What changed in this filing

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Item 1. Financial Statements

2023-11-06 compared with 2023-08-07 · 223 added, 177 removed, 697 unchanged (36% of the section changed)

3 unchanged sentences

(In thousands, except share and per share amounts)

September 30,

2023 December 31,

29 unchanged sentences

Authorized 250,000,000 shares;

61,615,959 and 54,827,734 shares issued and outstanding at June 30, 2023 and December 31, 2022, respectively

66,740,765 and 54,827,734 shares issued and outstanding at September 30, 2023 and December 31, 2022, respectively

Additional paid-in capital 207,972 192,598

3 unchanged sentences

See accompanying notes to the condensed consolidated financial statements.

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AQUESTIVE THERAPEUTICS, INC.

1 unchanged sentence

(In thousands, except share and per share data amounts)

Three Months Ended June 30, Six Months Ended

Three Months Ended September 30, Nine Months Ended

September 30,

2023 2022 2023 2022

22 unchanged sentences

See accompanying notes to the condensed consolidated financial statements.

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AQUESTIVE THERAPEUTICS, INC.

Condensed Consolidated Statements of Changes in Stockholders’ Deficit

Three Months Ended March 31 2023 and June 30, 2023

Three Months Ended March 31 2023, June 30, 2023 and September 30, 2023

(In thousands, except share amounts)

13 unchanged sentences

Balance at March 31, 2023 55,922,361 56 193,848 ( 303,139 ) ( 109,235 )

Costs of common stock issued under private equity offering — — — — —

Common Stock issued upon warrant exercises 3,689,452 4 3,538 — 3,542

7 unchanged sentences

Balance at June 30, 2023 61,615,959 62 202,218 ( 308,931 ) ( 106,651 )

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Common Stock issued upon warrant exercises 5,000,000 5 4,795 — 4,800

Common Stock issued under public equity offering 124,181 — 264 — 264

Costs of common stock issued under public equity offering — — ( 80 ) — ( 80 )

Share-based compensation expense — — 774 — 774

Options Exercised 625 — 1 — 1

Net loss — — — ( 2,035 ) ( 2,035 )

Balance at September 30, 2023 66,740,765 $ 67 $ 207,972 $ ( 310,966 ) $ ( 102,927 )

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AQUESTIVE THERAPEUTICS, INC.

Condensed Consolidated Statements of Changes in Stockholders’ Deficit

Three Months Ended March 31 2022 and June 30, 2022

Three Months Ended March 31 2022, June 30, 2022 and September 30, 2022

(In thousands, except share amounts)

23 unchanged sentences

Balance at June 30, 2022 53,343,989 53 189,908 ( 286,318 ) ( 96,357 )

Common Stock issued under public equity offering 501,472 1 641 — 642

Costs of common stock issued under public equity offering — — ( 98 ) — ( 98 )

Share-based compensation expense — — 535 — 535

Vested restricted stock units 6,665 — ( 3 ) — ( 3 )

Other — — ( 1 ) ( 1 ) ( 2 )

Net loss — — — ( 12,536 ) ( 12,536 )

Balance at September 30, 2022 53,852,126 $ 54 $ 190,982 $ ( 298,855 ) $ ( 107,819 )

See accompanying notes to the condensed consolidated financial statements.

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AQUESTIVE THERAPEUTICS, INC.

1 unchanged sentence

(In thousands)

Six Months Ended

Nine Months Ended

September 30,

Operating activities:

13 unchanged sentences

Deferred revenue 2,439 10,509

Net cash provided by (used for) operating activities

Loans payable — 675

Net cash used for operating activities

( 1,438 ) ( 18,235 )

1 unchanged sentence

Capital expenditures ( 979 ) ( 998 )

Additions to intangible assets — ( 1,500 )

Net cash used for investing activities ( 979 ) ( 2,498 )

7 unchanged sentences

Payments for taxes on share-based compensation ( 11 ) ( 3 )

Net cash (used for) provided by financing activities

( 4,918 ) 11,496

Net cash provided by financing activities

Net (decrease) increase in cash and cash equivalents ( 2,356 ) ( 9,375 )

5 unchanged sentences

See accompanying notes to the condensed consolidated financial statements.

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AQUESTIVE THERAPEUTICS, INC.

22 unchanged sentences

The Company discontinued using the 2021 Prospectus upon the filing of the prospectus supplement on September 7, 2022.

For the six months ended June 30, 2023, the Company sold 3,060,559 shares of Common Stock under the ATM which provided net proceeds of approximately $ 5,090 after deducting commissions and other transaction costs of $ 312 .

This ATM facility has approximately $ 28,014 worth of shares of Common Stock available at June 30, 2023.

For the six months ended June 30, 2022, the Company sold 1,404,878 shares which provided net proceeds of approximately $ 2,473 after deducting commissions and other transaction costs of $ 139 .

For the nine months ended September 30, 2023, the Company sold 3,184,740 shares of Common Stock under the ATM which provided net proceeds of approximately $ 5,274 after deducting commissions and other transaction costs of $ 392 .

This ATM facility has approximately $ 27,750 worth of shares of Common Stock available at September 30, 2023.

For the nine months ended September 30, 2022, the Company sold 1,906,350 shares which provided net proceeds of approximately $ 3,017 after deducting commissions and other transaction costs of $ 237 .

On April 12, 2022, the Company entered into a purchase agreement (the "Lincoln Park Purchase Agreement") with Lincoln Park Capital Fund, LLC ("Lincoln Park"), which provides that, upon the terms and subject to the conditions and limitations set forth in the Lincoln Park Purchase Agreement, the Company has the right, but not the obligation, to sell to Lincoln Park up to $ 40,000 worth of shares of Common Stock from time to time over the 36 -month term of the Lincoln Park Purchase Agreement.

2 unchanged sentences

In 2022, the Company sold 1,600,000 shares, in addition to 236,491 commitment shares, which provided proceeds of approximately $ 1,987 in connection with the Lincoln Park Purchase Agreement .

The Company did not sell shares in connection with the Lincoln Park Purchase Agreement in the six months ended June 30, 2023.

On June 6, 2022, the Company entered into securities purchase agreements ("Securities Purchase Agreements") with certain purchasers named therein.

The Company did not sell shares in connection with the Lincoln Park Purchase Agreement in the nine months ended September 30, 2023.

On June 6, 2022, the Company entered into securities purchase agreements (the "Securities Purchase Agreements") with certain purchasers named therein.

The Securities Purchase Agreements provided for the sale and issuance by the Company of an aggregate of:

(i) 4,850,000 shares of Common Stock, (ii) pre-funded warrants to purchase up to 4,000,000 shares of Common Stock and (iii) Common Stock warrants to purchase up to 8,850,000 shares of Common Stock.

(i) 4,850,000 shares of Common Stock, (ii) pre-funded warrants to purchase up to 4,000,000 shares of Common Stock and (iii) Common Stock warrants (the "Common Stock Warrants") to purchase up to 8,850,000 shares of Common Stock.

The Company received net proceeds of approximately $ 7,796 , after deducting placement agent fees and expenses and estimated offering expenses payable by the Company.

The Company used the net proceeds from the offering for general corporate purposes.

The pre-funded warrants were fully exercised in 2022 and 3,689,452 Common Stock warrants issued pursuant to the Securities Purchase Agreements with proceeds of approximately $ 3,542 were exercised during the six months ended June 30, 2023.

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The pre-funded warrants were fully exercised in 2022.

On June 14, 2023, warrants to purchase

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3,689,452 shares of Common Stock issued pursuant to the Securities Purchase Agreements were exercised with proceeds paid to the Company thereon of approximately $ 3,542 .

On August 1, 2023, the Company entered into an Inducement Offer to Exercise Common Stock Purchase Warrants (the “Letter Agreement”) with the holder (the “Exercising Holder”) of the remaining warrants to purchase 5,000,000 shares of Common Stock (the “Existing Warrants”) under the Securities Purchase Agreements.

Pursuant to the Letter Agreement, the Exercising Holder and the Company agreed that the Exercising Holder would exercise all of its Existing Warrants for shares of Common Stock underlying the Existing Warrants at $ 0.96 per share of Common Stock, the current exercise price of the Existing Warrants.

Under the Letter Agreement, in consideration of the Exercising Holder exercising the Existing Warrants, the Company issued to the Exercising Holder new warrants to purchase up to an aggregate of 2,750,000 shares of Common Stock (the “New Warrants”).

The New Warrants are exercisable after February 2, 2024, expire on February 2, 2029 and are issuable only for cash, subject to exception if the shares of Common Stock underlying the New Warrants are not registered in accordance with the terms of the Letter Agreement, in which case the New Warrants may also be exercised, in whole or in part, at such time by means of a “cashless exercise”.

The New Warrants have an exercise price of $ 2.60 per share.

On August 2, 2023, 5,000,000 of the Existing Warrants were exercised pursuant to the Securities Purchase Agreements with the Exercising Holder, with the Company receiving gross proceeds therefrom of $ 4,800 .

In total, warrants to exercise 8,689,452 shares of Common Stock issued pursuant to the Securities Purchase Agreements, with proceeds of approximately $ 8,342 paid to the Company thereon, were exercised during the nine months ended September 30, 2023.

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As an emerging growth company, the Company has elected to take advantage of the extended transition period afforded by the Jumpstart Our Business Startups Act for the implementation of new or revised accounting standards and, as a result, the Company will comply with new or revised accounting standards no later than the relevant dates on which adoption of such standards is required for emerging growth companies.

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

Recent Accounting Pronouncements Adopted as of June 30, 2023:

The Company believes that the impact of recently issued accounting

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

Recent Accounting Pronouncements Adopted as of September 30, 2023:

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.

3 unchanged sentences

The adoption of this guidance did not have a material impact on the Company’s 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.

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.

1 unchanged sentence

The adoption of this guidance did not have a material impact on the Company’s consolidated financial statements.

In September 2022, the FASB issued ASU 2022-04, Liabilities-Supplier Finance Programs (Topic 405-50) Disclosure of Supplier Finance Program Obligations ,” to increase the transparency of supplier finance programs regarding the use of such programs by the buyer party (that is, the disclosing entity) and the programs’ effects on an entity’s working capital,

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liquidity, and cash flows.

ASU 2022-04 is effective for all entities for fiscal years beginning after Dec.

15, 2022, and interim periods within those fiscal years.

The requirement on rollforward information is effective for fiscal years beginning after Dec.

In September 2022, the FASB issued ASU 2022-04, Liabilities-Supplier Finance Programs (Topic 405-50) Disclosure of Supplier Finance Program Obligations , to increase the transparency of supplier finance programs regarding the use of such programs by the buyer party (that is, the disclosing entity) and the programs’ effects on an entity’s working capital, liquidity, and cash flows.

ASU 2022-04 is effective for all entities for fiscal years beginning after December 15, 2022, and interim periods within those fiscal years.

The requirement on rollforward information is effective for fiscal years beginning after December 15, 2023.

Early adoption is permitted.

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 June 30, 2023:

Recent Accounting Pronouncements Not Adopted as of September 30, 2023:

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) :

4 unchanged sentences

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.

The Company is currently evaluating the impact from the adoption of ASU 2020-06 on its consolidated financial statements but does not expect to have a material impact on the Company’s consolidated financial statements.

In June 2022, the FASB issued ASU 2022-03, Fair Value Measurement (Topic 820) :

2 unchanged sentences

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.

Risks and Uncertainties

1 unchanged sentence

The Company’s cash requirements for 2023 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 June 30, 2023, the Company had $ 22,436 of cash and cash equivalents.

As of September 30, 2023, the Company had $ 24,917 of cash and cash equivalents.

The Company has experienced a history of net losses in prior periods.

The Company's accumulated deficits totaled $( 308,931 ) as of June 30, 2023.

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

The Company’s accumulated deficits totaled $( 310,966 ) as of September 30, 2023.

The net losses and accumulated deficits were partially offset by gross margins from

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license fees, milestone and royalty payments from commercial licensees and co-development parties.

The Company’s funding requirements have been met by its cash and cash equivalents, as well as its existing equity and debt offerings, including the 12.5 % Senior Secured Notes (as hereinafter defined).

The Company began utilizing its ATM facility in November 2020.

Since inception to June 30, 2023, the Company sold 13,402,516 shares of Common Stock which generated net cash proceeds of approximately $ 44,796 , net of commissions and other transaction costs of $ 2,395 .

For the six months ended June 30, 2023, the Company sold 3,060,559 shares of Common Stock which provided net proceeds of approximately $ 5,090 , net of commissions and other transaction costs of $ 312 .

This ATM facility has approximately $ 28,014 worth of shares of Common Stock available at June 30, 2023.

While the Company’s ability to execute its business objectives and achieve profitability over the longer term cannot be assured, the Company's on-going business, existing cash, expense management activities, including, but not limited to potentially ceasing nearly all R&D activities, as well as access to the equity capital markets, including through its ATM facility and under the Lincoln Park Purchase Agreement, provide near term liquidity for the Company to fund its operating needs, including making the principal and interest payments on the 12.5 % Senior Secured Notes, for at least the next twelve months as it continues to execute its business strategy.

See Note 13, 12.5% Senior Secured Notes and Loans Payable for details.

Since inception to September 30, 2023, the Company sold 13,526,697 shares of Common Stock which generated net cash proceeds of approximately $ 44,979 , net of commissions and other transaction costs of $ 2,476 .

For the nine months ended September 30, 2023, the Company sold 3,184,740 shares of Common Stock which provided net proceeds of approximately $ 5,274 , net of commissions and other transaction costs of $ 392 .

This ATM facility has approximately $ 27,750 worth of shares of Common Stock available at September 30, 2023.

While the Company’s ability to execute its business objectives and achieve profitability over the longer term cannot be assured, the Company’s on-going business, existing cash, expense management activities, including, but not limited to potentially ceasing nearly all R&D activities, refinancing the 12.5 % Senior Secured Notes, as well as access to the equity capital markets, including through its ATM facility and under the Lincoln Park Purchase Agreement, provide near term liquidity for the Company to fund its operating needs, including making the interest payments on the 13.5 % Senior Secured Notes, for at least the next twelve months as it continues to execute its business strategy.

See Note 13, 12.5% Senior Secured Notes and Loans Payable and Note 20, Subsequent Events for details.

Revenues and Trade Receivables, Net

1 unchanged sentence

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

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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.

To achieve this core principle, a five-step model is applied that includes (1) identifying the contract with a customer, (2) identifying the performance obligation in the contract, (3) determining the transaction price, (4) allocating the transaction price to the performance obligations, and (5) recognizing when, or as, an entity satisfies a performance obligation.

Performance Obligations

16 unchanged sentences

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.

Such other obligations provided by the Company generally include

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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.

9 unchanged sentences

For milestone payments to be received upon the achievement of a sales threshold, the revenue from the milestone payments is recognized at the later of when the actual sales are incurred or the performance obligation to which the sales relate to has been satisfied.

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Contract Assets - in certain situations, customer contractual payment terms provide for invoicing in arrears.

2 unchanged sentences

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

As of June 30, 2023, and December 31, 2022, such contract assets were $ 2,172 and $ 2,139 , respectively, consisting primarily of products and services provided under specific contracts to customers for which earnings processes have been met prior to shipment of goods or full delivery of completed services, as well as estimated receivables from contracts with 3rd parties.

As of September 30, 2023, and December 31, 2022, such contract assets were $ 1,744 and $ 2,139 , respectively, consisting primarily of products and services provided under specific contracts to customers for which earnings processes have been met prior to shipment of goods or full delivery of completed services, as well as estimated receivables from contracts with 3rd parties.

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

3 unchanged sentences

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

As of June 30, 2023 and December 31, 2022, such contract liabilities were $ 37,112 and $ 32,930 , respectively.

As of September 30, 2023 and December 31, 2022, such contract liabilities were $ 35,369 and $ 32,930 , respectively.

The Company’s revenues were comprised of the following:

Three Months Ended June 30, Six Months Ended

Three Months Ended September 30, Nine Months Ended

September 30,

2023 2022 2023 2022

4 unchanged sentences

Total revenues $ 13,002 $ 11,463 $ 37,377 $ 36,998

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Disaggregation of Revenue

The following table provides disaggregated net revenue by geographic area:

Three Months Ended June 30, Six Months Ended

Three Months Ended September 30, Nine Months Ended

September 30,

2023 2022 2023 2022

5 unchanged sentences

Trade and other receivables, net consist of the following:

September 30,

2023 December 31,

4 unchanged sentences

Trade and other receivables, net $ 8,550 $ 4,704

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

September 30,

2023 December 31,

10 unchanged sentences

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

The following table provides a summary of activity with respect to sales-related allowances and accruals for the six months ended June 30, 2023:

The following table provides a summary of activity with respect to sales-related allowances and accruals for the nine months ended September 30, 2023:

Total Sales-Related Allowances

2 unchanged sentences

Reclassifications $ ( 582 )

Balance at June 30, 2023 $ —

Total reductions of gross product sales from sales-related allowances and accruals were $ 0 for the six months ended June 30, 2023 due to the outlicensing of Sympazan.

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

The accrued balances relative to these provisions included in Trade and other receivables, net and Accounts payable and accrued expenses were $ 0 and $ 636 , respectively, as of June 30, 2023, and $ 669 and $ 1,012 , respectively, as of December 31, 2022.

Balance at September 30, 2023 $ —

Total reductions of gross product sales from sales-related allowances and accruals were $ 0 for the nine months ended September 30, 2023 due to the outlicensing of Sympazan.

Accruals for returns allowances and prompt pay discounts are reflected as a direct reduction of trade receivables and accruals for wholesaler service fees, co-pay support redemptions and

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rebates as current liabilities.

The accrued balances relative to these provisions included in Trade and other receivables, net and Accounts payable and accrued expenses were $ 0 and $ 659 , respectively, as of September 30, 2023, and $ 669 and $ 1,012 , respectively, as of December 31, 2022.

Concentration of Major Customers

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

For the six months ended June 30, 2023, Indivior and Hypera exceeded the 10% threshold for revenue and represented approximately 74 % and 14 % of total revenue, respectively.

As of June 30, 2023, Indivior exceeded the 10% threshold for outstanding receivables and represented 75 % respectively, of outstanding receivables.

For the six months ended June 30, 2022, Indivior exceeded the 10% threshold for revenue and represented approximately 77 % of total revenue.

As of December 31, 2022, Indivior exceeded the 10% threshold for outstanding receivables and represented 80 % of total trade and other receivables.

For the nine months ended September 30, 2023, Indivior represented approximately 79 % of total revenue.

As of September 30, 2023, Indivior and Assertio Holdings, Inc.

(“Assertio”) represented 71 % and 10 %, respectively, of outstanding receivables.

For the nine months ended September 30, 2022, Indivior represented approximately 75 % of total revenue.

As of December 31, 2022, Indivior and Cardinal Health represented 60 % and 12 %, respectively, of total trade and other receivables.

Material Agreements

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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

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Pharmaceutical Ingredients ("API") for the manufacture of Suboxone directly from 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.

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The Indivior Amendment was entered into for the primary purpose of amending the Agreement as follows:

(i) extending the term of the Agreement until August 16, 2026 and thereafter providing for automatic renewal terms of successive one year periods unless Indivior delivers notice to the Company, at least twelve months prior to the expiration of the then current term, of Indivior’s intent not to renew, subject to the earlier termination rights of the parties under the Agreement, and providing that the Agreement will not automatically renew for any renewal term beginning after the expiration of the last to expire of the product patents;

and (ii) agreeing to transfer pricing and payment terms for supplied product.

and (ii) agreeing to transfer pricing and payment terms for supplied product under the Indivior License Agreement.

Supplemental Agreement with Indivior

6 unchanged sentences

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

Further payments under the Indivior Supplemental Agreement were suspended until adjudication of related patent infringement litigation is finalized.

Further payments under the Indivior Supplemental Agreement were suspended until adjudication of

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related patent infringement litigation is finalized.

No further payments are due to the Company under the Indivior Supplemental Agreement.

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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,

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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.

9 unchanged sentences

In exchange for the sale of these rights, we received an upfront payment from Marathon 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 June 30, 2023 under the Monetization Agreement.

We have received an aggregate amount of $ 50,000 through September 30, 2023 under the Monetization Agreement.

Under the Monetization Agreement, additional 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 public forecast by Sunovion of estimated KYNMOBI sales as of June 30, 2023, the Company likely will not receive any of the additional contingent payments under the Monetization Agreement.

Based on the current public forecast by Sunovion of estimated KYNMOBI sales as of September 30, 2023, the Company likely will not receive any of the additional contingent payments under the Monetization Agreement.

See Note 15, Sale of Future Revenue for further details on the accounting for the Monetization Agreement.

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Agreement to Terminate CLA with Zevra Therapeutics, Inc.

18 unchanged sentences

Kendall’s compliance with a customary release of claims entered into at the time:

(i) a cash payment consisting of the sum of any previously unpaid base salary through

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the Termination Date and any accrued and unused vacation time for the 2022 calendar year;

(i) a cash payment consisting of the sum of any previously unpaid base salary through the Termination Date and any accrued and unused vacation time for the 2022 calendar year;

(ii) a cash payment consisting of his pro-rata portion of his target bonus in the amount of $ 280 ;

17 unchanged sentences

Effective March 27, 2023, the Company amended the Pharmanovia Agreement (the “Pharmanovia Amendment”) to expand the scope of territory for the license of Libervant to cover the rest of the world, excluding the U.S., Canada and China.

Under the Pharmanovia Amendment, Pharmanovia will be responsible for seeking appropriate regulatory approval in the expanded territories, which includes Latin America, Africa and Asia Pacific.

Under the Pharmanovia Amendment, Pharmanovia will be responsible for seeking applicable regulatory approval in the expanded territories, which includes Latin America, Africa and Asia Pacific.

Pursuant to the terms of the Pharmanovia Amendment, the Company received a non-refundable payment of $ 2,000 from Pharmanovia in connection with the execution of the Pharmanovia Amendment.

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Licensing Agreement with Assertio Holdings, Inc.

Effective as of October 26, 2022, the Company entered into a License Agreement with Otter Pharmaceuticals, LLC, a subsidiary of Assertio Holdings, Inc.

("Assertio"), to license Sympazan ® (clobazam) oral film for the adjunctive treatment of seizures associated with Lennox‐Gastaut syndrome in patients aged two years of age and older (the “Assertio Agreement”).

Effective as of October 26, 2022, the Company entered into a License Agreement with Otter Pharmaceuticals, LLC, a subsidiary of Assertio to license Sympazan ® (clobazam) oral film for the adjunctive treatment of seizures associated with Lennox‐Gastaut syndrome in patients aged two years of age and older (the “Assertio Agreement”).

Under the terms of the Assertio Agreement, the Company granted to Assertio an exclusive, worldwide license of its intellectual property for Sympazan during the term of the Assertio License Agreement for an upfront payment of $ 9,000 .

11 unchanged sentences

• Level 2 — Observable prices that are based on inputs not quoted on active markets but corroborated by market data.

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

9 unchanged sentences

See Note 14 , Warrants for further information on these warrants.

On August 1, 2023, the Company entered into the Letter Agreement with the Exercising Holder of the remaining warrants to purchase 5,000,000 of the shares of Common Stock.

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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.

See Note 14 , Warrants for further information on these warrants.

Inventories, Net

The components of Inventory, net are as follows:

September 30,

2023 December 31,

4 unchanged sentences

Property and Equipment, Net

Lives June 30,

Lives September 30,

2023 December 31,

9 unchanged sentences

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

Total depreciation, amortization, and impairment related to property and equipment was $ 250 and $ 655 for the three months ended June 30, 2023 and 2022, respectively.

For the respective six month periods, these expenses totaled $ 536 and $ 1,369 .

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Total depreciation, amortization, and impairment related to property and equipment was $ 218 and $ 557 for the three months ended September 30, 2023 and 2022, respectively.

For the respective nine month periods, these expenses totaled $ 760 and $ 1,926 .

Right-of-Use Assets and Lease Obligations

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These leases, as amended, provide remaining terms between 4.5 and 10.0 years, including renewal options expected to be exercised to extend the lease periods.

During the six months ended June 30, 2023, the Company recognized a lease supporting its manufacturing facilities as a finance lease.

During the nine months ended September 30, 2023, the Company recognized a lease supporting its manufacturing facilities as a finance lease.

Commitments under finance leases are not significant, and are included in Property and equipment, net, Loans payable, current and Loans payable, net on the consolidated balance sheet.

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The Company’s lease costs are recorded in manufacture and supply, research and development and selling, general and administrative expenses in its Consolidated Statements of Operations and Comprehensive Income (Loss).

For the three and six months ended June 30, 2023, total operating lease expenses totaled $ 452 and $ 870 , respectively, including variable lease expenses such as common area maintenance and operating costs of $ 121 and $ 229 , respectively.

For the three and six months ended June 30, 2022, total operating lease expenses totaled $ 424 and $ 843 , respectively, including variable lease expenses such as common area maintenance and operating costs of $ 127 and $ 223 , respectively.

For the three and nine

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months ended September 30, 2023, total operating lease expenses totaled $ 438 and $ 1,308 , respectively, including variable lease expenses such as common area maintenance and operating costs of $ 109 and $ 338 , respectively.

For the three and nine months ended September 30, 2022, total operating lease expenses totaled $ 424 and $ 1,267 , respectively, including variable lease expenses such as common area maintenance and operating costs of $ 110 and $ 333 , respectively.

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

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

September 30,

2023 December 31,

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Intangible assets, net 1,317 1,435

Amortization expense was $ 39 and $ 13 for each of the three-month periods ended June 30, 2023 and 2022.

For the corresponding six-month periods, these expenses totaled $ 78 and $ 25 , respectively.

Amortization expense was $ 39 and $ 39 for each of the three-month periods ended September 30, 2023 and 2022.

For the corresponding nine-month periods, these expenses totaled $ 117 and $ 64 , respectively.

During the remaining life of the purchased intangible assets, estimated amortization expense is $ 39 for the remainder of 2023 and $ 156 in 2024, respectively.

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Other Non-current Assets

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

September 30,

2023 December 31,

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Total other non-current assets $ 5,454 $ 6,451

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 eight $ 1,000 annual minimum guaranteed royalty payment that is due to the Company.

In connection with the Monetization Agreement, the Company performed an assessment under ASC 860, Transfer and Servicing to determine whether the existing receivable was transferred to Marathon and concluded it was not transferred.

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

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Accrued Expenses

Accrued expenses consisted of the following:

September 30,

2023 December 31,

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Existing deferred discounts and loan origination fees on the 12.5 % Notes are amortized as an adjustment of interest expense over the remaining term of modified debt using the effective interest method.

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

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This repurchase offer is capped at 30 % of the cash proceeds received by the Company as the contingent milestones are attained, if any, up through June 30, 2025.

A valuation study was performed by an independent third party appraiser and updated as of June 30, 2023.

Based on the valuation study, the put option was valued at $ 0.00 and has been recorded in Other non-current liabilities.

A valuation study was performed by an independent third party appraiser and updated as of September 30, 2023.

Based on the valuation study, the put option is valued at $ 0.00 and 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.

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market access (the "Second Additional Securities").

Under the Third Supplemental Indenture, the Company agreed that, if and to the extent that the Company accessed these re-openers, it would grant to the noteholders 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 Common Stock at the warrant grant date.

Under the Third Supplemental Indenture, the Company agreed that, if and to the extent that the Company accessed these re-openers, it would

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grant to the noteholders 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 Common Stock at the warrant grant date.

On October 7, 2021, the Company entered into the Fourth Supplemental Indenture, pursuant to which the amortization schedule for the 12.5 % Notes was amended to provide for the date of the first amortization payment to be extended from September 30, 2021 to March 30, 2023.

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Additionally, the Company recognized a loss on the extinguishment of debt of $ 13,822 for fees and expenses related to the Fourth Supplemental Indenture during the fourth quarter of 2021.

As of June 30, 2023, the Company completed its $ 2,700 Consent Fee payment to the holders of the 12.5 % Notes.

On May 13, 2022, pursuant to the Fifth Supplemental Indenture, the holders of the 12.5 % Notes further extended to March 31, 2023 from June 30, 2022, the Company's ability to access, at the Company's option, $ 30,000 of 12.5 % Notes re-openers under the Indenture, subject to the full approval of Libervant by the FDA for sale in the United States, which full approval including U.S.

market access for Libervant.

As of September 30, 2023, the Company paid its $ 2,700 Consent Fee payment to the holders of the 12.5 % Notes in full.

On May 13, 2022, pursuant to the Fifth Supplemental Indenture, the holders of the 12.5 % Notes further extended to March 31, 2023 from June 30, 2022, the Company’s ability to access, at the Company’s option, $ 30,000 of 12.5 % Notes re-openers under the Indenture, subject to the full approval of Libervant by the FDA for market access in the United States.

Because FDA approval for U.S.

market access was not obtained by March 31, 2023, the Company’s option to access the re-openers expired on such date.

A debt maturity table is presented below:

Remainder of 2023 $ 9,171

Total $ 38,975

The 12.5 % Notes provide a stated fixed interest rate of 12.5 %, payable quarterly in arrears, with the final quarterly principal repayment of the 12.5 % Notes due at maturity on June 30, 2025.

As of June 30, 2023, the Company recorded its principal payments as Loans payable, current and Loans payable, net on its Condensed Consolidated Balance Sheet.

As of September 30, 2023, the Company recorded its principal payment obligations as Loans payable, current and Loans payable, net on its Condensed Consolidated Balance Sheet.

The Company may elect, at its option, to redeem the 12.5 % Notes at any time at premiums that range from 101.56 % of outstanding principal if prepayment occurs on or after the fifth anniversary of the issue date of the Initial Notes to 112.50 % if payment occurs during the third year after the issuance of the 12.5% Notes.

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The Company also paid $ 353 in prepayment premium as result of the early retirement of debt which was reflected as a loss on extinguishment of debt.

The prepayments along with the scheduled principal repayment in the first half of 2023 reduced the net balance of the 12.5 % Notes outstanding in the aggregate to $ 38,975 as of June 30, 2023.

The prepayments along with the scheduled principal repayments made during 2023 reduced the net balance of the 12.5 % Notes outstanding in the aggregate to $ 38,975 as of September 30, 2023.

In accordance with the third quarter invoice, the third quarter principal and interest payments of $ 4,585 and $ 1,218 , respectively, were made on October 2, 2023.

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

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

Amortization expense arising from deferred debt issuance costs and debt discounts related to

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the 12.5 % Notes for the three and six months ended June 30, 2023 were $ 4 and $ 8 , respectively, while comparative amortization expense for the three and six months ended June 30, 2022 were $ 4 and $ 8 , respectively.

Unamortized deferred debt issuance costs and deferred debt discounts totaled $ 19 and $ 27 as of June 30, 2023 and December 31, 2022, respectively.

Amortization expense arising from deferred debt issuance costs and debt discounts related to the 12.5 % Notes for the three and nine months ended September 30, 2023 were $ 3 and $ 11 , respectively, while comparative amortization expense for the three and nine months ended September 30, 2022 were $ 4 and $ 12 , respectively.

Unamortized deferred debt issuance costs and deferred debt discounts totaled $ 16 and $ 27 as of September 30, 2023 and December 31, 2022, 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 the holders of the 12.5 % Notes with perfected security interests in substantially all of the Company’s assets.

A debt maturity table prior to the refinancing of the Company's debt on November 1, 2023 and described in Note 20, Subsequent Events is presented below:

Remainder of 2023 $ 9,171

Total $ 38,975

In line with the debt refinancing as discussed in Note 20, Subsequent Events and in accordance with ASC 470, Debt , the amounts for the Loans payable, current and Loans payable, net have been adjusted such that Loans payable, current reflects the current portion of the principal payment on the 12.5 % Senior Secured notes due and paid on October 2, 2023 in the amount of $ 4,585 , paid out of working capital, and the Loans payable, net of $ 34,390 represents the amount that has been repaid from

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the net proceeds of the Company's offering of its new 13.5 % Senior Secured Notes due 2028 (the “13.5% Notes”) refinancing transaction.

A revised debt maturity table subsequent to the debt refinancing on November 1, 2023 is presented below.

Remainder of 2023 $ —

Total $ 45,000

Warrants Issued to 12.5 % Senior Secured Noteholders

Warrants that were issued in conjunction with the Initial Notes (the “Initial Warrants”) and Additional Notes (the “Additional Warrants”) expire on June 30, 2025 and entitle the noteholders to purchase up to 2,143,000 shares of Common Stock and included specified registration rights.

Warrants that were issued in conjunction with the Initial Notes (the “Initial Warrants”) and Additional Notes (the “Additional Warrants”) expire on June 30, 2025 and entitled the noteholders to purchase up to 2,143,000 shares of Common Stock and included specified registration rights.

Management estimated the fair value of the Initial Warrants to be $ 6,800 and the Additional Warrants to be $ 735 , each based on an assessment by an independent third-party appraiser.

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Additionally, since the Initial Warrants and Additional 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 Company’s unaudited Condensed Consolidated Balance Sheet.

There were no warrants exercised as it relates to the Initial Warrants and the Additional Warrants during the six months ended June 30, 2023 or 2022, respectively.

There were no warrants exercised as it relates to the Initial Warrants and the Additional Warrants during the nine months ended September 30, 2023 or 2022, respectively.

Warrants Issued Under Securities Purchase Agreements

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The pre-funded warrants entitled purchasers to purchase up to 4,000,000 shares of Common Stock and were exercised in full during the year ended December 31, 2022.

The Common Stock warrants expire on June 8, 2027 and entitle the purchasers to purchase up to 8,850,000 shares of Common Stock at a price ranging from $ 0.96 to $ 1.09 per share.

The Common Stock warrants expire on June 8, 2027 and entitled the purchasers to purchase up to 8,850,000 shares of Common Stock at a price ranging from $ 0.96 to $ 1.09 per share.

Management estimated the fair value of the pre-funded warrants and Common Stock warrants to be $ 5,874 based on an assessment by an independent third-party appraiser.

The fair value of the pre-funded and Common Stock warrants is treated as equity and presented in Additional Paid-in Capital in the Company’s unaudited Condensed Consolidated Balance Sheet.

During the six months ended June 30, 2023, 3,689,452 Common Stock warrants issued pursuant to the Securities Purchase Agreements with proceeds of approximately $ 3,542 were exercised.

On June 14, 2023, 3,689,452 Common Stock warrants issued pursuant to the Securities Purchase Agreements were exercised with proceeds of approximately $ 3,542 .

On August 1, 2023, the Company entered into the Letter Agreement with the Exercising Holder of 5,000,000 of the remaining Common Stock Warrants.

The New Warrants are exercisable after February 2, 2024, expire on February 2, 2029 and are issuance only for cash, subject to exception if the shares of Common Stock underlying the New Warrants are not registered in accordance with the terms of the Letter Agreement, in which case the New Warrants may also be exercised, in whole or in part, at such time by means of a "cashless exercise".

The New Warrants have an exercise price of $ 2.60 per share.

On August 2, 2023, 5,000,000 of the Existing Warrants were exercised pursuant to the Securities Purchase Agreement with the Exercising Holder, with the Company receiving gross proceeds therefrom of $ 4,800 .

In total, 8,689,452 Common Stock warrants issued pursuant to the Securities Purchase Agreements with proceeds of approximately $ 8,342 were exercised during the nine months ended September 30, 2023.

In addition to the warrants to purchase 2,750,000 shares of Common Stock described above, there remain outstanding warrants to purchase 160,548 shares of Common Stock of $ 1.09 of the original warrants to purchase 8,850,000 shares of Common Stock issued in connection with the Securities Purchase Agreements.

Lastly, there are warrants to purchase 1,714,429

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shares of Common Stock outstanding related to the original issuance of the 12.5 % Notes prior to the debt refinancing described above in this Note 14.

Sale of Future Revenue

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

The Company has received an aggregate amount of $ 50,000 through June 30, 2023 under the Monetization Agreement.

The Company has received an aggregate amount of $ 50,000 through September 30, 2023 under the Monetization Agreement.

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

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The accounting liabilities, as adjusted over time, resulting from this transaction and any non-cash interest expenses associated with those liabilities do not and will not represent any obligation to pay or any potential future use of cash.

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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.

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Changes to any of these factors could result in increases or decreases in both royalty revenue and interest expense related to the sale of future revenue.

As a result, the Company discontinued recording interest expense related to the sale of future revenue.

The following table shows the activity of the liability related to the sale of future revenue for the six months ended June 30, 2023:

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The following table shows the activity of the liability related to the sale of future revenue for the nine months ended September 30, 2023:

Liability related to the sale of future revenue, net at December 31, 2022

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Basic net earnings (loss) per share is calculated by dividing net income (loss) by the weighted-average number of common shares.

The following table reconciles the basic to diluted weighted average shares outstanding for the six months ended June 30, 2023.

The following table reconciles the basic to diluted weighted average shares outstanding for the nine months ended September 30, 2023.

Diluted EPS is adjusted by the effect of dilutive securities, including options and awards under the Company’s equity compensation plans, warrants and the Employee Stock Purchase Plan ("ESPP").

The treasury method was used to calculate the dilutive shares.

The anti-dilutive options, awards and warrants for the six months ended June 30, 2023 are included in the footnotes below.

As a result of the Company’s net loss incurred for the three months ended June 30, 2023 and the three and six months ended June 30, 2022, all potentially dilutive instruments outstanding would have anti-dilutive effects on per-

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share calculations.

Therefore, basic and diluted net loss per share were the same for the three months ended June 30, 2023 and the three and six months ended June 30, 2022 as reflected below.

The anti-dilutive options, awards and warrants for the nine months ended September 30, 2023 are included in the footnotes below.

As a result of the Company’s net loss incurred for the three months ended September 30, 2023 and the three and nine months ended September 30, 2022, all potentially dilutive instruments outstanding would have anti-dilutive effects on per-share calculations.

Therefore, basic and diluted net loss per share were the same for the three months ended September 30, 2023 and the three and nine months ended September 30, 2022 as reflected below.

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2023 2022 2023 2022

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Earnings (Loss) per common share – diluted $ ( 0.03 ) $ ( 0.23 ) $ — $ ( 0.90 )

(a) For the three months ended June 30, 2023 and 2022 and the six months ended June 30, 2023 and 2022, outstanding stock options of 5,919,522 , 5,284,447 , 5,794,522 and 5,284,447 shares of Common Stock, respectively, were anti-dilutive and excluded from the computation of diluted EPS.

(b) For the three months ended June 30, 2023 and 2022 and the six months ended June 30, 2023 and 2022, outstanding restricted stock units of 2,477,738 , 169,950 , 743,438 and 169,950 shares of Common Stock, respectively were anti-dilutive and excluded from the computation of diluted EPS.

(c) For the three months ended June 30, 2023 and 2022 and the six months ended June 30, 2023 and 2022, outstanding warrants of 6,874,977 , 10,564,429 , 1,714,429 and 10,564,429 shares of Common Stock, respectively, were anti-dilutive and excluded from the computation of diluted EPS.

(a) For the three months ended September 30, 2023 and 2022 and the nine months ended September 30, 2023 and 2022, outstanding stock options of 5,912,647 , 5,967,492 , 5,339,130 and 5,967,492 shares of Common Stock, respectively, were anti-dilutive and excluded from the computation of diluted EPS.

(b) For the three months ended September 30, 2023 and 2022 and the nine months ended September 30, 2023 and 2022, outstanding restricted stock units of 3,280,313 , 168,050 , 605,650 and 168,050 shares of Common Stock, respectively were anti-dilutive and excluded from the computation of diluted EPS.

(c) For the three months ended September 30, 2023 and 2022 and the nine months ended September 30, 2023 and 2022, outstanding warrants of 4,464,429 , 10,564,429 , 4,464,429 and 10,564,429 shares of Common Stock, respectively, were anti-dilutive and excluded from the computation of diluted EPS.

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Share-Based Compensation

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Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2023 2022 2023 2022

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Total share-based compensation expenses $ 774 $ 535 $ 1,766 $ 3,669

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Share-Based Compensation Equity Awards

The following tables provide information about the Company’s restricted stock unit and stock option activity during the six month period ended June 30, 2023:

The following tables provide information about the Company’s restricted stock unit and stock option activity during the nine month period ended September 30, 2023:

Restricted Stock Unit Awards (RSUs) - Time-based:

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Forfeited ( 57 ) $ 2.03

Unvested as of June 30, 2023 1,812 $ 0.89

Vested and expected to vest as of June 30, 2023 1,644 $ 0.89

Unvested as of September 30, 2023 1,948 $ 0.97

Vested and expected to vest as of September 30, 2023 1,788 $ 0.97

Restricted Stock Unit Awards (RSUs) - Performance-based:

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Forfeited — —

Unvested as of June 30, 2023 666 $ 2.04

Vested and expected to vest as of June 30, 2023 583 $ 2.04

As of June 30, 2023, $ 1,185 and $ 1,225 of unrecognized compensation expense related to unvested time-based restricted stock units and performance based unvested restricted stock units, respectively, are expected to be recognized over a weighted average period of 2.64 years and 2.85 years, respectively, from the date of grant.

Unvested as of September 30, 2023 1,332 $ 2.03

Vested and expected to vest as of September 30, 2023 1,166 $ 2.03

2022 Inducement Equity Incentive Plan

In accordance with Nasdaq Listing Rule 5635(c)(4), the Company adopted the 2022 Equity Inducement Plan approved by the Compensation Committee of the Board of Directors of the Company effective as of July 29, 2022.

There were 150,000 awards granted and outstanding under this Plan as of September 30, 2023 and included in the time-based restricted stock units granted in the table above.

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As of September 30, 2023, $ 1,243 and $ 2,320 of unrecognized compensation expense related to unvested time-based restricted stock units and unvested performance-based restricted stock units, respectively, are expected to be recognized over a weighted average period of 2.43 years and 2.59 years, respectively, from the date of grant.

Stock Option Awards:

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Granted 150 2.02

Exercised, Forfeited, Expired ( 258 ) 2.30

Outstanding as of June 30, 2023 5,920 5.54

Vested and expected to vest as of June 30, 2023 5,824 $ 5.59

Exercisable as of June 30, 2023 4,322 $ 6.69

The fair values of stock options granted during the six months ended June 30, 2023 were estimated using the Black-Scholes pricing model based on the following assumptions:

Forfeited/Expired

Outstanding as of September 30, 2023 5,913 $ 5.54

Vested and expected to vest as of September 30, 2023 5,836 $ 5.59

Exercisable as of September 30, 2023 4,437 $ 6.56

The fair values of stock options granted during the nine months ended September 30, 2023 were estimated using the Black-Scholes pricing model based on the following assumptions:

Expected dividend yield — %

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Risk-free interest rate 4.0 %

The weighted average grant date fair value of stock options granted during the six months ended June 30, 2023 was $ 0.7981 .

During the six months ended June 30, 2023, stock options were granted with an exercise price of $ 2.02 and

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accordingly, given the Company’s share price of $ 1.65 at June 30, 2023, the intrinsic value provided by certain shares granted during this period was de minimus.

As of June 30, 2023, $ 2,350 of unrecognized compensation expense related to non-vested stock options is expected to be recognized over a weighted average period of 1.60 years from the date of grant.

2022 Inducement Equity Incentive Plan

There were no awards outstanding under this Plan as of June 30, 2023.

The weighted average grant date fair value of stock options granted during the nine months ended September 30, 2023 was $ 0.7981 .

During the nine months ended September 30, 2023, stock options were granted with an exercise price of $ 2.02 and accordingly, given the Company’s share price of $ 1.53 at September 30, 2023, the intrinsic value provided by certain shares granted during this period was de minimus.

As of September 30, 2023, $ 1,869 of unrecognized compensation expense related to non-vested stock options is expected to be recognized over a weighted average period of 1.3 years from the date of grant.

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

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

For the three and six months ended June 30, 2023, the effective income tax rate was ( 5.2 )% and 11.1 %, respectively, and the Company recorded $ 284 and $ 284 from its pretax (loss) income of $( 5,508 ) and $ 2,560 , respectively.

For the three and six months ended June 30, 2022, the Company recorded no income tax benefit from its pretax (loss) income of $( 16,302 ) and $( 29,522 ), respectively.

The primary factors impacting the effective tax rate for six months ended June 30, 2023 is the anticipated full year pre-tax book loss, the expected utilization of net operating losses and research and development credits to offset current year tax liabilities, and a full valuation allowance against any associated net deferred tax assets.

For the three and nine months ended September 30, 2023, the effective income tax rate was 6.4 % and 37.4 %, respectively, and the Company recorded $( 140 ) and $ 144 from its pretax (loss) income of $( 2,175 ) and $ 385 , respectively.

For the three and nine months ended September 30, 2022, the Company recorded no income tax benefit from its pretax loss of $ 12,536 and $ 42,058 , respectively.

The primary factors impacting the effective tax rate for nine months ended September 30, 2023 is the anticipated full year pre-tax book loss, the expected utilization of net operating losses and research and development credits to offset current year tax liabilities, and a full valuation allowance against any associated net deferred tax assets.

Contingencies

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

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

On April 3, 2018, the Company and Indivior initiated a

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

On May 29, 2018, the cases were consolidated.

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On June 26 2023, the court granted in part and denied in part plaintiff's' joint motion and denied all other parties' motions.

There is no trial date set.

On August 11, 2023, the Company filed a motion for reconsideration of the court’s ruling on its dispositive motion and the parties are awaiting the court’s decision on that motion for reconsideration There is no trial date 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 losses, if any, in this matter.

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Neurelis filed a First Amended Complaint on December 9, 2019, alleging the same three causes of action.

The Company filed a Motion to Strike Neurelis’s Complaint under California’s anti-

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SLAPP (“strategic lawsuit against public participation”) statute on January 31, 2020, which Neurelis opposed.

The Company 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 the Company’s anti-SLAPP motion.

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The complaint in this matter alleges claims for breach of fiduciary duty and contribution.

The factual allegations that form the basis of these claims are similar to the disclosure-related allegations asserted in the class action.

The factual allegations that form the basis of these claims are similar to the disclosure-related allegations asserted

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in the class action.

On April 4, 2022, the plaintiff filed an amended complaint asserting the same claims against the same defendants.

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On April 21, 2023, the Court so-ordered the stipulation and terminated the lawsuit.

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Subsequent Events

Anaphylm topline data

On July 27, 2023 the Company released topline data from its latest clinical crossover pilot trial, Study AQ109103 (the “103 study”), for Anaphylm™ (epinephrine) Sublingual Film.

This crossover clinical trial in healthy human subjects was designed with the finalized dosing instructions expected for use in the Company’s upcoming pivotal clinical trial.

The 103 study demonstrated that Anaphylm, using the finalized dosing administration instructions, delivers epinephrine systemically as effectively as either commercially available autoinjectors or the manual intramuscular (IM) injection.

Administration of Anaphylm 12mg resulted in a geometric mean maximum epinephrine concentration (Cmax) of 457 pg/mL and a median time to maximum concentration (Tmax) of 15 minutes after administration.

The partial Area Under the Curve measurement, or pAUC, was bracketed between previously generated manual 0.3mg IM injection and epinephrine 0.3mg autoinjector data at all timepoints between 10 and 60 minutes, post-dosing.

Importantly, Anaphylm 12mg met the standards of bracketing in the 103 study for all the critical parameters that the Company anticipates measuring in the pivotal PK study including Cmax and pAUC during the critical early time periods, while remaining similar to autoinjectors for Tmax.

The product was safe and well-tolerated with no serious adverse events.

Chart 1 below highlights Anaphylm 12mg pAUC from the103 study when compared to autoinjector and manual IM injection pAUC from a previous study conducted by the Company.

The 103 study also included crossover arms of Anaphylm 12mg with alternate dosing instructions as well as Anaphylm 14mg with the finalized dosing instructions.

In both cases, the product was considered safe and well-tolerated.

Table 1 below provides a comparison of the two arms that utilized final dosing instructions from the 103 study to autoinjector and manual IM injection data from a previous study conducted by the Company.

Equity Transactions

On August 1, 2023, the Company entered into an Inducement Offer to Exercise Common Stock Purchase Warrants letter agreement (the “Letter Agreement”) with the holder (the “Exercising Holder”) of 5,000,000 of the remaining Common Stock Warrants (the "Existing Warrants").

The New Warrants are exercisable after February 2, 2024, expire on February 2, 2029 and are issuance only for cash, subject to exception if the shares of Common Stock underlying the New Warrants are not registered in accordance with the terms of the Letter Agreement, in which case the New Warrants may be may also be exercised, in whole or in part, at such time by means of a "cashless exercise".

The New Warrants have an exercise price of $ 2.60 per share.

Through August 8, 2023, the Company sold 110,709 shares of Common Stock under the ATM which provided net proceeds of approximately $ 233 after deducting commissions and other transaction costs of $ 7 .

This ATM facility has approximately $ 27,773 worth of shares of Common Stock available at August 8, 2023.

On November 1, 2023, the Company redeemed its 12.5 % Notes due 2025 and entered into a new financing through the issuance (the "Offering") of new 13.5 % Senior Secured Notes due 2028 (the “ 13.5 % Notes”).

A portion of the net proceeds of the new debt financing of $ 45,000 under a new Indenture by a large leading institutional investor and affiliated entities (collectively, the “Note Holders”) was used by Aquestive to repay all outstanding notes issued under the 12.5 % Notes and expenses relating to the Offering, and the balance of the net proceeds is available for general corporate purposes.

The 13.5 % Notes are senior secured obligations of Aquestive and will mature on November 1, 2028, unless earlier redeemed or repurchased in accordance with their terms.

The 13.5 % Notes bear interest at a fixed rate of 13.5 % per year, payable quarterly commencing on December 30, 2023.

Principal on the 13.5 % Notes will be repaid starting on June 30, 2026.

The 13.5 % Notes contain no revenue or cash covenants, and no warrants for purchase of the Company’s common stock were issued under the terms of the transaction.

In connection with the financing transaction, the Company entered into agreements (the “Royalty Agreements”) with each of the Note Holders granting the Note Holders a tiered royalty between 1.0 % and 2.0 % of annual worldwide net sales of Anaphylm™ (epinephrine) Sublingual Film for a period of eight years from the first sale of Anaphylm on a global basis.

The Note Holders are also entitled to a tiered royalty between 1.0 % to 2.0 % of annual worldwide net sales of Libervant™ (diazepam) Buccal Film until the earlier of (1) the first sale of Anaphylm and (2) eight years from the first sale of Libervant.

In line with this refinancing and in accordance with ASC 470, Debt , the amounts for the Loans payable, current and Loans payable, net have been adjusted such that Loans, Payable, current reflects the current portion of the principal payment on the 12.5 % Notes due and paid on October 2, 2023 in the amount of $ 4,585 , paid out of working capital, and the Loans payable, net of $ 34,390 represents the amount which has been repaid as part of the Offering of 13.5 % Notes.

Table of Content

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What changed 10-Q

Item 1. Financial Statements