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

Company: Pelthos Therapeutics Inc.
Filing Date: 2025-11-13
Form: 10-Q
Item: Part I, Item 1
Chunk 25
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 benefit
from the license. For licenses that are bundled with other promises, the Company’s management utilizes judgment to assess
the nature of the combined performance obligation to determine whether the combined performance obligation is satisfied over time
or at a point in time and, if over time, the estimated performance period and the appropriate method of measuring progress during
the performance period for purposes of recognizing revenue.

The
Company re-evaluates the estimated performance period and measure of progress each reporting period and, if necessary, adjusts
related revenue recognition accordingly. These arrangements often include milestone as well as royalty or profit-share payments,
contingent upon the occurrence of certain future events linked to the success of the asset in development, as well as expense
reimbursements from or payments to the collaboration partner. Because of the 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.

See
Note 5 — “Sato Agreement” for further information regarding license and collaboration revenues.

Cost
of Goods Sold

Cost
of goods sold includes direct and indirect costs related to the manufacture, production, packaging, and distribution of the Company’s
commercial products. These costs primarily consist of manufacturing costs, including allocated overhead, supply costs, third-party
logistics and distribution expenses, quality control and assurance costs, and freight and shipping charges incurred in fulfilling
customer orders.

Additionally,
the Company’s product is subject to strict quality control and monitoring that is performed throughout the manufacturing
process, including release of work-in-process to finished goods. In the event that certain batches or units of product do not
meet quality specifications, the Company records a write-down of any potential unmarketable inventory to its estimated net realizable
value.

As
part of the Merger, certain inventoried items were revalued subject to ASC 805. See Note 3 — “Acquisition of LNHC,
Inc.” for additional detail.

The
amount of expense related to inventory write down as a result of excess, obsolescence, scrap, or other reasons is recorded as
cost of goods sold in the condensed consolidated statements of operations. The Company recorded work-in-process write-offs of
$792 during the three and nine months ended September 30, 2025 related to specification tolerances.

Selling,
General and Administrative Expense

Selling,
general and administrative (“SG&A”) expense consists of personnel and non-personnel expenses to