Derivative Financial Instruments and Risk Management

6 Months Ended

Oct. 31, 2013

Derivative Financial Instruments and Risk Management [Text Block]

Note 4	Derivative Financial Instruments and Risk Management
	In the normal course of business, the Company is exposed to fluctuations in interest rates and the exchange rates associated with foreign currencies. The Company’s primary objective for holding derivative financial instruments is to manage foreign currency exchange rate risk.
	Foreign Currency Exchange Rate Risk
	The Company accounts for derivative instruments, consisting of foreign currency forward contracts, pursuant to the provisions of SFAS 161, effective at the beginning of the first quarter of fiscal year 2010. SFAS 161 was incorporated into ASC 815 which requires the Company to measure derivative instruments at fair value and record them in our balance sheet as either an asset or liability and expands financial reporting about derivative instruments and hedging activities by requiring enhanced disclosures to enable investors to better understand their effects on an entity’s financial position, results of operations and cash flows. The Company does not use derivative instruments for trading purposes. ASC 815 also requires qualitative disclosures about objectives and strategies for using derivatives, quantitative disclosures about fair value amounts of and gains and losses on derivative instruments, and disclosures about credit-risk-related contingent features in derivative agreements.
	A majority of the Company’s revenue activities are transacted in U.S. dollars. However, the Company is exposed to foreign currency exchange rate risk inherent in conducting business globally in numerous currencies, of which the most significant to the Company’s operations for the six months ended October 31, 2013 is the Canadian dollar. The Company is primarily exposed to a strengthening Canadian dollar as the Company’s operating expenses are primarily denominated in Canadian dollars while revenues are primarily denominated in U.S. dollars. The Company’s foreign currency risk management program includes foreign currency derivatives with cash flow hedge accounting designation that utilizes foreign currency forward contracts to hedge exposures to the variability in the U.S. dollar equivalent of anticipated non-U.S. dollar-denominated cash flows. These instruments generally have a maturity of less than one year. For these derivatives, the company reports the after-tax gain or loss from the effective portion of the hedge as a component of accumulated other comprehensive income (loss) in stockholders’ equity and reclassifies it into earnings in the same period in which the hedged transaction affects earnings, and within the same line item on the consolidated statements of operations as the impact of the hedged transaction.

The Company also routinely enters into foreign currency forward contracts, not designated as hedging instruments, to protect the Company from fluctuations in exchange rates. As of October 31, 2013, the Company had $4,000,000 of notional value foreign currency forward contracts maturing through February 28, 2014. Notional amounts do not quantify risk or represent assets or liabilities of the Company, but are used in the calculation of cash settlements under the contracts. The fair value marked to market gain (loss) of forward contracts as of October 31, 2013 is ($9,814).

Fair Value Measurement

When available, the Company uses quoted market prices to determine fair value, and classifies such measurements within Level 1. In some cases where market prices are not available, the Company makes use of observable market–based inputs to calculate fair value, in which case the measurements are classified within Level 2. If quoted or observable market prices are not available, fair value is based upon internally developed models that use, where possible, current market–based parameters such as interest rates, yield curves and currency rates. These measurements are classified within Level 3.

Fair value measurements are classified according to the lowest level input or value–driver that is significant to the valuation. A measurement may therefore be classified within Level 3 even though there may be significant inputs that are readily observable.

Fair value measurement includes the consideration of non–performance risk. Non–performance risk refers to the risk that an obligation (either by a counterparty or the Company) will not be fulfilled. For financial assets traded in an active market (Level 1), the non–performance risk is included in the market price. For certain other financial assets and liabilities (Level 2 and 3), the Company’s fair value calculations have been adjusted accordingly.

The fair value of the derivative instrument is primarily based on the standard industry accepted binomial model. The following table presents the Company’s assets and liabilities that are measured at fair value on a recurring basis.

		Carrying					Fair Value
As at October 31, 2013		Amount			Fair Value		Levels	Reference
Cash	$	9,423,773		$	9,423,773		1
Accounts receivable		3,585,191			3,585,191		2
Forward contracts		(9,814	)		(9,814	)	3
Derivative warrant liability	$	-		$	-		3	Note 5

		Carrying			Fair Value
As at April 30, 2013		Amount		Fair Value	Levels	Reference
Cash	$	11,229,595	$	11,229,595	1
Accounts receivable		4,640,620		4,640,620	2
Forward contracts		9,830		9,830	3
Derivative warrant liability	$	93,057	$	93,057	3	Note 5

Forward contracts		October 31,			April 30,
		2013			2013
Opening balance at the beginning of the period/year	$	9,830		$	-
Fair value of forward, at issuance		-			-
Change in fair value of forward contracts since issuance		(18,479	)		32,405
Fair value of forward contracts settled during the period/year		(1,165	)		(22,575	)
Fair value of forward contracts at end of period/year	$	(9,814	)	$	9,830