(2) Interim Condensed Consolidated Financial Statements

The accompanying unaudited interim condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) for interim information and pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) for reporting on Form 10-Q. Accordingly, certain information and footnote disclosures required for complete financial statements are not included herein. It is recommended that these financial statements be read in conjunction with the consolidated financial statements and related notes that appear in the Annual Report on Form 10-K/A of Juniper Pharmaceuticals, Inc. (“Juniper” or the “Company”) for the year ended December 31, 2015 filed with the SEC on November 14, 2016 (the “2015 Annual Report”). In the opinion of management, all adjustments (consisting only of normal recurring adjustments) necessary for the fair presentation of the condensed consolidated financial information for the interim periods reported have been made. Results of operations for the three months ended March 31, 2016 are not necessarily indicative of the results for the year ending December 31, 2016 or any period thereafter.

Management Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosures at the date of the financial statements during the reporting period. Significant estimates are used for, but are not limited to, revenue recognition, allowance for doubtful accounts, inventory reserve, impairment analysis of goodwill and intangibles including their useful lives, research and development accruals, deferred tax assets, liabilities and valuation allowances, and fair value of stock options. On an ongoing basis, management evaluates its estimates. Actual results could differ from those estimates.

Summary of Significant Accounting Policies

Revenue Recognition and Sales Returns Reserves (As Restated)

Revenues include product revenues, which primarily consist of sales of CRINONE to Merck KGaA, royalty revenues, which primarily consist of royalty revenues from Allergan on sales of CRINONE, service revenues, which primarily consist of analytical and consulting services, pharmaceutical development and clinical trial manufacturing services and other revenues.

Product Revenue

Revenues from the sale of products are to be recognized when all of the following criteria are met: persuasive evidence of a sales arrangement exists; delivery has occurred or services have been rendered; the price is fixed or determinable; and collectibility is reasonably assured. Selling prices to Merck KGaA for CRINONE (progesterone gel) are determined on an annual and country-by-country basis and are the greater of (i) a percentage of Merck KGaA’s estimated net selling price, or (ii) Juniper’s direct manufacturing cost plus 20% and are invoiced to Merck KGaA upon shipment. Juniper records revenue at the minimum selling price, which is Juniper’s direct manufacturing cost plus 20% at the time of shipment to Merck KGaA as that amount is considered fixed or determinable. The Company records deferred revenue related to amounts invoiced above the minimum selling price. Upon receiving sell through information from Merck KGaA on a quarterly and country-by-country basis, the Company records an adjustment to increase revenue to reflect the difference between Merck KGaA’s net selling price and the minimum price recorded at the time of shipment. Any difference between the amounts invoiced at Merck KGaA’s estimated net selling price and Merck KGaA’s actual net selling price are billed or credited to Merck KGaA in the quarter the product is sold through by Merck KGaA. Accordingly, product revenue in each period includes both an amount for product shipped to Merck KGaA in the current period recognized at the minimum purchase price as well as an amount for product shipped by Merck KGaA to its customers in the current period equal to the difference between Merck KGaA’s actual net selling price and the minimum purchase price. Merck KGaA is also entitled to a volume discount based on annual purchases. The Company records reserves against revenue on a quarterly basis to reflect the volume discount expected to be earned by Merck KGaA during the year.

In April 2013, Juniper’s license and supply agreement with Merck KGaA for the sale of CRINONE outside the United States was renewed for an additional five year term, extending the expiration date to May 19, 2020.

Service Revenue

The professional service contracts that Juniper enters into and operates under specifies whether the engagement will be billed on a time-and-materials or a fixed-price basis. These engagements generally last three to six months, although some of Juniper’s engagements can be much longer in duration.

Juniper recognizes substantially all of the Company’s professional services revenues under written contracts when the fee is fixed or determinable, as the services are provided, and only in those situations where collection from the client is reasonably assured. In certain cases Juniper bills clients prior to work being performed, which requires Juniper to defer revenue in accordance with U.S. GAAP. In these cases, these amounts are fully reserved until all criteria for recognizing revenue are met.

Revenues from time-and-materials service contracts are recognized as the services are performed based upon hours worked and contractually agreed-upon hourly rates, as well as indirect fees based upon hours worked.

Service revenues from a majority of Juniper’s fixed-price engagements are recognized on a proportional performance method based on the ratio of costs incurred, substantially all of which are labor-related, to the total estimated project costs. In general, project costs are classified in costs of services and are based on the direct salary of the employees on the engagement plus all direct expenses incurred to complete the engagement, including any amounts billed to Juniper by its vendors. The proportional performance method is used for fixed-price contracts because reasonably dependable estimates of the revenues and costs applicable to various stages of a contract can be made, based on historical experience and the terms set forth in the contract, and are indicative of the level of benefit provided to Juniper’s clients. In the event of a termination, fixed-price contracts generally provide for payment for services rendered up to the termination date.

Service revenues also include reimbursements, which include reimbursement for travel and other out-of-pocket expenses, outside consultants, and other reimbursable expenses.

Royalty revenues, based on sales by licensees, are recorded as revenues when those sales are made by the licensees.

The Company maintains accounts receivable allowances for estimated losses resulting from disputed amounts or the inability of Juniper’s customers to make required payments. Juniper identifies specific collection issues and establishes an accounts receivable allowance based on its historical collection experience, review of client accounts, current trends, and credit policy. If the financial condition of Juniper’s customers were to deteriorate or disputes were to arise regarding the services provided, resulting in an impairment of their ability or intent to make payment, additional allowances may be required. A failure to estimate accurately the accounts receivable allowances and ensure that payments are received on a timely basis could have a material adverse effect on Juniper’s business, financial condition, and results of operations.

Juniper collects value added tax from its customers for revenues generated out of the United Kingdom for which the customer is not tax exempt and remits such taxes to the appropriate governmental authorities. Juniper presents its value added tax on a net basis; therefore, these taxes are excluded from revenues.

Deferred Revenue

The Company’s deferred revenue balance consists of the following at March 31, 2016 and December 31, 2015 (in thousands):


	March 31, 2016		December 31, 2015
	(As Restated)		(As Restated)
Product revenues	$	4,455	$	2,831
Service revenues		448		566
Regional Growth Fund		1,265		1,480

Total	$	6,168	$	4,877

Amounts invoiced but not yet earned on product are recorded as deferred revenue until the Company receives sell through information from Merck KGaA indicating the product has been sold through or otherwise disposed of. Amounts invoiced but not yet earned on service revenue are deferred until or such time as performance is rendered or the obligation to perform the service is completed for service revenues. Amounts deferred for product revenue are not settled until sell through information is received from Merck KGaA.

As part of the acquisition of Juniper Pharma Services, Juniper assumed a $2.5 million obligation under a grant arrangement with the Regional Growth Fund on behalf of the Secretary of State for Business, Innovation, and Skills in the United Kingdom. Juniper Pharma Services used this grant to fund the building of its second facility, which includes analytical labs, office space, and a manufacturing facility. As a part of the arrangement, Juniper Pharma Services is required to create and maintain certain full-time equivalent personnel levels through October 2017. As of March 31, 2016, the Company is in compliance with the covenants of the arrangement. The income from the Regional Growth Fund will be recognized in the other income line of the consolidated statement of operations on a decelerated basis through September 30, 2017.