FINANCIAL INSTRUMENTS

12 Months Ended

Dec. 31, 2013

Financial Instruments

Note 6. FINANCIAL INSTRUMENTS

a) Fair value of financial instruments

FASB ASC 820, Fair Value Measurements and Disclosures establishes three levels of inputs that may be used to measure fair value: quoted prices in active markets for identical assets or liabilities (referred to as Level 1), observable inputs other than Level 1 that are observable for the asset or liability either directly or indirectly (referred to as Level 2), and unobservable inputs to the valuation methodology that are significant to the measurement of fair value of assets or liabilities (referred to as Level 3).

From time to time we utilize forward contracts that are measured at fair market value on a recurring basis based on Level 2 inputs. At December 31, 2013, the fair market value for forward contracts was a liability of $6,535 and was included in accrued liabilities. We had no forward contracts outstanding at December 31, 2012.

b) Derivative instruments

A significant portion of our expenses are paid in Canadian dollars, therefore changes to the exchange rate between the U.S. and Canadian dollar affect our operating results. To manage this exchange rate risk, from time to time we utilize forward contracts to purchase Canadian dollars. Our Company policy limits contracts to maturities of one year or less from the date of issuance. We do not enter into foreign exchange forward contracts for trading purposes.

We account for derivatives and hedging activities in accordance with FASB ASC 815, Derivatives and Hedging, which requires that all derivative instruments be recorded on the balance sheet at their respective fair values. The accounting for changes in the fair value of a derivative instrument is dependent upon whether the derivative has been designated and qualifies as part of a hedging relationship and further, on the type of hedging relationship.

We have chosen not to elect hedge accounting for these forward contracts; therefore, changes in fair value for these instruments are immediately recognized in earnings and included in our foreign exchange gain (loss). The fluctuations in the value of these forward contracts do, however, generally offset the impact of changes in the value of the underlying risk that they are intended to economically hedge.

The following table provides gross notional value of foreign currency derivative financial instruments and the related net asset or liability. The table presents the notional amount (at contract exchange rates) and the fair value of the derivatives in U.S. dollars:

	December 31, 2013					December 31, 2012
	Notional Amount		Net Asset (Liability)			Notional Amount		Net Asset (Liability)
Forward contracts	$	300,000	$	(6,535	)		-		-

We are required to maintain a margin deposit with a foreign exchange corporation based on the value of the forward contracts outstanding. Margin deposits totaling $16,900 related to forward contracts outstanding are included in other current assets at December 31, 2013. There were no margin deposits at December 31, 2012.