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FAIR VALUE MEASUREMENTS
 9 Months Ended
Sep. 30, 2023
Fair Value Disclosures [Abstract]  
FAIR VALUE MEASUREMENTS

NOTE 9. FAIR VALUE MEASUREMENTS

 

The following table presents information about the Company’s assets and derivative warrant liabilities that are measured at fair value on a recurring basis as of September 30, 2023 and December 31, 2022 and indicates the fair value hierarchy of the valuation techniques that the Company utilized to determine such fair value:

 

Description  (Level 1)   (Level 2)   (Level 3) 
   September 30, 2023 
   Quoted Prices in   Significant Other   Significant Other 
   Active Markets   Observable Inputs   Unobservable Inputs 
Description  (Level 1)   (Level 2)   (Level 3) 
Asset:               
Investments held in Trust Account  $19,308,261   $—   $— 
                
Warrant Liabilities:               
Public Warrants  $575,000   $—   $— 
Private Placement Warrants  $—   $—   $29,849 

 

Description  (Level 1)   (Level 2)   (Level 3) 
   December 31, 2022 
   Quoted Prices in   Significant Other   Significant Other 
   Active Markets   Observable Inputs   Unobservable Inputs 
Description  (Level 1)   (Level 2)   (Level 3) 
Asset:               
Investments held in Trust Account  $29,029,416   $—   $— 
                
Warrant Liabilities:               
Public Warrants  $345,000   $—   $— 
Private Placement Warrants  $—   $—   $17,558 

 

The Warrants are measured at fair value on a recurring basis. The Public Warrants were valued initially and at each reporting period that the warrants were not actively traded, using a Monte Carlo simulation. As of September 30, 2023 and December 31, 2022, the Public Warrants were valued using the instrument’s publicly listed trading price, which is considered to be a Level 1 measurement due to the use of an observable market quote in an active market. Private Placement Warrants were valued using a Monte Carlo valuation model using level 3 inputs at initial valuation and as of September 30, 2023 and December 31, 2022.

 

At September 30, 2023 and December 31, 2022, assets held in the Trust Account were invested solely in Morgan Stanley Bank cash, bank deposit program and money market fund and BlackRock US Treasury mutual fund of $19,308,261 and $29,029,416, respectively.

 

The Warrants were accounted for as liabilities in accordance with ASC 815-40 and are presented within warrant liabilities in the accompanying consolidated balance sheets. The warrant liabilities are measured at fair value at inception and on a recurring basis, with changes in fair value presented within the consolidated statement of operations.

 

The accounting treatment of derivative financial instruments requires that the Company record a derivative liability upon the closing of the Initial Public Offering. Accordingly, the Company classified each warrant as a liability at its fair value and the warrants were allocated a portion of the proceeds from the issuance of the Units equal to its fair value determined by the Monte Carlo simulation. This liability is subject to remeasurement at each balance sheet date. With each such re-measurement, the warrant liability will be adjusted to fair value, with the change in fair value recognized in the Company’s statement of operations. The Company will reassess the classification at each balance sheet date. If the classification changes as a result of events during the period, the warrants will be reclassified as of the date of the event that causes the reclassification.

 

 

NOTE 9. FAIR VALUE MEASUREMENTS (Continued)

 

The Company utilized a Monte Carlo simulation to estimate the fair value of the Public warrants at each reporting period for its warrants that are not actively traded. Inherent in a Monte Carlo simulation are assumptions related to expected stock-price volatility, expected life, risk-free interest rate and dividend yield. The Company estimates the volatility of its common stock based on historical volatility of select peer companies 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 remaining contractual term. The dividend rate is based on the historical rate, which the Company anticipates remaining at zero. On June 22, 2021, the Public Warrants surpassed the threshold waiting period to be publicly traded. Once publicly traded, the observable input qualifies the liability for treatment as a Level 1 liability. As such, as of September 30, 2023 and December 31, 2022, the Company classified the Public Warrants as Level 1.

 

The estimated fair value of the Private Placement Warrants is determined using Level 3 inputs. Inherent in a Monte Carlo model are assumptions related to expected share-price volatility, expected life, risk-free interest rate and dividend yield. The Company estimates the volatility of its warrants based on implied volatility from the Company’s traded warrants and from historical volatility of select peer company’s 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 remaining contractual term. The dividend rate is based on the historical rate, which the Company anticipates remaining at zero.

 

Transfers to/from Levels 1, 2 and 3 are recognized at the end of the reporting period in which a change in valuation technique or methodology occurs. For the three months ended September 30, 2023 and December 31, 2022, there were no transfers between levels.

 

The following table provides quantitative information regarding Level 3 fair value measurements inputs as their measurement dates:

 

   September 30, 2023   December 31, 2022 
   (Private Warrants)   (Private Warrants) 
Exercise price  $11.50   $11.50 
Share price  $11.26   $10.44 
Expected term (years)   5.61    5.12 
Probability of Acquisition   2.10%   2.75%
Volatility   7.9%   4.2%
Risk-free rate   4.50%   3.91%
Dividend yield (per share)  $0.00   $0.00 

 

The change in the fair value of the derivative warrant liabilities for the three months ended September 30, 2023 and 2022 is as follows:

 

   Private Warrants   Public Warrants   Total Warrant Liability 
Fair value as of December 31, 2022  $17,558   $345,000   $362,558 
Change in valuation inputs or other assumptions(1)   12,291    230,000    242,291 
Fair value as of September 30, 2023  $29,849   $575,000   $604,849 

 

   Private Warrants   Public Warrants   Total Warrant Liability 
Fair value as of December 31, 2021  $251,668   $4,600,000   $4,851,668 
Change in valuation inputs or other assumptions(1)   (117,640)   (2,645,000)   (2,762,640)
Fair value as of September 30, 2022  $134,028   $1,955,000   $2,089,028 

 

 

 

(1)Changes in valuation inputs or other assumptions are recognized in the change in fair value of warrant liability in the consolidated statement of operations.