Colabor Group — Interim / Quarterly Report 2020

Jul 24, 2020

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Condensed interim consolidated Financial Statements (unaudited) Second quarter of 2020

12 and 24-week periods ended June 13, 2020 (in thousands of Canadian dollars)

Interim Condensed Consolidated Statements of Earnings

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(unaudited)

For the 12 and 24-week periods ended June 13, 2020 and June 15, 2019

(in thousands of Canadian dollars, except per share data)

Notes	12 weeks 24 weeks
	2020 2019 2020 2019 (Restated, Note 5) (Restated, Note 5) $ $ $ $
Sales 4 Cost of goods sold	95,458 180,713 207,071 307,256 80,870 154,407 174,178 261,317
Gross Margin Operating expenses 6 Depreciation and amortization 7 Costs not related to current operations 8	14,588 26,306 32,893 45,939 7,053 17,543 21,759 34,696 3,418 2,193 6,962 4,388 508 178 1,588 178
Operating earnings	3,609 6,392 2,584 6,677
Financial expenses	1,598 1,851 3,294 3,643
Earnings (loss) before taxes	2,011 4,541 (710) 3,034
Income taxes (recovered) 9	403 1,607 (447) 1,159
Net earnings (loss) from continuing operations Net earnings (loss) from discontinued operations 5	1,608 2,934 (263) 1,875 (4,490) 6,105 (10,949) 4,430
Net earnings (loss)	(2,882) 9,039 (11,212) 6,305
Basic and diluted net earnings (loss) per share of continuing operations 10	0.01 0.03 — 0.02
Basic and diluted net earnings (loss) per share of discontinued operations 10	(0.04) 0.06 (0.11) 0.04
Basic and diluted net earnings (loss) per share 10	(0.03) 0.09 (0.11) 0.06

The accompanying notes are an integral part of the interim condensed consolidated financial statements.

2

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Interim Condensed Consolidated Statements of Comprehensive income

(unaudited)

For the 12 and 24-week periods ended June 13, 2020 and June 15, 2019

(in thousands of Canadian dollars)

	12 weeks 24 weeks
	2020 2019 2020 2019 (Restated, Note 5) (Restated, Note 5) $ $ $ $
Net earnings (loss) from continuing operations	1,608 2,934 (263) 1,875
Other comprehensive income (loss) from continuing operations	— — — —
Comprehensive income (loss) from continuing operations	1,608 2,934 (263) 1,875
Net earnings (loss) from discontinued operations Other items that will not be subsequently reclassified to net earnings Remeasurement of defined benefit pension obligation Taxes on other comprehensive income	(4,490) 6,105 (10,949) 4,430 1,924 (239) 272 (1,122) (512) 63 (73) 299
Other items of comprehensive income (loss) from discontinued operations	1,412 (176) 199 (823)
Comprehensive income (loss) from discontinued operations	(3,078) 5,929 (10,750) 3,607
Comprehensive income (loss)	(1,470) 8,863 (11,013) 5,482

The accompanying notes are an integral part of the interim condensed consolidated financial statements.

3

Interim Condensed Consolidated Statements of Changes in Equity

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(unaudited)

For the 24-week period ended June 13, 2020 and June 15, 2019

(in thousands of Canadian dollars)

			Convertible
			debenture
		Share	conversion	Contributed		Total
	Notes	capital	options	surplus	Deficit	Equity
		$	$	$	$	$
Balance as at December 28, 2019		256,296	1,742	3,706	(161,641)	100,103
Impact of adoption of IFRS 16	2	—	—	—	(2,574)	(2,574)
Restated balance as at December 29, 2019		256,296	1,742	3,706	(164,215)	97,529
Net earnings (loss)		—	—	—	(11,212)	(11,212)
Other comprehensive income		—	—	—	199	199
Comprehensive (loss)		—	—	—	(11,013)	(11,013)
Stock-based compensation	13	—	—	177	—	177
Balance as at June 13, 2020		256,296	1,742	3,883	(175,228)	86,693

			Convertible
			debenture
		Share	conversion	Contributed		Total
	Note	capital	options	surplus	Deficit	Equity
		$	$	$	$	$
Balance as at December 29, 2018		255,639	1,742	3,891	(168,917)	92,355
Net earnings		—	—	—	6,305	6,305
Other comprehensive loss		—	—	—	(823)	(823)
Comprehensive income (loss)		—	—	—	5,482	5,482
Stock-based compensation	13	—	—	(267)	—	(267)
Balance as at June 15, 2019		255,639	1,742	3,624	(163,435)	97,570

The accompanying notes are an integral part of the interim condensed consolidated financial statements.

4

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Interim Condensed Consolidated Statements of Cash Flows

(unaudited)

For the 12 and 24-week periods ended June 13, 2020 and June 15, 2019

(in thousands of Canadian dollars)

Notes	12 weeks 24 weeks
	2020 2019 2020 2019 (Restated, Note 5) (Restated, Note 5) $ $ $ $
Cash flows from operating activities Net earnings (loss) from continuing operations Non-cash items Deferred income taxes 9 Depreciation and amortization 7 Financial expenses Other	1,608 2,934 (263) 1,875 403 1,437 (447) 1,140 3,418 2,193 6,962 4,388 1,598 1,851 3,294 3,642 73 (311) 213 (608)
Net changes in working capital	7,100 8,104 9,759 10,437 (3,883) (6,906) (929) (5,452)
	3,217 1,198 8,830 4,985
Cash flows from investing activities Acquisitions of property, plant and equipment Proceeds on disposals of property, plant and equipment Acquisitions of intangible assets Other	(315) (127) (369) (235) 28 196 41 197 (139) (50) (238) (94) 149 820 269 560
	(277) 839 (297) 428
Cash flows from financing activities Net change in the credit facility 11 Lease liabilities payments 2 Repayment of subordinated debt 11 Refinancing cost paid Financial expenses paid	— (7,927) (2,000) (2,184) (914) (183) (3,625) (398) — (5,000) — (5,000) (186) — (186) — (1,527) (1,645) (3,152) (3,251)
	(2,627) (14,755) (8,963) (10,833)
Net change in cash and cash equivalents from continuing operations Net change in cash and cash equivalents from discontinued operations 5 Cash and cash equivalents (bank indebtedness) at the beginning	313 (12,718) (430) (5,420) (3,366) 11,441 4,803 7,336 1,991 (2,491) (5,435) (5,684)
Cash and cash equivalents (bank indebtedness) at the end	(1,062) (3,768) (1,062) (3,768)

The accompanying notes are an integral part of the interim condensed consolidated financial statements.

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Interim Condensed Consolidated Statements of Financial Position

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(unaudited)

(in thousands of Canadian dollars)

						As at				As at
						June 13,				December 28,
						2020				2019
		Notes				$				$
Assets
Current assets
Trade and other receivables						44,772				72,643
Inventories						38,986				67,747
Tax receivable						991				909
Other						1,612				2,861
						86,361				144,160
Non-current assets
Property, plant and equipment						6,590				10,486
Intangible assets						29,009				31,461
Right-of-use assets		2				49,801				—
Goodwill						70,813				70,813
Deferred tax assets						6,924				2,295
Other						1,686				1,933
						164,823				116,988
Total assets						251,184				261,148
Liabilities
Current liabilities
Bank indebtedness						1,062				5,435
Trade and other payables		8				42,141				82,324
Current portion of long-term debt		11				3,000				2,983
Current portion of lease liabilities		2				10,486				—
Other						2,671				1,210
						59,360				91,952
Non-current liabilities
Long-term debt		11				11,789				17,926
Lease liabilities		2				42,422				—
Convertible debentures						49,685				49,576
Pension obligations						1,204				1,553
Deferred tax liabilities						31				38
						105,131				69,093
Total liabilities						164,491				161,045
Equity
Equity attributable to shareholders						86,693				100,103
Total liabilities and equity						251,184				261,148

Contingency (Note 16)

The accompanying notes are an integral part of the interim condensed consolidated financial statements.

6

Notes to the Condensed Interim Consolidated Financial Statements

(unaudited) For the 12 and 24-week periods ended June 13, 2020 and June 15, 2019

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(in thousands of Canadian dollars, except number of shares and per share data)

1 Nature of operations

Groupe Colabor Inc. (hereinafter the “Company”) distributes and markets food and food-related products in Canada.

The Company is incorporated under the Canada Business Corporations Act . It is a Canadian company headquartered at 1620 De Montarville Boulevard, Boucherville, Quebec, J4B 8P4. The Company’s shares and convertible debentures are listed on the Toronto Stock Exchange under GCL and GCL.DB.A, respectively.

2 Significant accounting policies

General information

These condensed interim consolidated financial statements of the Company were prepared in accordance with International Accounting Standard ("IAS") 34, Interim Financial Reporting. Some information and notes disclosure in the consolidated annual financial statements have not been presented or are summarized when they are not considered essential to understanding the Company's interim financial statements. Therefore, these condensed interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements for the year ended December 28, 2019.

These condensed interim consolidated financial statements have been prepared in accordance with the same accounting policies that have been adopted by the Company in its consolidated financial statements for the year ended December 28, 2019, except for the income taxes for the interim periods which are calculated according to the tax rate that would be applicable to the anticipated annual results in each jurisdictions and the leases as a result of the adoption of IFRS 16 Leases . The impacts of IFRS 16 on the condensed interim consolidated financial statements is disclosed in section New accounting policy adopted during the current fiscal year. The accounting policies have been applied consistently for all the periods presented except for IFRS 16.

The condensed interim consolidated financial statements have been prepared on a going concern and historical cost basis, except for certain financial instruments and pension plan's assets that are measured at fair value, and for defined pension obligations and provisions that have been recorded at present value. Financial information is presented in Canadian dollars, which is the Company's functional currency.

The net earnings (loss) for these interim financial statements are not necessarily indicative of the full-year net earnings. The seasonal nature is a significant factor in its quarterly results. Lower earnings are recorded during the first quarter. The second and third quarters are generally recording higher earnings than those recorded during the first quarter (see note 3 for the pandemic situation). Finally, since there are 16 weeks of operations in the last quarter compared to 12 weeks in the previous quarters, the fourth quarter is the most important one.

These condensed interim consolidated financial statements have been approved by the Company's Board of Directors on July 24, 2020.

7

Notes to the Condensed Interim Consolidated Financial Statements (unaudited) For the 12 and 24-week periods ended June 13, 2020 and June 15, 2019

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(in thousands of Canadian dollars, except number of shares and per share data)

Government grants

On March 27, 2020, the Government of Candada announced a new Canada Emergency Wage Subsidy ("CEWS"), effective March 15 to August 29, 2020, extended since, enabling Canadian businesses to meet the challenges of the pandemic. Certain eligibility criteria must be met in order to be eligible for the CEWS and receive a subsidy of 75% of employees' salaries, including a drop in eligible income which varies according to the periods concerned. The Government of Canada announced the eligibility criteria for the first four periods, until July 4, 2020. In the second quarter, the Company met the eligibility criteria for this grant, thereby allowing it to compensate part of the decrease in sales and the bottom line caused by the pandemic. As the eligibility criteria for the period starting July 5 are now known and the Company will be eligible for this grant in the third quarter.

The Company recognizes subsidies when recovery is reasonably secure. The grant is recognized using the cost reduction method, either as a reduction in the expense or in the asset to which it relates.

New accounting policy adopted during the current fiscal year

IFRS 16 - Leases

Accounting policy

In January 2016, the IASB published IFRS 16 which replace IAS 17 Leases. IFRS 16 eliminates the classification as an operating lease and requires lessees to recognize a right-of-use asset and a lease liability in the statement of financial position by eliminating the distinction between operating leases and finance leases.

In addition, IFRS 16 changes the definition of a lease, sets requirements on how to account for the asset and the liability including complexities such as non-lease elements, variable lease payments and options periods, changes the accounting for sale and leaseback arrangements, largely retains the approach to lessor accounting in IAS 17, and introduces new disclosure requirements.

IFRS 16 applies to fiscal years beginning on or after January 1, 2019. The lease obligation is equal to the net present value of future lease payments discounted using the implicit rate of the lease, if this rate can be determined or the Company incremental borrowing rate. The future lease payments include:

• Fixed payments and variable lease payments that are based on a index or a rate;

• The exercise price of a purchase option if the Company is reasonably certain to exercise that option; and

• Payments of penalties for terminating the lease if the Company expects to terminate the lease before the term.

Right-of-use assets are measured at cost which includes the initial lease liability amount, adjusted for payments made at or before the lease commencement date, lease incentives, initial direct costs and restoration costs. Right-of-use assets are subsequently measured at cost less accumulated depreciation and impairment losses and are depreciated over the shorter period of the lease term or useful life of the underlying asset.

The Company uses the practical expedient permitted for leases whose underlying assets have a low value and those whose term is less than twelve months.

8

Notes to the Condensed Interim Consolidated Financial Statements

For the 12 and 24-week periods ended June 13, 2020 and June 15, 2019

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(unaudited)

(in thousands of Canadian dollars, except number of shares and per share data)

Impact of adoption

The Company adopted IFRS 16 on December 29, 2019 using the modified retrospective approach. The Company has recorded the cumulative effects of initial application as adjustment to deficit as of December 29, 2019 without restatement of the comparative period. At the adoption date, lease liability for leases previously classified as operating leases under IAS 17 equals the present value of the remaining lease payments, discounted using the interest rate implicit in the lease or the Company's incremental borrowing rate as permitted under IFRS 16. The Company elected to measure the underlying right-of-use asset at an amount equal to the lease liability.

At the adoption date, the Company has used the following practical expedients permitted by IFRS 16:

• Keep the definition of a lease included under IAS 17 for existing contracts at the date of initial application, allowing the Company not to reassess all contracts;

• Apply the standard to a portfolio of leases with similar characteristics and use a single discount rate to the portfolio. This measure has been used for vehicle contracts;

• Exclude initial direct costs from the measurement of the right-of-use asset; and

• Use hindsight in determining lease term at the date of initial application.

Adjustment to opening equity is related to an impairment charge of $3,308, net of a deferred income taxes of $734, recorded on the right-of-use assets for which the fair value was lower than the carrying amount.

The impacts of adopting IFRS 16 on the Company's balance sheet as at December 29, 2019 was as follows:

				Balance as at		Adoption of		Restated balance as at
				December 28, 2019		IFRS 16		December 29, 2019
Assets				$		$		$
Property, plant and equipment				10,486		(2,940)		7,546
Right-of-use assets				—		57,437		57,437
Deferred tax assets				2,295		734		3,029
Total				12,781		55,231		68,012
Liabilities
Current portion of long-term debt				2,983		(1,004)		1,979
Current portion of leases liabilities				—		11,941		11,941
Long-term debt				17,926		(2,963)		14,963
Lease liabilities				—		49,830		49,830
Total				20,909		57,804		78,713
Equity
Equity attributable to shareholders				100,103		(2,574)		97,529

The Company used its incremental borrowing rates as at December 29, 2019 to measure lease liabilities. which is 3.58% for buildings and 5.98% for vehicles. The right-of-use assets are attributable to the following underlying assets: buildings for $41,689 and vehicles for $15,748.

9

Notes to the Condensed Interim Consolidated Financial Statements

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(unaudited)

For the 12 and 24-week periods ended June 13, 2020 and June 15, 2019

(in thousands of Canadian dollars, except number of shares and per share data)

The following reconciliation is between lease liabilities recognized as at December 29, 2019 and operating leases commitments disclosed under IAS 17 in note 19 Operating leases and commitments as at December 28, 2019:

disclosed under IAS 17 in note 19_Operating leases and commitments_as at December 28, 2019:
				$
Operating lease commitments as at December 28, 2019				48,520
Effect of discounting using the incremental borrowing rate				(9,296)
Add: finance leases as at December 29, 2019				3,967
Less: leases for which the underlying asset is low-value				(76)
Add: extension options reasonably certain to be exercised				19,606
Less: contracts as at December 29, 2019 excluded from IFRS 16				(950)
Lease liabilities as at December 29, 2019				61,771
Current portion of lease liabilities				11,941
Non-current portion of lease liabilities				49,830
				61,771

The impact of the adoption of IFRS 16 in the 2020 second quarter for the 12 and 24-week periods is as follows:

Decrease in operating expenses Increase in financial expenses Increase in depreciation and amortization	12 weeks
	Continuing operations Discontinued operations Total $ $ $ (1,985) (498) (2,483) 344 141 485 1,510 560 2,070

Decrease in operating expenses Increase in financial expenses Increase in depreciation and amortization	24 weeks
	Continuing operations Discontinued operations Total $ $ $ (3,989) (1,398) (5,387) 709 318 1,027 3,036 1,137 4,173

10

Notes to the Condensed Interim Consolidated Financial Statements

(unaudited) For the 12 and 24-week periods ended June 13, 2020 and June 15, 2019

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(in thousands of Canadian dollars, except number of shares and per share data)

3 Significant estimates and judgments

On March 11, 2020, the World Health Organization has qualified the Covid-19 virus as a global pandemic ("pandemic"). This pandemic has forced governments around the world to implement emergency measures to slow the spread of the virus, such as the travel ban, the closure of non-essential services, the confinement of citizens and physical distancing, resulting in an economic slowdown. The Company, as a food distributor, is considered as an essential service and has continued to operate while having implemented various measures to protect its customers, suppliers and employees. Although deconfinement measures and the resumption of activities in several sectors have started during the second quarter, this pandemic could continue to have an impact on customer demand, and therefore on the number of employees needed, could require tighter government regulations and increased government intervention, these factors could negatively affect operations, financial results and the balance sheet of the Company.

The preparation of the financial statements requires the management of the Company to undertakes some judgments and estimates about the recognition and measurement of the assets, liabilities, revenues and expenses which are based on the facts and information that are available to management. Because of the pandemic, management has revised its judgments and estimates as part of the preparation of its interim condensed consolidated financial statements and concluded that there was no significant change as of June 13, 2020 compared to the last fiscal year ending December 28, 2019.

In the first quarter of 2020, the Company updated the goodwill and trademarks impairment tests performed as of December 28, 2019 due to the pandemic. To assess the recoverable value of the CGUs, the Company used the forecasts made as of December 28, 2019 adjusted for the known and potential impacts of the pandemic. This pandemic is causing a lot of uncertainty for which management has made certain assumptions for the purpose of impairment testing, including a return to normality in the coming months. The Company has used average sales decrease and growth rates ranging from -7.84% to 0.25% (from -6.2% to 1.4% in 2019) to reflect a decrease of sales for the second quarter and a growth thereafter so the EBITDA generated by these divisions will be comparable to previous years by the end of fiscal year 2020, either by a resumption of economic activities in Quebec or by mitigation measures that the management of the Company has put in place during the first quarters. The Company has used a discount rate of 10.8% (10.1% as of December 28, 2019). These discount rates represent the weighted average cost of capital for the Company and for companies operating in the same sector of activity as the CGU. As of March 21, 2020, no impairment was required since the fair value of the CGUs was greater than its carrying value.

As of June 13, 2020, management has not deemed it necessary to update the impairment tests since no new element or new facts has occurred since March 21, 2020 and the results of the second quarter were greater than those initially estimated and used for impairment testing.

Given the uncertainty surrounding the pandemic's duration, extend and economic impact, the assumptions used may be different. Management will continue to monitor the developments of the pandemic and the possible impacts on the fair value of goodwill and trademarks over the coming months.

The duration and impact of the pandemic is currently unknown, and it is impossible for management to reliably estimate the extent and impact of these developments, as well as the impact on the financial results and financial position of the Company for the coming periods. Depending on the duration of this pandemic and changes in the industry, the impacts could be significant.

11

Notes to the Condensed Interim Consolidated Financial Statements

(unaudited) For the 12 and 24-week periods ended June 13, 2020 and June 15, 2019

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(in thousands of Canadian dollars, except number of shares and per share data)

4 Operating segments

The Company has two reportable segments: Distribution and Wholesale. These operating segments are monitored and strategic decisions are made on the basis of segment operating earnings. Management does not take assets and liabilities into account when analyzing individual segments.

The Distribution segment's operations include the distribution of food products in hotels, restaurants and institutions ("HRI") and retail market. In that segment, the Company distributes specialized products such as meat, fish and sea food ("Specialty Distribution") as well as general food related products ("Broadline Distribution"). These different types of products are grouped under the same segment because of their similar nature, type of clients and distribution methods.

The Wholesale segment's operations include the sale of general food related products to distributors from its distribution center in Boucherville.

The Company and its chief operating decision-maker are assessing the performance of each segment based on adjusted EBITDA, which corresponds to sales minus cost of goods sold and operating expenses from continuing operations. The other expenses are recorded on a consolidated basis, therefore they are not considered in the adjusted EBITDA. Inter-segment eliminations and others eliminate all intersegment transactions included in the operating earnings for each segment and include headquarters' operations. Transactions between segments are recorded at a value agreed upon by both parties.

	12 weeks
	Distribution segment Wholesale segment Intersegment eliminations and others Total 2020 2019 2020 2019 2020 2019 2020 2019 (Restated, Note 5) (Restated, Note 5) (Restated, Note 5) (Restated, Note 5) $ $ $ $ $ $ $ $
Segment sales Operating expenses	60,423 138,530 43,050 56,619 (8,015) (14,436) 95,458 180,713 55,531 131,737 39,458 52,813 (7,144) (12,550) 87,845 172,000
Adjusted EBITDA	4,892 6,793 3,592 3,806 (871) (1,886) 7,613 8,713

	24 weeks
	Distribution segment Wholesale segment Intersegment eliminations and others Total 2020 2019 2020 2019 2020 2019 2020 2019 (Restated, Note 5) (Restated, Note 5) (Restated, Note 5) (Restated, Note 5) $ $ $ $ $ $ $ $
Segment sales Operating expenses	141,101 234,416 82,814 97,405 (16,844) (24,565) 207,071 307,256 134,165 226,598 75,572 90,542 (13,977) (20,859) 195,760 296,281
Adjusted EBITDA	6,936 7,818 7,242 6,863 (2,867) (3,706) 11,311 10,975

12

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Notes to the Condensed Interim Consolidated Financial Statements

(unaudited)

For the 12 and 24-week periods ended June 13, 2020 and June 15, 2019

(in thousands of Canadian dollars, except number of shares and per share data)

The following table presents a reconciliation of the Company's operating segments results with key financial figures presented in its consolidated financial statements:

presented in its consolidated financial statements:
Notes Net earnings (loss) from continuing operations	12 weeks 24 weeks
	2020 2019 2020 2019 (Restated, Note 5) (Restated, Note 5) $ $ $ $ 1,608 2,934 (263) 1,875
Income taxes recovered Financial expenses	403 1,607 (447) 1,159 1,598 1,851 3,294 3,643
Operating earnings (loss)	3,609 6,392 2,584 6,677
Costs from stock base compensation 13 Costs not related to current operations 8 Depreciation and amortization 7	78 (50) 177 (268) 508 178 1,588 178 3,418 2,193 6,962 4,388
Adjusted EBITDA	7,613 8,713 11,311 10,975

As mentioned in note 2, the adoption of IFRS 16 had an impact on the accounting treatment of leases compared to 2019 under IAS 17. The comparative figures have not been restated since the Company has elected to adopt this standard as of December 29, 2019 using the modified retrospective method. The impacts of adopting IFRS 16 disclosed in note 2 must be taken into consideration in order to make adjusted EBITDA for the second quarter of 2020 comparable to the corresponding period of 2019.

13

Notes to the Condensed Interim Consolidated Financial Statements

(unaudited) For the 12 and 24-week periods ended June 13, 2020 and June 15, 2019

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(in thousands of Canadian dollars, except number of shares and per share data)

5 Discontinued operations

Broadline distribution operations in Ontario

On January 8, 2020, the Company announced the consolidation of Broadline Distribution activities of the Summit Foods division ("Summit") in Ontario into its Mississauga distribution center resulting in the closure of its London and Ottawa distribution centers on February 9, 2020 and March 2, 2020, respectively.

On May 11, 2020, the Company announced the closing of the sale of the majority of the assets of its Summit division for an amount of $9,336 subject to certain adjustments after the closing, including the finalization of working capital and a contingent consideration based on sales level in the next 12 months. An amount of $7,723 was received upon closing of the transaction and the remaining amount will be received in the coming months when the final adjustments are known. The sale includes the activities of independent and franchise restaurants as well as certain sales assets and transfer of certain employees.

The following table presents the proceeds of disposition and the carrying amount of the net assets sold during the 12 week period ended June 13, 2020:

		$
Proceeds from disposition		9,336
Book value of assets and liabilities disposed:
Clients and other debtors		3,709
Stocks		6,895
Prepaid expenses		661
Right-of-use assets		3,037
Payables and other creditors		(2,389)
Lease liabilities		(3,037)
		8,876
Transaction fees		(474)
Loss on disposal		(14)

Sale of the Viandes Décarie division

On May 10, 2019, the Company concluded the sale of the assets of the Viandes Décarie division for an amount of $20,070 including final adjustments related to working capital, of which $17,750 was received at closing. The balance of the sale price receivable will be payable over a maximum period of five years according to the terms of the agreement, from which $396 has been received as at June 13, 2020.

The Company has reclassified as discontinued operations all earnings and cash flows for the current and previous periods, separately from its continuing operations for these two division.

14

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Notes to the Condensed Interim Consolidated Financial Statements

(unaudited)

For the 12 and 24-week periods ended June 13, 2020 and June 15, 2019

(in thousands of Canadian dollars, except number of shares and per share data)

Net earnings (loss) from discontinued operations are as follows:

Sales Cost of goods sold	12 weeks 24 weeks
	2020 2019 2020 2019 $ $ $ $ 9,431 108,611 68,822 217,115 8,645 98,033 62,408 196,120
Gross Margin Operating expenses Depreciation and amortization Costs not related to current operations Impairment loss on goodwill, intangible assets and property, plant and equipment	786 10,578 6,414 20,995 1,527 11,642 8,971 24,258 616 25 1,254 42 4,040 (7,729) 10,313 (7,729) — 49 — 73
Operating earnings	(5,397) 6,591 (14,124) 4,351
Financial expenses	155 33 354 71
Earnings (loss) before taxes	(5,552) 6,558 (14,478) 4,280
Income taxes recovered	(1,062) 453 (3,529) (150)
Net earnings (loss) from discontinued operations	(4,490) 6,105 (10,949) 4,430

The costs not related to current operations break down as follows:

Notes Severance costs Provision for onerous contracts Provision for obsolescence of inventory and bad debt 3, 14 Loss (gain) on disposal Closing costs and others	12 weeks 24 weeks
	2020 2019 2020 2019 $ $ $ $ 3,852 — 7,449 — (148) — 948 — — — 240 — 14 (7,729) 14 (7,729) 322 — 1,662 —
Total	4,040 (7,729) 10,313 (7,729)

Costs not related to current operations for 2020 result from the closure of London and Ottawa distribution centers which took place in February and March 2020, respectively, as well as the closure of the Mississauga distribution center by the end of July 2020. The unpaid amounts of its restructuring costs are disclosed in note 8. The costs not related to current operations in 2019 represent the gain on disposal realized on the sale of the Viandes Décarie division.

15

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Notes to the Condensed Interim Consolidated Financial Statements

(unaudited)

For the 12 and 24-week periods ended June 13, 2020 and June 15, 2019

(in thousands of Canadian dollars, except number of shares and per share data)

Cash flows from discontinued operations are as follows:

Cash flows from operating activities Cash flows from investing activities Cash flows from financing activities Net change in cash and cash equivalent from discontinued operations	12 weeks 24 weeks
	2020 2019 2020 2019 $ $ $ $ (7,227) (5,461) (190) (9,775) 7,249 17,017 7,239 17,300 (3,388) (115) (2,246) (189)
	(3,366) 11,441 4,803 7,336

6 Operating expenses

Note Employee compensation(1) 13 Service contracts and variable portion related to lease contracts Repair and maintenance Utilities Other expenses	12 weeks 24 weeks
	2020 2019 2020 2019 (Restated, Note 5) (Restated, Note 5) $ $ $ $ 4,218 11,783 15,524 22,853 475 2,644 1,088 5,351 574 607 1,212 1,304 605 1,029 1,450 2,165 1,181 1,480 2,485 3,023
	7,053 17,543 21,759 34,696

(1) During the 12 and 24 week periods of 2020, employee compensation are net of CEWS acquired in connection with the pandemic in the amount of $4,403, of which an amount of $1,373 is to be received as of June 13, 2020.

7 Depreciation and amortization

Note Depreciation of property, plant and equipment Amortization of intangible assets Depreciation of right-of-use assets 2	12 weeks 24 weeks
	2020 2019 2020 2019 (Restated, Note 5) (Restated, Note 5) $ $ $ $ 612 607 1,236 1,220 1,296 1,586 2,690 3,168 1,510 — 3,036 —
	3,418 2,193 6,962 4,388

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Notes to the Condensed Interim Consolidated Financial Statements

For the 12 and 24-week periods ended June 13, 2020 and June 15, 2019

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(unaudited)

(in thousands of Canadian dollars, except number of shares and per share data)

8 Costs not related to current operations

Costs not related to current operations related to continuing operations break down as follows:

Notes Severance costs Allowance for bad debt accounts 3, 14 Others(a)	12 weeks 24 weeks
	2020 2019 2020 2019 (Restated, Note 5) (Restated, Note 5) $ $ $ $ 74 178 183 178 226 — 516 — 208 — 889 —
	508 178 1,588 178

(a) On February 24, 2020, the Company announced the decision not to exercise the option to acquire Dubé & Loiselle inc. The Company acquired this option in October 2016 for an amount of $500. This amount was written off during the first quarter of 2020. Other costs represent legal fees and other charges related to non-current activities.

The following table shows the change in provisions during the 24-week period ended June 13, 2020:

	$
Balance at the beginning of the period	1,210
Additional provision(a)	3,608
Balance at the end of the period	4,818

(a) The closure of its distribution centers located in Ottawa and London resulting from the Company's announcement in January 2020 and the one located in Mississauga, as mentioned in note 5, resulted in costs not related to current operations. As at June 13, 2020, unpaid amounts for separation costs of $2,809 and for onerous contracts of $799 are included in Trade and other payables on the balance sheet.

9 Income taxes

Current Deferred	12 weeks 24 weeks
	2020 2019 2020 2019 (Restated, Note 5) $ $ $ $ — 170 — 20 403 1,437 (447) 1,139
	403 1,607 (447) 1,159

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Notes to the Condensed Interim Consolidated Financial Statements

For the 12 and 24-week periods ended June 13, 2020 and June 15, 2019

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(unaudited)

(in thousands of Canadian dollars, except number of shares and per share data)

10 Per share data

Earnings (loss) per share

The following table presents the basic and diluted earnings (loss) per share:

Net earnings (loss) from continuing operations Net earnings (loss) from discontinued operations	12 weeks 24 weeks
	2020 2019 2020 2019 (Restated, Note 5) (Restated, Note 5) $ $ $ $ 1,608 2,934 (263) 1,875 (4,490) 6,105 (10,949) 4,430
Net earnings (loss)	(2,882) 9,039 (11,212) 6,305
Weighted average number of outstanding shares Effect of dilutive stock options	101,639,418 101,139,418 101,639,418 101,139,418 — 265,179 — 132,589
Weighted average number of basic and diluted outstanding shares	101,639,418 101,404,597 101,639,418 101,272,007
Basic and diluted net earnings (loss) per share of continuing operations Basic and diluted net earnings (loss) per share of discontinued operations	0.01 0.03 — 0.02 (0.04) 0.06 (0.11) 0.04
Basic and diluted net earnings (loss) per share	(0.03) 0.09 (0.11) 0.06

Shares hypothetically issued as a result of the conversion of the convertible debentures (20,000,000 shares in 2020 and 2019) and 3,187,582 stock options in 2020 (3,493,304 stock options in 2019) were not included in the calculation of diluted earnings per share for the 12 and 24-week periods ended June 13, 2020 and June 15, 2019 because of their non-dilutive effect.

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Notes to the Condensed Interim Consolidated Financial Statements

For the 12 and 24-week periods ended June 13, 2020 and June 15, 2019

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(unaudited)

(in thousands of Canadian dollars, except number of shares and per share data)

11 Long-term debt

		As at	As at
		June 13,	December 28,
		2020	2019
	Note	$	$
Credit facility(a)		—	2,000
Subordinated debt(b)		15,000	15,000
Obligations arising from leases repayable in variable monthly instalments
until July 2025, at interest rate ranging from 2.95% to 7.28%	2	—	3,967
Less unamortized financing costs		(211)	(58)
Total debt		14,789	20,909
Current portion of long-term debt		3,000	2,983
Total long-term debt		11,789	17,926

(a) Credit facility

On May 29, 2020, the Company extended its credit facility for an additional year, maturing on October 13, 2021, on similar terms. Under this new agreement, the credit facility is comprised of a revolving credit of up to $90,000 including an operating swingline of $13,500. By mutual agreement, the credit facility may be increased by an additional $20,000.

(b) Subordinated debt

On May 29, 2020, the Company extended the maturity of its subordinated debt until February 15, 2022 on the same conditions, except for the repayment of an amount of $3,000 as of October 31, 2020 under certain conditions.

Financing costs of $186 were incurred during the 12 week period ended June 13, 2020 relating to the extension of these two agreements.

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Notes to the Condensed Interim Consolidated Financial Statements

For the 12 and 24-week periods ended June 13, 2020 and June 15, 2019

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(unaudited)

(in thousands of Canadian dollars, except number of shares and per share data)

12 Share-capital

Authorized

Unlimited number of participating, voting common shares without par value.

Unlimited number of preferred shares that may be issued in series, whose designation, rights, restrictions and conditions related to each series shall be established at their time of issue.

Issued and fully paid common shares

	As at June 13, 2020	As at June 15, 2019
	Number Amount $	Number Amount $
Outstanding, beginning and end of the period	101,677,932 256,296	101,177,932 255,639

There were no outstanding preferred shares during the fiscal year covered.

13 Employee compensation

Stock-based compensation

Stock option plan

During the 12 and 24-week period ended June 13, 2020, the Company has not granted any stock options of the Company's common shares (975,000 during the second quarter of 2019). The weighted average fair value of the options granted in 2019 has been estimated at the award date using a binomial option pricing model based on the following assumptions:

	2019
	Period ended June 15, 2019
Weighted average fair value of the options Risk-free interest rate Expected volatility of shares Expected annual dividend Expected term Weighted average share price at date of grant Weighted average exercise price at date of grant Exercise period	$ 0.34 1.57% 60% — 6.25 years $ 0.68 $ 0.67 4 years

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Notes to the Condensed Interim Consolidated Financial Statements

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(unaudited)

For the 12 and 24-week periods ended June 13, 2020 and June 15, 2019

(in thousands of Canadian dollars, except number of shares and per share data)

A summary of the Company's stock option plan and the changes that have occurred during the years is presented in the following:

Outstanding, beginning of the period Granted Forfeiture Expired	24 weeks
	2020 2019 Number of options Weighted average exercise price Number of options Weighted average exercise price $ $ 3,416,471 0.94 4,218,943 1.69 — — 975,000 0.67 (90,000) 0.74 (323,889) 1.46 (138,889) 1.36 (701,750) 3.94
Outstanding, end of the period	3,187,582 0.93 4,168,304 1.08
Exercisable options	1,087,536 1.45 789,600 1.71

Forfeited stock options have generated an employee compensation charge reversal of $17 in the 24-week period ended June 13, 2020 ($403 in 2019).

14 Financial Instruments

A) Fair value

Fair value of cash, trade and other receivables, bank indebtedness, trade and other payables as well as current portion of longterm debt, is equivalent to the carrying amount due to their short-term maturity. Therefore, the time value of money is nonsignificant.

The carrying amount and fair value of the other financial instruments in the consolidated statements of financial position are as follows:

are as follows:
		As at		As at
		June 13,		December 28,
		2020		2019
	Carrying	Fair	Carrying	Fair
	amount	value	amount	value
	$	$	$	$
Financial liabilities
Non-current
Subordinated debt	11,833	11,970	14,963	14,957
Convertible debentures	49,685	35,630	49,576	42,260
	61,518	47,600	64,539	57,217

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For the 12 and 24-week periods ended June 13, 2020 and June 15, 2019

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Notes to the Condensed Interim Consolidated Financial Statements

(unaudited)

(in thousands of Canadian dollars, except number of shares and per share data)

The fair value of subordinated debt was determined by discounting future cash flows at 6.5% (6.5% as at December 28, 2019), the current rate of subordinated debt.

The fair value of the convertible debentures was determined based on the trading price on June 13, 2020.

Fair value measurement

When determining an asset or a liability's fair value, the Company uses observable market data as much as possible. Financial assets and liabilities measured at fair value are presented using a three-level fair value hierarchy that reflects the significance of the inputs used in making the fair value measurements of these items. The three fair value hierarchy levels are as follows:

• Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities;

• Level 2: Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly;

• Level 3: inputs for the asset or liability that are not based on observable market data.

As at June 13, 2020, the Company has classified the fair value measurement of non-current liabilities presented in the table above as follows: Convertible debentures (Level 1) and Subordinated debt (Level 2). There was no transfer between the levels during the 12 and 24-week periods ended June 13, 2020.

B) Financial risks management

The Company is exposed to various financial risks resulting from its operating, investing and financing activities. The Company's management manages financial risks in the purpose of limiting the Company's main financial risk exposure and its financial risk management policies are detailed below. The Company does not enter into financial instrument agreements, including derivative financial instruments, for speculative purposes.

Interest rate risk

The credit facility bears interest at variable rates, and this exposes the Company to the cash flow risks resulting from interest rate fluctuations. The Company's other financial assets and liabilities do not result in any interest rate risk since they do not bear interest at variable rates. The Company manages its interest rate risk exposure through an appropriate mix of fixed-rate and variable-rate financial liabilities.

No significant changes occurred to the Company's exposure for this risk since December 28, 2019.

Credit risk

The carrying amount on the consolidated statements of financial position of trade and other accounts receivable and loans receivable represents the maximum amount exposed to credit risk.

The Company's credit risk is primarily attributable to its trade accounts receivable and loans receivable. The credit risk related to trade accounts receivable is generally diversified. The Company requires a guarantee or letter of credit from some of its customers. As at June 13, 2020, the Company had guarantees for about 1.0% of its trade accounts receivable (1.0% as at December 28, 2019). In addition, following the pandemic, the payment terms of some customers have been modified for prepayments or payments on delivery in order to minimize credit risks. An additional provision for bad debts in the amount of $226 and $516 was recorded during the 12 and 24-week periods ended June 13, 2020, respectively, following the temporary closure of some of our customers in the restaurant industry.

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Notes to the Condensed Interim Consolidated Financial Statements

(unaudited) For the 12 and 24-week periods ended June 13, 2020 and June 15, 2019

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(in thousands of Canadian dollars, except number of shares and per share data)

The Company's policy is to have each customer undergo a credit check.

The credit risk related to loans receivable is not diversified. For some of its loans, the Company has a movable mortgage on the assets held by the borrower.

Liquidity risk

Liquidity risk management serves to maintain a sufficient amount of cash and sources of financing in the form of authorized bank loans. The Company establishes budget estimates and cash flow forecasts to ensure it has the necessary funds to fulfill its obligations. These forecasts are updated on a regular basis to consider the impacts of the rapidly evolving Covid-19 pandemic. According to our updated forecast based on information currently available to management, the Company is expecting to be able to meet its obligations for the next 12 to 15 months by using future cash flows from operating and financing activities.

As at June 13, 2020, the Company was in compliance with all debt covenants. To meet its capital needs, the Company has a credit facility of which $34,101 was available as of June 13, 2020.

15 Related party transactions

Transactions between related parties of the Company consist of sales occurring with Dubé & Loiselle Inc., an entity owned by a director of the Company. The transactions were carried out in accordance with the various contracts governing relations between the Company and Dubé & Loiselle Inc., in the normal course of business.

The following table shows the transactions between the Company and Dubé & Loiselle Inc.:

Note	12 weeks 24 weeks
	2020 2019 2020 2019 $ $ $ $
Sales	2,577 5,726 7,205 11,019
Trade and other receivables, net of remittances Dubé & Loiselle inc. purchase option 8	862 774 — 500

16 Contingency

During the second quarter of 2019, a lawsuit of $7,700 has been initiated by a client against the Company alleging a default to the terms of the agreement. The Company intends to defend itself vigorously.

23