Company: PTHS
Filing Date: 2025-11-13
Form Type: 10-Q
Source: 0001753926-25-001764
Chunk: 48

Company: Pelthos Therapeutics Inc.
Filing Date: 2025-11-13
Form: 10-Q
Item: Part I, Item 1
Chunk 48
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alty, Ligand will receive a 1.36% royalty and Madison will receive a 1.2% royalty on Net Sales of the Channel Covered Products
worldwide, and (ii) NRV will receive 12.23%, Ligand will receive 3.92% and Madison will receive 3.46% of non-royalty sublicensing
payments received by Pharmaceutical Sub for its sublicensing of rights to the Channel Covered Products worldwide. The Initial
Royalty Term is defined as, on a country-by-country basis, the period of time commencing on the Effective Date and continuing
until the expiration or termination of the last to expire valid claim of the patents that cover the Channel Covered Products.

The
Company concluded that the ZELSUVMI Royalty Agreement represents a sale of future revenues under ASC 470, Debt (“ASC 470”)
as the agreement does not convey to the counterparty any rights to the intellectual property underlying ZELSUVMI and the Company
will continue to have significant ongoing involvement in the generation of the royalties due to the counterparties.

The
Company concluded that the Channel Products Royalty Agreement represents an R&D funding arrangement under ASC 730-20 in which
it is presumed probable that the Company will repay the funding due to the significant related party relationship with the counterparties.
Therefore, the Company accounts for the obligation to repay as a liability consistent with ASC 470.

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The
Company will account for royalties due as liabilities and will accrete the financing using the effective interest method based
on estimated and actual cash flows payable to the counterparties over the estimated life of the Royalty Agreements. At the effective
date of the Royalty Agreements, the effective annual interest rate of the financing was estimated and contains significant assumptions
that affect both the amount recorded at the effective date and the interest expense that will be recognized over the term of the
Royalty Agreements. The Company periodically assesses the estimated royalty payments and to the extent the amount or timing of
such payments is materially different than the original estimates, an adjustment is made to the effective interest rate, which
will be recorded prospectively to increase or decrease interest expense. There are a number of factors that could materially affect
the amount and timing of royalty payments and the amount of interest expense recorded by the Company over the term. Such factors
include, but are not limited to, volumes of revenue generated by ZELSUVMI, delays or discontinuation of development and commercialization
of Channel Covered