Fair Value Measurements
|6 Months Ended|
Jun. 30, 2023
|Fair Value Disclosures [Abstract]|
|Fair Value Measurements||
Note 4 –Fair Value Measurements
Liabilities measured and recorded at fair value on a recurring basis consisted of the following at June 30, 2023 and December 31, 2022:
Schedule of Fair Value of Financial Assets and Liabilities
Financial instruments with carrying values approximating fair value include cash and cash equivalents, accounts receivable, prepaid expenses and other current assets, accounts payable and accrued expenses, and certain other current liabilities, due to their short-term nature. Debt instruments are measured at amortized cost on the Company’s consolidated balance sheets. If measured at fair value in the financial statements, these instruments would be classified as Level 2 in the fair value hierarchy.
In estimating the fair value of the Company’s contingent royalty obligation, the Company used the discounted cash flow method as of June 30, 2023 and December 31, 2022. Based on the fair value hierarchy, the Company classified contingent royalty obligation within Level 3 because valuation inputs are based on projected revenues discounted to a present value.
Changes in the fair value of recurring fair value measurements using significant unobservable inputs (Level 3), which solely consisted of a contingent royalty obligation, during the six months ended June 30, 2023 was as follows:
Schedule of Estimated Fair Value of Level 3 Contingent Royalty Obligation
The contingent royalty obligation is re-measured at each balance sheet date using several assumptions, including the following: 1) estimated sales growth, 2) length of product cycle, 3) patent life, 4) discount rate (28.5% and 23% as of June 30, 2023 and December 31, 2022, respectively), and 5) rate of royalty payment (3% as of June 30, 2023 and December 31, 2022).
In accordance with ASC-820-10-50-2(g), the Company performed a sensitivity analysis of the liability, which was classified as a Level 3 financial instrument. The Company recalculated the fair value of the liability by applying a +/- 2% change to the input variable in the discounted cash flow model; the discount rate. A 2% decrease in the discount rate would increase the liability by $95 and a 2% increase in the discount rate would decrease the liability by $86. Such amounts are based on highly sensitive estimates and actual results could result in material change in future periods.
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.
Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef