INTELLIGENT BIO SOLUTIONS INC. Fair Value Disclosure
NOTE 15. FAIR VALUE MEASUREMENTS
Convertible notes
The Company held back Series C Preferred Stock (“Closing Holdback Shares”), from former owners of an acquired entity for one year after the closing of the acquisition to secure potential indemnification claims by the Company against the former owners of the acquired entity. Each share of Series C Preferred Stock was convertible into shares of common stock. Effective one year after the closing of the acquisition, all Closing Holdback Shares were issued and immediately converted into an aggregate of shares of common stock.
The following table provides a reconciliation of the beginning and ending balance of the Closing Holdback Shares (in the form of Series C Preferred Stock):
| Preferred stock | ||||
| carried at fair value | ||||
| (Level 2) | ||||
| Balance at June 30, 2023 | $ | 208,500 | ||
| Fair value of holdback Series C Preferred Stock at acquisition (Note 5) | (175,738 | ) | ||
| Fair value gain on revaluation of holdback Series C Preferred Stock | (32,762 | ) | ||
| Balance at June 30, 2024 | $ | |||
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.