Company: PTHS
Filing Date: 2025-05-09
Form Type: PREM14C
Source: 0001140361-25-018219
Chunk: 526

Company: Pelthos Therapeutics Inc.
Filing Date: 2025-05-09
Form: PREM14C
Chunk 526
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Accounts receivable, other current assets, accounts payable, accrued expenses, operating lease liabilities and other long-term liabilities (Reedy Creek liability) are financial instruments and are recorded at cost in the balance sheets.

The estimated fair value of Reedy Creek liability as of December 31, 2024, was $19,100 compared to a carrying value of $15,939. The estimated fair value of Reedy Creek liability as of December 31, 2023, approximates its carrying value. The fair value of Reedy Creek liability is classified as Level 3 within the fair value hierarchy (Unobservable inputs in which there is little or no market data, which require the Company to develop its own assumptions) since it is determined based upon inputs that are both significant and unobservable. This liability was fair valued based on the discounted cash flow method that estimated the present value of the potential royalties, milestones, and collaboration revenue streams derived from the related programs mentioned above, by applying a discount rate of 14% (revenue risk-adjusted discount rate).

The estimated fair value of the remaining financial instruments approximates their carrying value as of December 31, 2024, and 2023.

#### Revenue Recognition
To determine revenue recognition for arrangements with customers, the Company performs the following five steps: (i) identify the contracts with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the entity satisfies a performance obligation.

The Company only applies the five-step model to contracts when it is probable that the entity will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer. At contract inception, the Company assesses the goods or services promised to a customer within each contract and determines those that are performance obligations and assesses whether each promised good or service is distinct. The Company then recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied.

Upon the occurrence of a contract modification, the Company conducts an evaluation pursuant to the modification framework in Topic 606 to determine the appropriate revenue recognition. The framework centers around key questions, including (i) whether the modification adds additional goods and services, (ii) whether those goods and services are distinct, and (iii) whether the contract price increases by an amount that reflects the standalone selling price for