Z Squared Inc. Fair Value Disclosure
NOTE 9. FAIR VALUE MEASUREMENTS
The Company follows the guidance in ASC Topic 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:
Description | Level | December 31, 2021 | December 31, 2020 | |||||||||
| Assets: | ||||||||||||
| Marketable securities held in Trust Account | 1 | $ | 75,758,781 | $ | 75,751,204 | |||||||
| Liabilities: | ||||||||||||
| Warrant Liabilities – Public Warrants | 1 | $ | 2,398,500 | $ | 10,350,000 | |||||||
| Warrant Liabilities – Private Placement Warrants | 3 | $ | 2,398,500 | $ | 10,350,000 | |||||||
The Warrants are accounted for as liabilities in accordance with ASC 815-40 and are presented within warrant liabilities on the accompanying balance sheets. The warrant liabilities are measured at fair value at inception and on a recurring basis, with changes in fair value presented in the statements of operations.
The Warrants were valued using a binomial lattice model, which is considered to be a Level 3 fair value measurement. The binomial lattice model’s primary unobservable input utilized in determining the fair value of the Warrants is the expected volatility of the ordinary shares. The expected volatility as of the Initial Public Offering date was derived from observable public warrant pricing on comparable ‘blank-check’ companies without an identified target. For periods subsequent to the detachment of the Public Warrants from the Units, the close price of the Public Warrant price will be used as the fair value as of each relevant date.
The following table provides quantitative information regarding Level 3 fair value measurements:
| December 31, 2021 | December 31, 2020 | |||||||
| Risk-free interest rate | 1.14 | % | 0.39 | % | ||||
| Trading days per year | 252 | 252 | ||||||
| Expected volatility | 12.3 | % | 34.4 | % | ||||
| Exercise price | $ | 11.50 | $ | 11.50 | ||||
| Stock Price | $ | 10.00 | $ | 10.19 | ||||
The following table presents the changes in the fair value of Level 3 warrant liabilities:
Private Placement | Public | Warrant Liabilities | ||||||||||
| Fair value as of December 31, 2020 | $ | 10,350,000 | $ | 10,350,000 | $ | 20,700,000 | ||||||
| Change in valuation inputs | (7,951,500 | ) | (7,951,500 | ) | (15,903,000 | ) | ||||||
| Fair value as of December 31, 2021 | 2,398,500 | 2,398,500 | 4,797,000 | |||||||||
There were no transfers in or out of Level 3 from other levels in the fair value hierarchy during the year ended December 31, 2021.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2021 | Apr 8, 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.