Alliqua BioMedical, Inc. (Form: 10-Q, Received: 08/11/2014 11:31:33)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)
þ	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended: June 30, 2014

OR

o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________ to ___________

Commission file number: 001-36278

Alliqua Biomedical, Inc.

(Exact name of Registrant as specified in its charter)

Delaware		58-2349413
(State or other jurisdiction of incorporation)		(I.R.S. Employer Identification Number)

2150 Cabot Blvd. West
Langhorne, PA		19047
(Address of principal executive office)		(Zip Code)

Registrant’s telephone number, including area code: (215) 702-8550

Alliqua, Inc.

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	o	Accelerated filer	o
Non-accelerated filer	o	Smaller reporting company	þ
(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

The number of shares of the registrant’s common stock, $0.001 par value, outstanding as of August 6, 2014 was 16,190,576.

TABLE OF CONTENTS

	PART I – FINANCIAL INFORMATION
Item 1.	Financial Statements
	Condensed Consolidated Balance Sheets as of June 30, 2014 and December 31, 2013	3
	Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2014 and 2013	4
	Condensed Consolidated Statement of Stockholders’ Equity for the Six Months Ended June 30, 2014	5
	Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2014 and 2013	6

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	21
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	26
Item 4.	Controls and Procedures	27

	PART II – OTHER INFORMATION

Item 1.	Legal Proceedings	27
Item 1A.	Risk Factors	27
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	28
Item 3.	Defaults Upon Senior Securities	28
Item 4.	Mine Safety Disclosures	28
Item 5.	Other Information	28
Item 6.	Exhibits	28

PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

ALLIQUA BIOMEDICAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

	June 30,			December 31,
	2014			2013
	(Unaudited)
ASSETS:
Current Assets:
Cash and cash equivalents	$	23,785,430		$	12,100,544
Accounts receivable		474,387			156,831
Inventory, net		940,715			501,469
Prepaid expenses and other current assets		88,644			88,390
Total current assets		25,289,176			12,847,234
Improvements and equipment, net		1,591,189			1,745,248
Intangible assets, net		4,852,633			2,258,477
Goodwill		4,100,295			425,969
Other assets		174,640			174,640
Total assets	$	36,007,933		$	17,451,568

LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable	$	1,565,850		$	746,609
Accrued expenses		1,695,999			1,267,899
Payable for distribution rights		133,333			333,333
Deferred revenue		39,000			39,000
Warrant liability		329,150			933,465
Deferred lease incentive liability - current		8,337			8,337
Other current liabilities		1,785			24,821
Total current liabilities		3,773,454			3,353,464
Contingent consideration		2,700,000			-
Deferred lease incentive liability, net of current		88,239			92,408
Deferred tax obligation		60,000			53,000
Total liabilities		6,621,693			3,498,872

Commitments and Contingencies

Stockholders' Equity
Preferred Stock, par value $0.001 per share, 1,000,000 shares authorized, no shares issued and outstanding		-			-
Common Stock, par value $0.001 per share, 45,714,286 shares authorized; 16,184,870 and 11,484,191 shares issued and outstanding as of June 30, 2014 and December 31, 2013, respectively		16,185			11,484
Additional paid-in capital		88,957,725			58,538,491
Accumulated deficit		(59,587,670	)		(44,597,279	)
Total stockholders' equity		29,386,240			13,952,696
Total liabilities and stockholders' equity	$	36,007,933		$	17,451,568

The accompanying notes are an integral part of these condensed consolidated financial statements.

ALLIQUA BIOMEDICAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

	Three Months Ended June 30,						Six Months Ended June 30,
	2014			2013			2014			2013

Revenue, net of returns, allowances and discounts	$	1,037,448		$	499,129		$	1,628,023		$	890,926

Cost of revenues		836,715			479,828			1,468,414			932,850

Gross profit (loss)		200,733			19,301			159,609			(41,924	)

Operating expenses

Selling, general and administrative, (inclusive of stock-based compensation compensation of $1,951,631 and $7,095,946 for the three month and six month periods ended June 30, 2014 and $1,409,657 and $2,401,568 for the three and six month periods ended June 30, 2013 - see Note 9)		5,956,091			2,392,705			14,602,635			4,436,228
Research and product development		-			27,973			-			29,602
Acquisition-related expenses		419,658			-			485,640			-
Total operating expenses		6,375,749			2,420,678			15,088,275			4,465,830

Loss from operations		(6,175,016	)		(2,401,377	)		(14,928,666	)		(4,507,754	)

Other income (expense)
Interest expense		(92	)		(1,331	)		(384	)		(2,755	)
Interest income		9,429			15			13,976			44
Change in value of warrant liability		214,950			316,350			(68,317	)		(276,713	)
Total other income (expense)		224,287			315,034			(54,725	)		(279,424	)

Loss before income tax provision		(5,950,729	)		(2,086,343	)		(14,983,391	)		(4,787,178	)

Income tax provision		3,500			3,000			7,000			6,000

Net loss	$	(5,954,229	)	$	(2,089,343	)	$	(14,990,391	)	$	(4,793,178	)

Basic and diluted net loss per common share	$	(0.39	)	$	(0.33	)	$	(1.08	)	$	(0.78	)

Weighted average shares used in computing basic and diluted net loss per common share		15,243,718			6,269,476			13,822,858			6,120,546

The accompanying notes are an integral part of these condensed consolidated financial statements.

ALLIQUA BIOMEDICAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY

FOR THE SIX MONTHS ENDED JUNE 30, 2014

(UNAUDITED)

	Common Stock						Additional Paid-in			Accumulated			Total Stockholders'
	Shares			Amount			Capital			Deficit			Equity
Balance, December 31, 2013		11,484,191		$	11,484		$	58,538,491		$	(44,597,279	)	$	13,952,696

Issuance of common stock for the purchase of Choice Therapeutics, Inc.		274,771			275			2,002,806			-			2,003,081

Issuance of common stock for cash, net of issuance costs of $602,500		2,139,287			2,139			14,370,364			-			14,372,503

Exercise of common stock options, net of tendered shares		271,505			271			1,218,890			-			1,219,161

Exercise of warrants, net of issuance costs of $267,174		953,813			954			5,124,993			-			5,125,947

Cashless exercise of warrants		211,295			211			(211	)		-			-

Extinguishment of warrant liability		-			-			672,632			-			672,632

Issuance of common stock for services		21,653			22			185,312			-			185,334

Stock-based compensation (A)		836,491			837			7,296,817			-			7,297,654

Net settlement on vesting of restricted stock awards		(57,104	)		(57	)		(452,320	)		-			(452,377	)

Warrant exchange		48,968			49			(49	)		-			-

Net loss		-			-			-			(14,990,391	)		(14,990,391	)

Balance, June 30, 2014		16,184,870		$	16,185		$	88,957,725		$	(59,587,670	)	$	29,386,240

(A)

Includes $307,189 that was part of accrued expenses as of December 31, 2013 and for the year then ended, which was credited to equity upon the issuance of 34,086 restricted common shares during the six months ended June 30, 2014.

The accompanying notes are an integral part of these condensed consolidated financial statements.

ALLIQUA BIOMEDICAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

SIX MONTHS ENDED JUNE 30, 2014 AND 2013

(UNAUDITED)

	Six Months Ended June 30,
	2014			2013
Cash Flows From Operating Activities
Net loss	$	(14,990,391	)	$	(4,793,178	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		457,832			326,655
Amortization of deferred lease incentive		(4,169	)		-
Deferred income taxes		7,000			6,000
Provision for inventory obsolescence		(36,588	)		(4,363	)
Stock-based compensation expense		6,990,465			1,824,438
Stock issued for services rendered		185,334			577,130
Change in value of warrant liability		68,317			276,713
Fair value of rent provided by related party		-			24,000
Changes in operating assets and liabilities:
Accounts receivable		(305,969	)		(75,949	)
Inventory		(5,697	)		(74,066	)
Prepaid expenses and other current assets		(254	)		52,712
Accounts payable		755,975			(14,889	)
Accrued expenses and other current liabilities		503,919			221,287
Deferred revenue		-			39,000
Net Cash Used in Operating Activities		(6,374,226	)		(1,614,510	)

Cash Flows From Investing Activities
Payment for distribution rights		(200,000	)		-
Purchase of improvements and equipment		(6,596	)		(2,987	)
Acquisition of business, net of $474 cash acquired		(1,999,526	)		-
Net Cash Used in Investing Activities		(2,206,122	)		(2,987	)

Cash Flows From Financing Activities
Net proceeds from issuance of common stock		14,372,503			3,291,293
Proceeds from the exercise of stock options		1,219,161			-
Proceeds from the exercise of warrants		5,125,947			-
Payment of withholding taxes related to stock-based employee compensation		(452,377	)		-
Net Cash Provided by Financing Activities		20,265,234			3,291,293

Net Increase in Cash and Cash Equivalents		11,684,886			1,673,796

Cash and Cash Equivalents - Beginning of period		12,100,544			260,357

Cash and Cash Equivalents - End of period	$	23,785,430		$	1,934,153

Supplemental Disclosure of Cash Flows Information
Cash paid during the period for:
Interest	$	384		$	2,755
Non-cash investing and financing activities:
Cashless warrant exercise	$	672,632		$	-
2013 Bonus awarded in equity		307,189			-
Warrant exchange		49			-
Acquisition of business:
Current assets, excluding cash and cash equivalents	$	408,548		$	-
Intangibles		2,683,000			-
Goodwill		3,674,326			-
Liabilities assumed		(63,267	)		-
Contingent consideration		(2,700,000	)		-
Issuance of common stock for acquisition		(2,003,081	)		-

The accompanying notes are an integral part of these condensed consolidated financial statements.

ALLIQUA BIOMEDICAL, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Description of Business and Basis of Presentation

Alliqua Biomedical, Inc. (the “Company”) is a provider of advanced wound care solutions. The Company’s primary business strategy is to create superior outcomes for patients, providers, and partners through its hydrogel technology platform and licensed and proprietary products. Core businesses include advanced wound care and contract manufacturing. The Company seeks to leverage its proprietary hydrogel and licensed technology platform to add value to its own products and those of its partners.

On May 5, 2014, the Company acquired Choice Therapeutics, Inc. (“Choice”), a privately held wound care company.

On June 5, 2014, the Company’s shareholders approved an agreement and plan of merger between the Company and its wholly-owned Delaware subsidiary, Alliqua Biomedical, Inc., pursuant to which the Company merged with and into Alliqua Biomedical, Inc. for the sole purpose of changing the Company’s name to Alliqua Biomedical, Inc. and state of domicile from Florida to Delaware.

Basis of Presentation

The condensed consolidated financial statements contained in this report are unaudited. In the opinion of management, the condensed consolidated 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, 2014 and results of operations for the three and six months ended June 30, 2014, and cash flows for the six months ended June 30, 2014. While management believes that the disclosures presented are adequate to make the information not misleading, these unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the notes thereto in the Company’s latest year-end financial statements, which are included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2013 (the “2013 Annual Report”). The results of the Company’s operations for any interim period are not necessarily indicative of the results of operations for any other interim period or for the full year.

Principles of Consolidation

The accompanying condensed consolidated financial statements include the financial statements of the Company and its wholly-owned subsidiaries, AquaMed Technologies, Inc., HepaLife Biosystems, Inc. and Choice Therapeutics, Inc. All significant inter-company transactions and accounts have been eliminated in consolidation.

Reclassifications

Certain amounts in prior periods have been reclassified to conform to the current year presentation. Such reclassifications did not have a material effect on the Company’s financial condition or results of operations as previously reported.

Significant Accounting Policies and Estimates

The Company’s significant accounting policies are disclosed in Note 3 — Summary of Significant Accounting Policies in the 2013 Annual Report. Since the date of the 2013 Annual Report, there have been no material changes to the Company’s significant accounting policies. The preparation of the condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. These estimates and assumptions include valuing equity securities and derivative financial instruments issued in financing transactions, account receivable reserves, inventory reserves, deferred taxes and related valuation allowances, and the fair values of long lived assets, intangibles, goodwill and contingent consideration. Actual results could differ from the estimates.

Recent Accounting Pronouncements

In June 2014, the FASB issued Accounting Standards Update 2014-12, “Compensation — Stock Compensation: Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period” (“ASU 2014-12”). ASU 2014-12 requires that a performance target that affects vesting of share-based payments and that could be achieved after the requisite service period be treated as a performance condition the affects vesting and as such, should not be reflected in estimating the grant-date fair value of the award. ASU 2014-12 is effective for annual and interim periods beginning after December 15, 2015. This standard is not expected to have a material effect on the Company’s financial position, results of operations or cash flows.

2. Net Loss Per Common Share

Basic net loss per common share is computed based on the weighted average number of shares of common stock outstanding during the periods presented. Common stock equivalents, consisting of warrants, stock options, non-vested restricted stock units (“RSUs”), and non-vested shares of restricted stock were not included in the calculation of the diluted loss per share because their inclusion would have been anti-dilutive.

The total common shares issuable upon the exercise of stock options, warrants, non-vested restricted stock units, and non-vested restricted stock are as follows:

	As of June 30,
	2014		2013
Stock options		4,609,701		3,162,117
Warrants		2,698,621		2,025,456
Non-vested restricted stock units		-		70,753
Non-vested restricted stock		280,497		-
Total		7,588,819		5,258,326

Acquisitions

On May 5, 2014, the Company acquired all outstanding equity interest of Choice Therapeutics, Inc., a provider of innovative wound care products using proprietary Therabond 3D® Antimicrobial Barrier Systems.

The Company’s initial cash payment for this acquisition was $2.0 million and approximately $2.0 million in stock. In addition to the initial cash payment, the Company may pay up to $5.0 million in contingent consideration which may be earned based upon the acquired company achieving specific performance metrics over the next three twelve month periods ended April 30, 2017. See Note 12 – Fair Value Measurement for details related to fair value of the contingent consideration.

The assets and liabilities of the acquired business were included in the Company’s condensed consolidated balance sheet based upon estimated fair values on the date of acquisition as determined in a preliminary purchase price allocation, using available information and making assumptions management believes are reasonable. The Company is still in the process of completing its valuation of the assets, both tangible and intangible, and liabilities acquired. The condensed consolidated statements of operations include the results of the Choice operations beginning May 6, 2014. The Company’s preliminary allocation of purchase price for this acquisition is included in the table below, which summarizes the estimated fair value of the assets acquired and liabilities assumed at the date of acquisition:

Consideration:
Common stock	$	2,003,081
Cash paid		2,000,000
Fair value of contingent consideration		2,700,000
Total consideration		6,703,081

Cash and cash equivalents		474
Inventory		396,961
Other assets		11,587
Tradenames		111,000
Technology		2,396,000
Customer relationships		176,000
Goodwill		3,674,326
Other liabilities		(63,267	)
Net assets acquired	$	6,703,081

The amortization period of intangible assets acquired ranges from 3 to 12 years. The Company recorded approximately $3.7 million of goodwill in connection with this acquisition, reflecting the strategic fit and revenue and earnings growth potential of this business.

Revenues included in the condensed consolidated statement of operations for each of the three and six month periods ended June 30, 2014 from this acquisition for the period subsequent to the closing of the transaction was approximately $323,000. Loss from operations included in the consolidated statement of operations for each of the three and six month periods ended June 30, 2014 from this acquisition for the period subsequent to the closing of the transaction was approximately $16,000.

The following unaudited pro forma results of operations for the three and six months ended June 30, 2014 and 2013 assumes that the above acquisition was made at the beginning of the year prior to the acquisition. The pro forma results were calculated applying the Company’s accounting policies and reflect the elimination of transaction costs related to the acquisition that were included in the Company’s results of operations for the three and six month periods ended June 30, 2014. The unaudited pro forma information does not purport to be indicative of the results that would have been obtained if the acquisitions had actually occurred at the beginning of the year prior to acquisition, nor of the results that may be reported in the future.

	Pro forma Results for the						Pro forma Results for the
	Three Months Ended June 30,						Six Months Ended June 30,
	2014			2013			2014			2013

Revenues	$	1,266,610		$	922,703		$	2,317,819		$	1,754,818

Income from operations	$	(6,659,115	)	$	(2,583,431	)	$	(15,784,825	)	$	(4,852,496	)

During the three and six month periods ended June 30, 2014, the Company incurred acquisition-related costs of approximately $420,000 and $486,000, respectively, in connection with due diligence, professional fees, and other expenses related to the completed acquisition.

Inventory

Inventory consists of the following:

	June 30, 2014			December 31, 2013

Raw materials	$	156,900		$	174,176
Work in process		430,522			57,030
Finished goods		393,285			346,843
Less: Inventory reserve		(39,992	)		(76,580	)
Total	$	940,715		$	501,469

Improvements and Equipment, net

Improvements and equipment consist of the following:

	Useful Life	June 30, 2014			December 31, 2013
	(Years)
Machinery and equipment	10	$	2,869,453		$	2,869,453
Office furniture and equipment	3-10		51,440			44,844
Leasehold improvements	(A)		228,021			228,021
			3,148,914			3,142,318
Less: Accumulated depreciation and amortization			(1,557,725	)		(1,397,070	)
Improvements and equipment, net		$	1,591,189		$	1,745,248

(A)

Leasehold improvements are amortized over the shorter of the remaining lease term or estimated useful life.

Depreciation and amortization expense was $81,990 and $75,757 for the three months ended June 30, 2014 and 2013, respectively. Depreciation and amortization expense was $160,655 and $151,507 for the six months ended June 30, 2014 and 2013, respectively.

Intangible Assets

The gross carrying amount and accumulated amortization of intangible assets are as follows:

			June 30, 2014
	Useful Life (Years)		Gross Amount		Accumulated Amortization			Impairment		Net Carrying Amount

Technology		10	$	5,396,000	$	(1,664,933	)	$	-	$	3,731,067
Customer relationships		12		776,000		(274,093	)		-		501,907
Distribution rights		5.27		400,000		(58,785	)		-		341,215
Tradename		3		111,000		(6,167	)		-		104,833
Non-compete		1		208,333		(34,722	)		-		173,611
			$	6,891,333	$	(2,038,700	)	$	-	$	4,852,633

			December 31, 2013
	Useful Life (Years)		Gross Amount		Accumulated Amortization			Impairment			Net Carrying Amount

In process research and development			$	8,100,000	$	-		$	(8,100,000	)	$	-
Technology		10		3,000,000		(1,475,000	)		-			1,525,000
Customer relationships		12		600,000		(245,834	)		-			354,166
Distribution rights		5.27		400,000		(20,689	)		-			379,311
			$	12,100,000	$	(1,741,523	)	$	(8,100,000	)	$	2,258,477

Amortization expense attributable to intangible assets for the three months ended June 30, 2014 and 2013 was $190,629 and $87,500, respectively. Amortization expense attributable to intangible assets for the six months ended June 30, 2014 and 2013 was $297,177 and $175,000, respectively. During the year ended December 31, 2013, the Company recognized an impairment charge of $8,100,000 related to its in process research and development.

Accrued Expenses

Accrued expenses consist of the following:

	June 30, 2014		December 31, 2013

Salaries, benefits and incentive compensation	$	1,146,477	$	1,036,771
Professional fees		334,970		83,317
Royalty fees		201,937		-
Inventory		-		127,786
Other		12,615		20,025
Total accrued expenses	$	1,695,999	$	1,267,899

Commitments and Contingencies

Employment Agreements for Former Employees

On March 14, 2014, a former executive of the Company resigned. Upon the executive’s resignation, the Company entered into a general release and severance agreement with this executive, pursuant to which, the employment agreement between the executive and the Company, dated September 28, 2012 was terminated, except for provisions relating to confidentiality and restrictive covenants. The Company will provide the executive with: (i) payments totaling $385,000; (ii) the full and immediate vesting of all outstanding stock options and RSUs granted to this executive, with such stock options remaining exercisable for a period of two years following the date of resignation; and (iii) continued health insurance coverage during the six-month severance period. Of the total payments due to this executive, $210,000 was related to 2013 performance and included in accrued expenses as of December 31, 2013. The expense of the accelerated vesting of outstanding stock options and RSUs was $873,411 and is included in stock-based compensation for the six months ended June 30, 2014. Severance payments related to this executive of $80,839 are included in accrued expenses as of June 30, 2014.

In March 2014, the Company entered into a general release and severance agreements with two employees, pursuant to which each employee’s employment with the Company was terminated effective immediately. The Company will provide the employees with severance payments totaling $158,875 and accelerated vesting of one tranche of stock options granted to one of the employees, with such options remaining exercisable for a period of 90 days. The expense of the accelerated vesting of stock options was $24,171 and is included in stock-based compensation for the six months ended June 30, 2014. Severance payments for these employees of $68,154 are included in accrued expenses as of June 30, 2014.

Cooperative and License Agreements

On July 15, 2011, the Company entered into a license agreement with Noble Fiber Technologies, LLC, whereby the Company has the exclusive right and license to manufacture and distribute “Silverseal Hydrogel Wound Dressings” and “Silverseal Hydrocolloid Wound Dressings”. The license is granted for ten years with an option to be extended for consecutive renewal periods of two years. An upfront license fee of $100,000 was expensed in 2011 as a selling, general and administrative expense. Royalties are to be paid equal to 9.75% of net sales of licensed products. The agreement calls for minimum royalties to be paid each calendar year as follows: 2013 - $200,000, 2014 - $400,000; 2015 - $500,000; and 2016 - $600,000. Total royalties charged to selling, general and administrative expense for the three months ended June 30, 2014 and 2013 were $100,000 and $50,000, respectively. Total royalties charged to selling, general and administrative expense for the six months ended June 30, 2014 and 2013 were $200,000 and $100,000, respectively. $199,436 is included in accrued expenses as of June 30, 2014 in connection with this agreement.

Sorbion Distributor Agreement

On September 23, 2013, the Company entered into a distributor agreement (the “Sorbion Agreement”) with Sorbion GmbH & Co KG, pursuant to which the Company became the exclusive distributor of sorbion sachet S, sorbion sana and new products with hydrokinetic fibers as primary dressings in the United States, Canada and Latin America, subject to certain exceptions.

The initial term of the agreement ends on December 31, 2018, and will be extended for additional year terms until December 31, 2023, so long as the Company and Sorbion agree in September as to the minimum annual purchase amount for the calendar year that ends four years from the calendar year of such September.

In order to maintain its exclusivity, the Company must purchase the following minimum amounts, in Euros, of the products for the indicated calendar year:

Calendar Year		Minimum Annual Purchase Amount
2014		500,000 Euros
2015		1,000,000 Euros
2016		2,500,000 Euros
2017		4,000,000 Euros

Since the Company must purchase the minimum amounts in Euros, the equivalent U.S. dollar expenditure will be subject to fluctuations in foreign currency exchange rates.

The minimum annual purchase amounts in U.S. Dollars for each calendar year in the period from 2014-2017, based on the exchange rate as of June 30, 2014, are approximately $682,000, $1,365,000, $3,411,000, and $5,460,000, respectively.

If the Company fails to purchase products in amounts that meet or exceed the minimum annual purchase amount for a calendar year, it may cure such minimum purchase failure by paying Sorbion in cash an amount equal to the minimum annual purchase amount for such calendar year less the amount the Company paid to Sorbion for the products purchased for such calendar year. If the Company does not cure a minimum purchase failure with a makeup payment for a calendar year, Sorbion may terminate the Company’s exclusivity with respect to the products and grant the Company non-exclusive rights with respect to the products. If the Company does not cure a minimum purchase failure for two subsequent calendar years, Sorbion may terminate the agreement. The Company will not be required to meet the minimal annual purchase amount if Sorbion fails to supply the Company with the products in accordance with the agreement. Sorbion may also terminate the Company’s exclusivity with respect to the products if the Company does not cure a material breach of the agreement within 30 days.

Carolon Distribution Rights Agreement

In September 2013, the Company entered into an agreement with Carolon Company (“Carolon”) pursuant to which, the Company purchased the distribution rights to the Sorbion sachet and sana products from Carolon. The Company is committed to pay Carolon (i) an aggregate payment of $400,000 in 12 equal monthly payments beginning November 2013, and (ii) if the Company sells at least $600,000 of Sorbion sachet products in the 2014 calendar year, $50,000 in January 2015. This transaction was recorded as the purchase of distribution rights and was recorded as an intangible asset, subject to amortization over the remaining useful life of sixty-three months, and a corresponding liability of $400,000. In consideration of this agreement, an upfront fee of $50,000 for sales and training materials was expensed in the year ended December 31, 2013 as a selling, general and administrative expense. As of June 30, 2014, the balance of distribution rights payable was $133,333.

Celgene License, Marketing and Development and Supply Agreement

In November 2013, the Company entered into a License, Marketing and Development Agreement (the “License Agreement”) with Anthrogenesis Corporation, d/b/a Celgene Cellular Therapeutics (“CCT”), an affiliate of Celgene Corporation (“Celgene”), pursuant to which CCT granted the Company an exclusive, royalty-bearing license in its intellectual property for certain placental based products, including ECMs, an extracellularmatrix derived from the human placenta, and Biovance®, CCT’s proprietary wound coverings produced from decellularized, dehydrated humanamniotic membrane, to develop and commercialize ECMs and Biovance in the United States. Following the commencement of commercial sales of the licensed products, the Company will pay CCT annual license fees, designated amounts when certain milestone events occur and royalties on all sales of licensed products, with such amounts being variable and contingent on various factors. The initial term of the License Agreement ends on November 14, 2023, unless sooner terminated pursuant to the termination rights under the License Agreement, and will extend for additional two-year terms unless either party gives written notice within a specified period prior to the end of a term. The License Agreement may be terminated (i) by CCT if the Company or any of its affiliates challenges the validity, enforceability or scope of certain enumerated CCT patents anywhere in the world; (ii) by either party if there is a final decree that a licensed product infringed on the intellectual property of a third party; (iii) by either party for breach of the License Agreement, if the breach is not cured within a specified period after receiving written notice of the breach; or (iv) by either party if the other party is the subject of insolvency proceedings, either voluntary or involuntary. In addition, the License Agreement is terminable on a product-by-product basis, and not with respect to the entire License Agreement (i) by CCT in the second year of the License Agreement, and by either CCT or the Company in the third year of the License Agreement and beyond, if the Company fails to meet certain sales thresholds and (ii) by either party upon written notice if outside legal counsel recommends discontinuance of commercialization of a product because of significant safety, legal, or economic risk as a result of a claim, demand or action or as a result of a change in the interpretation of law by a governmental or regulatory authority. The License Agreement also contains mutual confidentiality and indemnification obligations for the Company and CCT.

In November 2013, the Company also entered into a Supply Agreement (the “Biovance Supply Agreement”) with CCT, pursuant to which CCT shall supply the Company with the Company’s entire requirements of Biovance for distribution and sale in the United States. The Biovance Supply Agreement will be terminated automatically upon the termination of the License Agreement and may otherwise be terminated (i) by CCT upon six months’ prior written notice, (ii) by the Company upon six months’ prior written notice if CCT fails to deliver at least a specified portion of a firm purchase order by the required delivery date specified in the order on at least a specified number of occasions in a specified period; (iii) by either party for breach of the Biovance Supply Agreement, if the breach is not cured within a specified period after receiving written notice of the breach; or (iv) by either party if the other party is the subject of insolvency proceedings, either voluntary or involuntary. On April 10, 2014, the Company and CCT entered into an amendment to the Biovance Supply Agreement in order to amend the pricing schedule.

On April 10, 2014, the Company entered into a Supply Agreement (the “ECM Supply Agreement”) with CCT, pursuant to which CCT shall, as soon as reasonably practicable after the date that CCT obtains regulatory clearance or approval in the United States for any of CCT’s extracellular matrix products derived from the human placenta (each an “ECM”), supply and sell to the Company all of the Company’s requirements of ECMs, in finished form and final packaging, for exploitation in the United States under the License Agreement. The ECM Supply Agreement will automatically terminate upon the termination or expiration of the License Agreement and may otherwise be terminated (i) by CCT upon six months’ prior written notice, (ii) by the Company upon six months’ prior written notice if CCT fails to deliver at least a specified portion of a firm purchase order by the required delivery date specified in the order on at least a specified number of occasions in a specified period; (iii) by either party for breach of the ECM Supply Agreement, if the breach is not cured within a specified period after receiving written notice of the breach; or (iv) by either party if the other party is the subject of insolvency proceedings, either voluntary or involuntary. The ECM Supply Agreement also contains mutual confidentiality and indemnification obligations for the Company and CCT.

Litigation, Claims and Assessments

The Company is subject to periodic lawsuits, investigations and claims that arise in the ordinary course of business.

On February 27, 2014, ConvaTec Inc. filed suit against the Company and four of its current employees (each a former employee of ConvaTec Inc.), requesting injunctive relief for allegations involving breach of contract, tortious interference with employment agreements, unfair competition and common law conspiracy. ConvaTec Inc. is seeking, among other things, to enjoin the Company from continuing to employ a sales manager who is a former employee of ConvaTec, Inc. in a position related to wound care products and two sales representatives in positions related to wound care products in certain geographic areas.

The Company fully disputes the allegations of ConvaTec Inc. and the relief sought to the fullest extent permitted by the law and believes them to be wholly without merit.

Stockholders’ Equity

Common Stock Issuances

In April 2014, the Company entered into a securities purchase agreement pursuant to which the Company issued an aggregate of 2,139,287 shares of common stock, and five year warrants to purchase an aggregate of 427,858 shares of common stock at an exercise price of $10.50 per share, in exchange for aggregate consideration of approximately $14,975,000. The warrants become exercisable on October 15, 2014. In connection with the financing, the Company paid $598,500 in placement agent fees. Administrative fees for the escrow agent of $4,000 were also deducted from gross proceeds.

2011 Plan

The Company maintains the 2011 Long-Term Incentive Plan (the “2011 Plan”) that provides for the granting of stock options, RSUs, restricted stock and other awards to employees, directors and others. A total of 1,828,571 shares of common stock have been authorized for issuance under the 2011 Plan, of which, as of June 30, 2014, 78,260 shares were available for future issuances.

2014 Plan

On April 10, 2014 and June 5, 2014, the Company’s Board of Directors and the Company’s shareholders approved the 2014 Long-Term Incentive Plan (the “2014 Plan”), respectively. The 2014 Plan provides for the granting of stock options, RSUs, restricted stock and other awards to employees, directors and others. A total of 2,000,000 shares of common stock are reserved for award under the 2014 Plan.

Stock-Based Compensation

The following table summarizes stock-based compensation expense:

	Three Months Ended June 30,					Six Months Ended June 30,
	2014			2013		2014		2013
Options	$	1,445,883		$	819,629	$	4,910,840	$	1,798,642
Warrants		(2,758	)		-		195,033		-
Restricted stock units		-			590,028		180,715		602,926
Restricted stock		571,149			-		1,889,211		-
Total stock-based compensation	$	2,014,274		$	1,409,657	$	7,175,799	$	2,401,568

For the three months ended June 30, 2014, $62,643 of stock-based compensation is included in cost of revenues and $1,951,631 is included in selling, general and administrative expenses in the condensed consolidated statements of operations. For the six months ended June 30, 2014, $79,853 of stock-based compensation is included in cost of revenues and $7,095,946 is included in selling, general and administrative expenses in the condensed consolidated statements of operations. For the three and six months ended June 30, 2013, $1,409,657 and $2,401,568 of stock-based compensation is included in selling, general and administrative expense in the condensed consolidated statements of operations, respectively.

Restricted Stock

The following table summarizes the restricted stock issued as compensation during the six months ended June 30, 2014:

Issuance

Grantee

Vesting

Grant Date

Date

Type

Issued

Term

Value

01/06/14

Officer

369,395

[1]

2,582,072

01/17/14

Consultant

1,107

Immediate

10,007

01/27/14

Consultant

13,000

Immediate

118,300

03/06/14

Employee

8,300

[2]

74,700

03/09/14

Consultant

1,108

Immediate

10,005

03/21/14

Consultant

1,136

Immediate

10,008

04/02/14

Consultant

1,219

Immediate

10,008

05/29/14

Consultant

1,000

Immediate

7,000

06/16/14

Consultant

1,525

Immediate

10,004

06/18/14

Consultant

1,558

Immediate

10,002

Restricted stock - total

399,348

2,842,106

[1]

Vests in equal quarterly installments, with one-eighth vesting on January 6, 2014 and the remaining vesting on the first day of each calendar quarter thereafter.

[2]

2,425 shares vest on each of March 6, 2014 and April 1, 2014. 1,725 shares vest on each of April 1, 2015 and April 1, 2016.

On March 14, 2014, in connection with the resignation of the chief executive officer of a wholly-owned subsidiary of the Company, the Company accelerated the vesting of 17,688 RSUs that, prior to the modification, contained performance conditions which, for accounting purposes, were deemed improbable of being achieved. As a result, the Company recorded stock-based compensation expense of $157,069 during the six months ended June 30, 2014, which represented the modification date value of the modified RSUs.

As of June 30, 2014, there was $952,895 of unrecognized stock-based compensation expense related to restricted stock which will be amortized over a weighted average period of 0.8 years.

A summary of common stock award activity during the six months ended June 30, 2014 is presented below:

	Number of Shares			Weighted Average Grant Date Fair Value		Total Grant Date Fair Value
Non-vested, December 31, 2013		35,376		$	2.19	$	77,387
Granted		399,348			7.12		2,842,106
Vested		(154,227	)		6.17		(951,884	)
Forfeited		-			-		-
Non-vested, June 30, 2014		280,497		$	7.01	$	1,967,609

In connection with the vesting of certain restricted stock grants, 21,068 and 57,104 shares, respectively, with fair values of $173,808 and $452,377, respectively, were withheld in satisfaction of employee tax withholding obligations in the three and six month periods ended June 30, 2014. No shares were withheld in either the three or six month periods ended June 30, 2013.

Warrants

See Note 9, Stockholders’ Equity – Common Stock Issuances for details related to new investor warrant issuances.

There were no compensatory warrants issued during the six months ended June 30, 2014.

On April 11, 2014, the Company entered into a letter agreement with certain of the holders of warrants to purchase shares of the Company’s common stock that were issued pursuant to that certain securities purchase agreement, dated November 18, 2013, by and among the Company and the investors signatory thereto, pursuant to which such warrant holders agreed to exercise their warrants in exchange for certain registration rights. The Company received approximately $5,293,000 from the exercise of the warrants, and issued a total of 930,313 shares of common stock. In connection with the exercise of these warrants, the Company paid $264,674 in placement agent fees and $2,500 of administrative fees for the escrow agent, both of which were deducted from gross proceeds.

On April 30, 2014, the Company entered into a warrant exchange with certain warrant holders pursuant to which the Company issued 48,968 shares of common stock to such warrant holders in exchange for the cancellation of certain “cash exercise only” five-year warrants to purchase an aggregate of 244,844 shares of Common Stock that were originally issued by the Company in 2010.

During the six months ended June 30, 2014, the Company issued an aggregate of 234,795 shares of common stock to several holders of warrants who elected to exercise warrants to purchase an aggregate of 376,637 shares of common stock (353,137 shares on a "cashless" basis under the terms of the warrants and 23,500 shares for cash proceeds of $99,640). The warrants had exercise prices of $4.24 per share (217,560 gross shares), $3.02 per share (65,362 gross shares) and $2.19 per share (93,715 gross shares). The aggregate intrinsic value of the warrants exercised was $1,942,576 for the six months ended June 30, 2014.

As of June 30, 2014, there was $25,431 of unrecognized stock-based compensation expense related to compensatory warrants that are subject to non-employee mark-to-market adjustments and will be amortized over a weighted average period of 0.4 years.

A summary of the warrant activity, including common stock purchase warrants, during the six months ended June 30, 2014 is presented below:

	Number of Warrants			Weighted Average Exercise Price		Weighted Average Remaining Life in Years		Intrinsic Value
Outstanding, December 31, 2013		3,822,557		$	5.12
Issued		427,858			10.50
Exercised		(1,306,950	)		5.04
Cancelled		(244,844	)		7.88
Outstanding, June 30, 2014		2,698,621		$	5.75		4.2	$	1,778,016

Exercisable, June 30, 2014		2,242,476		$	4.85		4.0	$	1,756,687

The following table presents information related to warrants at June 30, 2014:

Warrants Outstanding				Warrants Exercisable
Exercise Price		Outstanding Number of Warrants		Weighted Average Remaining Life in Years		Exercisable Number of Warrants
$	2.19		108,572		3.5		108,572
	3.02		74,286		2.6		74,286
	3.50		2,286		2.8		2,286
	4.24		803,691		3.9		803,691
	4.38		188,444		4.3		169,400
	4.81		8,889		4.3		8,889
	5.69		1,040,880		4.4		1,031,637
	7.00		18,286		0.9		18,286
	8.75		25,429		1.1		25,429
	10.50		427,858		-		-
			2,698,621		4.0		2,242,476

As of June 30, 2014, five-year warrants to purchase an aggregate of 75,429 shares of common stock at an exercise price of $2.19 per share were deemed to be a derivative liability. See Note 12 – Fair Value Measurement.

Stock Options

During the six months ended June 30, 2014, ten-year options to purchase an aggregate of 841,520 shares of common stock at exercise prices ranging from $6.62 to $9.05 with an aggregate grant date value of $5,459,093 were granted to directors and employees. Most of the grants vest over three years on the anniversaries of the grant date. Of the above, options to purchase 572,500 shares of common stock were granted pursuant to the 2011 Plan. The grant date value is being amortized over the vesting term.

In applying the Black-Scholes option pricing model to stock options granted, the Company used the following weighted average assumptions:

	Three Months Ended June 30,						Six Months Ended June 30,
	2014			2013			2014			2013
Risk free interest rate		2.05	%		0.94	%		1.92	%		0.92	%
Expected term (years)		6.00			5.39			5.93			5.30
Expected volatility		102.63	%		99.85	%		102.63	%		100.02	%
Expected dividends		0.00	%		0.00	%		0.00	%		0.00	%

The risk-free interest rate is based on rates of treasury securities with the same expected term as the options. The Company uses the "simplified method" to calculate the expected term of employee and director stock-based options. The expected term used for consultants is the contractual life. The Company is utilizing an expected volatility figure based on a review of the Company’s historical volatility, over a period of time, equivalent to the expected life of the instrument being valued. The expected dividend yield is based upon the fact that the Company has not historically paid dividends, and does not expect to pay dividends in the near future.

The weighted average estimated fair value per share of the options granted during the three and six months ended June 30, 2014 was $5.82 and $6.49, respectively. The weighted average estimated fair value per share of the options granted during the three and six months ended June 30, 2014 was $1.66 and $1.84, respectively.

During the six months ended June 30, 2014, the Company issued an aggregate of 271,505 shares of common stock to several holders of options who elected to exercise options to purchase an aggregate of 298,978 shares of common stock (57,143 shares on a "cashless" basis under the terms of the options and 241,835 shares for cash proceeds of $1,219,161). The options had exercise prices of $4.38 per share (217,319 gross shares), $5.47 per share (11,428 gross shares), $6.34 per share (22,857 gross shares) and $6.56 per share (47,374 gross shares). The aggregate intrinsic value of the options exercised was $913,384 for the six months ended June 30, 2014.

As of June 30, 2014, there was $7,206,417 of unrecognized stock-based compensation expense related to stock options which will be amortized over a weighted average period of 1.7 years, of which $73,780 is subject to non-employee mark-to-market adjustments.

A summary of the stock option activity during the six months ended June 30, 2014 is presented below:

	Number of Options			Weighted Average Exercise Price		Weighted Average Remaining Life in Years		Intrinsic Value
Outstanding, December 31, 2013		4,985,586		$	6.47
Granted		841,520			8.11
Exercised		(298,978	)		4.92
Forfeited		(918,427	)		7.27
Outstanding, June 30, 2014		4,609,701		$	6.71		8.1	$	1,904,646

Exercisable, June 30, 2014		2,075,655		$	5.36		6.7	$	1,764,195

The following table presents information related to stock options at June 30, 2014:

Options Outstanding				Options Exercisable
Exercise Price		Outstanding Number of Options		Weighted Average Remaining Life in Years		Exercisable Number of Options
$	3.28		279,227		8.6		279,227
	3.50		117,125		9.4		73,665
	3.94		7,619		9.4		7,619
	4.38		924,728		4.8		879,519
	5.47		97,713		8.9		65,142
	5.69		114,286		1.4		114,286
	5.91		17,142		6.5		17,142
	6.34		6,058		6.4		6,058
	6.56		445,064		8.4		135,770
	6.62		25,000		-		-
	6.79		10,000		-		-
	6.82		780,535		9.5		174,842
	6.83		10,000		-		-
	6.95		10,000		-		-
	6.99		261,520		9.5		35,380
	7.71		35,000		-		-
	7.90		10,000		-		-
	7.94		6,000		-		-
	8.50		25,000		9.6		6,250
	8.57		40,000		-		-
	8.75		732,565		8.5		236,571
	8.97		5,000		9.7		1,248
	8.99		30,000		-		-
	9.00		291,500		9.7		4,992
	9.04		30,000		-		-
	9.05		35,000		-		-
	10.94		262,245		8.9		36,570
	11.38		1,145		4.2		1,145
	26.69		229		4.0		229
			4,609,701		6.7		2,075,655

10.

Related Party

On January 6, 2014, the Company entered into an option cancellation and release agreement with two former directors, pursuant to which each of the parties agreed to cancel options previously granted to purchase 278,096 shares of common stock of the Company at exercise prices ranging from $6.34 to $9.19. In exchange for the cancellation of the options, the Company granted each individual 194,667 shares of common stock of the Company pursuant to 2011 Plan. The incremental expense for the exchange was $98,915 and is included in stock-based compensation for the six months ended June 30, 2014.

11.

Concentration of Risk

Revenues for the three months ended June 30, 2014 and 2013, and accounts receivable as of June 30, 2014 from our largest customers were as follows:

	% of Total Revenue						Accounts Receivable
Customer	2014			2013			June 30, 2014

A		31	%		54	%		17	%
B		12	%		24	%		9	%

Revenue for the six months ended June 30, 2014 and 2013, were as follows:

	% of Total Revenue
Customer	2014			2013

A		40	%		64	%
B		10	%		18	%

12.

Fair Value Measurement

Fair value is defined as the price that would be received upon selling an asset or the price paid to transfer a liability on the measurement date. It focuses on the exit price in the principal or most advantageous market for the asset or liability in an orderly transaction between willing market participants. A three-tier fair value hierarchy is established as a basis for considering such assumptions and for inputs used in the valuation methodologies in measuring fair value. This hierarchy requires entities to maximize the use of observable inputs and minimize the use of unobservable inputs. The three levels of inputs used to measure fair values are as follows:

Level 1: Observable prices in active markets for identical assets and liabilities.

Level 2: Observable inputs other than quoted prices in active markets for identical assets and liabilities.

Level 3: Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets and liabilities.

During the six months ended June 30, 2014, warrants to purchase an aggregate of 82,971 shares of common stock were exercised. These warrants had an aggregate exercise date fair value of $672,632 which was credited to equity. The Company recorded a loss on the change in fair value of these warrants of $202,393 during the six months ended June 30, 2014. The Company recomputed the fair value of these warrants using the Binomial option pricing model (Level 3 inputs) using the following assumptions: expected volatility of 102.63%, risk-free rate of 1.19%-1.22%, expected term of 3.78-3.81 years, and expected dividends of 0.00%.

On June 30, 2014, the Company recomputed the fair value of its warrant liability as $329,150 using the Binomial option pricing model (Level 3 inputs) using the following assumptions: expected volatility of 100.56%, risk-free rate of 0.88%, expected term of 3.36 years, and expected dividends of 0.00%. The Company recorded a gain on the change in fair value of these warrant liabilities of $134,076 during the six months ended June 30, 2014

The following tables set forth a summary of the changes in the fair value of Level 3 liabilities that are measured at fair value on a recurring basis:

Warrant Liabilities
Beginning balance as of January 1, 2014	$	933,465
Change in fair value of warrant liability		68,317
Value of warrants exercised		(672,632	)
Ending balance as of June 30, 2014	$	329,150

Contingent Consideration
Beginning balance as of January 1, 2014	$	-
Fair value of contingent consideration		2,700,000
Ending balance as of June 30, 2014	$	2,700,000

Assets and liabilities measured at fair value on a recurring or nonrecurring basis are as follows:

	June 30, 2014
	Level 1		Level 2		Level 3
Liabilities:
Warrant liabilities	$	-	$	-	$	329,150
Contingent consideration	$	-	$	-	$	2,700,000
Total liabilities	$	-	$	-	$	3,029,150

	December 31, 2013
	Level 1		Level 2		Level 3
Liabilities:
Warrant liabilities	$	-	$	-	$	933,465
Total liabilities	$	-	$	-	$	933,465

Warrants that contain exercise reset provisions and contingent consideration liabilities are Level 3 derivative liabilities measured at fair value on a recurring basis using pricing models for which at least one significant assumption is unobservable as defined in ASC 820. The fair value of contingent consideration liabilities that was classified as Level 3 in the table above was estimated using a discounted cash flow technique with significant inputs that are not observable in the market and thus represents a Level 3 fair value measurement as defined in ASC 820. The significant inputs in the Level 3 measurement not supported by market activity include the probability assessments of expected future cash flows related to the acquisitions, appropriately discounted considering the uncertainties associated with the obligation, and as calculated in accordance with the terms of the acquisition agreements. The development and determination of the unobservable inputs for Level 3 fair value measurements and the fair value calculations are the responsibility of the Company’s chief financial officer and are approved by the chief executive officer.

13.

Subsequent Events

On August 5, 2014, the Company filed a shelf registration statement on Form S-3 with the United States Securities and Exchange Commission ("SEC"). This registration will enable the Company to offer and sell to the public from time to time in one or more offerings, up to $100,000,000 of common and preferred stock, debt securities, warrants, units or any combination thereof. In addition, under the shelf registration certain Company shareholders may offer for resale to the public from time to time in one or more offerings up to 7,866,797 shares of the Company’s common stock.

The terms of any securities offered under the registration statement, and the intended use of the net proceeds resulting therefrom, will be established at the times of the offerings and will be described in prospectus supplements filed with the SEC at the times of the offerings.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the consolidated financial statements and related notes above.

Forward-Looking Statements

This Quarterly Report on Form 10-Q contains “forward-looking statements,” which include information relating to future events, future financial performance, strategies, expectations, competitive environment and regulation. Words such as “may,” “should,” “could,” “would,” “predict,” “potential,” “continue,” “expect,” “anticipate,” “future,” “intend,” “plan,” “believe,” “estimate,” and similar expressions, as well as statements in future tense, identify forward-looking statements. Forward-looking statements should not be read as a guarantee of future performance or results and may not be accurate indications of when such performance or results will actually be achieved. Forward-looking statements are based on information we have when those statements are made or our management’s good faith belief as of that time with respect to future events, and are subject to risks and uncertainties that could cause actual performance or results to differ materially from those expressed in or suggested by the forward-looking statements. Important factors that could cause such differences include, but are not limited to:

	·	the uncertainty regarding the adequacy of our liquidity to pursue our complete business objectives;

	·	inadequate capital;

	·	our plans to make significant additional outlays of working capital before we expect to generate significant revenues and the uncertainty regarding when we will begin to generate significant revenues, if we are able to do so;

	·	loss or retirement of key executives;

	·	unfavorable decisions on product reimbursement;

	·	adverse economic conditions and/or intense competition;

	·	loss of a key customer or supplier;

	·	entry of new competitors and products;

	·	adverse federal, state and local government regulation;

	·	technological obsolescence of our products;

	·	technical problems with our research and products;

	·	price increases for supplies and components; and

	·	the inability to carry out research, development and commercialization plans.

For a discussion of these and other risks that relate to our business and investing in shares of our common stock, you should carefully review the risks and uncertainties described under the heading “Part I – Item 1A. Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q and in our Annual Report on Form 10-K for the year ended December 31, 2013. The forward-looking statements contained in this Quarterly Report on Form 10-Q are expressly qualified in their entirety by this cautionary statement. We do not undertake any obligation to publicly update any forward-looking statement to reflect events or circumstances after the date on which any such statement is made or to reflect the occurrence of unanticipated events.

Overview

We are a provider of advanced wound care solutions. Through our hydrogel technology platform and licensed and proprietary products, we seek to create superior outcomes for patients, providers, and partners. Our core businesses include advanced wound care and contract manufacturing. We leverage our proprietary hydrogel and licensed technology to add value to our own products and those of our partners.

In April 2014, we raised approximately $19.4 million in net proceeds from a series of transactions that included a $14.4 million private placement of common stock and warrants and $5.0 million from the exercise of warrants from several institutional shareholders.

On May 5, 2014, we acquired all outstanding equity interest in Choice Therapeutics, Inc. a provider of innovative wound care products using proprietary Therabond 3D® Antimicrobial Barrier Systems.

Results of Operations

Three Months Ended June 30, 2014 Compared to the Three Months Ended June 30, 2013

Overview . For the three months ended June 30, 2014 and 2013, we had a net loss of $5,954,229 and $2,089,343, respectively, which was inclusive of non-cash stock-based compensation of $2,014,274 and $1,409,657, respectively.

Revenues, net . For the three months ended June 30, 2014 revenues increased by $538,319, or 108%, to $1,037,448 from $499,129 for the three months ended June 30, 2013. The increase in our overall revenue was due to increases in product sales. We expect our future growth to consist of both organic and acquisition growth from product sales.

The components of revenue were as follows for the three months ended June 30, 2014 and 2013:

	Three Months Ended June 30,
	2014		2013
Revenues
Contract manufacturing	$	488,440	$	497,038
Products		549,008		2,091
Total revenues, net	$	1,037,448	$	499,129

Our growth rates for the three months ended June 30, 2014 and 2013 were as follows:

	Three Months Ended June 30,
	2014			2013

Revenue growth	$	538,319		$	240,260
% Growth over prior year		107.9	%		92.8	%

Comprised of:
% of organic growth*		43.2	%		92.8	%
% of acquisition growth**		64.7	%		0.0	%
		107.9	%		92.8	%

*Represents growth from contract manufacturing and sales of our hydrogel, sorbion, and Biovance products.

**Represents growth from the sale of products acquired in the purchase of Choice Therapeutics in May 2014.

Gross profit . Our gross profit was $200,733 for the three months ended June 30, 2014 compared to $19,301 for the three months ended June 30, 2013. The improved results for the three months ended June 30, 2014, as compared to 2013 was primarily due to the greater volume of product sales as product revenue typically commands higher gross profit margins. We expect our future gross profit to increase as a result of products sales becoming a higher proportion of our total sales.

The components of cost of revenues are as follows for the three months ended June 30, 2014 and 2013:

	Three Months Ended June 30,
	2014		2013
Cost of revenues
Stock-based compensation	$	62,643	$	-
Compensation and benefits		178,335		106,285
Depreciation and amortization		146,737		149,567
Materials		340,576		112,978
Equipment, production and other expenses		108,424		110,998
Total cost of revenues	$	836,715	$	479,828

Selling, general and administrative expenses . The following table highlights selling, general and administrative expenses by type for the three months ended June 30, 2014 and 2013:

	Three Months Ended June 30,
	2014		2013
Selling, general and administrative expenses
Stock-based compensation	$	1,951,631	$	1,409,657
Compensation and benefits		1,621,466		547,953
Marketing		707,469		54,202
Royalty fees		102,501		50,000
Other expenses		1,573,024		330,893
Total selling, general and administrative expenses	$	5,956,091	$	2,392,705

Selling, general and administrative expenses increased by $3,563,386, to $5,956,091 for the three months ended June 30, 2014, as compared to $2,392,705 for the three months ended June 30, 2013.

Stock-based compensation increased by $541,974, to $1,951,631 for the three months ended June 30, 2014, as compared to $1,409,657 for the three months ended June 30, 2013. Stock-based compensation for the three months ended June 30, 2014 was favorably impacted by the forfeiture of stock options of a consultant resulting in a reversal of expense of $396,612. Compensation and benefits increased by $1,073,513, to $1,621,466 for the three months ended June 30, 2014, as compared to $547,953 for the three months ended June 30, 2013. The increase in both stock-based compensation and compensation and benefits was due to the hiring of new executive officers, various senior sales and marketing executives, and a direct sales force. We expect our stock-based compensation expense to decrease in future quarters.

Marketing expenses increased by $653,267, to $707,469 for the three months ended June 30, 2014, as compared to $54,202 for the three months ended June 30, 2013. The increase was primarily due to increased efforts to market our proprietary and licensed products through tradeshows, sample products, and market research. Also included in the three months ended June 30, 2014 are marketing expenses associated with the launch of our Biovance product and products acquired in our acquisition of Choice Therapeutics.

Other selling, general and administrative expenses increased by $1,242,131, to $1,573,024 for the three months ended June 30, 2014, as compared to $330,893 for the three months ended June 30, 2013. Other selling, general and administrative expenses consist of costs associated with our selling efforts and general management, including consulting, recruiting, information technology, travel and professional fees such as legal and accounting expenses. These costs were largely driven by the recruitment of our direct sales force and other corporate employees to support our anticipated growth, as well an increase in business development and selling, general and administrative expenses for our newly acquired company, Choice Therapeutics.

Acquisition-related expenses . During the three months ended June 30, 2014, we incurred acquisition-related costs of approximately $419,658 in connection with due diligence, professional fees, and other expenses related to the acquisition of Choice Therapeutics.

Six Months Ended June 30, 2014 Compared to the Six Months Ended June 30, 2013

Overview . For the six months ended June 30, 2014 and 2013, we had a net loss of $14,990,391 and $4,793,178, respectively, which was inclusive of non-cash stock-based compensation of $7,175,799 and $2,401,568, respectively.

Revenues, net . For the six months ended June 30, 2014 revenues increased by $737,097, or 83%, to $1,628,023 from $890,926 for the six months ended June 30, 2013. The increase in our overall revenue was primarily due to an increase in product sales. We expect our future growth to consist of both organic and acquisition growth from product sales.

The components of revenue were as follows for the six months ended June 30, 2014 and 2013:

	Six Months Ended June 30,
	2014		2013
Revenues
Contract manufacturing	$	966,710	$	882,380
Products		661,313		8,546
Total revenues, net	$	1,628,023	$	890,926

Our growth rates for the six months ended June 30, 2014 and 2013 were as follows:

	Six months ended June 30,
	2014			2013

Revenue growth	$	737,097		$	436,456
% Growth over prior year		82.7	%		96.0	%

Comprised of:
% of organic growth*		46.5	%		96.0	%
% of acquisition growth**		36.2	%		0.0	%
		82.7	%		96.0	%

*Represents growth from contract manufacturing and sales of our hydrogel, sorbion, and Biovance products.

**Represents growth from the sale of products acquired in the purchase of Choice Therapeutics in May 2014.

Gross profit (loss) . Our gross profit was $159,609 for the six months ended June 30, 2014 compared to gross loss of $41,924 for the six months ended June 30, 2013. The improved results for the six months ended June 30, 2014, as compared to 2013 was primarily due to the greater volume of product sales as product revenue typically commands higher gross profit margins. We expect our future gross profit to increase as a result of products sales becoming a higher proportion of our total sales.

The components of cost of revenues are as follows for the six months ended June 30, 2014 and 2013:

	Six Months Ended June 30,
	2014		2013
Cost of revenues
Stock-based compensation	$	79,853	$	-
Compensation and benefits		331,414		211,911
Depreciation and amortization		293,473		299,135
Materials		554,242		202,968
Equipment, production and other expenses		209,432		218,836
Total cost of revenues	$	1,468,414	$	932,850

Selling, general and administrative expenses . The following table highlights selling, general and administrative expenses by type for the six months ended June 30, 2014 and 2013:

	Six Months Ended June 30,
	2014		2013
Selling, general and administrative expenses
Stock-based compensation	$	7,095,946	$	2,401,568
Compensation and benefits		3,398,797		949,580
Marketing		931,792		115,337
Royalty fees		202,501		100,000
Other expenses		2,973,599		869,743
Total selling, general and administrative expenses	$	14,602,635	$	4,436,228

Selling, general and administrative expenses increased $10,166,407 to $14,602,635 for the six months ended June 30, 2014, as compared to $4,436,228 for the six months ended June 30, 2013.

Stock-based compensation increased by $4,694,378, to $7,095,946 for the six months ended June 30, 2014, as compared to $2,401,568 for the six months ended June 30, 2013. Stock-based compensation for the six months ended June 30, 2014 was favorably impacted by the forfeiture of stock options of a consultant resulting in a reversal of expense of $396,612. Compensation and benefits increased $2,449,217 to $3,398,797 for the six months ended June 30, 2014, as compared to $949,580 for the six months ended June 30, 2013. The increase in both stock-based compensation and compensation and benefits was due to the hiring of new executive officers, various senior sales and marketing executives, and a direct sales force. We expect our stock-based compensation expense to decrease in future quarters.

Marketing expenses increased by $816,455 to $931,792 for the six months ended June 30, 2014, as compared to $115,337 for the six months ended June 30, 2013. The increase was primarily due to increased efforts to market our proprietary and licensed products through tradeshows, sample products, and market research. Also included in the six months ended June 30, 2014 are marketing expenses associated with the launch of our Biovance product and products acquired in our acquisition of Choice Therapeutics.

Other selling, general and administrative expenses increased by $2,103,856 to $2,973,599 for the six months ended June 30, 2014, as compared to $869,743 for the six months ended June 30, 2013. Other selling, general and administrative expenses consist of costs associated with our selling efforts and general management, including consulting, recruiting, information technology, travel and professional fees such as legal and accounting expenses. These costs were largely driven by the recruitment of our direct sales force and other corporate employees to support our anticipated growth, as well an increase in business development and selling, general and administrative expenses for our newly acquired company, Choice Therapeutics.

Acquisition-related expenses . During the three month ended June 30, 2014, we incurred acquisition-related costs of approximately $485,640 in connection with due diligence, professional fees, and other expenses related to the acquisition of Choice Therapeutics.

Liquidity and Capital Resources

As of June 30, 2014, we had cash and cash equivalents totaling $23,785,430 compared to $12,100,544 at December 31, 2013. The increase was largely attributable to net financing proceeds of $14,372,503, proceeds from the exercise of stock options and warrants totaling $6,345,108 offset by cash used in operating activities of $6,374,226 during the six months ended June 30, 2014.

Net cash flow used in operating activities was $6,374,226 and $1,614,510 for the six months ended June 30, 2014 and 2013, respectively. The increase was primarily attributable to an increase in net loss excluding stock compensation and other non-cash items of $7,322,200 offset by an increase in accounts payable, accrued expenses and other liabilities compared to the prior year.

Cash flow generated from financing activities was $20,265,234 for the six months ended June 30, 2014, compared to cash flow generated from financing activities of $3,291,293 for the six months ended June 30, 2013. During the six months ended June 30, 2014, we received proceeds from stock option and warrant exercises of $6,345,108 and $14,372,503 of proceeds from the issuance of common stock. This was offset by the payment of withholding taxes related to stock-based compensation of $452,377. During the six months ended June 30, 2013, we received proceeds from the issuance of common stock of $3,291,293.

At June 30, 2014, current assets totaled $25,289,176 and current liabilities totaled $3,773,454, as compared to current assets totaling $12,847,234 and current liabilities totaling $3,353,464 at December 31, 2013. As a result, we had working capital of $21,515,722 at June 30, 2014 compared to working capital of $9,493,770 at December 31, 2013.

Our cash requirements have historically been for product development, clinical trials, marketing and sales activities, finance and administrative costs, capital expenditures and overall working capital. We have experienced negative operating cash flows since inception and have funded our operations primarily from sales of common stock and other securities.

Liquidity Outlook

We have revamped our strategy to focus on being a provider of wound care solutions as well as continuing to be a contract manufacturer. The use of proceeds from our financings will largely be used to support the sales and marketing of our wound care solutions and potential acquisitions. We have restructured our senior management team with the goal of maximizing the potential for success in achieving our sales and marketing goals. We have hired new executive officers, various senior sales and marketing executives, and a direct sales force to sell our wound care products. We expect to continue to attend trade shows and seek other avenues to market our products.

We continue to focus our efforts on expanding our product offerings. We are seeking complementary products to our hydrogels in an effort to expand our offerings. In addition, we are seeking ways to modify products’ size, shape or thickness in order to appeal to a broader marketplace.

The implementation of our growth strategy will continue to result in an increase in our fixed cost structure. Due to the time delay between outlays for working capital expenditures, such as costs to acquire rights to additional products, merger and acquisition activity, the hiring and training of sales agents and personnel, pre-launch marketing costs, the purchasing of inventory, and the billing and collection of revenue, we expect negative operating cash flows to continue at least for the balance of 2014.

We believe that our cash on hand and our cash generated from operations will be sufficient to fund our business for at least the next 12 months. However, our future results of operations involve significant risks and uncertainties. Factors that could affect our future operating results and cause actual results to vary materially from expectations include, but are not limited to, potential demand for our products, unfavorable decisions on product reimbursement, risks from competition, regulatory approval of our new products, technological change, and dependence on key personnel.

In order to complete our future growth strategy, including the expanding of our product offering, we will require additional equity and/or debt financing. On August 5, 2014, we filed a shelf registration statement on Form S-3 with the United States Securities and Exchange Commission ("SEC"). This registration will enable us to offer and sell to the public from time to time in one or more offerings, up to $100,000,000 of common and preferred stock, debt securities, warrants, units or any combination thereof. The terms of any securities offered under the registration statement, and the intended use of the net proceeds resulting therefrom, will be established at the times of the offerings and will be described in prospectus supplements filed with the SEC at the times of the offerings. There can be no assurance that we will be successful in securing additional capital in sufficient amounts and on terms favorable to us.

Off Balance Sheet Arrangements

As of June 30, 2014, we had no off-balance sheet transactions, arrangements, obligations (including contingent obligations), or other relationships with unconsolidated entities or other persons that have, or may have, a material effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

Critical Accounting Policies

There have been no significant changes to the Company’s critical accounting policies and estimates from the information provided in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” included in the Annual Report on Form 10-K for the year ended December 31, 2013.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not required.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

As of June 30, 2014, we conducted an evaluation, under the supervision and participation of management including our chief executive officer and chief financial officer, of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) of the Securities Exchange Act of 1934, as amended). There are inherent limitations to the effectiveness of any system of disclosure controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives.

Based upon this evaluation, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures are effective at the reasonable assurance level as of June 30, 2014.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting during the quarter ended June 30, 2014 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

From time to time, we may become involved in lawsuits, investigations and claims that arise in the ordinary course of business. Except as set forth below, as of the date of this filing, we are not party to any material litigation nor are we aware of any such threatened or pending legal proceedings that we believe could have a material adverse effect on our business, financial condition or operating results.

There have been no material developments in the legal proceeding that we previously discussed in Part II, Item 1 “Legal Proceedings” in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2014.

There are no material proceedings in which any of our directors, officers or affiliates or any registered or beneficial shareholder of more than 5% of our common stock is an adverse party or has a material interest adverse to our interest.

ITEM 1A. RISK FACTORS

During the three months ended June 30, 2014 there were no material changes to the risk factors previously discussed in Part I, Item 1A “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2013, except for the following:

Decisions in reimbursement levels by governmental or other third-party payors for procedures using our products may have an adverse impact on acceptance of our products.

We believe that our products will be purchased principally by hospitals or physicians, which typically bill various third-party payors, such as governmental programs (e.g., Medicare and Medicaid), private insurance plans and managed care plans, for the healthcare services provided to their patients. The ability of our future customers to obtain appropriate reimbursement for products and services from third-party payors is critical to the success of medical product companies because it affects which products customers purchase and the prices they are willing to pay. Adverse decisions relating to our products by administrators of these systems in coverage or reimbursement issues, would have an adverse impact on the acceptance of our products and the prices which our customers are willing to pay for them. For example, the Center for Medicare and Medicaid Services (CMS) has preliminarily classified our human amniotic membrane allograft product, Biovance, as a collagen dressing and not in the manner as other skin substitutes are being reimbursed. If this decision was to become final, it could have an adverse impact on our ability to market this product in an outpatient setting. We are currently in discussions with CMS as to why we believe Biovance should be reimbursed at levels consistent with similar products on the market. There is no assurance that CMS will reverse its preliminary decision in its final decision expected to be issued later this year.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

The following table sets forth information with respect to purchases by us of our equity securities during the three months ended June 30, 2014:

Issuer's Purchases of Equity Securities
					Total number of shares (or units)		Maximum number (or
					purchased		approximate dollar value) of
	Total number of				as part of publicly		shares (or units) that may
	shares (or units)		Average price paid		announced plans or		yet be purchased under the
Period	purchased ⁽¹⁾		per share (or unit)(2)		programs		plans or programs
4/1/2014 to 4/30/2014		21,068	$	8.25		-		-
5/1/2014 to 5/31/2014		-		-		-		-
6/1/2014 to 6/30/2014		-		-		-		-
Total		21,068	$	8.25		-		-

(1) Includes 20,186 shares of our common stock surrendered by David Johnson in connection with the vesting of restricted stock on April 1, 2014 and 882 shares of our common stock surrendered by an employee in connection with the vesting of restricted stock on April 1, 2014.

(2) For purposes of determining the number of shares to be surrendered to meet tax withholding obligations, the price per share deemed to be paid was the closing price of our common stock on the NASDAQ Capital Market on the applicable vesting date.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

Not applicable.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

Not applicable.

ITEM 6. EXHIBITS

See “Index to Exhibits” for a description of our exhibits.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	ALLIQUA BIOMEDICAL, INC.

Date: August 11, 2014	By:	/s/ David Johnson
	Name:	David Johnson
	Title:	Chief Executive Office
		(Principal Executive Officer)

	By:	/s/ Brian Posner
	Name:	Brian Posner
	Title:	Chief Financial Officer
		(Principal Financial Officer)

Index to Exhibits

Exhibit No.		Description

2.1		Agreement and Plan of Merger, dated May 5, 2014, by and between Alliqua, Inc., ALQA Merger Sub, Inc., Choice Therapeutics, Inc. and E. James Hutchens, as the Stockholder Representative, incorporated by reference to Exhibit 2.1 to Current Report on Form 8-K filed on May 6, 2014.

2.2		Agreement and Plan of Merger, dated June 5, 2014, by and between Alliqua, Inc. and Alliqua BioMedical, Inc., incorporated by reference to Exhibit 2.1 to Current Report on Form 8-K filed on June 11, 2014.

3.1		Certificate of Incorporation of Alliqua BioMedical, Inc., incorporated by reference to Exhibit 3.1 to Current Report on Form 8-K filed on June 11, 2014.

3.2		Bylaws of Alliqua BioMedical, Inc., incorporated by reference to Exhibit 3.2 to Current Report on Form 8-K filed on June 11, 2014.

3.3		Certificate of Amendment to Certificate of Incorporation of Alliqua BioMedical, Inc., incorporated by reference to Exhibit 3.3 to Current Report on Form 8-K filed on June 11, 2014.

10.1		Form of Securities Purchase Agreement, dated April 14, 2014, by and between Alliqua, Inc. and certain accredited investors, incorporated by reference to Exhibit 10.1 to Current Report on Form 8-K filed on April 15, 2014.

10.2		Form of Warrant, dated April 14, 2014, by and between Alliqua, Inc. and certain accredited investors, incorporated by reference to Exhibit 10.2 to Current Report on Form 8-K filed on April 15, 2014.

10.3		Form of Letter Agreement, dated April 11, 2014, by and between Alliqua, Inc. and certain holders of warrants to purchase Common Stock of Alliqua, Inc., incorporated by reference to Exhibit 10.3 to Current Report on Form 8-K filed on April 15, 2014.

10.4*^		Supply Agreement, dated April 10, 2014, by and between Alliqua, Inc. and Anthrogenesis Corporation, d/b/a Celgene Cellular Therapeutics (“CCT”).

10.5*^		First Amendment to Supply Agreement, dated April 10, 2014 by and between Alliqua, Inc. and Anthrogenesis Corporation, d/b/a CCT.

10.6		Warrant Exchange Agreement, dated April 30, 2014, by and among Alliiqua, Inc. and certain holders of warrants to purchase Common Stock of Alliqua, Inc., incorporated by reference to Exhibit 10.1 to Current Report on Form 8-K filed on May 6, 2014.

10.7		2014 Long-Term Incentive Plan, incorporated by reference to Exhibit 10.1 to Current Report on Form 8-K filed on June 11, 2014.

31.1*		Certification of Chief Executive Officer Pursuant to Section 302 of Sarbanes-Oxley Act of 2002.

31.2*		Certification of Chief Financial Officer Pursuant to Section 302 of Sarbanes-Oxley Act of 2002.

32.1*		Certification of Chief Executive Officer Pursuant to Section 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2*		Certification of Chief Financial Officer Pursuant to Section 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101**		The following materials from the Company’s Annual Report on Form 10-Q for the three months ended June 30, 2014, formatted in XBRL (eXtensible Business Reporting Language), (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Operations, (iii) Consolidated Statements of Stockholders’ Equity, (iv) Consolidated Statements of Cash Flows, and (v) Notes to the Consolidated Financial Statements.

* Filed herewith.

** Pursuant to Rule 406T of Regulation S-T, the Interactive Data Files on Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities and Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections.

^ Certain portions of this exhibit have been omitted and filed separately with the Securities and Exchange Commission under a confidential treatment request pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

Exhibit 10.4

THE COMPANY HAS REQUESTED AN ORDER FROM THE SECURITIES AND EXCHANGE COMMISSION (THE “COMMISSION”) PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED, GRANTING CONFIDENTIAL TREATMENT TO SELECTED PORTIONS. ACCORDINGLY, THE CONFIDENTIAL PORTIONS HAVE BEEN OMITTED FROM THIS EXHIBIT, AND HAVE BEEN FILED SEPARATELY WITH THE COMMISSION. OMITTED PORTIONS ARE INDICATED IN THIS EXHIBIT WITH “*****”.

SUPPLY AGREEMENT

BY AND BETWEEN

ANTHROGENESIS CORPORATION

AND

ALLIQUA, INC.

April 10, 2014

TABLE OF CONTENTS

PAGE

ARTICLE 1 DEFINITIONS	1

ARTICLE 2 SUPPLY OF MANUFACTURED PRODUCTS	2

2.1 Sale and Purchase of Manufactured Products	2
2.2 Forecasts; Firm Orders	4
2.3 Shipment and Delivery	4
2.4 Alliqua Right to Manufacture	4

ARTICLE 3 REGULATORY AND QUALITY MATTERS	5

3.1 Regulatory Responsibility	5
3.2 Change Control	5
3.3 Records	5
3.4 Testing	6
3.5 Regulatory Inquiries	6
3.6 Notice of Regulatory Inspections	6
3.7 Quality Agreement	6
3.8 Quality Audits	7
3.9 Intentionally Omitted	7
3.10 Cooperation	7
3.11 Recalls	8
3.12 Complaints	8
3.13 Warning Letters	9
3.14 Inquiries from Health Care Professionals	9
3.15 Debarment	9
3.16 Additional Covenants of Alliqua	9

ARTICLE 4 PRICE AND PAYMENT TERMS	9

4.1 Purchase Price	9
4.2 Taxes	10
4.3 Freight and Insurance	10
4.4 Payments	10
4.5 Interest Charges	10
4.6 Pricing	10

ARTICLE 5 INSPECTION OF MANUFACTURED PRODUCTS	10

5.1 Inspection by Alliqua	10
5.2 Disputes Over Manufactured Products	11
5.3 Replacement of Manufactured Products That Are Not Acceptable Manufactured Products	11
5.4 Exclusive Remedy	11

ARTICLE 6 REPRESENTATIONS AND WARRANTIES; CERTAIN COVENANTS	11

6.1 Mutual Representations and Warranties	11
6.2 Additional CCT Representations and Warranties	12
6.3 Alliqua Compliance with Applicable Law	12

ARTICLE 7 INDEMNIFICATION AND INSURANCE	13

7.1 CCT Indemnification	13
7.2 Alliqua Indemnification	13
7.3 Indemnification Procedures	13
7.4 Limitation of Liability	13
7.5 Insurance	14

ARTICLE 8 CONFIDENTIAL INFORMATION	14

8.1 Confidentiality	14
8.2 Authorized Disclosure	15
8.3 Return of Confidential Information	15
8.4 Publicity; Terms of the Agreement; Confidential Treatment	15
8.5 Technical Publication	16
8.6 Equitable Relief	17

ARTICLE 9 TERM AND TERMINATION	17

9.1 Term	17
9.2 Termination	17
9.3 Effects of Termination	18

ARTICLE 10 GENERAL PROVISIONS	19

10.1 Entire Agreement; Amendment	19
10.2 Force Majeure	19
10.3 Notices	19
10.4 No Strict Construction; Headings	20
10.5 Assignment	20
10.6 Performance by Affiliates	21
10.7 Further Actions	21
10.8 Severability	21
10.9 No Waiver	21
10.10 Independent Contractors	21
10.11 Governing Law	22
10.12 Counterparts	22

SUPPLY AGREEMENT

THIS SUPPLY AGREEMENT (this “ Agreement ”) dated as of April 10, 2014 (the “ Effective Date ”), by and between Anthrogenesis Corporation, a Delaware corporation doing business as Celgene Cellular Therapeutics (“ CCT ”), and Alliqua, Inc., a Florida corporation (“ Alliqua ”). Alliqua and CCT may each be referred to as a “ Party ” or collectively be referred to as the “ Parties ”.

PREAMBLE

A. CCT and Alliqua entered into a License, Marketing and Development Agreement dated November 14, 2013 (the “ License Agreement ”), under which CCT granted certain rights to Alliqua to market and sell the Licensed Products (as defined therein); and

B. CCT and Alliqua entered into a Supply Agreement dated November 14, 2013 (the “ Biovance Supply Agreement ”) for the supply of Biovance® and agreed to enter into a supply agreement with respect to ECM products on substantially the same terms as the Biovance Supply Agreement, except that the purchase price shall be as set forth in Schedule 2.5 to the Biovance Supply Agreement.

NOW, THEREFORE , in consideration of the mutual covenants and agreements contained in this Agreement, and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, CCT and Alliqua agree as follows:

ARTICLE 1
DEFINITIONS

All capitalized terms used but not defined herein shall have the meaning ascribed to such term in the License Agreement. In addition to the terms defined in the License Agreement and elsewhere in this Agreement, the following terms have the meanings indicated:

“ Acceptable Manufactured Products ” has the meaning set forth in Section 5.1.

“ Act ” means the Federal Food, Drug, and Cosmetic Act, as amended, and the rules, regulations, guidelines and requirements of the FDA as may be in effect from time to time.

“ Alliqua Indemnified Parties ” has the meaning set forth in Section 7.1.

“ Calendar Year ” means each successive period of twelve (12) calendar months commencing on January 1.

“ CCT Indemnified Parties ” has the meaning set forth in Section 7.2.

“ CCT Recall Event ” has the meaning set forth in Section 3.11.

“ CFR ” has the meaning set forth in Section 3.1.

“ cGMPs ” means current Good Manufacturing Practices as described in Part 820 of Title 21 of the U.S. Code of Federal Regulations.

“ ECM ” means CCT’s extracellular matrix products derived from the human placenta.

“ FDA ” means the United States Food and Drug Administration or any successor agency performing a similar function.

“ Firm Order ” means a written irrevocable firm purchase order for Manufactured Products, which order shall include a delivery schedule specifying the required delivery date and quantity for each Manufactured Product stock keeping unit ordered and the location to which shipment of Manufactured Products is to be delivered.

“ Forecast ” has the meaning set forth in Schedule 2.2, subsection (a)(ii).

“ Long Range Forecast ” has the meaning set forth in Schedule 2.2, subsection (a)(i).

“ Losses ” has the meaning set forth in Section 7.1.

“ Manufactured Product ” means ECMs that have received Regulatory Clearance and/or Approval.

“ Permitted Subcontractor ” has the meaning set forth in Section 2.1(d).

“ Product Samples ” has the meaning set forth in Section 3.4.

“ Purchase Price ” has the meaning set forth in Section 4.1.

“ Quality Agreement ” has the meaning set forth in Section 3.7.

“ Required Manufacturing Changes ” has the meaning set forth in Section 3.2.

“ Term ” has the meaning set forth in Section 9.1.

“ Third Party Claims ” has the meaning set forth in Section 7.1.

ARTICLE 2
SUPPLY OF MANUFACTURED PRODUCTS

2.1 Sale and Purchase of Manufactured Products.

(a) Subject to the terms and on the conditions set forth in this Agreement, as soon as reasonably practicable after the date that CCT obtains Regulatory Clearance and/or Approval in the United States for an ECM, CCT shall supply and sell to Alliqua, and Alliqua shall purchase from CCT, Alliqua’s entire requirements of Manufactured Products, in finished form and final packaging, for exploitation in the Territory under the License Agreement. The form and packaging of any Manufactured Products shall be in accordance with such specifications for such Manufactured Product (the “ Specifications ”) that are hereafter agreed to by the Parties. As soon as reasonably practicable after the Effective Date, the Parties shall endeavor in good faith to agree in writing upon the Specifications. For purposes of the immediately preceding sentence, neither Party may propose specifications that (i) would conflict with the specifications comprising a part of CCT’s application for Regulatory Clearance and/or Approval of such Manufactured Product, or (ii) would materially increase the documented cost of manufacturing finished form of Manufactured Product and/or the documented cost of final packaging of such Manufactured Product. Following the date that CCT obtains Regulatory Clearance and/or Approval in the United States for an ECM, the Parties will agree to any changes to the Specifications that are necessary in order for the Specifications for such ECM to not conflict with the applicable Regulatory Clearance and/or Approval.

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(b) CCT shall manufacture, store at its facility, and test all finished Manufactured Products or cause the same to be manufactured, stored at the manufacturing facility, and tested, in conformity with the applicable Specifications for such Manufactured Product and in compliance with all applicable Law, including cGMPs, and the terms and conditions of this Agreement and the Quality Agreement. CCT’s responsibility for finished packaging of the Manufactured Product will include supply to Alliqua of the Manufactured Products in finished packaging (including (i) sterile pouch inner packaging, with the appropriate labels affixed to such inner packaging (such pouch inner packaging and labeling as reasonably determined by CCT (following consultation with, and taking into account input from, the JSC) in compliance with applicable Law and Regulatory Clearance and/or Approval), (ii) outer cartons and outer carton labeling and (iii) package inserts) all as further detailed in the applicable Specifications, with tracking letters to the extent required under applicable Law . For the avoidance of doubt, except as provided in Section 2.1(c) below, CCT will not charge Alliqua any amounts for such packaging that are in addition to the Purchase Price.

(c) Alliqua either will: (i) provide CCT, at Alliqua’s cost, with the outer cartons for the Manufactured Product finished packaging (the “ Outer Cartons ”) or (ii) direct CCT to procure the Outer Cartons from a supplier designated by Alliqua. If Alliqua directs CCT to procure the Outer Cartons, then the per unit cost charged by the Outer Carton supplier will be added to the Purchase Price, without markup, for each Manufactured Product. In addition, Alliqua, at its cost, will provide CCT with all outer carton labels, package inserts and, to the extent required, preprinted tracking letters, in each case for CCT to include in the finished Manufactured Products. Alliqua also shall be responsible for providing CCT with all required artwork to be used in connection therewith.

(d) Subject to any legal requirements under applicable Law, CCT may, at its sole option, engage or use subcontractors and suppliers that it reasonably believes are qualified to perform some or all of CCT’s obligations under this Agreement (each, a “ Permitted Subcontractor ”).

(e) Without limiting the foregoing, all Permitted Subcontractors shall be subject to the applicable terms and conditions of this Agreement and the Quality Agreement and no agreement with any Permitted Subcontractor shall release CCT from any of its obligations under this Agreement or the Quality Agreement. CCT shall remain responsible for any services performed by such Permitted Subcontractor to the same extent as if it had performed the obligations itself.

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(f) For the purposes of clarity, nothing in this Agreement shall provide a right of reference to support any filing by Alliqua or an Alliqua Affiliate with the FDA for any product other than the Manufactured Products or to support any similar filing with another Governmental Authority in or out of the Territory.

2.2 Forecasts; Firm Orders . The Parties shall comply with the provisions of Schedule 2.2 to this Agreement with respect to the matters set forth therein.

2.3 Shipment and Delivery .

(a) CCT shall deliver to Alliqua the Manufactured Products (in finished form and final packaging) ordered pursuant to a Firm Order by the required delivery dates therefor EXW (Incoterms 2010) CCT’s designated facility in the United States. For purposes of clarity, Alliqua bears all risk and costs from the time Alliqua or its carrier picks up the Manufactured Products at CCT’s designated facility in the United States and CCT has no obligation to load the Manufactured Products or clear them for export.

(b) CCT shall package Manufactured Products for shipment in accordance with practices that are customary and reasonable in the industry with respect to similar products and comply with applicable Law, unless otherwise specified in writing by Alliqua at least ten (10) Business Days prior to such shipment, in which event CCT shall package Manufactured Products for shipment in accordance with such instructions and any commercially reasonable, documented actual external costs incurred by CCT (without markup) on account of the shipping packaging changes requested by Alliqua shall be promptly reimbursed by Alliqua.

(c) Prior to shipment, CCT shall perform release testing for the Manufactured Product pursuant to the Specifications, cGMPs and the Quality Agreement.

2.4 Alliqua Right to Manufacture.

(a) If CCT terminates this Agreement pursuant to Section 9.2(a), or Alliqua terminates this Agreement pursuant to Section 9.2(b), (c) or (d), then, for so long as Alliqua has the right to Commercialize the Manufactured Products in the Territory under the License Agreement, Alliqua or any person or entity designated by Alliqua (including an Affiliate of Alliqua) may, following notice to CCT, manufacture, store at its facility, and test Alliqua’s requirements of the Manufactured Products for Commercialization in the Field in the Territory in accordance with the License Agreement.

(b) If Alliqua elects to manufacture, store, and test Alliqua’s requirements of the Manufactured Products in accordance with Section 2.4(a), CCT shall cooperate with and assist Alliqua or any person or entity designated by Alliqua (including an Affiliate of Alliqua) in transferring the processes for manufacturing, storing and testing the Manufactured Product to Alliqua or any person or entity designated by Alliqua (including an Affiliate of Alliqua).

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ARTICLE 3
REGULATORY AND QUALITY MATTERS

3.1 Regulatory Responsibility. Subject to the terms of this Agreement and the License Agreement, all matters in the Territory regarding obtaining and supporting Regulatory Clearance and/or Approval of the Manufactured Products, and manufacturing and testing of the Manufactured Products in compliance with the applicable Specifications for the Manufactured Product and applicable Law (including cGMPs), shall be the responsibility of, and shall remain under the control of CCT. Except as set forth in Section 3.2 below, any costs or expenses required to comply with CCT’s obligations under this Section 3.1 shall be borne by [****]. Each Party shall be registered with the FDA’s Center for Biologics Evaluation and Research pursuant to 21 Code of Federal Regulations (“ CFR ”) Part 1271, as and when their activities with respect to Manufactured Products require such registration. Each Party shall promptly (within three (3) Business Days) provide the other Party with copies of all communications received from any Regulatory Authority concerning the Manufactured Products which directly or indirectly affect or relate to the manufacturing, storage, testing, packaging or labeling thereof, and any filings that directly or indirectly affect or relate to the manufacturing, storage, testing, packaging or labeling of the Manufactured Products to be made to any such agency for prior review and comment at least five (5) Business Days prior to such submission. Each Party shall provide notice to the other Party of meetings with any Regulatory Authority, whether via electronic means, in person, or otherwise, which affect or relate to the manufacturing, storing, testing, packaging or labeling of the Manufactured Products. CCT will require each Permitted Subcontractor to keep CCT and Alliqua fully and promptly advised of any inspections, inspectional observations and other communications and interactions between such Permitted Subcontractor and any Regulatory Authority which may directly or indirectly affect or relate to the manufacturing, storage, testing, packaging or labeling of any Manufactured Products. In the event of any inconsistency between the provisions of this Section 3.1 and the provisions of the License Agreement, the provisions of the License Agreement shall control.

3.2 Change Control. CCT and Alliqua shall cooperate in timely making any and all changes to the Specifications or manufacturing processes that are required by applicable Law (collectively, “ Required Manufacturing Changes ”). The commercially reasonable, documented costs attributable to the Required Manufacturing Change, including the cost of a reasonable quantity (in light of the Forecasts submitted by Alliqua) of raw materials, work-in-process, Manufactured Products and packaging materials rendered obsolete as a result of any such Required Manufacturing Changes, shall be borne [****].

3.3 Records. CCT shall, and shall cause its Affiliates and each Permitted Subcontractor to, keep appropriate accounts, notes, data and records of the work performed under this Agreement in accordance with applicable Law, including cGMPs, and the terms and conditions of this Agreement and the Quality Agreement. CCT shall provide Alliqua with a copy of a certificate of analysis with each batch of Manufactured Products delivered to Alliqua, as set forth in the Quality Agreement.

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3.4 Testing. CCT shall be solely responsible for (a) taking and maintaining quality control samples of all Manufactured Products delivered to Alliqua (collectively, the “ Product Samples ”), and (b) testing Product Samples, in each case, in accordance with the Quality Agreement. CCT shall promptly provide Alliqua data resulting from testing related to the Product Samples for distribution in the Territory as such information becomes available, including any discovery of any negative or adverse trending in testing data.

3.5 Regulatory Inquiries. Without limiting any provision of the License Agreement, upon being contacted (and, in the case of CCT, upon any Permitted Subcontractor being contacted) by any Regulatory Authority for any regulatory purpose pertaining to this Agreement or to the Manufactured Products, including notice of the initiation of any inquiries, notices or inspection activity by any such agency, a Party shall immediately notify the other Party and provide the other Party with (a) a reasonable description of any such inquiries and related documentation, (b) an opportunity to advise and comment with respect thereto and (c) if appropriate, an opportunity to participate with respect thereto to the extent such matters relate to the Manufactured Products in the Territory.

3.6 Notice of Regulatory Inspections. Each Party shall (a) advise the other Party of any requests by any Regulatory Authority (including, in the case of CCT, any such requests made to a Permitted Subcontractor) for any inspections with respect to the manufacturing, storing, testing, packaging and/or labeling of Manufactured Products, (b) provide the other Party with copies of any correspondence related thereto, and, to the extent it (or, in the case of CCT, by a Permitted Subcontractor) becomes aware of the results, observations or outcome of any inspections or audits of the facilities or operations involved in the manufacture, storage, testing, packaging and/or labeling of the Manufactured Products conducted by any Regulatory Authority, including providing the other Party an opportunity to advise and comment with respect to any correspondence to be provided by such Party (or, in the case of CCT, by a Permitted Subcontractor) to the applicable agency, and (c) notify the other Party of any such information as it relates to the Manufactured Products in the Territory within three (3) Business Days of obtaining the information.

3.7 Quality Agreement. Within sixty (60) Business Days after the Effective Date, CCT and Alliqua shall negotiate in good faith the terms of, and enter into, a reasonable and customary quality agreement (the “ Quality Agreement ”). The Quality Agreement shall include provisions with respect to, among other things, release testing, change control procedures with respect to the Specifications and the manufacturing processes for the Manufactured Products, stability testing, recalls of any Manufactured Products, and record retention requirements with respect to recalls. In the event of any conflict between the terms of the Quality Agreement and the terms of this Agreement, the terms of the Quality Agreement shall govern.

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3.8 Quality Audits.

(a) Upon reasonable advance notice and during reasonable business hours, Alliqua shall have the right to inspect and audit those portions of CCT’s and its Affiliates’ and its Permitted Subcontractors’ facilities in which the Manufactured Products are manufactured, stored or tested, to ascertain compliance with cGMPs, applicable Law, and the terms and conditions of this Agreement and the Quality Agreement; provided, however, that (i) Alliqua’s representatives shall follow all security and facility access procedures as reasonably required by CCT or its Affiliate or Permitted Subcontractor, as applicable, and (ii) Alliqua may not exercise its right under this Section 3.8(a) more than once in any twelve (12)-month period (unless such inspection and audit reveals a material compliance issue, in which event Alliqua shall have the right to conduct a follow-up inspection and audit to verify that such issue has been remedied). CCT shall use commercially reasonable efforts to promptly resolve, and to cause its Affiliates and its Permitted Subcontractors to promptly resolve, any quality issues raised by any inspections and audits of their respective facilities.

(b) Upon reasonable advance notice and during reasonable business hours, CCT shall have the right to inspect and audit (i) those portions of Alliqua’s facilities in which the Manufactured Products are stored, handled or labeled and (ii) if Alliqua elects to manufacture, store, and test Alliqua’s requirements of the Manufactured Products or designate another person or entity to manufacture, store, and test Alliqua’s requirements of the Manufactured Products, in accordance with Section 2.4(a), those portions of Alliqua’s facilities or those of its designated Person, as the case may be, in which the Manufactured Products are manufactured, stored, handled or labeled, in each case, to ascertain compliance with cGMPs, applicable Law, and the terms and conditions of this Agreement and the Quality Agreement; provided, however, that (i) CCT’s representatives shall follow all security and facility access procedures as reasonably required by Alliqua, as applicable, and (ii) CCT may not exercise its right under this Section 3.8(a) more than once in any twelve (12)-month period (unless such inspection and audit reveals a material compliance issue, in which event CCT shall have the right to conduct a follow-up inspection and audit to verify that such issue has been remedied). Alliqua shall use commercially reasonable efforts to promptly resolve any quality issues raised by any inspections and audits of its facilities.

(c) Except as otherwise set forth in this Agreement, each Party shall, at its sole cost and expense, maintain in full force and effect all necessary licenses, approvals, permits and other authorizations required by applicable Law to carry out its duties and obligations under this Agreement and the Quality Agreement.

3.9 Intentionally Omitted .

3.10 Cooperation . The Parties will cooperate in good faith in responding to any Regulatory Authority inquiry or in making any report to the Regulatory Authority with respect to Manufactured Products. Notwithstanding anything to the contrary in this Agreement (and without limiting CCT’s obligation under the License Agreement to obtain, support and maintain Regulatory Clearances and/or Approvals), CCT will have final authority for regulatory decisions and responsibility for all communications with any Regulatory Authority with respect to obtaining or maintaining Regulatory Approval of the Manufactured Products.

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3.11 Recalls . CCT and Alliqua will each notify the other Party promptly if it becomes aware that a Manufactured Product is the subject of a recall or market withdrawal that is mandated by a Regulatory Authority, and the Parties will reasonably cooperate in the handling and disposition of such recall or market withdrawal; provided, however, in the event of a disagreement as to any matters related to any such recall or market withdrawal, other than the determination of who will bear the costs as set forth in the immediately following sentences, CCT will have the final authority with respect to any product recall or withdrawal relating to Manufactured Products, including any recall or market withdrawal that is not mandated by a Regulatory Authority. [****] will bear the cost of all recalls or market withdrawals of Manufactured Products purchased by Alliqua pursuant to this Agreement where such recall or market withdrawal is the direct result of CCT’s or a Permitted Subcontractor’s [****] Recall Event ”). [****] will bear the cost of all recalls or market withdrawals of Manufactured Products purchased by Alliqua pursuant to this Agreement where such recall or market withdrawal is the direct result of Alliqua’s [****] Recall Event ”). If a recall or market withdrawal [****], then the costs of such recall or market withdrawal will be [****] will bear the cost of all recalls or market withdrawals of Manufactured Products purchased by Alliqua pursuant to this Agreement where the recall or market withdrawal is [****]. Alliqua will maintain records of all sales of Manufactured Product and all customers sufficient to adequately administer a recall or market withdrawal for the longer of one (1) year after termination or expiration of this Agreement or the period required by applicable Law. Alliqua will, in all events and regardless of who bears the cost, be responsible for administering the physical aspects of any recalls or market withdrawals with respect to the Manufactured Products, provided, however, that any reasonable external costs and expenses incurred by Alliqua relating to the recall or market withdrawal (including, but not limited to reasonable recall destruction costs) will be allocated between the Parties as set forth above in this Section. Any revenue attributable to Manufactured Products held or sold by Alliqua (or its designee) that is subject to a recall will be deducted from Net Sales for purposes of the License. In the event of any recall, if requested by Alliqua, CCT will provide Manufactured Products to Alliqua to replace the recalled Manufactured Products and, to the extent the recalled Manufactured Products were previously paid for by Alliqua, the cost of such replacement Manufactured Products shall be allocated between the Parties as set forth above in this Section.

3.12 Complaints . Alliqua will collect complaint files for the Manufactured Products in accordance with the provisions of the Quality Agreement. Manufactured Products complaint reports received by Alliqua will be sent to CCT at [****] within twenty-four (24) hours after receipt of the complaint by Alliqua. Alliqua and CCT will notify each other of any Manufactured Product complaints made by customers that will or could require a report of an “adverse reaction” to the FDA pursuant to 21 CFR 1271.350, and will thereafter reasonably cooperate with each other relative to any investigation or inquiry that may be initiated by FDA with respect thereto. The complaint handling obligations of the Parties will be detailed further within the Quality Agreement and/or the Safety Data and Exchange Agreement.

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3.13 Warning Letters . In the event that either Party (or, in the case of CCT, any Permitted Subcontractor) receives a warning letter from the FDA or the equivalent from any other Governmental Authority in connection with the Manufactured Product, such Party will notify the other Party promptly, and in any event within twenty four (24) hours (to the extent legally permitted) after receiving such warning letter.

3.14 Inquiries from Health Care Professionals . CCT shall provide reasonable assistance to Alliqua in its preparation and filing with appropriate Regulatory Authorities related to reimbursement and health care insurance filings required for the marketing and distribution of Manufactured Products in the Territory by Alliqua.

3.15 Debarment . Neither Party shall use any employee or consultant (or, in the case of CCT, any Permitted Subcontractor or employees or consultants thereof) who has been debarred by any Regulatory Authority, or, to such Party's knowledge, is the subject of debarment proceedings by a Regulatory Authority. Each Party shall notify the other Party promptly upon becoming aware that any of its employees or consultants (or, in the case of CCT, any Permitted Subcontractor or employees or consultants thereof) has been debarred or is the subject of debarment proceedings by any Regulatory Authority.

3.16 Additional Covenants of Alliqua . Alliqua shall:

(a) discharge its obligations pursuant to this Agreement in accordance with all applicable Laws, including those enforced by the FDA (including compliance with cGMP);

(b) maintain the Manufactured Products pending sale to its customers in a facility that is properly equipped to store such Manufactured Products in accordance with the applicable Manufactured Product labeling; and

ARTICLE 4
PRICE AND PAYMENT TERMS

4.1 Purchase Price.

(a) For all Manufactured Products ordered pursuant to Firm Orders by Alliqua at any time, Alliqua shall pay CCT a purchase price (“ Purchase Price ”) for each conforming quantity of Manufactured Product delivered hereunder in accordance with the terms set forth in Schedule 4.1 to this Agreement.

(b) If at any time during the Term, CCT notifies Alliqua in writing that CCT has incurred an increase in the costs associated with manufacturing the Manufactured Products, the Parties shall promptly negotiate in good faith an increase in the Purchase Price to account for such increase in costs; provided, however, that if the Parties fail to reach agreement on any such price increase, the resolution of such disagreement shall be governed by the provisions of Article 13 of the License Agreement.

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4.2 Taxes. The Purchase Price and other amounts payable by Alliqua to CCT pursuant to this Agreement shall not be reduced on account of any taxes unless required by applicable Law. CCT alone shall be responsible for paying any and all taxes (other than any withholding taxes required by applicable Law to be paid by Alliqua) levied on account of, or measured in whole or in part by reference to, any payments it receives from Alliqua.

4.3 Freight and Insurance. In addition to the Purchase Price, for the purposes of clarity, Alliqua shall pay all actual freight and insurance expenses incurred by Alliqua in connection with the sale and shipment of the Manufactured Products.

4.4 Payments.

(a) Upon each delivery of Manufactured Products, CCT shall promptly submit an invoice to Alliqua. All invoices and payments for Manufactured Products shall be in United States dollars. Alliqua shall pay each invoice (except for any amounts disputed by Alliqua in good faith) within thirty (30) days after receipt thereof.

(b) If an inconsistency between any invoice, purchase order, purchase order release, confirmation, acceptance or similar document and this Agreement exists, the terms of this Agreement shall control.

(c) Payment due to CCT shall be paid in United States dollars by wire transfer to an account designated in writing by CCT.

4.5 Interest Charges. If CCT does not receive payment of any sum due to it on or before the due date, simple interest shall thereafter accrue on the sum due until the date of payment at the rate of [****] per month or, if less, the maximum rate allowable by applicable Law.

4.6 Pricing. All resale prices of Manufactured Products shall be reviewed by the JSC and Alliqua shall consider in good faith any comments of the JSC. For purposes of clarity, Alliqua shall have final discretion with respect to resale prices of the Manufactured Products during the Term, including resale price increases and decreases and the timing thereof.

ARTICLE 5
INSPECTION OF MANUFACTURED PRODUCTS

5.1 Inspection by Alliqua. Alliqua may inspect and analyze the Manufactured Products delivered to Alliqua for purposes of determining whether the Manufactured Products meet the applicable Specifications at the time of delivery thereof (such Manufactured Product, “ Acceptable Manufactured Products ”). Alliqua shall notify CCT in writing within thirty (30) days after the date of delivery to Alliqua (or within thirty (30) days after discovery that any Manufactured Product is not Acceptable Manufactured Products for reasons that could not reasonably have been detected by Alliqua’s customary inspection on delivery) of any Manufactured Product or portion thereof which Alliqua is returning because it is not an Acceptable Manufactured Product, including documentation of the reasons therefor. If CCT does not receive such notice within such thirty (30)-day period, the shipped Manufactured Products will be deemed accepted as Acceptable Manufactured Products.

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5.2 Disputes Over Manufactured Products. CCT shall have a reasonable opportunity not to exceed thirty (30) days from the date of receipt of the notice described in Section 5.1 to inspect and/or test such Manufactured Product that Alliqua claims is not an Acceptable Manufactured Product. If CCT, after good faith consultation with Alliqua, disputes any determination by Alliqua that a Manufactured Product is not an Acceptable Manufactured Product, then representative samples of such Manufactured Product shall be forwarded to an independent Third Party laboratory jointly selected by CCT and Alliqua, in their reasonable discretion, for analysis, which analysis shall be performed in compliance with industry standards and applicable Law. The findings of such Third Party laboratory regarding whether the Manufactured Product was an Acceptable Manufactured Product shall be binding upon the Parties. The cost of such analysis by such Third Party laboratory shall be borne by the Party whose analysis was not substantiated by the findings of such Third Party laboratory.

5.3 Replacement of Manufactured Products That Are Not Acceptable Manufactured Products. CCT shall, at Alliqua’s option, either replace any Manufactured Product order or portion thereof which is not an Acceptable Manufactured Product as soon as reasonably practicable at CCT’s cost and expense, including shipping costs, or promptly refund to Alliqua the payments made for such returned Manufactured Products (including Alliqua’s shipping costs). At the sole option of CCT, said Manufactured Products may be returned to CCT, at CCT’s expense including shipping costs, or destroyed in an environmentally acceptable manner, in accordance with applicable Law, at CCT’s expense. CCT will not, however, replace any Manufactured Product which fails or ceases to conform to the Specifications or which is unsalable, in each case, as a result of improper storage, transport or other mishandling or other event after the Manufactured Product has been delivered to Alliqua, Alliqua’s designated courier or other Alliqua designee.

5.4 Exclusive Remedy . The sole and exclusive remedy available to Alliqua in connection with Manufactured Products that are not Acceptable Manufactured Products shall be replacement of such Manufactured Product by CCT in accordance with Section 5.3 above. Notwithstanding the immediately preceding sentence, Manufactured Products that are not Acceptable Manufactured Products shall be deemed not to have been delivered for purposes of Section 9.2(b).

ARTICLE 6
REPRESENTATIONS AND WARRANTIES; CERTAIN COVENANTS

6.1 Mutual Representations and Warranties. Each Party represents and warrants to the other Party as of the Effective Date as follows:

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(a) It is a corporation duly organized, validly existing and in good standing under the laws of the State of its incorporation, with the requisite legal authority to own and use its properties and assets and to carry on its business as currently conducted.

(b) It has the requisite corporate authority to enter into and to consummate the transactions contemplated by this Agreement and otherwise to carry out its obligations hereunder. The execution and delivery of this Agreement by it and the transactions contemplated hereby and thereby have been duly authorized by all necessary corporate action on its part and no further consent or action is required by it, by its Board of Directors or by its stockholders.

(c) This Agreement has been duly executed by it and is the valid and binding obligation of the Company enforceable against it in accordance with its terms, except (i) as limited by general equitable principles and applicable bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting enforcement of creditors’ rights generally, and (ii) as limited by laws relating to the availability of specific performance, injunctive relief or other equitable remedies.

6.2 Additional CCT Representations and Warranties. CCT represents and warrants to Alliqua that at the time each Manufactured Product is delivered to Alliqua such Manufactured Product: (a) will meet the Specifications therefor; (b) will have been manufactured, stored and handled at CCT’s facility, and tested in accordance with the applicable Law, Regulatory Clearances and/or Approvals, Specifications and cGMPs; (c) will not be (i) adulterated, or (ii) manufactured, stored or handled at CCT’s facility, or tested in a manner that violates the Act, or any other applicable Law; (d) will pass to Alliqua free and clear of any security interest, lien or other encumbrances and (e) will have a remaining shelf life of no less than the Minimum Shelf Life (as defined below). Promptly following Regulatory Clearance and/or Approval, the Parties will discuss in good faith at the JSC and agree in writing on a commercially reasonable minimum remaining shelf life that the Manufactured Products will have upon delivery to Alliqua (the “ Minimum Shelf Life ”).

6.3 Alliqua Compliance with Applicable Law. Alliqua shall at all times: (a) handle, warehouse, store, label, package, market, sell, distribute and otherwise dispose of the Manufactured Products in the Territory in compliance with all applicable Law, Regulatory Clearances and/or Approvals, Specifications and cGMPs; and (b) except for any Regulatory Clearances and/or Approvals that CCT is responsible for maintaining, maintain all applicable licenses, registrations and permits necessary to take control of, market, sell and distribute such Manufactured Products in the Territory. Alliqua will not market any Manufactured Product in any manner which is inconsistent with its labeling or with applicable Law, or otherwise make any false or misleading representations to customers or others regarding the Manufactured Product.

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ARTICLE 7
INDEMNIFICATION AND INSURANCE

7.1 CCT Indemnification. Subject to the procedures set forth in Section 7.3, CCT shall indemnify Alliqua, its Affiliates and its and their respective directors, officers, employees and agents (the “ Alliqua Indemnified Parties ”), and defend and save each of them harmless, from and against any and all claims, lawsuits, losses, damages, liabilities, penalties, costs and expenses (including reasonable attorneys’ fees and disbursements) (collectively, “ Losses ”) incurred by any of them in connection with any and all suits, investigations, claims or demands of Third Parties (collectively, “ Third Party Claims ”) in connection with, arising from or occurring as a result of: (a) the breach or inaccuracy of any representation or warranty made by CCT in this Agreement or the Quality Agreement; (b) the breach by CCT of any of its obligations under this Agreement or the Quality Agreement; or (c) any manufacturing defect of the Manufactured Products manufactured by CCT or on its behalf; in each case except for those Losses for which Alliqua has an obligation to indemnify any CCT Indemnified Parties pursuant to Section 7.2 of the License Agreement.

7.2 Alliqua Indemnification. Subject to the procedures set forth in Section 7.3, Alliqua shall indemnify CCT, its Affiliates and its and their respective directors, officers, employees and agents (the “ CCT Indemnified Parties ”), and defend and save each of them harmless, from and against any and all Losses incurred by any of them in connection with any Third Party Claims in connection with, arising from or occurring as a result of: (a) the breach or inaccuracy of any representation or warranty made by Alliqua in this Agreement or the Quality Agreement; (b) the use of any and all Promotional Materials; (c) the breach by Alliqua of any of its obligations under this Agreement or the Quality Agreement; (d) any Manufactured Products manufactured by Alliqua or on its behalf by any Person other than CCT; or (e) any defect in the design or manufacture of those materials provided by Alliqua to CCT pursuant to Section 2.1(c), in each case except for those Losses for which CCT has an obligation to indemnify any Alliqua Indemnified Parties pursuant to Section 7.1 or the License Agreement.

7.3 Indemnification Procedures. The Party claiming indemnity under this Article 7 (the “ Indemnified Party ”) shall give written notice to the Party from whom indemnity is being sought (the “ Indemnifying Party ”) promptly after learning of such Claim. The Indemnifying Party shall have the right to assume and conduct the defense of the Claim with counsel of its choice, and the Indemnified Party may participate in and monitor such defense with counsel of its own choosing at its sole expense. The Indemnified Party shall provide the Indemnifying Party with reasonable assistance, at the Indemnifying Party's expense, in connection with the defense of the Claim for which indemnity is being sought. Each Party shall not settle or compromise any Claim without the prior written consent of the other Party, which consent shall not be unreasonably withheld, delayed or conditioned. If the Parties cannot agree as to the application of the foregoing Sections 7.1 and 7.2, each may conduct separate defenses of the Claim, and each Party reserves the right to claim indemnity from the other in accordance with this Article 7 upon the resolution of the underlying Claim.

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7.4 Limitation of Liability. NEITHER PARTY SHALL BE LIABLE FOR ANY SPECIAL, CONSEQUENTIAL, INCIDENTAL, PUNITIVE, OR INDIRECT DAMAGES, INCLUDING LOST PROFITS, ARISING FROM OR RELATING TO ANY BREACH OF THIS AGREEMENT EXCEPT FOR FRAUD OR WILLFUL MISCONDUCT, BREACH OF EITHER PARTY'S CONFIDENTIALITY OBLIGATIONS, A PARTY'S INDEMNIFICATION OBLIGATIONS, A BREACH OF EACH PARTY'S EXCLUSIVITY OBLIGATIONS OR A BREACH OF THE LICENSE GRANTS, REGARDLESS OF ANY NOTICE OF THE POSSIBILITY OF SUCH DAMAGES; PROVIDED, HOWEVER, THAT ANY DAMAGES CLAIMED BY OR PAID TO A THIRD PARTY IN A THIRD PARTY ACTION SHALL NOT BE CONSIDERED SPECIAL, CONSEQUENTIAL, INCIDENTAL, PUNITIVE, OR INDIRECT DAMAGES FOR PURPOSES OF THIS AGREEMENT.

7.5 Insurance. Each Party shall, at all times during the Term of this Agreement and for five (5) years thereafter, obtain and maintain at its own expense the following types of insurance, with limits of liability not less than those specified below:

(a) Commercial general liability insurance against claims for bodily injury and property damage which shall include contractual coverage and product liability coverage, with limits of not less than $[****] per occurrence and in the aggregate. The other Party, its officers, directors, representatives and agents shall be named as additional insureds.

(b) Workers compensation and employers' liability with limits to comply with the statutory requirements of the state(s) in which the Agreement is to be performed. The policy shall include employers' liability for not less than $[****] per accident.

All policies shall be issued by insurance companies with an A.M. Best's rating of Class A-:V (or its equivalent) or higher status. Each Party shall deliver certificates of insurance evidencing coverage to the other Party promptly after the execution of this Agreement and annually thereafter. All policies provided for herein shall expressly provide that such policies shall not be cancelled, terminated or altered without at least thirty (30) days prior written notice to the insured Party, and each insuring Party shall immediately notify the insured Party in the event that a policy provided for herein is cancelled, terminated or altered.

ARTICLE 8
CONFIDENTIAL INFORMATION

8.1 Confidentiality . During the Term and for a period of five (5) years thereafter, each Party shall maintain all Confidential Information of the other Party in trust and confidence and shall not, without the written consent of the other Party, disclose any Confidential Information of the other Party to any Third Party or use any Confidential Information of the other Party for any purpose other than as necessary in connection with the exercise of rights or discharge of obligations under this Agreement. The confidentiality obligations of this Section 8.1 shall not apply to Confidential Information to the extent that the receiving Party can establish by competent evidence that such Confidential Information: (a) is publicly known prior or subsequent to disclosure without breach of confidentiality obligations by such Party or its employees, consultants or agents; (b) was in such Party’s possession at the time of disclosure without any restrictions on further disclosure; (c) is received by such receiving Party, without any restrictions on further disclosure, from a Third Party who has the lawful right to disclose it; or (d) is independently developed by employees or agents of the receiving Party who had no access to the disclosing Party’s Confidential Information.

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8.2 Authorized Disclosure . Nothing herein shall preclude a Party from disclosing the Confidential Information of the other Party to the extent:

(a) such disclosure is reasonably necessary (i) for the filing or prosecuting of Patents as contemplated by the License Agreement; (ii) to comply with the requirement of Regulatory Authorities with respect to obtaining and maintaining Regulatory Clearance and/or Approval (or any pricing and reimbursement approvals) of any Manufactured Product; or (iii) for prosecuting or defending litigations as contemplated by the License Agreement;

(b) such disclosure is reasonably necessary to its employees, agents, consultants or contractors on a need-to-know basis for the sole purpose of performing its obligations or exercising its rights under this Agreement; provided that in each case, the disclosees are bound by written obligations of confidentiality and non-use consistent with those contained in this Agreement;

(c) such disclosure is reasonably necessary to any bona fide potential or actual investor, acquiror, merger partner, or other financial or commercial partner for the sole purpose of evaluating an actual or potential investment, acquisition or other business relationship; provided that in each case, the disclosees are bound by written obligations of confidentiality and non-use consistent with those contained in this Agreement;

(d) such disclosure is reasonably necessary to comply with applicable Laws, including regulations promulgated by applicable security exchanges, a valid order of a court of competent jurisdiction, administrative subpoena or order.

Notwithstanding the foregoing, in the event a Party is required to make a disclosure of the other Party’s Confidential Information pursuant to any of Sections 8.2(a) through 8.2(d), such Party shall promptly notify the other Party of such required disclosure and shall use reasonable efforts to obtain, or to assist the other Party in obtaining, a protective order preventing or limiting the required disclosure.

8.3 Return of Confidential Information . Promptly after the termination or expiration of this Agreement for any reason, each Party shall return to the other Party all tangible manifestations of such other Party’s Confidential Information at that time in the possession of the receiving Party.

8.4 Publicity; Terms of the Agreement; Confidential Treatment .

(a) The Parties agree that the terms of this Agreement (including without limitation any exhibits and schedules hereto) shall be considered Confidential Information of each Party, subject to the special authorized disclosure provisions set forth in Section 8.2 and this Section 8.4.

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(b) If either Party desires to make a public announcement concerning the material terms of this Agreement, such Party shall give reasonable prior advance notice of the proposed text of such announcement to the other Party for its prior review and approval (except as otherwise provided herein), such approval not to be unreasonably withheld, conditioned or delayed. A Party commenting on such a proposed press release shall provide its comments, if any, within three (3) Business Days after receiving the press release for review. In addition, to the extent required by applicable Laws, including regulations promulgated by applicable security exchanges, each Party shall have the right to make a press release announcing the achievement of each milestone under this Agreement as it is achieved, and the achievements of Regulatory Clearances and/or Approvals in the Territory as they occur, subject to the other Party’s consent as to form and substance of such announcement, which shall not be unreasonably withheld, conditioned or delayed. In relation to the other Party’s review and approval of such an announcement, such other Party may make specific, reasonable comments on such proposed press release within the prescribed time for commentary, but shall not withhold its consent to disclosure of the information that the relevant milestone has been achieved and triggered a payment hereunder. Neither Party shall be required to seek the permission of the other Party to repeat any information regarding the terms of this Agreement that has already been publicly disclosed by such Party, or by the other Party, in accordance with this Section 8.4, provided such information remains accurate as of such time.

(c) In addition, the Parties acknowledge that either or both Parties may be obligated to file under applicable law and regulation a copy of this Agreement with the USA Securities and Exchange Commission or similar stock exchange authorities or other governmental authorities. Each Party shall be entitled to make such a required filing; provided, however, that it requests confidential treatment of the commercial terms and sensitive technical terms hereof and thereof to the extent such confidential treatment is reasonably available to such Party. In the event of any such filing, each Party shall provide the other Party with a copy of this Agreement marked to show provisions for which such Party intends to seek confidential treatment and shall reasonably consider and incorporate the other Party’s comments thereon to the extent consistent with the legal requirements, with respect to the filing Party, governing disclosure of material agreements and material information that must be publicly filed.

8.5 Technical Publication. Neither Party may publish peer reviewed manuscripts or give other forms of public disclosure such as abstracts and media presentations (such disclosure collectively, for purposes of this Section 8.5, “ publication ”), of results of studies carried out under this Agreement, without the opportunity for prior review by the other Party, except to the extent required by applicable Laws. A Party seeking publication shall provide the other Party the opportunity to review and comment on any proposed publication that relates to the Manufactured Product at least thirty (30) days (or at least ten (10) days in the case of abstracts and media presentations) prior to its intended submission for publication. The other Party shall provide the Party seeking publication with its comments in writing, if any, within twenty (20) days (or within five (5) days in the case of abstracts and media presentations) after receipt of such proposed publication. The Party seeking publication shall consider in good faith any comments thereto provided by the other Party and shall comply with the other Party’s reasonable request to remove any and all of such other Party’s Confidential Information from the proposed publication. In addition, the Party seeking publication shall delay the submission for a period up to sixty (60) days in the event that the other Party can demonstrate reasonable need for such delay in order to accommodate the preparation and filing of a patent application. If the other Party fails to provide its comments to the Party seeking publication within such twenty (20) day period (or five (5) day period, as the case may be), such other Party shall be deemed not to have any comments, and the Party seeking publication shall be free to publish in accordance with this Section 8.5 after the thirty (30) day period (or ten (10) day period, as the case may be) has elapsed. The Party seeking publication shall provide the other Party a copy of the publication at the time of the submission. Each Party agrees to acknowledge the contributions of the other Party and its employees in all publications as scientifically appropriate.

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8.6 Equitable Relief . Each Party acknowledges that its breach of Article 8 of this Agreement may cause irreparable injury to the other Party for which monetary damages may not be an adequate remedy. Therefore, each Party shall be entitled to seek injunctive and other appropriate equitable relief to prevent or curtail any actual or threatened breach of the obligations relating to Confidential Information set forth in this Article 8 by the other Party. The rights and remedies provided to each Party in this Article 8 are cumulative and in addition to any other rights and remedies available to such Party at law or in equity.

ARTICLE 9
TERM AND TERMINATION

9.1 Term. The term of this Agreement shall commence on the Effective Date and shall continue until this Agreement is terminated pursuant to this ARTICLE 9 (the “ Term ”).

9.2 Termination. This Agreement may be terminated as follows:

(a) By CCT upon six months’ prior written notice to Alliqua.

(b) By Alliqua upon [****] prior written notice to CCT if, on at least [****] occasions within any twelve (12) month period, CCT fails to deliver at least [****]% of any Manufactured Products specified in a Firm Order conforming to the provisions of Schedule 2.2, subsection (c) by the required delivery date specified therein and in conformity with the applicable Specifications.

(c) By either Party immediately upon written notice to the other Party if the other Party materially breaches its obligations under this Agreement and, after receiving written notice identifying such material breach in reasonable detail, fails to cure such material breach within sixty (60) days from the date of such notice. If the alleged breaching Party disputes in good faith the existence or materiality of a breach specified in a notice provided by the other Party in accordance with this Section 9.2(c), and such alleged breaching Party provides the other Party notice of such dispute within the applicable cure period, then the non-breaching Party shall not have the right to terminate this Agreement under this Section 9.2(c) unless and until an arbitrator, in accordance with Article 13 of the License Agreement, has determined that the alleged breaching Party has materially breached the Agreement and such breaching Party fails to cure such breach within the applicable cure period (measured as commencing after the arbitrator’s decision). It is understood and agreed that during the pendency of such dispute, all of the terms and conditions of this Agreement shall remain in effect and the Parties shall continue to perform all of their respective obligations hereunder.

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(d) To the extent permitted under applicable Laws, if at any time during the Term of this Agreement, an Event of Bankruptcy (as defined below) relating to either Party (the “ Bankrupt Party ”) occurs, the other Party (the “ Non-Bankrupt Party ”) shall have, in addition to all other legal and equitable rights and remedies available hereunder, the option to terminate this Agreement upon sixty (60) days written notice to the Bankrupt Party. It is agreed and understood that if the Non-Bankrupt Party does not elect to terminate this Agreement upon the occurrence of an Event of Bankruptcy, except as may otherwise be agreed with the trustee or receiver appointed to manage the affairs of the Bankrupt Party, the Non-Bankrupt Party shall continue to make all payments required of it under this Agreement as if the Event of Bankruptcy had not occurred, and the Bankrupt Party shall not have the right to terminate any license granted herein. The term “ Event of Bankruptcy ” means: (a) filing, in any court or agency pursuant to any statute or regulation of any state or country, (i) a petition in bankruptcy or insolvency, (ii) for reorganization or (iii) for the appointment of (or for an arrangement for the appointment of) a receiver or trustee of the Bankrupt Party or of its assets; (b) with respect to the Bankrupt Party, being served with an involuntary petition filed in any insolvency proceeding, which such petition is not dismissed within sixty (60) days after the filing thereof; (c) proposing or being a party to any dissolution or liquidation when insolvent; or (d) making an assignment for the benefit of creditors. Without limitation, the Bankrupt Party’s rights under this Agreement shall include those rights afforded by 11 USAC. § 365(n) of the United States Bankruptcy Code (the “ Bankruptcy Code ”) and any successor thereto. If the bankruptcy trustee of a Bankrupt Party as a debtor or debtor-in-possession rejects this Agreement under 11 USAC. § 365(o) of the Bankruptcy Code, the Non-Bankrupt Party may elect to retain its rights licensed from the Bankrupt Party hereunder (and any other supplementary agreements hereto) for the duration of this Agreement and avail itself of all rights and remedies to the full extent contemplated by this Agreement and 11 USAC. § 365(n) of the Bankruptcy Code, and any other relevant Laws..

(e) This Agreement shall automatically terminate upon expiration or termination of the License Agreement or the termination of the License Agreement only with respect to ECMs.

9.3 Effects of Termination.

(a) Upon termination of this Agreement for any reason, all submitted Firm Orders for Manufactured Products shall be delivered and paid for in accordance with Article 2.

(b) Termination or expiration of this Agreement for any reason shall be without prejudice to any rights that shall have accrued to the benefit of a Party prior to such termination or expiration.

(c) Section 3.11, this Section 9.3 and Articles 1, 4, 5, 6, 7, 8 and 10 shall survive expiration or termination of this Agreement for any reason; Schedule 2.2, subsection (h) and Section 2.4 shall survive a termination of this Agreement pursuant to Section 9.2(a) or (b); and, with respect to Firm Orders submitted and/or filled after termination of this Agreement pursuant to Schedule 2.2, subsection (h), the provisions of this Agreement otherwise applicable to the Manufactured Products that are the subject of such Firm Orders shall survive termination of this Agreement.

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ARTICLE 10
GENERAL PROVISIONS

10.1 Entire Agreement; Amendment. This Agreement, together with the exhibits and schedules hereto, which are hereby incorporated herein, represents the entire agreement and understanding between the Parties with respect to its subject matter and supersedes and terminates any prior and/or contemporaneous discussions, representations or agreements, whether written or oral, of the Parties regarding the subject matter hereto, and supersedes, as of the Effective Date, all prior and contemporaneous agreements and understandings between the Parties with respect to the subject matter hereof (including for the Prior CDA). There are no covenants, promises, agreements, warranties, representations, conditions or understandings, either oral or written, between the Parties other than as are set forth in this Agreement. Amendments or changes to this Agreement shall be valid and binding only if in writing and signed by duly authorized representatives of the Parties.

10.2 Force Majeure. Both Parties shall be excused from the performance of their obligations under this Agreement to the extent that such performance is prevented by force majeure and the nonperforming Party promptly provides notice of the prevention to the other Party. Such excuse shall be continued so long as the condition constituting force majeure continues and the nonperforming Party takes reasonable efforts to remove the condition. For purposes of this Agreement, force majeure shall mean conditions beyond the control of the Parties, including an act of God, war, civil commotion, terrorist act, labor strike or lock-out, epidemic, failure or default of public utilities or common carriers, destruction of production facilities or materials by fire, earthquake, storm or like catastrophe, and failure of plant or machinery (provided that such failure could not have been prevented by the exercise of skill, diligence, and prudence that would be reasonably and ordinarily expected from a skilled and experienced person engaged in the same type of undertaking under the same or similar circumstances). If a force majeure persists for more than ninety (90) days, then the Parties shall discuss in good faith the modification of the Parties’ obligations under this Agreement in order to mitigate the delays caused by such force majeure.

10.3 Notices. Any notice required or permitted to be given under this Agreement shall be in writing, shall specifically refer to this Agreement, and shall be addressed to the appropriate Party at the address specified below or such other address as may be specified by such Party in writing in accordance with this Section 10.3, and shall be deemed to have been given for all purposes (a) when received, if hand-delivered or sent by confirmed facsimile or a reputable courier service, or (b) five (5) Business Days after mailing, if mailed by first class certified or registered airmail, postage prepaid, return receipt requested.

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	If to CCT:	Anthrogenesis Corporation, d/b/a Celgene Cellular Therapeutics
		Attn.: Chief Executive Officer
		33 Technology Drive Warren, NJ 07059-5148
		Fax: [****]

	With a copy to (which shall not constitute notice):

		Proskauer Rose LLP
		Eleven Times Square
		New York, NY 10036
		Attn: Robert A. Cantone, Esq.
		Fax No.: (212) 969-2900
	and
		Celgene Corporation
		86 Morris Avenue
		Summit, NJ 07901
		Attention: General Counsel
		Fax: [****]

	If to Alliqua:	Alliqua, Inc.
		2150 Cabot Boulevard West
		Langhorne, Pennsylvania 19047
		Attention: Chief Executive Officer
		Fax No.: [****]

	With a copy to (which shall not constitute notice):

		Lowenstein Sandler LLP
		65 Livingston Avenue
		Roseland, New Jersey 07068
		Attention: Michael Lerner, Esq.
		Fax No.: (973) 597-6395

10.4 No Strict Construction; Headings. This Agreement has been prepared jointly by the Parties and shall not be strictly construed against either Party. Ambiguities, if any, in this Agreement shall not be construed against any Party, irrespective of which Party may be deemed to have authored the ambiguous provision. The headings of each Article and Section in this Agreement have been inserted for convenience of reference only and are not intended to limit or expand on the meaning of the language contained in the particular Article or Section. Except where the context otherwise requires, the use of any gender shall be applicable to all genders, and the word “or” is used in the inclusive sense (and/or). The term “including” as used herein means including, without limiting the generality of any description preceding such term.

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10.5 Assignment. Neither Party may assign this Agreement without the prior written consent of the other Party, such consent not to be unreasonably withheld, conditioned or delayed; provided, however, that either Party may assign this Agreement without the consent of the other Party, effective upon written notice to the other Party thereof, to (i) an Affiliate of such Party, provided that the Party hereunder who assigns this Agreement agrees in writing to continue to be bound by and subject to the terms and conditions of this Agreement and (ii) any Person who acquires all or substantially all of such Party’s assets or that is the surviving entity in a merger, recapitalization, combination or other similar transaction with such assigning Party and who agrees in writing to be bound by and subject to the terms and conditions of this Agreement. Further, CCT may assign without Alliqua’s consent its rights to payments received under this Agreement. Any permitted assignment shall be binding on the successors of the assigning Party. Any attempted or purported assignment in violation of this Section 10.5 shall be null and void.

10.6 Performance by Affiliates. Each Party may discharge any obligations and exercise any right hereunder through any of its Affiliates. Each Party hereby guarantees the performance by its Affiliates of such Party’s obligations under this Agreement, and shall cause its Affiliates to comply with the provisions of this Agreement in connection with such performance. Any breach by a Party’s Affiliate of any of such Party’s obligations under this Agreement shall be deemed a breach by such Party, and the other Party may proceed directly against such Party without any obligation to first proceed against such Party’s Affiliate.

10.7 Further Actions. Each Party shall execute, acknowledge and deliver such further instruments, and to do all such other acts, as may be necessary or appropriate in order to carry out the purposes and intent of this Agreement.

10.8 Severability. If any provision of this Agreement is found by a court of competent jurisdiction to be unenforceable, then such provision shall be construed, to the extent feasible, so as to render the provision enforceable, and if no feasible interpretation would save such provision, it shall be severed from the remainder of this Agreement. The remainder of this Agreement shall remain in full force and effect, unless the severed provision is essential and material to the rights or benefits received by either Party. In such event, the Parties shall negotiate, in good faith, and substitute a valid and enforceable provision or agreement that most nearly implements the Parties’ intent in entering into this Agreement.

10.9 No Waiver. No provision of this Agreement can be waived except by the express written consent of the Party waiving compliance. Except as specifically provided for herein, the waiver from time to time by either Party of any of its rights or its failure to exercise any remedy shall not operate or be construed as a continuing waiver of same or of any other of such Party’s rights or remedies provided in this Agreement.

10.10 Independent Contractors. For all purposes under this Agreement, Alliqua and CCT and their respective Affiliates are independent contractors with respect to each other, and shall not be deemed to be an employee, agent, partner or legal representative of the other Party. This Agreement does not grant any Party or its employees, consultants or agents any authority (express or implied) to do any of the following without the prior express written consent of the other Party: create or assume any obligation; enter into any agreement; make any representation or warranty; serve or accept legal process on behalf of the other Party; settle any claim by or against the other Party; or bind or otherwise render the other liable in any way.

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10.11 Governing Law. This Agreement shall be governed by the laws of the state of New York, without regard to its choice of law provisions that would require the application of the laws of a different jurisdiction. The Parties hereby irrevocably submit to the jurisdiction of the state and federal courts sitting in the County and State of New York for the adjudication of disputes arising out of or relating to this Agreement.

10.12 Counterparts. This Agreement may be executed in two (2) or more counterparts, each of which shall be deemed an original but all of which together shall constitute the same legal instrument. Facsimile or PDF execution and delivery of this Agreement by any Party shall constitute a legal, valid and binding execution and delivery of this Agreement by such Party. The Parties to this document agree that a copy of the original signature (including an electronic copy) may be used for any and all purposes for which the original signature may have been used. The Parties agree they will have no rights to challenge the use or authenticity of this document based solely on the absence of an original signature.

[Signature page follows.]

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IN WITNESS WHEREOF , each of the Parties has caused this Agreement to be executed in duplicate, as of the Effective Date, by its duly authorized officer or representative.

ANTHROGENESIS CORPORATION		ALLIQUA, INC.

By:	/s/ Perry Karsen	By:	/s/ David Johnson
Name:	Perry Karsen	Name:	David Johnson
Title:	Chief Executive Officer	Title:	Chief Executive Officer

[Signature Page to Supply Agreement]

SCHEDULE 2.2

(a) Alliqua shall submit to CCT as soon as practicable after the Effective Date, and in any event not later than the thirtieth (30 ^th ) day after Regulatory Clearance and/or Approval in the United States of an ECM, and thereafter no later than the fifth (5th) Business Day of every month during the Term:

(i) a three (3) year rolling forecast (“ Long Range Forecast ”) organized by Manufactured Product stock keeping unit and by quarterly periods, setting forth the quantities of each Manufactured Product that Alliqua expects to purchase from CCT during the three (3) years commencing with the beginning of said month, and

(ii) a twelve (12)-month rolling forecast (“ Forecast ”) organized by Manufactured Product stock keeping unit and by months, setting forth the quantities of each Manufactured Product that Alliqua expects to purchase from CCT during the twelve (12)-month period commencing with the beginning of said month.

(b) Alliqua shall make all Forecasts and Long Range Forecasts in good faith given market and other information available to Alliqua. Each Forecast shall constitute a binding commitment of Alliqua to purchase at least the percentages of Manufactured Products set forth below pursuant to Firm Orders issued in accordance with Subsection (c) below, notwithstanding any change in the quantity of a Manufactured Product specified in a subsequent Forecast. Except as provided in the preceding sentence, each Forecast shall be non-binding on Alliqua. Each Long Range Forecast shall be non-binding on Alliqua. Alliqua shall be required to submit Firm Orders to purchase at least that percentage of the quantity of each of the Manufactured Products specified in the Forecast as follows:

Period of the Forecast	Percentage of the aggregate amount of Manufactured Products that Alliqua is required to submit Firm Orders for during such period
[****]	[****]
[****]	[****]
[****]	[****]

(c) Alliqua shall purchase Manufactured Products solely by Firm Orders for such Manufactured Products. For a given month, CCT will accept Firm Orders for quantities of Manufactured Products, provided such Firm Orders in the aggregate do not exceed [****] of the quantity set forth in the binding portion of the Forecast most recently submitted for such month; provided, however, that if, with respect to any month, Alliqua orders any Manufactured Product in excess of [****] of the quantity set forth in the binding portion of the Forecast most recently submitted for such month, CCT shall make commercially reasonable efforts to supply such excess up to [****] of the quantity set forth in the binding portion of the Forecast most recently submitted for such month, but shall not be liable for its failure to do so. Alliqua shall specify a delivery date in each Firm Order that is at least sixty (60) days after the date on which the Firm Order is submitted to CCT. CCT shall, within five (5) Business Days after CCT receives each Firm Order submitted in accordance with the preceding two sentences, accept in writing such Firm Order. Subject to any other term or condition of this Agreement, Alliqua shall be obligated to purchase, and CCT shall be obligated to deliver by the required delivery date set forth therein, such quantities of each Manufactured Product as are set forth in each Firm Order. If Alliqua requests changes to any Firm Order previously submitted by Alliqua, including any increases or decreases in quantity of Manufactured Products, required delivery date or form of Manufactured Product, CCT shall provide Alliqua a good faith estimate of the anticipated costs of complying with such request. If Alliqua approves such estimated costs in writing, CCT shall use commercially reasonable efforts to comply with such changes but shall not be liable for its failure to do so. In the event that CCT complies with any such request, Alliqua shall reimburse CCT for its commercially reasonable, documented costs incurred in complying with such request. Notwithstanding anything to the contrary in this subsection (c), during the first six months of Manufactured Product deliveries under this Agreement, CCT shall have the right to reasonably restrict the maximum number of Units (by size) per month of Manufactured Products that CCT shall be obligated to deliver to such quantities that are agreed upon in writing by the Parties to be reasonably sufficient for the commercial launch of the Manufactured Product, and during such six month period CCT shall have no obligation to deliver, nor to accept any portion of a Firm Order requiring it to deliver, more than such maximum number of Units (by size) per month.

(d) CCT shall promptly notify Alliqua in writing if at any time CCT has reason to believe that CCT will not be able to (i) fill a Firm Order for any Manufactured Product in accordance with the delivery schedule specified therein by Alliqua and pursuant to the terms and conditions of this Agreement and the Quality Agreement, or (ii) supply Manufactured Products to Alliqua in satisfaction of the most recent Forecast, which notice in either case shall provide Alliqua with information on the extent of the expected shortfall of supply. Upon such notice of a supply shortfall, or in any event upon CCT's failure to satisfy, within the delivery time frame specified by Alliqua, a portion of the Manufactured Products ordered by Alliqua in compliance with this Agreement and the Quality Agreement, Alliqua and CCT will immediately meet and work together in good faith to identify an appropriate resolution to the supply shortfall. Any agreed resolution to the supply shortfall will be set forth in a writing executed by both Parties. Compliance by CCT with this subsection (d) shall not relieve CCT of any other obligation or liability under this Agreement, including any obligation or liability under subsections (e) or (f) below.

(e) If CCT fails to deliver at least [****] of any Manufactured Products specified in a Firm Order conforming to the provisions of Subsection (c) above by the required delivery date specified therein and in conformity with the applicable Specifications, Alliqua, at its option, may:

(i) cancel all or any portion of such Firm Order with respect to such Manufactured Products, in which event Alliqua shall have no liability with respect to the portion of such Firm Order so cancelled; or

(ii) accept late delivery of all or any portion of such Firm Order with respect to such Manufactured Product, in which event the Purchase Price otherwise payable by Alliqua with respect to all Manufactured Products delivered late and accepted by Alliqua under such Firm Order shall be reduced by [****].

(f) If CCT fails to deliver at least [****] of any Manufactured Products specified in a Firm Order conforming to the provisions of Subsection (c) above by the required delivery date specified therein and in conformity with the applicable Specifications, CCT shall pay to Alliqua any reasonable, documented external expenses incurred by Alliqua resulting from CCT’s breach of its obligation to deliver the full quantity of any Manufactured Product specified in such Firm Order by the required delivery date specified therein. Notwithstanding anything to the contrary in this Agreement, delivery by CCT of at least [****] of the quantity ordered will be accepted by Alliqua in full satisfaction of CCT’s obligation to supply a Firm Order. Should delivered quantities of Manufactured Product be below [****], CCT will use commercially reasonable efforts to accelerate the subsequent delivery of Manufactured Product, if so requested by Alliqua. Alliqua will be invoiced for the actual quantities shipped, adjusted as provided in Subsection (e)(ii) above. CCT will not be responsible for warehousing Manufactured Product for Alliqua. CCT will make available to Alliqua or Alliqua’s designee, as the case may be, all Manufactured Products upon release.

(g) The remedies provided for in Subsections (e) and (f) above shall be the sole remedies of Alliqua with respect to any single failure by CCT to deliver less than [****] of any Manufactured Product specified in a Firm Order conforming to the provisions of C 2.2(c) by the required delivery date specified therein and in conformity with the applicable Specifications; and the remedy provided for in Section 9.2(b) of the Agreement shall be the sole remedy of Alliqua with respect to the failure of CCT on at least [****] within any [****] period to deliver at least [****] of any Manufactured Products specified in a Firm Order conforming to the provisions of Schedule 2.2, subsection (c) by the required delivery date specified therein and in conformity with the applicable Specifications.

(h) Notwithstanding anything to the contrary in the Agreement, following termination of the Agreement pursuant to Sections 9.2(a) or (b), during the twelve (12) month period commencing on the date notice of termination is given pursuant to either of such Sections (the “ Termination Supply Period ”), Alliqua may submit Firm Orders for quantities of Manufactured Products in accordance with subsection (c) above, except that the Firm Orders for any month during the last nine (9) months of the Termination Supply Period may not exceed one hundred percent (100%) of the forecasted amount for such nine (9) months in the most recent Forecast provided by Alliqua to CCT prior to such notice of termination.

SCHEDULE 4.1

ECM PURCHASE PRICE

Purchase Price per unit of Manufactured Products, regardless of dimensions thereof: $[****]

Maximum dimension of Manufactured Products at the $[****] Purchase Price noted above: [****]

If Alliqua wishes to have larger sizes of Manufactured Products, the Purchase Price for such larger sizes will be negotiated in good faith and agreed to by the Parties in writing.

Where CCT is procuring Outer Cartons, the Outer Carton cost will be added to the Purchase Price as provided under Section 2.1(c) of this Agreement.

The Parties may discuss at the JSC an amendment to this Agreement to specify Purchase Prices for each particular SKU of the Manufactured Products. Any such amendment will be in writing and subject to agreement by both Parties.

Exhibit 10.5

FIRST AMENDMENT

TO THE SUPPLY AGREEMENT

This First Amendment ( “ First Amendment ”) to the Supply Agreement dated November 14, 2013 (the “Agreement”) is effective as of April 10, 2014 (the “ First Amendment Effective Date ”), by and between Anthrogenesis Corporation, a Delaware corporation doing business as Celgene Cellular Therapeutics (“ CCT ”), and Alliqua, Inc., a Florida corporation (“ Alliqua ”). Alliqua and CCT may each be referred to as a “ Party ” or collectively be referred to as the “ Parties ”.

WHEREAS Alliqua and CCT entered into the Agreement;

WHEREAS both Parties now wish to amend the terms of the Agreement as further described in this First Amendment;

NOW and THEREFORE the Parties hereby agrees as follows:

All capitalized terms used in this First Amendment shall have the meaning ascribed to them in the Agreement, except as otherwise expressly stated herein.

As of the First Amendment Effective Date, Schedule 4.1 of the Agreement shall be deleted and replaced in its entirety with Schedule 4.1 attached to this First Amendment.

Performance under all other terms of the Agreement: Except as expressly amended hereby, the Agreement shall remain in full force and effect as presently written, and the rights, duties, liabilities and obligations of the Parties thereto, as presently constituted, will continue in full effect. This First Amendment is incorporated and made a part of the Agreement between The Parties. This First Amendment, together with the Agreement, constitutes the entire agreement between the Parties with respect to the subject matter contained therein, and together, supersede and replace any prior and/or contemporaneous discussions, understandings, representations or agreements, whether written or oral, with respect to the subject matter thereof.

Counterparts: This First Amendment may be executed in two (2) or more counterparts, each of which shall be deemed an original but all of which together shall constitute the same legal instrument. Facsimile or PDF execution and delivery of this First Amendment by any Party shall constitute a legal, valid and binding execution and delivery of this First Amendment by such Party. The Parties to this document agree that a copy of the original signature (including an electronic copy) may be used for any and all purposes for which the original signature may have been used. The Parties agree they will have no rights to challenge the use or authenticity of this document based solely on the absence of an original signature.

[Signature page follows]

IN WITNESS WHEREOF , each of the Parties has caused this First Amendment to be executed, as of the First Amendment Effective Date, by its duly authorized officer or representative.

ANTHROGENESIS CORPORATION		ALLIQUA, INC.

By:	/s/ Perry Karsen	By:	/s/ David Johnson
Name:	Perry Karsen	Name:	David Johnson
Title:	Chief Executive Officer	Title:	Chief Executive Officer

SCHEDULE 4.1

BIOVANCE PURCHASE PRICE

Purchase Price per unit of Manufactured Products, by unit dimensions:

Unit Dimensions of Manufactured Products	Purchase Price Per Unit of Manufactured Products
[****]	[****]
[****]	[****]
[****]	[****]
[****]	[****]

Maximum dimension of Manufactured Products: [****]

EXHIBIT 31.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, David Johnson, certify that:

1.	I have reviewed this Quarterly Report on Form 10-Q of Alliqua Biomedical, Inc.;

2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.	The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

	a.	designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

	b.	designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

	c.	evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

	d.	disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.	The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

	a.	all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

	b.	any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 11, 2014	By:	/s/ David Johnson
		David Johnson
		Chief Executive Officer
		(Principal Executive Officer)

EXHIBIT 31.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER

PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Brian M. Posner, certify that:

1.	I have reviewed this Quarterly Report on Form 10-Q of Alliqua Biomedical, Inc.;

2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.	The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

	a.	designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

	b.	designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

	c.	evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

	d.	disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.	The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

	a.	all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

	b.	any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 11, 2014	By:	/s/ Brian M. Posner
		Brian M. Posner
		Chief Financial Officer
		(Principal Financial Officer)

EXHIBIT 32.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

This certification is furnished solely pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350) and accompanies the Quarterly Report on Form 10-Q (the “Form 10-Q”) for the quarter ended June 30, 2014, of Alliqua Biomedical, Inc. (the “Company”). I, David Johnson, the Chief Executive Officer and Principal Executive Officer of the Company, certify that, based on my knowledge:

(1)	The Form 10-Q fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934; and

(2)	The information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company as of and for the periods covered in this report.

Date: August 11, 2014	By:	/s/ David Johnson
	Name:	David Johnson
	Title:	Chief Executive Officer
		(Principal Executive Officer)

The foregoing certification is being furnished as an exhibit to the Form 10-Q pursuant to Item 601(b)(32) of Regulation S-K and Section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code) and, accordingly, is not being filed as part of the Form 10-Q for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and is not incorporated by reference into any filing of the Company, whether made before or after the date hereof, regardless of any general incorporation language in such filing.

EXHIBIT 32.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER

PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

This certification is furnished solely pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350) and accompanies the Quarterly Report on Form 10-Q (the “Form 10-Q”) for the quarter ended June 30, 2014, of Alliqua Biomedical, Inc. (the “Company”). I, Brian M. Posner, the Chief Financial Officer and Principal Financial Officer of the Company, certify that, based on my knowledge:

(1)	The Form 10-Q fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934; and

(2)	The information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company as of and for the periods covered in this report.

Date: August 11, 2014	By:	/s/ Brian M. Posner
	Name:	Brian M. Posner
	Title:	Chief Financial Officer
		(Principal Financial Officer)