1、ANNUALREPORT2019IN ALL SUCCESSFUL BUSINESSES THE KEY TO SUCCESS RELIES ON MANAGEMENTS ABILITY TO MASTER THREE FUNDAMENTALS:COMMITMENT TO CUSTOMERCLEAR VISION OF GOALSCORRECT TIMING OF ACTIONSOUR SENIOR MANAGEMENT TEAM KNOWS,UNDERSTANDS AND LIVES BY THESE BUSINESS FUNDAMENTALS.MANAGEMENT DISCUSSION A
2、ND ANALYSIS Annual Report December 31,2019 1 PREFACE This Management Discussion and Analysis(MD&A)comments on Imaflex Inc.s(the“Parent Company”)operations,financial performance,financial condition,future outlook and other matters for the three-month periods and years ended December 31,2019 and 2018.
3、Unless otherwise indicated,the terms“Imaflex”,“Company”,“Corporation”,“we”,“our”,and“us”all refer to Imaflex Inc.,together with its divisions Canguard Packaging and Canslit,along with its wholly owned subsidiary,Imaflex USA Inc.All intercompany balances and transactions have been eliminated on conso
4、lidation.This MD&A also provides information to improve the readers understanding of the accompanying audited consolidated financial statements and related notes.It should be read together with our audited consolidated financial statements for the years ended December 31,2019 and 2018.Unless otherwi
5、se indicated,all financial data in this document was prepared in accordance with International Financial Reporting Standards(“IFRS”),as issued by the International Accounting Standards Board(“IASB”)and all amounts in tables are expressed in thousands of Canadian dollars unless otherwise indicated.Di
6、fferences may occur due to rounding of amounts.We also use financial measures that are not defined by IFRS.Please refer to the section entitled“Non-IFRS Financial Measures”for a complete description of these measures.This MD&A was reviewed by Imaflexs Audit Committee and approved by the Board of Dir
7、ectors on April 16,2020.Disclosure contained within it is current to that date,unless otherwise indicated.Additional information on Imaflex is available on our website at and on SEDAR at .CRITICAL ACCOUNTING POLICIES The Companys significant accounting policies,including the Companys accounting poli
8、cies under IFRS,are disclosed in note 2,Significant accounting policies of the audited consolidated financial statements for the years ended December 31,2019 and 2018.IFRS 16,Leases Effective January 1,2019,Imaflex adopted IFRS 16,Leases,(“IFRS 16”)as described in note 2.18 to the audited consolidat
9、ed financial statements for the year ended December 31,2019 and 2018.Under IFRS 16,which replaces IAS 17,lessees are required to account for leases on their balance sheet by recognizing a“right of use”asset and a lease liability,essentially removing the distinction between an operating and finance l
10、ease.Certain exemptions exist for short-term leases and leases of low value assets.Imaflex applied the modified retrospective method of application and as such,comparative prior-year information has not been restated.FORWARD LOOKING STATEMENTS From time to time,we make forward-looking statements wit
11、hin the meaning of Canadian Securities laws,including the“safe harbor”provisions of the Securities Act(Ontario).We may make such statements in this document,in other filings with Canadian regulators,in reports to shareholders or in other communications.These forward-looking statements include,amongs
12、t others,statements regarding the business and anticipated financial performance of the Company.The words“may”,“could”,“should”,“would”,“outlook”,“believe”,“plan”,“anticipate”,“expect”,“intend”,“objective”,the use of the conditional tense and words and expressions of similar nature are intended to i
13、dentify forward-looking statements.By their very nature,forward-looking statements involve inherent risks and uncertainties,both general and specific,which give rise to the possibility that predictions,forecasts,projections and other forward-looking statements will not be achieved.We caution readers
14、 not to place undue reliance on these statements,as a number of important factors could cause our actual results to differ materially from the beliefs,plans,objectives,expectations,anticipations,estimates and intentions expressed in such forward-looking statements.These factors include,but are not l
15、imited to,the length and severity of an economic downturn,management of credit,market dynamics,liquidity,funding and operational risks;the MANAGEMENT DISCUSSION AND ANALYSIS Annual Report December 31,2019 2 FORWARD LOOKING STATEMENTS(continued)strength of the Canadian and U.S.economies in which we c
16、onduct business;the impact of the movement of the Canadian dollar relative to other currencies,particularly the U.S.dollar;the effects of changes in interest rates;the effects of competition in the markets in which we operate;our ability to successfully align our organization,resources,and processes
17、;the availability and price of raw materials;failure to achieve planned growth associated with the U.S.operations and future sales;changes in accounting policies and methods we use to report our financial condition,including uncertainties associated with critical accounting assumptions and estimates
18、;operational and infrastructure risks;and other factors that may affect future results including,but not limited to,timely development and introduction of new products and services;changes in tax laws,technological changes,new regulations;the possible impact on our businesses from public-health emer
19、gencies,international conflicts and other developments;and our success in anticipating and managing the foregoing risks.We caution our readers that the previous list of important factors that may affect future results is not exhaustive.When relying on our forward-looking statements to make decisions
20、 with respect to the Company,investors and others should carefully consider the foregoing factors and other uncertainties and potential events.Unless otherwise required by the securities authorities,we do not undertake to update any forward-looking statement that may be made from time to time by us
21、or on our behalf.The forward-looking statements contained herein are based on information available as of April 16,2020.COMPANY OVERVIEW lmaflex is focused on the development and manufacturing of innovative solutions for the flexible packaging and agricultural markets.The Companys flexible packaging
22、 products are largely used to protect and preserve and consist primarily of polyethylene(plastic)films and bags,and metalized films.Our polyethylene films are mainly sold to printers known as converters,who process the film into a finished product to meet their end-customer needs.Additionally,our fi
23、lms are sold directly to customers to protect and market their own products,or bought by distributors for re-sale.Our agricultural films are finished products,predominantly sold directly to end-users by lmaflex.They are available in a variety of formats and include both metalized and non-metalized f
24、ilms.Our portfolio includes common mulch and fumigant barrier films,which are also available in a compostable plastic,as well as innovative crop protection films,that add pest/weed control and/or accelerated growth benefits beyond those provided by our common mulch films.Imaflex operates three manuf
25、acturing facilities.Two are located in the province of Quebec,including Montreal(Imaflex Inc.)and Victoriaville(Canguard and Canslit),and one is located in Thomasville,North Carolina,USA(Imaflex USA).The Company also has a warehouse in Thomasville.The four facilities cover a total area of approximat
26、ely 23,412 square meters or 252,000 square feet.lmaflex and lmaflex USA specialize in the manufacturing and sale of custom-made polyethylene films and bags,along with non-metalized agricultural films.Canguard specializes in the manufacturing and sale of polyethylene garbage bags,while Canslit specia
27、lizes in the metallization of plastic film.We believe that our manufacturing presence in both Canada and the United States provides a competitive advantage in terms of logistics,currency,manufacturing flexibility and cost leadership.The common shares of the Parent Company,Imaflex Inc.,are listed on
28、the TSX Venture Exchange under the symbol“IFX”.The Companys head office is located in Montral(Qubec).GROWTH STRATEGY Imaflexs history attests to its managements ability to successfully adapt to prevailing and continuously changing market conditions.Management believes that success will also lie in t
29、he ability to properly manage future growth whether it comes from new markets and products,acquisitions,mergers,or a combination of any or all three.This success will depend on the Companys ability to seek out new opportunities and to position itself such that it will be able to take advantage of th
30、em when they present themselves.Past decisions have been made bearing this in mind and the Company is now in a better position to make this happen.MANAGEMENT DISCUSSION AND ANALYSIS Annual Report December 31,2019 3 GROWTH STRATEGY(continued)Management believes the following initiatives will contribu
31、te to Imaflexs long-term growth:Strengthen and Grow the Core We will continue to strengthen the core flexible packaging business.This includes revenue growth and margin expansion through higher production volumes geared towards the most profitable markets and products,along with a focus on lean oper
32、ations(minimizing scrap,reducing production set-up times,etc.).In addition to growing organically,we will also consider strategic acquisitions that make sense in terms of complementary fit,cost and ease of integration.Grow the Agriculture Business We will continue to build-out our agriculture busine
33、ss,driving awareness and exposure for our advanced crop protection products,particularly our unique film,Shine N Ripe XL and our patented film,ADVASEAL(under development).Our crop protection films are mulch films surface coated with either metallic aluminum and/or chemical/biological active substanc
34、es aimed to protect plants from disease transmitting insects,to limit the growth of soil borne pests and weeds and/or to accelerate the growth and yield of plants.Shine N Ripe XL Citrus Film Shine N Ripe XL is a long-lasting,heavy-duty,highly-reflective metalized mulch film designed specifically to
35、fight citrus greening(HLB),a bacterial disease transmitted by the Asian Citrus Psyllid(ACP).HLB has devastated the global citrus industry,causing deformed off-flavored fruits,low yields and inevitably early tree death.Common insecticides have proven to be ineffective in preventing HLB infestation in
36、 newly planted citrus groves.Shine N Ripe XLs unique ability to reflect up to 80%of solar ultraviolet(UV)light intercepts the ACP and hence helps deter HLB infestation in young citrus trees.In addition,Shine N Ripe XL significantly increases tree growth and yield by providing more sunlight to the lo
37、wer tree parts,usually hidden in the canopys shadow.Importantly,Shine N Ripe XL also significantly suppresses weeds and reduces water and fertilizer consumption compared to traditional growing methods.The films proprietary anti-corrosion coating has also been shown to maintain its initial high UV re
38、flectivity for at least 3 years,making it one of the most environmentally-friendly and economically-viable tools for coping with citrus greening.A multi-year trial conducted by the Florida Research Centre for Agricultural Sustainability(FLARES),repeatedly found that Shine N Ripe XL demonstrated clea
39、r benefits over conventional production practices.In their January 2018 Florida Citrus Show presentation,FLARES reported that although approximately four years had passed since the trial began,trees planted with Shine N Ripe XL continued to show less impact from citrus greening(“HLB”)versus other tr
40、eatments.As well,material on-going benefits continued in crop yields,resulting in a significantly shorter pay-back time for citrus growers.In both year three and year four,crops using Imaflexs film remained the only ones in the comparative group with a positive net return on invested capital.This en
41、sued despite the higher initial investment costs for land preparation and installation associated with the metalized films use.Imaflex is dedicated to the films success given the proven benefits it offers growers worldwide in crop protection,tree growth and yield enhancement.This said,uncertainties
42、on the timing of its buildout exist as the take-up rate to date has been lower than expected.ADVASEAL Today,agricultural films are used in the growing of fresh fruits and vegetables worldwide to cover soil treated with fumigants volatile and toxic pesticides essential for reducing pests,weeds and fu
43、ngi in the soil,thus supporting good growth of new crop seedlings.Currently,fumigants offer the greatest efficacy for soil disinfestation,but they also have the highest health and environmental risk due to their volatility,toxicity and required application rates that can run into the hundreds of pou
44、nds per acre.The original U.S.Environmental Protection Agency(EPA)approved ADVASEAL(ADVASEAL HSM)contained only an herbicide for weed control.The new enhanced ADVASEAL,which is under development,also includes three fungicides and a nematicide to control soil borne pathogens,thus becoming a complete
45、non-fumigant alternative for soil disinfestation.With ADVASEAL,these modern non-volatile crop protection products can be applied more effectively and safely than with fumigants.The crop protection products are incorporated into a coating,which is then applied to a mulch MANAGEMENT DISCUSSION AND ANA
46、LYSIS Annual Report December 31,2019 4 GROWTH STRATEGY(continued)Grow the Agriculture Business(continued)film.Once the coated film is applied to the ground,the active ingredients are released into the soil under controlled conditions,preventing the over/under-dosing found with current soil disinfest
47、ation practices.This new technology dramatically reduces the amount of crop protection products required.The catalyst to trigger the release of the active ingredients is soil moisture.When the film is applied to the soil,the active ingredients are efficiently and safely discharged into the ground,re
48、sulting in heightened productivity,lower costs and notable environmental benefits.The underlying technology is patent-protected in the top 20 major vegetable and fruit producing countries worldwide until 2028.ADVASEAL is safe to transport,store and handle and its application is emission-free,elimina
49、ting the risk of inhalation and environmental damage present with the drift of fumigants under current agricultural practices.In addition to being environmentally friendly,management estimates that ADVASEAL will provide significant savings to growers depending on the crop and fumigants currently bei
50、ng used.ADVASEAL permits the precise application of a low dose of crop protection products,which should improve crop quality and yields.Management estimates that ADVASEAL will reduce the chemicals required by over 95%and eliminate many of the costly work-steps currently being used.Collectively,this
51、puts Imaflex in a good position to capture market share worldwide as ADVASEAL is commercialized.Maintain focus on Research and Development We will maintain our focus on enhancing the customer value proposition,while developing new capabilities and leading-edge products for highly profitable niche ma
52、rkets.This will help support the build-out of our core flexible packaging product portfolio.The Companys research teams use the fields in which they have core-competencies in order to identify innovative improvements and solutions where chemicals and polymers can offer added-value.Maintain Efficienc
53、y of Equipment Finally,we will focus on the efficiency of our equipment,making the required capital investments to maintain,upgrade and expand into new areas.Our commitment to make the required investments,and our ability to deliver customized solutions,on-time and at competitive prices should help
54、to drive revenue and margin expansion,while allowing us to remain competitive in the marketplace.MARKET OVERVIEW The North American flexible packaging market is valued at approximately US$29 billion.Although this market is highly fragmented and commoditized in terms of pricing,there are niches withi
55、n the space that offer opportunity for increased profitability.In 2019,Imaflex was once again ranked in the top 100 North American film and sheet manufacturers by sales.The total addressable global agriculture mulch film market,excluding silage and green house films,is valued at approximately US$3.5
56、 billion.The Company has and continues to develop innovative and proprietary solutions for this important market.Going forward,Imaflex hopes to capture a much larger share of the agriculture film market due to its advanced crop protection and yield enhancement products,such as ADVASEAL.Management be
57、lieves the value of the global addressable market for an active ingredient release film like ADVASEAL will be much larger than that for traditional mulch films.In the U.S.alone,the Company estimates that approximately 130 million pounds of mulch film is being used,resulting in an estimated total add
58、ressable market for ADVASEAL of approximately US$750 million.With growing concerns over the scarcity of resources,the environment,lower crop yields due to disease,and a rising global population,the Company believes that the macro-environment is also working in its favour.Sustainability and intellige
59、nt farming are becoming increasingly important and growers are increasingly turning to other industries to help them do more with less.MANAGEMENT DISCUSSION AND ANALYSIS Annual Report December 31,2019 5 ADVASEAL COMMERCIALIZATION Imaflex successfully completed the design of a new coating line,custom
60、ized specifically for the cost effective production of ADVASEAL.In addition,the Company sourced all the active ingredients(herbicide,nematicide and fungicides)to be coated on the film.In order to obtain sufficient quantities of ADVASEAL film for field trials,the Company also worked closely with FUJI
61、FILM Manufacturing U.S.A.Inc.(FUJIFILM)on the development of the coating process for the active ingredient mixture.In February 2020,Imaflex obtained sufficient quantities of ADVASEAL and subsequently commenced an Efficacy Field Trial.The trial is evaluating ADVASEALs ability to release its crop prot
62、ection products into the soil and achieve soil disinfestation,prior to planting tomato seedlings.Concurrently,the trial is monitoring plant growth,yield and quality,compared to a crop grown under the current best Florida grower standard for fresh tomato production using fumigants.The tomato plant wa
63、s chosen as a model crop,because it is one of the most widely grown vegetables in the world.Furthermore,if high yields can be achieved using ADVASEAL with tomato plants,it can likely be used to produce high yields for most other fruits and vegetables that require pre-plant soil disinfestation with f
64、umigants.On March 31,2020,Imaflex announced positive interim results for the Efficacy Trial.Independent analytical lab results of ADVASEAL samples collected at the trial site,in the three-week period following the film being laid on the ground,indicated that the active ingredients were being release
65、d into the soil in the desired manner.Full trial results,including plant growth,yield and quality for both the ADVASEAL test crop and grower reference will be released once the growing season is complete and the independent report is available.Given the positive interim results,the Corporation inten
66、ds to continue its pre-registration meetings with the EPA and will meet them to discuss results and next steps for the timely registration of ADVASEAL as a new pesticide.The will include discussions on the design of a trial to determine the exact timing for the complete release of each active ingred
67、ient used with ADVASEAL.This is required to show compliance with the pre-harvest interval legally established by the EPA for each pesticide used,which is essentially the wait time between ADVASEALs application on the soil and when a crop can first be harvested for safe human consumption.Management b
68、elieves the trials and pesticide registration process will be positive as the generic active ingredients to be used with ADVASEAL are effectively used by growers today.As well,the Company previously received EPA approval of its herbicidal active ingredient release film,ADVASEAL HSM.COMPETITIVE ENVIR
69、ONMENT Although competition is high in all of our markets,Imaflex operates in a multi-billion dollar industry with a multitude of product opportunities.Flexible packaging alone is used in almost every consumer market to protect and preserve.Additionally,many of the Companys customers deal in food re
70、lated products,which are somewhat recession resistant.Imaflex believes it has a competitive edge since it is recognized as being an industry leader in the development of innovative solutions.The Company focuses on offering customers unique high quality products on a timely basis and at competitive p
71、rices.A key strength of ours is the ability to take on smaller orders with short lead times.Collectively,this helps create customer loyalty.Some competitors,experiencing idle operations or producing at below average capacity levels,may attempt to gain market share through reduced pricing,particularl
72、y during difficult economic times.Imaflex still believes that maintaining its focus on the quality of its products and the excellence of its customer service remains its best long-term strategy,as these two characteristics define our position and reputation in the market,and this regardless of the f
73、luctuations in the economic cycle.This strategy has been the backbone of our growth and it has served us well.We employ a staff of chemical&polymer engineers and a chemist,which allows us to develop unique solutions.In our markets,we believe it is essential to sell value-added products and avoid pro
74、ducing highly commoditized offerings generating lower margins.The key to this strategy is identifying and building relationships with customers having specific needs and eventually developing products that address them.Our sales force is mandated to seek out such clients and the MANAGEMENT DISCUSSIO
75、N AND ANALYSIS Annual Report December 31,2019 6 COMPETITIVE ENVIRONMENT(continued)Company works to ensure its sales team is technically accomplished and equipped to properly communicate the advantages of all products.EMPLOYEES AND CORPORATE OFFICE Imaflex currently employs approximately 234 people i
76、n North America,including those at our corporate head office located in Montreal,Canada.The Company currently has no unionized employees.OUTSOURCING Our industry is capital intensive and labour is only a minor component in the total cost of production.As a result,outsourcing our manufacturing to cou
77、ntries with lower wages would not have a material impact on costs,especially when factoring in expenses related to freight and duty.Furthermore,the risks associated with relinquishing our control over quality and delays in delivery deadlines would far outweigh any minimal benefit that would be gener
78、ated by lower labour costs.However,in the effort of eliminating bottlenecks in our production process when our capacity usage is very high,management may consider the use of third-party(toll)manufacturers for certain activities in order to meet all production deadlines and ensure the best service to
79、 our customers.RISK FACTORS The Company is involved in a competitive industry and marketplace in which there are a number of participants.To accommodate and effectively manage future growth,Imaflex continues to improve its operational,financial and management information systems,as well as its produ
80、ction procedures and controls.Our success is largely the result of the continued contributions of our employees and the Companys ability to attract and retain qualified management,sales and operational personnel.The overall market we compete in has historically shown resiliency and growth,even durin
81、g difficult economic times.Our customers predominantly operate in the food packaging and agriculture markets,which are somewhat resilient to recessionary and seasonal pressures.This fact,coupled with expanding product lines and the introduction of newer and faster equipment,should help Imaflex weath
82、er any potential volatility caused by uncertainty in the North American economic climate.Factors which can impact the Company include,but are not limited to:management of credit,market dynamics,liquidity,funding and operational risks;the strength of the Canadian and U.S.economies in which we conduct
83、 business;the impact from movement of the Canadian dollar relative to other currencies,particularly the U.S.dollar;the effects of changes in interest rates;the effects of competition in the markets in which we operate;our ability to successfully align our organization,resources,and processes;the ava
84、ilability and price of raw materials;failure to achieve planned growth associated with the U.S.operations;changes in accounting policies and methods we use to report our financial condition,including uncertainties associated with critical accounting assumptions and estimates;operational and infrastr
85、ucture risks;other factors may affect future results including,but not limited to,timely development and introduction of new products and services;changes in tax laws,technological changes and new regulations;the possible impact on our businesses from public-health emergencies,international conflict
86、s and other developments;and our success in anticipating and managing the foregoing risks.GENERAL SITUATION OF THE POLYETHYLENE BLOWN FILM MARKET RESIN PRICING Given the current geopolitical events surrounding oil,the impact of COVID-19 and expected capacity increases from new plants coming on strea
87、m,Imaflex expects resin prices to remain flat to down for the immediate future.However,any unexpected supply chain disruptions would give reason for resin producers to raise prices further.Since Imaflex does not have major long-term contracts with its customers,resin price fluctuations are typically
88、 passed along to them.MANAGEMENT DISCUSSION AND ANALYSIS Annual Report December 31,2019 7 LOSS OF BUSINESS FROM A SIGNIFICANT CUSTOMER One of our business practices has been to limit the purchases by any particular customer to less than 10%of our revenues.This strategy helps ensure that our profitab
89、ility and financial well-being are not dependent on any one client.COMPETITION FROM OTHER COMPANIES Imaflex operates in the highly competitive multi-billion dollar flexible packaging and agricultural film markets.This said,we believe the Company has a competitive edge over the competition due to our
90、 highly skilled teams that are quick to respond to customer needs,a diversified manufacturing base and the fact that the bulk of our customers deal in food related products which are less subject to recessionary and seasonal pressures.It may not always translate into greater net profit,but it should
91、 result in customer loyalty if we decide to match our competitors prices.SEASONALITY OF OPERATIONS Certain products made at our Victoriaville and Thomasville facilities are subject to some seasonality due to the plants partial manufacturing focus on the production of agriculture film for fruit and v
92、egetable growers.Inventory is managed in a way to optimize cash flow,while also remaining capable to seize market opportunities that may arise.Since these locations also manufacture products that are destined for other markets,they are not overly affected by seasonal downturns.EXPOSURE TO PRODUCT LI
93、ABILITY Due to the nature of our operations,which consist primarily of manufacturing polyethylene film for converters,who process film into a finished product for their end-customers,Imaflexs exposure to product liability is low.Furthermore,the Corporation is not exposed to liability for personal in
94、jury or death arising from negligence in the manufacturing of the films.The only market segment that exposes the Company to potential product liability claims is the agriculture space.In this market,proof of negligence in our manufacturing process could entail some form of compensation in the event
95、that the expected crop yields do not materialize.Although the likelihood of a claim in this market is low,we are nonetheless covered by a product liability insurance policy in the amount of$25,000,000.FLUCTUATIONS IN OPERATING RESULTS It is important to note that profitability may vary from quarter
96、to quarter,irrespective of quarterly sales.This is due to many factors,including and not limited to:competitive conditions in the businesses in which Imaflex participates;general economic environment and normal business uncertainty;product mix;fluctuations in foreign currency exchange rates;the avai
97、lability and costs of raw materials;changes in Imaflexs relationship with its suppliers;planned plant shutdowns for preventative maintenance affecting production levels;and interest rate fluctuations along with other changes in borrowing costs.EXPOSURE TO INTEREST RATE FLUCTUATIONS The Companys borr
98、owings,which bear interest at a variable rate,have some interest rate risk.Management assesses its exposure to interest rate fluctuations and decides whether it may be favourable to enter into contracts to hedge this risk based on expected future movements and available economic data.Interest rate h
99、ikes,including those seen in recent quarters,may affect the Companys future cost of borrowing.However,management is currently not hedging its interest rate exposure and expects this exposure to lessen as the outstanding balance on its long-term borrowings decreases.MANAGEMENT DISCUSSION AND ANALYSIS
100、 Annual Report December 31,2019 8 ABILITY TO ATTRACT AND RETAIN QUALIFIED PERSONNEL Imaflexs core operational management team has been historically stable and the Company was able to keep key competencies within the firm.This includes its three founders,who have more than 100 years of combined exper
101、ience in management and research and development.As Imaflex has grown,it has also strengthened its team,adding individuals having a variety of competencies,such as accounting,operations,or engineering.Management promotes a work environment that allows for the free exchange of ideas in an effort to e
102、nsure that the Company remains at the forefront of its industry.Management is confident that it can retain and,if need be,attract qualified individuals that will contribute to its on-going goal of building shareholder value.FOREIGN EXCHANGE FLUCTUATIONS Some of the Companys sales and expenses,as wel
103、l as accounts receivable and payable,are denominated in US dollars.A portion of the revenue stream in US dollars acts as a natural hedge to cover US denominated expenses.Imaflex can also borrow funds on its line of credit in US dollars.The Company has increased its debt in US dollars in order to obt
104、ain additional revenues in US dollars.As this additional U.S.business fully materializes,the Companys exposure to foreign currency should be managed naturally.Management continuously assesses its exposure to such risk and the Company does not currently use any financial instruments to hedge its fore
105、ign currency position.ENVIRONMENTAL HAZARDS The Companys raw materials,processes and finished goods do not have any hazardous implications.However,we do buy a few items which are used in our production equipment,such as cooling products,which may be hazardous,but their use and handling are controlle
106、d.Though these products actually pose little risk,they are handled in a manner that fully complies with existing safety regulations.NON-IFRS FINANCIAL MEASURES The Companys management uses a non-IFRS financial measure in this MD&A,namely EBITDA,to assess its performance.EBITDA is determined as“Earni
107、ngs before interest,taxes,depreciation and amortization”.The reader may refer to the following table for the reconciliation of the Companys EBITDA to its reported net income.Reconciliation of EBITDA to net income:($thousands,except per share data)Three months ended December 31,Years ended December 3
108、1,2019 2018 2019 2018 Net income 303$556$1,536$3,550 Plus:Income taxes 79 411 678 1,477 Finance costs 187 170 729 571 Depreciation and amortization 895 657 3,330 2,201 EBITDA1$1,464$1,794$6,273$7,799 Basic EBITDA per share2 Diluted EBITDA per share2$0.03$0.03$0.04$0.04$0.13$0.12$0.16$0.15 (1)Excludi
109、ng the impact of IFRS 16 Leases,EBITDA was$1.2 million for the quarter and$5.1 million for the year ended December 31,2019.(2)Basic weighted average number of shares outstanding of 50,013,637 for the quarter and year ended December 31,2019.This compares to basic weighted average number of shares out
110、standing of 50,013,637 for the three-month period ended December 31,2018 and 49,915,829 for the year ended December 31,2018.Diluted weighted average number of MANAGEMENT DISCUSSION AND ANALYSIS Annual Report December 31,2019 9 NON-IFRS FINANCIAL MEASURES(continued)shares outstanding of 50,563,269 fo
111、r the quarter ended December 31,2019(51,031,396 in 2018)and 50,684,870 for the year ended December 31,2019(51,067,300 in 2018).While EBITDA is not a standard IFRS measure,management,analysts,investors and others use it as an indicator of the Companys financial and operating management and performanc
112、e.EBITDA should not be construed as an alternative to net income determined in accordance with IFRS as an indicator of the Companys performance.The Companys method of calculating EBITDA may be different from those used by other companies and accordingly it should not be considered in isolation.RESUL
113、TS OF OPERATIONS During 2019,Imaflex continued to attract and retain customers,albeit at lower than historical sales prices,due to a competitive pricing environment and decreased resin costs.Revenues,profitability and cash flows were respectable versus 2018,particularly given the impact of currency
114、fluctuations on 2019 profitability compared to the prior year.($thousands)Three months ended December 31,Years ended December 31,2019 2018 2019 2018 Sales$18,740$22,472$81,071$86,332 Revenues were$18.7 million for the fourth quarter of 2019,down 16.6%from$22.5 million in 2018.The decrease largely re
115、flects the impact on product pricing resulting from competitive pressures and lower resin prices.As well,sales of the Corporations high margin citrus film were$nil for the current quarter,versus$1.4 million in 2018.Excluding citrus film sales,revenues were down 11.1%versus 2018.Fiscal 2019 sales tot
116、aled$81.1 million,down 6.1%from$86.3 million in the prior year.The decrease from 2018 was mainly due to the same variables outlined for the quarter,partially offset by favourable movements in foreign exchange.Citrus film sales totaled$0.9 million in 2019,down from$2.8 million in 2018.Excluding citru
117、s film sales,revenues were down 4.0%year-over-year.($thousands)Three months ended December 31,Years ended December 31,2019 2018 2019 2018 Gross Profit($)before amortization of production equipment Gross Profit before amortization of production equipment(%)$3,449 18.4%$2,361 10.5%$14,008 17.3%$12,684
118、 14.7%Amortization of production equipment 802 589 3,056 1,920 Gross profit($)Gross profit(%)$2,647 14.1%$1,772 7.9%$10,952 13.5%$10,764 12.5%Gross profit before the amortization of production equipment was$3.4 million or 18.4%of sales in the fourth quarter of 2019,up from$2.4 million and 10.5%of sa
119、les in 2018.Similarly,the quarterly gross profit including amortization of production equipment,was up year-over-year,coming in at$2.6 million or 14.1%of sales for the current quarter,versus$1.8 million and 7.9%of sales in the fourth quarter of 2018.In the fourth quarter of 2018,the gross profit bef
120、ore and after amortization of production equipment,was particularly impacted by resin price fluctuations.Resin price decreases are normally reflected immediately in product pricing for Imaflexs customers,while increases usually take about 30 days to be priced in.As such the effect of a resin price d
121、ecrease is that an immediate opportunity loss is incurred with respect to resin MANAGEMENT DISCUSSION AND ANALYSIS Annual Report December 31,2019 10 RESULTS OF OPERATIONS(Continued)inventory previously purchased when resin prices were higher.As well,the 2019 quarterly gross margin benefited from a y
122、ear-over-year decrease in certain variable costs,such as transportation.For fiscal 2019,the gross profit before amortization of production equipment was$14.0 million or 17.3%of sales,up from$12.7 million or 14.7%of sales in 2018.The corresponding gross profit including amortization expenses was$11.0
123、 million or 13.5%of sales,versus$10.8 million and 12.5%of sales in 2018.The year-over-year improvement before and after amortization of production equipment is largely attributable to the aforementioned quarterly variance explanation relating to resin pricing.($thousands)Three months ended December
124、31,Years ended December 31,2019 2018 2019 2018 Selling and administrative$1,676$1,490$7,042$6,493 As a%of sales 8.9%6.6%8.7%7.5%Selling and administrative expenses were$1.7 million or 8.9%of sales in the fourth quarter of 2019,up from$1.5 million and 6.6%of sales in 2018.Fiscal 2019 expenses came in
125、 at$7.0 million or 8.7%of sales,compared to$6.5 million and 7.5%of sales in the corresponding prior-year period.The year-over-year increases for the quarter and year-to-date were mainly driven by an expanded sales team to stimulate demand for Imaflexs products and new production equipment,namely the
126、 five layer extruder.($thousands)Three months ended December 31,Years ended December 31,2019 2018 2019 2018 Finance costs$187$170$729$571 Finance costs were$187 thousand for the current quarter,versus$170 thousand in 2018.For fiscal 2019,finance costs totaled$729 thousand,up from$571 thousand in cal
127、endar 2018.The aforesaid year-over-year increases were largely due to the incremental interest accretion on lease liabilities resulting from the adoption of IFRS 16 and increases in long term debt associated with major equipment purchases,namely the five layer extruder.($thousands)Three months ended
128、 December 31,Years ended December 31,2019 2018 2019 2018 Foreign exchange losses/(gains)$374($886)$872($1,340)Due to unfavourable currency fluctuations,Imaflex recorded a foreign exchange loss of$0.4 million in the fourth quarter of 2019,versus a$0.9 million gain in 2018.This resulted in a negative$
129、1.3 million year-over-year variance.For fiscal 2019,the Corporation similarly recorded a foreign exchange loss,versus a gain in 2018,resulting in a$2.2 million negative year-over-year variance.The majority of the Corporations foreign exchange gains and losses are non-cash impacting and largely relat
130、e to intercompany balances for which Imaflex can control the time of settlement.MANAGEMENT DISCUSSION AND ANALYSIS Annual Report December 31,2019 11 RESULTS OF OPERATIONS(Continued)($thousands)Three months ended December 31,Years ended December 31,2019 2018 2019 2018 Income taxes$79$411$678$1,477 As
131、 a%of income before taxes 20.7%42.5%30.6%29.4%Fourth quarter 2019 income tax expenses were$0.1 million or 20.7%of income before taxes.This compares to$0.4 million and 42.5%respectively in 2018.For fiscal 2019,income taxes totaled$0.7 million,down from$1.5 million in 2018,reflecting the lower profita
132、bility in the current year.Income taxes as a percentage of income before taxes was 30.6%for calendar 2019,up slightly from 29.4%in 2018.The Corporations statutory tax rate is currently 26.6%.($thousands,except per share data)Three months ended December 31,Years ended December 31,2019 2018 2019 2018
133、Net income$303$556$1,536$3,550 Basic earnings per share Diluted earnings per share$0.01$0.01$0.01$0.01$0.03$0.03$0.07$0.07 The Company recorded net income of$0.3 million in the fourth quarter of 2019,versus$0.6 million in the corresponding prior-year quarter.The decrease was largely due to unfavoura
134、ble movements in foreign exchange and higher 2019 selling and administrative expenses,partially offset by the improved quarterly gross profit.For calendar 2019,net income stood at$1.5 million,down from$3.6 million in the prior year.The decrease was largely due to unfavourable year-over-year movement
135、s in foreign exchange and higher 2019 selling and administrative expenses,partially offset by the higher gross profits in 2019 and lower income taxes versus 2018.SUMMARY OF QUARTERLY RESULTS Summary financial data derived from the Companys unaudited quarterly financial statements for each of the eig
136、ht most recently completed quarters are as follows:For the quarters ending March,June,September and December($thousands,except per share data):Q4/19 Q3/19 Q2/19 Q1/19 Q4/18 Q3/18 Q2/18 Q1/18 Revenues 18,740 19,195 21,269$21,867$22,472$21,316$21,927$20,617 Net income 303 470 205 558 556 594 727 1,673
137、 Earnings per share Basic 0.006 0.009 0.004 0.011 0.011 0.012 0.015 0.034 Diluted 0.006 0.009 0.004 0.011 0.011 0.012 0.014 0.033 It is important to note that profitability may vary from quarter to quarter,irrespective of quarterly sales,due to many factors.These factors include and are not limited
138、to:competitive conditions in the businesses in which the Company participates;general economic conditions and normal business uncertainty;product mix;fluctuations in foreign currency rates;the availability and costs of raw materials;changes in the Companys relationship with its suppliers;planned pla
139、nt shutdowns for preventative maintenance affecting production levels;along with interest rate fluctuations and other changes in borrowing costs.MANAGEMENT DISCUSSION AND ANALYSIS Annual Report December 31,2019 12 FINANCIAL POSITION December 31,2019 vs.December 31,2018 Working capital stood at$10.0
140、million as at December 31,2019($11.0 million excluding the impact of IFRS 16),compared to$11.0 million as at December 31,2018.LIQUIDITY Cash Flows from Operating Activities In the fourth quarter of 2019,net cash generated by operating activities stood at$2.7 million,up from$0.6 million in the prior
141、year.The$2.1 million increase over 2018 was largely due to favourable year-over-year movements in foreign exchange,trade&other receivables and inventories,partially offset by lower profits in the current quarter and a decrease in trade and other payables versus 2018.For fiscal 2019,net cash generate
142、d by operating activities totaled$9.7 million,up from$1.1 million in the prior year.The$8.5 million increase over 2018 was largely driven by favourable year-over-year movements in operating activities(foreign exchange and depreciation and amortization)and working capital(trade&other receivables and
143、inventories),partially offset by lower profits in 2019 and a decrease in trade and other payables versus 2018.Cash Flows from Investing Activities During the fourth quarter of 2019,Imaflex contributed$1.3 million towards capital assets,down slightly from$1.5 million in 2018.For fiscal year 2019,capi
144、tal investments totaled$5.4 million,up from$3.7 million in the prior year.The year-over-year variances for the quarter and year largely relate to the timing of payments for a new five-layer extruder and other major equipment purchases.These investments were made to further enhance the Companys produ
145、ction capacity and capabilities in order to generate heightened sales and profitability.Cash Flows from Financing Activities During the fourth quarter of 2019,the Corporation had cash outflows from financing activities of$1.9 million,versus$0.9 million of inflows in the corresponding prior-year peri
146、od.The year-over-year decrease is largely due to changes in bank indebtedness(reduction in the Companys line of credit versus an increase in 2018),and reimbursements of lease obligations versus 2018,partially offset by movements in long-term debt.For calendar 2019,Imaflex had$4.5 million of cash out
147、flows from financing activities,versus$2.8 million of cash inflows in the prior year.The$7.3 million year-over-year decrease was mainly driven by changes in bank indebtedness(reduction in the Companys line of credit versus an increase in 2018)and movements in lease obligations,partially offset by an
148、 increase in long-term debt versus 2018 resulting from funding for the major equipment projects.CONTRACTUAL OBLIGATIONS The contractual obligations as at December 31,2019 were as follows:($thousands)Payments due by period Total Less than 1 year 1 to 5 years After 5 years Long-term debt$9,130$2,235$6
149、,881$14 Bank indebtedness 4,538 4,538-Leases*3,878 1,273 2,587 18 Total contractual obligations$17,546$8,046$9,468$32*Based on IFRS 16,commitments previously captured under operating leases are now largely recorded on the balance sheet as lease obligations.These contractual obligations are sensitive
150、 to the fluctuation of interest rates.They are based on interest and foreign exchange rates effective as at December 31,2019.MANAGEMENT DISCUSSION AND ANALYSIS Annual Report December 31,2019 13 CAPITAL RESOURCES The Companys$12 million operating line of credit,which is secured by trade receivables a
151、nd inventories,bears interest at a premium of 0.40%over the Canadian prime rate.As at December 31,2019,Imaflex was using approximately$4.5 million on its line of credit($8.1 million as at December 31,2018)and had cash outstanding of$0.1 million($0.3 million as at December 31,2018).Working capital st
152、ood at$10.0 million as at December 31,2019($11.0 million excluding the impact of IFRS 16),versus$11.0 million as at December 31,2018.The Company controls its financial leverage,ensuring that its borrowings reflect the asset base against which funds are borrowed as well as the profitability that is g
153、enerated through the operations.EQUIPMENT LEASING FACILITY In 2018,Imaflex entered into an equipment leasing facility of up to CDN$10.0 million with a leading global financial institution to fund business expansion.During the third quarter of 2019,all funds borrowed under this lease agreement were t
154、ransferred to loan agreements,as described under note 15(f and g)in the accompanying audited consolidated financial statements and related notes.This new equipment allows the Corporation to increase its scale,broaden its capabilities and drive revenue and margin expansion at attractive terms.PROPOSE
155、D TRANSACTION The Company is not currently contemplating any business acquisition or merger.RELATED PARTY TRANSACTIONS In the normal course of operations,the Company had routine transactions with related parties.These transactions are measured at fair value,which is the amount of consideration estab
156、lished and agreed to by the related parties.The following table reflects the related party transactions recorded for the periods ended December 31,2019 and 2018.For additional information,please refer to note 22,Related party transactions of the“Notes to the consolidated financial statements”for the
157、 years ended December 31,2019 and 2018.($thousands)Three months ended December 31,Years ended December 31,2019 2018 2019 2018 Professional fees and key management personnel services(a)$(4)$19$174$216 Rent(b)$278$336$1,112$975 Remuneration(c)$240$252$1,116$1,142 (a)Professional fees include transacti
158、ons with Polytechnomics Inc.,of which Gerald R.Phelps,Imaflexs Vice-President Operations,is the controlling shareholder and with Philip Nolan,a director of Imaflex,who is also a partner at Lavery de Billy L.L.P.(b)Joseph Abbandonato,Imaflexs President,Chief Executive Officer and Chairman of the Boar
159、d,is the controlling shareholder of Roncon Consultants Inc.(“Roncon”).The Companys production facilities at Imaflex,Canslit,and Imaflex USA are leased from Roncon and parties related to Roncon under long-term lease agreements.The majority of these payments are recorded as a lease obligation on the b
160、alance sheet,while the remainder covers the applicable interest and is recorded under finance costs as an expense.(c)Includes salaries,benefits and fees paid to key management personnel and directors.MANAGEMENT DISCUSSION AND ANALYSIS Annual Report December 31,2019 14 FINANCIAL INSTRUMENTS Please re
161、fer to note 20,Financial instruments of the consolidated financial statements for the years ended December 31,2019 and 2018 for disclosure on the Companys financial instruments as well as note 21,Risk management for a discussion on the risks the Company is exposed to and how they are managed.As at D
162、ecember 31,2019,the Company was not using any swap,forward or hedge accounting and there were no warrants outstanding.As at December 31,2019,2,725,000 options to purchase shares of the Company were outstanding at a weighted average strike price of$0.521 of which 2,587,500 were exercisable.As at Dece
163、mber 31,2018,2,625,000 options to purchase shares of the Company were outstanding at a weighted average strike price of$0.520 of which 2,400,000 were exercisable.IMPACT OF CORONAVIRUS(COVID-19)Imaflex considered an essential vendor To date,Imaflexs three plants in Canada and the U.S.A.have remained
164、open,fully operational and running at normal business levels.The Corporation is considered an essential vendor in both countries due to the important role its products play in protecting and preserving food and consumer products.Presently,all manufacturing facilities have the ability to take on more
165、 volume should it be required due to business interruption at another plant or heightened order flow.Furthermore,Imaflex is not experiencing any delays with its suppliers.The Corporation believes it has sufficient capital to fund its operations and grow the business,assuming business levels remain t
166、he same.Despite this,Imaflex has and will utilize any available capital payment moratoriums on long term debt payments to maximize cash flows throughout the crisis.We are monitoring developments closely and taking all necessary steps to protect our employees,customers and business.For additional inf
167、ormation see note 23,Subsequent Events,of the attached consolidated financial statements.MANAGEMENT OUTLOOK We continue to operate in a dynamic pricing environment,while resin prices also remain lower than historical levels.This said,our strategy remains the same.We will continue to differentiate ou
168、rselves in advanced extrusion and innovative crop protection films,building out our addressable markets with innovative products.With the investments in new production equipment brought online in 2019,most notably the five-layer extruder,we are well positioned to do better in 2020.Longer term,our ne
169、xt generation agriculture film,ADVASEAL,offers some exciting opportunities for growth.We achieved some important milestones in recent months,including positive interim results for our Efficacy Trial.This said,some key milestones remain.If successful,the benefits of ADVASEAL for growers,the environme
170、nt and shareholders,should justify the wait.We operate in an ever changing business environment,but we are well positioned to drive profitable growth and are excited about our future potential.We look forward to providing updates on ADVASEAL and our overall business as we progress throughout the yea
171、r.OUTSTANDING SHARE DATA As at December 31,2019,the Company had 50,013,637 common shares outstanding,unchanged from 50,013,637 December 31,2018.MANAGEMENT DISCUSSION AND ANALYSIS Annual Report December 31,2019 15 Additional information relating to our Company,including our quarterly and Annual Repor
172、ts,can be found on SEDAR at .(s)Joe Abbandonato (s)Giancarlo Santella Joe Abbandonato Giancarlo Santella,CPA,CA President and Chief Executive Officer Chief Financial Officer April 16,2020 For investor information,contact JOHN RIPPLINGER Vice President Corporate Affairs T:514.935.5710 ext.157|F:514.9
173、35.0264 5710 Notre-Dame West Montreal,Quebec,Canada H4C 1V2 T:514.935.5710|F:514.935.0264 1 ConsolidatedFinancialStatementsofIMAFLEXINC.YearsendedDecember31,2019and2018 Raymond Chabot Grant Thornton LLP Suite 2000 National Bank Tower 600 De La Gauchetire Street West Montral,Quebec H3B 4L8 T 514-878-
174、2691 Member of Grant Thornton International Ltd Independent Auditors ReportTo the Shareholders of Imaflex Inc.OpinionWe have audited the consolidated financial statements of Imaflex Inc.(hereafterthe Company),which comprise the consolidated statements of financial positionas at December 31,2019 and
175、2018,and the consolidated statements ofcomprehensive income,the consolidated statements of changes in equity and theconsolidated statements of cash flows for the years then ended,and notes toconsolidated financial statements,including a summary of significant accountingpolicies.In our opinion,the ac
176、companying consolidated financial statements presentfairly,in all material respects,the financial position of the Company as atDecember 31,2019 and 2018,and its financial performance and its cash flowsfor the years then ended in accordance with International Financial ReportingStandards(IFRS).Basis
177、for opinionWe conducted our audit in accordance with Canadian generally acceptedauditing standards.Our responsibilities under those standards are furtherdescribed in the Auditors responsibilities for the audit of the consolidatedfinancial statements section of our report.We are independent of the Co
178、mpanyin accordance with the ethical requirements that are relevant to our audit of theconsolidated financial statements in Canada,and we have fulfilled our otherethical responsibilities in accordance with these requirements.We believe thatthe audit evidence we have obtained is sufficient and appropr
179、iate to provide abasis for our opinion.Information other than the consolidated financial statements and theauditors report thereonManagement is responsible for the other information.The other informationcomprises the information,other than the consolidated financial statements andour auditors report
180、 thereon,included in Managements Discussion and Analysisand the Annual Report.3Our opinion on the consolidated financial statements does not cover the otherinformation and we do not express any form of assurance conclusion thereon.Inconnection with our audit of the consolidated financial statements,
181、ourresponsibility is to read the other information identified above and,in doing so,consider whether the other information is materially inconsistent with theconsolidated financial statements or our knowledge obtained in the audit,orotherwise appears to be materially misstated.We obtained Management
182、s Discussion and Analysis and the Annual Reportprior to the date of this auditors report.If,based on the work we have performedon this other information,we conclude that there is a material misstatement ofthis other information,we are required to report that fact in this auditors report.We have noth
183、ing to report in this regard.Responsibilities of management and those charged with governance forthe consolidated financial statementsManagement is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with International FinancialReporting Stand
184、ards(IFRS),and for such internal control as management determines is necessary to enable the preparation of consolidated financialstatements that are free from material misstatement,whether due to fraud orerror.In preparing the consolidated financial statements,management is responsiblefor assessing
185、 the Companys ability to continue as a going concern,disclosing,as applicable,matters related to going concern and using the going concernbasis of accounting unless management either intends to liquidate the Companyor to cease operations,or has no realistic alternative but to do so.Those charged wit
186、h governance are responsible for overseeing the Companysfinancial reporting process.Auditors responsibilities for the audit of the consolidated financialstatementsOur objectives are to obtain reasonable assurance about whether theconsolidated financial statements as a whole are free from materialmis
187、statement,whether due to fraud or error,and to issue an auditors report thatincludes our opinion.Reasonable assurance is a high level of assurance,but isnot a guarantee that an audit conducted in accordance with Canadian generallyaccepted auditing standards will always detect a material misstatement
188、 when itexists.Misstatements can arise from fraud or error and are considered materialif,individually or in the aggregate,they could reasonably be expected to influencethe economic decisions of users taken on the basis of these consolidatedfinancial statements.4As part of an audit in accordance with
189、 Canadian generally accepted auditing standards,we exercise professional judgment and maintain professionalskepticism throughout the audit.We also:Identify and assess the risks of material misstatement of the consolidatedfinancial statements,whether due to fraud or error,design and perform auditproc
190、edures responsive to those risks,and obtain audit evidence that issufficient and appropriate to provide a basis for our opinion.The risk of notdetecting a material misstatement resulting from fraud is higher than for oneresulting from error,as fraud may involve collusion,forgery,intentionalomissions
191、,misrepresentations,or the override of internal control;Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances,but not forthe purpose of expressing an opinion on the effectiveness of the Companysinternal control
192、;Evaluate the appropriateness of accounting policies used and thereasonableness of accounting estimates and related disclosures made bymanagement;Conclude on the appropriateness of managements use of the going concern basis of accounting and,based on the audit evidence obtained,whether a material un
193、certainty exists related to events or conditions that may castsignificant doubt on the Companys ability to continue as a going concern.Ifwe conclude that a material uncertainty exists,we are required to drawattention in our auditors report to the related disclosures in the consolidatedfinancial stat
194、ements or,if such disclosures are inadequate,to modify ouropinion.Our conclusions are based on the audit evidence obtained up to thedate of our auditors report.However,future events or conditions may causethe Company to cease to continue as a going concern;Evaluate the overall presentation,structure
195、 and content of the consolidatedfinancial statements,including the disclosures,and whether the consolidatedfinancial statements represent the underlying transactions and events in amanner that achieves fair presentation;Obtain sufficient appropriate audit evidence regarding the financial information
196、of the entities or business activities within the group to express an opinion onthe consolidated financial statements.We are responsible for the direction,supervision and performance of the group audit.We remain solelyresponsible for our audit opinion.We communicate with those charged with governanc
197、e 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 ouraudit.5We also provide those charged with governance with a statement that we have complied with relevant eth
198、ical requirements regarding independence,and to communication with them all relationships and other matters that may reasonably be thought to bear on our independence,and where applicable,related safeguards.The engagement partner on the audit resulting in this independent auditors report is Antonia
199、Psyharis.MontralApril 16,20201CPA auditor,CA public accountancy permit no.A119564 6 Consolidatedstatementsofcomprehensiveincome(inCanadiandollars)fortheyearsendedDecember31,20192018Revenues(Note4.1)$81,070,541$86,332,093Costofsales70,118,43775,568,464Grossprofit10,952,10410,763,629Expenses:Selling1,
200、616,4221,605,374Administrative5,425,6894,887,531Financecosts(Note7)729,343571,487Foreignexchangelosses(gains)872,048(1,340,813)Other95,15813,2668,738,6605,736,845Incomebeforeincometaxes2,213,4445,026,784Incometaxes(Note8)677,7731,476,852NETINCOME1,535,6713,549,932OthercomprehensiveincomeItemthatwill
201、bereclassifiedsubsequentlytonetincomeExchangedifferencesontranslatingforeignoperations(131,042)263,803COMPREHENSIVEINCOME$1,404,629$3,813,735Earningspershare(Note9)Basic$0.031$0.071Diluted$0.030$0.070Theaccompanyingnotesareanintegralpartoftheseconsolidatedfinancialstatementsandnote5presentsadditiona
202、linformationonconsolidatedcomprehensiveincome.7 Consolidatedstatementsoffinancialposition(inCanadiandollars)AsatDecember31,December31,2019 2018AssetsCurrentassetsCash$60,942$310,874Tradeandotherreceivables(Note10)11,520,04915,922,044Inventories(Note11)11,751,03914,656,483Prepaidexpenses236,528220,50
203、0Totalcurrentassets23,568,55831,109,901NoncurrentassetsProperty,plantandequipment(Note12)28,573,23121,183,335Intangibleassets(Note13)1,219,8131,345,038Totalnoncurrentassets29,793,04422,528,373Totalassets$53,361,602$53,638,274LiabilitiesandequityCurrentliabilitiesBankindebtednessandshorttermborrowing
204、s(Note15)4,538,3938,918,137Tradeandotherpayables(Note14)5,921,3199,190,309Currenttaxliabilities125,725498,463Longtermdebt,currentportion(Note15)1,922,8491,432,505Leaseobligations,currentportion(Notes15,16)1,103,72989,517Totalcurrentliabilities13,612,01520,128,931NoncurrentliabilitiesLongtermdebt(Not
205、e15)6,441,6652,138,759Deferredtaxliabilities(Note8)1,221,6571,468,329Leaseobligations(Notes15,16)2,413,8251,478,906Totalnoncurrentliabilities10,077,1475,085,994Totalliabilities23,689,16225,214,925EquitySharecapital(Note17)11,875,02311,875,023Reserves(Note18)2,212,1772,268,171Retainedearnings15,585,2
206、4014,280,155Totalequity29,672,44028,423,349Totalliabilitiesandequity$53,361,602$53,638,274Theaccompanyingnotesareanintegralpartoftheseconsolidatedfinancialstatements.(s)JosephAbbandonato(s)MarioSettinoJosephAbbandonatoMarioSettinoDirectorDirector 8 ConsolidatedstatementsofchangesinequityFortheyearse
207、ndedDecember31,2019and2018(inCanadiandollars)ReservesSharecapital(a)SharebasedcompensationAccumulatedforeigncurrencytranslationWarrantsTotalreservesRetainedearningsTotalBalanceatJanuary1,2018$11,815,023$951,536$464,826$465,174$1,881,536$10,730,223$24,426,782Netincomefortheyear3,549,932 3,549,932Exch
208、angedifferencesontranslatingforeignoperations263,803263,803263,803Comprehensiveincomefortheyear263,803263,8033,549,9323,813,735Transactionswithowners:Issuanceofsharecapital(Note17)60,00060,000Sharebasedcompensation(Note18)122,832122,832122,832BalanceatDecember31,2018$11,875,023$1,074,368$728,629$465
209、,174$2,268,171$14,280,155$28,423,349ImpactofIFRS16Adoption(230,586)(230,586)BalanceatJanuary1,201911,875,0231,074,368728,629465,1742,268,17114,049,56928,192,763Netincomefortheyear1,535,6711,535,671Exchangedifferencesontranslatingforeignoperations(131,042)(131,042)(131,042)Comprehensiveincomefortheye
210、ar(131,042)(131,042)1,535,6711,404,629Transactionswithowners:Sharebasedcompensation(Note18)75,04875,04875,048BalanceatDecember31,2019$11,875,023$1,149,416$597,587$465,174$2,212,177$15,585,240$29,672,440(a)AdditionaldetailofsharecapitalisprovidedinNote17Theaccompanyingnotesareanintegralpartofthesecon
211、solidatedfinancialstatements.9 Consolidatedstatementsofcashflows(inCanadiandollars)fortheyearsendedDecember31,20192018Operatingactivities:Netincomefortheyear$1,535,671$3,549,932Incometaxexpense677,7731,476,852Depreciationandamortisationofnoncurrentassets3,330,1402,201,037Financecosts729,343571,487Sh
212、arebasedcompensation75,048122,832Unrealizedforeignexchangeloss(gain)849,393(1,239,319)7,197,3686,682,821NetchangesinworkingcapitalDecrease(increase)intradeandotherreceivables4,228,629(3,251,978)Decrease(increase)ininventories2,650,392(2,105,325)(Increase)decreaseinprepaidexpenses(20,774)304,371(Decr
213、ease)increaseintradeandotherpayables(3,093,639)1,293,7773,764,608(3,759,155)Cashgeneratedbyoperatingactivities10,961,9762,923,666Netincometaxespaid(1,297,182)(1,789,845)Netcashgeneratedbyoperatingactivities9,664,7941,133,821Investingactivities:Paymentsforproperty,plantandequipment(5,408,742)(3,692,8
214、83)Netcashusedininvestingactivities(5,408,742)(3,692,883)Financingactivities:Netchangeinbankindebtedness(3,575,325)2,268,100Interestpaid(749,560)(574,237)(Decrease)increaseinshorttermborrowings(804,419)804,419Increaseinlongtermdebt3,748,2451,761,200Repaymentoflongtermdebt(2,061,900)(2,629,503)Netpro
215、ceedsfromissuanceofsharecapital60,000Increaseinleaseobligations1,288,400Repaymentofleaseobligations(1,060,887)(200,813)Netcash(usedin)generatedbyfinancingactivities(4,503,846)2,777,566Net(decrease)increaseincash(247,794)218,504Cash,beginningoftheyear310,87487,140Effectsofforeignexchangedifferenceson
216、cash(2,138)5,230Cash,endoftheyear$60,942$310,874Noncashtransactions(Note19)Theaccompanyingnotesareanintegralpartoftheseconsolidatedfinancialstatements.NotestotheconsolidatedfinancialstatementsfortheyearsendedDecember31,2019and2018 10 1.GeneralinformationImaflexInc.(the“ParentCompany”)isincorporatedu
217、ndertheCanadaBusinessCorporationsAct.Itsregisteredofficeandheadquartersarelocatedat5710NotreDameStreetWest,Montreal,Quebec,Canada.TheprincipalactivitiesoftheParentCompanyanditssubsidiary(togetherreferredtoasthe“Company”)consistinthemanufactureandsaleofproductsfortheflexiblepackagingindustry,includin
218、gpolyethylenefilmandbags,aswellasthemetallizationofplasticfilmfortheagricultureandpackagingindustries.ThecommonsharesoftheParentCompanyarelistedfortradingontheTSXVentureExchangeunderthesymbol“IFX”.2.SignificantaccountingpoliciesThe accounting policies set out below have been applied consistently to
219、all periods presented in theseconsolidatedfinancialstatements,unlessspecificallystated.2.1BasisofpresentationandstatementofcomplianceTheconsolidatedfinancialstatementshavebeenpreparedinaccordancewithInternationalFinancialReportingStandards(“IFRS”)ineffectonDecember31,2019.Theconsolidatedfinancialsta
220、tementswereapprovedbytheboardofdirectorsandauthorizedforissueonApril16,2020.2.2BasisofmeasurementTheconsolidatedfinancialstatementshavebeenpreparedusingthehistoricalcostbasis.2.3BasisofconsolidationTheconsolidatedfinancialstatementsincludetheaccountsoftheParentCompanyanditssubsidiary,ImaflexUSAInc.(
221、“ImaflexUSA”),awhollyownedentity,whichbothhaveareportingperiodofDecember31.ImaflexInc.istheCompanysultimateparent.TheParentCompanycontrolsasubsidiaryifitisexposed,orhasrights,tovariablereturnsfromitsinvolvementwiththesubsidiaryandhastheabilitytoaffectthosereturnsthroughitspoweroverthesubsidiary.Alli
222、ntercompanytransactionsandbalancesareeliminatedonconsolidation.AsatDecember31,2019and2018,ImaflexUSA,theCompanyswhollyownedsubsidiary,manufacturedflexiblepackagingandplasticfilmoutofitstwoNorthCarolina,USAplants.2.4ForeigncurrenciesThefunctionalcurrencyisthecurrencyoftheprimaryeconomicenvironmentinw
223、hichanentityoperates.ThefinancialstatementsoftheParentCompanyanditssubsidiarythatareconsolidatedintotheCompanysfinancialstatementsarepreparedintheirrespectivefunctionalcurrencies.TheconsolidatedfinancialstatementsareexpressedinCanadiandollars(“CAD”),whichisalsothefunctionalcurrencyoftheParentCompany
224、aswellastheCompanyspresentationcurrency.TheassetsandliabilitiesoftheCompanysforeignsubsidiary,ImaflexUSA,whosefunctionalcurrencyistheUSdollar(“USD”),are translated at the exchange rate in effect at the date of the consolidated statement offinancial position.Revenues and expenses are translated at th
225、e monthly average exchange rates over thereportingperiod.ExchangegainsorlossesarisingfromthetranslationofImaflexUSAsfinancialstatementsarerecognisedasAccumulatedforeigncurrencytranslationwithinReserves.NotestotheconsolidatedfinancialstatementsfortheyearsendedDecember31,2019and2018 11 2.Significantac
226、countingpolicies(continued)2.4Foreigncurrencies(continued)Inpreparingthefinancialstatementsoftheindividualentities,transactionsincurrenciesotherthantheentitysfunctionalcurrencyarerecordedattheexchangeratesineffectonthedateofthetransactions.Monetaryitemsdenominatedinforeigncurrenciesaretranslatedatth
227、eexchangerateprevailingattheendofthereportingperiod.Resulting gains and losses on foreign exchange are recorded in the consolidated statement ofcomprehensiveincome.The foreign exchange gains and losses arising on intercompany monetary nontrade advances totallingUS$4,000,000,forwhichsettlementisdeter
228、minedtobeneitherplannednorlikelyintheforeseeablefutureandarethereforeaccountedforasformingpartoftheCompanysnetinvestmentinitsforeignsubsidiary,arerecognizedinAccumulatedforeigncurrencytranslationwithinreserves.Theforeignexchangegainsorlossesontrade receivables and other monetary advances continue to
229、 be included in Other gains and losses in theconsolidatedstatementofcomprehensiveincome.2.5RevenuerecognitionRevenuesaregeneratedalmostexclusivelyfromthesaleofgoods.Revenueisrecognizedwhenthecontrolofaproductistransferredtoacustomer,whichistypicallywhenthecustomertakespossessionofthegoods,andtherear
230、enootherperformanceobligationstobecompletedunderthecontract.RevenueismeasuredbasedontheconsiderationthathasbeenagreeduponbyallpartiesandthattheCompanyexpectstobeentitledtoreceivefromthecustomer,netofvariableconsiderations,includingallreturns,rebatesanddiscountsagreedtobyallpartiesconcernedandtheinfo
231、rmationavailablerelativetoeachcustomer.Revenuerecognitionisbasedonthefollowingsteps:identificationofthecontractwiththecustomer;identificationoftheperformanceobligationsinthecontract;determinationofthetransactionprice;allocationofthetransactionpricetotheperformanceobligationsinthecontract;and recogni
232、tionofrevenuewhentheCompanysatisfiesaperformanceobligation.2.6IncomeTaxIncometaxexpensecomprisesbothcurrentanddeferredtax.Currenttaxisbasedontaxableincomefortheyear.Taxableincomediffersfromnetincomeasreportedintheconsolidatedstatementofcomprehensiveincomebecauseofitemsofrevenueorexpensethataretaxabl
233、eordeductibleinotheryearsanditemsthatarenevertaxableordeductible.TheCompanysliabilityforcurrenttaxiscalculatedusingtaxratesthathavebeenenactedorsubstantivelyenactedatthereportingperiod.Deferredtaxisrecognisedontemporarydifferencesbetweenthecarryingamountsofassetsandliabilitiesintheconsolidatedstatem
234、entsoffinancialpositionandthecorrespondingtaxbasisusedinthecomputationoftaxableincome.Deferredtaxliabilitiesaregenerallyrecognisedforalltaxabletemporarydifferences.Deferredtaxassetsaregenerallyrecognisedforalldeductibletemporarydifferencestotheextentthatitisprobablethatfuturetaxableincomewillbeavail
235、ableagainstwhichtheunderlyingtaxlossordeductibletemporarydifferencecanbeutilized.NotestotheconsolidatedfinancialstatementsfortheyearsendedDecember31,2019and2018 12 2.Significantaccountingpolicies(continued)2.6IncomeTax(continued)Deferredtaxassetsandliabilitiesarecalculatedusingthetaxratesandlawsenac
236、tedorsubstantivelyenactedatthereportingdateandwhichareexpectedtoapplyintheperiodinwhichtheliabilityissettledortheassetrealized.Deferredtaxassetsandliabilitiesareoffsetwhenthereisalegallyenforceablerighttosetoffcurrenttaxassetsagainstcurrenttaxliabilities,whentheyrelatetoincometaxesleviedbythesametax
237、ationauthorityandwhentheCompanyintendstosettleitscurrenttaxassetsandliabilitiesonanetbasis.Currentanddeferredtaxesarerecognisedasanexpenseorincomeinnetincome,exceptwhentheyrelatetoitemsthatarerecognisedoutsidenetincome(whetherinothercomprehensiveincomeordirectlyinequity),inwhichcasethetaxisalsorecog
238、nisedoutsidenetincome.2.7EarningspershareEarningspersharearecalculatedbydividingnetincomeavailableforcommonshareholdersbytheweightedaveragenumberofcommonsharesoutstandingduringtheperiod.Dilutedearningspershareiscalculatedbytakingintoconsiderationpotentiallyissuablesharesthatwouldhaveadilutiveeffecto
239、nearningspershare.2.8FinancialassetsandfinancialliabilitiesFinancialassetsandliabilitiesarerecognizedwhentheCompanybecomespartytothecontractualprovisionsofthefinancialinstrument.Financialassetsarederecognizedwhenthecontractualrightstothecashflowsfromthefinancialassetexpire,orwhenthefinancialassetand
240、allsubstantialrisksandrewardsaretransferred.Afinancialliabilityisderecognizedwhenitisextinguished,discharged,cancelledorexpired.ClassificationandinitialmeasurementoffinancialassetsFinancialassetsareclassified,atinitialrecognition,assubsequentlymeasuredatamortizedcost,fairvaluethroughearnings,orfairv
241、aluethroughothercomprehensiveincome.TheclassificationoffinancialassetsatinitialrecognitiondependsonthefinancialassetscontractualcashflowcharacteristicsandtheCompanysbusinessmodelformanagingthem.Withtheexceptionoftradereceivablesthatdonotcontainasignificantfinancingcomponent,theCompanyinitiallymeasur
242、esfinancialassetsatfairvalueplus,inthecaseoffinancialassetsnotafairvaluethroughearnings,transactioncosts.Transactioncostsdirectlyattributabletotheacquisitionoffinancialassetsorfinancialliabilitiesatfairvaluethroughearningsarerecognizedimmediatelyinearnings.Tradereceivablesthatdonotcontainasignifican
243、tfinancingcomponentaremeasuredatthetransactionpricedeterminedinaccordancewithIFRS15.SubsequentmeasurementAfterinitialrecognition,cashandtradeandotherreceivables(excludingsalestaxes)aremeasuredatamortizedcostusingtheeffectiveinterestmethod.Theexpenserelatingtotheallowanceforexpectedcreditlossisrecogn
244、izedinearningsinAdministrativeexpensesinthestatementofcomprehensiveincome.ImpairmentoffinancialassetsTheCompanyrecognizesalossallowanceforexpectedcreditlossesarisingfromfinancialassets.Theamountofexpectedcreditlossesisupdatedateachreportingdatetoreflectchangesincreditrisksinceinitialrecognitionofthe
245、respectivefinancialinstrument.NotestotheconsolidatedfinancialstatementsfortheyearsendedDecember31,2019and2018 13 2.Significantaccountingpolicies(continued)2.8Financialassetsandfinancialliabilities(continued)TheCompanyappliesasimplifiedapproachforcalculatingexpectedcreditlossesfortradeandotherreceiva
246、bles(excludingsalestaxes).TheCompanyrecognizesalossallowancebasedonlifetimeexpectedcreditlossesateachreportingdate.Thesearetheexpectedshortfallsincontractualcashflows,consideringthepotentialfordefaultatanypointduringthelifeofthefinancialinstrument.Incalculating,theCompanyusesitshistoricalexperience,
247、externalindicatorsandforwardlookinginformationtocalculatetheexpectedcreditlossesusingaprovisionmatrix.Note10providesadetailedanalysisofhowtheimpairmentrequirementsofIFRS9areapplied.ClassificationandmeasurementoffinancialliabilitiesThe Companys financial liabilities include bank indebtedness and shor
248、tterm borrowings,trade and otherpayables(excludingemployeebenefits),andlongtermdebt.Financialliabilitiesareinitiallymeasuredatfairvalue,and,whereapplicable,adjustedfortransactioncosts.Subsequently,financialliabilitiesaremeasuredatamortizedcostusingtheeffectiveinterestmethod.Allinterestrelatedcharges
249、forfinancialliabilitiesmeasuredatamortizedcostarerecognizedintheconsolidatedstatementofcomprehensiveincomeunderFinancecosts.2.9InventoriesInventoriesarestatedatthelowerofcostandnetrealizablevalue.Costs,includingrawmaterialsandanappropriateportionoffixedandvariableoverheadexpenses,areassignedtoinvent
250、oriesbythemethodmostappropriatetotheparticularclassofinventory,beingvaluedonafirstin,firstoutbasis.Netrealizablevaluerepresentstheestimatedsellingpriceforinventorieslessallestimatedcostsofcompletionnecessarytomakethesaleandestimatedsellingexpenses.2.10Property,plantandequipmentTheCompanysbuilding,la
251、nd,productionequipment,officeequipmentandcomputerequipmentarestatedatcost,includinganycostsdirectlyattributabletobringingtheassetstothelocationandconditionnecessaryforthemtobecapableofoperatinginthemannerintendedbytheCompanysmanagement,lessaccumulateddepreciationandaccumulatedimpairmentlosses.Deprec
252、iationisrecognisedsoastowritedownthecostofassetslesstheirresidualvaluesovertheirusefullives,asoutlinedbelow,usingthestraightlinemethod.Theestimatedusefullives,residualvaluesanddepreciationmethodarereviewedandadjusted,ifnecessary,ateachreportingdate,withtheeffectofanychangesinestimateaccountedforonap
253、rospectivebasis.AssetPeriodLandIndefiniteBuilding20yearsProductionequipment1020yearsOfficeequipment5yearsComputerequipment3yearsNotestotheconsolidatedfinancialstatementsfortheyearsendedDecember31,2019and2018 14 2.Significantaccountingpolicies(continued)2.10Property,plantandequipment(continued)Leaseh
254、oldimprovementsareamortisedonastraightlinebasisoverthelesserofthetermsoftheleasesortheirusefullives(5years).Inthecaseofrightofuseassets,expectedusefullivesaredeterminedbyreferencetocomparableownedassetsortheleaseterm,ifshorter,whentheleasedoesnottransferownershipoftheassetortheCompanydoesnotexpectto
255、exerciceapurchaseoption.Anitemofproperty,plantandequipmentisderecognisedupondisposalorwhennofutureeconomicbenefitsare expected to arise from the continued use of the asset.The gain or loss arising from the disposal orretirementofanitemofproperty,plantandequipmentisdeterminedasthedifferencebetweenthe
256、salesproceedsandthecarryingamountoftheassetandisrecognisedinnetincome,inOtherintheconsolidatedstatementofcomprehensiveincome.2.11LeasedassetsThe Company has applied IFRS 16 using the modified retrospective approach and therefore comparativeinformationhasnotbeenrestated.Thismeanscomparativeinformatio
257、nisstillreportedunderIAS17andIFRIC4.AccountingpolicyapplicablefromJanuary1,2019Atinceptionofacontract,theCompanyidentifieswhetheritisorcontainsaleasebasedonwhetherthecontract,orpartofthecontract,conveystherighttocontroltheuseofanidentifiedasset(the“underlyingasset”)for a period of time in exchange f
258、or consideration.To apply this definition the Company assesseswhetherthecontractmeetsthreekeyevaluationswhicharewhether:thecontractcontainsanidentifiedasset,whichiseitherexplicitlyidentifiedinthecontractorimplicitlyspecifiedbybeingidentifiedatthetimetheassetismadeavailabletotheCompany theCompanyhast
259、herighttoobtainsubstantiallyalloftheeconomicbenefitsfromuseoftheidentifiedassetthroughouttheperiodofuse,consideringitsrightswithinthedefinedscopeofthecontract theCompanyhastherighttodirecttheuseoftheidentifiedassetthroughouttheperiodofuse.TheCompanyassesseswhetherithastherighttodirecthowandforwhatpu
260、rposetheassetisusedthroughouttheperiodofuseTheCompanyrecognizesarightofuseassetonthebalancesheetattheleasecommencementdate.Therightofuseassetisinitiallymeasuredatcost,whichcomprisestheinitialmeasurementoftheleaseliability,anyleasepaymentsmadebeforethecommencementdate,anyinitialindirectcostsincurredb
261、ytheCompany,anestimateofanycoststodismantleandremovetheassetattheendofthelease,lessanyleaseincentivesreceived.Atthecommencementdate,theCompanyrecognisestheleaseliabilitymeasuredatthepresentvalueoftheleasepaymentsthatarenotpaidatthatdate,discountedusingtheinterestrateimplicitintheleaseor,ifthatrateca
262、nnotbereadilydetermined,theCompanysincrementalborrowingrate.Leasepaymentsincludefixedpaymentsandinsubstancefixedpayments,variableleasepaymentsthatdependonanindexorrate,initiallymeasuredusingtheindexorrateatthecommencementdateofthelease,amountsexpectedtobepaidbytheCompanyunderresidualvalueguarantees,
263、purchaseoptionsiftheCompanyisreasonablycertaintoexercisethatoptionandpenaltiesforterminatingtheleaseiftheleasetermreflectstheCompanyusinganoptiontoterminatethelease.NotestotheconsolidatedfinancialstatementsfortheyearsendedDecember31,2019and2018 15 2.Significantaccountingpolicies(continued)2.11Leased
264、assets(continued)Subsequenttoinitialmeasurement,theleaseliabilityisreducedforpaymentsandincreasedforinterest.Itcanberemeasuredbydiscountingtherevisedleasepaymentsusingareviseddiscountrateifthereisachangeinthe lease term or in the assessment of an option to purchase the underlying asset.The lease lia
265、bility isremeasuredbydiscountingtherevisedleasepaymentsusinganunchangeddiscountrateifthereisachangeintheamountpayableunderaresidualvalueguaranteeoriffutureleasepaymentsaremodifiedresultingfromachangeinanindexorrateusedtodeterminethosepayments.Whentheleaseliabilityisremeasured,thecorrespondingadjustm
266、entisreflectedintherightofuseasset,ordirectlyinprofitandlossiftherightofuseassetisalreadyreducedtozero.TheCompanyhaselectedtoaccountforshorttermleasesandleasesoflowvalueassetsusingthepracticalexpedients.Insteadofrecognisingarightofuseassetandaleaseliability,thepaymentsinrelationtothesearerecogniseda
267、sanexpenseinprofitorlossonastraightlinebasisovertheleaseterm.Onthestatementoffinancialposition,rightofuseassetshavebeenincludedinproperty,plantandequipment.Accountingpolicyapplicablebefore1January2019Leasesareclassifiedasfinanceleaseswheneverthetermsoftheleasetransfersubstantiallyalltherisksandrewar
268、dsofownershiptothelessee.Allotherleasesareclassifiedasoperatingleases.AssetsheldunderfinanceleasesareinitiallyrecognisedasassetsoftheCompanyattheirfairvalueattheinceptionoftheleaseor,iflower,atthepresentvalueoftheminimumleasepayments.Thecorrespondingliabilitytothelessorisincludedintheconsolidatedsta
269、tementoffinancialpositionasafinanceleaseobligation.LeasesareinitiallyrecognisedonthedatefromwhichtheCompanyisentitledtoexerciseitsrighttousetheleasedasset,referredtoasthecommencementoftheleaseterm,whichcorrespondstothedateonwhichtheequipmentisreceived.Assetsheldunderfinanceleasesaredepreciatedoverth
270、eirexpectedusefullivesonthesamebasisasownedassetsor,whereshorter,thetermoftherelevantlease.Leasepaymentsareapportionedbetweenfinanceexpensesandreductionoftheleaseobligationsoastoachieveaconstantrateofinterestontheremainingbalanceoftheliability.Financeexpensesarerecognisedimmediatelyinnetincome.Conti
271、ngentrentalpaymentsarerecognisedasexpensesintheperiodsinwhichtheyareincurred.Operatingleasepaymentsarerecognisedasanexpenseonastraightlinebasisovertheleaseterm,exceptwhereanothersystematicbasisismorerepresentativeofthetimepatterninwhicheconomicbenefitsfromtheleasedassetareconsumed.Contingentrentalpa
272、ymentsarisingunderoperatingleasesarerecognisedasanexpenseintheperiodinwhichtheyareincurred.2.12IntangibleassetsotherthangoodwillCustomerrelationshipsacquiredinabusinesscombinationandrecognisedseparatelyfromgoodwillareinitiallyrecognisedattheirfairvalueattheacquisitiondate,whichisregardedastheircost.
273、Subsequenttoinitialrecognition,intangible assets acquired in a business combination are reported at cost less accumulatedamortisationandaccumulatedimpairmentlosses.Whenintangibleassetsarepurchasedseparately,asitwasthecaseforpatents,thecostcomprisesthepurchasepriceandanydirectlyattributablecostofprep
274、aringtheassetforitsintendeduse.Whenintangibleassetsareinternallydeveloped,asisthecasewiththeCompanysinternally developed patents,the cost comprises the directly attributable costs in the development phasenecessarytocreate,produceandpreparethepatentfortheCompanytobeabletooperateitforitsintendeduse.No
275、testotheconsolidatedfinancialstatementsfortheyearsendedDecember31,2019and2018 16 2.Significantaccountingpolicies(continued)2.12Intangibleassetsotherthangoodwill(continued)Anintangibleassetisderecognisedondisposal,orwhennofutureeconomicbenefitsareexpectedfromitsuseordisposal.Gainsorlossesarisingfromt
276、hederecognitionofanintangibleasset,measuredasthedifferencebetweenthenetdisposalproceedsandthecarryingamountoftheasset,arerecognisedinnetincomewhentheassetisderecognised.Theamortisationofintangibleassets,ifany,isrecognisedinAdministrativeexpensesintheconsolidatedstatementofcomprehensiveincomeovertheu
277、sefullifeoftheintangibleasset.Customerrelationshipsareamortisedonastraightlinebasisover8yearsandpatentsareamortisedasofthemomenttheycanbeusedoverthelifeofthepatent(14years).2.13Impairmentofproperty,plantandequipmentandintangibleassetsotherthangoodwillAteachreportingdate,orsoonerifthereisanindication
278、thatanassetmaybeimpaired,theCompanyreviewsthecarryingamountsofitsproperty,plantandequipmentandintangibleassets,todeterminewhetherthereisanyindicationthattheyhavesufferedanimpairmentloss.Ifanysuchindicationexists,therecoverableamountoftheassetisestimatedinordertodeterminetheextentoftheimpairmentloss,
279、ifany.Whenitisnotpossibletoestimatetherecoverableamountofanindividualasset,theCompanyestimatestherecoverableamountofthecashgeneratingunittowhichtheassetbelongs.Therecoverableamountisthehigheroffairvaluelesscoststosellandvalueinuse.Inassessingvalueinuse,theestimatedfuturecashflowsarediscountedtotheir
280、presentvalueusingapretaxdiscountratethatreflectscurrent market assessments of the time value of money and the risks specific to the asset for which theestimatesoffuturecashflowshavenotbeenadjusted.Iftherecoverableamountoftheassetsisestimatedtobelessthantheircarryingamount,thecarryingamountisreducedt
281、otherecoverableamount.Animpairmentlossisrecognisedimmediatelyinnetincome.Whenanimpairmentlosssubsequentlyreverses,thecarryingamountoftheassetsisincreasedtotherevisedestimateofitsrecoverableamount,butsothattheincreasedcarryingamountdoesnotexceedthecarryingamountthatwouldhavebeendeterminedhadnoimpairm
282、entlossbeenrecognisedfortheassetsinprioryears.Areversalofanimpairmentlossisrecognisedimmediatelyinnetincome.2.14GoodwillGoodwillarisingonanacquisitionofabusinessiscarriedatcostasestablishedatthedateofacquisitionofthebusinesslessaccumulatedimpairmentlosses,ifany.Forthepurposesofimpairmenttesting,good
283、willisallocatedtoeachoftheCompanyscashgeneratingunitsorgroupofcashgeneratingunitsthatareexpectedtobenefitfromthesynergiesofthecombination.A cashgenerating unit to which goodwill has been allocated is tested for impairment annually,or morefrequentlywhenthereisindicationthattheunitmaybeimpaired.Ifther
284、ecoverableamountofthecashgeneratingunitislessthanitscarryingamount,theimpairmentlossisallocatedfirsttoreducethecarryingamountofanygoodwillallocatedtotheunitandthentotheotherassetsoftheunitproratedoverthecarryingamountofeachassetintheunit.Anyimpairmentlossforgoodwillisrecogniseddirectlyinnetincomeint
285、heconsolidatedstatementofcomprehensiveincome.Animpairmentlossrecognisedforgoodwillisnotreversedinsubsequentperiods.NotestotheconsolidatedfinancialstatementsfortheyearsendedDecember31,2019and2018 17 2.Significantaccountingpolicies(continued)2.15ProvisionsProvisionsarerecognisedwhentheCompanyhasaprese
286、ntobligation,legalorconstructive,asaresultofapastevent,itisprobablethattheCompanywillberequiredtosettletheobligation,andareliableestimatecanbemadeoftheamountoftheobligation.Theamountrecognisedasaprovisionisthebestestimateoftheconsiderationrequiredtosettlethepresentobligationbasedonthemostreliableevi
287、denceavailableatthereportingdate,takingintoaccounttherisksanduncertaintiessurroundingtheobligation.2.16SharebasedcompensationTheCompanyusesequitysettledsharebasedcompensationplansforitsemployeesandconsultants.NoneoftheCompanysplansarecashsettled.Equitysettledsharebasedcompensationismeasuredatthefair
288、valueofthe services received at the grant date indirectly by reference to the fair value of the equity instrumentsgranted,estimatedusingtheBlackScholesoptionpricingmodel.Thefairvaluedeterminedatthegrantdateoftheequitysettledsharebasedcompensationisexpensedoverthevestingperiodwithacorrespondingincrea
289、seinReserves.2.17SharecapitalandreservesSharecapitalrepresentstheamountreceiveduponissuanceofshares,netoftransactioncosts.Proceedsfromtheissuanceofunitsconsistingofsharesandpurchasewarrantsareallocatedbasedontherelativefairvaluesofeachinstrument.ThefairvalueofthesharesisbasedontheTSXsharepriceatthet
290、imeoftheissuanceandthefairvalueofthewarrantsisdeterminedusingaBlackScholesvaluationmodel.Reservesincludethefollowing:Sharebasedcompensation(see2.16);Accumulatedforeigncurrencytranslation(see2.4);Warrantscomprisesthevalueofoutstandingandexpiredwarrants;Upontheexerciseofoptionsandwarrants,theproceedsr
291、eceivedlessthetransactioncostsarecreditedtosharecapital.2.18AdoptionofnewaccountingstandardsIFRS16LeasesIFRS16LeasesreplacesIAS17Leasesandrelatedinterpretations.IFRS16eliminatestheclassificationasanoperatingleaseandrequireslesseestorecognisearightofuseassetandaleaseobligationinthestatementoffinancia
292、lpositionforallleases,withexemptionspermittedforshorttermleasesandleasesoflowvalueassets.TransitiontoIFRS16IFRS 16 has been applied with a date of initial application being January 1,2019,using the modifiedretrospective approach,with the cumulative effect of adopting IFRS16 being recognized in equit
293、y as anadjustmentoftheopeningbalanceofretainedearningsforthecurrentperiod.Priorperiodshavenotbeenrestated.Forleasesinexistenceatthedateofinitialapplication,theCompanyhaselectednottoincludedirectcostsinthemeasurementoftherightofuseasset.TheCompanyhasmadeuseofthepracticalexpedientavailableontransition
294、toIFRS16nottoreassesswhetheracontractisorcontainsaleaseandthedefinitionofaleaseinaccordancewithIAS17andIFRIC4willcontinuetoapplytothoseleasesenteredormodifiedbeforeJanuary1,2019(“thedateofapplication”).Insteadofperforminganimpairmentreviewontherightofuseassetsatthedateofinitialapplication,theCompany
295、hasreliedonitshistoricassessmentastowhetherleaseswereonerousimmediatelybeforethedateofinitialapplicationofIFRS16.NotestotheconsolidatedfinancialstatementsfortheyearsendedDecember31,2019and2018 18 2.Significantaccountingpolicies(continued)2.18Adoptionofnewaccountingstandards(continued)TheCompanyhasap
296、pliedtheoptionalexemptionsnottorecognizerightofuseassetsforleaseswithatermoflessthan12monthsandforleasesoflowvalueassetsandoptedtoaccountfortheseleasesonastraightlinebasisovertheremainingleaseterm.Forleasespreviouslyclassifiedasfinanceleases,therightofuseassetandleaseliabilityaremeasuredatthedateofi
297、nitialapplicationatthesameamountsasunderIAS17immediatelybeforethedateofinitialapplication.TheCompanyelectednottoseparatenonleasecomponentsfromleasecomponentsinleasepaymentstodeterminetheleaseobligationunderIFRS16.Finally,theCompanyalsousedhindsightindeterminingthetermoftheleasesaccountedforunderIFRS
298、16whichresultedintheextensionofthetermofcertainleasesforwhichtheCompanywasreasonablycertaintoprevailitselfofitsextensionoption.TheCompanyalsoeliminatedsomenoncashaccruedamountsthatwerebeingamortizedovertheremainingtermofsomeleases.AsaresultoftheadoptionofIFRS16,theCompanyrecordedaleaseliabilityof$4,
299、293,815,rightofuseassetstotalling$3,992,922anda$230,586reductioninretainedearnings,whichisnetofthe$70,307reversalofaccruedexpenses.Ontransition,theweightedaverageincrementalborrowingrateappliedtoleaseliabilitiesappliedunderIFRS16was5.6%.TotaloperatingleasecommitmentdisclosedasatDecember31,2018$4,669
300、,269Otheradjustmentsrelatingtocommitmentdisclosures212,397Leasesoflowvalue(36,441)Operatingleaseliabilitiesbeforediscounting4,845,225Discountingusingincrementalborrowingrates(551,410)Operatingleaseliability4,293,815FinanceleaseobligationsrecordedasatDecember31,20181,568,423Totalleaseliabilitiesrecog
301、nisedunderIFRS16asatJanuary1,2019$5,862,2383.CriticalaccountingjudgmentsandkeysourcesofestimationuncertaintyThepreparationoftheseconsolidatedfinancialstatementsinconformitywithIFRSandtheapplicationoftheCompanysaccountingpoliciesdescribedinnote2,requiredmanagementtomakejudgments,estimatesandassumptio
302、ns about the carrying amounts of assets and liabilities that are not readily apparent from othersources.Theestimatesandassociatedassumptionsarebasedonhistoricalexperienceandotherfactorsthatareconsideredtoberelevant.Actualresultsmaydifferfromtheseestimates.Theestimatesandunderlyingassumptionsarerevie
303、wedonanongoingbasis.Revisionstoaccountingestimatesarerecognisedintheperiodinwhichtheestimateisrevisediftherevisionaffectsonlythatperiod,orintheperiodoftherevisionandfutureperiodsiftherevisionaffectsbothcurrentandfutureperiods.3.1CriticaljudgmentsinapplyingaccountingpoliciesThefollowingarethecritical
304、judgments,apartfromthoseinvolvingestimations,thatmanagementhasmadeintheprocessofapplyingtheCompanysaccountingpoliciesandthathavethemostsignificanteffectontheamountsrecognisedintheconsolidatedfinancialstatements.CashgeneratingunitsManagementhasidentifiedonlyonecashgeneratingunit(“CGU”)fortheCompany.R
305、evenuegeneratedbytheCompanysvariousproductlinesandfacilitiesaregeneratedthroughasinglesalesforcewhoseabilitytocrosssellproductsinfluencesthelevelofsaleforeachproductline.ManagementhasdeterminedthatthecashflowsoftheCompanysproductionfacilitiesarecloselyinterrelatedandnotindependent.Notestotheconsolid
306、atedfinancialstatementsfortheyearsendedDecember31,2019and2018 19 3.Criticalaccountingjudgmentsandkeysourcesofestimationuncertainty(continued)3.2KeysourcesofestimationuncertaintyThefollowingarethekeysourcesofestimationuncertaintyattheendofthereportingperiodthathaveasignificantriskofcausingamaterialad
307、justmenttothecarryingamountsofassetsandliabilitieswithinthenextfinancialyear:AllowanceforexpectedcreditlossesDuringeachreportingperiod,theCompanymakesanassessmentofwhethertradeaccountsreceivablearecollectiblefromcustomers.Accordingly,managementestablishesanallowanceforestimatedlossesarisingfromnonpa
308、yment.TheCompanysallowanceforexpectedcreditlossreflectsexpectedcreditlossesusingaprovisionmatrixmodel,supplementedbyanallowanceforindividuallyimpairedtradereceivables.TheprovisionmatrixisbasedontheCompanyshistoriccreditlossexperience,adjustedforanychangeinriskofthetradereceivablepopulationbasedoncre
309、ditmonitoringindicators,andexpectationsofgeneraleconomicconditionsthatmightaffectthecollectionoftradereceivables.Theprovisionmatrixappliesfixedprovisionratesdependingonthenumberofdaysthatatradereceivableispastdue,withhigherratesappliedthelongerabalanceispastdue.RefertoNote10formoreinformationregardi
310、ngtheallowanceforexpectedcreditlosses.UsefullivesofdepreciableandamortisableassetsTheCompanyreviewstheestimatedusefullivesofproperty,plantandequipmentandintangibleassetsotherthan goodwill at the end of each annual reporting period in order to ensure that the depreciation andamortisationmethodsusedar
311、eappropriate.ImpairmentoflonglivedassetsIfrequired,theCompanyperformsimpairmenttestsonitslonglivedassetsbycomparingthecarryingamountoftheassetstotheirrecoverableamount,whichiscalculatedasthehigheroftheassetsfairvaluelesscoststosellanditsvalueinuse.Valueinuseiscalculatedbasedonadiscountedcashflowanal
312、ysis,whichrequirestheuseofestimatesoffuturecashflowanddiscountrates.TheCompanyusesjudgmenttodeterminewhetheritidentifiesanytriggeringeventthatmayindicatethatthelonglivedassetshavebeenimpaired.IncometaxesManagementusesestimatesindeterminingtheappropriateratesandamountsinrecordingdeferredincometaxes,g
313、ivingconsiderationtotimingandprobabilityofrealization.Actualtaxescouldsignificantlyvaryfromtheseestimatesasaresultofavarietyoffactorsincludingfutureevents,changesinincometaxlawsortheoutcome of reviews by tax authorities and related appeals.The resolution of these uncertainties and theassociatedfinal
314、taxespayablemayresultinadjustmentstotheCompanysdeferredandcurrenttaxassetsandliabilities.WarrantsandsharebasedcompensationTheCompanyissuesequityinstrumentsfromtimetotime,whicharecomprisedofoptionstopurchasecommonsharesaswellascommonsharesandwarrants(units).TheCompanyusestheBlackScholespricingmodelin
315、ordertodeterminethevalueoftheseinstrumentsorhowproceedsareallocatedbetweentheinstruments.Thesemethodsrequireestimatesbasedonmarketinputs.NotestotheconsolidatedfinancialstatementsfortheyearsendedDecember31,2019and2018 20 4.SegmentinformationThe Company operates in one reportable segment,comprising th
316、e development,manufacture and sale offlexiblepackagingmaterialintheformoffilmorbags,forvarioususes.4.1RevenuesbygeographicalendmarketTheCompanysrevenuesbygeographicalendmarketareasfollows:YearendedDecember31,2019December31,2018Canada$33,219,527$30,718,578UnitedStates47,785,70255,350,220Other65,31226
317、3,295Total$81,070,541$86,332,0934.2Property,plantandequipmentandintangibleassetspergeographiclocationDecember31,2019December31,2018Canada$9,037,306$9,197,143UnitedStates20,755,73813,331,230Total$29,793,044$22,528,3735.AdditionalinformationontheconsolidatedstatementsofcomprehensiveincomeThe Companys
318、consolidated statements of comprehensive income include depreciation of productionequipmentof$3,056,781fortheyearendedDecember31,2019($1,920,732in2018)classifiedinCostofsales,whichincludesthedepreciationforrightofuseassetsof$1,034,135fortheyearendedDecember31,2019.Depreciation of other property,plan
319、t and equipment and amortisation of intangible assets amounting to$273,359fortheyearendedDecember31,2019($280,305in2018)isincludedinAdministrativeexpenses.TheCompanysconsolidatedstatementsofcomprehensiveincomeincludesalariespaidtoitsemployeesof$10,174,103 for the year ended December 31,2019($9,865,3
320、38in 2018)classified in Cost of sales.Administrativeexpensesincludesalariespaidtoemployeesof$1,972,610fortheyearendedDecember31,2019($1,841,908in2018)andSellingexpensesincludesalariespaidtoemployeesof$435,924fortheyearendedDecember31,2019($405,393in2018).6.EmployeebenefitsThe Company contributes to
321、staterun pension plans,employment insurance,group insurance and socialsecurityforitsemployees.Thecostsincurredfortheemployeebenefitsnotedaboveamountedto$2,678,442duringtheyearendedDecember31,2019($2,538,987in2018).ThesepaymentsareexpensedasincurredandtheCompanydoesnotrecogniseanygainsorlossessubsequ
322、enttothepaymentofthesebenefits.The Company also offers a defined contribution employee benefit plan to its employees located in NorthCarolina,USA.For the year ended December 31,2019,the Company contributed$31,329 to this plan($27,477in2018).NotestotheconsolidatedfinancialstatementsfortheyearsendedDe
323、cember31,2019and2018 21 7.FinancecostsYearendedDecember31,2019December31,2018Interestonbankindebtednessandlongtermdebt$514,254$590,866Interestonfinanceleaseobligations299,41727,821Capitalizedinterest(84,328)(47,200)$729,343$571,4878.Incometaxes8.1IncometaxrecognisedinnetincomeYearendedDecember31,201
324、9December31,2018Incometaxexpensecomprises:Currenttaxexpense$924,445$1,419,309Deferredtaxexpenserelatingtotheoriginationandreversaloftemporarydifferences(246,672)57,543Totalincometaxexpense$677,773$1,476,8528.2ReconciliationbetweentheincometaxexpenseandthestatutoryincometaxrateYearendedDecember31,201
325、9December31,2018Incomebeforeincometaxes$2,213,444$5,026,785Incometaxexpensecalculatedat26.6%(26.7%in2018)588,7761,342,152Permanentdifferences149,737(102,820)Effectofdifferenttaxratesofsubsidiariesoperatinginotherjurisdictions28,93814,978Other(89,678)222,542Incometaxexpenserecognisedinnetincome$677,7
326、73$1,476,852Thetaxrateusedforthe2019reconciliationaboveisthecorporatetaxrateof26.6%(26.7%in2018)payablebycorporateentitiesinQuebec,Canadaontaxableincomeundertaxlawinthosejurisdictions.NotestotheconsolidatedfinancialstatementsfortheyearsendedDecember31,2019and2018 22 8.Incometaxes(continued)8.3Deferr
327、edtaxbalancesOpeningbalanceRecognisedinincomeClosingbalance2018AssetsNoncapitallosses$1,217,286$29,262$1,246,548Inventory111,379805112,184Advance51,303(51,303)Otherassets132,900(54,955)77,9451,512,868(76,191)1,436,677LiabilitiesFinanceleases(71,785)14,472(57,313)Property,plantandequipment(2,845,355)
328、13,208(2,832,147)Advance(15,546)(15,546)Investmenttaxcredits(6,514)6,514(2,923,654)18,648(2,905,006)Deferredtaxliabilities$(1,410,786)$(57,543)$(1,468,329)OpeningbalanceImpactofIFRS16RecognisedinincomeClosingbalance2019AssetsNoncapitallosses$1,246,548$(14,875)$(119,670)$1,112,003Leaseobligations(57,
329、313)1,050,275(2,338)990,624Advance(15,546)82,26566,719Otherassets77,945(4,672)73,273Inventory112,184(112,184)1,363,8181,035,400(156,599)2,242,619LiabilitiesProperty,plantandequipment(2,832,147)(1,035,400)403,271(3,464,276)(2,832,147)(1,035,400)403,271(3,464,276)Deferredtaxliabilities$(1,468,329)$246
330、,672$(1,221,657)NotestotheconsolidatedfinancialstatementsfortheyearsendedDecember31,2019and2018 23 8.Incometaxes(continued)8.4UnrecogniseddeferredtaxassetsThe Companys subsidiary,Imaflex USA,has noncapital losses available to carry forward to reduce futuretaxableincomeof$25,580,528in2019and$26,042,5
331、15in2018,forpartofwhichadeferredtaxassethasnotbeenrecognised($4,697,336in2019and$4,743,231in2018),thatexpireasfollows:ExpiringinDecember31,2019December31,201820261,816,4771,393,46620271,297,2891,362,61320282,801,2402,942,29420293,034,4733,187,27220304,453,0854,677,31720311,900,8931,996,61020322,668,
332、5912,802,96620332,672,2902,806,85120342,437,7982,560,55220351,403,0491,473,6992036798,659838,8752038296,684$25,580,528$26,042,5159.EarningspershareYearendedDecember31,2019December31,2018Netincomeforbasicanddilutedearningspershare$1,535,671$3,549,932Weightedaveragenumberofcommonsharesoutstanding50,01
333、3,63749,915,829Dilutiveeffectofsharepurchaseoptions671,2331,151,471Dilutedweightedaveragecommonsharesoutstanding50,684,87051,067,300Basicearningspercommonshare$0.031$0.071Dilutedearningspercommonshare$0.030$0.070450,000stockoptionsoutstandingasatDecember31,2019werenotincludedinthecalculationofearningspersharebecausetheywereantidilutive(200,000in2018).Notestotheconsolidatedfinancialstatementsforthe
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