Note 4 – Fair Value Measurements

Liabilities measured and recorded at fair value on a recurring basis consisted of the following at December 31, 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 September 12, 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. The contingent royalty obligation is re-measured at each balance sheet date and at September 12, 2023 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 September 12, 2023 and December 31, 2022, respectively), and 5) rate of royalty payment (3% as of September 12, 2023 and December 31, 2022).

As noted in Note 9, under the Amendment Agreement, the Company extinguished its royalty obligation in exchange for equity interests. The Company measured the difference between the fair value of the shares of common stock issued and the carrying value (at a final fair value) of the royalty obligation as a gain. As the holder of a majority of the Royalty Payment Rights Certificates is considered a related party, as noted in Note 10, the Company recorded the retirement of the royalty obligation based on the total value of shares issued as well as the gain on settlement within equity as additional paid in capital as a capital transaction.