(11) Royalty Revenues and Accounts Payable

In March 2017, Merck notified the Company that, during the second and third quarters of 2016, it had made an overpayment to Enzon of approximately $770,000 in royalties (net of a 25% royalty interest that the Company had previously sold). This was due to a previous misunderstanding regarding the date on which the Company’s right to receive royalties from U. S. sales of PegIntron expired, which Merck then advised had occurred in February 2016. Merck notified the Company that it intended to recover such overpayment from the Company by reducing future royalties to which the Company would otherwise be entitled from Merck until the full amount of the overpayment had been recouped. Accordingly, in the December 31, 2016 financial statements, the Company reduced its previously recorded revenues by the net $770,000 overpayment and recorded a corresponding liability to Merck in accounts payable.

During the three-month period ending March 31, 2017, Merck reported net royalties earned by the Company aggregated approximately $636,000 and withheld that amount as a partial recoupment of its overpayment. That left a balance due to Merck of approximately $134,000 at March 31, 2017.

During the second quarter of 2017, Merck reported net royalties earned by the Company of approximately $335,000. From this amount, Merck would have withheld approximately $134,000, as the balance of the recoupment of the previously reported overpayment. This would have left approximately $201,000 as due to the Company.

However, in the second quarter of 2017, Merck notified the Company that they discovered additional overpayments to the Company resulting from the inaccuracy as to the date on which the Company’s right to receive royalties from various countries’ sales of PegIntron expired. Such net overpayment to Enzon aggregated approximately $563,000 in royalties during 2015 and 2016. Merck notified the Company that it intended to recover such overpayment from the Company by reducing future royalties to which the Company would otherwise be entitled from Merck until the full amount of the overpayment had been recouped. Accordingly, in the June 30, 2017 financial statements, the Company reduced its previously recorded revenues by the net $563,000 overpayment. Merck withheld the $201,000 of the royalties otherwise due for the second quarter of 2017 as a partial recoupment. As a result, the Company recorded the $363,000 remaining to be recouped by Merck as a liability to Merck in accounts payable at June 30, 2017.

In the third quarter of 2017, Merck again notified the Company that, based on rebates and returns of PegIntron products, they had deducted approximately $150,000 from aggregate royalties that were otherwise due to Enzon. This resulted in a net amount due to Enzon of $150,000, which was applied by Merck to the $363,000 liability to Merck. As a result, the Company recorded the $213,000 remaining to be recouped by Merck as a liability to Merck in accounts payable at September 30, 2017.