Aquestive Therapeutics, Inc. 10-K

Item 9A. Controls and Procedures. Management’s Evaluation of our Disclosure Controls and Procedures We maintain disclosure controls that are designed to ensure that information required to be disclosed in the reports that we file or submit under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) is (1) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (2) accumulated and communicated to our management, including our principal executive officer and principal financial officer, to allow timely decisions regarding our required disclosures. As of December 31, 2021, our management, with the participation of our principal executive officer and principal financial officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act). Our management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives, and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Our principal executive officer and principal financial officer have concluded based upon the evaluation described above that, as of December 31, 2021, our disclosure controls and procedures were effective at the reasonable assurance level. Management’s Annual Report on Internal Control over Financial Reporting Our management is responsible for establishing and maintaining adequate controls over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Our internal control over financial reporting includes those policies and procedures that: (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of Aquestive Therapeutics, Inc,; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and our directors; and (iii) provide reasonable assurance regarding the prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements. Because of inherent limitations, internal control over financial reporting may not prevent misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies and procedures may deteriorate. Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2021. In making this assessment, management used the criteria set forth in the Internal Control-Integrated Framework (2013 ) issued by the Committee of Sponsoring Organization of the Treadway Commission (“COSO”). Based upon its assessment and those criteria, our management has concluded that our internal control over financial reporting was effective as of December 31, 2021. Attestation Report of the Registered Public Accounting Firm This Annual Report on Form 10-K does not include an attestation of our registered public accounting firm due to an exemption established by the JOBS Act for “emerging growth companies”. Changes in Internal Control over Financial Reporting There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act), identified in connection with the evaluation of such internal control that occurred during our last fiscal quarter, that have materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. Item 9B. Other Information. None. 71 PART III Item 10. Directors, Executive Officers, and Corporate Governance The information required by this item will be included in our Proxy Statement to be filed with the SEC and is incorporated herein by reference. Item 11. Executive Compensation The information required by this item will be included in our Proxy Statement to be filed with the SEC and is incorporated herein by reference. Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters The information required by this item will be included in our Proxy Statement to be filed with the SEC and is incorporated herein by reference. Item 13. Certain Relationships and Related Party Transactions and Director Independence The information required by this item will be included in our Proxy Statement to be filed with the SEC and is incorporated herein by reference. Item 14. Principal Accountant Fees and Services The information required by this item will be included in our Proxy Statement to be filed with the SEC and is incorporated herein by reference. 72 PART IV Item 15. Exhibits, Financial Statement Schedules. (a)(1) Financial Statements. The response to this portion of Item 15 is set forth under Item 8 hereof. (a)(2) Financial Statement Schedules. All financial statement schedules have been omitted because they are not applicable, not required or the required information is given in the Consolidated Financial Statements or Notes thereto. (a)(3) Exhibits. The exhibits required by Item 601 of Regulation S-K and Item 15(b) of this Annual Report on Form 10-K are listed in the Exhibit Index immediately preceding the signature page of this Annual Report on Form 10-K. The exhibits listed in the Exhibit Index are incorporated by reference herein. Item 16. Form 10-K Summary Not applicable. Exhibit Index The exhibits below are filed as part of this Form 10-K other than Exhibit 32.1 and Exhibit 32.2, which shall be deemed furnished. Number Description 3.1 Amended and Restated Certificate of Incorporation of Aquestive Therapeutics, Inc., dated as of July 27, 2018 (filed as Exhibit 3.1 to the Current Report on Form 8-K of the Company, as filed on July 27, 2018, and incorporated by reference herein). 3.2 Amended and Restated Bylaws of Aquestive Therapeutics, Inc. (filed as Exhibit 3.6 to the Registration Statement on Form S-1 of the Company (File No. 333-225924), as filed on June 27, 2018, and incorporated by reference herein). 4.1 Form of Common Stock Certificate of Aquestive Therapeutics, Inc. (filed as Exhibit 4.1 to the Registration Statement on Form S-1 of the Company (File No. 333-225924), as filed on June 27, 2018, and incorporated by reference herein). 4.2 Indenture dated July 15, 2019, among Aquestive Therapeutics, Inc., as Issuer, any Guarantor that becomes party thereto and U.S. Bank National Association, as Trustee and Collateral Agent (filed as Exhibit 4.1 to the Current Report on Form 8-K filed on July 16, 2019, and incorporated by reference herein). 4.3 First Supplemental Indenture dated November 3, 2020, among Aquestive Therapeutics, Inc., as Issuer, any Guarantor that becomes party thereto and U.S. Bank National Association, as Trustee and Collateral Agent (filed as Exhibit 4.3 to the Annual Report on Form 10-K of the Company, as filed on March 9, 2021, and incorporated by reference herein). 4.4 Second Supplemental Indenture dated November 20, 2020, among Aquestive Therapeutics, Inc., as Issuer, any Guarantor that becomes party thereto and U.S. Bank National Association, as Trustee and Collateral Agent (filed as Exhibit 4.4 to the Annual Report on Form 10-K of the Company, as filed on March 9, 2021, and incorporated by reference herein). 4.5 Third Supplemental Indenture dated August 6, 2021, among Aquestive Therapeutics, Inc., as Issuer, any Guarantor that becomes party thereto and U.S. Bank National Association, as Trustee and Collateral Agent (filed as Exhibit 4.1 to the Current Report on Form 8-K of the Company, as filed on August 9, 2021, and incorporated by reference herein). 4.6 Fourth Supplemental Indenture dated October 7, 2021, among Aquestive Therapeutics, Inc., as Issuer, any Guarantor that becomes party thereto and U.S. Bank National Association, as Trustee and Collateral Agent (filed as Exhibit 4.1 to the Current Report on Form 8-K of the Company, as filed on August 8, 2021, and incorporated by reference herein). 4.7 Form of 2019 Warrant (filed as Exhibit 4.2 to the Current Report on Form 8-K filed on July 16, 2019 and incorporated by reference herein). 4.8 Form of 2020 Warrant (filed as Exhibit 4.6 to the Annual Report of Form 10-K of the Company, as filed on March 9, 2021, and incorporated by reference herein). 4.9 Registration Rights Agreement, dated as of June 24, 2018, by and between Aquestive Partners, LLC and certain of the holders of its membership interests (filed as Exhibit 4.3 to the Registration Statement on Form S-1 of the Company (File No. 333-225924), as filed on June 27, 2018, and incorporated by reference herein). 4.10 Description of Securities Registered under Section 12 of the Exchange Act (incorporated by reference herein). 10.1 Form of Indemnification Agreement, by and between Aquestive Therapeutics, Inc and its directors and officers (filed as Exhibit 10.1 to the Registration Statement on Form S-1 of the Company (File No. 333-225924), as filed on June 27, 2018, and incorporated by reference herein). 10.2 Form of Purchase Agreement in connection with the 2019 issuance of 12.5% Senior Secured Notes (filed as Exhibit 10.1 to the Current Report on Form 8-K filed on July 16, 2019, and incorporated by reference herein). 73 10.3 Form of 2020 Purchase Agreement in connection with the 2020 issuance of 12.5% Senior Secured Notes (filed as Exhibit 10.3 to the Annual Report of Form 10-K of the Company, as filed on March 9, 2021, and incorporated by reference herein). 10.4 Collateral Agreement in connection with issuance of 12.5% Senior Secured Notes, dated as of July 15, 2019, among Aquestive Therapeutics, Inc., as Issuer, the Other Grantors from time to time party thereto, U.S. Bank National Association, as Trustee, and U.S. Bank National Association, as Collateral Agent (filed as Exhibit 10.2 to the Current Report on Form 8-K filed on July 16, 2019, and incorporated by reference herein). 10.5+ Executive Employment Agreement, dated as of June 30, 2018, by and between Aquestive Therapeutics, Inc. and Keith J. Kendall (filed as Exhibit 10.5 to the Pre-Effective Amendment No. 1, as filed on July 16, 2018, to the Registration Statement on Form S-1 of the Company (File No. 333-225924), and incorporated by reference herein). 10.6+ Executive Employment Agreement, dated as of June 26, 2018, by and between Aquestive Therapeutics, Inc. and Daniel Barber (filed as Exhibit 10.6 to the Registration Statement on Form S-1 of the Company (File No. 333-225924), as filed on June 27, 2018, and incorporated by reference herein). 10.7+ Executive Employment Agreement, dated as of June 26, 2018, by and between Aquestive Therapeutics, Inc. and John T. Maxwell (filed as Exhibit 10.7 to the Registration Statement on Form S-1 of the Company (File No. 333-225924), as filed on June 27, 2018, and incorporated by reference herein). 10.8+ Separation Agreement, dated as of December 16, 2020, by and between Aquestive Therapeutics, Inc. and John T. Maxwell (filed as Exhibit 10.8 to the Annual Report of Form 10-K of the Company, as filed on March 9, 2021, and incorporated by reference herein). 10.9+ Executive Employment Agreement, dated as of July 9, 2018, by and between Aquestive Therapeutics, Inc. and A. Mark Schobel (filed as Exhibit 10.8 to the Pre-Effective Amendment No. 1, as filed on July 16, 2018, to the Registration Statement on Form S-1 of the Company (File No. 333-225924), and incorporated by reference herein). 10.10† Commercial Exploitation Agreement, by and between MonoSol Rx, LLC (now Aquestive Therapeutics, Inc.) and Reckitt Benckiser Pharmaceuticals Inc., dated as of August 15, 2008 (as amended on August 19, 2009, November 13, 2009, March 30, 2010, October 13, 2010, December 15, 2010, December 9, 2011, December 1, 2012, October 14, 2013 (by Addendum A), July 30, 2014 (by Addendum B), and January 12, 2017) (filed as Exhibit 10.9 to the Registration Statement on Form S-1 of the Company (File No. 333-225924), as filed on June 27, 2018, and incorporated by reference herein). 10.11† Agreement, by and between MonoSol Rx, LLC (now Aquestive Therapeutics, Inc.) and Indivior UK Limited, dated as of September 24, 2017 (filed as Exhibit 10.10 to the Registration Statement on Form S-1 of the Company (File No. 333-225924), as filed on June 27, 2018, and incorporated by reference herein). 10.12† Agreement to Terminate CLA, by and between MonoSol Rx, LLC (now Aquestive Therapeutics, Inc.) and KemPharm, Inc., dated as of March 20, 2012 (filed as Exhibit 10.11 to the Registration Statement on Form S-1 of the Company (File No. 333-225924), as filed on June 27, 2018, and incorporated by reference herein). 10.13† License Agreement, by and between MonoSol Rx, LLC (now Aquestive Therapeutics, Inc.) and Cynapsus Therapeutics Inc., dated as of April 1, 2016 (filed as Exhibit 10.12 to the Registration Statement on Form S-1 of the Company (File No. 333-225924), as filed on June 27, 2018, and incorporated by reference herein). 10.14† First Amendment to License Agreement, by and between Aquestive Therapeutics, Inc. and Sunovion Pharmaceuticals, Inc., dated as of March 16, 2020 (filed as Exhibit 10.14 to the Annual Report of Form 10-K of the Company, as filed on March 9, 2021, and incorporated by reference herein). 10.15† Second Amendment to License Agreement, by and between Aquestive Therapeutics, Inc. and Sunovion Pharmaceuticals, Inc., dated as of October 23, 2020 (filed as Exhibit 10.15 to the Annual Report of Form 10-K of the Company, as filed on March 9, 2021, and incorporated by reference herein). 10.16 Industrial Lease Agreement, by and between Ashland Northwest Partners, L.P. and MonoSol Rx, LLC (now Aquestive Therapeutics, Inc.), dated as of October 24, 2006 (as amended on October 24, 2011 and February 8, 2018) (filed as Exhibit 10.13 to the Registration Statement on Form S-1 of the Company (File No. 333-225924), as filed on June 27, 2018, and incorporated by reference herein). 10.17+ Aquestive Therapeutics, Inc. 2018 Equity Incentive Plan (filed as Exhibit 10.14 to the Pre-Effective Amendment No. 1, as filed on July 16, 2018, to the Registration Statement on Form S-1 of the Company (File No. 333-225924) and incorporated by reference herein). 10.18+ Aquestive Therapeutics, Inc. Employee Stock Purchase Plan as Amended (filed as Exhibit 10.18 to the Annual Report of Form 10-K of the Company, as filed on March 9, 2021, and incorporated by reference herein). 10.19+ Form of Stock Option Agreement (filed as Exhibit 10.16 to the Registration Statement on Form S-1 of the Company (File No. 333-225924), as filed on June 27, 2018, and incorporated by reference herein). 10.20+ Form of Stock Option Agreement under the Aquestive Therapeutics, Inc. 2018 Equity Incentive Plan (filed as Exhibit 10.17 to the Pre-Effective Amendment No. 1, as filed on July 16, 2018, to the Registration Statement on Form S-1 of the Company (File No. 333-225924) and incorporated by reference herein). 10.21+ Form of Restricted Stock Unit Agreement under the Aquestive Therapeutics, Inc. 2018 Equity Incentive Plan (filed as Exhibit 10.18 to the Pre-Effective Amendment No. 1, as filed on July 16, 2018, to the Registration Statement on Form S-1 of the Company (File No. 333-225924) and incorporated by reference herein). 10.22+ Executive Employment Agreement, dated as of September 10, 2018, by and between Aquestive Therapeutics, Inc. and Lori J. Braender (filed as Exhibit 10.4 to the Quarterly Report on Form 10-Q of the Company, as filed on November 6, 2018, and incorporated by reference herein). 10.23 Purchase and Sale Agreement, dated as of November 3, 2020, by and between Aquestive Therapeutics, Inc. and MAM Pangolin Royalty, LLC (filed as Exhibit 10.23 to the Annual Report on Form 10-K of the Company, as filed on March 9, 2021, and incorporated by reference herein). 10.24 Consent Fee Letter, dated October 7, 2021, among Aquestive Therapeutics, Inc. and the Noteholder parties thereto (filed as Exhibit 10.1 to the Current Report of Form 8-K filed on October 8, 2021, and incorporated by reference herein). 74 10.25 + First Amendment to Executive Employment Agreement, dated as of June 30, 2021, by and between Aquestive Therapeutics, Inc. and Alexander Mark Schobel (filed herewith). 10.26 + First Amendment to Executive Employment Agreement, dated as of June 30, 2021, by and between Aquestive Therapeutics, Inc. and Keith J. Kendall (filed herewith). 23.1 Consent of KPMG LLP, Independent Registered Public Accounting Firm (filed herewith). 31.1 Certification of Principal Executive Officer pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith). 31.2 Certification of Principal Financial Officer pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith). 32.1* Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith). 32.2* Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith). 101.INS Inline XBRL Instance Document 101.SCH Inline XBRL Taxonomy Extension Schema Document 101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document 101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document 101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document 101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document † Portions of this exhibit (indicated by asterisks) have been omitted pursuant to a request for confidential treatment that has been granted by the Securities and Exchange Commission. * Furnished herewith and not deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and shall not be deemed to be incorporated by reference to any filing under the Securities Act of 1933, as amended, or the Exchange Act (whether made before or after the date of the Form 10-K), irrespective of any general incorporation language contained in such filing. + Indicates a management contract or compensatory plan. 75 SIGNATURES Pursuant to the requirements of the Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. AQUESTIVE THERAPEUTICS, INC. Date: March 8, 2022 By: /s/ Keith J. Kendall Keith J. Kendall Chief Executive Officer (Principal Executive Officer) Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capabilities and on the dates indicated. Signature Title Date /s/ Keith J. Kendall President, Chief Executive Officer and Member of the Board of Directors March 8, 2022 Keith J. Kendall (Principal Executive Officer) /s/ A. Ernest Toth, Jr. Senior Vice President, Chief Financial Officer March 8, 2022 A.Ernest Toth, Jr. (Principal Financial Officer and Principal Accounting Officer) /s/ Gregory B. Brown Member of the Board of Directors March 8, 2022 Gregory B. Brown, M.D. /s/ John S. Cochran Member of the Board of Directors March 8, 2022 John S. Cochran /s/ Santo J. Costa Chairman of the Board of Directors March 8, 2022 Santo J. Costa /s/ Julie Krop Member of the Board of Directors March 8, 2022 Julie Krop, M.D /s/ Nancy S. Lurker Member of the Board of Directors March 8, 2022 Nancy S. Lurker /s/ James S. Scibetta Member of the Board of Directors March 8, 2022 James S. Scibetta /s/ Marco Taglietti Member of the Board of Directors March 8, 2022 Marco Taglietti, M.D. 76 Index to Consolidated Financial Statements Page Number Report of Independent Registered Public Accounting Firm (KPMG LLP, New York, NY, Auditor Firm ID: 185 ) F- 2 Consolidated Balance Sheets as of December 31, 2021 and 2020 F- 3 Consolidated Statements of Operations and Comprehensive Loss for the Years Ended December 31, 2021 and 2020 F- 4 Consolidated Statements of Changes in Stockholders’ Deficit for the Years Ended December 31, 2021 and 2020 F- 5 Consolidated Statements of Cash Flows for the Years Ended December 31, 2021 and 2020 F- 6 Notes to the Consolidated Financial Statements F- 7 F-1 Report of Independent Registered Public Accounting Firm To the Stockholders and Board of Directors Aquestive Therapeutics, Inc.: Opinion on the Consolidated Financial Statements We have audited the accompanying consolidated balance sheets of Aquestive Therapeutics, Inc. and subsidiaries (the Company) as of December 31, 2021 and 2020, the related consolidated statements of operations and comprehensive loss, changes in stockholders’ deficit, and cash flows for each of the years in the two-year period ended December 31, 2021, and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2021, in conformity with U.S. generally accepted accounting principles. Basis for Opinion These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion. /s/ KPMG LLP We have served as the Company’s auditor since 2006. New York, New York March 8, 2022 F-2 AQUESTIVE THERAPEUTICS, INC. Consolidated Balance Sheets (In thousands, except per share/unit amounts) December 31, 2021 2020 Assets Current assets: Cash and cash equivalents $ 28,024 $ 31,807 Trade and other receivables, net 12,120 6,955 Inventories, net 4,038 2,461 Prepaid expenses and other current assets 3,077 3,402 Total current assets 47,259 44,625 Property and equipment, net 5,055 6,873 Right-of-use assets, net 2,725 3,448 Intangible assets, net 51 102 Other non-current assets 6,903 7,836 Total assets $ 61,993 $ 62,884 Liabilities and stockholders’ deficit Current liabilities: Accounts payable $ 8,314 $ 7,089 Accrued expenses 8,736 8,569 Lease liabilities, current 899 728 Deferred revenue 765 693 Liability related to the sale of future revenue, current 1,225 1,450 Loans payable, current 2,025 2,575 Total current liabilities 21,964 21,104 Loans payable, net 51,551 34,329 Liability related to the sale of future revenue, net 59,059 47,524 Lease liabilities 1,946 2,846 Deferred revenue, net of current portion 7,122 3,633 Other non-current liabilities 2,485 1,945 Total liabilities 144,127 111,381 Contingencies (note 20) Stockholders’ deficit: Common stock, $ 0.001 par value. Authorized 250,000,000 shares; 41,228,736 and 34,569,254 shares issued and outstanding at December 31, 2021 and December 31, 2020, respectively 41 35 Additional paid-in capital 174,621 137,725 Accumulated deficit ( 256,796 ) ( 186,257 ) Total stockholders’ deficit ( 82,134 ) ( 48,497 ) Total liabilities and stockholders’ deficit $ 61,993 $ 62,884 See accompanying notes to the consolidated financial statements. F-3 AQUESTIVE THERAPEUTICS, INC. Consolidated Statements of Operations and Comprehensive Loss (In thousands, except per share data amounts) Year Ended December 31, 2021 2020 Revenues $ 50,832 $ 45,849 Costs and expenses: Manufacture and supply 14,989 12,964 Research and development 17,047 19,886 Selling, general and administrative 53,475 55,892 Total costs and expenses 85,511 88,742 Loss from operations ( 34,679 ) ( 42,893 ) Other income (expenses): Interest expense ( 10,049 ) ( 11,064 ) Interest expense related to the sale of future revenue ( 12,412 ) ( 1,958 ) Interest income and other income, net 423 132 Loss on the extinguishment of debt ( 13,822 ) — Net loss before income taxes ( 70,539 ) ( 55,783 ) Income taxes — — Net loss $ ( 70,539 ) $ ( 55,783 ) Comprehensive loss $ ( 70,539 ) $ ( 55,783 ) Net loss per share – basic and diluted $ ( 1.85 ) $ ( 1.66 ) Weighted-average number of common shares outstanding - basic and diluted 38,077,660 33,651,127 See accompanying notes to the consolidated financial statements. F-4 AQUESTIVE THERAPEUTICS, INC. Consolidated Statements of Changes in Stockholders’ Deficit (In thousands, except per share amounts) Additional Paid-in Capital Accumulated Deficit Total Stockholders’ Equity/(Deficit) Common Stock Shares Amount Balance at January 1, 2020 33,562,885 $ 34 $ 124,318 $ ( 130,474 ) $ ( 6,122 ) Fair value of warrants issued — — 735 — 735 Common Stock issued under public equity offering 930,933 1 6,527 — 6,528 Costs of common stock issued under public equity offering — — ( 473 ) — ( 473 ) Shares issued under employee stock purchase plan 32,986 — 158 — 158 Exercise of stock options 500 — 2 — 2 Vested restricted stock units 41,950 — ( 99 ) — ( 99 ) Share-based compensation expense — — 6,557 — 6,557 Net loss — — — ( 55,783 ) ( 55,783 ) Balance at December 31, 2020 34,569,254 $ 35 $ 137,725 $ ( 186,257 ) $ ( 48,497 ) Common Stock issued under public equity offering 6,550,486 6 31,063 — 31,069 Costs of common stock issued under public equity offering — — ( 1,291 ) — ( 1,291 ) Shares issued under employee stock purchase plan 40,146 — 158 — 158 Exercise of stock options 61,000 — 185 — 185 Vested restricted stock units 7,850 — ( 14 ) — ( 14 ) Share-based compensation expense — — 6,795 — 6,795 Net loss — — — ( 70,539 ) ( 70,539 ) Balance at December 31, 2021 41,228,736 $ 41 $ 174,621 $ ( 256,796 ) $ ( 82,134 ) See accompanying notes to the consolidated financial statements. F-5 AQUESTIVE THERAPEUTICS, INC. Consolidated Statements of Cash Flows (In thousands) Year Ended December 31, 2021 2020 Cash flows from operating activities: Net loss $ ( 70,539 ) $ ( 55,783 ) Adjustments to reconcile net loss to net cash used for operating activities: Depreciation, amortization, and impairment 2,964 3,443 Share-based compensation 6,819 6,581 Amortization of debt issuance costs and discounts 3,731 2,587 Interest expense related to the sale of future revenue 12,253 1,938 Loss on the extinguishment of debt 13,822 — Other, net ( 299 ) 188 Changes in operating assets and liabilities: Trade receivables and other receivables, net ( 5,353 ) 6,175 Inventories ( 1,577 ) 398 Prepaid expenses and other assets 1,258 ( 7,953 ) Accounts payable 1,225 ( 5,185 ) Accrued expenses and other liabilities ( 844 ) 2,980 Deferred revenue 3,561 ( 828 ) Net cash used for operating activities ( 32,979 ) ( 45,459 ) Cash flows from investing activities: Capital expenditures ( 913 ) ( 517 ) Net cash used for investing activities ( 913 ) ( 517 ) Cash flows from financing activities: Proceeds from issuance of common stock and warrant exercises, net 29,780 6,215 Proceeds from shares issued under employee stock purchase plan 158 — Proceeds from exercise of stock options 185 — Proceeds from sale of future revenue — 50,000 Debt repayment — ( 22,500 ) Payments for financing costs — ( 2,909 ) Premium paid to retire debt — ( 2,250 ) Payments for taxes on share-based compensation ( 14 ) ( 99 ) Net cash provided by financing activities 30,109 28,457 Net decrease in cash and cash equivalents ( 3,783 ) ( 17,519 ) Cash and cash equivalents: Beginning of period 31,807 49,326 End of period $ 28,024 $ 31,807 Supplemental disclosures of cash flow information: Cash payments for interest $ 6,438 $ 8,491 Debt issued in lieu of prepayment penalty — 4,000 See accompanying notes to the consolidated financial statements. F-6 AQUESTIVE THERAPEUTICS, INC. Notes to Consolidated Financial Statements (In thousands, except share and per share information) Note 1. Company Overview and Equity Transactions Company Overview Aquestive Therapeutics, Inc. (together with its subsidiary, “Aquestive” or “the Company”) is a pharmaceutical company advancing medicines to solve patients’ problems with current standards of care and provide transformative products to improve their lives. The Company is developing orally administered products to deliver complex molecules, providing novel alternatives to invasive and inconvenient standard of care therapies. The Company has five commercialized products on the U.S. market, four licensed products and one stand-alone proprietary product to date, Sympazan® (clobazam) oral film for the treatment of seizures associated with Lennox-Gastaut Syndrome. Our licensees market their products in the U.S. and around the world. The Company also collaborates with pharmaceutical companies to bring new molecules to market using proprietary, best-in-class technologies, like PharmFilm®, and has proven drug development and commercialization capabilities. The Company is advancing a late-stage proprietary product pipeline focused on treating diseases of the central nervous system, or CNS, and an earlier stage pipeline for the treatment of severe allergic reactions, including anaphylaxis. The Company's production facilities are located in Portage, Indiana, and our corporate headquarters, sales and commercialization operations and primary research laboratory facilities are based in Warren, New Jersey. Equity Transactions On September 11, 2019, the Company established an “at-the-market” (ATM) facility pursuant to which the Company could offer up to $ 25,000 of shares of common stock. 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 $ 473 . 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 year ended December 31, 2021, the Company sold 6,550,486 shares which provided net proceeds of approximately $ 29,778 after deducting commissions and other transaction costs of $ 1,291 . This ATM facility has approximately $ 37,408 available at December 31, 2021. Note 2. Basis of Presentation and Principles of Consolidation These consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America, or GAAP, and in accordance with the rules and regulations of the Securities and Exchange Commission, or SEC. The accounts of wholly owned subsidiaries are included in the consolidated financial statements. Other than corporate formation activities, no such subsidiaries have conducted any commercial, developmental or operational activities and none have customers or vendors. Certain reclassifications were made to conform to the current presentation. Any reference in these notes to applicable guidance is meant to refer to the authoritative United States generally accepted principles as found in the Accounting Standards Codification (“ASC”) and Accounting Standards Updates (“ASU”) of the Financial Accounting Standards Board (“FASB”). Note 3. Summary of Significant Accounting Policies Use of Estimates The preparation of financial statements in conformity with U.S. GAAP requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities, including disclosure of contingent assets and contingent liabilities, at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. These estimates and assumptions often involve assessments of matters that are inherently uncertain and accordingly actual results could differ from those estimates. Significant items subject to estimates and assumptions include those related to revenue recognition, inventory costs, allowances for rebates from proprietary product sales, allowances for sales returns, the useful lives of fixed assets, the valuations of warrants issued and of share-based compensation, and contingencies. Cash and Cash Equivalents The Company considers all short-term, highly liquid investments purchased with original maturities of three months or less to be cash equivalents. At December 31, 2021 and 2020, cash and cash equivalents consisted of cash in bank accounts and money market funds. Concentration of Credit Risk Cash and cash equivalents are maintained are held by federally insured financial institutions that management believes are of high credit quality. The Company has not experienced any losses in such accounts and such amounts may exceed federally-insured limits. F-7 Indivior, Sunovion, and three of the largest regional wholesalers represent our most significant customers and details on these relationships are outlined in Note 5. Trade Accounts Receivable Trade accounts receivable are recorded at the invoiced amount and do not bear interest. The Company grants credit to customers in the normal course of business, but generally does not require collateral or any other security to support its receivables. The Company’s credit terms generally range from 30 to 60 days, depending on the customer and type of invoice. We perform a regular review of our customers' credit risk and payment histories, including payments made subsequent to year-end. The Company evaluates the collectability of accounts receivable based on a combination of factors. In situations where changing circumstances indicate that a specific customer is unable to meet its financial obligations to the Company, a provision to the allowances for doubtful accounts is recorded against amounts due in order to reduce the net recognized receivable to the amount that is reasonably expected to be collected. For all other customers, a provision to the allowances for doubtful accounts is recorded based on factors including the length of time the receivables are past due, the current business environment and the Company’s historical experience. Provisions to the allowances for doubtful accounts are recorded to selling, general and administrative expenses. Account balances are charged off against the allowance when it is probable that the receivable will not be recovered. The allowance for doubtful accounts, associated with recoverability of accounts receivable, was $ 40 and $ 40 as of December 31, 2021 and 2020, respectively. Inventories Inventories, consisting of purchased materials, direct labor and manufacturing overhead, are stated at the lower of cost, determined by the first-in, first-out method, or net realizable value. The Company regularly reviews its inventories for impairment and reserves are established when necessary. At each balance sheet date, the Company evaluates inventories for excess quantities, obsolescence and shelf life expiration. This evaluation includes analysis of historical sales levels by product, projections of future demand, the risk of competitive obsolescence for products, general market conditions, and a review of the shelf life expiration dates for products. To the extent that management determines there are excess or obsolete inventory or quantities with a shelf life that is too near its expiration for the Company to reasonably expect that it can sell those products, or use them in production, prior to their expiration, the Company records allowances to adjust the carrying value to estimated net realizable value as necessary. The Company expenses inventory related to our research and development activities when we purchase or manufacture it. Before the regulatory approval of our product candidates, we recognize research and development expense for the manufacture of drug products that could potentially be available to support the commercial launch of our drug candidates, if approved. Property and Equipment Property and equipment are stated at cost net of accumulated depreciation and amortization, which is computed by the straight-line method based on the estimated useful lives of the respective assets, as discussed below. Leasehold improvements are amortized over the shorter of the lease terms or the estimated useful lives of the leased assets. Maintenance and repair costs are charged to expense as incurred, and expenditures for major renewals and improvements are capitalized. Upon disposition of property and equipment, the related cost and accumulated depreciation and amortization are removed from the accounts, and any gain or loss is reflected in the accompanying Consolidated Statements of Operations and Comprehensive Loss. Intangible Assets Intangible assets include the costs of acquired composition and process technologies and the costs of purchased patents used in the manufacture of orally soluble film. The Company amortizes these assets using the straight-line method over the shorter of their legal lives or estimated useful lives. Impairment of Long-Lived Assets Long lived assets, such as property, plant, and equipment, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. In these circumstances, the Company compares undiscounted cash flows expected to be generated by that asset or asset group to the corresponding carrying amounts. If this comparison is indicative of impairment, an impairment charge is recognized to the extent that the carrying amount exceeds its fair value. Fair value is determined through various valuation techniques including discounted cash flow models, quoted market values and third-party independent appraisals, as considered most appropriate. Leases Determination if an arrangement is a lease is made at inception. An arrangement is determined to contain a lease if the contract conveys the right to control the use of an identified property and equipment for a period of time in exchange for consideration. If we can benefit from the various underlying assets of a lease on their own or together with other resources that are readably available, or if the various underlying assets are neither highly dependent or highly interrelated with underlying assets in the arrangements, they are considered to be a F-8 separate lease component. In the event multiple underlying assets are identified, the lease consideration is allocated to the various components based on each on the component's relative fair value. Operating lease assets represent our right to use an underlying asset for the lease term and operating lease liabilities represent an obligation to make lease payments arising from the lease arrangement. Operating lease assets and operating lease liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As most of our leases do not provide an implicit rate, in determining the operating lease liability, we use an estimate of our incremental borrowing rate. The calculation of the operating lease assets includes any lease payments made and excludes any lease incentives. Our lease terms may include options to extend or terminate the lease and are included when it is reasonably certain that we will exercise the option. We record operating lease assets and lease liabilities in our consolidated balance sheets. Lease expenses for lease payments is recognized on a straight-line bases over the lease term. Short-term leases, or leases that have a lease term of 12 months or less at consummation date, are excluded from this treatment and are recognized on a straight-line basis over the term of the lease. We have not entered into any material short-term lease or financing leases as of December 31, 2021. Liability Related to the Sale of Future Revenue The Company treats the liability related to the sale of future revenue as debt financing, amortized under the effective interest rate method over the estimated life of the related expected royalty stream. The liability related to the sale of future revenue and the related interest expense are based on our current estimates of future royalties expected to be paid over the life of the arrangement. The Company will periodically assess the expected royalty payments using a combination of internal projections and forecasts from external resources. To the extent our future estimates of royalty payments are greater or less than previous estimates or the interest timing of such payments is materially different than its previous estimates, the Company will prospectively recognize related interest expense. Royalty revenue related to the sale of future revenue is reflected as royalty revenue, and amortization of debt is reflected as interest expense related to the sale of future revenue in the Consolidated Statement of Operations and Comprehensive Loss. For further discussion of the sale of the future revenue, refer to Note 14, Sale of Future Revenue. Revenue Recognition The Company’s revenues include (i) sales of manufactured products pursuant to contracts with commercialization licensees, (ii) sales of its proprietary clobazam-based Sympazan oral film product used as a treatment for LGS-related seizures, (iii) license and royalty revenues and (iv) co-development and research fees generally in the form of milestone payments. See Note 5 for further details. The Company recognizes revenue to reflect the transfer of promised goods or services to customers in an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods or services. To achieve this core principle, a five-step model is applied that includes (1) identifying the contract with a customer, (2) identifying the performance obligation in the contract, (3) determining the transaction price, (4) allocating the transaction price to the performance obligations, and (5) recognizing when, or as, an entity satisfies a performance obligation. Manufacture and supply revenue – this revenue is derived from products manufactured exclusively for specific customers according to their strictly-defined specifications, subject only to specified quality control inspections. Accordingly, at the point in time when quality control requirements are satisfied, revenue net of related discounts is recorded. Proprietary product sales, net – this revenue is recognized when product is shipped and title passes to the customer, typically at time of delivery. At the time of sale, estimates for various revenue allowances are recorded based on historical trends and judgmental estimates . For sales of Sympazan, returns allowances and prompt pay discounts are estimated based on contract terms and historical return rates, if available, and these estimates are recorded as a reduction of accounts 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 as a reduction of revenue. 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 Revenue – license revenues are determined based on an assessment of whether the license is distinct from any other performance obligations that may be included in the underlying licensing arrangement. If the customer is able to benefit from the license without provision of any other performance obligations by the Company and the license is thereby viewed as a distinct or functional license, the Company then determines whether the customer has acquired a right to use the license or a right to access the license. For functional licenses that do not require further development or other ongoing activities by the Company, the customer is viewed as acquiring the right to use the license as, and when, transferred and revenues are generally recorded at a point in time, subject to contingencies or constraints. For symbolic licenses providing substantial value only in conjunction with other performance obligations to be provided by the Company, revenues are generally recorded over the term of the license agreement. Such other obligations provided by the Company generally include manufactured products, additional development services or other deliverables that are contracted to be provided during the license term. Payments received in excess of amounts ratably or otherwise earned are deferred and recognized over the term of the license or as contingencies or other performance obligations are met. F-9 Royalty revenue is estimated and recognized when sales under supply agreements with commercial licensees are recorded, absent any contractual constraints or collectability uncertainties. Royalties based on sales of Suboxone® and Zuplenz® have been recorded in this manner. Co-development and Research Fees – Co-development and research fees are earned through performance of specific tasks, activities or completion of stages of development defined within a contractual development or feasibility study agreement with a customer. The nature of these performance obligations, broadly referred to as milestones or deliverables, are usually dependent on the scope and structure of the project as contracted, as well as the complexity of the product and the specific regulatory approval path necessary for that product. Accordingly, the duration of the Company’s research and development projects may range from several months to approximately three years . Although each contractual arrangement is unique, common milestones included in these arrangements include those for the performance of efficacy and other tests, reports of findings, formulation of initial prototypes, production of stability clinical and/or scale-up batches, and stability testing of those batches. Additional milestones may be established and linked to clinical results of the product submission and/or approval of the product by the FDA and the commercial launch of the product. Revenue recognition arising from milestone payments is dependent upon the facts and circumstances surrounding the milestone payments. Milestone payments based on a non-sales metric such as a development-based milestone ( e.g. , an NDA filing or obtaining regulatory approval) represent variable consideration and are included in the transaction price subject to any constraints. If the milestone payments relate to future development, the timing of recognition depends upon historical experience and the significance a third party has on the outcome. For milestone payments to be received upon the achievement of a sales threshold, the revenue from the milestone payments is recognized at the later of when the actual sales occur or the performance obligation to which the sales relate to has been satisfied. Contract Assets - in certain situations, customer contractual payment terms provide for invoicing in arrears. Accordingly, some, or all performance obligations may be completely satisfied before the customer may be invoiced under such agreements. In these situations, billing occurs after revenue recognition, which results in a contract asset supported by the estimated value of the completed portion of the performance obligation. These contract assets are reflected as a component of other receivables within Trade and other receivables within the Consolidated Balance Sheet. Contract Liabilities - in certain situations, customer contractual payment terms are structured to permit invoicing in advance of delivery of a good or service. In such instances, the customer's cash payment may be received before satisfaction of some, or any, performance obligations that are specified. In these situations, billing occurs in advance of revenue recognition, which results in contract liabilities. These contract liabilities are reflected as deferred revenue within the Consolidated Balance Sheets. As remaining performance obligations are satisfied, an appropriate portion of the deferred revenue balance is credited to earnings. Research and Development Research and development, or R&D, expenses are recorded in accordance ASC 730, Research and Development and are expensed as incurred. R&D expenses include R&D activities, services of external contract research organizations, or CROs, costs of their clinical research sites, scale-up and validation costs, and other activities. Internal R&D activity expenses include laboratory supplies, salaries, benefits, and non-cash share-based compensation expenses. CRO activities include preclinical laboratory experiments and clinical studies. Other activity expenses include regulatory consulting and other costs. The activities undertaken by a regulatory consultants that were classified as R&D expense include assisting, communicating with, and advise our in-house staff with respect to various FDA submission processes, clinical trial processes and scientific writing matters, including preparing protocols and FDA submissions. These consulting expenses were direct costs associated with preparing, receiving and understanding work for our clinical trials and investigative drugs. Payments made to CROs based on agreed-upon terms, which may include payments in advance of a study start date. The Company expenses non-refundable advance payments for goods and services that will be used in future R&D activities when the activity has been performed or when goods or services have been received rather than when payment was made. The Company reviews and accrues CRO expenses and clinical trial study expenses based on services performed and rely on estimates of those costs applicable to the completion state of study as provided by CRO's. Estimated CRO costs subject to revisions as such studies progress to completion. The Company charges revisions to expense in the period when the facts that give rise to the revision become known. Income Taxes Income taxes are recorded in accordance with FASB ASC Topic 740, Income Taxes , or ASC 740, which provides for deferred taxes using an asset and liability approach. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases using enacted tax rates in effect for the year in which the differences are expected to affect taxable income. Tax benefits are recognized when it is more likely than not that a tax position will be sustained during an audit. Valuation allowances are provided if, based upon the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. Uncertain tax positions are accounted for in accordance with the provision of ASC 740. When uncertain tax positions exist, the tax benefit is recognized to the extent that the benefit will more likely than not be realized. The determination as to whether the tax benefit will more likely than not be realized is based upon the technical merits of the tax position, as well as consideration of the available facts and circumstances. To date, the Company has not had any significant uncertain tax positions. F-10 Share-Based Compensation The Company records share-based compensation expenses for awards of stock options and restricted stock units (RSUs) under ASC 718, Compensation — Stock Compensation . For awards to non-employees for periods prior to the adoption of ASU 2018-07, Compensation-Stock Compensation: Improvements to Non-employee Share-Based Payment Accounting, on January 1, 2019, the Company had applied ASC 505-50, Equity-based Payments to Non-Employees . ASC 718 establishes guidance for the recognition of expenses arising from the issuance of stock-based compensation awards at their fair value at the grant date. The Company’s stock-based compensation includes grants of stock options and restricted stock units to employees, consultants and non-employee directors. Beginning in 2019, the Company also offered employees an opportunity to participate in an employee stock purchase plan. Expenses arising from these grants are recorded in the accompanying financial statements based on their grant date fair values as ratably earned during their respective vesting periods. The Company’s estimates of the fair value of options at their grant dates is based on the Black-Scholes option valuation model and considers various variables and assumptions, including: • the stock price at the grant date, • exercise price, • both the contractual and estimated expected term of the option, • an estimate of stock price volatility based on that of an industry peer group, • expected dividends, • no dividends for the foreseeable future, and • risk-free interest rate. These assumptions require estimates and judgements and changes in those inputs could impact the amount of expenses that are charged to earnings. The Company recognizes compensation expense for the fair value of restricted stock unit and stock option awards over the requisite service period of the award. All excess tax benefits, taxes and tax deficiencies from stock-based compensation are included in the provision for income taxes in the Consolidated Statement of Operations. Per Share Data Basic net loss per common share is computed by dividing the net loss attributable to common stockholders by the weighted average number of shares of common stock outstanding during the period. Diluted net income per common share is calculated by dividing net income available to common stockholders as adjusted for the effect of dilutive securities, if any, by the weighted average number of shares of common stock and dilutive common stock outstanding during the period. Potentially dilutive common shares include the shares of common stock issuable upon the exercise of outstanding stock options and warrants, the shares of issued but unvested RSUs and the purchase of shares from the Company’s employee stock purchase plan (using the treasury stock method). For all periods presented, potential common shares have been excluded from the calculation of EPS because their effect would be anti-dilutive. Comprehensive Loss Comprehensive loss includes net loss as well as other changes in stockholders’ equity that may result from transactions and economic events other than those with stockholders, such as unrealized gains or losses on investments. For the periods ended December 31, 2021 and 2020, the Company’s comprehensive loss included only its net loss. Fair Value Measurements Certain assets and liabilities are reported on a recurring basis at fair value. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. Financial assets and liabilities carried at fair value are to be classified and disclosed in one of the following three levels of the fair value hierarchy, of which the first two are considered observable and the last is considered unobservable: • Level 1 — Quoted prices in active markets for identical assets or liabilities. Cash and cash equivalents consisted of cash in bank checking accounts and money market funds which are all Level 1 assets. • Level 2 — Observable inputs (other than Level 1 quoted prices), such as quoted prices in active markets for similar assets or liabilities, quoted prices in markets that are not active for identical or similar assets or liabilities, or other inputs that are observable or can be corroborated by observable market data. The Company currently has no Level 2 assets or liabilities. • Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to determining the fair value of the assets or liabilities, including pricing models, discounted cash flow methodologies and similar techniques. F-11 The carrying amounts reported in the balance sheets for trade and other receivables, prepaid and other current assets, accounts payable, accrued expenses and deferred revenue approximate fair value based on the short-term maturity of these assets and liabilities. The Company granted warrants to certain Note Holders in connection with its debt repayment and debt refinancing during 2020. Those warrants were valued based on Level 3 inputs and their fair value was based primarily on an independent third-party appraisal prepared as of the grant date consistent with generally-accepted valuation methods of the Uniform Standards of Professional Appraisal Practice, the American Society of Appraisers and the American Institute of Certified Public Accountants’ Accounting and Valuation Guide, Valuation of Privately-Held Company Equity Securities Issued as Compensation. See Note 13, Warrants for further information on these warrants. The Company's 12.5 % Senior Secured Notes contain a repurchase offer or put option which gives holders of the option the right, but not the obligation, to receive a specified amount of future royalties up to a capped amount. This out option was valued based on Level 3 inputs and its fair value was based primarily on an independent third-party appraisal consistent with generally-accepted valuation methods of the Uniform Standards of Professional Appraisal Practice, the American Society of Appraisers and the American Institute of Certified Public Accountants Accounting and Valuation Guide. See Note 12, 12.5 % Senior Notes and Loans Payable for further discussion. Segment Information Operating segments are defined as components of an entity about which separate discrete information is available for evaluation by the chief operating decision maker, or decision-making group, in deciding how to allocate resources and in assessing performance. The Company manages its operations as a single segment for purposes of assessing performance and making operating decisions. Recent Accounting Pronouncements As a public emerging growth company, the Company has elected to take advantage of the extended transition period afforded by Jumpstart Our Business Startups Act for the implementation of new or revised accounting standards and, as a result, the Company will comply with new or revised accounting standards by the relevant dates on which adoption of such standards is required for public emerging growth companies. From time to time, new accounting pronouncements are issued by the FASB and adopted by the Company as of the specified effective date. Unless otherwise discussed, the Company believes that the impact of recently issued standards that are not yet effective will not have a material impact on its financial position or results of operations upon adoption. Recently Adopted Accounting Pronouncements: 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. 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 effective date of this Standard Update is for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. Early adoption is permitted. The Standard Update may be adopted either using the prospective or retrospective transition approach and could also be applied on a modified retrospective basis through a cumulative effect adjustment to retained earnings as of the beginning of the fiscal year of adoption. The Company adopted the new guidance on January 1, 2021. The adoption of this guidance did not have a material impact on the Company's consolidated financial statements. Recent Accounting Pronouncements Not Adopted as of December 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, 2022. The Company is currently evaluating the impact of the adoption of this guidance 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 F-12 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. In May 2021, the FASB issued ASU 2021-04, Earnings Per Share (Topic 260), Debt—Modifications and Extinguishments (Subtopic 470-50), Compensation—Stock Compensation (Topic 718), and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40) Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options . The accounting standard update was issued to clarify and reduce diversity in an issuer’s accounting for modifications or exchanges of freestanding equity-classified written call options that remain equity classified after modification or exchange. The new accounting guidance is effective for the Company beginning after December 15, 2022. Early adoption is permitted. The Company does not expect the new accounting guidance to have a material impact on the Company's consolidated financial statements. Note 4. Risks and Uncertainties The Company assesses liquidity in terms of its ability to generate cash to fund its operating, investing and financing activities. The Company’s cash requirements for 2021 and beyond include expenses related to continuing development and clinical evaluation of its products, manufacture and supply costs, costs of regulatory filings, patent prosecution expenses and litigation expenses, expenses related to commercialization of its products, as well as costs to comply with the requirements of being a public company operating in a highly regulated industry. As of December 31, 2021, the Company had $ 28,024 of cash and cash equivalents. The Company has experienced a history of net losses. The Company's accumulated deficits totaled $ 256,796 as of December 31, 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. The Company's funding requirements are met by its cash and cash equivalents, as well as its existing equity and debt offerings, including the Senior Secured Notes due 2025 (the " 12.5 % Notes"). The Company began utilizing its ATM facility in November 2020. Since inception through December 31, 2020, the Company sold 930,993 shares which provided net proceeds of approximately $ 6,055 after deducting commissions and other transaction costs of $ 473 . For the year ended December 31, 2021, the Company sold 6,550,486 shares which provided net proceeds of approximately $ 29,778 after deducting commissions and other transaction costs of $ 1,291 . This ATM facility has approximately $ 37,408 available at December 31, 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. Note 5. Revenues and Trade Receivables, Net The Company’s revenue was comprised of the following: Year Ended December 31, 2021 2020 Manufacture and supply revenue $ 35,312 $ 24,881 License and royalty revenue 5,380 14,055 Co-development and research fees 1,635 1,264 Proprietary product sales, net 8,505 5,649 Revenues $ 50,832 $ 45,849 Disaggregation of Revenue The following table provides disaggregated net revenue by geographic area: F-13 Year Ended December 31, 2021 2020 United States $ 42,860 $ 40,956 Ex-United States 7,972 4,893 Revenues $ 50,832 $ 45,849 Ex-United States revenues are derived primarily from Indivior for product manufactured for markets outside of the United States. Trade and other receivable, net consist of the following: December 31, 2021 2020 Accounts receivable $ 9,678 $ 4,330 Contract and other receivables 3,087 3,081 Less: allowance for bad debt ( 40 ) ( 40 ) Less: sales-related allowances ( 605 ) ( 416 ) Trade and other receivables, net $ 12,120 $ 6,955 Contract and other receivables totaled $ 3,087 and $ 3,081 as of December 31, 2021 and 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 bad debt: December 31, 2021 2020 Allowance for doubtful accounts at beginning of year $ 40 $ 124 Additions charged to bad debt expense — 198 Write-downs charged against the allowance — ( 282 ) Allowance for doubtful accounts at end of year $ 40 $ 40 The following table presents the changes in sales-related allowances: December 31, 2021 2020 Balance at December 31, 2020 $ 416 $ 203 Provision related to sales in 2021 1,209 731 Credits and payments ( 1,020 ) ( 518 ) Balance at December 31, 2021 $ 605 $ 416 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 year ended December 31, 2021, Indivior Inc. ("Indivor") exceeded the 10% threshold for revenue and represented approximately 73 % of total revenue. As of December 31, 2021, two customers exceeded the 10% threshold for outstanding receivables which were Indivior and Cardinal Health Inc. which represented 51 % and 12 %, respectively, of of total trade and other receivables. For the year ended December 31, 2020, two customers exceeded the 10% threshold for revenue which were Indivior and Sunovion Pharmaceuticals Inc. (“Sunovion”) that represented 57 % and 26 %, respectively. As of December 31, 2020, four customers exceeded the 10% threshold for outstanding receivables which were Indivior, AmerisourceBergen Corporation, Sunovion, and Cardinal Health Inc. which represented 53 %, 14 %, 13 %, and 10 %, respectively, of total trade and other receivables. F-14 Note 6. Material Agreements Commercial Exploitation Agreement with Indivior In August 2008, the Company entered into a Commercial Exploitation Agreement with Reckitt Benckiser Pharmaceuticals, Inc. (with subsequent amendments collectively, the “Indivior License Agreement”). Reckitt Benckiser Pharmaceuticals, Inc. was later succeeded to in interest by Indivior, Inc. Pursuant to the Indivior License Agreement, the Company agreed to manufacture and supply Indivior’s requirements for Suboxone®, a sublingual film formulation, both inside and outside the United States on an exclusive basis. Under the terms of the Indivior License Agreement, the Company is required to manufacture Suboxone in accordance with current Good Manufacturing Practice standards and according to the specifications and processes set forth in the related quality agreements the Company entered into with Indivior. Additionally, the Company is required to obtain Active Pharmaceutical Ingredients ("API") for the manufacture of Suboxone directly from Indivior. The Indivior License Agreement specifies a minimum annual threshold quantity of Suboxone that the Company is obligated to fill and requires Indivior to provide the Company with a forecast of its requirements at various specified times throughout the year. The Indivior License Agreement provides for payment by Indivior of a purchase price per unit that is subject to adjustment based on the Company’s ability to satisfy minimum product thresholds. Additionally, in the event Indivior purchases certain large quantities of Suboxone during a specified period, Indivior will be entitled to scaled rebates on its purchases. In addition to the purchase price for the Suboxone supplied, Indivior is required to make certain single digit percentage royalty payments tied to net sales value (as provided for in the Indivior License Agreement) in each of the United States and in the rest of the world subject to annual maximum amounts and limited to the life of the related United States or international patents. In 2012, Indivior exercised its right to buy out its future royalty obligations in the United States under the Indivior License Agreement. Indivior remains obligated to pay royalties for all sales outside the United States. The Indivior License Agreement contains customary contractual termination provisions, including with respect to a filing for bankruptcy or corporate dissolution, an invalidation of the intellectual property surrounding Suboxone, and commission of a material breach of the Indivior License Agreement by either party. Additionally, Indivior may terminate the Indivior License Agreement if the FDA or other applicable regulatory authority declares the Company’s manufacturing site to no longer be suitable for the manufacture of Suboxone or Suboxone is no longer suitable to be manufactured due to health or safety reasons. The initial term of the Indivior License Agreement was seven years from the commencement date. Thereafter, the Indivior License Agreement automatically renews for successive one-year periods, unless either party provides the other with written notice of its intent not to renew at least one year prior to the expiration of the initial or renewal term. Supplemental Agreement with Indivior On September 24, 2017, the Company entered into an agreement with Indivior, or the Indivior Supplemental Agreement. Pursuant to the Indivior Supplemental Agreement, the Company conveyed to Indivior all existing and future rights in the settlement of various ongoing patent enforcement legal actions and disputes related to the Suboxone product. The Company also conveyed to Indivior the right to sublicense manufacturing and marketing capabilities to enable an Indivior licensed generic buprenorphine product to be produced and sold by parties unrelated to Indivior or Aquestive. Under the Indivior Supplemental Agreement, the Company is entitled to receive certain payments from Indivior commencing on the date of the agreement through January 1, 2023. Once paid, all payments made under the Indivior Supplemental Agreement are non-refundable. Through February 20, 2019, the at-risk launch date of the competing generic products of Dr. Reddy’s Labs and Alvogen, the Company received an aggregate of $ 40,750 from Indivior under the Indivior Supplemental Agreement. Further payments under this agreement were suspended until adjudication of related patent infringement litigation is finalized. If such litigation is successful, in addition to the amounts already received as described in the foregoing, the Company may receive up to an additional $ 34,250 , consisting of (i) up to $ 33,000 in the aggregate from any combination of (a) performance or event-based milestone payments and (b) single digit percentage royalties on net revenue earned by Indivior on sales of Suboxone and (ii) an additional $ 1,250 that was earned through the issuance of additional process patent rights to the Company. The aggregate payments under this Indivior Supplemental Agreement are capped at $ 75,000 . All payments made by Indivior to the Company pursuant to the Indivior Supplemental Agreement are in addition to, and not in place of, any amounts owed by Indivior to the Company pursuant to the Indivior License Agreement. Indivior’s payment obligations under the Indivior Supplemental Agreement are subject to certain factors affecting the market for Suboxone and may terminate prior to January 1, 2023 in the event certain contingencies relating to such market occur. License Agreement with Sunovion Pharmaceuticals, Inc. On April 1, 2016, the Company entered into a license agreement with Cynapsus Therapeutics Inc. (which was later succeeded to in interest by Sunovion Pharmaceuticals, Inc.), referred to as the Sunovion License Agreement, pursuant to which Sunovion obtained an exclusive, worldwide license (with the right to sub-license) to certain intellectual property, including existing and future patents and patent applications, covering all oral films containing apomorphine for the treatment of off episodes in Parkinson’s disease patients. Sunovion used this intellectual property to develop its apomorphine product KYNMOBI ® , which was approved by the FDA on May 21, 2020. This approval triggered Sunovion's obligation to remit a payment of $ 4,000 (the "FDA Approval Milestone Payment") due on the earlier of: (a) the first day F-15 of product availability at a pharmacy in the United States; or (b) with six months of the FDA approval. This amount was received as of September 30, 2020 and is included in License and royalty revenues for the twelve months ended December 31, 2020. In consideration of the rights granted to Sunovion under the Sunovion License Agreement, the Company received aggregate payments totaling $ 22,000 to date. In addition to the upfront payment of $ 5,000 , the Company has also earned an aggregate of $ 17,000 in connection with specified regulatory and development milestones in the United States and Europe (the “Initial Milestone Payments”), all of which of which has been received to date. With the Monetization Agreement, we are no longer entitled to receive certain contingent one-time milestone payments of $ 23,000 related to product availability and regulatory approval in Europe, certain one-time milestone payments based on the achievement of specific annual net sales thresholds of KYNMOBI, and ongoing mid-single digit percentage royalty payments related to the net sales of KYNMOBI (subject to reduction to low-single digit percentage royalty payments in certain circumstances), subject to certain minimum payments. There are minimum annual guaranteed royalty payments under the contract and during the second quarter of 2020, the Company recorded minimum royalty revenue of $ 8,000 for minimum royalties, reflected in License and royalty revenues for the twelve months ended December 31, 2020. Effective March 16, 2020, the Company entered into a first amendment (the "First Amendment") to the Sunovion License Agreement. The Amendment was entered into for the primary purpose of amending the Sunovion License Agreement as follows: (i) including the United Kingdom and any other country currently in the European Union (EU) which later withdraws as a member country in the EU for purpose of determining the satisfaction of the condition triggering the obligation to pay the third milestone due under the Sunovion License Agreement, (ii) extending the date after which Sunovion has the right to terminate the Sunovion License Agreement for convenience 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 form January 1, 2020 to April 1, 2020, and (iv) modifying the termination provision to reflect the Company's waiver of the right to terminate the Sunovion License Agreement in the event that KYNMOBI was not commercialized by January 1, 2020. This Sunovion License Agreement will continue until terminated by Sunovion in accordance with the termination provisions of the Amendment to the Sunovion License Agreement. The Sunovion License Agreement continues (on a country-by-country basis) until the expiration of all applicable licensed patents. Upon termination of the Sonovion License Agreement, all rights to intellectual property granted to Sunovion to develop and commercialize apomorphine-based products will revert to the Company. On October 23, 2020, the Company amended the Sunovion License Agreement to clarify the parties' agreement with respect to certain provisions in the License Agreement, specifically the date after which Sunovion has the right to terminate the License Agreement and the License Agreement and the rights and obligations of the parties regarding the prosecution and maintenance of the Company's patents covered under the License Agreement. Purchase and Sale Agreement with an affiliate of Marathon Asset Management ("Marathon") On November 3, 2020, we entered into a Purchase and Sale Agreement (the "Monetization Agreement") with MAM Pangolin Royalty, LLC, an affiliate of Marathon Asset Management ("Marathon"). Under the terms of the Monetization Agreement, we sold all of our contractual rights to receive royalties and milestone payments due under the Sunovion License Agreement related to Sunovion's apomorphine product, KYNMOBI. KYNMOBI, an apomorphine film therapy for the treatment of off episodes in Parkinson’s disease patients, received approval from the U.S. Food and Drug Administration (FDA) on May 21, 2020. In exchange for the sale of these rights, we received an upfront payment of $ 40,000 and an additional payment of $ 10,000 through the achievement of the first milestone. We have received an aggregate amount of $ 50,000 through December 31, 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 . Based on the current forecast of estimated KYNMOBI sales as of December 31, 2021, the Company may not receive any of the additional aggregate contingent payments under the Monetization agreement. See Note 14, Sale of Future Revenue for further details on the accounting for the Monetization Agreement. Agreement to Terminate CLA with KemPharm In March 2012, the Company entered into an agreement with KemPharm, Inc. (“KemPharm”), to terminate a Collaboration and License Agreement entered into by the Company and KemPharm in April 2011. Under this termination arrangement, the Company has the right to participate in any and all value that KemPharm may derive from the commercialization or any other monetization of KP-415 and KP-484 compounds or their derivatives. Among these monetization transactions are those related to any business combinations involving KemPharm and collaborations, royalty arrangements, or other transactions from which KemPharm may realize value from these compounds. During September 2019, the Company received $ 1,000 from its 10 % share of milestone payments paid to KemPharm, under its licensing of KP-415 and KP-484 to a third party. The Company has also $ 500 under this arrangement, which was included in License and royalty revenues for the year ended December 31, 2020, in connection with the FDA's acceptance of a New Drug Application ("NDA") filing for KP-415. On March 2, 2021, KemPharm announced FDA approval of KP 415 (AZTARYS TM ) a new once-daily treatment for ADHD. For the year ended December 31, 2021, the Company received payment of $ 2,000 under this arrangement, which was included in License and royalty revenues. Note 7. Inventory Inventory consists of the following: F-16 December 31, 2021 2020 Raw material $ 1,442 $ 789 Packaging material 1,414 1,128 Finished goods 1,182 544 Total inventory $ 4,038 $ 2,461 Note 8. Property and Equipment, Net December 31, Useful Lives 2021 2020 Machinery 3 - 15 years $ 19,250 $ 21,333 Furniture and fixtures 3 - 15 years 769 1,209 Leasehold improvements (a) 21,265 21,333 Computer, network equipment and software 3 - 7 years 2,469 2,999 Construction in progress 1,162 877 44,915 47,751 Less: accumulated depreciation and amortization ( 39,860 ) ( 40,878 ) Total property and equipment, net $ 5,055 $ 6,873 (a) Leasehold improvements are amortized over the shorter of the lease term or their estimated useful lives. Total depreciation and amortization related to property and equipment were $ 2,912 and $ 3,392 for the years ended December 31, 2021 and 2020, respectively. Note 9. Right-of-Use Assets and Lease Obligations The Company leases all realty used as its production and warehouse facilities, corporate headquarters, commercialization operations center and research and laboratory facilities. 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 1.25 years and 4.75 years, including renewal options expected to be exercised to extend the lease periods. The Company does not recognize a right-of-use asses and lease liability for short-term leases, which have terms of 12 months or less, on its consolidated balance sheet. For longer-term lease arrangements that are recognized on the Company's consolidated balance sheet, the right-of-use asset and lease liability is initially measured at the commencement date based upon the present value of the lease payments due under the lease. These payments represent the combination of the fixed lease and fixed non-lease components that are due under the arrangement. The costs of associated with the Company's short-term leases, as well as variable costs relating to the Company's lease arrangements, are not material to the consolidated financial results. 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 recorded in manufacture and supply, research and development and selling, general and administrative expenses in its consolidated statements of income for the years ended December 31, 2021 and 2020 were $ 1,725 and $ 1,671 , respectively, including variable lease expenses such as common area maintenance and operating costs of $ 469 and $ 379 , respectively, under the new lease accounting standard. Cash payments arising from the Company's lease arrangements are reflected on its consolidated statement of cash flows as outflows for operating activities. The Company's payments due under its operating leases are as follow: F-17 Amount 2022 $ 1,295 2023 944 2024 565 2025 565 2026 424 Total lease payments 3,793 Less: imputed interest ( 948 ) Total operating lease liabilities $ 2,845 Note 10. Intangible Assets, Net and Other non-current assets The following table provides the components of identifiable intangible assets, all of which are finite lived and other non-current assets: December 31, 2021 2020 Purchase technology-based intangible $ 2,358 $ 2,358 Purchased patent 509 509 2,867 2,867 Less: accumulated amortization ( 2,816 ) ( 2,765 ) Intangible assets, net 51 102 Royalty receivable 6,000 7,000 Other 903 836 Total other non-current assets $ 6,903 $ 7,836 Amortization expense was $ 51 and $ 51 for each of the years ended December 31, 2021 and 2020, respectively. During the remaining life of the purchased patent, estimated annual amortization expense is $ 51 for the year ended 2022. Note 11. Accrued Expenses Accrued expenses consisted of the following: December 31, 2021 2020 Accrued compensation $ 5,965 $ 6,330 Real estate and personal property taxes 349 316 Accrued distribution expenses 2,224 1,722 Other 198 201 Total accrued expenses $ 8,736 $ 8,569 Note 12. 12.5% Senior Secured Notes and Loans Payable 12.5 % Senior Secured Notes On July 15, 2019, the Company completed the private placement of up to $ 100,000 aggregate principal of its 12.5 % Senior Secured Notes due 2025 (the “ 12.5 % Notes”) and issued warrants for 2,000,000 shares of common stock (the “Warrants”), at $ 0.001 par value per share. F-18 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 . 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. On November 20, 2020, the Company entered into the Second Supplemental Indenture (the "Second 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 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 December 31, 2021. The $ 4,000 principal issuance will be repaid proportionally over the same maturities as the other 12.5 % Notes. The Company also paid to one of 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 were 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 the 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 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 December 31, 2021. Based on the valuation study, the put option was valued at $ 127 , of which $ 29 has been recorded in Accrued expenses and $ 98 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. The fair value adjustment as a result of periodic remeasurement has been recorded in Interest income and other income. 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. 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. 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. 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. 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. As of December 31, 2021, the Company recorded its principal payments as Loans payable, net on its Consolidated Balance Sheet. A debt maturity table is presented below: 2022 $ — 2023 18,025 2024 21,888 2025 11,587 Total $ 51,500 The Company may elect, at its option, to prepay the 12.5 % Notes at any time at premiums that range from 101.56 % of outstanding principal if prepayment occurs on or after the fifth anniversary of the issue date of the Initial Notes to 112.50 % if payment occurs during the third year after the issuance of the Notes. In the event that redemption occurs within the two years after the issuance of the 12.5 % Notes, a F-19 make-whole fee is required, based on the present value of remaining interest payments using an agreed-upon discount rate linked to the then-current U.S. Treasury rate. The Indenture also includes change of control provisions under which the Company may be required to repurchase the 12.5 % Notes at 101 % of the remaining principal plus accrued interest at the election of the Lenders. 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”). The Fourth Supplemental Indenture was executed by the parties on October 7, 2021. On October 7, 2021, the Company entered into the Fourth Supplemental Indenture (the “Fourth Supplemental Indenture”), by and among the Company and U.S. Bank National Association, as Trustee (the “Trustee”) and collateral agent thereunder, to the Indenture, dated as of July 15, 2019 (the “Base Indenture” and, as supplemented by the First Supplemental Indenture, the Second Supplemental Indenture, and the Third Supplemental Indenture, the “Indenture”), by and between the Company and the Trustee in connection with the 12.5 % Senior Secured Notes due 2025 of the Company (the “Notes”). Pursuant to the Fourth Supplemental Indenture, the amortization schedule for the Notes has been 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 holders of the Notes (the “Consent Fee Letter”), pursuant to which the Company has agreed to pay the holders of the Notes an additional cash payment ("Consent Fee") of $ 2,700 in the aggregate, payable in four quarterly payments beginning May 15, 2022. The Company has recorded the current portion of the Consent Fee as Loans payable, current, and the long-term portion of the Consent Fee as Other non-current liabilities on its Consolidated Balance Sheet. Additionally, the Company recognized a loss on the extinguishment of debt of $ 13,822 for fees and expenses related to the Fourth Supplemental Indenture. The Company capitalizes legal and other third-party costs incurred in connection with obtaining debt as deferred debt issuance costs and applies the unamortized portion as a reduction of the outstanding face amount of the related loan in accordance with ASU 2015-3, Interest – Imputation of Interest: Simplifying the Presentation of Debt Issuance Costs . Similarly, the Company amortizes debt discounts, such as those represented by warrants issued to its lenders, and offsets those as a direct reduction of its outstanding debt. Amortization expense arising from deferred debt issuance costs and debt discounts related to the 12.5 % Notes and the Perceptive loan for the years ended December 31, 2021 and 2020 were $ 3,572 and $ 2,587 , respectively. Unamortized deferred debt issuance costs and deferred debt discounts totaled $ 43 and $ 14,596 as of December 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. F-20 Note 13. Warrants Warrants Issued to 12.5 % Senior Secured Noteholders Warrants were issued in conjunction with the First Supplemental Indenture to Noteholders as part of the 2020 Additional Notes described above, expire on June 30, 2025. These warrants entitle the Lenders to purchase 143,000 shares of the Company's common stock at $ 0.001 per share and include specified registration rights. Management estimated the fair value of the Warrants to be $ 735 , assisted by the an independent third-party appraiser. Warrants were issued in conjunction with the Initial Notes described above, expire on June 30, 2025. These warrants entitle the Lenders to purchase 2,000,000 shares of the Company’s common stock at $ 0.001 per share and include specified registration rights. Management estimated the fair value of the Warrants to be $ 6,800 , assisted by an independent third-party appraiser. The fair value of these respective Warrants is treated as a debt discount, amortizable over the term of the Warrants, with the unamortized loan portion applied to reduce the face amount of the loan in the Company’s balance sheet. Additionally, since the Warrants issued do not provide warrant redemption or put rights within the control of the holders that could require the Company to make a payment of cash or other assets to satisfy the obligations under the Warrants, except in the case of a “cash change in control”, the fair value attributed to the Warrants is presented in additional-paid in capital in the accompanying Consolidated Balance Sheets. There were no Warrants exercised by either the holders of the 2020 Additional Notes nor the Initial Noteholders during the year ended December 31, 2021 and December 31, 2020. . Note 14. Sale of Future Revenue On November 3, 2020, the Company entered into the Monetization Agreement with Marathon. Under the terms of the Monetization Agreement, the Company sold all of its 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, the Company received an upfront payment of $ 40,000 and an additional payment of $ 10,000 through the achievement of the first milestone. We have received an aggregate amount of $ 50,000 through December 31, 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 . The Company 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 the Company sold all of its rights to receive royalties and milestones, as a result of ongoing obligations related to the generation of these royalties, the Company will account for these royalties as revenue. Its 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. The accounting liabilities, as adjusted over time, resulting from this transaction and any non-cash interest expenses associated to those liabilities do not and will not represent any obligation to pay or any potential future use of cash. 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, 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. The sum of future royalty payments less the $ 50,000 in proceeds received and future contingent payments will be recorded as interest expense over the life of the Monetization Agreement. At execution, the estimate of this total interest expense resulted in an effective annual interest rate of approximately 24.9 %. This estimate contains significant assumptions that impact both the amount recorded at execution and the interest expense that will be recognized over the life of the Monetization Agreement. The Company will periodically assess the estimated royalty and milestone payments to Marathon from Sunovion and contingent milestone payments from Marathon to the Company. To the extent the amount or timing of such payments is materially different from the original estimates, an adjustment will be recorded prospectively to increase or decrease interest expense. There are a number of factors that could materially 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 the Company's 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 F-21 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. Based on the current forecast of estimated KYNMOBI sales as of December 31, 2021, the Company may not receive any of the additional aggregate contingent payments under the Monetization agreement. The following table shows the activity of the liability related to the sale of future revenue for the year ended December 31, 2021: Liability related to the sale of future revenue, net at December 31, 2020 $ 48,974 Royalties related to the sale of future revenue ( 1,102 ) Amortization of issuance costs 159 Interest expense related to the sale of future revenue 12,253 Liability related to the sale of future revenue, net (includes current portion of $ 1,225 ) $ 60,284 Note 15. Other Non-Current Liabilities The Company’s other non-current liabilities at December 31, 2021 consist of asset retirement obligations ("AROs") of $ 1,712 , the long term portion of the Consent Fee related to the 12.5 % Senior Secured Note of $ 675 and the long-term portion of fair value of the put option on the 12.5 % Notes of $ 98 . The Company’s other non-current liabilities at December 31, 2020 consisted of asset retirement obligations ("AROs") of 1,525 and the fair value of the put option on the 12.5 % Notes of $ 420 . AROs consists of estimated future spending related to removing certain leasehold improvements at its Portage, Indiana, laboratory, the Ameriplex production facility and the Warren, New Jersey, laboratory and returning all facilities to their original condition. Depreciation expense related to the ARO assets included in overall depreciation expense for the periods ended December 31, 2021 and 2020 were $ 23 and $ 24 , respectively. Below is a schedule of activity in the Company’s liability for AROs for the year ended December 31, 2021 and 2020. Balance at December 31, 2019 $ 1,360 Additions — Accretion 165 Balance at December 31, 2020 1,525 Additions — Accretion 187 Balance at December 31, 2021 $ 1,712 Note 16. Net Loss Per Share Basic net loss per share is calculated by dividing net loss by the weighted-average number of common shares. As a result of the Company’s net loss incurred for the year ended December 31, 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. Year Ended December 31, 2021 Year Ended December 31, 2020 Numerator: Net loss $ ( 70,539 ) $ ( 55,783 ) Denominator: Weighted-average number of common shares – basic and diluted 38,077,660 33,651,127 Loss per common share – basic and diluted $ ( 1.85 ) $ ( 1.66 ) F-22 As of December 31, 2021 and 2020, respectively, the Company’s potentially dilutive instruments included 4,146 thousand and 3,259 thousand of options to purchase common shares, as well as no outstanding and 14 thousand unvested RSUs that were excluded from the computation of diluted weighted average shares outstanding because these securities had an antidilutive impact due to the losses reported. Similarly excluded as of December 31, 2021 and 2020 were potentially dilutive warrants for the purchase of 1,714 thousand common shares for both periods. Note 17. Share-Based Compensation The Company provides certain employees, non-employee directors and consultants with performance incentives under the Aquestive Therapeutics, Inc. Equity Incentive Plan (the Plan), adopted by the Board of Directors on June 15, 2018. Under this Plan, the Company may grant restricted stock units, stock options, or other stock-based awards in order to align the long-term financial interests of selected participants with those of its stockholders, strengthen the commitment of such persons to the Company, and attract and retain competent and dedicated persons whose efforts will enhance long-term growth, profitability and share value. Restricted stock units and options that have been awarded are subject to graded vesting over a service period, which is typically three years . Compensation cost is recognized for these awards on a pro-rata basis over the requisite service period for each award granted. At December 31, 2021, there were approximately 1.1 million shares available for grant. The Company recognized share-based compensation in its Consolidated Statements of Operations during the periods presented as follows: Expense classification: Year Ended December 31, 2021 Year Ended December 31, 2020 Manufacture and supply $ 313 $ 275 Research and development 881 729 Selling, general and administrative 5,625 5,577 Total share-based compensation expenses $ 6,819 $ 6,581 Share-based compensation from: Restricted Stock Units 81 806 Stock Options 6,714 5,751 Employee Stock Purchase Plan 24 24 Total share-based compensation expenses $ 6,819 $ 6,581 Restricted Stock Units The following table summarizes the Company’s awards of restricted stock units for the years during 2020 and 2021: Number of Units Weighted Average Grant Date Fair Value Per Share (In thousands) Unvested, December 31, 2019 74 $ 14.64 Granted 4 7.54 Forfeited — — Vested ( 64 ) 14.88 Unvested, December 31, 2020 14 $ 11.38 Granted — — Forfeited ( 2 ) 13.00 Vested ( 12 ) 11.14 Unvested, December 31, 2021 — F-23 The Company did not grant restricted stock units during 2021. During 2020, the total grant date fair market value of shares vested was $ 958 . As of December 31, 2021, there was no unrecognized compensation costs related to restricted stock units awarded. The restricted stock units previously granted to employees were subject to a three-year graduated vesting schedule and were not subject to performance-based criteria other than continued employment. Stock option awards The following table summarizes the Company’s stock option activity for the years during 2020 and 2021: (in 000s, except share price data) Number of Options Weighted Average Exercise Price Weighted Average Remaining Contractual Term in Years Aggregate Intrinsic Value Outstanding at December 31, 2019 2,231 $ 10.42 8.94 $ 689 Granted 1,168 $ 3.32 Forfeited ( 140 ) $ 4.36 Exercised — Outstanding at December 31, 2020 3,259 $ 8.14 8.42 $ 2,978 Granted 1,212 4.73 Forfeited and Expired ( 264 ) $ 7.52 Exercised ( 61 ) $ 1.58 Outstanding at December 31, 2021 4,146 $ 7.28 7.88 $ 1,423 Vested and expected to vest at December 31, 2021 4,026 $ 7.36 7.85 $ 1,377 Exercisable at December 31, 2021 1,855 $ 10.44 6.98 $ 365 The weighted average grant date fair value of stock options granted during 2021 and 2020 was $ 3.61 and $ 2.61 , respectively. During the year ended December 31, 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 $ 3.89 at December 31, 2021, the intrinsic value provided by certain shares granted during this period was de minimus. The fair values of stock options granted were estimated using the Black-Scholes model based on the following assumptions: Year Ended December 31, 2021 2020 Expected dividend yield 0 % 0 % Expected volatility 100 % 100 % Expected term (years) 5.50 - 6.00 5.50 - 6.10 Risk-free interest rate 0.50 % - 1.46 % 0.33 % - 1.69 % Exercise prices $ 3.76 - $ 5.30 $ 1.54 - $ 7.86 We anticipate reinvesting earnings for the foreseeable future in product development and other avenues of share-value growth and therefore used a dividend yield of zero . The estimate of volatility was determined based on the historical trading data of comparable public companies at the time of grant given the lack of sufficient history for our own publicly-traded common stock. The expected term of the award was calculated using the simplified method and weighted average was utilized taking into account the vesting periods and contractual life. The risk-free interest rates are derived from the U.S. Treasury yield curve in effect on the date of grant for instruments with a remaining term similar to the expected term of the options. As of December 31, 2021, $ 3,724 of total unrecognized compensation expenses related to non-vested stock options is expected to be recognized over a weighted average period of 1.51 years from the date of grant. These option grants provided a maximum contract term of 10 years from grant date, with a weighted average remaining contract life of 7.88 years. Options granted to senior management and key employees are subject to a three-year graded vesting schedule while options granted to the board of directors are subject to a one year cliff vesting schedule. These stock options are not subject to performance-based criteria other than continued employment. Employee Stock Purchase Plan F-24 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 of the Company 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. Under the ESPP, a total of 250,000 shares of common stock were initially reserved for issuance. During 2021 and 2020, 40,146 and 32,986 shares were purchased and issued through the ESPP at total discounts of $ 24 and $ 26 , respectively. Note 18. Employee Benefit Plans The Company sponsors a defined-contribution 401(k) plan covering all full-time employees and makes matching employer contributions as defined by the terms of that plan. The Company may also make discretionary contributions. Total contributions made to the plan by the Company for the year ended December 31, 2021 and 2020 were $ 706 and $ 673 , respectively. Note 19. Income Taxes The tax effect of temporary differences between the tax bases of assets and liabilities and their financial reporting amounts that give rise to the deferred tax assets and deferred tax liabilities as of December 31, 2021 and 2020 are as follows: December 31, 2021 2020 Deferred tax assets: Accounts receivable $ 149 $ 112 Inventory 100 4 Accrued expenses 309 353 NOL carryforwards 28,722 22,569 Interest limitation imposed by the TJCA 9,022 7,235 Stock Compensation 5,003 4,051 Other 2,122 1,229 Sale of Future Revenue 16,595 14,444 Property and equipment 2,566 2,380 Orphan Drug and R&D Tax Credits 5,490 5,851 Accrued debt fees 726 — Intangible assets 2,547 — 73,351 58,228 Deferred tax liabilities: Intangible assets — ( 551 ) 481(a) adjustment ( 14 ) — Prepaid expenses ( 807 ) ( 908 ) ( 821 ) ( 1,459 ) Valuation Allowance ( 72,530 ) ( 56,769 ) Net deferred tax asset/(liability) $ — $ — At December 31, 2021 and 2020, the Company had federal net operating loss carryforwards of $ 105,722 and $ 81,566 , respectively, a significant portion of which carryforward for an indefinite period. At December 31, 2021 and 2020, the Company also had state net operating loss carryforwards of $ 93,304 and $ 74,379 , respectively, which begin expiring in 2034. As a result of the December 2017 U.S. Tax Cuts and Jobs Act (“TCJA”), updated regulations under section 163(j) create new limitations on deductible interest expense. For the year ended December 31, 2021, the Company’s interest expense deduction under 163(j) will be limited for tax purposes based on a calculation of 30% of its EBITDA on a tax basis. On March 27,2020, the Coronavirus Aid, Relief and Economic Security Act, which we refer to as the "U.S. CARES ACT," was signed into law. The U.S. CARES Act, among other things, includes provisions related to net operating loss carryback periods, modifications to the interest deduction limitation. The U.S. CARES Act increased the adjusted taxable income limitation from 30% to 50% for business interest deductions for tax years beginning in 2019 and 2020. This modification increased the allowable interest expense deduction and resulted in additional net operating loss (NOL) for the year 2019 and lower current taxable income (before NOL utilization) for the Company. Additionally, the U.S. CARES Act allowed us to fully offset 2020 taxable income with prior years' NOL carried forward. The Company has determined, based upon available evidence, that is more likely than not that the net deferred tax asset will not be realized and accordingly, has provided a full valuation allowance against its net deferred tax assets. Valuation allowances of $ 72,530 , and $ 56,769 have been established at December 31, 2021 and 2020, respectively. The Company may also be subject to the net operating loss F-25 utilization provisions of Section 382 of the Internal Revenue Code due to ownership changes. As a result, the use of NOL carry forwards from the current and prior periods are subject to annual limitations. Entities are also required to evaluate, measure, recognize and disclose any uncertain income tax provisions taken on their income tax returns. The Company has analyzed its tax positions and has concluded that there were no uncertain positions as of December 31, 2021 and 2020. The Company did no t have any unrecognized tax benefits and has no t accrued any interest or penalties for the years ended December 31, 2021 and 2020. The Company’s U.S. federal and state net operating losses have occurred since its election to treat as a C Corporation in 2017 and as such, tax years subject to potential tax examination could apply from that date because the utilization of net operating losses from prior years opens the relevant year to audit by the IRS and/or state taxing authorities. In early 2020, the U.S. Internal Revenue Service began an examination of the Company’s federal income tax return for 2018 which was concluded in 2021 with no significant adjustments required. A reconciliation of income tax benefit and the amount computed by applying the statutory federal income tax rates of 21% to loss before taxes for the year ended December 31, 2021 and 2020, respectively, as follows: Year Ended December 31, 2021 2020 Income taxes at statutory rate 21.00 % 21.00 % Increase (decrease) resulting from: State income tax 5.28 6.81 Permanent differences ( 0.15 ) ( 0.12 ) Research & development credit 0.12 2.35 Return to provision ( 0.63 ) — Valuation allowance ( 22.37 ) ( 30.04 ) Other ( 3.37 ) — Effective tax rate ( 0.12 ) % 0.00 % On July 1, 2018, the New Jersey governor signed into law a bill which included significant changes to the New Jersey taxation of corporations. Chiefly, this legislation imposes a 2.5% surtax on taxpayers with allocated net income over $1 million for 2018 and 2019, and a 1.5% surtax for taxpayers with allocated net income over $1 million for 2020 and 2021. Subsequently, on September 29,2020, Assembly Bill 4721 extended the additional corporation business tax surtax of 2.5% for the tax years 2020 through 2023. In addition, the state is changing its filing requirements from separate entity reporting to combined reporting on a water’s edge basis. Further, there are changes to the state’s computation of its dividend received deduction and application of IRC section 163(j). The Company has considered these changes and does not believe this change in law will have a material impact due to availability of significant New Jersey NOL carryforwards to set off against future taxable income and a full valuation allowance against the net deferred tax assets. Note 20. Contingencies Litigation and Contingencies From time to time, we have been and may again become involved in legal proceedings arising in the course of our business, including product liability, intellectual property, commercial litigation, or environmental or other regulatory matters. Patent-Related Litigation Indivior Inc., Indivior UK Ltd., and Aquestive Therapeutics, Inc. v. Dr. Reddy’s Labs. S.A. and Dr. Reddy’s Labs., Inc. , On February 7, 2018, we and Indivior Inc. and Indivior UK Ltd. (collectively, “Indivior”) initiated a lawsuit against Dr. Reddy’s Laboratories S.A. and Dr. Reddy’s Laboratories, Inc. (collectively, “Dr. Reddy’s”) asserting infringement of U.S. Patent No. 9,855,221 (the "221 patent”). On April 3, 2018, we and Indivior initiated a separate lawsuit against Dr. Reddy’s asserting infringement of U.S. Patent No. 9,931,305 (the "’305 patent”). On May 29, 2018, the lawsuits regarding the ’221 and ’305 patents were consolidated which was originally initiated by Indivior against Dr. Reddy’s asserting infringement of U.S. Patent No. 9,687,454 (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. We are not able to determine or predict the ultimate outcome of this proceeding or provide a reasonable estimate or range of estimates of the possible outcome or losses, if any, in this matter. Indivior Inc., Indivior UK Ltd., and Aquestive Therapeutics, Inc. v. Teva Pharmaceuticals USA, Inc. On February 7, 2018, we and Indivior initiated a lawsuit against Teva Pharmaceuticals USA, Inc. (“Teva”) asserting infringement of the ’221 patent. On April 3, 2018, we and Indivior initiated a separate lawsuit against Teva asserting infringement of the ’305 patent. On F-26 May 29, 2018, the lawsuits regarding the ’221 and ’305 patents were consolidated which was originally initiated by Indivior against Teva asserting infringement of the ’454 patent. The parties agreed that the case would be governed by the final judgment against Dr. Reddy’s (described above). We are not able to determine or predict the ultimate outcome of this proceeding or provide a reasonable estimate or range of estimates of the possible outcome or losses, if any, in this matter. Indivior Inc., Indivior UK Ltd., and Aquestive Therapeutics, Inc. v. Alvogen Pine Brook LLC On September 14, 2017, Indivior initiated a lawsuit against Alvogen Pine Brook LLC (“Alvogen”) asserting infringement of the ’454 patent. On February 7, 2018, we and Indivior filed an Amended Complaint, adding us as a plaintiff and asserting infringement of U.S. Patent No. 9,855,221 (the "’221 patent”). On April 3, 2018, we and Indivior initiated a separate lawsuit against Alvogen asserting infringement of the ’305 patent. On May 29, 2018, the cases were consolidated . On February 26, 2019, the Court granted the parties’ agreed stipulation to drop the ’221 patent from the case. On January 9, 2020, the Court entered a stipulated order of non-infringement of the ’305 patent based on the Court’s claim construction ruling, and we and Indivior preserved our rights to appeal the claim construction ruling. On November 21, 2019, Alvogen filed an amended answer and counterclaims asserting monopolization, attempted monopolization, and conspiracy to monopolize against us and Indivior under federal and New Jersey antitrust laws. The court denied our motion to dismiss Alvogen’s counterclaims on August 24, 2020. On November 2, 2020, Alvogen filed a second amended answer and counterclaims, removing its allegations of monopolization and attempted monopolization against us and asserting only conspiracy to monopolize against us. Fact discovery on Alvogen’s antitrust counterclaims concluded on January 29, 2021. Expert discovery concluded on October 8, 2021, and dispositive motions were filed on October 26, 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. Reckitt Benckiser Pharmaceuticals, Inc. and MonoSol Rx, LLC v. BioDelivery Sciences International, Inc. and Quintiles Commercials US, Inc. (BDSI 2014 Lawsuit) On September 22, 2014, we and RB initiated a lawsuit against BDSI and Quintiles Commercial US, Inc. (“Quintiles”) asserting infringement of U.S. Patent No. 8,765,167 (the "’167 patent”) in the District of New Jersey (Civil Action No. 3:14-cv-5892). On July 22, 2015, the case was transferred to the Eastern District of North Carolina. BDSI filed requests for inter partes review (“IPR”) of the ’167 patent before the Patent Trial and Appeal Board (“PTAB”), and on May 6, 2016, the Court stayed the case pending the outcome and final determination of the IPR proceedings. On March 24, 2016, the PTAB issued final written decisions finding the ’167 patent was not unpatentable, and the United States Court of Appeals for the Federal Circuit (“Federal Circuit”) remanded those decisions for further proceedings before the PTAB. Following the PTAB’s February 7, 2019 decision on remand denying institution, BDSI appealed that decision to the Federal Circuit. The Federal Circuit granted our motion to dismiss the appeal, and denied BDSI’s request for rehearing en banc. BDSI filed a petition for writ of certiorari to the Supreme Court of the United States (“Supreme Court”), which the Supreme Court denied on October 5, 2020. On April 15, 2021, the court lifted the stay of the litigation in the Eastern District of North Carolina. On April 29, 2021, BDSI filed a renewed motion to dismiss the complaint. In response, the Company and RB filed an amended complaint on May 18, 2021, which, among other things, removed Quintiles as a defendant. On June 3, 2021, BDSI filed a notice withdrawing its motion to dismiss the original complaint. 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, have completed claim construction briefing, and are proceeding with fact discovery. The court may schedule a claim construction hearing, and the remainder of the schedule is dependent on the timing of the court’s ruling on claim construction. We are not able to determine or predict the ultimate outcome of this proceeding or provide a reasonable estimate or range of estimates of the possible outcome or losses, if any, in this matter. Aquestive Therapeutics, Inc. v. BioDelivery Sciences International, Inc. On November 11, 2019, we initiated a lawsuit against BDSI asserting infringement of the ’167 patent in the Eastern District of North Carolina. On April 1, 2020, the Court denied BDSI’s motion to stay and its motion to dismiss the complaint. On April 16, 2020, BDSI filed its Answer and Counterclaims to the complaint, including counterclaims for non-infringement, invalidity, and unenforceability of the ’167 patent. On May 7, 2020, we filed a Motion to Dismiss BDSI’s unenforceability counterclaim and a Motion to Strike BDSI’s corresponding affirmative defenses. On May 28, 2020, BDSI amended its counterclaims and filed an Answer and Amended Counterclaims, which included additional allegations in support of BDSI’s unenforceability counterclaim. On June 25, 2020, we filed a Motion to Dismiss BDSI’s Amended Counterclaim for unenforceability and a Motion to Strike BDSI’s corresponding affirmative defense of unenforceability, which BDSI opposed. 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. BDSI also filed on April 6, 2021 a renewed motion to dismiss Aquestive’s complaint, which Aquestive opposed. 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 the BDSI 2014 Lawsuit described above, and the parties are proceeding under that same schedule. We are not able to determine or predict the ultimate outcome of this proceeding or provide a reasonable estimate or range of estimates of the possible outcome or losses, if any, in this matter. Antitrust Litigation State of Wisconsin, et al. v. Indivior Inc., Reckitt Benckiser Healthcare (UK) Ltd., Indivior PLC, and MonoSol Rx, LLC On September 22, 2016, forty-one states and the District of Columbia, or the States, brought a lawsuit against Indivior and us in the U.S. District Court for the Eastern District of Pennsylvania alleging violations of federal and state antitrust statutes and state unfair trade and F-27 consumer protection laws relating to Indivior’s launch of Suboxone Sublingual Film in 2010 and seeking an injunction, civil penalties, and disgorgement. After filing the lawsuit, the case was consolidated for pre-trial purposes with the In re Suboxone (Buprenorphine Hydrochloride and Naloxone) Antitrust Litigation, MDL No. 2445, or the Suboxone MDL, a multidistrict litigation relating to putative class actions on behalf of various private plaintiffs against Indivior relating to its launch of Suboxone Sublingual Film. While we were not named as a defendant in the original Suboxone MDL cases, the action brought by the States alleges that we participated in an antitrust conspiracy with Indivior in connection with Indivior’s launch of Suboxone Sublingual Film and engaged in related conduct in violation of federal and state antitrust law. We moved to dismiss the States’ conspiracy claims, but by order dated October 30, 2017, the Court denied our motion to dismiss. We filed an answer denying the States’ claims on November 20, 2017. Daubert motions were filed on September 28, 2020, and oppositions were filed on October 19, 2020. On February 19, 2021, the court issued an order denying all Daubert motions. On March 8, 2021, Aquestive filed a motion for summary judgment, and briefing on summary judgment motions was completed on May 28, 2021. There is no date set for a hearing on Aquestive’s motion for summary judgment and no trial date has yet been set. We are not able to determine or predict the ultimate outcome of this proceeding or provide a reasonable estimate or range of estimates of the possible outcome or loss, if any, in this matter. Humana and Centene Actions Humana Inc. v. Indivior Inc, Indivior Solutions Inc., Indivior PLC, Reckitt Benckiser Healthcare (UK) Ltd., and Aquestive Therapeutics, Inc. Centene Corporation, Wellcare Health Plans, Inc., New York Quality Healthcare Corporation d/b/a Fidelis Care, and Health Net, LLC v. Indivior Inc, Indivior Solutions Inc., Indivior PLC, Reckitt Benckiser Healthcare (UK) Ltd., and Aquestive Therapeutics, Inc. On September 18, 2020, Humana, Inc. (“Humana”), a health insurance payor, filed a lawsuit against us and Indivior in the Eastern District of Pennsylvania alleging facts similar to those at issue in the Antitrust Case and the Suboxone MDL described above, which lawsuit was assigned to the same judge that is presiding over Antitrust Case and Suboxone MDL. Humana’s Complaint alleges five causes of action against us, including conspiracy to violate the RICO Act, fraud under state law, unfair and deceptive trade practices under state law, insurance fraud, and unjust enrichment. On September 21, 2020, Centene Corporation (“Centene”) and other related insurance payors filed a similar lawsuit against us and Indivior in the Eastern District of Missouri. The counsel representing Humana is also representing Centene. On September 21, 2020, the Centene action was provisionally transferred to the Eastern District of Pennsylvania by the United States Judicial Panel on Multidistrict Litigation. On January 15, 2021, we filed a motion to dismiss the Centene and Humana complaints. The court in the Eastern District of Pennsylvania 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”). Also, on August 20, 2021, Humana filed a complaint in state court in Kentucky, alleging the same causes of action previously filed in the federal case in the Eastern District of Pennsylvania. That state court action is stayed pending resolution of the federal appeal in the Third Circuit. The Third Circuit appeal is fully briefed and the parties are awaiting a date for oral argument. 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. v. Aquestive Therapeutics, Inc. On December 5, 2019, Neurelis Inc. 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 (“UCL”); (2) Defamation; and (3) Malicious Prosecution. Neurelis filed a First Amended Complaint on December 9, 2019, alleging the same three causes of action. We filed a Motion to Strike Neurelis’s Complaint under California’s anti-SLAPP (“strategic lawsuit against public participation”) statute on January 31, 2020, which Neurelis opposed. On August 6, 2020, the Court issued an order granting in part and denying in part our anti-SLAPP motion. We filed a notice of appeal to the California Court of Appeal on September 1, 2020, and Neurelis filed a notice of cross-appeal on October 5, 2020. We filed our opening appeal brief on January 27, 2021, and briefing on the appeal ended on July 6, 2021. The appeals court held oral argument on the appeal on October 14, 2021, and issued its ruling on November 17, 2021. Under the ruling, the court struck the entirety of the malicious prosecution claim and struck portions of the UCL and defamation claims. The parties are awaiting issuance of the remittitur from the court of appeal, which will return the case to the superior court for further proceedings. 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. Neurelis IPR Infringement Litigation In the first quarter of 2019, Aquestive requested institution of three Inter Partes Reviews (“IPRs”) against Neurelis’ Orange Book method of treatment patent, US Patent No. 9,763,876 (‘876 Patent) for nasal administration of benzodiazepines (diazepam). The PTAB denied two of the requests and instituted the third request, which challenged all claims of the Neurelis ‘876 Patent. 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. 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. The Federal Circuit Court issued a mandate closing the appeal period and an IPR Certificate will subsequently be issued by the United States Patent and Trademark Office. No further appeals are available on this matter. Federal Securities Class Action F-28 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 regarding the FDA approval of Libervant. Following the court’s appointment of a lead plaintiff, an amended complaint was filed by the plaintiffs on July 25, 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. Shareholder Derivative Litigation On December 15, 2021, a purported Aquestive shareholder instituted a derivative action captioned Niewenhuis v. Kendall, et al. in the United States District Court for the District of New Jersey. The case was marked as related to the pending federal securities class action Deanna Lewakowski v. Aquestive Therapeutics, Inc., referenced above, and accepted by the same judge presiding over the class action. The complaint in this matter alleges claims for breach of fiduciary duty and contribution against certain of the Company's officers and directors. The allegations that form the basis of these claims are essentially the same as the disclosure-related allegations asserted in the class action, The Company's response to the complaint is due by March 14, 2022. 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. Note 21. Subsequent Events Continued Utilization of the At-The-Market Facility The Company continued utilization of its "at-the-market" (ATM) facility from January 1 through March 4, 2022 and sold 238,872 shares which generated net proceeds of approximately $ 904 . Licensing and Supply Agreement with Haisco for Riluzole Oral Film for ALS Treatment in China The Company has entered into a License, Development and Supply Agreement with Haisco Pharmaceutical Group Co., Ltd. ("Haisco") for Haisco to develop and exclusively commercialize Exservan™ (riluzole oral film) for the treatment of amyotrophic lateral sclerosis (“ALS”) in China. Haisco will lead the regulatory and commercialization activities for Exservan in China. Aquestive will serve as the exclusive sole manufacturer and supplier for the product. Aquestive will receive a $ 7,000 upfront cash payment, regulatory milestone payments, and double-digit royalties on net sales of Exservan in China and will earn manufacturing revenue as the exclusive supplier of Exservan. F-29