Fair Value Measurements

9 Months Ended

Sep. 30, 2023

NOTE 9. FAIR VALUE MEASUREMENTS

The Company classifies its U.S. Treasury and equivalent securities as held-to-maturity in accordance with ASC Topic 320, “Investments - Debt and Equity Securities.” Held-to-maturity securities are those securities which the Company has the ability and intent to hold until maturity. Held-to-maturity treasury securities are recorded at amortized cost on the accompanying condensed balance sheets and adjusted for the amortization or accretion of premiums or discounts. Securities invested in money market funds are recorded based on quoted market prices in active market.

At September 30, 2023, assets held in the Trust Account were comprised of $23,750,947 in money market funds which are invested primarily in U.S. Treasury Securities. Through September 30, 2023, the Company withdrew $307,620,347 from the Trust Account in connection with redemption.

At December 31, 2022, assets held in the Trust Account were comprised of $329,783,734 in money market funds which are invested primarily in U.S. Treasury securities. Through December 31, 2022, the Company did not withdraw any interest income from the Trust Account.

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

Description	Level	September 30, 2023		December 31, 2022
Assets:
Investments held in Trust Account	1	$	23,750,947	$	329,783,734
Liabilities:
Warrant Liabilities – Public Warrants	2	$	541,667	$	—
Warrant Liabilities – Private Warrants	2	$	258,333	$	—
Bifurcated Derivative	3	$	—		n/a

Measurement

Warrants

In connection with the preparation of the condensed financial statements of the Company as of and for the period ended September 30, 2023, the Company’s management identified an error in its condensed financial statements for the periods ending March 31, 2023 and June 30, 2023. The Company determined that, based on its review of its accounting treatment under ASC 815 of the Warrants, as a result of the January 24, 2023 redemptions in connection with the Company’s extraordinary general meeting to extend the date by which it must consummate an initial business combination, its accounting for the Warrants was incorrectly presented as part of equity and the Warrants should be instead presented as liabilities, with changes in value of such liabilities reported in earnings. The Company’s management determined that such redemptions resulted in the possibility for the tender offer provision contained in Section 4.4 of the Warrant Agreement, to be triggered without the requirement that a change in control also be triggered, which resulted in the determination that the Warrants no longer qualify for equity treatment.

The Public Warrants have limited trading activity in the open and observable market as of the measurement date, as such they are classified as Level 2. When the observable market quote under the ticker PRSRW is active, then Public Warrants are classified as Level 1. The Private Placement Warrants are classified as Level 2 due to the use of an observable market quote for a similar asset in an active market.

Convertible Note Bifurcated Derivative

The Company established the initial fair value for the Convertible Note Bifurcated Derivative as of January 26, 2023, which was the date the Convertible Note was executed.

The Convertible Note Bifurcated Derivative was classified within Level 3 of the fair value hierarchy at the initial measurement dates and as of September 30, 2023 and January 26, 2023 due to the use of unobservable inputs. The key inputs into the Monte Carlo simulation model for the Convertible Note Bifurcated Derivative were as follows at September 30, 2023 and January 26, 2023:

	January 26, 2023			September 30, 2023
Volatility		6.70	%		3.70	%
Risk Free Rate		4.77	%		5.55	%
Probability of completing a business combination by July 31, 2023		30	%		—	%
Probability of completing a business combination by August 31, 2023		40	%		—	%
Probability of completing a business combination by September 31, 2023		30	%		—	%
Probability of completing a business combination by October 31, 2023		—	%		10	%
Probability of completing a business combination by November 30, 2023		—	%		60	%
Probability of completing a business combination by December 31, 2023		—	%		30	%

The following table presents the changes in the fair value of warrant liabilities and the bifurcated derivative for the period ended September 30, 2023:

	Private			Public			Bifurcated
	Warrants			Warrants			Derivative
Initial value as of January 24, 2023 for warrants and January 26, 2023 for Bifurcated Derivative	$	361,667		$	758,333		$	—
Change in valuation inputs or other assumptions		103,333			216,667			—
Fair value as of March 31, 2023	$	465,000		$	975,000		$	—
Change in valuation inputs or other assumptions		155,000			325,000			—
Fair value as of June 30, 2023	$	620,000		$	1,300,000		$	—
Change in valuation inputs or other assumptions		(361,667	)		(758,333	)		—
Fair value as of September 30, 2023	$	258,333		$	541,667		$	—

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

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

+ References + Details

Prospector Capital Corp. 10-Q