What changed in this filing

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Item 1. Financial Statements

2021-11-02 compared with 2021-08-03 · 166 added, 111 removed, 658 unchanged (30% of the section changed)

3 unchanged sentences

(In thousands, except share and per share amounts)

September 30,

2021 December 31,

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Authorized 250,000,000 shares;

38,568,242 and 34,569,254 shares issued and outstanding at June 30, 2021 and December 31, 2020, respectively

40,083,245 and 34,569,254 shares issued and outstanding at September 30, 2021 and December 31, 2020, respectively

Additional paid-in capital 167,466 137,725

3 unchanged sentences

See accompanying notes to the condensed consolidated financial statements.

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AQUESTIVE THERAPEUTICS, INC.

2 unchanged sentences

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2021 2020 2021 2020

5 unchanged sentences

Total costs and expenses 21,255 22,041 62,764 65,947

(Loss) income from operations ( 6,517 ) 395 ( 15,042 ) ( 13,466 )

Loss from operations ( 7,968 ) ( 13,781 ) ( 23,010 ) ( 27,247 )

Other income/(expenses):

1 unchanged sentence

Interest expense related to the sale of future revenue, net ( 3,767 ) — ( 10,567 ) —

Interest income and other income, net 373 18 321 120

Interest and other (expense) income, net ( 33 ) 8 288 128

Net loss before income taxes ( 14,555 ) ( 16,551 ) ( 41,594 ) ( 35,415 )

5 unchanged sentences

See accompanying notes to the condensed consolidated financial statements.

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AQUESTIVE THERAPEUTICS, INC.

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Balance at June 30, 2021 38,568,242 $ 39 $ 159,488 $ ( 213,296 ) $ ( 53,769 )

Common Stock issued under public equity offering 1,509,818 1 6,221 — 6,222

Costs of common stock issued under public equity offering — — ( 135 ) — ( 135 )

Share-based compensation expense — — 1,900 — 1,900

Vested restricted stock units 5,185 — ( 9 ) — ( 9 )

Other — — 1 — 1

Net loss — — — ( 14,555 ) ( 14,555 )

Balance at September 30, 2021 40,083,245 40 167,466 ( 227,851 ) ( 60,345 )

Balance at December 31, 2019 33,562,885 $ 34 $ 124,318 $ ( 130,474 ) $ ( 6,122 )

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Balance at June 30, 2020 33,616,601 34 127,916 ( 149,338 ) ( 21,388 )

Share-based compensation expense 3,195 — 1,420 — 1,420

Net loss — — — ( 16,551 ) ( 16,551 )

Balance at September 30, 2020 33,619,796 $ 34 $ 129,336 $ ( 165,889 ) $ ( 36,519 )

See accompanying notes to the condensed consolidated financial statements.

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AQUESTIVE THERAPEUTICS, INC.

1 unchanged sentence

(In thousands)

Six Months Ended

Nine Months Ended

September 30,

Operating activities:

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Net cash provided by/(used for) financing activities 24,655 ( 34 )

Net increase (decrease) in cash and cash equivalents 2,427 ( 23,904 )

Net decrease in cash and cash equivalents ( 643 ) ( 32,262 )

Cash and cash equivalents at beginning of period 31,807 49,326

3 unchanged sentences

See accompanying notes to the condensed consolidated financial statements.

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AQUESTIVE THERAPEUTICS, INC.

1 unchanged sentence

(Unaudited, in thousands, except share and per share information)

Corporate Organization and Company Overview

Company Overview and Basis of Presentation

(A) Company Overview

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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.

8 unchanged sentences

On March 26, 2021, the Company filed a prospectus supplement to offer up to an additional $ 50,000 of shares of common stock under the ATM facility.

For the six months ended June 30, 2021, the Company sold 3,977,053 shares which provided net proceeds of approximately $ 18,505 after deducting commissions and other transaction costs of $ 933 .

This ATM facility has approximately $ 49,038 available at June 30, 2021.

For the nine months ended September 30, 2021, the Company sold 5,486,871 shares which provided net proceeds of approximately $ 24,592 after deducting commissions and other transaction costs of $ 1,068 .

This ATM facility has approximately $ 42,812 available at September 30, 2021.

Basis of Presentation

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

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Summary of Significant Accounting Policies

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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 June 30, 2021:

Recent Accounting Pronouncements Not Adopted as of September 30, 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.

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The Company’s cash requirements for 2021 and beyond include expenses related to continuing development and clinical evaluation of its products, manufacture and supply costs, costs of regulatory filings, patent prosecution expenses and

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

As of June 30, 2021, the Company had $ 34,234 of cash and cash equivalents.

As of September 30, 2021, the Company had $ 31,164 of cash and cash equivalents.

The Company has experienced a history of net losses.

The Company's accumulated deficits totaled $ 213,296 as of June 30, 2021.

The Company's accumulated deficits totaled $ 227,851 as of September 30, 2021.

The net losses and accumulated deficits were partially offset by gross margins from sales of commercialized licensed and proprietary products, license fees, milestone and royalty payments from commercial licensees and co-development parties.

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The Company began utilizing its ATM facility in November 2020.

Since inception to June 30, 2021, the Company sold 4,907,986 shares which generated net cash proceeds of approximately $ 24,560 , net of commissions and other transaction costs of $ 1,406 .

For the six months ended June 30, 2021, the Company sold 3,977,053 shares which provided net proceeds of approximately $ 18,505 , net of commissions and other transaction costs of $ 933 .

This ATM facility has approximately $ 49,038 available at June 30, 2021.

Since inception to September 30, 2021, the Company sold 6,417,804 shares which generated net cash proceeds of approximately $ 30,647 , net of commissions and other transaction costs of $ 1,541 .

For the nine months ended September 30, 2021, the Company sold 5,486,871 shares which provided net proceeds of approximately $ 24,592 , net of commissions and other transaction costs of $ 1,068 .

This ATM facility has approximately $ 42,812 available at September 30, 2021.

While the Company’s ability to execute its business objectives and achieve profitability over the longer term cannot be assured, the Company’s anticipated revenues from licensed and proprietary products, available cash and cash equivalents, expense management initiatives, and access to equity markets, including through its ATM facility, under the shelf registration statement will enable the Company to fund its operating needs for at least the next twelve months as it continues to execute its business strategy.

19 unchanged sentences

If the customer

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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.

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

As of June 30, 2021, and December 31, 2020, such contract assets were $ 3,177 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 services.

As of September 30, 2021, and December 31, 2020, such contract assets were $ 2,637 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 services.

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

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

As of June 30, 2021, and December 31, 2020, such contract liabilities were $ 6,993 and $ 4,326 , respectively.

As of September 30, 2021, and December 31, 2020, such contract liabilities were $ 8,083 and $ 4,326 , respectively.

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The Company’s revenues were comprised of the following:

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2021 2020 2021 2020

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Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2021 2020 2021 2020

4 unchanged sentences

Trade and other receivables, net consist of the following:

September 30,

2021 December 31,

5 unchanged sentences

The following table presents the changes in the allowance for doubtful accounts:

September 30,

2021 December 31,

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The calculation of some of these items requires management

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

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

The following table provides a summary of activity with respect to sales related allowances and accruals for the six months ended June 30, 2021:

The following table provides a summary of activity with respect to sales related allowances and accruals for the nine months ended September 30, 2021:

Total Sales Related Allowances

2 unchanged sentences

Payments / credits ( 5,920 )

Balance at June 30, 2021 $ 2,789

Total reductions of gross product sales from sales-related allowances and accruals were $ 4,422 for the six months ended June 30, 2021.

Balance at September 30, 2021 $ 2,987

Total reductions of gross product sales from sales-related allowances and accruals were $ 6,769 for the nine months ended September 30, 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 $ 636 and $ 2,153 , respectively, as of June 30, 2021 and $ 416 and $ 1,722 , respectively, as of December 31, 2020.

The accrued balances relative to these provisions included in Trade and other receivables, net and Accounts payable and accrued expenses were $ 454 and $ 2,533 , respectively, as of September 30, 2021 and $ 416 and $ 1,722 , respectively, as of December 31, 2020.

Concentration of Major Customers

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 six months ended June 30, 2021, Indivior Inc.

For the nine months ended September 30, 2021, Indivior Inc.

("Indivor") exceeded the 10% threshold for revenue and represented approximately 73 % of total revenue.

As of June 30, 2021, Indivior and AmerisourceBergen Corporation ("AmerisourceBergen") exceeded the 10% threshold for outstanding receivables and represented 68 % and 10 %, respectively, of outstanding receivables.

For the six months ended June 30, 2020, Indivior and Sunovion Pharmaceuticals, Inc.

As of September 30, 2021, Indivior exceeded the 10% threshold for outstanding receivables and represented 68 % of outstanding receivables.

For the nine months ended September 30, 2020, Indivior and Sunovion Pharmaceuticals, Inc.

(“Sunovion”) represented approximately 48 % and 39 %, respectively of total revenue.

As of December 31, 2020, Indivior, AmerisourceBergen, Sunovion, and Cardinal Health Inc.

As of December 31, 2020, Indivior, AmerisourceBergen Corporation, Sunovion, and Cardinal Health Inc.

represented 53 %, 14 %, 13 %, and 10 %, respectively of outstanding receivables.

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

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

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

Additionally, Indivior may terminate the Indivior License Agreement if the FDA or other applicable regulatory authority declares the Company’s manufacturing site to no longer be suitable for the manufacture of Suboxone or Suboxone is no longer suitable to be manufactured due to health or safety reasons.

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safety reasons.

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

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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.

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.

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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 Sunovion and the Company 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.

Effective as of July 23, 2021, the Company entered into a Third Amendment to the Sunovion License Agreement for the purpose of clarifying the definition of the term "Field" and certain sublicense rights and obligations of the parties under the Sunovion License Agreement, including the rights of European sublicensees upon termination of the Sunovion License Agreement.

Purchase and Sale Agreement with an affiliate of Marathon Asset Management ("Marathon")

3 unchanged sentences

In exchange for the sale of these rights, the Company received an upfront payment of $ 40,000 and an additional payment of $ 10,000 through the achievement of the first milestone.

The Company has received an aggregate amount of $ 50,000 through June 30, 2021 under the Monetization Agreement.

The Company has received an aggregate amount of $ 50,000 through September 30, 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 .

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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.

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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.

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.

4 unchanged sentences

The components of Inventory, net are as follows:

September 30,

2021 December 31,

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Property and Equipment, Net

Lives June 30,

Lives September 30,

2021 December 31,

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

Total depreciation, amortization, and impairment related to property and equipment was $ 728 and $ 700 for the three-month periods ended June 30, 2021 and 2020, respectively.

For the respective six-month periods, these expenses totaled $ 1,471 and $ 1,414 .

Total depreciation, amortization, and impairment related to property and equipment was $ 724 and $ 714 for the three-month periods ended September 30, 2021 and 2020, respectively.

For the respective nine-month periods, these expenses totaled $ 2,195 and $ 2,127 .

Right-of-Use Assets and Lease Obligations

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These leases provide remaining terms between 1.5 and 5.0 years, including renewal options expected to be exercised to extend the lease periods.

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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.

For longer-term lease arrangements that are recognized on the Company's consolidated balance sheet, the right-of-use asset and lease liability is initially measured at the commencement date based upon the present value of the lease payments due under the lease.

These payments represent the combination of the fixed lease and fixed non-lease components that are due under the arrangement.

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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 and six-months ended June 30, 2021, total operating lease expenses totaled $ 430 and $ 863 , respectively, including variable lease expenses such as common area maintenance and operating costs of $ 116 and $ 235 , respectively.

For the three and six-months ended June 30, 2020, total operating lease expenses totaled $ 377 and $ 819 , respectively, including variable lease expenses such as common area maintenance and operating costs of $ 60 and $ 166 , respectively.

For the three and nine-months ended September 30, 2021, total operating lease expenses totaled $ 431 and $ 1,294 , respectively, including variable lease expenses such as common area maintenance and operating costs of $ 117 and $ 352 , respectively.

For the three and nine-months ended September 30, 2020, total operating lease expenses totaled $ 377 and $ 819 , respectively, including variable lease expenses such as common area maintenance and operating costs of $ 60 and $ 166 , respectively.

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

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Total operating lease liabilities $ 3,045

Intangible Assets, Net and Other non-current Assets

Intangible Assets, Net

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

September 30,

2021 December 31,

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Intangible assets, net 64 102

Amortization expense was $ 13 and $ 13 for each of the three-month periods ended September 30, 2021 and 2020.

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

During the remaining life of the purchased patent, estimated annual amortization expense is $ 50 for each of the years from 2021 to 2022.

Other non-current Assets

The following table provides the components of other non-current assets:

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September 30,

2021 December 31,

Royalty receivable 6,000 7,000

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Total other non-current assets $ 6,905 $ 7,836

Amortization expense was $ 12 and $ 12 for each of the three-month periods ended June 30, 2021 and 2020.

For the corresponding six-month periods, these expenses totaled $ 25 and $ 25 , respectively.

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.

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.

See Note 15 Sale of Future Revenue for further details on how this receivable relates to the Monetization Agreement transaction.

Accrued Expenses

Accrued expenses consisted of the following:

September 30,

2021 December 31,

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

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.

On November 3, 2020, the Company entered into the First Supplemental Indenture (the "First Supplemental Indenture" and, together with all other subsequent supplemental indentures and the Base Indenture, collectively, 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.

Under the Second 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 "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 June 30, 2021.

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

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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.

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The First Supplemental Indenture 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 June 30, 2021.

A valuation study was performed by an independent third party appraiser and updated as of September 30, 2021.

Based on the valuation study, the put option was valued at $ 258 , of which $ 111 has been recorded in Accrued expenses and $ 147 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.

In addition, as of the closing of this transaction, the Company issued to the holders of the 12.5 % Notes warrants to purchase 143,000 shares of its common stock.

On August 6, 2021, pursuant to the Third Supplemental Indenture, the holders of the 12.5 % Notes extended to June 30, 2022 from December 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 of 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.

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If and to the extent that the Company accesses these re-openers, it 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 issued to the holders of the 12.5 % Notes warrants to purchase 143,000 shares of its common stock.

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.

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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.

On September 30, 2021, the Company entered into a waiver agreement (the “Waiver”) with the holders of the 12.5 % Notes pursuant to which the principal payment due under the 12.5 % Notes on September 30, 2021 was deferred in order to provide sufficient time for the finalization and execution of the Fourth Supplemental Indenture (the “Fourth Supplemental Indenture”) discussed in Note 20 Subsequent Events.

The Fourth Supplemental Indenture was executed by the parties on October 7, 2021.

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

Similarly, the Company amortizes debt discounts, such as those represented by warrants issued to its lenders, and offsets those as a direct reduction of its outstanding debt.

Amortization expense arising from deferred debt issuance costs and debt discounts related to the 12.5 % Notes for the three and six months ended June 30, 2021 were $ 1,165 and $ 2,317 , respectively, while comparative amortization expenses for the three and six months ended June 30, 2020 were $ 583 and $ 1,167 , respectively.

Unamortized deferred debt issuance costs and deferred debt discounts totaled $ 12,280 and $ 14,596 as of June 30, 2021 and December 31, 2020, respectively.

Amortization expense arising from deferred debt issuance costs and debt discounts related to the 12.5 % Notes for the three and nine months ended September 30, 2021 were $ 1,171 and $ 3,488 , respectively, while comparative amortization expenses for the three and nine months ended September 30, 2020 were $ 590 and $ 1,758 ,

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respectively.

Unamortized deferred debt issuance costs and deferred debt discounts totaled $ 11,110 and $ 14,596 as of September 30, 2021 and December 31, 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.

Warrants that 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 based on an assessment 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 six-months ended June 30, 2021 or 2020, respectively.

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 nine-months ended September 30, 2021 or 2020, respectively.

Sale of Future Revenue

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In exchange for the sale of these rights, the Company received an upfront payment of $ 40,000 and an additional payment of $ 10,000 through the achievement of the first milestone.

The Company has received an aggregate amount of $ 50,000 through June 30, 2021 under the Monetization Agreement.

The Company has received an aggregate amount of $ 50,000 through September 30, 2021 under the Monetization Agreement.

Under the Monetization Agreement, additional aggregate contingent payments of up to $ 75,000 may be due to the Company upon the achievement of worldwide royalty and other commercial targets within a specified timeframe, which could result in total potential proceeds of $ 125,000 .

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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, the Company is 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.

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from Marathon to the Company.

The sum of future royalty payments less the $ 50,000 in proceeds received and future contingent payments will be recorded as interest expense over the life of the Monetization Agreement.

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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 six months ended June 30, 2021 :

The following table shows the activity of the liability related to the sale of future for the nine months ended September 30, 2021 :

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

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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 and six months ended June 30, 2021 and 2020, all potentially dilutive instruments outstanding would have anti-dilutive effects on per-share calculations for the periods.

As a result of the Company’s net loss incurred for the three and nine months ended September 30, 2021 and 2020, all potentially dilutive instruments outstanding would have anti-dilutive effects on per-share calculations for the periods.

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

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2021 2020 2021 2020

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Loss per common share – basic and diluted $ ( 0.37 ) $ ( 0.49 ) $ ( 1.12 ) $ ( 1.05 )

As of June 30, 2021 and 2020, respectively, the Company’s potentially dilutive instruments included 4,431,267 and 3,167,192 options to purchase common shares and 7,757 and 14,233 unvested restricted stock units 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 June 30, 2021 and 2020, were potentially dilutive warrants for the purchase of 1,571,429 for both periods.

As of September 30, 2021 and 2020, respectively, the Company’s potentially dilutive instruments included 4,341,967 and 3,167,192 options to purchase common shares and 0 and 14,233 unvested restricted stock units 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 September 30, 2021 and 2020, were potentially dilutive warrants for the purchase of 1,571,429 for both periods.

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Share-Based Compensation

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Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2021 2020 2021 2020

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Share-Based Compensation Equity Awards

The following tables provide information about the Company’s restricted stock unit and stock option activity during the six-month period ended June 30, 2021:

The following tables provide information about the Company’s restricted stock unit and stock option activity during the nine-month period ended September 30, 2021:

Restricted Stock Unit Awards (RSUs):

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Forfeited ( 2 ) $ 13.00

Unvested as of June 30, 2021 8 $ 13.00

Unvested as of September 30, 2021 — $ —

Grant date fair value of shares vested during the period $ 134

Unrecognized compensation costs as of June 30, 2021 $ 1

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

Unrecognized compensation costs as of September 30, 2021 $ —

Stock Option Awards:

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Exercised, Forfeited, Expired ( 128 ) $ 5.11

Outstanding as of June 30, 2021 4,431 $ 7.23

Vested and expected to vest as of June 30, 2021 4,246 $ 7.34

Exercisable as of June 30, 2021 1,824 $ 9.92

The fair values of stock options granted during the six months ended June 30, 2021 were estimated using the Black-Scholes pricing model based on the following assumptions:

Outstanding as of September 30, 2021 4,342 $ 7.28

Vested and expected to vest as of September 30, 2021 4,194 $ 7.37

Exercisable as of September 30, 2021 2,018 $ 10.18

The fair values of stock options granted during the nine months ended September 30, 2021 were estimated using the Black-Scholes pricing model based on the following assumptions:

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Expected dividend yield — %

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Risk-free interest rate 1.0 %

The weighted average grant date fair value of stock options granted during the six months ended June 30, 2021 was $ 3.61 .

During the six-month period ended June 30, 2021, stock options were granted with an exercise price ranging from $ 3.76 to $ 5.30 and accordingly, given the Company’s share price of $ 3.97 at June 30, 2021, certain shares granted during this period provided intrinsic value at that date totaling $ 1 .

As of June 30, 2021, $ 6,653 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 weighted average grant date fair value of stock options granted during the nine months ended September 30, 2021 was $ 3.61 .

During the nine-month period ended September 30, 2021, stock options were granted with an exercise price ranging from $ 3.76 to $ 5.30 and accordingly, given the Company’s share price of $ 4.36 at September 30, 2021, certain shares granted during this period provided intrinsic value at that date totaling $ 159 .

As of September 30, 2021, $ 4,691 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.

The Company did no t grant restricted stock units during the nine months ended September 30, 2021.

There were no unvested restricted stock units and no unrecognized compensation expense related to restricted stock units at September 30, 2021.

Employee Stock Purchase Plan

The Company's Employee Stock Purchase Plan ("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.

During the six-month periods ended June 30, 2021 and 2020, respectively, 19,270 and 14,961 shares were purchased and issued through the ESPP at total discounts of $ 11 and $ 11 .

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.

During the nine-month periods ended September 30, 2021 and 2020, respectively, 19,270 and 14,961 shares were purchased and issued through the ESPP at total discounts of $ 11 and $ 11 .

The Company has accounted for income taxes under the asset and liability method, which requires deferred tax assets and liabilities to be recognized for the estimated future tax consequences attributable to differences between financial statement carrying amounts and respective tax bases of existing assets and liabilities, as well as net operating loss carryforwards and research and development credits.

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

For the three months ended June 30, 2021 and 2020, the Company recorded no income tax benefit from its pretax losses of $ 12,367 and $ 2,334 .

Similarly for the six months ended June 30, 2021 and 2020, the Company recorded no income tax benefit from its pretax loss of $ 27,039 and $ 18,864 , respectively, due to realization uncertainties.

The primary factor impacting the effective tax rate for the three and six months ended June 30, 2021 is the anticipated full year operating loss which will require full valuation allowances against any associated net deferred tax assets.

For the three months ended September 30, 2021 and 2020, the Company recorded no income tax benefit from its pretax losses of $ 14,555 and $ 16,551 .

Similarly for the nine months ended September 30, 2021 and 2020, the Company recorded no income tax benefit from its pretax loss of $ 41,594 and $ 35,415 , respectively, due to realization uncertainties.

The primary factor impacting the effective tax rate for the three and nine months ended September 30, 2021 is the anticipated full year operating loss which will require full valuation allowances against any associated net deferred tax assets.

Contingencies

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(collectively, “Dr.

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

Reddy’s”) asserting infringement

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9,855,221 (the "'221 patent”).

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On September 14, 2017, Indivior initiated a lawsuit against Alvogen Pine Brook LLC (“Alvogen”) asserting infringement of the ’454 patent.

On February 7, 2018, the Company 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, the Company and

Indivior initiated a separate lawsuit against Alvogen asserting infringement of the ’305 patent.

On February 7, 2018, the Company and Indivior filed an Amended Complaint, adding us as a plaintiff and asserting infringement of the ’221 patent.

On April 3, 2018, the Company and Indivior initiated a separate lawsuit against Alvogen asserting infringement of the ’305 patent.

On May 29, 2018, the cases were consolidated.

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Fact discovery on Alvogen’s antitrust counterclaims concluded on January 29, 2021.

Expert discovery is ongoing and is scheduled to continue through the end of September 2021.

Dispositive motions are currently due October 15, 2021.

Expert discovery concluded on October 8, 2021, and dispositive motions were filed on October 26, 2021.

There is no trial date set.

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On June 3, 2021, BDSI filed a notice withdrawing its motion to dismiss the original complaint.

On May 25, 2021, the parties submitted a proposed schedule and joint discovery plan, and the parties are awaiting further action from the court.

On July 7, 2021, the court entered a scheduling order in the case.

Under the current scheduling order, the parties have completed their exchange of preliminary infringement and validity contentions, and are proceeding with fact discovery and claim construction.

The parties are engaged in briefing claim construction issues.

The court may schedule a claim construction hearing after the briefing

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is complete, and the remainder of the schedule is dependent on the timing of the court’s ruling on claim construction.

The Company 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 losses, if any, in this matter.

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Aquestive filed its opposition to BDSI’s renewed motion to dismiss on April 27, 2021, and BDSI filed its reply on May 11, 2021.

The parties are awaiting the court’s ruling on the motion.

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.

The parties submitted a proposed schedule and joint discovery plan on May 25, 2021, and the parties are awaiting further action from the court.

On August 10, 2021, the court entered an order denying BDSI’s motion to dismiss.

On July 7, 2021, the court entered a scheduling order in the case, including the same operative dates as the court included in the scheduling order for Civil Action No.

5:15-cv-00350 described above, and the parties are proceeding under that same schedule.

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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.

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On September 21, 2020, Centene Corporation (“Centene”) and other related insurance payors filed a similar lawsuit against us and Indivior in the Eastern District of Missouri.

The counsel representing Humana is also representing Centene.

On September 21, 2020, the Centene action was provisionally transferred to the Eastern District of Pennsylvania by the United States Judicial Panel on Multidistrict Litigation.

On January 15, 2021, the Company 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.

The court held an in-person oral argument on the motions to dismiss on June 9, 2021.

The court dismissed all complaints against the defendants in these matters on July 22, 2021.

On August 20, 2021, Centene and Humana appealed the decision to the U.S.

Appeals Court for the Third Circuit (“Third Circuit”).

That state court action is stayed pending resolution of the federal appeal in the Third Circuit.

California Litigation

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The Company filed its opening appeal brief on January 27, 2021, and Neurelis filed its combined opening and responsive appeal brief on March 30, 2021.

Aquestive filed its combined response and reply brief on 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.

Aquestive filed its combined response and reply brief on June 1, 2021 and Neurelis filed its final reply brief on July 6, 2021.

Oral argument on the appeal was heard on October 14, 2021, and a ruling on the appeal is expected within 90 days of the oral argument.

The trial court proceedings remain stayed while the appeal is pending.

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The PTAB denied two of the requests and instituted the third request, which challenged all claims of the Neurelis ‘876 Patent.

The Oral Hearing at the PTAB was conducted on May 14, 2020.

On August 6, 2020, the PTAB issued its final written decision finding all challenged claims of the ’876 Patent to be unpatentable.

Neurelis appealed the decision to the U.S.

Court of the Federal Circuit, and the appeal was docketed on October 9, 2020.

Neurelis filed its opening appeal brief on February 2, 2021.

Aquestive filed its response brief on March 31, 2021.

Neurelis filed its Reply Brief on May 5, 2021.

There is no date yet set for a hearing on the appeal.

Court of the Federal Circuit.

On October 7, 2021, the Federal Circuit Court issued a per curium decision affirming the PTAB's final decision that the '876 Patent was unpatentable.

If no appeal of the Federal Circuit Court ruling is filed by November 7, 2021, the Federal Circuit Court will issue a mandate closing the appeal period and an IPR Certificate will subsequently be issued by the United States Patent and Trademark Office.

The Company 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.

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Following the court’s appointment of a lead plaintiff, an amended complaint was filed by the plaintiffs on July 25, 2021.

Dispositive motions must be filed with the court by August 16, 2021.

All dispositive motions were filed with the court on or before November 1, 2021.

There is no date set for a hearing on the motions to dismiss and no trial date has yet been set.

The Company 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.

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Continued Utilization of the At-The-Market Facility

The Company continued utilization of its At-The-Market facility from July 1 through July 31, 2021 and sold 380,071 shares which generated net proceeds of approximately $ 1,318 .

The Company continued utilization of its At-The-Market facility from October 1 through October 31, 2021 and sold 80,783 shares which generated net proceeds of approximately $ 313 .

12.5 % Senior Secured Notes Fourth Supplemental Indenture

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On October 7, 2021, the Company entered into the Fourth Supplemental Indenture, by and among the Company and the Trustee and collateral agent thereunder, to the Indenture in connection with the 12.5 % Notes.

Pursuant to the Fourth Supplemental Indenture, the amortization schedule for the 12.5 % Notes was amended to provide for the date of the first amortization payment to be extended to March 30, 2023.

The Fourth Supplemental Indenture did not change the maturity date of the Notes or the interest payment obligation due under the Notes.

In connection with the Fourth Supplemental Indenture, the Company entered into a Consent Fee Letter with the noteholders, pursuant to which the Company agreed to pay the noteholders an additional cash payment of $ 2.7 million in the aggregate, payable in four quarterly payments beginning May 15, 2022, in exchange to defer $ 10.3 million of principal payments.

The Company is currently evaluating the impact of the Fourth Supplemental Indenture on its consolidated financial statements.

The amendment may result in a gain or loss on extinguishment of debt that would be reported in the statement of operations in a subsequent period.

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