Significant Accounting Policies	9 Months Ended
Sep. 30, 2022
Significant Accounting Policies
Significant Accounting Policies	2. Significant Accounting Policies Basis of presentation The accompanying unaudited interim condensed consolidated financial statements have been prepared in accordance with U.S. GAAP and are the responsibility of the Company’s management. These unaudited interim condensed consolidated financial statements do not include all of the information and notes required by U.S. GAAP for annual financial statements. Accordingly, these unaudited interim condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and notes filed with the Securities and Exchange Commission (“SEC”) in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021. The Company’s accounting policies are consistent with those presented in the audited consolidated financial statements included in the Annual Report on Form 10-K for the year ended December 31, 2021. These unaudited interim condensed consolidated financial statements have been prepared in U.S. dollars. All amounts presented are in thousands except for per share amounts. The results of operations for the three and nine months ended September 30, 2022 are not necessarily indicative of results to be expected for the full fiscal year. Use of estimates The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that impact the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the interim condensed consolidated financial statements and the reported amounts of expense during the reporting period. Actual results could differ from those estimates. In the opinion of management, these unaudited interim condensed consolidated financial statements include all adjustments, which are normal and recurring in nature, necessary for the fair presentation of the Company’s financial position at September 30, 2022 and to state fairly the results for the periods presented. The most significant estimates utilized during the three and nine months ended September 30, 2022 include estimates necessary to value grants of various equity instruments to employees and contractors and the warrants issued to the Creditor, as disclosed in Note 4. New accounting pronouncements The Company did not adopt any new accounting pronouncements during the quarter ended September 30, 2022. Cash and cash equivalents Cash equivalents consist of highly liquid investments with original maturities at the date of purchase of three months or less. The Company places its cash and cash equivalents in investments held by highly rated financial institutions in accordance with its investment policy designed to protect the principal investment. At September 30, 2022, the Company had $29,752 in cash, savings and money market accounts ($21,100 at December 31, 2021). At September 30, 2022, the Company held $438 in cash of which $33 (as presented in U.S. dollars) was in Canadian dollars ($34 at December 31, 2021 as presented in U.S. dollars). At September 30, 2022, the Company held $29,314 in money market investments. Money market investments typically have minimal risks. While the Company has not experienced any loss or write-down of its money market investments, the amounts it holds in money market accounts are substantially above the $250 amount insured by the FDIC and may lose value. Inventory Inventory is stated at the lower of cost or estimated net realizable value with cost determined under the first-in first-out method. Inventory costs include third-party contract manufacturing, third-party packaging services and freight. At this time, we primarily use actual costs to determine the cost basis for inventory. The determination of whether inventory costs will be realizable requires management review of the expiration dates of PEDMARK^® compared to our forecasted sales. If actual market conditions are less favorable than projected by management, write-downs of inventory may be required, which would be recorded as cost of goods sold in the condensed consolidated statement of operations. Prior to FDA approval of PEDMARK^®, we incurred expenses for the manufacture of PEDMARK^® that could potentially be available to support the commercial launch of our products. We will begin to capitalize inventory costs associated with PEDMARK during the fourth quarter of 2022. Management could not determine that FDA approval was probable in advance of the actual event and therefore, could not determine whether its product inventory had a probable future economic benefit. As a result, we did not capitalize any pre-launch inventory. Financial instruments Financial instruments recognized on the balance sheets at September 30, 2022 and December 31, 2021 consist of cash and cash equivalents, common shares of Processa Pharmaceuticals, Inc., accounts payable and accrued liabilities, the carrying values of which approximate fair value due to their relatively short time to maturity. The Company does not hold or issue financial instruments for trading. The Company’s investment policy is to manage investments to achieve, in the order of importance, the financial objectives of preservation of principal, liquidity and return on investment. Investments, when made, are made in U.S. or Canadian bank securities, commercial paper of U.S. or Canadian industrial companies, utilities, financial institutions and consumer loan companies, and securities of foreign banks provided the obligations are guaranteed or carry ratings appropriate to the policy. Securities must have a minimum Dun & Bradstreet rating of A for bonds or R1 low for commercial paper. The policy risks are primarily the opportunity cost of the conservative nature of the allowable investments. As our main purpose is preservation of capital while we endeavor to become cash flow positive through the sale of product, we have chosen to avoid investments of a trading or speculative nature. Securities must have a minimum Dun & Bradstreet rating of A for bonds or R1 low for commercial paper. The policy also provides for investment limits on concentrations of securities by issuer and a maximum-weighted average time to maturity of twelve months. Product revenue, net The Company received FDA approval of PEDMARK^® on September 20, 2022, and will begin recognizing product revenues after the initial product launch of PEDMARK^® in October 2022.

Significant Accounting Policies

9 Months Ended

Sep. 30, 2022

2. Significant Accounting Policies

Basis of presentation

The accompanying unaudited interim condensed consolidated financial statements have been prepared in accordance with U.S. GAAP and are the responsibility of the Company’s management. These unaudited interim condensed consolidated financial statements do not include all of the information and notes required by U.S. GAAP for annual financial statements. Accordingly, these unaudited interim condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and notes filed with the Securities and Exchange Commission (“SEC”) in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021. The Company’s accounting policies are consistent with those presented in the audited consolidated financial statements included in the Annual Report on Form 10-K for the year ended December 31, 2021. These unaudited interim condensed consolidated financial statements have been prepared in U.S. dollars. All amounts presented are in thousands except for per share amounts. The results of operations for the three and nine months ended September 30, 2022 are not necessarily indicative of results to be expected for the full fiscal year.

Use of estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that impact the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the interim condensed consolidated financial statements and the reported amounts of expense during the reporting period. Actual results could differ from those estimates.

In the opinion of management, these unaudited interim condensed consolidated financial statements include all adjustments, which are normal and recurring in nature, necessary for the fair presentation of the Company’s financial position at September 30, 2022 and to state fairly the results for the periods presented. The most significant estimates utilized during the three and nine months ended September 30, 2022 include estimates necessary to value grants of various equity instruments to employees and contractors and the warrants issued to the Creditor, as disclosed in Note 4.

New accounting pronouncements

The Company did not adopt any new accounting pronouncements during the quarter ended September 30, 2022.

Cash and cash equivalents

Cash equivalents consist of highly liquid investments with original maturities at the date of purchase of three months or less. The Company places its cash and cash equivalents in investments held by highly rated financial institutions in accordance with its investment policy designed to protect the principal investment. At September 30, 2022, the Company had $29,752 in cash, savings and money market accounts ($21,100 at December 31, 2021). At September 30, 2022, the Company held $438 in cash of which $33 (as presented in U.S. dollars) was in Canadian dollars ($34 at December 31, 2021 as presented in U.S. dollars). At September 30, 2022, the Company held $29,314 in money market investments. Money market investments typically have minimal risks. While the Company has not experienced any loss or write-down of its money market investments, the amounts it holds in money market accounts are substantially above the $250 amount insured by the FDIC and may lose value.

Inventory

Inventory is stated at the lower of cost or estimated net realizable value with cost determined under the first-in first-out method. Inventory costs include third-party contract manufacturing, third-party packaging services and freight. At this time, we primarily use actual costs to determine the cost basis for inventory. The determination of whether inventory costs will be realizable requires management review of the expiration dates of PEDMARK^® compared to our forecasted sales. If actual market conditions are less favorable than projected by management, write-downs of inventory may be required, which would be recorded as cost of goods sold in the condensed consolidated statement of operations.

Prior to FDA approval of PEDMARK^®, we incurred expenses for the manufacture of PEDMARK^® that could potentially be available to support the commercial launch of our products. We will begin to capitalize inventory costs associated with PEDMARK during the fourth quarter of 2022. Management could not determine that FDA approval was probable in advance of the actual event and therefore, could not determine whether its product inventory had a probable future economic benefit. As a result, we did not capitalize any pre-launch inventory.

Financial instruments

Financial instruments recognized on the balance sheets at September 30, 2022 and December 31, 2021 consist of cash and cash equivalents, common shares of Processa Pharmaceuticals, Inc., accounts payable and accrued liabilities, the carrying values of which approximate fair value due to their relatively short time to maturity. The Company does not hold or issue financial instruments for trading.

The Company’s investment policy is to manage investments to achieve, in the order of importance, the financial objectives of preservation of principal, liquidity and return on investment. Investments, when made, are made in U.S. or Canadian bank securities, commercial paper of U.S. or Canadian industrial companies, utilities, financial institutions and consumer loan companies, and securities of foreign banks provided the obligations are guaranteed or carry ratings appropriate to the policy. Securities must have a minimum Dun & Bradstreet rating of A for bonds or R1 low for commercial paper.

The policy risks are primarily the opportunity cost of the conservative nature of the allowable investments. As our main purpose is preservation of capital while we endeavor to become cash flow positive through the sale of product, we have chosen to avoid investments of a trading or speculative nature. Securities must have a minimum Dun & Bradstreet rating of A for bonds or R1 low for commercial paper. The policy also provides for investment limits on concentrations of securities by issuer and a maximum-weighted average time to maturity of twelve months.

Product revenue, net

The Company received FDA approval of PEDMARK^® on September 20, 2022, and will begin recognizing product revenues after the initial product launch of PEDMARK^® in October 2022.