Note 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 and long-term debt are based on a variable interest rate, and are reflected in the financial statements at carrying value which approximates fair value at March 31, 2026. The fair value of the revolving line of credit and long-term debt is classified as Level 2 within the fair value hierarchy.

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 interest rate risk. If interest rates increase, debt service obligations on variable rate indebtedness will increase even though the amount borrowed may not change.