The fair value measurements of the Company’s financial assets and liabilities measured on a recurring basis were as follows:


	March 31, 2022											December 31, 2021
(U.S. Dollars, in thousands)	Level 1		Level 2			Level 3			Total			Total
Assets
Neo Medical convertible loan agreements	$	—	$	—		$	5,780		$	5,780		$	7,148
Neo Medical preferred equity securities		—		6,084			—			6,084			5,413
Bone Biologics equity securities		243		—			—			243			309
Other investments		—		—			1,535			1,535			1,505
Total	$	243	$	6,084		$	7,315		$	13,642		$	14,375
Liabilities
Spinal Kinetics contingent consideration	$	—	$	—		$	(11,700	)	$	(11,700	)	$	(17,200	)
Deferred compensation plan		—		(1,285	)		—			(1,285	)		(1,314	)
Total	$	—	$	(1,285	)	$	(11,700	)	$	(12,985	)	$	(18,514	)

In October 2020, the Company purchased preferred equity securities of Neo Medical SA, a privately held Swiss-based company developing a new generation of products for spinal surgery ("Neo Medical"), for consideration of $5.0 million and entered into a Convertible Loan Agreement pursuant to which Orthofix loaned Neo Medical CHF 4.6 million, or $5.0 million at the date of issuance (the “Convertible Loan”). In October 2021, the Company entered into an additional Convertible Loan Agreement (the “Additional Convertible Loan”), pursuant to which the Company loaned Neo Medical an additional CHF 0.6 million (funded by the payment of $0.7 million as of the issuance date).

The equity securities are recorded in other long-term assets and are considered an investment that does not have a readily determinable fair value. As such, the Company measures this investment at cost, less any impairment, plus or minus changes resulting from observable price changes in orderly transactions for identical or similar investments of the same issuer.

The table below presents a reconciliation of the beginning and ending balances of the Company’s investment in Neo Medical preferred equity securities:


(U.S. Dollars, in thousands)	2022		2021
Fair value of Neo Medical preferred equity securities at January 1	$	5,413	$	5,000
Conversion of loan into preferred equity securities		671		—
Fair value of Neo Medical preferred equity securities at March 31		6,084		5,000
Cumulative unrealized gain on Neo Medical preferred equity securities		413		—

The Company made an election to convert the Additional Convertible Loan into shares of Neo Medical’s preferred equity securities in January 2022. The remaining Convertible Loan is recorded in other long-term assets as an available for sale debt security as of March 31, 2022. The Convertible Loan is recorded at fair value, with applicable interest recorded in interest income. The fair value of the Convertible Loan is based upon significant unobservable inputs, including the use of option-pricing models, Monte Carlo simulations for certain periods, and a probability-weighted discounted cash flows model, requiring the Company to develop its own assumptions. Therefore, the Company categorized these investments as Level 3 financial assets.

Some of the more significant unobservable inputs used in the fair value measurement of the Convertible Loan include applicable discount rates, implied volatility, the likelihood and projected timing of repayment or conversion, and projected cash flows in support of the estimated enterprise value of Neo Medical. Holding other inputs constant, changes in these assumptions could result in a significant change in the fair value of the Convertible Loan. If the amortized cost of the Convertible Loan exceeds its estimated fair value, the security is deemed to be impaired, and must be evaluated for the recognition of a credit loss. As of March 31, 2022, the Company has not recognized any credit loss related to the Convertible Loan.

The following table provides a reconciliation of the beginning and ending balances of the Convertible Loans, measured at fair value using significant unobservable inputs (Level 3):


(U.S. Dollars, in thousands)	2022			2021
Fair value of Neo Medical Convertible Loans at January 1	$	7,148		$	7,160
Interest recognized in interest income, net		112			96
Foreign currency remeasurement recognized in other expense, net		(69	)		(330	)
Unrealized loss recognized in other comprehensive income (loss)		(740	)		(726	)
Conversion of loan into preferred equity securities		(671	)		—
Fair value of Neo Medical Convertible Loans at March 31		5,780			6,200
Amortized cost basis of Neo Medical Convertible Loans at March 31		5,581			5,045

The Company holds an investment in common stock of Bone Biologics Inc. (“Bone Biologics”, NASDAQ: BBLG), a developer of orthobiologic products. Changes in the fair value of the investment recorded during the three months ended March 31, 2022 and 2021, are shown in the table below:

Other investments represent assets and investments recorded at fair value that are not deemed to be material for disclosure on an individual basis. The fair value of these assets are based upon significant unobservable inputs, such as probability-weighted discounted cash flows models, requiring the Company to develop its own assumptions. Therefore, the Company has categorized these assets as Level 3 financial assets. As of March 31, 2022, this balance was classified within other long-term assets.

The Company recognized a contingent consideration obligation in connection with the acquisition of Spinal Kinetics in 2018. The Spinal Kinetics contingent consideration consists of potential future milestone payments of up to $60.0 million in cash. The milestone payments included (i) $15.0 million upon U.S. Food and Drug Administration (“FDA”) approval of the M6-C artificial cervical disc (the “FDA Milestone”) and (ii) revenue-based milestone payments of up to $45.0 million in connection with future sales of the acquired artificial discs. Milestones must be achieved within five years of April 30, 2018, to trigger applicable payments. The FDA Milestone was achieved and paid in 2019 and a revenue-based milestone payment, totaling $15.0 million, was achieved and paid in 2021 upon meeting certain net sales targets.

The estimated fair value of the remaining Spinal Kinetics contingent consideration, attributable to a revenue-based milestone, was $11.7 million as of March 31, 2022. The estimated fair value reflects assumptions made by management as of March 31, 2022, such as the expected timing and volume of elective procedures and the impact of these procedures on future revenues. However, the actual amount ultimately paid could be higher or lower than the fair value of the remaining contingent consideration (ultimate payment will either be $30.0 million or the liability will be reversed if the milestone is not met within the required timeline). As of March 31, 2022, the Company has classified the $11.7 million liability within other current liabilities, as the Company currently expects to achieve the remaining milestone in the next twelve months, if achieved. Any changes in fair value are recorded as an operating expense within acquisition-related amortization and remeasurement.

The Company estimated the fair value of the remaining potential revenue-based milestone payment using a Monte Carlo simulation and a discounted cash flow model. This fair value measurement is based on significant inputs that are unobservable in the market and thus represents a Level 3 measurement. The key assumptions in applying the valuation model include the Company’s forecasted future revenues for the Motion Preservation product line (which is derived from the acquired Spinal Kinetics business), the expected timing of payment, applicable discount rates applied, and assumptions for potential volatility of the Company’s forecasted revenue. Significant changes in these assumptions could result in a significantly higher or lower fair value.

The following table provides a range of key assumptions used within the valuation as of March 31, 2022:


(U.S. Dollars, in thousands)	Fair Value as of March 31, 2022		Valuation Technique	Unobservable inputs	Range
Spinal Kinetics contingent consideration	$	11,700	Discounted cash flow	Revenue discount rate	5.9% - 7.4%
				Payment discount rate	3.2% - 4.7%
				Projected year of achievement	2023