MANNKIND CORP 10-K

Item 9A. Controls and Procedures Evaluation of Disclosure Controls and Procedures We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our periodic and current reports that we file with the Securities and Exchange Commission (“SEC”) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and our Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating our disclosure controls and procedures, we and our management recognize that there are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their desired control objectives. Additionally, in evaluating and implementing possible controls and procedures, our management was required to apply its reasonable judgment. As required by Rule 13a-15 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), we carried out an evaluation under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer, of the effectiveness of our disclosure controls and procedures as of December 31, 2020. Based upon this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of December 31, 2020. Management’s Report on Internal Control over Financial Reporting Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rule 13a-15(f) under the Exchange Act. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may not operate effectively because of changes in conditions such as replacing consulting resources with permanent personnel or that the degree of compliance with the policies or procedures may deteriorate. Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2020. In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in the Internal Control-Integrated Framework (2013 Framework). Based on this assessment, our management concluded that, as of December 31, 2020, our internal control over financial reporting was effective based on those criteria. Changes in Internal Control over Financial Reporting An evaluation was also performed under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of any changes in our internal control over financial reporting that occurred during our last fiscal quarter and that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. That evaluation did not identify any change in our internal control over financial reporting that occurred during our latest fiscal quarter and that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. Item 9B. Other Information. None. 47 PART III Item 10. Directors, Executive Officers and Corporate Governance. (a) Executive Officers — For information regarding the identification and business experience of our executive officers, see “Information about our Executive Officers” in Part I, Item 1 of this Annual Report on Form 10-K. (b) Directors — The information required by this Item regarding the identification and business experience of our directors and corporate governance matters will be contained in the section entitled “Proposal 1 — Election of Directors” and “Corporate Governance Principles and Board and Committee Matters” in our definitive proxy statement for our 2021 Annual Meeting of Stockholders (the “Proxy Statement”), to be filed with the SEC on or before April 30, 2021, and is incorporated herein by reference. We have adopted a Code of Business Conduct and Ethics Policy that applies to our directors and employees, including our principal executive officer, principal financial officer, principal accounting officer or controller, and have posted the text of the policy on our website ( www.mannkindcorp.com ) in connection with “Investors” materials. In addition, we intend to promptly disclose on our website (i) the nature of any amendment to the policy that applies to our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions and (ii) the nature of any waiver, including an implicit waiver, from a provision of the policy that is granted to one of these specified individuals, the name of such person who is granted the waiver and the date of the waiver, to the extent any such waiver is required to be disclosed pursuant to the rules and regulations of the SEC. Item 11. Executive Compensation The information required by this Item will be set forth under the caption “Executive Compensation,” “Compensation of Directors,” “Compensation Committee Interlocks and Insider Participation” and “Compensation Committee Report” in the Proxy Statement, and is incorporated herein by reference. Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters The information required by this Item will be set forth under the captions “Security Ownership of Certain Beneficial Owners and Management” and “Securities Authorized for Issuance under Equity Compensation Plans” in the Proxy Statement, and is incorporated herein by reference. Item 13. Certain Relationships and Related Transactions, and Director Independence The information under the caption “Certain Transactions” and “Corporate Governance Principles and Board and Committee Matters” in the Proxy Statement is incorporated herein by reference. Item 14. Principal Accountant Fees and Services The information required by this Item will be set forth under the caption “Principal Accounting Fees and Services” and “Pre-Approval Policies and Procedures” in the Proxy Statement and is incorporated herein by reference. With the exception of the information specifically incorporated by reference from the Proxy Statement in this Annual Report on Form 10-K, the Proxy Statement shall not be deemed to be filed as part of this report. Without limiting the foregoing, the information under the captions “Report of the Audit Committee of the Board of Directors” in the Proxy Statement is not incorporated by reference. 48 PART IV Item 15. Exhibits and Financial Statement Schedules (a) The following documents are filed as part of, or incorporated by reference into, this Annual Report on Form 10-K: (1)(2) Financial Statements and Financial Statement Schedules. The following Financial Statements of MannKind Corporation, Financial Statement Schedules and Report of Independent Registered Public Accounting Firm are included in a separate section of this report beginning on page 55: Report of Independent Registered Public Accounting Firm 55 Consolidated Balance Sheets 57 Consolidated Statements of Operations 58 Consolidated Statements of Comprehensive Loss 59 Consolidated Statements of Stockholders’ Deficit 60 Consolidated Statements of Cash Flows 61 Notes to Consolidated Financial Statements 62 All financial statement schedules have been omitted because the required information is not applicable or not present in amounts sufficient to require submission of the schedule, or because the information required is included in the consolidated financial statements or the notes thereto. (3) Exhibits. The exhibits listed under Item 15(b) hereof are filed or furnished with, or incorporated by reference into, this Annual Report on Form 10-K. Each management contract or compensatory plan or arrangement is identified separately in Item 15(b) hereof. (b) Exhibits. The following exhibits are filed or furnished as part of, or incorporated by reference into, this Annual Report on Form 10-K: Exhibit Number Description of Document 2.1 Purchase Agreement, dated December 7, 2020 by and among the Company, the Acquired Company, the Sellers and the Securityholders’ Representative (incorporated by reference to Exhibit 2.1 to MannKind’s Current Report on Form 8-K (File No. 000-50865), filed with the SEC on December 7, 2020). 3.1 Amended and Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.1 to MannKind’s Quarterly Report on Form 10-Q (File No. 000-50865), filed with the SEC on August 9, 2016). 3.2 Certificate of Amendment of Amended and Restated Certificate of Incorporation of MannKind Corporation (incorporated by reference to Exhibit 3.1 to MannKind’s Current Report on Form 8-K (File No. 000-50865), filed with the SEC on March 2, 2017). 3.3 Certificate of Amendment of Amended and Restated Certificate of Incorporation of MannKind Corporation (incorporated by reference to Exhibit 3.1 to MannKind’s Current Report on Form 8-K (File No. 000-50865), filed with the SEC on December 13, 2017). 3.4 Certificate of Amendment of Amended and Restated Certificate of Incorporation of MannKind Corporation (incorporated by reference to Exhibit 3.1 to MannKind’s Current Report on Form 8-K (File No. 000-50865), filed with the SEC on May 27, 2020). 3.5 Amended and Restated Bylaws (incorporated by reference to Exhibit 3.2 to MannKind’s Current Report on Form 8-K (File No. 000-50865), filed with the SEC on May 27, 2020). 4.1 Reference is made to Exhibits 3.1 , 3.2 , 3.3 , 3.4 and 3.5 . 4.2 Form of common stock certificate (incorporated by reference to Exhibit 4.2 to MannKind’s Annual Report on Form 10-K (File No. 000-50865), filed with the SEC on March 16, 2017). 4.3 Description of Common Stock. 4.4 Milestone Rights Purchase Agreement, dated as of July 1, 2013, by and among MannKind, Deerfield Private Design Fund II, L.P. and Horizon Santé FLML SÁRL (incorporated by reference to Exhibit 99.3 to MannKind’s Current Report on Form 8-K (File No. 000-50865), filed with the SEC on July 1, 2013). 4.5 Form of Warrant to Purchase Stock issued to MidCap Financial Trust on August 6, 2019 (incorporated by reference to Exhibit 4.1 to MannKind’s Current Report on Form 8-K (File No. 000-50865), filed with the SEC on August 7, 2019). 4.6 Form of 5.75% Convertible Senior Subordinated Exchange Notes Due 2024 (incorporated by reference to Exhibit 4.2 to MannKind’s Current Report on Form 8-K (File No. 000-50865), filed with the SEC on August 7, 2019). 4.7 Indenture, dated as of August 6, 2019, by and between MannKind Corporation and U.S. Bank National Association (incorporated by reference to Exhibit 4.3 to MannKind’s Current Report on Form 8-K (File No. 000-50865), filed with the SEC on August 7, 2019). 49 Exhibit Number Description of Document 4.8 Convertible Promissory Note made by MannKind Corporation in favor of The Mann Group LLC, dated August 6, 2019 (incorporated by reference to Exhibit 4.6 to MannKind’s Current Report on Form 8-K (File No. 000-50865), filed with the SEC on August 7, 2019). 4.9 Promissory Note made by MannKind Corporation in favor of The Mann Group LLC, dated August 6, 2019 (incorporated by reference to Exhibit 4.7 to MannKind’s Current Report on Form 8-K (File No. 000-50865), filed with the SEC on August 7, 2019). 4.10 Promissory Note, dated April 9, 2020, by and between MannKind Corporation and JPMorgan Chase Bank, N.A. (incorporated by reference to Exhibit 99.1 to MannKind’s Current Report on Form 8-K (File No. 000-50865), filed with the SEC on April 15, 2020) . 10.1* Offer Letter Agreement, dated July 12, 2017, by and between MannKind and Steven B. Binder (incorporated by reference to Exhibit 99.1 to MannKind’s Current Report on Form 8-K (File No. 000-50865), filed with the SEC on July 17, 2017). 10.2* Offer Letter, dated March 9, 2016, by and between MannKind and Michael E. Castagna (incorporated by reference to Exhibit 10.38 to MannKind’s Annual Report on Form 10-K (File No. 000-50865), filed with the SEC on March 15, 2016). 10.3* Offer Letter, dated December 22, 2016, by and between MannKind and Stuart Tross (incorporated by reference to Exhibit 10.36 to MannKind’s Annual Report on Form 10-K (File No. 000-50865), filed with the SEC on March 16, 2017). 10.4* Offer Letter, dated May 7, 2020 by and between MannKind and Alejandro Galindo. 10.5* Offer Letter, dated August 11, 2003, by and between MannKind and Joseph Kocinsky. 10.6* Executive Severance Agreement, dated October 10, 2007, between MannKind and David Thomson (incorporated by reference to Exhibit 99.1 to MannKind’s Current Report on Form 8-K (File No. 000-50865), as amended, filed with the SEC on October 17, 2007). 10.7* Form of Indemnity Agreement entered into between MannKind and each of its directors and officers (incorporated by reference to Exhibit 10.1 to MannKind’s Registration Statement on Form S-1 (File No. 333-115020), filed with the SEC on April 30, 2004, as amended). 10.8* Form of Change of Control Agreement (incorporated by reference to Exhibit 99.1 to MannKind’s Current Report on Form 8-K (File No. 000-50865), filed with the SEC on April 7, 2017). 10.9* Description of Officers’ Incentive Program (incorporated by reference to Exhibit 10.5 to MannKind’s Annual Report on Form 10-K (File No. 000-50865), filed with the SEC on March 16, 2006). 10.10* 2004 Equity Incentive Plan, as amended (incorporated by reference to Appendix A to MannKind’s proxy statement on Schedule 14A (File No. 000-50865), filed with the SEC on April 6, 2012). 10.11* Form of Stock Option Agreement under the 2004 Equity Incentive Plan (incorporated by reference to Exhibit 10.2 MannKind’s Registration Statement on Form S-1 (File No. 333-115020), originally filed with the SEC on April 30, 2004, as amended). 10.12* Form of Phantom Stock Award Agreement under the 2004 Equity Incentive Plan (incorporated by reference to Exhibit 99.1 to MannKind’s Current Report on Form 8-K (File No. 000-50865), filed with the SEC on December 14, 2005). 10.13* 2004 Non-Employee Directors’ Stock Option Plan and form of stock option agreement there under (incorporated by reference to Exhibit 10.20 to MannKind’s Annual Report on Form 10-K (File No. 000-50865), filed with the SEC on March 16, 2006). 10.14* Non-Employee Director Compensation Program (incorporated by reference to Exhibit 10.15 to MannKind’s Annual Report on Form 10-K (File No. 000-50865), filed with the SEC on February 26, 2019). 10.15* MannKind Corporation 2013 Equity Incentive Plan, as amended (incorporated by reference to Exhibit 10.1 to MannKind’s Quarterly Report on Form 10-Q (File No. 000-50865), filed with the SEC on August 9, 2016). 10.16* Form of Stock Option Grant Notice, Stock Option Agreement and Notice of Exercise under the MannKind 2013 Equity Incentive Plan (incorporated by reference to Exhibit 99.2 to MannKind’s registration statement on Form S-8(File No. 000-188790), filed with the SEC on May 23, 2013). 10.17* Form of Restricted Stock Unit Grant Notice and Restricted Stock Unit Award Agreement under the MannKind 2013 Equity Incentive Plan (incorporated by reference to Exhibit 99.3 to MannKind’s registration statement on Form S-8 (File No. 000-188790), filed with the SEC on May 23, 2013). 10.18* MannKind Corporation 2018 Equity Incentive Plan, as amended (incorporated by reference to Exhibit 10.1 to MannKind’s Quarterly Report on Form 10-Q (File No. 000-50865), filed with the SEC on August 5, 2020). 10.19* Form of Stock Option Grant Notice, Stock Option Agreement and Notice of Exercise under the MannKind 2018 Equity Incentive Plan (incorporated by reference to Exhibit 99.2 to MannKind’s registration statement on Form S-8 (File No. 333-226648), filed with the SEC on August 7, 2018). 10.20* Form of Restricted Stock Unit Grant Notice and Restricted Stock Unit Award Agreement under the MannKind 2018 Equity Incentive Plan (incorporated by reference to Exhibit 99.3 to MannKind’s registration statement on Form S-8 (File No. 333-226648), filed with the SEC on August 7, 2018). 50 Exhibit Number Description of Document 10.21* MannKind Corporation 2004 Employee Stock Purchase Plan, as amended (incorporated by reference to Exhibit 99.4 to MannKind’s registration statement Form S-8 (File No. 333-226648), filed with the SEC on August 7, 2018). 10.22* MannKind Corporation Market Price Stock Purchase Plan (incorporated by reference to Exhibit 99.1 to MannKind’s registration statement Form S-8 (File No. 333-225428), filed with the SEC on June 5, 2018). 10.23*** Supply Agreement, dated as of July 31, 2014, by and between MannKind and Amphastar France Pharmaceuticals S.A.S. 10.24 First Amendment to Supply Agreement, dated October 31, 2014, by and between MannKind and Amphastar France Pharmaceuticals, S.A.S. and Amphastar Pharmaceuticals, Inc. (incorporated by reference to Exhibit 10.32 to MannKind’s Annual Report on Form 10-K (File No. 000-50865), filed with the SEC on March 16, 2017). 10.25** Second Amendment to Supply Agreement, dated November 9, 2016, by and between MannKind and Amphastar Pharmaceuticals, Inc. (incorporated by reference to Exhibit 10.33 to MannKind’s Annual Report on Form 10-K (File No. 000-50865), filed with the SEC on March 16, 2017). 10.26** Third Amendment to Supply Agreement, dated April 11, 2018, by and between MannKind and Amphastar Pharmaceuticals, Inc. (incorporated by reference to Exhibit 10.8 to MannKind’s Quarterly Report on Form 10-Q (File No. 000-50865), filed with the SEC on May 9, 2018). 10.27** Fourth Amendment to Supply Agreement, dated December 24, 2018, by and between MannKind and Amphastar Pharmaceuticals, Inc. (incorporated by reference to Exhibit 10.50 to MannKind’s Annual Report on Form 10-K (File No. 000-50865), filed with the SEC on February 26, 2019) . 10.28*** Fifth Amendment to Supply Agreement, dated August 2, 2019, by and between MannKind Corporation and Amphastar Pharmaceuticals, Inc. (incorporated by reference to Exhibit 99.5 to MannKind’s Current Report on Form 8-K (File No. 000-50865), filed with the SEC on August 7, 2019) . 10.29 Sublease Agreement, dated May 1, 2015, by and between MannKind and the Alfred Mann Foundation for Scientific Research (incorporated by reference to Exhibit 10.37 to MannKind’s Annual Report on Form 10-K (File No. 000-50865), filed with the SEC on March 15, 2016). 10.30 Office Lease, dated May 5 2017, by and between MannKind and Russell Ranch Road II LLC. (incorporated by reference to Exhibit 10.3 to MannKind’s Quarterly Report on Form 10-Q (file No. 000-50865), filed with the SEC on August 7, 2017). 10.31 Controlled Equity Offering SM Sales Agreement, by and between MannKind and Cantor Fitzgerald & Co., dated February 27, 2018 (incorporated by reference to Exhibit 10.47 to MannKind’s Annual Report on Form 10-K (File No. 000-50865), filed with the SEC on February 27, 2018). 10.32** License and Collaboration Agreement, dated September 3, 2018 by and between MannKind and United Therapeutics Corporation (incorporated by reference to Exhibit 10.8 to MannKind’s Quarterly Report on Form 10-Q (file No. 000-50865), filed with the SEC on November 1, 2018). 10.33** Research Agreement, dated September 3, 2018 by and between MannKind and United Therapeutics Corporation (incorporated by reference to Exhibit 10.9 to MannKind’s Quarterly Report on Form 10-Q (file No. 000-50865), filed with the SEC on November 1, 2018). 10.34*** Credit and Security Agreement, dated August 6, 2019, by and among MannKind Corporation, MannKind LLC, the lenders party thereto from time to time and MidCap Financial Trust, as agent (incorporated by reference to Exhibit 99.1 to MannKind’s Current Report on Form 8-K (File No. 000-50865), filed with the SEC on August 7, 2019). 10.35 Amendment No. 1 to Credit and Security Agreement, dated December 18, 2019, by and among MannKind Corporation, MannKind LLC, the lenders party thereto from time to time and MidCap Financial Trust, as agent (incorporated by reference to Exhibit 99.1 to MannKind’s Current Report on Form 8-K (File No. 000-50865), filed with the SEC on December 18, 2019). 10.36 Amendment No. 2 to Credit and Security Agreement, dated August 21, 2020, by and among MannKind Corporation, MannKind LLC and MidCap Financial Trust (incorporated by reference to Exhibit 99.1 to MannKind’s Current Report on Form 8-K (File No. 000-50865), filed with the SEC on August 25, 2020). 10.37 Amendment No. 3 to Credit and Security Agreement, dated November 30, 2020, by and among MannKind Corporation, MannKind LLC and MidCap Financial Trust (incorporated by reference to Exhibit 99.1 to MannKind’s Current Report on Form 8-K (File No. 000-50865), filed with the SEC on December 1, 2020). 10.38 Amendment No. 4 to Credit and Security Agreement, dated December 7, 2020 by and among the Company, MannKind LLC and MidCap Financial Trust (incorporated by reference to Exhibit 4.1 to MannKind’s Current Report on Form 8-K (File No. 000-50865), filed with the SEC on December 7, 2020). 10.39 23.1 Omnibus Joinder and Amendment No. 5 to Credit and Security Agreement and Amendment No. 1 to Pledge Agreement, dated December 29, 2020 by and among MannKind Corporation, MannKind LLC, QrumPharma, Inc., and MidCap Financial Trust (incorporated by reference to Exhibit 99.1 to MannKind’s Current Report on Form 8-K (File No. 000-50865), filed with the SEC on December 30, 2020). Consent of Independent Registered Public Accounting Firm. 51 Exhibit Number Description of Document 31.1 Certification of the Chief Executive Officer pursuant to Rules 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934, as amended. 31.2 Certification of the Chief Financial Officer pursuant to Rules 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934, as amended. 32.1 Certification of the Chief Executive Officer pursuant to Rules 13a-14(b) and 15d-14(b) of the Securities Exchange Act of 1934, as amended, and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. §1350). 32.2 Certification of the Chief Financial Officer pursuant to Rules 13a-14(b) and 15d-14(b) of the Securities Exchange Act of 1934, as amended, and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. §1350). 101 Interactive Data Files pursuant to Rule 405 of Regulation S-T. 104 The cover page has been formatted in Inline XBRL. * Indicates management contract or compensatory plan. ** Confidential treatment has been granted with respect to certain portions of this exhibit. Omitted portions have been filed separately with the SEC. *** Certain portions of this exhibit have been omitted pursuant to Item 601(b)(10)(iv) of Regulation S-K. Item 16. Form 10-K Summary None. 52 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. MANNKIND CORPORATION By: /s/ Michael E. Castagna Michael E. Castagna Chief Executive Officer Dated: February 25, 2021 POWER OF ATTORNEY KNOW ALL BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Michael E. Castagna and David Thomson, and each of them, as his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place, and stead, in any and all capacities, to sign any and all amendments to this report, and any other documents in connection therewith, and to file the same, with all exhibits thereto, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them or their or his substitute or substituted, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. Signature Title Date /s/ Michael E. Castagna Michael E. Castagna Chief Executive Officer and Director (Principal Executive Officer) February 25, 2021 /s/ Steven B. Binder Steven B. Blinder Chief Financial Officer (Principal Financial and Accounting Officer) February 25, 2021 /s/ James S. Shannon James S. Shannon, M.D., MRCP (UK) Chairman of the Board of Directors February 25, 2021 /s/ Ronald J. Consiglio Ronald J. Consiglio Director February 25, 2021 /s/ Michael Friedman Michael Friedman, M.D. Director February 25, 2021 /s/ Jennifer Grancio Jennifer Grancio Director February 25, 2021 /s/ Anthony C. Hooper Anthony C. Hooper Director February 25, 2021 /s/ Sabrina Kay Director February 25, 2021 Sabrina Kay /s/ Kent Kresa Kent Kresa Director February 25, 2021 /s/ Christine Mundkur Director February 25, 2021 Christine Mundkur 53 MANNKIND CORPORATION AND SUBSIDIARIES INDEX TO FINANCIAL STATEMENTS Report of Independent Registered Public Accounting Firm 55 Consolidated Balance Sheets 57 Consolidated Statements of Operations 58 Consolidated Statements of Comprehensive Loss 59 Consolidated Statements of Stockholders’ Deficit 60 Consolidated Statements of Cash Flows 61 Notes to Consolidated Financial Statements 62 54 Report of Independent Registered Public Accounting Firm To the Board of Directors and Stockholders of MannKind Corporation Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of MannKind Corporation and subsidiaries (the "Company") as of December 31, 2020 and 2019, the related consolidated statements of operations, comprehensive loss, stockholders’ deficit, and cash flows for each of the two years in the period ended December 31, 2020 and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2020, in conformity with the accounting principles generally accepted in the United States of America. Going Concern The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company’s available cash resources and continuing cash needs raise substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. Basis for Opinion These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing and opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. Net Revenue – Commercial Product Sales – Government and Payer Rebates Refer to Note 2 to the financial statements Critical Audit Matter Description As more fully disclosed in Note 2 to the financial statements, the Company recognizes revenue for commercial product sales net of applicable reserves for variable consideration, including trade discounts and allowances, product returns, provider chargebacks and discounts, government rebates, payer rebates, and other incentives, such as voluntary patient assistance. Government rebates are provided to Medicare and state Medicaid programs. Payer rebates are provided to certain private payer organizations, primarily insurance companies and pharmacy benefit managers, for the payment of rebates with respect to utilization of the Company’s products. Government and payer rebates involve the use of significant assumptions and judgments to estimate claims from prior quarters for which an invoice has not yet been received, estimate claims for the current quarter, and estimate future claims that will be made for product that has been sold to the distributor and recognized as revenue, but remains in the distribution channel inventories at the end of each reporting period. These significant assumptions and judgments include consideration of legal interpretations of applicable laws and regulations, historical claims experience, payer channel mix, current contract prices under applicable programs, unbilled claims, processing time lags and inventory in the distribution channel. 55 Given the complexity involved in determining the significant assumptions and judgments used in estimating the government and payer rebates, auditing such estimates required a high degree of auditor judgment and increased extent of audit effort. How the Critical Audit Matter Was Addressed in the Audit Our audit procedures related to management’s estimates of government and payer rebates included the following, among others: • We evaluated key inputs used in management’s analysis of the government and payer rebate estimates. • We inspected contractual documents associated with the government and payer rebates and evaluated the consistency of the methodology with the Company’s obligations under such contractual documents. • We tested the mathematical accuracy of the Company’s calculation of the estimates for government and payer rebates. • We performed the following procedures to evaluate the significant assumptions and judgments used by management to estimate government and payer rebates: o Evaluated the reasonableness of government and payer rebates by comparing the underlying data to historical adjustments. o Compared management’s assumptions of expected government and payer rebates to actuals incurred subsequent to year end to identify potential bias in the determination of government and payer rebates. /s/ Deloitte & Touche LLP Los Angeles, California February 25, 2021 We have served as the Company’s auditor since 2001. 56 MANNKIND CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS December 31, 2020 2019 (In thousands except share and per share data) ASSETS Current assets: Cash and cash equivalents $ 67,005 $ 29,906 Restricted cash 158 316 Short-term investments — 19,978 Accounts receivable, net 4,218 3,513 Inventory 4,973 4,155 Prepaid expenses and other current assets 3,122 2,889 Total current assets 79,476 60,757 Property and equipment, net 25,867 26,778 Other assets 3,265 6,190 Total assets $ 108,608 $ 93,725 LIABILITIES AND STOCKHOLDERS' DEFICIT Current liabilities: Accounts payable $ 5,582 $ 4,789 Accrued expenses and other current liabilities 19,707 15,904 Paycheck Protection Program loan — current 4,061 — Short-term note payable — 5,028 Deferred revenue — current 33,275 32,503 Recognized loss on purchase commitments — current 11,080 7,394 Total current liabilities 73,705 65,618 Promissory notes 63,027 70,020 Accrued interest — promissory notes 4,150 2,002 Long-term Midcap credit facility 49,335 38,851 Senior convertible notes 5,000 5,000 Recognized loss on purchase commitments — long term 84,208 84,639 Operating lease liability 1,202 2,514 Deferred revenue — long term 1,662 8,344 Milestone rights liability 5,926 7,263 Paycheck Protection Program loan — long term 812 — Total liabilities 289,027 284,251 Commitments and contingencies (Note 13) Stockholders' deficit: Undesignated preferred stock, $ 0.01 par value — 10,000,000 shares authorized; no shares issued or outstanding at December 31, 2020 and 2019 — — Common stock, $ 0.01 par value — 400,000,000 and 280,000,000 shares authorized, 242,117,089 and 211,787,573 shares issued and outstanding at December 31, 2020 and 2019, respectively 2,421 2,118 Additional paid-in capital 2,866,303 2,799,278 Accumulated other comprehensive loss — ( 19 ) Accumulated deficit ( 3,049,143 ) ( 2,991,903 ) Total stockholders' deficit ( 180,419 ) ( 190,526 ) Total liabilities and stockholders' deficit $ 108,608 $ 93,725 See notes to consolidated financial statements. 57 MANNKIND CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS Year Ended December 31, 2020 2019 (In thousands except per share data) Revenues: Net revenue — commercial product sales $ 32,324 $ 25,304 Revenue — collaborations and services 32,820 37,734 Total revenues 65,144 63,038 Expenses: Cost of goods sold 15,084 20,078 Cost of revenue — collaborations and services 9,557 7,901 In-process research and development 13,233 — Research and development 6,248 6,900 Selling, general and administrative 59,040 74,669 Impairment of commitment asset 1,889 — Loss (gain) on foreign currency translation 8,006 ( 1,913 ) Total expenses 113,057 107,635 Loss from operations ( 47,913 ) ( 44,597 ) Other (expense) income: Interest income 167 997 Interest expense on notes ( 4,316 ) ( 6,304 ) Interest expense on promissory notes ( 5,155 ) ( 4,602 ) (Loss) gain on extinguishment of debt ( 264 ) 3,529 Other expense 23 ( 926 ) Total other expense ( 9,545 ) ( 7,306 ) Loss before income tax expense ( 57,458 ) ( 51,903 ) Benefit from income taxes 218 — Net loss $ ( 57,240 ) $ ( 51,903 ) Net loss per share — basic and diluted $ ( 0.26 ) $ ( 0.27 ) Shares used to compute net loss per share — basic and diluted 222,585 195,584 See notes to consolidated financial statements. 58 MANNKIND CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS Year Ended December 31, 2020 2019 (In thousands) Net loss $ ( 57,240 ) $ ( 51,903 ) Other comprehensive loss: Cumulative translation loss ( 19 ) — Comprehensive loss $ ( 57,259 ) $ ( 51,903 ) See notes to consolidated financial statements. 59 MANNKIND CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT Common Stock Additional Paid-In Accumulated Other Comprehensive Accumulated Shares Amount Capital Loss Deficit Total (In thousands) BALANCE, JANUARY 1, 2019 187,030 $ 1,870 $ 2,763,067 $ ( 19 ) $ ( 2,940,000 ) $ ( 175,082 ) Exercise of stock options 68 1 123 — — 124 Issuance of common stock under Employee Stock Purchase Plan 653 7 649 — — 656 Stock-based compensation expense — — 6,203 — — 6,203 Issuance of common stock pursuant to conversion of Deerfield Credit Facility 4,193 42 4,533 — — 4,575 Issuance of common stock from the release of restricted stock units 705 7 ( 9 ) — — ( 2 ) Issuance of common stock pursuant to conversion of Mann Group promissory notes 7,143 71 7,929 — — 8,000 Issuance of common stock pursuant to conversion of senior convertible notes 4,911 49 5,526 — — 5,575 Issuance of common stock in at-the-market offering 2,585 26 3,173 — — 3,199 Issuance cost associated with at-the-market offering — — ( 60 ) — — ( 60 ) Issuance of warrants pursuant to MidCap Credit Facility — — 1,854 — — 1,854 Issuance of common stock from the exercise of warrants 4,500 45 5,855 — — 5,900 Warrant modification — — 688 — — 688 Repurchase of warrants — — ( 253 ) — — ( 253 ) Net loss — — — — ( 51,903 ) ( 51,903 ) BALANCE, DECEMBER 31, 2019 211,788 $ 2,118 $ 2,799,278 $ ( 19 ) $ ( 2,991,903 ) $ ( 190,526 ) Net issuance of common stock in association with stock options and restricted stock units 653 6 227 — — 233 Payment of principal on senior convertible notes through common stock issuance 2,612 26 5,235 — — 5,261 Payment of interest on senior convertible notes through common stock issuance 188 2 286 — — 288 Issuance of common stock pursuant to conversion of Mann Group convertible note principal 2,800 28 6,972 — — 7,000 Issuance of common stock pursuant to conversion of the Mann Group convertible note interest 1,200 12 2,988 — — 3,000 Issuance of common stock in at-the-market offering 11,853 118 23,412 — — 23,530 Issuance cost associated with at-the-market offering — — ( 519 ) — — ( 519 ) Issuance of common stock under Employee Stock Purchase Plan 627 6 678 — — 684 Issuance of common stock from acquisition 3,067 31 9,219 — — 9,250 Stock-based compensation expense — — 6,511 — — 6,511 Issuance of common stock from the exercise of warrants 7,250 73 11,527 — — 11,600 Issuance of common stock from market price stock purchase 80 1 214 — — 215 Issuance of warrants pursuant to Midcap Credit Facility — — 275 — — 275 Cumulative translation loss — — — 19 — 19 Net loss — — — — ( 57,240 ) ( 57,240 ) BALANCE, DECEMBER 31, 2020 242,118 $ 2,421 $ 2,866,303 $ — $ ( 3,049,143 ) $ ( 180,419 ) See notes to consolidated financial statements. 60 MANNKIND CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS Year Ended December 31, 2020 2019 (In thousands) CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ ( 57,240 ) $ ( 51,903 ) Adjustments to reconcile net loss to net cash used in operating activities: In-process research and development 13,233 — Payment-in-kind interest on promissory notes — ( 32,822 ) Interest expense on promissory notes 5,148 4,712 Stock-based compensation expense 6,511 6,203 Asset impairment 1,889 — Loss (Gain) on foreign currency translation 8,006 ( 1,913 ) Loss (Gain) on extinguishment of debt 264 ( 3,529 ) Amortization of right-of-use assets 1,177 1,182 Depreciation, amortization and accretion 2,149 972 Loss on warrant transactions — 868 Write-off of inventory 496 — Other, net 19 107 Changes in operating assets and liabilities: Accounts receivable, net ( 705 ) 504 Inventory ( 1,314 ) ( 558 ) Prepaid expenses and other current assets ( 154 ) ( 333 ) Other assets 227 ( 549 ) Accounts payable 793 ( 593 ) Accrued expenses and other current liabilities 3,346 2,821 Deferred revenue ( 5,910 ) ( 6,717 ) Recognized loss on purchase commitments ( 4,751 ) ( 4,395 ) Operating lease liabilities ( 1,312 ) ( 995 ) Accrued interest on Mann Group promissory notes — ( 1,545 ) Net cash used in operating activities ( 28,128 ) ( 88,483 ) CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from sale of treasury bills 20,000 24,993 Acquisition of in-process research and development, net of cash acquired ( 3,983 ) — Purchase of treasury bills — ( 44,971 ) Purchase of property and equipment ( 801 ) ( 2,565 ) Purchase of limited liability company ownership interest — ( 300 ) Net cash provided by (used in) investing activities 15,216 ( 22,843 ) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from at the market offering 23,450 3,199 Issuance costs associated with at the market offering ( 518 ) ( 60 ) Issuance of common stock from the exercise of warrants 11,600 5,900 Proceeds from MidCap Credit Facility 10,000 40,000 Proceeds from Paycheck Protection Program Loan 4,873 — Payment of employment taxes related to vested restricted stock units and exercise of stock options 233 124 Proceeds from market price stock purchase plan 215 — Proceeds from promissory notes — 70,051 Proceeds from senior convertible notes — 9,910 Principal payments on promissory notes — ( 38,264 ) Principal payments on senior convertible notes — ( 11,081 ) Principal payments on facility financing obligation — ( 6,920 ) Milestone payment — ( 1,643 ) Issuance cost associated with MidCap Credit Facility — ( 886 ) Repurchase of warrants — ( 433 ) Issuance cost associated with promissory notes — ( 33 ) Net cash provided by financing activities 49,853 69,864 NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS AND RESTRICTED CASH 36,941 ( 41,462 ) CASH AND CASH EQUIVALENTS AND RESTRICTED CASH, BEGINNING OF PERIOD 30,222 71,684 CASH AND CASH EQUIVALENTS AND RESTRICTED CASH, END OF PERIOD $ 67,163 $ 30,222 SUPPLEMENTAL CASH FLOWS DISCLOSURES: Interest paid in cash, net of amounts capitalized $ 3,558 $ 1,757 NON-CASH INVESTING AND FINANCING ACTIVITIES: Issuance of common stock for acquisition of in-process research and development 9,250 — Payment on promissory notes through issuance of common stock 7,000 8,000 Payment on interest of promissory notes through issuance of common stock 3,000 — Payment of senior convertible notes through common stock issuance 5,261 4,500 Common stock issuance to settle employee stock purchase plan liability 684 656 Payment of interest on senior convertible notes through common stock issuance 288 1,075 Issuance of warrants associated with MidCap Credit Facility 275 1,854 Receivable from at the market offering 226 — Non-cash construction in progress and property and equipment 92 — Addition of right-of-use assets upon adoption of new lease guidance — 5,192 Payment of facility obligation through common stock issuance — 4,575 See notes to consolidated financial statements. 61 MANNKIND CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Description of Business Business — MannKind Corporation and its subsidiaries (the “Company”) is a biopharmaceutical company focused on the development and commercialization of inhaled therapeutic products for patients with endocrine and orphan lung diseases. The Company’s development team is capable of taking a compound from early formulation feasibility studies to a full commercial-scale manufacturing operation. The Company’s commercial team includes a specialty sales force that calls on endocrinologists and selected primary care physicians, as well as supporting functions that are directed to improving market access and delivering patient and physician support programs. Basis of Presentation — The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. The Company is not currently profitable and has rarely generated positive net cash flow from operations. 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 December 31, 2020, the Company had an accumulated deficit of $ 3.0 billion and $ 122.9 million of total principal amount of outstanding borrowings, with limited capital resources of $ 67.0 million in cash and cash equivalents. Further, the ongoing COVID-19 pandemic has adversely impacted the Company’s Afrezza net sales and could impact the ability to access capital and comply with covenants under debt covenants. 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 subsidiaries, 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 7 – 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 $ 50.0 million was outstanding as of December 31, 2020. The remaining $ 25.0 million will be available to the Company between October 1, 2021 and March 31, 2022, subject to the satisfaction of certain milestone conditions associated with Tyvaso DPI through the Company’s collaboration with United Therapeutics (see Note 8 – Collaboration, Licensing and Other Arrangements for more information on the collaboration agreement with United Therapeutics). Principal payments on the MidCap Credit Facility will begin in September 2022. Under the MidCap Credit Facility, the Company must comply with certain covenants, which includes requirements to maintain a minimum of $ 30.0 million of unrestricted cash and cash equivalents as well as meet certain minimum Afrezza net revenue trailing twelve-month thresholds, tested on a monthly basis. The Company’s capital resources may not be sufficient to continue to meet its current and anticipated obligations, including the need to maintain compliance with its debt covenants, over the next twelve months if the Company cannot increase its operating cash inflows by growing its revenue or obtaining access to the remaining $ 25.0 million in borrowings that may become available under its MidCap Credit Facility. In the event these capital resources are not sufficient, the Company may need to raise additional capital by selling equity or debt securities, entering into strategic business collaboration agreements with other companies, seeking other funding facilities or licensing arrangements, selling assets or by other means. However, the Company cannot provide assurances that additional capital will be available on acceptable terms or at all. If the Company is unable to meet its current and anticipated obligations over the next twelve months through its existing capital resources, or obtain new sources of capital when needed, the Company may have to reduce the scope of its commercial operations, reduce or eliminate one or more of its development programs, and/or make significant changes to its operating plan. These factors raise substantial doubt about the Company’s ability to continue as a going concern. The accompanying financial statements do not include any adjustments that might result from the outcome of this uncertainty. Principles of Consolidation — The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. Intercompany balances and transactions have been eliminated. Certain prior year amounts have been reclassified for consistency with the current year presentation. Changes were made to Note 12 – Stock Award Plans to separately disclose the stock-based compensation expense related to the employee stock purchase plan from the expense for restricted stock units (“RSUs”) and stock options for 2019. In addition, changes were made to the consolidated statements of cash flows for 2019 to reclassify operating lease payments from operating lease liabilities to accrued expenses and other current liabilities. 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. To date, the Company has viewed its operations and manages its business as one segment operating in the United States of America. 2. Summary of Significant Accounting Policies Financial Statement Estimates — The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (GAAP) requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates or assumptions. Management considers many factors in 62 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 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. These effects could have a material impact on the estimates and assumptions used in the preparation of the accompanying consolidated financial statements. The more significant estimates include revenue recognition and gross-to-net adjustments, assessing long-lived assets for impairment, clinical trial expenses, inventory costing and recoverability, recognized loss on purchase commitment, milestone rights liability, stock-based compensation and the determination of the provision for income taxes and corresponding deferred tax assets and liabilities, and the valuation allowance recorded against net deferred tax assets. Revenue Recognition — The Company recognizes revenue when its customers obtain control of promised goods or services, in an amount that reflects the consideration which the Company expects to be entitled in exchange for those goods or services. To determine revenue recognition for arrangements that are within the scope of Accounting Standards Codification (“ ASC”) Topic 606, Revenue from Contracts with Customers , the Company performs the following five steps: (i) identify the contract(s) with a customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations in the contract, and (v) recognize revenue when (or as) the entity satisfies a performance obligation. The Company only applies the five-step model to arrangements that meet the definition of a contract under Topic 606, including when it is probable that the entity will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer. At contract inception, once the contract is determined to be within the scope of Topic 606, the Company assesses the goods or services promised within each contract, determines those that are performance obligations, and assesses whether each promised good or service is distinct. The Company has two types of contracts with customers: (i) contracts for commercial product sales with wholesale distributors and specialty pharmacies and (ii) collaboration arrangements. Revenue Recognition – Net Revenue – Commercial Product Sales – The Company sells Afrezza to a limited number of wholesale distributors and specialty pharmacies in the U.S. (collectively, its “Customers”). Wholesale distributors subsequently resell the Company’s products to retail pharmacies and certain medical centers or hospitals. Specialty pharmacies sell directly to patients. In addition to distribution agreements with Customers, the Company enters into arrangements with payers 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 at delivery for specialty pharmacies. Product revenues are recorded net of applicable reserves including discounts, allowances, rebates, returns and other incentives. See Reserves for Variable Consideration below. 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. The 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 recognized as cost of goods sold in the 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. Components of variable consideration include trade discounts and allowances, product returns, provider chargebacks and discounts, government rebates, payer rebates, and other incentives, such as voluntary patient assistance, and other allowances that are offered within contracts between the Company and its Customers, payers, and other indirect customers relating to the Company’s sale of its products. 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. Where appropriate, these estimates take into consideration a range of possible outcomes which are probability-weighted in accordance with the expected value method in Topic 606 for relevant factors such as current contractual and statutory requirements, specific known market events and trends, industry data, and forecasted customer buying and payment patterns. 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 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 December 31, 2020 and, therefore, the transaction price was not reduced further during the year ended December 31, 2020. Actual amounts of consideration ultimately received may differ from the Company’s estimates. If actual results in the future vary from the Company’s estimates, the Company will adjust these estimates, which would affect net revenue – commercial product sales and earnings in the period such variances become known. Significant judgment is required in estimating gross-to-net adjustments considering legal interpretations of applicable laws and regulations, historical experience, payer channel mix, current contract prices under applicable programs, unbilled claims, processing time lags and inventory levels in the distribution channel. 63 Trade Discounts and Allowances — The Company generally provides Customers with discounts which include incentives, such as prompt pay discounts, that are explicitly stated in the Company’s contracts and are recorded as a reduction of revenue in the period the related product revenue is recognized. In addition, the Company compensates (through trade discounts and allowances) its Customers for sales order management, data, and distribution services. However, the Company has determined such services received to date are not distinct from the Company’s sale of products to the Customer and, therefore, these payments have been recorded as a reduction of revenue and as a reduction to accounts receivable, net. Product Returns —Consistent with industry practice, the Company generally offers Customers a right of return for unopened product that has been purchased from the Company for a period beginning six months prior to and ending 12 months after its expiration date, which lapses upon shipment to a patient. The Company estimates the amount of its product sales that may be returned by its Customers and records this estimate as a reduction of revenue in the period the related product revenue is recognized, as well as reductions to accounts receivable, net. The Company currently estimates product returns using available industry data and its own sales information, including its visibility into the inventory remaining in the distribution channel. The Company’s current return reserve percentage is estimated to be in the single digits. Adjustments to the returns reserve have been made in the past and may be necessary in the future based on revised estimates to our assumptions. Provider Chargebacks and Discounts — Chargebacks for fees and discounts to providers represent the estimated obligations resulting from contractual commitments to sell products to qualified healthcare providers at prices lower than the list prices charged to Customers who directly purchase the product from the Company. 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 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. 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. 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 judgment due to timing lags in receiving invoices for claims from states. For Medicare, the Company also estimates the number of patients in the prescription drug coverage gap for whom the Company will owe an additional liability under the Medicare Part D program. The Company’s liability for these rebates consists of invoices received for claims from prior quarters that have not been paid or for which an invoice has not yet been received, estimates of claims for the current quarter, and estimated future claims that will be made for product that has been recognized as revenue, but which remains in the distribution channel inventories at the end of each reporting period. The Company’s estimates include consideration of historical claims experience, payer channel mix, current contract prices, unbilled claims, claim submission time lags and inventory in the distribution channel. Payer Rebates — The Company contracts with certain private payer 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 the establishment of a current liability which is included in accrued expenses and other current liabilities. The Company’s estimates include consideration of historical claims experience, payer channel mix, current contract prices, unbilled claims, claim submission time lags and inventory in the distribution channel. 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 payers. 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 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 conduct research services to third parties. The terms of these arrangements may include, but are not limited to payment to the Company of one or more of the following: up-front license fees; development, regulatory, and commercial milestone payments; payments for manufacturing commercial and clinical supply services the Company provides; and royalties on net sales of licensed products and sublicenses of the rights. As part of the accounting for these arrangements, the Company must develop assumptions that require judgment such as determining the performance obligation in the contract and determining the stand-alone selling price for each performance obligation identified in the contract. If an arrangement has multiple performance obligations, the allocation of the transaction price is determined from observable market inputs, and the Company uses key assumptions to determine the stand-alone selling price, which may include development timelines, reimbursement rates for personnel costs, discount rates, and probabilities of technical and regulatory success. Revenue is recognized based on the measurement of progress as the performance obligation is satisfied and consideration received that does not meet the requirements to satisfy the revenue recognition criteria is recorded as deferred revenue. Current deferred revenue consists of amounts that are expected to be recognized as revenue in the next 12 months. Amounts that the Company expects will not be recognized within the next 12 months are classified as long-term deferred revenue. For 64 further information see Note 8 – Collaboration , Licensing and Other Arrangements . The Company recognizes upfront license payments as revenue upon delivery of the license only if the license is determined to be a separate unit of accounting from the other undelivered performance obligations. The undelivered performance obligations typically include manufacturing or development services or research and/or steering committee services. If the license is not considered as a distinct performance obligation, then the license and other undelivered performance obligations would be evaluated to determine if such should be accounted for as a single unit of accounting. If concluded to be a single performance obligation, the transaction price for the single performance obligation is recognized as revenue over the estimated period of when the performance obligation is satisfied. Whenever the Company determines that an arrangement should be accounted for over time, the Company determines the period over which the performance obligations will be performed, and revenue will be recognized over the period the Company is expected to complete its performance obligations. Significant management judgment is required in determining the level of effort required under an arrangement and the period over which the Company is expected to complete its performance obligations under an arrangement. The Company’s collaboration agreements typically entitle the Company to additional payments upon the achievement of development, regulatory and sales milestones. If the achievement of a milestone is considered probable at the inception of the collaboration, the related milestone payment is included with other collaboration consideration, such as upfront fees and research funding, in the Company’s revenue calculation. 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 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. The Company’s collaborative agreements, for accounting purposes, represent contracts with customers and therefore are not subject to accounting literature on collaborative agreements. The Company grants licenses to its intellectual property, supplies raw materials or finished goods, provides research and development services and offers sales support for the co-promotion of products, all of which are outputs of the Company’s ongoing activities, in exchange for consideration. The Company does not develop assets jointly with collaboration partners, and does not share in significant risks of their development or commercialization activities. 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 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. When these amounts in aggregate are not offered at a discount that exceeds discounts available to other customers, the Company concludes the option does not contain a material right, and therefore is not included in the transaction price at contract inception. Rather, the Company evaluates grants of additional licensing rights upon option exercises to determine whether such should be accounted for as separate contracts. The Company concluded there is no material right in these options. The Company follows detailed accounting guidance in measuring revenue and certain judgments affect the application of its revenue policy. For example, in connection with its existing collaboration agreements, the Company has recorded on its consolidated balance sheets short-term and long-term deferred revenue based on its best estimate of when such revenue will be recognized. Short-term deferred revenue consists of amounts that are expected to be recognized as revenue in the next 12 months. Amounts that the Company expects will not be recognized within the next 12 months are classified as long-term deferred revenue. However, this estimate is based on the Company’s current project development plan and, if the development plan should change in the future, the Company may recognize a different amount of deferred revenue over the next 12 -month period. The activity related to deferred revenue and the related revenue recognized for collaborations and services is as follows (in thousands): December 31, 2020 2019 Deferred revenue: Beginning balance $ 40,847 $ 47,565 Upfront and milestone payments 25,000 25,000 Pass through payments 1,910 6,016 Revenue — collaborations and services ( 32,820 ) ( 37,734 ) Ending balance $ 34,937 $ 40,847 65 Milestone Payments — At the inception of each arrangement that includes development milestone payments, the Company evaluates whether the milestones are considered probable of being reached and estimates the amount to be included in the transaction price using the most likely amount method. If it is probable that a significant revenue reversal would not occur, the associated milestone value is included in the transaction price. Milestone payments that are not within the control of the Company or the customer, such as regulatory approvals, are not considered probable of being achieved until those approvals are received. The transaction price is then allocated to each performance obligation on a relative stand-alone selling price basis, for which the Company recognizes revenue as, or when, the performance obligations under the contract are satisfied. At the end of each subsequent reporting period, the Company will re-evaluate the probability of achievement of such development milestones and any related constraint, and if necessary, adjusts its estimate of the overall transaction price. 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 CARES Act. The Company accounted for the PPP Loan as a financial liability in accordance with 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 Paycheck Protection Program loan — current and Paycheck Protection Program loan — long term. In addition, a di minimis amount of accrued interest is included in accrued expenses and other current liabilities. See Note 7 – Borrowings for additional information. Cost of Goods Sold — Cost of goods sold includes material, labor costs and manufacturing overhead. Cost of goods sold also includes a significant component of current period manufacturing costs in excess of costs capitalized into inventory (excess capacity costs). These costs, in addition to the impact of the annual revaluation of inventory to standard costs and write-offs of inventory are recorded as expenses in the period in which they are incurred, rather than as a portion of inventory costs. The cost of goods sold excludes the cost of insulin purchased under our Insulin Supply Agreement. All insulin inventory on hand was written off and the full purchase commitment contract to purchase future insulin was accrued as a recognized loss on purchase commitments as of the end of 2015. 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 December 31, 2020 and 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. The Company presents amounts of restricted cash that will be available for use within 12 months of the reporting date as restricted cash in current assets. Restricted cash amounts that will not be available for use in the Company’s operations within 12 months of the reporting date are presented as restricted cash in long term assets. 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): December 31, 2020 2019 Cash and cash equivalents $ 67,005 $ 29,906 Restricted cash 158 316 Total cash, cash equivalents, and restricted cash $ 67,163 $ 30,222 Short-term Investments — The Company’s short-term investments consist of U.S. 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 consolidated balance sheets. As of December 31, 2020, the Company did no t hold any short-term investments. Short-term investments as of December 31, 2019 were $ 20.0 million. The Company did not record any material gains or losses on these investment securities during the year ended December 31, 2019. 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. Cash and cash equivalents are held in high credit quality institutions. Cash equivalents consist of interest-bearing money market accounts and U.S. Treasury securities, which are regularly monitored by management. 66 Accounts Receivable and Allowance for Doubtful Accounts — Accounts receivable are recorded at the invoiced amount and are not interest bearing. Accounts receivable are presented net of an allowance for doubtful accounts if there are estimated losses resulting from the inability of its customers to make required payments. The Company makes ongoing assumptions relating to the collectability of its accounts receivable in its calculation of the allowance for doubtful accounts. Accounts receivable are also presented net of an allowance for product returns and trade discounts and allowances because the Company’s customers have the right of setoff for these amounts against the related accounts receivable. Accounts receivable, net consists of the following (in thousands): December 31, 2020 2019 Accounts Receivable, gross $ 8,090 $ 6,925 Wholesaler distribution fees and prompt pay discounts ( 1,205 ) ( 1,767 ) Reserve for returns ( 2,667 ) ( 1,645 ) Accounts receivable, net $ 4,218 $ 3,513 As of December 31, 2020 and December 31, 2019, the allowance for doubtful accounts was de minimis . As of December 31, 2020 and December 31, 2019, the Company had three wholesale distributors representing approximately 86 % and 96 % of gross sales and 90 % and 94 % of accounts receivable, respectively. Pre-Launch Inventory — An improvement to the manufacturing process for the Company’s primary excipient FDKP was demonstrated to be viable and management expects to realize an economic benefit in the future as a result of such process improvement. Accordingly, the Company is required to assess whether to capitalize inventory costs related to such excipient prior to regulatory approval of the new supplier and the improved manufacturing process. In doing so, management must consider a number of factors in order to determine the amount of inventory to be capitalized, including the historical experience of achieving regulatory approvals for the Company’s manufacturing process, feedback from regulatory agencies on the changes being effected and the amount of inventory that is likely to be used in commercial production. The shelf life of the excipient will be determined as part of the regulatory approval process; in the interim, the Company must assess the available stability data to determine whether there is likely to be adequate shelf life to support anticipated future sales occurring beyond the expected approval date of the new raw material. If management is aware of any specific material risks or contingencies other than the normal regulatory review and approval process, or if the criteria for capitalizing inventory produced prior to regulatory approval are otherwise not met, the Company would not capitalize such inventory costs, choosing instead to recognize such costs as a research and development expense in the period incurred. Inventories — Inventories are stated at the lower of cost or net realizable value. The Company determines the cost of inventory using the first-in, first-out, or FIFO, method. The Company capitalizes inventory costs associated with the Company’s products based on management’s judgment that future economic benefits are expected to be realized; otherwise, such costs are expensed as incurred as cost of goods sold. The Company periodically analyzes its inventory levels to identify inventory that may expire or has a cost basis in excess of its estimated realizable value and writes down such inventories, as appropriate. In addition, the Company’s products are subject to strict quality control and monitoring which the Company performs throughout the manufacturing process. If certain batches or units of product no longer meet quality specifications or may become obsolete or are forecasted to become obsolete due to expiration, the Company will record a charge to write down such unmarketable inventory to its estimated net realizable value. The Company analyzes its inventory levels to identify inventory that may expire or has a cost basis in excess of its estimated realizable value. The Company performs an assessment of projected sales and evaluates the lower of cost or net realizable value and the potential excess inventory on hand at the end of each reporting period. 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 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. Fair value is determined using the market, income or cost approaches as appropriate for the asset. 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 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 $ 1.9 million was recognized during the second quarter of 2020 and is reflected in the Company’s consolidated statement of operations. See Note 7 – Borrowings for further information on the MidCap Credit Facility. The Company recorded no asset impairments for the year ended December 31, 2019. Recognized Loss on Purchase Commitments — The Company assesses whether losses on long term purchase commitments should be accrued. Losses that are expected to arise from firm, non-cancellable, commitments for the future purchases are recognized unless recoverable. 67 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 consolidated statement of operations. The liability balance of the recognized loss on insulin purchase commitments as of December 31 , 20 20 and 201 9 was $ 95.3 million and $ 92.0 million, respectively. No new contracts were identified in 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. and Deerfield Private Design International I L.P, 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 December 31, 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. Since the Company has not elected to apply the fair value option to the Milestone Rights, the Company recorded them at their estimated initial fair value and accounted for the Milestone Rights as a liability. The initial fair value estimate of the Milestone Rights was calculated using the income approach in which the cash flows associated with the specified contractual payments were adjusted for both the expected timing and the probability of achieving the milestones and discounted to present value using a selected market discount rate. The expected timing and probability of achieving the milestones was developed with consideration given to both internal data, such as progress made to date and assessment of criteria required for achievement, and external data, such as market research studies. The discount rate was selected based on an estimation of required rate of returns for similar investment opportunities using available market data. The Milestone Rights liability will be remeasured as the specified milestone events are achieved. Specifically, as each milestone event is achieved, the portion of the initially recorded Milestone Rights liability that pertains to the milestone event being achieved, will be remeasured to the amount of the specified related milestone payment. The resulting change in the balance of the Milestone Rights liability due to remeasurement will be recorded in the Company’s consolidated statements of operations as interest expense. Furthermore, the Milestone Rights liability will be reduced upon the settlement of each milestone payment. 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 7 — Borrowings). 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. Observable inputs are inputs that market participants would use in pricing the asset or liability based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions about the inputs that market participants would use in pricing the asset or liability and are developed based on the best information available in the circumstances. The fair value hierarchy is broken down into three levels based on the source of inputs as follows: Level 1 — Quoted prices for identical instruments in active markets. Level 2 — Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable. Level 3 — Significant inputs to the valuation model are unobservable. Income Taxes — The provisions for federal, foreign, state and local income taxes are calculated on pre-tax income based on current tax law and include the cumulative effect of any changes in tax rates from those used previously in determining deferred tax assets and liabilities. Deferred income tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the year in which the temporary differences are expected to be recovered or settled. A valuation allowance is recorded to reduce net deferred income tax assets to amounts that are more likely than not to be realized. For uncertain tax positions, the Company determines whether it is “more likely than not” that a tax position will be sustained upon examination by the appropriate taxing authorities before any part of the benefit can be recorded in the financial statements. For those tax positions where it is “not more likely than not” that a tax benefit will be sustained, no tax benefit is recognized. Penalties, if probable and reasonably estimable, are recognized as a component of income tax expense. The Company has reduced its deferred tax assets for uncertain tax positions but has not recorded liabilities for income tax expense, penalties, or interest. Contingencies — The Company records a loss contingency for a liability when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. These accruals represent management’s best estimate of probable loss. 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 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 litigation and may revise its estimates. 68 Stock-Based Compensation — Share-based payments to employees, including grants of stock options, RSUs, performance-based non-qualified stock options awards (“PNQs”), restricted stock units with market conditions (“Market RSUs”) and the compensatory elements of employee stock purchase plans, are recognized in the 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. 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. Clinical Trial Expenses — Clinical trial expenses, which are primarily reflected in research and development expenses in the accompanying consolidated statements of operations, result from obligations under contracts with vendors, consultants and clinical site agreements in connection with conducting clinical trials. Net Income (Loss) Per Share of Common Stock — Basic net income or loss per share excludes dilution for potentially dilutive securities and is computed by dividing net income or loss by the weighted average number of common shares outstanding during the period. Diluted net income or loss per share reflects the potential dilution under the treasury method that could occur if securities or other contracts to issue common stock were exercised or converted into common stock. 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. Recently Adopted Accounting Standards — In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326) , The Company adopted this standard as of January 1, 2020 . This update introduces the current expected credit loss (CECL) model, which requires an entity to measure credit losses for certain financial instruments and financial assets, including trade receivables. Under this update, on initial recognition and at each reporting period, an entity is required to recognize an allowance that reflects the entity’s current estimate of credit losses expected to be incurred over the life of the financial instrument. The adoption of this standard did not have a material impact on the Company's 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 Topic 808 are within the scope of the new revenue guidance when the collaborative arrangement participant is a customer. The Company adopted this pronouncement in 2020 with no impact on the consolidated financial statements . In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740) to simplify and reduce the cost of accounting for income taxes. 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. 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. Unless otherwise discussed, the Company believes that the impact of recently issued standards that are not yet effective will not have a material impact on the Company’s consolidated financial position or results of operations upon adoption. In March 2020, the FASB issued a new accounting standard to ease the financial reporting burdens of the expected market transition from the London Interbank Offered Rate (LIBOR) and other interbank offered rates to alternative reference rates, commonly referred to as reference rate reform. The new standard provides temporary optional expedients and exceptions to current GAAP guidance on contract modifications and hedge accounting. Specifically, a modification to transition to an alternative reference rate is treated as an event that does not require contract remeasurement or reassessment of a previous accounting treatment. We are currently evaluating the impact on our consolidated financial statements. 3. Acquisition On December 7, 2020 , the Company acquired QrumPharma, Inc., a privately held pharmaceutical company developing inhalation treatments for severe chronic and recurrent pulmonary infections, including Nontuberculous Mycobacterial (NTM) lung disease. The Company purchased all of the outstanding capital stock of QrumPharma for consideration consisting of cash and shares of the Company’s common stock, subject to adjustment for cash on hand, unpaid indebtedness, unpaid transaction expenses, and net working capital as follows (in thousands): 69 Consideration Cash consideration $ 3,574 Stock consideration ( 3,067,179 shares at $ 3.01 per share) 9,250 Transaction costs 531 Repayment of debt 11 Liabilities assumed 22 Cash acquired ( 155 ) Total consideration paid for IPR&D $ 13,233 The stock purchase of QrumPharma was accounted for under ASC 805, Business Combinations , as an asset acquisition since the transaction did not include the acquisition of inputs or processes and the fair value of the assets acquired were concentrated in a single identifiable asset, QRM-003 (a nebulized version of clofazimine), which consisted of an in-process research and development asset (“IPR&D”). Under ASC 805, an entity that acquires IPR&D in an asset acquisition should follow the guidance in ASC 730, Research and Development, which requires that both tangible and intangible identifiable research and development assets with no alternative future use be allocated a portion of the consideration transferred and charged to expense at the acquisition date. Due to the stage of development of QRM-003 at the date of acquisition, significant risk remained that the product would not obtain regulatory approval and it was not yet probable that there would be future economic benefit for the Company. Absent successful clinical results and regulatory approval, it was determined that there was no alternative future use associated with QRM-003. Accordingly, the value of this asset was expensed at the time of acquisition and the total accumulated cost of $ 13.2 million, was allocated to the IPR&D asset using a relative fair value basis and the total consideration was recognized as in-process research and development expense in the consolidated statement of operations. The acquisition of QrumPharma also included a potential future royalty payment of 1.5 % of net sales in each of the calendar years in which the total annual and global adjusted net sales of specified products exceeds $ 50 million and a royalty payment of 1.0 % of net sales in each of the calendar years in which the total annual and global adjusted net sales of nebulized clofazimine are greater than or equal to $ 200 million. The contingent consideration in the form of royalty payments will be expensed as incurred since the probability of QRM-003 obtaining FDA approval and generating net sales that exceed the specified thresholds could not be reasonably estimated on the date of acquisition. 4. Inventories Inventories consist of the following (in thousands): December 31, 2020 2019 Raw materials $ 1,393 $ 1,751 Work-in-process 2,484 1,432 Finished goods 1,096 972 Total inventory $ 4,973 $ 4,155 Work-in-process and finished goods as of December 31, 2020 and 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 December 31, 2020 and 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 2023, after which the pre-launch raw materials inventory will be reclassified as raw materials inventory for use in the manufacturing of Afrezza and Tyvaso DPI. The Company analyzed its inventory levels to identify inventory that may expire or has a cost basis in excess of its estimated realizable value. The Company also performed an assessment of projected sales and evaluated the lower of cost or net realizable value and the potential excess inventory on hand at December 31, 2020 and 2019. Inventory that was forecasted to become obsolete due to expiration is recorded in costs of goods sold in the accompanying consolidated statements of operations. For the year ended December 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 year ended December 31, 2019. 70 5. Property and Equipment Property and equipment consist of the following (in thousands): Estimated Useful December 31, Life (Years) 2020 2019 Land — $ 875 $ 875 Buildings 39-40 17,389 17,389 Building improvements 5-40 37,543 37,543 Machinery and equipment 3-15 55,054 54,982 Furniture, fixtures and office equipment 5-10 3,004 3,005 Computer equipment and software 3 8,319 8,234 Construction in progress — 503 114 122,687 122,142 Less accumulated depreciation ( 96,820 ) ( 95,364 ) Total property and equipment, net $ 25,867 $ 26,778 Depreciation expense related to property and equipment for the years ended December 31, 2020 and 2019 was $ 1.8 million and $ 1.6 million, respectively. During the year ended December 31, 2020, the Company retired $ 0.3 million of manufacturing and lab equipment as it was no longer in service. During the year ended December 31, 2019, the Company retired of $ 6.7 million of manufacturing equipment and computer hardware as it was no longer in service. The net book value for the disposed assets was de minimis . 6. Accrued Expenses and Other Current Liabilities Accrued expenses and other current liabilities are comprised of the following (in thousands): December 31, 2020 2019 Salary and related expenses $ 11,250 $ 8,835 Discounts and allowances for commercial product sales 3,688 3,162 Deferred lease liability 1,422 1,433 Professional fees 533 620 Accrued interest 519 409 Sales and marketing services 99 147 Other 859 1,298 Current portion of milestone rights liability 1,337 — Accrued expenses and other current liabilities $ 19,707 $ 15,904 Included in salary and related expenses is $ 1.0 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 if the Company receives forgiveness for its PPP Loan as discussed in Note 7 – Borrowings. 7. Borrowings Carrying amount of borrowings consist of the following (in thousands): December 31, 2020 2019 Mann Group promissory notes $ 63,027 $ 70,020 MidCap Credit Facility 49,335 38,851 Senior notes (2024 convertible notes) 5,000 10,028 PPP Loan 4,873 — Total debt — net carrying amount $ 122,235 $ 118,899 71 The following table provides a summary of the Company’s debt and key terms: Amount Due Terms December 31, 2020 December 31, 2019 Annual Interest Rate Maturity Date Conversion Price Mann Group convertible note $28.0 million (plus $0.6 million accrued interest paid-in-kind) $35.0 million (plus $1.0 million accrued interest paid-in-kind) 7.00 % November 2024 $2.50 per share Mann Group non- convertible note $35.1 million (plus $3.6 million accrued interest paid-in-kind) $35.1 million (plus $1.0 million accrued interest paid-in-kind) 7.00 % November 2024 N/A MidCap Credit Facility $ 50.0 million $ 40.0 million one-month LIBOR (2% floor) plus 6.75% August 2024 N/A 2024 convertible notes $ 5.0 million $ 5.0 million 5.75 % November 2024 $3.00 per share June 2020 note — $ 2.6 million — June 2020 N/A December 2020 note — $ 2.6 million — December 2020 N/A PPP Loan $ 4.9 million — 0.98 % April 2022 N/A The maturities of our borrowings as of December 31, 2020 are as follows (in thousands): Amounts 2021 4,061 2022 9,145 2023 25,000 2024 84,718 Total principal payments 122,924 Unamortized discount ( 665 ) Debt issuance costs ( 24 ) Total debt $ 122,235 MidCap Credit Facility — I n 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. The Company borrowed the first advance of $ 40.0 million (“Tranche 1”) in August 2019 and the second advance of $ 10.0 million (“Tranche 2”) in December 2020. Under the terms of the MidCap Credit Facility, the third advance of $ 25.0 million (“Tranche 3”) will be available to the Company between October 1, 2021 and March 31, 2022, subject to the satisfaction of certain milestone conditions associated with Tyvaso DPI through the Company’s collaboration with United Therapeutics (see Note 8 – Collaboration, Licensing and Other Arrangements). In December 2019, the Company entered into the first 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. In August 2020, the Company entered into the second 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. 72 In November 2020, the Company entered into the third amendment to the MidCap Credit Facility, pursuant to which the parties agreed to (i) amend the conditions to draw Tranche 2, which had become unavailable, such that the advance became available and was, in fact, funded to the Company on December 1, 2020, (ii) amend the conditions to the third advance of $ 25.0 million such that the third advance is available upon the satisfaction of certain conditions, including certain milestone conditions associated with Tyvaso DPI, (iii) add a covenant that requires the marketing of Tyvaso DPI if the third advance of $ 25.0 million is funded, (iv) amend the financial covenant relating to trailing twelve month minimum Afrezza Net Revenue (as defined in the MidCap Credit Facility) requirements, (v) increase the minimum cash covenant to $ 30.0 million at all times, (vi) extend the interest only period until September 1, 2022, at which time principal on each term loan advance is payable in 24 equal monthly installments, and (vii) amend the prepayment fees. In connection with the extension of the interest only period for the $ 40.0 million drawn under Tranche 1, a $ 0.2 million loss on extinguishment was recognized in the consolidated statement of operations for the year ended December 31, 2020. The funding of $ 10.0 million under Tranche 2 resulted in the recognition of approximately $ 0.3 million of debt discount and a de minimis amount of debt issuance costs. As of December 31, 2020, the unamortized debt discount was $ 0.4 million for Tranche 1 and $ 0.3 million for Tranche 2. In December 2020, the Company entered into the fourth and fifth amendments to the MidCap Credit Facility. Pursuant to the fourth amendment, MidCap consented to the acquisition by the Company of QrumPharma (see Note 3 – Acquisition). Pursuant to the omnibus joinder and fifth amendment, QrumPharma was joined as a borrower to the MidCap Credit Facility and to certain related financing documents. Tranche 1, Tranche 2 and, if borrowed, Tranche 3, each accrues interest at an annual rate equal to the 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 each term loan advance under Tranche 1 and Tranche 2 is payable in 24 equal monthly installments beginning September 1, 2022, until paid in full on August 1, 2024, and the principal on the term loan advance under Tranche 3 is payable beginning on the later of (i) September 1, 2022, 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 amount equal to 2.00 % of principal prepaid if prepayment occurs on or prior to June 30, 2021; 4.00 % of principal prepaid if prepayment occurs on or after July 1, 2021 through and including June 30, 2022; 3.00 % of principal prepaid if prepayment occurs on or after July 1, 2022 through and including June 30, 2023; and 2.00 % of principal prepaid if prepayment occurs on or after July 1, 2023 through the maturity 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, as amended, 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 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 $ 30.0 million at all times. As of December 31, 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. Upon an event of default, the agent and the lenders may declare all or a portion of the Company’s outstanding obligations to be immediately due and payable and exercise other rights and remedies provided for under the MidCap Credit Facility. During the existence of an event of default, interest on the term loans could be increased by 2.00 %. The Company also agreed to issue warrants to purchase shares of the Company’s common stock (the “MidCap warrants”) upon the drawdown of each term loan advance under the MidCap Credit Facility in an aggregate amount equal to 3.25 % of the amount drawn, divided by the exercise price per share for that tranche. The exercise price per share is equal to the volume-weighted average closing price of the Company’s common stock for the ten business days immediately preceding the second business day before the issue date. As a result of Tranche 1, 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. As a result of Tranche 2, the Company issued warrants to purchase an aggregate of 111,853 shares of the Company’s common stock, at an exercise price equal to $ 2.91 per share. The MidCap warrants are immediately exercisable and expire on the earlier to occur of the seventh anniversary of the respective issue date or, in certain circumstances, the closing of a merger, sale or other consolidation transactions in which the consideration is cash, stock of a publicly traded acquirer, or a combination thereof. 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 December 31, 2020 and 2019, there was $ 5.0 million and $ 10.2 million, respectively, of principal amount of senior notes outstanding. 73 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 were permitted to 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 $ 2.6 million June 2020 note with the issuance of 1,235,094 shares of the Company’s common stock (at a conversion price of $ 2.13 per share), 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 $ 2.6 million December 2020 note with the issuance of 1,377,356 shares of the Company’s common stock (at a conversion price of $ 1.91 per share), 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 prepayments, the Company recognized a de minimis amount of loss on extinguishment related to unamortized debt discounts. The 2024 convertible notes were issued pursuant to an indenture, dated as of August 6, 2019, between the Company and U.S. Bank National Association, as trustee (the “Indenture”). The 2024 convertible notes were the Company’s general, unsecured obligations, and were subordinated in right of payment to the indebtedness incurred pursuant to the MidCap Credit Facility. The 2024 convertible notes ranked 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 was 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 obligations) 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. If certain bankruptcy and insolvency-related events of default occurred while the 2024 convertible notes were outstanding, the principal of, and accrued and unpaid interest on, all of the then outstanding 2024 convertible notes would automatically become due and payable. If an event of default other than certain bankruptcy and insolvency-related events of defaults occurred and continued, the Trustee or the holders of at least 25% in aggregate principal amount of the then-outstanding 2024 convertible notes, by written notice to the Trustee, could declare the 2024 convertible notes due and payable at their principal amount plus any accrued and unpaid interest, and thereupon the Trustee may, at its discretion, proceed to protect and enforce the rights of the holders by the appropriate judicial proceedings. 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 underwent certain fundamental changes, except in certain circumstances, each holder of 2024 convertible notes would have had the option to require the Company to repurchase all or any portion of that holder’s 2024 convertible notes. The fundamental change repurchase price would be 100 % of the principal amount of the 2024 convertible notes to be repurchased plus accrued and unpaid interest, if any. The Company may elect at its option to cause all or any portion of the 2024 convertible notes to be mandatorily converted in whole or in part at any time prior to the close of business on the business day immediately preceding the maturity date, if the last reported sale price of its common stock equals or exceeds 120 % of the conversion price then in effect for at least 10 trading days in any 20 trading day period, ending within five business days prior to the date of the mandatory conversion notice. Pursuant to this option, subsequent to December 31, 2020, the Company converted the $ 5.0 million 2024 convertible notes with the issuance of 1,666,667 shares of the Company’s common stock, pursuant to the Company’s election and in accordance with the terms of the 2024 convertible notes. Mann Group promissory notes — In August 2019, the Company entered into a privately-negotiated exchange agreement with The Mann Group LLC (“The Mann Group”), pursuant to which, among other things, the Company (i) repaid $ 3.0 million in cash to The Mann Group, (ii) issued 7,142,857 shares of the Company’s common stock to the Mann Group (at a conversion price of $ 1.12 per share), (iii) issued a $ 35.0 million note that is convertible into shares of the Company’s common stock at $ 2.50 per share (the “Mann Group convertible note”) and (iv) issued a non-convertible note to the Mann Group in an aggregate principal amount of $ 35.1 million (the “Mann Group non-convertible note” and , together with the Mann Group convertible note, the “Mann Group promissory notes”) , all in exchange for the cancellation of the $ 71.5 million in principal and approximately $ 9.5 million in accrued interest paid-in-kind under the existing Mann Group loan arrangement. The Mann Group promissory notes each accrue interest at the rate of 7.00 % per year on the principal amount, payable quarterly in arrears on the first day of each calendar quarter beginning October 1, 2019 . 74 The Mann Group convertible note will mature on November 3, 2024 . The principal and any accrued and unpaid interest under the Mann Group convertible note may be converted, at the option of the Mann Group, 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 400 shares per $ 1,000 of principal and/or accrued and unpaid interest, which is equal to a conversion price of $ 2.50 per share. The conversion rate will be subject to adjustment under certain circumstances described in the Mann Group convertible note. Interest on the Mann Group convertible note will be payable in kind by adding the amount thereof to the principal amount; 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. Pursuant to the terms of the Mann Group convertible note, the Mann Group converted $ 3.0 million of accrued interest and $ 7.0 million of principal into 1.2 million shares and 2.8 million shares, respectively, of the Company’s common stock in the fourth quarter of 2020. Subsequent to December 31, 2020, the Mann Group converted $ 0.4 million of interest and $ 9.6 million of principal into 4.0 million shares of common stock. 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 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 interest payment date. 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. 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. 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 after loan approval or up to 24 weeks after the date of the loan disbursement (the “covered period”), but not later than ten months after the end of the 24 week covered period, and upon documentation of expenditures in accordance with the SBA requirements. Principal and interest payments can be deferred up to the date the SBA remits the borrower’s loan forgiveness amount to the lender. 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. 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 years ended December 31, 2020 and 2019 are as follows (in thousands): Year Ended December 31, 2020 2019 Amortization of debt premium $ — $ ( 1,049 ) Amortization of debt discount 268 295 Accretion expense — debt issuance cost ( 101 ) ( 111 ) Milestone Rights — As of December 31, 2020 and 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 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 represented 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 consolidated balance sheets as of December 31, 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. The Milestone Rights are subject to acceleration in the event the Company transfers its intellectual property related to Afrezza in violation of the terms of such agreement. 75 8. Collaboration, Licensing and Other Arrangements Revenue from collaborations and services for the years ended December 31, 2020 and 2019 are as follows (in thousands): Year Ended December 31, 2020 2019 UT License Agreement $ 32,213 $ 31,229 UT Research Agreement 210 6,032 Receptor CLA 250 250 Cipla License and Distribution Agreement 147 148 Biomm Distribution Agreement — 75 Total revenue from collaborations and services $ 32,820 $ 37,734 United Therapeutics License Agreement – In September 2018, the Company and United Therapeutics Corporation (“United Therapeutics” or “UT”) entered into an exclusive global license and collaboration agreement (the “UT License Agreement”) for the rights to the Company’s dry powder formulation of treprostinil (“Tyvaso DPI”) and associated inhalation delivery devices. Under the UT License Agreement, UT is responsible for global development, regulatory and commercial activities with respect to Tyvaso DPI. The Company is responsible for manufacturing clinical supplies and commercial supplies of Tyvaso DPI. Under the terms of the UT License Agreement, the Company received an upfront payment of $ 45.0 million in October 2018 and four $ 12.5 million milestone payments between April 2019 and November 2020. The Company will also be entitled to receive low double-digit royalties on net sales of Tyvaso DPI as well as a manufacturing margin on commercial supplies of the product. UT, at its option, may expand the scope of the products covered by the UT License Agreement to include products with certain other active ingredients for the treatment of pulmonary arterial hypertension. 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 consolidated balance sheet. The Company recognizes revenue on a ratable basis from October 2018 through December 2021; the estimated date when its performance obligations for development activities under UT License Agreement will be substantially completed. At the inception of the agreement, the Company identified one distinct performance obligation. 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 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. 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 (including a $ 2.7 million increase in total consideration pursuant to an agreement executed in December 2020) for total consideration of approximately $ 105.8 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. The Company believes that this method best reflects the measure of progress toward complete satisfaction of the performance obligation. 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 December 31, 2020, the deferred revenue for the UT License Agreement consisted of $ 33.1 million, which was classified as current in our consolidated balance sheet. 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 consolidated balance sheet as of December 31, 2020. 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. 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. At the inception of the UT Research Agreement, the Company identified two distinct performance obligations. The Company determined that the key deliverables of each performance obligation include (i) the development of a product prototype (including a technical feasibility report) and (ii) engineering consulting services. Due to the separately identifiable nature of these obligations, the Company has determined that these deliverables represent two distinct performance obligations. The Company also determined that UT’s option to expand the scope to 76 include specific drug classes covered by the agreement is not a material right, and thus, not a performance obligation at the onset of the agreement. The consideration for the option will be accounted for upon exercise of the option . The Company allocated the total $ 10.0 million transaction price to its two distinct performance obligations based on available observable market inputs. 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 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 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. Vertice Pharma Sales and Marketing Collaboration Agreement — In December 2020, the Company entered into a co-promotion agreement with Vertice Pharma where the Company’s sales force will promote Thyquidity to adult endocrinologists, pediatric endocrinologists and other healthcare providers who treat hypothyroidism. Following the commercial launch of Thyquidity, in consideration of the sales and promotional activities provided by the Company’s sales force, Vertice will be obligated to pay fixed quarterly payments to the Company, as well as royalties on gross profits resulting from all sales of Thyquidity. The Company expects to launch Thyquidity in collaboration with Vertice Pharma in the first quarter of 2021. Receptor Collaboration and License Agreement — In 2016, the Company entered into a collaboration and license agreement (the “CLA”) with Receptor Life Sciences, Inc. (“Receptor”) pursuant to which Receptor acquired an exclusive license to develop, manufacture and commercialize products that use the Company’s technology to deliver certain compounds via oral inhalation in exchange for upfront license fees, milestone payments upon the completion of certain technology transfer activities and the achievement of specified sales targets as well as royalties upon Receptor’s and its sublicensees’ sale of products. A $ 1.0 million license fee received in 2016 was recorded in deferred revenue from collaborations as of December 31, 2016 and was being recognized in net revenue — collaborations over four years , the estimated period over which the Company was required to satisfy the remaining performance obligations. The remaining performance obligations to provide certain technology transfer activities were completed as of December 31, 2020. 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 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 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 years ended December 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 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. Biomm commenced product sales in January 2020. 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. No additional shipments were made in 2020. Cipla License and Distribution Agreement — In May 2018 , the Company and Cipla Ltd. (“Cipla”) entered into an exclusive agreement for the marketing and distribution of Afrezza in India and the Company received a $ 2.2 million nonrefundable license fee. Under the terms of the agreement, Cipla will be responsible for obtaining regulatory approvals to distribute Afrezza in India and for all marketing and sales activities of Afrezza in India. The Company is responsible for supplying Afrezza to Cipla. 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. 77 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 December 31, 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 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. The Company received a tax refund from the India tax authority in October 2020 and recognized an income tax benefit in the accompanying statement of operations for the year ended December 31, 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. (“AMSL Diabetes”) for the commercialization of Afrezza in Australia. Under the terms of this agreement, AMSL Diabetes is responsible for obtaining regulatory and reimbursement approvals to distribute Afrezza in Australia. Upon regulatory approval, AMSL Diabetes will conduct sales, marketing, and customer support and distribution activities whereas the Company will be responsible for the supply and manufacturing of Afrezza. 9. Fair Value of Financial Instruments The availability of observable inputs can vary among the various types of financial assets and liabilities. To the extent that the valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for financial statement disclosure purposes, the level in the fair value hierarchy within which the fair value measurement is categorized is based on the lowest level input that is significant to the overall fair value measurement. The Company uses the exit price method for estimating the fair value of loans for disclosure purposes. The carrying amounts reported in the accompanying 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, 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 December 31, 2020 and 2019, the Company held $ 67.0 million and $ 29.9 million, respectively, of cash and cash equivalents. The Company held $ 0.2 million and $ 0.3 million in restricted cash as of December 31, 2020 and 2019, respectively, which are comprised of money market funds. Restricted cash is used to collateralize a letter of credit. The fair value of these money market funds was determined by using quoted prices for identical investments in an active market (Level 1 in the fair value hierarchy). Short-term investments — Short-term investments consist of highly liquid investments that are intended to facilitate liquidity and capital preservation. The fair value of short-term investments approximate their carrying value. The measurement of which is based on a market approach using quoted market values (Level 1 in the fair value hierarchy). As of December 31, 2020, the Company did no t hold any short-term investments. 78 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 ): Hypothetical Change in Yield Hypothetical Change in Notes Payable Yield % Change Hypothetical Yield FV of Notes FV $ Change % Change (in millions) Mann Group promissory notes: (with conversion feature 18.0 % 1 % 19.0 % $ 78.9 $ 77.4 $ ( 1.5 ) - 1.9 % on $ 28.0 million) 18.0 % - 1 % 17.0 % $ 78.9 $ 80.4 $ 1.5 1.9 % 18.0 % 2 % 20.0 % $ 78.9 $ 76.0 $ ( 2.9 ) - 3.7 % 18.0 % - 2 % 16.0 % $ 78.9 $ 82.0 $ 3.1 3.9 % Senior notes: (with conversion feature) 18.0 % 1 % 19.0 % $ 7.0 $ 6.9 $ ( 0.1 ) - 1.4 % 18.0 % - 1 % 17.0 % $ 7.0 $ 7.1 $ 0.1 1.4 % 18.0 % 2 % 20.0 % $ 7.0 $ 6.8 $ ( 0.2 ) - 2.9 % 18.0 % - 2 % 16.0 % $ 7.0 $ 7.2 $ 0.2 2.9 % MidCap Credit Facility 7.5 % 1 % 8.5 % $ 55.4 $ 54.1 $ ( 1.3 ) - 2.3 % 7.5 % - 1 % 6.5 % $ 55.4 $ 56.6 $ 1.2 2.2 % 7.5 % 2 % 9.5 % $ 55.4 $ 52.9 $ ( 2.5 ) - 4.5 % 7.5 % - 2 % 5.5 % $ 55.4 $ 57.9 $ 2.5 4.5 % Financial Liabilities — The following tables set forth the fair value of the Company’s financial instruments: December 31, 2020 Fair Value Carrying Amount Significant Unobservable Inputs (Level 3) Total Fair Value Financial liabilities: MidCap Credit Facility $ 49.3 $ 55.4 $ 55.40 Senior convertible notes 5.0 7.0 7.0 Mann Group promissory notes 63.0 78.9 78.9 PPP loan 4.9 4.7 4.7 Milestone Rights 7.3 19.8 19.8 Total financial liabilities $ 129.5 $ 165.8 $ 165.8 December 31, 2019 Fair Value Carrying Value Significant Unobservable Inputs (Level 3) Total Fair Value Financial liabilities: MidCap Credit Facility $ 38.9 $ 40.0 $ 40.0 2024 Convertible notes 5.0 3.7 3.7 June 2020 note 2.5 2.3 2.3 December 2020 note 2.5 2.0 2.0 Mann Group promissory notes 70.0 46.2 46.2 Milestone Rights 7.3 16.4 16.4 Total financial liabilities $ 126.2 $ 110.6 $ 110.6 79 Milestone Rights Liability — The fair value measurement of the Milestone Rights liability is sensitive to the discount rate and the timing of achievement of milestones. The Company utilized Monte-Carlo Simulation Method to simulate the Net Sales under a neutral framework to estimate the payment. 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. 10. Common and Preferred Stock The Company is authorized to issue 400,000,000 shares of common stock, par value $ 0.01 per share, and 10,000,000 shares of undesignated preferred stock, par value $ 0.01 per share, issuable in one or more series as designated by the Company’s board of directors. No other class of capital stock is authorized. As of December 31, 2020 and 2019, 242,117,089 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 “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 Sales Agreement. Under the 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 year ended December 31, 2020, the Company sold an aggregate of 11,851,566 shares of the Company’s common stock at an average purchase price of $ 1.99 per share for an aggregate gross proceeds of approximately $ 23.5 million pursuant to the Sales Agreement. For the year ended December 31, 2019, the Company sold an aggregate of 2,584,964 shares of the Company’s common stock at an average purchase price of $ 1.24 per share for an aggregate gross proceeds of approximately $ 3.2 million pursuant to the 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 . The net proceeds to the Company from the offering were approximately $ 37.3 million. The Company determined that the December warrants met the criteria for equity classification and accounted for such warrants in additional paid-in capital. In July 2019, the Company repurchased 3,333,334 December warrants for consideration of approximately $ 0.4 million, for which $ 0.2 million was recognized as a reduction to additional paid-in capital on the consolidated balance sheet and $ 0.2 million was recognized as other expense on the consolidated statement of operations for cash paid in excess of fair value. On December 23, 2019, the Company and one holder of a December warrant to purchase 11,750,000 shares of the Company’s common stock (the “Warrant Shares”) agreed to amend their December warrant to provide that (i) the exercise price per share for 4,500,000 Warrant Shares would be equal to $ 1.311 but only with respect to a cash exercise of such December warrant on December 23, 2019 and (ii) if the holder purchased at least 4,500,000 Warrant Shares pursuant to a timely cash exercise of such December warrant, the termination date of such December warrant would be extended to June 26, 2020 . The Company determined that the modified December warrants met the criteria for equity classification and the incremental fair value of approximately $ 0.7 million was recognized as additional paid-in capital. On December 23, 2019, 4,500,000 Warrant Shares were exercised by the holder at $1.311 per share for an aggregate exercise price of $ 5.9 million. 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. 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 day preceding the settlement date. See Note 7 – Borrowings. In the fourth quarter of 2020, the Mann Group converted $ 3.0 million of accrued interest and $ 7.0 million of principal under the Mann Group convertible note into 1.2 million shares and 2.8 million shares, respectively, of the Company’s common stock, in accordance with the terms of the convertible note. Subsequent to December 31, 2020, the Mann Group converted $ 0.4 million of interest and $ 9.6 million of principal into 4.0 million shares of common stock. See Note 7 – Borrowings. In December 2020, the Company issued 111,853 warrants to purchase shares of the Company’s common stock in connection with the third amendment to the Midcap Credit Facility. The warrants are set to expire on the earlier of December 1, 2027 or upon acquisition of the Company. See Note 7 – Borrowings. In December 2020, the Company issued 3,067,179 shares of the Company’s common stock as consideration for the acquisition of QrumPharma. See Note 3 – Acquisition. In February 2021, the Company converted $ 5.0 million principal amount of 2024 convertible notes into 1.7 million shares of the Company’s common stock. 80 11. Earnings per Common Share (“EPS”) Basic EPS excludes dilution for potentially dilutive securities and is computed by dividing net income (loss) by the weighted average number of common shares outstanding during the period. Diluted EPS reflects the potential dilution under the treasury method that could occur if securities or other contracts to issue common stock were exercised or converted into common stock. For periods where the Company has presented a net loss, potentially dilutive securities are excluded from the computation of diluted EPS as they would be antidilutive. The following tables summarize the components of the basic and diluted EPS computations (in thousands, except per share amounts): Year Ended December 31, 2020 2019 EPS — basic and diluted: Net loss (numerator) $ ( 57,240 ) $ ( 51,903 ) Weighted average common shares (denominator) 222,585 195,584 Net loss per share $ ( 0.26 ) $ ( 0.27 ) Common shares issuable represents incremental shares of common stock which consist of stock options, restricted stock units, warrants, and shares that could be issued upon conversion of the senior convertible notes and the Mann Group promissory notes. Potentially dilutive securities outstanding that are considered antidilutive are summarized as follows (in shares): Year Ended December 31, 2020 2019 Exercise of common stock options 12,264,616 14,135,681 Conversion of convertible promissory note into common stock 11,200,000 14,000,000 Exercise of warrants associated with public offering — 7,250,000 Exercise of warrants associated with Midcap Credit Facility 1,283,467 1,171,614 Conversion of convertible notes into common stock 1,666,667 1,666,667 Vesting of restricted stock units 6,037,542 1,057,047 Employee stock purchase plan 292,981 369,979 Exercise of common stock warrants — 31,851 Total 32,745,273 39,682,839 12. Stock Award Plans 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. RSUs with time-based vesting generally vest at a rate of 25 % per year over four years with consideration satisfied by service to the Company. Certain RSUs issued to nonemployee directors vest 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. The Company also issued restricted stock units with market conditions (“Market RSUs”). The grant date fair value and the effect of the market conditions was estimated using a Monte Carlo valuation. 81 Market RSUs issued during the year ended December 31, 2020 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 fair value of the Market RSUs was determined using a share price of $ 1.70 , risk-free interest rate of 0.18 %, volatility of 95 %, and a dividend yield of 0 %. 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 25 th percentile= 0 % of target, 25 th percentile= 50 % of target, 50 th percentile= 100 % of target, 75 th percentile= 200 % percent of target, 90 th percentile or higher= 300 % maximum. Payout values will be interpolated between the percentile rankings above. 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. The following table summarizes information about the Company’s stock-based award plans as of December 31, 2020: Outstanding Options Outstanding Restricted Stock Units Shares Available for Future Issuance 2004 Equity Incentive Plan 392,180 — — 2013 Equity Incentive Plan 4,318,058 148,150 — 2018 Equity Incentive Plan 7,533,823 5,889,392 7,717,480 2004 Non-Employee Directors’ Stock Option Plan 20,555 — — Total 12,264,616 6,037,542 7,717,480 Share-based payment transactions are recognized as compensation cost based on the fair value of the instrument on the date of grant. The Company uses the Black-Scholes option valuation model to estimate the grant date fair value of employee stock options. The expected term of an option granted is based on combining historical exercise data with expected weighted time outstanding. Expected weighted time outstanding is calculated by assuming the settlement of outstanding awards is at the midpoint between the remaining weighted average vesting date and the expiration date. The Company recognizes forfeitures as they occur. During the years ended December 31, 2020 and 2019, the Company recorded RSU and option based stock compensation expense of $ 6.2 million, $ 5.8 million and employee stock purchase plan compensation of $ 0.3 million and $ 0.4 million, respectively. Total stock-based compensation expense recognized in the accompanying consolidated statements of operations is included in the following categories (in thousands): Year Ended December 31, 2020 2019 Cost of goods sold $ 446 $ 601 Cost of revenue — collaborations and services 626 738 Research and development 338 356 Selling, general and administrative 5,101 4,508 Total $ 6,511 $ 6,203 The expected volatility assumption used in the Company’s Black-Sholes option valuation model is based on an assessment of the historical volatility derived from an analysis of historical trade activity. The Company has selected risk-free interest rates based on U.S. Treasury securities with an equivalent expected term in effect on the date the options were granted. Additionally, the Company uses historical data and management judgment to estimate stock option exercise behavior and employee turnover rates to estimate the number of stock option awards that will eventually vest. The Company calculated the fair value of employee stock options granted during the years ended December 31, 2020 and 2019 using the following assumptions: Year Ended December 31, 2020 2019 Risk-free interest rate 0.39% — 1.52% 1.52% — 2.51% Expected lives 5.67 — 7.0 years 6.20 — 9.37 years Volatility 93.83% — 94.25% 93.05% — 94.25% Dividends — — 82 The following table summarizes information relating to stock options: Number of Shares Weighted Average Exercise Price per Share Weighted Average Remaining Contractual Term (Years) Aggregate Intrinsic Value ($000) Outstanding at January 1, 2020 14,135,681 $ 3.09 7.84 $ 182 Granted 196,400 1.30 Exercised ( 432,166 ) 1.40 Forfeited ( 1,451,403 ) 1.55 Expired ( 183,896 ) 9.86 Outstanding at December 31, 2020 12,264,616 $ 3.41 6.45 $ 15,414 Exercisable at December 31, 2020 7,493,851 $ 4.56 5.62 $ 8,079 The weighted average grant date fair value of the stock options granted during the years ended December 31, 2020 and 2019 was $ 0.97 and $ 1.32 , respectively. Total fair value of stock options vested during the years ended December 31, 2020 and 2019 was $ 4.5 million and $ 3.4 million, respectively. The total intrinsic value of options exercised during the year ended December 31, 2020 was $ 0.5 million. The total intrinsic value of options exercised during the year ended December 31, 2019 was de minimis . Intrinsic value is measured using the fair market value at the date of exercise for options exercised or at December 31 for outstanding options, less the applicable exercise price. Cash received from the exercise of options during the years ended December 31, 2020 and December 31, 2019 was approximately $ 0.6 million and $ 0.1 million, respectively. As of December 31, 2020 and 2019, the Company recognized a $ 0.2 million and de minimis amount, respectively, of compensation costs related to the performance-based stock options. As of December 31, 2020, there was $ 0.4 million of unrecognized compensation costs related to performance-based stock options subject to performance conditions. The following table summarizes information relating to restricted stock units: Number of Shares Weighted Average Grant Date Fair Value per Share Outstanding at January 1, 2020 1,057,047 $ 2.16 Granted 7,009,997 2.08 Vested ( 1,731,076 ) 1.81 Forfeited ( 298,426 ) 1.39 Outstanding at December 31, 2020 6,037,542 2.20 Total fair value of restricted stock units vested during the years ended December 31, 2020 and 2019 was $ 2.5 million and $ 1.1 million, respectively. Intrinsic value of restricted stock units vested is measured using the closing share price on the day prior to the vest date. The total grant date fair value of restricted stock units outstanding as of December 31, 2020 and 2019 was $ 13.3 million and $ 2.3 million, respectively. As of December 31, 2020, there was $ 4.8 million of unrecognized compensation expense related to options and performance-based non-qualified options and $ 11.0 million of unrecognized compensation expense related to restricted stock units and market based stock units, which are expected to be recognized over the weighted average period of 2.08 to 3.0 years . The Company evaluates stock awards with performance conditions as to the probability that the performance conditions will be met and uses that information to estimate the date at which those performance conditions will be met in order to properly recognize stock-based compensation expense over the requisite service period. Employee Stock Purchase Plan  83 The Company provides all employees, including executive officers, the ability to purchase our common stock at a discount under our 2004 employee stock purchase plan (the “ESPP”). The ESPP is designed to comply with Section 423 of the Internal Revenue Code and provides all employees with the opportunity to purchase up to $ 25,000 worth of our common stock (based on the undiscounted fair market value at the commencement of the offering period) each year at a purchase price that is the lower of 85 % of the fair market value of the common stock on either the date of purchase or the commencement of the offering period. An employee may not purchase more than 5,000 shares of common stock on any purchase date. The executives’ rights under the ESPP are identical to those of all other employees. The Company issued 0.6 million and 0.7 million shares of common stock pursuant to the ESPP for the years ended December 31, 2020 and 2019, respectively. There were approximately 1.6 million shares of common stock available for issuance under the ESPP as of December 31, 2020. 13. Commitments and Contingencies Guarantees and Indemnifications — In the ordinary course of its business, the Company makes certain indemnities, commitments and guarantees under which it may be required to make payments in relation to certain transactions. The Company, as permitted under Delaware law and in accordance with its Bylaws, indemnifies its officers and directors for certain events or occurrences, subject to certain limits, while the officer or director is or was serving at the Company’s request in such capacity. The term of the indemnification period is for the officer’s or director’s lifetime. The maximum amount of potential future indemnification is unlimited; however, the Company has a director and officer insurance policy that may enable it to recover a portion of any future amounts paid. The Company believes the fair value of these indemnification agreements is minimal. The Company has not recorded any liability for these indemnities in the accompanying consolidated balance sheets. However, the Company accrues for losses for any known contingent liability, including those that may arise from indemnification provisions, when future payment is probable and the amount can be reasonably estimated. No such losses have been recorded to date. Litigation — The Company is subject to legal proceedings and claims which arise in the ordinary course of its business. As of December 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. 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. The Company records a provision for a liability when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. The Company’s policy is to accrue for legal expenses in connection with legal proceedings and claims as they are incurred. Following the public announcement in January 2016 of the election by sanofi-aventis U.S. 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 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. The plaintiffs are seeking monetary damages. In November 2016, the district court dismissed one of the actions without prejudice. In the remaining action, the district court ruled in October 2017 that U.S. law will apply to this case. 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. In September 2019, the plaintiff brought a motion to amend his claim, which the court denied in January 2020. The plaintiff has appealed this denial to the Supreme Court of Israel. The Company will continue to vigorously defend against the claims advanced. 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 7 — Borrowings). The fair value of the Milestone Rights is recorded in the 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 the Insulin Supply Agreement with Amphastar pursuant to which Amphastar manufactures for and supplies to the Company certain quantities of recombinant human insulin for use in Afrezza. Under the terms of the Insulin Supply Agreement, Amphastar is responsible for manufacturing the insulin in accordance with the Company’s specifications and agreed-upon quality standards. 84 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 December 31, 2020, the remaining purchase requirements are as follows: Minimum Commitment 2021 € 9.1 million 2022 € 8.5 million 2023 € 10.9 million 2024 € 14.6 million 2025 € 15.5 million 2026 € 19.4 million During the year ended December 31, 2019, the Company paid amendment fees of $ 2.8 million which were recognized as cost of goods sold. There were no amendment fees paid in 2020. 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 2019, the Company entered into two 90 -day foreign currency hedging transactions to mitigate its exposure to foreign currency exchange risks associated with then-existing insulin purchase commitments. The Company realized a de minimis currency loss for these transactions, which was recorded in other income and expense. Warrants - 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 August 6, 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. On November 30, 2020, in connection with the third amendment to the MidCap Credit Facility, the Company issued warrants to purchase an aggregate of 111,853 shares of the Company’s common stock, at an exercise price of $ 2.91 per share. Vehicle Leases – During the second quarter of 2018, the Company entered into a lease agreement with Enterprise Fleet Management Inc. for the lease of 119 vehicles. The lease requires monthly payments of approximately $ 83,000 per month including the cost of maintaining the vehicles, taxes and insurance. The lease commenced when the Company took possession of the majority of the vehicles in the second quarter of 2018 and expires 48 months after the delivery date. As of December 31, 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. No gain or loss was recorded. The revised monthly payment inclusive of maintenance fees, insurance and taxes is $ 70,000 . The lease expense is included in selling, general and administrative expenses in the accompanying consolidated statement of operations. 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 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. 85 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. The office lease commenced in August 2017. The Company agreed to pay initial monthly lease payments of $ 40,951 , subject to 3 % annual increases, plus the estimated cost of maintaining the property and common areas by the landlord, with a five month concession from October 2017 through February 2018. The lease also provides for allowances for tenant alterations and maintenance. The lease expires in January 2023 and provides the Company with a five year renewal option. The lease expense is included in selling, general and administrative expenses in the accompanying consolidated statement of operations . In November 2017, the Company executed an office lease with Russell Ranch Road II LLC to expand the office space for the Company’s corporate headquarters in Westlake Village, California. The office lease commenced in October 2018. The Company agreed to pay initial monthly lease payments of $ 35,969 , subject to a 3 % annual increase, plus the estimated operating cost of maintaining the property by the landlord, which are allocable based an annual assessment made by the landlord. In addition, the Company received reimbursement from the landlord of $ 56,325 for tenant improvements and was not required to pay a first-year common area maintenance fee. The lease expires in January 2023 and provides the Company with a five year renewal option. Upon adoption of ASC 842, this lease was classified as an operating lease which resulted in recording right-of-use assets and lease liabilities of approximately $ 3.2 million and $ 3.5 million, respectively, as of January 1, 2019. These amounts included approximately $ 0.9 million and $ 2.6 million of other current liabilities and operating lease liabilities, respectively. Operating lease costs under all operating leases including office space and equipment for the year ended December 31, 2020 was approximately $ 1.4 million. Cash paid for all operating leases for the year ended December 31, 2020 was $ 1.8 million. Variable lease costs were approximately $ 0.4 million for the year ended December 31, 2020. The weighted average discount rate used was 7.5 %. The weighted-average remaining lease term for all operating leases is 1.9 years. Operating lease costs under all operating leases including office space and equipment for the year ended December 31, 2019 was approximately $ 1.5 million. Cash paid for all operating leases for the year ended December 31, 2019 was $ 1.8 million. Variable lease costs were approximately $ 0.4 million for the year ended December 31, 2019. The weighted average discount rate used was 7.5 %. The weighted-average remaining lease term for all operating leases is 3.0 years. Future minimum office and vehicle lease payments as of December 31, 2020 and 2019 were as follows: December 31, 2020 2019 2020 $ — $ 1,470,217 2021 1,493,988 1,499,484 2022 1,238,799 1,241,089 2023 87,957 87,957 Total $ 2,820,744 $ 4,298,747 14. Employee Benefit Plans The Company administers a defined contribution 401(k) savings retirement plan for its employees. The Company may make discretionary matching contributions. For the year ended December 31, 2020, the Company matched each participant’s deferral at the rate of 50 % of each participant’s deferral up to the first 6 % of compensation. Participants hired after March 31, 2020 became vested in Company contributions at 100 % after two years of service. For the year ended December 31, 2019, the Company matched each participant’s deferral at the rate of 75 % of each participant’s deferral up to the first 8 % of compensation. Participants are vested in Company contributions at 50 % after one year of service and are 100 % vested after two years of service. The Company’s total discretionary matching contributions were $ 0.9 million and $ 1.5 million for the years ended December 31, 2020 and 2019, respectively. 15. Income Taxes Loss from continuing operations before provision for income tax for the Company’s domestic and international operations was as follows (in thousands): Year Ended December 31, 2020 2019 United States $ ( 57,458 ) $ ( 51,044 ) Foreign — ( 859 ) Loss before provision for income taxes $ ( 57,458 ) $ ( 51,903 ) 86 At December 31, 2019, the Company has concluded that it is more likely than not that the Company may not realize the benefit of its deferred tax assets due to its history of losses. For the year ended December 31, 2020 there was an income tax benefit of $ 0.22 million. The income tax benefit relates to a refund of previously paid withholding taxes in a foreign jurisdiction The Company has incurred operating losses since inception. Accordingly, the net deferred tax assets have been fully reserved. The provision for income taxes consists of the following (in thousands): Year Ended December 31, 2020 2019 Current U.S. federal $ — $ — U.S. state — — Non-U.S. ( 218 ) — Total current ( 218 ) — Deferred U.S. federal ( 4,377 ) ( 8,551 ) U.S. state ( 469 ) 3,299 Non-U.S. — — Total deferred ( 4,846 ) ( 5,252 ) Valuation allowance 4,846 5,252 Total $ ( 218 ) $ — Deferred income taxes reflect the tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting and income tax purposes. A valuation allowance is established when uncertainty exists as to whether all or a portion of the net deferred tax assets will be realized. Components of the net deferred tax assets as of December 31, 2020 and 2019, are as follows (in thousands): December 31, 2020 2019 Deferred tax assets: Net operating loss carryforwards $ 533,448 $ 531,970 Research and development credits 79,455 80,488 Capitalized research — 44 Milestone Rights 1,547 1,528 Accrued expenses 1,436 1,951 Loss on purchase commitment 23,864 22,167 Non-qualified stock option expense 3,766 3,128 Capitalized patent costs 5,273 4,964 Other 2093 147 Lease liability 559 827 Interest expense limitation 2,460 1,167 Depreciation 20,735 21,132 Deferred Product Revenue & Costs 1,569 2,062 Total net deferred tax assets 676,205 671,575 Valuation allowance ( 675,463 ) ( 670,617 ) Net deferred tax assets $ 742 $ 958 Deferred tax liabilities: Right of use asset $ ( 510 ) $ ( 751 ) Other prepaids ( 232 ) ( 207 ) Total deferred tax liabilities ( 742 ) ( 958 ) Net deferred tax assets $ — $ — 87 The Company’s effective income tax rate differs from the statutory federal income tax rate as follows for the years ended December 31, 2020 and 2019: Year Ended December 31, 2020 2019 Federal tax benefit rate 21.0 % 21.0 % Permanent items ( 6.1 ) ( 3.3 ) Tax law changes — ( 2.7 ) Stock based compensation ( 0.5 ) ( 0.9 ) Tax attribute expirations ( 6.6 ) ( 4.0 ) Foreign withholding tax 0.4 — Valuation allowance ( 7.8 ) ( 10.1 ) Effective income tax rate 0.4 % 0.0 % As of December 31, 2020 and 2019, management assessed the realizability of deferred tax assets. Management evaluated the need for an amount of any valuation allowance for deferred tax assets on a jurisdictional basis. This evaluation utilizes the framework contained in ASC 740, Income Taxes , wherein management analyzes all positive and negative evidence available at the balance sheet date to determine whether all or some portion of the Company’s deferred tax assets will not be realized. Under this guidance, a valuation allowance must be established for deferred tax assets when it is more likely than not (a probability level of more than 50%) that the Company may not realize the benefit of its deferred tax assets. In assessing the realization of the Company’s deferred tax assets, the Company considers all available evidence, both positive and negative. In concluding on the evaluation, management placed significant emphasis on guidance in ASC 740, which states that “a cumulative loss in recent years is a significant piece of negative evidence that is difficult to overcome.” Based upon available evidence, it was concluded on a more-likely-than-not basis that all deferred tax assets were not realizable as of December 31, 2020. Accordingly, a valuation allowance of $ 675.5 million has been recorded to offset this deferred tax asset. During the years ended December 31, 2020 and 2019, the change in the valuation allowance was $ 4.8 million and $ 5.3 million, respectively. At December 31, 2020, the Company had federal and state net operating loss carryforwards of approximately $ 2.4 billion and $ 1.3 billion available, respectively, to reduce future taxable income. $ 395.2 million of the federal losses do not expire and the remaining federal and state losses have started expiring, beginning in 2020 through various future dates. Pursuant to Internal Revenue Code (“IRC”) Sections 382 and 383, annual use of the Company’s federal and state net operating loss and research and development credit carryforwards may be limited in the event a cumulative change in ownership of more than 50% occurs within a three-year period. As a result of the Company's initial public offering, an ownership change within the meaning of Internal Revenue Code Section 382 occurred in August 2004. As a result, federal net operating loss and credit carryforwards of approximately $ 216.0 million are subject to an annual use limitation of approximately $ 13.0 million. The annual limitation is cumulative and therefore, if not fully utilized in a year can be utilized in future years in addition to the Section 382 limitation for those years. We have completed a Section 382 analysis beginning from the date of our initial public offering through December 31, 2020, to determine whether additional limitations may be placed on the net operating loss carryforwards and other tax attributes, and no additional changes in ownership that met Section 382 study ownership change threshold has been identified through December 31, 2020. There is a risk that changes in ownership may occur in tax years after December 31, 2020. If a change in ownership were to occur, our net operating loss carryforwards and other tax attributes could be further limited or restricted. If limited, the related asset would be removed from the deferred tax asset schedule with a corresponding reduction in the valuation allowance. Due to the existence of the valuation allowance, limitations created by future ownership changes, if any, related to the Company’s operations in the U.S. will not impact the Company’s effective tax rate. At December 31, 2020, the Company had $ 54.2 million of U.S. federal research and development credits which expire beginning in 2024 , and $ 25.3 million of state research and development credits. The California credits do not expire and the New Jersey credits began to expire in 2020 . The Company also had two types of credits in Connecticut of which $ 15.7 million do not expire and $ 0.1 million of $ 1.0 million expired at the end of 2020. Due to the existence of the valuation allowance, the expiration of the research and development credits will not impact the Company’s consolidated statements of operations. 88 A reconciliation of beginning and ending amounts of unrecognized tax benefits in 2020 and 2019, respectively, was as follows (in thousands): Year Ended December 31, 2020 2019 Gross unrecognized Tax benefit as of 1/1/2020 $ — $ — Gross increases for tax positions of prior years 268,902 — Gross decreases for tax positions of current year — — Settlements — — Lapse of statute of limitations — — Gross unrecognized tax benefits as of 12/31/2020 $ 268,902 $ — The Company files U.S. federal and state income tax returns in jurisdictions with varying statutes of limitations. In the normal course of business the Company is subject to examination by taxing authorities throughout the country. These audits could include examining the timing and amount of deductions, the allocation of income among various tax jurisdictions and compliance with federal, state and local laws. The Company’s tax years since 2016 remain subject to examination by federal, state and foreign tax authorities. The Company considers its undistributed earnings of foreign subsidiaries to be permanently reinvested in foreign operations and has not provided for U.S. income taxes on such earnings. As of December 31, 2020 the Company had no undistributed earnings from its foreign subsidiaries. The Company adopted ASC Topic 842, Lease s, on January 1, 2019. Under Topic 842, the Company is required to recognize the assets and liabilities that arise from most operating leases on the balance sheet. Upon adoption, no change in retained earnings was recorded related to income taxes as the Company maintains a full valuation allowance. As of the implementation date, an adjustment of $ 0.7 million was recorded as a deferred tax liability and an adjustment of $ 0.7 million was recorded as a deferred tax asset. See above for more information about the non-income tax impact of the adoption of the new leasing standard. The Tax Act subjects a U.S. shareholder to tax on global intangible low-taxed income (“GILTI”) earned by certain foreign subsidiaries. The FASB Staff Q&A, Topic 740, No. 5, Accounting for Global Intangible Low-Taxed Income , states that an entity can make an accounting policy election to either recognize deferred taxes for temporary basis differences expected to reverse as GILTI in future years or to provide for the tax expense related to GILTI in the year the tax is incurred as a period expense only. The Company has elected to account for GILTI in the year the tax is incurred. On March 27, 2020, the U.S. government enacted the CARES Act, a $ 2 trillion relief package comprising a combination of tax provisions and other stimulus measures. The CARES Act broadly provides entities tax payment relief and significant business incentives and makes certain technical corrections to the Tax Act. The tax relief measures for entities include a five-year net operating loss carry back, increased interest expense deduction limits, acceleration of alternative minimum tax credit refunds, payroll tax relief, and a technical correction to allow accelerated deductions for qualified improvement property. The Act also provides other non-income tax benefits, including federal funding for a range of stabilization measures and emergency funding to assist those impacted by the COVID-19 pandemic. Similar legislation is being enacted in other jurisdictions in which the Company operates. ASC Topic 740, Income Taxes , requires the effect of changes in tax rates and laws on deferred tax balances to be recognized in the period in which new legislation is enacted. The enactment of the CARES Act and similar legislation in other jurisdictions in which the Company operates was not material to the Company’s income tax benefit for the year ended December 31, 2020. 16. Subsequent Event Subsequent to December 31, 2020, the Company entered into a non-binding letter of intent (“LOI”) with a third party to sell and lease back a portion of the Company’s Danbury manufacturing facility and administrative offices. The terms of the LOI include a sales price of approximately $ 95 million to $ 105 million, a lease term of 20 years with four five-year renewal options, and annual rent of approximately $ 10 million to $ 11 million at the beginning of the lease. If the transaction is completed, the Company intends to use the proceeds for general corporate purposes, and may also pay down a portion of its senior secured debt. The completion of the transactions contemplated by the LOI is subject to certain conditions, including the negotiation of satisfactory definitive agreements and satisfactory results of the buyer’s inspections and other investigations, all of which are anticipated to be completed during the first quarter of 2021. However, there can be no assurances that this proposed transaction will be completed in the timeframe or on the principal terms set forth above, or at all. 89