5.       Long-term Receivables

As of December 31, 2022, the Company had long-term receivables of $2,463,100 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 Company determined that the above conditions were met upon execution of the agreements and recognized $2,810,580 of royalty revenue net of imputed interest of $132,300 . The Company also recognized $196,500 of commission expense related to the three license agreements, which is reflected in selling expense on the statement of comprehensive income for the year ended December 31, 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, 2022, the accrued commission payable balance was $ 194,700.

The current portion of the three new license agreements and one license agreement entered into in prior years, in the amount of $507,400 and $374,500, is included in accounts receivable on the balance sheet as of December 31, 2022 and 2021.

The following table summarizes the future minimum payments due under the three new license agreements as of December 31, 2022:

The Company has evaluated the collectibility of the long-term receivables and believes them to be fully collectible as of December 31, 2022. 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, 2022, 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, 2022 is $2,450,800.

The Company has also considered the potential impact of changes in interest rates on the present value of the three new 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, 2022.