Company: LEGT
Filing Date: 2025-04-11
Form Type: 10-Q
Source: 0001829126-25-002582
Chunk: 14

Company: Legato Merger Corp. III
Filing Date: 2025-04-11
Form: 10-Q
Item: Part I, Item 1
Chunk 14
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-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 and 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 an assessment of the assumptions that market participants would use in pricing the asset or liability. 

    11

Warrant Instruments

The Company accounts for warrants as either equity-classified
or liability-classified instruments based on an assessment of the instruments’ specific terms and applicable authoritative guidance
in ASC 480 and ASC 815, “Derivatives and Hedging” (“ASC 815”). The assessment considers whether the instruments
are freestanding financial instruments pursuant to ASC 480, meet the definition of a liability pursuant to ASC 480, and whether the instruments
meet all of the requirements for equity classification under ASC 815, including whether the instruments are indexed to the Company’s
own ordinary shares and whether the instrument holders could potentially require “net cash settlement” in a circumstance
outside of the Company’s control, among other conditions for equity classification. This assessment, which requires the use of
professional judgment, is conducted at the time of warrant issuance and as of each subsequent quarterly period end date while the instruments
are outstanding. Upon further review of the warrant agreement, management concluded that the warrants issued pursuant to the warrant
agreement qualify for equity accounting treatment.

Recent Accounting Pronouncements

In August 2020, the FASB