Note 9 – Derivative Financial Instruments, Fair Value and Deemed Dividends

Fair Value Measurements

The estimated fair value of financial instruments was determined by the Company using available market information and valuation methodologies considered to be appropriate. The fair value measurements accounting guidance is more fully discussed in Note 1. At September 30, 2022 and December 31, 2021, 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 September 30, 2022 (unaudited) and December 31, 2021:

Schedule of Fair Value of Assets and Liabilities Measured on Recurring Basis 

The fair value of the InnovaQor Series B-1 Preferred Stock of $9.0 million as of September 30, 2022 and December 31, 2021 is more fully discussed in Note 13.

The Company utilized the following method to value its derivative liability as of September 30, 2022 and December 31, 2021 for an embedded conversion option related to an outstanding convertible debenture valued at $455,336. The Company determined the fair value by comparing the conversion price per share, which based on the conversion terms is 85% of the market price of the Company’s common stock, multiplied by the number of shares issuable at the balance sheet dates 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 and nine months ended September 30, 2022 and 2021 and the year ended December 31, 2021 as there was no change in the conversion price terms during the periods.

Deemed Dividends

During the nine months ended September 30, 2022 and during the three and nine months ended September 30, 2021, the conversions of preferred stock triggered a further reduction in the exercise prices of warrants (and conversion prices of debentures in the 2021 periods) containing down round provisions. In accordance with U.S. GAAP, the incremental fair value of the warrants, as a result of the decreases in the exercise/conversion prices, was measured using Black Scholes valuation models. The following assumptions were utilized in the Black Scholes valuation models for the three and nine months ended September 30, 2021: risk free rates ranging from 0.04% to 0.55%, volatility ranging from 25.0% to 574.0% and terms ranging from one day to three years. The following assumptions were utilized in the Black Scholes valuation models for the nine months ended September 30, 2022: risk free rates ranging from 0.0% to 2.73%, volatility ranging from 1.94% to 1,564% and terms ranging from 0.01 to 2.45 years. Based on the Black Scholes valuations, the incremental value of modifications to warrants (and debentures in the 2021 periods) as a result of the down round provisions of $258.9 million were recorded as deemed dividends during the three months ended September 30, 2021 and $330.5 million and $408.5 million were recorded during the nine months ended September 30, 2022 and 2021, respectively.

In addition, deemed dividends of $0.1 million and $0.3 million were recorded in the three and nine months ended September 30, 2022, respectively, as a result of the issuances of shares of our Series P Preferred Stock, as more fully discussed in Note 10. Deemed dividends of $0.3 million were recorded in both the three and nine months ended September 30, 2021 as a result of the issuance of warrants to acquire 4,750 shares of the Company’s common stock and deemed dividends of $0.3 million were recorded in both the three and nine months ended September 2021 as a result of the extension of warrants. These deemed dividends are more fully discussed in Note 10. Deemed dividends are also discussed in Notes 1 and 3.