| 2. SIGNIFICANT ACCOUNTING POLICIES | 2. Significant
Accounting Policies. These
condensed consolidated interim financial statements have been prepared 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. (b) Inventories
and Cost of Sales The
Company has four major classes of inventory: finished goods, work in progress, raw materials and supplies. In all classes, inventory
is valued at the lower of cost or market. 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 Companys manufacturing and processing facilities. (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 and Leaseholds 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
Technology 20% Declining balance
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 its carrying amount 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 and equipment, 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 assets 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 three of the Companys 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 Companys financial statements from the subsidiarys 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 (loss) in the Statement of Comprehensive Income (Loss). 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 Revenue
from product sales is recognized at the time the product is shipped since title and risk of loss is transferred to the purchaser
upon delivery to the carrier. Shipments are made F.O.B. shipping point. The Company recognizes revenue when there is persuasive
evidence of an arrangement, delivery to the carrier has occurred, the fee is fixed or determinable, collectability is reasonably
assured and there are no significant remaining performance obligations. When significant post-delivery obligations exist, revenue
is deferred until such obligations are fulfilled. To date, there have been no such significant post-delivery obligations. Since
the Companys 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 Companys 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 have been met, and payments become due or cash is received from
these distributors. (h) Stock
Issued in Exchange for Services The
Companys common stock issued in exchange for services is valued at estimated fair market value based upon trading prices
of the Companys 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 The
fair value at grant date of stock options is estimated using the Black-Scholes-Merton option-pricing model. Compensation expense
is recognized on a straight-line basis over the stock option vesting period based on the estimated number of stock options that
are expected to vest. Shares are issued from treasury upon exercise of stock options. (j) Comprehensive
Income (Loss) 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 Companys other comprehensive income (loss) is primarily comprised 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 six months ended June 30, 2016. (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 asset impairment analysis, share-based
payments and warrants, valuation allowances for deferred income tax assets, determination of useful lives of property, plant and
equipment, and the valuation of inventory. (m) Financial
Instruments The
fair market value of the Companys 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. 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. (n) Fair
Value of Financial Instruments In
August 2009, an update was made to Fair Value Measurements and Disclosures Measuring Liabilities at
Fair Value. Fair Value Measurements and Disclosures 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 therein. 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 in
income 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 Companys policy to provide for uncertain tax
positions and the related interest and penalties based upon managements assessment of whether a tax benefit is more likely
than not to be sustained upon examination by tax authorities. At June 30, 2015, 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 Companys effective tax rate in a given financial
statement period may be affected. Interest and penalties associated with the Companys tax positions are recorded as interest
expense in the consolidated statements of comprehensive income (loss). (q) Risk
Management The
Companys 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 Companys management based on prior experience
and the current economic environment. The Company is exposed to credit-related losses in the event of non-performance by counterparties
to the financial instruments. Credit exposure is minimized by dealing with only credit worthy counterparties. Accounts receivable
for the Companys three primary customers totaled $1,159,668 (58%) at June 30, 2016 (December 31, 2015 - $1,298,821 or 66%). 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 is not exposed to significant interest rate risk to the extent that the long term debt maintained from the foreign government
agencies is subject to a fixed rate of interest. 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. The Company
has not hedged its exposure to currency fluctuations. (r) Adoption
of new accounting principles In
June 2014, the FASB issued ASU No. 2014-12, Compensation Stock Compensation, an update to its accounting
guidance related to share-based compensation. The guidance requires that a performance target that affects vesting, and that could
be achieved after the requisite service period, be treated as a performance condition, and therefore not be reflected in determining
the fair value of the award at the grant date. The guidance is effective for annual and interim periods beginning after December
15, 2015. Adoption of this guidance did not have any effect on the Companys consolidated financial statements. In
February 2015, the FASB issued ASU No. 2015-02, "Consolidation: Amendments to the Consolidation Analysis." This update
improves targeted areas of the consolidation guidance and reduces the number of consolidation models. This update is effective
for annual and interim periods in fiscal years beginning after December 15, 2015. Adoption of this guidance did not have any effect
on the Companys consolidated financial statements. (s) Recent
Accounting Pronouncements On
May 28, 2014, the Financial Accounting Standards Board (the FASB) and the International Accounting Standards Board
(the IASB) issued substantially converged final standards on revenue recognition. The FASB's Accounting Standards
Update (ASU) No. 2014-09, Revenue from Contracts with Customers (Topic 606), was issued in three parts: (a) Section
A, Summary and Amendments That Create Revenue from Contracts with Customers (Topic 606) and Other Assets and Deferred Costs-Contracts
with Customers (Subtopic 340-40), (b) Section B, Conforming Amendments to Other Topics and Subtopics in the Codification
and Status Tables and (c) Section C, Background Information and Basis for Conclusions. The standard outlines
a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes
most current revenue recognition guidance, including industry-specific guidance. The new revenue recognition guidance becomes effective
for the Company on December 15, 2017, and early adoption is not permitted. Entities have the option of using either a full retrospective
or a modified approach to adopt the guidance in the ASU. The Company has not yet selected a transition method and is currently
evaluating the effect that the updated standard will have on its consolidated financial statements and related disclosures. In
August 2014, the FASB issued new guidance on determining when and how to disclose going -concern uncertainties in the financial
statements. The new guidance requires management to perform interim and annual assessments of an entitys ability to continue
as a going concern within one year of the date the financial statements are issued. An entity must provide certain disclosures
if conditions or events raise substantial doubt about its ability to continue as a going concern. The guidance is effective for
annual periods ending after December 15, 2016 and interim periods thereafter. Early adoption is permitted. Upon adoption, the Company
does not believe this guidance will have a material impact on its consolidated results of operations or financial position. In
July 2015, the FASB issued ASU No. 2015-11, Simplifying the Measurement of Inventory. Under this ASU, inventory will
be measured at the lower of cost and net realizable value and options that currently exist for market value
will be eliminated. The ASU defines net realizable value as the estimated selling prices in the ordinary course of business,
less reasonably predictable costs of completion, disposal, and transportation. No other changes were made to the current
guidance on inventory measurement. ASU 2015-11 is effective for interim and annual periods beginning after December 15, 2016, with
early adoption permitted. Adoption of this guidance is not expected to have any material effect on the Companys consolidated
financial statements. In
February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). The FASB issued the update to require the recognition of lease
assets and liabilities on the balance sheet of lessees for all leases with the exception of short term leases at the commencement
date. The standard will be effective for fiscal years beginning after December 15, 2018, including interim periods within such
fiscal years. The ASU requires a modified retrospective transition method with the option to elect a package of practical expedients.
Early adoption is permitted. The Company is evaluating the effect the new guidance will have on its consolidated financial statements
and related disclosures. In March 2016, the FASB issued ASU 2016-09, Compensation - Stock Compensation (Topic 718), which simplifies
the accounting for the taxes related to stock-based compensation, including adjustments to how excess tax benefits and a company's
payments for tax withholdings should be classified. The standard will be effective for fiscal years beginning after December 15,
2016, including interim periods within such fiscal years. The Company is currently evaluating the new guidance and does not expect
it to have a material impact on its consolidated financial statements. In
April 2016, the FASB issued an accounting pronouncement (FASB ASU 2016-10) related to identifying performance obligations
and licensing. This pronouncement is meant to clarify the guidance in FASB ASU 2014-09, Revenue from Contracts with
Customers. Specifically, the guidance addresses an entitys identification of its performance obligations in a contract,
as well as an entitys evaluation of the nature of its promise to grant a license of intellectual property and whether
or not that revenue is recognized over time or at a point in time. The pronouncement has the same effective date as the new
revenue standard, which is effective for fiscal years, and for interim periods within those fiscal years, beginning after
December 15, 2017. The Company is currently evaluating the impact of the accounting update on its consolidated financial
statements. |
