7.    Accounts Payable – Reductions and Settlements

In November 2018, Alliqua originally planned to spin-off its AquaMed subsidiary to merge and combine it with the operations of TO Pharmaceuticals of Israel to create a public biopharmaceutical company called TO Pharma.  In preparation for this spin-off, Alliqua incurred costs for professional fees and other related transaction costs, of which a portion totaling $259,000 related to services provided directly to AquaMed.  Accordingly, these direct costs were allocated to AquaMed and recognized in accounts payable and as a component of selling, general and administrative expenses in AquaMed’s carve-out financial statements in the first and second quarters of 2019. In June 2019, the proposed transaction with TO Pharmaceuticals was terminated.  AquaMed continued to pursue other opportunities to merge its business with another independent company, however, in August 2019, it suspended these pursuits and decided to operate as a stand-alone entity.  Due to the Company’s liquidity constraints, in September 2019, AquaMed negotiated multiple reductions and settlements on certain outstanding accounts payable balances owed to certain of the Company’s professional service providers totaling $186,000 in the aggregate.  Upon negotiating these reductions and being legally released from being the primary obligor, the Company derecognized the corresponding amounts recorded in accounts payable with a corresponding adjustment to selling, general and administrative expenses in September 2019.