financial Instruments” discussed below for the Company’s obligations for foreign exchange contracts.
Share Capital
The Company has 3,345,881 Class A multiple voting shares and 11,034,820 Class B subordinated voting shares
outstanding at April 30, 2020. The Class A multiple voting shares carry ten votes each. The Class B subordinated voting
shares, which are listed on the Toronto Stock Exchange, carry one vote each.
Related Party Transactions
The following was the remuneration of directors and other members of key management personnel, including Chief
Executive Officer, Chief Financial Officer, Chief Operating Officer, Chief Brand Officer, VP Supply Chain and VP Human
Resources. Compensation of two directors are paid through companies they control.
(i n t ho u sa nds )
Salaries and short-term benefits
Post-employment benefits
Share-based compensation
Three Months Ended April 30
Years Ended April 30
20 20
410
8
656
1,074
$
$
$
$
20 19
362
52
272
686
$
$
$
$
20 20
2,163
42
379
2,584
$
$
$
$
2019
2,084
52
256
2,392
$
$
$
$
During the year, the Company paid out $21K (2019 - $nil) to former related parties for goods and services.
17
INSCAPE 2020 ANNUAL REPORT
Future Accounting
Changes
In 2020, there were no future accounting standard
Reserve for warranty is based on management’s judgment
changes which impacted on the Company’s business.
and review of any known exposures and historical
claim experience.
Significant Accounting Judgements,
Estimates and Assumptions
Percentage of completion percentages are based on
In the application of the Company’s accounting policies,
Inscape’s onsite project management estimate of
management is required to make judgments, estimates
job progress.
and assumptions about the carrying amounts of assets
and liabilities that are not readily apparent from other
Identification of cash generating units for the purposes
sources. The estimates and associated assumptions are
of performing impairment test of assets is based on
based on historical experience and other factors that are
management’s judgment of what constitutes the lowest
considered to be relevant. Actual results may differ from
group of assets that can generate cash flows largely
these estimates.
independent of other assets.
Significant Estimates and Judgments in
Determination to not recognize deferred tax assets is
Applying Accounting Policies
based on management’s judgment of the ability of the
The following are the estimates and judgments that the
Company to achieve sufficient taxable income to use the
management has made in the process of applying the
deferred tax assets.
Company’s accounting policies and that have the most
significant effect on the amounts recognized in the
Significant Estimates
financial statements.
Significant Judgments
Estimated useful lives and residual values of intangible
assets, property, plant and equipment are based on
management’s experience, the intended usage of the
The Company assesses on a forward-looking basis
assets and the expected technological advancement that
the expected credit losses (“ECL”) associated with
may affect the life cycle and residual values of the assets.
its assets carried at amortized costs, including other
receivables. For trade and other receivables only, the
Defined benefit pension obligations are based on
Company applies the simplified approach permitted
management’s best estimates on the long-term investment
by IFRS 9, which requires the expected lifetime losses
return on pension fund assets, the discount rate of
(based on management’s judgement and review of known
obligations, mortality and the future rate of salary increase.
exposures, credit worthiness, and collection experience)
to be recognized from initial recognition of
Liability for the Company’s performance and restricted
the receivables.
share units is based on management’s best estimate of the
Company’s financial performance during the vesting period
Reserve for inventory is based on the aging of inventory
of the performance and restricted share units.
and management’s judgement of product life cycles in
identifying obsolete items.
18
Future Accounting
Changes
Determination of the company’s fair value of the principal
Natural Disasters and Pandemics
assets of each CGU less the costs to sell the assets is
Extraordinary weather conditions, or natural disasters, such as
used to perform an impairment test of the assets.
hurricanes, tornadoes, floods, droughts, tsunamis, typhoons,
Financial Instruments
and earthquakes and pandemics could disrupt operations
at our facilities or those of our suppliers and customers and
The Company’s activities expose it primarily to the financial
increase our cost of sales and other operating expenses.
risks of changes in the US dollar exchange rates. The
Company enters into a variety of derivative financial
The Company is monitoring the outbreak of the novel
instruments to hedge the exchange rate risk arising on the
coronavirus. Should the outbreak become more widespread
anticipated sales to the US The use of financial derivatives
in Canada and the United States and adversely affect
is governed by the Company’s policies approved by
general economic conditions, it may impact demand for the
the Board of Directors. Compliance with policies and
Company’s products and negatively affect the Company’s
exposure limits is reviewed by the Board on a regular
revenue and profitability.
basis. The Company does not enter into or trade financial
instruments, including derivative financial instruments, for
General Economic and Market Conditions
speculative purposes.
Demand for office furniture is sensitive to general economic
conditions such as the white-collar employment rate,
As at April 30, 2020, the Company had outstanding US
corporate growth and profitability, government spending,
dollar hedge contracts with settlement dates from May
office relocations and commercial property development.
2020 to August 2021. The total notional amounts under
The Company manages to moderate the impact of this risk
the contracts are US $40,000 to $50,000 (2019 - $41,000
by increasing the differentiation of our products to attract
to $51,400). Dependent on the spot CAD/US rate on each
new customers, the launching of new products to gain
settlement date, the Company can sell US dollars at rates
market share and enhancing the coverage of customers
ranging from $1.28 CAD/US to $1.50 CAD/US (2019 -
and designers.
$1.24 CAD/US to $1.41 CAD/US). These contracts had
a mark-to-market unrealized loss of $3,391 (US $2,437)
Competitive Environment
as at April 30, 2020 (2019 – unrealized gain of $1,397 or
Office furniture is a mature and highly competitive industry.
US $1,042), which was recognized on the consolidated
Our main competitors include global companies with
statement of financial position as derivative liabilities. Any
strong brand name recognition and capability to utilize
changes in the net gain or loss from the prior reporting
offshore outsourcing. This competitive environment
period due to addition of forward contracts, movements
results in price pressure and limits certain distributors’
in the US currency exchange rate, reclassification of the
ability to carry Inscape products along with those of the
unrealized gains or losses to realized income or loss are
competitors. The Company competes on product design,
recognized on the consolidated statement of operations
functionality, innovation and customer service.
as unrealized gain or loss on derivatives of the year. There
Our success will depend on building a distribution network
were realized losses of $275 on the settlement of contracts
that is aligned with Inscape, targeting committed dealers
during fiscal year 2020 (2019 - $3).
who lead with Inscape’s product lines and automating
processes to keep improving our productivity, quality and
Risks and Uncertainties
customer service.
The following risks and uncertainties may adversely affect
the Company’s business, operating results, cash flows
Raw Material and Commodity Costs
and financial condition. These may not be the Company’s
Fluctuations in raw material and commodity prices could
only risks and uncertainties. Other unknown or currently
have a significant impact on the Company’s cost of sales
insignificant risks and uncertainties not discussed below
and operating results. Since most of the raw materials
can have an adverse impact on the Company’s business
and commodities used by the Company are not unique to
and financial performance.
the office furniture industry, their costs are often affected
by supply and demand in other industries and countries.
As a result, the Company may experience rising raw
19
INSCAPE 2020 ANNUAL REPORT material and commodity costs that cannot be recovered
closely developments in various US statutes, regulations,
from customers in a highly competitive environment.
procurement requirements and border crossing
The Company manages its manufacturing costs by
restrictions. Where appropriate, the Company publicizes
locking in supply contract prices, improving production
its extensive investment in the US and contribution to the
yields, reducing spoilage, focusing on quality control and
economy by operating a production plant in New York
overseas sourcing, where appropriate.
State, providing employment opportunities in different
states and purchasing from US suppliers.
US Dollar Exchange Rate
The US is the main market for the Company. Fluctuations
Effectiveness of Market Representatives
in the US/Canadian dollar exchange rate have a significant
The Company relies on the effectiveness of independent
impact on the operating results, cash flows and financial
market representatives to market our products to
condition of the Company. One method the Company
customers. A market representative may choose to
uses to manage its foreign currency exposure is through
terminate its relationship with us or the effectiveness
the use of US dollar hedge instruments. The hedge
of a market representative may decline. Disruption of
instruments provide the Company with an opportunity to
the relationship or transition of an underperforming
lock in the US currency conversion rate at a prevailing
representative could have an adverse impact on our
hedge rate to facilitate the business planning process
business in the affected market. The Company manages
with pre-determined exchange rate exposure. However,
this risk by maintaining strong connection to performing
the instruments do not completely eliminate the effects
representatives at the regional senior management level.
of exchange rate fluctuations. To minimize the effect of
The Company also assesses the effectiveness of the
exchange rate fluctuations, the Company endeavors to
representatives on a regular basis.
create natural hedges through increasing US suppliers
where appropriate and seeks to increase Canadian
Effectiveness of Growth Strategy Implementation
dollar sales.
The Company seeks to grow its business and market
share by building committed distribution, developing
Access to the US Markets
products and applications to meet customer needs, and
The Company depends heavily on unrestricted access to
providing visualization tools to assist designers and clients
the US markets as a significant portion of the Company’s
with solutions for workspaces. Effective implementation
sales is derived from there. The Company’s business,
of these strategies is essential to the future growth of the
operating results, cash flows and financial condition
Company. The Company’s sales and results of operations
will be seriously affected if access to the US markets is
will be adversely affected if there are delays or difficulties in
restricted due to political, social, economic or regulatory
carrying out the strategies.
reasons. Buy America sentiment and regulations may deny
the Company’s chance in bidding contracts, especially
with the government. The Company needs to monitor
20
Controls &
Procedures
Disclosure Controls and Procedures
During the year ended April 30, 2020, there has been
The Chief Executive Officer and the Chief Financial Officer
no change in the Company’s ICFR that has materially
(the “Certifying Officers”), along with other members of
affected, or is reasonably likely to materially affect, the
management, have designed, or caused to be designed
Company’s ICFR.
under their supervision, Disclosure Controls and Procedures
(“DC&P”) to provide reasonable assurance that (i) material
information relating to the Company is made known to them
by others, particularly during the period in which the annual
filings are being prepared; and (ii) information required to be
disclosed by the Company in its annual filings, interim filings
or other reports filed or submitted by it under securities
legislation is recorded, processed, summarized and reported
within the time periods specified in securities legislation.
The Certifying Officers have evaluated, or caused to be
evaluated under their supervision, the design and operating
effectiveness of DC&P and have found that the Company’s
DC&P are effective at the financial year-end.
Internal Control over Financial Reporting
Limitations of an Internal Control System
The Certifying Officers, along with other members of
The Certifying Officers believe that any DC&P or ICFR, no
management, have also designed, or caused to be
matter how well designed and operated, can provide only
designed under their supervision, Internal Control over
reasonable, not absolute, assurance that the objectives
Financial Reporting (“ICFR”) to provide reasonable
of the control system are met and that all control issues,
assurance regarding the reliability of financial reporting and
including instances of fraud, if any, within the Company
the preparation of financial statements for external purposes
have been prevented or detected. Further, the design of a
prepared in accordance with IFRS. The Certifying Officers
control system must reflect the fact that there are resource
have used the Internal Control – Integrated Framework
constraints, and the benefits of controls must be considered
(2013 COSO Framework) issued by the Committee of
relative to their costs. The design of any system of controls
Sponsoring Organizations of the Treadway Commission
is also based in part upon certain assumptions about the
(“COSO”) to design the Company’s ICFR.
likelihood of future events, and there can be no assurance
that any design will succeed in achieving its stated goals
The Certifying Officers have evaluated, or caused to
under all potential (future) conditions.
be evaluated under their supervision, the design and
operating effectiveness of ICFR and have found that the
Company’s ICFR is effective in design and operation at the
financial year end.
21
INSCAPE 2020 ANNUAL REPORT 22
Management
Report
TO THE SHAREHOLDERS OF INSCAPE CORPORATION
Preparation of the consolidated financial statements accompanying this annual report and the presentation of all
other information in the report is the responsibility of Management. The financial statements have been prepared in
accordance with International Financial Reporting Standards and reflect Management’s best estimates and judgments.
All other financial information in the report is consistent with that contained in the financial statements.
The Board of Directors, through its Audit Committee, oversees Management in carrying out its responsibility for
financial reporting and systems of internal control. The Audit Committee, which is composed of non-executive
directors, meets regularly with Management and external auditors to satisfy itself as to the reliability and integrity of
financial information and the safeguarding of assets. The financial statements have been reviewed and approved by
the Board of Directors on the recommendation of the Audit Committee.
Eric Ehgoetz,
Director and Chief Executive Officer
Jon Szczur
Chief Financial Officer
June 25, 2020
23
INSCAPE 2020 ANNUAL REPORT
Independent
Auditor’s Report
To the Shareholders and the
Board of Directors of Inscape Corporation
Opinion
Other Information
We have audited the consolidated financial statements of
Management is responsible for the other information.
Inscape Corporation and its subsidaries (the “Company”),
The other information comprises:
which comprise the consolidated statements of financial
position as at April 30, 2020 and 2019, and the
consolidated statements of operations, comprehensive
loss, changes in shareholders’ equity and cash flows
for the years then ended, and notes to the consolidated
financial statements, including a summary of significant
accounting policies (collectively referred to as the
“financial statements”).
In our opinion, the accompanying financial statements
present fairly, in all material respects, the financial position
of the Company as at April 30, 2020 and 2019, and its
financial performance and its cash flows for the years then
ended in accordance with International Financial Reporting
Standards (“IFRS”).
Basis for Opinion
We conducted our audit in accordance with Canadian
generally accepted auditing standards (“Canadian GAAS”).
Our responsibilities under those standards are further
described in the Auditor’s Responsibilities for the Audit
of the 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
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.
•
•
Management’s Discussion and Analysis
The information, other than the financial statements
and our auditor’s report thereon, in the Annual Report.
Our opinion on the financial statements does not cover the
other information and we do not and will not express any
form of assurance conclusion thereon. In connection with
our audit of the 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 financial statements or our knowledge
obtained in the audit, or otherwise appears to be
materially misstated.
We obtained Management’s Discussion and Analysis
prior to the date of this auditor’s report. If, based on the
work we have performed on this other information, we
conclude that there is a material misstatement of this
other information, we are required to report that fact in this
auditor’s report. We have nothing to report in this regard.
The Annual Report is expected to be made available to us
after the date of the auditor’s report. If, based on the work
we will perform on this other information, we conclude
that there is a material misstatement of this other
information, we are required to report that fact to those
charged with governance.
24
Responsibilities of Management and Those Charged
•
Obtain an understanding of internal control relevant
with Governance for the Financial Statements
to the audit in order to design audit procedures that
Management is responsible for the preparation and fair
are appropriate in the circumstances, but not for the
presentation of the financial statements in accordance
purpose of expressing an opinion on the effectiveness
with IFRS, and for such internal control as management
of the Company’s internal control.
determines is necessary to enable the preparation
of financial statements that are free from material
misstatement, whether due to fraud or error.
•
Evaluate the appropriateness of accounting policies
used and the reasonableness of accounting estimates
and related disclosures made by management.
In preparing the financial statements, management is
•
Conclude on the appropriateness of management’s use of
responsible for assessing the Company’s ability to continue
the going concern basis of accounting and, based on the
as a going concern, disclosing, as applicable, matters
audit evidence obtained, whether a material uncertainty
related to going concern and using the going concern
exists related to events or conditions that may cast
basis of accounting unless management either intends to
significant doubt on the Company’s ability to continue as a
liquidate the Company or to cease operations, or has no
going concern. If we conclude that a material uncertainty
realistic alternative but to do so.
exists, we are required to draw attention in our auditor’s
Those charged with governance are responsible for
overseeing the Company’s financial reporting process.
Auditor’s Responsibilities for the
Audit of the Financial Statements
Our objectives are to obtain reasonable assurance about
whether the 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 GAAS 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 financial statements.
report to the related disclosures in the 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 financial statements, including the disclosures,
and whether the financial statements represent the
underlying transactions and events in a manner that
achieves fair presentation.
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.
As part of an audit in accordance with Canadian GAAS, we
exercise professional judgment and maintain professional
skepticism throughout the audit. We also:
We also provide those charged with governance with
a statement that we have complied with relevant
ethical requirements regarding independence, and to
communicate with them all relationships and other
•
Identify and assess the risks of material misstatement
matters that may reasonably be thought to bear on our
of the financial statements, whether due to fraud
independence, and where applicable, related safeguards.
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,
The engagement partner on the audit resulting in this
independent auditor’s report is Devin Thompson McLeod.
forgery, intentional omissions, misrepresentations, or
Chartered Professional Accountants
the override of internal control.
Licensed Public Accountants
June 25, 2020
25
INSCAPE 2020 ANNUAL REPORT Consolidated
Financial Statements
Consolidated Statements of Operations
Years ended April 30 (In thousands of Canadian dollars)
SALES
COST OF GOODS SOLD
GROSS PROFIT
EXPENS ES
NOTE
19
20
AS AT
APR IL 30 , 20 20
AS AT
APR I L 30, 2019
$
75,818
55,027
20,791
$
90,583
66,201
24,382
Selling, general and administrative
Unrealized loss (gain) on foreign exchange
Other income
Unrealized loss on derivatives
Loss (gain) on disposal of property, plant and equipment & intangibles
Investment income
7
10.2
20
Loss before taxes
INC OM E TAX ES
Current
NET LOSS
14 .1
NET LOSS PER SHARE AVAILABLE TO SHAREHOLDERS
18
Basic
Diluted
26,382
289
(2,504)
1,994
30
(9)
26,182
(5,391)
15
15
(5,406)
(0.38)
(0.38)
$
$
$
31,767
(81)
—
1,746
(294)
(30)
33,108
(8,726)
20
20
(8,746)
(0.61)
(0.61)
$
$
$
Consolidated Statements of Comprehensive Loss
Years ended April 30 (In thousands of Canadian dollars)
NET LOSS
OTHER COMPREHENSIVE LOSS
Items that may not be reclassified to earnings
Remeasurement of defined benefit pension liabilities
Items that may be reclassified to earnings
Exchange gain on translating foreign operations
Other comprehensive loss
TOTAL COMPREHENSIVE LOSS
NOTE
20 20
2019
$
(5,406)
$
(8,746)
13.2
(3,140)
(865)
130
(3,010)
(8,416)
$
377
(488)
(9,234)
$
The accompanying notes are an integral part of these consolidated financial statements.
26
Consolidated Statements of Financial Position
Years ended April 30 (in thousands of Canadian dollars)
A SSE TS
CU RREN T AS SETS
Cash
Trade and other receivables
Inventories
Income taxes receivable
Prepaid expenses
NON-CU RR ENT A SSET S
Property, plant and equipment
Right-of-use assets
Intangible assets
TOTAL ASSETS
LI AB ILI TI ES
CU RR ENT LIAB ILI TI ES
Trade and other payables
Lease liabilities
Derivative financial liabilities
Forgivable government loan
Provisions
NON-CU RR ENT LIAB ILI TI ES
Retirement benefit obligation
Lease liabilities
Derivative financial liabilities
Provisions
Other long-term obligations
TOTAL LIABILITIES
SHA R EHOLDERS’ EQUI TY
Shareholders’ capital
Contributed surplus
Accumulated other comprehensive loss
Deficit
TOTAL SHAREHOLDERS’ EQUITY
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY
NOTE
20 20
2019
4
5
14
6
9.1
8
11
9.2
10.2
22
12
13
9.2
10.2
12
15
16
$
$
$
$
$
5,885
10,255
5,785
—
690
22,615
9,915
3,637
1,637
15,189
37,804
11,923
2,035
2,122
1,199
203
17,482
7,340
1,856
1,269
1,057
123
11,645
29,127
$
$
3,265
13,416
6,577
9
692
23,959
13,800
—
1,768
15,568
39,527
$
15,157
—
1,052
—
387
16,596
3,917
—
345
1,053
523
5,838
22,434
52,868
2,675
(3,588)
(43,278)
8,677
37,804
$
52,868
2,675
(578)
(37,872)
17,093
39,527
$
Approved by the Board of Directors,
Bartley Bull,
Chair
Eric Ehgoetz,
Director and Chief Executive Officer
The accompanying notes are an integral part of these consolidated financial statements.
27
INSCAPE 2020 ANNUAL REPORT
Consolidated Statements of Changes in Shareholders’ Equity
(in thousands of Canadian dollars)
SHARE
CAPITAL
CONTRIBUTED
SURPLUS
CUMULATIVE
REMEASUREMENT
OF RETIREMENT
BENEFIT
OBLIGATION
CUMULATIVE
TRANSLATION
GAIN
TOTAL
SHAREHOLDERS’
EQUITY
DEFICIT
Balance, April 30, 2018
$
52,868 $
2,675 $
(979)
$
889 $ (29,126)
$ 26,327
Net loss
Other comprehensive
income (loss)
—
—
—
—
—
—
(8,746)
(8,746)
(865)
377
—
(488)
Balance, April 30, 2019
$
52,868 $
2,675 $
(1,844)
$
1,266
$ (37,872)
$ 17,093
Net loss
Other comprehensive
income (loss)
—
—
—
—
—
—
(5,406)
(5,406)
(3,140)
130
—
(3,010)
Balance, April 30, 2020
$
52,868 $
2,675
$
(4,984)
$
1,396 $ (43,278)
$
8,677
The accompanying notes are an integral part of these consolidated financial statements.
28
Consolidated Statements of Cash Flows
Years ended April 30 (in thousands of Canadian dollars)
Net inflow (outflow) of cash related to the following activities:
OP ERA T ING
Net loss
IT E M S NOT A FFECT I NG CAS H
Amortization and depreciation
Interest expense on lease liabilities
NOTE
20 20
2019
$
(5,406)
$
(8,746)
6, 8, 9, 20.2
Unrealized loss on derivatives
Share-based compensation
Unrealized loss (gain) on foreign exchange
7
Non-cash portion of other income
7
Disposal of property, plant and equipment & intangibles
Retirement benefit obligation expense net of employer contributions
Cash used for operating activities before
non‑cash working capital
10.2
M OV EM ENTS IN NON‑ CASH W OR K IN G C API TAL
Trade and other receivables
Inventories
Prepaid expenses
Accounts payable and accrued liabilities
Lease liability
Provisions
Income tax receivables and payables
Changes in non‑cash operating items
Interest payment on lease liabilities
Restricted shares settled
Cash used in operating activities
IN VE STI NG
Proceeds from sales of short-term investments
Additions to property, plant and equipment
Additions to intangible assets
Proceeds from disposal of property, plant and equipment
Proceeds from sale of business
Cash generated from investing activities
FI NANCI NG
Proceeds from forgivable government loan
Payment of principal portion of lease liabilities
Cash generated from (used in) financing activities
Unrealized foreign exchange loss on cash
Net cash inflow (outflow)
Cash, beginning of year
Cash, end of year
CA SH CONSIS TS O F:
Cash
9.2
9.2
6
8
7.1
7.2
22
9.2
$
$
$
The accompanying notes are an integral part of these consolidated financial statements.
3,598
222
1,994
(379)
18
(2,504)
30
283
(2,144)
3,299
844
29
(3,484)
204
(263)
13
642
(219)
(21)
(1,742)
—
(558)
(63)
3,449
971
3,799
1,808
(1,354)
454
109
2,620
3,265
5,885
5,885
5,885
$
$
$
2,171
—
1,746
256
(81)
—
(294)
1,078
(3,870)
(805)
248
268
959
—
490
2
1,162
—
—
(2,708)
3,614
(2,148)
(153)
2
—
1,315
—
—
—
(722)
(2,115)
5,380
3,265
3,265
3,265
29
INSCAPE 2020 ANNUAL REPORT
Notes to the
Consolidated
Financial Statements
(In thousands of Canadian dollars, except were indicated per share amounts.)
1. GENERAL INFORMATION
Inscape Corporation (the “Company”) is a limited company
incorporated in Ontario, Canada, with Class B common
shares listed on the Toronto Stock Exchange (TMX).
The Company’s registered office is at 67 Toll Road,
Holland Landing, Ontario, Canada.
The Company is an office furniture manufacturer with
production at two facilities in Canada and the United
States in approximately 416,000 square feet of space.
Inscape serves its clients through a network of dealers
and representatives supported by showrooms across
North America.
The Company reports in two business segments. The
Office Furniture segment includes storage, benching,
systems and seating solutions products. The Walls
segment includes architectural and movable walls.
Inscape’s products are manufactured in two facilities: a
306,000 square foot plant in Holland Landing, Ontario, and
approximately 110,000 square foot plant in Falconer, New
York. During the year, the latter facility was sold and leased
back by Inscape for its manufacturing.
2. SIGNIFICANT
ACCOUNTING POLICIES
Statement of compliance with IFRS
including comparatives
These consolidated financial statements have been
prepared in accordance with International Financial
Reporting Standard (“IFRS”) as issued by the International
Accounting Standards Board (“IASB”). These consolidated
financial statements were prepared on a going concern
assumption using the historical cost basis except for
financial instruments. These consolidated financial
statements were approved and authorized for issuance by
the Board of Directors of the Company on June 25, 2020.
The consolidated financial statements are presented in
Canadian dollars, the functional currency of the Company,
and all values are rounded to the nearest thousands,
except where indicated.
Basis of consolidation
The consolidated financial statements include the accounts
of Inscape and its two wholly owned US subsidiaries,
Inscape Inc. and Inscape (New York) Inc. Subsidiaries
are consolidated from the date of acquisition and control
and continue to be consolidated until the date that such
control ceases. The Company controls an entity when the
Company is exposed or has rights to variable returns from
its involvement with the investee and has the ability to
30
Notes to the
Consolidated
Financial Statements
affect these returns through the Company’s power over the
in opening retaining earnings and no restatement of
investee. All intra-group transactions, balances, income
prior period financial information. IFRS 16 supersedes
and expenses are eliminated in full on consolidation.
IAS 17 Leases (“IAS 17”), IFRIC 4 Determining whether
Revenue recognition
Sale of manufactured goods
an Arrangement contains a Lease, SIC-15 Operating
Leases-Incentives and SIC-27 Evaluating the Substance
of Transactions Involving the Legal Form of a Lease.
The Company’s revenue is generated from sales and
The standard sets out the principles for the recognition,
installation of manufactured goods to customers through
measurement, presentation and disclosure of leases and
a dealer network. For manufactured goods, revenue is
requires lessees to account for most leases under a single
recognized when the goods are shipped. Revenue is
on-balance sheet model. The nature and effect of these
recognized when control of the assets passes to the
changes are disclosed below.
customer; the Company’s terms and condition state that
control of the assets transfers at shipping point. This is
IFRS 16 introduces changes to the lessee accounting
where the customer gains control of the asset.
by removing the distinction between operating and
finance leases and requiring the recognition of a right-
Revenue from installation is recognized on a percentage
of-use asset (“ROU asset”) and a lease liability at the
of completion based on physical stage of completion of
lease commencement for all leases, except for short-
the contract. This output method is the best measure of
term leases (lease terms of twelve months or less) and
progress as the nature of the products installed enable
leases of low value assets (a lease of an asset that, when
measurement to be reliably observed.
new is less than US $5,000). In applying IFRS 16, the
Company recognizes the ROU assets and lease liabilities
The Company invoices the customer as the installation
in the consolidated statement of financial position, initially
occurs. The payments are received as per normal payment
measured at the present value of future lease payments;
terms established with the customer.
recognizes the depreciation of ROU assets and interest on
lease liabilities in the consolidated statements of operations
Revenue from the sale of manufactured goods and
and comprehensive loss; and separates the total amount
installation is measured at fair value of the consideration
of cash paid into a principal portion (presented in financing
received less applicable sales taxes, discounts, rebates and
activities) and interest (presented within operating activities)
dealer incentives. Sales-related warranties associated with
in the consolidated statements of cash flows. For short-term
the sales and installation of manufactured goods cannot be
leases and leases of low value assets, the Company has
purchased separately and they serve as an assurance that
opted to recognize a lease expense on a straight-line basis,
the products sold comply with agreed-upon specifications.
and this expense is presented within selling, general and
Accordingly, the Company accounts for warranties in
administrative expenses in the consolidated statements of
accordance with IAS 37 (see Note 12).
operations and comprehensive loss.
Dealer incentives
For leases that were classified as operating leases under
The Company offers a variety of incentives to its dealer
IAS 17, lease liabilities at transition have been measured at the
base to support sales initiatives. An obligation arises from
present value of remaining lease payments, discounted at the
the incentives when the Company sells manufactured
Company’s incremental borrowing rate as at May 1, 2019.
goods and/or installations through the dealer network. The
The rate applied is the US treasury rate or Canadian
obligation is measured at fair value of the incentive earned.
benchmark bond rate (depending on the location of the ROU
The dealer incentives are recorded as a reduction to revenue
asset and remaining lease term) adjusted for the Company’s
in the Consolidated Statement of Operations
interest rate spread and the LIBOR spread (for ROU assets
Leases
The Company adopted IFRS 16 Leases (“IFRS 16”) on
May 1, 2019, using the modified retrospective approach
with the cumulative effects of initial application recorded
in the US) or CDOR spread (for ROU assets in Canada).
Generally, ROU assets at transition have been measured
at an amount equal to the corresponding lease liabilities,
adjusted for any prepaid or accrued rent and deferred rent
relating to that lease, with no net impact on retained earnings.
31
INSCAPE 2020 ANNUAL REPORT In applying IFRS 16 for the first time, the Company has used the following practical expedients permitted by the standard:
•
the Company has applied the recognition exemptions for low value leases and leases that end within twelve months of
the date of initial application, and account for them as low value and short-term leases respectively;
•
the Company has not reassessed, under IFRS 16, contracts that were identified as leases under the previous
accounting standard (IAS 17);
•
the Company has excluded initial direct costs in the measurement of the right-of-use asset; and
•
the Company has used hindsight in determining the lease term where the lease contracts contain options to extend or
terminate the lease.
The cumulative effect of the changes made to the May 1, 2019 consolidated statement of financial position for the
adoption of IFRS 16 is as follows:
ASS ET S
Right-of-use assets, net
LIA BI LIT I ES
Accrued liabilities
Lease liabilities, current
Lease liabilities, non-current
BALANCE AS AT
APRIL 30, 2019
(AS REPORTED)
IFRS 16
ADJUSTMENTS
BALANCE AS AT
MAY 1, 2019
$
$
$
$
-
4,170 $
4,170
6,634
-
-
(336)
1,331
$
$
3,070 $
6,298
1,331
3,070
Instead of performing an impairment review on the right-of-use assets at the date of initial application, the Company
has relied on its historic assessment as to whether leases were onerous immediately before the date of initial application
of IFRS 16.
The Company used its incremental borrowing rates at May 1, 2019 to measure lease liabilities. The weighted average
incremental borrowing rate was 5.06%. The weighted average lease term remaining as at May 1, 2019 was
approximately 5 years.
32
The following tables reconcile the lease liabilities recognized on May 1, 2019 and the operating lease commitments disclosed
under IAS 17 as at April 30, 2019 discounted using the incremental borrowing rates as at the date of initial application:
Balance as at May 1, 2019
Operating lease commitment as at April 30, 2019
Effect from discounting at the incremental borrowing rate as at May 1, 2019
Lease liabilities due to initial application of IFRS 16 as at May 1, 2019
LEA S E TER M:
Not later than 1 year
Later than 1 year and not later than 5 years
Later than 5 years
New accounting policy for leases under IFRS 16
$
$
5,100
(699)
4,401
As at April 30, 2019
$
$
1,491
2,912
697
5,100
The Company assesses whether a contract is or contains a lease, at inception of a contract. The Company recognizes
a ROU asset and a corresponding lease liability with respect to all lease arrangements in which it is the lessee, at the
commencement of the lease.
The ROU asset is initially measured at cost, which comprises the initial amount of the lease liability adjusted for any lease
payments made at or before the commencement date, plus any initial direct costs incurred and an estimate of costs to
dismantle and remove the underlying asset or to restore the underlying asset or the site on which it is located, less any
incentives received. They are subsequently measured at cost less accumulated depreciation and impairment losses.
The ROU asset is depreciated over the shorter of the lease term or the useful life of the underlying asset.
The ROU asset is subject to testing for impairment if there is an indicator of impairment.
The lease liability is initially measured at the present value of outstanding lease payments at the commencement date,
discounted by using the rate implicit in the lease. If this rate cannot be readily determined, the Company uses its incremental
borrowing rate. The Company’s incremental borrowing rate for a lease is the rate that the Company would pay to borrow an
amount necessary to obtain an asset of a similar value to the right-of-use asset on a collateralized basis over a similar term.
Lease payments include fixed payments less any lease incentives and any variable lease payments where variability
depends on an index or rate. Management exercises judgment in the process of applying IFRS 16 and determining the
appropriate lease term on a lease by lease basis. Management considers many factors including any events that create an
economic incentive to exercise a renewal option including performance, expected future performance and past business
practice. Renewal options are only included if the Management is reasonably certain that the option will be renewed.
Variable lease payments that do not depend on an index or rate are not included in the measurement of the ROU asset
and lease liability. The related payments are recognized as an expense in the period in which the triggering event occurs
and are included in the consolidated statements of operations and comprehensive loss.
33
INSCAPE 2020 ANNUAL REPORT
Investment income
end of the reporting period. Exchange differences arising,
Dividend income from investments is recognized when
if any, are recognized in other comprehensive income or
the Company’s right to receive payment has been
loss and accumulated in equity until the disposal of the
established, it is probable that the economic benefits will
foreign operation, when all of the accumulated exchange
flow to the Company and the amount of dividend can be
differences in respect of that operation are reclassified
measured reliably
to profit or loss. Revenues and expenses are translated
into Canadian dollars at the average exchange rate for
Interest income is recognized when it is probable that
the month in which the transactions occurred, unless
the economic benefits will flow to the Company and the
exchange rates fluctuated significantly during that period
amount of interest can be measured reliably.
or for non-recurring transactions of material amounts,
in which case the exchange rates at the dates of the
Foreign currencies
transactions are used.
The Canadian dollar is the functional currency of
the Company and the presentation currency for the
Employee future benefits
consolidated financial statements.
Transactions in foreign currencies are recognized at
the average exchange rate for the month in which the
Contributions to defined contribution retirement benefit
plans are recognized as an expense when employees
have rendered service entitling them to the contributions.
transactions occurred, unless exchange rates fluctuated
For defined benefit retirement benefit plans, the cost of
significantly during that period or for non-recurring
transactions of material amounts, in which case the
exchange rates at the dates of the transactions are used.
At the end of each reporting period, monetary items
denominated in foreign currencies are retranslated at the
rates prevailing at that date. Non-monetary items carried
at fair value that are denominated in foreign currencies are
retranslated at the rates prevailing at the date when the
fair value was determined. Non-monetary items that are
measured in terms of historical cost in a foreign currency
are not retranslated. Exchange differences are recognized
in profit or loss in the period in which they arise.
For the Company’s foreign operation where the Canadian
dollar is its functional currency, the same policy described
above is applied to the translation of its assets and
liabilities for the purpose of presenting consolidated
financial statements.
For the Company’s foreign operation where the US
dollar is its functional currency, the assets and liabilities
of the foreign operation for the purpose of presenting
consolidated financial statements are expressed in
Canadian dollars using exchange rates prevailing at the
providing benefits is determined using the Projected Unit
Credit Method. Actuarial gains and losses and related
taxes are recognized in other comprehensive income or
loss as remeasurement of defined benefit liabilities.
The retirement benefit obligation recognized in the
statements of financial position represents the present
value of the defined benefit obligation as reduced by the
fair value of plan assets. Any asset resulting from this
calculation is limited to the present value of available
refunds and reductions in future contributions to the
plan. The determination of a benefit expense requires
assumptions such as the discount rate to measure
obligations and the expected return on asset, the
expected mortality rate and the expected rate of future
compensation increases.
The present value of the defined benefit obligation is
determined by discounting the estimated future cash
outflows using interest rates of high-quality corporate
bonds and that have terms to maturity approximating the
terms of the related pension liability
34
Share‑based compensation
generally recognized for all taxable temporary differences.
For share-based compensation arrangement in which the
Deferred tax assets are generally recognized for all deductible
term of the arrangement provides the employees and others
temporary differences to the extent that it is probable that
providing similar services with the choice of settlement by
taxable profits will be available against which those deductible
equity instruments or in cash, the transaction is accounted for
temporary differences can be utilized. The carrying amount of
as a cash-settled share-based payment transaction.
deferred tax assets is reviewed at the end of each reporting
period and reduced to the extent that it is no longer probable
For cash-settled share-based compensation, a liability is
that sufficient taxable profits will be available to allow all or part
recognized for the goods or services acquired, measured
of the asset to be recovered.
initially at the fair value of the liability. The liability is
subsequently measured at fair value using mark to market
Deferred tax assets and liabilities are measured at the tax rates
accounting. Under the stock option plan, the fair value is
that are expected to apply in the period in which the liability is
determined by using the Black-Scholes-Merton Option Pricing
settled or the asset realized, based on tax rates (and tax laws)
Model, which factors in the Company’s estimate of the number
that have been enacted or substantively enacted by the end of
of options that will eventually vest. Under the executives’ cash
the reporting period.
settled long- term incentive plan and the cash settled deferred
share unit plan, the fair value is based on the share price at the
Government grant
end of the reporting period as well as the Company’s estimate
Government grant is recognized when there is reasonable
of the number of shares that will eventually vest.
assurance that the Company will comply with any conditions
attached to the grant and the grant will be received.
At the end of each reporting period until the liability is settled,
Government grant is recognized in other income on a
and at the date of settlement, the fair value of the liability is
systematic basis over the periods in which the Company
remeasured, with any changes in fair value recognized in profit
recognizes expenses for the related costs for which the grants
or loss for the year.
Taxation
Income tax expense represents the sum of the tax currently
payable and deferred tax.
Current tax
are intended to compensate, which in the case of grants
related to assets requires setting up the grant as deferred
income or deducting it from the carrying amount of the asset.
A portion of the Small Business Administration (“SBA”) loan
received from the US government is forgivable subject to
the terms of the Paycheck Protection Program (“PPP”) - all
Current tax is based on taxable profit for the year. Taxable profit
employees are kept on the payroll for eight weeks and the
differs from profit as reported in the consolidated statements of
money is used for payroll, rent, mortgage interest, or utilities.
operations due to items of income or expense that are taxable
or deductible in other years and items that are never taxable or
When a government loan is issued to the Company at a
deductible. The Company’s liability for current tax is calculated
below-market rate of interest, the loan is initially recorded at its
using tax rates that have been enacted or substantively
net present value and accreted to its face value over the period
enacted by the end of the reporting period.
of the loan. The benefit of the below-market rate of interest is
Deferred tax
accounted for as a government grant. It is measured as the
difference between the initial carrying value of the loan and the
Deferred tax is recognized on temporary differences between
cash proceeds received.
the carrying amounts of assets and liabilities in the financial
statements and the corresponding tax bases used in the
computation of taxable profit. Deferred tax liabilities are
35
INSCAPE 2020 ANNUAL REPORT Loss per share (“LPS”)
Basic loss per common share is calculated using the weighted daily average number of common shares outstanding.
Diluted loss per share is calculated using the treasury stock method.
Property, plant and equipment
Property, plant and equipment are stated at cost less accumulated depreciation and accumulated impairment losses.
Depreciation is recognized when property, plant and equipment is available for use so as to write off the cost less their
residual values over their useful lives, using the straight-line method. The estimated useful lives, residual values and
depreciation method are reviewed at each year end, with the effect of any changes in estimate accounted for on a
prospective basis. Depreciation ceases at the earlier of when the asset or component is derecognized, or when it is held
for sale or included in a group that is classified as held for sale.
Each component of an item of property, plant and equipment with a cost which is significant in relation to the total cost of
the item and has a significantly different estimated useful life than the parent asset is depreciated separately. Component
accounting is used for the Company’s buildings.
Depreciation is calculated over the estimated useful life of the assets, at the following rates and methods:
ASS ET CA T EG OR Y
DEP RE CI AT ION RAT E
DEP RE CIATION METHOD
Land
Building / Roof
Leasehold improvements
Machinery and equipment
Tools, dies and jigs
Office furniture and equipment
Intangible assets
nil
2.5% - 4%
The lower of the estimated useful
life and the term of the lease
6.6% - 20%
33.33%
10% - 50%
nil
Straight line
Straight line
Straight line
Straight line
Straight line
Intangible assets are carried at cost less accumulated amortization and accumulated impairment losses. Amortization is
recognized on a straight-line basis over their estimated useful lives. The estimated useful life and amortization method are
reviewed at the end of each year-end, with the effect of any changes in estimate being accounted for on a prospective
basis. Expenditure on research activities is recognized as an expense in the period in which it is incurred.
Amortization is calculated over the estimated useful life of the assets, at the following rates and methods:
ASS ET CA T EG OR Y
AMOR TIZAT ION R AT E
AMOR TIZ AT ION METHOD
Licensed products
Computer software
Intellectual property
20% – 33.33%
20% – 33.33%
10%
Straight line
Straight line
Straight line
36
Impairment of long‑lived non‑financial assets
recognized for the asset (or cash-generating unit) in prior
At the end of each reporting period, the Company reviews
years. A reversal of an impairment loss is recognized
the carrying amounts of its long-lived non-financial
immediately in profit or loss.
assets to determine whether there is any indication that
those assets have suffered an impairment loss. If any
Inventories
such indication exists, the recoverable amount of the
Raw materials are measured at the lower of cost and
asset is estimated in order to determine the extent of the
net realizable value, determined on a first-in, first-out
impairment loss, if any. Where it is not possible to estimate
basis. Recoverable costs of raw materials that have no
the recoverable amount of an individual asset,
consumption over a period of eighteen months may be
the Company estimates the recoverable amount of the
written down based on the Company’s assessment of their
cash-generating unit (“CGU”) to which the asset belongs.
future usage. When circumstances that previously caused
A CGU is the smallest identifiable group of assets that
inventories to be written down below cost no longer exist,
generates cash flows that are largely independent of the
the amount of the write-down previously recorded is
cash flows from other assets or group of assets.
reversed. Work-in-progress and finished
goods are measured at the lower of cost and net realizable
Recoverable amount is the higher of fair value less costs
value, determined on a first-in, first-out basis. Net
to sell and value in use, which is the present value of the
realizable value is the estimated selling price in the ordinary
estimated future cash flows from the use of the asset
course of business less the estimated costs necessary
(or cash-generating unit).
to make the sale. The cost of work-in-progress and
finished goods includes the cost of raw materials, and the
The discount rates used in the present value calculation
applicable share of the cost of labour, fixed and variable
are the pre-tax rates that reflect current market
production overheads.
assessments of the time value of money and the risks
specific to the asset.
Provisions
Provisions are recognized when the Company has a
If the recoverable amount is estimated to be less than the
present obligation (legal or constructive) as a result of a
carrying amount of the asset (or cash-generating unit), the
past event, it is probable that the Company will be required
carrying amount is reduced to its recoverable amount. An
to settle the obligation, and a reliable estimate can be
impairment loss is recognized immediately in profit or loss.
made of the amount of the obligation.
At the end of each reporting period, the Company reviews
whether there is any indication that an impairment loss
The amount recognized as a provision is the best estimate
recognized in prior periods for an asset other than goodwill
of the consideration required to settle the present
(or cash-generating unit) may no longer exist or may have
obligation at the end of the reporting period, taking into
decreased. If any such indication exists, the recoverable
account the risks and uncertainties surrounding the
amount of the asset (or cash-generating unit) is estimated
obligation. Where a provision is measured using the cash
in order to determine whether the impairment loss should
flows estimated to settle the present obligation, its carrying
be reversed. Where an impairment loss subsequently
amount is the present value of those cash flows.
reverses, the carrying amount of the asset (or cash-
generating unit) 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
37
INSCAPE 2020 ANNUAL REPORT Financial assets
Impairment of financial assets
Financial assets consist of cash and cash equivalents and
The Company recognizes an allowance for expected
trade and other receivables. These financial assets are
credit loss on accounts receivable that are measured
initially measured at fair value plus transaction costs.
at amortized cost. The amount of expected credit loss
They are subsequently measured at amortized cost.
(“ECL”) is updated at each reporting date to reflect
changes in credit risk since initial recognition of the
Amortized cost is determined using the effective interest
respective financial instrument. The Company recognizes
rate method, factoring in acquisition costs paid to third
lifetime ECL for its accounts receivables. The expected
parties, and loss allowance. The effective interest rate is
credit losses on these financial assets are estimated using
the rate that exactly discounts the estimated future cash
the Company’s historical credit loss experience, adjusted
receipts through the expected life of the financial asset to
for factors that are specific to the debtors, general
the carrying amount. When calculating the effective interest
economic conditions, and an assessment of both the
rate, the Company estimates future cash flows considering
current as well as the forecast direction of conditions at the
all contractual terms of the financial instrument.
reporting date.
The Company does not have any financial assets that
Financial liabilities
are subsequently measured at fair value except for the
Financial liabilities are recognized initially at fair value and
derivative financial instrument which may be in an asset
subsequently measured at either fair value or amortized
or liability position depending on the prevailing foreign
cost. The Company’s financial liabilities are classified
exchange rates at such time.
as ‘financial liabilities at amortized cost’ and include
any borrowings and trade and other payables and are
Financial assets are derecognized when the rights to
subsequently measured at amortized cost using the
receive cash flows from the asset have expired or the
effective interest method. The effective interest method is
Company has transferred its rights to receive cash flows
a method of calculating the amortized cost of a financial
from an asset.
liability and of allocating interest expense over the relevant
year. The effective interest rate is the rate that exactly
discounts estimated future cash payments through the
expected life of the financial liability.
38
Classification of financial assets and liabilities
The following is the classification of the Company’s financial assets and liabilities based on their characteristics and
management’s choices and intentions related to them:
A SSE T/ LIA BI LIT Y
NEW CLASSIFICAT ION UNDER I FR S 9
Cash and cash equivalents
Trade and other receivables
Accounts payable and accrued liabilities
Derivative assets and liabilities
Amortized cost
Amortized cost
Amortized cost
FVTPL
Derivative financial instruments
The Company enters into a variety of derivative financial instruments to manage its exposure to foreign exchange rate risk.
Derivatives are initially recognized at fair value at the date the derivative contract is entered into and are subsequently
remeasured to their fair value at the end of each reporting period. The resulting gain or loss is recognized in profit or loss
immediately since the derivatives are not designated as hedging instruments for hedge accounting.
A derivative with a positive fair value is recognized as a financial asset; a derivative with a negative fair value is recognized
as a financial liability. A derivative is presented as a non-current asset or a non-current liability if the remaining maturity of the
instrument is more than 12 months and it is not expected to be realized or settled within 12 months. Other derivatives are
presented as current assets or current liabilities.
Non-performance risk, including the Company’s own credit risk, is considered when determining the fair value of
financial instruments.
Share capital
Common shares issued by the Company are recorded in the amount of the proceeds received, net of direct issue costs.
39
INSCAPE 2020 ANNUAL REPORT SIGNIFICANT ACCOUNTING JUDGMENTS,
Percentage of completion percentages are based
ESTIMATES AND ASSUMPTIONS
on Inscape’s onsite project management estimate of
In the application of the Company’s accounting policies,
job progress.
management is required to make judgments, estimates
and assumptions about the carrying amounts of assets
Identification of cash generating units for the purposes
and liabilities that are not readily apparent from other
of performing impairment test of assets is based on
sources. The estimates and associated assumptions are
management’s judgment of what constitutes the lowest
based on historical experience and other factors that are
group of assets that can generate cash flows largely
considered to be relevant. Actual results may differ from
independent of other assets.
these estimates.
SIGNIFICANT ESTIMATES AND JUDGMENTS IN
based on management’s judgment of the ability of the
APPLYING ACCOUNTING POLICIES
Company to achieve sufficient taxable income to use the
Determination to not recognize deferred tax assets is
The following are estimates and judgments that the
deferred tax assets.
management has made in the process of applying the
Company’s accounting policies and that have the most
Significant estimates
significant effect on the amounts recognized in the
Estimated useful lives and residual values of intangible
financial statements.
assets, property, plant and equipment are based on
management’s experience, the intended usage of the
Significant judgments
assets and the expected technological advancement that
The Company assesses on a forward-looking basis the
may affect the life cycle and residual values of the assets.
expected credit losses (“ECL”) associated with its assets
carried at amortized costs, including other receivables. For
Defined benefit pension obligations are based on
trade and other receivables only, the Company applies the
management’s best estimates on the long-term investment
simplified approach permitted by IFRS 9, which requires
return on pension fund assets, the discount rate of
the expected lifetime losses (based on management’s
obligations, mortality and the future rate of salary increase.
judgement and review of known exposures, credit
worthiness, and collection experience) to be recognized
Liability for the Company’s performance and restricted
from initial recognition of the receivables.
share units is based on management’s best estimate of the
Company’s financial performance during the vesting period
Reserve for inventory is based on the aging of inventory
of the performance and restricted share units.
and management’s judgement of product life cycles in
identifying obsolete items.
Determination of the company’s fair value of the principal
assets of each CGU less the costs to sell the assets is
Reserve for warranty is based on management’s
used to perform an impairment test of the assets.
judgment and review of any known exposures and
historical claim experience.
40
3. NEW ACCOUNTING STANDARDS ADOPTED
IFRS Interpretations Committee (“IFRIC”) 23, Uncertainty over Income Tax Treatments (“IFRIC 23”)
IFRIC 23 provides guidance to be applied in the determination of taxable profit or loss, tax bases, unused tax losses,
unused tax credits and tax rates, when there is uncertainty over income tax treatments under IAS 12, Income Taxes
(“IAS 12”). IFRIC 23 was issued by the IASB in June 2017 and is effective for annual periods beginning on or after
January 1, 2019. There was no material impact to our consolidated financial statements as a result of adopting IFRIC 23
4. TRADE AND OTHER RECEIVABLES
Trade account receivables, gross
Loss allowance for expected credit losses
Other receivables
An aging analysis of trade receivables:
Current
1-30 days
31-60 days
61-90 days
> 90 days
5. INVENTORIES
Raw materials
Work-in-progress
Finished goods
AS AT
APR IL 30 , 202 0
AS AT
APRIL 30, 2019
$
$
9,754
(216)
9,538
717
10,255
$
13,576
(333)
13,243
173
$
13,416
AS AT
APR IL 30 , 202 0
AS AT
APRIL 30, 2019
$
$
3,892
1,987
1,438
472
1,965
9,754
$
6,616
1,736
2,070
1,134
2,020
$
13,576
AS AT
APR IL 30 , 202 0
AS AT
APRIL 30, 2019
$
$
5,004
219
562
5,785
$
5,505
287
785
$
6,577
The cost of inventories recognized as cost of goods sold was $51,959 (2019 - $61,230). During the year, there was an
inventory write-down to net realizable value of $282 (2019 - $250).
41
INSCAPE 2020 ANNUAL REPORT
6. PROPERTY, PLANT AND EQUIPMENT
AS AT APRIL 30, 2020
LAND
BUILDINGS/
ROOF
LEASEHOLD
IMPROVEMENTS
MACHINERY &
EQUIPMENT
TOOLS, DIES
& JIGS
OFFICE
FURNITURE &
EQUIPMENT
CAPITAL
PROJECTS
IN PROGRESS
TOTAL
COST:
Opening balance, May 1, 2019
Additions
Disposals
Transfers
Exchange differences
Ending balance, April 30, 2020
AC CUMULATED DEPRECI A T IO N:
Opening balance, May 1, 2019
Depreciation charge for the year
Disposals
Exchange differences
Ending balance, April 30, 2020
—
(2)
300
—
—
—
—
—
$
488 $ 19,079 $
6,448 $ 39,933 $ 20,981 $ 12,403 $
162 $ 99,494
—
61
(186)
(3,864)
—
(39)
71
(206)
11
(6)
80
(130)
59
37
11
(10)
—
27
233
(684)
(11)
24
102
—
(149)
2
558
(5,080)
(90)
43
15,237
6,318
39,979
21,009
11,965
117
94,925
11,463
368
(1,744)
(17)
10,070
4,601
476
(113)
(3)
37,274
20,733
11,623
511
(92)
29
115
(10)
26
401
(654)
23
4,961
37,722
20,864
11,393
—
—
—
—
—
85,694
1,871
(2,613)
58
85,010
Net book value, April 30, 2020 $
300 $
5,167 $
1,357 $
2,257 $
145 $
572 $
117 $
9,915
AS AT APRIL 30, 2019
COST:
LAND
BUILDINGS/
ROOF
LEASEHOLD
IMPROVEMENTS
MACHINERY &
EQUIPMENT
TOOLS, DIES
& JIGS
OFFICE
FURNITURE &
EQUIPMENT
CAPITAL
PROJECTS
IN PROGRESS
TOTAL
Opening balance, May 1, 2018
$
480 $
18,908 $
11,150 $
39,828 $
21,860 $
13,026 $
908 $ 106,160
Additions
Disposal
Transfers
Exchange differences
—
—
8
—
—
171
1,337
(6,049)
—
10
52
—
(1)
54
50
561
(1,178)
(1,231)
216
33
19
28
Ending balance, April 30, 2019
488
19,079
6,448
39,933
20,981
12,403
AC CUMULATED DEPRECI A T IO N:
Opening balance, May 1, 2018
Depreciation charge for the year
Disposal
Exchange differences
Ending balance, April 30, 2019
—
—
—
—
—
11,000
10,320
36,739
21,742
12,435
391
—
72
316
(6,041)
6
496
—
39
112
394
(1,152)
(1,233)
31
27
11,463
4,601
37,274
20,733
11,623
148
2
(896)
—
162
—
—
—
—
—
2,148
(8,456)
(662)
304
99,494
92,236
1,709
(8,426)
175
85,694
Net book value, April 30, 2019
$
488 $
7,616 $
1,847 $
2,659 $
248 $
780 $
162 $ 13,800
42
7. OTHER INCOME
Details of other income during the year are presented below:
DES CRIPT IO N
Sale and leaseback
Sale of business
Government grant
TOTAL
7.1 Sale and leaseback
NO TE
7.1
7.2
22
$
$
1,252
735
517
2,504
On December 31, 2019, the Company completed a sale and leaseback of certain land and buildings (“property”) related
to the Walls segment. The sale generated cash proceeds of $3,449 (US $2,618) compared to a carrying value of $2,346
(US $1,792) which resulted in a gain of $1,252 (US $939) recorded in loss (gain) on disposal of property, plant and
equipment and intangibles.
Following the sale, the Company leased back the majority of the property via a triple net lease agreement which expires
in February 2021.
The leaseback resulted in the recognition of a right-of-use asset of $732 (US $527) and lease liabilities of $512 (US $368)
at April 30, 2020.
7.2 Sale of business
On December 31, 2019, the Company sold its DC Rollform business, which engaged in metal fabrication within our
Walls segment. The assets and liabilities disposed of at December 31, 2019 consisted of inventory, machinery and
equipment, and tools for cash proceeds of $971 (US $737) and gain of $735 (US $557) recorded in loss (gain) on disposal
of property, plant and equipment and intangibles. The DC Rollform business did not represent a strategic shift in our
business and will not have a major effect on our operations and financial results.
43
INSCAPE 2020 ANNUAL REPORT
8. INTANGIBLE ASSETS
AS A T A PR IL 30, 2 020
CO ST :
Opening balance, May 1, 2019
Additions
Disposals
Transfers from CIP (Note 6)
Exchange differences
Ending balance, April 30, 2020
ACCUM ULAT E D A M ORT I ZA TI O N:
Opening balance, May 1, 2019
Amortization
Disposals
Exchange differences
Ending balance, April 30, 2020
Net book value, April 30, 2020
AS A T A PR IL 30, 2 019
CO ST :
LICEN SED
P RODUCTS
COMPUTE R
SOFTWAR E
INT ELLECTUAL
PR OPE RT Y
TOTAL
$
122
$
10,906
$
524
$
11,552
—
—
—
—
63
(51)
90
13
—
—
—
—
63
(51)
90
13
122
$
11,021
$
524
$
11,667
122
—
—
—
122
—
$
$
$
9,138
288
(50)
8
9,384
1,637
$
$
$
524
—
—
—
524
—
$
$
$
9,784
288
(50)
8
10,030
1,637
$
$
$
$
LI CENSED
PRODUCTS
COMPUTER
SOFT WAR E
I NTELLECT UAL
PROPER TY
TOTAL
Opening balance, May 1, 2018
$
122
$
10,213
$
Additions
Disposals
Transfers from CIP (Note 6)
Exchange differences
—
—
—
—
153
(139)
663
16
826
—
(302)
—
—
$
11,161
153
(441)
663
16
Ending balance, April 30, 2019
$
122
$
10,906
$
524
$
11,552
ACCUM ULAT E D A M ORT I ZA TI O N:
Opening balance, May 1, 2018
$
122
$
8,799
$
Amortization
Disposals
Exchange differences
Ending balance, April 30, 2019
Net book value, April 30, 2019
$
$
—
—
—
122
—
$
$
462
(139)
16
9,138
1,768
$
$
826
—
(302)
—
524
—
$
$
$
9,747
462
(441)
16
9,784
1,768
44
9. LEASES
9.1 Right‑of‑use assets
The following table presents changes in the cost and accumulated depreciation of the Company’s right-of-use assets:
SHOWROOMS
MANUFACTURING
FACILITIES
OTHER
TOTAL
CO ST :
Opening balance, May 1, 2019
$
—
$
Initial application of IFRS 16 (Note 2)
4,050
Additions
Impact of foreign currency translation
—
—
Ending balance, April 30, 2020
$
4,050
$
A CCUM ULA T ED DEPR ECIA TI ON
Opening balance, May 1, 2019
Depreciation
Impact of foreign currency translation
Ending balance, April 30, 2020
Net book value, April 30, 2020
$
$
$
—
$
1,244
—
1,244
2,806
$
$
—
—
871
34
905
—
170
3
173
732
$
$
$
$
$
—
$
119
—
5
—
4,169
871
39
124
$
5,079
—
25
—
25
99
$
$
$
—
1,439
3
1,442
3,637
There were no expenses related to short-term or low-value leases during the year.
9.2 Lease liabilities
The following table presents the Company’s lease liabilities at April 30, 2020:
SHOWROOMS
MANUFACTURING
FACILITIES
OTHER
May 1, 2019
$
—
$
Initial application of IFRS 16 (Note 2)
Additions
Principal payments
Impact of foreign currency translation
4,282
—
(1,109)
104
April 30, 2020
$
3,277
$
Current lease liabilities
Non-current lease liabilities
1,492
1,785
April 30, 2020
$
3,277
$
—
—
722
(223)
13
512
512
—
512
$
—
$
119
—
(22)
5
102
$
31
71
102
$
$
$
TOTAL
—
4,401
722
(1,354)
122
3,891
2,035
1,856
3,891
A S AT A PRIL 30, 202 0
LEA SE T ER M :
Not later than 1 year
Later than 1 year and not later than 5 years
Later than 5 years
$
$
2,035
1,408
448
3,891
45
INSCAPE 2020 ANNUAL REPORT
10. FINANCIAL INSTRUMENTS
10.1 Capital risk management
The Company’s objective when managing capital are to safeguard the entity’s ability to continue as a going concern, so
that it can provide returns for shareholders and benefits for other stakeholders through growth in earnings.
Management defines capital as the Company’s total capital and reserves excluding accumulated other comprehensive
loss as summarized in the following table:
Issued capital
Contributed surplus
Deficit
AS AT
APR IL 30 , 20 20
AS AT
APR I L 30, 2019
$
$
52,868
2,675
(43,278)
12,265
$
52,868
2,675
(37,872)
$
17,671
The Company manages its capital structure and makes modifications in response to changes in economic conditions
and the risks associated with the underlying strategic initiatives. In order to maintain or adjust the capital structure, the
Company may return capital to shareholders, or draw on its line of credit.
See Credit Facility for a description of the Company’s externally imposed covenants – Note 21.
10.2 Foreign currency risk management
The Company’s activities expose it primarily to the financial risks of changes in the US dollar exchange rates. The
Company enters into a variety of derivative financial instruments to hedge the exchange rate risk arising on the anticipated
sales to the US. The use of financial derivatives is governed by the Company’s policies approved by the Board of
Directors. Compliance with policies and exposure limits is reviewed by the Board on a regular basis. The Company does
not enter into or trade financial instruments, including derivative financial instruments, for speculative purposes.
As at April 30, 2020, the Company had outstanding US dollar hedge contracts with settlement dates from May 2020 to
August 2021. The total notional amounts under the contracts are US $40,000 to $50,000 (2019 - $41,000 to $51,400).
Dependent on the spot CAD/US rate on each settlement date, the Company can sell US dollars at rates ranging from
$1.28 CAD/US to $1.50 CAD/US (2019 - $1.24 CAD/US to $1.41 CAD/US). These contracts had a mark-to-market
unrealized loss of $3,391 (US $2,437) as at April 30, 2020 (2019 – unrealized loss of $1,397 or US $1,042), which was
recognized on the consolidated statement of financial position as derivative liabilities. Any changes in the net gain or
loss from the prior reporting period due to addition of forward contracts, movements in the US currency exchange rate,
reclassification of the unrealized gains or losses to realized income or loss are recognized on the consolidated statement
of operations as unrealized gain or loss on derivatives of the year. There were realized losses of $275 on the settlement of
contracts during fiscal year 2020 (2019 – gains $3).
46
The following reconciles the changes in the fair value of the derivatives at the beginning and the end of the year:
Fair value of derivative (liabilities) assets, beginning of year
$
(1,397)
$
349
AS AT
APR IL 30 , 202 0
AS AT
APRIL 30, 2019
CH A NGES IN FA IR VA LU E D UR I N G T HE YEAR :
Decrease in fair value of new contracts added
Reversal of derivative assets (liabilities) of contracts settled
Decrease in fair values of outstanding contracts
Net decrease in fair value of derivative liabilities recognized during the year
Fair value of derivative liabilities assets, end of year
Current
Long-term
(2,581)
728
(141)
(1,994)
(3,391)
(2,122)
(1,269)
(3,391)
(1,240)
(362)
(144)
(1,746)
(1,397)
(1,052)
(345)
(1,397)
$
$
$
$
$
$
10.3 Foreign currency sensitivity analysis
Based on the existing average US currency hedge contract rates and the mix of US dollar denominated sales and
expenses for the year ended April 30, 2020, a 1% change in the Canadian dollar against the US dollar would have an
impact of approximately $56 on the Company’s pre-tax earnings (2019 – $271).
Based on the US dollar denominated assets and liabilities as at April 30, 2020, a 1% change in the Canadian dollar
against the US dollar would have an impact of $281 on the unrealized exchange gain or loss reported in the Consolidated
Statements of Operations (2019 - $181) and an impact of $168 on the Consolidated Statements of Comprehensive Loss
(2019 - $257).
10.4 Credit risk management
Credit risk refers to the risk that a counterparty may default on its contractual obligations resulting in a financial loss to
us. We believe our credit risk of counterparty non-performance continues to be relatively low, notwithstanding the impact
of COVID-19. The Company’s cash, trade accounts receivable and derivative assets are subject to the risk that the
counterparties may fail to discharge their obligation to pay the Company. As at April 30, 2020, the Company’s maximum
direct exposure to credit risk is $16,140 (2019 – $16,681).
We are in regular contact with our customers, suppliers and logistics providers, and to date have not experienced
significant counterparty non-performance. However, if a key supplier (or any company within such supplier’s supply
chain) or customer experiences financial difficulties or fails to comply with their contractual obligations, which may
occur as the pandemic continues, this could result in a significant financial loss to us. We would also suffer a significant
financial loss if an institution from which we purchased foreign exchange contracts and/or annuities for our pension
plans defaults on their contractual obligations. With respect to our financial market activities, we have adopted a policy
of dealing only with credit-worthy counterparties. In light of COVID-19, we assessed the financial stability and liquidity of
our customers at the reporting date. No significant adjustments were made to our allowance for expected credit loss in
connection with this assessment.
47
INSCAPE 2020 ANNUAL REPORT
The Company’s investment policy specifies the types of permissible investments, the credit ratings required, and the
maximum balances allowed. The purchase of any securities carrying a credit rating below BBB for bonds or R1- Low for
commercial paper is prohibited. On a quarterly basis, management reviews the Company’s investment portfolio with the
Audit Committee to demonstrate compliance with the investment policy. The credit risk on liquid funds and derivative financial
instruments is limited as the counterparties are banks with high credit ratings assigned by international credit-rating agencies.
The Company measures the loss allowance for trade receivables at an amount equal to lifetime expected credit losses
(“ECL”). The ECL on trade receivables are estimated by assessing new customers’ credit history, reviewing credit limits,
monitoring aging of accounts receivable, assessing specific customer information and reviewing general historical trends.
Trade receivables consist of a large number of customers, spread across diverse industries and geographical areas.
Ongoing credit evaluation is performed on the financial condition of accounts receivable. As at April 30, 2020,
the allowance for expected credit losses was $216 (2019 - $333).
The Company’s allowance for expected credit losses consist of sales allowances released during the year of $104
(2019 – provisions made $95) mainly from adjustments to expected lifetime credit losses. The amount written-off of $22
(2019 - $89) was from one customer where the Company could not collect. Below is a breakdown of the Company’s ECL:
MOVE MENT I N T HE ALLO WA NC E F OR E CL
Balance, beginning of year
Sales allowances (reduced) added
Amount written-off
Currency exchange
Balance, end of year
AS AT
APR IL 30 , 202 0
AS AT
APRI L 30, 2019
$
$
333
(104)
(22)
9
216
$
$
312
95
(89)
15
333
10.5 Liquidity risk management
Liquidity risk is the risk that the Company will encounter difficulty in meeting obligations associated with financial liabilities
as they fall due.
The Company has a demand credit for foreign exchange contracts of US $8,000 and a demand operating facility of
$5,000 with its bank. As at April 30, 2020, the Company had $4,547 available in its borrowing base based on accounts
receivable and inventory. These facilities are secured by the Company’s property.
As at April 30, 2020 the Company had not drawn down on the demand operating facilities (2019 – not drawn). The
Company expects to meet its other obligations from operating cash flows and proceeds of maturing financial assets.
10.6 Fair value hierarchy
The following table provides an analysis of financial instruments that are measured subsequent to initial recognition at fair
value, grouped into Levels 1 to 3 based on the degree to which the fair value is observable.
•
Level 1 fair value measurements are those derived from quoted prices (unadjusted) in active markets for identical
assets or liabilities.
50
•
Level 2 fair value measurements are those derived from inputs other than quoted prices included within Level 1 that
are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices).
•
Level 3 fair value measurements are those derived from valuation techniques that include inputs for the asset or
liability that are not based on observable market data (unobservable inputs).
The following table illustrates the classification of financial liabilities in the fair value hierarchy as at April 30, 2020.
Derivative financial liabilities
Total net financial assets
LEVEL 1
LEVEL 2
LEVEL 3
$
$
—
—
$
$
3,391
3,391
$
$
—
—
The following table illustrates the classification of financial liabilities in the fair value hierarchy as at April 30, 2019:
Derivative financial liabilities
Total net financial assets
LEVEL 1
LEVEL 2
LEVE L 3
$
—
—
$
1,397
1,397
$
—
—
There were no transfers between Level 1, 2 and 3 in the periods.
11. TRADE AND OTHER PAYABLES
Trade accounts payable
Accrued liabilities
Sales tax payable
Other payables
12. PROVISIONS
PR OV ISI ON DUE T O WA RRA NT Y
Balance, beginning of year
Provisions (settled) made during the year
Provisions reversed and used during the year
Currency exchange
Balance, end of year
Current
Non‑Current
AS AT
APR IL 30 , 202 0
AS AT
APRIL 30, 2019
$
$
4,375
5,972
145
1,431
5,691
6,634
290
2,542
$
11,923
$
15,157
AS AT
APR IL 30 , 202 0
AS AT
APRIL 30, 2019
$
$
$
1,440
143
(369)
46
1,260
203
1,057
$
$
$
919
1,195
(723)
49
1,440
387
1,053
51
INSCAPE 2020 ANNUAL REPORT
13. RETIREMENT BENEFIT OBLIGATION
13.1 Defined contribution plans
Actuarial valuations are prepared at least every three years
The Company operates a defined contribution retirement
for the Canadian plan and every year for the US plan. The
benefit plan for all qualifying employees. The assets of the
most recent actuarial valuations were as at
plans are held separately from those of the Company in
December 31, 2017 for the Canadian plan and
funds under the control of trustees. An actuarial valuation
July 1, 2017 for the US plan. The present value of the
was prepared as at December 31, 2019.
defined benefit obligation, and the related current service
cost and past service cost, were measured using the
The total expense recognized in the consolidated
Projected Unit Credit Method. Actuarial gains and losses
statements of operations of $164 (2019 - $177)
are recognized immediately in other comprehensive
represents contributions made to the plan by the
income as a part of remeasurement. The total employer’s
Company. The total employer’s expected contribution to
expected contribution to the Canadian defined benefit
the plan for the upcoming fiscal year is anticipated to be
plan for the upcoming fiscal year is anticipated to be
approximately $167.
approximately $376. The expected contribution to the US
plan for the upcoming fiscal year are approximately $52.
13.2 Defined benefit pension plans
The Company operated one defined benefit pension plan
for qualifying employees in Canada and one defined benefit
pension plan for qualifying employees in the US No other
post-retirement benefits are provided to these employees.
The Canadian defined benefit pension plan is contributory
in nature. The US defined benefit plan is non-contributory,
and the accrued benefits were frozen in August 2013. The
Canadian plan is registered under the Ontario Pension
Benefits Act, RSO 1990 and the Income Tax Act. The
US plan is subject to the provisions of the Employee
Retirement Income Security Act of 1974 (ERISA). Both
plans are legally separate from the Company and
are monitored by a pension committee. The pension
committee is responsible for policy setting. The pension
plans expose the Company to actuarial risk, currency risk,
credit risk, interest rate risk and market risk.
52
Amounts recognized in the cost of goods sold and other comprehensive income in respect of these defined benefit plans
are as follows:
DEFI NED B ENEFI T PLANS
Benefits earned during the year
Participant contribution
Net interest cost
Pension expense recognized
RE M EA SUREM ENTS O F T HE NET D EFI NED B EN EFIT LIAB IL I TIE S
Actuarial (loss) gain due to actuarial experience
Actuarial loss due to financial assumption changes
Actuarial gain due to demographic assumption changes
Return on plan assets (less) greater than discount rate
AS AT
APR IL 30 , 202 0
AS AT
APRIL 30, 2019
$
$
$
659
(132)
157
684
(59)
(2,050)
27
(1,058)
(3,140)
$
$
$
$
$
$
605
(145)
121
581
58
(1,063)
23
117
(865)
(979)
(865)
(1,844)
Remeasurements effects recognized in other comprehensive income
$
CUM ULA TIV E A CT UA RI AL LO S SES R ELATI NG T O N ET DE F IN ED B EN EFIT LIA BI LITI ES
Balance, beginning of year
Remeasurements recognized in the year
Balance, end of year
$
$
(1,844)
(3,140)
(4,984)
The significant actuarial assumptions used in measuring the accrued defined benefit pension plans obligations are as follows:
Discount rate at year end
Rate of increase in future compensation
M OR T ALI TY T AB LES
Canadian Plan
U.S. Plan
20 20
2.49% to 3.20%
2.0%
20 20
2019
3.91% to 3.40%
2.0%
2019
2014 CPM Private Sector Table
2014 CPM Private Sector Table
RP – 2014 / MP-2019
(Society of Actuaries)
RP – 2014 / MP-2017
(Society of Actuaries)
A 1% increase in the discount rate would reduce the Canadian defined benefit obligation by approximately $3,085 (2019 -
$2,922) and a 1% decrease in the discount rate would increase the Canadian defined benefit obligation by approximately
$3,873 (2019 - $3,678).
A 1% increase in the discount rate would reduce the US defined benefit obligation by approximately US $707 (2019 – US
$559) and a 1% decrease in the discount rate would increase the US defined benefit obligation by approximately US $864
(2019 – US $676).
The discount rates are based on a review of current market interest rates of AA corporate bond yields with a similar
duration as the expected future cash outflows for the pension payments.
53
INSCAPE 2020 ANNUAL REPORT
The amount included in the consolidated statements of financial position arising from the entity’s obligation in respect of
its defined benefit plans is as follows:
DEFINED BENEFIT OBLIGATION, BEGINNING OF YEAR
Current service cost
Interest cost
Benefits and expenses paid
Actuarial loss
Foreign exchange rate changes
Defined benefit obligation, end of year
FAIR VALUE OF PLAN ASSETS, BEGINNING OF YEAR
Interest Income
Employer contributions
Employee contributions
Benefits and expenses paid
Return on plan assets greater than discount rate
Foreign exchange rate changes
Fair value of plan assets, end of year
Defined benefit obligation, net end of year
The major categories of plan assets at the end of the year are as follows:
Equity securities
Debt securities
Cash and cash equivalents
Total
AS AT
APR IL 30 , 202 0
AS AT
APRI L 30, 2019
$
$
$
$
$
27,509
659
978
(1,225)
2,082
238
30,241
23,592
821
433
132
(1,225)
(1,058)
206
22,901
7,340
$
25,539
605
979
(897)
982
301
$
27,509
$
22,700
858
428
145
(897)
116
242
$
$
23,592
3,917
AS AT
APR IL 30 , 202 0
AS AT
APRI L 30, 2019
64%
23%
13%
100%
58%
31%
11%
100%
54
14. INCOME TAXES
14.1 Income tax recognized in profit or loss
Consistent with 2019, the Company continues to not recognize certain deferred tax assets as a result of a lack of a
history of accounting or taxable profits in 2020 or the preceding three years.
INC OM E T A X COM PRI SES OF:
Current
Deferred
AS AT
APR IL 30 , 202 0
AS AT
APRIL 30, 2019
$
$
15
—
15
$
$
20
—
20
The income tax provision for the years can be reconciled to the accounting loss as follows:
Loss before income taxes
Basic statutory income tax rate
RE CONCILING I T EMS:
Tax effect of non-taxable (non-recoverable items)
True-up
Impact of tax rate differences
Impact of changes in tax law
Non-recognition/(recognition) of deferred tax assets
Other
Income tax
AS AT
APR IL 30 , 202 0
AS AT
APRIL 30, 2019
$
$
(5,391)
25.34%
(1,366)
$
(8,726)
25.26%
(2,204)
50
35
(117)
(7)
1,075
345
15
$
(167)
2
(58)
—
2,427
20
20
The Company’s basic Canadian statutory income tax rate is the aggregate of the federal income tax rate of 15%
(2019 -15%) and the blended provincial tax rate of 10.34% (2019 – 10.26%). The basic US statutory income tax rate
is the aggregate of the federal income tax rate of 21% (2019 – 21%) and the average rate for various states of 3.4%
(2019 – 4%).
55
INSCAPE 2020 ANNUAL REPORT
14.2 Deferred tax assets and liabilities
DEFE RRE D T AX A SSETS
AND LI A BILI T IES
AP R IL 30,
20 19
R ECOGNIZED
IN P ROFIT
OR LOSS
EX CHANGE
RECOGNIZED DIFFE RENCES
AND OT HER
IN OCI
APRIL 30,
2020
Property, plant and equipment
$
(776) $
(568) $
— $
— $
(1,344)
Reserves
Loss carryforwards
(253)
1,029
253
315
—
—
—
—
$
— $
— $
— $
— $
—
1,344
—
14.3 Loss carry forwards
As at April 30, 2020, the Company has unused non-capital losses of $37,872 (2019 - $32,972), consisting of Canadian
non-capital loss of $10,828 and US net operating losses of $27,044 – US $19,442 (2019 – Canadian $8,458 and US
net operating losses of $24,514 – US $18,670) which may be carried forward and used to reduce future years’ taxable
income. The future income tax benefit of these losses of $1,344 (2019 - $1,029) has been included in the deferred tax
assets. The unrecognized DTA relating to unused tax loss carryforwards is $8,365.
US non-capital losses of $27,044, of which $11,315 are limited to 80% of taxable income (determined without regard to
the deduction), have an indefinite life and no expiry period.
The Canadian non-capital losses expire as follows:
EXPI RY DA T E
LOSS CARR Y FORWARDS
$
—
—
2,008
2,519
1,704
—
2,223
—
2,374
$
10,828
2032
2033
2034
2035
2036
2037
2038
2039
2040
Total
56
15. OTHER LONG‑TERM OBLIGATIONS
Other long-term obligations are comprised of the fair value of the Company’s stock-based compensation liabilities.
Deferred Share Units
Stock Options
Restricted Share Units
16. ISSUED CAPITAL
Authorized
7,670,881 Class A multiple voting shares, 10 votes per share
Unlimited Class B subordinating voting shares, 1 vote per share
IS SUED AND OUT ST A NDING
Class A multiple voting
Class B subordinated voting
AS AT
APR IL 30 , 202 0
AS AT
APRIL 30, 2019
$
$
32
30
61
123
$
$
113
249
161
523
AS AT
APR IL 30 , 202 0
AS AT
APRIL 30, 2019
3,345,881
11,034,820
3,345,881
11,034,820
14,380,701
14,380,701
17. SHARE‑BASED COMPENSATION
17.1 Stock option plan
The Company has allotted and reserved 1,500,000 Class B subordinated voting shares under its Stock Option Plan.
At the end of the year, the reserves available for grant are 356,585 (2019 – 487,205).
Under the plan, options may be granted to purchase Class B subordinated voting shares at the market price determined
at the time of grant. The plan also allows for the issuance of stock options with tandem share appreciation rights, which
give the holder the right to elect to either receive cash in an amount equal to the excess of the quoted market price over
the option price or to receive a Class B subordinated voting share by making a cash payment equal to the option.
During the year, stock options with share appreciation rights for 408,185 Class B subordinated voting shares to expire in
5 years were granted (2019 – 494,219).
1,143,415 stock options were outstanding as at April 30, 2020 (2019 – 1,012,795). Fair values of these stock options
based on the Black-Scholes-Merton Option Pricing Model are accounted for as liabilities and amortized over the vesting
periods. Fair values of the amortized liabilities as at April 30, 2020 totaled $30 (April 30, 2019 - $249). Fair values of the
stock options were estimated using the Black-Scholes-Merton option pricing model.
The intrinsic value of the vested stock options outstanding as at April 30, 2020 was $nil (April 30, 2019 - $95).
57
INSCAPE 2020 ANNUAL REPORT
The assumptions used to compute the fair values and compensation expense under the model are as follows:
INPUT S T O T HE
BLA CK‑SCHOLE S‑MER TO N M O DEL
20 20 VALUES
20 19 VALUES
BASIS
Expected remaining life of
the options
0.2 to 4.9 years
0.3 to 4.7 years
Risk-free interest rates
0.11% to 0.36%
2.2% to 2.5%
Expected volatility
52% to 86%
45% to 59%
Expiry dates of the options, history
of forfeiture rates and early exercise
Market yield on US Treasury
securities at terms commensurate
with the expected remaining
life of the options
The Company’s daily share price
over a period of time commensurate
with the expected remaining
life of the options
Expected dividend yield
0%
0%
The Company’s current dividend yield
17.2 Movements in share options during the year
The following reconciles the share options outstanding at the beginning and the end of the year:
Outstanding, beginning of year
Granted
Expired
Forfeited
Outstanding, end of year
AS AT APR IL 30, 2 020
AS AT APRIL 30, 2019
SHARES
1,012,795
408,185
(120,000)
(157,565)
1,143,415
WEI GHTED
AVE R A GE
EXERCISE PRICE
WEIGHTED
AVERAGE
EXERCISE PRICE
SHARES
$
$
2.51
1.22
3.27
2.63
1.95
739,628
$
494,219
(115,000)
(106,052)
1,012,795
$
3.25
1.75
3.78
2.76
2.51
58
17.3 Share options outstanding at the end of the year
The following summarizes the share options outstanding at the end of the year:
A PRI L 3 0, 2 020
OP TIONS OUT STANDING
OPT IONS EXERCISABL E
RANGE OF
EXERCISE PRICE
$0.78 to $2.55
$2.98 to $3.41
$3.65 to $4.02
$0.78 to $4.02
NUMBER OF
WEIGHTED
AVERAGE
OUTSTANDING REMAINING LIFE
IN YEARS
OPTIONS
WEIGHTED
AVERAGE
EXERCISE PRICE
NUMBER
EXERCISABLE AT
WEIGHTED
AVERAGE
YEAR END EXERCISE PRICE
890,206
158,004
95,205
1,143,415
3.09
1.35
1.97
2.76
$
$
1.53
2.02
3.82
1.95
212,500
$
111,605
36,150
360,255
$
1.48
3.08
4.02
2.23
A PRI L 3 0, 2 019
OPTI ONS OUTSTAN DI NG
OPTI ONS EXERCISABLE
RANGE OF
EXERCISE PRICE
$0.78 to $2.55
$2.98 to $3.41
$3.65 to $4.02
$0.78 to $4.02
NUMBER OF
OUTSTANDING
OPTIONS
WEIGHTED
AVERAGE
REMAINING LIFE
IN YEARS
WEIGHTED
AVERAGE
EXERCISE PRICE
NUMBER
EXERCISABLE AT
YEAR END
WEIGHTED
AVERAGE
EXERCISE PRICE
581,719
298,355
132,721
1,012,795
3.34
1.56
2.95
2.77
$
$
1.82
3.24
3.83
2.51
32,500
$
188,517
10,000
231,017
$
2.10
3.28
4.02
3.14
59
INSCAPE 2020 ANNUAL REPORT
17.4 Employee stock purchase plan
The Company prior to April 26, 2019 offered an Employee Stock Purchase Plan where employees who had one year
of service could choose to have up to 10% of their annual base salaries withheld to purchase Class B subordinated
voting shares of the Company. The Company contributes 20% of employees’ contributions to the plan. Both parties’
contributions are held by the plan’s trustees, who can purchase the Class B subordinated voting shares in the open
market, from treasury or other plan participants’ accounts. The purchase price of the shares from treasury is equal to the
weighted average trading price of the Company’s Class B subordinated voting shares on the TMX on the five trading days
immediately prior to the subscription. Effective April 26, 2019 the employee stock purchase plan was cancelled.
17.5 Deferred share unit plan
The Company has a Deferred Share Unit Plan for the members of the Board of Directors and the executives. Under the
plan, each director receiving Director’s fees may elect to receive all or a percentage of the fees in the form of notional
Class B subordinated voting shares of the Company called deferred share units (“DSU”). The issue price of each DSU is
equal to the weighted average share price at which Class B subordinate voting shares of the Company were traded on
the TMX during the last five-day period of the quarter prior to the DSU issue. Upon retirement from the Board, a director’s
DSU is redeemed for cash based on the market price of the shares at the time of redemption. The intrinsic value of vested
deferred share units outstanding as at April 30, 2020 were $nil (April 30, 2019 - $nil).
As at April 30, 2020, 57,799 DSUs were outstanding with a total fair value of $32 measured at the closing price of the
shares at year end (April 30, 2019 – 57,799 units, fair value $112).
17.6 Movements in deferred share units during the year
The following reconciles the deferred share units at the beginning and the end of the year:
Outstanding, beginning of year
Granted
Outstanding, end of year
AS AT
APR IL 30 , 202 0
AS AT
APRI L 30, 2019
57,799
—
57,799
55,405
2,394
57,799
60
17.7 Executives long‑term incentive plan
The Company has a long-term incentive plan for eligible executives. Under the plan, annual grants of stock options
and restricted share units (“RSU”) are issued to eligible executives based on each executive’s responsibilities and base
salaries. The value of RSU redeemable at the end of a three-year vesting period is dependent upon the market price of
the Class B subordinated voting shares of the Company. During the year the Company issued 123,518 RSU (2019 –
101,472). As at April 30, 2020, 225,279 RSU were outstanding (April 30, 2019 – 184,979).
The intrinsic value of the Company’s vested RSUs outstanding as at April 30, 2020 was $nil (April 30, 2019 - $13).
17.8 Movements in restricted share units during the year
The following summarizes the movements in RSU during the year:
Outstanding, beginning of year
Granted
Forfeited
Maturities
Outstanding, end of year
18. LOSS PER SHARE
AS AT
APR IL 30 , 202 0
AS AT
APRIL 30, 2019
184,979
123,518
(53,137)
(30,081)
225,279
116,447
101,472
(12,226)
(20,714)
184,979
The net loss and weighted average number of shares used in the calculation of basic and diluted loss per share are as follows:
Net Loss
Weighted average number of shares outstanding basic
Dilution impact of stock options
Weighted average number of shares outstanding diluted
Basic and diluted loss per share
AS AT
APR IL 30 , 202 0
AS AT
APRIL 30, 2019
$
$
(5,406)
14,380,701
—
14,380,701
(0.38)
$
(8,746)
14,380,701
—
14,380,701
$
(0.61)
Stock options are anti-dilutive and are therefore, not included in the computation of basic and diluted loss per share for
the years ended April 30, 2020 and April 30, 2019.
61
INSCAPE 2020 ANNUAL REPORT
19. SEGMENTED REPORTING
Inscape’s reportable segments include Furniture and Walls. In determining reportable segments, the Company looks at
the shared economic characteristics. The chief decision maker, the CEO monitors the operating results of the segments
separately for the purpose of making decisions about resource allocation and performance assessment. Segment
performance is evaluated based on operating profit or loss and is measured consistently with operating profit or loss in
the consolidated financial statements. Additionally, the product offerings, process and production are distinct and different
between the operating segments.
Aggregated in the Furniture segment are Systems, Benching, Storage and Seating. The aggregation is based on the
similarity in those products’ functionalities, production or procurement, process of distribution and gross margin. Walls is
a separate segment due to the different nature of movable walls compared to furniture, the production process and the
installation services involved in the selling of movable walls.
The following is an analysis of the Company’s revenue and results from continuing operations, capital expenditures,
amortization and depreciation by reportable segments:
AS AT
APR IL 30 , 202 0
AS AT
APRI L 30, 2019
SE GM ENT ED SA LES
Furniture
Walls
Total
SE G M ENT ED LOSS
Furniture
Walls
Unrealized loss (gain) on foreign exchange
Unrealized loss on derivatives
Other income (Note 7)
(Loss) gain on sale of property, plant and equipment & intangibles
Loss on sale of intangible
Investment income (loss)
Loss before taxes
Income tax
Net loss
AMO RT IZ AT IO N A ND DEPR ECI A T ION
Furniture
Walls
Total
ADDI T IO NS T O PRO PE RT Y, PLA NT AND EQUIP M ENT AND INT ANG IB LE S
Furniture
Walls
Total
$
$
$
$
$
$
$
$
55,592
20,226
75,818
(2,795)
(2,796)
(5,591)
(289)
(1,994)
2,504
(30)
—
9
(5,391)
15
(5,406)
3,227
371
3,598
516
105
621
$
$
$
63,539
27,044
90,583
(3,442)
(3,943)
(7,385)
81
(1,746)
—
31
263
30
(8,726)
20
$
(8,746)
$
$
$
$
2,011
160
2,171
2,152
149
2,301
62
Segment assets and liabilities
AS AT
APR IL 30 , 202 0
AS AT
APRIL 30, 2019
A SSE TS
Furniture
Walls
Total assets
LI AB ILI T IES
Furniture
Walls
Total liabilities
$
$
$
$
27,719
10,089
37,808
20,451
8,717
29,168
IN SCA PE ’S REVENUE IS B AS ED ON GE OG R AP HI CAL LOC ATI ON AS D ETAI LED B ELO W:
SA LES F ROM:
United States
Canada
Total
$
$
69,876
5,942
75,818
IN SCA PE ’S IDENTI FI AB LE NO N ‑CUR R EN T ASS ET S (I .E. PR OP ER TY , P LAN T A ND
EQ UIPM ENT A ND INT A NGI B LE S) BY GE OGR AP HI CAL LOCAT ION AR E DE TAI LE D B EL OW:
United States
Canada
Total
$
$
3,658
11,531
15,189
20. SUPPLEMENTAL INFORMATION
20.1 Salaries, wages and benefits
$
$
$
$
$
$
$
$
27,742
11,785
39,527
15,301
7,133
22,434
84,606
5,977
90,583
4,072
11,496
15,568
IN CLU D ED I N:
Cost of goods sold
Selling, general and administrative
20.2 Amortization and depreciation
IN CLU D ED I N:
Cost of goods sold
Selling, general and administrative
AS AT
APR IL 30 , 202 0
AS AT
APRIL 30, 2019
$
$
16,008
14,298
30,306
$
$
16,515
16,571
33,086
AS AT
APR IL 30 , 201 9
AS AT
APRIL 30, 2018
$
$
861
2,737
3,598
$
$
707
1,464
2,171
63
INSCAPE 2020 ANNUAL REPORT
21. CREDIT FACILITY
The Company has a demand credit facility for foreign exchange contracts of US $8,000 and a demand operating credit
facility of $5,000 with its bank. As at April 30th the Company had $4,547 available in its borrowing base. Although the
Company had no borrowings as at April 30, 2020, the Company was not in compliance with one of its financial covenants
and received a waiver from its bank on June 18, 2020 (2019 – not in compliance with one covenant but waiver received
from bank). The interest rate on the demand operating credit facility is Prime Rate plus 1.0% for Canadian dollar loans, US
Base Rate plus 1.0% for US dollar loans, 2.5% for Canadian dollar Banker’s Acceptance and 2.5% for US dollar
Libor loans. The agreement is secured by the Company’s property based on its accounts receivable and inventory
(borrowing base).
The credit facility agreement has the following covenants:
1. The ratio of “total liabilities less postponed debt” to “shareholders’ equity less intangible assets” does not exceed 1.6
to 1.0 at any time, measured quarterly.
2. Current ratio, excluding any derivative assets and liabilities, not to be less than 1.25 to 1.0, measured quarterly.
As at April 30, 2020, the Company has not drawn on the demand operating credit facility. (2019 – not drawn).
22. FORGIVABLE GOVERNMENT LOAN
In response to the COVID-19 pandemic, the Company received from the US government an unsecured forgivable loan
for $1,808 (US $1,300) at 1.00% per annum, repayable in 24 months. The indebtedness may be forgiven subject to the
terms of the Paycheck Protection Program. The loan is forgivable if all employees are kept on the payroll for eight weeks
and the money is used for payroll, rent or utilities. As at April 30, 2020, the Company incurred $517 of the qualifying
expenditures.
The fair value of the SBA loan is measured at the cost of a comparable US dollar loan at the Company’s borrowing rate
of 4.75% (US base rate plus 1%) at April 30, 2020. Under IFRS 9, the loan must initially be measured at fair value at
inception. The fair value of the loan was determined to be $1,711 (US $1,230), with a grant (deferred income) of $97
(US $70). The latter would be released into income on a systematic basis per IAS 20 - Accounting for Government Grants
and Disclosure of Government Assistance.
64
23. RELATED PARTY TRANSACTIONS
The following was the remuneration of directors and other members of key management personnel, including
Chief Executive Officer, Chief Financial Officer, Chief Operating Officer, Chief Brand Officer, VP Supply Chain, and
VP Human Resources.
Salaries and short-term benefits
Post-employment benefits
Share based compensations
AS AT
APR IL 30 , 202 0
AS AT
APRIL 30, 2019
$
$
2,163
42
379
2,584
$
2,084
52
256
$
2,392
24. COMPARATIVE FINANCIAL STATEMENTS
Certain figures in the comparative Financial Statements have been reclassified from statements previously presented to
conform to the presentation of the current period’s Financial Statements.
65
INSCAPE 2020 ANNUAL REPORT
Corporate Information
Chief Executive Officer
Eric Ehgoetz
Board of Directors
Eric Ehgoetz, Director
Bartley Bull, Chair of the Board
Tania Bortolotto, Director
Dezsö J. Horváth, Director
Quentin Kong, Director
David LaSalle, Director
Listing of Capital Stock
Financial Calendar
Toronto Stock Exchange (INQ)
May 1 to April 30
Transfer Agent and Registrar
2020 Annual Meeting
AST Trust Company (Canada)
The annual meeting of shareholders
PO Box 700, Postal Station B
will be held on September 17th, 2020
Montreal, QC H3B 3K3
at 4:00 pm at Inscape’s
T 416 682 3860 or 800 387 0825
Corporate Headquarters:
F 514 985 8843 or 888 249 6189
67 Toll Road
astfinancial.com/ca-en
Holland Landing, ON L9N 1H2
Auditor
Deloitte LLP
Investor Information
Shareholders seeking assistance
Bay Adelaide East
or information about the Company
8 Adelaide Street West, Suite 200
are invited to contact Jon Szczur,
Toronto, ON M5H OA9
Chief Financial Officer, at:
Corporate Office
67 Toll Road
67 Toll Road
Holland Landing, ON L9N 1H2
T 905 952 4102
Holland Landing, ON L9N 1H2
info@myinscape.com
T 905 836 7676
myinscape.com
myinscape.com
66
67 Toll Road,
Holland Landing, ON L9N 1H2
T 905 836 7676
F 905 836 6000
Toll Free 1 866 467 2273
myinscape.com
© Inscape Corporation 2020
® Trademarks of Inscape Corporation. Patents may be pending. Certain names, words, logos and graphics or
designs contained herein are trademarks or service marks of Inscape Corporation.