Financial Information

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

(O) Future Accounting Pronouncements

(i) International Financial Reporting Standards (IFRS): In 2006, Canada’s Accounting Standards Board (“AcSB”) published a new strategic plan of converging Canadian generally accepted accounting principles for publicly accountable enterprises with IFRS. In 2008, the AcSB confirmed that IFRS will be mandatory in Canada for profit-oriented publicly accountable entities for fiscal periods beginning on or after January 1, 2011. The Company will be required to report using these converged standards with its first annual financial statements being for the year ending October 31, 2012, along with the comparative period for 2011. Commencing in the first quarter of fiscal 2012, the Company will prepare and publish unaudited consolidated financial information in accordance with IFRS with comparatives figures for 2011. The Company has developed its plan and has completed preliminary identification and assessment of the accounting and reporting differences between existing Canadian GAAP and IFRS. Evaluation of accounting policies and the differences is in progress; however, at this time, the full impact of adopting IFRS is not reasonably estimable or determinable at this time.

(ii) Business Combinations: Section 1582, “Business Combinations”, will be applicable to business combinations for which the acquisition date is on or after the Company’s fiscal years beginning January 1, 2011. Early adoption is permitted. This Section improves the relevance, reliability and comparability of the information that a reporting entity provides in its financial statements about a business combination and its effects. The Company has not yet determined the impact of the adoption of this new standard on its consolidated financial statements.

(iii)Consolidated Financial Statements: Section 1601, “Consolidated Financial Statements” will be applicable to financial statements relating to the Company’s fiscal years beginning on or after January 1, 2011. Early adoption is permitted. This Section establishes standards for the preparation of consolidated financial statements. The Company has not yet determined the impact of the adoption of this new standard on its consolidated financial statements.

3. CAPITAL STRUCTURE

The capital structure of the Company consists principally of shareholders’ equity comprised of retained earnings and share capital. The Company’s strategy is to minimize the use of debt financing to fund growth and manage its capital structure in light of economic conditions and the risk characteristics of the underlying assets. The Company’s primary uses of capital are to finance non-cash working capital requirements and capital expenditures, which are currently funded from its internally generated cash flows. The Company is not subject to any externally imposed capital requirements.

The Company’s objectives when managing capital are:

(i) to ensure sufficient liquidity to pursue its strategy of organic growth;

(ii) to maintain compliance with debt covenants; and

(iii) to deploy a strong and efficient capital base to provide an appropriate return on investment to shareholders and maintain investor, creditor and market confidence.

The Company manages the capital structure and makes adjustments in light of economic conditions and the risk characteristics of underlying assets. In order to maintain or adjust the capital structure, the Company may purchase shares for cancellation, issue new shares, issue new debt or issue new debt to replace existing debt with different characteristics.

In July 2009, 130,000 stock options were exercised at an exercise price of $3.78, increasing the share capital by $491,400.

The Company’s banking facilities are subject to covenants which include maintaining financial ratios such as debt to net worth ratio and debt servicing coverage ratio. As at October 31, 2009, the Company is in compliance with these covenants and based on the current business plans and economic conditions, the Company is not aware of any condition or event that would give rise to non-compliance with the covenants.

4. INVENTORY