Aquestive Therapeutics, Inc. 10-K

Item 9A. Controls and Procedures. Management’s Evaluation of our Disclosure Controls and Procedures We maintain disclosure controls that are designed to ensure that information required to be disclosed in the reports that we file or submit under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) is (1) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (2) accumulated and communicated to our management, including our principal executive officer and principal financial officer, to allow timely decisions regarding our required disclosures. As of December 31, 2020, our management, with the participation of our principal executive officer and principal financial officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act). Our management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives, and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Our principal executive officer and principal financial officer have concluded based upon the evaluation described above that, as of December 31, 2020, our disclosure controls and procedures were effective at the reasonable assurance level. Management’s Annual Report on Internal Control over Financial Reporting Our management is responsible for establishing and maintaining adequate controls over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Our internal control over financial reporting includes those policies and procedures that: (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of Aquestive Therapeutics, Inc,; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and our directors; and (iii) provide reasonable assurance regarding the prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements. Because of inherent limitations, internal control over financial reporting may not prevent misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies and procedures may deteriorate. Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2020. In making this assessment, management used the criteria set forth in the Internal Control-Integrated Framework (2013 ) issued by the Committee of Sponsoring Organization of the Treadway Commission (“COSO”). Based upon its assessment and those criteria, our management has concluded that our internal control over financial reporting was effective as of December 31, 2020. Attestation Report of the Registered Public Accounting Firm This Annual Report on Form 10-K does not include an attestation of our registered public accounting firm due to an exemption established by the JOBS Act for “emerging growth companies”. Changes in Internal Control over Financial Reporting There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act), identified in connection with the evaluation of such internal control that occurred during our last fiscal quarter, that have materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. Item 9B. Other Information. None. 72 Table of Contents PA RT III Item 10. Directors, Executive Officers, and Corporate Governance DIRECTORS Board Composition and Structure Our business and affairs are organized under the direction of our Board of Directors, which currently consists of eight members, seven of whom are independent directors. The primary responsibilities of our Board of Directors are to provide oversight, strategic guidance and direction to our management. Our Board meets on a regular basis and additionally as required. Our certificate of incorporation provides that our Board is divided into three classes of directors, with the classes as nearly equal in number as possible. Each of our directors identified below serves in the class indicated. Subject to any earlier resignation or removal in accordance with the terms of our certificate of incorporation and bylaws, our current Class I directors will serve until the 2022 Annual Meeting of Stockholders, our current Class II directors will serve until the 2023 Annual Meeting of Stockholders, and our current Class III directors will serve until the 2021 Annual Meeting of Stockholders; and, in each case, until their successors are duly elected and qualified. Any additional directorships resulting from an increase in the number of directors will be apportioned by our Board among the three classes as equally as possible. Below is a list of the names, ages and class of the individuals who currently serve as our directors. Name Age Position Class Keith J. Kendall 63 Chief Executive Officer, President and Director I Gregory B. Brown, M.D. 67 Director II John Cochran 55 Vice Chairman of the Board II Santo J. Costa 75 Chairman of the Board III Julie Krop, M.D. 54 Director III Nancy S. Lurker 63 Director I James S. Scibetta 56 Director I Marco Taglietti, M.D. 61 Director III The Board has determined that the classified Board structure is appropriate for the Company at this time. A classified board provides for stability, continuity and experience among our Board following our initial public offering. The Board believes that building a cohesive board is an important goal. In our industry in particular, the time horizon required for successful development of pharmaceutical products and product candidates makes it important that we have a Board that understands the implications of this process and has the ability to develop long-term strategies while benefiting from an in-depth knowledge of Aquestive’s business, development processes and timetables and operations. A classified board structure helps to provide continuity and stability of leadership while resisting pressure to focus on short-term results at the expense of long-term value. Director Biographies Information concerning our directors is set forth below. The biographical description of each director includes the specific experience, qualifications, attributes and skills that led the Board to conclude that each nominee should serve as a director. Class III Directors (with terms expiring at the 2021 Annual Meeting of Stockholders) Santo J. Costa Santo J. Costa has served as our Board Chairman since August 2018 and has served as a member of our Board of Directors since December 2015. Since 2007, Mr. Costa has served as Of Counsel to the law firm of Smith, Anderson, Blount, Dorsett, Mitchell and Jernigan, L.L.P. of Raleigh, North Carolina, specializing in corporate law for healthcare companies. Mr. Costa has served on the board of directors of Cytokinetics Inc. (Nasdaq: CYTK) since October 2010. From 1994 to 2001, he held various positions at Quintiles Transnational Corporation, including as Vice Chairman, President and Chief Operating Officer. Prior to joining Quintiles, Mr. Costa spent 23 years in the pharmaceutical industry, most recently as General Counsel and Senior Vice President, Administration with Glaxo Inc. Prior to joining Glaxo, he served as U.S. Area Counsel with Merrell Dow Pharmaceuticals and as Food & Drug Counsel with Norwich Eaton Pharmaceuticals, Inc. Mr. Costa served as chairman of the board of directors of Alchemia Limited (then traded on the ASX: ACL), a biopharmaceutical company, from March 2014 to June 2015 and on the board of directors of Metabolon, Inc., a private company, from April 2013 to May 2019. He also served on the board of directors of Magor Corporation, formerly Biovest Corp. I, from March 2010 until March 2013. He also served as chairman of the board of directors of LaboPharm, Inc. from March 2006 to November 2011 and a director of OSI Pharmaceuticals from June 2006 to June 2010, as well as serving as a director at other private companies. Mr. Costa earned both a B.S. in Pharmacy and a J.D. from St. John’s University. Our Board believes that Mr. Costa’s experience in the biotechnology industry, his broad experience advising global corporations and boards of directors of publicly held companies, and his experience serving as a director of public and private companies, qualifies him to serve on our Board of Directors. 73 Table of Contents Julie Krop, M.D. Julie Krop, M.D., has served as a member of our Board since February 2021. Since April 2020, Dr. Krop has served as Chief Medical Officer of Freeline Therapeutics Holdings plc (Nasdaq: FRLN), a clinical stage gene therapy company, and has more than 20 years of drug development experience across multiple therapeutic areas including orphan drug indications. Dr. Krop served from 2015 to April 2020 as the Chief Medical Officer and Executive Vice President, Development of AMAG Pharmaceuticals, Inc. (Nasdaq: AMAG), where she oversaw clinical development, medical affairs, program management, and pharmacovigilance and regulatory functions. Prior to joining AMAG, Dr. Krop held leadership positions at Vertex Pharmaceuticals, Inc. from 2012 to 2015, including Internal Medicine Development Lead and Vice President, Clinical Development, and had leadership positions at Pfizer, Inc. from 1999 to 2001, at Millennium Pharmaceuticals, Inc. from 2001 to 2003, at Peptimmune from 2003 to 2006, and at Stryker Regenerative Medicine from 2006 to 2012. Dr. Krop is board certified in Internal Medicine and completed a Robert Wood Johnson Foundation Clinical Scholar Fellowship as well as an Endocrinology fellowship at the Johns Hopkins University School of Medicine. Dr. Krop received both a B.A. and an M.D. from Brown University. Our Board believes that Dr. Krop’s extensive healthcare knowledge, her extensive experience in overseeing drug development and clinical research, and her executive leadership success in the healthcare industry qualify her to serve on our Board of Directors. Marco Taglietti, M.D. Marco Taglietti, M.D., has served as a member of our Board since February 2021. Since 2015, Dr. Taglietti has been President, Chief Executive Officer and Director of Scynexis, Inc. (Nasdaq: SCYZ), a biotechnology company pioneering innovative medicines to overcome and prevent difficult-to-treat and drug resistant infections. From 2007 to 2014 Dr. Taglietti served in senior leadership positions at Forest Laboratories, Inc., a publicly traded pharmaceutical company, including Executive Vice President, Research and Development, and Chief Medical Officer, and also served as President of Forest Research Institute, a division of Forest Laboratories. Prior to joining Forest Laboratories, Inc. in 2007, Dr. Taglietti held the position of Senior Vice President, Head of Global Research and Development, at Stiefel Laboratories, Inc. for three years. He joined Stiefel Laboratories, Inc. after 12 years at Schering-Plough Corporation where he held positions of increasing responsibilities including as Vice President (Executive Level), Clinical Research for Anti-Infectives, CNS, Endocrinology and Dermatology. Dr. Taglietti began his career at Marion Merrell Dow Research Institute. Dr. Taglietti currently serves on the board of directors of BioNJ, Inc., a life science trade association, and was previously a director of Delcath System, Inc and NephroGenex, Inc. He received his medical degree and board certifications from the University of Pavia in Italy. Our Board believes Dr. Taglietti’s broad ranging experience in the pharmaceutical industry, his experience as a chief executive officer, his experience in the development of novel medicines, and his experience at public life sciences companies qualify him to serve on our Board of Directors. Class II Directors (with Terms expiring at 2023 Annual Meeting) Gregory B. Brown, M.D. Gregory B. Brown, M.D., has served as a member of our Board of Directors since March 2007. Dr. Brown is currently Chief Executive Officer of Memgen, Inc., a private development-stage biotechnology company. Dr. Brown is also a co-founder at HealthCare Royalty Partners, or HCR Partners, and is a member of that firm’s Senior Advisor Board. Educated as a transplantation immunologist and trained as a thoracic and vascular surgeon, Dr. Brown practiced thoracic and vascular surgery in a community setting where he also founded and led a health maintenance organization. Before co-founding HCR Partners, Dr. Brown was a partner at Paul Capital Partners, where he co-managed that firm’s royalty investments as a member of the royalty management committee. Prior to beginning his principal investment career in 2003, Dr. Brown was co-head of investment banking and head of healthcare at Adams, Harkness & Hill (now Canaccord Genuity) and a ranked biotechnology research analyst at Vector Securities International. Dr. Brown holds a B.A. from Yale University, an M.D. from SUNY Upstate Medical Center and an M.B.A from Harvard University. Dr. Brown currently serves on the boards of the following public pharmaceutical companies: Caladrius Biosciences, Inc. (Nasdaq: CLBS) and Faron Pharmaceuticals Oy (LSN: FARN); and previously served as director of Cambrex Corporation. Our Board believes that Dr. Brown’s extensive experience in the pharmaceutical industry and investing in life sciences companies, as well as his medical and scientific background, qualifies him to serve on our Board of Directors. John Cochran John Cochran has served as a member of our Board of Directors since January 2004 and was appointed to serve as Vice Chairman of the Board effective April 22, 2020. Mr. Cochran has been a partner at Bratton Capital Management L.P. since October 1998 and is responsible for its private equity investments. Mr. Cochran is also a partner and Chief Operating Officer of Crestline Investors, an institutional alternative investment management firm. Prior to joining Bratton Capital Management L.P., Mr. Cochran spent 10 years with KPMG focused primarily on audit and merger and acquisition due diligence. Mr. Cochran received his B.A. in Accounting from Texas Christian University and is also a licensed certified public accountant. Our Board believes that Mr. Cochran’s private equity investment and company oversight experience, along with his strong finance and management background, qualifies him to serve on our Board of Directors. Class I Directors (with terms expiring at the 2022 Annual Meeting of Stockholders) Keith J. Kendall Keith J. Kendall has served as our Chief Executive Officer and President and as a member of our Board since November 2014, after having served as our President and Chief Operating Officer from November 2011 to November 2014 and as our Executive Vice President and Chief Financial Officer from 2006 to 2011. From 1999 to 2006, Mr. Kendall served in various business leadership positions for Hewlett Packard Financial Services, most recently as Vice President and Managing Director of the Americas. From 1985 to 1998, Mr. Kendall held a number of positions with AT&T Capital Corporation, including President of AT&T Credit Corporation and NCR Credit Corporation. Mr. Kendall served on the board of directors of Midatech Pharma Plc (Nasdaq: MTP) from January 2010 to December 2014. Mr. Kendall holds a B.S. from St. John’s University and an M.B.A from Pace University. Our Board believes that Mr. Kendall’s perspective and experience as our Chief Executive Officer, as well as his depth of operating and senior management experience in our industry, qualifies him to serve on our Board of Directors. 74 Table of Contents Nancy S. Lurker Nancy S. Lurker has served as a member of our Board of Directors since April 2018. Ms. Lurker has served as President, Chief Executive Officer and Director of Eyepoint Pharmaceuticals, Inc. (Nasdaq: EYPT), a specialty biopharmaceutical company committed to developing and commercializing innovative ophthalmic products, since September 2016. Prior to assuming her position with Eyepoint Pharmaceuticals, Ms. Lurker was a freelance consultant from December 2015 to September 2016. From 2008 to December 2015, Ms. Lurker served as Chief Executive Officer and a director of PDI, Inc., a Nasdaq-listed healthcare commercialization company now named Interpace Bioscience, Inc. (Nasdaq: IDXG). From 2006 to 2007, Ms. Lurker was Senior Vice President and Chief Marketing Officer of Novartis Pharmaceuticals Corporation, the U.S. subsidiary of Novartis AG (NYSE: NVS). In addition, Ms. Lurker also served as President and Chief Executive Officer of ImpactRx, Inc., a privately held healthcare information company. Ms. Lurker currently serves on the board of directors of the Cancer Treatment Centers of America, a privately held company. Ms. Lurker previously served as a member of the boards of directors of publicly held Auxilium Pharmaceuticals, Inc. from 2011 to 2015, Mallinckrodt Pharmaceuticals, plc from 2013 to 2016, Elan Corporation, plc from 2005 to 2006 and ConjuChem Biotechnologies from 2004 to 2006. Ms. Lurker currently serves on the Advisory Board of Novo Holdings A/S, Novo Nordisk Foundation’s wholly owned holding company for Novo Nordisk A/S and Novozymes A/S. Ms. Lurker received a B.S. in Biology from Seattle Pacific University and an M.B.A. from the University of Evansville. Our Board believes Ms. Lurker’s broad ranging experience in the pharmaceutical industry, her experience on the boards of directors of both public and private companies, and her track record of maximizing the potential of new therapies and successfully implementing innovative U.S. and global drug launches qualifies her to serve on our Board of Directors. James S. Scibetta James S. Scibetta has served as a member of our Board of Directors since April 2017. Mr. Scibetta currently serves as Chief Executive Officer and a member of the board of directors of Maverick Therapeutics, Inc., a development stage immuno-oncology company, since July 2017. Prior to Maverick, Mr. Scibetta was appointed President of Pacira Pharmaceuticals, or Pacira (Nasdaq: PCRX), in October 2015, where he oversaw commercial and medical support activities, and directed commercial manufacturing, tech transfer and research and development. Mr. Scibetta served as Pacira’s Chief Financial Officer from 2008 to 2016 where he led its 2011 initial public offering and subsequent debt and equity financings. Prior to that, Mr. Scibetta served as Chief Financial Officer of Bioenvision Inc., a commercial-stage public oncology company acquired by Genzyme, from 2006 to 2007, and Merrimack Pharmaceuticals, an oncology-focused systems biology company, from 2001 to 2006. Earlier in his career, Mr. Scibetta spent over a decade in investment banking where he was responsible for sourcing and executing transactions for a broad base of public and private healthcare and life sciences companies. Mr. Scibetta has also served as a director and chairman of the audit committee of Matinas BioPharma Holdings, Inc. (NYSE: MTNB), a biopharmaceutical company, since 2013. Mr. Scibetta received his B.S. in Physics from Wake Forest University and his M.B.A from the University of Michigan. Our Board believes that Mr. Scibetta’s extensive senior management experience in the biotechnology industry, as well as his experience on the boards of both public and private companies, qualifies him to serve on our Board of Directors. CORPORATE GOVERNANCE Board Meetings, Attendance and Executive Sessions The Board held fourteen (14) meetings during the year ended December 31, 2020. All Board members attended at least 75% of the meetings of the Board and the committees of the Board on which he or she served. The composition of, and number of meetings held by, each committee is set forth below under “Board Committees.” The independent directors meet in executive sessions, without management present, periodically and as appropriate. All directors are expected to attend our annual meetings of stockholders absent extenuating circumstances. All members of the Board who were directors at the time attended the 2020 Annual Meeting. Board Leadership Structure Our Board of Directors is currently chaired by Santo J. Costa, one of our independent directors. As a general policy, our Board believes that separation of the positions of Chairman and Chief Executive Officer reinforces the independence of the Board from management, creates an environment that encourages objective oversight of management’s performance and enhances the effectiveness of the Board as a whole. Mr. Kendall, our Chief Executive Officer, is also a member of the Board, which we believe promotes strategy development and execution and facilitates information flow between management and the Board. We currently expect the positions of Chairman of the Board and Chief Executive Officer to continue to be held by two individuals. Board of Directors’ Role in Risk Oversight While senior management has primary responsibility for managing risk, the Board as a whole has responsibility for risk oversight. One of the key functions of our Board is informed oversight of our risk management process. Relevant Board committees review specific risk areas, as discussed below, and report on their deliberations to the Board. The full Board oversees risk in several ways. Through periodic management updates on the financial and operating results of Aquestive, including its annual operating plans and strategic planning, the Board provides input to management on ordinary course, business and commercial operating risks. In addition, management reports to the Board and each committee periodically on specific material risks as they arise or as requested by individual Board members. 75 Table of Contents The Board does not have a standing risk management committee, but rather administers this oversight function directly through the Board as a whole, as well as through standing committees of our Board that address risks inherent in their respective areas of oversight. In particular, our Board is responsible for monitoring and assessing strategic risk exposure and our Audit Committee has the responsibility to consider and discuss major financial risk exposures and the steps management has taken to monitor and control these exposures. Our Nominating and Corporate Governance Committee monitors the effectiveness of our corporate governance practices, including whether they are successful in preventing illegal or improper conduct, and generally monitors compliance with applicable law and compliance with our Code of Business Conduct and Ethics. Our Compensation Committee assesses and monitors whether any of our compensation policies and programs has the potential to encourage excessive risk-taking. EXECUTIVE OFFICERS Below is a list of the names, ages, positions, and a brief account of the business experience of the individuals who serve as our executive officers. Name Age Position(s) Keith J. Kendall 63 Chief Executive Officer, President and Director Daniel Barber 45 Senior Vice President - Chief Operating Officer Peter Boyd 55 Senior Vice President - Business Process and Information Technology Lori J. Braender 65 Senior Vice President - General Counsel, Chief Compliance Officer and Corporate Secretary Kenneth Marshall 60 Senior Vice President - Chief Commercial Officer A. Mark Schobel 65 Chief Innovation and Technology Officer Gary H. Slatko 64 Senior Vice President - Chief Medical Officer A. Ernest Toth, Jr. 62 Interim Chief Financial Officer Theresa Wood 58 Senior Vice President - Human Resources and Organizational Development Executive Officer Biographies Keith J. Kendall | Chief Executive Officer Please see Mr. Kendall’s biographical information above in this Annual Report on Form 10-K under “Board of Directors - Director Biographies.” Daniel Barber | Senior Vice President - Chief Operating Officer Mr. Barber joined our team in July 2007 and has been our Chief Operating Officer since May 2019. Mr. Barber has led our Strategy and Development functions since April 2014. Prior to joining our team, Mr. Barber held various positions with Quest Diagnostics in its corporate planning and international divisions. In 2010, Mr. Barber had executive oversight of our launch activities for our first two FDA approved products. Beginning in 2013, Mr. Barber helped lead our effort to develop an internal pipeline of proprietary assets. Since that time, he has had executive responsibility for our pipeline and partnership activities. Mr. Barber received his B.A. from State University of New York at Geneseo and an M.B.A from Seton Hall University. Peter Boyd | Senior Vice President – Business Process and Information Technology Mr. Boyd joined our Company in August 2013 and has led our Business Process and Information Technology functions since May 2019. Prior to his current position, Mr. Boyd led our Operations and Value Delivery functions from April 2014 to May 2019. Prior to joining us, Mr. Boyd served as Senior Director of Operations for the Americas and APJ Regions at Hewlett-Packard Company. Throughout his 15-year career at the Hewlett-Packard Company, Mr. Boyd held a variety of positions in business process improvement and in operations. Mr. Boyd received a B.A. in History from Wittenberg University and an M.B.A in Finance from Seton Hall University. Mr. Boyd also received an M.S. in Management and Urban Policy Analysis from the New School University. Lori J. Braender | Senior Vice President - General Counsel, Chief Compliance Officer and Corporate Secretary Ms. Braender joined our Company in September 2018 as our Senior Vice President - General Counsel, Chief Compliance Officer and Corporate Secretary. Prior to joining us, Ms. Braender was an attorney at Day Pitney LLP for 35 years, most recently serving as a Partner and Chair of the firm’s Life Sciences Practice Group. In that role, she specialized in advising clients in the pharmaceutical and biotechnology industries, as well as medical device companies, hospitals and healthcare institutions, on regulatory requirements, contractual arrangements, and other business considerations connected with life science and healthcare transactions. Ms. Braender received a B.S. in Business Administration from Rider University and a J.D. from Seton Hall University School of Law. 76 Table of Contents Kenneth Marshall | Senior Vice President - Chief Commercial Officer Mr. Marshall joined our Company in January 2018 as our Commercial Leader. Prior to that, Mr. Marshall served as U.S. President and Global Chief Marketing Officer for Aerocrine Inc. In that role, he developed the global marketing strategy and led all aspects of that company’s U.S. business. From 2008 through 2011, Mr. Marshall served as Vice President of Sales and Marketing for Ikaria, Inc., a drug and device company focused on critical care. Mr. Marshall also spent 17 years with GlaxoSmithKline and held several senior positions including Vice President of Marketing for the Neurology, Urology, Lifecycle and HIV business units. Mr. Marshall received his B.S.B.A in Marketing and Economics from Western Carolina University and M.B.A from Houston Baptist University. A. Mark Schobel | Chief Innovation and Technology Officer Mr. Schobel joined our team in December 2005 and has served as our Chief Innovation and Technology Officer since November 2015. Mr. Schobel served as our Chief Executive Officer and Co-President through November 2014 and served as a member of our Board from November 2005 through the completion of our initial public offering in July 2018. From 2001 to 2005, he was the Global Head of New Technology and Product Innovation for the Consumer Health Business Unit at Novartis where he pioneered thin film delivery of systemic drugs. Prior to Novartis, Mr. Schobel held various general management positions with Reed & Carnrick Pharmaceuticals, Warner-Lambert and Pharmaceutical Formulations Inc. Mr. Schobel received his B.S. in Chemistry from Fairleigh Dickinson University and has been awarded 21 patents along with having multiple patents pending in fields ranging from film drug delivery to nanoparticle delivery systems. Gary H. Slatko, M.D. | Senior Vice President - Chief Medical Officer Dr. Slatko has served as our Senior Vice President - Chief Medical Officer since January 2019. From 2012 to 2018, Dr. Slatko served as Office Director/Associate Director of the Office of Medication Error Prevention and Risk Management, CDER at the FDA. Prior to that, Dr. Slatko served as Chief Medical Officer at ParagonRx, an inVentiv Health company, from 2001 to 2012. Dr. Slatko previously served in senior management roles at GlaxoSmithKline, AstraZeneca and DuPont-Merck Pharma. Dr. Slatko received his B.A. in Chemistry and Psychology from Emory University, his M.B.A. from West Chester University of Pennsylvania, and his M.D. from the University of Miami Leonard M. Miller School of Medicine. He completed an Internal Medicine residency program at the University of Pittsburgh School of Medicine and is Board Certified. A. Ernest Toth, Jr. | Interim Chief Financial Officer Mr. Toth became our Interim Chief Financial Officer upon the departure at 2020 year end of our former chief financial officer. Mr. Toth had joined Danforth Advisors as a consultant in November 2020 to provide finance support and strategic consulting services to life science companies and the healthcare technology industry. Prior to that time, Mr. Toth most recently served as Chief Financial Officer of EHE Health from September 2018 to February 2020. Prior to joining EHE Health, he served as Global Chief Financial Officer of ArisGlobal from January 2016 to December 2016, and Global Chief Financial Officer of Synowledge from January 2015 to December 2015. Prior to Synowledge, Mr. Toth held various senior financial positions at JHP Pharmaceuticals, Valeritas, Pharmaceutical Formulations, World Power Technologies and MacAndrews & Forbes. Mr. Toth also serves as Managing Director of Bellair Advisors, LLC, a consulting and advisory firm that provides financial, strategic, operational, and commercial counsel to high growth entrepreneurial businesses. Mr. Toth received his B.S. in Accounting from Shippensburg University of Pennsylvania and his M.B.A. in Corporate Finance from Pace University. Theresa Wood | Senior Vice President - Human Resources and Organizational Development Ms. Wood has served as the head of our Human Resources function since September 2006. Prior to joining our team, Ms. Wood was the Director, Human Resources, for the Hewlett Packard Financial Services Americas division from 1999 to 2006. From 1995 to 1998, Ms. Wood provided consulting services to several companies in the Financial Services, Healthcare and Consumer Goods market. Prior to that, Ms. Wood spent seven years with Sea-Land Service Corp. Ms. Wood received her B.S. in Management Science and Marketing from Kean University. Delinquent Section 16(a) Reports Section 16(a) of the Exchange Act requires our executive officers and directors and persons who own more than 10% of a registered class of our equity securities to file initial reports of ownership and reports of changes in ownership with the SEC. Based solely on our review of the copies of such forms with respect to fiscal year 2019, we believe our directors, officers and 10% stockholders complied with all applicable filing requirements during the fiscal year ended December 31, 2020 with the exception of A. Mark Schobel who filed one late Form 4 reporting two transactions. CODE OF ETHICS Our Board has adopted a Code of Business Conduct and Ethics (“Code of Ethics”) that applies to all of our colleagues, including our executive officers and those colleagues responsible for financial reporting, and our directors. Our Board has also adopted Corporate Governance Guidelines that, along with our committee charters and our Code of Ethics, provide the framework for our corporate governance policies. Copies of our Code of Ethics and our Corporate Governance Guidelines may be accessed free of charge by visiting our website at www.aquestive.com under “Investors” at “Corporate Governance: Governance Documents” or by requesting a copy via an e-mail addressed to investorrelations@aquestive.com or by written request addressed to our Corporate Secretary at our principal executive offices. To the extent required by applicable law and regulation, we intend to post on our website any amendment to, or waiver under, a provision of the Code of Ethics that applies to our executive officers and directors within the time period required. 77 Table of Contents BOARD COMMITTEES Our Board has established an Audit Committee, a Compensation Committee, and a Nominating and Corporate Governance Committee, each of which has the composition and responsibilities described below. Members will serve on these committees until their resignation or until otherwise determined by our Board. From time to time, the Board may establish other committees to facilitate the management of our business. In October 2019, the Board established a Disclosure Committee. The Disclosure Committee provides advice with respect to the public disclosures made by the Company to the SEC and the Company’s stockholders. Members of the Disclosure Committee include Mr. Kendall, Dr. Brown, Mr. Cochran, Mr. Scibetta and Ms. Lurker. Each of the Audit, Compensation, and Nominating and Corporate Governance Committees operates pursuant to a written charter, and each committee will review and assess the adequacy of its charter annually, submitting any changes to the Board for approval. Each of the committee charters is available on our website at www.aquestive.com under “Investors” at “Corporate Governance: Governance Documents.” The following table describes which directors serve on each of the below standing Board committees and the number of times each committee met during 2020. Name: Nominating and Corporate Governance Committee Compensation Committee Audit Committee Keith J. Kendall Gregory B. Brown, M.D. M M John Cochran C M Santo J. Costa C Julie Krop, M.D.* M Nancy S. Lurker M M James S. Scibetta C Marco Taglietti, M.D.* M Number of Meetings Held in 2020 6 6 7 M = Member C = Chair * Dr. Krop and Dr. Taglietti were first appointed to the Board in February 2021. Set forth below are summaries of the responsibilities of each of our standing Board committees. Audit Committee Our Audit Committee provides oversight of our accounting and financial reporting processes and the audits of our financial statements. Among other matters, the Audit Committee is responsible for the following: • reviewing with management and the independent registered public accounting firm the Company’s annual audited financial statements, quarterly financial statements and significant financial reporting issues in connection with the preparation of the Company’s annual and quarterly financial statements; • reviewing the Company’s major financial risk exposures and the steps management has taken to monitor and control such exposures; • retention and oversight of the independent registered public accounting firm; • pre-approving all audit services and permitted non-audit services to be performed for the Company by its independent registered public accounting firm, subject to the de minimis exception for permitted non-audit services; • establishing procedures for the receipt, retention and treatment of any complaints received by the Company regarding accounting, internal accounting controls or audit matters, including procedures for the confidential and anonymous treatment of submission by colleagues of any such complaints; and • reviewing, approving or ratifying all related person transactions in accordance with Company policy, applicable law and SEC and Nasdaq rules and regulations. All members of our Audit Committee meet the requirements for financial literacy under applicable rules of Nasdaq. Our Board has determined that James S. Scibetta is an audit committee financial expert as defined under applicable rules of the SEC. In making this determination, our Board has considered Mr. Scibetta’s financial experience and business background. All of the members of our Audit Committee were determined to be independent directors as defined under applicable rules of the SEC and Nasdaq. 78 Table of Contents Compensation Committee Our Compensation Committee is responsible for the oversight of our overall compensation structure and establishes the Company’s philosophy, objectives, policies and practices in the areas of executive compensation, benefit arrangements, performance evaluations and management development. Among other matters, the Compensation Committee is responsible for the following: • obtaining the advice of any compensation consultant, legal counsel or other adviser to assist in carrying out its responsibilities and for conducting the related independence assessment; • approving corporate goals and objectives relating to the compensation of the CEO and other executive officers, evaluating their performance, and making appropriate recommendations for any improvement in performance; • determining and approving compensation levels of the CEO and other executive officers; • reviewing compensation provided to our non-employee directors and recommending such compensation and any changes to the Board for approval; • administering all equity compensation plans and recommending amendments to such plans to the Board for approval; • administering all cash incentive compensation plans, employee stock purchase plan, bonus plans, any deferred compensation plans, any executive severance plans and other similar programs with respect to the participation of executive officers, and authorizing and approving amendments to such plans; and • approving employment terms for executive officers, as well as any severance, change in control, indemnification, or other employment or compensation-related agreements or arrangements to be provided to executive officers. All of the members of our Compensation Committee were determined to be independent under applicable rules of Nasdaq. Our Board has determined that each member of our Compensation Committee is a non-employee director, as defined in Exchange Act Rule 16b-3. Nominating and Corporate Governance Committee Our Nominating and Corporate Governance Committee oversees our corporate governance structure. Among other matters, our Nominating and Corporate Governance Committee is responsible for the following: • identifying and recommending to the Board individuals believed to be qualified to serve as Board members; • recommending to the Board directors to serve as members and chairpersons of each standing committee and any appropriate changes to the responsibilities, size and membership of such committees; • determining, on an annual basis, the members of the Board who meet the applicable independence requirements established by the SEC and Nasdaq; • considering questions of possible conflicts of interest of directors; • generally reviewing with the Company’s chief legal officer and other appropriate legal personnel particular legal matters and compliance with applicable legal requirements and with the Code of Ethics; • reviewing our Corporate Governance Guidelines and our Code of Ethics on an annual basis and recommending amendments when appropriate; • periodically reviewing management succession plans and related procedures, including for the CEO; and • overseeing the annual self-evaluation of the Board and committees. All members of our Nominating and Corporate Governance Committee were determined to be independent under the applicable rules of Nasdaq. Policies Governing Director Nominations Director Nomination Process Our Board is responsible for determining candidates for nomination to our Board. The Board delegates the selection and nomination process to the Nominating and Corporate Governance Committee, with the expectation that other members of the Board and management will be requested to take part in the process as appropriate. The Nominating and Corporate Governance Committee is responsible for making recommendations to the Board regarding the size and composition of the Board. The Nominating and Corporate Governance Committee will review annually with the Board the composition of the Board as a whole and will recommend, if necessary, measures so that the Board reflects the appropriate balance of knowledge, experience, skills, expertise and diversity required for the Board as a whole. The Nominating and Corporate Governance Committee is responsible for ensuring that the composition of the Board accurately reflects the needs of our business and, in furtherance of this goal, for proposing the addition of members and the necessary resignation of members for purposes of obtaining the appropriate members, skills and perspectives. The Nominating and Corporate Governance Committee recommends, and the Board nominates, candidates to stand for election as directors. 79 Table of Contents Generally, our Nominating and Corporate Governance Committee will identify candidates for director nominees in consultation with management as well as through the use of search firms or other advisors, the recommendations submitted by stockholders, and such other methods as the Nominating and Corporate Governance Committee deems appropriate. Once candidates have been identified, our Nominating and Corporate Governance Committee will confirm that the candidates meet the minimum qualifications for director nominees. The Nominating and Corporate Governance Committee may gather information about the candidates through interviews, detailed questionnaires, background checks or any other means that it deems to be appropriate in the evaluation process. The Nominating and Corporate Governance Committee will evaluate the qualifications and skills of director candidates, both on an individual basis and taking into account the overall composition and needs of the Board. Based on the results of the evaluation process, the Nominating and Corporate Governance Committee will recommend candidates as director nominees for the Board’s approval. Each of Dr. Krop and Dr. Taglietti were recommended for consideration by the Nominating and Corporate Governance Committee and approved by the Board following a review of candidates identified by a third-party search firm, which presented these director candidates for consideration following review of the backgrounds and qualifications of these and other potential candidates. The Nominating and Corporate Governance Committee will consider director candidates recommended by our stockholders. Recommendations should be submitted to the Nominating and Corporate Governance Committee, c/o the Corporate Secretary, and include at least the following information: name of the stockholder and evidence of the person’s ownership of our common stock, number of shares owned and the length of time of ownership, name of the candidate, the candidate’s employment history or a listing of his or her qualifications to be a director and the person’s written consent to be named as a director if nominated. Stockholders may also nominate directors for election at our annual meetings of stockholders in accordance with our bylaws. Minimum Qualifications Our Nominating and Corporate Governance Committee will take into consideration all factors it deems relevant and appropriate when recommending candidates for the Board’s selection as nominees for the Board. These factors may include judgment, skill, diversity, experience with business and other organizations of a comparable size, the interplay of the candidate’s experience with that of the other Board members, and the extent to which a candidate would be a desirable addition to the Board and any committees of the Board. We have no formal policy regarding Board diversity; however, the Board and the Nominating and Corporate Governance Committee believe that it is essential that Board members represent diverse viewpoints. In considering candidates for the Board, the Nominating and Corporate Governance Committee considers gender and ethnicity as well as a diversity of perspectives, experience and skills such that the Board as a whole represents diverse viewpoints, backgrounds and experience. Item 11. Executive Compensation EXECUTIVE COMPENSATION Narrative Discussion of Summary Compensation Table We are currently an “emerging growth company” and also qualify as a “smaller reporting company” under SEC rules. The following section describes the compensation we paid to our named executive officers (“NEOs”) for our fiscal years ended December 31, 2020. and 2019. Our NEOs for 2020 are: Name: Title: Keith J. Kendall Chief Executive Officer (CEO) Daniel Barber Chief Operating Officer (COO) John T. Maxwell* Former Chief Financial Officer (CFO) * John Maxwell separated from the Company at year end 2020. Compensation Philosophy and Process Aquestive operates in a highly competitive and continually changing market. Attracting, developing and retaining qualified executives who increase stockholder value by achieving our financial and strategic growth plans and objectives remain key to our success. Our goal is to provide compensation that emphasizes pay-for-performance, rewarding those who achieve or exceed their goals, and seeking to drive long-term value for our stockholders through the use of both short-term and long-term incentive programs. Our compensation program is designed to: • Attract, retain and motivate superior executive talent 80 Table of Contents • Provide incentives that award the achievement of performance goals that directly correlate to the enhancement of stockholder value, as well as to facilitate executive retention • Align executive interests with those of stockholders through short-term and long-term incentives linked to performance Role of the Compensation Committee. Pursuant to its charter, our Compensation Committee is charged with determining and approving the compensation and benefits of each executive officer, including our NEOs, on an annual basis, with the goal of achieving a compensation program and total compensation paid to our NEOs and other executives in line with our compensation philosophy. In determining compensation for our executive officers, the Compensation Committee considers compensation for comparable positions in the market and the historical compensation levels of our executives, each NEO’s performance as compared to our expectations and objectives, and our desire to motivate our executives to achieve short- and long-term results that are consistent with our business strategies and objectives. As part of its review, the Compensation Committee works with its independent compensation consultant, Radford, an Aon Hewitt company (“Radford”), as well as management, to ensure the compensation program aligns with market practice and Company strategy and has a balance designed to achieve Aquestive’s business objectives. Based on the Committee’s review, as well as input and recommendations received from Radford, the Compensation Committee is responsible for approving the compensation of each NEO. For 2020, our Compensation Committee consisted of Mr. Costa (Chair), Mr. Bratton, Mr. Cochran, and Ms. Lurker. Each member of the Compensation Committee was determined to meet the applicable independence standards of both Nasdaq and the SEC. Mr. Bratton and Mr. Cochran also brought the added perspective of representing the views of a significant stockholder with respect to our executive compensation program. As of February 2021 Dr. Julie Krop, one of our newly appointed independent directors, replaced Mr. Bratton on the Compensation Committee. Role of Independent Compensation Consultant. In 2018, prior to our initial public offering, our Compensation Committee engaged Radford as its independent compensation consultant to provide the Committee with guidance in connection with developing and implementing Aquestive’s executive compensation program following the initial public offering. In its role, Radford regularly attends meetings of the Compensation Committee to advise on compensation matters. Radford provides the Compensation Committee with information and advice on the design, structure and level of executive compensation, external market factors and evolving compensation trends. Our Compensation Committee is directly responsible for the engagement and oversight of Radford. While Radford works with our management on various matters for which the Compensation Committee is responsible, our management does not direct or oversee the retention of Radford. Role of Management. Management regularly assists the Compensation Committee by preparing information and materials for matters under consideration by the Committee. The CEO and our Senior Vice President, Human Resources are also asked to regularly attend Compensation Committee meetings to participate in discussions and provide information regarding executive performance and compensation matters. In addition, as part of its review process, the Compensation Committee meets with the CEO to discuss his recommendations regarding the compensation of each NEO (other than himself). Annual Base Salary Our Compensation Committee uses base salaries to recognize the experience, skills, knowledge and responsibilities required of our executive officers. The base salaries for our executive officers were initially established through review and negotiation at the time of hiring, and thereafter are periodically reviewed for possible increase, in each case taking into account the executive officer’s qualifications, experience, scope of responsibilities and competitive market compensation paid by other companies for similar positions within the industry. The chart below reflects the annual base salary rates that were in effect during 2020 approved by our Compensation Committee for each NEO. The base salary rates are based upon the recommendations and competitive analysis provided by Radford and are generally consistent with the market 50 th percentile, although compensation for individual NEOs may be above or below the median based on experience, scope of position and individual performance. Base salaries are reviewed by the Compensation Committee annually based on performance and other factors. Base Salary Keith J. Kendall $ 550,000 Daniel Barber $ 410,000 John T. Maxwell $ 395,000 Annual Incentive Compensation We have an annual goal-setting and review process for our executive officers that is the basis for determining potential annual bonuses for our NEOs. Our Compensation Committee sets our annual financial objectives for the year as well as strategic and operational goals which are aligned with our strategic plan and operating budget approved by the Board. Our employment agreements with our executive officers provide that they will be eligible for annual performance-based bonuses based on achievement of the financial, strategic and operational objectives established by the Compensation Committee. Pursuant to the terms of their employment agreements, the target bonus opportunities for our NEOs expressed as a percentage of annual base salary are: Mr. Kendall, 75% and Mr. Barber, 50%. Mr. Maxwell’s target bonus opportunity was 50%. Each NEO’s annual bonus is capped at a maximum of 200% of his target bonus opportunity. 81 Table of Contents The Compensation Committee assessed Company performance for 2020 with respect to each of the strategic and operational metrics and determined achievement against those metrics. The Compensation Committee determined to award the bonus amounts to our NEOs for 2020 set forth in the Summary Compensation Table below under “Non-Equity Incentive Plan Compensation.” Equity-Based Incentive Awards Our equity-based awards are designed to provide our NEOs with a strong link to our long-term performance, create an ownership culture and help align the interests of our executive officers and our stockholders. Prior to the closing of our initial public offering, we adopted our 2018 Equity Incentive Plan. 2020 Long-Term Incentive Awards. The Compensation Committee determined to award long-term incentive awards in the form of stock options in order to demonstrate the Company’s pay-for-performance philosophy. Stock options are designed to motivate our NEOs to increase stockholder value as the NEO will only realize value if our stock price increases above the exercise price, which is equal to the fair market value of our common stock on the date of grant. In addition, these stock options are subject to time-based vesting restrictions generally requiring our NEOs to remain in our employment during the vesting period. Equity Grant Policy. The Compensation Committee has adopted an equity grant policy with respect to the issuance of equity awards under our 2018 Equity Incentive Plan. Among other provisions, the equity grant policy establishes parameters for the grant date of equity awards made to officers, employees and non-employee directors. Under the policy, the grant date for annual long-term incentive awards to officers and other employees is the date of the Compensation Committee’s regularly scheduled meeting in January or February each year, but if the date of such meeting is not in an open trading window, the awards will be granted effective on the second full trading date following the next public release of earnings. Pursuant to the policy, annual equity awards to our non-employee directors are granted on the date of the Company’s annual meeting of stockholders. Additionally, “off-cycle” equity awards may be granted at other times during the year for circumstances such as new hires, promotions and director appointments, during open trading windows, or if the date the Compensation Committee takes action to approve such an award is not in an open trading window, then the awards will be granted effective on the second full trading date following the next public release of earnings. Perquisites, Health, Welfare and Retirement Benefits All of our executive officers, including our NEOs, are eligible to participate in our employee benefit plans, including our medical, dental and vision insurance plans, in each case on the same basis as all of our other colleagues. We also provide enhanced life insurance and disability benefits to our executive officers. We maintain a 401(k) retirement savings plan that provides eligible U.S. colleagues with an opportunity to save for retirement on a tax advantaged basis. Eligible colleagues may defer eligible compensation on a pre-tax basis, up to the statutorily prescribed annual limits on contributions under the Code. The 401(k) plan provides us with the discretion to match employee contributions. During 2020, we made 100% matching contributions on up to 6% of an employee’s eligible compensation deferred, subject to IRS limitations. These matching contributions vest in 20% increments and vest in full after an employee has attained five years of service. We do not maintain any non-qualified deferred compensation plans at this time. We also do not maintain, and do not plan to establish, any defined benefit pension plan. 82 Table of Contents Summary Compensation Table The following table provides information regarding the compensation provided to our NEOs during the fiscal year ended December 31, 2020 and 2019: Name & Principal Position Year Salary ($) Bonus ($) Stock Awards ($) (1) Option Awards ($) (1) Non-Equity Incentive Plan Compensation ($) (2) All Other Compensation ($) (3) Total ($) Keith J. Kendall 2020 550,000 — — 259,364 450,368 30,686 1,290,418 Chief Executive Officer 2019 540,385 — — 1,768,598 288,924 30,669 2,628,576 Daniel Barber 2020 410,000 — — 126,800 279,774 23,509 840,083 Chief Operating Officer 2019 388,846 — — 555,257 227,780 23,345 1,195,228 John T. Maxwell 2020 395,000 — — 69,164 847,106 1,311,270 Chief Financial Officer * 2019 391,154 — — 516,975 119,490 26,504 1,054,123 * Mr. Maxwell separated from the Company effective December 31, 2020. (1) Represents the aggregate grant date fair value of equity awards computed in accordance with FASB ASC 718. A discussion of the assumptions used in calculating the fair value of such awards may be found in Note 17. (2) Represents annual incentive compensation for 2020 and 2019, paid in the first quarter of the following year. (3) For 2020, this column includes the following: Mr. Kendall ($) Mr. Barber ($) Mr. Maxwell ($) 401(k) Company match 17,100 17,100 17,100 Disability insurance premiums 8,569 2,778 4,656 Life insurance premiums 5,017 3,631 4,468 Severance+ — — 820,882 Total 30,686 23,509 847,106 +Severance consists of $592,500 of severance covering annual base salary for twelve months and target annual bonus payable in 12 equal installments, $197,500 payable for 2020 year target bonus, and $30,882 representing contribution of medical benefits for up to twelve months. The amount in the “All Other Compensation” column above does not include an amount $228,600 which is the difference between the option exercise price and the market value of the shares underlying the stock options granted to Mr. Maxwell in 2020 (the fair value of which stock options grant is included in the above Table under “Options Awards”), the vesting of which 2020 stock options was accelerated on separation from employment under Mr. Maxwell’s employment agreement; other stock options which accelerated upon separation from employment were not in that money upon the separation date. Outstanding Equity Awards at Fiscal Year End Table The following table sets forth certain information regarding equity awards granted to our NEOs that remain outstanding as of December 31, 2020: 83 Table of Contents Option Awards Stock Awards Name Number of Securities Underlying Unexercised Options (#) Option Exercise Price Option Expiration Number of Shares or Units of Stock That Have Not Vested Market Value of Shares or Units of Stock That Have Not Vested (1) Equity Incentive Plan Awards: Number of Unearned Shares That Have Not Vested Equity Incentive Plan Awards: Market Value of Unearned Shares, or Units That Have Not Vested Exercisable Unexercisable ($) Date (#) ($) (#) ($) Mr. Kendall 193,459 46,706 (2) 15.00 7/24/2028 — — — 21,784 6,259 (3) 16.46 8/15/2028 — — — — 81,250 243,750 (4) 8.05 2/28/2029 — — — — — 225,000 (8) 1.54 3/16/2030 — — — — Mr. Barber 12,998 12,999 (6) 6.54 4/18/2028 — — — — 48,254 48,253 (5) 15.00 7/24/2028 — — — — 17,500 52,500 (4) 8.05 2/28/2029 — — — — 12,500 37,500 (7) 4.83 5/9/2029 — — — — — 110,000 (8) 1.54 3/16/2030 — — — — Mr. Maxwell (9) 36,120 0 15.00 12/31/2021 — — — — 95,000 0 8.05 12/31/2021 — — — — 60,000 0 1.54 12/31/2021 — — — — (1) Calculated using closing price of our common stock on Nasdaq on December 31, 2020 of $5.35. (2) Options granted on July 24, 2018. These options vest in 36 equal monthly installments beginning on August 31, 2018. (3) Options granted on August 15, 2018. These options vest in 36 equal monthly installments beginning on September 30, 2018. (4) Options granted on February 28, 2019. These options vest as follows: 25% on each of the first and second anniversaries of the grant date and 50% on the third anniversary of the grant date. (5) Options granted on July 24, 2018. These options vests as follows: 25% on each of the first and second anniversaries of the grant date and 50% on the third anniversary of the grant date. (6) Options granted on April 18, 2018. These options vests as follows: 25% on the first and second anniversaries of the grant date and 50% on the third anniversary of the grant date. (7) Options granted on May 9, 2019. These options vest as follows: 25% on each of the first and second anniversaries of the grant date and 50% on the third anniversary of the grant date. (8) Options granted March 16, 2020. These options vest as follows: 25% on each of the first and second anniversaries of the grant date and 50% on the third anniversary of the grant date. (9) In connection with John Maxwell’s separation from the Company, all stock options held by Mr. Maxwell vested. 84 Table of Contents Employment Agreements with our Named Executive Officers In June and July 2019, we entered into amended and restated employment agreements with Mr. Kendall, our Chief Executive Officer, and Mr. Maxwell, our then Chief Financial Officer, and an employment agreement with Mr. Barber, our Chief Operating Officer. These agreements set forth the initial terms and conditions of each executive’s employment with us, including base salary, target annual bonus opportunity and employee benefit plan participation. These employment agreements provide for “at will” employment. The material terms of these employment agreements with our NEOs are described below and are qualified in all respects by the full terms of such agreements. Glossary of Terms . The following terms referred to in the narrative below are generally defined in each NEO’s employment agreement as follows: • “Cause” means generally conviction or plea of nolo contendere to a felony; commission of fraud or material act of dishonesty with respect to the Company or its colleagues, customers or affiliates; failure to carry out material responsibilities of employment; material misconduct or similar behavior; a material violation of Company policy; or material breach of the executive’s obligations under his employment agreement. • “Change in Control” means generally any person or group becomes the beneficial owner of 40% or more of the Company’s outstanding voting securities; completion of a merger, consolidation or reorganization of the Company unless the stockholders before such transaction own at least a majority of the outstanding voting securities of the outstanding securities or at least a majority of the fair market value of the successor company; or a sale, transfer, liquidation or other disposition of all or substantially all of the Company’s assets. • “Change in Control Period” means generally, for Mr. Kendall, the period beginning 180 days before and ending 24 months following the effective date of a Change in Control, and for Mr. Maxwell and Mr. Barber, the period beginning 180 days before and ending 12 months following the effective date of a Change in Control. • “Good Reason” means generally a material diminution in the executive’s position or duties; a material breach by the Company of the executive’s employment agreement, including any reduction of base salary or target bonus percentage; or relocation of more than 50 miles from the Company’s headquarters. • “Permanent Disability” means generally the executive’s inability to perform the essential functions of his job with or without reasonable accommodation for a period of 150 consecutive days or an aggregate of 180 days in any 12 month period due to illness, accident or other physical or mental incapacity, as determined by a duly licensed physician. • “Severance Period” means generally, for Mr. Kendall, 18 months following termination of employment (or until the end of the initial employment term, if longer), and for Mr. Maxwell and Mr. Barber, 12 months following termination of employment. Terms of Employment Keith J. Kendall . The initial term of Mr. Kendall’s employment agreement was for three years ending June 30, 2021, and thereafter his employment term renews annually, unless either party gives written notice of non-renewal at least 90 days prior to the end of the then-current term. Non-renewal of his employment agreement by the Company would constitute a termination without Cause. Mr. Kendall’s base salary is subject to annual review for possible increase. Mr. Kendall’s target award opportunity under any annual incentive program that may be established by the Compensation Committee is equal to 75% of his base salary, and he is eligible to participate in our incentive plans and benefit plans as may be established or in effect from time to time. Prior to the initial public offering, in April 2018 Mr. Kendall was issued shares of our non-voting common stock in connection with the termination of our PUP Plans equal to 5% of the issued and outstanding capital securities of the Company at the time of issue, and under the terms of his employment agreement, each share of non-voting common stock automatically became one share of voting common stock upon completion of the initial public offering. Under his employment agreement, Mr. Kendall also received stock options covering a number of shares equal to the difference between 5% of the total number of shares of our common stock outstanding following the initial public offering on a fully diluted basis, less the aggregate number of any shares of non-voting common stock and shares covered by stock options that he held immediately prior to the initial public offering, such that the total number of all of the shares of common stock and shares underlying stock options held by Mr. Kendall immediately following the initial public offering represented 5% of our shares of common stock on a fully diluted basis. In addition, upon the completion of the initial public offering, Mr. Kendall received a grant of RSUs equal to 0.47% of our total common stock outstanding following the initial public offering on a fully diluted basis, or 116,576 RSUs. The stock options vest in 36 equal monthly installments and the RSUs vest in eight equal quarterly installments, subject to accelerated vesting if his employment terminates for any reason other than a termination by the Company for Cause or a resignation by Mr. Kendall without Good Reason. 85 Table of Contents Daniel Barber . The term of Mr. Barber’s employment agreement commenced on June 26, 2018 and will continue until terminated in accordance with its terms. Mr. Barber’s base salary is subject to annual review for possible increase. For purposes of any annual incentive program established by the Compensation Committee, Mr. Barber’s target award opportunity under any annual incentive program that may be established by the Compensation Committee is equal to 50% of his base salary, and he is eligible to participate in our incentive plans and benefit plans as may be established or in effect from time to time. Prior to the initial public offering, in April 2018, Mr. Barber had been awarded shares of our non-voting common stock in connection with the termination of our PUP Plans and under the terms of his agreement, each share of non-voting common stock automatically became one share of voting common stock upon completion of the initial public offering. Mr. Barber was also granted registration rights with respect to the shares of common stock he received at the time of the initial public offering in exchange for his non-voting common stock. John T. Maxwell . The term of Mr. Maxwell’s employment agreement commenced on June 26, 2018. Mr. Maxwell’s base salary was subject to annual review for possible increase. Mr. Maxwell’s target award opportunity under any annual incentive program that may be established by the Compensation Committee was equal to 50% of his base salary, and he was eligible to participate in our incentive plans and benefit plans. Prior to the initial public offering, in April 2018, Mr. Maxwell had been issued shares of our non-voting common stock in connection with the termination of our PUP Plans and under the terms of his agreement, each share of non-voting common stock automatically became one share of voting common stock upon completion of the initial public offering. Mr. Maxwell was also granted registration rights with respect to the shares of common stock he received at the time of the initial public offering in exchange for his non-voting common stock. Mr. Maxwell separated from employment with the Company effective December 13, 2020. Severance Arrangements Each of the employment agreements of our NEOs contains provisions providing for payments and benefits in the event of certain termination events, including employment termination in connection with a Change in Control. The material terms of our NEOs’ severance protection are summarized below. For Cause Termination or Voluntary Resignation . In the event an NEO’s employment is terminated by the Company for Cause, or if an NEO voluntarily resigns from employment without Good Reason, he will be entitled to receive salary that had accrued but had remained unpaid through the date of termination, any unpaid annual bonus earned with respect to the year prior to such termination of employment and any benefits under any plans in which the NEO participates consistent with his rights under such plans (“Accrued Payments”). Death or Permanent Disability . In the event that an NEO’s employment is terminated by reason of death or Permanent Disability, in addition to the Accrued Payments, he will be entitled to: • any accrued and unused vacation pay for the year in which employment terminates; • a pro-rata portion of the NEO’s target annual bonus for the year in which employment terminates, pro-rated for the number of days the NEO was employed during the year prior to termination; • accelerated vesting of outstanding equity awards subject to time-based vesting as if the NEO had continued being employed through the end of the year in which employment terminates, or, in the case of awards subject to “cliff vesting,” pro-rata accelerated vesting based on the percentage of the vesting period that had elapsed as of the termination date (and stock options and stock appreciation rights will remain exercisable for one year following termination, subject to any earlier expiration date); and pro-rata accelerated vesting of outstanding equity awards subject to performance-based vesting conditions for which the performance period ends at or after the time of termination, with performance goals assumed to have been achieved at target and with pro-ration based on the percentage of the performance period that had elapsed as of the termination date. Termination Without Cause or for Good Reason - Unrelated to a Change in Control. In the event that an NEO’s employment is terminated by us without Cause or the NEO terminates his employment for Good Reason (other than in connection with a Change in Control, as described below), in addition to the Accrued Payments, the NEO will be entitled to receive, subject to the delivery of a fully effective release of claims and continued compliance with restrictive covenant obligations, the following payments and benefits: • any accrued and unused vacation pay for the year in which his employment terminated; • a pro-rata portion of the NEO’s target annual bonus for the year in which employment terminates, pro-rated for the number of days the NEO was employed during the year prior to termination; • monthly payments during the NEO’s Severance Period (as defined above), with each monthly payment equal to 1/12 th of the sum of his annual base salary and target annual bonus; 86 Table of Contents • continuing coverage during the NEO’s Severance Period (as defined above) under our group health and life insurance plans in which the NEO was a participant prior to termination; and • immediate vesting of all unvested equity awards (and stock options and stock appreciation rights will remain exercisable for one year following termination, subject to any earlier expiration date), with performance conditions deemed achieved at target for unvested performance-based equity awards. Termination Without Cause or For Good Reason - During the Change in Control Period. If an NEO’s employment is terminated by us without Cause or the NEO terminates his employment for Good Reason, in each case, during the Change in Control Period, then subject to the delivery of a fully effective release of claims and continued compliance with respective restrictive covenant obligations, the NEO will be entitled to receive the following payments and benefits: • any accrued and unused vacation pay for the year in which his employment terminated; • a pro-rata portion of his target annual bonus for the year in which his employment terminated, pro-rated for the number of days the NEO was employed during the year prior to termination; • an immediate lump sum cash payment of an amount equal to, for Mr. Kendall, 2.75 times the sum of his base salary and target annual bonus, and for Mr. Barber, 1.0 times the sum of his base salary and target annual bonus; • continuing coverage under our group health and life insurance plans in which the NEO was a participant, for Mr. Kendall, for 33 months following termination of employment, and for Mr. Barber, for 12 months following termination of employment; and • immediate vesting of all unvested equity awards (and stock options and stock appreciation rights will remain exercisable for one year following termination, subject to any earlier expiration date), with performance conditions deemed achieved at target for unvested performance-based equity awards. In the event that these employment termination payments and benefits in connection with a Change in Control would subject Mr. Kendall to the excise tax imposed by Section 4999 of the Code, he would be entitled to an additional payment such that, after the payment of taxes, he will be in the same position as he would have been had he not been required to pay such excise taxes. The employment agreement of Mr. Kendall provides that, prior to the third anniversary of the agreement, the executive agrees to discuss a provision to replace this tax gross-up provision on terms and conditions mutually acceptable to the Board and the executive which discussion will take into account then current public market conditions. In the event that these termination payments and benefits in connection with a Change in Control would subject Mr. Barber to the Code Section 4999 excise tax, he would be entitled to the greater after-tax benefit of either (i) the full Change in Control payment and benefits minus any 280G excise tax, the payment of which would be the NEO’s responsibility, or (ii) the NEO’s Change in Control payment and benefits cut back to the amount that would not trigger the excise tax. For each of our NEOs, in the event that the continued coverage under our health plans triggers taxable income to the NEO, the NEO would also receive an additional cash payment such that each NEO would receive the same net after-tax benefits that the NEO would have received under such plans had the NEO continued to be employed and receive such plan benefits. Each NEO’s employment agreement also provides that each NEO agrees to grant us certain intellectual property rights and includes additional provisions that require the NEO to refrain from competing with our business, soliciting or interfering with our suppliers, customers, prospective customers and other business relationships, and from soliciting, hiring or otherwise interfering with our relationship with any person employed or previously employed by us, with the duration of such restrictions to last during the NEO’s employment and for his respective Severance Period as defined above. John Maxwell Separation . John Maxwell separated from the Company effective at year end 2020. In connection with his departure, Mr. Maxwell and the Company entered into a separation and release agreement providing for severance payments and benefits generally consistent with his employment agreement dated June 26, 2018, including a severance payment equal to the sum of his annual base salary and target annual bonus payable in 12 equal monthly installments, a target bonus for 2020, coverage under group health and life insurance plans for up to 12 months and immediate vesting of all unvested stock options which will remain exercisable for one year following his separation from employment. DIRECTOR COMPENSATION We provide cash and equity-based compensation to our non-employee directors for the time and effort necessary to serve as a member of our Board of Directors. Under our non-employee director compensation program, we pay each of our non-employee directors a cash retainer for service on the Board and for service on each committee on which the director serves. The chair of each committee other than the Disclosure Committee receives an additional retainer for such service. These retainers will be payable in arrears in equal quarterly installments on the last day of each quarter, provided that the amount of such payment will be prorated for any portion of such quarter that the director is not serving on our Board of Directors. The retainers paid to non-employee directors for service on the Board and our Board committees are as follows: 87 Table of Contents Name Annual Service Retainer Chairperson Additional Retainer Board of Directors $ 40,000 $ 30,000 Audit Committee 10,000 20,000 Compensation Committee 7,000 15,000 Nominating and Corporate Governance Committee 5,000 10,000 Disclosure Committee 5,000 -- Additionally, each non-employee director receives an annual equity grant in the form of stock options, with terms and conditions determined by the Board. In 2020, each non-employee director was granted an award of 14,000 stock options. This annual equity grant is awarded each year on the date of the Annual Meeting of Stockholders in accordance with the Company’s equity grant policy. The stock options vest one year from the date of grant, subject to the director’s continued service on the Board. This program is intended to provide a total compensation package that enables us to attract and retain qualified and experienced individuals to serve as directors and to align our directors’ interests with those of our stockholders. The following table sets forth information concerning the compensation that we paid or awarded to our non-employee directors during the fiscal year ended December 31, 2020. For more information on the compensation of Keith J. Kendall, our director who is also our CEO, see below under “Executive Compensation.” Name Fees Earned or Paid in Cash ($) Option Awards (2) ($) All Other Compensation ($) Total ($) Douglas K. Bratton (1) 57,000 56,522 -- 113,522 Gregory B. Brown, M.D. 60,000 56,522 -- 116,522 John Cochran 62,000 56,522 -- 118,522 Santo J. Costa 92,000 56,522 -- 148,522 Nancy S. Lurker 62,000 56,522 -- 118,522 James S. Scibetta 75,000 56,522 -- 131,522 (1) Julie Krop, M.D. and Marco Taglietti, M.D. were first appointed to the Board in February 2021. Douglas Bratton resigned from the Board in February 2021. (2) Represents the aggregate grant date fair value of stock option awards computed in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 718 (“FASB ASC 718”). A discussion of the assumptions used in calculating the fair value of such awards may be found in Note 17. Amounts reflect, for each director, a stock option grant awarded on June 16, 2020 with a grant date fair value of $56,522. As of December 31, 2020, each director other than Ms. Lurker held 54,050 outstanding stock options and Ms. Lurker held 59,128 outstanding stock options. Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters EQUITY COMPENSATION PLAN INFORMATION Plan Category Number of securities to be issued upon exercise of outstanding options, warrants and rights (1)(a) Weighted- average exercise price of outstanding options, warrants and rights (2) (b) Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (3) (c) Equity compensation plans approved by security holders 3,190,615 $ 8.18 820,446 Equity compensation plans not approved by security holders 81,068(4) $ 6.54 -- Total 3,271,683 $ 8.14 820,446 88 Table of Contents (1) Includes 13,491 RSUs and 3,258,192 stock options outstanding under our 2018 Equity Incentive Plan as of December 31, 2020. (2) Reflects the weighted average exercise price of outstanding stock options reported in column (a). No exercise price is attributable to outstanding RSUs. (3) Includes 659,810 shares remaining available for issuance under our 2018 Equity Incentive Plan and 160,636 shares remaining available for issuance under our Employee Stock Purchase Plan as of December 31, 2020. The 2018 Equity Incentive Plan and Employee Stock Purchase Plan each have an evergreen provision whereby, unless the Board determines otherwise, the share reserve is increased automatically by a specified percentage or number of shares on January 1 of each year. The Board determined that effective as of 2021 the number of shares of common stock available for award to eligible participants under the 2018 Equity Incentive Plan would be increased by 4% of the number of shares of common stock outstanding at December 31, 2020. The Board determined that the share reserves under the ESPP would not be increased pursuant to the evergreen provision as of 2021. (4) In April 2018, the Company granted stock options to purchase an aggregate of 81,068 shares of our common stock each with an exercise price of $6.54 per share, to certain of the Company’s employees, consultants and directors in connection with services provided by such parties to the Company. BENEFICIAL OWNERSHIP OF COMMON STOCK The following table sets forth certain information as of December 31, 2020 (unless otherwise specified), with respect to the beneficial ownership of our common stock by each person who is known to own beneficially more than 5% of the outstanding shares of common stock, each person currently serving as a director, each nominee for director, each named executive officer (as set forth in the Summary Compensation Table), and all directors and executive officers as a group. Shares of common stock subject to options or other rights to purchase which are now exercisable or are exercisable within 60 days after December 31, 2020, are to be considered outstanding for purposes of computing the number of shares beneficially owned and the percentage ownership of the persons holding these options or other rights, but are not to be considered outstanding for the purpose of computing the number of shares beneficially owned or the percentage ownership of any other person. As of December 31, 2020, there were 34,569,254 shares of common stock outstanding. Unless otherwise indicated, the address for each beneficial owner is c/o Aquestive Therapeutics Inc., 30 Technology Drive, Warren, NJ 07059. Name and Address of Beneficial Owner Number of Shares Beneficially Owned† Percentage of Shares Beneficially Owned 5% Stockholders: MonoLine RX II, L.P. (1) 4,032,907 11.67 % MonoLine RX III, L.P. (1) 2,755,541 7.97 % MRX Partners, LLC (1) 2,249,077 6.51 % MonoLine Rx, L.P. (1) 2,213,314 6.40 % MonoLine Partners, L.P. (1) 165,000 * MonoSol Rx Genpar, L.P. (1) 87,455 * Directors and Named Executive Officers: Keith J. Kendall 1,031,790 2.95 % Daniel Barber 210,711 * John T. Maxwell 341,734 * Douglas K. Bratton (2) 11,613,979 33.56 % Gregory B. Brown, M.D 110,685 * John Cochran 110,685 * Santo J. Costa 52,927 * Julie Krop, M.C. -- * Nancy S. Lurker 40,254 * James S. Scibetta 67,235 * Marco Taglietti, M.D. -- * All executive officers and directors as a group (17 persons) 15,129,217 43.69 % * Represents beneficial ownership of less than 1%. † None of the shares are pledged as security. (1) Information reported as of December 31, 2020 in a Schedule 13G/A filed on February 9, 2021 by MonoLine Rx II, L.P., MonoLine Rx III, L.P., MRX Partners, LLC, MonoLine Rx, L.P., MonoLine Partners, L.P. and MonoSol Rx Genpar, L.P. (collectively, the “MonoSol Entities”) and Douglas K. Bratton. Bratton Capital Management L.P. (“Bratton Capital Management”) is the general partner or manager of each of the MonoSol Entities, except for MonoSol Rx Genpar, L.P., the general partner of which is Bratton Capital Inc., which, in turn, is the general partner of Bratton Capital Management. Douglas K. Bratton is the sole director and President of Bratton Capital Inc. The MonoSol Entities are each ultimately controlled by Mr. Bratton, who has voting and investment power over all shares held by the Monosol Entities. Bratton Capital Management, Bratton Capital Inc., and Mr. Bratton may each be deemed to beneficially own all shares held of record by the MonoSol Entities. Each such entity and Mr. Bratton disclaim beneficial ownership of the reported securities except to the extent of its or his respective pecuniary interest therein. The principal business address for the MonoSol Entities and Mr. Bratton is 201 Main Street, Suite 1900, Fort Worth, Texas 76102. 89 Table of Contents (2) Includes 2,249,077 shares of common stock owned of record by MRX Partners, LLC, 2,213,314 shares of common stock owned of record by MonoLine Rx, L.P., 4,032,097 shares of common stock owned of record by MonoLine Rx II, L.P. and 2,755,541 shares of common stock owned of record by MonoLine Rx III, L.P. The MonoSol Entities are each ultimately controlled by Mr. Bratton and Mr. Bratton has voting and investment power over all shares held by the MonoSol Entities, and Mr. Bratton may be deemed to beneficially own all shares held of record by the MonoSol Entities. Mr. Bratton disclaims beneficial ownership of such reported securities except to the extent of his pecuniary interest therein. Amounts reported for our directors and executive officers include the following number of securities with respect to which the individual has the right to acquire beneficial ownership as of December 31, 2020 or within 60 days thereafter: Mr. Kendall, 392,641; Mr. Maxwell, 191,120 Mr. Barber, 108,752; Mr. Bratton, 35,600 Dr. Brown, 35,600 Mr. Cochran, 35,600; Mr. Costa, 35,600; Ms. Lurker, 40,254 Dr. Krop, 0; Mr. Scibetta, 35,600 Dr. Taglietti, 0 and all directors and executive officers as a group, 1,387,743. Item 13. Certain Relationships and Related Party Transactions and Director Independence Related Person Transaction Policy We have adopted a related person transaction policy that sets forth our procedures for the identification, review, consideration and approval or ratification of related person transactions, which became effective upon the consummation of our initial public offering in July 2018. For purposes of our policy only, a “related person transaction” is defined as a transaction, arrangement or relationship (or any series of similar transactions, arrangements or relationships) in which we and any “related person” are participants involving an amount that exceeds $120,000. A related person is defined as any executive officer, director or a holder of more than 5% of our common stock, including any of their immediate family members and any entity owned or controlled by such persons. Under the policy, where a transaction has been identified as a related person transaction, management must present information regarding the proposed related person transaction to our Audit Committee (or, where review by our Audit Committee would be inappropriate, to another independent body of our Board) for review. The presentation is to include a description of, among other things, the material facts, the direct and indirect interests of the related persons, the benefits of the transaction to us and whether any alternative transactions are available. To identify related person transactions in advance, we rely on information supplied by our executive officers, directors and certain significant stockholders. In considering related person transactions, our Audit Committee or other independent body of our Board will take into account the relevant available facts and circumstances which may include: • the risks, costs and benefits to us; • the impact on a director’s independence in the event the related person is a director, immediate family member of a director or an entity with which a director is affiliated; • the terms of the transaction; • the availability of other sources for comparable services or products, if applicable; and • the terms available to or from, as the case may be, unrelated third parties or to or from our colleagues generally. The policy requires that, in determining whether to approve, ratify or reject a related person transaction, our Audit Committee, or other independent body of our Board of Directors, is to consider, in light of known circumstances, whether the transaction is in, or is not inconsistent with, our best interests and those of our stockholders, as our Audit Committee, or other independent body of our Board of Directors, determines in the good faith exercise of its discretion. In the event a director has an interest in the proposed transaction, the director must recuse himself or herself from the deliberations and approval. 90 Table of Contents Registration Rights to Directors and Officers In connection with our initial public offering, we granted certain registration rights to Mr. Maxwell and Mr. Barber pursuant to their employment agreements and to MRX Partners LLC, Monoline RX L.P., Monoline Rx II, L.P., Monoline Rx III, L.P., Monoline Rx Genpar, MonoSol Investors L.P., Douglas K. Bratton, Gregory B. Brown, M.D., John Cochran, Santo J. Costa, Keith J. Kendall, Nancy S. Lurker, James S. Scibetta and A. Mark Schobel. Pursuant to the terms of the registration rights agreement, if, following the completion of our initial public offering, we were to register any of our securities for public sale in another offering, these related parties would have the right to include their shares in the registration statement, subject to reduction provisions whereby the Company and the underwriters of any underwritten offering would have the right to limit the number of shares registered by these holders if they were to determine that marketing factors require limitation. In such a case the number of shares to be registered would be apportioned pro rata among these holders, according to the total amount of registrable securities entitled to be included by each holder. Indemnification Agreements We have entered into indemnification agreements with each of our directors and executive officers, in addition to the indemnification provided for in our bylaws and our certificate of incorporation. These agreements, among other things, provide our directors and executive officers with certain contractual rights to indemnification and expense advancement in any action or proceeding arising out of their services as one of our directors or executive officers or as a director or executive officer of any other company or enterprise to which the person provides services at our request. DIRECTOR INDEPENDENCE Under Nasdaq rules, a majority of a listed company’s board of directors must be comprised of independent directors. In addition, Nasdaq rules require that, subject to specified exceptions, each member of a listed company’s audit committee and compensation committee be independent and satisfy additional independence criteria set forth in Rules 10A-3 and 10C-1, respectively, under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Under Nasdaq rules, a director will only qualify as an “independent director” if the director meets certain objective independence tests and does not have a relationship that, in the opinion of the Board, would interfere with the exercise of independent judgment in carrying out the responsibilities of a director. In accordance with these standards and criteria, the Board undertook its annual review of the independence of our directors. During this review the Board considered whether there were any relationships or related party transactions between each director, any member of his or her immediate family or other affiliated entities and the Company. The purpose of this review is to determine whether any such relationships or transactions existed that were inconsistent with a determination that the director is independent. 91 Table of Contents The Board follows a number of procedures to review related party transactions, as described in more detail below under “Related Person Transaction Policy.” Each director also answers a questionnaire designed to disclose information concerning conflicts and transactions which may impact independence, and we also review our internal records for any such transactions. Based on a review of these standards and materials, our Board determined that none of our independent directors had or has any relationship with us other than as a director, with the exception of Mr. Cochran who is affiliated with significant stockholders of the Company. See above under “Beneficial Ownership of Common Stock” for more information. As a result of its review, our Board has determined, upon the recommendation of our Nominating and Corporate Governance Committee, that each of our directors other than Keith J. Kendall, our Chief Executive Officer, is independent within the meaning of the director independence standards of Nasdaq and the SEC and has no relationship that would interfere with the exercise of independent judgment in carrying out the responsibilities of a director. Our Board has also determined that each of the current members of our Audit Committee and our Compensation Committee satisfies the heightened independence standards for such committee members. Item 14. Principal Accountant Fees and Services Policy on Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services of Independent Registered Public Accounting Firm The Audit Committee pre-approves all auditing services and permitted non-audit services to be performed by KPMG, subject to the de minimis exception for non-audit services that are approved by the Audit Committee prior to the completion of an audit. The Audit Committee may delegate pre-approval authority to one or more members of the Audit Committee consistent with applicable law and listing standards, provided that the decisions of such Audit Committee member or members are to be presented to the full Audit Committee at its next scheduled meeting. Principal Accountant Fees and Services We regularly review the services and fees of our independent accountants. These services and fees are also reviewed by the Audit Committee on an annual basis. The aggregate fees billed for the fiscal years ended December 31, 2020 and 2019 for each of the following categories of services are as follows: Fee Category 2020 2019 Audit Fees $ 786,300 $ 640,000 Audit-Related Fees — — Tax Fees — — All Other Fees — — Total Fees $ 786,300 $ 640,000 Audit Fees. Consist of aggregate fees for professional services provided in connection with the annual audit of our consolidated financial statements, the review of our quarterly condensed consolidated financial statements, review of registration statements on Forms S-3 and S-8, comfort letters, consents and review of documents filed with the SEC. Audit-Related Fees. Consist of aggregate fees for accounting consultations and other services that were reasonably related to the performance of audits or reviews of our consolidated financial statements and were not reported above under “Audit Fees.” Tax Fees. Consist of aggregate fees for tax compliance, tax advice and tax planning services including the review and preparation of our federal and state income tax returns. All Other Fees. Consist of aggregate fees billed for products and services provided by the independent registered public accounting firm other than those fees disclosed above. The Audit Committee pre-approved all services reflected in the above table performed since the pre-approval policy was adopted. 92 Table of Contents PART IV Item 15. Exhibits, Financial Statement Schedules. (a)(1) Financial Statements. The response to this portion of Item 15 is set forth under Item 8 hereof. (a)(2) Financial Statement Schedules. All financial statement schedules have been omitted because they are not applicable, not required or the required information is given in the Consolidated Financial Statements or Notes thereto. (a)(3) Exhibits. The exhibits below are filed as part of this Form 10-K other than Exhibit 32.1 and Exhibit 32.2, which shall be deemed furnished. 93 Table of Contents Number Description 3.1 Amended and Restated Certificate of Incorporation of Aquestive Therapeutics, Inc., dated as of July 27, 2018 (filed as Exhibit 3.1 to the Current Report on Form 8-K of the Company, as filed on July 27, 2018, and incorporated by reference herein). 3.2 Amended and Restated Bylaws of Aquestive Therapeutics, Inc. (filed as Exhibit 3.6 to the Registration Statement on Form S-1 of the Company (File No. 333-225924), as filed on June 27, 2018, and incorporated by reference herein). 4.1 Form of Common Stock Certificate of Aquestive Therapeutics, Inc. (filed as Exhibit 4.1 to the Registration Statement on Form S-1 of the Company (File No. 333-225924), as filed on June 27, 2018, and incorporated by reference herein). 4.2 Indenture dated July 15, 2019, among Aquestive Therapeutics, Inc., as Issuer, any Guarantor that becomes party thereto and U.S. Bank National Association, as Trustee and Collateral Agent (filed as Exhibit 4.1 to the Current Report on Form 8-K filed on July 16, 2019, and incorporated by reference herein). 4.3 First Supplemental Indenture dated November 3, 2020, among Aquestive Therapeutics, Inc., as Issuer, any Guarantor that becomes party thereto and U.S. Bank National Association, as Trustee and Collateral Agent (filed herewith) 4.4 Second Supplemental Indenture dated November 20, 2020, among Aquestive Therapeutics, Inc., as Issuer, any Guarantor that becomes party thereto and U.S. Bank National Association, as Trustee and Collateral Agent (filed herewith) 4.5 Form of 2019 Warrant (filed as Exhibit 4.2 to the Current Report on Form 8-K filed on July 16, 2019 and incorporated by reference herein). 4.6 Form of 2020 Warrant (incorporated by reference herein) 4.7 Registration Rights Agreement, dated as of June 24, 2018, by and between Aquestive Partners, LLC and certain of the holders of its membership interests (filed as Exhibit 4.3 to the Registration Statement on Form S-1 of the Company (File No. 333-225924), as filed on June 27, 2018, and incorporated by reference herein). 4.8 Description of Securities Registered under Section 12 of the Exchange Act (incorporated by reference herein). 10.1 Form of Indemnification Agreement, by and between Aquestive Therapeutics, Inc and its directors and officers (filed as Exhibit 10.1 to the Registration Statement on Form S-1 of the Company (File No. 333-225924), as filed on June 27, 2018, and incorporated by reference herein). 10.2 Form of Purchase Agreement in connection with the 2019 issuance of 12.5% Senior Secured Notes (filed as Exhibit 10.1 to the Current Report on Form 8-K filed on July 16, 2019). 10.3 Form of 2020 Purchase Agreement in connection with the 2020 issuance of 12.5% Senior Secured Notes (filed herewith). 10.4 Collateral Agreement in connection with issuance of 12.5% Senior Secured Notes, dated as of July 15, 2019, among Aquestive Therapeutics, Inc., as Issuer, the Other Grantors from time to time party thereto, U.S. Bank National Association, as Trustee, and U.S. Bank National Association, as Collateral Agent (filed as Exhibit 10.2 to the Current Report on Form 8-K filed on July 16, 2019). 10.5+ Executive Employment Agreement, dated as of June 30, 2018, by and between Aquestive Therapeutics, Inc. and Keith J. Kendall (filed as Exhibit 10.5 to the Pre-Effective Amendment No. 1, as filed on July 16, 2018, to the Registration Statement on Form S-1 of the Company (File No. 333-225924), and incorporated by reference herein). 10.6+ Executive Employment Agreement, dated as of June 26, 2018, by and between Aquestive Therapeutics, Inc. and Daniel Barber (filed as Exhibit 10.6 to the Registration Statement on Form S-1 of the Company (File No. 333-225924), as filed on June 27, 2018, and incorporated by reference herein). 10.7+ Executive Employment Agreement, dated as of June 26, 2018, by and between Aquestive Therapeutics, Inc. and John T. Maxwell (filed as Exhibit 10.7 to the Registration Statement on Form S-1 of the Company (File No. 333-225924), as filed on June 27, 2018, and incorporated by reference herein). 10.8+ Separation Agreement, dated as of December 16, 2020, by and between Aquestive Therapeutics, Inc. and John T. Maxwell (filed herewith). 10.9+ Executive Employment Agreement, dated as of July 9, 2018, by and between Aquestive Therapeutics, Inc. and A. Mark Schobel (filed as Exhibit 10.8 to the Pre-Effective Amendment No. 1, as filed on July 16, 2018, to the Registration Statement on Form S-1 of the Company (File No. 333-225924), and incorporated by reference herein). 10.10† Commercial Exploitation Agreement, by and between MonoSol Rx, LLC (now Aquestive Therapeutics, Inc.) and Reckitt Benckiser Pharmaceuticals Inc., dated as of August 15, 2008 (as amended on August 19, 2009, November 13, 2009, March 30, 2010, October 13, 2010, December 15, 2010, December 9, 2011, December 1, 2012, October 14, 2013 (by Addendum A), July 30, 2014 (by Addendum B), and January 12, 2017) (filed as Exhibit 10.9 to the Registration Statement on Form S-1 of the Company (File No. 333-225924), as filed on June 27, 2018, and incorporated by reference herein). 10.11† Agreement, by and between MonoSol Rx, LLC (now Aquestive Therapeutics, Inc.) and Indivior UK Limited, dated as of September 24, 2017 (filed as Exhibit 10.10 to the Registration Statement on Form S-1 of the Company (File No. 333-225924), as filed on June 27, 2018, and incorporated by reference herein). 10.12† Agreement to Terminate CLA, by and between MonoSol Rx, LLC (now Aquestive Therapeutics, Inc.) and KemPharm, Inc., dated as of March 20, 2012 (filed as Exhibit 10.11 to the Registration Statement on Form S-1 of the Company (File No. 333-225924), as filed on June 27, 2018, and incorporated by reference herein). 10.13† License Agreement, by and between MonoSol Rx, LLC (now Aquestive Therapeutics, Inc.) and Cynapsus Therapeutics Inc., dated as of April 1, 2016 (filed as Exhibit 10.12 to the Registration Statement on Form S-1 of the Company (File No. 333-225924), as filed on June 27, 2018, and incorporated by reference herein). 10.14† First Amendment to License Agreement, by and between Aquestive Therapeutics, Inc. and Sunovion Pharmaceuticals, Inc., dated as of March 16, 2020 (incorporated by reference herein). 10.15† Second Amendment to License Agreement, by and between Aquestive Therapeutics, Inc. and Sunovion Pharmaceuticals, Inc., dated as of October 23, 2020 (filed herewith). 94 Table of Contents 10.16 Industrial Lease Agreement, by and between Ashland Northwest Partners, L.P. and MonoSol Rx, LLC (now Aquestive Therapeutics, Inc.), dated as of October 24, 2006 (as amended on October 24, 2011 and February 8, 2018) (filed as Exhibit 10.13 to the Registration Statement on Form S-1 of the Company (File No. 333-225924), as filed on June 27, 2018, and incorporated by reference herein). 10.17+ Aquestive Therapeutics, Inc. 2018 Equity Incentive Plan (filed as Exhibit 10.14 to the Pre-Effective Amendment No. 1, as filed on July 16, 2018, to the Registration Statement on Form S-1 of the Company (File No. 333-225924) and incorporated by reference herein). 10.18+ Aquestive Therapeutics, Inc. Employee Stock Purchase Plan as Amended (incorporated by reference herein). 10.19+ Form of Stock Option Agreement (filed as Exhibit 10.16 to the Registration Statement on Form S-1 of the Company (File No. 333-225924), as filed on June 27, 2018, and incorporated by reference herein). 10.20+ Form of Stock Option Agreement under the Aquestive Therapeutics, Inc. 2018 Equity Incentive Plan (filed as Exhibit 10.17 to the Pre-Effective Amendment No. 1, as filed on July 16, 2018, to the Registration Statement on Form S-1 of the Company (File No. 333-225924) and incorporated by reference herein). 10.21+ Form of Restricted Stock Unit Agreement under the Aquestive Therapeutics, Inc. 2018 Equity Incentive Plan (filed as Exhibit 10.18 to the Pre-Effective Amendment No. 1, as filed on July 16, 2018, to the Registration Statement on Form S-1 of the Company (File No. 333-225924) and incorporated by reference herein). 10.22+ Executive Employment Agreement, dated as of September 10, 2018, by and between Aquestive Therapeutics, Inc. and Lori J. Braender (filed as Exhibit 10.4 to the Quarterly Report on Form 10-Q of the Company, as filed on November 6, 2018, and incorporated by reference herein). 10.23 Purchase and Sale Agreement, dated as of November 3, 2020, by and between Aquestive Therapeutics, Inc. and MAM Pangolin Royalty, LLC (filed herewith). 23.1 Consent of KPMG LLP, Independent Registered Public Accounting Firm (filed herewith). 31.1 Certification of Principal Executive Officer pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith). 31.2 Certification of Principal Financial Officer pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith). 32.1* Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith). 32.2* Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith). 101.INS Inline XBRL Instance Document 101.SCH Inline XBRL Taxonomy Extension Schema Document 101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document 101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document 101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document 101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document † Portions of this exhibit (indicated by asterisks) have been omitted pursuant to a request for confidential treatment that has been granted by the Securities and Exchange Commission. ∗ Furnished herewith and not deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and shall not be deemed to be incorporated by reference to any filing under the Securities Act of 1933, as amended, or the Exchange Act (whether made before or after the date of the Form 10-K), irrespective of any general incorporation language contained in such filing. + Indicates a management contract or compensatory plan. Item 16. Form 10-K Summary Not applicable. 95 Table of Contents SIGNATURES Pursuant to the requirements of the Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. AQUESTIVE THERAPEUTICS, INC. Date: March 9, 2021 By: /s/ Keith J. Kendall Keith J. Kendall Chief Executive Officer (Principal Executive Officer) Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capabilities and on the dates indicated. Signature Title Date /s/ Keith J. Kendall President, Chief Executive Officer and Member of the Board of Directors March 9, 2021 Keith J. Kendall (Principal Executive Officer) /s/ A. Ernest Toth, Jr. Interim Chief Financial Officer March 9, 2021 A.Ernest Toth, Jr. (Principal Financial Officer and Principal Accounting Officer) /s/ Gregory B. Brown Member of the Board of Directors March 9, 2021 Gregory B. Brown /s/ John Cochran Member of the Board of Directors March 9, 2021 John Cochran /s/ Santo J. Costa Chairman of the Board of Directors March 9, 2021 Santo J. Costa /s/ Julie Krop Member of the Board of Directors March 9, 2021 Dr. Julie Krop, M.D. /s/ Nancy S. Lurker Member of the Board of Directors March 9, 2021 Nancy S. Lurker /s/ James S. Scibetta Member of the Board of Directors March 9, 2021 James S. Scibetta /s/ Marco Taglietti Member of the Board of Directors March 9, 2021 Dr. Marco Taglietti, M.D. 96 Table of Contents Index to Consolidated Financial Statements Page Number Report of Independent Registered Public Accounting Firm F-2 Consolidated Balance Sheets as of December 31, 2020 and 2019 F-3 Consolidated Statements of Operations and Comprehensive Loss for the Years Ended December 31, 2020 and 2019 F-4 Consolidated Statements of Changes in Stockholders’ Deficit for the Years Ended December 31, 2020 and 2019 F-5 Consolidated Statements of Cash Flows for the Years Ended December 31, 2020 and 2019 F-6 Notes to the Consolidated Financial Statements F-7 F-1 Table of Contents Report of Independent Registered Public Accounting Firm To the Stockholders and Board of Directors Aquestive Therapeutics, Inc.: Opinion on the Consolidated Financial Statements We have audited the accompanying consolidated balance sheets of Aquestive Therapeutics, Inc. and subsidiaries (the Company) as of December 31, 2020 and 2019, the related consolidated statements of operations and comprehensive loss, changes in stockholders’ deficit, and cash flows for each of the years in the two‑year period ended December 31, 2020, and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the years in the two‑year period ended December 31, 2020, in conformity with U.S. generally accepted accounting principles. Change in Accounting Principle As discussed in Note 3 to the consolidated financial statements, the Company has changed its method of accounting for leases as of January 1, 2020 due to the adoption of Accounting Standards Codification 842, Leases . Basis for Opinion These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion. /s/ KPMG LLP We have served as the Company’s auditor since 2006. New York, New York March 9, 2021 F-2 Table of Contents AQUESTIVE THERAPEUTICS, INC. Consolidated Balance Sheets (In thousands, except per share/unit amounts) December 31, 2020 2019 Assets Current assets: Cash and cash equivalents $ 31,807 $ 49,326 Trade and other receivables, net 6,955 13,130 Inventories, net 2,461 2,859 Prepaid expenses and other current assets 3,402 2,999 Total current assets 44,625 68,314 Property and equipment, net 6,873 9,726 Right-of-use assets, net 3,448 — Intangible assets, net 102 153 Other non-current assets 7,836 286 Total assets $ 62,884 $ 78,479 Liabilities and stockholders’ deficit Current liabilities: Accounts payable $ 7,089 $ 12,274 Accrued expenses 8,569 5,475 Lease liabilities, current 728 — Deferred revenue 693 806 Liability related to the sale of future revenue, current 1,450 — Loans payable, current 2,575 — Total current liabilities 21,104 18,555 Loans payable, net 34,329 60,338 Liability related to the sale of future revenue, net 47,524 — Lease liabilities 2,846 — Deferred revenue, net of current portion 3,633 4,348 Other non-current liabilities 1,945 1,360 Total liabilities 111,381 84,601 Contingencies (note 20) Stockholders’ deficit: Common stock, $0.001 par value. Authorized 250,000,000 shares; 34,569,254 and 33,562,885 shares issued and outstanding at December 31 2020 and 2019, respectively 35 34 Additional paid-in capital 137,725 124,318 Accumulated deficit (186,257 ) (130,474 ) Total stockholders’ deficit (48,497 ) (6,122 ) Total liabilities and stockholders’ deficit $ 62,884 $ 78,479 See accompanying notes to the consolidated financial statements. F-3 Table of Contents AQUESTIVE THERAPEUTICS, INC. Consolidated Statements of Operations and Comprehensive Loss (In thousands, except per share data amounts) Year Ended December 31, 2020 2019 Revenues $ 45,849 $ 52,609 Costs and expenses: Manufacture and supply 12,964 20,361 Research and development 19,886 20,574 Selling, general and administrative 55,892 64,342 Total costs and expenses 88,742 105,277 Loss from operations (42,893 ) (52,668 ) Other income (expenses): Interest expense (11,064 ) (9,318 ) Interest expense related to the sale of future revenue (1,958 ) — Interest income and other income (expense), net 132 636 Loss on the extinguishment of debt — (4,896 ) Net loss before income taxes (55,783 ) (66,246 ) Income taxes — — Net loss $ (55,783 ) $ (66,246 ) Comprehensive loss $ (55,783 ) $ (66,246 ) Net loss per share – basic and diluted $ (1.66 ) $ (2.61 ) Weighted-average number of common shares outstanding - basic and diluted 33,651,127 25,356,098 See accompanying notes to the consolidated financial statements. F-4 Table of Contents AQUESTIVE THERAPEUTICS, INC. Consolidated Statements of Changes in Stockholders’ Deficit (In thousands, except per share amounts) Common Stock Additional Paid-in Capital Accumulated Deficit Total Stockholders’ Equity/(Deficit) Shares Amount Balance at December 31, 2018 24,957,309 $ 25 $ 71,431 $ (61,376 ) $ 10,080 Adoption of ASU 2104-09, ASU 2018-09 — — 20 (2,852 ) (2,832 ) Fair value of warrants issued — — 6,800 — 6,800 Common Stock issued upon warrant exercises 428,571 1 1,820 — 1,821 Common Stock issued upon public equity offering 8,050,000 8 37,827 — 37,835 Costs of public equity offering — — (540 ) — (540 ) Shares issued under employee stock purchase plan 56,378 — 237 — 237 Vested restricted stock units 70,627 — (313 ) — (313 ) Share-based compensation expense — — 7,036 — 7,036 Net loss — — — (66,246 ) (66,246 ) Balance at Balance at December 31, 2019 33,562,885 $ 34 $ 124,318 $ (130,474 ) $ (6,122 ) Fair value of warrants issued — — 735 — 735 Common Stock issued under public equity offering 930,933 1 6,527 — 6,528 Costs of common stock issuance under public equity offering — — (473 ) — (473 ) Shares issued under employee stock purchase plan 32,986 — 158 — 158 Exercise of stock options 500 — 2 — 2 Vested restricted stock units 41,950 — (99 ) — (99 ) Share-based compensation expense — — 6,557 — 6,557 Net loss — — — (55,783 ) (55,783 ) Balance at Balance at December 31, 2020 34,569,254 $ 35 $ 137,725 $ (186,257 ) $ (48,497 ) See accompanying notes to the consolidated financial statements. F-5 Table of Contents AQUESTIVE THERAPEUTICS, INC. Consolidated Statements of Cash Flows (In thousands) Year Ended December 31, 2020 2019 Cash flows from operating activities: Net loss $ (55,783 ) $ (66,246 ) Adjustments to reconcile net loss to net cash (used for) operating activities: Depreciation, amortization, and impairment 3,443 2,905 Share-based compensation 6,581 7,071 Amortization of debt issuance costs and discounts 2,587 1,929 Interest expense related to the sale of future revenue 1,938 — Loss on the extinguishment of debt — 4,896 All other non-cash expenses 188 359 Changes in operating assets and liabilities: Trade receivables and other receivables, net 6,175 (6,815 ) Inventories 398 2,582 Prepaid expenses and other assets (7,953 ) (1,366 ) Accounts payable (5,185 ) (7,872 ) Accrued expenses and other liabilities 2,980 746 Deferred revenue (828 ) 1,601 Net cash used for operating activities (45,459 ) (60,210 ) Cash flows from investing activities: Capital expenditures (517 ) (663 ) Net cash used for investing activities (517 ) (663 ) Cash flows from financing activities: Proceeds from issuance of common stock and warrant exercises 6,215 39,317 Proceeds from sale of future revenue 50,000 — Proceeds from issuance of debt — 70,000 Debt repayment (22,500 ) (50,000 ) Payments for financing costs (2,909 ) (3,946 ) Premium paid to retire debt (2,250 ) (2,944 ) Payments for taxes on share-based compensation (99 ) (2,827 ) Net cash provided by financing activities 28,457 49,600 Net decrease in cash and cash equivalents (17,519 ) (11,273 ) Cash and cash equivalents: Beginning of period 49,326 60,599 End of period $ 31,807 $ 49,326 Supplemental disclosures of cash flow information: Cash payments for interest $ 8,491 $ 7,340 Net increase (decrease) in capital expenditures included in accounts payable and accrued expenses: (77 ) 104 Deferred financing costs charged to additional paid in capital 473 540 Warrants issued in connection with long-term debt 735 6,800 Debt issued in lieu of prepayment penalty 4,000 — See accompanying notes to the consolidated financial statements. F-6 Table of Contents AQUESTIVE THERAPEUTICS, INC. Notes to Consolidated Financial Statements (In thousands, except share and per share information) Note 1. Company Overview and Equity Transactions Company Overview Aquestive Therapeutics, Inc. (“Aquestive” or “the Company”) is a pharmaceutical company focused on identifying, developing and commercializing differentiated products to address unmet medical needs and solve therapeutic problems. 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. The Company 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 is subject to risks common to companies in similar industries and stages of development, including, but not limited to, competition from larger companies, reliance on revenue from a limited number of products and customers, adequacy of existing and availability of additional operating and growth capital as and when required, uncertainty of regulatory approval for marketing its product candidates, reliance on a single manufacturing site, new technological innovations, dependence on key personnel, reliance on third-party service providers and sole source suppliers, dependence on patent-protected proprietary technology, ongoing government regulatory compliance requirements, dependence on the clinical and commercial success of its drug candidates, uncertainty of regulatory approval of its drug candidates, and uncertainty of broad adoption of its approved products, if any, by physicians and consumers. Aquestive is also subject to risks and uncertainties related to COVID-19 pandemic. Equity Transactions On September 11, 2019, the Company entered into an equity distribution agreement to offer shares of our common stock from time to time in an “at-the-market” offering. We may offer and sell shares of common stock for an aggregate offering price of up to $25,000. Beginning on November 20, 2020 through the year ended December 31, 2020, The Company sold 930,993 shares which provided net proceeds of approximately $6,055 after deducting commissions and other transaction costs of $473. No shares were sold pursuant to this “at-the-market” offering during 2019. On December 17, 2019, the Company received net proceeds of $37,835 after deducting underwriting discounts of $2,415 for the sale of 8,050,000 shares of common stock in a public offering. Professional fees and other costs of this offering totaled $540, in addition to the underwriting discounts. Note 2. Basis of Presentation and Principles of Consolidation These consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America, or GAAP, and in accordance with the rules and regulations of the Securities and Exchange Commission, or SEC. The accounts of wholly owned subsidiaries are included in the consolidated financial statements. Other than corporate formation activities, no such subsidiaries have conducted any commercial, developmental or operational activities and none have customers or vendors. Certain reclassifications were made to conform to the current presentation. Any reference in these notes to applicable guidance is meant to refer to the authoritative United States generally accepted principles as found in the Accounting Standards Codification (“ASC”) and Accounting Standards Updates (“ASU”) of the Financial Accounting Standards Board (“FASB”). Note 3. Summary of Significant Accounting Policies Use of Estimates The preparation of financial statements in conformity with U.S. GAAP requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities, including disclosure of contingent assets and contingent liabilities, at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. These estimates and assumptions often involve assessments of matters that are inherently uncertain and accordingly actual results could differ from those estimates. Significant items subject to estimates and assumptions include those related to revenue recognition, inventory costs, allowances for rebates from proprietary product sales, allowances for sales returns, the useful lives of fixed assets, the valuations of warrants issued and of share-based compensation, and contingencies. F-7 Table of Contents Cash and Cash Equivalents The Company considers all short-term, highly liquid investments purchased with original maturities of three months or less to be cash equivalents. At December 31, 2020 and 2019, cash and cash equivalents consisted of cash in bank accounts and money market funds. Concentration of Credit Risk Cash and cash equivalents are maintained are held by federally insured financial institutions that management believes are of high credit quality. The Company has not experienced any losses in such accounts and such amounts may exceed federally-insured limits. Indivior, Sunovion, and three of the largest regional wholesalers represent our most significant customers and details on these relationships are outlined in Note 5. Trade Accounts Receivable Trade accounts receivable are recorded at the invoiced amount and do not bear interest. The Company grants credit to customers in the normal course of business, but generally does not require collateral or any other security to support its receivables. The Company’s credit terms generally range from 30 to 60 days, depending on the customer and type of invoice. We perform a regular review of our customers’ credit risk and payment histories, including payments made subsequent to year-end. The Company evaluates the collectability of accounts receivable based on a combination of factors. In situations where changing circumstances indicate that a specific customer is unable to meet its financial obligations to the Company, a provision to the allowances for doubtful accounts is recorded against amounts due in order to reduce the net recognized receivable to the amount that is reasonably expected to be collected. For all other customers, a provision to the allowances for doubtful accounts is recorded based on factors including the length of time the receivables are past due, the current business environment and the Company’s historical experience. Provisions to the allowances for doubtful accounts are recorded to selling, general and administrative expenses. Account balances are charged off against the allowance when it is probable that the receivable will not be recovered. The allowance for doubtful accounts, associated with recoverability of accounts receivable, was $40 and $124 as of December 31, 2020 and 2019, respectively. Inventories Inventories, consisting of purchased materials, direct labor and manufacturing overhead, are stated at the lower of cost, determined by the first-in, first-out method, or net realizable value. The Company regularly reviews its inventories for impairment and reserves are established when necessary. At each balance sheet date, the Company evaluates inventories for excess quantities, obsolescence and shelf life expiration. This evaluation includes analysis of historical sales levels by product, projections of future demand, the risk of competitive obsolescence for products, general market conditions, and a review of the shelf life expiration dates for products. To the extent that management determines there are excess or obsolete inventory or quantities with a shelf life that is too near its expiration for the Company to reasonably expect that it can sell those products, or use them in production, prior to their expiration, the Company records allowances to adjust the carrying value to estimated net realizable value as necessary. The Company expenses inventory related to our research and development activities when we purchase or manufacture it. Before the regulatory approval of our product candidates, we recognize research and development expense for the manufacture of drug products that could potentially be available to support the commercial launch of our drug candidates, if approved. Property and Equipment Property and equipment are stated at cost net of accumulated depreciation and amortization, which is computed by the straight-line method based on the estimated useful lives of the respective assets, as discussed below. Leasehold improvements are amortized over the shorter of the lease terms or the estimated useful lives of the leased assets. Maintenance and repair costs are charged to expense as incurred, and expenditures for major renewals and improvements are capitalized. Upon disposition of property and equipment, the related cost and accumulated depreciation and amortization are removed from the accounts, and any gain or loss is reflected in the accompanying Consolidated Statements of Operations and Comprehensive Loss. The Company assesses the net book value of its property and equipment for impairment at least annually or when events or circumstances indicate that carrying amounts may not be recoverable in the ordinary course of its business. Intangible Assets Intangible assets include the costs of acquired composition and process technologies and the costs of purchased patents used in the manufacture of orally soluble film. The Company amortizes these assets using the straight-line method over the shorter of their legal lives or estimated useful lives. Impairment of Long-Lived Assets Long lived assets, such as property, plant, and equipment, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. In these circumstances, the Company compares undiscounted cash flows expected to be generated by that asset or asset group to the corresponding carrying amounts. If this comparison is indicative of impairment, an impairment charge is recognized to the extent that the carrying amount exceeds its fair value. Fair value is determined through various valuation techniques including discounted cash flow models, quoted market values and third-party independent appraisals, as considered most appropriate. F-8 Table of Contents Leases Determination if an arrangement is a lease is made at inception. An arrangement is determined to contain a lease if the contract conveys the right to control the use of an identified property and equipment for a period of time in exchange for consideration. If we can benefit from the various underlying assets of a lease on their own or together with other resources that are readably available, or if the various underlying assets are neither highly dependent or highly interrelated with underlying assets in the arrangements, they are considered to be a separate lease component. In the event multiple underlying assets are identified, the lease consideration is allocated to the various components based on each on the component’s relative fair value. Operating lease assets represent our right to use an underlying asset for the lease term and operating lease liabilities represent an obligation to make lease payments arising from the lease arrangement. Operating lease assets and operating lease liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As most of our leases do not provide an implicit rate, in determining the operating lease liability, we use an estimate of our incremental borrowing rate. The calculation of the operating lease assets includes any lease payments made and excludes any lease incentives. Our lease terms may include options to extend or terminate the lease and are included when it is reasonably certain that we will exercise the option. We record operating lease assets and lease liabilities in our consolidated balance sheets. Lease expenses for lease payments is recognized on a straight-line bases over the lease term. Short-term leases, or leases that have a lease term of 12 months or less at consummation date, are excluded from this treatment and are recognized on a straight-line basis over the term of the lease. We have not entered into any material short-term lease or financing leases as of December 31, 2020. Liability Related to the Sale of Future Revenue The Company treats the liability related to the sale of future revenue as debt financing, amortized under the effective interest rate method over the estimated life of the related expected royalty stream. The liability related to the sale of future revenue and the related interest expense are based on our current estimates of future royalties expected to be paid over the life of the arrangement. The Company will periodically assess the expected royalty payments using a combination of internal projections and forecasts from external resources. To the extent our future estimates of royalty payments are greater or less than previous estimates or the interest timing of such payments is materially different than its previous estimates, the Company will prospectively recognize related interest expense. Royalty revenue related to the sale of future revenue is reflected as royalty revenue, and amortization of debt is reflected as interest expense related to the sale of future revenue in the Consolidated Statement of Operations and Comprehensive Loss. For further discussion of the sale of the future revenue, refer to Note 14, Sale of Future Revenue. Revenue Recognition The Company’s revenues include (i) sales of manufactured products pursuant to contracts with commercialization licensees, (ii) sales of its proprietary clobazam-based Sympazan oral film product used as a treatment for LGS-related seizures, (iii) license and royalty revenues and (iv) co-development and research fees generally in the form of milestone payments. See Note 5 for further details. Having adopted ASC 606, Revenue from Contracts with Customers, effective on January 1, 2019 and applying the modified retrospective method which resulted in an adjustment totaling $2,832 to the Company’s accumulated deficit, the Company recognizes revenue to reflect the transfer of promised goods or services to customers in an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods or services. To achieve this core principle, a five-step model is applied that includes (1) identifying the contract with a customer, (2) identifying the performance obligation in the contract, (3) determining the transaction price, (4) allocating the transaction price to the performance obligations, and (5) recognizing when, or as, an entity satisfies a performance obligation. 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 when product is shipped and title passes to the customer, typically at time of delivery. At the time of sale, estimates for various revenue allowances are recorded based on historical trends and judgmental estimates . For sales of Sympazan, returns allowances and prompt pay discounts are estimated based on contract terms and historical return rates, if available, and these estimates are recorded as a reduction of receivables. Similarly determined estimates are recorded relating to wholesaler service fees, co-pay support redemptions, Medicare, Medicaid and other rebates, and these estimates are reflected as a component of accrued liabilities. Once all related variable considerations are resolved and uncertainties as to collectable amounts are eliminated, estimates are adjusted to actual allowance amounts. Provisions for these estimated amounts are reviewed and adjusted on no less than a quarterly basis. F-9 Table of Contents License and Royalty Revenue – license revenues are determined based on an assessment of whether the license is distinct from any other performance obligations that may be included in the underlying licensing arrangement. If the customer is able to benefit from the license without provision of any other performance obligations by the Company and the license is thereby viewed as a distinct or functional license, the Company then determines whether the customer has acquired a right to use the license or a right to access the license. 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. For symbolic licenses providing substantial value only in conjunction with other performance obligations to be provided by the Company, revenues are generally recorded over the term of the license agreement. Such other obligations provided by the Company generally include manufactured products, additional development services or other deliverables that are contracted to be provided during the license term. Payments received in excess of amounts ratably or otherwise earned are deferred and recognized over the term of the license or as contingencies or other performance obligations are met. Royalty revenue is estimated and recognized when sales under supply agreements with commercial licensees are recorded, absent any contractual constraints or collectability uncertainties. Royalties based on sales of Suboxone and Zuplenz have been recorded in this manner. Co-development and Research Fees – Co-development and research fees are earned through performance of specific tasks, activities or completion of stages of development defined within a contractual development or feasibility study agreement with a customer. The nature of these performance obligations, broadly referred to as milestones or deliverables, are usually dependent on the scope and structure of the project as contracted, as well as the complexity of the product and the specific regulatory approval path necessary for that product. Accordingly, the duration of the Company’s research and development projects may range from several months to approximately three years. Although each contractual arrangement is unique, common milestones included in these arrangements include those for the performance of efficacy and other tests, reports of findings, formulation of initial prototypes, production of stability clinical and/or scale-up batches, and stability testing of those batches. Additional milestones may be established and linked to clinical results of the product submission and/or approval of the product by the FDA and the commercial launch of the product. Revenue recognition arising from milestone payments is dependent upon the facts and circumstances surrounding the milestone payments. Milestone payments based on a non-sales metric such as a development-based milestone ( e.g. , an NDA filing or obtaining regulatory approval) represent variable consideration and are included in the transaction price subject to any constraints. If the milestone payments relate to future development, the timing of recognition depends upon historical experience and the significance a third party has on the outcome. For milestone payments to be received upon the achievement of a sales threshold, the revenue from the milestone payments is recognized at the later of when the actual sales are incurred or the performance obligation to which the sales relate to has been satisfied. Contract Assets - in certain situations, 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 performance obligation. These contract assets are reflected as a component of other receivables within Trade and other receivables within the Consolidated Balance Sheet. Contract Liabilities - in certain situations, customer contractual payment terms are structured to permit invoicing in advance of delivery of a good or service. In such instances, the customer’s cash payment may be received before satisfaction of some, or any, performance obligations that are specified. In these situations, billing occurs in advance of revenue recognition, which results in contract liabilities. These contract liabilities are reflected as deferred revenue within the Consolidated Balance Sheet. As remaining performance obligations are satisfied, an appropriate portion of the deferred revenue balance is credited to earnings. Research and Development Research and development, or R&D, expenses are recorded in accordance ASC 730 Research and Development and are expensed as incurred. R&D expenses include R&D activities, services of external contract research organizations, or CROs, costs of their clinical research sites, scale-up and validation costs, and other activities. Internal R&D activity expenses include laboratory supplies, salaries, benefits, and non-cash share-based compensation expenses. CRO activities include preclinical laboratory experiments and clinical studies. Other activity expenses include regulatory consulting and other costs. The activities undertaken by a regulatory consultants that were classified as R&D expense include assisting, communicating with, and advise our in-house staff with respect to various FDA submission processes, clinical trial processes and scientific writing matters, including preparing protocols and FDA submissions. These consulting expenses were direct costs associated with preparing, receiving and understanding work for our clinical trials and investigative drugs. The Company charges internal R&D activities and other activity expenses to operation as incurred. Payments made to CROs based on agreed-upon terms, which may include payments in advance of a study start date. The Company expenses non-refundable advance payments for goods and services that will be used in future R&D activities when the activity has been performed or when goods or services have been received rather than when payment was made. The Company reviews and accrues CRO expenses and clinical trial study expenses based on services performed and rely on estimates of those costs applicable to the completion state of study as provided by CRO’s. Estimated CRO costs subject to revisions as such studies progress to completion. The Company charges revisions to expense in the period when the facts that give rise to the revision become known. Income Taxes Income taxes are recorded in accordance with FASB ASC Topic 740 Income Taxes, or ASC 740, which provides for deferred taxes using an asset and liability approach. Income taxes have been calculated on a separate tax return basis. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases using enacted tax rates in effect for the year in which the differences are expected to affect taxable income. Tax benefits are recognized when it is more likely than not that a tax position will be sustained during an audit. Valuation allowances are provided if, based upon the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. F-10 Table of Contents Uncertain tax positions are accounted for in accordance with the provision of ASC 740. When uncertain tax positions exist, the tax benefit is recognized to the extent that the benefit will more likely than not be realized. The determination as to whether the tax benefit will more likely than not be realized is based upon the technical merits of the tax position, as well as consideration of the available facts and circumstances. To date, the Company has not had any significant uncertain tax positions. Share-Based Compensation The Company records share-based compensation expenses for awards of stock options and restricted stock units (RSUs) under ASC 718, Compensation — Stock Compensation . For awards to non-employees for periods prior to the adoption of ASU 2018-07, Compensation-Stock Compensation: Improvements to Non-employee Share-Based Payment Accounting, on January 1, 2019, the Company had applied ASC 505-50, Equity-based Payments to Non-Employees . ASC 718 establishes guidance for the recognition of expenses arising from the issuance of stock-based compensation awards at their fair value at the grant date. The Company’s stock-based compensation includes grants of stock options and restricted stock units (RSUs) to employees, consultants and non-employee directors. Beginning in 2019, the Company also offered employees an opportunity to participate in an employee stock purchase plan. Expenses arising from these grants are recorded in the accompanying financial statements based on their grant date fair values as ratably earned during their respective vesting periods. The Company’s estimates of the fair value of options at their grant dates is based on the Black-Scholes option valuation model and considers various variables and assumptions, including: • the stock price at the grant date, • exercise price, • both the contractual and estimated expected term of the option, • an estimate of stock price volatility based on that of an industry peer group, • expected dividends, • no dividends for the foreseeable future, and • risk-free interest rate. These assumptions require estimates and judgements and changes in those inputs could impact the amount of expenses that are charged to earnings. The Company recognizes compensation expense for the fair value of restricted stock unit and stock option awards over the requisite service period of the award. All excess tax benefits, taxes and tax deficiencies from stock-based compensation are included in the provision for income taxes in the Consolidated Statement of Operations. Per Share Data Basic net loss per common share is computed by dividing the net loss attributable to common stockholders by the weighted average number of shares of common stock outstanding during the period. Diluted net income per common share is calculated by dividing net income available to common stockholders as adjusted for the effect of dilutive securities, if any, by the weighted average number of shares of common stock and dilutive common stock outstanding during the period. Potentially dilutive common shares include the shares of common stock issuable upon the exercise of outstanding stock options and warrants, the shares of issued but unvested RSUs and the purchase of shares from the Company’s employee stock purchase plan (using the treasury stock method). For all periods presented, potential common shares have been excluded from the calculation of EPS because their effect would be anti-dilutive. Comprehensive Loss Comprehensive loss includes net loss as well as other changes in stockholders’ equity that may result from transactions and economic events other than those with stockholders, such as unrealized gains or losses on investments. For the periods ending on December 31, 2020 and 2019, the Company’s comprehensive loss included only its net loss. Fair Value Measurements Certain assets and liabilities are reported on a recurring basis at fair value. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. Financial assets and liabilities carried at fair value are to be classified and disclosed in one of the following three levels of the fair value hierarchy, of which the first two are considered observable and the last is considered unobservable: • Level 1 — Quoted prices in active markets for identical assets or liabilities. Cash and cash equivalents consisted of cash in bank checking accounts and money market funds which are all Level 1 assets. F-11 Table of Contents • Level 2 — Observable inputs (other than Level 1 quoted prices), such as quoted prices in active markets for similar assets or liabilities, quoted prices in markets that are not active for identical or similar assets or liabilities, or other inputs that are observable or can be corroborated by observable market data. The Company currently has no Level 2 assets or liabilities. • Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to determining the fair value of the assets or liabilities, including pricing models, discounted cash flow methodologies and similar techniques. The carrying amounts reported in the balance sheets for trade and other receivables, prepaid and other current assets, accounts payable, accrued expenses and deferred revenue approximate fair value based on the short-term maturity of these assets and liabilities. The Company granted warrants to certain Note Holders in connection with its debt repayment and debt refinancing during 2020 and 2019, respectively. Those warrants were valued based on Level 3 inputs and their fair value was based primarily on an independent third-party appraisal prepared as of the grant date consistent with generally-accepted valuation methods of the Uniform Standards of Professional Appraisal Practice, the American Society of Appraisers and the American Institute of Certified Public Accountants’ Accounting and Valuation Guide, Valuation of Privately-Held Company Equity Securities Issued as Compensation. See Note 13 Warrants for further information on these warrants. The Company’s 12.5% Senior Secured Notes contain a repurchase offer or put option which gives holders of the option the right, but not the obligation, to receive a specified amount of future royalties up to a capped amount. This put option was valued based on Level 3 inputs and its fair value was based primarily on an independent third-party appraisal 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. See Note 12 12.5% Senior Notes and Loans Payable for further discussion. Segment Information Operating segments are defined as components of an entity about which separate discrete information is available for evaluation by the chief operating decision maker, or decision-making group, in deciding how to allocate resources and in assessing performance. The Company manages its operations as a single segment for purposes of assessing performance and making operating decisions. Recent Accounting Pronouncements As a public emerging growth company, the Company has elected to take advantage of the extended transition period afforded by Jumpstart Our Business Startups Act for the implementation of new or revised accounting standards and, as a result, the Company will comply with new or revised accounting standards by the relevant dates on which adoption of such standards is required for public emerging growth companies. From time to time, new accounting pronouncements are issued by the FASB and adopted by the Company as of the specified effective date. Unless otherwise discussed, the Company believes that the impact of recently issued standards that are not yet effective will not have a material impact on its financial position or results of operations upon adoption. Recently Adopted Accounting Pronouncements: In February 2016, the Financial Accounting Standards Board, or FASB, issued Accounting Standards Update, or 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 liabilities on the balance sheet that had previously been classified as operating leases under prior authoritative guidance. For income statement purposes, leases are now required to be classified as either operating or financing leases under a dual model similar to that specified by ASC 840. Operating leases continue to result in straight-line expense while financing leases result in a front-loaded expense pattern in a manner similar to recognition of capital lease expenses under ASC 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 $4,224 based on an estimated incremental borrowing rate of 16.9%, representing the present value of remaining minimum lease payments. The assets and liabilities thus recorded were primarily those related to the Company’s leased plant, laboratory and corporate administrative facilities. The Company elected to apply the ASU-specified practical expedients and accordingly did not re-assess (i) whether its contracts contained a lease under the new definition of a lease, (ii) the classification of those leases, and (iii) initial direct costs of existing leases. In addition, the Company elected not to apply the hindsight expedient in the assessment of lease renewals and resultant term of leases. The Company also elected not to recognize a right-of-use asset and lease liability for those leases with a remaining lease term of 12 months or less. The adoption of ASU 2016-02 did not require a cumulative-effect adjustment to the opening balance of the accumulated deficit at the time of adoption. In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts from Cash Payments , providing guidance on the classification of certain cash receipts and payments in the statement of cash flows intended to reduce diversity in practice, including cash flows related to debt prepayment or extinguishment costs and contingent consideration that may be paid following a business combination. The Company adopted this new guidance on January 1, 2020 without material impact on it consolidated financial position or result of operations. In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework . The purpose of the update is to improve the effectiveness of the fair value measurement disclosures that allows for clear communication of information that is most important in the users of financial statements. There were certain required disclosures that have been removed or modified. In addition, the update added the following disclosure: (i) changes in unrealized gains and losses for the period included in other comprehensive income (loss) for recurring Level 3 fair value measurements held at the end of the reporting period and (ii) the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. The Company adopted this new guidance on January 1, 2020 without material impact on its consolidated financial position or results of operations. F-12 Table of Contents In January 2016, the FASB issued revised guidance governing accounting and reporting of financial instruments (ASU 2016-01) and in 2018 issued technical corrections (ASU 2018-03). This guidance requires that equity investments with readily determinable fair values that are classified as available-for-sale be measured at fair value with changes in value reflected in current earnings. This guidance also simplifies the impairment testing of equity investments without readily determinable fair values and alters certain disclosure requirements. ASU No. 2016-01, Financial Instruments – Overall: Recognition and Measurement of Financial Assets and Financial Liabilities , also provides guidance as to classification of the change in fair value of financial liabilities. These revised standards were effective for the Company on January 1, 2019. Adoption of this standard did not have a material impact on the financial statements. In November 2018, the FASB issued ASU 2018-18, Collaborative Arrangements (Topic 808): Clarifying the Interaction Between Topic 808 and 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 these transactions are directly related to third-party sales. The Company adopted this new guidance on January 1, 2020 without material impact on its consolidated financial position or results of operations. Recent Accounting Pronouncements Not Adopted as of December 31, 2020: In June 2016, the FASB issued ASU No. 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 adoption on its consolidated financial statements. In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740), Simplifying the Accounting for Income Taxes, which amends accounting for income taxes during interim periods and makes changes to certain income tax classifications. The new standard allows exceptions to the use of the incremental approach for intra-period tax allocation, when there is a loss from continuing operations and income or a gain from other items, and to the general methodology for calculating income taxes in an interim period, when a year-to-date loss exceeds the anticipated loss for the year. The standard also requires franchise or similar taxes partially based on income to be reported as income tax and the effects of enacted changes in tax laws or rates to be included in the annual effective tax rate computation from the date of enactment. The standard will be effective for the Company beginning January 1, 2022, with early adoption of the amendments permitted. The Company is currently evaluating the impact from the adoption of ASU 2019-12 on its consolidated financial statements. In August 2020, the FASB issued ASU 2020-06, Debt-Debt with Conversion and Other Options (Subtopic 470-20) and Derivative 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 contact 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 consolidated financial statements of the Company. Note 4. Risks and Uncertainties The Company’s cash requirements for 2021 and beyond include expenses related to continuing development and clinical evaluation of its products, manufacture and supply costs, costs of regulatory filings, patent prosecution expenses and litigation expenses, expenses related to commercialization of our products, as well as costs to comply with the requirements of being a public company operating in a highly regulated industry. As of December 31, 2020, we had $31,807 of cash and cash equivalents. As of December 31, 2020, Aquestive has experienced a history of net losses and the Company’s accumulated deficits totaled $186,257 which have been partially funded by gross margins from sales of commercialized licensed and proprietary products, license fees, milestone and royalty payments from our commercial licensees and co-development parties, and with the balance of the related funding requirements met by the Company’s equity and debt offerings, including the Senior Secured Notes due 2025 (the “12.5% Notes”). In 2019, the Company raised funding totaling $52,226, consisting of net proceeds of $13,110 from the refinancing of 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 in connection with the debt financing. F-13 Table of Contents On November 3, 2020, we entered into a Purchase and Sale Agreement (the “Monetization Agreement”) with MAM Pangolin Royalty, LLC, an affiliate of Marathon Asset Management (“Marathon”). Under the terms of the Monetization Agreement, we sold all of our contractual rights to receive royalties and milestone payments due under the Sunovion License Agreement related to Sunovion’s apomorphine product, KYNMOBI ® . KYNMOBI ® , an apomorphine film therapy for the treatment of off episodes in Parkinson’s disease patients, received approval from the U.S. Food and Drug Administration (FDA) on May 21, 2020. In exchange for the sale of these rights, we received an upfront payment of $40,000 and an additional payment of $10,000 through the achievement of the first milestone. We have received an aggregate amount of $50,000 through December 31, 2020 under the Monetization Agreement. Under the Monetization Agreement, additional aggregate contingent payments of up to $75,000 may be due to us upon the achievement of worldwide royalty and other commercial targets within a specified timeframe, which could result in total potential proceeds of $125,000. With the upfront proceeds of the monetization, we repaid $22,500 of the 12.5% Notes, and issued $4,000 of new 12.5% Notes in lieu of paying a prepayment premium on the early repayment of the 12.5% Notes, reducing the aggregate principal balance of 12.5% Notes outstanding to $51,500. In addition, the holders of the 12.5% Notes agreed to extend to December 31, 2021 our ability to access, at our option, and additional $30,000 of 12.5% 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 our option, contingent upon FDA approval of our product candidate Libervant. A second $20,000 senior notes re-opener represents a right, at our option, to market to current holders of our 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 we access these re-openers, we 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 our common stock at the warrant grant date. In addition, as of the closing of this transaction, we issued to the holders of the 12.5% Notes warrants to purchase 143,000 shares of our common stock. The Company began utilizing its “At-The-Market” (ATM) facility in November 2020 which has generated net cash of approximately $6,055 as of December 31, 2020. This facility has approximately $18,472 available at December 31, 2020. For further discussion see Note 22 Subsequent Events (B) Continued Utilization of the “At-The-Market” Facility. 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 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 duration of the COVID-19 pandemic may be expected to negatively affect a great number of businesses across the various industries, including Aquestive. The Company may experience financial and operational adversity in such areas as preclinical, 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, financial or monetization markets. Subject to and absent any material adverse effect of these and other possible COVID-19 effects, the Company expects that its anticipated revenues from licensed and proprietary products, cash on hand, expense management initiatives, milestone payments under the Monetization Agreement, and access to equity markets, including its ATM facility and shelf registration statement would be adequate to meet expected operating needs as the Company continues to execute its business strategy, 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 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. Note 5. Revenues and Trade Receivables, Net F-14 Table of Contents The Company’s revenue was comprised of the following: Year Ended December 31, 2020 2019 Manufacture and supply revenue $ 24,881 $ 38,739 License and royalty revenue 14,055 6,959 Co-development and research fees 1,264 4,042 Proprietary product sales, net 5,649 2,869 Revenues $ 45,849 $ 52,609 Disaggregation of Revenue The following table provides disaggregated net revenue by geographic area: Year Ended December 31, 2020 2019 United States $ 40,956 $ 48,293 Ex-United States 4,893 4,316 Revenues $ 45,849 $ 52,609 Ex-United States revenues are derived primarily from Indivior for product manufactured for markets outside of the United States. Accounts receivable, net consist of the following: December 31, 2020 2019 Accounts receivable $ 4,330 $ 9,094 Contract and other receivables 3,081 4,363 Less: allowance for bad debt (40 ) (124 ) Less: sales-related allowances (416 ) (203 ) Trade and other receivables, net $ 6,955 $ 13,130 Other receivables totaled $3,081 and $4,363 as of December 31, 2020 and 2019, respectively, consisting primarily of contract assets and reimbursable costs incurred on behalf of customers. Contract assets consist of products and services provided under specific contracts to 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: December 31, 2020 2019 Allowance for doubtful accounts at beginning of year $ 124 $ 58 Additions charged to bad debt expense 198 66 Write-downs charged against the allowance (282 ) — Allowance for doubtful accounts at end of year $ 40 $ 124 F-15 Table of Contents The following table presents the changes in sales-related allowances: December 31, 2020 2019 Balance at December 31, 2019 $ 203 $ 104 Provision related to sales in 2020 731 244 Credits and payments (518 ) (145 ) Balance at December 31, 2020 $ 416 $ 203 Concentration of Major Customers Customers are considered major customers net revenue exceed 10% of total revenue for the period or outstanding receivable balances exceed 10% of total receivables. For the year ended December 31, 2020, two customers exceeded the 10% threshold for revenue which were Indivior, Inc. (“Indivior”) and Sunovion Pharmaceuticals Inc. (“Sunovion”) that represented 57% and 26%, respectively. As of December 31, 2020, four customers exceeded the 10% threshold for outstanding receivables which were Indivior, AmerisourceBergen, Sunovion, and Cardinal represented 53%, 14%, 13%, and 10%, respectively. Revenues provided by Indivior represented approximately 86% for the year ended December 31, 2019 and outstanding accounts receivable due from Indivior was approximately 80%. Note 6. Material Agreements Commercial Exploitation Agreement with Indivior In August 2008, the Company entered into a Commercial Exploitation Agreement with Reckitt Benckiser Pharmaceuticals, Inc. (with subsequent amendments collectively, the “Indivior License Agreement”). Reckitt Benckiser Pharmaceuticals, Inc. was later succeeded to in interest by Indivior, Inc. Pursuant to the Indivior License Agreement, the Company agreed to manufacture and supply Indivior’s requirements for Suboxone, a sublingual film formulation, both inside and outside the United States on an exclusive basis. Under the terms of the Indivior License Agreement, the Company is required to manufacture Suboxone in accordance with current Good Manufacturing Practice standards and according to the specifications and processes set forth in the related quality agreements the Company entered into with Indivior. Additionally, the Company is required to obtain Active Pharmaceutical Ingredients (“API”) for the manufacture of Suboxone directly from Indivior. The Indivior License Agreement specifies a minimum annual threshold quantity of Suboxone that the Company is obligated to fill and requires Indivior to provide the Company with a forecast of its requirements at various specified times throughout the year. The Indivior License Agreement provides for payment by Indivior of a purchase price per unit that is subject to adjustment based on the Company’s ability to satisfy minimum product thresholds. Additionally, in the event Indivior purchases certain large quantities of Suboxone during a specified period, Indivior will be entitled to scaled rebates on its purchases. In addition to the purchase price for the Suboxone supplied, Indivior is required to make certain single digit percentage royalty payments tied to net sales value (as provided for in the Indivior License Agreement) in each of the United States and in the rest of the world subject to annual maximum amounts and limited to the life of the related United States or international patents. In 2012, Indivior exercised its right to buy out its future royalty obligations in the United States under the Indivior License Agreement. Indivior remains obligated to pay royalties for all sales outside the United States. The Indivior License Agreement contains customary contractual termination provisions, including with respect to a filing for bankruptcy or corporate dissolution, an invalidation of the intellectual property surrounding Suboxone, and commission of a material breach of the Indivior License Agreement by either party. Additionally, Indivior may terminate the Indivior License Agreement if the FDA or other applicable regulatory authority declares the Company’s manufacturing site to no longer be suitable for the manufacture of Suboxone or Suboxone is no longer suitable to be manufactured due to health or safety reasons. The initial term of the Indivior License Agreement was seven years from the commencement date. Thereafter, the Indivior License Agreement automatically renews for successive one-year periods, unless either party provides the other with written notice of its intent not to renew at least one year prior to the expiration of the initial or renewal term. Supplemental Agreement with Indivior 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. 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. Further payments under this 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. F-16 Table of Contents All payments made by Indivior to the Company pursuant to the Indivior Supplemental Agreement are in addition to, and not in place of, any amounts owed by Indivior to the Company pursuant to the Indivior License Agreement. Indivior’s payment obligations under the Indivior Supplemental Agreement are subject to certain factors affecting the market for Suboxone and may terminate prior to January 1, 2023 in the event certain contingencies relating to such market occur. License Agreement with Sunovion Pharmaceuticals, Inc. 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. 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) with six months of the FDA approval. This amount was received as of September 30, 2020 and is included in License and royalty revenues for the twelve months ended December 31, 2020. In consideration of 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 has 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”), all of which of which has been received to date. With the Monetization Agreement, we are no longer entitled to receive certain contingent one-time milestone payments of $23,000 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. There are minimum annual guaranteed royalty payments under the contract and during the second quarter of 2020, the Company recorded minimum royalty revenue of $8,000 for minimum royalties, reflected in License and royalty revenues for the twelve months ended December 31, 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 form 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 form January 1, 2020 to April 1, 2020, and (iv) modifying the termination provision 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 Sonovion License Agreement, all rights to intellectual property granted to Sunovion to develop and commercialize apomorphine-based products will revert to the Company. 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 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. Purchase and Sale Agreement with an affiliate of Marathon Asset Management (“Marathon”) On November 3, 2020, we entered into a Purchase and Sale Agreement (the “Monetization Agreement”) with MAM Pangolin Royalty, LLC, an affiliate of Marathon Asset Management (“Marathon”). Under the terms of the Monetization Agreement, we sold all of our contractual rights to receive royalties and milestone payments due under the Sunovion License Agreement related to Sunovion’s apomorphine product, KYNMOBI ® . KYNMOBI ® , an apomorphine film therapy for the treatment of off episodes in Parkinson’s disease patients, received approval from the U.S. Food and Drug Administration (FDA) on May 21, 2020. In exchange for the sale of these rights, we received an upfront payment of $40,000 and an additional payment of $10,000 through the achievement of the first milestone. We have received an aggregate amount of $50,000 through December 31, 2020 under the Monetization Agreement. Under the Monetization Agreement, additional aggregate contingent payments of up to $75,000 may be due to us upon the achievement of worldwide royalty and other commercial targets within a specified timeframe, which could result in total potential proceeds of $125,000. See Note 14 Sale of Future Revenue for further details on the accounting for the Monetization Agreement . F-17 Table of Contents 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 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 payment of $500 under this arrangement during June 2020, which is included in in License and royalty revenues for the twelve-months period ended December 31, 2020, in connection with the FDA’s acceptance of a New Drug Application (“NDA”) filing for KP-415. On March 2, 2021, KemPharm announced FDA approval of KP 415 (AZTARYS TM ) a new once-daily treatment for ADHD. The Company’s share of the milestone payments associated with KP 415 approval and the achievement of certain targeted labeling goals may reach $4,800. Note 7. Inventory Inventory consists of the following: December 31, 2020 2019 Raw material $ 789 $ 1,244 Packaging material 1,128 1,096 Finished goods 544 519 Total inventory $ 2,461 $ 2,859 Note 8. Property and Equipment, Net December 31, Useful Lives 2020 2019 Machinery 3-15 years $ 21,333 $ 21,088 Furniture and fixtures 3-15 years 1,209 1,150 Leasehold improvements (a) 21,333 21,333 Computer, network equipment and software 3-7 years 2,999 2,787 Construction in progress 877 1,412 47,751 47,770 Less: accumulated depreciation and amortization (40,878 ) (38,044 ) Total property and equipment, net $ 6,873 $ 9,726 (a) 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 were $3,392 and $2,854 for the years ended December 31, 2020 and 2019, respectively. Note 9. Right-of-Use Assets and Lease Obligations The Company leases all realty used as its production and warehouse facilities, corporate headquarters, commercialization operations center and research and laboratory facilities. The Company identifies a contract that contains a lease as one which conveys a right, either explicitly or implicitly, to control the use of an identified asset in exchange for consideration. 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 2.25 years and 5.75 years, including renewal options expected to be exercised to extend the lease periods. The Company does not recognize a right-to use asses and lease liability for short-term leases, which have terms of 12 months or less, on its consolidated balance sheet. For longer-term lease arrangements that are recognized on the Company’s consolidated balance sheet, the right-of-use asset and lease liability is initially measured at the commencement date based upon the present value of the lease payments due under the lease. These payments represent the combination of the fixed lease and fixed non-lease components that are due under the arrangement. The costs of associated with the Company’s short-term leases, as well as variable costs relating to the Company’s lease arrangements, are not material to the consolidated financial results. F-18 Table of Contents The implicit interest rates of the Company’s lease arrangements are generally not readily determinable and as such, the Company applies an incremental borrowing rate, which is established based upon the information available at the lease commencement date, to determine the present value of lease payments due under an arrangement. 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. The Company’s lease costs recorded in manufacture and supply, research and development and selling, general and administrative expenses in its consolidated statements of income for the year-end December 31, 2020 was $1,671 including variable lease expenses such as common area maintenance and operating costs of $379 under the new lease accounting standard. Rental expense for all operating leases amounted to $1,613 in 2019. Cash payments arising from the Company’s lease arrangements are reflected on its consolidated statement of cash flows as outflows for operating activities. The Company’s payments due under its operating leases are as follow: Amount 2021 $ 1,287 2022 1,295 2023 944 2024 565 2025 565 2026 424 Total lease payments 5,080 Less: imputed interest (1,506 ) Total operating lease liabilities $ 3,574 The following schedule presents future minimum lease payments under operating leases as of December 31, 2019, including those derived from renewal options that are deemed noncancelable under FASB ASC Section 840-10-35, Leases - Subsequent Measurement : Amount 2020 $ 1,274 2021 1,287 2022 1,153 2023 380 Thereafter — Total $ 4,094 F-19 Table of Contents Note 10. Intangible Assets, Net and Other non-current assets The following table provides the components of identifiable intangible assets, all of which are finite lived and other non-current assets: December 31, 2020 2019 Purchase technology-based intangible $ 2,358 $ 2,358 Purchased patent 509 509 2,867 2,867 Less: accumulated amortization (2,765 ) (2,714 ) Intangible assets, net 102 153 Royalty receivable 7,000 — Other 836 286 Total other non-current assets $ 7,836 $ 286 Amortization expense was $51 and $50 for each of the years ended December 31, 2020 and 2019, respectively. During the remaining life of the purchased patent, estimated annual amortization expense is $51 for each of the years from 2021 to 2022. During the second quarter of 2020, under the Sunovion License Agreement, the Company recognized $8,000 of royalty revenue and corresponding royalty receivable, related to the $1,000 annual minimum guaranteed royalty that is due in each of the next eight years. In connection with the Monetization Agreement, the Company performed an assessment under ASC 860 Transfer and Servicing to determine whether the existing receivable was to transferred to Marathon and concluded it was not transferred. Royalty receivable consists of seven annual minimum payments due from Sunovion, the last of which is due in March 2028. The current portion of the royalty receivable is included in Trade and other receivables, net. See Note 14 Sale of Future Revenue for further details on how this receivable relates to the Monetization transaction. Note 11. Accrued Expenses Accrued expenses consisted of the following: December 31, 2020 2019 Accrued compensation $ 6,330 $ 3,758 Real estate and personal property taxes 316 300 Accrued distribution expenses 1,722 1,174 Other 201 243 Total accrued expenses $ 8,569 $ 5,475 F-20 Table of Contents Note 12. 12.5% Senior Secured Notes and Loans Payable 12.5% Senior Secured Notes - First Supplemental Indenture On November 3, 2020, the Company entered into the First Supplemental Indenture (the “Supplemental Indenture”) by and among the Company and U.S. Bank National Association, as Trustee (the “Trustee”) and Collateral Agent thereunder to the Indenture, dated as of July 15, 2019 (the “Base Indenture” and, as supplemented by the Supplemental Indenture, the “Indenture”), by and between the Company and the Trustee. Under the Supplemental Indenture, the Company repaid $22,500 of its $70,000 outstanding 12.5% Notes from the $40,000 upfront proceeds received from its Monetization of Future Revenue Stream associated with Sunovion’s KYNMOBI ® (apomorphine) product. Further, the Company entered into an additional Purchase Agreement with its lenders whereby the Company issued in aggregate $4,000 of additional 12.5% senior notes (the “2020 Additional Notes”) in lieu of paying a prepayment premium to two lenders on the early repayment of the 12.5% Notes discussed above. The result of these two transactions reduced the net balance of the Company’s 12.5% Senior Notes outstanding in the aggregate to $51,500 at December 31, 2020. The $4,000 principal issuance is to be repaid proportionally over the same maturities as the remaining outstanding Initial Notes. The Company also paid to one its lenders a $2,250 premium as result of the early retirement of debt. The Company accounted for the $22,500 debt repayment as a debt modification. The fees paid to lenders inclusive of (i) $2,250 early premium prepayment and (ii) $4,000 issuance of additional debt in lieu of paying a prepayment penalty have been recorded as additional debt discount, amortized over the remaining life of the Notes using the effective interest method. Loan origination costs of $220 associated with the new debt of were expensed as incurred. Existing deferred discounts and loan origination fees are amortized as an adjustment of interest expense over the remaining term of modified debt using the effective interest method. The Amendment contains a provision whereby as the Company receives any cash proceeds from the Permitted Apomorphine Monetization (the Monetization Proceeds), each Noteholder has the right to require the Company to repay all or any part of such Noteholder’s outstanding 12.5% Notes at a repurchase price in cash equal to 112.5% of the principle amount, plus accrued and unpaid interest. This repurchase offer is capped at 30% of the cash proceeds received by the Company as the contingent milestones are attained, if any, up through June 30, 2025. This repurchase offer or put option gives holders of the option the right, but not the obligation, to receive a specified amount of the future royalties up to the capped amount. A valuation study was performed by an independent third party appraiser. Based on the valuation study, the put option was valued at $535, of which $115 has been recorded in Accrued expenses and $420 has been recorded in Other non-current liabilities. The embedded put option is deemed to be a derivative under ASC 815 Derivatives and Hedging , which requires the recording of the embedded put option at fair value and subject to remeasurement at each reporting period. In addition, the holders of the 12.5% Notes have extended to December 31, 2021 from March 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) Bucca 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. 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 $2,575 as Loan Payable, Current to reflect this obligation in its Consolidated Balance Sheet. Principal payments are scheduled to increase annually from 10% of the face amount of the 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: 2021 $ 2,575 2022 7,725 2023 12,875 2024 18,025 2025 10,300 Total $ 51,500 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 fifth anniversary of the issue date of the Initial Notes to 112.50% 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 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 change of control provisions 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. The Company capitalizes legal and other third-party costs incurred in connection with obtaining debt as deferred debt issuance costs and applies the unamortized portion as a reduction of the outstanding face amount of the related loan in accordance with ASU 2015-3, Interest – Imputation of Interest: Simplifying the Presentation of Debt Issuance Costs . Similarly, the Company amortizes debt discounts, such as those represented by warrants issued to its lenders, and offsets those as a direct reduction of its outstanding debt. Amortization expense arising from deferred debt issuance costs and debt discounts related to the 12.5% Notes and the Perceptive loan for the years ended December 31, 2020 and 2019 were $2,587 and $1,929, respectively. Unamortized deferred debt issuance costs and deferred debt discounts totaled $14,596 and $9,662 as of December 31, 2020 and 2019, respectively. Collateral for the loan under the 12.5% Notes consists of a first priority lien on substantially all property and assets, including intellectual property, of the Company. This secured obligation provides payment rights that are senior to all existing and future subordinated indebtedness of the Company and provides Lenders with perfected security interests in substantially all of the Company’s assets. 12.5% Senior Secured Notes On July 15, 2019, the Company completed the private placement of up to $100,000 aggregate principal of its 12.5% Senior Secured Notes due 2025 (the “Notes”) and issued warrants for 2,000,000 shares of common stock (the “Warrants”), $0.001 per value per share, through its structuring agent, Morgan Stanley & Co., LLC, and entered into a purchase agreement and related indenture (the “Purchase Agreement” or “Indenture”) governing these Notes. The Company simultaneously entered into 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 governing an asset-based loan facility. F-21 Table of Contents Upon closing of the Indenture for the 12.5% Notes (“Indenture”), the Company issued $70,000 of the 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 Notes and Warrants (the “Lenders”). Issuance of the Initial Notes and Warrants provided net proceeds of $66,082. Proceeds from issuance of the Initial Notes and Warrants were used to fully repay the Company’s $56,340 outstanding indebtedness to Perceptive Credit Holdings, LP, (the “Perceptive Loan”) related early repayment fees and legal and other fees incurred in obtaining this loan and executing this Indenture. Loans Payable - Perceptive In August 2016, the Company entered into a Loan Agreement and Guaranty with Perceptive Credit Opportunities Fund, LP (“Perceptive”) under which the total available facility of $50,000` had been borrowed as of March 2017. At closing, Perceptive received a warrant to purchase senior common equity interests representing 4.5% of the fully diluted common units of the Company on an as converted basis, which was automatically exercised in full at the time of the IPO (see also Note 13). 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 2019 earnings in the 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. F-22 Table of Contents Note 13. Warrants Warrants Issued to 12.5% Senior Secured Noteholders Warrants were issued in conjunction with the First Supplemental Indenture to Noteholders as part of the 2020 Additional Notes described above expire on June 30, 2025 and entitle the Lenders to purchase 143,000 shares of the Company’s common stock at $0.001 per share and include specified registration rights. Management estimated the fair value of the Warrants to be $735, assisted by the an independent third-party appraiser. Warrants were issued in conjunction with the Initial Notes described above expire on June 30, 2025 and entitle the Lenders to purchase 2,000,000 shares of the Company’s common stock at $0.001 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 respective 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 loan 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 Consolidated Balance Sheets. There were no Warrants exercised by either the holders of the 2020 Additional Notes nor the Initial Noteholders during the year ended December 31, 2020. Certain 12.5% Noteholders exercised warrants for the purchase of 428,571 shares of common stock, and proceeds totaling $1,821 were received on December 16, 2019. Note 14. Sale of Future Revenue On November 3, 2020, we entered into a Purchase and Sale Agreement (the “Monetization Agreement”) with MAM Pangolin Royalty, LLC, an affiliate of Marathon Asset Management (“Marathon”). Under the terms of the Monetization Agreement, we sold all of our contractual rights to receive royalties and milestone payments due under the Sunovion License Agreement related to Sunovion’s apomorphine product, KYNMOBI ® . KYNMOBI ® , an apomorphine film therapy for the treatment of off episodes in Parkinson’s disease patients, received approval from the U.S. Food and Drug Administration (FDA) on May 21, 2020. In exchange for the sale of these rights, we received an upfront payment of $40,000 and an additional payment of $10,000 through the achievement of the first milestone. We have received an aggregate amount of $50,000 through December 31, 2020 under the Monetization Agreement. Under the Monetization Agreement, additional aggregate contingent payments of up to $75,000 may be due to us upon the achievement of worldwide royalty and other commercial targets within a specified timeframe, which could result in total potential proceeds of $125,000. We recorded the upfront proceeds of $40,000 and subsequent first milestone of $10,000, reduced by $2,909 of transaction costs, as a liability related to the sale of future revenue that will be amortized using the effective interest method over the life of the Monetization Agreement. As future contingent payments are received, they will increase the balance of the liability related to the sale of future revenue. Although we sold all of our rights to receive royalties and milestones, as a result of our ongoing obligations related to the generation of these royalties, we will account for these royalties as revenue. Our ongoing obligations include the maintenance and defense of the intellectual property and to provide assistance to Marathon in executing a new license agreement for KYNMOBI ® in the event Sunovion terminates the Sunovion License Agreement in one or more jurisdictions of the licensed territory under the Sunovion License Agreement. During the second quarter of 2020, under the Sunovion License Agreement, the Company recognized $8,000 of royalty revenue and corresponding royalty receivable, related to the $1,000 annual minimum guaranteed royalty that is due in each of the next eight years. In connection with the Monetization Agreement, the Company performed an assessment under ASC 860, Transfer and Servicing to determine whether the existing receivable was transferred to Marathon and concluded that the receivable was not transferred. F-23 Table of Contents As royalties are remitted to Marathon from Sunovion, the collection of the royalty receivable and balance of the liability related to the sale of future revenue will be effectively repaid over the life of the agreement. In order to determine the amortization of the liability related to the sale of future revenue, we are required to estimate the total amount of future royalty and milestone payments to Marathon over the life of the Monetization Agreement and contingent milestone payments from Marathon to the Company. The sum of future royalty payments less the $50,000 in proceeds received and future contingent payments will be recorded as interest expense over the life of the Monetization Agreement. At execution, the estimate of this total interest expense resulted in an effective annual interest rate of approximately 24.9%. This estimate contains significant assumptions that impact both the amount recorded at execution and the interest expense that will be recognized over the life of the Monetization Agreement. The Company will periodically assess the estimated royalty and milestone payments to Marathon from Sunovion and contingent milestone payments from Marathon to the Company. To the extent the amount or timing of such payments is materially different from the original estimates, an adjustment will be recorded prospectively to increase or decrease interest expense. There are a number of factors that could materially effect the amount and timing of royalty and milestone payments to Marathon from Sunovion, and correspondingly, the amount of interest expense recorded by the Company, most of which are not under our control. Such factors include, but are not limited to, changing standards of care, the initiation of competing products, manufacturing or other delays, generic competition, intellectual property matters, adverse events that result in government health authority imposed restrictions on the use of products, significant changes in foreign exchange rates as the royalties remitted to Marathon are made in U.S. dollars (USD) while a portion of the underlying sales of KYNMOBI ® will be made in currencies other than USD, and other events or circumstances that are not currently foreseen. Changes to any of these factors could result in increases or decreases to both royalty revenue and interest expense related to the sale of future revenue. The following table shows the activity of the Royalty Obligation since the transaction inception through December 31, 2020: Upfront proceeds from the sale of future revenue $ 40,000 Contingent payment from the sale of future revenue 10,000 Issuance costs (2,909 ) Amortization of issuance costs 20 Royalties related to the sale of future revenue (75 ) Interest expense related to the sale of future revenue 1,938 Liability related to the sale of future revenue, net (includes current portion of $1,450) $ 48,974 Note 15. Other Non-Current Liabilities The Company’s other non-current liabilities at December 31, 2020 of $1,945 consist of asset retirement obligations (“AROs”) of $1,525 and the fair value of the put option on the 12.5% Notes of $420. At December 31, 2019, the balance consisted of asset retirement obligations. AROs consists of estimated future spending related to removing certain leasehold improvements at its Portage, Indiana, laboratory, the Ameriplex production facility and the Warren, New Jersey, laboratory and returning all facilities to their original condition. Depreciation expense related to the ARO assets included in overall depreciation expense for the periods ended December 31, 2020 and 2019 were $24 and $24, respectively. Below is a schedule of activity in the Company’s liability for AROs for the year ended December 31, 2020 and 2019. Balance at December 31, 2018 $ 1,216 Additions — Accretion 144 Balance at December 31, 2019 1,360 Additions — Accretion 165 Balance at December 31, 2020 $ 1,525 Note 16. Net Loss Per Share Basic net loss per share is calculated by dividing net loss by the weighted-average number of common shares. As a result of the Company’s net loss incurred for the year ended December 31, 2020 and 2019, all potentially dilutive instruments outstanding would have anti-dilutive effects on per-share calculations for this period. Therefore, basic and diluted net loss per share were the same for all periods presented as reflected below. F-24 Table of Contents Year Ended December 31, 2020 Year Ended December 31, 2019 Numerator: Net loss $ (55,783 ) $ (66,246 ) Denominator: Weighted-average number of common shares – basic and diluted 33,651,127 25,356,098 Loss per common share – basic and diluted $ (1.66 ) $ (2.61 ) As of December 31, 2020 and 2019, respectively, the Company’s potentially dilutive instruments included 3,258,192 and 2,231,092 options to purchase common shares and 13,491 and 73,839 unvested RSUs that were excluded from the computation of diluted weighted average shares outstanding because these securities had an antidilutive impact due to the losses reported. Similarly excluded as of December 31, 2020 and 2019 were potentially dilutive warrants for the purchase of 1,714,429 and 1,571,429 common shares, respectively. Note 17. Share-Based Compensation The Company provides certain employees, non-employee directors and consultants with performance incentives under the Aquestive Therapeutics, Inc. Equity Incentive Plan (the Plan), adopted by the Board of Directors on June 15, 2018. Under this Plan, the Company may grant restricted stock units, stock options, or other stock-based awards in order to align the long-term financial interests of selected participants with those of its stockholders, strengthen the commitment of such persons to the Company, and attract and retain competent and dedicated persons whose efforts will enhance long-term growth, profitability and share value. Restricted stock units and options that have been awarded are subject to graded vesting over a service period, which is typically three years. Compensation cost is recognized for these awards on a pro-rata basis over the requisite service period for each award granted. At December 31, 2020, there were approximately 0.7 million shares available for grant. The Company recognized share-based compensation in its Consolidated Statements of Operations during the periods presented as follows: Expense classification: Year Ended December 31, 2020 Year Ended December 31, 2019 Manufacture and supply $ 275 $ 231 Research and development 729 720 Selling, general and administrative 5,577 6,120 Total share-based compensation expenses $ 6,581 $ 7,071 Share-based compensation from: Restricted Stock Units (A) 806 1,863 Stock Options (B) 5,751 5,173 Employee Stock Purchase Plan (C) 24 35 Total share-based compensation expenses $ 6,581 $ 7,071 (A) Restricted Stock Units The following table summarizes the Company’s awards of restricted stock units for the year ended December 31, 2019 and 2020: F-25 Table of Contents Number of Units Weighted Average Grant Date Fair Value Per Share (In thousands) Unvested, December 31, 2018 205 $ 14.77 Granted — — Forfeited (6 ) — Vested (125 ) 14.94 Unvested, December 31, 2019 74 $ 14.64 Granted 4 7.54 Forfeited — — Vested (64 ) 14.88 Unvested, December 31, 2020 14 $ 11.38 The total grant date fair market value of shares vested in 2020 and 2019 was $958 and $1,863, respectively. As of December 31, 2020, there was approximately $122 of unrecognized compensation costs related to restricted stock units awarded and is expected to be recognized during 2021. The RSUs granted to employees are subject to a three-year graduated vesting schedule. These RSUs are not subject to performance-based criteria other than continued employment. (B) Stock option awards The following table summarizes the Company’s stock option activity for the period from December 31, 2018 through December 31, 2020: (in 000s, except share price data) Number of Options Weighted Average Exercise Price Weighted Average Remaining Contractual Term in Years Aggregate Intrinsic Value Outstanding at December 31, 2018 1,033 $ 14.72 9.55 $ — Granted 1,258 $ 6.66 Forfeited (60 ) $ 5.78 Exercised — Outstanding at December 31, 2019 2,231 $ 10.42 8.94 $ 689 Granted 1,168 3.32 Forfeited (140 ) $ 4.36 Exercised — $ — Outstanding at December 31, 2020 3,259 $ 8.14 8.42 $ 2,978 Vested and expected to vest at December 31, 2020 3,035 $ 8.14 8.42 $ 2,758 Exercisable at December 31, 2020 1,235 $ 11.26 7.89 $ 403 The weighted average grant date fair value of stock options granted during 2020 and 2019 was $2.61 and $4.95, respectively. The fair values of stock options granted were estimated using the Black-Scholes model based on the following assumptions: Year Ended December 31, 2020 2019 Expected dividend yield 0% 0% Expected volatility 100% 85% — 106 % Expected term (years) 5.50 — 6.10 5.50 — 6.10 Risk-free interest rate 0.33% — 1.69 % 1.5% — 2.6 % Exercise prices $ 1.54 — 7.86 $ 3.36 — 8.05 F-26 Table of Contents We anticipate reinvesting earnings for the foreseeable future in product development and other avenues of share-value growth and therefore used a dividend yield of zero. The estimate of volatility was determined based on the historical trading data of comparable public companies at the time of grant given the lack of sufficient history for our own publicly-traded common stock. The expected term of the award was calculated using the simplified method and weighted average was utilized taking into account the vesting periods and contractual life. The risk-free interest rates are derived from the U.S. Treasury yield curve in effect on the date of grant for instruments with a remaining term similar to the expected term of the options. As of December 31, 2020, $5,653 of total unrecognized compensation expenses related to non-vested stock options is expected to be recognized over a weighted average period of 1.3 years from the date of grant. These option grants provided a maximum contract term of 10 years from grant date, with a weighted average remaining contract life of 8.0 years. Options granted to senior management and key employees are subject to a three-year graded vesting schedule while options granted to the board of directors are subject to a one year cliff vesting schedule. These stock options are not subject to performance-based criteria other than continued employment. (C) Employee Stock Purchase Plan The Company’s Board of Directors adopted the Aquestive Therapeutics, Inc. Employee Stock Purchase Plan (ESPP) in June 2018, plan rollout began in late 2018, and initial employee purchases were made in 2019. The purpose of the ESPP is to help retain and motivate current employees, to attract new talent, and to provide eligible employees of the Company a convenient manner of purchasing shares of common stock at a discounted price at periodic intervals by means of accumulated payroll deductions. The Company may offer common stock purchase rights biannually under offerings that allow for the purchase of common stock at the lower of 85% of the fair value of shares on either the first or last day of the offering period. The offerings may, or may not, also provide tax advantages. Purchases made via a tax-advantaged offering are intended to qualify as purchases made within the meaning of Section 423 of the Internal Revenue Code. Offerings may run concurrently, or serially, and each offering will be treated as separate and distinct. Under the ESPP, a total of 250,000 shares of common stock were initially reserved for issuance. During 2020 and 2019, employees purchased 32,986 and 56,378 shares, respectively, through this plan. Note 18. Employee Benefit Plans The Company sponsors a defined-contribution 401(k) plan covering all full-time employees and makes matching employer contributions as defined by the terms of that plan. The Company may also make discretionary contributions. Total contributions made to the plan by the Company for the year ended December 31, 2020 and 2019 were $673 and $819, respectively. Note 19. Income Taxes The tax effect of temporary differences between the tax bases of assets and liabilities and their financial reporting amounts that give rise to the deferred tax assets and deferred tax liabilities as of December 31, 2020 and 2019 are as follows: F-27 Table of Contents December 31, 2020 2019 Deferred tax assets: Accounts receivable $ 112 $ 126 Inventory 4 69 Accrued expenses 353 835 NOL carryforwards 22,569 23,687 Interest limitation imposed by the TJCA 7,235 5,748 Stock Compensation 4,051 2,505 Other 1,229 783 Sale of Future Revenue 14,444 — Property and equipment 2,380 1,741 Orphan Drug and R&D Tax Credits 5,851 4,621 58,228 40,115 Deferred tax liabilities: Intangible assets (551 ) (58 ) Prepaid expenses (908 ) — (1,459 ) (58 ) Valuation Allowance (56,769 ) (40,057 ) Net deferred tax asset/(liability) $ — $ — At December 31, 2020 and 2019, the Company had federal net operating loss carryforwards of $81,566 and $85,905, respectively, a significant portion of which carryforward for an indefinite period. At December 31, 2020 and 2019, the Company also had state net operating loss carryforwards of $74,379 and $80,266, respectively. These state net operating losses carry forwards begin expiring in 2039 and 2038, respectively. As a result of the December 2017 U.S. Tax Cuts and Jobs Act (“TCJA”), updated regulations under section 163(j) create new limitations on deductible interest expense. The Company’s interest expense deduction under 163(j) will be limited for tax purposes based on a calculation of 30% of its EBITDA on a tax basis. On March 27, 2020, the Coronavirus Aid, Relief and Economic Security Act, which we refer to as the “U.S. CARES Act,” was signed into law. The U.S. CARES Act, among other things, includes provisions related to net operating loss carryback periods, modifications to the interest deduction limitation. The U.S. CARES Act increased the adjusted taxable income limitation from 30% to 50% for business interest deductions for tax years beginning in 2019 and 2020. This modification increased the allowable interest expense deduction and resulted in additional net operating loss (NOL) for the year 2019 and lower current taxable income (before NOL utilization) for the Company. Additionally, the U.S. CARES Act allowed us to fully offset the 2020 taxable income with prior years’ NOL carried forward. The Company has determined, based upon available evidence, that is more likely than not that the net deferred tax asset will not be realized and accordingly, has provided a full valuation allowance against its net deferred tax assets. Valuation allowances of $56,769, and $40,057 have been established at December 31, 2020 and 2019, respectively. The Company may also be subject to the net operating loss utilization provisions of Section 382 of the Internal Revenue Code due to ownership changes. As a result, the use of NOL carry forwards from the current and prior periods are subject to annual limitations. Entities are also required to evaluate, measure, recognize and disclose any uncertain income tax provisions taken on their income tax returns. The Company has analyzed its tax positions and has concluded that there were no uncertain positions as of December 31, 2020 and 2019. The Company did not have any unrecognized tax benefits and has not accrued any interest or penalties for the years ended December 31, 2020 and 2019. The Company’s U.S. federal and state net operating losses have occurred since its election to treat as a C Corporation in 2017 and as such, tax years subject to potential tax examination could apply from that date because the utilization of net operating losses from prior years opens the relevant year to audit by the IRS and/or state taxing authorities. In early 2020, the U.S. Internal Revenue Service began an examination of the Company’s federal income tax return for 2018. The Company does not expect to recognize a significant amount of additional tax expense as a result of concluding this examination. A reconciliation of income tax benefit and the amount computed by applying the statutory federal income tax rates of 21% to loss before taxes for the year ended December 31, 2020 and 2019, respectively, as follows: Year Ended December 31, 2020 2019 Income taxes at statutory rate 21.00 % 21.00 % Increase (decrease) resulting from: State income tax 6.81 6.76 Permanent differences (0.12 ) (0.04 ) Research & development credit 2.35 2.32 Return to provision — 0.98 Valuation allowance (30.04 ) (31.02 ) Effective tax rate 0.00 % 0.00 % F-28 Table of Contents On July 1, 2018, the New Jersey governor signed into law a bill which included significant changes to the New Jersey taxation of corporations. Chiefly, this legislation imposes a 2.5% surtax on taxpayers with allocated net income over $1 million for 2018 and 2019, and a 1.5% surtax for taxpayers with allocated net income over $1 million for 2020 and 2021. Subsequently, on September 29,2020, Assembly Bill 4721 extended the additional corporation business tax surtax of 2.5% for the tax years 2020 through 2023. In addition, the state is changing its filing requirements from separate entity reporting to combined reporting on a water’s edge basis. Further, there are changes to the state’s computation of its dividend received deduction and application of IRC section 163(j). The Company has considered these changes and does not believe this change in law will have a material impact due to availability of significant New Jersey NOL carryforwards to set off against future taxable income and a full valuation allowance against the net deferred tax assets. Note 20. Contingencies Litigation and Contingencies From time to time, we have been and may again become involved in legal proceedings arising in the course of our business, including product liability, intellectual property, commercial litigation, or environmental or other regulatory matters. Patent-Related Litigation Indivior Inc., Indivior UK Ltd., and Aquestive Therapeutics, Inc. v. Dr. Reddy’s Labs. S.A. and Dr. Reddy’s Labs., Inc. , On February 7, 2018, we and Indivior Inc. and Indivior UK Ltd. (collectively, “Indivior”) initiated a lawsuit against Dr. Reddy’s Laboratories S.A. and Dr. Reddy’s Laboratories, Inc. (collectively, “Dr. Reddy’s”) asserting infringement of U.S. Patent No. 9,855,221 (the “221 patent”). On April 3, 2018, we and Indivior initiated a separate lawsuit against Dr. Reddy’s asserting infringement of U.S. Patent No. 9,931,305 (the “’305 patent”). On May 29, 2018, the lawsuits regarding the ’221 and ’305 patents were consolidated which was originally initiated by Indivior against Dr. Reddy’s asserting infringement of U.S. Patent No. 9,687,454 (he “’454 patent”). On February 19, 2019, the Court granted the parties’ agreed stipulation to drop the ’221 patent from the case. On January 8, 2020, the Court entered a stipulated order of non-infringement of the ’305 patent based on the Court’s claim construction ruling, and we and Indivior preserved our rights to appeal the claim construction ruling. On November 22, 2019, Dr. Reddy’s filed an amended answer and counterclaims asserting conspiracy to monopolize against us and monopolization, attempted monopolization, and conspiracy to monopolize against Indivior under federal and New Jersey antitrust laws. The Court denied our motion to dismiss Dr. Reddy’s counterclaims on August 24, 2020. Fact discovery on Dr. Reddy’s antitrust counterclaims concluded on January 29, 2021. Expert discovery is ongoing and is scheduled to continue through the end of July 2021. Dispositive motions are currently due August 27, 2021. There is no trial date set. We are not able to determine or predict the ultimate outcome of this proceeding or provide a reasonable estimate or range of estimates of the possible outcome or losses, if any, in this matter. Indivior Inc., Indivior UK Ltd., and Aquestive Therapeutics, Inc. v. Teva Pharmaceuticals USA, Inc. , On February 7, 2018, we and Indivior initiated a lawsuit against Teva Pharmaceuticals USA, Inc. (“Teva”) asserting infringement of the ’221 patent. On April 3, 2018, we and Indivior initiated a separate lawsuit against Teva asserting infringement of the ’305 patent. On May 29, 2018, the lawsuits regarding the ’221 and ’305 patents were consolidated which was originally initiated by Indivior against Teva asserting infringement of the ’454 patent. The parties agreed that the case would be governed by the final judgment against Dr. Reddy’s (described above). We are not able to determine or predict the ultimate outcome of this proceeding or provide a reasonable estimate or range of estimates of the possible outcome or losses, if any, in this matter. Indivior Inc., Indivior UK Ltd., and Aquestive Therapeutics, Inc. v. Alvogen Pine Brook LLC , On September 14, 2017, Indivior initiated a lawsuit against Alvogen Pine Brook LLC (“Alvogen”) asserting infringement of the ’454 patent. On February 7, 2018, we and Indivior filed an Amended Complaint, adding us as a plaintiff and asserting infringement of U.S. Patent No. 9,855,221 (the “’221 patent”). On April 3, 2018, we and Indivior initiated a separate lawsuit against Alvogen asserting infringement of the ’305 patent. On May 29, 2018, the cases were consolidated. On February 26, 2019, the Court granted the parties’ agreed stipulation to drop the ’221 patent from the case. On January 9, 2020, the Court entered a stipulated order of non-infringement of the ’305 patent based on the Court’s claim construction ruling, and we and Indivior preserved our rights to appeal the claim construction ruling. On November 21, 2019, Alvogen filed an amended answer and counterclaims asserting monopolization, attempted monopolization, and conspiracy to monopolize against us and Indivior under federal and New Jersey antitrust laws. The court denied our motion to dismiss Alvogen’s counterclaims on August 24, 2020. On November 2, 2020, Alvogen filed a second amended answer and counterclaims, removing its allegations of monopolization and attempted monopolization against us and asserting only conspiracy to monopolize against us. Fact discovery on Alvogen’s antitrust counterclaims concluded on January 29, 2021. Expert discovery is ongoing and is scheduled to continue through the end of July 2021. Dispositive motions are currently due August 27, 2021. There is no trial date set. We are not able to determine or predict the ultimate outcome of this proceeding or provide a reasonable estimate or range of estimates of the possible outcome or losses, if any, in this matter. F-29 Table of Contents BioDelivery Sciences International, Inc. v. Reckitt Benckiser Pharmaceuticals, Inc., RB Pharmaceuticals Limited and MonoSol Rx, LLC , On September 20, 2014, BioDelivery Sciences International, Inc. (“BDSI”) initiated a lawsuit against us and RB seeking a declaratory judgment of non-infringement and invalidity of U.S. Patent No. 8,475,832 (the “’832 patent”), U.S. Patent No. 7,897,080 (the “’080 patent”), and U.S. Patent No. 8,652,378 (the “’378 patent”). On December 12, 2014, BDSI voluntarily dismissed the ’378 patent from the case. On December 12, 2015, the parties jointly moved the Court for a stay of the case pending inter partes review of the ’832 patent and reexamination of the ’080 patent. On February 10, 2021, the parties submitted a covenant not to sue regarding the ’378 patent, as well as a joint status report notifying the court that BDSI will file a notice of dismissal of the case. We are not able to determine or predict the ultimate outcome of this proceeding or provide a reasonable estimate or range of estimates of the possible outcome or losses, if any, in this matter. Reckitt Benckiser Pharmaceuticals, Inc. and MonoSol Rx, LLC v. BioDelivery Sciences International, Inc. and Quintiles Commercials US, Inc. , On September 22, 2014, we and RB initiated a lawsuit against BDSI and Quintiles Commercial US, Inc. (“Quintiles”) asserting infringement of U.S. Patent No. 8,765,167 (the “’167 patent”) in the District of New Jersey (Civil Action No. 3:14-cv-5892). On July 22, 2015, the case was transferred to the Eastern District of North Carolina. BDSI filed requests for inter partes review (“IPR”) of the ’167 patent before the Patent Trial and Appeal Board (“PTAB”), and on May 6, 2016, the Court stayed the case pending the outcome and final determination of the IPR proceedings. On March 24, 2016, the PTAB issued final written decisions finding the ’167 patent was not unpatentable, and the United States Court of Appeals for the Federal Circuit (“Federal Circuit”) remanded those decisions for further proceedings before the PTAB. Following the PTAB’s February 7, 2019 decision on remand denying institution, BDSI appealed that decision to the Federal Circuit. The Federal Circuit granted our motion to dismiss the appeal, and denied BDSI’s request for rehearing en banc . BDSI filed a petition for writ of certiorari to the Supreme Court of the United States (“Supreme Court”), which the Supreme Court denied on October 5, 2020. On January 4, 2021, the parties submitted a joint status report to the Eastern District of North Carolina stating their agreement that all proceedings and appeals of the IPR on the ’167 patent are complete and that, as a result, the stay of the matter may be lifted. The parties are awaiting further action from the Court. We are not able to determine or predict the ultimate outcome of this proceeding or provide a reasonable estimate or range of estimates of the possible outcome or losses, if any, in this matter. Aquestive Therapeutics, Inc. v. BioDelivery Sciences International, Inc. , On November 11, 2019, we initiated a lawsuit against BDSI asserting infringement of the ’167 patent in the Eastern District of North Carolina. On April 1, 2020, the Court denied BDSI’s motion to stay and its motion to dismiss the complaint. On April 16, 2020, BDSI filed its Answer and Counterclaims to the complaint, including counterclaims for non-infringement, invalidity, and unenforceability of the ’167 patent. On May 7, 2020, we filed a Motion to Dismiss BDSI’s unenforceability counterclaim and a Motion to Strike BDSI’s corresponding affirmative defenses. On May 28, 2020, BDSI amended its counterclaims and filed an Answer and Amended Counterclaims, which included additional allegations in support of BDSI’s unenforceability counterclaim. On June 25, 2020, we filed a Motion to Dismiss BDSI’s Amended Counterclaim for unenforceability and a Motion to Strike BDSI’s corresponding affirmative defense of unenforceability. BDSI filed its opposition to our Motion to Dismiss and Strike on July 16, 2020, and we filed our Reply on July 30, 2020. The parties are awaiting further action from the Court on our motion. We are not able to determine or predict the ultimate outcome of this proceeding or provide a reasonable estimate or range of estimates of the possible outcome or losses, if any, in this matter. Antitrust Litigation State of Wisconsin, et al. v. Indivior Inc., Reckitt Benckiser Healthcare (UK) Ltd., Indivior PLC, and MonoSol Rx, LLC , On September 22, 2016, forty-one states and the District of Columbia, or the States, brought a lawsuit against Indivior and us in the U.S. District Court for the Eastern District of Pennsylvania alleging violations of federal and state antitrust statutes and state unfair trade and consumer protection laws relating to Indivior’s launch of Suboxone Sublingual Film in 2010 and seeking an injunction, civil penalties, and disgorgement. After filing the lawsuit, the case was consolidated for pre-trial purposes with the In re Suboxone (Buprenorphine Hydrochloride and Naloxone) Antitrust Litigation, MDL No. 2445, or the Suboxone MDL, a multidistrict litigation relating to putative class actions on behalf of various private plaintiffs against Indivior relating to its launch of Suboxone Sublingual Film. While we were not named as a defendant in the original Suboxone MDL cases, the action brought by the States alleges that we participated in an antitrust conspiracy with Indivior in connection with Indivior’s launch of Suboxone Sublingual Film and engaged in related conduct in violation of federal and state antitrust law. We moved to dismiss the States’ conspiracy claims, but by order dated October 30, 2017, the Court denied our motion to dismiss. We filed an answer denying the States’ claims on November 20, 2017. Daubert motions were filed on September 28, 2020, and oppositions were filed on October 19, 2020. There is no date set for an oral argument on the motions. Opening summary judgment briefs are due March 8, 2021, and responses to summary judgment motions are due April 8, 2021. No trial date has yet been set. We are not able to determine or predict the ultimate outcome of this proceeding or provide a reasonable estimate or range of estimates of the possible outcome or loss, if any, in this matter. F-30 Table of Contents Humana and Centene Action s Humana Inc. v. Indivior Inc, Indivior Solutions Inc., Indivior PLC, Reckitt Benckiser Healthcare (UK) Ltd., and Aquestive Therapeutics, Inc. , Centene Corporation, Wellcare Health Plans, Inc., New York Quality Healthcare Corporation d/b/a Fidelis Care, and Health Net, LLC v. Indivior Inc, Indivior Solutions Inc., Indivior PLC, Reckitt Benckiser Healthcare (UK) Ltd., and Aquestive Therapeutics, Inc. , On September 18, 2020, Humana, Inc. (“Humana”), a health insurance payor, filed a lawsuit against us and Indivior in the Eastern District of Pennsylvania alleging facts similar to those at issue in the Antitrust Case and the Suboxone MDL described above, which lawsuit was assigned to the same judge that is presiding over Antitrust Case and Suboxone MDL. Humana’s Complaint alleges five causes of action against us, 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 (“Centene”) and other related insurance payors filed a similar lawsuit against us 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. On January 15, 2021, we filed a motion to dismiss the Centene and Humana complaints. The other defendants in the actions also filed motions to dismiss on the same date. Briefing on the motions to dismiss is currently scheduled to end on March 16, 2021. We are not able to determine or predict the ultimate outcome of this proceeding or provide a reasonable estimate or range of estimates of the possible outcome or loss, if any, in this matter. California Litgation Neurelis, Inc. v. Aquestive Therapeutics, Inc. , On December 5, 2019, Neurelis filed a lawsuit against us in the Superior Court of California, County of San Diego alleging the following three causes of action: (1) Unfair Competition under California Business and Professional Code § 17200; (2) Defamation; and (3) Malicious Prosecution. Neurelis filed a First Amended Complaint on December 9, 2019, alleging the same three causes of action. We filed a Motion to Strike Neurelis’s Complaint under California’s anti-SLAPP (“strategic lawsuit against public participation”) statute on January 31, 2020, which Neurelis opposed. On August 6, 2020, the Court issued an order granting in part and denying in part our anti-SLAPP motion. We 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. We filed our opening appeal brief on January 27, 2021. Briefing on the appeal is currently scheduled to end on July 2, 2021, and there is no date yet set for a hearing on the appeal. The trial court proceedings remain stayed while the appeal is pending. We are not able to determine or predict the ultimate outcome of this proceeding or provide a reasonable estimate or range of estimates of the possible outcome or loss, if any, in this matter. Note 21. Quarterly Financial Data (unaudited) The following tables contain selected quarterly financial information from 2020 and 2019 (in thousands, except per share amounts). The Company believes that this information reflects all normal recurring adjustments necessary for a fair statement of the information for the periods presented. The operating results for any quarter are not necessarily indicative of results for any future period. Three Months Ended March 31, 2020 June 30, 2020 September 30, 2020 December 31, 2020 Revenues $ 8,765 $ 21,675 $ 8,260 $ 7,149 Manufacture and supply 3,659 3,539 2,978 2,788 Total costs and expenses 22,626 21,280 22,041 22,795 Net loss (16,530 ) (2,334 ) (16,551 ) (20,368 ) Basic and diluted net loss per common share $ (0.49 ) $ (0.07 ) $ (0.49 ) $ (0.60 ) F-31 Table of Contents Three Months Ended March 31, 2019 June 30, 2019 September 30, 2019 December 31, 2019 Revenues $ 12,643 $ 11,129 $ 12,418 $ 16,419 Manufacture and supply 3,506 5,420 4,643 6,792 Total costs and expenses 25,717 29,817 23,420 26,323 Net loss (14,726 ) (20,472 ) (18,412 ) (12,636 ) Basic and diluted net loss per common share $ (0.59 ) $ (0.82 ) $ (0.74 ) $ (0.48 ) For periods in which the Company reported a net loss, potentially dilutive securities were excluded from the computation of per share amounts. Note 22. Subsequent Events (A) License Agreement with Mitsubishi Tanabe On January 21, 2021, the Company entered into an exclusive license agreement with Mitsubishi Tanabe Pharma America, Inc. for the commercialization in the United States of Exservan® (riluzole), an oral film formulation of riluzole for treatment of amyotrophic lateral sclerosis (ALS). (B) Continued Utilization of the At-The-Market Facility The Company continued utilization of its At-The-Market facility from January 1 through March 5, 2021 and sold 1,644,715 shares which generated net proceeds of approximately $9,749. (C) Stockholder Class Action On March 1, 2021, a securities class action lawsuit was filed in the United States District Court of the District of New Jersey alleging that the Company and certain of its officers engaged in violations of the federal securities laws relating to public statements made by the Company relating to the approval of Libervant. We are not able to determine or predict the ultimate outcome of this proceeding or provide a reasonable estimate or range of estimates of the possible outcome or loss, if any, in this matter. F-32