The COVID-19 pandemic may adversely impact the expected timelines for our clinical trials and studies and could contribute to delay in obtaining regulatory review and approval for our product candidates.

In addition to these product candidates, we have a portfolio of commercialized and development-stage licensed products.  Our largest commercialized licensed product to date is Suboxone, a sublingual film formulation of buprenorphine and naloxone, for the treatment of opioid dependence. We have a sole and exclusive worldwide manufacturing agreement with Indivior to delivermanufacture Suboxone.

In early 2019, certain third-party pharmaceutical companies launched, at risk, generic film products for buprenorphine-naloxone.   As of mid-Julymid-October 2020, Suboxone branded products retain approximately 40% of film market share as generic film-based products have penetrated this market.  Indivior accounted for 48%54% and 86%83% of our total revenues for the six-monthnine- month periods ended JuneSeptember 30, 2020 and 2019, respectively. Our total revenue mix is expected to shift to a higher proportionate share of proprietary product sales in future years as we continue to grow Sympazan revenues and pursue the launch of other products in our pipeline, assuming FDA approvals.

We manufacture all of our licensed and proprietary products at our FDA- and DEA-inspected facilities and anticipate that our current manufacturing capacity is sufficient for commercial quantities of our products and product candidates currently in development. We have produced over 2 billion doses of Suboxone since 2006.  Not all collaborative or licensed products of the Company that may be commercially launched in the future will necessarily be manufactured by the Company, such as Kynmobi.KYNMOBI™.   Our products are developed using our proprietary PharmFilm®PharmFilm technology and know-how.  The COVID-19 pandemic could negatively impact our continued commercialization of Sympazan, impact demand for our approved products and development and commercialization of other products in our pipeline.

On July 15, 2019, we completed a private placement of $70,000 of 12.5% Senior Secured Notes due June 2025 (“Notes” or “Senior Secured12.5% Notes”) and warrants for the purchase of up to 22.0 million common shares, against which 428,571 common shares were issued in December 2019 upon exercise.  This financing provided net proceeds of $66,056 after all offering expenses.  TheA portion of the net proceeds of the financing were used to repay all outstanding obligations and early repayment premiums under the Company’s prior credit facility of $52,944.  We used the remaining net cash proceeds of $13,110 for the continued commercialization and advancement of our proprietary products and pipeline candidates, and other general corporate purposes.  Our Senior SecuredThe 12.5% Notes are discussed in Note 13, 12.5% Senior Secured Notes, to our condensed consolidated financial statements included herein and in Liquidity and Capital Resources.

We expect to continue to incur net losses for at least the next few years as we pursue the development, commercialization and marketing of our proprietary product candidates. Our net losses may fluctuate significantly from period to period, depending on regulatory approval developments concerning both our late-stage and earlier stage product candidates, the timing of our planned clinical trials and expenditures on our other research and development, as well as our commercialization activities. We expect our expenses will continue to be substantial in 2020 and future periods over time as we continue to, subject to any delay as a result of the coronavirus pandemic:

We expect to continue to manage the timing and level of expenses in light of the declining Suboxone revenues, related to Suboxone, offset in part by theincreasing revenue contributioncontributions from Sympazan, while focusing on the development and commercializationregulatory approvals of Libervant and AQST-108 and their subsequent commercialization, if approved by the FDA.FDA for U.S. market access.

Until we become profitable, if ever, we expect to need to raise significant additional capital in the future through equity or debt issuances, or both, and to continue to manage our expenses to extend our capital runway, in order to further the development, regulatory approval, commercialization and marketing of our products and product candidates, and to conduct our business.  We have no committed sources of additional capital and there can be no assurance that such needed capital will be available on favorable terms, or at all.  We may seek to obtain additional capital in the future through the issuance of our common stock, through other public or private equity or debt financings, through potential non-dilutive capital raising events that may result from royalty streams that may be realizable from our licensed products or licensed intellectual property, and through collaborations or licensing arrangements with other companies or other means, if available. We may not be able to raise additional capital or other funding on terms acceptable to us, or at all, and any failure to raise capital as and when needed could compromise our ability to execute our business plan and cause us to delay or curtail our operations until such funding is received.  To the extent that we raise additional funds by issuance of equity securities, our stockholders would experience dilution, and other debt financings, if available (and subject to all of the existing restrictions and conditions under the Indenture for the Senior Secured12.5% Notes) may involve increased restrictive covenants and increased fixed payments or may otherwise further constrain our financial flexibility.  Any potential monetization transaction is subject to acceptable timing, structure and terms and to acceptable market conditions.  To the extent that we raise additional funds through collaborative or licensing arrangements, it may be necessary to relinquish some rights to our intellectual property or grant licenses on terms that are not favorable to us.  In addition, payments made by potential collaborators or licensors generally will depend upon our achievement of negotiated development and regulatory milestones.  Failure to achieve these milestones may harm our future capital position.  See “Funding Requirements” below for additional information regarding Aquestive’s cash needs.

The current COVID-19 pandemic has presentedcontinued to present substantial health and economic risks, uncertainties and challenges to our business, the U.S. and global economies and financial markets.  It is not currently possible to predict how long the pandemic will last or the time it will take for the economy to return to prior levels.  The extent to which COVID-19 impacts our business, operations, clinical trials, regulatory approval process, capital, financial and monetization markets, financial results and financial condition, and those of our suppliers, distributors, customers and other third parties necessary to our business including those involved in the regulatory approval process, will depend on future developments, which are highly uncertain and cannot be predicted with certainty or clarity, including the duration and continuing severity of the outbreak, resurgence of the outbreak, continued or additional government actions to contain COVID-19, timing or efficacy of any vaccine, and new information that will emerge concerning the short-term and long-term impact of COVID-19.

To date, we have been able to continue to manufacture and supply our products and currently do not anticipate any significant interruption in supply, although we continue to monitor this situation closely and there is no assurance that disruptions or delays may not occur as a result of COVID-19.  We are also monitoring demand for our products, which could be negatively impacted during the COVID-19 pandemic, as well as the financial condition of our customers and licensees, one of whom delayed remittance of certain payments due the Company for development services provided but ultimately made such payments in later Q2 2020.

Our office-based employees have generally been working from home since mid-March 2020, while essential staffing levels in our operations remain on site, and personnel have continued in our laboratories and manufacturing locations. WeIn Q1 2020 we suspended in-person interactions by our sales and marketing personnel and engaged remotely to support our commercialization efforts.  Sales and marketing practices continue to evolve in accordance with changing local rules and regulations with in-personpredominately virtual interactions increasing in recent weeks as restrictions were easing.with healthcare providers.  However, the landscape continues to change as new case rates are rising in certain states and localities and these jurisdictions have or are contemplating reestablishing restrictions. We are expecting to commence our AQST-108 PK clinical trials during the third quarter of 2020, although the COVID-19 precautions could directly or indirectly impact timelines, which we will continue to monitor and assess.

For additional information on various uncertainties and risks caused by the COVID-19 pandemic, see Part II, Item 1A, Risk Factors included in this report.

See Note 3, Summary of Significant Accounting Policies, to our condensed consolidated financial statements, included herein for a discussion of recently issued accounting pronouncements and their impact or future potential impact on our financial results, if determinable.  For a discussion of critical accounting policies that affect our judgments and estimates used in the preparation of our consolidated financial statements, refer to “Critical Accounting Policies and Use of Estimates” in our 2019 Annual Report on Form 10-K.

On April 5, 2012, the Jumpstart Our Business Startups Act, or the JOBS Act, was enacted. The JOBS Act provides that, among other things, an emerging growth company can take advantage of an extended transition period for complying with new or revised accounting standards. As an emerging growth company, we have elected to take advantage of the extended transition period afforded by the JOBS Act for the implementation of new or revised accounting standards and, as a result, we will comply with new or revised accounting standards not later than on the relevant dates on which adoption of such standards is required for emerging growth companies.

In addition, we intend to rely on the other exemptions and reduced reporting requirements provided by the JOBS Act, subject to certain conditions contained therein and, as a result, we are not required to, among other things, (i) provide an auditor’s attestation report on our system of internal controls over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act of 2002,  (ii) provide all of the compensation disclosure that may be required of non-emerging growth public companies under the Dodd-Frank Wall Street Reform and Consumer Protection Act, or (iii) disclose certain executive compensation-related items such as the correlation between executive compensation and performance and comparisons of the Chief Executive Officer’s compensation to median employee compensation. These exemptions will apply for a period of five years following the consummation of our IPO or until we no longer meet the requirements of being an emerging growth company, whichever is earlier.

We are also a “smaller reporting company,” meaning that we are not an investment company, an asset-backed issuer, or a majority-owned subsidiary of a parent company that is not a “smaller reporting company,” and have either: (i) a public float of less than $250 million or (ii) annual revenues of less than $100 million during the most recently completed fiscal year and (A) no public float or (B) a public float of less than $700 million. As a “smaller reporting company,” we are subject to reduced disclosure obligations in our SEC filings compared to other issuers, including with respect to disclosure obligations regarding executive compensation in our periodic reports and proxy statements and certain reduced financial disclosures in our periodic reports.

Our revenues to date have been earned from manufactured products made to order for licensees, including Suboxone and Zuplenz, as well as revenue from our self-developed, self-commercialized proprietary product, Sympazan. Revenues are also earned from our product development services provided under contracts with customers.customers, and from arrangements for the licensing of our intellectual property.  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.

Currently, we produce two licensed commercialized pharmaceutical products: Suboxone and Zuplenz. We are the exclusive manufacturer for these products. We manufacture based on receipt of purchase orders from our licensees, and our licensees have an obligation to accept these orders once quality assurance validates compliance of the manufactured product with agreed upon technical specifications. Under ASC 606, we record revenues once the manufactured product passes quality control inspections. Our licensees are responsible for all other aspects of commercialization of these products and the Company has no role, either direct or indirect, in our customers’ commercialization activities, including those related to marketing, pricing, sales and regulatory operations.

We expect future manufacture and supply revenue from licensed products to be based on volume demand for existing licensed products, and for manufacturing and supply rights under license and supply agreements for existing or new agreements for successful product development collaborations.

We work with our licensees to co-develop pharmaceutical products. In this regard, we earn fees through performance of specific tasks, activities, or completion of stages of development defined within a contractual arrangement with the relevant licensee. The nature and extent of these performance obligations, broadly referred to as milestones or deliverables, are usually dependent on the scope and structure of the project as contracted, as well as the complexity of the product and the specific regulatory approval path necessary for that product.

We may realize licensing revenue from transfers of our licenses.  For licenses that do not require further development or other ongoing activities by us, our licensee has acquired the right to use the licensed intellectual property for self-development of their product candidate, for manufacturing, commercialization or other specified purposes upon the effective transfer of those rights, and related revenues are generally recorded at a point in time, subject to contingencies or constraints, if any.  For licenses that may provide substantial value only in conjunction with other performance obligations to be provided by us, such as development services or the manufacture of specific products, revenues are generally recorded over the term of the license agreement.  We also may earn royalties based on our licensees’ sales of products that use our intellectual property that are marketed and sold in the countries where we have patented technology rights.

As we commercialize FDA approved proprietary CNS product candidates, we may directly sell such products to distributors of wholesale medical products in the United States, resulting in an additional and growing source of revenue. We commercialized our first proprietary CNS product, Sympazan, in December 2018.  We currently sell Sympazan through wholesalers for distribution through retail pharmacies. Additionally, we may choose to access non-domestic markets by contracting with a collaborator to commercialize our product candidates in certain foreign markets. To date, the only revenue generated from our self-developed and self-commercialized pharmaceutical products is from the sale of Sympazan in the United States.

Revenues from sales of proprietary product are recorded net of prompt payment discounts, wholesaler service fees, returns allowances, rebates and co-pay support redemptions, each of which are described in more detail in our 2019 Annual Report on Form 10-K. 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 records these estimated amounts in connection with 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 knownrequire adjustments in the future. The adequacy of these provisions is reviewed on a quarterly basis.

Our costs and expenses are primarily the result of the following activities: generation of manufacture and supply revenues; development of our pipeline of proprietary product candidates; and selling, general and administrative expenses, including pre-launch and post launch commercialization efforts related to our CNS product candidates, intellectual property procurement, protection, prosecution and litigation expenses, corporate management functions, medical and clinical affairs administration, public company costs, share-based compensation expenses and interest on our corporate borrowings. We primarily record our costs and expenses in the following categories:

Manufacture and supply costs and expenses are primarily incurred from the manufacture of our commercialized licensed pharmaceutical products and for our self-developed, self-commercialized approved proprietary product, including raw materials, direct labor and overhead costs, principally in our Portage, Indiana facilities.  Our material costs include the costs of raw materials used in the production of our proprietary dissolving film and primary packaging materials. Direct labor costs consist of payroll costs (including taxes and benefits) of employees engaged in production activities.  Overhead costs principally consist of indirect payroll, facilities rent, utilities and depreciation for leasehold improvements and production machinery and equipment. These costs can increase, or decrease based on the costs of materials, purchased at market pricing, and the amount of direct labor required to produce a product, along with the allocation of fixed overhead, which is dependent on production volume.

We expect to continue to seek to rationalize and manage costs to reflect the declining production volumes of Suboxone.  Our unit production costs of manufacturingmanufacture and supply increased in late 2019, resulting from the declining volume of Suboxone that began in 2019 and that continues to decline in 2020.  We expect our overall manufacture and supply expensesexpense levels to decrease over the next several years due to the effects of lower Suboxone volume caused by competing generic products, modestly offset by the costs to manufacture our proprietary products, which began with the launch of Sympazan in December 2018.  In addition to our proprietary products coming online, we may add licensed products which may need additional resources to manufacture.  If such growth should occur for higher volume product opportunities such as Suboxone, we would incur increased costs associated with hiring additional personnel to support the increased manufacturingmanufacture and supply costs arising from higher manufactured volumes from proprietary and licensed products.

Since our inception, we have focused significant resources on our research and development activities.  Research and development expenses primarily consist of:

Selling, general and administrative expenses consist primarily of salaries, benefits, share-based compensation, commercialization and marketing costs, and other related costs for executive, finance, selling and operational personnel. Other significant costs include facility and related costs not otherwise included in research and development expenses such as: professional fees for patent-related and other legal expenses, consulting, tax and accounting services; insurance; selling;insurance, selling, market research;research, advisory board and key opinion leaders; depreciation;leaders, depreciation, and general corporate expenses, inclusive of IT systems related costs.

A significant portion of selling, general and administrative expenses relate to the sales and marketing of our proprietary product, at this time Sympazan, which was launched in late 2018.Sympazan.  Sympazan is the precursor and compliment to the launch of Libervant, ifassuming that it is approved and granted U.S. marketing access.  We believe there is a very high degree of overlap and correlation between prescribers of Sympazan and the likely prescribers of an approved Libervant.  While Sympazan continues to grow, we will continue to rationalize its contribution to move towards profitability while continuing to introduce epilepsy prescribers and patients to Aquestive and PharmFilm technology in advance of the anticipated launch of Libervant.  The current commercial organization would begin the launch of Libervant, subject to its approval for U.S. marketing access, which cannot be assured, shortly after its approval.   Until any Libervant launch is certain, we do not plan to increase the costs of our commercial organization and will expect to continue to improve the efficiency of the Sympazan commercial investments.

Our general and administrative costs increased after 2017, at least partially as a result of becoming a public company, includinginclude costs related to accounting, audit, legal, regulatory and tax-related services required to maintain compliance with exchange listing and SEC regulations, director and officer insurance costs, and investor and public relations costs.  We continue to incur significant costs in seeking to protect our intellectual property rights, including significant litigation costs in connection with seeking to enforce our rights concerning third parties’ at-risk launch of generic products.

We will continue to manage our costs to appropriately reflect the declining Suboxone revenue, the marketing and sales costs related to Sympazan and other external factors affecting our business including the continuing impact of the COVID-19 pandemic, as we continue to focus on our core business:

Interest expense consists of interest costs at a fixed rate of 12.5%, payable quarterly, related to our currently outstanding debt obligation at the face amount of $70,000, as well as amortization of related loan costs and the debt discount.  Our Senior SecuredThe 12.5% Notes are discussed in Note 13, 12.5% Senior Secured Notes, and our planned reduction in the 12.5% Notes, resulting from the KYNMOBI™ royalty monetization, is discussed in Note 19(C), Subsequent Event, to our Condensed Consolidated Financial Statements and in Liquidity and Capital Resources.  Interest expense has increased based on the additional borrowings under such Senior Secured Notes.the 12.5% Notes period over period but in the future interest expense is expected to decrease as a result of the November 2020 debt reduction described above.

Interest income consists of earnings derived from an interest-bearing account. There is no minimum amount to be maintained in the account nor any fixed length of period for which interest is earned.

For the three-month period ended JuneSeptember 30, 2020, total revenues increased 95%decreased 33% or $10,546$4,158 to $21,675$8,260 compared to revenues of $11,129$12,418 for the same period in 2019. The change is primarily attributable to increases in license and royalty revenue and in proprietary product sales revenue, offset in part by decreases in manufacture and supply revenue, license and royalty revenue and co-development and research fees.fees, offset in part by an increase in proprietary product sales, net.

Manufacture and supply revenue decreased approximately 19%36% or $1,656$3,252 to $7,259$5,903 for the three-month period ended JuneSeptember 30, 2020 compared to $8,915 realized$9,155 recognized during the same period in the prior year. This decrease is attributable to lower volume in 2020 partially offset by increased pricing associated with our Suboxone product affecting the current period.   We expect Suboxone to continue to experience market share erosion as generic competition continues to take more market share.  We continue to plan for the further erosion of this sunsetting product over time.