What changed in this filing

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Item 1. Financial Statements

2020-11-04 compared with 2020-08-05 · 233 added, 128 removed, 769 unchanged (32% of the section changed)

3 unchanged sentences

(In thousands, except per share data)

June 30, 2020

September 30, 2020

December 31, 2019

25 unchanged sentences

Total liabilities

Commitments and contingencies

Commitments and contingencies (Note 11)

Stockholders' deficit:

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

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

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

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

authorized, 230,922,513 and 211,787,573 shares issued and outstanding

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

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

Additional paid-in capital

7 unchanged sentences

(In thousands, except per share data)

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended

September 30,

Nine Months Ended

September 30,

Net revenue — commercial product sales

13 unchanged sentences

Interest expense on promissory notes

Gain on extinguishment of debt

Other income (expense)

1 unchanged sentence

Loss before provision for income taxes

Provision for income taxes

Benefit for income taxes

Net loss per share - basic and diluted

4 unchanged sentences

(In thousands)

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended

September 30,

Nine Months Ended

September 30,

Other comprehensive loss:

23 unchanged sentences

BALANCE, JUNE 30, 2019

Net issuance of common stock associated

with stock options and restricted stock

Issuance of common stock under Employee

Stock Purchase Plan

Stock-based compensation expense

Issuance of common stock pursuant to

conversion of Senior Convertible Notes

Issuance of common stock pursuant to

conversion of Facility Financing

Issuance of common stock pursuant to

conversion of Promissory Notes

Issuance of common stock in at-the-market

Issuance of warrants pursuant to Credit

Cumulative translation loss

BALANCE, SEPTEMBER 30, 2019

Comprehensive

9 unchanged sentences

Issuance cost associated with at the market

Cumulative translation loss

Write-off of cumulative translation loss

BALANCE, MARCH 31, 2020

13 unchanged sentences

BALANCE, JUNE 30, 2020

Stock-based compensation expense

Issuance of common stock associated

with debt interest payment

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 under Employee

Stock Purchase Plan

BALANCE, SEPTEMBER 30, 2020

See notes to condensed consolidated financial statements.

2 unchanged sentences

(In thousands)

Six Months Ended June 30,

Nine Months Ended September 30,

CASH FLOWS FROM OPERATING ACTIVITIES:

7 unchanged sentences

Loss (gain) on foreign currency translation

Payment-in-kind interest on promissory notes

Gain on extinguishment of debt

Changes in operating assets and liabilities:

6 unchanged sentences

Recognized loss on purchase commitments

Accrued interest on promissory notes

Net cash used in operating activities

3 unchanged sentences

Purchase of treasury bills

Purchase of limited liability company ownership interest

Net cash provided by (used in) investing activities

7 unchanged sentences

Proceeds from market price stock purchase plan

Proceeds from promissory notes

Proceeds from MidCap Credit Facility

Proceeds from senior convertible notes

Principal payments on promissory notes

Principal payments on senior convertible notes

Principal payments on facility financing obligation

Issuance cost associated with MidCap Credit Facility

Issuance cost associated with promissory notes

Net cash provided by (used in) financing activities

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS AND

RESTRICTED CASH

CASH AND CASH EQUIVALENTS AND RESTRICTED CASH,

BEGINNING OF PERIOD

CASH AND CASH EQUIVALENTS AND RESTRICTED CASH,

END OF PERIOD

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS AND RESTRICTED CASH

CASH AND CASH EQUIVALENTS AND RESTRICTED CASH, BEGINNING OF PERIOD

CASH AND CASH EQUIVALENTS AND RESTRICTED CASH, END OF PERIOD

SUPPLEMENTAL CASH FLOWS DISCLOSURES:

5 unchanged sentences

Payment of interest on senior convertible notes through common stock issuance

Payment on promissory notes through issuance of common stock

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

Payment of facility obligation through common stock issuance

Non-cash construction in progress and property and equipment

7 unchanged sentences

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

The results of operations for the three and nine months ended September 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.

1 unchanged sentence

Management considers many factors in selecting appropriate financial accounting policies, and in developing the estimates and assumptions that are used in the preparation of the financial statements.

Management must apply significant judgment in this process and the threat of the COVID-19 pandemic has increased the level of judgment used by management in developing these estimates and assumptions.

Management must apply significant judgment in this process and the COVID-19 pandemic has increased the level of judgment used by management in developing these estimates and assumptions.

The COVID-19 pandemic continues to rapidly evolve and the ultimate impact of the COVID-19 pandemic is highly uncertain and subject to change.

12 unchanged sentences

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 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.

As of September 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 $ 52.4 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 $ 65.0 million, of which $ 40.0 million was outstanding as of June 30, 2020 and December 31, 2019.

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 September 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.

1 unchanged sentence

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

In August 2020, the Company entered into an amendment to the MidCap Credit Facility, pursuant to which the parties agreed that no breach of the minimum Afrezza net revenue covenant for any trailing twelve-month reporting period between July 31, 2020 and November 30, 2020 will be deemed to occur if the Company delivers satisfactory evidence that it had unrestricted cash of at least $ 40.0 million.

Without this amendment, the Company would have been in violation of the minimum Afrezza net revenue covenant as of September 30, 2020.

After the November 30, 2020 reporting period, the amendment will expire and a breach of the minimum Afrezza net revenue covenant is probable.

The Company intends to amend the MidCap Credit Facility to address this probable covenant violation;

however, such amendment, if completed, would occur after the date of this report.

Accordingly, the $ 40.0 million outstanding principal under the MidCap Credit Facility was classified as current debt in the September 30, 2020 balance sheet, even though the 36 equal monthly principal payments remain payable over the period of September 1, 2021 through August 1, 2024 .

This debt will continue to be classified as current unless the MidCap Credit Facility is further amended or the debt is repaid.

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.

8 unchanged sentences

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 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”).

Changes were made to the condensed consolidated statements of stockholder’s deficit as of September 30, 2019, 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”).

Changes were also made to Note 10 — Stock-Based Compensation Expense to separately disclose the stock-based compensation expense related to the employee stock purchase plan from the expense for RSUs and options for the three and nine months ended September 30, 2019.

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.

17 unchanged sentences

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.

The cost of product associated with the free goods program is recognized as cost of goods sold in the condensed consolidated statements of operations.

Reserves for Variable Consideration — Revenues from product sales are recorded at the net sales price (transaction price), which includes estimates of variable consideration for which reserves are established.

5 unchanged sentences

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.

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 September 30, 2020 and, therefore, the transaction price was not reduced further during the three and nine months ended September 30, 2020.

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

12 unchanged sentences

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.

Reserves for chargebacks consist of credits that the Company expects to issue for units that remain in the distribution channel inventories at each reporting period-end that the Company expects will be sold to qualified healthcare providers, and chargebacks that Customers have claimed, but for which the Company has not yet issued a credit.

Reserves for chargebacks consist of credits that the Company expects to issue

for units that remain in the distribution channel inventories at each reporting period-end that the Company expects will be sold to qualified healthcare providers, and chargebacks that Customers have claimed, but for which the Company has not yet issued a credit.

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

29 unchanged sentences

If these milestones are not considered probable at the inception of the collaboration, the milestones will typically be recognized in one of two ways depending on the timing of when the milestone is achieved.

If the milestone is improbable at inception and subsequently deemed probable of achievement, such will be added to the transaction price, resulting in a cumulative adjustment to revenue.

If the milestone is improbable at inception and subsequently deemed probable of achievement, such will be added to the transaction price, resulting in a

cumulative adjustment to revenue.

If the milestone is achieved after the performance period has completed and all performance obligations have been delivered, the Company will recognize the milestone payment as revenue in its entirety in the period the milestone was achieved.

21 unchanged sentences

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.

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 notes payable and PPP Loan — long term.

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

6 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 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.

As of September 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):

June 30, 2020

September 30, 2020

December 31, 2019

5 unchanged sentences

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 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.

As of September 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 nine months ended September 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.

29 unchanged sentences

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 .

As a result, an asset impairment of $ 1.9 million was recognized during the second quarter of 2020 and is reflected in the Company’s condensed consolidated statement of operations .

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

4 unchanged sentences

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.

The liability balance of the recognized loss on insulin purchase commitments was $ 94.8 million and $ 92.0 million as of September 30, 2020 and December 31, 2019, respectively.

No new contracts were identified in the first nine 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 June 30, 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 September 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.

8 unchanged sentences

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

As of September 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.

23 unchanged sentences

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.

Stock-Based Compensation — Share-based payments to employees, including grants of stock options, RSUs, performance-based non-qualified stock option awards (“PNQ”), restricted stock units with market conditions (“Market RSUs”) 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.

5 unchanged sentences

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 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

The computation of basic and diluted net loss per share for the three and nine months ended September 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:

Nine Months Ended September 30,

RSUs and Market RSUs (1)

Employee stock purchase plan

Exercise of common stock options

Conversion of 2024 convertible notes into common stock

Conversion of Mann Group convertible note into common stock

Exercise of common stock warrants

Exercise of warrants associated with Midcap Credit Facility

Exercise of warrants associated with public offering

Common stock options and PNQs

2024 convertible notes

Mann Group convertible note

Common stock warrants

Warrants associated with Midcap Credit Facility

Warrants associated with public offering

Market RSUs are included at the maximum share delivery percentage (see Note 10 — Stock-Based Compensation Expense).

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

6 unchanged sentences

ASU 2018-18 is effective for fiscal years beginning after December 15, 2019, 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.

The Company adopted this pronouncement in 2020 with no impact on the 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.

3 unchanged sentences

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.

ASU 2019-12 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020.

Early adoption is permitted.

2 unchanged sentences

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

June 30, 2020

September 30, 2020

December 31, 2019

3 unchanged sentences

Accounts receivable, net

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.

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

The Company had three wholesale distributors representing approximately 87 % of accounts receivable as of September 30, 2020 and approximately 83 % and 87 % of gross sales for the three and nine months ended September 30, 2020, respectively.

Inventories consist of the following (in thousands):

June 30, 2020

September 30, 2020

December 31, 2019

3 unchanged sentences

Total inventory

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

Work-in-process and finished goods as of September 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 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.

Raw materials inventory included $ 0.8 million of pre-launch inventory as of September 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 2022, after which the pre-launch raw materials inventory will be reclassified as raw materials inventory for use in the manufacturing of Afrezza.

The Company analyzed its inventory levels to identify inventory that may expire or has a cost basis in excess of its estimated realizable value.

1 unchanged sentence

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 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 .

For the nine months ended September 30, 2020 there was an inventory write-off of $ 0.5 million as a result of this assessment.

There were no inventory write-offs for the three months ended September 30, 2020 or the three and nine months ended September 30, 2019.

Property and Equipment

1 unchanged sentence

Estimated Useful

June 30, 2020

September 30, 2020

December 31, 2019

6 unchanged sentences

Total property and equipment, net

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 related to property and equipment for the three and nine months ended September 30, 2020 and 2019 was as follows (in thousands):

Three Months Ended

September 30,

Nine Months Ended

September 30,

Depreciation Expense

1 unchanged sentence

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

June 30, 2020

September 30, 2020

December 31, 2019

11 unchanged sentences

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.

This deferral option is no longer available if 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

September 30, 2020

December 31, 2019

3 unchanged sentences

Total debt — net carrying amount

Less current portion of long-term debt

Long-term debt

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

June 30, 2020

September 30, 2020

December 31, 2019

Interest Rate

Annual Interest Rate

Maturity Date

24 unchanged sentences

$ 4.9 million

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

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

Total principal payments

2 unchanged sentences

Total debt — net carrying amount

Current Portion of Long-Term Debt — As of September 30, 2020, the current portion of long-term debt was $ 45.4 million and consisted of $ 40.0 million of the MidCap Credit Facility, $ 3.5 million of the PPP Loan and $ 2.6 million of the December 2020 note.

MidCap Credit Facility — In August 2019, the Company closed the MidCap Credit Facility, which provides a secured term loan facility with an aggregate principal amount of up to $ 75.0 million.

4 unchanged sentences

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.

As a result, the Company recognized an asset impairment of $ 1.9 million during the second quarter of 2020.

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.

Without this amendment, the Company would have been in violation of the minimum Afrezza net revenue covenant as of September 30, 2020.

After the November 30, 2020 reporting period, the amendment will expire and a breach of the minimum Afrezza net revenue covenant is probable.

The Company intends to amend the MidCap Credit Facility to address this probable covenant violation;

however, such amendment, if completed, would occur after the date of this report.

This debt will continue to be classified as current unless the MidCap Credit Facility is further amended or the debt is repaid.

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 %.

5 unchanged sentences

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

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, and $ 20.0 million at all times following the funding of Tranche 3.

For any trailing twelve-month reporting period between July 31, 2020 and November 30, 2020, the minimum Afrezza net revenue test will be deemed to occur if the Company delivers satisfactory evidence that it had unrestricted cash of at least $ 40.0 million.

As of September 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.

6 unchanged sentences

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

Senior Notes — As of September 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.

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 .

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, pursuant to the Company’s election and in accordance with the terms of the June 2020 note.

On October 9, 2020, the Company prepaid the December 2020 note with the issuance of 1,377,356 shares of the Company’s common stock, pursuant to the Company’s election and in accordance with the terms of the December 2020 note .

The number of shares issued for the prepayments on June 24, 2020 and October 9, 2020 were determined based on the Company’s closing stock price on the settlement date.

As a result of the prepayment of the December 2020 note on October 9, 2020, the Company recognized a de minimis amount of loss on extinguishment related to unamortized debt discount.

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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Notwithstanding the foregoing, the Indenture provides that, to the extent the Company elects, the sole remedy for an event of default relating to certain failures by the Company to comply with certain reporting covenants in the Indenture will, for the first 180 days after such event of default, consist exclusively of the right to receive additional interest on the 2024 convertible notes.

The 2024 convertible notes also contain certain cross default provisions related to other debt obligations.

If the Company undergoes certain fundamental changes, except in certain circumstances, each holder of 2024 convertible notes will have the option to require the Company to repurchase all or any portion of that holder’s 2024 convertible notes.

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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.

Small Business Administration (“SBA”) upon application to the lender by the Company beginning 60 days after loan approval, but not later than ten months after the end of the Company’s covered period, and upon documentation of expenditures in accordance with the SBA requirements.

Principal and interest payments can be deferred up to ten months after the end of the Company’s covered period unless the Company is notified earlier of its loan forgiveness status.

In the event the SBA does not authorize loan forgiveness, the deferred principal and interest will be payable to the lender and the Company will then make equal monthly payments as required to fully amortize the remaining principal amount by April 9, 2022 .

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.

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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,

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

Three Months Ended

September 30,

Nine Months Ended

September 30,

Accretion of debt discount

1 unchanged sentence

Amortization of debt premium

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.

Milestone Rights — As of September 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.

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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 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.

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Collaboration and Licensing Arrangements

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,

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

Three Months Ended

September 30,

Nine Months Ended

September 30,

UT License Agreement

UT Research Agreement

Cipla distribution agreement

Cipla License and Distribution Agreement

Biomm Distribution Agreement

Total revenue from collaborations and services

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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 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.

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 third quarter of 2020.

The Company expects to 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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Each such optioned product would be subject to UT’s payment to the Company of up to $ 40.0 million in additional option exercise and development milestone payments, as well as a low double-digit royalty on net sales of any such product.

During the third quarter of 2020, the Company sold $ 0.4 million of clinical supplies to UT for use in their clinical study, which was recognized as deferred revenue in the accompanying condensed consolidated balance sheet.

The Company recognizes revenue on a ratable basis from October 2018 through December 2021;

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The consideration for the option will be accounted for upon exercise of the option.

The Company expects to complete the activities specified in the development plan and to achieve the remaining milestone events for total consideration of approximately $ 101.4 million, which includes an upfront payment, four milestone payments and various pass-through costs.

The Company expects to complete the activities specified in the development plan and to achieve the remaining milestone event for total consideration of approximately $ 102.6 million, which includes an upfront payment, four milestone payments, various pass-through costs and payments for clinical supplies.

Future commercial supply remains at UT’s option and is valued at a stand-alone selling price and, therefore, is not accounted for under the current arrangement.

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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 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.

As of September 30, 2020, the deferred revenue for the UT License Agreement consisted of $ 28.7 million, which was classified as current.

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.

United Therapeutics Research Agreement — In September 2018, the Company and UT also entered into a research agreement (“UT Research Agreement”) for the conduct of research and consulting services in connection with multiple potential products, including evaluating the feasibility of preparing a dry powder formulation of a compound for the treatment of pulmonary hypertension outside the scope of the UT License Agreement.

The total consideration for the UT License Agreement, includes $ 1.2 million related to the manufacturing of clinical supplies, which was included in the current portion of deferred revenue on our condensed consolidated balance sheet as of September 30, 2020.

Also associated with the clinical supplies was a contract asset of $ 0.8 million and an account receivable of $ 0.4 million which are included in prepaid expenses and other current assets and accounts receivable, net, respectively, on our condensed consolidated balance sheet as of September 30, 2020.

the scope of the UT License Agreement.

In addition, UT, at its option, may obtain a license to develop, manufacture and commercialize products based on specified compounds within the drug classes covered by the UT Research Agreement.

Each specified compound advanced into development and commercialization under such a license would be subject to the payment to the Company of additional milestone payments of up to $ 30.0 million and a low double-digit royalty on net sales of such products.

In connection with the UT Research Agreement, the Company received an upfront payment of $ 10.0 million in September 2018.

In connection with the UT Research Agreement, t he Company received an upfront payment of $ 10.0 million in September 2018.

At the inception of the UT Research Agreement, the Company identified two distinct performance obligations.

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

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.

As of September 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.

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

For the three and nine months ended September 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.

1 unchanged sentence

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.

In September 2019, the Company delivered its first shipment of Afrezza to Biomm and recorded it as net revenue — commercial product sales for $ 0.7 million, in advance of the planned launch of the product in Brazil by Biomm.

During the second quarter of 2020, the Company sold $ 0.2 million of product to Biomm.

There were no sales to Biomm in the third quarter of 2020.

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

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The Company is responsible for supplying Afrezza to Cipla.

The Company has the potential to receive certain additional regulatory milestone payments, minimum purchase commitment revenue and royalties on Afrezza sales in India once cumulative gross sales have reached a specified threshold.

The Company has the

potential to receive an additional regulatory milestone payment, minimum purchase commitment revenue and royalties on Afrezza sales in India once cumulative gross sales have reached a specified threshold.

The nonrefundable licensing fee was recorded in deferred revenue and is being recognized in net revenue – collaborations over 15 years, representing the estimated period to satisfy the performance obligation.

The additional milestone payments represent variable consideration for which the Company has not recognized any revenue because of the uncertainty of obtaining marketing approval.

As of September 30, 2020, the deferred revenue balance was $ 1.8 million, of which $ 0.1 million is classified as current and $ 1.7 million is classified as long term in the accompanying condensed consolidated balance sheets.

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

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.

The Company received a tax refund from the India tax authority in October 2020 and recognized an income tax benefit and receivable for $ 0.2 million in the accompanying condensed consolidated financial statements as of September 30, 2020.

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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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 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.

As of September 30, 2020 and December 31, 2019, the Company held $ 52.4 million and $ 29.9 million, respectively, of cash and cash equivalents.

The Company held $ 0.3 million in restricted cash as of September 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 June 30, 2020, the Company did no t hold any short-term investments.

As of September 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):

June 30, 2020

September 30, 2020

Carrying Value

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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.

As of September 30, 2020 and December 31, 2019, 230,922,513 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.

1 unchanged sentence

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.

For the nine months ended September 30, 2020, the Company sold an aggregate of 9,401,827 shares of the Company’s common stock at a weighted average purchase price of $ 1.66 per share for an aggregate gross proceeds of approximately $ 15.6 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.

2 unchanged sentences

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 ).

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.

On October 9, 2020, the Company prepaid the December 2020 note with the issuance of 1,377,356 shares of the Company’s common stock, in accordance with the terms of the December 2020 note.

The number of shares issued for the prepayments on June 24, 2020 and October 9, 2020 were determined based on the Company’s closing stock price on the settlement date.

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 and six months ended June 30, 2020 and 2019 was as follows (in thousands):

Three Months Ended June 30,

Six Months Ended June 30,

On May 16, 2018, the Company adopted the 2018 Equity Incentive Plan (the “2018 Plan”) as the successor to and continuation of the 2013 Equity Incentive Plan (the “2013 Plan”).

The 2018 Plan initially consisted of 12,000,000 new shares plus the number of unallocated shares remaining available for grant for new awards under the 2013 Plan.

In May 2020, the 2018 Plan was amended to increase the number of shares of common stock that may be issued under the 2018 Plan by 12,500,000 shares.

Effective upon the approval of the 2018 Plan by the Company’s stockholders in May 2018, no additional awards have been or may be granted under the 2013 Plan.

Any Prior Plans’ Returning Shares will increase the number of shares issuable under the 2018 Plan.

The “Prior Plans’ Returning Shares” are shares subject to outstanding stock awards granted under the 2013 Plan or the 2004 Equity Incentive Plan (collectively, “Prior Plans”) that, from and after the effective date of the 2018 Plan, (i) expire or terminate for any reason prior to exercise or settlement, (ii) are forfeited, cancelled or otherwise returned to the Company because of the failure to meet a contingency or condition required for the vesting of such shares, or (iii) other than with respect to outstanding stock options and stock appreciation rights granted under the Prior Plans with an exercise or strike price of at least 100 % of the fair market value of the underlying common stock on the date of grant, are reacquired or withheld (or not issued) by the Company to satisfy a tax withholding obligation in connection with a stock award.

The 2018 Plan provides for the granting of stock awards including stock options and restricted stock units to employees, directors and consultants.

The Company’s board of directors or its compensation committee determines eligibility, vesting schedules and criteria, and exercise prices for stock awards granted under the 2018 Plan.

Options and restricted stock unit awards under the 2018 Plan or the Prior Plans expire not more than ten years from the date of the grant and are exercisable upon vesting.

Stock options that vest over time generally vest over four years .

Current time-based vesting stock option grants vest and become exercisable at the rate of 25 % after one year and ratably on a monthly basis over a period of 36 months thereafter.

The Company also issues PNQ awards with performance conditions.

For PNQs, the Company evaluates the probability that the performance conditions will be met and estimates

the service period for recognition of the associated expense.

Restricted stock units with time-based vesting generally vest at a rate of 25 % per year over four years with consideration satisfied by service to the Company.

The Company also issues restricted stock units with market conditions.

The grant date fair value and the effect of the market conditions was estimated using a Monte Carlo valuation.

The resulting stock-based compensation expense will be recognized over the service period regardless of whether the market conditions are achieved, as long as the service condition is rendered .

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

Three Months Ended September 30,

Nine Months Ended

September 30,

RSUs and options

2 unchanged sentences

During 2020, the Company granted the following awards:

Three Months Ended

Six Months Ended

March 31, 2020

June 30, 2020

September 30,

Employee awards:

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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.

Market RSUs had a grant date fair value of $ 3.77 per share and will vest on May 22, 2023 provided that the closing price of the Company’s common stock on such vesting date is not less than the closing price on August 27, 2020.

The number of shares delivered on the vesting date is determined by the percentile ranking of MannKind total shareholder return (TSR) over the period from August 27, 2020 until May 22, 2023 related to the TSR of the Russell 3000 Pharmaceutical & Biotechnology Index over the same period, as follows:

less than 25th percentile= 0 % of target, 25th percentile= 50 % of target, 50th percentile= 100 % of target, 75th percentile= 200 % percent of target, 90th percentile or higher= 300 % maximum.

Payout values will be interpolated between the percentile rankings above.

RSUs had a weighted average grant date fair value of $ 1.70 per share and a primary vesting period of four years .

As of September 30, 2020, there was $ 5.6 million of unrecognized stock-based compensation expense related to options and PNQs, which is expected to be recognized over a weighted average period of approximately 2.2 years, and $ 5.8 million and $ 5.7 million of unrecognized stock-based compensation expense related to RSUs and Market RSUs, respectively, which is expected to be recognized over a weighted average period of approximately 3.7 and 2.6 years, respectively.

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 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.

As of September 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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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 ).

The fair value of the Milestone Rights is recorded in the condensed consolidated balance sheet, including $ 1.3 million in accrued expenses and other current liabilities and $ 5.9 million in milestone rights and other liabilities.

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

2 unchanged sentences

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

As of September 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.

The Company and Amphastar each have normal and customary termination rights, including termination for a material breach that is not cured within a specific time frame or in the event of liquidation, bankruptcy or insolvency of the other party.

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.

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 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.

5 unchanged sentences

During 2019, 29 vehicles were removed from the fleet, resulting in a fleet size of 90 vehicles.

An additional vehicle was removed from the fleet in 2020.

The revised monthly payment inclusive of maintenance fees, insurance and taxes is $ 65,000 .

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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 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

For the three and nine months ended September 30, 2020, operating lease costs under all operating leases, including office space and equipment, was approximately $ 0.4 million and $ 1.1 million, respectively.

Cash paid for all operating leases for the three and nine months ended September 30, 2020 was $ 0.5 million and $ 1.3 million, respectively.

Variable lease costs were approximately $ 0.1 million and $ 0.3 million for the three and nine months ended September 30, 2020, respectively.

For the three and nine months ended September 30, 2019, operating lease costs under all operating leases, including office space and equipment, was approximately $ 0.4 million and $ 1.1 million, respectively.

Cash paid for all operating leases for the three and nine months ended September 30, 2019 was $ 0.5 million and $ 1.3 million, respectively.

Variable lease costs were approximately $ 0.1 million and $ 0.3 million for the three and nine months ended September 30, 2019, respectively.

September 30, 2020

December 31, 2019

1 unchanged sentence

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

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

September 30, 2020

December 31, 2019

2 unchanged sentences

Therefore, no reserves for uncertain income tax positions have been recorded pursuant to this guidance.

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

The Company’s tax years since 2016 and 2015 remain subject to examination by federal and state tax authorities, respectively.

The Company has recorded an income tax benefit of $ 0.2 million for the three and nine months ended September 30, 2020 for an effective tax rate of 1.90 % and 0.70 % respectively, compared to zero effective tax rate and tax benefit for the same periods in the prior year.

The income tax rates for the three and nine months ended September 30, 2020 diverge from the federal statutory rate due to the full valuation allowance offsetting the Company’s net deferred tax assets and a discrete benefit of $ 0.2 million related to refunded foreign withholding taxes paid in 2018.

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