1.     Description of Business, the Spin-off and Basis of Presentation

AquaMed Technologies, Inc. (the “Company" or "AquaMed”) manufactures high water content, electron beam cross-linked, aqueous polymer hydrogels, or gels, used for wound care, medical diagnostics, transdermal drug delivery and cosmetics. The Company specializes in custom gels by capitalizing on proprietary manufacturing technologies. The Company has, historically, served as a contract manufacturer, supplying its gels to third parties who incorporate them into their own products.

Recent Developments - The Spin-Off

On June 21, 2019, the Company became an independent company through the pro rata distribution ("Spin-Off") by Adynxx, Inc. (“Parent”), which was known as Alliqua BioMedical, Inc. and subsequently changed its name to Adynxx, Inc. on May 3, 2019, in connection with the closing of a reverse merger between private Adynxx, Inc. and Alliqua BioMedical, Inc., of the Company’s common stock for common stock of Parent. Each record holder of Parent stock as of April 22, 2019, received one share of AquaMed common stock in book-entry form. Shares distributed were 5,005,211. Following the distribution ("Capitalization") all existing operations were distributed to AquaMed with the exception of a corporate lease for property in Yardley, Pennsylvania which was retained by Adynxx. The Company's condensed unaudited financial statements prior to the Spin-Off were prepared on a carve out basis and were derived from the Parents' unaudited condensed consolidated financial statements and accounting records. The condensed financial statements for the three and six months ended June 30, 2019 included herein reflect the AquaMed's financial position, results of operations, and cash flows as the AquaMed's business was operated as part of the Parent's prior to the Capitalization. Following the Capitalization, the condensed financial statements for the three and six months ended June 30, 2019 include the accounts of AquaMed only.

Basis of Presentation

In the opinion of management, the condensed financial statements include all adjustments, which are of a normal recurring nature, necessary to present fairly the Company’s financial position as of June 30, 2019 and results of operations and cash flows for the three and six months ended June 30, 2019 and 2018.These unaudited condensed financial statements should be read in conjunction with the audited financial statements and the notes thereto in the Company’s year-end financial statements for the years ended December 31, 2018 and 2017, as a segment of the Parent, which are included in the Company’s Form 10 filed with SEC on June 14, 2019.

Significant Accounting Policies and Estimates

The Company’s significant accounting policies are disclosed in Note 1 — Description of Business and Basis of Presentation – Significant Accounting Policies and Estimates in the Company’s financial statements for the years ended December 31, 2018 and 2017, as a segment of the Parent, which are included in the Company’s Form 10 filed with SEC on June 14, 2019. There have been no material changes to the Company’s significant accounting policies, except those noted below. The preparation of the condensed financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the condensed financial statements and accompanying notes. These estimates and assumptions include allowance for doubtful accounts, inventory reserves, deferred taxes and related valuation allowances and fair value of long-lived assets. Actual results could differ from the estimates.

Recent Accounting Principles

In February 2016, the FASB issued a new standard related to leases to increase transparency and comparability among organizations by requiring the recognition of operating lease right-of-use (“ROU”) assets and lease liabilities on the balance sheet. Most prominent among the changes in the standard is the recognition of ROU assets and lease liabilities by lessees for those leases classified as operating leases. Under the standard, disclosures are required to meet the objective of enabling users of financial statements to assess the amount, timing, and uncertainty of cash flows arising from leases. The Company is also required to recognize and measure new leases at the adoption date and recognize a cumulative-effect adjustment in the period of adoption using a modified retrospective approach, with certain practical expedients available.

The Company adopted Accounting Standards Codification (“ASC”) 842, “Leases” (“ASC 842”) effective January 1, 2019 and elected to apply the available practical expedients and implemented internal controls and key system functionality to enable the preparation of financial information on adoption. ASC 842 requires the Company to make significant judgments and estimates. As a result, the Company implemented changes to our internal controls related to lease evaluation for the six months ended June 30, 2019. These changes include updated accounting policies affected by ASC 842 as well as redesigned internal controls over financial reporting related to ASC 842 implementation. Additionally, the Company has expanded data gathering procedures to comply with the additional disclosure requirements and ongoing contract review requirements. The standard had an impact on the Company’s condensed balance sheets but did not have an impact on the Company’s condensed statements of operations or condensed statements of cash flows upon adoption. The most significant impact was the recognition of ROU assets and lease liabilities for operating leases, while the Company’s accounting for finance leases remained substantially unchanged. The adoption of ASC 842 did not have a material impact in the current year and prior year comparative periods and as a result, a cumulative-effect adjustment was not required.