FAIR VALUE MEASUREMENTS

6 Months Ended

Jun. 30, 2022

NOTE 10. FAIR VALUE MEASUREMENTS

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 the Company’s assessment of the assumptions that market participants would use in pricing the asset or liability.

At June 30, 2022 and December 31, 2021, assets held in the Trust Account were comprised of $250,290,005 and $250,023,702, respectively, in money market funds which are invested primarily in U.S. Treasury Securities. Through June 30, 2022, the Company has withdrawn $73,468 of the interest earned on the Trust Account to pay income and franchise taxes.

The following table presents information about the Company’s assets and liabilities that are measured at fair value on a recurring basis at June 30, 2022 and December 31, 2021 and indicates the fair value hierarchy of the valuation inputs the Company utilized to determine such fair value.

	Level		June 30, 2022		December 31, 2021
Assets:
Investments held in Trust Account		1	$	250,290,005	$	250,023,702
Liabilities:
Warrant Liability - Public Warrants		1	$	1,250,000	$	6,373,750
Warrant Liability - Private Placement Warrants		3	$	700,000	$	3,573,855

Transfers to/from Levels 1, 2 and 3 are recognized at the end of the reporting period. The estimated fair value of the Public Warrants transferred from a Level 3 measurement to a Level 1 fair value measurement in March 2021 when the Public Warrants were separately listed and traded amounted to $6,250,000.

The warrants were accounted for as liabilities in accordance with ASC 815-40 and are presented within warrant liabilities in the accompanying June 30, 2022 and December 31, 2021 balance sheets. The warrant liabilities are measured at fair value at inception and on a recurring basis, with changes in fair value presented within change in fair value of warrant liabilities in the unaudited condensed statement of operations.

The following table presents the changes in the fair value of Level 3 warrant liabilities:

	Private Placement Warrants			Public Warrants			Warrant Liabilities
Fair value as of December 31, 2021	$	3,573,855		$	—		$	3,573,855
Change in fair value		(2,873,855	)		—			(2,873,855	)
Fair value as of June 30, 2022	$	700,000		$	—		$	700,000

Initial measurement on January 19, 2021	$	6,593,300		$	11,677,500		$	18,270,800
Change in fair value		(1,452,500	)		(5,427,500	)		(6,880,000	)
Transfer to Level 1		—			(6,250,000	)		(6,250,000	)
Fair value as of June 30, 2021	$	5,140,800		$	—		$	5,140,800

The Company utilized a Monte Carlo simulation model for the initial valuation the Public Warrants. The subsequent measurement of the Public Warrants as of June 30, 2022 and December 31, 2021, is classified as Level 1 due to the use of an observable market quote in an active market under the ticker MONCW. The quoted price of the Public Warrants was $0.10 and $0.51 per warrant as of June 30, 2022 and December 31, 2021, respectively. The Private Placement Warrants were valued using a Monte Carlo Simulation, which is considered to be a Level 3 fair value measurement. For the three months ended June 30, 2022, and 2021, the Company recognized income of $2,432,350 and expense of $4,541,500, respectively, resulting from changes in fair value of warrant liabilities, presented as change in fair value of warrant liabilities in the accompanying unaudited condensed statement of operations. For the six months ended June 30, 2022 and 2021, the Company recognized income of $7,997,605 and $3,980,000, respectively, resulting from the change in fair value of warrant liabilities.

The aforementioned warrant liabilities are not subject to qualified hedge accounting.

The primary unobservable input of the Monte Carlo Simulation utilized to determine the fair value of the Private Placement Warrants is the expected volatility of the common stock. The expected volatility as of January 19, 2021 was derived from observable public warrant pricing on comparable ‘blank-check’ companies without an identified target. A Monte Carlo simulation methodology was used in estimating the fair value of the Public Warrants as of January 19, 2021, using the same expected volatility as was used in measuring the fair value of the Private Placement Warrants. Significant increases (decreases) in the expected volatility in isolation would result in a significantly higher (lower) fair value measurement. The risk-free interest rate is based on the U.S. Treasury yield curve in effect on the date of valuation equal to the remaining expected life of the Warrants. The dividend yield percentage is zero because the Company does not currently pay dividends, nor does it intend to do so during the expected term of the Warrants.

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

	June 30, 2022			December 31, 2021
Volatility		14.4	%		12.1	%
Probability of completing a Business Combination		15.0	%		70.0	%
Expected life of the options to convert		0.8			4.1
Risk-free rate		2.65	%		1.12	%
Dividend yield		0.0	%		0.0	%

- 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

Monument Circle Acquisition Corp. 10-Q