What changed in this filing

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Item 1. Financial Statements

2020-11-04 compared with 2020-08-04 · 448 added, 357 removed, 552 unchanged (59% of the section changed)

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(In thousands, except share and per share amounts)

September 30,

Current assets:

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Lease liabilities, current

Loans payable, current

Deferred revenue, current

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Authorized 250,000,000 shares;

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

33,619,796 and 33,562,885 shares issued and outstanding at September 30, 2020 and December 31, 2019,

Additional paid-in capital

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Three Months Ended

Six Months Ended

September 30,

Nine Months Ended

September 30,

Costs and expenses:

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Total costs and expenses

Income/(loss) from operations

Loss from operations

Other income/(expenses):

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Interest income

Loss on extinguishment of debt

Net loss before income taxes

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Equity/Deficit

For the periods ended June 30, 2020:

For the periods ended September 30, 2020:

Balance at January 1, 2020

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Balance at June 30, 2020

For the periods ended June 30, 2019:

Share-based compensation

Balance at September 30, 2020

For the periods ended September 30, 2019:

Balance at January 1, 2019

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Balance at June 30, 2019

Share-based compensation

Fair value of warrants issued

Balance at September 30, 2019

See accompanying notes to the condensed consolidated financial statements.

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(In thousands)

Six Months Ended

Nine Months Ended

September 30,

Cash flows used for operating activities:

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Amortization of debt issuance costs and discounts

Loss on extinguishment of debt

All other non-cash expenses

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Proceeds from shares issued under employee stock purchase plan

Proceeds from issuance of long-term debt

Debt repayment

Payments for loan acquisition costs

Premium paid to retire debt

Payments for taxes on share-based compensation

Net cash used for financing activities

Net cash (used for)/provided by financing activities

Net decrease in cash and cash equivalents

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

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

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

Warrants issued in connection with long-term debt

See accompanying notes to the condensed consolidated financial statements.

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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;

other customers are principally located in the United States.

The Company has commercialized one internally-developed proprietary product to date, 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 in Portage, Indiana, and corporate headquarters, sales and commercialization operations and primary research laboratory facilities are based in Warren, New Jersey.

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

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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.

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, par value $0.001 per share of the

Company (“common stock”) in a public offering.

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

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generally accepted accounting principles (“U.S.

GAAP”) and with Article 10 of

Regulation S-X for interim financial reporting.

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

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

been condensed or omitted.

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 as of 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 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

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 statements.

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

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Summary of Significant Accounting Policies

(A) Principles of Consolidation

(A) Principles of Consolidation and Significant Accounting Policies

The interim condensed consolidated financial statements presented herein include the accounts of Aquestive Therapeutics, Inc.

and its wholly owned subsidiary, 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.

Other than corporate formation activities, MonoSol Rx, Inc.

has conducted no commercial, drug development 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 Company’s significant accounting policies are described in the audited consolidated financial statements included in the 2019 Annual Report on Form 10-K.

Subsequent to the date of those

financial statements, there have been no significant changes to these policies other than those listed below.

(B) Use of Estimates

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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.

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.

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

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 840.

The Company adopted and applied ASU 2016-02 on January 1, 2020 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.

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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.

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

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.

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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

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 its condensed consolidated financial position or results of operations.

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

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 its condensed consolidated financial

position or results of operations.

Recent Accounting Pronouncements Not Adopted as of September 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 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.

The guidance provides for use of a forward-looking expected loss model for estimating credit losses, replacing the incurred loss model that is based on past events and current

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

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implementation costs incurred after the date of adoption.

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

The Company is currently evaluating the impact of ASU 2018-15 and does not expect to have a material impact on its consolidated financial statements.

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

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its consolidated financial statements.

In August 2020, the FASB issued ASU 2020-06, Debt-Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and

Hedging-Contracts in Entity’s Own Equity (Subtopic 815-40):

Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity .

This Accounting Standards Update was issued to address the complexity in accounting for certain

financial instruments with characteristics of liabilities and equity.

Among other provisions, the amendments in this ASU significantly change the guidance on the issuer’s accounting for convertible instruments and the guidance on the derivative

scope exception for contracts in an entity’s own equity such that fewer conversion features will require separate recognition, and fewer freestanding instruments, like warrants, will require liability treatment.

More specifically, the ASU reduces the

number of models that may be used to account for convertible instruments from five to three, amends diluted EPS calculations for convertible instruments, modifies the requirements for a contract that may be settled in an entity’s own shares to be

classified in equity and requires expanded disclosures intended to increase transparency.

These amendments will be effective for the Company beginning January 1, 2024, with early adoption of the amendments permitted.

The Company is currently

evaluating the impact from the adoption of ASU 2020-06 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

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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.

As of September

30, 2020, working capital totaled $13,311, which included $17,064 of cash and cash equivalents.

As of September 30, 2020, Aquestive has experienced a history of net losses and the Company’s accumulated deficits totaled $165,889 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 (the “12.5% Notes”).

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 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 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.

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

Due to 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.

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

operating needs as the Company continues to execute its business strategy, additional funding requirements would be obtained through modification of the existing debt facility to extend the potential availability of the first and second re-openers, and access to appropriate financial markets for debt or equity financings, or a combination of these potential sources of funds, although management can provide no assurance that any of these

sources of funding, either individually or in combination, will be available on reasonable terms, if at all.

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

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

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.

The Company’s revenues are derived from four primary sources:

manufactured products made to order for licensees, including Suboxone® and Zuplenz®, manufacture and sale of its self-developed,

self-commercialized proprietary product, Sympazan® (clobazam), intellectual property licensing arrangements, and product development services provided under contracts with customers.

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.

Aquestive recognizes revenue pursuant to 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, the value of contractually promised goods or services is 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.

payments, are not recognized until contingencies are met, the customer’s obligation to meet its contractual payment commitments is fixed and collection of invoiced amounts is reasonably assured, thereby limiting any significant probability of a

revenue reversal.

Revenues from the sale of products and services and from licensing arrangements and related payments are evidenced by a contract with the customer.

For manufacturing and supply and proprietary

product sales, invoices are generally issued upon the transfer of control.

Co-development and research revenue is typically invoiced based on the contractual payment schedule, or upon completion of the service.

Licensing revenue is generally invoiced

at the inception of an agreement, with additional charges rendered as related contingencies, such as regulatory approvals or sales targets, are met.

Invoices are typically payable 30 to 60 days after the invoice date, however some payment terms may

reach 75 days depending on the customer.

The Company performs a review of each specific customer’s creditworthiness and ability to pay prior to acceptance as a customer, as well as periodic prospective reviews.

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

specifications, subject only to specified quality control inspections.

Accordingly, at the point in time when quality control requirements are satisfied, revenue net of related discounts is recorded.

Proprietary product sales, net – this net revenue is recognized upon delivery and transfer of control of proprietary product to the Company’s customers, at

which point the Company has no ongoing performance obligations and the customer has assumed all significant risks and rewards of ownership.

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

rebates and other chargebacks, which are estimated and recorded at the time the revenue is recognized.

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

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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.

The Company performs a review of each specific customer’s creditworthiness and ability to pay prior to acceptance as a

Further, the Company performs periodic reviews of its customers’ creditworthiness prospectively.

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 met by the Company, such as manufactured products or development services, revenues may be

deferred when advance payment is received and recognized over the term of the license agreement.

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.

Co-development and research fees – this revenue is recognized as contractual services or performance obligations are performed.

Invoicing for contractual

services may occur in advance or arrears, may, or may not, coincide with completion of underlying performance obligations, and therefore may give rise to contract assets or contract liabilities when the value of services completed varies from amounts

that may be invoiced to the customer.

Contract Assets

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.

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 performance obligation.

These contract assets

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

As of September 30, 2020, and December 31, 2019, such current and

non-current contract assets were $8,922 and $4,363, respectively, consisting primarily of minimum annual royalties due under a certain licensing agreement and completed but unshipped products manufactured to specific order by certain licensees.

Contract Liabilities

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 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.

These contract liabilities are

reflected as deferred revenue within the Condensed Consolidated Balance Sheet.

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,

As of September 30, 2020, and December 31, 2019,

such contract liabilities were $4,416 and $5,154, respectively.

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Three Months Ended

Six Months Ended

September 30,

Nine Months Ended

September 30,

Manufacture and supply revenue

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Three Months Ended

Six Months Ended

September 30,

Nine Months Ended

September 30,

United States

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Trade and other receivables, net consist of the following:

September 30,

Trade receivables

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Trade and other receivables, net

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 current portion of contract and other receivables totaled $1,872 and $4,363 as of September 30, 2020 and December 31, 2019, respectively.

The current period 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

The 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:

September 30,

Allowance for doubtful accounts at beginning of year

Reversals/additions charged to bad debt expense

Additions charged to bad debt expense

Write-downs charged against the allowance

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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.

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

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 adequacy of these provisions is reviewed on a quarterly basis.

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

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.

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 sales related allowances and accruals for the nine months ended September 30, 2020:

Total Sales Related

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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.

Balance at September 30, 2020

Total reductions of gross product sales from sales-related allowances and accruals were $3,996 for the nine months ended September 30, 2020.

Accruals for returns allowances and prompt pay discounts

are reflected as a direct reduction of trade receivables and accruals for wholesaler service fees, co-pay support redemptions 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.

receivables, net and Accounts payable and accrued expenses were $277 and $1,655, respectively, as of September 30, 2020 and $203 and $1,174, respectively, as of December 31, 2019.

Concentration of Major Customers

Customers are considered major customers when sales exceed 10% of total net sales for the period or outstanding receivable balances exceed 10% of total receivables.

For the year ended at December 31,

For the year ended December 31,

2019, Indivior, Inc.

(“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 six months ended June 30,

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

For the nine months ended

September 30, 2020, there were two customers exceeding the 10% threshold for revenue while there were three customers exceeding the 10% threshold for outstanding accounts receivable.

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.

(“Sunovion”) represented approximately 54% and 31%, respectively of total revenue for the nine months ended September 30, 2020, and outstanding accounts receivable due from Indivior, Sunovion and AmerisourceBergen represented approximately 50%, 12%

and 11%, respectively of gross receivables.

Material Agreements

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On September 24, 2017, the Company entered into an agreement with Indivior, or the Indivior Supplemental Agreement.

Pursuant to the Indivior Supplemental Agreement, the Company conveyed to Indivior all existing and

future rights in the settlement of various ongoing patent enforcement legal actions and disputes related to the Suboxone product.

The Company also conveyed to Indivior the right to sublicense manufacturing and marketing capabilities to enable an

Indivior licensed generic buprenorphine product to be produced and sold by parties unrelated to Indivior or Aquestive.

Under the Indivior Supplemental Agreement, the Company is entitled to receive certain payments from Indivior commencing on the

date of the agreement through January 1, 2023.

Pursuant to the Indivior Supplemental Agreement, the Company conveyed to Indivior

all existing and future rights in the settlement of various ongoing patent enforcement legal actions and disputes related to the Suboxone product.

The Company also conveyed to Indivior the right to sublicense manufacturing and marketing capabilities

to enable an Indivior licensed generic buprenorphine product to be produced and sold by parties unrelated to Indivior or Aquestive.

Under the Indivior Supplemental Agreement, the Company is entitled to receive certain payments from Indivior

commencing on the date of the agreement through January 1, 2023.

Once paid, all payments made under the Indivior Supplemental Agreement are non-refundable.

Through February 20, 2019, the at-risk launch date of the competing generic products of Dr.

Reddy’s Labs and

Alvogen, the Company received an aggregate of $40,750 from Indivior under the Indivior Supplemental Agreement, of which $4,250 was collected during the three months ended March 31, 2019.

Further payments under the Indivior Supplemental Agreement

were suspended until adjudication of related patent infringement litigation is finalized.

If such litigation is successful, in addition to the amounts already received as described in the foregoing, the Company may receive up to an additional

$34,250, consisting of (i) up to $33,000 in the aggregate from any combination of (a) performance or event-based milestone payments and (b) single digit percentage royalties on net revenue earned by Indivior on sales of Suboxone and (ii) an

additional $1,250 that was earned through the issuance of additional process patent rights to the Company.

Reddy’s Labs and Alvogen, the Company received an aggregate of $40,750 from Indivior under the Indivior Supplemental Agreement, of which $4,250 was collected during the three months ended March 31, 2019.

Further payments under the Indivior

Supplemental Agreement were suspended until adjudication of related patent infringement litigation is finalized.

If such litigation is successful, in addition to the amounts already received as described in the foregoing, the Company may receive up

to an additional $34,250, consisting of (i) up to $33,000 in the aggregate from any combination of (a) performance or event-based milestone payments and (b) single digit percentage royalties on net revenue earned by Indivior on sales of Suboxone and

(ii) an additional $1,250 that was earned through the issuance of additional process patent rights to the Company.

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

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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:

(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.

Sunovion used this intellectual property to develop its apomorphine product, KYNMOBI™, which was approved by the FDA on May 21, 2020.

This approval 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.

This amount was received

as of September 30, 2020 and is included in License and royalty revenues for the nine-months ended September 30, 2020.

In consideration for the rights granted to Sunovion under the Sunovion License Agreement, the Company received aggregate payments totaling $22,000 to date.

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.

$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”) The Company is also entitled to receive certain contingent

one-time milestone payments related to product availability and regulatory approval in 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 are equal to $45,000.

There can be no guarantee that any future milestones will be met or that additional milestone payments will be payable.

There are minimum annual guaranteed royalty payments

under the contract.

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

the total reflected in License and royalty revenues for the nine- months ended September 30, 2020.

Effective March 16, 2020, the Company entered into a first amendment (the “First 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 effective inception date of the first minimum annual royalty due from 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.

intellectual property granted to Sunovion to develop and commercialize apomorphine-based 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

apomorphine-based products.

On October 23, 2020, the Company amended the Sunovion License Agreement to clarify the parties’ agreement with respect to certain provisions in the License Agreement, specifically the date after

which Sunovion has the right to terminate the License Agreement and the rights and obligations of the parties regarding the prosecution and maintenance of the Company’s patents covered under the License Agreement.

See Note 19, (A), Subsequent

On November 3, 2020, the Company entered into a royalty monetization agreement (the “Monetization Agreement”) with an affiliate of Marathon Asset Management (“Marathon”) pursuant to which the Company conveyed to Marathon the right to all

royalties and other payments due to the Company under the Sunovion License Agreement.

See Note 19, (B), Subsequent Events.

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 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.

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

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.

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 nine-month period ended September 30, 2020, in connection with the FDA’s acceptance of a 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

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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.

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 the 12.5% 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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The components of Inventory, net is as follows:

September 30,

Packaging material

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Property and Equipment, Net

September 30,

Furniture and fixtures

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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 $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.

Total depreciation and amortization related to property and equipment was $714 and $695 for the three-month periods ended September 30, 2020 and 2019, respectively.

respective nine-month periods, these expenses totaled $2,127 and $2,143.

Right-of-Use Assets and Lease Obligations

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 .

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 2.5 years and 6.0 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

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.

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.

Right-of-use assets

recorded upon adoption of ASC 842 totaled $4,048.

For the three- and nine-month periods ended September 30, 2020, total operating lease expenses under these leases totaled $409 and $1,228, respectively, including variable lease expenses such as

common area maintenance and operating costs totaling $89 and $255, respectively.

Total payments to these lessors during the nine-month period ended September 30, 2020 were $1,255.

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

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

September 30,

Purchased technology-based intangible

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Total intangible assets, net and other assets

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.

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

For the corresponding nine-month periods, these expenses totaled $38 and $39,

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.

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.

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Accounts payable and accrued expenses consisted of the following:

September 30,

Accounts payable

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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 the 12.5% 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 (the “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 the 12.5% Notes (“Indenture”), the Company issued $70,000 of principal of the 12.5% 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 the 12.5% 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 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.

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.

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.

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 (the “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.

Subject to approval of the holder of a majority of the outstanding principal amount of the 12.5% 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 the 12.5% 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 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.

On November 3, 2020, this Indenture was amended and will be partially repaid from proceeds resulting from the monetization transaction.

See Note 19 (C), Subsequent Events.

There can be no assurance that any

additional financing will be consummated.

Proceeds from the 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 12.5% 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.

The Company has recorded $1,750 as Loans Payable, Current to reflect this obligation in its Condensed Consolidated Balance Sheet at September 30, 2020.

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.

A debt maturity table is presented below:

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 12.5% 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 Initial Notes to 112.5% if payment occurs during the third year after the issuance of the Initial Notes.

In the event that

redemption occurs within the two years after the issuance of the 12.5% 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 12.5% Notes at 101% of the remaining principal plus accrued interest at the election of the Lenders.

Collateral for the loan under the 12.5% Notes consists of a priority lien on substantially all property and assets, including intellectual property, of the Company.

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$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.

The Company’s license of its intellectual property 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 12.5% Notes being repurchased, plus accrued and unpaid interest,

if any, thereon, to the date of the repurchase, to the extent elected by the Noteholders, 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 Noteholders.

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 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.

Proceeds of more than $40,000 (or $50,000 if an additional tranche is

issued) can be used immediately for general corporate purposes.

As of September 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

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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.

Amortization expenses arising from deferred debt issuance costs and debt discounts related to the 12.5% Notes

were $590 and $1,758 for the three- and nine-month periods ended September 30, 2020, respectively.

Comparative amortization expenses derived from deferred debt issuance costs and debt discounts related to the Perceptive Loan and the 12.5% Notes for

the three- and nine-month periods ended September 30, 2019 were $556 and $1,338, respectively.

Unamortized deferred debt issuance costs and deferred debt discounts totaled $7,904 and $9,662 as of September 30, 2020 and December 31, 2019,

respectively.

Loans Payable - Perceptive

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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.

In July 2019, the Perceptive Loan was paid in full in connection with the completion of the sale of the Initial 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.

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.

The Warrants that were issued in conjunction with the Initial Notes described above expire on June 30, 2025 and entitled the holders of the Initial 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.

The fair value of these Warrants is treated as a debt discount,

amortizable over the term of the Warrants, with the unamortized loan portion applied to reduce the face amount of the Notes in the Company’s balance sheet.

Additionally, since the Warrants issued do not provide warrant redemption or put rights

within the control of the holders that could require the Company to make a payment of cash or other assets to satisfy the obligations under the Warrants, except in the case of a “cash change in control”, the fair value attributed to the Warrants is

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 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.

The fair value of these Warrants is treated as

a debt discount, amortizable over the term of the Warrants, with the unamortized loan portion applied to reduce the face amount of the Initial Notes in the Company’s balance sheet.

Additionally, since the Warrants issued do not provide warrant

redemption or put rights within the control of the holders that could require the Company to make a payment of cash or other assets to satisfy the obligations under the Warrants, except in the case of a “cash change in control”, the fair value

attributed to the Warrants is presented in Additional-paid in capital in the accompanying Condensed Consolidated Balance Sheets.

Certain holders of the Initial 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 Initial Notes during the nine-month period ended September 30, 2020.

On November 3, 2020, the Indenture was amended, and additional at-the-money warrants will be issued at the time of purchase of additional Notes.

See Note 19 (C), Subsequent Events.

Net Loss Per Share

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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

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 nine-month periods ended September 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

Six Months Ended

September 30,

Nine Months Ended

September 30,

Weighted-average number of common shares – basic

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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:

periods ended September 30:

September 30,

Options on common shares outstanding

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Three Months Ended

Six Months Ended

September 30,

Nine Months Ended

September 30,

Manufacture and supply

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Share-Based Compensation Equity Awards

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:

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

Restricted Stock Unit Awards (RSUs):

Weighted Average

Grant Date Fair

(in thousands)

Unvested at December 31, 2019

Unvested at June 30, 2020

Unvested as of December 31, 2019

Unvested as of September 30, 2020

Grant date fair value of shares vested during the period

Unrecognized compensation costs at June 30, 2020

Unrecognized compensation costs as of September 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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(in thousands)

Outstanding at December 31, 2019

Outstanding as of December 31, 2019

Exercised, Forfeited, Expired

Outstanding at June 30, 2020

Vested or expected to vest at June 30, 2020

Exercisable at June 30, 2020

Outstanding as of September 30, 2020

Vested or expected to vest as of September 30, 2020

Exercisable as of September 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:

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Risk-free interest rate

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

The weighted average grant date fair value of stock options granted during 2020 was $2.10 During the nine-month period ended September 30, 2020, stock options were granted with

exercise prices ranging from $1.54 to $7.86, and accordingly, given the Company’s share price of $4.86 at September 30, 2020, certain shares granted during this period provided intrinsic value at that date totaling $2,474.

No intrinsic value was

provided by stock options granted during the nine-month period ended September 30, 2019.

As of September 30, 2020, $6,554 of unrecognized compensation expense related to non-vested stock options is expected to be recognized over a weighted average period of 1.8 years

from the date of grant.

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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.

nine-month periods ended September 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.

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 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.

For the three months ended September 30, 2020 and 2019,

the Company recorded no income tax benefit from its pretax losses of $16,551 and $18,412, respectively, and similarly for the nine months ended September 30, 2020 and 2019, the Company recorded no tax benefit from its pretax loss of $35,415 and

$53,610, 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- 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.

The primary factor impacting the effective tax rate for the three- and nine-month periods ended September 30, 2020 is the anticipated full year

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

Contingencies

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.

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.

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Sandoz withdrew all challenges and became the distributor of the authorized generic products.

All cases against Par were resolved pursuant to a May 2018 settlement agreement between the Company, Indivior, and Par and certain of its affiliates.

All cases against Par were resolved pursuant to a May 2018 settlement agreement among the Company, Indivior, and Par and certain of its affiliates.

Actavis was found to infringe Patent No.

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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, 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.

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

On August 24, 2020, Judge McNulty issued an Opinion and Order denying both the appeal of the Magistrate’s decision and Aquestive’s Motion to Dismiss.

On June 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.

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.

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.

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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.

request of the Supreme Court, Aquestive filed an opposition to BDSI’s petition on August 17, 2020, and BDSI filed a reply on August 27, 2010.

On October 5, 2020, the Supreme Court issued an order denying BDSI’s petition.

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.

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

The parties are awaiting

further action from the court on Aquestive’s motion.

Antitrust Litigation

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

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.

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

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

On August 27, 2020, the district court issued a scheduling order, setting the deadline for filing remaining Daubert challenges and summary judgment.

Under the scheduling order, the remaining Daubert motions were filed on September 28, 2020, and oppositions are due on October 19, 2020.

will set oral argument on the motions, but the date for oral argument is not yet known.

Summary judgment motions are due January 11, 2021, and responses to summary judgment motions are due February 11, 2021.

No trial date has yet been set.

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.

Humana and Centene Actions

On September 18, 2020, Humana, Inc., a health insurance payer, filed a suit against Aquestive and Indivior in the Eastern District of Pennsylvania relating to Suboxone.

Humana action, which alleges facts similar to those at issue in the Antitrust Case and the Suboxone MDL described above, was assigned to the same judge that is presiding over those actions.

Humana’s Complaint alleges five causes of action against

Aquestive, including conspiracy to violate the RICO Act, fraud under state law, unfair and deceptive trade practices under state law, insurance fraud, and unjust enrichment.

On September 21, 2020, Centene Corporation and other related insurance

payers filed a similar suit against Aquestive and Indivior in the Eastern District of Missouri.

The counsel representing Humana is also representing Centene.

On September 21, 2020, the Centene action was provisionally transferred to the Eastern

District of Pennsylvania by the United States Judicial Panel on Multidistrict Litigation.

No other proceedings have occurred and the schedule is not yet known.

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

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

California Complaint

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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.

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.

The court held a telephonic hearing on Aquestive’s anti-SLAPP motion on July 24, 2020.

On August 6, 2020, the Court issued an order granting in part and

denying in part Aquestive’s anti-SLAPP motion.

Aquestive filed a notice of appeal to the California Court of Appeal on September 1, 2020, and Neurelis filed a notice of cross-appeal on October 5, 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.

Subsequent Events

(A) Amendment to License Agreement with Sunovion Pharmaceuticals Inc.

Effective as of October 23, 2020, the Company entered into a Second Amendment to the Sunovion License Agreement whereby the parties to the Sunovion License Agreement agreed to

clarify the continued rights and obligations of the parties with respect to the prosecution and maintenance of the Company’s patents covered under the Agreement and that, on and after March 31, 2028, in respect of any jurisdiction or jurisdictions

covered under the License Agreement, Sunovion may terminate its rights with respect to the Licensed Patents under the License Agreement upon 180 days prior written notice to the Company.

(B) Monetization of Certain Rights under the Sunovion License Agreement

On November 3, 2020, the Company entered into the Monetization Agreement that will result in proceeds to the Company of up to $125,000 in exchange for which the

Company conveyed to Marathon the right to all royalties and other payments due to the Company under the Sunovion License Agreement (See Note 6).

Under the terms of the Monetization Agreement, Aquestive will receive a $40,000 cash payment within 12

business days of signing and is eligible to receive up to $85,000 of contingent payments at various points, beginning as early as the fourth quarter of 2020, based on the achievement of worldwide royalty targets and certain other commercial

With the proceeds paid to the Company at closing under the Monetization Agreement, the Company will repay $22,500 of the 12.5% Notes, and issue $4,000 of new

senior notes in lieu of paying a prepayment premium on the early repayment of the 12.5% Notes, reducing the balance of senior notes outstanding to $51,500 in the aggregate.

In addition, the holders of the 12.5% Notes have extended to December 31,

2021 the Company’s ability to access, at the Company’s option, $30,000 of senior notes re-openers under the Indenture.

The first $10,000 senior notes re-opener represents a commitment of such amount by current holders of 12.5% Notes, at the option

of the Company, contingent upon FDA approval of the Company’s product candidate Libervant (diazepam) Buccal Film for the management of seizure clusters .

A second $20,000 senior notes re-opener represents a

right, at the Company’s option, to market to current holders of the Company’s 12.5% Notes, and/or other lenders, additional senior notes up to such amount, contingent upon FDA approval of Libervant for U.S.

market access.

If and to the extent that

the Company accesses these re-openers, the Company will grant warrants to purchase up to 714,000 shares of common stock, with the strike price calculated based on the 30-day volume weighted average closing price of the Company’s common stock at the

warrant grant date.

In addition, as of the closing of this transaction, the Company will issue to the holders of the 12.5% Notes warrants to purchase 143,000 shares of the Company’s common stock.

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