Immix Biopharma, Inc. Fair Value Disclosure
Note 5 – Fair Value Measurements
As of December 31, 2022 and 2021, the Company had no assets or liabilities required to be measured at fair value on a recurring basis.
The fair value of the embedded derivative instrument identified in the Notes was estimated using a two-step approach to valuation, employing a probability-weighted scenario valuation method and then comparing the instrument’s value with-and-without the derivative features in order to estimate their combined fair value, using unobservable inputs, which are classified as Level 3 within the fair value hierarchy. In order to estimate the fair value of the Notes, the Company estimated the future payoff in each scenario, discounted them to a present value and then probability weighted them based upon the Company’s best likelihood of each event occurring. The primary inputs for the valuation approach included the probability of achieving various settlement scenarios that provide the noteholders the rights or the obligations to receive cash or a variable number of shares upon the completion of a Qualified Financing. At December 31, 2020, the Company estimated a 5% probability of a Qualified Financing occurring, a de minimis probability of a change of control occurring and a 20% probability of bankruptcy or dissolution of the Company. As of December 31, 2020, the embedded derivative was remeasured to $575,000. Immediately prior to the conversion of the Notes in connection with the Company’s IPO, the Company estimated a 100% probability of a Qualified Financing occurring, a de minimis probability of a change of control occurring and a 0% probability of bankruptcy or dissolution of the Company. Accordingly, the estimated fair value of the embedded derivative was remeasured at $23,414,829. A loss of $22,759,829 related to the change in fair value of the derivative liability was recorded during the year ended December 31, 2021. There were no transfers among Level 1, Level 2 or Level 3 categories in the years ended December 31, 2022 and 2021.
The following table provides a summary of changes in fair value of the Company’s Level 3 financial liabilities for the year ended December 31, 2021:
Debt Derivative | ||||
| Balance, January 1, 2021 | $ | 575,000 | ||
| Additions – initial issuance of 2021A Notes recognized as debt discount | 80,000 | |||
| Loss from change in fair value included in earnings | 22,759,829 | |||
| Reclassification to additional paid-in capital upon conversion of convertible notes payable | (23,414,829 | ) | ||
| Balance, December 31, 2021 | $ | |||
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2022 | Mar 27, 2023 | Showing above |
| 2021 | Mar 28, 2022 | |
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.