Landsea Homes Corporation Annual report pursuant to Section 13 and 15(d)

Annual report pursuant to Section 13 and 15(d)

Fair Value Measurements

Fair Value Measurements

12 Months Ended

Dec. 31, 2020

Note 8. Fair Value Measurements

The following table presents information about the Company’s assets that are measured on a recurring basis as of December 31, 2020 and 2019 and indicates the fair value hierarchy of the valuation techniques that the Company utilized to determine such fair value.


	Quoted Prices		Significant		Significant Other
	in Active Markets		Other Observable Inputs		Unobservable Inputs
Description	(Level 1)		(Level 2)		(Level 3)
Assets held in Trust at December 31, 2020:
Money market fund	$	109,742,246	$	—	$	—
	$	109,742,246	$	—	$	—

Liabilities:
Warrant liability (As Restated)	$	30,118,500	$	—	$	15,364,800
Convertible note payable (As Restated)		—		—		1,500,000
	$	30,118,500	$	—	$	16,864,800

	Quoted Prices		Significant		Significant Other
	in Active Markets		Other Observable Inputs		Unobservable Inputs
Description	(Level 1)		(Level 2)		(Level 3)
Assets held in Trust at December 31, 2019:
U.S. Treasury Securities	$	161,991,526	$	—	$	—
Money market funds		28,383		—		—
	$	162,019,909	$	—	$	—

Liabilities:
Warrant liability (As Restated)	$	—	$	—	$	10,943,950
Convertible note payable (As Restated)		—		—		750,000
	$	—	$	—	$	11,693,950

Transfers to/from Levels 1, 2, and 3 are recognized at the end of the reporting period. The public warrants transferred from Level 3 to Level 1 during the year ended December 31, 2020 as there was sufficient trading volume as of the reporting date to provide a reliable estimate of fair value. There were no transfers between levels for the years ended December 31, 2019.

As of December 31, 2019 the public warrants were unable to be reliably measured at fair value on a recurring basis using the price traded on an open market and therefore a Monte Carlo simulation was used to estimate the fair value as of that period. The significant unobservable input as of December 31, 2019 was the implied volatility rate of 5.4%.

The Private Placement Warrants are measured at fair value on a recurring basis using a Black-Scholes option pricing model. The significant unobservable input as of December 31, 2020 and 2019 was the volatility rate implied from the public warrants, which are exchanged on an open market, of 23.8%, and 5.4%, respectively.

The Convertible Note was measured at fair value on a recurring basis by calculating the present value of the outstanding principal combined with the fair value of the conversion option which was valued using a Monte Carlo simulation during periods when the conversion option was effective. The significant unobservable inputs as of December 31, 2019 were the implied volatility rate of 5.4% and the discount rate of 12.9%. During the year ended December 31, 2020, the conversion option was waived and therefore the liability as of December 31, 2020 was valued solely on the present value of the outstanding principal. The significant unobservable input as of December 31, 2020 was the discount rate of 13.6%.

The following table reconciles the beginning and ending balances for the Level 3 recurring fair value measurements during the periods presented:


	For the Years Ended December 31,
	2020			2019
Warrant liability
Beginning balance	$	10,943,950		$	10,012,550
Changes in fair value		18,393,350			931,400
Transfers out of Level 3		(13,972,500	)		—
Ending balance	$	15,364,800		$	10,943,950


	For the Years Ended December 31,
	2020		2019
Convertible note payable
Beginning balance	$	750,000	$	—
Additions		750,000		750,000
Ending balance	$	1,500,000	$	750,000

- 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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