DERIVATIVE FINANCIAL INSTRUMENTS

9 Months Ended

Dec. 31, 2022

Derivative Instruments and Hedging Activities Disclosure [Abstract]

NOTE 11 – DERIVATIVE FINANCIAL INSTRUMENTS

The following tables summarize the components of the Company’s derivative liabilities and linked common shares as of December 31, 2022:


	December 31, 2022
The financings giving rise to derivative financial instruments	Indexed Shares		Fair Values
Compound embedded derivatives		86,458,200,000		(17,291,640	)
Total		86,458,200,000		(17,291,640	)

The following tables summarize the components of the Company’s derivative liabilities and linked common shares as of March 31, 2022:

	March 31, 2022
The financings giving rise to derivative financial instruments	Indexed Shares		Fair Values
Compound embedded derivatives		4,418,910,016	$	(3,831,191	)
Total		4,418,910,016	$	(3,831,191	)

The following table summarizes the effects on the Company’s (loss) gain associated with changes in the fair values of the derivative financial instruments by type of financing for the three months ended December 31, 2022 and 2021:

	December 31,			December 31,
	2022			2021

Change in fair value of compound embedded derivatives	$	(8,688,144	)		(66,894	)
Initial derivative expense		(98,877	)		(45,485	)
Total	$	(8,787,021	)		(112,379	)

	December 31,			December 31,
	2022			2021

Change in fair value of compound embedded derivatives	$	(12,980,720	)		(421,836	)
Initial derivative expense		(478,090	)		(45,485	)
Total	$	(13,458,810	)		(467,321	)

The Company’s Convertible Promissory Notes issued between October 4, 2019 and December 31, 2022 gave rise to derivative financial instruments. The notes embodied certain terms and conditions that were not clearly and closely related to the host debt agreement in terms of economic risks and characteristics. These terms and features consist of the embedded conversion option.

Current accounting principles that are provided in ASC 815 - Derivatives and Hedging require derivative financial instruments to be classified in liabilities and carried at fair value with changes recorded in income. In addition, the standards do not permit an issuer to account separately for individual derivative terms and features embedded in hybrid financial instruments that require bifurcation and liability classification as derivative financial instruments. Rather, such terms and features must be bundled together, and fair valued as a single, compound embedded derivative. The Company has selected the Monte Carlo Simulations valuation technique to fair value the compound embedded derivative because it believes that this technique is reflective of all significant assumption types, and ranges of assumption inputs, that market participants would likely consider in transactions involving compound embedded derivatives. Such assumptions include, among other inputs, interest risk assumptions, credit risk assumptions and redemption behaviors in addition to traditional inputs for option models such as market trading volatility and risk-free rates. The Monte Carlo Simulations technique is a level three valuation technique because it requires the development of significant internal assumptions in addition to observable market indicators.

Significant inputs and results arising from the Monte Carlo Simulations process are as follows for the embedded derivatives that have been bifurcated from the Convertible Notes and classified in liabilities:

Schedule of significant inputs
	December 31, 2022
Quoted market price on valuation date	$0.0002
Contractual conversion rate	$0.0001 - $0.0002
Contractual term to maturity	0 – 0.91 Years
Equivalent Volatility	268.22% - 399.05%
Interest rate	8% - 12%

The following table reflects the issuances of compound embedded derivatives and the changes in fair value inputs and assumptions related to the compound embedded derivatives during the period ended December 31, 2022 and March 31, 2022.


	December 31,			March 31,
	2022			2022

Beginning balance	$	3,831,191		$	1,137,623
Issuances:
Compound embedded derivatives		618,321			2,038,843
Conversions		(544,881	)		(328,638	)
Derivative extinguished / debt repaid in cash		(71,801	)		(243,300	)
Loss on changes in fair value inputs and assumptions reflected in income		12,980,720			1,181,178
Initial derivative expense		478,090			45,485
Total	$	17,291,640		$	3,831,191

B2Digital, Inc. 10-Q