bioAffinity Technologies, Inc. Fair Value Disclosure
Note 7. FAIR VALUE MEASUREMENTS
The Company analyzes all financial instruments with features of both liabilities and equity under the Financial Accounting Standard Board’s (“FASB”) accounting standard for such instruments. Under this standard, financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.
The estimated fair value of certain financial instruments, including cash and cash equivalents, accounts receivable, prepaid and other expenses, accounts payable, and accrued expenses are carried at historical cost basis, which approximates their fair values because of the short-term nature of these instruments. There are no assets and liabilities that are measured at fair value at December 31, 2022. The table below summarizes the Company’s assets and liabilities that are measured at fair value at December 31, 2021:
| Fair value measured at December 31, 2021 | ||||||||||||||||
Total at December 31, 2021 | Quoted Prices in active markets | Significant other observable inputs | Significant unobservable inputs | |||||||||||||
| Convertible notes payable | $ | 11,152,151 | $ | 11,152,151 | ||||||||||||
A description of the valuation techniques and the values used for significant unobservable inputs to derive fair value measurements for those assets and liabilities measured at fair value at December 31, 2021:
| Fair value | Valuation technique | Unobservable Input | Range (weighted average) | |||||||||
| Convertible notes payable at 12/31/21 | $ | 11,152,151 | Risky Put + Stock Payoff | Probability weighting assigned to automatic and optional conversion scenarios | %/ | % | ||||||
| Applied discount rate | % | |||||||||||
| Common share class volatility | % | |||||||||||
| Preferred stock class volatility | % | |||||||||||
| Negotiation discount | % | |||||||||||
bioAffinity Technologies, Inc.
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2022 and 2021
The Company transferred $325,000 of convertible notes payable from level 3 to level 2 during the year ended December 31, 2022, to account for notes that were not converted at the time of the Company’s IPO. During the fourth quarter of 2022, these notes, together with the related accrued interest, were repaid in full. See Note 8. There were no transfers into or out of level 3 during the year ended December 31, 2021. The Company issued a total of $0.7 million and $3.3 million in convertible notes for the years ended December 31, 2022, and 2021, respectively, which are included in level 3 liabilities. The following table summarizes the fair values of convertible note payables and the change in fair value at each measurement date:
| Fair value of convertible notes payable at December 31, 2020 | $ | 9,767,461 | ||
| Convertible notes payable issued | 3,295,000 | |||
| Debt discount for warrants issued | (1,665,956 | ) | ||
| Accretion of debt issuance costs | 480,574 | |||
| Change in fair value of convertible notes payable | (724,928 | ) | ||
| Fair value of convertible notes payable at December 31, 2021 | $ | 11,152,151 | ||
| Additional convertible notes payable issued | 724,000 | |||
| Repayment of convertible notes payable | (100,000 | ) | ||
| Debt discount for warrants issued | (870,245 | ) | ||
| Accretion of debt issuance costs | 2,055,627 | |||
| Change in fair value of convertible notes payable | 1,866,922 | |||
| Transfer from level 3 to level 2 | (325,000 | ) | ||
| Conversion of convertible notes payable into common stock | (14,503,455 | ) | ||
| Fair value of convertible notes payable at December 31, 2022 | $ |
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About Fair Value Disclosures
Fair value disclosures classify all assets and liabilities measured at fair value into a three-level hierarchy: Level 1 (quoted market prices), Level 2 (observable inputs like yield curves), and Level 3 (unobservable inputs requiring management estimates). The proportion of Level 3 assets directly reflects how much of the balance sheet depends on internal models rather than market evidence.
Key signals: a growing Level 3 balance relative to total fair-value assets increases valuation uncertainty and earnings volatility risk. Watch for transfers between levels — assets moving from Level 2 to Level 3 often signal deteriorating market liquidity. Unrealized gains and losses on Level 3 positions flow through earnings or other comprehensive income, so large swings deserve scrutiny. For financial institutions, examine the sensitivity disclosures that show how Level 3 valuations change under alternative assumptions. Compare the fair value of debt against its carrying amount to gauge hidden leverage.