What changed in this filing

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Item 1. Financial Statements

2020-08-04 compared with 2020-05-05 · 583 added, 510 removed, 326 unchanged (77% of the section changed)

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Authorized 250,000,000 shares;

33,582,696 and 33,562,885 shares issued and outstanding at March 31, 2020 and December 31, 2019, respectively

33,616,601 and 33,562,885 shares issued and outstanding at June 30, 2020 and December 31, 2019,

Additional paid-in capital

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Three Months Ended

Six Months Ended

Costs and expenses:

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Total costs and expenses

Loss from operations

Income/(loss) from operations

Other income/(expenses):

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Stockholders’

Deficit/Equity

Balance December 31, 2019

Equity/Deficit

For the periods ended June 30, 2020:

Balance at January 1, 2020

Share-based compensation

Balance, March 31, 2020

Balance December 31, 2018

Adoption of ASU 2014-09 and ASU 2018-07

Balance at March 31, 2020

Shares issued under employee stock purchase plan

Share-based compensation

Balance, March 31, 2019

Balance at, June 30, 2020

For the periods ended June 30, 2019:

Balance at January 1, 2019

Adoption of ASU 2014-09, ASU 2018-07 (Note 3C)

Share-based compensation

Balance at March 31, 2019

Shares issued under employee stock purchase plan

Share-based compensation

Balance at, June 30, 2019

See accompanying notes to the condensed consolidated financial statements.

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(In thousands)

Three Months Ended

Cash flows from operating activities:

Six Months Ended

Cash flows used for operating activities:

Adjustments to reconcile net loss to net cash used for operating activities:

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Amortization of debt issuance costs and discounts

Non-cash interest expense

All other non-cash expenses

Changes in operating assets and liabilities:

Trade receivables and other receivables

Trade and other receivables

Inventories, net

Prepaid expenses and other current assets

Prepaid expenses and other assets

Accounts payable and accrued expenses

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Net cash used for operating activities

Cash flows from investing activities:

Cash flows used for investing activities:

Capital expenditures

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Cash flows used for financing activities:

Proceeds from shares issued under employee stock purchase plan

Debt repayment

Payments for taxes on share-based compensation

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Cash payments for interest

Net (decrease) in accrued capital expenditures

Net (decrease) in capital expenditures included in accounts payable and accrued expenses

Net increase in financing costs included in accounts payable and accrued expenses

Accrued withholding tax for share based compensation

See accompanying notes to the condensed consolidated financial statements.

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Aquestive Therapeutics, Inc.

(“Aquestive” or the “Company”) is a pharmaceutical company focused on identifying, developing and commercializing differentiated products to address unmet medical needs and solve critical

healthcare challenges.

The Company has a commercial proprietary product pipeline focused on the treatment of diseases of the central nervous system, or CNS, and is developing orally administered complex molecules as alternatives to more invasive

(“Aquestive” or the “Company”) is a pharmaceutical company focused on identifying, developing and commercializing differentiated products that address patients’ unmet

medical needs and solve therapeutic problems.

The Company has a commercial proprietary product pipeline focused on the treatment of diseases of the central nervous system, or CNS, and other unmet needs, and is developing orally administered complex

molecules as alternatives to more invasive therapies.

Aquestive is pursuing its business objectives through both in-licensing and out-licensing arrangements, as well as the commercialization of its own products.

Production facilities are located in Portage, Indiana, and corporate

headquarters, sales and commercialization operations and primary research laboratory facilities are based in Warren, New Jersey.

The Company’s major customer and primary commercialization licensee has global operations headquartered in the United

Kingdom with principal operations in the United States;

Production facilities are located in

Portage, Indiana, and corporate headquarters, sales and commercialization operations and primary research laboratory facilities are based in Warren, New Jersey.

The Company’s major customer and primary commercialization licensee has global operations

headquartered in the United Kingdom with principal operations in the United States;

other customers are principally located in the United States.

Aquestive is subject to risks common to companies in similar industries and stages of development, including, but not limited to, competition from larger companies, reliance on revenue from a limited number of products

and customers, adequacy of existing and availability of additional operating and growth capital as and when required, uncertainty of regulatory approval for marketing its product candidates, reliance on a single manufacturing site, new technological

innovations, dependence on key personnel, reliance on third-party service providers and sole source suppliers, dependence on patent-protected proprietary technology, ongoing government regulatory compliance requirements, dependence on the clinical

and commercial success of its drug candidates, and uncertainty of broad adoption of its approved products, if any, by physicians and consumers.

Aquestive is also subject to the risks and uncertainties associated with the COVID-19 pandemic.

Aquestive is subject to risks common to companies in similar industries and stages of development, including, but not limited to, competition from larger companies, reliance on revenue from a limited

number of products and customers, adequacy of existing and availability of additional operating and growth capital as and when required, uncertainty of regulatory approval for marketing its product candidates, reliance on a single manufacturing site,

new technological innovations, dependence on key personnel, reliance on third-party service providers and sole source suppliers, dependence on patent-protected proprietary technology, ongoing government regulatory compliance requirements, dependence

on the clinical and commercial success of its drug candidates, and uncertainty of broad adoption of its approved products, if any, by physicians and consumers.

Aquestive is also subject to risks and uncertainties associated with the COVID-19

Risks and Uncertainties for further discussion related to COVID-19.

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Equity Offering of Common Stock

On December 17, 2019, Aquestive received net proceeds of $37,835 after deducting underwriting discounts of $2,415 for the sale of 8,050,000 shares of common stock in a public offering.

Professional fees and other costs

of this offering totaled $540, in addition to the underwriting discounts.

On December 17, 2019, Aquestive received net proceeds of $37,835 after deducting underwriting discounts of $2,415 for the sale of 8,050,000 shares of common stock in a

public offering.

Professional fees and other costs of this offering totaled $540, in addition to the underwriting discounts.

Basis of Presentation

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generally accepted accounting principles (“U.S.

GAAP”) and with Article 10 of Regulation S-X for

interim financial reporting.

GAAP”) and with Article 10 of

Regulation S-X for interim financial reporting.

In compliance with those rules, certain information and footnote disclosures normally included in annual consolidated financial statements prepared in accordance with U.S.

GAAP have been condensed or omitted.

condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and related notes for the fiscal year ended December 31, 2019 included in our Annual Report on Form 10-K filed with

the SEC on March 11, 2020 (the “2019 Annual Report on Form 10-K”).

As included herein, the condensed consolidated balance sheet at December 31, 2019 is derived from the audited consolidated financial statements as of that date.

In the opinion of

management, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair statement of the results of interim periods have been included.

The Company has evaluated subsequent events for disclosure through the date

of issuance of the accompanying unaudited condensed financial statements.

GAAP have been condensed or

These condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and related notes for the fiscal year ended December 31, 2019 included in the Company’s Annual

Report on Form 10-K filed with the SEC on March 11, 2020 (the “2019 Annual Report on Form 10-K”).

As included herein, the condensed consolidated balance sheet at December 31, 2019 is derived from the audited consolidated financial statements as of

In the opinion of management, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair statement of the results of interim periods have been included.

The accompanying financial statements reflect

certain reclassifications from previously issued financial statements to conform to the current presentation.

The Company has evaluated subsequent events for disclosure through the date of issuance of the accompanying unaudited condensed financial

Any reference in these notes to applicable guidance refers to the authoritative U.S.

GAAP as found in the Accounting Standards Codification (“ASC”) and Accounting Standards Updates (“ASU”) of the Financial Accounting

Standards Board (“FASB”).

GAAP as found in the Accounting Standards Codification (“ASC”) and Accounting Standards

Updates (“ASU”) of the Financial Accounting Standards Board (“FASB”).

Summary of Significant Accounting Policies

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and its wholly owned subsidiary, MonoSol Rx, Inc.

Other than corporate formation activities,

MonoSol Rx, Inc.

Other than corporate

formation activities, MonoSol Rx, Inc.

has conducted no commercial, developmental or operational activities and has no customers or vendors.

The results of operations and cash flows reported in these condensed consolidated financial statements should not be regarded as

necessarily indicative of results that may be expected in any other interim period or for the entire fiscal year.

The results of operations and cash flows reported in these condensed consolidated financial statements

should not be regarded as necessarily indicative of results that may be expected in any other interim period or for the entire fiscal year.

(B) Use of Estimates

The preparation of financial statements in conformity with U.S.

GAAP requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities, including disclosure

of contingent assets and contingent liabilities, at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.

GAAP requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities,

including disclosure of contingent assets and contingent liabilities, at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.

Actual results could differ from those estimates.

Significant items subject to estimates and assumptions include allowances for rebates from proprietary product sales, the allowance for sales returns, the useful lives of fixed assets, valuation of

share-based compensation and contingencies.

Significant items subject to estimates and assumptions include allowances for rebates from proprietary product sales, the allowance for sales returns, the useful lives of fixed assets, valuation of share-based compensation and contingencies.

As an emerging growth company, the Company has elected to take advantage of the extended transition period afforded by the Jumpstart Our Business Startups Act for the implementation of new or revised accounting standards

and, as a result, the Company will comply with new or revised accounting standards no later than the relevant dates on which adoption of such standards is required for emerging growth companies.

The Company believes that the impact of recently issued

standards that are not yet effective will not have a material impact on its financial position or results of operations upon adoption.

As an emerging growth company, the Company has elected to take advantage of the extended transition period afforded by the Jumpstart Our Business Startups Act for

the implementation of new or revised accounting standards and, as a result, the Company will comply with new or revised accounting standards no later than the relevant dates on which adoption of such standards is required for emerging growth

The Company believes that the impact of recently issued accounting standards that are not yet effective will not have a material impact on its financial position or results of operations upon adoption .

Recently Adopted Accounting Pronouncements:

In February 2016, the Financial Accounting Standards Board issued ASU, 2016-02, Leases (Topic 842) , and issued amendments in July 2018 provided by ASU 2018-10.

This ASU, as amended, requires lessees to recognize lease assets, termed “right-of-use assets” and related lease

liabilities on the balance sheet that had previously been classified as operating leases under prior authoritative guidance.

For income statement purposes, leases are now required to be classified as either operating or financing leases under a

dual model similar to that specified by ASC 840.

Operating leases continue to result in straight-line expense while financing leases result in a front-loaded expense pattern in a manner similar to recognition of capital lease expenses under ASC

The Company adopted ASU 2016-02 on January 1, 20 20 using the modified retrospective transition provisions of ASC 842 to leases in effect as

of that date of adoption, and recorded lease liabilities and right-of-use assets, as adjusted for accrued lease payments, in the amount of $4,2 24 based on an estimated incremental borrowing rate of

16.9%, representing the present value of remaining minimum lease payments.

This ASU, as amended, requires lessees to recognize lease assets, termed “right-of-use assets” and related lease liabilities on the balance sheet that had previously been

classified as operating leases under prior authoritative guidance.

For income statement purposes, leases are now required to be classified as either operating or financing leases under a dual model similar to that specified by ASC 840.

leases continue to result in straight-line expense while financing leases result in a front-loaded expense pattern in a manner similar to recognition of capital lease expenses under ASC 840.

The Company adopted and applied ASU 2016-02 on January 1, 20 20 using the modified retrospective transition provisions of ASC 842 to leases in effect as of that

date of adoption, and recorded right-of-use assets totaling $4,048 and lease liabilities as adjusted for accrued lease payments, in the amount of $4,224 based on an estimated incremental borrowing rate of 16.9%, representing the present value of

remaining minimum lease payments.

The assets and liabilities thus recorded were primarily those related to the Company’s leased plant, laboratory and corporate administrative facilities.

The Company elected

to apply the ASU-specified practical expedients and accordingly did not re-assess (i) whether its contracts contained a lease under the new definition of a lease, (ii) the classification of those leases

and (iii) initial direct costs of existing leases.

In addition, the Company elected not to apply the hindsight expedient in the assessment of lease renewals and resultant term of leases.

The Company also elected not to recognize a right-of-use

asset and lease liability for those leases with a remaining lease term of 12 months or less.

The Company elected to apply the ASU-specified practical

expedients and accordingly did not re-assess (i) whether its contracts contained a lease under the new definition of a lease, (ii) the classification of those leases, and (iii) initial direct costs of existing leases.

In addition, the Company

elected not to apply the hindsight expedient in the assessment of lease renewals and resultant term of leases.

The Company also elected not to recognize a right-of-use asset and lease liability for those leases with a remaining lease term of 12

months or less.

The adoption of ASU 2016-02 did not require a cumulative-effect adjustment to the opening balance of the accumulated deficit at the time of adoption.

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers , and subsequently amended the standard in ASC 606 which provides a single

comprehensive model to be used in accounting for revenue arising from contracts with customers and supersedes previous revenue recognition guidance.

The standard’s core principle is that an entity should recognize revenue to depict the transfer of

promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.

In addition, the standard requires disclosure of the nature, amount, timing and

uncertainty of revenue and cash flows arising from contracts with customers.

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers , and subsequently issued a number of amendments to this update.

standard, as amended in Accounting Standards Codification, or ASC 606, provides a single comprehensive model to be used in accounting for revenue arising from contracts with customers and supersedes previous revenue recognition guidance.

standard’s core principle is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods

In addition, the standard requires disclosure of the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers.

The Company adopted this standard effective January 1, 2019.

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may be paid following a business combination.

The Company adopted this new guidance on January 1, 2020 without material impact on our condensed consolidated financial position or results of operations.

The Company adopted this new guidance on January 1, 2020 without material impact on its condensed consolidated financial position or results of operations.

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820):

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(ii) the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements.

The Company adopted this new guidance on January 1, 2020 without material impact on our condensed consolidated financial position

The Company adopted this new guidance on January 1, 2020 without material impact on its condensed consolidated financial position

or results of operations.

In November 2018, the FASB issued ASU 2018-18, C ollaborative Arrangements (Topic 808):

Clarifying the Interaction Between Topic 808 and Topic 606, which

clarifies that certain transactions between collaborative arrangement participants should be accounted for as revenue under ASC 606 when the collaborative arrangement participant is a customer for a promised good or service that is distinct within

the collaborative arrangement.

The guidance also precludes entities from presenting amounts related to transactions with a collaborative arrangement participant that is not a customer as revenue, unless those transactions are directly related to

third-party sales.

The Company adopted this new guidance on January 1, 2020 without material impact on our condensed consolidated financial position or results of operations.

Recent Accounting Pronouncements Not Adopted as of March 31, 2020:

In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326) , amending existing guidance on the accounting for credit losses on financial

instruments within its scope.

Clarifying the Interaction Between Topic 808 and Topic 606, which clarifies that certain

transactions between collaborative arrangement participants should be accounted for as revenue under ASC 606 when the collaborative arrangement participant is a customer for a promised good or service that is distinct within the collaborative

The Company adopted this new guidance on January 1, 2020 without material impact on its condensed consolidated financial position or results of operations.

Recent Accounting Pronouncements Not Adopted as of June 30, 2020:

In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326) , amending existing guidance on the

accounting for credit losses on financial instruments within its scope.

The guidance introduces an expected loss model for estimating credit losses, replacing the incurred loss model.

The new guidance also changes the impairment model for available-for-sale debt securities, requiring the use

of an allowance to record estimated credit losses (and subsequent recoveries).

The new guidance also changes the impairment model for

available-for-sale debt securities, requiring the use of an allowance to record estimated credit losses (and subsequent recoveries).

The new guidance is effective for the Company beginning after December 15, 2022.

The Company is currently evaluating the impact of the adoption of this guidance on its

condensed consolidated financial statements.

In August 2018, the FASB issued ASU 2018-15, Intangibles—Goodwill and Other Internal-Use Software (Subtopic 350-40:

Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract , which aligns the requirements for capitalizing implementation costs incurred in a hosting

arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software.

The update provides guidance distinguishing between capitalizable service contract

implementation costs and contract costs required to be expense.

In addition, the update requires that the term of the hosting arrangement is to include the non-cancelable period of the arrangement plus periods covered by (i) an option to extend the

arrangement if the customer is reasonably certain to exercise that option;

(ii) an option to terminate the arrangement if the customer is reasonably certain not to exercise the termination option and (iii) an option to extend (or not to terminate)

the arrangement in which exercise of the option is in the control of the vendor.

The Company is currently evaluating

the impact of the adoption of this guidance on its condensed consolidated financial statements.

In August 2018, the FASB issued ASU 2018-15, Intangibles—Goodwill and Other Internal-Use Software

(Subtopic 350-40:

Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract , which aligns the requirements for capitalizing implementation costs

incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software.

The update provides guidance distinguishing between capitalizable service

contract implementation costs and contract costs required to be expensed.

In addition, the update requires that the term of the hosting arrangement is to include the non-cancelable period of the arrangement plus periods covered by (i) an option to

extend the arrangement if the customer is reasonably certain to exercise that option;

(ii) an option to terminate the arrangement if the customer is reasonably certain not to exercise the termination option and (iii) an option to extend (or not to

terminate) the arrangement in which exercise of the option is in the control of the vendor.

This standard will become effective for the Company beginning January 1, 2021.

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The Company is currently evaluating the impact of ASU 2018-15 on its consolidated financial statements.

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740), Simplifying the Accounting for Income Taxes, which amends accounting for income taxes during interim periods and makes changes to certain income tax classifications.

The new standard allows exceptions to the use of the incremental approach for intra-period tax

allocation, when there is a loss from continuing operations and income or a gain from other items, and to the general methodology for calculating income taxes in an interim period, when a year-to-date loss exceeds the anticipated loss for the year.

The standard also requires franchise or similar taxes partially based on income to be reported as income tax and the effects of enacted changes in tax laws or rates to be included in the annual effective tax rate computation from the date of

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740), Simplifying the Accounting

for Income Taxes, which amends accounting for income taxes during interim periods and makes changes to certain income tax classifications.

The new standard allows exceptions to the use of the incremental

approach for intra-period tax allocation, when there is a loss from continuing operations and income or a gain from other items, and to the general methodology for calculating income taxes in an interim period, when a year-to-date loss exceeds the

anticipated loss for the year.

computation from the date of enactment.

The standard will be effective for the Company beginning January 1, 2022, with early adoption of the amendments permitted.

The Company is currently evaluating the impact from the adoption of ASU 2019-12 on its consolidated financial

Other pronouncements issued by the FASB or other authoritative accounting standards groups with future effective dates are either not applicable or not significant to the condensed consolidated financial statements of

The Company is currently evaluating the impact from the adoption of ASU 2019-12 on

its consolidated financial statements

Other pronouncements issued by the FASB or other authoritative accounting standards groups with future effective dates are either not applicable or not significant to the

condensed consolidated financial statements of the Company.

Risks and Uncertainties

The Company’s cash requirements for 2020 and beyond include expenses related to continuing development and clinical evaluation of its products, costs of regulatory filings, patent prosecution expenses and litigation

expenses, expenses related to commercialization of its products, as well as costs to comply with the requirements of being a public company.

As of March 31, 2020, working capital (current assets minus current liabilities) totaled $35,726, which

included $35,521 of cash and cash equivalents.

As of March 31, 2020, Aquestive has experienced a history of net losses and the Company’s accumulated deficits totaled $147,004, which have been partially funded by profits from manufacture and supply operations,

licensing revenues and certain other services, with the balance of the related funding requirements met by the Company’s equity and debt securities offerings and 12.5% Senior Secured Notes due 2025.

In 2019, the Company raised funding totaling

$52,226, consisting of net proceeds of $13,110 from the refinancing of its debt in July, $37,295 from the public offering of 8,050,000 common shares in December 2019, and $1,821 from the exercise of warrants issued in connection with the

aforementioned debt refinancing.

In addition to the characteristics described above, the nature of which provide indications that the Company’s ability to execute its near-term business objectives and achieve profitability over

the longer term cannot be assured, management views the impact of COVID-19 on the economy, its industry and its own operations as rapidly evolving, the future effects of which are highly uncertain and currently unpredictable.

Due to current or

future interruptions and possible disruptions in health services, FDA operations, freight and other transportation services, supply, manufacturing, workforce health, availability of favorable financial markets and other essential human and business

requirements, the possibility exists that the severity, rapidity of the spread, and the duration of the COVID-19 pandemic may be expected to negatively affect such areas as pre-clinical and clinical trials of our product candidates, regulatory

review and approval of our product candidates, customer demand for our products and services, our customers’ ability to pay for goods and services, uninterrupted supply of pharmaceutical ingredients and other raw materials from our approved

vendors, ongoing availability of an appropriate labor force and skilled professionals, and additional capital from debt or equity investors.

Subject to and absent any material adverse effect of these and other possible COVID-19 effects, the Company expect s that its anticipated revenues from licensed and proprietary products, cash on hand and the funds received from the equity offering, potential monetization of its out-licensed apomorphine product candidate, subject to regulatory approval which cannot be assured, and

access to the capital markets under its shelf registration statement, w ould be adequate to meet expected operating, investing,

The Company’s cash requirements for 2020 and beyond include expenses related to continuing development and clinical evaluation of its products, manufacture and supply costs, costs of regulatory

filings, patent prosecution expenses and litigation expenses, expenses related to commercialization of its products, as well as costs to comply with the requirements of being a public company operating in a highly regulated industry.

As of June 30,

2020, working capital (current assets minus current liabilities) totaled $29,027, which included $25,422 of cash and cash equivalents.

As of June 30, 2020, Aquestive has experienced a history of net losses and the Company’s accumulated deficits totaled $149,338, which have been partially funded by profits from manufacture and supply

operations, licensing revenues and certain other services, with the balance of the related funding requirements met by the Company’s equity and debt offerings including its 12.5% Senior Secured Notes due 2025.

In 2019, the Company raised funding

totaling $52,226, consisting of net proceeds of $13,110 from the refinancing of its debt in July 2019, $37,295 from the public offering of 8,050,000 common shares in December 2019, and $1,821 from the exercise of warrants issued in connection with

the aforementioned debt refinancing.

The characteristics described above provide indications that the Company’s ability to execute its near-term business objectives and achieve profitability over the longer term cannot be assured.

Further, management views the impact of COVID-19 on the economy, its industry, its customers and suppliers and its own operations as continuing to rapidly evolve, the future effects of which continue to be highly uncertain and unpredictable.

current or future interruptions and possible disruptions in health services, operations of the United States Food and Drug Administration (“FDA”), freight and other transportation services, supply, manufacturing, workforce health, availability of

acceptable capital, financial and asset monetization markets, and availability of essential human and business requirements, and unforeseeable financial difficulties of the Company’s customers or vendors, the severity, rapidity of the spread, and the

duration of the COVID-19 pandemic may be expected to negatively affect a great number of businesses across various industries, including Aquestive.

The Company may experience financial and operational adversity in such areas as pre-clinical, clinical

trials, regulatory review and approval of various product candidates, customer demand for products and services, customers’ ability to pay for goods and services, supply of pharmaceutical ingredients and other raw materials from approved vendors,

ongoing availability of an appropriate labor force and skilled professionals, and additional capital or other funding from capital, financial or monetization markets.

Subject to and absent any material adverse effect of these and other possible COVID-19 effects, the Company expect s that its anticipated revenues from licensed and proprietary products, cash on hand , expense management initiatives, additional debt financing under our existing

debt arrangement (subject to satisfaction of all conditions to and requirements for further issuances of our Senior Secured Notes) , and

access to equity markets , including under its shelf registration statement, would be adequate to meet expected operating, investing,

and financing needs for the next twelve months.

To the extent additional funds are necessary to meet liquidity needs as the Company continues to execute its business strategy, the Company anticipates that additional funding requirements will be

obtained through monetization of certain royalty streams or through availability of additional debt or equity financings, and continuing expense reduction initiatives, or a combination of these potential sources of funds, although the Company can

provide no assurance that these sources of funding will be available on reasonable terms, if at all , and we could be required to utilize available financial resources sooner than expected .

We have based this expectation on assumptions that could change or prove to be inaccurate , either due to the impact of COVID-19 or to

unrelated factors including factors arising in the capital markets, asset monetization markets, regulatory approval process, regulatory oversight and other factors.

To the extent additional funds are necessary to meet operating needs as the Company continues to execute its business strategy, management believes that additional funding requirements would be obtained through access to appropriate financial markets for a potential monetization of certain revenue streams for its

out-licensed apomorphine product (KYNMOBI™) (subject to all conditions under Senior Secured Notes and acceptable market conditions, timing, structure and terms), and availability of debt or equity

financings, or a combination of these potential sources of funds, although management can provide no assurance that these sources of funding will be available on reasonable terms, if at all.

In addition, the Company may be required to utilize available financial resources sooner than expected.

Management has based its expectation on assumptions that could change or prove

to be inaccurate, either due to the impact of COVID-19 or to unrelated factors including factors arising in the capital markets, asset monetization markets, regulatory approval process, regulatory oversight and other factors.

Revenues and Trade Receivables, Net

Our revenues to date have been earned from our product development pipeline, marketed product activities and self-developed medicines.

Revenue from Contracts with Customers

Revenues to date have been earned from the Company’s manufactured products made to order for licensees, including Suboxone® and Zuplenz®, as well as revenue from its self-developed,

self-commercialized proprietary product, Sympazan®.

Revenues are also earned from its product development services provided under contracts with customers.

These activities generate revenues in four primary categories:

manufacturing and

supply revenue, co-development and research fees, license and royalty revenue, and proprietary product sales, net.

Performance Obligations

A performance obligation is a promise in a contract to transfer a distinct good or service to the customer and is the unit of account in the current revenue standard.

A contract’s transaction price is allocated to each

distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied.

At contract inception, we assess the goods promised in our contracts with customers and identify a performance obligation for each promise

to transfer to the customer a good that is distinct.

When identifying our performance obligations, we consider all goods or services promised in the contract regardless of whether explicitly stated in the customer contract or implied by customary

business practices.

The Company’s performance obligations consist mainly of transferring control of goods and services identified in the contracts, purchase orders or invoices.

The Company’s performance obligation with respect to its proprietary product sales is satisfied at a point in time which transfers control upon delivery of the product to its customers.

The Company considers control

to have transferred upon delivery because the customer has legal title to the asset, physical possession of the asset has been transferred, the customer has significant risks and rewards of ownership of the asset and the Company has a present right

to payment at that time.

With respect to manufacturing and supply revenue stream, a quantity is ordered and manufactured according to customer’s specifications and represents a single performance obligation.

The products manufactured are

exclusively for specific customers and have no alternative use.

Under the customer arrangements, the Company is entitled to receive payments for progress made to date once the acceptance requirements surrounding quality control are satisfied.

Thus, revenues related to this product stream are recognized at the point in time when the manufactured product passes quality control.

Royalty revenues are estimated based on the provisions of contracts with customers and recognized in the same period that the royalty-based products are sold to the Company’s strategic partners, as

all royalties are directly attributable to the Company’s manufacturing activities, and are therefore recognizable at the same time the manufacturing revenue is recognizable.

In addition to usage-based royalties, licensing contracts may contain

provisions for one-time payments related to certain license fees and milestone achievements.

Revenue recognition of these license fees and milestone payments depend on the nature of the specific contract;

typically license and milestone payments are

recognized at a point in time in the period they are achieved.

However, there are limited instances where upon review of the contract, it is determined that the license is non-distinct and limited in nature and does not provide benefit to the

customer without purchasing the product, these upfront licensing fees are recognized over time (typically the length of the contract).

Co-development and research fee revenue is recorded over time based upon the progress of services provided in order to complete the specific performance obligation identified in the related contract.

Revenues from sale of products and services and the subsequent related payments are evidenced by a contract with the customer, which includes all relevant terms of sale.

For manufacturing and supply

and proprietary product sales, invoices are generally issued upon the transfer of control and co-development and research revenue is typically invoiced based on the contractual payment schedule, or upon completion of the service.

manufacturing and supply

revenue, co-development and research fees, license and royalty revenue, and proprietary product sales, net.

Revenue Recognition and Performance Obligations

Aquestive recognizes revenue pursuant to the five-step model embodied in ASC 606, Revenue from Contracts with Customers , to reflect amounts expected to be

collectible in exchange for the transfer of contractually promised goods or services to its customers, as discussed in additional detail in the Company’s 2019 Annual Report on Form 10-K Accordingly, contractually promised goods or services are

assessed at contract inception to identify those that constitute distinct performance obligations.

Contract revenues are allocated to those distinct performance obligations based on estimated standalone values or expected values, and these allocated

revenues are recognized at the point in time, or over the period of time, that those distinct obligations are satisfied.

The Company’s performance obligations consist primarily of transferring control of goods, services or intellectual property that

are identified in the contracts, purchase orders or invoices.

Variable, or contingent, revenues which may become due from customers, such as milestone payments due upon acceptance of a regulatory filing, regulatory approval, or sales-based milestone

payments, are not recognized until contingencies are met in order to fix the customer’s obligation to meet its contractual payment commitment, thereby reducing any significant probability of a revenue reversal.

Manufacture and supply revenue – includes revenue from products manufactured exclusively for specific customers according to their strictly-defined

specifications.

These products are not manufactured for inventory, have no alternative use and are required to pass specified quality control inspections.

The Company’s single performance obligation pursuant to these arrangements is to provide

manufactured product of appropriate quality.

Accordingly, revenue, net of available discounts, is recognized and the Company is entitled to receive payments at the point in time when quality control requirements are satisfied.

Proprietary product sales, net - the Company’s performance obligation with respect to its proprietary product sales is satisfied at a point in time

coinciding with delivery and transfer of control of the product to its customers.

Revenue is recognized at this point in time given that the Company has no ongoing performance obligations, the customer has legal title and physical possession of the

asset and has assumed all significant risks and rewards of ownership, and the Company has a current right to receive payment.

These revenues are subject to payment discounts, wholesaler service fees, volume and prompt payment discounts, rebates and

other chargebacks, which are estimated at the time the revenue is recorded and concurrently booked.

Once all related variable considerations are resolved and uncertainties as to collectible amounts are eliminated, estimates are adjusted to actual

allowance amounts.

Provisions for these estimated amounts are reviewed and adjusted on no less than a quarterly basis.

License and royalty revenues – the Company may realize revenue from functional

or from symbolic licenses.

For functional licenses that do not require further development or other ongoing activities by the Company, the customer is viewed as acquiring the right to use the license as, and when, transferred and revenues are

generally recorded at a point in time, subject to contingencies or constraints, if any.

For symbolic licenses providing substantial value only in conjunction with other performance obligations to be provided by the Company, such as manufactured

products or development services, revenues are generally recorded over the term of the license agreement.

Payments received in excess of amounts earned are deferred and recognized over the term of the license or as contingencies or other

performance obligations are met.

Royalty revenues are estimated based on the provisions of contracts with customers and recognized in the same period that the royalty-based products are sold to the Company’s strategic partners, as all

royalties are directly attributable to the Company’s manufacturing activities, and are therefore recognizable at the same time the manufacturing revenue is recognizable.

Co-development and research fees – this revenue is recorded over time based upon the progress of services provided in order to complete the specific

performance obligation identified in the related development or feasibility services agreement.

Invoicing occurs as specified in related agreements and may, or may not, coincide with completion of underlying performance obligations and therefore may

give rise to contract assets when the value of services completed exceeds amounts that may be invoiced to the customer.

Alternatively, in instances in which the customer has made payments in advance of completion of the underlying performance

obligations, deferred revenues result that may only be recognized upon completion of those obligations.

The Company does not recognize revenue associated with any milestone or performance obligation until there is not a significant probability of a

revenue reversal.

Revenues from the sale of products and services and the subsequent related payments are evidenced by a contract with the customer, which includes all relevant terms of sale.

For manufacturing and

supply and proprietary product sales, invoices are generally issued upon the transfer of control and co-development and research revenue is typically invoiced based on the contractual payment schedule, or upon completion of the service.

typically payable 30 to 60 days after the invoice date, however some payment terms may reach 75 days depending on the customer.

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Contract Assets

In limited situations, certain customer contractual payment terms require us to bill in arrears;

thus, we satisfy some, or all, of our performance obligations before we are contractually entitled to bill the customer.

these situations, billing occurs subsequent to revenue recognition, which results in a contract asset.

We reflect these contract assets as a component of other receivables within Trade and other receivables on the Condensed Consolidated Balance

As of March 31, 2020, and December 31, 2019, such contract assets were $1,458, and $4,363, respectively.

In limited situations, certain customer contractual payment terms provide for invoicing in arrears.

Accordingly, some, or all performance obligations may be completely satisfied before the

customer may be invoiced under such agreements.

In these situations, billing occurs after revenue recognition, which results in a contract asset supported by the estimated value of the completed portion of the obligation.

These contract assets are

reflected as a component of other receivables within Trade and other receivables within the Condensed Consolidated Balance Sheet.

As of June 30, 2020, and December 31, 2019, such current and non-current contract assets were $8,503 and $4,363,

respectively, consisting primarily of completed but unshipped products manufactured to specific order by certain licensees.

Contract Liabilities

In other limited situations, certain customer contractual payment terms allow us to bill in advance;

thus, we receive customer cash payment before satisfying some or all of our performance

In other limited situations, certain customer contractual payment terms are structured to permit invoicing in advance of delivery of a good or service.

In such instances, the customer’s cash

payment may be received before satisfaction of some, or any, performance obligations that are specified.

In these situations, billing occurs in advance of revenue recognition, which results in contract liabilities.

We reflect these contract liabilities as deferred revenue on our Consolidated Balance Sheet.

As we satisfy our remaining

performance obligations, we release a portion of the deferred revenue balance.

As of March 31, 2020, and December 31, 2019, such contract liabilities were $4,872 and $5,154, respectively.

These contract liabilities are

reflected as deferred revenue within the Condensed Consolidated Balance Sheet.

As remaining performance obligations are satisfied, an appropriate portion of the deferred revenue balance is credited to earnings.

As of June 30, 2020, and December 31,

2019, such contract liabilities were $4,670 and $5,154, respectively.

The Company’s revenues were comprised of the following:

Three Months Ended

Six Months Ended

Manufacture and supply revenue

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Three Months Ended

Six Months Ended

United States

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Total revenues

Non-United States revenues is derived primarily from products manufactured for the Australian and Malaysian markets.

Non-United States revenues are derived primarily from products manufactured for the Australian and Malaysian markets.

Trade and other receivables, net consist of the following:

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Contract and other receivables

allowance for bad debt

allowance for bad debts

sales-related allowances

Trade and other receivables, net

Other receivables totaled $1,406 and $4,363 as of March 31, 2020 and December 31, 2019, respectively, consisting primarily of reimbursable costs incurred on behalf of customers for which earnings processes have been

met prior to shipment of goods or full delivery of completed services.

Sales-related allowances for both periods presented are estimated in relation to revenues recognized for sales of Sympazan®.

The current portion of contract and other receivables totaled $1,452 and $4,363 as of June 30, 2020 and December 31, 2019, respectively.

The June 30, 2020 balance is comprised primarily of $1,000 of

minimum royalty revenue due from a licensee and the remaining balance represents reimbursable costs incurred on behalf of customers for which earnings processes have been met prior to shipment of goods or full delivery of completed services.

December 31, 2019 balance represents reimbursable costs incurred on behalf of customers for which earnings processes have been met prior to shipment of goods or full delivery of completed services.

Sales-related allowances for both periods presented

are estimated in relation to revenues recognized for sales of Sympazan.

The following table presents the changes in the allowance for bad debt:

Allowance for doubtful accounts at beginning of period

Allowance for doubtful accounts at beginning of year

Reversals/additions charged to bad debt expense

Recoveries from amounts previously reserved

Allowance for doubtful accounts at end of period

Write-downs charged against the allowance

Allowance for doubtful accounts at end of the period

Sales Related Allowances and Accruals

Revenues from sales of products are recorded net of prompt payment discounts, wholesaler service fees, returns allowances, rebates and co-pay support programs.

These reserves are based on estimates of the amounts earned

or to be claimed on the related sales.

These reserves are based on estimates

of the amounts earned or to be claimed on the related sales.

These amounts are treated as variable consideration, estimated and recognized as a reduction of the transaction price at the time of the sale.

The Company includes these estimated amounts in the transaction

price to the extent it is probable that a significant reversal of cumulative revenue recognized for such transaction will not occur, or when the uncertainty associated with the variable consideration is resolved.

The calculation of some of these

items requires management to make estimates based on sales data, historical return data, contracts and other related information that may become known in the future.

The Company includes these estimated amounts

in the transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized for such transaction will not occur, or when the uncertainty associated with the variable consideration is resolved.

The calculation of

some of these items requires management to make estimates based on sales data, historical return data, contracts and other related information that may become known in the future.

The adequacy of these provisions is reviewed on a quarterly basis.

The following table provides a summary of activity with respect to our sales related allowances and accruals for the three months ended March 31, 2020:

The following table provides a summary of activity with respect to sales related allowances and accruals for the six months ended June 30, 2020:

Total Sales Related

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Balance at December 31, 2019

Provision related to sales during the period

Credits and payments

Balance at March 31, 2020

Total reductions of gross product sales from sale-related allowances and accruals were $1,157 for the three months ended March 31, 2020.

Accruals for returns allowances and prompt pay discounts are

reflected as a direct reduction to trade receivable and accruals for wholesaler fees, co-pay cards and rebates as current liabilities.

The accrued balances relative to these provisions included in Trade and other receivables, net and Accounts payable

and accrued expenses were $256 and $1,411, respectively, at March 31, 2020 and $203 and $1,174, respectively, at December 31, 2019.

Payments / credits

Balance at June 30, 2020

Total reductions of gross product sales from sales-related allowances and accruals were $2,438 for the six months ended June 30, 2020.

Accruals for returns allowances and

prompt pay discounts are reflected as a direct reduction to trade receivables and accruals for wholesaler fees, co-pay cards and rebates as current liabilities.

The accrued balances relative to these provisions included in Trade and other

receivables, net and Accounts payable and accrued expenses were $305 and $1,399, respectively, at June 30, 2020 and $203 and $1,174, respectively, at December 31, 2019.

Concentration of Major Customers

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(“Indivior”) provided 86% of the total revenues for the period, and as of that date, the Company’s outstanding receivable balance from Indivior represented approximately 80% of gross receivables.

For the three months ended March

31, 2020, revenues provided by Indivior represented approximately 79% of total revenue, and outstanding accounts receivable due from Indivior represented approximately 63% of gross receivables.

For the six months ended June 30,

2020, there were two customers exceeding the 10% thresholds.

Revenues provided by Indivior and Sunovion Pharmaceuticals, Inc.

(“Sunovion”) represented approximately 48% and 39%, respectively of total revenue for the six months ended June 30, 2020,

and outstanding accounts receivable due from Indivior and Sunovion represented approximately 40% and 38%, respectively of gross receivables.

Material Agreements

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In August 2008, the Company entered into a Commercial Exploitation Agreement with Reckitt Benckiser Pharmaceuticals, Inc.

(with subsequent amendment collectively, the “Indivior License Agreement”).

Reckitt Benckiser

Pharmaceuticals, Inc.

(with subsequent amendments collectively, the “Indivior License Agreement”).

Reckitt Benckiser Pharmaceuticals, Inc.

was later succeeded to in interest by Indivior, Inc.

Pursuant to the Indivior License Agreement, the Company agreed to manufacture and supply Indivior’s requirements for Suboxone, a sublingual film formulation, both inside

and outside the United States on an exclusive basis.

Under the terms of the Indivior License Agreement, the Company is required to manufacture Suboxone in accordance with current Good Manufacturing Practice standards and according to the specifications and processes set

forth in the related quality agreements the Company entered into with Indivior.

Pursuant to the Indivior License Agreement, the Company agreed to manufacture and supply Indivior’s requirements for Suboxone, a sublingual film

formulation, both inside and outside the United States on an exclusive basis.

Under the terms of the Indivior License Agreement, the Company is required to manufacture Suboxone in accordance with current Good Manufacturing Practice standards and according to the specifications

and processes set forth in the related quality agreements the Company entered into with Indivior.

Additionally, the Company is required to obtain Active Pharmaceutical Ingredients (“API”) for the manufacture of Suboxone directly from Indivior.

The Indivior License

Agreement specifies a minimum annual threshold quantity of Suboxone that the Company is obligated to fill and requires Indivior to provide the Company with a forecast of its requirements at various specified times throughout the year.

The Indivior License Agreement provides for payment by Indivior of a purchase price per unit that is subject to adjustment based on our ability to satisfy minimum product thresholds.

Additionally, in the event Indivior

purchases certain large quantities of Suboxone during a specified period, Indivior will be entitled to scaled rebates on its purchases.

In addition to the purchase price for the Suboxone supplied, Indivior is required to make certain single digit percentage royalty payments tied to net sales value (as provided for in the Indivior License Agreement) in

each of the United States and in the rest of the world subject to annual maximum amounts and limited to the life of the related United States or international patents.

In 2012, Indivior exercised its right to buy out its future royalty obligations in

the United States under the Indivior License Agreement.

Indivior License Agreement specifies a minimum annual threshold quantity of Suboxone that the Company is obligated to fill and requires Indivior to provide the Company with a forecast of its requirements at various specified times throughout the

The Indivior License Agreement provides for payment by Indivior of a purchase price per unit that is subject to adjustment based on the Company’s ability to satisfy minimum product thresholds.

Additionally, in the event Indivior purchases certain large quantities of Suboxone during a specified period, Indivior will be entitled to scaled rebates on its purchases.

In addition to the purchase price for the Suboxone supplied, Indivior is required to make certain single digit percentage royalty payments tied to net sales value (as provided for in the Indivior

License Agreement) in each of the United States and in the rest of the world subject to annual maximum amounts and limited to the life of the related United States or international patents.

In 2012, Indivior exercised its right to buy out its future

royalty obligations in the United States under the Indivior License Agreement.

Indivior remains obligated to pay royalties for all sales outside the United States.

The Indivior License Agreement contains customary contractual termination provisions, including, with respect to a filing for bankruptcy or corporate dissolution, an invalidation of the intellectual property surrounding

Suboxone, or commission of a material breach of the Indivior License Agreement by either party.

Additionally, Indivior may terminate the Indivior License Agreement if the U.S.

Food and Drug Administration (“FDA”) or other applicable regulatory

authority declares the Company’s manufacturing site to no longer be suitable for the manufacture of Suboxone or Suboxone is no longer suitable to be manufactured due to health or safety reasons.

The initial term of the Indivior License Agreement was

seven years from the commencement date.

Thereafter, the Indivior License Agreement automatically renews for successive one-year periods, unless either party provides the other with written notice of its intent not to renew at least one year prior to

the expiration of the initial or renewal term.

The Indivior License Agreement contains customary contractual termination provisions, including with respect to a filing for bankruptcy or corporate dissolution, an invalidation of the intellectual

property surrounding Suboxone, and commission of a material breach of the Indivior License Agreement by either party.

Additionally, Indivior may terminate the Indivior License Agreement if the FDA or other applicable regulatory authority declares the

Company’s manufacturing site to no longer be suitable for the manufacture of Suboxone or Suboxone is no longer suitable to be manufactured due to health or safety reasons.

The initial term of the Indivior License Agreement was seven years from the

commencement date.

initial or renewal term.

Supplemental Agreement with Indivior

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The aggregate payments under this Indivior Supplemental Agreement are capped at $75,000.

All payments made by Indivior to the Company pursuant to the Indivior Supplemental Agreement are in addition to, and not in place of, any amounts owed by Indivior to the Company pursuant to the Indivior License

Indivior’s payment obligations under the Indivior Supplemental Agreement are subject to certain factors affecting the market for Suboxone and may terminate prior to January 1, 2023 in the event certain contingencies relating to such market

All payments made by Indivior to the Company pursuant to the Indivior Supplemental Agreement are in addition to, and not in place of, any amounts owed by Indivior to the Company pursuant to the

Indivior License Agreement.

relating to such market occur.

License Agreement with Sunovion Pharmaceuticals, Inc.

In April 2016, we entered into a license agreement with Cynapsus Therapeutics Inc.

(which was later succeeded to in interest by Sunovion Pharmaceuticals, Inc., or “Sunovion”) referred to as the

Sunovion License Agreement, pursuant to which we granted Sunovion an exclusive, worldwide license (with the right to sub-license) to certain intellectual property, including existing and future patents and patent applications, covering all oral films

containing APL-130277 (apomorphine) for the treatment of off episodes in Parkinson’s disease patients, as well as two other fields.

Our licensee, Sunovion, as sponsor of APL-130277, submitted a New Drug Application (“NDA”) to the FDA on March 29,

According to public statements by Sunovion, following the January 2019 PDUFA date, Sunovion received a Complete Response Letter from the FDA which requires additional data, but does not require additional clinical studies.

In the 2019 fourth

quarter, Sunovion announced that it had received from the FDA a Prescription Drug User Fee Act (PDUFA) date of May 21, 2020 after the submission of its NDA.

On April 1, 2016, the Company entered into a license agreement with Cynapsus Therapeutics Inc.

(which was later succeeded to in interest by Sunovion Pharmaceuticals, Inc.,), referred to as the

Sunovion License Agreement, pursuant to which Sunovion obtained an exclusive, worldwide license (with the right to sub-license) to certain intellectual property, including existing and future patents and patent applications, covering all oral films

containing apomorphine for the treatment of off episodes in Parkinson’s disease patients.

The FDA granted approval of Kynmobi on May 21, 2020, as anticipated.

This approval has triggered Sunovion’s obligation to remit a payment of $4,000 (the “FDA

Approval Milestone Payment”) due on the earlier of:

(a) the first day of product availability at a pharmacy in the United States;

or (b) within six months of the FDA approval.

This amount is included in Trade and other receivables as of June 30, 2020

and in the License and royalty revenues for the three- and six-months ended June 30, 2020.

In consideration for the rights granted to Sunovion under the Sunovion License Agreement, the Company received aggregate payments totaling $18,000 to date.

In addition to the upfront payment of $5,000, the Company also

earned an aggregate of $13,000 in connection with specified regulatory and development milestones in the United States and Europe (the “Initial Milestone Payments”), all of which of which has been received to date.

No payments were received during

the three-month period ended March 31, 2020 and 2019, respectively.

The Company is also entitled to receive certain contingent one-time milestone payments related to product availability and regulatory approval in the United States and Europe,

certain one-time milestone payments based on the achievement of specific annual net sales thresholds of APL-130277, and ongoing mid-single digit percentage royalty payments related to the net sales of APL-130277, (subject to reduction to low-single

digit percentage royalty payments in certain circumstances), subject to certain minimum payments.

The maximum aggregate milestone payments that may be paid to the Company pursuant to the Sunovion License Agreement is equal to $45,000.

exception of the Initial Milestone Payments, there can be no guarantee that any such milestones will in fact be met or that additional milestone payments will be payable.

Effective March 16, 2020, the Company entered into a first amendment (the “Amendment”) to the License Agreement (the “Agreement”) dated as of April 1, 2016.

The Amendment was entered into for the primary purpose of

amending the Agreement as follows:

(i) including the United Kingdom and any other country currently in the European Union (EU) which later withdraws as a member country in the EU for purpose of determining the satisfaction of the condition

triggering the obligation to pay the third milestone due under the Agreement, (ii) extending the date after which Sunovion has the right to terminate the Agreement for convenience from December 31, 2024 to May 31, 2028, (iii) modifying the date the

first minimum annual royalty is due to be paid by Sunovion to the Company from January 1, 2020 to April 1, 2020 and (iv) modifying the termination provisions to reflect the Company’s waiver of the right to terminate the Agreement in the event that

the licensed product was not commercialized by January 1, 2020.

This Sunovion License Agreement will continue until terminated by Sunovion in accordance with the termination provisions of the Amendment to the Sunovion License Agreement.

Sunovion License Agreement continues (on a country-by-country basis) until the expiration of all applicable licensed patents.

Upon termination of the Sunovion License Agreement all rights to intellectual property granted to Sunovion to develop and

commercialize products will revert to the Company and Sunovion must continue to pay royalties to the Company on each sale of Sunovion's remaining inventory of products commercialized by Sunovion which include apomorphine as their API.

In addition to the upfront payment of

$5,000, the Company also earned an aggregate of $17,000 in connection with specified regulatory and development milestones in the United States and Europe (the “Initial Milestone Payments”), of which $13,000has been received by the Company.

payments were received under the Sunovion License Agreement during the three- and six-month period ended June 30, 2020.

The Company is also entitled to receive certain contingent one-time milestone payments related to product availability and

regulatory approval in the United States and Europe, certain one-time milestone payments based on the achievement of specific annual net sales thresholds of Kynmobi, and ongoing mid-single digit percentage royalty payments related to the net sales of

Kynmobi (subject to reduction to low-single digit percentage royalty payments in certain circumstances), subject to certain minimum payments.

The maximum aggregate milestone payments that may be paid to the Company pursuant to the Sunovion License

Agreement is equal to $45,000.

With the exception of the Initial Milestone Payments and the FDA Approval Milestone Payment, there can be no guarantee that any such milestones will in fact be met or that additional milestone payments will be payable.

There is a minimum guaranteed royalty of $1,000 for each of the next eight years.

As of June 30, 2020, the Company recorded minimum royalty receivables of $8,000 in aggregate, of which $1,000 is included in Trade and other receivables and $7,000 is

included in Intangibles, net and other assets.

The Company recognized $8,000 in royalty revenue which is recorded in License and royalty revenues for the three- and six- months ended June 30, 2020.

Effective March 16, 2020, the Company entered into a first amendment (the “Amendment”) to the Sunovion License Agreement.

The Amendment was entered into for the primary purpose

of amending the Sunovion License Agreement as follows:

(i) including the United Kingdom and any other country currently in the European Union (EU) which later withdraws as a member country in the EU for purpose of determining the satisfaction of

the condition triggering the obligation to pay the third milestone due under the Sunovion License Agreement, (ii) extending the date after which Sunovion has the right to terminate the Sunovion License Agreement for convenience from December 31,

2024 to March 31, 2028, (iii) modifying the date the first minimum annual royalty is due to be paid by Sunovion to the Company from January 1, 2020 to April 1, 2020, and (iv) modifying the termination provisions to reflect the Company’s waiver of

the right to terminate the Sunovion License Agreement in the event that Kynmobi was not commercialized by January 1, 2020.

This Sunovion License Agreement will continue until terminated by Sunovion in accordance with the termination provisions of

the Amendment to the Sunovion License Agreement.

The Sunovion License Agreement continues (on a country-by-country basis) until the expiration of all applicable licensed patents.

Upon termination of the Sunovion License Agreement, all rights to

intellectual property granted to Sunovion to develop and commercialize products will revert to the Company and Sunovion must continue to pay royalties to the Company on each sale of Sunovion's remaining inventory of products commercialized by

Sunovion which include apomorphine as their API.

Agreement to Terminate CLA with KemPharm

In March 2012, the Company entered into an agreement with KemPharm, Inc.

(“KemPharm”) to terminate a Collaboration and License Agreement entered into by the Company and KemPharm during April 2011.

termination arrangement, the Company has the right to participate in any and all value that KemPharm may derive from the commercialization or any other monetization of KemPharm’s KP-415 and KP-484 compounds or their derivatives.

monetization transactions are those related to any business combinations involving KemPharm and collaborations, royalty arrangements, or other transactions from which KemPharm may realize value from these compounds.

During September 2019, the

Company received $1,000 from its 10% share of milestone payments paid to KemPharm under its licensing of KP-415 and KP-484 to a third party.

There can be no guarantee that any such payments will be made in the future.

The Company has not received

payments under this arrangement during the three-month periods ended at March 31, 2020 and 2019, respectively.

(“KemPharm”) to terminate a Collaboration and License Agreement entered into by the Company and

KemPharm in April 2011.

Under this termination arrangement, the Company has the right to participate in any and all value that KemPharm may derive from the commercialization or any other monetization of KemPharm’s KP-415 and KP-484 compounds or

their derivatives.

Among these monetization transactions are those related to any business combinations involving KemPharm and collaborations, royalty arrangements, or other transactions from which KemPharm may realize value from these compounds.

During September 2019, the Company received $1,000 from its 10% share of milestone payments paid to KemPharm under its licensing of KP-415 and KP-484 to a third party.

The Company has also received a payment of $500 under this arrangement during

June 2020, which is included in License and royalty revenues for the three- and six-month periods ended June 30, 2020, in connection with the FDA’s acceptance of an New Drug Application (“NDA”) filing for KP-415.

A Prescription Drug User Fee Act

(PDUFA) target date for completion of FDA review has been scheduled for early March 2021.

The Company’s share of remaining milestone payments associated with KP-415 approval and certain targeted labeling goals within timeframes ending in July 2021

may reach $4,800.

However, there can be no guarantee that approvals, goals or any such payments will be achieved or received in the future.

Financial Instruments – Fair Value Measurements

Certain assets and liabilities are reported on a recurring basis at fair value.

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the

principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.

Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize

the use of unobservable inputs.

Financial assets and liabilities carried at fair value are to be classified and disclosed in one of the following three levels of the fair value hierarchy, of which the first two are considered observable and the last

is considered unobservable:

Level 1 – Quoted prices in active markets for identical assets or liabilities.

Cash and cash equivalents consisted of cash in bank checking accounts and money market funds which are all Level 1 assets.

Level 2 – Observable inputs (other than Level 1 quoted prices), such as quoted prices in active markets for similar assets or liabilities, quoted prices in markets that are not active for identical or similar assets or liabilities, or

other inputs that are observable or can be corroborated by observable market data.

The Company currently has no Level 2 assets or liabilities.

Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to determining the fair value of the assets or liabilities, including pricing models, discounted cash flow methodologies and similar

As of March 31, 2020 and 2019, respectively, the Company has no Level 3 assets or liabilities.

The carrying amounts reported in the balance sheets for trade and other receivables, prepaid and other current assets, accounts payable and accrued expenses, and deferred revenue approximate fair value based on the

short-term maturity of these assets and liabilities.

The Company granted warrants to certain holders of its Notes in connection with its debt refinancing during 2019.

These warrants were valued based on Level 3 inputs and their fair value was based primarily on an

independent third-party appraisal prepared as of the grant date consistent with generally-accepted valuation methods of the Uniform Standards of Professional Appraisal Practice, the American Society of Appraisers and the American Institute of

Certified Public Accountants’ Accounting and Valuation Guide, Valuation of Privately-Held Company Equity Securities Issued Compensation.

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an

exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.

Valuation techniques used to measure fair value must maximize the use of observable

inputs and minimize the use of unobservable inputs.

Financial assets and liabilities carried at fair value are to be classified and disclosed in one of the following three levels of the fair value hierarchy, of which the first two are considered

observable and the last is considered unobservable:

Level 1 — Observable quoted prices in active markets for identical assets or liabilities.

Level 2 — Observable prices that are based on inputs not quoted on active markets but corroborated by market data.

Level 3 — Unobservable inputs that are supported by little or no market activity, such as pricing models, discounted cash flow methodologies and similar techniques.

The carrying amounts reported in the balance sheets for trade and other receivables, prepaid and other current assets, accounts payable and accrued expenses, and deferred revenue approximate their

fair values based on the short-term maturity of these assets and liabilities.

The Company granted warrants to certain holders of its Notes in connection with its debt refinancing in July 2019.

These warrants were valued based primarily on Level 3 inputs and an independent

third-party appraisal prepared as of the grant date consistent with generally-accepted valuation methods of the Uniform Standards of Professional Appraisal Practice, the American Society of Appraisers and the American Institute of Certified Public

Accountants’ Accounting and Valuation Guide, Valuation of Privately-Held Company Equity Securities Issued Compensation.

See Note 14 for further information on these warrants.

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Finished goods

Total inventories, net

Total inventory, net

The Company manufactures Suboxone exclusively to order for its major customer subject to strict quality standards and recognizes revenue upon completion of all customary quality

control evaluations, which occurs prior to actual shipment.

Property and Equipment, Net

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Leasehold improvements are amortized over the shorter of the lease term or their estimated useful lives.

Total depreciation and amortization related to property and equipment was $714 and $736 for the three-month periods ended at March 31, 2020 and 2019, respectively.

Total depreciation and amortization related to property and equipment was $700 and $711 for the three-month periods ended June 30, 2020 and 2019, respectively.

For the respective

six-month periods, these expenses totaled $1,414 and $1,447.

Right-of-Use Assets and Lease Obligations

The Company leases all realty used as its production and warehouse facilities, corporate headquarters, commercialization operations center and research and laboratory facilities.

None of these three leases

include the characteristics specified in ASC 842, Leases, that require classification as financing leases and accordingly, these

leases are accounted for as operating leases .

These leases provide remaining terms between 3.

0 years and 6.5 years, including renewal options expected to be

exercised to extend the lease periods.

Measurement of the operating lease liability reflects an estimated discount rate of 16.9% applied to minimum lease payments, including expected renewals, based on the incremental borrowing rate experienced

in the Company’s latest collateralized debt refinancing.

For the three months ended March 31, 2020, total operating lease expenses under these leases was $442, including variable lease expenses such as common area maintenance and operating costs

totaling $106.

The Company leases all realty used as its p roduction and warehouse facilities, corporate headquarters, commercialization operations center and research and

laboratory facilities.

None of these three leases include the characteristics specified in ASC 842, Leases, that require classification

as financing leases and, accordingly, these leases are accounted for as operating leases .

These leases provide remaining terms between 2.8 years and 6.3 years, including renewal options expected to be exercised to extend the lease periods.

Right-of-use assets recorded upon adoption of ASC 842 totaled $4,048.

For the three- and six-month periods ended June 30, 2020, total operating lease expenses under these leases totaled $377 and $819, respectively, including variable

lease expenses such as common area maintenance and operating costs totaling $60 and $166, respectively.

Total payments to these lessors during the six-month period ended June 30, 2020 were $633.

Maturities of the Company’s operating lease liabilities are as follows:

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Intangible Assets, Net and Other Assets

The following table provides the components of identifiable intangible assets, all of which are finite lived, and other assets:

The following table provides the components of identifiable intangible assets, all of which are finite lived:

Purchased technology-based intangible

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Intangible assets, net

Royalty receivable

Other assets, primarily security deposits

Total intangible assets, net and other assets

Amortization expense was $13 for each of the three-month periods ended March 31, 2020 and 2019, respectively.

During the remaining life of the purchased patent, estimated annual amortization expense is $50 for each of

the years from 2020 to 2022.

Amortization expense was $12 and $13 for each of the three-month periods ended June 30, 2020 and 2019, respectively.

For the corresponding six-month periods, these expenses

totaled $25 and $26, respectively.

During the remaining life of the purchased patent, estimated annual amortization expense is $50 for each of the years from 2020 to 2022.

Royalty receivable consists of seven annual $1,000 minimum royalty payments

due from Sunovion, the last of which is due in March 2028.

See Note 6 above.

Accounts Payable and Accrued Expenses

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Accrued compensation

Real estate and personal property taxes

Accrued distribution expenses

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12.5% Senior Secured Notes

On July 15, 2019, the Company completed a private placement of up to $100 million aggregate principal of its 12.5% Senior Secured Notes due 2025 (the “Notes”) and issued warrants for two million shares of common

stock (the “Warrants”), $.001 par value per share, through the structuring agent, Morgan Stanley & Co., LLC, and entered into a purchase agreement and related agreements including a Collateral Agreement with U.S.

Bank National Association, as

trustee and collateral agent, and a Lien Subordination and Intercreditor Agreement for the benefit of Madryn Health Partners, other institutional noteholders and U.S.

Bank National Association in dual roles providing terms and governing an

asset-based loan facility.

Upon closing of the Indenture for such Notes (“Indenture”), the Company issued $70,000 of the principal of the Notes (the “Initial Notes”) along with the Warrants and rights of first offer (the “First Offer Rights”) to

the lenders participating in this transaction for Notes and Warrants (the “Lenders”).

On July 15, 2019, the Company completed a private placement of up to $100 million aggregate principal of its 12.5% Senior Secured Notes due 2025 (the “Notes”) and issued warrants for two million

shares of common stock (the “Warrants”), $.001 par value per share, through the structuring agent, Morgan Stanley & Co., LLC, and entered into a purchase agreement and related agreements including a Collateral Agreement with U.S.

Bank National

Association, as trustee and collateral agent, and a Lien Subordination and Intercreditor Agreement for the benefit of Madryn Health Partners, other institutional noteholders and U.S.

Bank National Association in dual roles providing terms and

governing an asset-based loan facility.

“First Offer Rights”) to the lenders participating in this transaction for Notes and Warrants (the “Lenders”).

Issuance of the Initial Notes and Warrants provided net proceeds of $66,082.

In addition to the Initial Notes, the Indenture may provide access to further loans

of up to $30,000 that may become available in two tranches of Additional Notes tied to the NDA filing for and FDA U.S.

marketing approval of Libervant™, an important part of our drug candidate pipeline.

Provided that no events of default exist, the

Company may elect to, and subject to approval of the holder of a majority of the outstanding principal amount of the Notes, in its discretion, to offer to the Lenders participation in a $10,000 additional offering of 12.5% senior secured notes (the

“First Additional Offering”) under terms similar to the Initial Notes, on or before March 31, 2021, upon the filing of the Libervant NDA with the FDA.

A second identical funding opportunity would allow the Company to obtain, on or before March 31,

2021, an additional $20,000 if the first option has been elected and funded, or, if not elected or funded, an additional $30,000 may be offered for issuance following FDA approval of Libervant for marketing in the U.S.

There can be no assurance that

any additional financing will be consummated.

Proceeds from issuance of the Initial Notes and Warrants were used to fully repay the Company’s $56,340 outstanding indebtedness to Perceptive Credit Opportunities Fund, LP (the “Perceptive Loan”), related early

repayment fees and legal and other fees incurred to obtain the loan.

The Notes provide a stated fixed rate of 12.5%, payable quarterly in arrears, with the initial quarterly principal repayment of the Initial Notes due on September 30, 2021, and the final quarterly payment due at maturity

on June 30, 2025.

In addition to the Initial Notes, the Indenture may provide

access to further loans of up to $30,000 that may become available in two tranches of Additional Notes tied to the NDA filing for and FDA U.S.

marketing approval of Libervant™, an important part of the Company’s drug candidate pipeline.

approval of the holder of a majority of the outstanding principal amount of the Notes in its discretion, and provided that no events of default exist, the Company may offer to the Lenders participation in a $10,000 additional offering of 12.5%

senior secured notes (the “First Additional Offering”) under terms similar to the Initial Notes, on or before March 31, 2021, upon the filing of the Libervant NDA with the FDA.

A second identical funding opportunity would allow the Company to

obtain, on or before March 31, 2021, an additional $20,000 if the first option has been elected and funded, or, if not elected or funded, an additional $30,000 may be offered for issuance following FDA approval of Libervant for marketing in the U.S.

There can be no assurance that any additional financing will be consummated.

related early repayment fees and legal and other fees incurred to obtain the loan.

The Notes provide a stated fixed rate of 12.5%, payable quarterly in arrears, with the initial quarterly principal repayment of the Initial Notes due on September 30, 2021, and the final quarterly

payment due at maturity on June 30, 2025.

Principal payments are scheduled to increase annually from 10% of the face amount of debt then outstanding during the first four quarters to 40% of the initial loan principal during the final four quarters.

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Remainder of 2020

The Company may elect, at its option, to prepay the Notes at any time at premiums that range from 101.56% of outstanding principal if prepayment occurs on or after the 5 th anniversary of the issue date of the

Notes to 112.5% if payment occurs during the third year after the issuance of the Notes.

In the event that redemption occurs within the two years after the issuance of the Notes, a make-whole fee is required, based on the present value of remaining

interest payments using an agreed-upon discount rate linked to the then-current U.S.

The Company may elect, at its option, to prepay the Notes at any time at premiums that range from 101.56% of outstanding principal if prepayment occurs on or after the 5 th anniversary of

the issue date of the Notes to 112.5% if payment occurs during the third year after the issuance of the Notes.

In the event that redemption occurs within the two years after the issuance of the Notes, a make-whole fee is required, based on the

present value of remaining interest payments using an agreed-upon discount rate linked to the then-current U.S.

Treasury rate.

The Indenture also includes a change of control provision under which the Company may be required to repurchase the Notes at 101% of the remaining

principal plus accrued interest at the election of the Lenders.

The Indenture also includes a change of control provision under which the Company may be required to repurchase the Notes

at 101% of the remaining principal plus accrued interest at the election of the Lenders.

Collateral for the loan under the Notes consists of a priority lien on substantially all property and assets, including intellectual property, of the Company.

This secured obligation provides payment rights that are

senior to all existing and future subordinated indebtedness of the Company and provides Lenders with perfected security interests in substantially all of the Company’s assets.

In the event that asset-based loans of up to $10,000 (“ABL Facility”) may

be obtained, subject receivables and inventory assets will provide a second priority lien to senior secured Noteholders.

The Company’s license of its IP to a third-party drug development enterprise (specifically, Sunovion’s APL-130277 product) is one

of the various assets serving as collateral for the loan.

The Indenture permits the Company to monetize this asset while specifying that a portion of the proceeds, up to $40,000 if the First Additional Offering has not been elected or funded, or,

$50,000 if it has been elected and funded, must be applied to prepay the Initial Notes, at 112.5% of the principal amount of the Notes being repurchased, plus accrued and unpaid interest, if any, thereon, to the date of the repurchase, to the extent

elected by the Note holders, assuming that such monetization, up to such $40,000 or $50,000 level, as applicable, equals or exceeds those levels and if such monetization does not equal or exceed such level, such prepayment would pro-rated among the

Note holders.

To the extent that Lenders do not elect repayment of the debt at the date of the monetization, the amount not elected up to $40,000 (or $50,000 if an additional tranche is issued) will be held in a collateral account until approval of

Libervant by the FDA for U.S.

This secured obligation provides

payment rights that are senior to all existing and future subordinated indebtedness of the Company and provides Lenders with perfected security interests in substantially all of the Company’s assets.

In the event that asset-based loans of up to

$10,000 (“ABL Facility”) may be obtained, subject receivables and inventory assets will provide a second priority lien to senior secured Noteholders.

The Company’s license of its IP to a third-party drug development enterprise (specifically,

Sunovion’s Kynmobi product) is one of the various assets serving as collateral for the loan.

The Indenture permits the Company to monetize this asset while specifying that a portion of the proceeds, up to $40,000 if the First Additional Offering

has not been elected or funded, or, $50,000 if it has been elected and funded, must be applied to prepay the Initial Notes, at 112.5% of the principal amount of the Notes being repurchased, plus accrued and unpaid interest, if any, thereon, to the

date of the repurchase, to the extent elected by the Note holders, assuming that such monetization, up to such $40,000 or $50,000 level, as applicable, equals or exceeds those levels and if such monetization does not equal or exceed such level, such

prepayment would be pro-rated among the Note holders.

To the extent that Lenders do not elect repayment of the debt at the date of the monetization, the amount not elected up to $40,000 (or $50,000 if an additional tranche is issued) will be held in

a collateral account until approval of Libervant by the FDA for U.S.

marketing, at which time this cash collateral is to be released to the Company.

Proceeds in excess of $40,000 (or $50,000 if an additional tranche is issued) can be used immediately for general corporate purposes.

March 31, 2020, the Company was in compliance with all of its covenants.

The Company capitalizes legal and other third-party costs incurred in connection with obtaining debt as deferred debt issuance costs and applies the unamortized portion as a reduction of the outstanding face amount

of the related loan in accordance with ASU 2015-03, Interest – Imputation of Interest:

Proceeds more than $40,000 (or $50,000 if an additional tranche is issued) can be used immediately

for general corporate purposes.

As of June 30, 2020, the Company complied with all of its covenants under the Indenture.

The Company capitalizes legal and other third-party costs incurred in connection with obtaining debt as deferred debt issuance costs and applies the unamortized portion as a reduction of the

outstanding face amount of the related loan in accordance with ASU 2015-03, Interest – Imputation of Interest:

Simplifying the Presentation of Debt Issuance Costs .

Similarly, the Company amortizes debt discounts, such as those

represented by warrants issued to its leaders, and offsets those as a direct reduction of its outstanding debt.

Amortization expenses arising from deferred debt issuance costs and debt discounts related to the Notes were $584 for the three months

ended March 31, 2020, while comparative amortization expenses derived from deferred debt issuance costs and debt discounts related to the Perceptive Loan for the three months ended March 31, 2019 were $389.

Unamortized deferred debt issuance costs

and deferred debt discounts total $9,078 and $9,662 as of March 31, 2020 and December 31, 2019, respectively.

Similarly, the Company amortizes debt

discounts, such as those represented by warrants issued to its holders, and offsets those as a direct reduction of its outstanding debt.

Amortization expenses arising from deferred debt issuance costs and debt discounts related to the Notes were

$583 and $1,167 for the three- and six-month periods ended June 30, 2020, respectively, while comparative amortization expenses derived from deferred debt issuance costs and debt discounts related to the Perceptive Loan for the three- and six-month

periods ended June 30, 2019 were $393 and $782, respectively.

Unamortized deferred debt issuance costs and deferred debt discounts totaled $8,495 and $9,662 as of June 30, 2020 and December 31, 2019, respectively.

Loans Payable - Perceptive

In August 2016, the Company entered into a Loan Agreement and Guaranty with Perceptive Credit Opportunities Fund, LP (“Perceptive”) under which the total available facility of $50,000 had been borrowed as of March 2017.

At closing, Perceptive received a warrant to purchase senior common equity interests representing 4.5% of the fully diluted common units of the Company on an as converted basis, which was automatically exercised in full at the time of Aquestive’s

In May 2018, the Company and Perceptive agreed to make certain amendments to the loan agreement then in effect that provided for:

(1) the postponement of the initial loan principal payment to May 2019, (2) a delay of the loan maturity date to

December 16, 2020 and (3) with Perceptive’s consent, an agreement to permit monetization of the royalties and fees that may be derived from sales of certain apomorphine products and a concurrent agreement for the release of the liens related to these

royalties and fees.

In August 2016, the Company entered into a Loan Agreement and Guaranty with Perceptive Credit Opportunities Fund, LP (“Perceptive”) under which the total available facility of $50,000 had been

borrowed as of March 2017.

the time of Aquestive’s IPO.

In July 2019, the Perceptive Loan was paid in full in connection with the completion of the sale of the Notes and Warrants described above.

The early extinguishment of this debt resulted in a charge to third

quarter 2019 earnings of an amount of $4,896, including an early retirement premium of $2,944 and the remaining balances of the unamortized loan discount and loan acquisition costs.

Warrants Issued to 12.5% Senior Secured Noteholders

The Warrants that were issued in conjunction with the 12.5% Senior Secured Notes (the “Notes”) expire on June 30, 2025 and entitle the holders of the Notes to purchase two million shares of the Company’s common stock at

$4.25 per share and include specified registration rights.

The early extinguishment of this debt resulted in a charge to third quarter

2019 earnings of an amount of $4,896, including an early retirement premium of $2,944 and the remaining balances of the unamortized loan discount and loan acquisition costs.

Warrant s Issued to 12.5% Senior Secured Noteholders

The Warrants that were issued in conjunction with the Notes described above expire on June 30, 2025 and entitle the holders of the Notes to purchase two million shares of the Company’s common stock

at $4.25 per share and include specified registration rights.

Management estimated the fair value of the Warrants to be $6,800, assisted by an independent third-party appraiser.

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presented in Additional-paid in capital in the accompanying Condensed Consolidated Balance Sheets.

Certain holders of the Notes exercised Warrants for the purchase of 428,571 shares of common stock, and proceeds totaling $1,821 were received on December 16, 2019.

There were no Warrants exercised by the holders of the

Notes during the three-month period ended at March 31, 2020.

Certain holders of the Notes exercised Warrants for the purchase of 428,571 shares of common stock, and proceeds therefor totaling $1,821 were received on December 16, 2019.

There were no Warrants

exercised by the holders of the Notes during the six-month period ended June 30, 2020.

Net Loss Per Share

Basic net loss per share is calculated by dividing net loss by the weighted-average number of common shares.

As a result of the Company’s net losses incurred for the three-month periods ended at March 31, 2020 and 2019, respectively, all potentially dilutive instruments outstanding would have anti-dilutive effects on

per-share calculations for this period.

Therefore, basic and diluted net loss per share were the same, as reflected below.

Basic net income or loss per share is calculated by dividing net income or loss by the weighted-average number of common share s outstanding during the

Diluted net income or loss per common share is similarly computed and includes the effect of any additional dilutive potential common shares outstanding during the periods.

These potential common shares are excluded from the computation of

net loss per share to the extent that their effects are antidilutive, and as a result of the Company’s net losses incurred for the three- and six-month periods ended June 30, 2020 and 2019, respectively, no

potentially dilutive securities have been included in the computation of diluted net loss per share for the periods presented below.

Three Months Ended

Weighted-average number of common shares – basic and diluted

Net loss per common share – basic and diluted

As of March 31, 2020 and 2019, respectively, the Company’s potentially dilutive instruments included 2,947,192, and 1,732,426 options to purchase common shares and 44,036 and 172,655 unvested RSUs that were excluded

from the computation of diluted weighted average shares outstanding because these securities had an anti-dilutive impact due to the losses reported.

Similarly excluded as of March 31, 2020 were potentially dilutive warrants for the purchase of

1,571,429 common shares.

No such dilutive warrants were issued as of March 31, 2019.

Six Months Ended

Weighted-average number of common shares – basic

Loss per common share – basic and diluted

The following outstanding stock options, restricted stock units and warrants are antidilutive and have been excluded from the computation of the loss per common share for the

periods ended June 30:

Options on common shares outstanding

Restricted stock units unvested

Warrants on common shares outstanding

Total potentially antidilutive derivatives excluded from losses per share

Share-Based Compensation

The Company recognized share-based compensation in its Condensed Consolidated Statements of Operations and Comprehensive Loss during 2020 and 2019, respectively, as follows:

The Company recognized share-based compensation in its Condensed Consolidated Statements of Operations and Comprehensive Loss during 2020 and 2019 as follows:

Three Months Ended

Expense classification:

Six Months Ended

Manufacture and supply

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Share-Based Compensation Equity Awards

The following tables provide information about the Company’s restricted stock units and stock option unit activity during the three months ended March 31, 2020:

The following tables provide information about the Company’s restricted stock unit and stock option activity during the six-month period ended June 30, 2020:

Restricted Stock Unit Awards (RSUs):

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Grant Date Fair

Value Per Share

(in thousands)

Unvested at December 31, 2019

Unvested at March 31, 2020

Unvested at June 30, 2020

Grant date fair value of shares vested during the period

Unrecognized compensation costs at March 31, 2020

Unrecognized compensation costs at June 30, 2020

Unrecognized compensation costs related to awards of RSUs are expected to be recognized over a weighted-average period of less than two years.

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Exercised, Forfeited, Expired

Outstanding at March 31, 2020

Vested or expected to vest at March 31, 2020

Exercisable at March 31, 2020

The weighted average grant date fair value of stock options granted during 2020 was $1.26.

The fair value of stock options granted were estimated using the Black-Scholes-Merton pricing model based upon the following

Three Months Ended

March 31, 2020

Outstanding at June 30, 2020

Vested or expected to vest at June 30, 2020

Exercisable at June 30, 2020

The fair values of stock options granted during 2020 were estimated using the Black-Scholes-Merton pricing model based on the following assumptions:

Expected dividend yield

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Risk-free interest rate

During the three months ended March 31, 2020, options were granted with exercise prices ranging from $1.54 to $4.17, and accordingly, given Aquestive’s share price of $2.19 at the close of the

Company’s first quarter of 2020, certain shares granted in 2020 provided intrinsic value of $456 at March 31, 2020.

As of March 31, 2020, $8,693 of total unrecognized compensation expenses related to non-vested stock options is expected to be recognized over a weighted average period of 2.1 years from the date of

The weighted average grant date fair value of stock options granted during 2020 was $2.04.

During the six-month period ended June 30, 2020, stock options were granted with

exercise prices ranging from $1.54 to $5.69, and accordingly, given the Company’s share price of $4.86 at June 30, 2020, certain shares granted during this period provided intrinsic value at that date totaling $2,646.

No intrinsic value was provided

by stock options granted during the six-month period ended June 30, 2019.

As of June 30, 2020, $8,174 of unrecognized compensation expense related to non-vested stock options is expected to be recognized over a weighted average period of 1.9 years

from the date of grant.

Employee Stock Purchase Plan

The Company’s Board of Directors adopted the Aquestive Therapeutics, Inc.

Employee Stock Purchase Plan (“ESPP”) in June 2018, as amended and restated effective as of January 1, 2019.

Rollout of the

ESPP began in late 2018, and initial employee purchases are expected to be made in 2019.

The Company may offer common stock purchase rights biannually under offerings that allow for the purchase of common stock at the lower of 85% of the fair value

of shares on either the first or last day of the offering period.

No purchases under the ESPP occurred in the three months ended March 31, 2020 and 2019, respectively.

The Company has accounted for income taxes under the asset and liability method, which requires deferred tax assets and liabilities to be recognized for the estimated future tax consequences

attributable to differences between financial statement carrying amounts and respective tax bases of existing assets and liabilities, as well as net operating loss carryforwards and research and development credits.

Valuation allowances are provided

if it is more likely than not that some portion or all of the deferred tax asset will not be realized.

The Company has considered the impact of the CARES Act in relation to the 2020 income tax provision, however due to the full valuation allowance

and no ability or intent to carryback the 2020 net operating loss, there is no impact.

The Aquestive Therapeutics, Inc.

Employee Stock Purchase Plan, or ESPP, as amended and restated effective as of January 1, 2019, features two six-month offering periods per year,

running from January 1 to June 30 and July 1 to December 31.

Under the ESPP, employees may elect to purchase the Company’s common stock at the lower of 85% of the fair value of shares on either the first or last day of the offering period.

six-month periods ended June 30, 2020 and 2019, respectively, 14,961 and 31,393 shares were purchased and issued through the ESPP at total discounts of $11 and $20.

The Company has accounted for income taxes under the asset and liability method, which requires deferred tax assets and liabilities to be recognized for the estimated future tax consequences attributable to

differences between financial statement carrying amounts and respective tax bases of existing assets and liabilities, as well as net operating loss carryforwards and research and development credits.

Valuation allowances are provided if it is more

likely than not that some portion or all of the deferred tax asset will not be realized.

The Company has considered the impact of the CARES Act in relation to the 2020 income tax provision.

However, due to the full valuation allowance and no ability

or intent to carryback the 2020 net operating loss, no impact is expected.

The Company’s tax provision for interim periods is determined using an estimate of its annual effective tax rate, adjusted for discrete items.

For the three months ended March 31, 2020 and 2019, the Company recorded no

income tax benefit from its pretax losses of $16,530 and $14,726, respectively, due to realization uncertainties.

For the three months ended June 30, 2020 and 2019, the Company

recorded no income tax benefit from its pretax losses of $2,334 and $20,472, respectively, and similarly for the six months ended June 30, 2020 and 2019, the Company recorded no tax benefit from its pretax loss of $18,864 and $35,198, respectively,

due to realization uncertainties.

The Company’s U.S.

Federal statutory rate is 21%.

The primary factor impacting the effective tax rate for the three months ended March 31, 2020 is the anticipated full year operating loss which will require full

valuation allowances against any associated net deferred tax assets.

The primary factor impacting the effective tax rate for the three- and six-month periods ended June 30, 2020 is the anticipated full year operating loss which

will require full valuation allowances against any associated net deferred tax assets.

Contingencies

(A) Litigation and Contingencies

From time to time, the Company has been and may again become involved in legal proceedings arising in the ordinary course of business, including product liability, intellectual property, commercial litigation or

environmental or other regulatory matters.

Except as described below, Aquestive is not presently a party to any litigation or legal proceedings that is believed to be material.

Litigation and Contingencies

From time to time, the Company has been and may again become involved in legal proceedings arising in the ordinary course of business, including product liability, intellectual property,

commercial litigation, or environmental or other regulatory matters.

Except as described below, Aquestive is not presently a party to any litigation or other legal proceeding that is believed to be material to its financial condition.

Patent-Related Litigation

Beginning in August 2013, we were informed of abbreviated new drug application (“ANDA”) filings in the United States by Watson Laboratories, Inc.

(now Actavis Laboratories, Inc., or “Actavis”), Par Pharmaceutical, Inc.

Beginning in August 2013, the Company was informed of abbreviated new drug application (“ANDA”) filings in the United States by Watson Laboratories, Inc.

(now Actavis Laboratories, Inc., or

“Actavis”), Par Pharmaceutical, Inc.

(“Par”), Alvogen Pine Brook, Inc.

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(“Sandoz”), and Mylan Technologies Inc.

(“Mylan”), for the approval by the FDA of generic versions of Suboxone Sublingual Film in the United States.

We filed patent infringement lawsuits against all six generic companies in the United States District Court for the District of Delaware (the “Delaware District Court”).

After the commencement of the ANDA patent litigation against Teva, Dr.

Laboratories (“DRL”) acquired the ANDA filings for Teva’s buprenorphine and naloxone sublingual film that are at issue in these trials.

(“Mylan”), for the approval by the FDA of generic versions of Suboxone

Sublingual Film in the United States.

Aquestive filed patent infringement lawsuits against all six generic companies in the United States District Court for the District of Delaware (the “Delaware District Court”).

After the commencement of the ANDA

patent litigation against Teva, Dr.

Reddy’s Laboratories (“DRL”) acquired the ANDA filings for Teva’s buprenorphine and naloxone sublingual film that are at issue in these trials.

Of these, cases against three of the six generic companies have been resolved.

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Actavis was found to infringe Patent No.

8,603,514, or the ’514 patent, and cannot enter the market until the expiration of the patent in 2024, and the United States Court of Appeals for the Third

8,603,514, or the ’514 patent, and cannot enter the market until the expiration of the patent in 2024, and the United States Court of Appeals for the Federal

Circuit (“Federal Circuit”) affirmed that ruling on July 12, 2019.

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Teva has agreed to be bound by all DRL adjudications.

Subsequent to the above, all potential generic competitors without a settlement agreement were also sued for infringement of two additional new patents that contain new claims not adjudicated in the original Delaware

District Court case against DRL and Alvogen.

Subsequent to the above, all potential generic competitors without a settlement agreement were also sued for infringement of two additional new patents that contain new claims not adjudicated in the

original Delaware District Court case against DRL and Alvogen.

On July 12, 2019, the Federal Circuit affirmed the decisions from the previously decided cases.

The remaining case against Actavis was dismissed in light of the infringement ruling above, which prevents

Actavis from entering the market until 2024.

The remaining case against Actavis was dismissed in light of the infringement ruling

above, which prevents Actavis from entering the market until 2024.

The case(s) against the remaining defendants regarding the additional asserted patents have not been finally resolved.

A Markman hearing in the cases against

A Markman hearing

in the cases against Dr.

Reddy’s and Alvogen which is pending in the United States District Court for the District of new Jersey (the “New Jersey District Court”) was held on October 17, 2019.

On November 5, 2019, District Judge McNulty of the New Jersey District Court

issued a Markman opinion construing the disputed terms of the asserted patents.

On January 9, 2020, the New Jersey District Court entered a stipulated order of non-infringement of one of the patents, Patent

9,931,305, or the ’305 patent, based on the Federal Circuit’s claim construction ruling, and we and Indivior preserved our rights to appeal the claim construction ruling.

On November 19, 2019, Magistrate Judge Waldor of the New Jersey District

Court issued an order granting DRL and Alvogen’s requests to file amended answers to add antitrust counterclaims against us and Indivior.

We and Indivior appealed the Magistrate Judge’s decision to District Judge McNulty on December 4, 2019, and DRL

and Alvogen opposed the appeal.

On November 5, 2019, District Judge McNulty of the New

Jersey District Court issued a Markman opinion construing the disputed terms of the asserted patents.

On January 9, 2020, the New Jersey District Court entered a stipulated order of non-infringement of one of

the patents, Patent No.

9,931,305, or the ’305 patent, based on the Federal Circuit’s claim construction ruling, and the Company and Indivior preserved available rights to appeal the claim construction ruling.

On November 19, 2019, Magistrate Judge

Waldor of the New Jersey District Court issued an order granting DRL and Alvogen’s requests to file amended answers to add antitrust counterclaims against Aquestive and Indivior.

Aquestive and Indivior appealed the Magistrate Judge’s decision to

District Judge McNulty on December 4, 2019, and DRL and Alvogen opposed the appeal.

The parties are awaiting further action from the New Jersey District Court on the appeal.

On January 17, 2020, we filed a motion to dismiss DRL’s and Alvogen’s antitrust counterclaims for failure to state a claim, and

DRL and Alvogen opposed the motion.

On January 17, 2020, the Company filed a motion to dismiss DRL’s and

Alvogen’s antitrust counterclaims for failure to state a claim, and DRL and Alvogen opposed the motion.

The parties are awaiting further action from the New Jersey District Court on the motion to dismiss.

3, 2020, the court issued an order setting a schedule for ongoing fact discovery, expert discovery, and dispositive motions.

The schedule currently sets the close of fact discovery for October 20, 2020, with expert discovery continuing through the

end of April 2021.

The schedule also sets the deadline for filing dispositive motions for May 18, 2021.

No trial date has been set in those cases.

We are not able to determine or predict the ultimate outcome of

this proceeding or provide a reasonable estimate, or range of estimates, of the possible outcomes or loss, if any, in this matter.

Management is not able to determine or predict the ultimate outcome of this proceeding or

provide a reasonable estimate, or range of estimates, of the possible outcome or loss, if any, in this matter.

On February 19, 2019, the Federal Circuit issued its mandate reversing the New Jersey District Court’s preliminary injunction against Dr.

Following issuance of the mandate, the New Jersey District Court vacated

preliminary injunctions against both Dr.

Following issuance of the mandate, the New Jersey

District Court vacated preliminary injunctions against both Dr.

Reddy’s and Alvogen.

Reddy’s, Alvogen, and Mylan all launched generic versions of Suboxone Sublingual Film, and the launches by Dr.

Reddy’s and Alvogen are “at risk” because the products are the subject

of the ongoing patent infringement litigations.

On March 22, 2019, we and Indivior brought suit against Aveva Drug Delivery Systems, Inc., Apotex Corp., and Apotex Inc.in the United States District Court for the Southern District of Florida (the “Southern District of

Florida Court”) for infringement of the Company’s U.

Reddy’s and Alvogen are “at risk” because the

products are the subject of the ongoing patent infringement litigations.

On March 22, 2019, Aquestive and Indivior brought suit against Aveva Drug Delivery Systems, Inc., Apotex Corp., and Apotex Inc.in the United States District Court for the Southern District of Florida

(the “Southern District of Florida Court”) for infringement of the Company’s U.

8,017,150, 9,687,454, the ’514 patent and ’305 patent, seeking an injunction and potential monetary damages.

Following a negotiated settlement between all parties, on December 3,

2019, the parties submitted a Notice of Settlement and a Joint Motion to Approve Consent Judgment.

Following a negotiated settlement between

all parties, on December 3, 2019, the parties submitted a Notice of Settlement and a Joint Motion to Approve Consent Judgment.

The Southern District of Florida Court entered an order dismissing the suit on December 18, 2019.

We are also seeking to enforce our patent rights in multiple cases against BioDelivery Sciences International, Inc.

The Company is also seeking to enforce its patent rights in multiple cases against BioDelivery Sciences International, Inc.

Three cases are currently pending but stayed in the U.S.

District Court for the Eastern

District of North Carolina (the “Eastern District of North Carolina Court”):

Court for the Eastern District of North Carolina (the “Eastern District of North Carolina Court”):

The first, a declaratory judgment action brought by BDSI against Indivior and Aquestive, seeks declarations of invalidity and non-infringement of U.S.

7,897,080, 8,652,378 and 8,475,832.

This case is stayed pending final

resolution of the above-mentioned appeals on related patents.

The second was filed by us and Indivior related to BDSI’s infringing Bunavail product, and alleges infringement of our patent, U.S.

8,765,167, or the ’167 patent, and seeks an injunction and potential monetary damages.

after the case was filed, BDSI filed four (4) IPR’s challenging the asserted ’167 patent.

On March 24, 2016, the United States Patent Trial and Appeal Board (“PTAB”), issued a final written decision finding that all claims of the ’167 patent

This case is stayed.

The second was filed by Aquestive and Indivior related to BDSI’s infringing Bunavail product, and alleges infringement of Aquestive’s patent, U.S.

8,765,167, or the ’167 patent, and seeks an injunction and potential monetary

Shortly after the case was filed, BDSI filed four (4) IPR’s challenging the asserted ’167 patent.

On March 24, 2016, the United States Patent Trial and Appeal Board (“PTAB”), issued a final written decision finding that all claims

of the ’167 patent were valid.

The case was stayed in May 2016 pending the final determination of the appeals on those decisions.

Following the PTAB’s February 7, 2019 decisions on remand denying institution, we and Indivior submitted a notice to the Court on

February 15, 2019 notifying the Court that the stay should be lifted as a result of the PTAB’s decisions.

We are awaiting further action from the Court.

On January 13, 2017, we also sued BDSI asserting infringement of the ’167 patent by BDSI’s Belbuca product and seeking an injunction and potential monetary damages.

On August 7, 2019, the Eastern District of

North Carolina Court granted BDSI’s motion to dismiss the Complaint without prejudice and denied BDSI’s motion to stay as moot.

On November 11, 2019, we filed a new Complaint against BDSI in the Eastern District of North Carolina Court.

On November 27, 2019, BDSI filed a motion to stay the case pending BDSI’s appeal of the PTAB’s remand decisions, and we opposed the motion.

The Eastern District of North Carolina Court denied BDSI’s motion to stay on April 1, 2020.

appeal of the PTAB’s remand decisions to the United States Court of Appeals for the Fourth Circuit (the “Federal Fourth Circuit Court”) was docketed on March 13, 2019, and on March 20, 2019, we moved to dismiss the appeal for lack of

jurisdiction.

On August 29, 2019, the Federal Fourth Circuit Court granted the motion to dismiss BDSI’s appeal.

On September 30, 2019, BDSI filed a petition for rehearing in the Federal Fourth Circuit Court en banc , which we opposed.

The Federal Fourth Circuit Court denied BDSI’s petition for rehearing en banc on January 13, 2020.

After the Federal Fourth Circuit Court denied BDSI’s

petition, on January 13, 2020, BDSI filed with the Eastern District of North Carolina Court a motion to dismiss the Complaint, and we opposed on February 2, 2020.

The Eastern District of North Carolina Court denied BDSI’s motion to dismiss

on April 1, 2020.

On April 16, 2020, BDSI filed an Answer to the Complaint, including counterclaims for non-infringement, invalidity, and unenforceability of the ’167 patent.

Our response to BDSI’s counterclaims is due May 7, 2020.

Following the PTAB’s February 7, 2019 decisions on remand denying institution, Aquestive and Indivior submitted

a notice to the Court on February 15, 2019 notifying the Court that the stay should be lifted as a result of the PTAB’s decisions.

The parties in this matter are awaiting further action from the Court.

On January 13, 2017, the Company also sued BDSI asserting infringement of the ’167 patent by BDSI’s Belbuca product and seeking an injunction and potential monetary damages.

August 7, 2019, the Eastern District of North Carolina Court granted BDSI’s motion to dismiss the Complaint without prejudice and denied BDSI’s motion to stay as moot.

On November 11, 2019, Aquestive filed a new Complaint against BDSI in

the Eastern District of North Carolina Court.

On November 27, 2019, BDSI filed a motion to stay the case pending BDSI’s appeal of the PTAB’s remand decisions, and the Company opposed this motion.

The Eastern District of North Carolina

Court denied BDSI’s motion to stay on April 1, 2020.

BDSI’s appeal of the PTAB’s remand decisions to the United States Court of Appeals for the Federal Circuit was docketed on March 13, 2019, and on March 20, 2019, and a motion was made to

dismiss this appeal for lack of jurisdiction.

On August 29, 2019, the Federal Circuit granted the motion to dismiss BDSI’s appeal.

On September 30, 2019, BDSI filed a petition for rehearing in the Federal Circuit en banc , which the Company opposed.

The Federal Circuit denied BDSI’s petition for rehearing en

banc on January 13, 2020.

On June 11, 2020, BDSI filed a petition for writ of certiorari at the Supreme Court of the United States.

petition is scheduled for consideration at the Court’s September 29, 2020 conference, at which time the Court will decide whether to accept BDSI’s petition for review of the Federal Circuit’s dismissal of BDSI’s appeal.

After the Federal Circuit denied BDSI’s petition, on January 13, 2020, BDSI filed with the Eastern District of North Carolina Court a motion to dismiss the Complaint, and Aquestive opposed on February 2, 2020.

Eastern District of North Carolina Court denied BDSI’s motion to dismiss and its motion to stay on April 1, 2020.

On April 16, 2020, BDSI

filed an Answer to the Complaint, including counterclaims for non-infringement, invalidity, and unenforceability of the ’167 patent.

On May 7, 2020, Aquestive filed a motion to

dismiss BDSI’s unenforceability counterclaim and a motion to strike BDSI’s corresponding affirmative defenses for failure to state a claim for inequitable conduct under the heightened pleading standard applicable to such claims and

Rather than oppose Aquestive’s Motion to Dismiss, on May 28, 2020, BDSI amended its counterclaims and filed an Answer and Amended Counterclaims, which included additional allegations in support of BDSI’s unenforceability

counterclaim.

On June 25, 2020, Aquestive filed a Motion to Dismiss BDSI’s Amended Counterclaim for unenforceability and a Motion to Strike BDSI’s corresponding affirmative defense of unenforceability again for failure to state a claim

under the applicable heightened pleading standard.

BDSI’s filed its opposition to Aquestive’s Motion to Dismiss and Strike on July 16, 2020.

Aquestive filed its Reply to BDSI’s Opposition on July 30, 2020.

Antitrust Litigation

On September 22, 2016, forty-one states and the District of Columbia, or the States, brought suit against Indivior and us in the U.S.

District Court for the Eastern District of Pennsylvania, alleging violations of

federal and state antitrust statutes and state unfair trade and consumer protection laws relating to Indivior’s launch of Suboxone Sublingual Film in 2010 and seeking an injunction, civil penalties, and disgorgement.

After filing the suit, the case

was consolidated for pre-trial purposes with the In re Suboxone (Buprenorphine Hydrochloride and Naloxone) Antitrust Litigation , MDL No.

2445, or the Suboxone MDL, a multidistrict litigation relating to

putative class actions on behalf of various private plaintiffs against Indivior relating to its launch of Suboxone Sublingual Film.

While we were not named as a defendant in the original Suboxone MDL cases, the action brought by the States alleges

that we participated in an antitrust conspiracy with Indivior in connection with Indivior’s launch of Suboxone Sublingual Film and engaged in related conduct in violation of federal and state antitrust law.

We moved to dismiss the States’ conspiracy

claims, but by order dated October 30, 2017, the Court denied our motion to dismiss.

We filed an answer denying the States’ claims on November 20, 2017.

The fact discovery period closed July 27, 2018, but the parties agreed to conduct certain fact

depositions in August 2018.

On September 22, 2016, forty-one states and the District of Columbia, or the States, brought suit against Indivior and the Company in the U.S.

District Court for the Eastern District of Pennsylvania,

alleging violations of federal and state antitrust statutes and state unfair trade and consumer protection laws relating to Indivior’s launch of Suboxone Sublingual Film in 2010 and seeking an injunction, civil penalties, and disgorgement.

filing the suit, the case was consolidated for pre-trial purposes with the In re Suboxone (Buprenorphine Hydrochloride and Naloxone) Antitrust Litigation , MDL No.

2445, or the Suboxone MDL, a multidistrict

litigation relating to putative class actions on behalf of various private plaintiffs against Indivior relating to its launch of Suboxone Sublingual Film.

While Aquestive was not named as a defendant in the original Suboxone MDL cases, the action

brought by the States alleges that the Company participated in an antitrust conspiracy with Indivior in connection with Indivior’s launch of Suboxone Sublingual Film and engaged in related conduct in violation of federal and state antitrust law.

Aquestive moved to dismiss the States’ conspiracy claims, but by order dated October 30, 2017, the Court denied the motion to dismiss.

An answer was filed denying the States’ claims on November 20, 2017.

The fact discovery period closed July 27,

2018, but the parties agreed to conduct certain fact depositions in August 2018.

The expert discovery phase closed May 30, 2019, but additional reports and depositions were conducted through August 1, 2019.

Daubert briefing is ongoing.

The remainder of the

case schedule, including summary judgment briefing, is stayed pending resolution of Indivior’s appeal of the District Court’s class certification ruling in a co-pending multi-district litigation to which we are not a party.

We are not able to

determine or predict the ultimate outcome of this proceeding or provide a reasonable estimate, or range of estimates, of the possible outcome or loss, if any, in this matter.

briefing is ongoing.

The remainder of the case schedule, including summary judgment briefing, is stayed pending resolution of Indivior’s appeal of the District Court’s class certification ruling in a co-pending multi-district litigation to which the

Company is not a party.

On July 28, 2020, the U.S.

Court of Appeals for the Third Circuit issued its opinion affirming the District Court’s order certifying the class.

This ruling may result in a resumption of the pre-trial proceedings in this

Management is not able to determine or predict the ultimate outcome of this proceeding or provide a reasonable estimate, or range of estimates, of the possible outcome or loss, if any, in this matter.

California Complaint

On December 5, 2019, Neurelis Inc.

(“Neurelis”) filed a complaint against Aquestive in the Superior Court of California, County of San Diego alleging

Unfair Competition, Defamation, and Malicious Prosecution related to the Company’s pursuit of FDA approval for Libervant™.

(“Neurelis”) filed a complaint against Aquestive in the Superior Court of California, County of San Diego alleging Unfair Competition,

Defamation, and Malicious Prosecution related to the Company’s pursuit of FDA approval for Libervant™.

Neurelis filed a First Amended Complaint on December 9, 2019, alleging the same three causes of action.

The Company filed a

Motion to Strike Neurelis’s Complaint under California’s anti-SLAPP (“strategic lawsuit against public participation”) statute on Friday, January 31, 2020, which Neurelis is expected to oppose.

Neurelis filed a motion for leave to file a

Supplemental Complaint on February 5, 2020, which we will oppose.

A hearing on our anti-SLAPP motion and Neurelis’s motion for leave was scheduled for April 24, 2020 but was postponed as a result of court closures in San Diego County, California

resulting from the COVID-19 pandemic.

The Company filed a Motion to Strike

Neurelis’s Complaint under California’s anti-SLAPP (“strategic lawsuit against public participation”) statute on Friday, January 31, 2020, which Neurelis is expected to oppose.

Neurelis filed a motion for leave to file a Supplemental Complaint on

February 5, 2020, which will be opposed.

On February 5, 2020, Neurelis filed a Motion for Leave to File a Supplemental Complaint (“Motion”).

On June 5, 2020, Neurelis filed a Motion for Limited Discovery related to Aquestive’s anti-SLAPP motion.

The court previously scheduled a hearing on both Aquestive’s anti-SLAPP Motion and on Neurelis’s Motion for April 24, 2020.

However, on April 3, 2020, in response

to the COVID-19 pandemic, the court issued an order continuing all hearings scheduled through April 30, 2020.

The court ultimately held a telephonic status conference on June 25, 2020 to determine a schedule for hearing the pending motions.

During that status conference, the court set Aquestive’s anti-SLAPP motion for hearing on July 24, 2020.

The court also declined Neurelis’s request to hear its Motion and its Motion for Limited Discovery.

Neurelis filed its response to

Aquestive’s anti-SLAPP Motion on July 13, 2020, and we filed our reply on July 17, 2020.

The parties are awaiting further action from the court regarding a new hearing date.

We are not able to determine or predict the ultimate outcome of this proceeding or provide a reasonable estimate,

or range of estimates, of the possible outcome or loss, if any, in this matter.

Subsequent Event

Federal Paycheck Protection Loan

On April 17, 2020, the Company was awarded a loan under the federal Paycheck Protection Program (“PPP”) created under the CARES Act in response to the global COVID-19 pandemic.

The Company received a $4.8 million

loan (the “PPP Loan”) which carried a 1% interest rate payable in 2.5 years.

On April 23, 2020, the U.S.

Small Business Administration issued revised guidelines which we view as establishing a strong presumption that publicly traded companies are

not eligible to receive funding under the PPP.

Despite qualifying under the PPP program rules and having been granted the loan, given the revised guidance and the implications of possibly not meeting changing criteria for qualification, we

returned our PPP Loan on May 4, 2020.

Management is not able to determine or predict the ultimate

outcome of this proceeding or provide a reasonable estimate, or range of estimates, of the possible outcome or loss, if any, in this matter.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements