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UNITED STATES
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 June 30, 2020
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 001-31361
__________________________________
BioDelivery Sciences International, Inc.
(Exact name of registrant as specified in its charter)
__________________________________
Delaware35-2089858
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
4131 ParkLake Ave., Suite 225, Raleigh, NC
27612
(Address of principal executive offices)(Zip Code)
Registrant’s telephone number (including area code): 919-582-9050
__________________________________
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading
Symbol(s)
Name of each exchange
on which registered
Common stock, par value $0.001BDSIThe Nasdaq Global Select Market
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, or a non-accelerated filer, a smaller reporting company or an emerging growth company. See definition of “large accelerated filer”, “accelerated filer” and “smaller reporting company”, or “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
Large Accelerated Filer
Accelerated Filer
Non-Accelerated FilerSmaller Reporting Company
Emerging Growth Company
If an emerging growth company, indicate by check mark if the registrant has elected not 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  ☒
As of August 5, 2020, there were 100,949,844 shares of company Common Stock issued and 100,934,353 shares of company Common Stock outstanding.



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BioDelivery Sciences International, Inc. and Subsidiaries
Quarterly Report on Form 10-Q
TABLE OF CONTENTS
Page
Certifications
We own various trademark registrations and applications, and unregistered trademarks, including BioDelivery Sciences International, Inc., BEMA, BELBUCA, BUNAVAIL, ONSOLIS and our corporate logo. We have an exclusive license to use and display the Symproic registered trademark in order to commercialize Symproic in the United States. All other trade names, trademarks and service marks of other companies appearing in this prospectus are the property of their respective holders. Solely for convenience, the trademarks and trade names in this prospectus may be referred to without the ® and ™ symbols, but such references should not be construed as any indicator that their respective owners will not assert, to the fullest extent under applicable law, their rights thereto. We do not intend to use or display other companies’ trademarks and trade names to imply a relationship with, or endorsement or sponsorship of us by, any other companies.

From time to time, we may use our website, our Facebook page at Facebook.com/BioDeliverySI, on Twitter at @BioDeliverySI and on LinkedIn at linkedin.com/company/biodeliverysciencesinternational to distribute material information. Our financial and other material information is routinely posted to and accessible on the "Investors" section of our website, available at www.bdsi.com. Investors are encouraged to review the Investors section of our website because we may post material information on that site that is not otherwise disseminated by us. Information that is contained in and can be accessed through our website, our Facebook page, our LinkedIn page and our Twitter posts are not incorporated into, and does not form a part of, this Quarterly Report.


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PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

BIODELIVERY SCIENCES INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(U.S. DOLLARS, IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(Unaudited)
June 30,
2020
December 31,
2019
ASSETS
Current assets:
Cash and cash equivalents$91,009  $63,888  
Accounts receivable, net48,126  38,790  
Inventory, net17,774  11,312  
Prepaid expenses and other current assets2,099  3,769  
Total current assets159,008  117,759  
Property and equipment, net1,508  2,075  
Goodwill2,715  2,715  
License and distribution rights, net56,842  60,309  
Other intangible assets, net  47  
Total assets$220,073  $182,905  
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued liabilities$56,646  $53,993  
Total current liabilities56,646  53,993  
Notes payable, net78,274  58,568  
Other long-term liabilities383  580  
Total liabilities135,303  113,141  
Commitments and contingencies (Note 9)
Stockholders’ equity:
Preferred Stock, 5,000,000 shares authorized; Series A Non-Voting Convertible Preferred Stock. $0.001 par value, 0 and 2,093,155 shares outstanding at June 30, 2020 and December 31, 2019, respectively; Series B Non-Voting Convertible Preferred Stock, $0.001 par value, 443 and 618 shares outstanding at June 30, 2020 and December 31, 2019, respectively.
  2  
Common Stock, $0.001 par value; 175,000,000 shares authorized at June 30, 2020 and December 31, 2019, respectively; 100,916,511 and 96,189,074 shares issued; 100,901,020 and 96,173,583 shares outstanding at June 30, 2020 and December 31, 2019, respectively.
99  96  
Additional paid-in capital445,180  436,306  
Treasury stock, at cost,15,491 shares, as of June 30, 2020 and December 31, 2019.
(47) (47) 
Accumulated deficit(360,462) (366,593) 
Total stockholders’ equity84,770  69,764  
Total liabilities and stockholders’ equity$220,073  $182,905  
See notes to condensed consolidated financial statements
1

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BIODELIVERY SCIENCES INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(U.S. DOLLARS, IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(Unaudited)
Three months ended June 30,Six months ended June 30,
2020201920202019
Revenues:
Product sales, net$36,445  $28,056  $74,161  $47,815  
Product royalty revenues137  1,461  700  1,471  
Contract revenues  160    160  
Total Revenues:36,582  29,677  74,861  49,446  
Cost of sales5,435  4,923  10,995  8,975  
Expenses:
Selling, general and administrative28,211  21,955  54,948  38,944  
Total Expenses:28,211  21,955  54,948  38,944  
Income from operations2,936  2,799  8,918  1,527  
Interest expense, net(1,693) (13,937) (2,987) (16,498) 
Other income, net8  8  8  8  
Income/(loss) before income taxes$1,251  $(11,130) $5,939  $(14,963) 
Income tax (provision)/recovery(86)   192    
Net income/(loss) attributable to common stockholders$1,165  $(11,130) $6,131  $(14,963) 
Basic
Weighted average common stock shares outstanding100,136,893  83,821,811  98,541,877  77,571,003  
Basic earnings/(loss) per share $0.01  $(0.13) $0.06  $(0.19) 
Diluted
Weighted average common stock shares outstanding108,111,201  83,821,811  107,062,161  77,571,003  
Diluted earnings/(loss) per share$0.01  $(0.13) $0.06  $(0.19) 
See notes to condensed consolidated financial statements

2

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BIODELIVERY SCIENCES INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(U.S. DOLLARS, IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(Unaudited)

Preferred Stock Series APreferred Stock Series BCommon StockAdditional Paid-In CapitalTreasury StockAccumulated DeficitTotal Stockholders’ Equity
SharesAmountSharesAmountSharesAmount
Balances, March 31, 2020  $  443  $  99,821,408  $99  $438,163  $(47) $(361,627) $76,588  
Stock-based compensation—  —  —  —  —  —  4,786  —  —  4,786  
Stock option exercises—  —  —  —  983,437    2,231  —  —  2,231  
Restricted stock awards—  —  —  —  111,666    —  —  —    
Net income—  —  —  —  —  —  —  —  1,165  1,165  
Balances, June 30, 2020  $  443  $  100,916,511  $99  $445,180  $(47) $(360,462) $84,770  


Preferred Stock Series APreferred Stock Series BCommon StockAdditional Paid-In CapitalTreasury StockAccumulated DeficitTotal Stockholders’ Equity
SharesAmountSharesAmountSharesAmount
Balances, March 31, 20192,093,155  $2  2,400  $  75,333,254  $74  $382,614  $(47) $(355,121) $27,522  
Stock-based compensation—  —  —  —  —  —  1,570  —  —  1,570  
Stock option exercises—  —  —  —  210,104  —  598  —  —  598  
Restricted stock awards—  —  —  —  191,666  —  —  —  —    
Series B conversion to common stock—  —  (684) —  3,800,000  4  (4) —  —    
Equity offering, net of finance costs—  —  —  —  10,000,000  10  47,580  —  —  47,590  
Net loss—  —  —  —  —  —  —  —  (11,130) (11,130) 
Balances, June 30, 20192,093,155  $2  1,716  $  89,535,024  $88  $432,358  $(47) $(366,251) $66,150  








Preferred Stock
Series A
Preferred Stock
Series B
Common StockAdditional
Paid-In
Capital
Treasury
Stock
Accumulated
Deficit
Total
Stockholders’
Equity
SharesAmountSharesAmountSharesAmount
Balances, January 1, 20202,093,155  $2  618  $  96,189,074  $96  $436,306  $(47) $(366,593) $69,764  
Stock-based compensation—  —  —  —  —  —  6,306  —  —  6,306  
Stock option exercises—  —  —  —  1,090,724    2,569  —  —  2,569  
Restricted stock awards—  —  —  —  571,336    —  —  —    
Series A conversion to common stock(2,093,155) (2) —  —  2,093,155  2  (1) —  —  (1) 
Series B conversion to common stock—  —  (175) —  972,222  1  —  —  —  1  
Net loss—  —  —  —  —  —  —  —  6,131  6,131  
Balances, June 30, 2020  $  443  $  100,916,511  $99  $445,180  $(47) $(360,462) $84,770  
Preferred Stock
Series A
Preferred Stock
Series B
Common StockAdditional
Paid-In
Capital
Treasury
Stock
Accumulated
Deficit
Total
Stockholders’
Equity
SharesAmountSharesAmountSharesAmount
Balances, January 1, 20192,093,155  $2  3,100  $  70,793,725  $71  $381,004  $(47) $(351,288) $29,742  
Stock-based compensation—  —  —  —  —  —  2,711  —  —  2,711  
Stock option exercises—  —  —  —  360,379  —  1,070  —  —  1,070  
Restricted stock awards—  —  —  —  692,032  (1) 1  —  —    
Series B conversion to Common Stock—  —  (1,384) —  7,688,888  8  (8) —  —    
Equity offering, net of finance costs—  —  —  —  10,000,000  10  47,580  —  —  47,590  
Net loss—  —  —  —  —  —  —  —  (14,963) (14,963) 
Balances, June 30, 20192,093,155  $2  1,716  $  89,535,024  $88  $432,358  $(47) $(366,251) $66,150  
See notes to condensed consolidated financial statements
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BIODELIVERY SCIENCES INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(U.S. DOLLARS, IN THOUSANDS)
(Unaudited)
Six months ended June 30,
20202019
Operating activities:
Net income/(loss)$6,131  $(14,963) 
Adjustments to reconcile net income/(loss) to net cash flows from operating activities
Depreciation446  168  
Accretion of debt discount and loan costs142  11,374  
Amortization of intangible assets3,515  3,187  
Provision for inventory obsolescence72  149  
Stock-based compensation expense6,306  2,711  
Changes in assets and liabilities:
Accounts receivable(9,336) (11,252) 
Inventories(6,534) (4,716) 
Prepaid expenses and other assets1,670  (110) 
Accounts payable and accrued liabilities2,617  9,078  
Taxes payable(40)   
Net cash flows provided by/(used in) operating activities4,989  (4,374) 
Investing activities:
Product acquisitions  (20,674) 
Acquisitions of equipment  (79) 
Net cash flows used in investing activities  (20,753) 
Financing activities:
Proceeds from issuance of common stock  48,000  
Equity issuance costs  (410) 
Proceeds from notes payable20,000  60,000  
Proceeds from exercise of stock options2,569  1,070  
Payment on note payable  (67,346) 
Loss on refinancing of former debt  (2,794) 
Payment on deferred financing fees(437)   
Net cash flows provided by financing activities22,132  38,520  
Net change in cash and cash equivalents27,121  13,393  
Cash and cash equivalents at beginning of period63,888  43,822  
Cash and cash equivalents at end of period$91,009  $57,215  
Cash paid for interest$3,095  $3,831  
See notes to condensed consolidated financial statements
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BIODELIVERY SCIENCES INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(U.S. DOLLARS, IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(Unaudited)


1. Organization, basis of presentation and summary of significant policies:

Overview
BioDelivery Sciences International, Inc., together with its subsidiaries (collectively, the “Company”) is a rapidly growing specialty pharmaceutical company dedicated to patients living with serious and complex chronic conditions. The Company has built a portfolio of products that includes utilizing its novel and proprietary BioErodible MucoAdhesive ("BEMA") drug-delivery technology to develop and commercialize new applications of proven therapies aimed at addressing important unmet medical needs. The Company commercializes its products in the U.S. using its own sales force while working in partnership with third parties to commercialize its products outside the U.S.
The accompanying unaudited condensed consolidated financial statements include all adjustments (consisting of normal and recurring adjustments) necessary for a fair presentation of these financial statements. The condensed consolidated balance sheet at December 31, 2019 has been derived from the Company’s audited consolidated financial statements included in its annual report on Form 10-K for the year ended December 31, 2019. Certain footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to the Securities and Exchange Commission rules and regulations. It is recommended that these condensed consolidated financial statements be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s annual report on Form 10-K for the year ended December 31, 2019.
As used herein, the Company’s common stock, par value $0.001 per share, is referred to as the “Common Stock” and the Company’s preferred stock, par value $0.001 per share, is referred to as the “Preferred Stock”.
Principles of consolidation
The condensed consolidated financial statements include the accounts of the Company, Arius Pharmaceuticals, Inc. (“Arius”) and Arius Two, Inc. (“Arius Two”). All significant inter-company balances and transactions have been eliminated.
Use of estimates in financial statements
The preparation of the accompanying condensed consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the period. Actual results could differ from those estimates. The Company reviews all significant estimates affecting the condensed consolidated financial statements on a recurring basis and records the effect of any necessary adjustments prior to their issuance. Significant estimates made by the Company include: revenue recognition associated with sales allowances such as government program rebates, customer voucher redemptions, commercial contracts, rebates and chargebacks; sales returns reserves; sales bonuses; stock-based compensation; and deferred income taxes.
Cash and cash equivalents
Cash and cash equivalents consist of operating and money market accounts. Cash equivalents are carried at cost which approximates fair value due to their short-term nature. The Company considers all highly-liquid investments with an original maturity of 90 days or less to be cash equivalents.
The Company maintains cash equivalent balances with financial institutions that management believes are of high credit quality. The Company’s cash and cash equivalents accounts at times may exceed federally insured limits. The Company has not experienced any losses in such accounts. The Company believes it is not exposed to any significant credit risk from cash and cash equivalents.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(U.S. DOLLARS, IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(Unaudited)

Inventory
Inventories are stated at the lower of cost or net realizable value with costs determined for each batch under the first-in, first-out method and specifically allocated to remaining inventory. Inventory consists of raw materials, work in process and finished goods. Raw materials include amounts of active pharmaceutical ingredient for a product to be manufactured; work in process includes the bulk inventory of laminate (the Company’s drug delivery film) prior to being packaged for sale; and finished goods include pharmaceutical products ready for commercial sale.
On a quarterly basis, the Company analyzes its inventory levels and records allowances for inventory that has become obsolete, inventory that has a cost basis in excess of the expected net realizable value and inventory that is in excess of expected demand based upon projected product sales. Inventory obsolescence reserves at June 30, 2020 and December 31, 2019 were $0.5 million and $0.4 million, respectively.
Revenue recognition
The main types of revenue contracts are:
Product sales-Product sales amounts relate to sales of BELBUCA, Symproic and BUNAVAIL. In March 2020, the Company announced it will discontinue marketing of BUNAVAIL in 2020. The Company recognizes revenue on product sales when control of the promised goods is transferred to its customers in an amount that reflects the consideration expected to be received in exchange for transferring those goods. The Company accounts for a contract when it has approval and commitment from both parties, the rights of the parties are identified, payment terms are identified, the contract has commercial substance and collectability of consideration is probable. When determining whether the customer has obtained control of the goods, the Company considers any future performance obligations. Generally, there is no post-shipment obligation on product sold.
Product royalty revenues-Product royalty revenue amounts are based on sales revenue of the PAINKYL product under the Company’s license agreement with TTY and the BREAKYL product under the Company’s license agreement with Meda AB, which was acquired by Mylan N.V. (which we refer to herein as Mylan). Product royalty revenues are recognized when control of the product is transferred to the license partner in an amount that reflects the consideration expected to be received. Supplemental sales-based product royalty revenue may also be earned upon the subsequent sale of the product at agreed upon contractual rates.
Contract revenue-Contract revenue amounts are related to milestone payments under the Company’s license agreements with its partners.
Performance obligations
A performance obligation is a promise in a contract to transfer a distinct good or service to the customer. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. The majority of the Company’s product sales contracts have a single performance obligation as the promise to transfer the individual goods is not separately identifiable from other promises in the contracts and, therefore, not distinct. The Company’s performance obligations are satisfied at a point in time. The multiple performance obligations are not allocated based off of the obligations but based off of standard selling price.
Transaction price, including variable consideration
Revenue from product sales is recorded at the net sales price, which includes estimates of variable consideration for which reserves are established. Components of variable consideration include trade discounts and allowances, product returns, government chargebacks, discounts and rebates, and other incentives, such as voucher programs, and other fee for service amounts that are detailed within contracts between the Company and its customers relating to the Company’s sale of its products.
The Company establishes allowances for estimated rebates, chargebacks and product returns based on numerous qualitative and quantitative factors, including:
the number of and specific contractual terms of agreements with customers;
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(U.S. DOLLARS, IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(Unaudited)

estimated levels of inventory in the distribution channel;
historical rebates, chargebacks and returns of products;
direct communication with customers;
anticipated introduction of competitive products or generics;
anticipated pricing strategy changes by the Company and/or its competitors;
analysis of prescription data gathered by a third-party prescription data provider;
the impact of changes in state and federal regulations; and
the estimated remaining shelf life of products.
Revenue from product sales is recorded after considering the impact of the following variable consideration amounts at the time of revenue recognition:
Product returns-Consistent with industry practice, the Company offers contractual return rights that allow its customers to return the products within an 18-month period that begins six months prior to and ends twelve months after expiration of the products.
Government rebates and chargebacks-Government rebates and chargebacks include mandated discounts under Medicaid, Medicare, U.S Department of Veterans Affairs and other government agencies ("Government Payors"). The Company estimates the rebates and chargebacks to Government Payors based upon a range of possible outcomes that are probability-weighted for the estimated payor mix. These reserves are recorded in the same period the revenue is recognized, resulting in a reduction of product revenue and the establishment of a current liability, which is included in accrued expenses and other current liabilities on the condensed consolidated balance sheets. For Medicare, the Company also estimates the number of patients in the prescription drug coverage gap for whom the Company will owe an additional liability under the Medicare Part D program. The Company estimates the rebates and chargebacks that it will provide to Government Payors based upon (i) the government-mandated discounts applicable to government-funded programs, (ii) information obtained from its customers and (iii) information obtained from other third parties regarding the payor mix for its products. The Company’s liability for these rebates consists of estimates of claims for the current quarter and estimated future claims that will be made for product shipments that have been recognized as revenue, but remain in the distribution channel inventories at the end of each reporting period.
Commercial Contracts-The Company’s estimates of rebates arising from commercial contracts are based on its estimated mix of various third-party payers, which are contractually entitled to discounts from the Company’s listed prices of its products. If the mix across third-party payers is different from the Company’s estimates, the Company may be required to pay higher or lower total price adjustments and/or chargebacks than it had estimated.
Voucher program-The Company, from time to time, offers certain promotional product-related incentives to eligible patients. The Company has voucher programs for BELBUCA, Symproic and BUNAVAIL whereby the Company offers a point-of-sale subsidy to retail consumers. The Company estimates its liabilities for these voucher programs based on the current utilization and historical redemption rates as reported to the Company by a third-party claims processing organization. The Company accounts for the costs of these special promotional programs as price adjustments, which are a reduction of gross revenue.
Trade discounts and distribution fees-Trade discounts relate to prompt settlement discounts provided to customers. In addition, the Company compensates its customers for distribution of its products and data. The Company has determined that such services received to date are not distinct from its sale of products and may not reasonably represent fair value for these services. Therefore, estimates of these payments are recorded as a reduction of revenue based on contractual terms.
Cost of sales
Cost of sales includes the direct costs attributable to the production of BELBUCA, Symproic and BUNAVAIL. It includes raw materials, production costs at the Company’s contract manufacturing sites, quality testing directly related to the products, and depreciation on equipment that the Company has purchased to produce BELBUCA, Symproic and BUNAVAIL. It also
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(U.S. DOLLARS, IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(Unaudited)

includes the costs for any batches not meeting specifications and raw material yield losses. Yield losses and batches not meeting specifications are expensed as incurred. Cost of sales is recognized when sold to the wholesaler from our distribution center.
For BREAKYL and PAINKYL (the Company’s out-licensed breakthrough cancer pain therapies), cost of sales includes all costs related to creating the product at the Company’s contract manufacturing location in Germany. The Company’s contract manufacturer bills the Company for the final product, which includes materials, direct labor costs, and certain overhead costs as outlined in applicable supply agreements.
Cost of sales also includes royalty expenses that the Company owes to third parties.
Recent accounting pronouncements-adopted
Measurement of Credit Losses of Financial Instruments
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses of Financial Instruments; in November 2018 the FASB issued a subsequent amendment ASU No. 2018-19, Codification Improvements to Topic 326, Financial Instruments—Credit Losses; in April 2019 the FASB issued ASU No. 2019-04, Codification Improvements to Topic 326, Financial Instruments—Credit Losses. In May 2019 the FASB issued ASU No. 2019-05, Financial Instruments—Credit Losses (Topic 326): Targeted Transition Relief; and in November 2019 the FASB issued ASU No. 2019-11, Codification Improvements to Topic 326, Financial Instruments—Credit Losses. The new guidance changes the methodology for measuring credit losses on financial instruments and the timing of when such losses are recorded. In November 2019 the FASB issued ASU No. 2019-10, Financial Instruments—Credit Losses (Topic 326). The Company adopted Topic 326 during the six months ended June 30, 2020 and determined that the new guidance has no material impact on its condensed consolidated financial statements.
The Company is exposed to credit losses primarily through its product sales. The Company assesses each counterparty’s ability to pay for the products it sells by conducting a credit review. The credit review considers the Company's expected billing exposure and timing for payment and the counterparty’s established credit rating or the Company's assessment of the counterparty’s creditworthiness based on the Company's analysis of their financial statements when a credit rating is not available. The Company also considers contract terms and conditions, and business strategy in its evaluation. A credit limit is established for each counterparty based on the outcome of this review.
The Company monitors its ongoing credit exposure through active review of counterparty balances against contract terms and due dates. The Company's activities include timely account reconciliations, dispute resolution and payment confirmations. The Company may employ collection agencies and legal counsel to pursue recovery of defaulted receivables.
As of June 30, 2020, the Company reported $47.5 million of trade receivables within accounts receivable. Based on an aging analysis at June 30, 2020, 91% of the Company's accounts receivable were outstanding less than 30 days. There was no change to the allowance for doubtful accounts and credit losses between June 30, 2020 or December 31, 2019. The Company writes off accounts receivable when management determines they are uncollectible and credits payments subsequently received on such receivables to bad debt expense in the period received.
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement, which modifies the disclosure requirements on fair value measurements. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019 and early adoption is permitted. The new guidance does not have a material impact on its consolidated financial statements.
In November 2018, the FASB issued ASU 2018-18, Collaborative Arrangements (Topic 808): Clarifying the Interaction between Topic 808 and Topic 606, which amends ASC 808 to clarify ASC 606 should apply in entirety to certain transactions between collaborative arrangement participants. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The Company has determined that the new guidance does not have a material impact on its consolidated financial statements.


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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(U.S. DOLLARS, IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(Unaudited)

Recent accounting pronouncements-not yet adopted
In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740)—Simplifying the Accounting for Income Taxes, which is intended to simplify accounting for income taxes. It removes certain exceptions to the general principles in Topic 740 and amends existing guidance to improve consistent application. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020 and early adoption is permitted. The Company is currently evaluating but does not expect the new guidance to have a material impact on its consolidated financial statements.

Fair Value of Financial Instruments
The Company measures the fair value of instruments in accordance with GAAP which defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements.
GAAP defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. GAAP also establishes a fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The Company considers the carrying amount of its cash and cash equivalents to approximate fair value due to short-term nature of this instrument. GAAP describes three levels of inputs that may be used to measure fair value:
Level 1 – quoted prices in active markets for identical assets or liabilities
Level 2 – quoted prices for similar assets and liabilities in active markets or inputs that are observable
Level 3 – inputs that are unobservable (for example cash flow modeling inputs based on assumptions)
The following table summarizes the financial instruments measured at fair value on a recurring basis as of June 30, 2020:
Level 1Level 2Level 3Balance at June 30, 2020
Cash and cash equivalents$91,009  $  $91,009  
The cash and cash equivalent balance as of June 30, 2020 includes investments in various money market accounts and cash held in interest bearing accounts.
2. Inventory:
The following table represents the components of inventory as of:
June 30,
2020
December 31,
2019
Raw materials $3,947  $624  
Work-in-process8,277  6,198  
Finished goods6,005  4,874  
Obsolescence reserve(455) (384) 
Total inventories$17,774  $11,312  

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(U.S. DOLLARS, IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(Unaudited)

3. Accounts payable and accrued liabilities:
The following table represents the components of accounts payable and accrued liabilities as of:
June 30,
2020
December 31,
2019
Accounts payable$13,289  $11,704  
Accrued rebates28,553  28,528  
Accrued compensation and benefits4,557  5,545  
Accrued returns7,014  4,438  
Accrued royalties648  535  
Accrued legal1,049  1,484  
Accrued regulatory expenses819  331  
Accrued other717  1,428  
Total accounts payable and accrued liabilities$56,646  $53,993  

4. Property and equipment:
Property and equipment, summarized by major category, consist of the following as of:
June 30,
2020
December 31,
2019
Machinery & equipment$5,203  $5,635  
Right of use, building lease599  720  
Computer equipment & software385  437  
Office furniture & equipment174  174  
Leasehold improvements43  43  
Idle equipment679  679  
Total7,083  7,688  
Less accumulated depreciation and amortization(5,575) (5,613) 
Total property and equipment, net$1,508  $2,075  
Depreciation expense for the three-month periods ended June 30, 2020 and June 30, 2019, was approximately $0.4 million and $0.1 million, respectively. Depreciation expense for the six-month periods ended June 30, 2020 and June 30, 2019, was approximately $0.4 million and $0.2 million, respectively. Depreciation expense for the three and six-month periods ended June 30, 2020 includes a $0.3 million one-time charge due to BUNAVAIL equipment write-off.
5. Intangible assets:
Other intangible assets, net, consisting of product rights and licenses are summarized as follows:
June 30, 2020Gross Carrying
Value
Accumulated
Amortization
Intangible Assets,
net
Product rights$6,050  $(6,050) $  
BELBUCA license and distribution rights45,000  (15,750) 29,250  
Symproic license and distribution rights30,636