Alpha Cognition Inc. Revenue Disclosure

Revenue Recognition – Revenue is recognized when a customer obtains control of promised goods or services, in an amount that reflects the consideration the Company expects to receive in exchange for those goods or services. The Company applies the following five-step revenue recognition model in accordance with ASC Topic 606, Revenue from Contracts with Customers, to determine revenue:

At contract inception, the Company identifies the goods or services promised in the contract and assesses whether each is distinct for the purpose of identifying performance obligations. A promised good or service is distinct if (1) the customer can benefit from the good or service either on its own or together with other resources that are readily available to the customer; and (2) the Company’s promise to transfer the good or service to the customer is separately identifiable from other promises in the contract.

Arrangements that include rights to additional goods or services that are exercisable at a customer’s discretion are generally considered options. The Company evaluates whether such options provide a material right to the customer. If so, they are treated as separate performance obligations.

The transaction price of a customer contract is determined and allocated to the identified performance obligations in proportion to their standalone selling prices (“SSP”). SSP is determined at contract inception and is not updated to reflect changes between contract inception and when the performance obligations are satisfied. Judgment is required in estimating SSP, and the Company considers market conditions, entity-specific factors, and estimated costs in making this determination.

If the consideration includes a variable amount, the Company estimates the amount to which it expects to be entitled using either the expected value or the most likely amount method, depending on which better predicts the outcome. The estimated amount is included in the transaction price only to the extent it is probable that a significant reversal of cumulative revenue will not occur when the uncertainty is resolved. The Company re-evaluates estimates and constraints at each reporting date and adjusts the transaction price accordingly, recording any changes on a cumulative catch-up basis.

Revenue is recognized when the Company satisfies a performance obligation, either at a point in time or over time. The amount of revenue recognized is based on the portion of the transaction price allocated to each performance obligation in accordance with its relative SSP. For obligations satisfied over time, revenue is recognized using an input or output method, depending on which most accurately depicts the transfer of control to the customer.

Product Sales, Net

Products are primarily sold to direct customers such as wholesalers and pharmacies. The Company’s contractual performance obligations are generally limited to the transfer of control of the product to the customer. For ZUNVEYL tablets provided to customers, revenue is recognized at the point in time when control of the goods transfers to the customer. The Company’s contracts typically stipulate F.O.B. (Free on Board) destination terms. Consequently, revenue is recognized when the drugs are delivered to the customer’s location or any destination designated by the customer for drop-shipment. This arrangement is not a consignment arrangement, and therefore, the Company recognizes revenue upon the delivery of goods to the customer. The Company’s payment terms to customers range from 30 to 68 days; payment terms differ by customer.

Revenue from the Company’s product sales is reduced for expected prompt pay discounts, chargebacks, product returns, recalls, rebates, and consideration payable to customers, collectively referred to as gross-to-net (GTN) adjustments. Estimates of GTN adjustments are based various factors such as historical experience, projected market conditions, production expiration dates, analogs and the specific terms of the Company’s agreements with payers and customers. Variable consideration is re-evaluated at least on a quarterly basis and typically monthly. The amount of variable consideration can vary from period to period due to fluctuations in GTN components.

Consideration payable to customers includes fees paid to distributors that are calculated as a percentage of monthly product sales based on the Wholesale Acquisition Cost (WAC). These fees are paid to distributor customers for services such as access to inventory and sales data to pharmacies, inventory management, accounts receivable administration, and return and chargeback administration. Fees paid to distributors for services that are integral activities within the distribution chain with the customer, specifically related to the Company’s sales of ZUNVEYL, are recognized as a reduction of revenue since these activities are not considered distinct from the Company’s promise to sell ZUNVEYL through the distribution channel to end customers. Fees paid to customers for services that transfer a distinct service to the Company, such as logistics services, are recorded as operating expenses.

Licensing Revenue

In licensing arrangements, the identification of performance obligations considers factors such as the partner’s capabilities and the availability of required expertise in the marketplace. The intended benefit of the contract is also considered in determining whether a promised good or service is separately identifiable. If a good or service is not distinct, it is combined with other promised goods or services until a distinct bundle is identified.

For arrangements that include development or regulatory milestone payments, the Company evaluates whether achieving the milestone is probable and recognizes revenue only if a significant reversal is not expected. Regulatory milestones that are outside the control of either party are generally excluded from the transaction price until achieved.

For licenses of intellectual property that include sales-based royalties or milestones, and when the license is the predominant item to which the royalties relate, the Company recognizes royalty revenue at the later of (i) when the related sales occur, or (ii) when the performance obligation to which the royalty has been allocated has been satisfied, consistent with the sales-based royalty exception.