What changed in this filing

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Item 1. Financial Statements

2020-08-05 compared with 2020-05-06 · 257 added, 194 removed, 640 unchanged (41% of the section changed)

FINANCIAL STATEMENTS

MANNKIND CORPORATION AND SUBSIDIARIES

MANNKIND CORPORATION AND SUBSIDIARY

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except per share data)

March 31, 2020

June 30, 2020

December 31, 2019

11 unchanged sentences

Accrued expenses and other current liabilities

Short-term note payable

Short-term notes payable

Deferred revenue — current

5 unchanged sentences

Senior convertible notes

Paycheck Protection Program loan — long term

Recognized loss on purchase commitments — long term

6 unchanged sentences

Undesignated preferred stock, $ 0.01 par value — 10,000,000 shares authorized;

no shares issued or outstanding as of March 31, 2020 and December 31, 2019

Common stock, $0.01 par value - 280,000,000 shares authorized,

213,137,684 and 211,787,573 shares issued and outstanding at

March 31, 2020 and December 31, 2019, respectively

no shares issued or outstanding as of June 30, 2020 and December 31, 2019

Common stock, $ 0.01 par value - 400,000,000 and 280,000,000 shares

authorized, 228,927,505 and 211,787,573 shares issued and outstanding

at June 30, 2020 and December 31, 2019, respectively

Additional paid-in capital

4 unchanged sentences

See notes to condensed consolidated financial statements.

MANNKIND CORPORATION AND SUBSIDIARIES

MANNKIND CORPORATION AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

Net revenue — commercial product sales

5 unchanged sentences

Selling, general and administrative

Impairment of commitment asset

Gain on foreign currency translation

Asset impairment

Loss (gain) on foreign currency translation

Total expenses

4 unchanged sentences

Interest expense on promissory notes

Other expense

Other income (expense)

Total other expense

4 unchanged sentences

See notes to condensed consolidated financial statements.

MANNKIND CORPORATION AND SUBSIDIARIES

MANNKIND CORPORATION AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(In thousands)

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

Other comprehensive loss:

2 unchanged sentences

See notes to condensed consolidated financial statements.

MANNKIND CORPORATION AND SUBSIDIARIES

MANNKIND CORPORATION AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT

11 unchanged sentences

BALANCE, MARCH 31, 2019

Net issuance of common stock associated

with stock options and restricted stock

Stock-based compensation expense

Issuance of common stock in at the market

Issuance costs associated with at the

market offering

BALANCE, JUNE 30, 2019

Comprehensive

11 unchanged sentences

BALANCE, MARCH 31, 2020

Stock-based compensation expense

Issuance of common stock from the

exercise of warrants

Issuance of common stock pursuant to

conversion of the June 2020 note

Net issuance of common stock associated

with stock options and restricted stock

Issuance of common stock in at the market

Issuance cost associated with at the market

Issuance of common stock from market

price stock purchase

Adjustment of common stock in association

with restricted stock units

BALANCE, JUNE 30, 2020

See notes to condensed consolidated financial statements.

MANNKIND CORPORATION AND SUBSIDIARIES

MANNKIND CORPORATION AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

Three Months Ended March 31,

Six Months Ended June 30,

CASH FLOWS FROM OPERATING ACTIVITIES:

Adjustments to reconcile net loss to net cash used in operating

Impairment of commitment asset

Adjustments to reconcile net loss to net cash used in operating activities:

Interest expense on promissory notes

Stock-based compensation expense

Asset impairment

Depreciation, amortization and accretion

Amortization of right-of-use assets

Gain on foreign currency translation

Interest expense on promissory notes

Write-off of inventory

Loss (gain) on foreign currency translation

Changes in operating assets and liabilities:

8 unchanged sentences

CASH FLOWS FROM INVESTING ACTIVITIES:

Proceeds from sale of treasury bills

Purchase of property and equipment

Purchase of treasury bills

Proceeds from sale of treasury bills

Net cash provided by (used in) investing activities

2 unchanged sentences

Issuance costs associated with at the market offering

Exercise of stock options

Issuance of common stock from the exercise of warrants

Proceeds from Paycheck Protection Program loan

Payment of employment taxes related to vested restricted stock units

Net cash provided by financing activities

and exercise of stock options

Proceeds from market price stock purchase plan

Principal payments on facility financing obligation

Net cash provided by (used in) financing activities

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS AND

7 unchanged sentences

NON-CASH INVESTING AND FINANCING ACTIVITIES:

Payment of principal on senior convertible notes through common stock issuance

Receivable from at the market offering

Common stock issuance to settle employee stock purchase plan liability

Payment of interest on senior convertible notes through common stock issuance

Non-cash construction in progress and property and equipment

Addition of right-of-use assets upon adoption of new lease guidance

Payment of interest on senior convertible notes through common stock

Non-cash construction in progress and property and equipment

See notes to condensed consolidated financial statements.

MANNKIND CORPORATION AND SUBSIDIARIES

MANNKIND CORPORATION AND SUBSIDIAR Y

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Description of Business and Significant Accounting Policies

The accompanying unaudited condensed consolidated financial statements of MannKind Corporation and its subsidiaries (“MannKind,” the “Company,” “we” or “us”), have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X of the Securities and Exchange Commission (the “SEC”).

The accompanying unaudited condensed consolidated financial statements of MannKind Corporation and its subsidiary (“MannKind,” the “Company,” “we” or “us”), have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X of the Securities and Exchange Commission (the “SEC”).

Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements.

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In the opinion of management, all adjustments, consisting only of normal, recurring adjustments, considered necessary for a fair presentation of the results of these interim periods have been included.

The results of operations for the three months ended March 31, 2020 may not be indicative of the results that may be expected for the full year.

The results of operations for the three and six months ended June 30, 2020 may not be indicative of the results that may be expected for the full year.

Financial Statement Estimates — The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes.

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Currently, the Company promotes Afrezza to endocrinologists and certain high-prescribing primary care physicians in the United States through its specialty sales force.

The Company’s partner in Brazil, Biomm S.A., commenced commercialization of Afrezza in January 2020.

The Company’s partner in Brazil, Biomm S.A.

(“Biomm”), commenced commercialization of Afrezza in January 2020.

The Company’s partners in India and Australia are preparing for regulatory submissions and have not yet commenced commercialization in their respective territories.

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In addition, the Company expects to continue to incur significant expenditures for the foreseeable future in support of its manufacturing operations, sales and marketing costs for Afrezza, and development costs for product candidates in the Company’s pipeline.

As of March 31, 2020, the Company had an accumulated deficit of $3.0 billion and $120.3 million of total principal amount of outstanding borrowings, with limited capital resources of $38.9 million in cash and cash equivalents.

As of June 30, 2020, the Company had an accumulated deficit of $ 3.0 billion and $ 122.6 million of total principal amount of outstanding borrowings, with limited capital resources of $ 63.2 million in cash and cash equivalents.

These financial conditions raise substantial doubt about the Company’s ability to continue as a going concern.

In August 2019, the Company and its wholly owned subsidiary, MannKind LLC, entered into a credit and security agreement with MidCap Financial Trust (as amended, the “MidCap Credit Facility”) to restructure its existing debts and to provide additional operating capital (the “recapitalization”) (Refer to Note 6 – Borrowings for further details).

The MidCap Credit Facility provides a secured term loan facility with an aggregate principal amount of up to $75.0 million, of which $40.0 million was outstanding as of December 31, 2019.

The availability of the remaining $35.0 million is subject to certain conditions:

(1) $10.0 million was available to the Company until April 15, 2020, provided that the Company had achieved Afrezza net revenue of at least $30.0 million on a trailing twelve month basis by that date (which was not achieved), and (2) a further $25.0 million will be available to the Company until June 30, 2021, subject to the satisfaction of certain milestone conditions associated with Afrezza net revenue and certain milestone conditions related to the Company’s collaboration with United Therapeutics (see Note 7 – Collaboration and Licensing Arrangements ) for more information on the collaboration agreement with United Therapeutics.

The MidCap Credit Facility provides a secured term loan facility with an aggregate principal amount of up to $ 65.0 million, of which $ 40.0 million was outstanding as of June 30, 2020 and December 31, 2019.

The availability of the remaining $ 25.0 million will be available to the Company until June 30, 2021, subject to the satisfaction of certain milestone conditions associated with Afrezza net revenue and certain milestone conditions related to the Company’s collaboration with United Therapeutics (see Note 7 – Collaboration and Licensing Arrangements for more information on the collaboration agreement with United Therapeutics).

The MidCap Credit Facility also provided for up to $ 10.0 million in borrowings until April 15, 2020, subject to the Company achieving Afrezza net revenue of at least $ 30.0 million on a trailing twelve month basis by that date (which was not achieved).

Principal payments on the MidCap Credit Facility begin in September 2021.

In addition, the MidCap Credit Facility contains certain covenants, one of which includes a requirement to maintain a minimum of $ 15.0 million of unrestricted cash and cash equivalents at all times.

This amount will increase to $2 0.

0 million if the Company draws the aforementio ned additional funding that may be made available.

This amount will increase to $ 20.0 million if the Company draws additional funding under the MidCap Credit Facility.

The Company’s capital resources may not be sufficient to continue to meet its current and anticipated obligations over the next twelve months if the Company cannot increase its operating cash inflows by growing revenue or obtaining access to the remaining $25.0 million in borrowings that may become available under its MidCap Credit Facility.

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The accompanying financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Principles of Consolidation — The condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries.

Principles of Consolidation — The condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary.

Intercompany balances and transactions have been eliminated.

1 unchanged sentence

These reclassifications had no effect on the reported condensed consolidated balance sheets or statements of operations.

An adjustment has been made to the condensed consolidated statements of stockholder’s deficit as of March 31, 2019 to combine the exercise of stock options and the issuance of common stock from the release of restricted stock units.

An additional adjustment has been made to the condensed consolidated statements of cash flows for the three months ended March 31, 2019 to combine restricted stock unit award with other, net in the cash flows from operating activities.

These changes in classification do not affect previously reported cash flows from investing or financing activities.

An adjustment has been made to the condensed consolidated statements of stockholder’s deficit as of June 30, 2019 and March 31, 2019 to combine the exercise of stock options and the issuance of common stock from the release of restricted stock units (“RSUs”).

Segment Information — Operating segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision-maker in making decisions regarding resource allocation and assessing performance.

13 unchanged sentences

In addition to distribution agreements with Customers, the Company enters into arrangements with payors that provide for government mandated and/or privately negotiated rebates, chargebacks, and discounts with respect to the purchase of the Company’s products.

The Company recognizes revenue on product sales when the Customer obtains control of the Company's product, which occurs at delivery for wholesale distributors and generally for specialty pharmacies.

The Company recognizes revenue on product sales when the Customer obtains control of the Company's product, which occurs at delivery for wholesale distributors and generally at delivery for specialty pharmacies.

Product revenues are recorded net of applicable reserves for variable consideration, including discounts and allowances.

Free Goods Program – From time to time, the Company offers programs to potential new patients that allow them to obtain free goods (prescription fills) from a pharmacy.

T he Company excludes s uch amounts from both gross and net revenue.

T he Company excludes such amounts related to these programs from both gross and net revenue.

The cost of product associated with the free goods program is included in cost of goods sold.

1 unchanged sentence

Components of variable consideration include trade discounts and allowances, product returns, provider chargebacks and discounts, government rebates, payor rebates, and other incentives, such as voluntary patient assistance, and other allowances that are offered within contracts between the Company and its Customers, payors, and other indirect customers relating to the Company’s sale of its products.

These reserves, as detailed below, are based on the amounts earned, or to be claimed on the related sales, and result in a reduction of accounts receivable or establishment of a current liability.

These reserves, as further detailed below, are based on the amounts earned, or to be claimed on the related sales, and result in a reduction of accounts receivable or establishment of a current liability.

Significant judgments are required in making these estimates.

1 unchanged sentence

Overall, these reserves reduce recognized revenue to the Company’s best estimates of the amount of consideration to which it is entitled based on the terms of the respective underlying contracts.

The amount of variable consideration which is included in the transaction price may be constrained, and is included in the net sales price only to the extent that it is probable that a significant reversal in the amount of the cumulative revenue recognized under the contract will not occur in a future period.

The Company’s analysis also contemplates application of the constraint in accordance with the guidance, under which it determined a material reversal of revenue would not occur in a future period for the estimates detailed below as of March 31, 2020 and, therefore, the transaction price was not reduced further during the three months ended March 31, 2020.

The amount of variable consideration that is included in the transaction price may be constrained, and is included in the net sales price only to the extent that it is probable that a significant reversal in the amount of the cumulative revenue recognized under the contract will not occur in a future period.

The Company’s analysis also contemplates application of the constraint in accordance with the guidance, under which it determined a material reversal of revenue would not occur in a future period for the estimates detailed below as of June 30, 2020 and, therefore, the transaction price was not reduced further during the three and six months ended June 30, 2020.

Actual amounts of consideration ultimately received may differ from the Company’s estimates.

10 unchanged sentences

Customers charge the Company for the difference between what they pay for the product and the ultimate selling price to the qualified healthcare providers.

These reserves are established in the same period that the related revenue is recognized, resulting in a reduction of product revenue and the establishment of a current liability which is recorded in accrued expenses and other current liabilities.

These reserves are established in the same period that the related revenue is recognized, resulting in a reduction of product revenue and the establishment of a current liability that is recorded in accrued expenses and other current liabilities.

Chargeback amounts are generally determined at the time of resale to the qualified healthcare provider by Customers, and the Company generally issues credits for such amounts within a few weeks of the Customer’s notification to the Company of the resale.

1 unchanged sentence

Government Rebates — The Company is subject to discount obligations under Medicare and state Medicaid programs.

These reserves are recorded in the same period the related 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.

These reserves are recorded in the same period the related revenue is recognized, resulting in a reduction of product revenue and the establishment of a current liability that is included in accrued expenses and other current liabilities.

Estimates around Medicaid have historically required significant judgement due to timing lags in receiving invoices for claims from states.

2 unchanged sentences

Payor Rebates — The Company contracts with certain private payor organizations, primarily insurance companies and pharmacy benefit managers, for the payment of rebates with respect to utilization of its products.

The Company estimates these rebates , including estimates for product that has been recognized as revenue, but which remains in the distribution channel, and records such estimates in the same period the related revenue is recognized, resulting in a reduction of product revenue and t he establishment of a current liability which is included in accrued expenses and other current liabilities.

The Company estimates these rebates , including estimates for product that has been recognized as revenue, but which remains in the distribution channel, and records such estimates in the same period the related 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.

Other Incentives — Other incentives which the Company offers include voluntary patient support programs, such as the Company's co-pay assistance program, which are intended to provide financial assistance to qualified commercially-insured patients with prescription drug co-payments required by payors.

The calculation of the accrual for co-pay assistance is based on an estimate of claims and the cost per claim that the Company expects to receive associated with the product that has been recognized as revenue, but remains in the distribution channel inventories at the end of each reporting period.

The adjustments are recorded in the same period the related 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.

The adjustments are recorded in the same period the related revenue is recognized, resulting in a reduction of product revenue and the establishment of a current liability that is included in accrued expenses and other current liabilities.

Revenue Recognition — Revenue — Collaborations and Services — The Company enters into licensing or research agreements under which the Company licenses certain rights to its product candidates to third parties or conducting research services to third parties.

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Accordingly, the Company concluded that its collaborative agreements must be accounted for pursuant to Topic 606, Revenue from Contracts with Customers.

For collaboration agreements that allow collaboration partners to select additional optioned products or services, the Company evaluates whether such options contain material rights (i.e., have exercise prices t hat are discounted compared to what the Company would charge for a similar product or service to a new collaboration partner).

For collaboration agreements that allow collaboration partners to select additional optioned products or services, the Company evaluates whether such options contain material rights (i.e., have exercise prices that are discounted compared to what the Company would charge for a similar product or service to a new collaboration partner).

The exercise price of these options includes a combination of licensing fees, event-based milestone payments and royalties.

13 unchanged sentences

Any such adjustments are recorded on a cumulative catch-up basis, which would affect license, collaboration, other revenue, and earnings in the period of adjustment.

Paycheck Protection Program Loan — On April 10, 2020, the Company received the proceeds from a loan in the amount of approximately $ 4.9 million (the “PPP Loan”) from JPMorgan Chase Bank, N.A., as lender, pursuant to the Paycheck Protection Program (“PPP”) of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”).

The Company accounted for the PPP Loan as a financial liability in accordance with Accounting Standards Codification (“ASC”) Topic 470 Debt .

Accordingly, the PPP Loan was recognized as current and long-term debt in the Company’s consolidated balance sheets and is included as short-term note payable and PPP Loan — long term.

In addition, a di minimis amount of accrued interest is included in accrued expenses and other current liabilities.

See Note 6 – Borrowings for additional information.

Cost of Goods Sold — Cost of goods sold includes material, labor costs and manufacturing overhead.

4 unchanged sentences

Cash and Cash Equivalents and Restricted Cash —The Company considers all highly liquid investments with original or remaining maturities of 90 days or less at the time of purchase, that are readily convertible into cash to be cash equivalents.

As of March 31, 2020 and December 31, 2019, cash equivalents were comprised of money market accounts with maturities less than 90 days from the date of purchase.

As of June 30, 2020 and December 31, 2019, cash equivalents were comprised of money market accounts with maturities less than 90 days from the date of purchase.

The Company records restricted cash when cash and cash equivalents are restricted as to withdrawal or usage.

2 unchanged sentences

The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported on the consolidated balance sheets that sum to amounts reported on the consolidated statement of cash flows (in thousands):

March 31, 2020

June 30, 2020

December 31, 2019

3 unchanged sentences

Short-term Investments —The Company’s short-term investments consist of U.S.

Treasury securities stated at amortized cost which the Company intends to hold until maturity.

Treasury securities stated at amortized cost that the Company intends to hold until maturity.

Those with maturities less than 12 months are included in short-term investments and any investments with maturities in excess of twelve months are included in long-term investments in our condensed consolidated balance sheets.

As of March 31, 2020, t he Company did not hold any short-term investments nor did it record any material gains or losses on short-term investment securities during the three months ended March 31, 2020 .

As of June 30, 2020, the Company did no t hold any short-term or long-term investments nor did it record any material gains or losses on investment securities during the three and six months ended June 30, 2020.

Concentration of Credit Risk — Financial instruments that potentially subject the Company to concentration of credit risk consist of cash and cash equivalents and short-term investments.

22 unchanged sentences

Impairment of Long-Lived Assets — The Company evaluates long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable.

Assets are considered to be impaired if the carrying value may not be recoverable.

Assets are considered to be impaired if the carrying value is considered to be unrecoverable.

If the Company believes an asset to be impaired, the impairment recognized is the amount by which the carrying value of the asset exceeds the fair value of the asset.

1 unchanged sentence

Any write-downs are treated as permanent reductions in the carrying amount of the asset and recognized as an operating loss.

In August 2019, the Company recorded a $1.5 million commitment asset related to the future funding commitments of the MidCap Credit Facility.

An assessment was performed as of March 31, 2020 to determine if the Company was on target to achieve certain milestone conditions that are required in order for the Company to access further borrowings under the MidCap Credit Facility.

The Company determined that such milestone conditions related to Afrezza trailing net revenue are unlikely to be achieved.

As a result of this assessment, a $1.5 million asset impairment was recognized for the three months ended March 31, 2020.

In August 2019, the Company recorded a $ 1.5 million commitment asset and a $ 0.4 million other asset for deferred debt issuance costs related to the future funding commitments of the MidCap Credit Facility.

A quarterly assessment was performed to determine if the Company was on target to achieve certain required milestone conditions in order for the Company to access further borrowings under the MidCap Credit Facility.

The Company determined that such milestone conditions related to Afrezza trailing net revenue were unlikely to be achieved.

As a result, an asset impairment of $ 0.4 million and $ 1.9 million was recognized for the three and six months ended June 30, 2020, respectively, in the Company’s condensed consolidated statement of operations .

See Note 6 – Borrowings for further information on the MidCap Credit Facility.

1 unchanged sentence

Losses that are expected to arise from firm, non-cancellable, commitments for the future purchases are recognized unless recoverable.

When making the assessment, the Company also considers whether it is able to renegotiate with its vend ors.

When making the assessment, the Company also considers whether it is able to renegotiate with its vendors.

The recognized loss on purchase commitments is reduced as inventory items are received.

If, subsequent to an accrual, a purchase commitment is successfully renegotiated, the gain is recognized in the Company’s condensed consolidated statement of opera tions.

The liability balance of the recognized loss o n insulin purchase commitments wa s $ 9 0 .

2 million and $ 92 .

0 million as of March 3 1 , 20 20 and December 31, 201 9 , respectively.

No new contracts were identified in the first quarter of 20 20 that required a new loss on purchase commitment accrual.

If, subsequent to an accrual, a purchase commitment is successfully renegotiated, the gain is recognized in the Company’s condensed consolidated statement of operations.

The liability balance of the recognized loss on insulin purchase commitments was $ 90.9 million and $ 92.0 million as of June 30, 2020 and December 31, 2019, respectively.

No new contracts were identified in the first six months of 2020 that required a new loss on purchase commitment accrual.

Milestone Rights Liability — On July 1, 2013, in conjunction with the execution of a financing facility with Deerfield Private Design Fund II L.P.

1 unchanged sentence

, the Company issued to Deerfield Private Design Fund II, L.P.

and Horizon Santé FLML SÁRL (the “Milestone Purchasers”) certain rights to receive payments of up to $90.0 million, of which $70.0 million remains payable as of March 31, 2020 upon the occurrence of specified strategic and sales milestones, including the achievement of specified net sales figures (the “Milestone Rights”).

and Horizon Santé FLML SÁRL (the “Milestone Purchasers”) certain rights to receive payments of up to $ 90.0 million, of which $ 70.0 million remains payable as of June 30, 2020 upon the occurrence of specified strategic and sales milestones, including the achievement of specified net sales figures (the “Milestone Rights”).

The Company analyzed the Milestone Rights and determined that they did not meet the definition of a freestanding derivative.

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As a result, each milestone payment would be effectively allocated between a reduction of the recorded Milestone Rights liability and an expense representing a return on a portion of the Milestone Rights liability paid to the investor for the achievement of the related milestone event (see Note 6 – Borrowings ).

As of March 31, 2020 and December 31, 2019, the remaining liability balance was $7.3 million.

As of June 30, 2020 and December 31, 2019, the remaining liability balance was $ 7.3 million.

Fair Value of Financial Instruments — The Company applies various valuation approaches in determining the fair value of its financial assets and liabilities within a hierarchy that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that observable inputs be used when available.

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Disclosure also is provided when it is reasonably possible that a loss will be incurred or when it is reasonably possible that the amount of a loss will exceed the recorded provision.

On a qua rterly basis, the Company reviews the status of each significant matter and assesses its potential financial exposure.

Significant judgment is required in both the determination of probability and the determination as to whether an exposure is reasonably e stimable.

On a quarterly basis, the Company reviews the status of each significant matter and assesses its potential financial exposure.

Significant judgment is required in both the determination of probability and the determination as to whether an exposure is reasonably estimable.

Because of uncertainties related to these matters, accruals are based only on the best information available at the time.

As additional information becomes available, the Company reassesses the potential liability related to pending claims and li tigation and may revise its estimates.

Stock-Based Compensation — Share-based payments to employees, including grants of stock options, restricted stock units, performance-based awards and the compensatory elements of employee stock purchase plans, are recognized in the condensed consolidated statements of operations based upon the fair value of the awards at the grant date.

As additional information becomes available, the Company reassesses the potential liability related to pending claims and litigation and may revise its estimates.

Stock-Based Compensation — Share-based payments to employees, including grants of stock options, RSUs, performance-based awards and the compensatory elements of employee stock purchase plans, are recognized in the condensed consolidated statements of operations based upon the fair value of the awards at the grant date.

The Company uses the Black-Scholes option valuation model to estimate the grant date fair value of employee stock options and the compensatory elements of employee stock purchase plans.

Restricted stock units are valued based on the market price on the grant date.

RSUs are valued based on the market price on the grant date.

The Company evaluates stock awards with performance conditions as to the probability that the performance conditions will be met and estimates the date at which the performance conditions will be met in order to properly recognize stock-based compensation expense over the requisite service period.

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For periods where the Company has presented a net loss, potentially dilutive securities are excluded from the computation of diluted net loss per share as they would be anti-dilutive.

The computation of basic and diluted net loss per share for the three months ended March 31, 2020 and 2019 excludes the common stock equivalents of the following potentially dilutive securities because their inclusion would be anti-dilutive while the Company is in a net loss position:

Three months ended March 31,

The computation of basic and diluted net loss per share for the three and six months ended June 30, 2020 and 2019 excludes the common stock equivalents of the following potentially dilutive securities because their inclusion would be anti-dilutive while the Company is in a net loss position:

Six Months Ended June 30,

Vesting of restricted stock units

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Exercise of warrants associated with public offering

Exercise of warrants associated with direct placement

Recently Adopted Accounting Standards — In June 2016, the FASB issued ASU No.

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The adoption of this standard did not have a material impact on the Company's condensed consolidated financial statements.

In November 2018, the FASB issued ASU No.

2018-18, Collaborative Arrangements (Topic 808) to clarify when transactions between participants in a collaborative arrangement under ASC 808 are within the scope of the new revenue guidance when the collaborative arrangement participant is a customer.

ASU 2018-18 is effective for fiscal years beginning after December 15, 2020, and interim periods within fiscal years beginning after December 15, 2021.

Effective June 30, 2020, t he Company early adopted this pronouncement , as permitted, with no impact on the Company’s consolidated financial statements.

Recently Issued Accounting Standards — From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (FASB) or other standard setting bodies that are adopted by the Company as of the specified effective date.

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2019-12, Income Taxes (Topic 740) to simplify and reduce the cost of accounting for income taxes.

The pronouncement calls for removing exceptions to th e incremental approach for intraperiod tax allocations, exceptions to the requirement to recognize a deferred tax liability for equity method investment when a foreign subsidiary becomes an equity method investment, exception to the ability to not recogniz e a deferred tax liability for a foreign subsidiary when a foreign equity method investment becomes a subsidiary and exception to the general methodology for calculating income taxes in an interim period when a year-to-date loss exceeds the anticipated los s for the year.

The pronouncement calls for removing exceptions to the incremental approach for intraperiod tax allocations, exceptions to the requirement to recognize a deferred tax liability for equity method investment when a foreign subsidiary becomes an equity method investment, exception to the ability to not recognize a deferred tax liability for a foreign subsidiary when a foreign equity method investment becomes a subsidiary and exception to the general methodology for calculating income taxes in an interim period when a year-to-date loss exceeds the anticipated loss for the year.

ASU 2019-12 is effective for fiscal years beginning after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2022.

1 unchanged sentence

We are currently assessing the effect the adoption of this standard will have on the Company’s consolidated financial statements.

In November 2018, the FASB issued ASU No.

ASU 2018-18 is effective for fiscal years beginning after December 15, 2020, and interim periods within fiscal years beginning after December 15, 2021.

Early adoption is permitted.

The Company does not expect the adoption of this standard to have a material impact on the Company’s consolidated financial statements.

Accounts Receivable

Accounts receivable, net consists of the following (in thousands):

March 31, 2020

June 30, 2020

December 31, 2019

3 unchanged sentences

Accounts receivable, net

As of March 31, 2020 and December 31, 2019, the allowance for doubtful accounts was de minimis .

The Company had three wholesale distributors representing approximately 91% of accounts receivable as of March 31, 2020 and approximately 92% of gross sales for the three months ended March 31, 2020.

As of June 30, 2020 and December 31, 2019, the allowance for doubtful accounts was de minimis .

The Company had three wholesale distributors representing approximately 88 % of accounts receivable as of June 30, 2020 and approximately 85 % and 89 % of gross sales for the three and six months ended June 30, 2020, respectively.

Inventories consist of the following (in thousands):

March 31, 2020

June 30, 2020

December 31, 2019

3 unchanged sentences

Total inventory

Work-in-process and finished goods as of March 31, 2020 and December 31, 2019 include conversion costs and exclude the cost of insulin.

Work-in-process and finished goods as of June 30, 2020 and December 31, 2019 include conversion costs and exclude the cost of insulin.

All insulin inventory on hand was written off and the projected loss on the purchase commitment contract to purchase future insulin was accrued as of the end of 2015.

Raw materials inventory included $0.8 million of pre-launch inventory as of March 31, 2020 and December 31, 2019, which consisted of FDKP received in November 2019 that will be used to manufacture Afrezza under an enhanced manufacturing process for FDKP.

Raw materials inventory included $ 0.8 million of pre-launch inventory as of June 30, 2020 and December 31, 2019, which consisted of FDKP received in November 2019 that will be used to manufacture Afrezza under an enhanced manufacturing process for FDKP.

The Company expects to receive FDA approval of the new source of FDKP in mid-2021, after which the pre-launch raw materials inventory will be reclassified as raw materials inventory for use in the manufacturing of Afrezza.

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Inventory that was forecasted to become obsolete due to expiration is recorded in costs of goods sold in the accompanying condensed consolidated statements of operations.

For the three months ended March 31, 2020 there was an inventory write-off of $0.5 million as a result of this assessment.

There was no inventory write-off for the three months ended March 31, 2019.

For the six months ended June 30 , 2020 there w as an inventory write-off of $ 0.5 million as a result of this assessment.

T here w ere no inventory write-off s for the three months ended June 30, 2020 or the three and six months ended June 3 0 , 20 19 .

Property and Equipment

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Estimated Useful

March 31, 2020

June 30, 2020

December 31, 2019

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Total property and equipment, net

Depreciation expense related to property and equipment was as follows (in thousands):

Three Months Ended March 31,

Depreciation expense related to property and equipment for the three and six months ended June 30, 2020 and 2019 was as follows (in thousands):

Three Months Ended June 30,

Six Months Ended June 30,

Depreciation Expense

1 unchanged sentence

Accrued expenses and other current liabilities were comprised of the following (in thousands):

March 31, 2020

June 30, 2020

December 31, 2019

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Total accrued expenses and other current liabilities

Carrying amount of borrowings consist of the following (in thousands):

March 31, 2020

Included in salary and related expenses is $ 0.3 million of deferred social security taxes as permitted under the CARES Act.

The Company is permitted to defer the employer share of social security taxes otherwise owed on dates beginning March 27, 2020 and ending December 31, 2020.

Half of the total deferred payments are payable on December 31, 2021 and the remaining half are payable on December 31, 2022.

The amount of the deferral is based on wages paid from April through December 2020.

This deferral option is no longer available once the Company receives forgiveness for its PPP Loan as discussed in Note 6 — Borrowings.

Carrying amount of principal borrowings consist of the following (in thousands):

June 30, 2020

December 31, 2019

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Midcap Credit Facility

Senior notes (2020 notes and 2024 convertible notes)

Senior notes (December 2020 note and 2024 convertible notes)

Total debt — net carrying amount

The following table provides a summary of the Company’s debt and key terms:

March 31, 2020

June 30, 2020

December 31, 2019

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2024 convertible notes

$ 5.0 million

November 2024

June 2020 note

$ 2.6 million

December 2020 note

$ 2.6 million

December 2020

The maturities of our borrowings as of March 31, 2020 are as follows (in thousands):

$ 4.9 million

The maturities of our borrowings as of June 30, 2020 are as follows (in thousands):

Total principal payments

Unamortized discount

Debt issuance costs

Unamortized debt issuance costs

Total debt — net carrying amount

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The third advance of $ 25.0 million (“Tranche 3”) will be available to the Company until June 30, 2021, subject to the satisfaction of certain milestone conditions associated with Afrezza trailing net revenue and certain milestone conditions related to the Company’s collaboration with United Therapeutics (see Note 7 – Collaboration and Licensing Arrangements ).

As of March 31, 2020, the Company has recognized a $1.5 million impairment of the commitment asset, as it is unlikely that the milestone conditions related to Afrezza trailing net revenue will be achieved.

In addition, the COVID-19 pandemic is expected to negatively impact the milestone conditions related to the Company’s collaboration with United Therapeutics.

U namortized debt issuance costs was $0.8 million and unamortized debt discount was $0.3 million as of March 31, 2020.

In August 2019, the Company recognized a $ 1.5 million commitment asset and a $ 0.4 million other asset for deferred debt issuance costs related to the future funding commitments of the MidCap Credit Facility.

The Company determined that such milestone conditions related to Afrezza trailing net revenue were unlikely to be achieved.

As a result, the Company recognized an asset impairment of $ 0.4 million and $ 1.9 million for the three and six months ended June 30, 2020, respectively.

In December 2019, the Company entered into an amendment to the MidCap Credit Facility, pursuant to which the parties agreed to (i) amend the financial covenant relating to trailing twelve month minimum Afrezza Net Revenue (as defined in the MidCap Credit Facility) requirements, (ii) add a condition to the third advance of $ 25.0 million that requires the Company achieve certain amounts of Afrezza Net Revenue, and (iii) increase the exit fee from 6.00 % to 7.00 % of the principal amount of all term loans advanced to the Company under the MidCap Credit Facility.

Tranche 1 and, if borrowed, Tranche 3, each accrue interest at an annual rate equal to one-month LIBOR plus 6.75%, subjec t to a one-month LIBOR floor of 2.00%.

Tranche 1 and, if borrowed, Tranche 3, each accrue interest at an annual rate equal to one-month LIBOR plus 6.75 %, subject to a one-month LIBOR floor of 2.00 %.

Interest on each term loan advance is due and payable monthly in arrears.

Principal on the term loan advance under Tranche 1 is payable in 36 equal monthly installments beginning September 1, 2021, until paid in full on August 1, 2024, and principal on any term loan advance under Tranche 3 is payable beginning on the later of (i) September 1, 2021, and (ii) the first day of the first full calendar month immediately following such term loan advance, in an amount equal to the outstanding term loan advance in respect of Tranche 3 divided by the number of full calendar months remaining before August 1, 2024.

The Company has the option to prepay the term loans, in whole or in part, subject to early termination fees in an am ount equal to 3.00% of principal prepaid if prepayment occurs on or prior to the first anniversary of the closing date, 2.00% of principal prepaid if prepayment occurs after the first anniversary of the closing date but on or prior to the second anniversar y of the closing date, and 1.00% of principal prepaid if prepayment occurs after the second anniversary of the closing date and prior to or on the third anniversary of the closing date.

In connection with execution of the MidCap Credit Facility, the Compan y paid MidCap a $0.4 million origination fee.

The Company has the option to prepay the term loans, in whole or in part, subject to early termination fees in an amount equal to 3.00 % of principal prepaid if prepayment occurs on or prior to the first anniversary of the closing date, 2.00 % of principal prepaid if prepayment occurs after the first anniversary of the closing date but on or prior to the second anniversary of the closing date, and 1.00 % of principal prepaid if prepayment occurs after the second anniversary of the closing date and prior to or on the third anniversary of the closing date.

In connection with execution of the MidCap Credit Facility, the Company paid MidCap a $ 0.4 million origination fee.

The Company’s obligations under the MidCap Credit Facility are secured by a security interest on substantially all of its assets, including intellectual property.

The MidCap Credit Facility contains customary affirmative covenants and customary negative covenants limiting the Company’s ability and the ability of the Company’s subsidiaries to, among other things, dispose of assets, undergo a change in control, merge or consolidate, make acquisitions, incur debt, incur liens, pay dividends, repurchase stock and make investments, in each case subject to certain exceptions.

The MidCap Credit Facility contains customary affirmative covenants and customary negative covenants limiting the Company’s ability and the ability of the Company’s subsidiary to, among other things, dispose of assets, undergo a change in control, merge or consolidate, make acquisitions, incur debt, incur liens, pay dividends, repurchase stock and make investments, in each case subject to certain exceptions.

The Company must also comply with a financial covenant relating to trailing twelve month minimum Afrezza net revenue, tested on a monthly basis, and a minimum cash covenant of $ 15.0 million at all times, which will increase to $ 20.0 million following the funding of Tranche 3.

As of March 31, 2020, the Company was in compliance with the financial and minimum cash covenants.

As of June 30, 2020, the Company was in compliance with the financial and minimum cash covenants.

The MidCap Credit Facility also contains customary events of default relating to, among other things, payment defaults, breaches of covenants, a material adverse change, listing of the Company’s common stock, bankruptcy and insolvency, cross defaults with certain material indebtedness and certain material contracts, judgments, and inaccuracies of representations and warranties.

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The Company determined that these warrants met the criteria for equity classification and accounted for such warrants in additional paid-in capital.

Senior Notes — As of March 31, 2020 and December 31, 2019, there was $10.2 million principal amount of senior notes outstanding, respectively.

Senior Notes — As of June 30 , 2020 and December 31, 2019 , there was $ 7.6 million and $ 10.2 million , respectively, of principal amount of senior notes outstanding .

In August 2019, the Company entered into a privately-negotiated exchange agreement with the holder of the 5.75 % Convertible Senior Subordinated Exchange Notes due 2021 (the “2021 notes”), pursuant to which , among other things, the Company (i) repaid $ 1.5 million in cash to such holder, (ii) issued 4,017,857 shares of the Company’s common stock to such holder (at a conversion price of $ 1.12 per share), (iii) issued 5.75 % Convertible Senior Subordinated Exchange Notes due November 2024 (the “2024 convertible notes”) to such holder in the principal amount of $ 5.0 million and (iv) issued a $ 2.6 million note due June 2020 (the “June 2020 note”), a $ 2.6 million note due December 2020 (the “December 2020 note”, and together with the June 2020 note, the “2020 notes”) , all in exchange for the cancellation of the $ 18.7 million in principal amount of the 2021 notes.

The 2020 notes may be prepaid at any time on or prior to their respective maturity dates of June 30, 2020 and December 31, 2020 at the option of the Company.

In addition, the Company may elect to pay the 2020 notes at any time on or prior to their respective maturity dates, if certain conditions are met, in shares of the Company’s common stock at a price per share equal to the last reported sale price on the trading day immediately prior to the payment date.

On June 24, 2020, the Company prepaid the June 2020 note with the issuance of 1,235,094 shares of the Company’s common stock, in accordance with the terms of the June 2020 note.

The Company may elect to pay the December 2020 note at any time on or prior to their maturity date, if certain conditions are met, in shares of the Company’s common stock at a price per share equal to the last reported sale price on the trading day immediately prior to the payment date .

The 2024 convertible notes were issued pursuant to an indenture, dated as of August 6, 2019, between the Company and U.S.

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The 2024 convertible notes are the Company’s general, unsecured obligations, and are subordinated in right of payment to the indebtedness incurred pursuant to the MidCap Credit Facility.

The 2024 convertible notes rank equally in right of payment with the Company ’s other unsecured seni or debt.

The 2024 conver tible n otes accrue interest at the rate of 5.75% per year on the principal amount, payable semiannually in arrears on February 15 and August 15 of each year, beginning February 15, 2020, with interest accruing from August 6, 2019.

The 2024 convertible notes rank equally in right of payment with the Company’s other unsecured senior debt.

The 2024 convertible notes accrue interest at the rate of 5.75 % per year on the principal amount, payable semiannually in arrears on February 15 and August 15 of each year, beginning February 15, 2020, with interest accruing from August 6, 2019.

Interest on the 2024 convertible notes will be payable in cash or, at the option of the Company if certain conditions are met, in shares of the Company’s common stock at a price per share equal to the last reported sale price on the trading day immediately prior to the interest payment date.

The 2024 convertible notes will mature on the earlier of (i) November 4, 2024 or (ii) the 91 st day after the payment in full of, and termination and discharge of all obligations (other than contingent indemnity obligat ions) under the MidCap Credit Facility.

The 2024 convertible notes are convertible, at the option of the holder, at any time on or prior to the close of business on the business day immediately preceding the stated maturity date, into shares of the Company’s common stock at a conversion rate of 333.3333 shares per $ 1,000 principal amount of 2024 convertible notes, which is equal to a conversion price of approximately $ 3.00 per share.

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provided that with respect to interest accruing from and after January 1, 2021, the Company may, at its option, elect to pay any such interest on any interest payment date, if certain conditions are met, in shares of the Company’s common stock at a price per shall equal to the last reported sale price on the trading day immediately prior to the payment date.

The Mann Group non-convertible note will mature on the earlier of (i) November 3, 2024 or (ii) the 90th day after the repayment in full, and termi nation and discharge of all obligations (other than contingent indemnity obligations) under the MidCap Credit Facility.

The Mann Group non-convertible note will mature on the earlier of (i) November 3, 2024 or (ii) the 90th day after the repayment in full, and termination and discharge of all obligations (other than contingent indemnity obligations) under the MidCap Credit Facility.

Interest on the Mann Group non-convertible note will be payable in kind by adding the amount thereof to the principal amount;

provided that MannKind may, at its option, elect to pay any such interest on any interest payment date, if certain conditions are met, in shares of MannKind’s common stock at a price per shall equal to the last reported sale price on the trading day immediately pri or to the interest payment date.

Amortization of the premium and accretion of debt issuance costs related to all borrowings for the three months ended March 31, 2020 and 2019 are as follows (in thousands):

Three Months Ended March 31,

Amortization of debt discount

Accretion expense — debt issuance cost

PPP Loan – On April 10, 2020, the Company received the proceeds from the PPP Loan from JPMorgan Chase Bank, N.A., as lender, in the amount of approximately $ 4.9 million pursuant to the PPP of the CARES Act.

The PPP Loan matures on April 9, 2022 and bears interest at a rate of 0.98 % per annum.

On November 9, 2020 , the Company may be required to pay the lender $ 1.4 million of principal and interest, including six months of payments deferred in accordance with the terms of the PPP Loan, and equal monthly payments of principal and interest thereafter as required to fully amortize the remaining principal amount by April 9, 2022 .

The PPP Loan is evidenced by a promissory note dated April 9, 2020, which contains customary events of default relating to, among other things, payment defaults and breaches of representations and warranties.

The PPP Loan may be prepaid by the Company at any time prior to maturity with no prepayment penalties.

As of June 30, 2020, $ 2.9 million is included in short-term notes payable and $ 2.0 million is included in Paycheck Protection Program loan — long term on our condensed consolidated balance sheets.

All or a portion of the PPP Loan may be forgiven by the U.S.

Small Business Administration (“SBA”) upon application to the lender by the Company beginning 60 days but not later than 120 days after loan approval and upon documentation of expenditures in accordance with the SBA requirements.

Under the CARES Act, loan forgiveness is available for the sum of documented payroll costs, covered rent payments, covered interest and covered utilities during the 24-week period (or eight-week period at the Company’s option) beginning on the date of loan approval.

For purposes of the CARES Act, payroll costs exclude compensation of an individual employee in excess of $ 100,000 , prorated annually.

Not more than 40 % of the forgiven amount may be for non-payroll costs.

Forgiveness is reduced if full-time headcount declines, or if salaries and wages for employees with salaries of $ 100,000 or less annually are reduced by more than 25 %.

In the event the PPP Loan, or any portion thereof, is forgiven pursuant to the PPP, the amount forgiven is applied to outstanding principal.

Any unforgiven portion of the PPP Loan will be payable in accordance with the terms of the promissory note as described above.

The Company used all proceeds from the PPP Loan to retain employees, maintain payroll and make lease, interest and utility payments.

Amortization of the premium and accretion of debt issuance costs related to all borrowings for the three and six months ended June 30, 2020 and 2019 are as follows (in thousands):

Three Months Ended June 30,

Six Months Ended June 30,

Accretion of debt discount

Amortization of debt issuance cost

Amortization of debt premium

Milestone Rights — As of March 31, 2020 and December 31, 2019, the remaining Milestone Rights liability balance was $7.3 million, which was based on initial fair value estimates calculated using the income approach and reduced by milestone achievement payments made.

Milestone Rights — As of June 30, 2020 and December 31, 2019, the remaining Milestone Rights liability balance was $ 7.3 million, which was based on initial fair value estimates calculated using the income approach and reduced by milestone achievement payments made.

During the third quarter of 2019, the Company achieved the first Afrezza net sales milestone specified by the Milestone Rights.

The Company currently estimates that it will reach the next milestone in the fourth quarter of 2020, at which point the Company will be required to make a $5.0 million payment in the following quarter.

The Company currently estimates that it will reach the next milestone in the first quarter of 2021, at which point the Company will be required to make a $ 5.0 million payment in the following quarter.

The carrying value of the Milestone Rights liability related to this $5.0 million payment is approximately $ 1.3 million, which represents the fair value related to this payment that was determined in 2013 (the most recent measurement date).

Accordingly, approximately $1.3 million in value related to the next milestone payment was recorded in accrued expenses and other current liabilities and the remaining long-term portion of $5.9 million is included as Milestone Rights liability in the accompanying condensed consolidated balance sheets as of March 31, 2020.

The Milestone Right liability as of December 31, 2019 was $7.3 million.

Accordingly, approximately $1.3 million in value related to the next milestone payment was recorded in accrued expenses and other current liabilities and the remaining long-term portion of $ 5.9 million is included as Milestone Rights liability in the accompanying condensed consolidated balance sheets as of June 30, 2020.

The agreement with the Milestone Purchasers that provides for the Milestone Rights includes customary representations and warranties and covenants by the Company, including restrictions on transfers of intellectual property related to Afrezza.

2 unchanged sentences

Collaboration and Licensing Arrangements

Revenue from collaborations and services for the three months ended March 31, 2020 and 2019 are as follows (in thousands):

Three Months Ended March 31,

Revenue from collaborations and services for the three and six months ended June 30, 2020 and 2019 are as follows (in thousands):

Three Months Ended June 30,

Six Months Ended June 30,

UT License Agreement

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The Company is responsible for manufacturing clinical supplies and commercial supplies of TreT.

Under the terms of the UT License Agreement, the Company received an upfront payment of $45.0 million in October 2018 and two $12.5 million milestone payments in 2019.

The Company may receive additional milestone payments of up to $25.0 million upon the achievement of specified development targets.

Under the terms of the UT License Agreement, the Company received an upfront payment of $ 45.0 million in October 2018 and three $ 12.5 million milestone payments through the second quarter of 2020.

The Company may receive an additional milestone payment of $ 12.5 million upon the achievement of specified development targets.

The Company will also be entitled to receive low double-digit royalties on net sales of TreT.

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The Company determined that the key deliverables include the license, supply of product to be used in clinical development, and certain research services upon achievement of specified development targets.

Due to the specialized and unique nature of these services and their direct relationship with the license, the Company has determi ned that these deliverables represent one distinct bundle and thus, one performance obligation.

Due to the specialized and unique nature of these services and their direct relationship with the license, the Company has determined that these deliverables represent one distinct bundle and thus, one performance obligation.

The Company also determined that UT’s option to expand the scope of the products to include products with other active ingredients is not a material right, and thus, not a performance obligation at the onset of the agreement.

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Deferred revenue related to the UT License Agreement is being recognized in net revenue — collaborations over a 13-quarter period ending December 31, 2021, which represents the estimated period to satisfy the performance obligation.

As of March 31, 2020, the deferred revenue for the UT License Agreement consisted of $30.4 million, which was classified as a current liability.

As of June 30, 2020, the deferred revenue for the UT License Agreement consisted of $ 35.0 million, of which $ 31.9 million was classified as a current liability and $ 3.1 million was classified as long-term.

Deferred revenue is classified as part of current or long-term liability in the accompanying condensed consolidated balance sheets based on the Company’s estimate of the portion of the performance obligation that will be completed within the next 12 months, and includes payments received as well as payments receivable.

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A transaction price of $ 9.0 million was allocated to the product prototype and a transaction price of $ 1.0 million was allocated to engineering consulting services.

The revenue for the product prototype is recognized using an output method (based on project milestones achieved and surveys of performance completed to date).

The Company believes that this method best reflects the measure of progress toward complete satisfaction of the performance obligation.

The revenue for the product prototype was recognized using an output method (based on project milestones achieved and surveys of performance completed to date).

The Company believed that this method best reflected the measure of progress toward complete satisfaction of the performance obligation.

The revenue for the engineering consulting services was recognized using a ratable method until the obligation was satisfied.

The Company believes that this method best reflects the measure of progress toward complete satisfaction of the performance obligation.

As of March 31, 2020 the deferred revenue balance was $0.1 million, which was classified as a current liability in the accompanying condensed consolidated balance sheets.

The Company believed that this method best reflected the measure of progress toward complete satisfaction of the performance obligation.

The performance obligations for engineering consulting services and the product prototype were completed in April 2020 and June 2019, respectively.

Receptor Collaboration and License Agreement — In 2016, the Company entered into a collaboration and license agreement (the “CLA”) with Receptor Life Sciences, Inc.

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The remaining performance obligations are to provide certain technology transfer activities.

As of March 31, 2020, the deferred revenue balance was $0.2 million, which was classified as a current liability in the accompanying condensed consolidated balance sheets.

As of June 30, 2020, the deferred revenue balance was $ 0.1 million, which was classified as a current liability in the accompanying condensed consolidated balance sheets.

The additional payments referred to above represent variable consideration for which the Company has not recognized any revenue because it is uncertain that Receptor will be able to successfully develop, manufacture or sell product related to this license.

There was no change to the accounting for this contract as a result of the initial application of the ne w revenue guidance since (i) the receipt of such payments is highly susceptible to factors outside of the Company’s influence, (ii) the uncertainty regarding the receipt of these payments is not expected to be resolved for years, and (iii) the Company has limited experience with similar contracts .

There was no change to the accounting for this contract as a result of the initial application of the new revenue guidance since (i) the receipt of such payments is highly susceptible to factors outside of the Company’s influence, (ii) the uncertainty regarding the receipt of these payments is not expected to be resolved for years, and (iii) the Company has limited experience with similar contracts.

See Note 1 – Description of Business and Significant Accounting Policies for additional information on the Company’s revenue recognition accounting policy.

In 2017, the Company entered into a manufacturing and supply agreement with Receptor pursuant to which the Company agreed to provide certain raw materials and certain additional research and formulation consulting services to Receptor.

For the three months ended March 31, 2020 and 2019, the additional research and formulation services provided to Receptor were de minimis .

Biomm Supply and Distribution Agreement — In May 2017, the Company and Biomm S.A.

entered into a supply and distribution agreement for the commercialization of Afrezza in Brazil.

For the three and six months ended June 30, 2020 and 2019, the additional research and formulation services provided to Receptor were de minimis .

Biomm Supply and Distribution Agreement — In May 2017, the Company and Biomm entered into a supply and distribution agreement for the commercialization of Afrezza in Brazil.

Under this agreement, Biomm was responsible for pursuing regulatory approvals of Afrezza in Brazil, including from the Agência Nacional de Vigilância Sanitária (“ANVISA”) and, with respect to pricing matters, from the Camara de Regulação de Mercado de Medicamentos (“CMED”), both of which have now been received.

The Company sold $0.7 million of product to Biomm in the third quarter of 2019 to launch Afrezza in Brazil, which was recognized as net revenue — commercial product sales in the respective period.

Biomm commenced product sales in January 2020.

The Company sold $ 0.2 million of product to Biomm during the three and six months ended June 30, 2020, which was recognized as net revenue — commercial product sales.

There were no such product sales during the three and six months ended June 30, 2019.

Cipla License and Distribution Agreement — In May 2018 , the Company and Cipla Ltd.

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The Company also recognized $ 0.2 million as income tax expense for a payment made to the India tax authority in 2018.

As of March 31, 2020, the deferred revenue balance was $1.9 million, of which $0.1 million is classified as current and $1.8 million is classified as long term in the accompanying condensed consolidated balance sheets.

As of June 30, 2020, the deferred revenue balance was $ 1.9 million, of which $ 0.2 million is classified as current and $ 1.7 million is classified as long term in the accompanying condensed consolidated balance sheets.

AMSL Distribution Agreement — In May 2019, the Company entered into an exclusive marketing and distribution agreement with the AMSL Diabetes division of Australasian Medical & Scientific Ltd.

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The carrying amounts reported in the accompanying condensed consolidated financial statements for cash, accounts receivable, accounts payable, and accrued expenses and other current liabilities (excluding the Milestone Rights liability) approximate their fair value due to their relatively short maturities.

The fair value of the cash equivalents, MidCap Credit Facility, Mann Group promissory notes, 2024 convertible notes, 2020 notes, and Milestone Rights liabilities are disclosed below.

The fair value of the cash equivalents, MidCap Credit Facility, Mann Group promissory notes, 2024 convertible notes, June 2020 note, December 2020 note and Milestone Rights liabilities are disclosed below.

Cash Equivalents and Restricted Cash — Cash equivalents consist of highly liquid investments with original or remaining maturities of 90 days or less at the time of purchase that are readily convertible into cash.

As of March 31, 2020 and December 31, 2019, the Company held $38.9 million and $29.9 million, respectively, of cash and cash equivalents.

The Company held $0.3 million in restricted cash as of March 31, 2020 and December 31, 2019, which was comprised of money market funds.

As of June 30, 2020 and December 31, 2019, the Company held $ 63.2 million and $ 29.9 million, respectively, of cash and cash equivalents.

The Company held $ 0.3 million in restricted cash as of June 30, 2020 and December 31, 2019, which was comprised of money market funds.

Restricted cash is used to collateralize a letter of credit.

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The measurement of which is based on a market approach using quoted market values (Level 1 in the fair value hierarchy).

As of March 31, 2020 , the Company did not hold any short-term investments.

As of June 30, 2020, the Company did no t hold any short-term investments.

The fair value measurement of debt instruments is based on a discounted cash flow model and is sensitive to the change in yield (Level 3 in the fair value hierarchy ):

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Financial Liabilities — The following tables set forth the fair value of the Company’s financial instruments (in millions):

March 31, 2020

June 30, 2020

Carrying Value

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2024 convertible notes

June 2020 note

December 2020 note

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The Company then discounted the future expected payments at cost of debt with a term equal to the simulated time to payout based on cumulative sales.

Common and Preferred Stock

On May 21, 2020, the Company filed with the Secretary of State of the State of Delaware a Certificate of Amendment of its Amended and Restated Certificate of Incorporation to increase the authorized number of shares of the Company’s common stock from 280,000,000 to 400,000,000 shares.

As of June 30, 2020 and December 31, 2019, 228,927,505 and 211,787,573 shares of common stock, respectively, were issued and outstanding and no shares of preferred stock were outstanding.

In February 2018 , the Company entered into a controlled equity offering sales agreement (the “CF Sales Agreement”) with Cantor Fitzgerald & Co.

(“Cantor Fitzgerald”), as sales agent, pursuant to which the Company may offer and sell, from time to time, through Cantor Fitzgerald, shares of the Company’s common stock having an aggregate offering price of up to $ 50.0 million or such other amount as may be permitted by the CF Sales Agreement.

Under the CF Sales Agreement, Cantor Fitzgerald may sell shares by any method deemed to be an “at the market offering” as defined in Rule 415 under the Securities Act of 1933, as amended.

For the six months ended June 30, 2020, the Company sold an aggregate of 7,871,461 shares of the Company’s common stock at a weighted average purchase price of $ 1.64 per share for an aggregate gross proceeds of approximately $ 12.9 million pursuant to the CF Sales Agreement.

In December 2018, the Company entered into an underwriting agreement with Leerink Partners LLC relating to the issuance and sale in a public offering of 26,666,667 shares of the Company’s common stock and warrants to purchase up to an aggregate of 26,666,667 shares of the Company’s common stock (the “December warrants”) at a combined purchase price of $ 1.50 per share and accompanying warrant.

The shares of common stock and the December warrants were immediately separable.

The December warrants were immediately exercisable at issuance at a price of $ 1.60 per share and had an expiry date of December 26, 2019 .

On December 26, 2019, 11,583,333 December warrants expired unexercised and 7,250,000 remained available for purchase at a price of $ 1.60 per share, which were subsequently exercised in June 2020 .

On June 24, 2020, the Company prepaid the June 2020 note with the issuance of 1,235,094 shares of the Company’s common stock, in accordance with the terms of the June 2020 note (See Note 6 – Borrowings ).

Stock-Based Compensation Expense

Total stock-based compensation expense recognized in the accompanying condensed consolidated statements of operations for the three months ended March 31, 2020 and 2019 was as follows (in thousands):

Three Months Ended March 31,

Restricted stock units and options

Total stock-based compensation expense recognized in the accompanying condensed consolidated statements of operations for the three and six months ended June 30, 2020 and 2019 was as follows (in thousands):

Three Months Ended June 30,

Six Months Ended June 30,

RSUs and options

Employee stock purchase plan

Total stock compensation expense

During the three months ended March 31, 2020, the Company granted 230,000 restricted stock units to employees.

The restricted stock units had a weighted average grant date fair value of $1.25 per share and a primary vesting period of four years.

In addition, 42,067 restricted stock units were granted to non-employee directors with a weighted average grant date fair value of $1.17.

The restricted stock units awarded to non-employee directors vested immediately upon grant, but the underlying shares of common stock will not be delivered to an individual director until there is a separation of service, such as resignation, retirement or death.

During the three months ended March 31, 2020, the Company granted stock options to purchase an aggregate of 78,500 shares of common stock to certain employees at a weighted average exercise price of $1.25 per share.

The options vest over a four year period.

During 2020, the Company granted the following awards:

Three Months Ended

Six Months Ended

March 31, 2020

June 30, 2020

Employee awards:

Non-employee director awards:

Total awards:

RSUs had a weighted average grant date fair value of $ 1.25 per share and a primary vesting period of four years .

RSUs had a weighted average grant date fair value of $ 1.34 per share and a primary vesting period of four years .

Options had a weighted average exercise price of $ 1.25 per share and vest over a four year period.

The weighted average grant date fair value was $ 0.93 per share, as determined using a Black-Scholes option pricing model, with the following key assumptions:

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volatility of 93.83 %, and dividend yield of zero .

As of March 31, 2020, there was $8.0 million of unrecognized compensation expense related to options and performance options and $0.5 million of unrecognized compensation expense related to restricted stock units.

Options had a weighted average exercise price of $ 1.34 per share and vest over a four year period.

The weighted average grant date fair value was $ 0.99 per share, as determined using a Black-Scholes option pricing model, with the following key assumptions:

risk-free interest rate of 0.39 %;

expected life of approximately 5.67 years ;

volatility of 93.83 %, and dividend yield of zero .

RSUs had a weighted average grant date fair value of $ 1.17 per share and vested immediately upon grant, but the underlying shares of common stock will not be delivered until there is a separation of service, such as resignation, retirement or death.

RSUs had a weighted average grant date fair value of $ 1.34 per share and vested immediately upon grant, but the underlying shares of common stock will not be delivered until there is a separation of service, such as resignation, retirement or death.

As of June 30, 2020, there was $ 6.8 million of unrecognized compensation expense related to options and performance options and $ 3.2 million of unrecognized compensation expense related to RSUs.

For the options that are subject to performance conditions, the Company evaluates the probability that the performance conditions will be met and estimates the service period for recognition of the associated expense.

During the three months ended March 31, 2019, the Company issued 754,729 restricted stock units to employees.

Each such restricted stock award vested 100% in February 2020.

The grant date fair value of the restricted stock units was $1.49 per share.

During the three months ended March 31, 2019, the Company granted certain employees stock options to purchase an aggregate of 294,900 shares of common stock at a weighted average exercise price of $1.49 per share.

The options vest over a four year period.

The grant date fair value of these awards was $0.3 million with a weighted average grant date fair value of $1.06 per share, as determined using a Black-Scholes option pricing model.

Commitments and Contingencies

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Litigation — The Company is subject to legal proceedings and claims which arise in the ordinary course of its business.

As of March 31, 2020, the Company believes that the final disposition of such matters will not have a material adverse effect on the financial position, results of operations or cash flows of the Company and no accrual has been recorded.

As of June 30, 2020, the Company believes that the final disposition of such matters will not have a material adverse effect on the financial position, results of operations or cash flows of the Company and no accrual has been recorded.

The Company maintains liability insurance coverage to protect the Company’s assets from losses arising out of or involving activities associated with ongoing and normal business operations.

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LLC (“Sanofi”) to terminate a license and collaboration agreement (the “Sanofi License Agreement”) between the Company and Sanofi and the subsequent decline in the Company’s stock price, two motions were submitted to the district court at Tel Aviv, Economic Department for the certification of a class action against the Company and certain of its officers and directors.

In general, the complaints allege that the Company and certain of its officers and directors viola ted Israeli and U.S.

In general, the complaints allege that the Company and certain of its officers and directors violated Israeli and U.S.

securities laws by making materially false and misleading statements regarding the prospects for Afrezza, thereby artificially inflating the price of its common stock.

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law will apply to this case.

The plaintiff appealed this ruling, and following an oral hearing before the Supreme Cou rt of Israel, decided to withdraw his appeal.

The plaintiff appealed this ruling, and following an oral hearing before the Supreme Court of Israel, decided to withdraw his appeal.

Subsequently, in November 2018, the Company filed a motion to dismiss the certification motion.

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The Company will continue to vigorously defend against the claims advanced.

Contingencies — In July 2013, the Company also entered into an agreement with the Milestone Purchasers, pursuant to which the Company granted the Milestone Rights to receive payments up to $90.0 million upon the occurrence of specified strategic and sales milestones, $70.0 million of which remains payable upon achievement of such milestones (see Note 6 – Borrowings ).

Contingencies — In July 2013, the Company entered into an agreement with the Milestone Purchasers, pursuant to which the Company granted the Milestone Rights to receive payments up to $ 90.0 million upon the occurrence of specified strategic and sales milestones, $ 70.0 million of which remains payable upon achievement of such milestones (see Note 6 – Borrowings ).

Commitments — In July 2014, the Company entered into an Insulin Supply Agreement (the “Insulin Supply Agreement”) with Amphastar Pharmaceuticals, Inc.

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In August 2019, the Company and Amphastar amended the Insulin Supply Agreement to extend the term to 2026 and to restructure the annual purchase commitments.

As of March 31, 2020, the annual purchase requirements under the amended contract are as follows:

As of June 30, 2020, the annual purchase requirements under the amended contract are as follows:

Unless terminated earlier, the term of the Insulin Supply Agreement expires on December 31, 2026 and can be renewed for additional, successive two year terms upon 12 months’ written notice given prior to the end of the initial term or any additional two year term.

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In addition, the Company may terminate the Insulin Supply Agreement upon two years’ prior written notice to Amphastar without cause or upon 30 days’ prior written notice to Amphastar if a controlling regulatory authority withdraws approval for Afrezza, provided, however, in the event of a termination pursuant to either of the latter two scenarios, the provisions of the Insulin Supply Agreement require the Company to pay the full amount of all unpaid purchase commitments due over the initial term within 60 calendar days of the effective date of such termination.

Warrants — In December 2018, the Company issued warrants to purchase up to an aggregate of 26,666,667 shares of the Company’s common stock (the “December warrants”) at an exercise price of $1.60 per share.

As of March 31, 2020, 7,250,000 December warrants remain exercisable until June 26, 2020.

In August 2019, in connection with the MidCap Credit Facility, the Company issued warrants to purchase an aggregate of 1,171,614 shares of the Company’s common stock, at an exercise price equal to $1.11 per share, to the lenders.

Warrants – In August 2019, in connection with the MidCap Credit Facility, the Company issued warrants to purchase an aggregate of 1,171,614 shares of the Company’s common stock, at an exercise price equal to $ 1.11 per share, to the lenders.

Additional MidCap warrants will be issued if the Company accesses additional tranches under the MidCap Credit Facility (see Note 6 – Borrowings ).

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Upon adoption of ASC 842, the agreement was classified as an operating lease which resulted in recording right-of-use assets and lease liabilities of approximately $ 1.6 million and $ 1.9 million, respectively, as of January 1, 2019.

These am ounts included approximately $1.6 million of non-current other assets and approximately $0.6 million and $1.3 million of other current liabilities and operating lease liabilities, respectively.

These amounts included approximately $ 1.6 million of non-current other assets and approximately $ 0.6 million and $ 1.3 million of other current liabilities and operating lease liabilities, respectively.

Office Lease — In May 2017, the Company executed an office lease with Russell Ranch Road II LLC for the Company’s corporate headquarters in Westlake Village, California.

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These amounts included approximately $ 0.9 million and $ 2.6 million of other current liabilities and operating lease liabilities, respectively.

For the three months ended March 31, 2020, o perating lease costs under all operating leases, including office space and equipment, was approximately $0.4 million and cash paid was $0.4 million.

Variable lease costs for the three months ended March 31, 2020 were approximately $0.1 million.

The weighted average discount rate used was 7.5%.

The weighted-average remaining lease term for all operating leases was 2.7 years.

For the three months ended March 31, 2019, o perating lease costs under all operating leases, including office space and equipment, was approximately $0.5 million and cash paid was $0.5 million.

Variable lease costs for the three months ended March 31, 2019 were approximately $0.1 million.

The weighted average discount rate used was 7.2%.

The weighted-average remaining lease term for all operating leases was 3.8 years.

Future minimum office and vehicle lease payments as of March 31, 2020 and December 31, 2019, are as follows (in thousands):

March 31, 2020

For the three and six months ended June 30, 2020, operating lease costs under all operating leases, including office space and equipment, was approximately $ 0.4 million and $ 0.7 million, respectively.

Cash paid for all operating leases for the three and six months ended June 30, 2020 was $ 0.4 million and $ 0.9 million, respectively.

Variable lease costs were approximately $ 0.1 million and $ 0.2 million for the three and six months ended June 30, 2020, respectively.

For the three and six months ended June 30, 2019, operating lease costs under all operating leases, including office space and equipment, was approximately $ 0.3 million and $ 0.8 million, respectively.

Cash paid for all operating leases for the three and six months ended June 30, 2019 was $ 0.2 million and $ 0.7 million, respectively.

Variable lease costs were approximately $ 0.1 million and $ 0.2 million for the three and six months ended June 30, 2019, respectively.

June 30, 2020

December 31, 2019

Weighted average remaining lease term (in years)

Weighted average discount rate

Future minimum office and vehicle lease payments as of June 30, 2020 and December 31, 2019, are as follows (in thousands):

June 30, 2020

December 31, 2019

Management of the Company has evaluated the positive and negative evidence bearing upon the realizability of its deferred tax assets and concluded, in accordance with the applicable accounting standards, that net deferred tax assets should be fully reserved.

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The Company’s tax years since 2015 remain subject to examination by federal, state and foreign tax authorities.

Subsequ ent Event s

Paycheck Protection Program Loan – On April 10, 2020, the Company received the proceeds from a loan in the amount of approximately $4.9 million (the “PPP Loan”) from JPMorgan Chase Bank, N.A., as lender, pursuant to the Paycheck Protection Program (“PPP”) of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”).

The PPP Loan matures on April 9, 2022 and bears interest at a rate of 0.98% per annum.

Commencing November 9, 2020, the Company is required to pay the lender equal monthly payments of principal and interest as required to fully amortize by April 9, 2022 the principal amount outstanding on the PPP Loan as of October 9, 2020.

The PPP Loan may be prepaid by the Company at any time prior to maturity with no prepayment penalties.

All or a portion of the PPP Loan may be forgiven by the U.S.

Small Business Administration (“SBA”) upon application by the Company beginning 60 days but not later than 120 days after loan approval and upon documentation of expenditures in accordance with the SBA requirements.

Under the CARES Act, loan forgiveness is available for the sum of documented payroll costs, covered rent payments, covered interest and covered utilities during the eight week period beginning on the date of loan approval.

For purposes of the CARES Act, payroll costs exclude compensation of an individual employee in excess of $100,000, prorated annually.

Not more than 25% of the forgiven amount may be for non-payroll costs.

Forgiveness is reduced if full-time headcount declines, or if salaries and wages for employees with salaries of $100,000 or less annually are reduced by more than 25%.

In the event the PPP Loan, or any portion thereof, is forgiven pursuant to the PPP, the amount forgiven is applied to outstanding principal.

The Company intends to use all proceeds from the PPP Loan to retain employees, maintain payroll and make lease, interest and utility payments.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements