Long-term Receivables

9 Months Ended

Sep. 30, 2023

Receivables [Abstract]

Long-term Receivables

Note 4. Long-term Receivables

As of September 30, 2023, the Company had long-term receivables of $1,993,700 from three licensees representing the present value of fixed guaranteed royalty payments that will be payable over varying periods of two through five years that commenced in the second half of 2022 and terminate in the second quarter of 2028. The fixed guaranteed royalty payments result from amendments to license agreements with two existing licensees and a license agreement with a new licensee. The receivable represents the present value of the fixed minimum annual payments due under the license agreements, discounted at the Company's incremental borrowing rate of 4%. 

The three agreements grant licenses for the use of certain patented ink technology as it exists at the time that it is granted which is considered functional intellectual property. Under Topic 606, a performance obligation to transfer a license for functional intellectual property is satisfied at a point in time and the fixed consideration could be recognized upfront when the Company transfers control of the licensee if certain criteria are met. Specifically, the minimum royalty guarantee could be recognized upfront if the following conditions are met:

· The royalty payment is fixed or determinable

· Collection of the royalty payment is considered probable

· The licensee has the ability to benefit from the licensed technology

The Company determined that the above conditions were met upon execution of the agreements and, in the year ended December 31, 2022, recognized $2,810,600 of royalty revenue along with $206,600 of commission expense net of imputed interest of $131,300. The commissions are payable over the term of the license agreements and are due when payments are received by the Company. As of September 30, 2023, the accrued commission payable balance was approximately $183,000.

The current portion of the three new license agreements, in the amount of $624,100  is included in accounts receivable on the balance sheet as of September 30, 2023. The current portion of the license agreement entered into in prior years, in the amount of $507,500, is included in accounts receivable on the balance sheet as of December 31, 2022

The following table summarizes the future minimum payments due under the three new license agreements as of September 30, 2023:

Year Ending December 31:
	2023	$	157,500
	2024		642,000
	2025		570,000
	2026		570,000
	2027		557,500
	2028		260,000
	Total	$	2,757,000

The Company has evaluated the collectibility of the long-term receivables and believes them to be fully collectible as of September 30, 2023. However, there can be no assurance that the receivables will not be impaired in the future due to changes in the licensees’ financial condition or other factors. 

The long-term receivables are recorded at its present value as of September 30, 2023, and will be amortized over the term of the license agreements using the effective interest method. The unamortized balance of the long-term receivables as of September 30, 2023 is $1,993,700.