Note 5.

Revenues and Trade Receivables, Net

The Company’s revenues to date have been earned from licensed commercialized products, research and development services provided to customers, licensing of patent-protected intellectual property and commercialization of a proprietary product. These activities generate revenues in four primary categories: manufacturing and supply revenue, co-development and research fees, license and royalty revenue, and proprietary product sales, net.

Performance Obligations

A performance obligation is a promise in a contract to transfer a distinct good or service to the customer and is the unit of account in the current revenue standard. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. At contract inception, we assess the goods promised in our contracts with customers and identify a performance obligation for each promise to transfer to the customer a good that is distinct. When identifying our performance obligations, we consider all goods or services promised in the contract regardless of whether explicitly stated in the contract or implied by customary business practices. The Company’s performance obligations consist mainly of transferring control of goods and services identified in the contracts, purchase orders or invoices.

The Company’s performance obligation with respect to its proprietary product sales is satisfied at a point in time which transfers control upon delivery of the product to its customers. The Company considers control to have transferred upon delivery because the customer has legal title to the asset, physical possession of the asset has been transferred, the customer has significant risks and rewards of ownership of the asset and the Company has a present right to payment at that time. With respect to manufacturing and supply revenue stream, a quantity is ordered and manufactured according to the customer’s specifications and represents a single performance obligation. The products manufactured are exclusively for specific customers and have no alternative use. Under the customer arrangements, the Company is entitled to receive payments for progress made to date once the acceptance requirements surrounding quality control are satisfied. Thus, revenues related to this product stream are recognized at a point in time when the manufactured product passes quality control testing.

Royalty revenues are estimated based on the provisions of contracts with customers and recognized in the same period that the royalty-based products are sold to the Company’s strategic licensees, as all royalties are directly attributable to the Company’s manufacturing activities, and are therefore recognizable at the same time the manufacturing revenue is recognizable. In addition to usage-based royalties, licensing contracts may contain provisions for one-time payments related to certain license fees and milestone achievements. Revenue recognition of these license fees and milestone payments depend on the nature of the specific contract, typically license and milestone payments are recognized at a point in time in the period they are achieved. However, there are limited instances where, upon review of the contract, it is determined that the license is non-distinct and limited in nature and does not provide benefit to the customer without purchasing the product, these upfront licensing fees are recognized over time (typically the length of the contract).

Co-development and research fee revenue is recorded over time based upon the progress of services provided in order to complete the specific performance obligation identified in the related contract.

Revenues from the sale of products and services and the subsequent related payments are evidenced by a contract with the customer, which includes all relevant terms of sale. For manufacturing and supply and proprietary product sales, invoices are generally issued upon the transfer of control and co-development and research revenue is typically invoiced based on the contractual payment schedule, or upon completion of the service. Invoices are typically payable 30 to 60 days after the invoice date, however some payment terms may reach 105 days depending on the customer. The Company performs a review of each specific customer’s credit worthiness and ability to pay prior to acceptance as a customer. Further, the Company performs periodic reviews of its customers’ creditworthiness, prospectively.

Contract Assets

In limited situations, certain customer contractual payment terms require billing to occur in arrears; accordingly, some portions, or all, of the Company’s performance obligations are completed before we are contractually entitled to bill the customer. In these situations, billing occurs subsequent to revenue recognition, which results in a contract asset. These contract assets are reflected as a component of Trade and other receivables, net on the Condensed Consolidated Balance Sheet. As of September 30, 2019 and January 1, 2019, such contract assets were $760, and $284, respectively.

Contract Liabilities

In other limited situations, certain customer contractual payment terms allow advanced billings; accordingly, customer cash payments may be received before satisfaction of some or all contractual performance obligations. In these situations, billing occurs in advance of revenue recognition, which results in contract liabilities. These contract liabilities are reflected as Deferred revenue in the Condensed Consolidated Balance Sheet. As remaining performance obligations are satisfied, a portion of the deferred revenue balance is recognized in the Company’s results of operations. As of September 30, 2019 and January 1, 2019, such contract liabilities were $2,962 and $3,762, respectively. Revenue recognized for the nine-month period ended September 30, 2019 that was reflected in the deferred revenue balance as of January 1, 2019 was $1,079.

The Company’s revenues were comprised of the following:

	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

Disaggregation of Revenue

The following table provides disaggregated net revenue by geographic area:

	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

Non-United States revenues is derived primarily from products manufactured for the Australian and Malaysian markets.

Trade and other receivables, net consist of the following:

	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

Contract and other receivables totaled $843 as of September 30, 2019, consisting primarily of contract assets related to the adoption of ASC 606 and certain reimbursable customer costs. Other receivables totaled $33 as of December 31, 2018, consisting primarily of reimbursable costs incurred on behalf of a customer. Sales-related allowances for both periods presented are estimated in relation to revenues recognized for sales of Sympazan® beginning with the launch of this product in December 2018.

The following table presents the changes in the allowance for bad debt:

	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

Sales Related Allowances and Accruals

Revenues from proprietary product sales are recorded net of prompt payment discounts, wholesaler service fees, return allowances, rebates and co-pay card redemptions. These reserves are based on estimates of the amounts earned or to be claimed on the related sales. These amounts are treated as variable consideration, estimated and recognized as a reduction of the transaction price at the time of the sale. The Company includes these estimated amounts in the transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized for such transaction will not occur, or when the uncertainty associated with the variable consideration is resolved. The calculation of some of these items requires management to make estimates based on sales data, historical return data, contracts and other related information that may become known in the future. The adequacy of these provisions is reviewed on a quarterly basis.

The following table provides a summary of activity with respect to our sales related allowances and accruals for the nine months ended September 30, 2019:

	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

Total reductions of gross product sales from sales-related allowances and accruals were $1,576 for the nine months ended September 30, 2019. Accruals for return allowances and prompt pay discounts are reflected as a direct reduction to trade receivables, and totaled $120 and $104 at September 30, 2019 and December 31, 2018, respectively. Accruals for wholesaler fees, co-pay cards and rebates are reflected as current liabilities, and totaled $1,057 and $481 at September 30, 2019 and December 31, 2018, respectively. There were no sales related allowances and accruals at September 30, 2018, as Sympazan was launched in December 2018.

Concentration of Major Customers

Customers are considered major customers when sales exceed 10% of total net sales for the period or outstanding receivable balances exceed 10% of total receivables. For the year ended December 31, 2018, Indivior, PLC. (“Indivior”) provided 89% of the total revenues for the period, and as of that date, the Company’s outstanding receivable balance from Indivior represented approximately 78% of gross receivables. For the nine months ended September 30, 2019, revenues provided by Indivior represented approximately 83% of total revenues and outstanding accounts receivable due from Indivior represented approximately 77% of gross receivables.