NOTE 10. DERIVATIVE LIABILITY

As discussed in Note 8, in September 2021, the Company completed a financing transaction and received proceeds of $2,500,000 from the issuance of an 18% Original Issue Discount Convertible Debenture in the principal amount of $3,048,781. The Company determined that the debenture’s conversion features were an embedded derivative that was required to be bifurcated from the debenture and separately reported as a derivative liability at fair value, with changes in fair value reported in earnings each period. The initial fair value of the derivative liability was $980,000. The Company recognized a fair market value loss of $340,000 related to the derivative liability for the three-month period ended March 31, 2022. The Company did not have a fair value of the embedded derivative recorded on the balance sheet as a liability March 31, 2023 and December 31, 2022.