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Note 2 - Significant accounting policies
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Jan. 01, 2012
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| Significant Accounting Policies [Text Block] |
2.
Significant
accounting policies
(i)
Basis
of presentation
The
Company’s accounting principles are in accordance with
accounting principles generally accepted in the United States
(“US GAAP”). These consolidated financial
statements are denominated in United States
(“US”) dollars. Some comparative figures have
been reclassified to conform to the financial statement
presentation adopted in the current period.
(ii)
Principles
of consolidation
The
financial statements of entities which are controlled by the
Company through voting equity interests, referred to as
subsidiaries, are consolidated. Variable Interest Entities
(“VIEs”) (which include, but are not limited to,
special purpose entities, trusts, partnerships, certain joint
ventures and other legal structures), as defined in subtopic
10 of ASC 810, “Consolidation” (“ASC
810”), are entities in which equity investors generally
do not have the characteristics of a “controlling
financial interest” or there is not sufficient equity
at risk for the entity to finance its activities without
additional subordinated financial support. VIEs are
consolidated by the Company when it is determined that it
will, as the primary beneficiary, absorb the majority of the
VIEs expected losses and/or expected residual returns. The
Company has no interests in VIEs in any of the years
presented. Inter-company accounts and transactions are
eliminated upon consolidation.
(iii)
Use
of estimates
The
preparation of financial statements requires management to
make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosures of
contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenue and
expenses during the year. Significant estimates include, but
are not limited to, allowance for doubtful accounts,
inventory valuation, deferred tax asset valuation allowance,
restructuring and other accruals, determination of useful
lives of property, plant and equipment, impairment of
long-lived assets and legal contingencies. These estimates
and assumptions are based on management’s best
estimates and judgment. Management evaluates its
estimates and assumptions on an ongoing basis using
historical experience and other factors, including the
current economic environment. Actual results may
differ from those estimates.
(iv)
Revenue
recognition
Revenue
is derived primarily from the sale of electronics equipment
that has been built to customer specifications. Revenue from
the sale of products is recognized when goods are shipped to
customers since title has passed to the customer, persuasive
evidence of an arrangement exists, performance has occurred,
all customer-specified test criteria have been met and
collectability is reasonably assured. The Company has no
significant obligations after product shipment other than its
standard manufacturing warranty. The Company records a
provision for future warranty costs based on
management’s best estimate of probable claims under its
product warranties. The provision is based on the terms of
the warranty which vary by customer and product, and
historical experience. The Company regularly evaluates this
provision.
In
addition, the Company has contractual arrangements with the
majority of its customers that provide for customers
purchasing unused inventory that the Company has purchased to
fulfill that customer’s forecasted manufacturing
demand. Revenue from the sale of excess inventory to the
customer is recognized when title passes to the customer. The
Company also derives revenue from engineering and design
services. Service revenue is recognized as services are
performed.
For
arrangements where the customer agrees to purchase products
but the Company retains possession until the customer
requests shipment (“bill and hold arrangements”),
revenue is not recognized unless all recognition criteria
under SEC Staff Accounting Bulletin No. 104 have been
met.
Sales
taxes collected from customers and remitted to governmental
authorities are presented on a net basis.
(v)
Allowance
for doubtful accounts
The
allowance for doubtful accounts reflects management’s
best estimate of probable losses inherent in the accounts
receivable balance. Management determines the allowance based
on factors including the length of time the receivables have
been outstanding, customer and industry concentrations,
credit insurance coverage, the current business environment
and historical experience.
(vi)
Inventories
Inventories
are valued, on a first-in, first-out basis, at the lower of
cost and replacement cost for raw materials and at the lower
of cost and net realizable value for work in progress and
finished goods. Inventories include an application of
relevant overhead. Fixed production overheads are allocated
to inventory based on normal capacity of production
facilities. The Company writes down estimated obsolete or
excess inventory for the difference between the cost of
inventory and estimated net realizable value based upon
customer forecasts, shrinkage, the aging and future demand
for the inventory, past experience with specific customers,
and the ability to sell inventory back to customers or return
to suppliers. If these assumptions change, additional
write-downs may be required. The Company recognizes as
current period charges abnormal amounts of idle facility
expense, freight, handling costs, and wasted material
(spoilage) costs.
(vii)
Property,
Plant and equipment
Plant
and equipment are stated at cost less accumulated
depreciation. Depreciation is generally calculated on a
straight-line basis over the expected useful lives as
follows:
Land
is stated at cost.
(viii)
Deferred
financing costs
Long-term
debt financing related costs are deferred and amortized over
the term of the related debt and the related amortization is
included within interest expense. Deferred financing costs
relating to term debt are amortized using the effective
interest method while deferred financing costs relating to
revolving credit facilities are amortized on a straight-line
basis over the term of the facility.
(ix)
Income
taxes
The
Company accounts for income taxes using the asset and
liability method. This approach recognizes the amount of
taxes payable or refundable for the current year as well as
deferred tax assets and liabilities for the future tax
consequence of events recognized in the financial statements
and tax returns. The effect of changes in tax rates is
recognized in the year in which the rate change
occurs.
In
establishing the appropriate valuation allowances for
deferred tax assets, the Company assesses its ability to
realize its deferred tax assets based on available evidence,
both positive and negative, to determine whether it is more
likely than not that the deferred tax assets or a portion
thereof will be realized.
The
Company follows the guidance under ASC 740 with respect to
accounting for uncertainty in income taxes recognized in an
enterprise’s financial statements. This guidance
prescribes a recognition threshold and measurement attribute
for the financial statement recognition and measurement of a
tax position taken or expected to be taken in a tax return,
and also provides guidance on de-recognition, classification,
interest and penalties, accounting in interim periods,
disclosure and transition.
This
guidance requires the Company to determine if it is more
likely than not that the tax position will be sustained based
on the technical merits of the position and for those tax
positions that meet the more likely than not threshold, the
Company would recognize the largest amount of tax benefit
that is greater than fifty percent likely of being realized
when ultimately settled with the tax authorities.
(x)
Earnings
(loss) per common share
Basic
earnings (loss) per share is calculated using the weighted
average number of common shares outstanding during the year.
Diluted earnings (loss) per share is calculated using the
weighted average number of common shares plus the dilutive
potential common shares outstanding during the year.
Anti-dilutive potential common shares are excluded. The
treasury stock method is used to compute the potential
dilutive effect of stock options and warrants issued.
(xi)
Translation
of foreign currencies
The
functional currency of the parent company and all foreign
subsidiaries is the U.S. dollar. Monetary assets and
liabilities denominated in foreign currencies are translated
into U.S. dollars at the year-end rates of exchange.
Non-monetary assets and liabilities denominated in foreign
currencies are translated at historical rates and revenue and
expenses are translated at average exchange rates prevailing
during the month of the transaction. Exchange gains or losses
are reflected in the consolidated statements of operations
and comprehensive income.
The
Company accounts for derivative financial instruments in
accordance with applicable guidance. In accordance with these
standards, all derivative instruments are recorded on the
balance sheet at their respective fair values. Generally, if
a derivative instrument is designated as a cash flow hedge,
the change in the fair value of the derivative is recorded in
other comprehensive income to the extent the derivative is
effective, and recognized in the statement of operations when
the hedged item affects earnings. If a derivative instrument
is designated as a fair value hedge, the change in fair value
of the derivative and of the hedged item attributable to the
hedged risk are recognized in the statement of operations and
comprehensive income in the current period. Changes in fair
value of derivatives that are not designated as hedges are
recorded in the statement of operations and comprehensive
income.
The
carrying amounts of cash, accounts receivable, accounts
payable and accrued liabilities approximate fair values due
to the short-term nature of these instruments. The fair
values of long-term debt and capital lease obligations,
including the current portion, bear rates currently available
to the Company for debt with similar terms and maturities
and, therefore, approximate carrying values.
Shipping
and handling costs are included as a component of cost of
sales.
The
Company applies ASC 718, “Compensation – Stock
Compensation”, (“ASC 718”) using a fair
value based method for all outstanding awards. The fair value
at grant date of stock options is estimated using the
Black-Scholes option-pricing model. Compensation expense is
recognized over the stock option vesting period on a straight
line basis. ASC 718 also requires forfeitures to be estimated
at the time of grant and revised, if necessary, in subsequent
periods if actual forfeitures differ from those
estimates.
In
accordance with ASC 820, “Fair Value Measurements and
Disclosures”, (“ASC 820”), the Company
determines fair value as an exit price, representing the
price that would be received to sell an asset or paid to
transfer a liability in an orderly transaction between market
participants. ASC 820 establishes a hierarchical structure to
prioritize the inputs to valuation techniques used to measure
fair value into three tiers:
Level
1 - Quoted prices in active markets for identical assets or
liabilities
Level
2 - Observable inputs other than quoted prices in active
markets for identical assets and liabilities
Level
3 - No observable pricing inputs in the market (e.g.,
discounted cash flows)
Financial
assets and financial liabilities are classified in their
entirety based on the lowest level of input that is
significant to the fair value measurements. The assessment of
the significance of a particular input to the fair value
measurements requires judgment, and may affect the valuation
of the assets and liabilities being measured and their
placement within the fair value hierarchy.
The
Company tests long-lived assets or asset groups held and used
for recoverability when events or changes in circumstances
indicate that their carrying amount may not be recoverable.
Circumstances which could trigger a review include, but are
not limited to: significant decreases in the market price of
the asset; significant adverse changes in the business
climate or legal factors; the accumulation of costs
significantly in excess of the amount originally expected for
the acquisition or construction of the asset; current period
cash flow or operating losses combined with a history of
losses or a forecast of continuing losses associated with the
use of the asset; and a current expectation that the asset
will more likely than not be sold or disposed significantly
before the end of its estimated useful life. Recoverability
is assessed based on the carrying amount of the asset and the
sum of the undiscounted cash flows expected to result from
the use and the eventual disposal of the asset. If the
carrying value of the asset is not recoverable, the
impairment loss is measured as the amount by which the
carrying amount exceeds fair value. For assets classified as
held for sale, an impairment loss is recognized when the
carrying amount exceeds the fair value less costs to
sell.
The
Company accounts for restructuring costs related to an exit
or disposal activity when a liability is incurred and can be
measured at fair value.
The
Company recognizes the fair value of liabilities for asset
retirement obligations when the Company incurs the
obligation. There was no asset retirement obligation recorded
for the periods ended January 1, 2012 or January 2,
2011.
The
Company accounts for guarantees, including the recognition of
a liability at the inception of certain guarantees, based on
the fair value of the guarantee. The Company did not enter
into any guarantees in the periods ended January 1, 2012 or
January 2, 2011.
Comprehensive
income (loss) includes all changes in equity (net assets)
during a period from non-owner sources. During each of the
periods ended January 1, 2012, January 2, 2011 and January 3,
2010, comprehensive income (loss) was equal to net earnings
(loss).
Business
combinations are accounted for using the acquisition method
of accounting. The fair value of the net assets acquired and
the results of the acquired businesses are included in the
Company's consolidated financial statements from the
acquisition dates forward. The Company is required to make
estimates and assumptions that affect the reported amounts of
assets and liabilities and results of operations during the
reporting period. Estimates are used in accounting for, among
other things, the fair value of acquired net operating
assets, property, plant and equipment, intangible assets and
related deferred tax liabilities, useful lives of plant and
equipment and amortizable lives for acquired intangible
assets. Any excess of the purchase consideration over the
recorded acquisition date amounts of the assets and
liabilities acquired is recognized as goodwill. Any excess of
the recorded amounts of the assets and liabilities acquired
over purchase consideration is recognized as a gain in the
statement of operations and comprehensive income
(loss).
The
Company estimates the fair value of acquired assets and
liabilities as of the date of acquisition based on
information available at that time. Contingent consideration
is recorded at fair value as of the date of the acquisition
with subsequent adjustments recorded in earnings. Changes to
valuation allowances on acquired deferred tax assets are
recognized in the provision for, or benefit from, income
taxes. The valuation of these tangible and identifiable
intangible assets and liabilities is subject to further
management review and may change materially between the
preliminary allocation and end of the purchase price
allocation period. Any changes in these estimates may have a
material effect on the Company's consolidated operating
results or financial position.
Costs
associated with restructuring activities are accounted for in
accordance with ASC Topic 420, Exit or Disposal Cost
Obligations, or ASC Topic 712, Compensation –
Nonretirement Postemployment Benefits, as applicable. Under
ASC 712, liabilities for contractual employee severance are
recorded when payment of severance is considered probable and
the amount can be estimated. Liabilities for restructuring
costs other than employee severance are accounted for in
accordance with ASC 420, only when they are incurred.
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