Note 10 – Derivative Financial Instruments and Fair Value

The estimated fair value of financial instruments was determined by the Company using available market information and valuation methodologies considered to be appropriate. At March 31, 2021 and December 31, 2020, the carrying value of the Company’s accounts receivable, accounts payable and accrued expenses approximated their fair values due to their short-term nature.

The following table sets forth the financial assets and liabilities carried at fair value measured on a recurring basis as of March 31, 2021 and December 31, 2020:

The Company utilized the following method to value its derivative liability as of March 31, 2021 and December 31, 2020 for an embedded conversion option that was valued at $455,336. The Company determined the fair value by comparing the discounted conversion price per share (85% of market price) multiplied by the number of shares issuable at the balance sheet date to the actual price per share of the Company’s common stock multiplied by the number of shares issuable at that date with the difference in value recorded as a liability. There was no change in the value of the embedded conversion option in the three months ended March 31, 2021 and 2020 as there was no change in the conversion price terms during the periods.

During the three months ended March 31, 2021, the conversions of preferred stock triggered a further reduction in the exercise prices of warrants containing ratchet features that had not already ratcheted down to their floor. In accordance with U.S. GAAP, the incremental fair value of the debentures and warrants as a result of the decreases in the conversion/exercise prices was measured using Black Scholes. The following assumptions were utilized in the Black Scholes valuation models: risk free rates ranging from 0.06% to 0.10%, volatility ranging from 213.25% to 243.58% and lives ranging from .91 years to 1.21 years. The incremental fair value of $50.4 million was recorded as deemed dividends for the three months ended March 31, 2021. No deemed dividends were recorded in the three months ended March 31, 2020 as no down round provisions were triggered during the period. Deemed dividends are also discussed in Notes 1 and 3.