PART I – FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) Unaudited financial statements for Q3 2023 show improved financial position and profitability, with a net income of $0.24 million for the nine months Condensed Consolidated Balance Sheets As of September 30, 2023, total assets increased, total liabilities decreased, and the stockholders' deficit improved Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | Sep 30, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $24,917 | $27,273 | | Total current assets | $42,457 | $39,888 | | Total assets | $59,448 | $57,070 | | Liabilities & Stockholders' Deficit | | | | Total current liabilities | $24,057 | $39,528 | | Total liabilities | $162,375 | $175,624 | | Total stockholders' deficit | $(102,927) | $(118,554) | Condensed Consolidated Statements of Operations Q3 2023 revenues increased 13% with a narrowed net loss, and nine-month results swung to a $0.24 million net income Statement of Operations Highlights (in thousands, except per share data) | Metric | Q3 2023 | Q3 2022 | Nine Months 2023 | Nine Months 2022 | | :--- | :--- | :--- | :--- | :--- | | Revenues | $13,002 | $11,463 | $37,377 | $36,998 | | Loss from operations | $(2,377) | $(8,853) | $(11,191) | $(31,353) | | Interest and other income, net | $1,514 | $5 | $16,156 | $34 | | Net income (loss) | $(2,035) | $(12,536) | $241 | $(42,058) | | Basic EPS (in dollars) | $(0.03) | $(0.23) | $0.00 | $(0.90) | Condensed Consolidated Statements of Cash Flows Net cash used in operations significantly improved for the nine months, with cash and equivalents ending at $24.9 million Cash Flow Summary (Nine Months Ended Sep 30, in thousands) | Activity | 2023 | 2022 | | :--- | :--- | :--- | | Net cash used for operating activities | $(1,438) | $(18,235) | | Net cash used for investing activities | $(979) | $(2,498) | | Net cash provided by financing activities | $61 | $11,358 | | Net (decrease) in cash | $(2,356) | $(9,375) | | Cash at end of period | $24,917 | $18,649 | Notes to Financial Statements Notes detail business, revenue, debt, and legal matters, highlighting the November 2023 debt refinancing and a key customer - The company is a pharmaceutical firm focused on alternative drug delivery systems (PharmFilm®) for complex molecules, with a pipeline targeting severe allergic reactions and CNS diseases23 - For the nine months ended September 30, 2023, a single customer, Indivior, represented approximately 79% of total revenue43 - On November 1, 2023, the company redeemed its 12.5% Notes and issued $45 million of new 13.5% Senior Secured Notes due 2028. This refinancing was used to repay the old debt, with the balance for general corporate purposes96 - A securities class action lawsuit and a related shareholder derivative lawsuit against the company and its officers were voluntarily dismissed with prejudice in April 20239395 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses pipeline progress, Q3 revenue growth, improved nine-month profitability, and the recent debt refinancing Product Pipeline Update The company is advancing Anaphylm™ with pivotal studies planned and Libervant™ with an NDA filed for pediatric use - Anaphylm™ (epinephrine sublingual film) has shown positive clinical results with a median Tmax of 10-15 minutes. The company plans to start its pivotal PK study in Q4 2023 after incorporating FDA feedback102103 - Libervant™ (diazepam buccal film) received tentative FDA approval for patients 12+, but marketing is blocked by a competitor's orphan drug exclusivity until January 2027104 - An NDA for Libervant™ for pediatric patients (ages 2-5) was accepted by the FDA, with a PDUFA goal date of April 28, 2024104 Results of Operations Q3 2023 revenues increased 13%, and nine-month profitability improved due to reduced SG&A and significant other income Revenue Comparison (in thousands) | Revenue Type | Q3 2023 | Q3 2022 | % Change | | :--- | :--- | :--- | :--- | | Manufacture and supply | $11,409 | $8,411 | 36% | | License and royalty | $1,103 | $376 | 193% | | Proprietary product sales, net | $0 | $2,281 | N/A | | Total revenues | $13,002 | $11,463 | 13% | - Selling, general and administrative (SG&A) expenses decreased by 41% in Q3 2023 and 46% in the first nine months of 2023, primarily due to lower selling costs following the out-licensing of Sympazan in October 2022131132 - The significant increase in 'Interest and other income, net' for the nine months of 2023 to $16.2 million was driven by a $6.0 million payment from an Indivior agreement amendment, an $8.5 million patent litigation settlement, and the receipt of an Employee Retention Tax Credit (ERTC) refund133 Liquidity and Capital Resources The company had $24.9 million cash, with liquidity supported by an ATM facility and the November 2023 debt refinancing - As of September 30, 2023, the company had $24.9 million in cash and cash equivalents134 - The company has an 'At-The-Market' (ATM) facility with approximately $27.8 million available for future sales of common stock as of September 30, 2023135 - In a crucial subsequent event on November 1, 2023, the company refinanced its debt, issuing $45 million in new 13.5% Senior Secured Notes due 2028 to redeem its previous 12.5% notes. This transaction is expected to reduce principal and interest payments by approximately $28 million through June 202596147 Item 3. Quantitative and Qualitative Disclosures about Market Risk As a 'smaller reporting company,' the company is not required to provide market risk disclosures - The company is not required to provide disclosures about market risk as it qualifies as a 'smaller reporting company'141 Item 4. Controls and Procedures Management concluded disclosure controls were effective as of September 30, 2023, with no material changes to internal controls - Management concluded that as of September 30, 2023, the company's disclosure controls and procedures were effective at a reasonable assurance level142 - No changes in internal control over financial reporting occurred during the last fiscal quarter that have materially affected, or are reasonably likely to materially affect, internal controls143 PART II – OTHER INFORMATION Item 1. Legal Proceedings This section refers to Note 19 for details on legal proceedings, including ongoing patent litigation and unfair competition claims - For details on legal proceedings, the report refers to Note 19 of the Financial Statements146 Item 1A. Risk Factors A key risk is the need for substantial additional capital to fund operations, as future funding is not guaranteed - A key risk is the company's need for substantial additional capital to fund its operations, which may not be available on acceptable terms, if at all146 - If adequate funds are not available, the company may be required to delay, scale back, or discontinue R&D programs, or explore other strategic alternatives like asset sales or licensing of core programs147 Other Items (Items 2, 3, 4, 5, 6) The company reported no unregistered equity sales, senior security defaults, or mine safety disclosures - The company reported no unregistered sales of equity securities, defaults upon senior securities, or mine safety disclosures for the period147
Aquestive(AQST) - 2023 Q3 - Quarterly Report