| 2. SIGNIFICANT ACCOUNTING POLICIES | 2.
Significant Accounting Policies. These consolidated 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 three major
classes of inventory: finished goods, work in progress and 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 condensed interim consolidated statements of operations and 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 has 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
months ended March 31, 2017 and 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 December 31, 2016, 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
condensed interim consolidated statements of operations and 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-payment by customers to
the financial instruments. Credit exposure is minimized by dealing with only credit worthy counterparties. Accounts receivable
for the Companys three primary customers totaled $1,889,159 (56%) at March 31, 2017 (December 31, 2016 - $2,032,646 or 67%). 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. 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) Equity
Method Investment The Company
accounts for investments using the equity method of accounting if the investment provides us 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 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 (loss). (s) Adoption
of new accounting principles In July 2015, the FASB issued ASU 2015-11, Simplifying
the Measurement of Inventory. The standard will require inventory to be measured at the lower of cost or net realizable value.
The guidance will not apply to inventories for which cost is determined using the last-in, first-out method or the retail inventory
method. The standard is effective for annual and interim reporting periods beginning after December 15, 2016. Adoption of this
standard had no effect on our consolidated financial statements. In March 2016, the FASB issued Accounting Standards
Update No. 2016-09, Improvements to Employee Share-Based Payment Accounting ("ASU 2016-09"). This standard was issued as
part of the FASB's Simplification Initiative that involve several aspects of the accounting for share based payment transactions,
including the income tax consequences, classification of awards as either equity or liabilities and classification on the statement
of cash flows. Some of the areas for simplification apply only to nonpublic entities. For public business entities, ASU 2016-09
is effective for annual periods beginning after December 15, 2016 and interim periods within those annual periods. The method of
adoption is dependent on the specific aspect of accounting addressed in this new guidance. Early adoption is permitted in any interim
or annual period. Adoption of this standard had no effect on our consolidated financial statements. (t) Accounting
Pronouncements Not Yet Adopted In January 2017, the
FASB issued ASU 2017-04, Simplifying the Test for Goodwill Impairment. The standard eliminates step two in the current two-step
impairment test under ASC 350. Under the new standard, a goodwill impairment will be recorded for any excess of a reporting unit's
carrying value over its fair value. A prospective transition approach is required. The standard is effective for annual and interim
reporting periods beginning after December 15, 2019 with early adoption permitted for annual and interim goodwill impairment testing
dates after January 1, 2017. We do not expect the standard to have a material impact on our consolidated financial statements. In February 2016, the FASB
issued ASU 2016-02, Leases. The standard will require lessees to recognize most leases on their balance sheet and makes selected
changes to lessor accounting. The standard is effective for annual and interim reporting periods beginning after December 15, 2018.
A modified retrospective transition approach is required, with certain practical expedients available. We are currently evaluating
the impact the adoption of this standard will have on our consolidated financial statements. In July 2015, the FASB issued
ASU 2015-11, Simplifying the Measurement of Inventory. The standard will require inventory to be measured at the lower of cost
or net realizable value. The guidance will not apply to inventories for which cost is determined using the last-in, first-out method
or the retail inventory method. The standard is effective for annual and interim reporting periods beginning after December 15,
2016. We do not expect the adoption of this standard to have a material impact on our consolidated financial statements. In May 2014, the FASB issued
ASU 2014-09, Revenue from Contracts with Customers, which has been updated through several revisions and clarifications since
its original issuance. The standard will require revenue recognized to represent the transfer of promised goods or services to
customers at an amount that reflects the consideration which a company expects to receive in exchange for those goods or services.
The standard also requires new, expanded disclosures regarding revenue recognition. The standard will be effective January 1,
2018 with early adoption permissible beginning January 1, 2017. We are currently evaluating the transition method we will elect
and the effect on our consolidated financial statements. |
