REVELATION BIOSCIENCES, INC. Fair Value Disclosure
Note 9 – FAIR VALUE MEASUREMENTS
The Company follows the guidance in ASC 820 for its financial assets and liabilities that are re-measured and reported at fair value at each reporting period, and non-financial assets and liabilities that are re-measured and reported at fair value at least annually.
The fair value of the Company’s financial assets and liabilities reflects management’s estimate of amounts that the Company would have received in connection with the sale of the assets or paid in connection with the transfer of the liabilities in an orderly transaction between market participants at the measurement date. In connection with measuring the fair value of its assets and liabilities, the Company seeks to maximize the use of observable inputs (market data obtained from independent sources) and to minimize the use of unobservable inputs (internal assumptions about how market participants would price assets and liabilities). The following fair value hierarchy is used to classify assets and liabilities based on the observable inputs and unobservable inputs used in order to value the assets and liabilities:
Level 1: Quoted prices in active markets for identical assets or liabilities. An active market for an asset or liability is a market in which transactions for the asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing basis.
Level 2: Observable inputs other than Level 1 inputs. Examples of Level 2 inputs include quoted prices in active markets for similar assets or liabilities and quoted prices for identical assets or liabilities in markets that are not active.
Level 3: Unobservable inputs based on our assessment of the assumptions that market participants would use in pricing the asset or liability.
The following table presents information about the Company’s assets that are measured at fair value on a recurring basis at December 31, 2021 and 2020 and indicates the fair value hierarchy of the valuation inputs the Company utilized to determine such fair value:
| Quoted Prices | Significant Other | Significant Other | ||||||||||||||
| in Active | Observable | Unobservable | ||||||||||||||
| December 31, | Markets | Inputs | Inputs | |||||||||||||
| Description | 2021 | (Level 1) | (Level 2) | (Level 3) | ||||||||||||
| Assets: | ||||||||||||||||
| Cash held in Trust Account | $ | 48,302,521 | $ | 48,302,521 | $ | $ | ||||||||||
| Cash held outside of Trust Account | $ | 78,532 | $ | 78,532 | $ | $ | ||||||||||
| Liabilities: | ||||||||||||||||
| Warrant Liability—Private Placement Warrants | $ | 2,390,258 | $ | $ | $ | 2,390,258 | ||||||||||
| Quoted Prices | Significant Other | Significant Other | ||||||||||||||
| in Active | Observable | Unobservable | ||||||||||||||
| December 31, | Markets | Inputs | Inputs | |||||||||||||
| Description | 2020 | (Level 1) | (Level 2) | (Level 3) | ||||||||||||
| Assets: | ||||||||||||||||
| Cash held in Trust Account | $ | 73,510,915 | $ | 73,510,915 | $ | $ | ||||||||||
| Marketable securities held outside of Trust Account | $ | 525,287 | $ | 525,287 | $ | $ | ||||||||||
| Liabilities: | ||||||||||||||||
| Warrant Liability—Private Placement Warrants | $ | 3,399,878 | $ | $ | $ | 3,399,878 | ||||||||||
The fair value of the Private Warrants have been using a Monte Carlo simulation since the initial measurement date. For the year ended December 31, 2021, the Company recognized a gain in the statement of operations resulting from a decrease of $1,009,620 in the fair value of warrant liabilities, presented as change in fair value of derivative warrant liability. For the year ended December 31, 2020, the Company recognized a loss in the statement of operations resulting from an increase of $1,494,092 in the fair value of warrant liabilities, respectively, presented as change in fair value of derivative warrant liability.
The estimated fair value of the Private Placement Warrants prior to being separately listed and traded, is determined using Level 3 inputs. Inherent in a Monte Carlo simulation are assumptions related to expected stock-price volatility, expected life, and risk-free interest rate. The Company estimates the volatility of its common stock warrants based on implied volatility from the Company’s traded warrants and from historical volatility of select peer companies’ common stock that matches the expected remaining life of the Warrants. The risk-free interest rate is based on the U.S. Treasury zero-coupon yield curve on the grant date for a maturity similar to the expected remaining life of the Warrants. The expected life of the Warrants is assumed to be equivalent to their estimated remaining life.
The following table provides quantitative information regarding Level 3 fair value measurement inputs for the Private Warrants at December 31, 2021 and 2020:
| December 31, | December 31, | |||||||
| 2021 | 2020 | |||||||
| Risk free interest rate | 1.27 | % | 0.46 | % | ||||
| Expected term (years) | 5.09 | 5.71 | ||||||
| Expected volatility | 10.6 | % | 17.20 | % | ||||
The following table represents the changes in fair value of the Private Placement Warrants:
| Fair value as of December 31, 2019 | $ | |||
| Initial measurement on October 13, 2020 | 1,905,786 | |||
| Change in valuation inputs or other assumptions | 1,494,092 | |||
| Fair value as of December 31, 2020 | $ | 3,399,878 | ||
| Change in valuation inputs or other assumptions | (1,009,620 | ) | ||
| Fair value as of December 31, 2021 | $ | 2,390,258 |
There were no transfers in or out of Level 3 from other levels in the fair value hierarchy.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2021 | Apr 15, 2022 | Showing above |
| 2020 | Mar 31, 2021 | |
About Fair Value Disclosures
Fair value disclosures classify all assets and liabilities measured at fair value into a three-level hierarchy: Level 1 (quoted market prices), Level 2 (observable inputs like yield curves), and Level 3 (unobservable inputs requiring management estimates). The proportion of Level 3 assets directly reflects how much of the balance sheet depends on internal models rather than market evidence.
Key signals: a growing Level 3 balance relative to total fair-value assets increases valuation uncertainty and earnings volatility risk. Watch for transfers between levels — assets moving from Level 2 to Level 3 often signal deteriorating market liquidity. Unrealized gains and losses on Level 3 positions flow through earnings or other comprehensive income, so large swings deserve scrutiny. For financial institutions, examine the sensitivity disclosures that show how Level 3 valuations change under alternative assumptions. Compare the fair value of debt against its carrying amount to gauge hidden leverage.