| Significant Accounting Policies | 2.
Significant Accounting Policies. These consolidated financial
statements have been prepared on a historical cost basis, except where otherwise noted, in accordance with accounting principles
generally accepted in the United States applicable to a going concern and reflect the policies outlined below. (a) Cash and Cash Equivalents The Company considers all
highly liquid investments purchased with an original or remaining maturity of less than three months at the date of purchase to
be cash equivalents. Cash and cash equivalents are maintained with several financial institutions and consist of cash and a term
deposit of $1,000,000. (b) Inventories and
Cost of Sales The Company has three major
classes of inventory: completed goods, work in progress and raw materials and supplies. In all classes inventories are stated at
the lower of cost and net realizable value. Cost is determined on a first-in, first-out basis. Cost of sales includes all expenditures
incurred in bringing the goods to the point of sale. Inventory costs and costs of sales include direct costs of the raw material,
inbound freight charges, warehousing costs, handling costs (receiving and purchasing) and utilities and overhead expenses related
to the Company’s manufacturing and processing facilities. Shipping and handling charges billed to customers are included
in revenue for the nine months ended September 30 th th ((c) Allowance for Doubtful
Accounts The Company provides an
allowance for doubtful accounts when management estimates collectability to be uncertain. Accounts receivable are continually reviewed
to determine which, if any, accounts are doubtful of collection. In making the determination of the appropriate allowance amount,
the Company considers current economic and industry conditions, relationships with each significant customer, overall customer
credit-worthiness and historical experience. (d) Property, Equipment,
Leaseholds and Intangible Assets. The following assets are
recorded at cost and depreciated using the methods and annual rates shown below:
Computer hardware 30% Declining balance
Furniture and fixtures 20% Declining balance
Manufacturing equipment 20% Declining balance
Office equipment 20% Declining balance
Boat 20% Declining balance
Building and improvements 10% Declining balance
Trailer 30% Declining balance
Automobiles Straight-line over 5 years
Patents Straight-line over 17 years
Technology Straight-line over 10 years
Right of Use Assets Straight-line over lease term
Leasehold improvements Straight-line over lease term Property and equipment
are written down to net realizable value when management determines there has been a change in circumstances which indicates their
carrying amounts may not be recoverable. No write-downs have been necessary to date. (e) Impairment of Long-Lived
Assets In accordance with FASB
Codification Topic 360, “Property, Plant and Equipment (ASC 360), the Company reviews long-lived assets, including, but not
limited to, property, equipment and leaseholds, patents and other assets, for impairment annually or whenever events or changes
in circumstances indicate the carrying amounts of assets may not be recoverable. The carrying value of long-lived assets is assessed
for impairment by evaluating operating performance and future undiscounted cash flows of the underlying assets. If the expected
future cash flows of an asset is less than its carrying value, an impairment measurement is indicated. Impairment charges are recorded
to the extent that an asset’s carrying value exceeds its fair value. Accordingly, actual results could vary significantly
from such estimates. There were no impairment charges during the periods presented. (f) Foreign Currency The functional currency
of the Company is the U.S. dollar. The functional currency of three of the Company’s subsidiaries is the Canadian Dollar.
The translation of the Canadian Dollar to the reporting currency of the Company, the U.S. Dollar, is performed for assets and liabilities
using exchange rates in effect at the balance sheet date. Revenue and expense transactions are translated using average exchange
rates prevailing during the year. Translation adjustments arising on conversion of the Company’s financial statements from
the subsidiary’s functional currency, Canadian Dollars, into the reporting currency, U.S. Dollars, are excluded from the
determination of income (loss) and are disclosed as other comprehensive income in the consolidated statements of operations and
comprehensive income. Foreign exchange gains
and losses relating to transactions not denominated in the applicable local currency are included in operating income (loss) if
realized during the year and in comprehensive income (loss) if they remain unrealized at the end of the year. (g) Revenue Recognition The Company follows a five-step
model for revenue recognition. The five steps are: (1) identification of the contract(s) with the customer, (2) identification
of the performance obligation(s) in the contract(s), (3) determination of the transaction price, (4) allocation of the transaction
price to the performance obligation, and (5) recognition of revenue when (or as) the performance obligation is satisfied. The Company
has fulfilled its performance obligations when control transfers to the customer, which is generally at the time the product is
shipped since risk of loss is transferred to the purchaser upon delivery to the carrier. For shipments which are F.O.B. shipping
point, the Company has elected to account for shipping and handling activities as a fulfillment cost rather than as an additional
promised service and performance obligation. Since the Company’s
inception, product returns have been insignificant; therefore, no provision has been established for estimated product returns. Deferred
revenues consist of products sold to distributors with payment terms greater than the Company’s customary business terms
due to lack of credit history or operating in a new market in which the Company has no prior experience. The Company defers the
recognition of revenue until the criteria for revenue recognition has been met, and payments become due or cash is received from
these distributors. (h) Stock Issued in
Exchange for Services The Company’s common
stock issued in exchange for services is valued at estimated fair market value based upon trading prices of the Company’s
common stock on the dates of the stock transactions. The corresponding expense of the services rendered is recognized over the
period that the services are performed. (i) Stock-based Compensation The
Company recognizes compensation expense for all share-based payments in accordance with FASB Codification Topic 718, Compensation
— Stock Compensation (j) Other Comprehensive
Income Other comprehensive income
refers to revenues, expenses, gains and losses that under generally accepted accounting principles are included in comprehensive
income, but are excluded from net income as these amounts are recorded directly as an adjustment to stockholders’ equity.
The Company’s other comprehensive income is comprised only of unrealized foreign exchange gains and losses. (k) Income Per Share Basic earnings per share
is computed by dividing income available to common stockholders by the weighted average number of common shares outstanding in
the period. Diluted earnings per share are calculated giving effect to the potential dilution of the exercise of options and warrants.
Common equivalent shares, composed of incremental common shares issuable upon the exercise of stock options and warrants are included
in diluted net income per share to the extent that these shares are dilutive. Common equivalent shares that have an anti-dilutive
effect on net income per share have been excluded from the calculation of diluted weighted average shares outstanding for the three
and nine months ended September 30, 2020 and 2019. (l) Use of Estimates The preparation of consolidated
financial statements in conformity with accounting principles generally accepted in the United States requires management to make
estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial
statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those
estimates and would impact the results of operations and cash flows. Estimates and underlying
assumptions are reviewed at each period end. Revisions to accounting estimates are recognized in the period in which the estimates
are revised and in any future periods affected. Significant areas requiring
the use of management estimates include assumptions and estimates relating to the valuation of goodwill and intangible assets,
asset impairment analysis, share-based payments and warrants, valuation allowances for deferred income tax assets, determination
of useful lives of property, the discount rate of the right of use asset, equipment, leaseholds, intangible assets, and the valuation
of inventory. (m) Financial
Instruments The fair market value
of the Company’s financial instruments comprising cash and cash equivalents, accounts receivable, accounts payable and accrued
liabilities, and short term line of credit were estimated to approximate their carrying values due to immediate or short-term maturity
of these financial instruments. (n) Fair Value of Financial
Instruments Fair value is defined as the exchange price
that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market
for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques
used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. The standard
describes a fair value hierarchy based on three levels of inputs described below, of which the first two are considered observable
and the last unobservable, that may be used to measure fair value
● Level 1 – Quoted prices in active markets for identical assets or liabilities.
● Level 2 – Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
● Level 3 — Unobservable inputs that are supported by little or no market activity which is significant to the fair value of the assets or liabilities. The fair values of cash
and cash equivalents, accounts receivable, accounts payable and accrued liabilities and the short term line of credit for all periods
presented approximate their respective carrying amounts due to the short term nature of these financial instruments. o) Contingencies Certain conditions may
exist as of the date the financial statements are issued which may result in a loss to the Company but which will only be resolved
when one or more future events occur or fail to occur. The Company’s management and its legal counsel assess such contingent
liabilities, and such assessment inherently involves an exercise of judgment. In assessing loss contingencies related to legal
proceedings that are pending against the Company or unasserted claims that may result in such proceedings, the Company’s
legal counsel evaluates the perceived merits of any legal proceedings or unasserted claims as well as the perceived merits of the
amount of relief sought or expected to be sought. If the assessment of a
contingency indicates that it is probable that a material loss has been incurred and the amount of the liability can be estimated,
the estimated liability would be accrued in the Company’s financial statements. If the assessment indicates that a potential
material loss contingency is not probable, but is reasonably possible, or is probable but cannot be estimated, then the nature
of the contingent liability, together with an estimate of the range of possible loss if determinable and material, would be disclosed. Loss contingencies considered
remote are generally not disclosed unless they involve guarantees, in which case the guarantees would be disclosed. Legal fees
associated with loss contingencies are expensed as incurred. (p)
Income Taxes Income
taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the expected
future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities
are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized as
income or expense in the period that includes the enactment date. Deferred tax assets are reduced by a valuation allowance so that
the assets are recognized only to the extent that when, in the opinion of management, it is more likely than not that some portion
or all of the deferred tax assets will be realized. Per FASB ASC 740 “Income
taxes” under the liability method it is the Company’s policy to provide for uncertain tax positions and the related
interest and penalties based upon management’s assessment of whether a tax benefit is more likely than not to be sustained
upon examination by tax authorities. At September 30, 2020, the Company believes it has appropriately accounted for any unrecognized
tax benefits. To the extent the Company prevails in matters for which a liability for an unrecognized benefit is established or
is required to pay amounts in excess of the liability, the Company’s effective tax rate in a given financial statement period
may be affected. Interest and penalties associated with the Company’s tax positions are recorded as interest expense in the
consolidated statements of operations and comprehensive income. q)
Risk Management. The Company’s credit
risk is primarily attributable to its accounts receivable. The amounts presented in the accompanying consolidated balance sheets
are net of allowances for doubtful accounts, estimated by the Company’s management based on prior experience and the current
economic environment. The Company is exposed to credit-related losses in the event of non-payment by customers. Credit exposure
is minimized by dealing with only credit worthy counterparties. Accounts receivable for the Company’s three primary customers
totaled $3,088,120 (53%) at September 30, 2020 (December 31, 2019 - $2,707,825 or 61%). The credit risk on cash
and cash equivalents is limited because the Company limits its exposure to credit loss by placing its cash and cash equivalents
with major financial institutions. The Company maintains cash balances at financial institutions which at times exceed federally
insured amounts. The Company has not experienced any material losses in such accounts. The Company is exposed
to foreign exchange and interest rate risk to the extent that market value rate fluctuations materially differ from financial assets
and liabilities, subject to fixed long-term rates. In order to manage its
exposure to foreign exchange risks, the Company is closely monitoring the fluctuations in the foreign currency exchange rates and
the impact on the value of cash and cash equivalents, accounts receivable, and accounts payable and accrued liabilities. The Company
has not hedged its exposure to currency fluctuations. (r) Equity Method Investment The Company accounts for
investments using the equity method of accounting if the investment provides the Company the ability to exercise significant influence,
but not control, over the investee. Significant influence is generally deemed to exist if the Company’s ownership interest
in the voting stock of the investee ranges between 20% and 50%, although other factors, such as representation on the investee’s
board of directors, are considered in determining whether the equity method of accounting is appropriate. Under the equity method
of accounting, the investment is initially recorded at cost in the consolidated balance sheets under other assets and adjusted
for dividends received and the Company’s share of the investee’s earnings or losses together with other-than-temporary
impairments which are recorded through interest and other loss, net in the consolidated statements of operations and comprehensive
income. (s) Goodwill and Intangible
Assets Goodwill represents the
excess of the purchase price of an acquired entity over the amounts assigned to the assets acquired and liabilities assumed. Goodwill
is not amortized, but is reviewed for impairment annually or more frequently if certain impairment conditions arise. The Company
performs an annual goodwill impairment review in the at December 31 of each year at the reporting unit level. The evaluation begins
with a qualitative assessment of the factors that could impact the significant inputs used to estimate fair value. If after performing
the qualitative assessment, it is determined likely that the fair value of a reporting unit is more than its carrying amount, including
goodwill, then no further analysis is necessary. However, if the results of the qualitative test are unclear, the Company performs
a quantitative test, which involves comparing the fair value of a reporting unit with its carrying amount, including goodwill.
The Company uses an income-based valuation method, determining the present value of future cash flows, to estimate the fair value
of a reporting unit. If the fair value of a reporting unit exceeds its positive carrying amount, goodwill of the reporting unit
is considered not impaired, and no further analysis is necessary. If the fair value of the reporting unit is less than its carrying
amount, goodwill impairment would be recognized equal to the amount of the carrying value in excess of the reporting unit’s
fair value, limited to the total amount of goodwill allocated to the reporting unit. Intangible assets primarily
include trademarks and trade secrets with indefinite lives and customer-relationships with finite lives. Intangible assets with
indefinite lives are not amortized but are tested for impairment on an annual basis, or more frequently if indicators of impairment
are present. Indefinite lived intangible assets are assessed using either a qualitative or a quantitative approach. The qualitative
assessment evaluates factors including macro-economic conditions, industry and company-specific factors, legal and regulatory environments,
and historical company performance in assessing fair value. If it is determined the fair value of the intangible asset is less
than its carrying value, a quantitative test is then performed. When using a quantitative approach, the Company compares the fair
value of the intangible asset to its carrying amount. If the estimated fair value of the intangible asset is less than its carrying
amount, impairment is indicated, requiring recognition of an impairment charge for the differential. Qualitative assessments of goodwill and indefinite-lived
intangible assets were performed in 2019 and 2018. Based on the results of the assessment, it was determined that it is more likely
than not the reporting units, and intangible asset had a fair value in excess of carrying value. Accordingly, no further impairment
testing was completed and no impairment charges related to goodwill or indefinite-lived intangibles were recognized during 2019,
2018 or the three or nine months ended September 30, 2020. Finite-lived intangible
assets are amortized on a straight-line basis over their estimated useful lives. The Company reviews for impairment indicators
of finite-lived intangibles and other long-lived assets as described in the “Property and Equipment” significant accounting
policy. (t)
Leases For leases with terms greater
than 12 months, the Company records the related right-of-use (“ROU”) asset and lease obligation at the present value
of lease payments over the term. Leases may include fixed rental escalation clauses, renewal options and / or termination options
that are factored into the determination of lease payments when appropriate. The Company’s leases do not usually provide
a readily determinable implicit rate; therefore, an estimate of the Company’s incremental borrowing rate is used to discount
the lease payments based on information available at the lease commencement date. The discount rate used was 5.5%. The table below summarizes
the right-of-use asset and lease liability for the period ended September 30, 2020:
Right of Use Assets September 30, 2020
Balance at December 31, 2019 $ 789,205
Depreciation (226,532 )
Balance at September 30, 2020 $ 562,673
Lease Liability
Balance at December 31, 2019 789,205
Lease interest expense 15,687
Payments (242,399 )
Balance at September 30, 2020 $ 562,493
Short-term portion $ 370,358
Long-term portion 192,135
Total $ 562,493 Update to Lease Policy Accounting and reporting
guidance for leases requires that leases be evaluated and classified as either operating or finance leases by the lessee and as
either operating, sales-type or direct financing leases by the lessor. The Company’s operating leases are included in ROU
assets, lease liabilities-current portion and lease liability-less current portion in the accompanying consolidated balance sheets.
ROU assets represent the Company’s right to use an underlying asset for the lease term, and lease liabilities represent
the obligation to make lease payments arising from the lease. |
