2.	Basis of Presentation and Significant Accounting Policies

The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles (“GAAP”) in the U.S. for interim financial information and with the instructions to Form 10-Q and Article 10 of the Securities and Exchange Commission's Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the U.S. for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. The accompanying consolidated financial statements and notes thereto should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2016. Operating results for the three months ended March 31, 2017 are not necessarily indicative of the results that may be expected for the year ending December 31, 2017.

Going Concern

Management is responsible for evaluating whether there is substantial doubt about the Company’s ability to meet its obligations for a look-forward period of one year from the financial statement issuance date. As of March 31, 2017, the Company had cash and cash equivalents of $23,677,111 and no long-term debt obligations. Based on management’s evaluation, management concluded that the Company has sufficient cash to meet its obligations over the next year. The Company is currently exploring collaborations and potential financings to raise additional capital. If, however, the Company is not successful in raising additional capital, the Company may be required to defer or delay certain planned capital expenditures and other spending related to the potential approval and launch of QST, or curtail other controllable costs and discretionary spending for new research and development activities.

Inventories

Inventories are stated at the lower of cost or net realizable value. Cost is determined on a first-in, first-out basis. Certain components of the Company’s products are provided by a limited number of vendors, and the Company’s production, assembly, warehousing and distribution operations are outsourced to third-parties where substantially all of the Company’s inventory is located. Disruption of supply from key vendors or third-party suppliers may have a material adverse impact on the Company’s operations. The Company provides a reserve for potentially excess, dated or obsolete inventories based on an analysis of inventory on hand compared to forecasts of future sales, which was $890,000 and $900,000 at March 31, 2017 and December 31, 2016, respectively. Inventories consist of the following:

	March 31,		December 31,
	2017		2016
Inventories:
Raw material	$	142,414	$	142,491
Work in process		4,409,021		2,429,075
Finished goods		2,300,951		2,755,396
	$	6,852,386	$	5,326,962

OTREXUP^® Revenue Recognition

The Company began detailing OTREXUP^® to health care professionals in February 2014. OTREXUP^® is sold in packages of four pre-filled, single-dose disposable auto injectors to wholesale pharmaceutical distributors, its customers, subject to rights of return within a period beginning six months prior to, and ending 12 months following, product expiration.

Prior to the first quarter of 2017, the Company could not reliably estimate expected returns of OTREXUP^® at the time of shipment given its limited sales history of the product. Accordingly, the recognition of revenue was deferred on product shipments until the rights of return no longer existed, which occurred at the earlier of the time OTREXUP^® units were dispensed through patient prescriptions or expiration of the right of return of the product. Patient prescriptions dispensed were estimated using third-party market prescription data.

In the first quarter of 2017, the Company determined it had developed sufficient historical information to reasonably estimate future returns of OTREXUP^®and began recognizing revenue, net of estimated returns, upon delivery to the distributors. The Company recognized $4,564,121 in product sales for OTREXUP^®for the three months ended March 31, 2017, which included approximately $1,297,054 for product shipped to distributors in previous periods but not recognized as revenue at the time of shipment, net of the returns allowance established in the first quarter of 2017. The Company also recognized $254,425 of product costs in the first quarter of 2017 that had been previously deferred. The net impact of these changes resulted in a decrease in net loss of $1,042,629, or $0.01 per share, for the three months ended March 31, 2017.

Product sales revenue for OTREXUP^®is presented net of estimated returns and product sales allowances for estimated wholesaler discounts, prompt pay discounts, chargebacks, rebates and patient discount programs. The product returns and sales allowances were $1,951,593 as of March 31, 2017, which included the initial establishment of an allowance of $307,000 for product returns, and $1,540,488 as of December 31, 2016.

Product Sales Allowances

The Company recognizes product sales allowances as a reduction of product sales in the same period the related revenue is recognized. Product sales allowances are based on amounts owed or to be claimed on the related sales. These estimates take into consideration the terms of our agreements with customers and third-party payors and the levels of inventory within the distribution channels that may result in future rebates or discounts taken. In certain cases, such as patient support programs, the Company recognizes the cost of patient discounts as a reduction of revenue based on estimated utilization. If actual future results vary, it may be necessary to adjust these estimates, which could have an effect on product revenue in the period of adjustment. Product sales allowances include:

Wholesaler Distribution Fees. Distribution fees are paid to certain wholesale distributors based on contractually determined rates. The Company accrues the fee on shipment to the respective wholesale distributors and recognizes the fee as a reduction of revenue in the same period the related revenue is recognized.

Prompt Pay Discounts. The Company offers cash discounts to its customers, generally 2% of the sales price, as an incentive for prompt payment. The Company accounts for cash discounts by reducing accounts receivable by the prompt pay discount amount and recognizes the discount as a reduction of revenue in the same period the related revenue is recognized.

Chargebacks. The Company provides discounts to authorized users of the Federal Supply Schedule (“FSS”) of the General Services Administration under an FSS contract negotiated by the Department of Veterans Affairs and various organizations under Medicaid contracts and regulations. These entities purchase products from the wholesale distributors at a discounted price, and the wholesale distributors then charge back to the Company the difference between the current wholesale acquisition cost and the price the entity paid for the product. The Company estimates and accrues chargebacks based on estimated wholesaler inventory levels, current contract prices and historical chargeback activity. Chargebacks are recognized as a reduction of revenue in the same period the related revenue is recognized.

Rebates. The Company participates in certain rebate programs, which provide discounted prescriptions to qualified insured patients. Under these rebate programs, the Company will pay a rebate to the third-party administrator of the program, generally two to three months after the quarter in which prescriptions subject to the rebate are filled. The Company estimates and accrues for these rebates based on current contract prices, historical and estimated percentages of product sold to qualified patients. Rebates are recognized as a reduction of revenue in the same period the related revenue is recognized.

Patient Discount Programs. The Company offers discount card programs to patients for OTREXUP^® in which patients receive discounts on their prescriptions that are reimbursed by the Company. The Company estimates the total amount that will be redeemed based on historical redemption experience and on estimated levels of inventory in the distribution and retail channels and recognizes the discount as a reduction of revenue in the same period the related revenue is recognized.