Magnum Opus Acquisition Limited Quarterly report pursuant to Section 13 or 15(d)

Quarterly report pursuant to Section 13 or 15(d)

FAIR VALUE MEASUREMENTS

FAIR VALUE MEASUREMENTS

9 Months Ended

Sep. 30, 2022

NOTE 10. FAIR VALUE MEASUREMENTS

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


	Amount at
Description	Fair Value		Level 1		Level 2		Level 3
September 30, 2022
Assets
Investments held in Trust Account:
Money Market investments	$	201,170,411	$	201,170,411	$	—	$	—
Liabilities
Warrant liability - Public Warrants	$	1,700,000	$	1,700,000	$	—	$	—
Warrant liability- Private Placement Warrants	$	1,020,000	$	—	$	—	$	1,020,000
Promissory note - related party	$	191,800	$	—	$	—	$	191,800


	Amount at
Description	Fair Value		Level 1		Level 2		Level 3
December 31, 2021
Assets
Investments held in Trust Account:
Money Market investments	$	200,010,449	$	200,010,449	$	—	$	—
Liabilities
Warrant liability - Public Warrants	$	10,300,000	$	10,300,000	$	—	$	—
Warrant liability- Private Placement Warrants	$	6,240,000	$	—	$	—	$	6,240,000

The Company utilizes a Modified Black-Scholes model to value the Private Placement Warrants at each reporting period, with changes in fair value recognized in the statement of operations. The estimated fair value of the warrant liabilities are determined using Level 3 inputs. Inherent in a binomial options pricing 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 ordinary shares based on historical volatility 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 to remain at zero.

Transfers to/from Levels 1, 2, and 3 are recognized at the end of the reporting periods. The estimated fair value of the Public Warrants transferred from a Level 3 measurement to a Level 1 fair value measurement as of September 30, 2022 and December 31, 2021 after the Public Warrants were separately listed and traded.

The following table provides the significant inputs to the Monte Carlo Simulation for the fair value of the Private Placement Warrants:


		As of December 31,			As of September 30,
		2021			2022
Stock price	$	9.92		$	9.93
Strike price	$	11.50		$	11.50
Probability of completing a Business Combination		*			20.0	%
Dividend yield		—	%		—	%
Remaining term (in years)		5.25			5.48
Volatility		15.1	%		4.5	%
Risk-free rate		1.28	%		4.04	%
Fair value of warrants	$	1.04		$	0.17

*The probability of completing a Business Combination is considered within the volatility implied by the traded price of the Public Warrants.

The promissory note - related party was valued using a combination of Black-Scholes and Discounted Cash Flows methods, which is considered to be a Level 3 fair value measurement. The estimated fair value of the promissory note - related party was based on the following significant inputs:


				As of September
	As of September			21, 2022 (Initial
	30, 2022			Measurement)
Warrant price	$	0.17		$	0.15
Conversion price	$	1.00		$	1.00
Expected term		0.5			0.5
Warrant volatility		271.1	%		260.7	%
Risk free rate		3.9	%		3.9	%
Discount rate		9.1	%		6.4	%
Probability of completing a Business Combination		20.0	%		20.0	%
Fair value of promissory note - related party	$	191,800		$	193,800

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


	Private				Warrant
	Placement		Public		Liabilities
Fair value as of January 1,2022	$	6,240,000	$	10,300,000	$	16,540,000
Change in fair value		(480,000)		(700,000)		(1,180,000)
Fair value as of March 31, 2022		5,760,000		9,600,000		15,360,000
Change in fair value		(5,280,000)		(8,800,000)		(14,080,000)
Fair value as of June 30, 2022		480,000		800,000		1,280,000
Change in fair value		540,000		900,000		1,440,000
Fair value as of September 30, 2022	$	1,020,000	$	1,700,000	$	2,720,000

The following table presents the changes in the fair value of the Company’s Level 3 financial instruments that are measured at fair value:


Fair value as of January 1, 2022	$	6,240,000
Change in fair value		(480,000)
Fair value as of March 31, 2022		5,760,000
Change in fair value		(5,280,000)
Fair value as of June 30, 2022		480,000
Promissory note - related party		193,800
Change in fair value		538,000
Fair value as of September 30, 2022	$	1,211,800

The Company recognized losses in connection with changes in the fair value of warrant liabilities of $1,440,000 and $5,180,000 within changes in fair value of warrants liabilities in the condensed statements of operations for the three months ended September 30, 2022 and 2021, respectively. The Company recognized gains in connection with changes in the fair value of warrants liabilities of $13,820,000 and $5,060,000 within change in fair value of warrant liabilities in the condensed statement of operations for the nine months ended September 30, 2022 and for the period from January 22, 2021 (inception) through September 30, 2021 (unaudited), respectively. The Company recognized a gain on the change in fair value of promissory note - related party of $8,200 in the condensed statement of operations for the three months ending September 30, 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.

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