Company: PTHS
Filing Date: 2025-11-13
Form Type: 10-Q
Source: 0001753926-25-001764
Chunk: 100

Company: Pelthos Therapeutics Inc.
Filing Date: 2025-11-13
Form: 10-Q
Item: Part I, Item 1
Chunk 100
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 risk that products in development will not receive
regulatory approval, the Company does not recognize any contingent payments until regulatory approval becomes probable. Future
sales-based royalties are not recorded until the subsequent sale occurs.

58

Inventory

The
Company measures inventory using the first-in, first-out method and values inventory at the lower of cost or net realizable value.
Inventory value includes costs related to materials, manufacturing, labor, conversion and overhead expenses. The Company adjusts
its inventory for potentially obsolete inventory. The adjustment for obsolescence is generally an estimate of the value of inventory
that is expected to expire in the future based on projected sales volume and product expiration or expected sell-by dates. These
assumptions require the Company to analyze the aging of and forecasted demand for its inventory and make estimates regarding future
product sales.

Prior
to obtaining initial regulatory approval for ZELSUVMI in January 2024, inventory costs related to the production of pre-launch
inventory were expensed as research and development costs. Subsequent to January 5, 2024, the date of the FDA’s approval
of ZELSUVMI, inventory costs were capitalized by LNHC. As part of the Merger, certain inventoried items were revalued subject
to ASC 805.

See
Note 3 — “Acquisition of LNHC, Inc.” in the notes to our condensed consolidated financial statements for additional
detail.

Intangible
Assets, Net and Goodwill

Intangible
assets represent certain identifiable intangible assets, including product rights consisting of pharmaceutical product licenses
and patents. Amortization for pharmaceutical products licenses is computed using the straight-line method based on the lesser
of the term of the agreement and the useful life of the license. Amortization for pharmaceutical patents is computed using the
straight-line method based on the useful life of the patent.

Definite-lived
intangible assets are reviewed for impairment whenever events or circumstances indicate that carrying amounts may not be recoverable.
In the event impairment indicators are present or if other circumstances indicate that an impairment might exist, then management
compares the future undiscounted cash flows directly associated with the asset or asset group to the carrying amount of the asset
group being determined for impairment. If those estimated cash flows are less than the carrying amount of the asset group, an
impairment loss is recognized. An impairment loss is recognized to the extent that the carrying amount exceeds the asset’s
fair value. Considerable judgment is necessary to estimate the fair value of these