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Note 13 - Fair Value Measurement of Convertible Note Payable | 9 Months Ended
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Sep. 30, 2023
Notes to Financial Statements |
Fair Value Measurement and Measurement Inputs, Recurring and Nonrecurring [Text Block] |
13. | FAIR VALUE MEASUREMENT OF CONVERTIBLE NOTE PAYABLE
Fair value is defined as the price that would be received for sale of an asset or paid for transfer of a liability, in an orderly transaction between market participants at the measurement date. GAAP establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). These tiers include: Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical unrestricted assets or liabilities; Level 2: Quoted prices in markets that are not active or inputs which are observable either directly or indirectly for substantially the full term of the asset or liability; and Level 3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e. supported by little or no market activity). The following tables summarize the Note measured at fair value at September 30, 2023 and December 31, 2022:
September 30, 2023 |  | Total |  |  | Level 1 |  |  | Level 2 |  |  | Level 3 |
Convertible note at fair value |  | $ | 2,331,497 |  |  | $ | - |  |  | $ | - |  |  | $ | 2,331,497 |
December 31, 2022 |  | Total |  |  | Level 1 |  |  | Level 2 |  |  | Level 3 |
Convertible note at fair value |  | $ | 2,596,203 |  |  | $ | - |  |  | $ | - |  |  | $ | 2,596,203 |
The Company estimated the fair value of the convertible note using a probability-weighted discounted cash flow model with the following assumptions and significant terms of the Note at both September 30, 2023 and December 31, 2022:
| 1. | Face amount - $2,200,000
| 2. | Nominal interest rate – 14.03% at September 30, 2023 and 10% at December 31, 2022
| 3. | Default interest rate – 18%
| 4. | Increase in principal upon a default – 30%
| 5. | Present value discount rate – 14.03% at September 30, 2023, and 15.18% at December 31, 2022
| 6. | Likelihood of default – estimated to be between 50% at the extended maturity date
The following table shows the changes in fair value measurements for the convertible note using significant unobservable inputs (Level 3) during the three months ended September 30, 2023:
Beginning balance |  | $ | 2,596,203 |
Purchases and issuances |  |  | - |
Change in fair value for the three months ended March 31, 2023 |  |  | (141,991 | )
Balance at March 31, 2023 |  | $ | 2,454,212 |
Change in fair value for the three months ended June 30, 2023 |  |  | 44,568 |
Balance at June 30, 2023 |  | $ | 2,498,780 |
Change in fair value for the three months ended September 30, 2023 |  |  | (167,283 | )
Ending balance at September 30, 2023 |  | $ | 2,331,497 |

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- Definition The entire disclosure of the fair value measurement of assets and liabilities, which includes financial instruments measured at fair value that are classified in shareholders' equity, which may be measured on a recurring or nonrecurring basis. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Topic 820 -Name Accounting Standards Codification -Publisher FASB -URI https://asc.fasb.org//820/tableOfContent + Details
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