The Company’s revenues are derived from four primary sources: manufactured products made to date have been earned from licensed commercialized products, researchorder for licensees, including Suboxone® and Zuplenz®, manufacture and sale of its self-developed, self-commercialized proprietary product, Sympazan® (clobazam), intellectual property licensing arrangements, and product development services provided to customers, licensing of patent-protected intellectual property and commercialization of a proprietary product. These activities generate revenues in four primary categories: manufacturing and supply revenue, co-development and research fees, license and royalty revenue, and proprietary product sales, net.under contracts with customers.

A performance obligation is a promiseAquestive recognizes revenue pursuant to ASC 606, Revenue from Contracts with Customers, to reflect amounts expected to be collectible in a contract toexchange for the transfer a distinct good or service to the customer and is the unit of account in the current revenue standard. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. At contract inception, we assess the goodscontractually promised in our contracts with customers and identify a performance obligation for each promise to transfer to the customer a good that is distinct. When identifying our performance obligations, we consider all goods or services promisedto its customers, as discussed in additional detail in the Company’s 2019 Annual Report on Form 10-K.  Accordingly, the value of contractually promised goods or services is assessed at contract regardlessinception to identify those that constitute distinct performance obligations. Contract revenues are allocated to those distinct performance obligations based on estimated standalone values or expected values, and these allocated revenues are recognized at the point in time, or over the period of whether explicitly stated in the contract or implied by customary business practices.time, that those distinct obligations are satisfied. The Company’s performance obligations consist mainlyprimarily of transferring control of goods, and services or intellectual property that are identified in the contracts, purchase orders or invoices. Variable or contingent revenues which may become due from customers, such as milestone payments due upon acceptance of a regulatory filing, regulatory approval, or sales-based milestone payments, are not recognized until contingencies are met, the customer’s obligation to meet its contractual payment commitments is fixed and collection of invoiced amounts is reasonably assured, thereby limiting any significant probability of a revenue reversal.

Revenues from the sale of products and services and from licensing arrangements and related payments are evidenced by a contract with respect to itsthe customer. For manufacturing and supply and proprietary product sales, invoices are generally issued upon the transfer of control. Co-development and research revenue is typically invoiced based on the contractual payment schedule, or upon completion of the service. Licensing revenue is generally invoiced at the inception of an agreement, with additional charges rendered as related contingencies, such as regulatory approvals or sales targets, are met. Invoices are typically payable 30 to 60 days after the invoice date, however some payment terms may reach 75 days depending on the customer. The Company performs a review of each specific customer’s creditworthiness and ability to pay prior to acceptance as a customer, as well as periodic prospective reviews.

Manufacture and supply revenue – this revenue is derived from products manufactured exclusively for specific customers according to their strictly-defined specifications, subject only to specified quality control inspections. Accordingly, at the point in time when quality control requirements are satisfied, revenue net of related discounts is recorded.

Co-development and research feefees – this revenue is recorded over time based uponrecognized as contractual services or performance obligations are performed. Invoicing for contractual services may occur in advance or arrears, may, or may not, coincide with completion of underlying performance obligations, and therefore may give rise to contract assets or contract liabilities when the progressvalue of services provided in ordercompleted varies from amounts that may be invoiced to complete the specific performance obligation identified in the related contract.

In limited situations, certain customer contractual payment terms require billing to occurprovide for invoicing in arrears; accordingly,arrears. Accordingly, some, portions, or all of the Company’s performance obligations are completedmay be completely satisfied before we are contractually entitled to bill the customer.customer may be invoiced under such agreements.  In these situations, billing occurs subsequent toafter revenue recognition, which results in a contract asset.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 net onand as a component of intangible and other assets within the Condensed Consolidated Balance Sheet. As of September 30, 20192020, and January 1,December 31, 2019, such current and non-current contract assets were $760,$8,922 and $284, respectively.$4,363, respectively, consisting primarily of minimum annual royalties due under a certain licensing agreement and completed but unshipped products manufactured to specific order by certain licensees.

In other limited situations, certain customer contractual payment terms allow advanced billings; accordingly, customerare structured to permit invoicing in advance of delivery of a good or service. In such instances, the customer’s cash paymentspayment may be received before satisfaction of some, or all contractualany, performance obligations.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 Deferreddeferred revenue inwithin the Condensed Consolidated Balance Sheet. As remaining performance obligations are satisfied, aan appropriate portion of the deferred revenue balance is recognized in the Company’s results of operations.credited to earnings. As of September 30, 20192020, and January 1,December 31, 2019, such contract liabilities were $2,962$4,416 and $3,762,$5,154, respectively. Revenue recognized for the nine-month period ended September 30, 2019 that was reflected in the deferred revenue balance as of January 1, 2019 was $1,079.

ContractThe current portion of contract and other receivables totaled $843$1,872 and $4,363 as of September 30, 2020 and December 31, 2019, consistingrespectively. The current period balance is comprised primarily of contract assets related to$1,000 of minimum royalty revenue due from a licensee and the adoption of ASC 606 and certain reimbursable customer costs.  Other receivables totaled $33 as of December 31, 2018, consisting primarily ofremaining balance represents reimbursable costs incurred on behalf of a customer.customers for which earnings processes have been met prior to shipment of goods or full delivery of completed services. The December 31, 2019 balance represents reimbursable costs incurred on behalf of customers for which earnings processes have been met prior to shipment of goods or full delivery of completed services. Sales-related allowances for both periods presented are estimated in relation to revenues recognized for sales of Sympazan® beginning with the launch of this product in December 2018.Sympazan.

Revenues from proprietary product sales of products are recorded net of prompt payment discounts, wholesaler service fees, returnreturns allowances, rebates and co-pay cardsupport redemptions. These reserves are based on estimates of the amounts earned or to be claimed on the related sales. These amounts are treated as variable consideration, estimated and recognized as a reduction of the transaction price at the time of the sale. The Company includes these estimated amounts in the transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized for such transaction will not occur, or when the uncertainty associated with the variable consideration is resolved. The calculation of some of these items requires management to make estimates based on sales data, historical return data, contracts and other related information that may become known in the future. The adequacy of these provisions is reviewed on a quarterly basis.

Total reductions of gross product sales from sales-related allowances and accruals were $1,576$3,996 for the nine months ended September 30, 2019.2020.  Accruals for returnreturns allowances and prompt pay discounts are reflected as a direct reduction toof trade receivables and totaled $120accruals for wholesaler service fees, co-pay support redemptions and $104 atrebates as current liabilities. The accrued balances relative to these provisions included in Trade and other receivables, net and Accounts payable and accrued expenses were $277 and $1,655, respectively, as of September 30, 20192020 and $203 and $1,174, respectively, as of December 31, 2018, respectively. Accruals for wholesaler fees, co-pay cards and rebates are reflected as current liabilities, and totaled $1,057 and $481 at September 30, 2019 and December 31, 2018, respectively. There were no sales related allowances and accruals at September 30, 2018, as Sympazan was launched in December 2018.2019.

Customers are considered major customers when sales exceed 10% of total net sales for the period or outstanding receivable balances exceed 10% of total receivables. For the year ended December 31, 2018,2019, Indivior, PLC.Inc. (“Indivior”) provided 89%86% of the total revenues for the period, and as of that date, the Company’s outstanding receivable balance from Indivior represented approximately 78%80% of gross receivables. For the nine months ended September 30, 2019, revenues2020, there were two customers exceeding the 10% threshold for revenue while there were three customers exceeding the 10% threshold for outstanding accounts receivable. Revenues provided by Indivior, and Sunovion Pharmaceuticals, Inc. (“Sunovion”) represented approximately 83%54% and 31%, respectively of total revenuesrevenue for the nine months ended September 30, 2020, and outstanding accounts receivable due from Indivior, Sunovion and AmerisourceBergen represented approximately 77%50%, 12% and 11%, respectively of gross receivables.

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.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 maximumminimum 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 restits purchases.

On July 15, 2019, the Company completed thea private placement of up to $100 million aggregate principal of itsthe 12.5% Senior Secured Notes due 2025 (the “Notes”) and issued warrants for two million shares of common stock (the “Warrants”), $.001 perpar value per share, through itsthe structuring agent, Morgan Stanley & Co., LLC, and entered into a purchase agreement and related indenture (the “Purchase Agreement” or “Indenture”) governing these Notes. The Company simultaneously entered into related agreements including a Collateral Agreement with U.S. Bank National Association, as trustee and collateral agent, and a Lien Subordination and Intercreditor Agreement for the benefit of Madryn Health Partners, other institutional noteholders (the “Noteholders”) and U.S. Bank National Association in dual roles providing terms and governing an asset-based loan facility.

Upon closing of the Indenture for the 12.5% Notes (“Indenture”), the Company issued $70,000 of the principal of the 12.5% Notes (the “Initial Notes”) along with the Warrants and rights of first offer (the “First Offer Rights”) to the lenders participating in this transaction for the 12.5% Notes and Warrants (the “Lenders”).  Issuance of the Initial Notes and Warrants provided net proceeds of $66,082.  In addition to the Initial Notes, the Indenture may provide access to further loans of up to $30,000 that may become available in two tranches of Additional Notesadditional notes (the “Additional Notes”) tied to the NDA filing for and FDA U.S. marketing approval of Libervant,Libervant™, an important part of ourthe Company’s drug candidate pipeline. Provided that no events of default exist, the Company may elect, subjectSubject to approval of the holder of a majority of the outstanding principal amount of the 12.5% Notes toin its discretion, and provided that no events of default exist, the Company may offer to the Lenders participation in a $10,000 additional offering of the 12.5% senior secured notesNotes (the “First Additional Offering”) under terms similar to the Initial Notes, on or before March 31, 2021, upon the filing of the LibervantLibervant™ NDA with the FDA.  A second identical funding opportunity would allow the Company to obtain, on or before March 31, 2021, the Company to obtain an additional $20,000 if the first option has been elected and funded, or, if not elected or funded, an additional $30,000 may be offered for issuance following FDA approval of Libervant.Libervant™ for marketing in the U.S.  On November 3, 2020, this Indenture was amended and will be partially repaid from proceeds resulting from the monetization transaction.  See Note 19 (C), Subsequent Events.  There can be no assurance that any such additional financing will be consummated.

Proceeds from the issuance of the Initial Notes and Warrants were used to fully repay the Company’s $52,092$56,340 outstanding indebtedness to Perceptive Credit Holdings,Opportunities Fund, LP (the “Perceptive Loan”), related early repayment fees and legal and other fees incurred in executing this Indenture. Remaining proceeds of $13,990 are being used to supportobtain the advancement of Aquestive’s late-stage development pipeline, ongoing proprietary product commercialization and for general corporate operations.loan.

The 12.5% Notes provide a stated fixed rate of 12.5%, payable quarterly in arrears, with the initial quarterly principal repayment of the Initial Notes due on September 30, 2021, and the final quarterly payment due at maturity on June 30, 2025. The Company has recorded $1,750 as Loans Payable, Current to reflect this obligation in its Condensed Consolidated Balance Sheet at September 30, 2020.  Principal payments are scheduled to increase annually from 10% of the face amount of the debt then outstanding during the first four quarters to 40% of the initial loan principal during the final four quarters.

The Company may elect, at its option, to prepay the 12.5% Notes at any time at premiums that range from 101.56% of outstanding principal if prepayment occurs on or after the 5^th anniversary of the issue date of the Initial Notes to 112.5% if payment occurs during the third year after the issuance of the Initial Notes.  In the event that redemption occurs within the two years after the issuance of the 12.5% Notes, a make-whole fee is required, based on the present value of remaining interest payments using an agreed-upon discount rate linked to the then-current U.S. Treasury rate. The Indenture also includes a change of control provisionsprovision 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.Lenders.

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.  In the event that asset-based loans of up to $10,000 (“ABL Facility”) may be obtained, subject receivables and inventory assets will provide a second priority lien to senior secured note holders.Noteholders. The Company’s license of its IPintellectual property to a third-party drug development enterprise (specifically, Sunovion Pharmaceutical’s APL-130277Sunovion’s KYNMOBI™ product) is one of the various assets serving as collateral for thisthe loan.  The  loan indentureIndenture permits the Company to monetize this asset while specifying that a portion of the proceeds, up to $40,000 if the First Additional Offering has not been elected or funded, or, $50,000 if it has been elected and funded, must be applied to prepay the Initial Notes, at 112.5% of the principal amount of the 12.5% Notes being repurchased, plus accrued and unpaid interest, if any, thereon, to the date of the repurchase, to the extent elected by the Note holders,Noteholders, assuming that such monetization, up to such $40,000 or $50,000 level, as applicable, equals or exceeds those levels and if such monetization does not equal or exceed such level, such prepayment would be pro-rated among the Note holders.Noteholders.  To the extent that Lenders do not elect repayment of the debt at the date of the monetization, the amount not elected up to $40,000 (or $50,000 if an additional tranche is issued) will be held in a collateral account until approval of LibervantLibervant™ by the FDA for U.S. marketing, at which time this cash collateral is to be released to the Company.  Proceeds in excess of more than $40,000 (or $50,000 if an additional tranche is issued) can be used immediately for general corporate purposes. As of September 30, 2020, the Company complied with all of its covenants under the Indenture.

The 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 2015-03, 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,holders, and offsets those as a direct reduction of its outstanding debt.  Amortization expenseexpenses arising from deferred debt issuance costs and debt discounts associated with itsrelated to the 12.5% Senior SecuredNotes were $590 and $1,758 for the three- and nine-month periods ended September 30, 2020, respectively. Comparative amortization expenses derived from deferred debt issuance costs and debt discounts related to the Perceptive Loan and the 12.5% Notes for the threethree- and nine-month periods ended September 30, 2019 were $493.

OnIn August 16, 2016, the Company entered into a Loan Agreement and Guaranty (the “Loan Agreement”) with Perceptive Credit Opportunities Fund, LP (“Perceptive”). Upon closing, under which the Companytotal available facility of $50,000 had been borrowed $45,000 from Perceptive and was permitted to borrow up to an additional $5,000 within one year of the closing date based upon achievement of a defined milestone which was met in March 2017 and the balance of the facility was borrowed at that time. The initial loan proceeds were used to pay the existing debt obligation of $37,500 due to White Oak Global Advisors, LLC, with the balance available for general business purposes. On July 15, 2019, this loan from Perceptive was repaid in full as part of a refinancing transaction.

The Warrants that were issued in conjunction with the 12.5% Senior SecuredInitial Notes described above expire on June 30, 2025 and entitleentitled the Lendersholders of the Initial Notes to purchase two million shares of the Company’s common stock at $4.25 per share and include specified registration rights.  Management estimated the fair value of the warrantsWarrants to be approximately $6,800, assisted by an independent third-party appraiser.  The fair value of these warrantsWarrants is treated as a debt discount, amortizable over the term of the warrants,Warrants, with the unamortized loan portion applied to reduce the face amount of the loanInitial Notes in the Company’s balance sheet.  Additionally, since the Warrants issued do not provide warrant redemption or put rights within the control of the holders that could require the Company to make a payment of cash or other assets to satisfy the obligations under the Warrants, except in the case of a “cash change in control”, the fair value attributed to the Warrants is presented in additional-paidAdditional-paid in capital in the accompanying Condensed Consolidated Balance Sheets.

TheOn November 3, 2020, the Indenture was amended, and additional at-the-money warrants will be issued to Perceptive in connection with the Perceptive Loan Agreement was, by its terms, set to expire on August 16, 2023 and provided certain rights and preferences including anti-dilution adjustments so that, upon exercise, they would represent 4.5% of the Company’s fully diluted common stock on an as converted basis, subject to dilution for certain financing including the issuance of shares upon termination of our PUPs. The warrants also provided Perceptive with a put right which, if exercised under certain circumstances, would require the Company to purchase the warrants for $3,000 within the first year of the loan or $5,000 thereafter. Because these re-purchase terms could have required net-cash settlement, the appraised value of these warrants at the time of issuancepurchase of $5,800 was classified as a liability, rather than as a component of equity, and was treated as a debt discount, with the unamortized portion applied to reduce the face amount of the loan in the accompanying Condensed Consolidated Balance Sheet.additional Notes.  See Note 19 (C), Subsequent Events.

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.  Valuation allowances are provided if it is more likely than not that some portion or all of the deferred tax asset will not be realized.  The Company has considered the impact of the CARES Act in relation to the 2020 income tax provision. However, due to the full valuation allowance and no ability or intent to carryback the 2020 net operating loss, no impact is expected.

The Company’s tax provision for interim periods is determined using an estimate of its annual effective tax rate, adjusted for discrete items. For the three months ended September 30, 20192020 and 2018,2019, the Company recorded no income tax benefit from its pretax losses of $18,412$16,551 and $15,038,$18,412, respectively, and similarly for the nine months ended September 30, 20192020 and 2018,2019, the Company recorded no tax benefit from its pretax loss of $53,610$35,415 and $47,432,$53,610, respectively, due to realization uncertainties.

The Company’s U.S. Federal statutory rate is 21%.  The primary factor impacting the effective tax rate for the threethree- and nine monthsnine-month periods ended September 30, 20192020 is the anticipated full year operating loss which will require full valuation allowances against any associated net deferred tax assets.