Company: WKSP
Filing Date: 2025-03-27
Form Type: 10-K
Source: 0001641172-25-000850
Chunk: 165

Company: Worksport Ltd
Filing Date: 2025-03-27
Form: 10-K
Item: Item 1
Chunk 165
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 tax authorities for tax years ending
before December 31, 2014.

9.
Financial Instruments and Fair Value

Fair
value is defined as the price that would be received to sell an asset or paid to transfer a liability in an ordinary transaction between
market participants at the measurement date. Depending on the nature of the asset or liability, various techniques and assumptions can
be used to estimate fair value. The definition of the fair value hierarchy is as follows:

Level
1 – Quoted prices in active markets for identical assets and liabilities.

Level
2 – Observable inputs other than quoted prices in active markets for similar assets and liabilities.

Level
3 – Inputs for which significant valuation assumptions are unobservable in a market and therefore value is based on the best available
data, some of which is internally developed and considers risk premiums that a market participant would require.

The
Company’s financial instruments include cash and cash equivalents, accounts receivable, accounts payable, revolving line of credit,
and long-term debt. The fair values of cash and cash equivalents, accounts receivable and accounts payable approximate their carrying
value because of the short-term nature of these instruments. The Company’s revolving line of credit is based on a variable interest
rate and is reflected in the financial statements at carrying value which approximates fair value at December 31, 2024. The Company’s
long-term debt is based on a fixed interest rate, and its carrying amount approximates fair value at December 31, 2024. The fair value
of the revolving line of credit and long-term debt is classified as Level 2 within the fair value hierarchy and is estimated based on
quoted market prices.

The
Company is exposed to market risks such as fluctuation in foreign currency exchange rates and interest rates. Derivative instruments
may be used to offset some of the effects of these market risks on the expected future cash flows and on certain existing assets and
liabilities. The Company may choose not to hedge certain exposures for a variety of reasons including, but not limited to, accounting
considerations and the prohibitive economic cost of hedging particular exposures.

Market
Risks

Foreign
Currency Risk

The
Company is exposed to currency risk on its sales and purchases denominated in Canadian Dollars. The Company actively manages these risks
by adjusting its pricing to reflect currency fluctuations and purchasing foreign currency at advantageous rates.

Interest
Rate Risk

The
borrowing under the Company’s Line of Credit Facility and Equipment Financing is at variable interest rates and exposes the Company
to