What changed in this filing

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Item 1. Financial Statements

2021-05-04 compared with 2020-11-04 · 675 added, 710 removed, 290 unchanged (83% of the section changed)

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(In thousands, except share and per share amounts)

September 30,

Current assets:

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Right-of-use assets, net

Intangible assets, net and other assets

Intangible assets, net

Other non-current assets

Liabilities and stockholders’ deficit

Current liabilities:

Accounts payable and accrued expenses

Accounts payable

Accrued expenses

Lease liabilities, current

Loans payable, current

Deferred revenue, current

Liability related to the sale of future revenue, current

Loans payable, current

Total current liabilities

Loans payable, net

Liability related to the sale of future revenue, net

Lease liabilities

Deferred revenue, net of current portion

Asset retirement obligations

Deferred revenue

Other non-current liabilities

Total liabilities

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Authorized 250,000,000 shares;

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

36,241,358 and 34,569,254 shares issued and outstanding at March 31, 2021 and December 31, 2020, respectively

Additional paid-in capital

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Three Months Ended

September 30,

Nine Months Ended

September 30,

Costs and expenses:

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Interest expense

Interest income

Loss on extinguishment of debt

Interest expense related to the sale of future revenue, net

Interest income and other income (expense), net

Net loss before income taxes

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Equity/Deficit

For the periods ended September 30, 2020:

Balance at January 1, 2020

Share-based compensation

For the period ended March 31, 2021:

Balance at December 31, 2020

Common stock issued under public equity offering

Costs of common stock issued under public equity offering

Share-based compensation expense

Balance at March 31, 2021

Shares issued under employee stock purchase plan

Share-based compensation

Balance at June 30, 2020

Share-based compensation

Balance at September 30, 2020

For the periods ended September 30, 2019:

Balance at January 1, 2019

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

Share-based compensation

For the period ended March 31, 2020:

Balance at December 31, 2019

Share-based compensation expense

Vested restricted stock units

Balance at March 31, 2020

Shares issued under employee stock purchase plan

Share-based compensation

Balance at June 30, 2019

Share-based compensation

Fair value of warrants issued

Balance at September 30, 2019

See accompanying notes to the condensed consolidated financial statements.

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(In thousands)

Nine Months Ended

September 30,

Three Months Ended

Cash flows used for operating activities:

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

Depreciation and amortization

Depreciation, amortization, and impairment

Share-based compensation

Amortization of debt issuance costs and discounts

Loss on extinguishment of debt

All other non-cash expenses

Interest expense related to the sale of future revenue

Changes in operating assets and liabilities:

Trade and other receivables

Trade and other receivables, net

Inventories, net

Prepaid expenses and other assets

Accounts payable and accrued expenses

Accounts payable

Accrued expenses and other liabilities

Deferred revenue

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Cash flows used for financing activities:

Proceeds from shares issued under employee stock purchase plan

Proceeds from issuance of long-term debt

Debt repayment

Payments for loan acquisition costs

Premium paid to retire debt

Proceeds from issuance of common stock, net

Payments for taxes on share-based compensation

Net cash (used for)/provided by financing activities

Net cash provided by/(used for) financing activities

Net decrease in cash and cash equivalents

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

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

Warrants issued in connection with long-term debt

See accompanying notes to the condensed consolidated financial statements.

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Aquestive Therapeutics, Inc.

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

medical needs and solve therapeutic problems.

The Company has commercialized one internally-developed proprietary product to date, has a commercial proprietary product pipeline focused on the treatment of diseases of the central nervous system, or

CNS, and other unmet needs, and is developing orally administered complex molecules as alternatives to more invasive therapies.

Aquestive is pursuing its business objectives through both in-licensing and out-licensing arrangements, as well as the

commercialization of its own products.

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

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

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

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

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

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

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

(B) Equity Transaction

(“Aquestive” or “the Company”) is a pharmaceutical company focused on identifying, developing and commercializing differentiated products which leverage our proprietary

PharmFilm ® technology to meet patients’ unmet medical needs and solve patients’ therapeutic problems.

The Company has five products approved by the U.S.

Food and Drug Administration (FDA), both proprietary and out-licensed, as well as a

late-stage proprietary product pipeline focused on the treatment of diseases of the central nervous system, or CNS, and an earlier stage pipeline including for treatment of anaphylaxis.

The Company’s licensees market their products in the U.S.

some instances outside the U.S.

The Company markets its proprietary product in the U.S.

The Company believes that its proprietary and licensed products address the needs of these patient populations and the shortcomings of available treatments

create opportunities for the development and commercialization of meaningfully differentiated medicines.

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 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.

(B) Equity Transactions

Equity Offering of Common Stock

On December 17, 2019, Aquestive received net proceeds of $37,835 after deducting underwriting discounts of $2,415 for the sale of 8,050,000 shares of common stock, par value $0.001 per share of the

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

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

On September 11, 2019, the Company entered into an equity distribution agreement to offer shares of common stock from time to time in an “at-the-market” (ATM) offering for an aggregate offering price

of up to $25,000.

On November 20, 2020, the Company began utilizing the ATM facility and through December 31, 2020 sold 930,993 shares which provided net proceeds of approximately $6,055 after deducting commissions and other transaction costs of

The Company continued to use the ATM facility in 2021 and from January 1, 2021 through March 31, 2021 sold 1,672,104 shares which provided net proceeds of approximately $9,891 after deducting commissions and other transaction costs of $306.

On March 26, 2021, the Company entered into Amendment No.

1 to the equity distribution agreement, to permit the offering of an unlimited amount of shares of common stock of the Company thereunder,

subject to the terms and conditions set forth in the equity distribution agreement.

The Company filed a prospectus supplement to offer up to an additional $50,000 of shares of common stock pursuant to the amended equity distribution agreement.

Basis of Presentation

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generally accepted accounting principles (“U.S.

with Article 10 of Regulation S-X for interim financial reporting.

GAAP”) and with Article 10 of

Regulation S-X for interim financial reporting.

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

been condensed or omitted.

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

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

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

statements as of that date.

GAAP have been condensed or

Report on Form 10-K filed with the SEC on March 9, 2021 (the “2020 Annual Report on Form 10-K”).

As included herein, the condensed consolidated balance sheet as of December 31, 2020 is derived from the audited consolidated financial statements as of

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

The accompanying financial

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

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

condensed financial statements.

The accompanying financial statements reflect

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

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

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

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

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

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

Financial Accounting Standards Board (“FASB”).

Summary of Significant Accounting Policies

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and its wholly owned subsidiary, MonoSol Rx, Inc.

Other than corporate formation activities, MonoSol Rx, Inc.

Other than corporate

formation activities, MonoSol Rx, Inc.

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

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

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

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

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

The Company’s significant accounting policies are described in the audited consolidated financial statements included in the 2020 Annual Report on Form 10-K.

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

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

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

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

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

Actual results could differ from those estimates.

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

Significant items subject to

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

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

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

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

Recently Adopted Accounting Pronouncements:

In February 2016, the Financial Accounting Standards Board issued ASU, 2016-02, Leases (Topic 842) , and issued

amendments in July 2018 provided by ASU 2018-10.

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

under prior authoritative guidance.

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

Operating leases continue to result in

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

The Company adopted and applied ASU 2016-02 on January 1, 2020 using the modified retrospective transition provisions of ASC 842 to leases in effect as of

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

remaining minimum lease payments.

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

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

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

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

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

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

The Company adopted this standard effective January 1, 2019.

In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230):

Classification of Certain Cash Receipts and 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 its condensed consolidated financial position or results 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 to the users of financial statements.

There were certain required disclosures that have been removed or modified.

addition, the update added the following disclosures:

(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 condensed consolidated financial position

or results of operations.

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

Clarifying the

Interaction Between Topic 808 and Topic 606, which clarifies that certain transactions between collaborative arrangement participants should be accounted for as revenue under ASC 606 when the collaborative

arrangement participant is a customer for a promised good or service that is distinct within the collaborative arrangement.

The guidance also precludes entities from presenting amounts related to transactions with a collaborative arrangement

participant that is not a customer as revenue, unless those transactions are directly related to third-party sales.

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

position or results of operations.

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

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

accounting for credit losses on financial instruments within its scope.

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

The new guidance also changes the impairment model for available-for-sale debt securities, requiring the use of an allowance to record estimated credit losses (and subsequent recoveries).

The new guidance is effective for the Company

beginning after December 15, 2022.

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

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

The Company believes that the

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

Recent Accounting Pronouncements Not Adopted as of March 31, 2021:

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

on financial instruments within its scope.

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

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,

The Company is currently evaluating the impact of the adoption of this guidance on its condensed consolidated financial statements.

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

(Subtopic 350-40:

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

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

The update provides guidance distinguishing between capitalizable service

contract implementation costs and contract costs required to be expensed.

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

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

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

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

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

The amendments may be applied either retrospectively or prospectively to all

implementation costs incurred after the date of adoption.

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

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

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 Derivatives and

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

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 Derivatives and Hedging-Contracts in Entity’s Own

Equity (Subtopic 815-40):

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

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

financial instruments with characteristics of liabilities and equity.

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

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

More specifically, the ASU reduces the

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

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

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

characteristics of liabilities and equity.

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

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

More specifically, the ASU reduces the number of models that may be

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

requires expanded disclosures intended to increase transparency.

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

The Company is currently

evaluating the impact from the adoption of ASU 2020-06 on its consolidated financial statements.

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

condensed consolidated financial statements of the Company.

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 condensed consolidated

financial statements of the Company.

Risks and Uncertainties

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

As of September

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

As of September 30, 2020, Aquestive has experienced a history of net losses and the Company’s accumulated deficits totaled $165,889 which have been partially funded by profits from manufacture and

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

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

issued in connection with the debt refinancing.

As of March 31,

2021, we had $27,498 of cash and cash equivalents.

As of March 31, 2021, Aquestive has experienced a history of net losses and the Company’s accumulated deficits totaled $200,929 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.

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”).

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 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 March 31, 2021 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 (as defined below).

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.

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.

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 proceeds of approximately $15,945 as of March 31, 2021.

On March 26, 2021, the Company

entered into Amendment No.

1 to the equity distribution agreement, to permit the offering of an unlimited amount of shares of common stock of the Company thereunder, subject to the terms and conditions set forth in the equity distribution agreement.

The Company filed a prospectus supplement to offer up to an additional $50,000 of shares of common stock pursuant to the amended equity distribution agreement.

This ATM facility, as amended, has approximately $57,111 available at March 31, 2021.

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.

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

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

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

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

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 or other funding from capital, financial or monetization markets.

Subject to and absent any material adverse effect of these and other possible COVID-19 effects, the Company expect s that its anticipated revenues from licensed and proprietary products, cash on hand , expense management initiatives, monetization of certain revenue streams for its out-licensed apomorphine product (KYNMOBI™), and access to equity markets, including

under its shelf registration statement would be adequate to meet expected operating, investing, and financing needs for the next twelve months.

To the extent additional funds are necessary to meet

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

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

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

Management has based its expectation on assumptions that could change or prove to be inaccurate, either due to the impact of COVID-19 or to unrelated factors including factors arising in the

capital markets, asset monetization markets, regulatory approval process, regulatory oversight and other factors.

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.

Revenues and Trade Receivables, Net

Revenue from Contracts with Customers

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

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

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

Revenue Recognition and Performance Obligations

Aquestive recognizes revenue pursuant to ASC 606, Revenue from Contracts with Customers , to reflect amounts expected to be collectible in exchange for the

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

Accordingly, the value of contractually promised goods or services is assessed at contract

inception to identify those that constitute distinct performance obligations.

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

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

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

identified in the contracts, purchase orders or invoices.

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

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

revenue reversal.

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

For manufacturing and supply and proprietary

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

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

Licensing revenue is generally invoiced

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

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

reach 75 days depending on the customer.

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

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

specifications, subject only to specified quality control inspections.

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,

(iii) license and royalty revenues and (iv) co-development and research fees generally in the form of milestone payments.

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.

Performance Obligations

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

transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied.

At contract inception, we assess the goods promised in our contracts with customers and identify a

performance obligation for each promise to transfer to the customer a distinct good.

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

implied by customary business practice.

Our performance obligations consist mainly of transferring of goods and services identified in the contracts, purchase orders or invoices.

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

only to specified quality control inspections.

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

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

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

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

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

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

allowance amounts.

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

License and royalty revenues – the Company may realize revenue from functional or from symbolic licenses.

For functional

licenses that do not require further development or other ongoing activities by the Company, the customer is viewed as acquiring the right to use the license as, and when, transferred and revenues are generally recorded at a point in time, subject

to contingencies or constraints, if any.

For symbolic licenses providing substantial value only in conjunction with other performance obligations to be met by the Company, such as manufactured products or development services, revenues may be

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

Royalty revenues are estimated based on the provisions of contracts with customers and recognized in the same period that the royalty-based

products are sold to the Company’s strategic partners.

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

Invoicing for contractual

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

that may be invoiced to the customer.

Contract Assets

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

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

may be invoiced under such agreements.

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

These contract assets

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

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

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

Contract Liabilities

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

In such instances, the customer’s cash payment

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

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

These contract liabilities are reflected as

deferred revenue within the Condensed Consolidated Balance Sheet.

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

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

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

Proprietary product sales, net - this net revenue is recognized when product is shipped and title passes to the customer, typically at time of delivery.

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.

License and Royalty Revenu e – 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.

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 Condensed Consolidated Balance Sheet.

As of March 31, 2021, and December 31, 2020, such

contract assets were $2,197 and $3,081, respectively, consisting primarily 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

Contract Liabilities - in certain situations, customer contractual payment terms are structured to permit invoicing in advance of delivery of a good or

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

These contract liabilities are reflected as deferred revenue within the Condensed Consolidated Balance Sheet.

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

As of March 31, 2021, and December 31, 2020, such contract liabilities were $5,136 and $4,326, respectively.

The Company’s revenues were comprised of the following:

Three Months Ended

September 30,

Nine Months Ended

September 30,

Manufacture and supply revenue

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Three Months Ended

September 30,

Nine Months Ended

September 30,

United States

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Total revenues

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

Ex-United States revenues are derived primarily from Indivior for product manufactured for markets outside of the United States.

Trade and other receivables, net consist of the following:

September 30,

Trade receivables

Contract and other receivables

allowance for bad debts

allowance for doubtful accounts

sales-related allowances

Trade and other receivables, net

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

The current period balance is comprised primarily of

$1,000 of minimum royalty revenue due from a licensee and the remaining balance represents reimbursable costs incurred on behalf of customers for which earnings processes have been met prior to shipment of goods or full delivery of completed

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

Sales-related allowances for both

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

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

September 30,

Allowance for doubtful accounts at beginning of year

Additions charged to bad debt expense

The current portion of contract and other receivables totaled $2,657 and $3,081 as of March 31, 2021 and December 31, 2020, 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 doubtful accounts:

Allowance for doubtful accounts at beginning of the period

Additions charged to expense

Write-downs charged against the allowance

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quarterly basis.

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

The following table provides a summary of activity with respect to sales related allowances and accruals for the three months ended March 31, 2021:

Total Sales Related

Allowances and Accruals

Balance at December 31, 2020

Payments / credits

Balance at September 30, 2020

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

Accruals for returns allowances and prompt pay discounts

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

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

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

Balance at March 31, 2021

Total reductions of gross product sales from sales-related allowances and accruals were $2,164 for the three months ended March 31, 2021.

Accruals for returns allowances and prompt pay discounts are

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

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

net and Accounts payable and accrued expenses were $536 and $1,807, respectively, as of March 31, 2021 and $416 and $1,722 , respectively, as of December 31, 2020.

Concentration of Major Customers

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

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

For the year ended December

2019, Indivior, Inc.

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

For the nine months ended

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

Revenues provided by Indivior, and Sunovion Pharmaceuticals, Inc.

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

and 11%, respectively of gross receivables.

31, 2020, two customers exceeded the 10% threshold for revenue which were Indivior and 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 that represented 53%, 14%, 13%, and 10%, respectively.

For the three months ended March 31, 2021, only Indivior exceeded the 10% threshold for revenue and represented approximately 64% of total

As of March 31, 2021, three customers exceeded the 10% threshold for outstanding receivables which were Indivior, AmerisourceBergen, and Cardinal represented 66%, 12%, and 10%, respectively.

Material Agreements

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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.

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.

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

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

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

The Indivior License Agreement

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.

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 (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.

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Supplemental Agreement with Indivior

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

On September 24, 2017, the Company entered into an agreement with Indivior (the “Indivior Supplemental Agreement”).

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

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

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

Further payments under the Indivior

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

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

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

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

Reddy’s Labs and Alvogen, the Company received an aggregate of $40,750 from Indivior under the Indivior Supplemental Agreement.

Further payments under the Indivior Supplemental Agreement are 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.

2 unchanged sentences

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.

relating to that 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) within 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 nine-months ended September 30, 2020.

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

(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 and commercially

launched by Sunovion in September 2020.

The FDA approval triggered Sunovion’s obligation to remit a payment of $4,000 which was received in September 2020 and was included in License and royalty revenues for the year 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 also earned an aggregate of $17,000 in connection with specified regulatory and development milestones in the United States and Europe (the “Initial Milestone Payments”) The Company is also entitled to receive certain contingent

one-time milestone payments related to product availability and regulatory approval in Europe, certain one-time milestone payments based on the achievement of specific annual net sales thresholds of KYNMOBI™, and ongoing mid-single digit percentage

royalty payments related to the net sales of KYNMOBI™ (subject to reduction to low-single digit percentage royalty payments in certain circumstances), subject to certain minimum payments.

The maximum aggregate milestone payments that may be paid to

the Company pursuant to the Sunovion License Agreement are equal to $45,000.

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

There are minimum annual guaranteed royalty payments

under the contract.

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

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

$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”).

As a result of the Monetization Agreement, we are no

longer entitled to receive the remaining contingent royalty or milestone payments related to net sales thresholds of KYNMOBI ®.

During the second quarter of 2020, the Company recorded minimum royalty revenue of $8,000 for minimum

royalties which was reflected in License and royalty revenue.

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

The Amendment was entered into for the primary purpose of amending the

Sunovion License Agreement as follows:

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

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

2028, (iii) modifying the effective inception date of the first minimum annual royalty due from Sunovion to the Company from January 1, 2020 to April 1, 2020, and (iv) modifying the termination provisions to reflect the Company’s waiver of the right

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

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

Amendment to the Sunovion License Agreement.

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

Upon termination of the Sunovion License Agreement, all rights to

intellectual property granted to Sunovion to develop and commercialize apomorphine-based products will revert to the Company and Sunovion must continue to pay royalties to the Company on each sale of Sunovion’s remaining inventory of

apomorphine-based products.

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

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

See Note 19, (A), Subsequent

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

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

See Note 19, (B), Subsequent Events.

The First Amendment provides for the following:

(i) inclusion of the

United Kingdom and any other country currently in the European Union (EU) that later withdraws as a member country of 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) extension of the date after which Sunovion has the right to terminate the Sunovion License Agreement for convenience from December 31 2024 to March 31, 2028, (iii) modification of the effective inception date of

the first minimum annual royalty due from Sunovion to the Company from January 1, 2020 to April 1, 2020, and (iv) modification of the termination provisions to reflect the Company’s waiver of the right to terminate the Sunovion License Agreement in

the event that KYNMOBI ® was not commercialized by January 1, 2020.

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

The Sunovion License

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

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

apomorphine-based products will revert to the Company.

On October 23, 2020, the Company entered into a Second Amendment to the Sunovion License Agreement for the purpose of clarifying the rights and obligations of with respect to the prosecution and

maintenance of the patents covered under the Sunovion License Agreement and to provide that, on and after March 31, 2028, in respect of any jurisdiction or jurisdictions covered under the Sunovion License Agreement, Sunovion may terminate its rights

to the licensed Patents under the Sunovion License Agreement upon 180 days prior written notice.

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”).

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 March 31, 2021 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 15 Sale of Future Revenue for further details on the accounting for the Monetization Agreement.

Agreement to Terminate CLA with KemPharm

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

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

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

During September 2019, the Company

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

The Company has also received a payment of $500 under this arrangement during June 2020, which is included in

License and royalty revenues for the nine-month period ended September 30, 2020, in connection with the FDA’s acceptance of a New Drug Application (“NDA”) filing for KP-415.

A Prescription Drug User Fee Act (PDUFA) target date for completion of FDA

review has been scheduled for early March 2021.

The Company’s share of remaining milestone payments associated with KP-415 approval and certain targeted labeling goals within timeframes ending in July 2021 may reach $4,800.

However, there can be no

guarantee that approvals, goals or any such payments will be achieved or received in the future.

the 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.

The Company has received payment of $500 under

this arrangement during June 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 regulatory approval may reach $2,000.

Financial Instruments – Fair Value Measurements

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

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

the short-term maturity of these assets and liabilities.

The Company granted warrants to certain holders of the 12.5% Notes in connection with its debt refinancing in July 2019.

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

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

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

See Note 14 for further information on these warrants.

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

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

The Company granted warrants to certain 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 14 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 require the Company to redeem on the Notes up

to a capped portion of milestone payments resulting from the Monetization Agreement.

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 13 12.5% Senior Secured Notes and

Loans Payable for further discussion.

Inventories, Net

The components of Inventory, net is as follows:

September 30,

The components of Inventory, net are as follows:

Packaging material

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Total inventory, net

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

control evaluations, which occurs prior to actual shipment.

Property and Equipment, Net

September 30,

Furniture and fixtures

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

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

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

Total depreciation, amortization, and impairment related to property and equipment was $743 and $714 for the three-month periods ended March 31, 2021 and 2020, respectively.

Right-of-Use Assets and Lease Obligations

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

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

these leases are accounted for as operating leases .

These leases provide remaining terms between 2.5 years and 6.0 years, including renewal options expected to be exercised to extend the lease periods.

Measurement of the operating lease

liability reflects an estimated discount rate of 16.9% applied to minimum lease payments, including expected renewals, based on the incremental borrowing rate experienced in the Company’s latest collateralized debt refinancing.

Right-of-use assets

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

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

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

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

None of its 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 2.0 years and 5.5 years, including renewal options expected to be exercised to extend the lease periods.

The Company does not recognize a right-to use asset 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.

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.

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 collateralized debt refinancing.

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

The Company’s lease costs are recorded manufacture and supply, research and development and selling, general and administrative

expenses in its consolidated statements of income.

For the three-month period ended March 31, 2021, total operating lease expenses totaled $433 including variable lease expenses such as common area maintenance and operating costs of $119.

three-month period ended March 31, 2020, total operating lease expenses totaled $442 including variable lease expenses such as common area maintenance and operating costs of $106.

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

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Total operating lease liabilities

Intangible Assets, Net and Other Assets

Intangible Assets, Net and Other non-current Assets

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

September 30,

Purchased technology-based intangible

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Royalty receivable

Other assets, primarily security deposits

Total intangible assets, net and other assets

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

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

respectively.

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

Royalty receivable consists of seven annual $1,000 minimum royalty payments due from Sunovion, the

last of which is due in March 2028.

See Note 6 above.

Accounts Payable and Accrued Expenses

Accounts payable and accrued expenses consisted of the following:

September 30,

Accounts payable

Total other non-current assets

Amortization expense was $13 for each of the three-month periods ended March 31, 2021 and 2020.

During the remaining life of the purchased patent, estimated annual amortization expense is $50 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 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 15 Sale of Future Revenue for further details on how this receivable relates to the Monetization transaction.

Accrued Expenses

Accrued expenses consisted of the following:

Accrued compensation

Accrued distribution expenses

Total accounts payable and accrued expenses

Total accrued expenses

12.5 % Senior Secured Notes and Loans Payable

12.5% Senior Secured Notes

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

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

Bank National Association, as trustee and collateral

agent, and a Lien Subordination and Intercreditor Agreement for the benefit of Madryn Health Partners, other institutional noteholders (the “Noteholders”) and U.S.

Bank National Association in dual roles providing terms and governing an asset-based

loan facility.

Upon closing of the Indenture for the 12.5% Notes (“Indenture”), the Company issued $70,000 of principal of the 12.5% Notes (the “Initial Notes”) along with the Warrants and rights of first offer

(the “First Offer Rights”) to the lenders participating in this transaction for the 12.5% Notes and Warrants (the “Lenders”).

On July 15, 2019, the Company completed the private placement of up to $100,000 aggregate principal of its 12.5% S Notes (the “Notes”) and issued warrants for 2,000,000 shares of common stock (the

“Warrants”), $0.001 per value per share.

Upon closing of the Indenture for the 12.5% Notes (the “Base Indenture”), the Company issued $70,000 of the 12.5% Notes (the “Initial Notes”) along with the Warrants and rights of first offer (the

“First Offer Rights”) to the Noteholders participating in this transaction.

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

In addition to the Initial Notes, the

Indenture may provide access to further loans of up to $30,000 that may become available in two tranches of additional notes (the “Additional Notes”) tied to the NDA filing for and FDA U.S.

marketing approval of Libervant™, an important part of the

Company’s drug candidate pipeline.

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

participation in a $10,000 additional offering of the 12.5% Notes (the “First Additional Offering”) under terms similar to the Initial Notes, on or before March 31, 2021, upon the filing of the Libervant™ NDA with the FDA.

A second funding

opportunity would allow the Company to obtain, on or before March 31, 2021, an additional $20,000 if the first option has been elected and funded, or, if not elected or funded, an additional $30,000 may be offered for issuance following FDA approval

of Libervant™ for marketing in the U.S.

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

See Note 19 (C), Subsequent Events.

There can be no assurance that any

additional financing will be consummated.

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

Loan”), related early repayment fees and legal and other fees incurred to obtain the loan.

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

On November 3, 2020, the Company entered into the First Supplemental Indenture (the “Supplemental Indenture” and, together with the Base Indenture, the “Indenture”) by and among the Company and U.S.

Bank National Association, as Trustee (the “Trustee”) and Collateral Agent thereunder to the Base 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 upfront proceeds received under the Monetization Agreement.

Further, the Company entered into an additional Purchase Agreement with its lenders whereby the Company issued in aggregate $4,000 of additional 12.5% 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, and such aggregate principal amount remains outstanding as of March 31, 2021.

The $4,000 principal issuance shall be repaid proportionally over the same maturities as the other 12.5% 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 of the 12.5% Notes.

The fees paid to lenders inclusive of (i) $2,250 early premium prepayment and (ii) $4,000 issuance of

Additional Notes in lieu of paying a prepayment penalty have been recorded as additional debt discount, amortized over the remaining life of the 12.5% Notes using the effective interest method.

Loan origination costs of $220 associated with

Additional Notes were expensed as incurred.

Existing deferred discounts and loan origination fees on the 12.5% Notes 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 Monetization Agreement, each Noteholder has the right to require the Company to redeem all or any part of

such Noteholder’s outstanding 12.5% Notes at a repurchase price in cash equal to 112.5% of the principal 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.

A valuation study was performed by an independent third party appraiser and updated as of March 31, 2021.

Based on the valuation study, the put option was valued at $590, of which $399 has

been recorded in Accrued expenses and $191 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 12.5% Notes re-openers under

the Indenture.

The first $10,000 12.5% Notes represents a commitment of such amount by current holders of 12.5% Notes, at the option of the Company, contingent upon FDA approval of the Company’s product candidate Libervant (diazepam) Buccal Film for

the management of seizure clusters.

A second $20,000 12.5% 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 12.5% Notes up to such amount,

contingent upon FDA approval of Libervant for U.S.

market access.

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

quarterly payment due at maturity on June 30, 2025.

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

Principal payments are scheduled to increase

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

The Company has recorded $3,863 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 12.5% Notes during the final four quarters.

A debt maturity table is presented below:

Remainder of 2021

The Company may elect, at its option, to prepay the 12.5% Notes at any time at premiums that range from 101.56% of outstanding principal if prepayment occurs on or after the 5 th anniversary of the issue date of the Initial Notes to 112.5% if payment occurs during the third year after the issuance of the Initial Notes.

In the event that

redemption occurs within the two years after the issuance of the 12.5% Notes, a make-whole fee is required, based on the present value of remaining interest payments using an agreed-upon discount rate linked to the then-current U.S.

The Company may elect, at its option, to redeem 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 of the 12.5% Notes occurs prior to July 15, 2021, a make-whole fee is required, based on the present

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

Treasury rate.

The Indenture also includes a change of control provision under which the Company may be required to repurchase the 12.5% Notes at 101% of the remaining principal plus accrued interest at the election of the Lenders.

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

This secured obligation provides

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

In the event that asset-based loans of up to

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

The Company’s license of its intellectual property to a third-party drug development enterprise

(specifically, Sunovion’s KYNMOBI™ product) is one of the various assets serving as collateral for the loan.

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

Additional Offering has not been elected or funded, or, $50,000 if it has been elected and funded, must be applied to prepay the Initial Notes, at 112.5% of the principal amount of the 12.5% Notes being repurchased, plus accrued and unpaid interest,

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

exceed such level, such prepayment would be pro-rated among the Noteholders.

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

issued) will be held in a collateral account until approval of Libervant™ by the FDA for U.S.

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

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

issued) can be used immediately for general corporate purposes.

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

The Indenture also includes change of control provisions under which the Company may be required to redeem the 12.5% Notes at 101%

of the remaining principal plus accrued interest at the election of the Noteholders.

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

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Similarly, the Company amortizes debt

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

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

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

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

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

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

respectively.

Loans Payable - Perceptive

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

borrowed as of March 2017.

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

the time of Aquestive’s IPO.

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

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

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

Warrant s Issued to 12.5% Senior Secured Noteholders

The Warrants that were issued in conjunction with the Initial Notes described above expire on June 30, 2025 and entitled the holders of the Initial Notes to purchase two million shares of the

Company’s common stock at $4.25 per share and include specified registration rights.

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

The fair value of these Warrants is treated as

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

Additionally, since the Warrants issued do not provide warrant

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

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

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

There were no

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

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

See Note 19 (C), Subsequent Events.

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 for

the three-months ended March 31, 2021 and 2020 were $1,152 and $584, respectively.

Unamortized deferred debt issuance costs and deferred debt discounts totaled $13,444 and $9,078 as of March 31, 2021 and 2020, 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.

Warrants were issued in conjunction with the Initial Notes (the “Initial Warrants”) and Additional Notes (the “Additional Warrants”) expire on June 30, 2025 and entitle the Noteholders to purchase up

to 2,143,000 shares of the Company’s common stock at $0.001 per share and included specified registration rights.

Management estimated the fair value of the Initial Warrants to be $6,800 and the Additional Warrants to be $735, each assisted by an

independent third-party appraiser.

The fair value of the respective Warrants is treated as a debt discount, amortizable over the term of the respective Warrants, with the unamortized 12.5% Notes portion applied to reduce the aggregate

principal amount of the 12.5% Notes in the Company’s unaudited condensed 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 Company’s unaudited condensed

balance sheet.

There were no Warrants exercised during the three-month periods ended March 31, 2021 or March 31, 2020, respectively.

Sale of Future Revenue

On November 3, 2020, we entered into the Monetization Agreement with 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 FDA on May 21,

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 March 31, 2021

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.

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

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

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 affect 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 liability related to the sale of future for the three months ended March 31, 2021:

Liability related to the sale of future revenue, net at December 31, 2020

Royalties related to the sale of future revenue

Amortization of issuance costs

Interest expense related to the sale of future revenue

Liability related to the sale of future revenue, net (includes current portion of $1,905)

Net Loss Per Share

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

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

These potential common shares are excluded from the computation of

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

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

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 three months ended March 31, 2021 and 2020, 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.

Three Months Ended

September 30,

Nine Months Ended

September 30,

Weighted-average number of common shares – basic

Loss per common share – basic and diluted

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

periods ended September 30:

September 30,

Options on common shares outstanding

Restricted stock units unvested

Warrants on common shares outstanding

Total potentially antidilutive derivatives excluded from losses per share

As of March 31, 2021 and 2020, respectively, the Company’s potentially dilutive instruments included 3,905,192 and 2,947,192 options to purchase common shares and 13,491 and 44,036 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 March 31, 2021 and 2020, were potentially dilutive warrants for

the purchase of 1,714,429 and 1,571,429 common shares, respectively.

Share-Based Compensation

1 unchanged sentence

Three Months Ended

September 30,

Nine Months Ended

September 30,

Manufacture and supply

5 unchanged sentences

Stock options

Employee stock purchase plan

Total share-based compensation expenses

Share-Based Compensation Equity Awards

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

The following tables provide information about the Company’s restricted stock unit and stock option activity during the three-month period ended March 31, 2021:

Restricted Stock Unit Awards (RSUs):

2 unchanged sentences

Unvested as of December 31, 2020

Unvested as of September 30, 2020

Unvested as of March 31, 2021

Grant date fair value of shares vested during the period

Unrecognized compensation costs as of September 30, 2020

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

Unrecognized compensation costs as of March 31, 2021

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

Stock Option Awards:

4 unchanged sentences

Exercised, Forfeited, Expired

Outstanding as of September 30, 2020

Vested or expected to vest as of September 30, 2020

Exercisable as of September 30, 2020

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

Outstanding as of March 31, 2021

Vested and expected to vest as of March 31, 2021

Exercisable as of March 31, 2021

The fair values of stock options granted during the three months ended March 31, 2021 were estimated using the Black-Scholes pricing model based on the following assumptions:

Expected dividend yield

2 unchanged sentences

Risk-free interest rate

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

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

No intrinsic value was

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

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

from the date of grant.

Employee Stock Purchase Plan

The Aquestive Therapeutics, Inc.

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

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

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

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

The weighted average grant date fair value of stock options granted during the three months ended March 31, 2021 was $4.19 During the three-month period ended March 31, 2021, stock options were

granted with an exercise price of $5.30 and accordingly, given the Company’s share price of $5.20 at March 31, 2021, certain shares granted during this period provided intrinsic value at that date totaling $66.

As of March 31, 2021, $6,704 of unrecognized compensation expense related to non-vested stock options is expected to be recognized over a weighted average period of 1.9 years from the date of grant.

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

6 unchanged sentences

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

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

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

$53,610, respectively, due to realization uncertainties.

For the three months ended March 31, 2021 and 2020, the

Company recorded no income tax benefit from its pretax losses of $14,672 and $16,530, due to realization uncertainties.

The Company’s U.S.

Federal statutory rate is 21%.

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

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

The primary factor impacting the effective tax rate for the three-month periods ended March 31, 2021 is the anticipated full year operating loss

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

Contingencies

Litigation and Contingencies

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

property, commercial litigation, or environmental or other regulatory matters.

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

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

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

(now Actavis Laboratories, Inc., or

“Actavis”), Par Pharmaceutical, Inc.

(“Par”), Alvogen Pine Brook, Inc.

(“Alvogen”), Teva Pharmaceuticals USA, Inc.

(“Teva”), Sandoz Inc.

(“Sandoz”), and Mylan Technologies Inc.

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

Sublingual Film in the United States.

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

After the commencement of the ANDA

patent litigation against Teva, Dr.

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

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

Mylan and Sandoz settled without a trial.

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

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

Actavis was found to infringe Patent No.

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

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

DRL and Alvogen were found not to infringe under a different claim construction analysis, and the Federal Circuit affirmed that ruling on July 12, 2019.

Teva has agreed to be bound by all DRL adjudications.

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

original Delaware District Court case against DRL and Alvogen.

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

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

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

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

A Markman hearing

in the cases against Dr.

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

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

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

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

the patents, Patent No.

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

On November 19, 2019, Magistrate Judge

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

Aquestive and Indivior appealed the Magistrate Judge’s decision to

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

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

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

On June 3, 2020, the court issued an order setting a

schedule for ongoing fact discovery, expert discovery, and dispositive motions.

The schedule currently sets the close of fact discovery for October 20, 2020, with expert discovery continuing through the end of April 2021.

The schedule also sets

the deadline for filing dispositive motions for May 18, 2021.

No trial date has been set in those cases.

Management is not able to determine or predict the ultimate outcome of this proceeding or provide a reasonable estimate, or range of

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

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

Following issuance of the mandate, the New Jersey

District Court vacated preliminary injunctions against both Dr.

Reddy’s and Alvogen.

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

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

products are the subject of the ongoing patent infringement litigations.

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

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

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

Following a negotiated settlement between

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

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

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

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

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

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

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

This case is stayed.

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

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

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

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

of the ’167 patent were valid.

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

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

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

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

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

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

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

the Eastern District of North Carolina Court.

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

The Eastern District of North Carolina

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

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

dismiss this appeal for lack of jurisdiction.

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

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

The Federal Circuit denied BDSI’s petition for rehearing en

banc on January 13, 2020.

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

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

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

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

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

On April 16, 2020, BDSI

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

On May 7, 2020, Aquestive filed a motion to

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

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

counterclaim.

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

under the applicable heightened pleading standard.

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

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

The parties are awaiting

further action from the court on Aquestive’s motion.

Indivior Inc., Indivior UK Ltd., and Aquestive Therapeutics, Inc.

Reddy’s Labs.

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.

Reddy’s Laboratories, Inc.

(collectively,

Reddy’s”) asserting infringement of U.S.

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.

9,931,305 (the “’305 patent”).

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.

9,687,454 (the “’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.

2021, the court entered a stipulated order dismissing Dr.

Reddy’s counterclaims against Aquestive.

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.

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

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.

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.

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.

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 beginning of

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.

BioDelivery Sciences International, Inc.

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.

8,475,832 (the “’832 patent”), U.S.

7,897,080 (the “’080 patent”), and U.S.

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.

On March 8, 2021, BDSI filed a notice of dismissal, resolving the case.

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.

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.

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.

On March 16, 2021, the court issued an order granting-in-part and denying-in-part Aquestive’s motion to dismiss BDSI’s

counterclaims asserting unenforceability of the ’167 patent.

Aquestive filed its answer to the remaining portions of BDSI’s counterclaims on April 6, 2021.

Also, on April 6, 2021, the court issued an order requiring the parties to conduct a Rule

26(f) conference by May 6, 2021, and to submit a joint discovery plan by May 20, 2021.

BDSI also filed on April 6, 2021 a renewed motion to dismiss Aquestive’s complaint.

Aquestive’s opposition to BDSI’s renewed motion to dismiss is currently due

April 27, 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 losses, if any, in this matter.

Antitrust Litigation

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

State of Wisconsin, et al.

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.

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

2445, or the Suboxone MDL, a multidistrict

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

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

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

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

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

The fact discovery period closed July 27,

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

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

The remainder of the case schedule,

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

On July 28, 2020, the U.S.

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

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

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

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

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

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.

February 19, 2021, the court issued an order denying all Daubert motions.

On March 8, 2021, Aquestive filed a motion for summary judgment.

The States’ response to Aquestive’s summary judgment motion is due April 15, 2021, and Aquestive’s reply is

due May 11, 2021.

No trial date has yet been set.

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

Humana and Centene Actions

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

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

Humana’s Complaint alleges five causes of action against

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

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

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

The counsel representing Humana is also representing Centene.

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

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

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

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

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

California Complaint

On December 5, 2019, Neurelis Inc.

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

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

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.

Humana and Centene Action s

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.

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.

Centene and Humana filed their oppositions to the motions to dismiss on February 22, 2021, and

Aquestive and the other defendants filed reply briefs on March 16, 2021.

There is currently no hearing set on the motions to dismiss and the parties are awaiting action from the court on the motions to dismiss.

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 Litigation

Neurelis, Inc.

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.

The Company filed a Motion to Strike

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

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

February 5, 2020, which will be opposed.

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

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

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

However, on April 3, 2020, in response

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

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

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

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

Neurelis filed its response to

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

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

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

denying in part Aquestive’s anti-SLAPP motion.

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

Management is not able to determine

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

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, and Neurelis filed its combined opening and

responsive appeal brief on March 30, 2021.

Aquestive’s combined response and reply brief is due June 1, 2021 and briefing on the appeal is anticipated to end in July 2021.

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.

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.

Subsequent Events

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

market access.

If and to the extent that

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

warrant grant date.

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

(A) Continued Utilization of the At-The-Market Facility

The Company continued utilization of its At-The-Market facility from April 1 through April 30, 2021 and sold 367,886 shares which generated net proceeds of approximately $1,679.

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

What changed 10-Q

Item 1. Financial Statements