Note 11 – Fair Value, Derivative Financial Instruments 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 2. At December 31, 2023 and 2022, the carrying value of the Company’s accounts receivable, note receivable/receivable from related party, 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 December 31, 2023 and 2022:

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

InnovaQor Series B-1 Preferred Stock

During 2021, the Company sold several subsidiaries to InnovaQor. As consideration for the sale, the Company received 14,950 shares of InnovaQor Series B-1 Preferred Stock of which 100 shares were used in 2021 to settle an outstanding liability leaving a balance of 14,850 shares at December 31, 2023 and 2022.

The fair value of the InnovaQor Series B-1 Preferred Stock was determined to be $8,192,476 and $9,016,072 December 31, 2023 and 2022, respectively. As a result of the change in the fair value of the InnovaQor Series B-1 Preferred Stock, the Company recorded other expense for the change in fair value of $823,596 in 2023. The fair value of the Company’s InnovaQor Series B-1 Preferred Stock investment was determined based on the Option Price Method (the “OPM”). The OPM treats common and preferred interests as call options on the equity value of the subject company, with exercise prices based on the liquidation preference of the preferred interests and participation thresholds for subordinated classes. The Black Scholes model was used to price the call options. The assumptions used to determine the fair value at December 31, 2023 were: risk free rate of 3.84%; volatility of 215%; and exit period of 5 years. Lastly, a discount rate of 45% was applied for marketability of the InnovaQor Series B-1 Preferred Stock and the underlying liquidity of InnovaQor’s common stock. The assumptions used to determine the fair value at December 31, 2022 (which were also used to determine the initial fair value of the preferred stock) were: risk free rate of 0.84%; volatility of 250.0%; and exit period of 5 years. Lastly, a discount rate of 35% was applied for marketability of the InnovaQor Series B-1 Preferred Stock and the underlying liquidity of InnovaQor’s common stock.

In determining fair value, consideration was also given to: (i) the variable rate conversion feature of the InnovaQor Series B-1 Preferred Stock in that changes in the price of the common stock do not affect conversion value; (ii) recent sales and offering prices by InnovaQor of shares of its common stock; (iii) that InnovaQor is actively seeking additional capital; and (iv) other considerations that we believe will affect the underlying liquidity of InnovaQor’s common stock.

Derivative Financial Instrument

The Company utilized the following method to value its derivative liability as of December 31, 2023 and 2022 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 years ended December 31, 2023 and 2022 as there was no change in the conversion price terms during the periods.

Deemed Dividends

During the year ended December 31, 2023 there were no triggers of down round provisions of outstanding warrants and, therefore, no associated deemed dividends were recorded. During the year ended December 31, 2022, the conversions of preferred stock triggered a further reduction in the exercise prices of warrants 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 prices, was measured using Black Scholes valuation models. The following assumptions were utilized in the Black Scholes valuation models for the year ended December 31, 2022: risk free rates ranging from 0.0% to 2.73%, volatility ranging from 1.94% to 1,564.0% and terms ranging from 0.01 to 2.45 years. Based on the Black Scholes valuations, the incremental value of modifications to warrants as a result of the down round provisions of $330.5 million were recorded as deemed dividends during the year ended December 31, 2022.

As more fully discussed in Note 12, deemed dividends of $0.3 million were recorded in the year ended December 31, 2022 as a result of the issuances of shares of our Series P Convertible Redeemable Preferred Stock (the “Series P Preferred Stock”). Deemed dividends are also discussed in Notes 2 and 3.