SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

~~(Mark One)~~

	☒
☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, ~~2020~~

2021

☐
☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _____to _____

Commission File Number: 001-38599

Aquestive Therapeutics, Inc.

(Exact Name of Registrant as Specified in its Charter)


Delaware	30 Technology Drive, Warren, NJ 07059	82-3827296
(State or other jurisdiction of Incorporation or organization)	~~(908)~~( 908) 941-1900	(I.R.S. Employer Identification Number)

(Address, Zip Code and Telephone Number of Registrant’s Principal Executive Offices)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.001 per share	AQST	NASDAQ Global Market

Securities registered pursuant to Section 12(g) of the Act:None

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes ☐ No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ Yes ☐ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Securities Exchange Act of 1934.

Large accelerated filer ☐

☐

Accelerated filer

☐

Non-accelerated filer ☒

☒

Smaller reporting company

☒

Emerging growth company

☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒ No

The number of outstanding shares of the registrant’s common stock, par value of $0.001 per share, as of the close of business on ~~November 2, 2020~~October 25, 2021 was ~~33,619,796.~~40,164,028.

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AQUESTIVE THERAPEUTICS, INC.

~~QUARTERLY REPORT ON~~ FORM 10-Q

~~FOR THE QUARTER ENDED SEPTEMBER 30, 2020~~

TABLE OF CONTENTS

	~~Page No.~~
			Page No.
PART I – FINANCIAL INFORMATION

Item 1.		Financial Statements (Unaudited)
		Condensed Consolidated Balance Sheets as of September 30, ~~2020~~2021 and December 31, ~~2019~~2020	3
		Condensed Consolidated Statements of Operations and Comprehensive Loss for the ~~three-~~three and ~~nine-month periods~~nine months ended September 30, ~~2020~~2021 and ~~2019~~2020	4
		Condensed Consolidated Statements of Changes in Stockholders’ Deficit for the ~~three-~~three and ~~nine-month periods~~nine months ended ~~September~~Se ptember 30, ~~2020~~2021 and ~~2019~~2020	5
		Condensed Consolidated Statements of Cash Flows for the ~~nine-month periods~~nine months ended September 30, ~~2020~~2021 and ~~2019~~2020	6
		Notes to Unaudited Condensed Consolidated Financial Statements	7
Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations	25 26
Item 3.		Quantitative and Qualitative Disclosures about Market Risk	41 40
Item 4.		Controls and Procedures	42 40

PART II – OTHER INFORMATION

Item 1.		Legal Proceedings	42 40
Item 1A.		Risk Factors	45 40
Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds	46 41
Item 3.		Defaults Upon Senior Securities	46 41
Item 4.		Mine Safety Disclosures	46 41
Item 5.		Other Information	46 41
Item 6.		Exhibits	47 42

SIGNATURES			48 43

Table of ~~Contents~~Content

PART I – FINANCIAL INFORMATION

~~Item 1.~~

Item 1. FINANCIAL STATEMENTS (Unaudited)

~~FINANCIAL STATEMENTS~~ ~~(Unaudited)~~

AQUESTIVE THERAPEUTICS, INC.

Condensed Consolidated Balance Sheets

(In thousands, except share and per share amounts)

(Unaudited)

September 30,
2020

December 31,
2019

Assets
Current assets:
Cash and cash equivalents $ 17,064 $ 49,326
Trade and other receivables, net 7,990 13,130
Inventories, net 3,242 2,859
Prepaid expenses and other current assets 3,388 2,999
Total current assets 31,684 68,314
Property and equipment, net

7,728 9,726
Right-of-use assets, net 3,609 —
Intangible assets, net and other assets 7,402 439
Total assets $ 50,423 $ 78,479

Liabilities and stockholders’ deficit
Current liabilities:
Accounts payable and accrued expenses $ 15,237 $ 17,749
Lease liabilities, current 664 —
Loans payable, current 1,750 —
Deferred revenue, current 722 806
Total current liabilities 18,373 18,555
Loans payable, net 60,346 60,338
Lease liabilities 3,047 —
Deferred revenue, net of current portion 3,694 4,348
Asset retirement obligations 1,482 1,360
Total liabilities 86,942 84,601
Contingencies (note 18)

Stockholders’ deficit:
Common stock, $.001 par value. Authorized 250,000,000 shares; 33,619,796 and 33,562,885 shares issued and outstanding at September 30, 2020 and December 31, 2019, respectively 34 34
Additional paid-in capital 129,336 124,318
Accumulated deficit (165,889 ) (130,474 )
Total stockholders’ deficit (36,519 ) (6,122 )
Total liabilities and stockholders’ deficit $ 50,423 $ 78,479


	September 30, 2021		December 31, 2020
Assets
Current assets:
Cash and cash equivalents	$	31,164	$	31,807
Trade and other receivables, net	13,643		6,955
Inventories, net	2,863		2,461
Prepaid expenses and other current assets	2,540		3,402
Total current assets	50,210		44,625
Property and equipment, net	5,197		6,873
Right-of-use assets, net	2,917		3,448
Intangible assets, net	64		102
Other non-current assets	6,905		7,836
Total assets	$	65,293	$	62,884

Liabilities and stockholders’ deficit
Current liabilities:
Accounts payable	$	6,215	$	7,089
Accrued expenses	7,624		8,569
Lease liabilities, current	860		728
Deferred revenue, current	767		693
Liability related to the sale of future revenue, current	1,848		1,450
Loans payable, current	7,725		2,575
Total current liabilities	25,039		21,104
Loans payable, net	32,673		34,329
Liability related to the sale of future revenue, net	56,615		47,524
Lease liabilities	2,185		2,846
Deferred revenue	7,316		3,633
Other non-current liabilities	1,810		1,945
Total liabilities	125,638		111,381
Contingencies (Note 19)	0		0

Stockholders’ deficit:
Common stock, $0.001 par value. Authorized 250,000,000 shares; 40,083,245 and 34,569,254 shares issued and outstanding at September 30, 2021 and December 31, 2020, respectively	40		35
Additional paid-in capital	167,466		137,725
Accumulated deficit	(227,851)		(186,257)
Total stockholders’ deficit	(60,345)		(48,497)
Total liabilities and stockholders’ deficit	$	65,293	$	62,884

See accompanying notes to the condensed consolidated financial statements.

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AQUESTIVE THERAPEUTICS, INC.

Condensed Consolidated Statements of Operations and Comprehensive Loss

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

(Unaudited)


	Three Months Ended September 30,						Nine Months Ended September 30,							Three Months Ended September 30,				Nine Months Ended September 30,
	2020			2019			2020			2019				2021		2020		2021		2020
Revenues	$	8,260		$	12,418		$	38,700		$	36,190		Revenues	$	13,287	$	8,260	$	39,754	$	38,700
Costs and expenses:													Costs and expenses:
Manufacture and supply		2,978			4,643			10,176			13,569		Manufacture and supply	4,400		2,978		11,623		10,176
Research and development		7,260			5,063			15,461			17,517		Research and development	4,726		7,260		12,647		15,461
Selling, general and administrative		11,803			13,714			40,310			47,868		Selling, general and administrative	12,129		11,803		38,494		40,310
Total costs and expenses		22,041			23,420			65,947			78,954		Total costs and expenses	21,255		22,041		62,764		65,947
Loss from operations		(13,781	)		(11,002	)		(27,247	)		(42,764	)	Loss from operations	(7,968)		(13,781)		(23,010)		(27,247)
Other income/(expenses):													Other income/(expenses):
Interest expense		(2,778	)		(2,652	)		(8,296	)		(6,515	)	Interest expense	(2,787)		(2,778)		(8,305)		(8,296)
Interest income		8			138			128			565
Loss on extinguishment of debt		-			(4,896	)		-			(4,896	)
Interest expense related to the sale of future revenue, net													Interest expense related to the sale of future revenue, net	(3,767)		—		(10,567)		—
Interest and other (expense) income, net													Interest and other (expense) income, net	(33)		8		288		128

Net loss before income taxes		(16,551	)		(18,412	)		(35,415	)		(53,610	)	Net loss before income taxes	(14,555)		(16,551)		(41,594)		(35,415)
Income taxes		-			-			-			-		Income taxes	—		—		—		—
Net loss	$	(16,551	)	$	(18,412	)	$	(35,415	)	$	(53,610	)	Net loss	$	(14,555)	$	(16,551)	$	(41,594)	$	(35,415)
Comprehensive loss	$	(16,551	)	$	(18,412	)	$	(35,415	)	$	(53,610	)	Comprehensive loss	$	(14,555)	$	(16,551)	$	(41,594)	$	(35,415)

Net loss per share - basic and diluted	$	(0.49	)	$	(0.74	)	$	(1.05	)	$	(2.15	)	Net loss per share - basic and diluted	$	(0.37)	$	(0.49)	$	(1.12)	$	(1.05)
Weighted-average number of common shares outstanding - basic and diluted		33,619,379			25,031,478			33,592,846			24,992,229		Weighted-average number of common shares outstanding - basic and diluted	39,224,863		33,619,379		37,297,892		33,592,846

See accompanying notes to the condensed consolidated financial statements.

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AQUESTIVE THERAPEUTICS, INC.

Condensed Consolidated Statements of Changes in Stockholders’ Deficit

(In thousands, except share amounts)

(Unaudited)


	Common Stock			Additional Paid-in Capital		Accumulated Deficit		Total Stockholders’ Equity/Deficit
	Shares	Amount

Balance at December 31, 2020	34,569,254	$	35	$	137,725	$	(186,257)	$	(48,497)
Common Stock issued under public equity offering	1,672,104	1		10,196		—		10,197
Costs of common stock issued under public equity offering	—	—		(306)		—		(306)
Share-based compensation expense	—	—		1,507		—		1,507
Other	—	—		(27)		—		(27)
Net loss	—	—		—		(14,672)		(14,672)
Balance at March 31, 2021	36,241,358	36		149,095		(200,929)		(51,798)
Common Stock issued under public equity offering	2,304,949	3		9,238		—		9,241
Costs of common stock issued under public equity offering	—	—		(627)		—		(627)
Shares issued under employee stock purchase plan	19,270	—		76		—		76
Share-based compensation expense	—	—		1,710		—		1,710
Vested restricted stock units	2,665	—		(4)		—		(4)

Net loss	—	—		—		(12,367)		(12,367)
Balance at June 30, 2021	38,568,242	$	39	$	159,488	$	(213,296)	$	(53,769)
Common Stock issued under public equity offering	1,509,818	1		6,221		—		6,222
Costs of common stock issued under public equity offering	—	—		(135)		—		(135)
Share-based compensation expense	—	—		1,900		—		1,900
Vested restricted stock units	5,185	—		(9)		—		(9)
Other	—	—		1		—		1
Net loss	—	—		—		(14,555)		(14,555)
Balance at September 30, 2021	40,083,245	40		167,466		(227,851)		(60,345)

	Common Stock				Additional Paid-in		Accumulated			Total Stockholders’
	Shares		Amount		Capital		Deficit			Equity/Deficit

For the periods ended September 30, 2020:
Balance at January 1, 2020		33,562,885	$	34	$	124,318	$	(130,474	)	$	(6,122	)
Share-based compensation		19,811		-		1,823		-			1,823
Balance at December 31, 2019													Balance at December 31, 2019	33,562,885	$	34	$	124,318	$	(130,474)	$	(6,122)
Share-based compensation expense													Share-based compensation expense	—	—		1,860		—		1,860
Vested restricted stock units													Vested restricted stock units	19,811	—		(37)		—		(37)
Net loss		-		-		-		(16,530	)		(16,530	)	Net loss	—	—		—		(16,530)		(16,530)
Balance at March 31, 2020		33,582,696		34		126,141		(147,004	)		(20,829	)	Balance at March 31, 2020	33,582,696	34		126,141		(147,004)		(20,829)
Shares issued under employee stock purchase plan		14,961		-		73		-			73		Shares issued under employee stock purchase plan	14,961	—		73		—		73
Share-based compensation		18,944		-		1,702		-			1,702
Share-based compensation expense													Share-based compensation expense	—	—		1,754		—		1,754
Vested restricted stock units													Vested restricted stock units	18,944	—		(52)		—		(52)
Net loss		-		-		-		(2,334	)		(2,334	)	Net loss	—	—		—		(2,334)		(2,334)
Balance at June 30, 2020		33,616,601		34		127,916		(149,338	)		(21,388	)	Balance at June 30, 2020	33,616,601	34		127,916		(149,338)		(21,388)
Share-based compensation		3,195		-		1,420		-			1,420
Share-based compensation expense													Share-based compensation expense	3,195	—		1,420		—		1,420

Net loss		-		-		-		(16,551	)		(16,551	)	Net loss	—	—		—		(16,551)		(16,551)
Balance at September 30, 2020		33,619,796	$	34	$	129,336	$	(165,889	)	$	(36,519	)	Balance at September 30, 2020	33,619,796	$	34	$	129,336	$	(165,889)	$	(36,519)

For the periods ended September 30, 2019:
Balance at January 1, 2019 24,957,309 $ 25 $ 71,431 $ (61,376 ) $ 10,080
Adoption of ASU 2014-09, ASU 2018-07 (Note 3C) - - 20 (2,852 ) (2,832 )
Share-based compensation 17,830 - 1,422 - 1,422
Net loss - - - (14,726 ) (14,726 )
Balance at March 31, 2019 24,975,139 25 72,873 (78,954 ) (6,056 )
Shares issued under employee stock purchase plan 31,393 - 132 - 132
Share-based compensation 16,128 - 1,739 - 1,739
Net loss - - - (20,472 ) (20,472 )
Balance at June 30, 2019 25,022,660 25 74,744 (99,426 ) (24,657 )
Share-based compensation 20,304 - 1,810 - 1,810
Fair value of warrants issued - - 6,800 - 6,800
Net loss - - - (18,412 ) (18,412 )
Balance at September 30, 2019 25,042,964 $ 25 $ 83,354 $ (117,838 ) $ (34,459 )

See accompanying notes to the condensed consolidated financial statements.

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•the cost of acquiring, developing and manufacturing clinical study materials; and

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•costs associated with preclinical and clinical activities and regulatory ~~operations and activities.~~

operations.

We expect our research and development expenses to continue to be significant over the next several years as we continue to ~~seek to obtain U.S. marketing access for our Libervant product candidate and continue to~~ develop existing product candidates such as AQST-109 AQST-108, AQST-305 and others, and we identify and develop or acquire additional product candidates and technologies. We may hire or engage additional skilled colleagues or third parties to perform these activities, conduct clinical trials and ultimately seek regulatory approvals for any product candidate that successfully completes those clinical trials.

~~Table of Contents~~

Selling, General and Administrative Expenses

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~~relates to the ~~sales~~sale and marketing of our proprietary product, ~~at this time~~ Sympazan. Sympazan is the precursor and ~~compliment~~complement to the launch of Libervant, assuming that it is approved and granted U.S. ~~marketing access.~~market access by the FDA. 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~~PharmFilm® technology in advance of the anticipated launch of ~~Libervant.~~Libervant, assuming FDA approval for U.S. market access, which cannot be assured. The current commercial organization would begin the launch of Libervant, subject to its approval for U.S. ~~marketing~~market access, ~~which cannot be assured,~~ shortly after its approval. Until ~~any~~a 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 include 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~~business costs to appropriately reflect the declining state of 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:

•Seeking to obtain the approval and subsequent launch of Libervant, subject to approval by the FDA for ~~marketing in the~~ U.S., market access, which cannot be ~~assured.~~

assured;

•Continuing the development of AQST-109 and AQST-108 along the 505(b)(2) ~~pathway having begun PK clinical trials during the third quarter of 2020, subject to any delays associated with the coronavirus pandemic;~~pathway; and

•Growing the revenue contribution from Sympazan as a first step to position Aquestive in the epilepsy community.

Interest Expense

Interest expense consists of interest costs on our 12.5% Notes 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. The 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,~~due 2025, to our ~~Consolidated Financial Statements and in~~consolidated financial statements. See Liquidity and Capital ~~Resources.~~Resources below for further detail on our 12.5% Notes.

Royalties and Interest ~~expense has increased based on~~Expense related to the ~~additional borrowings~~Sale of Future Revenue

On November 3, 2020, we entered into a Purchase and Sale Agreement (the "Monetization Agreement") with MAM Pangolin Royalty, LLC, an affiliate of Marathon Asset Management ("Marathon"). Under the terms of the Monetization Agreement, we sold all of our contractual rights to receive royalties and milestone payments due under the ~~12.5% Notes period~~Sunovion License Agreement related to Sunovion's apomorphine product, KYNMOBI®. KYNMOBI, an apomorphine film therapy for the treatment of off episodes in Parkinson’s disease patients, received approval from the U.S. FDA on May 21, 2020. In exchange for the sale of these rights, we received an upfront payment of $40,000 and an additional payment of $10,000 through the

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achievement of the first milestone, and recorded these payments as a liability related to the sale of future revenue that will be amortized using the effective interest method over ~~period but in~~ the ~~future interest expense is expected~~life of the Monetization Agreement.. Although we sold all of our rights to ~~decrease~~receive royalties and milestones, as a result of our ongoing obligations related to the ~~November~~generation of these royalties, we will account for these royalties as revenue. We have received an aggregate amount of $50,000 through September 30, 2021 under the Monetization Agreement.

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

During the second quarter of 2020, ~~debt reduction described above.~~under the Sunovion License Agreement, we recognized $8,000 of royalty revenue and corresponding royalty receivable, related to the $1,000 annual minimum guaranteed royalty that is due in each of the next eight years. In connection with the Monetization Agreement, we performed an assessment under ASC 860, Transfer and Servicing to determine whether the existing receivable was transferred to Marathon and concluded that the receivable was not transferred. See Note 15 for further detail on the sale of future revenue.

Interest Income and other income (expense), net

Interest income and other income (expense), net consists of earnings derived from an interest-bearing ~~account. There is~~account and other miscellaneous income and expense items. The interest-bearing account has no minimum amount to be maintained in the account nor any fixed length of period for which interest is earned.

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Results of Operations

Comparison of the ~~Three-Month Periods~~Three and Nine Months Ended September 30, ~~2020~~2021 and ~~2019~~2020

~~We recorded~~Revenues:

The following table sets forth our revenue ~~of $8,260 and $12,418 during~~data for the ~~three-month~~ periods indicated.


	Three Months Ended September 30,				Change				Nine Months Ended September 30,				Change
(In thousands, except %)	2021		2020		$		%		2021		2020		$		%
Manufacture and supply revenue	$	10,447	$	5,903	$	4,544	77	%	$	27,623	$	20,078	$	7,545	38	%
License and royalty revenue	328		328		—		—	%	5,000		13,682		(8,682)		(63)	%
Co-development and research fees	523		341		182		53	%	1,417		870		547		63	%
Proprietary product sales, net	1,989		1,688		301		18	%	5,714		4,070		1,644		40	%
Total revenues	$	13,287	$	8,260	$	5,027	61	%	$	39,754	$	38,700	$	1,054	3	%

For the three months ended September 30, ~~2020~~2021, total revenues increased 61% or $5,027 compared to same period in the prior year. The increase was primarily due to higher manufacturing and ~~2019, respectively, and incurred net losses of $16,551 and $18,412 for those three-month periods.~~

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~~Revenues~~:

Three Months Ended
September 30,

Change

(In thousands, except %) 2020 2019 $
%
Manufacture and supply revenue $ 5,903 $ 9,155 $ (3,252 ) (36 %)
License and royalty revenue 328 1,356 (1,028 ) (76 %)
Co-development and research fees 341 1,073 (732 ) (68 %)
Proprietary product sales, net 1,688 834 854 102 %
Total revenues $ 8,260 $ 12,418 $ (4,158 ) (33 %)

supply revenue as well as Sympazan revenue. For the ~~three-month period~~nine months ended September 30, ~~2020,~~2021, total revenues ~~decreased 33%~~increased 3% or ~~$4,158 to $8,260~~$1,054 compared to ~~revenues of $12,418 for~~ the same period in ~~2019.~~ the prior year. The ~~change is~~increase was primarily ~~attributable~~due to ~~decreases in~~higher Sympazan revenue and manufacture and supply revenue, offset by lower license and royalty ~~revenue and co-development and research fees, offset in part by an increase in proprietary product sales, net.~~revenue.

Manufacture and supply revenue ~~decreased 36%~~increased 77% or ~~$3,252 to $5,903~~$4,544 for the ~~three-month period~~three months ended September 30, ~~2020~~2021 compared to ~~$9,155 recognized during~~the same period in the prior year. Manufacture and supply revenue increased 38% or $7,545 for the nine months ended September 30, 2021 compared to the same period in the prior year. This increase was due to higher Suboxone manufacturing volume.

License and royalty revenue remained flat for the three months ended September 30, 2021 compared to the same period in the prior year. License and royalty revenue decreased 63% or $8,682 for the nine months ended September 30, 2021 compared to the same period in the prior year. This decrease ~~is attributable~~was due to ~~lower volume~~a milestone earned of $4,000 as well as royalty revenue of $8,000 recognized upon the FDA approval of Sunovion’s KYNMOBI ™ product during the second quarter of 2020 that did not recur in ~~2020 partially~~2021. This was partly offset by ~~increased pricing~~an increase in milestones earned from KemPharm, Inc. of $1,500 and the recognition of remaining deferred revenue 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.

~~License~~license and ~~royalty revenue decreased 76% or $1,028 to $328 for the three-month period ended September 30, 2020 compared to revenues of $1,356 from the prior year period. This change~~supply agreement with Fortovia Therapeutics Inc. which was primarily related to the inclusion of $1,000 from our 10% share of milestone payments paid to KemPharm during September 2019, under its licensing of KP-415 and KP-484. There were no milestone payments received during the three months ended September 30, 2020 and there is no assurance that any such payments will be madeterminated in the ~~future. Royalty revenues earned on Suboxone and Zuplenz remained relatively flat year-over-year. License fees are generally driven by transfer~~first quarter of rights, patent performance contingencies, specific FDA or other regulatory achievements, sales levels achievements or other contingencies and milestones, and will likely fluctuate significantly from quarter-to-quarter.2021.

Co-development and research fees ~~decreased 68%~~increased 53% or ~~$732 to $341~~$182 for the ~~three-month~~three months period ended September 30, ~~2020~~2021 compared to ~~$1,073 from~~the same period in the prior ~~year period.~~year. Co-development and research fees increased 63% or $547 for the nine months ended September 30, 2021 compared to the same period in the prior year. The ~~decrease~~increase was driven by the timing of the achievement of research and development performance obligations and are ~~normally~~ expected to fluctuate ~~significantly~~ from one reporting period to the next.

Proprietary product sales, net increased ~~102%~~18% or ~~$854 to $1,688~~$301 for the ~~three-month period~~three months ended September 30, ~~2020~~2021 compared to ~~$834 during~~the same period in the prior ~~year~~year. Proprietary product sales, net increased 40% or $1,644 for the nine months ended September 30, 2021 compared to the same period in the prior year. The increase was due to a steady rise in acceptance with the medical and patient communities over time which led to increased ~~Sympazan~~ prescriptions ~~written by CNS physicians~~ and improved payor approval ~~rates.~~rates for Sympazan.

Table of Content

Expenses and Other:


	Three Months Ended September 30,				Change				Nine Months Ended September 30,				Change
(In thousands, except %)	2021		2020		$		%		2021		2020		$		%
Manufacture and supply	$	4,400	$	2,978	$	1,422	48	%	$	11,623	$	10,176	$	1,447	14	%
Research and development	4,726		7,260		(2,534)		(35)	%	12,647		15,461		(2,814)		(18)	%
Selling, general and administrative	12,129		11,803		326		3	%	38,494		40,310		(1,816)		(5)	%
Interest expense	(2,787)		(2,778)		(9)		—	%	(8,305)		(8,296)		(9)		—	%
Interest expense related to the sale of future revenue, net	(3,767)		—		(3,767)		100	%	(10,567)		—		(10,567)		100	%
Interest and other (expense) income, net	(33)		8		(41)		(513)	%	288		128		160		125	%

Three Months Ended
September 30,
Change
(In thousands, except %) 2020 2019 $ %
Manufacture and supply $ 2,978 $ 4,643 $ (1,665 ) (36 %)
Research and development 7,260 5,063 2,197 43 %
Selling, general and administrative 11,803 13,714 (1,911 ) (14 %)
Interest expense 2,778 2,652 126 5 %
Interest income (8 ) (138 ) (130 ) (94 %)
Loss on extinguishment of debt — 4,896 (4,896 ) NM

Manufacture and supply costs and expenses ~~decreased 36%~~increased 48% or ~~$1,665 to $2,978~~$1,422 for the ~~three-month period~~three months ended September 30, ~~2020~~2021 compared to ~~$4,643 for~~ the same period in ~~2019.~~the prior year. Manufacture and supply costs and expenses increased 14% for the nine months ended September 30, 2021 compared to the same period in the prior year. The ~~decrease~~increase in manufacture and supply costs was ~~primarily~~ due to ~~lower volumes~~volume growth of ~~Suboxone in the 2020 period compared to 2019.~~Suboxone.

Research and development expenses ~~increased 43%~~decreased 35% or ~~$2,197 to $7,260~~$2,534 for the ~~three-month period~~three months ended September 30, ~~2020~~2021 compared to ~~$5,063 recorded during~~the same period in the prior ~~year period.~~ year. Research and development expenses decreased 18% or $2,814 for the nine months ended September 30, 2021 compared to the same period in the prior year. Research and development expenses are driven primarily by the timing of clinical trial and other product development activities associated with our pipeline.

Selling, general and administrative expenses increased 3% or $326 for the ~~Company’s pipeline~~.

~~Table~~three months ended September 30, 2021 as compared to the same period in the prior year. The increase was driven by litigation expense that arise through the course of ~~Contents~~

business, partially offset by lower sales and marketing costs and share-based compensation expense. Selling, general and administrative expenses decreased ~~14%~~5% or ~~$1,911 to $11,803~~$1,816 for the ~~three-month period~~nine months ended September 30, ~~2020~~2021 as ~~compared to $13,714 for the prior year period.~~ The Company continues to tightly manage selling, general and administrative expenses to focus our investments on continued development of our key pipeline products, Libervant and AQST-108, and the continued commercial growth of Sympazan, our first commercialized proprietary product.

Interest expense increased 5% or $126 to $2,778 for the three-month period ended September 30, 2020 compared to $2,652 for the same period in 2019. This was the result of $20,000 of additional outstanding debt and related higher loan acquisition and discount costs associated with the issuance of the 12.5% Notes on July 15, 2019. Prior to July 15, 2019, our interest expense was subject to fluctuations based on one-month LIBOR under the prior Perceptive Loan and was approximately 12% to 12.5%.

~~Interest income decreased 94% or $130 for the three-month period ended September 30, 2020, compared to the prior year period.~~ ~~This decrease is a result of lower interest rates and investing lower net cash balances during 2020~~ compared to the same period in ~~2019~~.the prior year. The decrease was primarily driven by lower sales and marketing costs, patent costs and share-based compensation expense.

~~Loss on~~Interest expense remained flat for the ~~extinguishment of debt during the three-month period~~three and nine months ended September 30, 2019 represented the expenses incurred to prepay our loans payable to Perceptive Credit Opportunities Fund including the remaining unamortized debt discount and loan acquisition costs and a prepayment premium.

~~Comparison of the Nine-Month Periods Ended September 30, 2020 and 2019~~

~~We recorded revenue of $38,700 and $36,190 during the nine-month periods ended September 30, 2020 and 2019, respectively, and incurred net losses of $35,415 and $53,610 for those periods.~~

~~Revenues:~~

Nine Months Ended
September 30,
Change
(In thousands, except %) 2020 2019 $ %
Manufacture and supply revenue $ 20,078 $ 24,739 $ (4,661 ) (19 %)
License and royalty revenue 13,682 6,402 7,280 114 %
Co-development and research fees 870 2,862 (1,992 ) (70 %)
Proprietary product sales, net 4,070 2,187 1,883 86 %
Total revenues $ 38,700 $ 36,190 $ 2,510 7 %

For the nine-month period ended September 30, 2020, total revenues increased 7% or $2,510 to $38,700 compared to revenues of $36,190 for the same period in 2019. The change is primarily attributable to increases in license and royalty revenue and proprietary product sales revenue for Sympazan, offset in part by decreases in manufacture and supply revenue and in co-development and research fees.

Manufacture and supply revenue decreased 19% or $4,661 to $20,078 for the nine-month period ended September 30, 2020 compared to $24,739 recognized during the prior year period. This decrease is attributable to lower Suboxone volume in 2020 partially offset by increased pricing.

License and royalty revenue increased 114% or $7,280 to $13,682 for the nine-month period ended September 30, 2020 compared to revenues of $6,402 realized during the comparable prior year period. License fees decreased $1,250 during these periods. The 2020 period included a $4,000 milestone payment earned upon the FDA approval, in May, and commercial launch in September of Sunovion’s KYNMOBI™ product whereas the 2019 period included $1,000 from our 10% share of milestone payments paid to KemPharm and $4,250 in license and new patent fees derived from our licensed product Suboxone. In the 2020 period, royalty revenue increased significantly due to $8,000 of KYNMOBI™ royalties recognized upon the approval of KYNMOBI™ while royalty revenues earned on Suboxone and Zuplenz slightly increased year-over-year. All further license fees due from Indivior related to Suboxone have been suspended pending the outcome of litigation related to infringement claims against the generic products that have launched “at risk.”

Co-development and research fees decreased 70% or $1,992 to $870 for the nine-month period ended September 30, 2020 compared to $2,862 during the prior year period. The decrease was driven by the timing of the achievement of research and development performance obligations, which typically fluctuate significantly from one reporting period to the next.

Proprietary product sales, net increased 86% or $1,883 during the nine-month period ended September 30, 2020 to $4,070, compared to the same prior year period of $2,187. Acceptance within medical and patient communities has steadily continued to improve following Sympazan’s launch in December 2018.

Nine Months Ended
September 30,
Change
(In thousands, except %) 2020 2019 $
%
Manufacture and supply $ 10,176 $ 13,569 $ (3,393 ) (25 %)
Research and development 15,461 17,517 (2,056 ) (12 %)
Selling, general and administrative 40,310 47,868 (7,558 ) (16 %)
Interest expense 8,296 6,515 1,781 27 %
Interest income (128 ) (565 ) (437 ) (77 %)
Loss on extinguishment of debt — 4,896 (4,896 ) NM

Manufacture and supply costs and expenses decreased 25% or $3,393 to $10,176 for the nine-month period ended September 30, 2020 compared to $13,569 for the same period in 2019. The decrease primarily reflected lower volumes of Suboxone in the 2020 period compared to 2019.

Research and development expenses decreased 12% or $2,056 to $15,461 for the nine-month period ended September 30, 2020 compared to $17,517 for the same prior year period. Research and development expenses are driven primarily by the timing of clinical trial and other product development activities associated with the Company’s pipeline.

Selling, general and administrative expenses decreased 16% or $7,558 to $40,310 for the nine-month period ended September 30, 2020 compared to $47,868 for the same prior year period. The decrease was driven by careful and prudent management of expenses primarily in sales and marketing as well as factory overhead costs.

Interest expense increased 27% or $1,781 to $8,296 for the nine-month period ended September 30, 2020 compared to $6,515 for the same period in 2019, primarily from higher debt balances starting in the third quarter 2019. Prior to July 15, 2019, our interest expense was subject to fluctuations based on one-month LIBOR. Our 12.5% Senior Secured Notes carry a 12.5% fixed interest rate per annum, with an increased principal amount outstanding thereunder.

~~Interest income decreased 77% or $437 for the nine-month period ended September 30, 2020, compared to the same prior year period.~~ ~~This decrease is a result of lower interest rates and investing lower net cash balances during 2020~~2021 compared to the same period in ~~2019.~~the prior year.

~~Loss on~~Interest expense related to the ~~extinguishment~~sale of ~~debt during~~future revenue, net was $3,767 and $10,567 for the three and nine months ended September 30, ~~2019 represented~~2021, respectively. This amount is due to the ~~expenses incurred~~accounting associated with the sale of future revenue related to ~~prepay our loans payable~~KYNMOBI® sold to ~~Perceptive Credit Opportunities Fund including~~Marathon on November 3, 2020 and does not represent a monetary obligation or cash outflow at any time during the ~~remaining unamortized debt discount~~life of the transaction. See note 15 for details.

Interest and ~~loan acquisition costs~~other (expense) income, net decreased $41 and ~~a prepayment premium.~~increased $160, respectively, for the three and nine months ended September 30, 2021 compared to the same periods in the prior year. This was due to the fair value adjustment of the put option related to the 12.5% Notes. See note 13 for details.

Liquidity and Capital Resources

Sources of Liquidity

~~Since our inception in January 2004, we~~We have ~~incurred significant losses and~~experienced a history of net losses. Our accumulated deficits totaled $227,851 as of September 30, ~~2020, we have a~~2021. The net ~~stockholders’ deficit of $36,519. We have funded our operations primarily with equity~~losses and ~~debt financings, with~~accumulated deficits were partially offset by gross margins from sales of commercialized licensed and proprietary products, ~~and with~~ license fees, milestone and royalty payments from ~~our~~ commercial ~~partners~~licensees and co-development ~~licensees. We~~parties. Our funding requirements are met by our cash and cash equivalents, as well as our existing equity and debt offerings, including the Senior Secured Notes due 2025 (the "12.5% Notes").We had ~~$17,064~~$31,164 in cash and cash equivalents as of September 30, ~~2020 and working capital of $13,311.~~2021.

On November 3, 2020, we entered into ~~the Monetization~~a Purchase and Sale Agreement (the "Monetization Agreement") with MAM Pangolin Royalty, LLC, an affiliate of Marathon that will result in proceeds to us of up to $125,000 in exchange for which we conveyed to Marathon the right to all royalties and other payments due to us under the Sunovion License Agreement (See Note 6)Asset Management ("Marathon"). Under the terms of the Monetization Agreement, we ~~will~~sold all of our contractual rights to receive aroyalties and milestone payments due under the Sunovion License

Table of Content

Agreement related to Sunovion's apomorphine product, KYNMOBI®. KYNMOBI, an apomorphine film therapy for the treatment of off episodes in Parkinson’s disease patients, received approval from the FDA on May 21, 2020. In exchange for the sale of these rights, we received an upfront payment of $40,000 ~~cash~~and an additional payment ~~within 12 business days~~ of ~~signing~~$10,000 through the achievement of the first milestone. We have received an aggregate amount of $50,000 through September 30, 2021 under the Monetization Agreement.

Under the Monetization Agreement, ~~and we are eligible to receive~~additional aggregate contingent payments of up to ~~$85,000 of~~ ~~contingent payments at various points, beginning as early as the fourth quarter of 2020, based on~~$75,000 may be due to us upon the achievement of worldwide royalty ~~targets~~ and ~~certain~~ other commercial ~~milestones.~~targets within a specified timeframe, which could result in total potential proceeds of $125,000.

With the upfront proceeds ~~paid to~~of the ~~Company under the Monetization Agreement,~~monetization, we ~~will repay~~repaid $22,500 of the 12.5% Notes, and ~~issue~~issued $4,000 of new ~~senior notes~~12.5% Notes in lieu of paying a prepayment premium on the early repayment of the 12.5% Notes, reducing the aggregate principal balance of ~~senior notes~~12.5% Notes outstanding to ~~$51,500 in the aggregate.~~$51,500. In addition, the holders of the 12.5% Notes ~~have extended~~agreed to extend to December 31, 2021 our ability to access, at our option, and additional $30,000 of ~~senior notes~~12.5% Notes re-openers under the Indenture. The first $10,000 ~~senior notes~~12.5% Notes re-opener represents a commitment of such amount by current holders of 12.5% Notes, at our option, contingent upon FDA approval of our product candidate Libervant. A second $20,000 ~~senior notes~~12.5% Notes re-opener represents a right, at our option, to market to current holders of our 12.5% Notes, and/or other lenders, additional senior notes up to such amount, contingent upon FDA approval of Libervant for U.S. market access. If and to the extent that we access these re-openers, we will grant warrants to purchase up to 714,000 shares of common stock, with the strike price calculated based on the 30-day volume weighted average closing price of our common stock at the warrant grant date. In addition, as of the closing of this transaction, ~~the Company will issue~~we issued to the holders of the 12.5% Notes warrants to purchase 143,000 shares of our common stock.

~~Table~~On September 30, 2021, the Company entered into a waiver agreement (the “Waiver”) with the holders of ~~Contents~~

~~We generate revenue from licensed products~~the 12.5% Notes pursuant to which the principal payment due under the 12.5% Notes on September 30, 2021 was deferred in order to provide sufficient time for the execution of the Fourth Supplemental Indenture (the “Fourth Supplemental Indenture”). On October 7, 2021, the Company entered into the Fourth Supplemental Indenture, by and ~~proprietary product sales, certain product development~~among the Company and ~~licensing agreements~~the Trustee and ~~related activities. We have invested~~collateral agent thereunder, to the ~~margins from product sales and our other revenue sources, as well as proceeds from debt and equity securities~~Indenture in connection with the 12.5% Notes. Pursuant to the Fourth Supplemental Indenture, the amortization schedule for the 12.5% Notes was amended to provide for the date of the first amortization payment to be extended to March 30, 2023. The Fourth Supplemental Indenture did not change the maturity date of the Notes or the interest payment obligation due under the Notes. In connection with the Fourth Supplemental Indenture, the Company entered into a Consent Fee Letter with the holders of the 12.5% Notes, pursuant to which the Company agreed to pay the holders of the 12.5% Notes an additional cash payment of $2.7 million in the ~~development~~aggregate, payable in four quarterly payments beginning May 15, 2022. See Note 20 for discussion.

In 2019, we established an “At-The-Market” (ATM) facility pursuant to which we may offer up to $25,000,000 of ~~those marketed products as well as development~~shares of ~~our proprietary CNS~~common stock. In the first quarter of 2021, we filed a prospectus supplement to offer up to an additional $50,000 of shares of common stock under the ATM facility. Since inception to September 30, 2021, we sold 6,417,804 shares which generated net cash proceeds of approximately $30,647, net of commissions and complex molecule pipeline and in development and growth of our growing patent portfolio. We also invested those financial resources in the protection and prosecution of those patents, in developing the commercialization aspects of our organization, in bringing our first self-developed CNS product to market and in developing our organization from private ownership to publicly owned status. Theother transaction costs of ~~these initiatives and concurrent growth, along with interest expenses~~$1,541. For the nine months ended September 30, 2021, we sold 5,486,871 shares which provided net proceeds of approximately $24,592, net of commissions and other transaction costs of ~~funding resulted in the $165,889 deficit we have accumulated from inception.~~

On March 27, 2020, the Coronavirus Aid, Relief and Economic Security (CARES) Act was signed into law as the pandemic continued to affect our nation’s economy. Among the significant goals of the CARES Act was to provide increased liquidity for businesses through deferral of employer payroll taxes, a tax credit for retaining employees and other provisions. We currently expect to benefit from the provision to defer the payment of certain employer payroll taxes of$1,068. This ATM facility has approximately ~~$0.5 million for calendar year 2020, of which approximately $0.3 million has been deferred as of~~$42,812 available at September 30, ~~2020. It is currently expected that half of these deferrals will become due at each of December 31, 2021 and December 31, 2022, respectively.~~2021.

Cash Flows

~~Nine-Month Periods~~Nine Months Ended September 30, ~~2020~~2021 and ~~2019~~2020


(in thousands)	2021		2020
Net cash (used for) operating activities	$	(24,918)	$	(31,947)
Net cash (used for) investing activities	(380)		(281)
Net cash provided (used for) by financing activities	24,655		(34)
Net increase (decrease) in cash and cash equivalents	$	(643)	$	(32,262)

(in thousands) 2020 2019
Net cash (used for) operating activities
$
(31,947
)

$
(49,635
)
Net cash (used for) investing activities
(281
)

(577
)
Net cash (used for)/provided by financing activities
(34
)

10,527

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

$
(39,685
)

Net Cash (Used for) Operating Activities

Net cash used for operating activities for the ~~nine-month period~~nine months ended September 30, ~~2020~~2021 decreased by $7,029 compared to the same period in the prior year. The decrease was ~~$31,947. The use~~related to higher non-cash operating expenses of ~~cash can be understood as represented by three major factors: (1) our net loss of $35,415, (2) incremented by a net decrease~~$11,993, changes in operating assets and liabilities of ~~$5,713~~$1,215, partially offset by ~~(3) non-cash operating expenses.~~a higher net loss of $6,179. The higher non-cash operating expenses ~~of $9,181~~were primarily ~~resulted from $5,052 of share-based compensation~~due to increases in interest expense ~~recorded in the nine months ended September 30, 2020. Other significant components included non-cash charges of $4,129~~ related to ~~depreciation~~sale of future revenue ($10,457) and amortization of debt issuance ~~costs.~~costs

Table of Content

~~Net cash used for operating activities for the nine-month period ended September 30, 2019 was $49,635.~~($1,846). The ~~use of cash is attributable to: (1) our net loss of $53,610, (2) a net decrease~~change in operating assets and liabilities was primarily due to timing of ~~$9,822 partially~~payments, increased deferred revenue related to a $1,250 net milestone payment received in connection with a license and supply agreement to commercialize AQST-119 Tadalafil Oral Film, offset by ~~(3) non-cash operating expenses. The non-cash operating expenses of $13,797 primarily resulted from $5,199 of share-based compensation expense~~higher trade and a $4,896 loss on early extinguishment of our debt to Perceptive Credit Opportunities Fund recorded during this period. Other significant components included non-cash charges of $3,702 related to fixed asset depreciation and amortization of debt issuance costs.

~~Cash used by operations improved in 2020 compared to 2019 comparable periods~~other receivables due to ~~management of costs and expenses in 2020 to focus on key priorities as discussed above.~~increased revenue.

Net Cash (Used for) Investing Activities

Net cash used for investing activities ~~was $281~~ for the ~~nine-month period~~nine months ended September 30, ~~2020~~2021 increased by $99 compared to ~~$577 for~~ the ~~comparative~~same period in the prior ~~year period.~~year. The use of cash was related to capital expenditures.

~~Table of Contents~~

Net Cash ~~(Used~~Provided by/(Used for)~~/Provided by~~ Financing Activities

Net cash ~~used~~provided for financing activities ~~was $34~~ for the ~~nine-month period~~nine months ended September 30, ~~2020~~2021 increased by $24,689 compared to ~~$10,527 net cash provided during~~ the ~~corresponding~~same period in ~~2019.~~the prior year. The cash used in 2020 is a result of payment for withholding taxes on share-based compensation offset, in part, by proceeds received from employees participating in the Company’s Employee Stock Purchase Plan. The cash provided in 2019 resultsincrease was primarily ~~from the excess of proceeds received from the issuance of the 12.5% Notes, described below, of $70,000 over cash used for the repayment of the $50,000 loan principal repaid~~related to Perceptive, a related early repayment premium of $2,944 and $3,918 of loan acquisition costs associated with the 12.5% Notes. We also paid $2,723 for withholding taxes associated with tax reimbursements connected to certain share-based compensation incurred in 2018.

~~12.5% Senior Secured Notes~~

On July 15, 2019 we issued $70,000 aggregate principal amount of the 12.5% Notes and Warrants under the Indenture for the 12.5% Notes (“Indenture”). In addition, the Indenture provides opportunity to issue up to $30,000 of additional 12.5% Notes under certain conditions for a total possible issuance amount of $100,000. Also, in July 2019, in connection with our issuance of the12.5% Notes we repaid all outstanding amounts due under the Loan Agreement with Perceptive Credit Opportunities Fund dated August 16, 2016.

~~The~~ net proceeds from the ~~issuance~~sale of the12.5% Notes was $66,054, after deducting expenses of the transaction. We used a portion of the net proceeds to repay an aggregate amount of $52,092 of existing Perceptive indebtedness, comprised of the outstanding principal amount, all accrued and unpaid interest and applicable prepayment and end-of-term fees, owed to Perceptiveshares under the ~~Credit Agreement and Guaranty (described below). We used the remaining net cash proceeds of approximately $13,110 for the continued commercialization and advancement of~~ATM facility in 2021.

Funding Requirements

Based on our ~~proprietary products and pipeline candidates, and other general corporate purposes.~~

~~The additional 12.5% Notes can be issued if~~current operating plan, we satisfy certain conditions and achieve certain milestones related to the filing and approval of our epilepsy product candidate, Libervant, and there are available purchasers for the additional 12.5% Notes. Specifically, on or prior to March 31, 2021, we may issue an additional $10,000 aggregate principal amount of the 12.5% Notes if we filed a new drug application for our candidate Libervant with the FDA prior to that date, provided we have obtained the written consent of the holders of a majority in aggregate principal amount outstanding under the 12.5% Notes in their discretion, which cannot be assured (first reopener) and, on or prior to March 31, 2021, up to an additional $30,000 (less the amount of any first reopener additional 12.5% Notes issued by us) if the Company obtains FDA approval of Libervant for U.S. market access prior to that date. There can be no assurance that FDA approval will be granted or that such additional financing will be consummated.

~~Interest on the 12.5% Notes accrues at a rate of 12.5% per annum and is payable quarterly in arrears on March 30~~^th~~, June 30~~^th~~, September 30~~^th ~~and December 30~~^th of each year commencing on September 30, 2019. On each payment date commencing on September 30, 2021, we will also pay an installment of principal of the 12.5% Notes pursuant to a fixed amortization schedule. The stated maturity date of the 12.5% Note is June 30, 2025.

~~Collateral for the loan consists of a priority lien on substantially all assets, including intellectual property, of the Company.~~

Under the original terms of the Indenture, we have the right to monetize our royalty and milestone interests derived from an IP licensing agreement with Sunovion Pharmaceuticals Inc.in its recently launched apomorphine-based product, KYNMOBI™. Upon any such monetization we are required to offer to purchase each holder’s 12.5% Notes on a pro rata basis at a repurchase price in cash equal to 112.5% of the principal amount of such 12.5% Notes, plus accrued interest and unpaid interest, if any, thereon to the repurchase date. The maximum amount that can be offered for repurchase is $40,000, or $50,000 if the first reopener has been issued and funded. The amount of 12.5% Notes repurchased will be at the discretion of the holders of the 12.5% Notes. See Note 13, 12.5% Senior Secured Notes, to our Condensed Consolidated Financial Statements. To the extent that the holders of the Notes do not elect repayment of the debt in connection with any such monetization, the amount not elected up to $40 million (or $50 million if the first reopener has been funded) is required to be held in a collateral account until Libervant is approved by the FDA for U.S. market access. Certain aspects of this Indenture were modified in November 2020, as outlined below.

The Indenture permits us, upon the continuing satisfaction of certain conditions, including that we have at least $75,000 of net revenues for the most recently completed twelve calendar month period, to enter into an asset-based borrowing facility (“ABL Facility”) not to exceed $10,000. The ABL Facility may be collateralized by assets constituting only inventory, accounts receivable and the proceeds thereof of the Company.

Affirmative and negative covenants and restrictions specified in the Indenture are considered typical for loans of this nature, including, but not limited to, requirements relating to preservation of corporate existence, publicly traded status, intellectual property and business interests; limitations or prohibitions of dividend payments or other distributions, repurchases of shares, asset transfers or dispositions, creation or occurrence of additional liens and security interests, and entering into licensing or monetization arrangements other than as permitted under the Indenture.

~~Table of Contents~~

The Indenture also restricts additional indebtedness except only such indebtedness as is expressly permitted under the terms of the Indenture (which includes the ABL Facility) on the terms and conditions set forth in the Indenture and such indebtedness as may be permitted under limitations set forth in the Indenture. The Indenture also restricts the issuance of any “Disqualified Stock” including, generally, mandatorily redeemable securities or securities redeemable at the option of the holder or securities convertible or exchangeable at the option of the holder for indebtedness of the Company or for other Disqualified Stock.

In connection with this financing, we issued Warrants to the initial holders of the 12.5% Notes. These Warrants provide rights to purchase up to an aggregate of 2,000,000 shares of common stock at a price of $4.25 per Warrant. Warrants for 428,571 of common shares were exercised in December 2019 generating proceeds of $1,829. The Company registered the Warrants and associated shares as part of our S-3 Registration Statement. There were no Warrants exercised in the nine-month period ended September 30, 2020.

With the upfront net proceeds paid under the Monetization Agreement, we will repay $22,500 of the 12.5% Notes, and issue $4,000 of new senior notes in lieu of paying a prepayment premium on the early repayment of the 12.5% Notes, reducing the senior notes outstanding to $51,500 in the aggregate. In addition, the holders of the 12.5% Notes have extended to December 31, 2021 our ability to access, at our option, $30,000 of senior notes re-openers under the Indenture. The first $10,000 senior notes re-opener represents a commitment of such amount by current holders of 12.5% Notes, at our option, contingent upon FDA approval of our product candidate Libervant. A second $20,000 senior notes re-opener represents a right, at our option, to market to current holders of our 12.5% Notes, and/or other lenders, additional senior notes up to such amount, contingent upon FDA approval of Libervant for U.S. market access, which cannot be assured. If and to the extent that we access these re-openers, we will grant warrants to purchase up to 714,000 shares of common stock, with the strike price calculated based on the 30-day volume weighted average closing price of our common stock at the time warrant grant date. In addition, as of the closing of this transaction, the Company will issue to the holders of the 12.5% Notes warrants to purchase 143,000 shares of our common stock.

~~Equity Offering~~

Our current cash balance is also incremented as a result of the December 17, 2019 completion of an equity offering of 8,050,000 shares of common stock pursuant to our S-3 Registration Statement, including exercise of the underwriter’s over-allotment option, resulting in gross proceeds of approximately $40,250 before underwriter discounts and other costs and expenses. Net proceeds were $37,835.

~~Future Capital Requirements~~

We believe that our existing cash and cash equivalents, ~~combined with ultimate~~revenue from our on-going business, continued business development activities, expense management actions, and ~~timely realization of expected recurring revenue streams~~our ability to access funds under our existing equity facility and ~~proceeds from potential~~ debt ~~or equity transactions~~offering will ~~be adequate~~enable us to fund our expected ~~operating and capital costs and to service our debt costs~~cash requirements for the next 12 months. We can provide no assurance that any of these sources of funding, either individually or in combination, will be available on reasonable terms, if at all. In addition, we may be required to utilize available financial resources sooner than expected. We have based ~~this~~our expectation on ~~an operating plan and related~~ assumptions ~~that depend on various forward-looking factors~~ that could change or prove to be inaccurate, either due to the impact of COVID-19 or to unrelated factors including factors arising in the capital markets, asset monetization markets, regulatory approval process, including the approval of Libervant, and additionally, we could utilize our available financial resources sooner than we currently expect. Our existing cash resources are not alone sufficient to fund our expected development, commercializationregulatory oversight and other operations and activities, and we expect to continue to require external sources of funding and capital to develop and seek regulatory approval of our product candidates and for the commercialization of our approved products.factors. Key factors and assumptions inherent in our planned continued operations and anticipated growth include, without limitation, those related to the following:

•the effects of the COVID-19 pandemic on our operations, operations of our key suppliers and third-party clinical and other service providers, our ~~employees~~colleagues and contractors and debt equity and other capital markets;

•continued ability of our customers to pay, in a timely manner, for presently contracted and future anticipated orders for our manufactured goods, Suboxone, Sympazan and ~~Sympazan,~~Exservan, including effects of generics and other competitive pressures as currently envisioned;

•continued ability of our customers to pay, in a timely manner, for presently contracted and future anticipated orders for provided co-development and feasibility services, as well as regulatory support services for recently licensed products, such as Exservan;

•access to debt or equity ~~capital~~ markets if, and at the time, needed for any necessary future funding;

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•FDA approval of our key new drug candidate, Libervant, for U.S. market access. We submitted the NDA filing for Libervant in the fourth quarter of 2019 and received a PDUFA date of September 27, 2020. We received a Complete Response Letter on September 25, 2020 denying approval of the NDA in its current form. We are planning to resubmit the NDA to the FDA and to seek to demonstrate that Libervant is “clinically superior” as a major contribution to patient care to gain U.S. market access. There can be no assurance that we will obtain approval of Libervant for U.S. market access;

•our ability to issue ~~additional lender committed debt~~up to $30,000 in ~~an aggregate amount of $10,000 of~~ additional 12.5% Notes, which is contingent upon FDA product approval ~~of Libervant, noted above;~~

~~our ability to issue additional marketable debt in an aggregate amount of up to $20,000 of additional 12.5% Notes, which is contingent upon FDA product approval of Libervant for~~and U.S. market access ~~noted above;~~for Libervant;

•continuing review and appropriate adjustment of our cost structure consistent with our anticipated revenues and funding;

•continued growth and market penetration of Sympazan within expected commercialization cost levels for this product, including anticipated patient and physician acceptance and our ability to obtain adequate price and payment support from government agencies and other private medical insurers;

•effective commercialization within anticipated cost levels and expected ramp-up timeframes of our product candidate Libervant, if approved for U.S. market access by the FDA;

•infrastructure and administrative costs at expected levels to support operations as an FDA and highly regulated public company;

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•a manageable level of costs for ongoing efforts to protect our intellectual property rights, including litigation costs in connection with seeking to enforce our rights concerning third ~~parties’ at-risk~~parties' "at-risk" launch of generic products;

•continued compliance with all covenants under our 12.5% Notes; and

•absence of significant unforeseen cash requirements.

We expect to continue to manage business costs to appropriately reflect the ~~declining state of~~anticipated general decline in Suboxone ~~revenues,~~revenue, the marketing and sales costs related to Sympazan, the proceeds from ~~any KYNMOBI™ monetization~~the KYNMOBI Monetization Agreement, and other external resources or factors affecting our business including, if available, any future potential issuances of additional 12.5% Notes under the Indenture, net proceeds ofor future equity financing, or other future access to the capital markets ~~under our shelf registration statement filed with the SEC and effective September 17, 2019~~ or other potential available sources of liquidity, as well as the uncertainties associated with the coronavirus pandemic. In doing so, we plan to continue to focus on the core drivers of value for our stockholders, including, ~~most~~more importantly, continued investments in our ongoing product development and planned commercialization activities in support of Libervant, AQST-109 and AQST-108. Until profitability is achieved, if at all, additional capital and/or other financing or funding will be required, which could be material, to further advance the development and commercialization of Libervant, AQST-109 and AQST-108, if approved by the FDA for U.S. market access, ~~both of which are subject to regulatory approval,~~ and to meet our other cash requirements, including debt service. We plan to conservatively manage our pre-launch spending as to both timing and level relating to Libervant, including cost rationalization associated with marketing and selling Sympazan. In this regard, absent spending on launch activities for Libervant, we expect to continue to spend less on commercialization in ~~2020~~2021 compared to ~~2019.~~2020. Even as such, we expect to ~~continue to~~ incur losses and negative cash flows for the foreseeable future and, therefore, we expect to be dependent upon external financing and funding to achieve our operating plan.

On November 3, 2020, we entered into the Monetization Agreement with Marathon, that will result in proceeds to us of up to $125,000 in exchange for which we conveyed to Marathon the right to all royalties and other payments due to us under the Sunovion License Agreement (See Note 6). Under the terms of the Monetization Agreement, we will receive a $40,000 cash payment within 12 business days of signing and we are eligible to receive up to $85,000 of ~~contingent payments at various points, beginning as early as the fourth quarter of 2020, based on the achievement of worldwide royalty targets and certain other commercial milestones.~~

With the upfront proceeds paid to the Company under the Monetization Agreement, we will repay $22,500 of the 12.5% Notes, and issue $4,000 of new senior notes in lieu of paying a prepayment premium on the early repayment of the 12.5% Notes, bringing senior notes outstanding down to $51,500 in the aggregate. In addition, the holders of the 12.5% Notes have extended to December 31, 2021 our ability to access, at our option, $30,000 of senior notes re-openers under the Indenture. The first $10,000 senior notes re-opener represents a commitment of such amount by current holders of 12.5% Notes, at our option, contingent upon FDA approval of our product candidate Libervant. A second $20,000 senior notes re-opener represents a right, at our option, to market to current holders of our 12.5% Notes, or other lenders, additional senior notes up to such amount, contingent upon FDA approval of Libervant for U.S. market access, which cannot be assured. If and to the extent that we access these re-openers, we will grant warrants to purchase up to 714,000 shares of common stock, with the strike price calculated based on the 30-day volume weighted average closing price of our common stock at the warrant grant date. In addition, as of the closing of this transaction, the Company will issue to the holders of the 12.5% Notes warrants to purchase 143,000 shares of our common stock.

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The sufficiency of our short-term and longer-term liquidity is ~~expected to be~~ directly impacted by our level of operating revenues and our ability to achieve our operating plan for revenues, regulatory approval in the time period planned offor our late-stage proprietary products and our ability to monetize other royalty streams or other licensed rights within planned timeframes. Although we may also be entitled to further potential milestones, royalty and other payments under our Indivior Supplemental Agreement, which are ~~currently~~ suspended and may only be reinstated if Indivior successfully adjudicates or settles the related patent infringement litigation, and under the Monetization Agreement, there can be no assurance when, or if, any such payments may be realized. Our operating revenues have fluctuated in the past and can be expected to fluctuate in the future. We expect to incur significant operating losses and negative operating cash flows for the foreseeable future, and we have a significant level of debt on which we have substantial ongoing ~~principal~~debt repayment and debt service ~~obligations.~~obligations and have principal repayments related to our 12.5% Notes due through the debt maturity date, which is further discussed in Note 13. A substantial portion of our current and past revenues has been dependent upon our licensing, manufacturing and sales with one customer, Indivior, which is expected to continue while we commercialize our own proprietary products and it could take significantly longer than planned to achieve anticipated levels of cash flows to help fund our operations and cash needs from sales of our proprietary ~~products other than Suboxone.~~products.

To the extent that we raise additional funds by issuance of equity securities, our stockholders would experience further dilution and the terms of these securities could include liquidation or other preferences (if and to the extent permitted under the Indenture) that would adversely affect our stockholders’ rights. Our ability to secure additional equity financing could be significantly impacted by numerous factors including our operating performance and prospects, positive or negative developments in the regulatory approval process for our proprietary products, timely achievement of regulatory approval of our late-stage proprietary products, our existing level of debt which is secured by substantially all of our assets, restriction under the Indenture, and general market conditions, and there can be no assurance that we will continue to be successful in raising capital or that any such needed financing will be available, available on favorable or acceptable terms or at the times, or in the amounts ~~needed.~~needed, if at all. Additionally, while the potential economic impact brought on by and the duration of the coronavirus pandemic is difficult to assess or predict, the significant impact of the coronavirus pandemic on the global financial markets, and on our own stock trading price, may reduce our ability to access additional capital, which would negatively impact our short-term and longer-term liquidity.

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If adequate funds are not available for our short-term or longer-term liquidity needs and cash requirements as and when needed, we ~~may~~would be required to ~~reduce~~engage in expense management activities such as reducing staff, ~~further delay,~~delaying, significantly ~~scale~~scaling back, or ~~discontinue~~even discontinuing some or all of our current or planned research and development programs and clinical and other product development activities, or ~~reduce~~reducing our planned commercialization efforts and otherwise significantly ~~reduce~~reducing our other ~~spend~~spending and ~~adjust~~adjusting our operating plan, and we would need to seek to take other steps intended to improve our liquidity. We also may be required to evaluate additional licensing opportunities, if any become available, of our proprietary product candidate programs that we currently plan to self-commercialize or explore other potential liquidity opportunities or other ~~alternative~~alternatives or options or strategic alternatives, although we cannot assure that any of these actions would be available or available on reasonable terms.

See also ~~Part II, Item 1A, Risk Factors~~the risk factors below concerning the significant risks and uncertainties concerning ~~the Company’s~~our business, operations, financial results and capital resources associated with the impact of the global coronavirus pandemic.

Off-Balance Sheet Arrangements

During the period presented, we did not have any material ~~off balance~~off-balance sheet arrangements, nor do we have any relationships with unconsolidated entities or financial partnerships, such as entries often referred to as structured finance or special purpose entities.

~~Item 3.~~

~~Quantitative and Qualitative Disclosures about Market Risk~~

~~Prior to July 15, 2019, our exposure to market risk due to changes in interest rates related primarily to the increase or decrease in the amount~~

Item 3. Quantitative and Qualitative Disclosures about Market Risk

As a “smaller reporting company” as defined by Item 10 of interest expense from fluctuations in one-month LIBOR associated with our debt facility. For each 1% increase in one-month LIBOR in excess of the floor of 2%, our annual interest expense would have increased by approximately $500,000. However, our 12.5% Notes carry a 12.5% fixed interest rate per annum, thereby eliminating market risk due to changes in interest rates. Our cash and cash equivalents are maintained in FDIC protected accounts with no exposure to material changes in interest rates. At September 30, 2020, our interest rate on deposited cash was 0.18%. We do not purchase, sell or hold derivatives or other market risk sensitive instruments to hedge interest rate risk or for trading purposes. Further, we do not invest in any common stock or debt instruments that have been affectedRegulation S-K promulgated by the ~~global COVID-19 outbreak which has resulted in material market movements during~~SEC under the ~~quarter ended September 30, 2020.~~U.S. Securities Act of 1933, as amended, we are not required to provide the information required by this Item 3.

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Item 4. Controls and Procedures

Our accounts receivables have historically been concentrated with Indivior and, as of September 30, 2020, includes significant amounts due from Sunovion for contractually specified minimum annual royalties. In addition, beginning with the launch of Sympazan in 2018, our receivables concentrations with three large national wholesalers of pharmaceutical products has been growing and now, taken together, comprise approximately 28% of gross receivables. These receivables for our proprietary product may become increasingly significant in future periods should Sympazan sales increase and should other pipeline products become approved by the FDA and become distributed through these three regional, or other, wholesalers, as anticipated. In the event of non-performance or non-payment by any of Indivior, Sunovion or said wholesalers, there may be a material adverse impact on our financial condition, results of operations or net cash flow.

~~Item 4.~~

~~Controls and Procedures.~~

Management’s Evaluation of our Disclosure Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is (1) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and (2) accumulated and communicated to our management, including to our principal executive officer and principal financial officer, to allow timely decisions regarding required disclosure.

As of September 30, ~~2020,~~2021, our management, with the participation of our principal executive officer and principal financial officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(b) and 13a-15(e) under the Exchange Act). Our management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives, and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Our principal executive officer and principal financial officer have concluded based upon the evaluation described above that, as of September 30, ~~2020,~~2021, our disclosure controls and procedures were effective at the reasonable assurance level.

Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act), identified in connection with the evaluation of such internal control that occurred during our last fiscal quarter, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II –- OTHER INFORMATION

~~Item 1.~~

~~Legal Proceedings~~

~~From time to time, we have been~~

Item 1. Legal Proceedings

For more information on Legal Proceedings, see Part I Item I. Financial Statements (Unaudited), Note 19. Contingencies.

Item 1A. Risk Factors

You should carefully review and ~~may again become involved in legal proceedings arising in~~consider the ~~course of our business.~~

~~Patent-Related Litigation~~

Beginning in August 2013, we were informed of abbreviated new drug application (“ANDA”) filings in the United States by Watson Laboratories, Inc. (now Actavis Laboratories, Inc., or “Actavis”), Par Pharmaceutical, Inc. (“Par”), Alvogen Pine Brook, Inc. (“Alvogen”), Teva Pharmaceuticals USA, Inc. (“Teva”), Sandoz Inc. (“Sandoz”), and Mylan Technologies Inc. (“Mylan”), for the approval by the FDA of generic versions of Suboxone Sublingual Film in the United States. We filed patent infringement lawsuits against all six generic companies in the United States District Court for the District of Delaware (the “Delaware District Court”). After the commencement of the ANDA patent litigation against Teva, Dr. Reddy’s Laboratories (“DRL”) acquired the ANDA filings for Teva’s buprenorphine and naloxone sublingual film that are at issue in these trials.

~~Of these, cases against three of the six generic companies have been resolved.~~

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~~Mylan~~ ~~and~~ ~~Sandoz~~ ~~settled without a trial. Sandoz withdrew all challenges and became the distributor of the authorized generic products.~~

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~~All cases against~~ ~~Par~~ ~~were resolved pursuant to a May 2018 settlement agreement between the Company, Indivior, and Par and~~information regarding certain ~~of its affiliates.~~

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~~Actavis~~ was found to infringe Patent No. 6,603,514, or the ’514 patent, and cannot enter the market until the expiration of the patent in 2024, and the United States Court of Appeals for the Federal Circuit (“Federal Circuit”) affirmed that ruling on July 12, 2019.

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~~DRL~~ ~~and~~ ~~Alvogen~~ ~~were found not to infringe under a different claim construction analysis, and the Federal Circuit affirmed that ruling on July 12, 2019.~~ ~~Teva~~ ~~has agreed to be bound by all DRL adjudications.~~

Subsequent to the above, all potential generic competitors without a settlement agreement were also sued for infringement of two additional new patents that contain new claims not adjudicated in the original Delaware District Court case against DRL and Alvogen. On July 12, 2019, the Federal Circuit affirmed the decisions from the previously decided cases. The remaining case against Actavis was dismissed in light of the infringement ruling above, which prevents Actavis from entering the market until 2024. The case(s) against the remaining defendants regarding the additional asserted patents have not been finally resolved. A ~~Markman~~ hearing in the cases against Dr. Reddy’s and Alvogen, which is pending in the United States District Court for the District of New Jersey (the “New Jersey District Court”), was held on October 17, 2019. On November 5, 2019, District Judge McNulty of the New Jersey District Court issued a ~~Markman~~ opinion construing the disputed terms of the asserted patents. On January 9, 2020, the New Jersey District Court entered a stipulated order of non-infringement of one of the patents, Patent No. 9,931,305, or the ’305 patent, based on the Federal Circuit Court’s claim construction ruling, and we and Indivior preserved our rights to appeal the claim construction ruling. On November 19, 2019, Magistrate Judge Waldor of the New Jersey District Court issued an order granting DRL and Alvogen’s requests to file amended answers to add antitrust counterclaims against us and Indivior. We and Indivior appealed the Magistrate Judge’s decision to District Judge McNulty on December 4, 2019, and DRL and Alvogen opposed the appeal. On January 17, 2020, we filed a motion to dismiss DRL’s and Alvogen’s antitrust counterclaims for failure to state a claim and DRL and Alvogen opposed the motion. On August 24, 2020, Judge McNulty issued an Opinion and Order denying both the appeal of the Magistrate’s decision and our Motion to Dismiss. On June 3, 2020, the court issued an order setting a schedule for ongoing fact discovery, expert discovery, and dispositive motions. The schedule currently sets the close of fact discovery for October 20, 2020, with expert discovery continuing through the end of April 2021. The schedule also sets the deadline for filing dispositive motions for May 18, 2021. No trial date has been set in those cases. We are not able to determine or predict the ultimate outcome of this proceeding or provide a reasonable estimate or range of estimates of the possible outcome or losses, is any, in this matter.

On February 19, 2019, the Federal Circuit issued its mandate reversing the District of New Jersey’s preliminary injunction against Dr. Reddy’s. Following issuance of the mandate, the District of New Jersey vacated preliminary injunctions against both Dr. Reddy’s and Alvogen. Dr. Reddy’s, Alvogen, and Mylan all launched generic versions of Suboxone Sublingual Film, and the launches by Dr. Reddy’s and Alvogen are “at risk” because the products are the subject of the ongoing patent infringement litigations.

On March 22, 2019, we and Indivior brought suit against Aveva Drug Delivery Systems, Inc., Apotex Corp., and Apotex Inc. in the United States District Court for the Southern District of Florida (the “Southern District of Florida Court”) for infringement of the Company’s U.S. Patents Nos. 8,017,150, 9,687,454, the ’514 patent and the ’305 patent, seeking an injunction and potential monetary damages. Following a negotiated settlement between all parties, on December 3, 2019, the parties submitted a Notice of Settlement and a Joint Motion to Approve Consent Judgment. The Southern District of Florida Court entered an order dismissing the suit on December 18, 2019.

We are also seeking to enforce our patent rights in multiple cases against BioDelivery Sciences International, Inc. (“BDSI”). Three cases are currently pending but stayed in the U.S. District Court for the Eastern District of North Carolina (the “Eastern District of North Carolina Court”):

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The first, a declaratory judgment action brought by BDSI against Indivior and Aquestive, seeks declarations of invalidity and non-infringement of U.S. Patents Nos. 7,897,080 8,652,378 and 8,475,832. This case is stayed.

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The second was filed by us and Indivior related to BDSI’s infringing Bunavail product, and alleges infringement of our patent, U.S. Patent No. 8,765,167, or the ’167 patent, and seeks an injunction and potential monetary damages. Shortly after the case was filed, BDSI filed four (4) IPR’s challenging the asserted ’167 patent. On March 24, 2016, the United States Patent Trial and Appeal Board (PTAB), issued a final written decision finding that all claims of the ’167 patent were valid. The case was stayed in May 2016 pending the final determination of the appeals on those decisions. Following the PTAB’s February 7, 2019 decisions on remand denying institution, we and Indivior submitted a notice to the Court on February 15, 2019 notifying the Court that the stay should be lifted as result of the PTAB’s decisions. We are awaiting further action from the Court.

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On January 13, 2017, we also sued BDSI asserting infringement of the ’167 patent by BDSI’s Belbuca product and seeking an injunction and potential monetary damages. On August 7, 2019, the Eastern District of North Carolina Court granted BDSI’s motion to dismiss the Complaint without prejudice and denied BDSI’s motion to stay as moot. On November 11, 2019, we filed a new Complaint against BDSI in the Eastern District of North Carolina Court. On November 27, 2019, BDSI filed a motion to stay the case pending BDSI’s appeal of the PTAB’s remand decisions, and we opposed the motion. The Eastern District of North Carolina Court denied BDSI’s motion to stay on April 1, 2020. BDSI’s appeal of the PTAB’s remand decisions to the United State Court of Appeals for the Federal Circuit was docketed on March 13, 2019, and on March 20, 2019, we moved to dismiss the appeal for lack of jurisdiction. On August 29, 2019, the Federal Circuit granted the motion to dismiss BDSI’s appeal. On September 30, 2019, BDSI filed a petition for rehearing in the Federal Circuit ~~en banc, which we opposed. The Federal Circuit denied BDSI’s petition for rehearing~~ ~~en banc~~ on January 13, 2020. On June 11, 2020, BDSI filed a petition for writ of certiorari at the Supreme Court of the United States. At the request of the Supreme Court, we filed an opposition to BDSI’s petition on August 17, 2020, and BDSI filed a reply on August 27, 2010. On October 5, 2020, the Supreme Court issued an order denying BDSI’s petition. After the Federal Circuit denied BDSI’s petition, on January 13, 2020, BDSI filed with the Eastern District of North Carolina Court a motion to dismiss the Complaint, and we opposed the motion on February 2, 2020. The Eastern District of North Carolina Court denied BDSI’s motion to dismiss and its motion to stay on April 1, 2020. On April 16, 2020, BDSI filed an Answer to the Complaint, including counterclaims for non-infringement, invalidity, and unenforceability of the ’167 patent. On May 7, 2020, Aquestive filed a motion to dismiss BDSI’s unenforceability counterclaim and a motion to strike BDSI’s corresponding affirmative defenses for failure to state a claim for inequitable conduct under the heightened pleading standard applicable to such claims and defenses. Rather than oppose Aquestive’s Motion to Dismiss, on May 28, 2020, BDSI amended its counterclaims and filed an Answer and Amended Counterclaims, which included additional allegations in support of BDSI’s unenforceability counterclaim. On June 25, 2020, Aquestive filed a Motion to Dismiss BDSI’s Amended Counterclaim for unenforceability and a Motion to Strike BDSI’s corresponding affirmative defense of unenforceability again for failure to state a claim under the applicable heightened pleading standard. BDSI’s filed its opposition to Aquestive’s Motion to Dismiss and Strike on July 16, 2020. Aquestive filed its Reply to BDSI’s Opposition on July 30, 2020. The parties are awaiting further action from the court on Aquestive’s motion.

~~Antitrust Litigation~~

On September 22, 2016, forty-one states and the District of Columbia, or the States, brought suit against Indivior and us in the U.S. District Court for the Eastern District of Pennsylvania, alleging violations of federal and state antitrust statutes and state unfair trade and consumer protection laws relating to Indivior’s launch of Suboxone Sublingual Film in 2010 and seeking an injunction, civil penalties, and disgorgement. After filing the suit, the case was consolidated for pre-trial purposes with the ~~In re Suboxone (Buprenorphine Hydrochloride and Naloxone) Antitrust Litigation~~, MDL No. 2445, or the Suboxone MDL, a multidistrict litigation relating to putative class actions on behalf of various private plaintiffs against Indivior relating to its launch of Suboxone Sublingual Film. While we were not named as a defendant in the original Suboxone MDL cases, the action brought by the States alleges that we participated in an antitrust conspiracy with Indivior in connection with Indivior’s launch of Suboxone Sublingual Film and engaged in related conduct in violation of federal and state antitrust law. We moved to dismiss the States’ conspiracy claims, but by order dated October 30, 2017, the Court denied our motion to dismiss. We filed an answer denying the States’ claims on November 20, 2017. The fact discovery period closed July 27, 2018, but the parties agreed to conduct certain fact depositions in August 2018. The expert discovery phase closed May 30, 2019, but additional reports and depositions were conducted through August 1, 2019. The remainder of the case schedule, including summary judgment briefing, is stayed pending resolution of Indivior’s appeal of the District Court’s class certification ruling in a co-pending multi-district litigation to which we are not a party. On July 28, 2020, the U.S. Court of Appeals for the Third Circuit issued its opinion affirming the District Court’s order certifying the class. On August 27, 2020, the district court issued a scheduling order, setting the deadline for filing remaining ~~Daubert~~ ~~challenges and summary judgment. Under the scheduling order, the remaining~~ ~~Daubert~~ motions were filed on September 28, 2020, and oppositions are due on October 19, 2020. The court will set oral argument on the motions, but the date for oral argument is not yet known. Summary judgment motions are due January 11, 2021, and responses to summary judgment motions are due February 11, 2021. No trial date has yet been set. ~~We are not able to determine or predict the ultimate outcome of this proceeding or provide a reasonable estimate, or range of estimate, of the possible outcome or loss, if any, in this matter.~~

~~Humana and Centene Actions~~

On September 18, 2020, Humana, Inc., a health insurance payer, filed a suit against Aquestive and Indivior in the Eastern District of Pennsylvania relating to Suboxone. The Humana action, which alleges facts similar to those at issue in the Antitrust Case and the Suboxone MDL described above, was assigned to the same judge that is presiding over those actions. Humana’s Complaint alleges five causes of action against Aquestive, including conspiracy to violate the RICO Act, fraud under state law, unfair and deceptive trade practices under state law, insurance fraud, and unjust enrichment. On September 21, 2020, Centene Corporation and other related insurance payers filed a similar suit against Aquestive and Indivior in the Eastern District of Missouri. The counsel representing Humana is also representing Centene. On September 21, 2020, the Centene action was provisionally transferred to the Eastern District of Pennsylvania by the United States Judicial Panel on Multidistrict Litigation. No other proceedings have occurred, and the schedule is not yet known. We are not able to determine or predict the ultimate outcome of this proceeding or provide a reasonable estimate, or range of estimate, of the possible outcome or loss, if any, in this matter.

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~~California Complaint~~

On December 5, 2019, Neurelis Inc. (“Neurelis”) filed a complaint against Aquestive in the Superior Court of California, County of San Diego alleging Unfair Competition, Defamation, and Malicious Prosecution related to the Company’s pursuit of FDA approval for Libervant. 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-SLAPP (“strategic lawsuit against public participation”) statute on January 31, 2020, which Neurelis is expected to oppose. Neurelis filed a motion for leave to file a Supplemental Complaint on February 5, 2020, which we will oppose. On February 5, 2020, Neurelis filed a Motion for Leave to File a Supplemental Complaint (“Motion”). On June 5, 2020, Neurelis filed a Motion for Limited Discovery related to Aquestive’s anti-SLAPP motion.

The court previously scheduled a hearing on both Aquestive’s anti-SLAPP Motion and on Neurelis’s Motion for April 24, 2020. However, on April 3, 2020, in response to the COVID-19 pandemic, the court issued an order continuing all hearings scheduled through April 30, 2020. The court held ultimately a telephonic status conference on June 25, 2020 to determine a schedule for hearing the pending motions. During that status conference, the court set Aquestive’s anti-SLAPP motion for hearing on July 24, 2020. The court also declined Neurelis’s request to hear its Motion and its Motion for Limited Discovery. Neurelis filed its response to Aquestive’s anti-SLAPP Motion on July 13, 2020, and we filed our reply on July 17, 2020. The court held a telephonic hearing on Aquestive’s anti-SLAPP motion on July 24, 2020. On August 6, 2020, the Court issued an order granting in part and denying in part Aquestive’s anti-SLAPP motion. Aquestive filed a notice of appeal to the California Court of Appeal on September 1, 2020, and Neurelis filed a notice of cross-appeal on October 5, 2020. We are not able to determine or predict the ultimate outcome of this proceeding or provide a reasonable estimate, or range of estimate, of the possible outcome or loss, if any, in this matter.

~~Item 1A.~~

~~Risk Factors~~

In light of continuing developments relating to the COVID-19 global pandemic, the Company is supplementing the risk factors previously disclosed in Item 1A of its 2019 Annual Report on Form 10-K to include the following risk factor under the heading “Risks Related to our Business Operations and Industry”:

~~Our business may be adversely affected by the ongoing coronavirus pandemic.~~

Beginning in late 2019, the outbreak of COVID-19, has evolved into a global pandemic. Depending upon the length and severity of the pandemic or any resurgence, which cannot be predicted, we may experience disruptions that could materially and adversely impact our business including:

●

Various aspects of our clinical trials, including delays or difficulties in enrolling patients in our clinical trials, in clinical trial site initiation, and in recruiting clinical site investigators and clinical site staff; increased rates of patients withdrawing from clinical trials; diversion of healthcare resources away from the conduct of clinical trials; interruption of key clinical trial activities such as clinical trials site data monitoring due to limitations on travel imposed or recommended by federal or state governments; impact on employees and others or interruption of clinical trial visits or study procedures which may impact the integrity of subject data and clinical study endpoints; and interruption or delays in the operations of the U.S. FDA, and comparable foreign regulatory agencies, which may impact regulatory review and approval timelines.

●

If any third-party in our supply chain for any materials, including active pharmaceutical ingredients and other raw materials supply, which we need for our product candidates for our clinical trials and for the approved products we manufacture and distribute, are adversely impacted by restrictions resulting from the coronavirus pandemic, including staffing shortages, production slowdowns, or disruptions in freight and other transportation services and delivery distribution systems, our supply chain may be disrupted, limiting our ability to manufacture our product candidates for our clinical trials, conduct our research, development and clinical operations, and manufacture, distribute and sell our approved products.

●

We have closed our business office and requested most of our colleagues located there to work from home, restricted full-time on-site staff generally to those colleagues who must perform essential activities on-site and implemented staggered schedules for full-time on-site staff in our research and development laboratory in order to reduce risk of transmission. Our increased reliance on colleagues and other third parties on whom we rely working from home or having health issues may negatively impact productivity and has limited our in-person commercialization activities for our existing approved proprietary product and would limit commercial launch activities for any new approved product, or disrupt, delay, or otherwise adversely impact our business. In addition, this could increase our cybersecurity risk, create data accessibility concerns, and make us more susceptible to communication disruptions, any of which could adversely impact our business operations. Our colleagues conducting research and development activities might not be able to access our laboratory or manufacturing facilities for an extended period of time as a result of any further closure of our facilities as well as the possibility of further governmental restrictions. As a result, this could delay timely completion of pre-clinical activities, including completing Investigational New Drug (IND)/Clinical Trial Application (CTA) enabling studies or our ability to select future development candidates, and initiation of clinical or other of our development programs and production and delivery of our products.

~~Table of Contents~~

●

The FDA and comparable foreign regulatory agencies may experience disruptions, have slower response times or be under-resourced to continue to monitor our clinical trials or to conduct required activities and review of our product candidates seeking regulatory review and such disruptions could materially affect the development, timing and approval of our product candidates.

●

The coronavirus pandemic may impact the requirements of our customers and growth of our approved products. For example, Indivior, our significant customer for Suboxone, had announced that it anticipated coronavirus impact on its product sales. Further, sales force expansion may not be as productive during a time when a significant number of interactions are virtual and such interactions may not be as effective as face-to-face interactions. Additionally, an increasing number of patient visits to their Healthcare Professionals have been virtual during the coronavirus pandemic which may reduce the likelihood that a change in medicine would occur which could impact Sympazan growth. We cannot accurately predict the adverse impact the coronavirus pandemic will have on orders of our approved products Suboxone and Sympazan. We also have experienced in one instance, and could in the future experience, extended customer payment cycles.

●

As a result of concerns caused by the continuing effects of the coronavirus, we may face issues and investor concerns in raising capital through sales of our common stock or other securities, or in seeking to monetize our licensed royalty and milestone rights. In addition, a recession, depression or other sustained adverse market event could materially and adversely affect the financial markets, our business, the value of our common stock and our ability to obtain on favorable terms, or at all, equity or debt financing or any potential monetization of our royalty streams.

The coronavirus pandemic continues to rapidly evolve. The ultimate impact of the coronavirus pandemic on us is highly uncertain and subject to change and will depend on future developments, which cannot be accurately predicted. We do not yet know the full extent of potential delays or impacts on our business, our clinical trials, our research programs, the manufacturing, marketing, distribution and sale of our approved products, the healthcare system or the global economy. Given the uncertainties, the Company is unable to provide assurance that operations can be maintained as planned prior to the COVID-19 pandemic.

~~Please also refer to the complete Item 1A of the Company’s 2019 Annual Report on Form 10-K for additional~~ risks and uncertainties facing the Company ~~any of which risks and uncertainties may be further heightened by the coronavirus pandemic and~~that could have a material adverse effect on the Company’s business prospects, financial condition, results of operations, liquidity and available capital ~~resources.~~resources set forth in Part I, Item 1A of the Company’s 2020 Annual Report on Form 10-K.

~~Item 2.~~

~~Unregistered Sales of Equity Securities and Use of Proceeds~~

Table of Content

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None.

~~Item 3.~~

~~Defaults Upon Senior Securities~~

Item 3. Defaults Upon Senior Securities

None.

~~Item 4.~~

~~Mine Safety Disclosures~~

Item 4. Mine Safety Disclosures

Not applicable.

~~Item 5.~~

~~Other Information~~

Item 5. Other Information

None.

	Nine Months Ended September 30,
	2020			2019
Cash flows used for operating activities:
Net loss	$	(35,415	)	$	(53,610	)
Adjustments to reconcile net loss to net cash used for operating activities:
Depreciation and amortization		2,337			2,288
Share-based compensation		5,052			5,199
Amortization of debt issuance costs and discounts		1,758			1,338
Loss on extinguishment of debt		-			4,896
All other non-cash expenses		34			76
Changes in operating assets and liabilities:
Trade and other receivables		5,082			(3,887	)
Inventories, net		(383	)		1,317
Prepaid expenses and other assets		(7,101	)		(1,029	)
Accounts payable and accrued expenses		(2,573	)		(5,632	)
Deferred revenue		(738	)		(591	)
Net cash used for operating activities		(31,947	)		(49,635	)
Cash flows used for investing activities:
Capital expenditures		(281	)		(577	)
Net cash used for investing activities		(281	)		(577	)
Cash flows used for financing activities:
Proceeds from shares issued under employee stock purchase plan		62			112
Proceeds from issuance of long-term debt		-			70,000
Debt repayment		-			(50,000	)
Payments for loan acquisition costs		-			(3,918	)
Premium paid to retire debt		-			(2,944	)
Payments for taxes on share-based compensation		(96	)		(2,723	)
Net cash (used for)/provided by financing activities		(34	)		10,527
Net decrease in cash and cash equivalents		(32,262	)		(39,685	)
Cash and cash equivalents:
Beginning of period		49,326			60,599
End of period	$	17,064		$	20,914

Supplemental disclosures of cash flow information:
Cash payments for interest	$	6,562		$	5,153
Net decrease in capital expenditures included in accounts payable and accrued expenses		(152	)		(290	)
Net increase in offering costs included in accounts payable and accrued expenses		237			162
Warrants issued in connection with long-term debt		-			6,800


	Nine Months Ended September 30,
	2021		2020
Operating activities:
Net loss	$	(41,594)	$	(35,415)
Adjustments to reconcile net loss to net cash used for operating activities:
Depreciation, amortization, and impairment	2,233		2,337
Share-based compensation	5,128		5,052
Amortization of debt issuance costs and discounts	3,604		1,758
Interest expense related to the sale of future revenue, net	10,457		—
Other, net	(248)		34
Changes in operating assets and liabilities:
Trade and other receivables, net	(6,726)		5,082
Inventories, net	(402)		(383)
Prepaid expenses and other assets	1,793		(7,101)
Accounts payable	(874)		(3,189)
Accrued expenses and other liabilities	(2,046)		616
Deferred revenue	3,757		(738)
Net cash used for operating activities	(24,918)		(31,947)
Investing activities:
Capital expenditures	(380)		(281)
Net cash used for investing activities	(380)		(281)
Financing activities:
Proceeds from issuance of common stock, net	24,592		—

Proceeds from shares issued under employee stock purchase plan	76		62



Payments for taxes on share-based compensation	(13)		(96)
Net cash provided by/(used for) financing activities	24,655		(34)
Net decrease in cash and cash equivalents	(643)		(32,262)

Cash and cash equivalents at beginning of period	31,807		49,326
Cash and cash equivalents at end of period	$	31,164	$	17,064

Supplemental disclosures of cash flow information:
Cash payments for interest	$	4,828	$	6,562

	September 30, 2020			December 31, 2019

Trade receivables	$	6,659		$	9,094
Contract and other receivables		1,872			4,363
Less: allowance for bad debts		(264	)		(124	)
Less: sales-related allowances		(277	)		(203	)
Trade and other receivables, net	$	7,990		$	13,130


	September 30, 2021		December 31, 2020
Trade receivables	$	11,500	$	4,330
Contract and other receivables	2,637		3,081
Less: allowance for doubtful accounts	(40)		(40)
Less: sales-related allowances	(454)		(416)
Trade and other receivables, net	$	13,643	$	6,955


	Total Sales Related Allowances

Balance at December 31, 2020	$	2,138
Provision	6,769
Payments / credits	(5,920)
Balance at September 30, 2021	$	2,987

For the periods ended September 30, 2019:
Balance at January 1, 2019	24,957,309	$	25	$	71,431	$	(61,376	)	$	10,080
Adoption of ASU 2014-09, ASU 2018-07 (Note 3C)	-		-		20		(2,852	)		(2,832	)
Share-based compensation	17,830		-		1,422		-			1,422
Net loss	-		-		-		(14,726	)		(14,726	)
Balance at March 31, 2019	24,975,139		25		72,873		(78,954	)		(6,056	)
Shares issued under employee stock purchase plan	31,393		-		132		-			132
Share-based compensation	16,128		-		1,739		-			1,739
Net loss	-		-		-		(20,472	)		(20,472	)
Balance at June 30, 2019	25,022,660		25		74,744		(99,426	)		(24,657	)
Share-based compensation	20,304		-		1,810		-			1,810
Fair value of warrants issued	-		-		6,800		-			6,800
Net loss	-		-		-		(18,412	)		(18,412	)
Balance at September 30, 2019	25,042,964	$	25	$	83,354	$	(117,838	)	$	(34,459	)

	September 30, 2020		December 31, 2019

Allowance for doubtful accounts at beginning of year	$	124	$	58
Additions charged to bad debt expense		140		66
Write-downs charged against the allowance		—		—
Allowance for doubtful accounts at end of the period	$	264	$	124

	Total Sales Related Allowances and Accruals

Balance at December 31, 2019	$	1,377
Provision		3,996
Payments / credits		(3,441	)
Balance at September 30, 2020	$	1,932

	September 30, 2020		December 31, 2019

Raw material	$	1,153	$	1,244
Packaging material		1,231		1,096
Finished goods		858		519
Total inventory, net	$	3,242	$	2,859

	Useful Lives	September 30, 2020			December 31, 2019

Machinery	3-15 yrs	$	21,406		$	21,088
Furniture and fixtures	3-15 yrs		1,209			1,150
Leasehold improvements	(a)		21,333			21,333
Computer, network equipment and software	3-7 yrs		2,886			2,787
Construction in progress			1,065			1,412
			47,899			47,770
Less: accumulated depreciation and amortization			(40,171	)		(38,044	)
Total property and equipment, net		$	7,728		$	9,726

Remainder of 2020	$	266
2021		1,287
2022		1,295
2023		944
2024		565
2025		565
2026		424
Total lease payments		5,346
Less: imputed interest		(1,635	)
Total operating lease liabilities	$	3,711


Remainder of 2021	$	322
2022	1,294
2023	944
2024	565
2025	565
2026	424
Total future lease payments	4,114
Less: imputed interest	(1,069)
Total operating lease liabilities	$	3,045


	September 30, 2021		December 31, 2020
Royalty receivable	6,000		7,000
Other	905		836
Total other non-current assets	$	6,905	$	7,836

Remainder of 2020	$	-
2021		3,500
2022		10,500
2023		17,500
2024		24,500
2025		14,000
Total	$	70,000



Liability related to the sale of future revenue, net at December 31, 2020	$	48,974
Royalties related to the sale of future revenue	(1,077)
Amortization of issuance costs	110
Interest expense related to the sale of future revenue	10,457
Liability related to the sale of future revenue, net (includes current portion of $1,848)	$	58,464

	September 30, 2020		September 30, 2019
Options on common shares outstanding		3,075,942		2,256,092
Restricted stock units unvested		13,489		107,144
Warrants on common shares outstanding		1,571,429		—
Total potentially antidilutive derivatives excluded from losses per share		4,660,860		2,363,236


Restricted Stock Unit Awards (RSUs):	Number of Units			Weighted Average Grant Date Fair Value		Restricted Stock Unit Awards (RSUs):	Number of Units		Weighted Average Grant Date Fair Value
	(in thousands)						(in thousands)
Unvested as of December 31, 2019		74		$	14.64
Unvested as of December 31, 2020						Unvested as of December 31, 2020	14		$	11.38
Granted		4			7.54	Granted	—		—
Vested		(64	)		14.88	Vested	(12)		$	11.14
Forfeited		—			—	Forfeited	(2)		$	13.00
Unvested as of September 30, 2020		14		$	11.38
Unvested as of September 30, 2021						Unvested as of September 30, 2021	—		$	—
Grant date fair value of shares vested during the period	$	958				Grant date fair value of shares vested during the period	$	134
Unrecognized compensation costs as of September 30, 2020	$	140
Unrecognized compensation costs as of September 30, 2021						Unrecognized compensation costs as of September 30, 2021	$	—


Stock Option Awards:	Number of Options	Weighted Average Exercise Price
	(in thousands)
Outstanding as of December 31, 2020	3,259	$	8.14
Granted	1,211	$	4.73
Exercised, Forfeited, Expired	(128)	$	5.11
Outstanding as of September 30, 2021	4,342	$	7.28
Vested and expected to vest as of September 30, 2021	4,194	$	7.37
Exercisable as of September 30, 2021	2,018	$	10.18


Expected dividend yield	—	~~None~~	%
Expected volatility				~~100~~	%95% - 100%
Expected term (years)				~~5.5 -~~ 6.1
Risk-free interest rate	1.0		~~0.4 – 1.7~~	%

~~Number~~	~~Description~~
Number		Description

31.1		Certification of Principal Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a), as amended, under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).
31.2		Certification of Principal Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a), as amended, under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).
32.1		Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith).
32.2		Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith).
101.INS		XBRL Instance Document
101.SCH		XBRL Taxonomy Extension Schema Document
101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF		XBRL Taxonomy Extension Definition Linkbase Document
101.LAB		XBRL Taxonomy Extension Label Linkbase Document
101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document


		Aquestive Therapeutics, Inc. (REGISTRANT)

Date:	November ~~4, 2020~~2, 2021	/s/ Keith J. Kendall
		Keith J. Kendall
		President and Chief Executive Officer
		(Principal Executive Officer)

Date:	November ~~4, 2020~~2, 2021	/s/ ~~John T. Maxwell~~A. Ernest Toth, Jr.
		~~John T. Maxwell~~A. Ernest Toth, Jr.
		Chief Financial Officer
		(Principal Financial Officer)