Quarterly report pursuant to Section 13 or 15(d)

Fair Value Measurements

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:


    June 30, 2023  
    Level 1     Level 2     Level 3     Fair Value  
Contingent royalty obligation   $ -     $ -     $ 1,056     $ 1,056  


    December 31, 2022  
    Level 1     Level 2     Level 3     Fair Value  
Contingent royalty obligation   $ -     $ -     $ 1,212     $ 1,212  


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:


    Fair Value
Measurements of
Contingent Royalty
Obligation (Level 3)
Balance at December 31, 2022   $ 1,212  
Change in estimated fair value of contingent royalty obligation     156  
Balance at June 30, 2023   $ 1,056  


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.