☒ |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
☐ |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
Delaware
|
30 Technology Drive, Warren, NJ 07059
|
82-3827296
|
(State or other jurisdiction of Incorporation or organization)
|
(908) 941-1900
|
(I.R.S. Employer Identification Number)
|
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
|
Large accelerated filer ☐
|
Accelerated filer ☐
|
Non-accelerated filer ☒
|
Smaller reporting company ☒
|
Emerging growth company ☒
|
Page No.
|
||
PART I – FINANCIAL INFORMATION
|
||
Item 1.
|
Financial Statements (Unaudited)
|
|
3
|
||
4
|
||
5
|
||
6
|
||
7
|
||
Item 2.
|
24
|
|
Item 3.
|
40
|
|
Item 4.
|
40
|
|
PART II – OTHER INFORMATION
|
||
Item 1.
|
41
|
|
Item 1A.
|
42
|
|
Item 2.
|
43
|
|
Item 3.
|
43
|
|
Item 4.
|
43
|
|
Item 5.
|
43
|
|
Item 6.
|
44
|
|
45
|
Item 1. |
FINANCIAL STATEMENTS (Unaudited)
|
September 30,
2019
|
December 31,
2018
|
|||||||
Assets
|
||||||||
Current assets:
|
||||||||
Cash and cash equivalents
|
$
|
20,914
|
$
|
60,599
|
||||
Trade and other receivables, net
|
10,316
|
6,481
|
||||||
Inventories, net
|
4,124
|
5,441
|
||||||
Prepaid expenses and other current assets
|
2,706
|
1,680
|
||||||
Total current assets
|
38,060
|
74,201
|
||||||
Property and equipment, net
|
10,351
|
12,207
|
||||||
Intangible assets, net
|
165
|
204
|
||||||
Other assets
|
242
|
239
|
||||||
Total assets
|
$
|
48,818
|
$
|
86,851
|
||||
Liabilities and stockholders’ (deficit)/equity
|
||||||||
Current liabilities:
|
||||||||
Accounts payable and accrued expenses
|
$
|
19,218
|
$
|
27,631
|
||||
Deferred revenue, current
|
835
|
721
|
||||||
Loans payable, current
|
-
|
4,600
|
||||||
Total current liabilities
|
20,053
|
32,952
|
||||||
Loans payable, net
|
59,775
|
42,603
|
||||||
Deferred revenue, net of current portion
|
2,127
|
—
|
||||||
Asset retirement obligations
|
1,322
|
1,216
|
||||||
Total liabilities
|
83,277
|
76,771
|
||||||
Commitments and contingencies (note 17)
|
||||||||
Stockholders’ (deficit)/equity:
|
||||||||
Common stock, $.001 par value. Authorized 250,000,000 shares; 25,042,964 and 24,957,309 shares issued and outstanding at September 30, 2019 and December 31, 2018,
respectively
|
25
|
25
|
||||||
Additional paid-in capital
|
83,354
|
71,431
|
||||||
Accumulated deficit
|
(117,838
|
)
|
(61,376
|
)
|
||||
Total stockholders’ (deficit)/equity
|
(34,459
|
)
|
10,080
|
|||||
Total liabilities and stockholders’ (deficit)/equity
|
$
|
48,818
|
$
|
86,851
|
Three Months Ended
September 30,
|
Nine Months Ended
September 30,
|
|||||||||||||||
2019
|
2018
|
2019
|
2018
|
|||||||||||||
Revenues
|
$
|
12,418
|
$
|
13,267
|
$
|
36,190
|
$
|
50,606
|
||||||||
Costs and expenses:
|
||||||||||||||||
Manufacture and supply
|
4,643
|
5,592
|
13,569
|
16,201
|
||||||||||||
Research and development
|
5,063
|
4,534
|
17,517
|
17,429
|
||||||||||||
Selling, general and administrative
|
13,714
|
12,346
|
47,868
|
53,559
|
||||||||||||
Total costs and expenses
|
23,420
|
22,472
|
78,954
|
87,189
|
||||||||||||
Loss from operations
|
(11,002
|
)
|
(9,205
|
)
|
(42,764
|
)
|
(36,583
|
)
|
||||||||
Other income/(expenses):
|
||||||||||||||||
Interest expense
|
(2,652
|
)
|
(1,933
|
)
|
(6,515
|
)
|
(5,809
|
)
|
||||||||
Interest income
|
138
|
216
|
565
|
238
|
||||||||||||
Loss on the extinguishment of debt
|
(4,896
|
)
|
-
|
(4,896
|
)
|
-
|
||||||||||
Change in fair value of warrant
|
-
|
(4,116
|
)
|
-
|
(5,278
|
)
|
||||||||||
Net loss before income taxes
|
(18,412
|
)
|
(15,038
|
)
|
(53,610
|
)
|
(47,432
|
)
|
||||||||
Income taxes
|
-
|
-
|
-
|
-
|
||||||||||||
Net loss
|
$
|
(18,412
|
)
|
$
|
(15,038
|
)
|
$
|
(53,610
|
)
|
$
|
(47,432
|
)
|
||||
Comprehensive loss
|
$
|
(18,412
|
)
|
$
|
(15,038
|
)
|
$
|
(53,610
|
)
|
$
|
(47,432
|
)
|
||||
Net loss per share - basic and diluted
|
$
|
(0.74
|
)
|
$
|
(0.64
|
)
|
$
|
(2.15
|
)
|
$
|
(2.45
|
)
|
||||
Weighted-average number of common shares outstanding - basic and diluted
|
25,031,478
|
23,646,192
|
24,992,229
|
19,335,541
|
Common Stock
|
Additional
Paid-in
|
Accumulated
|
Total
Stockholders’ Equity/
|
|||||||||||||||||
Shares
|
Amount
|
Capital
|
Deficit
|
Deficit
|
||||||||||||||||
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 3.C.)
|
-
|
-
|
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
|
)
|
|||||||||||||
Share-based compensation
|
16,128
|
-
|
1,739
|
-
|
1,739
|
|||||||||||||||
Shares issued under employee stock purchase plan
|
31,393
|
-
|
132
|
-
|
132
|
|||||||||||||||
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
|
)
|
For the periods ended September 30, 2018:
|
||||||||||||||||||||
Balance at January 1, 2018*
|
5,000
|
$
|
-
|
$
|
(26,495
|
)
|
$
|
-
|
$
|
(26,495
|
)
|
|||||||||
Effect of stock split
|
15,072,647
|
15
|
(15
|
)
|
-
|
-
|
||||||||||||||
Net income
|
-
|
-
|
-
|
4,099
|
4,099
|
|||||||||||||||
Balance at March 31, 2018
|
15,077,647
|
15
|
(26,510
|
)
|
4,099
|
(22,396
|
)
|
|||||||||||||
Common Stock issued to performance unit plan participants
|
4,922,353
|
5
|
19,929
|
-
|
19,934
|
|||||||||||||||
Share based compensation
|
-
|
-
|
7
|
-
|
7
|
|||||||||||||||
Net loss
|
-
|
-
|
-
|
(36,493
|
)
|
(36,493
|
)
|
|||||||||||||
Balance at June 30, 2018
|
20,000,000
|
$
|
20
|
$
|
(6,574
|
)
|
$
|
(32,394
|
)
|
$
|
(38,948
|
)
|
||||||||
Common Stock issued related in initial public offering
|
4,925,727
|
5-
|
68,709
|
-
|
68,714
|
|||||||||||||||
Issuance costs related to initial public offering
|
-
|
-
|
(5,230
|
)
|
-
|
(5,230
|
)
|
|||||||||||||
Reclassification of warrant liability to equity
|
-
|
-
|
12,951
|
-
|
12,951
|
|||||||||||||||
Share-based compensation
|
16,458
|
-
|
995
|
-
|
995
|
|||||||||||||||
Net loss
|
-
|
-
|
-
|
(15,038
|
)
|
(15,038
|
)
|
|||||||||||||
Balance at, September 30, 2018
|
24,942,185
|
$ | 25 |
$
|
70,851
|
$
|
(47,432
|
)
|
$
|
23,444
|
* |
Represents balances as of December 31, 2017 as adjusted for the reorganization from LLC to C corporation business structure effective at the close of business on that date.
|
Nine Months Ended
September 30,
|
||||||||
2019
|
2018
|
|||||||
Cash flows from operating activities:
|
||||||||
Net loss
|
$
|
(53,610
|
)
|
$
|
(47,432
|
)
|
||
Adjustments to reconcile net loss to net cash used for operating activities:
|
||||||||
Depreciation and amortization
|
2,143
|
2,438
|
||||||
Change in fair value of warrant
|
--
|
5,278
|
||||||
Share-based compensation
|
5,199
|
28,541
|
||||||
Asset retirement obligation accretion
|
106
|
102
|
||||||
Amortization of intangible
|
39
|
38
|
||||||
Amortization of debt issuance costs and discounts
|
1,338
|
1,297
|
||||||
Loss on extinguishment of debt
|
4,896
|
—
|
||||||
Non-cash interest expense
|
24
|
—
|
||||||
Bad debt provision
|
36
|
20
|
||||||
Other, net
|
16
|
—
|
||||||
Changes in operating assets and liabilities:
|
||||||||
Accounts receivable, net
|
(3,887
|
)
|
(1,291
|
)
|
||||
Inventories, net
|
1,317
|
(469
|
)
|
|||||
Prepaid expenses and other assets
|
(1,029
|
)
|
(889
|
)
|
||||
Accounts payable and accrued expenses
|
(5,632
|
)
|
2,754
|
|||||
Deferred revenue
|
(591
|
)
|
(566
|
)
|
||||
Net cash used for operating activities
|
(49,635
|
)
|
(10,179
|
)
|
||||
Cash flows from investing activities:
|
||||||||
Capital expenditures
|
(577
|
)
|
(1,334
|
)
|
||||
Net cash used for investing activities
|
(577
|
)
|
(1,334
|
)
|
||||
Cash flows used for financing activities:
|
||||||||
Proceeds from initial offering of common stock
|
—
|
68,714
|
||||||
Proceeds from common stock issued via employee stock purchase plan
|
112
|
—
|
||||||
Proceeds from issuance of long-term debt
|
70,000
|
—
|
||||||
Debt repayment
|
(50,000
|
) |
—
|
|||||
Payments for loan acquisition costs
|
(3,918
|
) |
—
|
|||||
Payments for deferred offering costs
|
—
|
(4,695
|
)
|
|||||
Premium paid to retire debt
|
(2,944
|
)
|
—
|
|||||
Payments for taxes on share-based compensation
|
(2,723
|
)
|
(5,903
|
)
|
||||
Net cash provided by financing activities
|
10,527
|
58,116
|
||||||
Net (decrease) increase in cash and cash equivalents
|
(39,685
|
)
|
46,603
|
|||||
Cash and cash equivalents:
|
||||||||
Beginning of period
|
60,599
|
17,379
|
||||||
End of period
|
$
|
20,914
|
$
|
63,982
|
||||
Supplemental disclosures of cash flow information:
|
||||||||
Cash payments for interest
|
$
|
5,153
|
$
|
4,511
|
||||
Net (decrease) in capital expenditures included in accounts payable and accrued expenses
|
(290
|
)
|
(145
|
)
|
||||
Net increase/(decrease) in offering costs included in accounts payable and accrued expenses
|
162
|
(515
|
)
|
|||||
Accrued withholding tax for share based compensation
|
-
|
1,701
|
||||||
Deferred financing costs charged to additional paid in capital
|
-
|
5,230
|
||||||
Warrants issued in connection with long-term debt
|
6,800
|
-
|
||||||
Noncash component of warrants exercised
|
- |
12,591
|
Note 1. |
Corporate Organization and Company Overview
|
(i) |
increase the authorized number of shares of capital stock from 25,000 to 350,000,000 shares, and subsequently reduced that authorized total to 250,000,000,
|
(ii) |
authorize certain non-voting common stock for use in settlement of performance incentive obligations, and
|
(iii) |
effect a stock split of the Company’s common stock, par value $0.001 per share, such that each share be subdivided and reclassified into 37,212 shares of voting common stock, par value $0.001 per share.
Subsequent to this split, and in connection to pricing considerations related to the Company’s initial public offering (“IPO”), a reverse split was executed such that each 12.34 shares outstanding converted into one share of common
stock, par value $0.001 per share.
|
Note 2. |
Basis of Presentation
|
Note 3. |
Summary of Significant Accounting Policies
|
Note 4. |
Risks and Uncertainties
|
Note 5. |
Revenues and Trade Receivables, Net
|
Three Months Ended
September 30,
|
Nine Months Ended
September 30,
|
|||||||||||||||
2019
|
2018
|
2019
|
2018
|
|||||||||||||
Manufacture and supply revenue
|
$
|
9,155
|
$
|
9,005
|
$
|
24,739
|
$
|
29,249
|
||||||||
License and royalty revenue
|
1,356
|
3,355
|
6,402
|
17,387
|
||||||||||||
Co-development and research fees
|
1,073
|
907
|
2,862
|
3,970
|
||||||||||||
Proprietary product sales, net
|
834
|
-
|
2,187
|
-
|
||||||||||||
Total revenues
|
$
|
12,418
|
$
|
13,267
|
$
|
36,190
|
$
|
50,606
|
Three Months Ended
September 30,
|
Nine Months Ended
September 30,
|
|||||||||||||||
2019
|
2018
|
2019
|
2018
|
|||||||||||||
United States
|
$
|
11,022
|
$
|
12,483
|
$
|
33,683
|
$
|
49,060
|
||||||||
Ex-United States
|
1,396
|
784
|
2,507
|
1,546
|
||||||||||||
Total revenues
|
$
|
12,418
|
$
|
13,267
|
$
|
36,190
|
$
|
50,606
|
September 30,
2019
|
December 31,
2018
|
|||||||
Trade receivables
|
$
|
9,687
|
$
|
6,610
|
||||
Contract and other receivables
|
843
|
33
|
||||||
Less: allowance for bad debts
|
(94
|
)
|
(58
|
)
|
||||
Less: sales-related allowances
|
(120
|
)
|
(104
|
)
|
||||
Trade and other receivables, net
|
$
|
10,316
|
$
|
6,481
|
September 30,
2019
|
December 31,
2018
|
|||||||
Allowance for doubtful accounts at beginning of year
|
$
|
58
|
$
|
55
|
||||
Additions charged to bad debt expense
|
36
|
53
|
||||||
Write-downs charged against the allowance
|
--
|
(50
|
)
|
|||||
Allowance for doubtful accounts at end of the period
|
$
|
94
|
$
|
58
|
Total Sales Related
Allowances and Accruals
|
||||
Balance at December 31, 2018
|
$
|
585
|
||
Provision
|
1,576
|
|||
Payments / credits
|
(984
|
)
|
||
Balance at September 30, 2019
|
$
|
1,177
|
Note 6. |
Material Agreements
|
Note 7. |
Financial Instruments – Fair Value Measurements
|
• |
Level 1 — Observable quoted prices in active markets for identical assets or liabilities.
|
• |
Level 2 — Observable prices that are based on inputs not quoted on active markets but corroborated by market data.
|
• |
Level 3 — Unobservable inputs that are supported by little or no market activity, such as pricing models, discounted cash flow methodologies and similar techniques.
|
Note 8. |
Inventories, Net
|
September 30,
2019
|
December 31,
2018
|
|||||||
Raw material
|
$
|
1,142
|
$
|
1,283
|
||||
Packaging material
|
1,729
|
2,975
|
||||||
Finished goods
|
1,253
|
1,183
|
||||||
Total inventory, net
|
$
|
4,124
|
$
|
5,441
|
Note 9. |
Property and Equipment, Net
|
Useful
Lives
|
September 30,
2019
|
December 31,
2018
|
||||||||
Machinery
|
3-15 yrs
|
$
|
20,927
|
$
|
20,681
|
|||||
Furniture and fixtures
|
3-15 yrs
|
1,150
|
1,150
|
|||||||
Leasehold improvements
|
(a)
|
21,333
|
21,333
|
|||||||
Computer, network equipment and software
|
3-7 yrs
|
2,771
|
2,579
|
|||||||
Construction in progress
|
1,503
|
1,655
|
||||||||
47,684
|
47,398
|
|||||||||
Less: accumulated depreciation and amortization
|
(37,333
|
)
|
(35,191
|
)
|
||||||
Total property and equipment, net
|
$
|
10,351
|
$
|
12,207
|
(a) |
Leasehold improvements are amortized over the shorter of the lease term or their estimated useful lives.
|
Note 10. |
Intangible Assets
|
September 30,
2019
|
December 31,
2018
|
|||||||
Purchased technology-based intangible
|
$
|
2,358
|
$
|
2,358
|
||||
Purchased patent
|
509
|
509
|
||||||
2,867
|
2,867
|
|||||||
Less: accumulated amortization
|
(2,702
|
)
|
(2,663
|
)
|
||||
Total intangible assets, net
|
$
|
165
|
$
|
204
|
Note 11. |
Accounts Payable and Accrued Expenses
|
September 30,
2019
|
December 31,
2018
|
|||||||
Accounts payable
|
$
|
14,202
|
$
|
20,436
|
||||
Accrued compensation
|
3,480
|
3,604
|
||||||
Accrued distribution expenses
|
1,057
|
481
|
||||||
Real estate and personal property taxes
|
246
|
388
|
||||||
Accrued withholding tax for share-based compensation
|
49
|
2,515
|
||||||
Other
|
184
|
207
|
||||||
Total accounts payable and accrued expenses
|
$
|
19,218
|
$
|
27,631
|
Note 12. |
12.5 % Senior Secured Notes and Loans Payable
|
Remainder of 2019
|
$
|
-
|
||
2020
|
-
|
|||
2021
|
3,500
|
|||
2022
|
10,500
|
|||
2023
|
17,500
|
|||
2024 and thereafter
|
38,500
|
|||
Total
|
$
|
70,000
|
Note 13. |
Warrants
|
Warrant
Liability
|
||||
Balance at December 31, 2017
|
$
|
7,673
|
||
Changes in fair value recognized
|
5,278
|
|||
Exercise of warrants
|
(12,951
|
)
|
||
Balance at September 30, 2018
|
$
|
-
|
Note 14. |
Net Loss Per Share
|
Three Months Ended
September 30,
|
Nine Months Ended
September 30,
|
|||||||||||||||
2019
|
2018
|
2019
|
2018
|
|||||||||||||
Numerator:
|
||||||||||||||||
Net loss
|
$
|
(18,412
|
)
|
$
|
(15,038
|
)
|
$
|
(53,610
|
)
|
$
|
(47,432
|
)
|
||||
Denominator:
|
||||||||||||||||
Weighted-average number of common shares – basic
|
25,031,478
|
23,646,192
|
24,992,229
|
19,335,541
|
||||||||||||
Loss per common share - basic
|
$
|
(0.74
|
)
|
$
|
(0.64
|
)
|
$
|
(2.15
|
)
|
$
|
(2.45
|
)
|
Note 15. |
Share-Based Compensation
|
Three Months Ended
September 30,
|
Nine Months Ended
September 30,
|
|||||||||||||||
Expense classification:
|
2019
|
2018
|
2019
|
2018
|
||||||||||||
Manufacture and supply
|
$
|
60
|
$
|
32
|
$
|
176
|
$
|
377
|
||||||||
Research and development
|
188
|
192
|
536
|
2,378
|
||||||||||||
Selling, general and administrative
|
1,622
|
1,102
|
4,480
|
25,786
|
||||||||||||
Total share-based compensation expenses
|
$
|
1,870
|
$
|
1,236
|
$
|
5,200
|
$
|
28,541
|
||||||||
Share-based compensation from:
|
||||||||||||||||
Restricted stock units
|
$
|
473
|
$
|
610
|
$
|
1,403
|
$
|
610
|
||||||||
Stock options
|
1,397
|
626
|
3,777
|
633
|
||||||||||||
Non-voting common shares
|
--
|
—
|
--
|
27,298
|
||||||||||||
Employee stock purchase plan
|
--
|
—
|
20
|
—
|
||||||||||||
Total share-based compensation expenses
|
$
|
1,870
|
$
|
1,236
|
$
|
5,200
|
$
|
28,541
|
Restricted stock units:
|
Number of
Units
|
Weighted Average
Grant Date Fair
Value
|
||||||
(in thousands)
|
||||||||
Unvested at December 31, 2018
|
205
|
$
|
14.77
|
|||||
Granted
|
--
|
--
|
||||||
Vested
|
(95
|
)
|
14.91
|
|||||
Forfeited
|
(3
|
)
|
13.00
|
|||||
Unvested at September 30, 2019
|
107
|
$
|
14.70
|
|||||
Grant date fair value of shares vested during the period
|
$
|
1,421
|
||||||
Unrecognized compensation costs of RSU awards at September 30, 2019
|
$
|
1,409
|
Stock options:
|
Number of
Options
|
Weighted Average
Exercise Price
|
||||||
(in thousands)
|
||||||||
Outstanding at December 31, 2018
|
1,033
|
$
|
14.72
|
|||||
Granted
|
1,253
|
6.67
|
||||||
Forfeited
|
(30
|
)
|
7.73
|
|||||
Exercised, expired
|
--
|
--
|
||||||
Outstanding at September 30, 2019
|
2,256
|
$
|
10.34
|
|||||
Vested or expected to vest at September 30, 2019
|
2,113
|
$
|
10.28
|
|||||
Exercisable at September 30, 2019
|
345
|
$
|
14.79
|
Expected dividend yield
|
0
|
%
|
|
Expected volatility
|
85 - 95
|
%
|
|
Expected term (years)
|
5.5 - 6.1
|
||
Risk-free interest rate
|
1.5 - 2.6
|
%
|
Note 16. |
Income Taxes
|
Note 17. |
Commitments and Contingencies
|
• |
Mylan and Sandoz settled without a trial. Sandoz withdrew all challenges and became the distributor of the authorized
generic.
|
• |
All cases against Par were resolved pursuant to a May 2018 settlement agreement between us, Indivior, and Par and certain of its affiliates.
|
• |
Actavis was found to infringe the ‘514 patent and cannot enter the market until the expiration of the patent in 2024, and the Federal Circuit affirmed that ruling on
July 12, 2019.
|
• |
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.
|
• |
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, or the ’080 patent, 8,652,378, or
the ’378 patent, and 8,475,832, or the ’832 patent. This case is stayed pending final resolution of the above-mentioned appeals on related patents.
|
• |
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 IPRs challenging the asserted ’167 patent. On March 24, 2016, the Patent Trial and Appeal Board, or the 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 a result of the PTAB’s decisions. We are awaiting further action from the Court.
|
• |
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. Following the PTAB’s February 7, 2019
decisions on remand denying institution, the Company submitted a notice to the Court on February 15, 2019 notifying the Court that BDSI’s motion to stay should be denied as moot. BDSI also sent a letter to the Court on February 13, 2019
indicating its intent to appeal the PTAB’s decisions. On August 7, 2019 the Court granted BDSI’s motion to dismiss the Complaint without prejudice and denied BDSI’s motion to stay as moot. BDSI appealed the PTAB’s remand decisions to
the Federal Circuit, 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 en banc, and we filed our response to that petition on November 1, 2019.
|
• |
Libervant™, a buccal soluble film formulation of diazepam used as a rescue therapy for breakthrough epileptic seizures and an adjunctive therapy for use in recurrent convulsive seizures, for which a pre-new
drug application (NDA) meeting was held in December 2018 with the FDA. The meeting resulted in a plan to complete a small single-dose crossover study comparing Libervant to the reference listed drug, Diastat®. This study was completed
in July 2019. The Company also began a rolling NDA submission process during the second quarter of 2019 and has completed submission of two of three sections of the NDA. The submission is expected to be completed on around the end of
November 30, 2019.
|
• |
Exservan™, an oral soluble film formulation of riluzole for the treatment of Amyotrophic Lateral Sclerosis, or ALS, for which we submitted an NDA in the first quarter of 2019; the Prescription Drug User Fee
Act (PDUFA) goal date for FDA approval is expected to be November 30, 2019.
|
• |
AQST-108, a sublingual soluble film formulation for the treatment of anaphylaxis and severe allergic reactions, which is intended to provide an adjunct and/or alternative to injection treatments such as
EpiPen. After the Company’s first human proof of concept trials, a re-formulated and more advanced prototype was developed, for which phase 1 proof of concept trials were completed in the third quarter of 2019. Based on the results of
this proof of concept study, the Company requested scheduling a pre-NDA meeting with the FDA which we expect to be in late 2019 or early 2020.
|
• |
AQST-305, a sublingual soluble film formulation of octreotide for the treatment of acromegaly and neuroendocrine tumors. As a result of early stage clinical proof of concept studies, re-formulation work is
currently underway.
|
• |
continue to fund the commercialization of Sympazan (launched in December 2018) and, subject to FDA approval, Libervant, our epilepsy product;
|
• |
continue clinical development of our complex molecules, AQST-108 and AQST-305;
|
• |
identify and evaluate new pipeline candidates in CNS diseases and other indications; and
|
• |
fund working capital requirements and expected capital expenditures as a result of the launch of proprietary products and related growth.
|
• |
employee-related expenses;
|
• |
external research and development expenses incurred under arrangements with third parties;
|
• |
the cost of acquiring, developing and manufacturing clinical study materials; and
|
• |
costs associated with preclinical and clinical activities and regulatory operations.
|
Three Months Ended
September 30,
|
Change
|
|||||||||||||||
(In thousands, except %)
|
2019
|
2018
|
$
|
%
|
||||||||||||
Manufacture and supply revenue
|
$
|
9,155
|
$
|
9,005
|
$
|
150
|
2
|
%
|
||||||||
License and royalty revenue
|
1,356
|
3,355
|
(1,999
|
)
|
(60
|
%)
|
||||||||||
Co-development and research fees
|
1,073
|
907
|
166
|
18
|
%
|
|||||||||||
Proprietary product sales, net
|
834
|
-
|
834
|
100
|
%
|
|||||||||||
Total revenues
|
$
|
12,418
|
$
|
13,267
|
$
|
(849
|
)
|
(6
|
%)
|
Three Months Ended
September 30,
|
Change
|
|||||||||||||||
(In thousands, except %)
|
2019
|
2018
|
$
|
%
|
||||||||||||
Manufacture and supply
|
$
|
4,643
|
$
|
5,592
|
$
|
(949
|
)
|
(17
|
%)
|
|||||||
Research and development
|
5,063
|
4,534
|
529
|
12
|
%
|
|||||||||||
Selling, general and administrative
|
13,714
|
12,346
|
1,368
|
11
|
%
|
|||||||||||
Interest expense
|
2,652
|
1,933
|
719
|
37
|
%
|
|||||||||||
Interest income
|
(138
|
)
|
(216
|
)
|
(78
|
)
|
36
|
%
|
||||||||
Loss on extinguishment of debt
|
4,896
|
-
|
4,896
|
NM
|
||||||||||||
Other
|
-
|
4,116
|
(4,116
|
)
|
NM
|
Nine Months Ended
September 30,
|
Change
|
|||||||||||||||
(In thousands, except %)
|
2019
|
2018
|
$
|
% | ||||||||||||
Manufacture and supply revenue
|
$
|
24,739
|
$
|
29,249
|
$
|
(4,510
|
)
|
(15
|
%)
|
|||||||
License and royalty revenue
|
6,402
|
17,387
|
(10,985
|
)
|
(63
|
%)
|
||||||||||
Co-development and research fees
|
2,862
|
3,970
|
(1,108
|
)
|
(28
|
%)
|
||||||||||
Proprietary product sales, net
|
2,187
|
-
|
2,187
|
100
|
%
|
|||||||||||
Total revenues
|
$
|
36,190
|
$
|
50,606
|
$
|
(14,416
|
)
|
(28
|
%)
|
Nine Months Ended
September 30,
|
Change
|
|||||||||||||||
(In thousands, except %)
|
2019
|
2018
|
$ |
%
|
||||||||||||
Manufacture and supply
|
$
|
13,569
|
$
|
16,201
|
$
|
(2,632
|
)
|
(16
|
)%
|
|||||||
Research and development
|
17,517
|
17,429
|
88
|
0
|
%
|
|||||||||||
Selling, general and administrative
|
47,868
|
53,559
|
(5,691
|
)
|
(11
|
)%
|
||||||||||
Interest expense
|
6,515
|
5,809
|
706
|
12
|
%
|
|||||||||||
Interest income
|
(565
|
)
|
(238
|
)
|
327
|
NM
|
||||||||||
Loss on extinguishment of debt
|
4,896
|
-
|
4,896
|
NM
|
||||||||||||
Other
|
-
|
5,278
|
(5,278
|
)
|
NM
|
(In thousands)
|
2019
|
2018
|
||||||
Net cash used for operating activities
|
$
|
(49,635
|
)
|
$
|
(10,179
|
)
|
||
Net cash used for investing activities
|
(577
|
)
|
(1,334
|
)
|
||||
Net cash provided by financing activities
|
10,527
|
58,116
|
||||||
Net (decrease) increase in cash and cash equivalents
|
$
|
(39,685
|
)
|
$
|
46,603
|
• |
continued revenue from our proprietary and licensed products at planned levels;
|
• |
our ability to issue and assuming available purchasers of, additional Senior Secured Notes in an aggregate amount up to $30,000 principal amount under the Indenture for our 12.5% Senior Secured Notes due 2025, based on satisfying
certain conditions including NDA filing and subsequent regulatory approval of our Libervant proprietary product, and approval of the first reopener in its discretion (for up to $10 million) by the holder of a majority in principal
amount of the Senior Secured Notes, which approval is subject to review by such holder and cannot be assured (see “12.5% Senior Secured Notes” above);
|
• |
our ability to monetize royalty streams or other license or proprietary rights for our product Apomorphine at anticipated levels, which cannot be assured (and which is subject to conditions and requirements
under the Indenture for our 12.5% Senior Secured Notes including note repurchase obligations at 112.5% of principal amount of such repurchased notes and accrued and unpaid interest thereon, at the option of the holders (see “12.5%
Senior Secured Notes” above)) and which monetization would not be expected prior to FDA approval;
|
• |
access to the capital markets if and at the time needed for any necessary future funding;
|
• |
continuing to review of our cost structure and cost and expense reductions consistent with our anticipated revenues;
|
• |
continued funding of our commercialization costs for Sympazan, our first proprietary product launched in December 2018, and continued funding of our development and commercialization of CNS product Libervant
and our other proprietary product candidates;
|
• |
the infrastructure and administrative costs to support being a public company;
|
• |
continued compliance with all covenants under our 12.5% Senior Secured Notes; and
|
• |
absence of significant unforeseen cash requirements.
|
• |
Achieving regulatory approval in the time period we have anticipated of our product candidate Libervant. We hope to complete the filing of our NDA for Libervant with the FDA in the fourth quarter 2019
and thereafter we hope to achieve timely regulatory approval of Libervant during 2020, which cannot be assured, which proprietary product is expected over time to provide a significant revenue source for us through our
commercialization efforts. The completion of the NDA filing for, and regulatory approval of, Libervant are also among the conditions to our opportunity to access additional financing of up to
$30 million under our Senior Secured Notes Indenture (see “12.5% Senior Secured Notes” above);
|
• |
Sunovion Pharmaceuticals, Inc.’s achieving in the time period we have anticipated regulatory approval of Apomorphine, which we out-licensed to Sunovion and which, subject to regulatory approval, which cannot
be assured, is expected to provide the opportunity for a significant revenue source for us;
|
• |
Our ability to achieve successful commercialization of our proprietary product Sympazan and, subject to regulatory approval, our product Libervant, and the cost and timing of our future commercialization
activities for Libervant;
|
• |
Continued revenues at planned levels from our manufacture and sale of branded Suboxone to Indivior and continued market acceptance of such branded product, without the authorized generic version of Suboxone;
|
• |
Cost, timing and outcome and success of our development of and clinical trials for our complex molecule-based product AQST-108 and our other product candidates;
|
• |
Continuing 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;
|
• |
Patient and doctor acceptance of and our ability to obtain adequate reimbursement for our products which we commercialize;
|
• |
The effect of competing products on our commercialized and licensed products, including Suboxone; and
|
• |
All other costs of executing our business plan and absence of unforeseen cash requirements.
|
• |
Mylan and Sandoz settled without a trial. Sandoz withdrew all challenges and became the distributor of the authorized
generic.
|
• |
All cases against Par were resolved pursuant to a May 2018 settlement agreement between us, Indivior, and Par and certain of its affiliates.
|
• |
Actavis was found to infringe the ‘514 patent and cannot enter the market until the expiration of the patent in 2024, and the Federal Circuit affirmed that ruling on
July 12, 2019.
|
• |
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.
|
• |
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, or the ’080 patent, 8,652,378, or
the ’378 patent, and 8,475,832, or the ’832 patent. This case is stayed pending final resolution of the above-mentioned appeals on related patents.
|
• |
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 IPRs challenging the asserted ’167 patent. On March 24, 2016, the Patent Trial and Appeal Board, or the 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 a result of the PTAB’s decisions. We are awaiting further action from the Court.
|
• |
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. Following the PTAB’s February 7, 2019
decisions on remand denying institution, the Company submitted a notice to the Court on February 15, 2019 notifying the Court that BDSI’s motion to stay should be denied as moot. BDSI also sent a letter to the Court on February 13, 2019
indicating its intent to appeal the PTAB’s decisions. On August 7, 2019 the Court granted BDSI’s motion to dismiss the Complaint without prejudice and denied BDSI’s motion to stay as moot. BDSI appealed the PTAB’s remand decisions to
the Federal Circuit, 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 en banc, and we filed our response to that petition on November 1, 2019.
|
Number
|
Description
|
|
Indenture dated as of July 15, 2019, among Aquestive Therapeutics, Inc, as Issuer, any Guarantor that becomes party thereto and U.S. Bank National Association, as Trustee and Collateral Agent (incorporated by
reference to Exhibit 4.1 to the Current Report on Form 8-K filed by Aquestive Therapeutics, Inc. on July 16, 2019).
|
||
Form of Warrant (incorporated by reference to Exhibit 4.2 to the Current Report on Form 8-K files by Aquestive Therapeutics, Inc. in July 16, 2019).
|
||
Form of Purchase Agreement (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed by Aquestive Therapeutics, Inc. in July 16, 2019).
|
||
Collateral Agreement dated as of July 15, 2019, among Aquestive Therapeutics, Inc., as Issuer, the Other Grantors for time to time party thereto, U.S. Bank National Association, as Trustee, and U.S. Bank
National Association, as Collateral Agent (incorporated by reference to Exhibited 10.2 to the Current Report on Form 8-K filed by Aquestive Therapeutics, Inc. on July 16, 2019).
|
||
Certification of Principal Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a), under the Securities Exchange Act of 1934, as amended, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of
2002 (filed herewith).
|
||
Certification of Principal Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a), under the Securities Exchange Act of 1934, as amended, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of
2002 (filed herewith).
|
||
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).
|
||
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).
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101.INS
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XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the inline XBRL document.
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101.SCH
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XBRL Taxonomy Extension Schema Document
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101.CAL
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XBRL Taxonomy Extension Calculation Linkbase Document
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101.DEF
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XBRL Taxonomy Extension Definition Linkbase Document
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101.LAB
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XBRL Taxonomy Extension Label Linkbase Document
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101.PRE
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XBRL Taxonomy Extension Presentation Linkbase Document
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Aquestive Therapeutics, Inc.
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(REGISTRANT)
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Date:
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November 5, 2019
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/s/ Keith J. Kendall
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Keith J. Kendall
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President and Chief Executive Officer
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(Principal Executive Officer)
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Date:
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November 5, 2019
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/s/ John T. Maxwell
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John T. Maxwell
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Chief Financial Officer
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(Principal Financial Officer)
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1. |
I have reviewed this Quarterly Report on Form 10-Q of Aquestive
Therapeutics, Inc.;
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2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements
made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
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3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial
condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
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4. |
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act
Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
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a) |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that
material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
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b) |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to
provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
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c) |
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the
disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
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d) |
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal
quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
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5. |
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the
registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):
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a) |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to
adversely affect the registrant’s ability to record, process, summarize and report financial information; and
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b) |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial
reporting.
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/s/ KEITH J. KENDALL
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Keith J. Kendall
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Chief Executive Officer
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(Principal Executive Officer)
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1. |
I have reviewed this Quarterly Report on Form 10-Q of Aquestive Therapeutics, Inc.;
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2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period covered by this annual report;
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3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows
of the registrant as of, and for, the periods presented in this report;
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4. |
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal
control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
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a) |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
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b) |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
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c) |
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluation; and
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d) |
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the
case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
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5. |
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of
registrant’s board of directors (or persons performing the equivalent functions):
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a) |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record,
process, summarize and report financial information; and
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b) |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
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/s/ JOHN T. MAXWELL
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John T. Maxwell
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Chief Financial Officer
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(Principal Financial Officer)
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1. |
The Company’s Quarterly Report on Form 10-Q for the period ended September 30, 2019, to which this Certification is attached as Exhibit 32.1 (the “Quarterly Report”), fully complies with the requirements of
Section 13(a) or Section 15(d) of the Exchange Act; and
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2. |
The information contained in the Quarterly Report fairly presents, in all material respects, the financial condition of the Company at the end of the period covered by the Quarterly Report and the results of
operations of the Company for the period covered by the Quarterly Report.
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/s/ KEITH J. KENDALL
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Keith J. Kendall
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Chief Executive Officer
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(Principal Executive Officer)
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1. |
The Company’s Quarterly Report on Form 10-Q for the period ended September 30, 2019, to which this Certification is attached as Exhibit 32.2 (the “Quarterly Report”), fully complies with the requirements of
Section 13(a) or Section 15(d) of the Exchange Act; and
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2. |
The information contained in the Quarterly Report fairly presents, in all material respects, the financial condition of the Company at the end of the period covered by the Quarterly Report and the results of
operations of the Company for the period covered by the Quarterly Report.
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/s/ JOHN T. MAXWELL
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John T. Maxwell
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Chief Financial Officer
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(Principal Financial Officer)
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