Company: VRCA
Filing Date: 2025-03-11
Form Type: 10-K
Source: 0000950170-25-037172
Chunk: 258

Company: Verrica Pharmaceuticals Inc.
Filing Date: 2025-03-11
Form: 10-K
Item: Item 8
Chunk 258
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 about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

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Accounting for Series A and Series B Warrants Issued in 2024

As described in Notes 1 and 7 to the financial statements, in November 2024 the Company sold shares of its common stock and pre-funded warrants to purchase its common stock. Accompanying each common share and pre-funded warrant were Series A and Series B warrants to purchase common stock. The Company determined that the Series A and Series B warrants were classified as equity.

We identified the assessment of the accounting for the Series A and Series B warrants to purchase common stock issued in November 2024 as a critical audit matter. Challenging auditor judgment was required in assessing whether the Series A and Series B warrants issued should be accounted for as either liabilities or equity instruments due to the interpretation of contract provisions within the warrant agreements and application of complex technical accounting guidance.

The following are the primary procedures we performed to address this critical audit matter. We inspected the agreements related to the Series A and