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Fair Value Measurements
 6 Months Ended 12 Months Ended
Jun. 30, 2022
Dec. 31, 2021
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 June 30, 2022 and indicates the fair value hierarchy of the valuation techniques that the Company utilized to determine such fair value:

 

   Quoted Prices
in Active
Markets		   Significant
Other
Observable
Inputs		   Significant
Other
Unobservable
Inputs		 
Description  (Level 1)   (Level 2)   (Level 3) 
Liabilities:               
Public Warrants  $1,322,500   $-   $- 
Private Placement Warrants  $-   $-   $71,953 
Forward purchase option derivative  $-   $-   $

795,942

 

 

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 December 31, 2021 and indicates the fair value hierarchy of the valuation techniques that the Company utilized to determine such fair value:

 

 

NORTHERN LIGHTS ACQUISITION CORP.

NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS

 

Note 9 – Fair Value Measurements (Continued)

 

   Quoted Prices
in Active
Markets		   Significant
Other
Observable
Inputs		   Significant
Other
Unobservable
Inputs		 
Description  (Level 1)   (Level 2)   (Level 3) 
Asset:               
Marketable securities held in Trust Account  $117,321,508   $-   $- 
                
Liabilities:               
Public Warrants  $2,701,925   $-   $- 
Private Placement Warrants  $-   $-   $124,951 

 

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. In 2021, the Public Warrants transferred from a Level 3 measurement to a Level 1 fair value measurement, after they split from the units and started trading.

 

The Warrants are measured at fair value on a recurring basis. The Public Warrants were initially valued using a Modified Monte Carlo Simulation. As of June 30, 2022 and December 31, 2021, the Public warrants were valued using the instrument’s publicly listed trading price as of the balance sheet date, which is considered to be a Level 1 measurement due to the use of an observable market quote in an active market.

 

As of June 30, 2022 and December 31, 2021, assets held in the Trust Account were entirely held in a mutual fund invested in U.S. Treasury Securities.

 

The Company recognized $781,070 in expense and liabilities for the forward purchase option derivative upon the agreement execution of June 16, 2022 with a change in fair value of $14,872 recognized from execution to June 30, 2022. The fair value of the forward purchase option derivative was estimated using a Monte-Carlo Simulation in a risk-neutral framework (a special case of the Income Approach). Specifically, the future stock price is simulated assuming a Geometric Brownian Motion (“GBM”). For each simulated path, the forward purchase value is calculated based on the contractual terms and then discounted at the term-matched risk-free rate. Finally, the value of the forward is calculated as the average present value over all simulated paths. The Company measured the fair value of the forward purchase option derivative upon execution of the Forward Purchase Agreement and as of June 30, 2022, with the respective fair value adjustments recorded within its Consolidated Statements of Operations. The Company will continue to monitor the fair value of the forward option derivative each reporting period with subsequent revisions to be recorded in the Consolidated Statements of Operations.

 

The Company recognized $5,031,474 for the derivative warrant liabilities upon their issuance on June 28, 2021. The Sponsor paid an aggregate of $5,852,750 for Private Placement Warrants with an initial aggregate fair value of $224,474. The excess purchase price over the initial fair value on the private placement closing date is recognized as a capital contribution from the Sponsor.

 

The Company utilizes a binomial Monte-Carlo simulation to estimate the fair value of the warrants at each reporting period for warrants that are not actively traded. The estimated fair value of the derivative warrant liabilities is determined using Level 3 inputs. Inherent in a binomial 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.

 

The following table provides quantitative information regarding Level 3 fair value measurements inputs as it relates to the warrants as of their measurement dates:

 

   December 31, 2021   June 30, 2022 
   (Private Warrant)   (Private Warrant) 
Exercise price  $11.50   $11.50 
Share price  $10.07   $10.61 
Expected term (years)   5.28    5.14 
Probability of Acquisition   90.0%   90.0%
Volatility   8.3%   25.0%
Risk-free rate   1.28%   3.01%
Dividend yield (per share)   0.00%   0.00%

 

The following table provides quantitative information regarding Level 3 fair value measurements inputs as it relates to the forward purchase agreement option at the measurement dates:

 

   June 16, 2022   June 30, 2022 
Share price  $10.18   $10.61 
Expected term (years)   3.18    3.14 
Probability of Acquisition   90.0%   90.0%
Volatility   10.6%   25.0%
Risk-free rate   3.36%   3.02%
BB bonds rate   6.92%   7.17%
C bonds rate   13.95%   14.49%

 

 

NORTHERN LIGHTS ACQUISITION CORP.

NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS

 

Note 9 – Fair Value Measurements (Continued)

 

The change in the fair value of the derivative warrant liabilities for the period from December 31, 2021 (inception) through June 30, 2022 is summarized as follows:

 

   Private
Placement		   Public
Warrant		   Warrant
Liability		 
Fair value as of December 31, 2021  $124,951   $2,701,925   $2,826,876 
Change in valuation inputs or other assumptions (1)(2)  (52,998)   (1,379,425)   (1,432,423)
Fair value as of June 30, 2022  $71,953   $1,322,500   $1,394,453 

 

(1) Changes in valuation inputs or other assumptions are recognized in change in fair value of warrant liability in the statement of operations.
(2) Changes are due to the use of quoted prices in an active market (Level 1) and the use of unobservable inputs based on assessment of the assumptions (Level 3) for Public Warrants (after becoming actively traded) and Private Placement Warrants, respectively.

 

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 December 31, 2021 and indicates the fair value hierarchy of the valuation techniques that the Company utilized to determine such fair value:

 

                
   Quoted Prices in Active Markets   Significant Other Observable Inputs   Significant Other Unobservable Inputs 
Description  (Level 1)   (Level 2)   (Level 3) 
Asset:               
Marketable securities held in Trust Account  $117,321,508   $—   $— 
                
Warrant Liabilities:               
Public Warrants  $2,701,925   $—   $— 
Private Placement Warrants  $—   $—   $124,951 

 

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. In 2021, the Public Warrants transferred from a Level 3 measurement to a Level 1 fair value measurements, after they split from the units and started trading.

 

The Warrants are measured at fair value on a recurring basis. The Public Warrants were initially valued using a Modified Monte Carlo Simulation. As of December 31, 2021, the Public Warrants were valued using the instrument’s publicly listed trading price as of the balance sheet date, which is considered to be a Level 1 measurement due to the use of an observable market quote in an active market.

 

At December 31, 2021, assets held in the Trust Account were comprised of $508 in cash and $117,321,000 in a mutual fund invested in U.S. Treasury Securities.

 

 

NORTHERN LIGHTS ACQUISITION CORP.

NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS

 

Note 9 – Fair Value Measurements (Continued)

 

The Company recognized $5,031,474 for the derivative warrant liabilities upon their issuance on June 28, 2021. The Sponsor paid an aggregate of $5,281,750 for Private Placement Warrants with an initial aggregate fair value of $224,474. The excess purchase price over the initial fair value on the private placement closing date is recognized as a capital contribution from the Sponsor.

 

The Company utilizes a binomial Monte-Carlo simulation to estimate the fair value of the warrants at each reporting period for warrants that are not actively traded. The estimated fair value of the derivative warrant liabilities is determined using Level 3 inputs. Inherent in a binomial 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.

 

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

 

   June 28, 2021   December 31, 2021 
   (Public and
Private Warrant)		   (Private
Warrant)		 
Exercise price  $11.50   $11.50 
Share price  $10.00   $10.07 
Expected term (years)   5.86    5.28 
Probability of Acquisition   90.0%   90.0%
Volatility   14.7%   8.3%
Risk-free rate   1.04%   1.28%
Dividend yield (per share)   0.00%   0.00%

 

The change in the fair value of the derivative warrant liabilities for the period from June 28, 2021 (Initial Public Offering) through December 31, 2021 is summarized as follows:

 

                
   Private Placement   Public Warrant   Warrant Liability 
Fair value as of June 28, 2021 (Initial Public Offering)   $224,474   $4,807,000   $5,031,474 
Change in valuation inputs or other assumptions (1)(2)     (99,523)   (2,105,075)   (2,204,598)
Fair value as of December 31, 2021   $124,951    2,701,925    2,826,876 

 

(1) Changes in valuation inputs or other assumptions are recognized in change in fair value of warrant liability in the statement of operations.
(2) Changes are due to the use of quoted prices in an active market (Level 1) and the use of unobservable inputs based on assessment of the assumptions (Level 3) for Public Warrants (after becoming actively traded) and Private Placement Warrants, respectively.