Alliqua, Inc.

Net loss per basic common share is computed on the basis of the net loss for the period divided by the weighted average number of common shares outstanding during the period. Diluted net loss per share is based upon the weighted average number of common shares and of common share equivalents outstanding when dilutive. Common share equivalents include outstanding stock options, warrants and non-vested restricted stock which are included under the treasury share method when dilutive. In periods when losses are reported, the weighted-average number of common shares outstanding excludes common stock equivalents, because their inclusion would be antidilutive.

In December 2018, we received a grant from the National Institute on Drug Abuse, or NIDA, part of the National Institutes of Health, or NIH, the NIH grant, to support the clinical development of our lead product candidate, brivoligide. NIH grants provide funds for certain types of expenditures in connection with research and development activities over a contractually defined period. The maximum funding to be available under this grant for qualified expenditures over the next two years is expected to be approximately $5.7 million. We started drawing from this NIH grant in February 2019 and recognized $1.9 million and $0 as grant reimbursement contra-expense in our operating expenses for the nine months ended September 30, 2019 and 2018, respectively. We intend to continue to evaluate pursuing additional government grant opportunities on a case-by-case basis. In September 2019, we received a Notice of Award from the National Institute on Neurological Disease and Stroke, or NINDS, part of the NIH, for up to approximately $0.6 million to be paid over 12 months to support our planned preclinical studies of AYX2. The funds will become available after approval from the Office of Laboratory Animal Welfare, or OLAW, of the planned preclinical studies for AYX2, and we have not yet drawn from this NIH grant. We have incurred operating losses in each year since inception, with the exception of 2014, when we received a $20.0 million option payment as part of a strategic collaboration, which was subsequently terminated in 2014. Our net losses were $1.9 million and $1.5 million for the three months ended September 30, 2019 and 2018, respectively, and $9.0 million and $4.5 million, for the nine months ended September 30, 2019 and 2018, respectively. As of September 30, 2019, we had an accumulated deficit of $46.3 million. Substantially all of our operating losses resulted from expenses incurred in connection with our research and development programs and from general and administrative costs associated with our operations.

From time to time, we may publish interim, “top-line,” or preliminary data from our clinical studies. Interim data are data analyzed before completion of enrollment of a clinical trial, and are subject to the risk that one or more of the clinical outcomes may materially change as patient enrollment continues and more patient data become available. “Top-line” or preliminary data from our clinical studies refer to the initial planned analyses of primary and certain key secondary endpoints from clinical trials after enrollment has been completed and the data from the study database is locked. These data remain subject to audit and verification procedures that may result in the final data being materially different from the preliminary data we previously published. As a result, interim, “top-line” and preliminary data should be viewed with caution until the final data are available. Significant changes between preliminary, “top-line,” or interim data and final data could harm our business.

As a result of the restatement and associated non-reliance on our previously issued consolidated statements of operations for the three and six months ended June 30, 2019 and 2018, we have become subject to a number of additional costs and risks, including unanticipated costs for accounting and legal fees in connection with or related to the restatement. In addition, the attention of our management team has been diverted by these efforts. We could also be subject to regulatory, stockholder or other actions in connection with the restatement, which would, regardless of the outcome, consume management’s time and attention and may result in additional legal, accounting, and other costs. If we do not prevail in any such proceedings, we could be required to pay damages or settlement costs. In addition, the restatement and related matters could impair our reputation or could cause our stockholders or counterparties to lose confidence in us. Further, in connection with the restatement, our management may identify additional material weaknesses in our internal control over financial reporting. Any failure of our internal controls could also negatively impact the results of periodic management evaluations required under Section 404 of the Sarbanes-Oxley Act. Our management has previously concluded, including as a result of the restatement, that our disclosure controls and procedures as of June 30, 2019 are not effective at a level that provides reasonable assurance, and may make similar conclusions for future periods. Any of these occurrences could harm our business, results of operations, financial condition, and stock price.

In addition, the price of our securities can vary due to general economic conditions and forecasts, our general business condition and the release of our financial reports. Additionally, because our securities are currently quoted on the OTC Markets, the liquidity and price of our securities may be substantially more limited than if we were quoted or listed on another national securities exchange. You may be unable to sell your securities unless a market can be established or sustained. In the absence of an active trading market for our common stock, stockholders may not be able to sell their common stock at or above the price at which they acquired the shares or at the time that they would like to sell. We cannot predict the prices at which our common stock will trade. We do not intend to apply to list the common stock on any securities exchange or nationally recognized trading system in connection with the offering. In addition, we cannot assure you that we will be able to meet the initial listing standards of any national securities exchange, or, if we do meet such initial qualitative listing standards, that we will be able to maintain any such listing.