Long-term Receivables

12 Months Ended

Dec. 31, 2023

Receivables [Abstract]

Long-term Receivables

6. Long-term Receivables

As of December 31, 2023, the Company had long-term receivables of $1,838,500 from two of the 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 new 2022 license agreements and recognized $2,810,600 of royalty revenue net of imputed interest of $132,300 for the year ended December 31, 2022. The Company also recognized $206,600 and $196,500 of commission expense related to the three license agreements, which is reflected in selling expense on the statement of comprehensive income (loss) for the years ended December 31, 2023 and 2022. The commissions are payable over the term of the agreements and are due when payments are received by the Company. As of December 31, 2023 and 2022, the accrued commission payable balance was $172,200 and $194,700.

The current portion of the three license agreements, in the amount of $624,600 and $507,400, is included in accounts receivable on the balance sheet as of December 31, 2023 and 2022.

The following table summarizes the future minimum payments due under the three license agreements as of December 31, 2023:

Year Ending December 31:
	2024	$	642,000
	2025	$	570,000
	2026	$	570,000
	2027	$	557,500
	2028	$	260,000
	Total	$	2,599,500

The Company has evaluated the collectability of the long-term receivables and believes them to be fully collectible as of December 31, 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 December 31, 2023, and will be amortized over the term of the license agreements using the effective interest method. The unamortized balance of the receivables as of December 31, 2023 and 2022 is $2,463,100 and $2,970,600 including current portion of long-term receivables of $624,600 and $507,500, which is included in accounts receivable of the balance sheet as of December 31, 2023 and 2022.   

The Company has also considered the potential impact of changes in interest rates on the present value of the three long-term receivables. A hypothetical 1% increase or decrease in the incremental borrowing rate would result in an approximate $21,400 increase or decrease in the present value of the receivables as of December 31, 2023.