Financial Information

13. DISCLOSURE CONTROLS AND PROCEDURES

The President and Chief Executive Officer and Chief Financial Officer of the Company have designed disclosure controls and procedures to provide reasonable assurance that material information relating to the Company and its subsidiaries is made known to them and have designed internal controls over financial reporting (“ICFR”) to provide reasonable assurance regarding the reliability of the Company’s financial reporting and its compliance with GAAP in its consolidated financial statements.

The President and Chief Executive Officer and Chief Financial Officer of the Company deem the design of disclosure controls and procedures and the design of ICFR to be adequate, as at October 31, 2009.

The President and Chief Executive Officer and Chief Financial Officer have also evaluated whether there were changes in the Company’s ICFR for the year ended October 31, 2009, that have materially affected, or are reasonably likely to materially affect its ICFR. No such changes were identified through their evaluation.

14. ACCOUNTING POLICY DEVELOPMENTS

(i) Goodwill and Intangible Assets: Effective November 1, 2008, the Company adopted CICA handbook Section 3064, “Goodwill and Intangible Assets”. The new Section establishes standards for the recognition, measurement, presentation and disclosure of goodwill subsequent to its initial recognition and of intangible assets by profit-oriented enterprises. Standards concerning goodwill are unchanged from the standards included in the previous Section 3062. The application of this standard does not have any impact on the Company’s consolidated financial statements.

(ii) General Standards on Financial Statement Presentation: Effective November 1, 2008 the Company adopted the Canadian Institute of Chartered Accountants (CICA) issued Handbook Section 1400, “General Standards on Financial Statement Presentation”, which was amended to include requirements to assess and disclose an entity’s ability to continue as a going concern. The application of this standard had no impact on the Company’s consolidated financial statements.

(iii) Inventory: Effective November 1, 2008, the Company adopted CICA Section 3031, “Inventories” resulting from the convergence with International Financial Reporting Standards (IFRS), which requires inventory to be measured at lower of cost and net realizable value. The standard also provides guidance on the costs that can be capitalized. In addition, previous inventory write-downs are now allowed to be reversed if the economic circumstances have changed to support an increased inventory value. The application of this new standard had no impact on the Company’s consolidated financial statements.

15. 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 will use a phased in approach as part of its conversion project, as there are several key elements that need to be fulfilled on the path to implementing IFRS:

The Company is in the process of completing phase 1 with preliminary assessment of the accounting and reporting differences under IFRS when compared to Canadian GAAP. Management is currently analyzing its determination of the impact of these differences on the consolidated financial statements. As this assessment is finalized, the Company intends to disclose its findings in future consolidated financial statements. In the period leading to the changeover, the AcSB will continue to issue accounting standards that are converged with IFRS, thus mitigating the impact of adopting IFRS at the changeover date, and as a result, the final impact of IFRS on the Company’s consolidated financial statements will only be measured once all the IFRS applicable at the conversion date are known. The conversion project is progressing according to the established plan and the Company expects to meet its target date for migrating to IFRS.

(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.

16. 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.