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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
 
FORM 10-Q


 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended June 30, 2021
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from ______________________ to_______________________
 
Commission File Number 001-08568
 
Teligent, Inc.
(Formerly IGI Laboratories, Inc.)
(Exact name of registrant as specified in its charter)
Delaware01-0355758
(State or other Jurisdiction of(I.R.S. Employer Identification No.)
incorporation or organization)
105 Lincoln Avenue
Buena, New Jersey
08310
(Address of Principal Executive Offices)(Zip Code)
 
(856) 697-1441
(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Exchange Act: 
Title of each classTrading symbol(s)Name of each exchange on
Common Stock, Par Value $0.01 Per ShareTLGTThe Nasdaq Stock Market


Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes þ     No ¨
 
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes þ     No ¨
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
1


 
Large accelerated filer
¨
Accelerated filer
¨
Non-accelerated filerSmaller reporting company
Emerging growth company
¨
 
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter). ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨     No þ

The number of shares outstanding of the issuer's common stock was 92,817,493 shares as of August 12, 2021.






2


OTHER INFORMATION
 
When used in this report, the terms, “we,” the “Company,” “our,” and “us” refer to Teligent, Inc., a Delaware corporation (formerly IGI Laboratories, Inc.), and its consolidated subsidiaries.
3


PART I
FINANCIAL INFORMATION
ITEM 1.    Financial Statements
TELIGENT, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share information)
June 30, 2021 (unaudited)December 31, 2020
ASSETS
Current assets:
Cash and cash equivalents$22,626 $5,946 
Restricted cash206 206 
Accounts receivable, net 9,849 11,257 
Inventories17,059 23,396 
Prepaid expenses and other receivables1,761 3,486 
Total current assets51,501 44,291 
Property, plant and equipment, net15,928 16,131 
Intangible assets, net19,161 22,964 
Goodwill518 501 
Other assets3,311 3,901 
Total assets$90,419 $87,788 
LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current liabilities:
Accounts payable$3,960 $7,972 
Accrued expenses7,564 14,713 
Customer deposits568  
Capital lease obligation, current476 436 
Total current liabilities12,568 23,121 
Series C Senior Secured Convertible Notes, net of debt discount and debt issuance costs (face of $ and $50,323 as of June 30, 2021 and December 31, 2020, respectively)
 31,922 
Series D Senior Convertible Notes, net of debt discount and debt issuance costs (face of $277 and $3,352 as of June 30, 2021 and December 31, 2020, respectively)
297 5,796 
Revolver, net of debt issuance costs (face of $25,000 and $25,000 as of June 30, 2021 and December 31, 2020, respectively)
25,000 25,000 
2023 Term Loans, net of debt issuance costs (face of $86,605 and $102,905 as of June 30, 2021 and December 31, 2020, respectively )
91,208 99,490 
Derivative liabilities 7,507 
Deferred tax liability196 190 
Other long term liabilities4,663 4,914 
Total liabilities133,932 197,940 
Commitments and Contingencies
Mezzanine equity:
Series D Preferred Stock, $0.01 par value, 1,000,000 shares authorized; 85.412 shares issued and outstanding as of June 30, 2021
15,374  
Stockholders’ deficit:
Common stock, $0.01 par value, 100,000,000 shares authorized; 92,817,674 and 21,754,223 shares issued and outstanding as of June 30, 2021 and December 31, 2020, respectively
1,232 220 
Additional paid-in capital197,372 135,218 
Accumulated deficit(254,209)(243,496)
Accumulated other comprehensive loss, net of taxes(3,282)(2,094)
Total stockholders’ deficit(58,887)(110,152)
Total liabilities, mezzanine equity and stockholders' deficit$90,419 $87,788 
 The accompanying notes are an integral part of the condensed consolidated financial statements.



4


TELIGENT, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except shares and per share information)
(Unaudited)
 
Three months ended June 30,Six months ended June 30,
2021202020212020
Revenue, net$10,433 $13,586 $22,021 $21,033 
Costs and expenses:
Cost of revenues13,136 11,084 25,935 19,694 
Selling, general and administrative expenses5,735 4,989 12,007 11,706 
Impairment charges  24 8,373 
Product development and research expenses2,227 1,880 3,690 3,680 
Total costs and expenses21,098 17,953 41,656 43,453 
Operating loss(10,665)(4,367)(19,635)(22,420)
Other income (expense):
Foreign currency exchange gain (loss)785 2,125 (1,307)528 
Interest and other expense, net(2,989)(7,520)(7,108)(13,396)
Gain on debt restructuring  22,439  
Inducement loss  (1,889) 
  Change in the fair value of derivative liabilities (4,591)(3,186)(5,849)
Loss before income tax expense(12,869)(14,353)(10,686)(41,137)
Income tax (benefit) expense(3)(21)27 31 
Loss attributable to common shareholders$(12,866)$(14,332)$(10,713)$(41,168)
Loss per share
Basic and diluted loss per share$(0.14)$(2.56)$(0.14)$(7.50)
Weighted average shares of common stock outstanding:
Basic and diluted shares93,410,017 5,593,557 76,037,735 5,491,554 


 The accompanying notes are an integral part of the condensed consolidated financial statements

.
5


TELIGENT, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(in thousands)
(Unaudited) 
 
Three months ended June 30,Six months ended June 30,
2021202020212020
Net loss$(12,866)$(14,332)$(10,713)$(41,168)
Other comprehensive loss, net of tax:
Foreign currency translation (436)(233)(1,188)(432)
Other comprehensive loss, net of tax(436)(233)(1,188)(432)
Comprehensive loss$(13,302)$(14,565)$(11,901)$(41,600)

The accompanying notes are an integral part of the condensed consolidated financial statements.
6


TELIGENT, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN PREFERRED STOCK AND STOCKHOLDERS' DEFICIT
(in thousands, except share information)

 
AdditionalAccumulated
Other
Total
Preferred Stock Series DCommon StockPaid-InAccumulatedComprehensiveStockholders’
Series D SharesAmountShares (*)Amount (*)Capital (*)DeficitLossDeficit
Balance, December 31, 2020 (audited)  21,754,223 $220 $135,218 $(243,496)$(2,094)$(110,152)
Stock based compensation expense— — — — 210 — — 210 
Issuance of stock for vested restricted stock units— — 181 2 — — — 2 
Fair value of conversion feature on Convertible 2023 Series Notes— — 2,049,997 21 2,012 — — 2,033 
ATM— — 38,712,036 387 33,354 — — 33,741 
Issuance of shares for debt exchange— — 30,002,611 303 — — — 303 
Series C Extinguishment— — 298,626 299 26,578 — — 26,877 
Issuance of preferred shares to settle Second Lien Credit Agreement paid-in- kind interest            85,412 15,374 — — — — — — 
Cumulative translation adjustment— — — — — (1,188)(1,188)
Net loss— — — — — (10,713)$— (10,713)
Balance June 30, 2021 (unaudited)85,412 15,374 92,817,674 $1,232 $197,372 $(254,209)$(3,282)$(58,887)

(*) Adjusted to reflect the 1-for-10 reverse stock split effectuated at 12:01 a.m. Eastern Time on May 28, 2020.

The accompanying notes are an integral part of the condensed consolidated financial statements.
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TELIGENT, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
Six months ended June 30,
20212020
Cash flows from operating activities:
Net loss$(10,713)$(41,168)
Reconciliation of net loss to net cash (used in) provided by operating activities:
Depreciation of fixed assets and leases363 1,972 
Provision for bad debt295 236 
Provision for write down of inventory759 1,931 
Stock based compensation210 658 
(Accretion) amortization of debt costs and debt discount/premium(365)3,871 
Amortization of intangible assets1,195 1,368 
Non cash lease expense173 209 
Foreign currency exchange (gain)/loss 1,307 (528)
Loss on impairment of intangible assets24 8,373 
Non cash interest expense6,223 6,171 
Gain on debt restructuring(22,439) 
   Inducement loss1,889  
Change in the fair value of derivative liabilities3,186 5,849 
Changes in operating assets and liabilities:
Accounts receivable1,165 6,510 
Inventories5,732 (11,130)
Prepaid expenses, other current receivables, and assets1,385 294 
Accounts payable and accrued expenses(8,156)4,447 
Operating liabilities(216)(206)
Customer deposits568  
Net cash used in operating activities(17,415)(11,143)
Cash flows from investing activities:
Capital expenditures(229)(2,369)
Net cash used in investing activities(229)(2,369)
Cash flows from financing activities:
Proceeds from Term Loan 20231,465  
Proceeds from ATM36,920  
Debt issuance costs(3,986) 
Government grant advance 3,378 
Principal paid on lease obligation(7)(7)
Net cash provided by financing activities34,392 3,371 
Effect of exchange rate on cash and cash equivalents(68)484 
Net increase (decrease) in cash, cash equivalents and restricted cash16,680 (9,657)
Cash, cash equivalents and restricted cash at beginning of period6,712 16,182 
Cash, cash equivalents and restricted cash at end of period$23,392 $6,525 
Supplemental Cash flow information:
Cash payments for interest$883 $2,352 
Cash payments for income taxes61 34 
Non-cash operating, investing and financing transactions:
Acquisition of capital expenditures in accounts payable and accrued expenses46 215 
Capitalized stock compensation in capital expenditures 9 
Issuance of Series D preferred stock15,374  
 The accompanying notes are an integral part of the condensed consolidated financial statements.
8


TELIGENT, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the U.S. generally accepted accounting principles ("GAAP") for interim financial information and with the instructions to Form 10-Q and Article 8-03 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements included in the Company's Annual Report on its Form 10-K ("Form 10-K") for the year ended December 31, 2020, as updated by other reports we may file from time to time with the Securities and Exchange Commission ("SEC"). The condensed consolidated balance sheet as of December 31, 2020, has been derived from those audited consolidated financial statements. Operating results for the three and six months ended June 30, 2021 are not necessarily indicative of the results that may be expected for the year ending December 31, 2021.





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1. Nature of the Business and Going Concern

Nature of the Business

Teligent, Inc. (the “Company”) is a generic pharmaceutical company. All references to "Teligent," the "Company," "we," "us," and "our" refer to Teligent, Inc. and its subsidiaries. To date, our platform for growth has been centered around the development, manufacturing and marketing of a portfolio of generic pharmaceutical products under our own label and private labeled for other pharmaceutical companies in topical and injectable dosage forms. We believe that expanding our development and commercial base beyond topical generics, historically the cornerstone of our expertise, to include injectable generics, will leverage our existing expertise and capabilities, and broaden our platform for more diversified strategic growth.

We currently market and sell generic topical and generic and branded injectable pharmaceutical products in the United States and Canada. In the United States, we market 37 generic topical pharmaceutical products and 1 branded injectable pharmaceutical products. We have FDA approvals for a total of 39 topical generic products of which 3 products are currently discontinued, and we have 7 Abbreviated New Drug Applications ("ANDAs") on topical products and 3 New Drug Application ("NDA") Prior Approval Supplements ("PASs") for sterile injectable products submitted to the FDA that are awaiting approval. As a result of our remediation of certain issues identified in the FDA Warning Letter issued in November 2019 (discussed further below), we have paused the marketing and sale of 5 of our products, with tentative plans to return them to the market sometime in second quarter of 2022. Furthermore, in reaction to changing market forces, the Company is examining the potential discontinuance of an additional 5 products over the next 12-24 months.

In Canada we market 24 generic injectable, 1 generic topical, and 3 generic ophthalmic products approved by Health Canada. We have 1 Abbreviated New Drug Submission (“ANDS”) pending at Health Canada.

In the United States, approved ANDA generic drugs are usually interchangeable with the innovator drug. This means that the generic version may generally be substituted for the branded product by either a physician or pharmacist when dispensing a prescription. We also provide contract development and manufacturing services to the prescription and over-the-counter ("OTC") pharmaceutical and cosmetic markets. We operate our business under one operating segment.

Our common stock is traded on the Nasdaq Global Select Market under the trading symbol “TLGT.” Our principal executive office, laboratories and manufacturing facilities are located at 105 Lincoln Avenue, Buena, New Jersey. We have additional offices located in Iselin, New Jersey, and Mississauga, Canada. In late 2020, we decided to reposition the research and development operation mainly performed at our Tallinn, Estonia office to our US manufacturing site at Buena, New Jersey, and consequently we have divested our limited assets in Estonia and are in the process of formally dissolving our Estonian operations.

The manufacturing and commercialization of generic pharmaceutical products is competitive, and there are established manufacturers, suppliers and distributors actively engaged in all phases of our business. We currently manufacture and sell topical, injectable and ophthalmic generic pharmaceutical products under our own label in both the US and Canada.

Liquidity and Capital Resources; Going Concern

We have incurred significant losses and generated negative cash flows from operations in recent years, and we expect to continue to incur losses and generate negative cash flows from operations for the foreseeable future. We are not currently generating revenues from operations that are sufficient to cover our operating expenses, and our available capital resources are not sufficient for us to continue to meet our obligations as they become due, presenting substantial doubt as to our ability to continue as a going concern. Our cash and cash equivalents at June 30, 2021 were approximately $22.6 million, compared to approximately $5.9 million at December 31, 2020 and approximately $27.5 million at March 31, 2021. We continue to work diligently with our financial and strategic advisors to critically assess the strengths of the company which we can leverage moving forward.

In the absence of additional liquidity, we anticipate that existing cash resources, after giving effect to $4.6 million in interim funding under the Second Lien Credit Agreement, with our continued focus on cash conservation, will result in our having sufficient operating cash until the end of 2021 or into the first quarter of 2022.

We have been and are actively pursuing potential sources of additional liquidity, including:

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Equity Financing. We completed the at-the-market offering on March 31, 2021 with aggregate gross proceeds of $38,712,036 from the sale of shares of our common stock at an average price of $0.993 per share.

Debt Financing. We have undertaken several deleveraging transactions to reduce our indebtedness and our related costs of capital. Additionally, we have worked with our lenders under the Senior Credit Facilities to obtain short-term financing to meet our immediate liquidity needs, including $4.6 million in interim funding under the Second Lien Credit Agreement. At the commencement of the ATM offering, we and Ares agreed to amendments of the Senior Credit Agreements to provide for an extension of relief from certain financial covenants (including, among others, our minimum liquidity covenant through March 31, 2022). There can be no assurances that our senior lenders will continue to provide interim financing or other relief from the covenants contained in our Senior Credit Agreements, from which we may need one or more additional waivers based on our currently expected results. In the event such waivers are not extended and we violate one or more of certain specified covenants in our Senior Credit Agreements, such violation may lead to one or more events of default under the Senior Credit Agreements, which may trigger certain cross-default provisions under the terms of any other indebtedness then in effect. We continue to engage with our business, financial and legal advisors to further analyze and explore new potential transactions to refinance or restructure our remaining outstanding debt.

Strategic Alternatives and Further Deleveraging. We expect to continually engage in such exploratory discussions with potential partners and counterparties in regard to strategic transactions and further deleveraging transactions as we and our board of directors determine are appropriate. We are continuing to diligently pursue with our financial and strategic advisors critical assessments of our asset base, operational and strategic strengths and how we can best leverage them moving forward, as well as potential transactions which could result in further deleveraging or increased liquidity. However, the outcome of these activities is uncertain at this time and there can be no assurance that we will be able to identify any appropriate transaction or strategy, or consummate any such potential transaction or strategic shift which may be identified on terms that are acceptable to us, if at all.

It has been very difficult to estimate our liquidity requirements, future cash burn rates and future operating results, during the last 15 months due to the COVID-19 pandemic. Further, it has been difficult to determine when our operating environment will change to allow us to return to more normalized operations, including in respect of the effects of the COVID-19 pandemic. By way of example, the COVID-19 pandemic resulted in a significant decrease in elective visits to dermatologists in the United States, which has led to a reduction in the volume of prescriptions written for topical products customarily supplied by us, which has negatively impacted our revenue. While the easing of COVID-19 precautions has, to an extent, allowed some improvement in elective visits to dermatologists, the continuing uncertainty in regard to the sustainability of the level of these visits given the emergence of new strains of COIVD-19 and the resurgence of social distancing precautions is leading to continuing uncertainty on prescription volumes for topical products we supply and an inability to reliably forecast our revenues.

Further, the FDA Warning Letter (discussed further below) has prevented us from launching our new sterile injectable product line to be produced at our new facility, and due to regulatory and inventory production requirements, as well as certain issues of non-conformance with respect to certain products identified during our review undertaken in connection with the FDA Warning Letter (including, among other matters, product recalls, long-term production pauses, short-term clear path to market production pauses, and continued production with minor process correction), we anticipate continuing to experience a significant delay in the launch of such product line even after the restrictions imposed by the FDA Warning Letter are rescinded (if such restrictions are rescinded at all). We also continue to experience significant pressures on our liquidity related to remediation efforts arising in respect of the FDA Warning Letter. While we believe we have made substantial progress in remediating the issues identified in the FDA Warning Letter and in subsequent internal reviews, as discussed in further detail below, the FDA is currently performing a Current Good Manufacturing Practices (“CGMP”) inspection and reinspection to follow-up on FDA Warning Letter remediation actions and we cannot predict at this time when it will be completed, when the results of the inspection will be made available to us, what those results may be and how those results may impact the restrictions imposed on the Company by the FDA Warning Letter. As a result, there can be no assurances as to when, whether and to what extent the FDA will agree to remove the restrictions imposed by the FDA Warning Letter following such re-inspection.

As a result, we continue to have uncertainty as to whether or when the restrictions imposed by the FDA Warning Letter will be removed or if removed, how long it will take for our increased ability to operate following such removal to generate sufficient liquidity to achieve more normalized operating results. Further, given the substantial doubts of our ability to proceed as a going concern and the significant operational challenges we face in the near- and long-term, there
11


can be no assurances that any or all these potential sources of liquidity will be available to us on commercially acceptable terms, if at all.

FDA Warning Letter

The Company received a warning letter from the FDA in November 2019 arising from an inspection of its Buena, New Jersey manufacturing facility, as well as an additional comment letter from the FDA in August 2020 (the “FDA Warning Letter”). As part of our efforts to remediate the issues identified in the FDA Warning Letter and to strengthen our quality systems, we undertook a comprehensive review of all of our products. This review was completed in December 2020. While the review did not identify material issues with many of our products, it identified certain issues of non-conformance with respect to certain products which have resulted in recalls and halting the production of certain products, that we are actively reviewing and remediating. We have experienced and may continue to experience, among other matters, product recalls, long-term production pauses, short-term clear path to market production pauses, and continued production with minor process corrections. The Company has also provided the FDA with a series of detailed submissions outlining additional changes in its quality practices, submitting additional documentation to support previous and ongoing independent assessments and remediation actions, providing updates to the Company’s organizational structure, and providing all further detail in regard to ongoing remediation projects (including comprehensive product quality assessments) to ensure all of our products are safe, effective and compliant. The Company is continuing to work diligently to remediate all issues cited by the FDA and those resulting from its comprehensive quality review, and has continued to have active communications with the FDA regarding its progress.

As stated at the end of the first quarter of 2021, the Company was of the belief that it had made substantial progress in remediating the issues identified in the FDA Warning Letter and in subsequent internal reviews and that it would, based on its assessment of these remediation efforts, be ready to inform the FDA of its inspection readiness during the third quarter of 2021. However, prior to the Company so informing the FDA, it was informed that the FDA would commence a periodic Current Good Manufacturing Practices (“CGMP”) inspection and reinspection to follow-up on FDA Warning Letter remediation actions in mid-July. This inspection and reinspection is still on-going as of this time and we cannot predict at this time when it will be completed, when the results of the inspection will be made available to us, what those results may be, and how those results may impact the restrictions imposed on the Company by the FDA Warning Letter. We will have no further comment on this matter until such time as the results of the FDA’s inspection and reinspection are formally made available to us and we have had the opportunity to review and analyze the same with our consultants and advisors.

We believe the foregoing disruptions with respect to certain of our products, the diversion of resources to remediate the product quality issues, and the uncertainty as to the results of the FDA's on-going inspection and reinspection and whether and when this may or may not result in the removal or abating of the restrictions imposed on the Company by the FDA Warning Letter will continue to have a negative impact on our business, financial position, results of operations and cash flows during 2021, including reducing our revenue, negatively impacting operating/(loss), and possibly resulting in impairment and other charges. Further, we anticipate that the FDA’s pre-approval inspection for commercial production on the newly installed injectable line at the Buena, NJ facility will continue to be delayed until such time as the FDA Warning Letter is fully addressed. The continued failure to address the issues identified by the FDA in its warning letter and those subsequently identified by us in our comprehensive product quality review as well as the continued delay in obtaining the FDA’s pre-approval inspection for commercial production on the newly installed injectable line at the Buena, NJ facility will have a negative impact on our business, financial position, results of operations and cash flows.

COVID-19 Pandemic Update

As a pharmaceutical manufacturing facility, we are considered “essential” under applicable directives from the state of New Jersey. During the COVID-19 Public Health Emergency and State of Emergency we maintained our manufacturing operations and monitored conditions in order to maintain a safe workplace for our employees. Among other preventative measures, during the height of the pandemic we directed all employees that could perform their function remotely to work from home in accordance with applicable guidelines, implemented social distancing measures on-site at our manufacturing facility and associated administrative office spaces, provided daily personal protective equipment to our onsite employees upon their arrival to the site and implemented temperature monitoring services at our newly established single point of entrance. We have also implemented a more frequent sanitization process of the facility. As the Public Health Emergency, State of Emergency and restrictions have abated, we have now implemented a ‘return to office’ protocol for all our locations under which we will maintain social distanced workspace and continue to sanitize our facilities.
12



During the pandemic, we re-aligned our manufacturing-related resources with downward adjustments made to our production schedule, and in order to preserve cash, we initiated a reduction in force at our Buena, NJ manufacturing facility effective June 19, 2020. In connection with the reduction, we terminated 53 employees, furloughed another 15 employees and eliminated the 2nd shift packaging operation. Many of the furloughed employees have now been recalled and our employee base has stabilized and begun to rebound as we recruit and fill critical positions.

In addition, we decided to shift our research and development operation being performed in our Tallinn, Estonia office to our US manufacturing site at Buena, New Jersey and subsequently to wind-down our Estonia operation. On September 30, 2020, we sold certain of our assets located in Estonia.

Government Grant Advance

On May 15, 2020, the Company received $3.4 million of proceeds from the U.S. Small Business Administration (the "SBA") Paycheck Protection Program (the "Government Grant Advance") and utilized the advance to balance its employee-related actions previously taken with the business needs to ensure a significant portion of the loan will be forgiven. The Government Grant Advance matures in 2 years with accrued interest at an annual rate of 1.00%, being deferred for payments on amounts not forgiven at the later of (a) 10 months following the borrower's covered period, or (b) when the SBA remits any amounts forgiven to the lender. According to IAS 20, Accounting for Government Grants and Disclosure of Government Assistance, the Company recorded $3.4 million in other income on the Consolidated Statements of Operations for the year ended December 31, 2020.

Nasdaq Delisting Notice

On April 9, 2021, the Company received a notice (the “Notice”) from The Nasdaq Stock Market informing the Company that for the prior 30 consecutive business days, the bid price of the Company’s securities had closed below $1.00 per share, which is the minimum required closing bid price for continued listing on Nasdaq pursuant to Listing Rule 5450(a)(1) (the “Bid Price Requirement”). The Notice has no immediate effect on the Company’s Nasdaq listing or trading of the Company’s common stock. The Company has 180 calendar days, or until October 6, 2021, to regain compliance. To regain compliance, the closing bid price of the Company’s securities must be at least $1.00 per share for a minimum of ten consecutive business days. If the Company does not regain compliance by October 6, 2021, the Company may be eligible for additional time to regain compliance or if the Company is otherwise not eligible, the Company may request a hearing before a Hearings Panel.

The negative financial conditions described above raise substantial doubt about our ability to continue as a going concern as of June 30, 2021. To that end, and as described above, the Company is not currently generating revenues from operations that are sufficient to cover its operating expenses, and its available capital resources are not sufficient for it to continue to meet its obligations as they become due. As a result, the Company has engaged financial, strategic and legal advisors to assist it in, among other things, analyzing all available strategic alternatives to address its liquidity and capital structure. As part of these activities we are continuing to diligently pursue with our financial and strategic advisors critical assessments of our asset base, operational and strategic strengths and how we can best leverage them moving forward, as well as potential transactions which could result in potential increased liquidity. However, the outcome of these activities is uncertain at this time and there can be no assurance that we will be able to identify any appropriate transaction or strategy, or consummate any such potential transaction or strategic shift which may be identified on terms that are acceptable to us, if at all. Thus, the Company cannot provide assurances that additional liquidity and capital will be available when needed or that any strategic alternatives or restructuring pursued will be available on acceptable terms. If such additional liquidity or capital is not available and the Company is unable to successfully pursue strategic alternatives or a restructuring, it may be forced to pursue a plan of reorganization under Chapter 11 of the U.S. Bankruptcy Code and/or cease its operations. The accompanying financial statements do not include any adjustments that might result from the outcome of this uncertainty.

2. Summary of Significant Accounting Policies
 
Basis of Presentation

The condensed consolidated financial statements contained in this report are unaudited. In the opinion of management, the condensed consolidated financial statements include all adjustments, which are of a normal recurring nature, necessary to present fairly the financial position at June 30, 2021, and the results of operations and cash flows for the three and six-
13


month periods ended June 30, 2021, and 2020. Certain information and disclosures normally included in consolidated financial statements prepared in accordance with GAAP have been condensed or omitted. Accordingly, the accompanying unaudited condensed consolidated financial statements should be read in conjunction with the notes to the audited consolidated financial statements contained in the Company’s Form 10-K for the year ended December 31, 2020, as filed with the Securities and Exchange Commission on May 4, 2021.

Reverse Stock Split

On May 28, 2020, the Company effectuated a one-for-ten reverse stock split of its outstanding shares of common stock (the "Reverse Stock Split"). The Reverse Stock Split reduces the Company's shares of outstanding common stock and stock options. Fractional shares of Common Stock that would have otherwise resulted from the Reverse Stock Split were rounded up to the nearest whole share. All share and per share data for all periods presented in the accompanying Condensed Consolidated Financial Statements and the related disclosures have been adjusted retroactively to reflect the Reverse Stock Split. The number of authorized shares of common stock and the par value per share remains unchanged.

Principles of Consolidation

The condensed consolidated financial statements include the accounts of Teligent, Inc. and its wholly owned subsidiaries. The Company consolidates the following entities: Igen, Inc., Teligent Pharma. Inc., Teligent Luxembourg S.à.r.l., Teligent OÜ, and Teligent Canada Inc., in addition to the following inactive entities: Microburst Energy, Inc., Blood Cells, Inc. and Flavorsome, Ltd. All inter-company accounts and transactions have been eliminated.

Use of Estimates
 
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates include the valuation of derivative liabilities associated with certain Notes and the Senior Credit Facility, sales returns and allowances, allowances for excess and obsolete inventories, allowances for doubtful accounts, provisions for income taxes and related valuation allowances, stock based compensation, the assessment for the impairment of long-lived assets (including property, plant and equipment), indefinite-lived assets (including, goodwill, intangibles, and In-Process research and development), and legal accruals for environmental cleanup and remediation costs. The Company bases its estimates and assumptions on historical experience, known or expected trends and various other assumptions that it believes to be reasonable. As future events and their effects cannot be determined with precision, actual results could differ significantly from these estimates.

Related Parties

The Company follows subtopic 850-10 of the FASB Accounting Standards Codification for the identification of related parties and disclosure of related party transactions.

The financial statements shall include disclosures of material related party transactions, other than compensation arrangements, expense allowances, and other similar items in the ordinary course of business. However, disclosure of transactions that are eliminated in the preparation of financial statements is not required in those statements. The disclosures shall include: a. the nature of the relationship(s) involved; b. a description of the transactions, including transactions to which no amounts or nominal amounts were ascribed, for each of the periods for which income statements are presented, and such other information deemed necessary to an understanding of the effects of the transactions on the financial statements; c. the dollar amounts of transactions for each of the periods for which income statements are presented and the effects of any change in the method of establishing the terms from that used in the preceding period; and d. amounts due from or to related parties as of the date of each balance sheet presented and, if not otherwise apparent, the terms and manner of settlement.

Cash Equivalents
 
The Company considers all highly liquid instruments purchased with the original maturity of three months or less to be cash equivalents to the extent the funds are not being held for investment purposes. Cash and cash equivalents include cash on hand and bank demand deposits used in the Company’s cash management program.

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The Company has restricted cash, consisting of escrow accounts and letter of credits, which are included within other long-term assets on the Condensed Consolidated Balance Sheet. Pursuant to the New Credit Facilities agreement, proceeds from the 2023 Term Loan were deposited in a blocked bank account and restricted for use for the sole purpose of repurchasing the outstanding 2019 Notes. In the beginning of 2019, the Company used a total of $2.7 million of the restricted cash to repurchase a portion of the remaining 2019 Notes. The Company settled the remaining 2019 Notes upon its maturity in December 2019.

The following table provides a reconciliation of cash and cash equivalents and restricted cash reported in the Condensed Consolidated Balance Sheet to the total amounts in the Condensed Consolidated Statement of Cash Flows as follows:
Dollars in thousandsJune 30, 2021June 30, 2020
Cash and cash equivalents$22,626 $5,851 
Restricted cash206 206 
Restricted cash in other assets560 468 
Cash, cash equivalents and restricted cash in the statement of cash flows$23,392 $6,525 

Accounts at each institution are insured by the Federal Deposit Insurance Corporation (“FDIC”) up to $250,000. At June 30, 2021 and June 30, 2020, the Company had $23,142,000 and $6,275,000 in excess of the FDIC insured limit, respectively.

Fair Value of Financial Instruments
 
The carrying amounts of cash and cash equivalents, trade receivables, restricted cash, accounts payable and other accrued liabilities at June 30, 2021 approximate their fair value for all periods presented. The Company measures fair value in accordance with ASC 820-10, “Fair Value Measurements and Disclosures”. ASC 820-10 clarifies that fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or a liability. As a basis for considering such assumptions, ASC 820-10 establishes a three-tier value hierarchy, which prioritizes the inputs used in the valuation methodologies in measuring fair value:
 
Level 1 Inputs: Unadjusted quoted prices in active markets for identical assets or liabilities accessible to the reporting entity at the measurement date.
 
Level 2 Inputs: Other than quoted prices included in Level 1 inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the asset or liability.
 
Level 3 Inputs: Unobservable inputs for the asset or liability used to measure fair value to the extent that observable inputs are not available, thereby allowing for situations in which there is little, if any, market activity for the asset or liability at the measurement date. The fair value hierarchy also requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.

As of June 30, 2021, the fair value and the respective net carrying value of the outstanding Convertible Notes and Preferred Stock are as follows:
Dollars in thousandsFair ValueNet Carrying Value
2023 Series D Convertible Notes135 297 
Series D Preferred Stock9,366 15,374 

Loss Per Common Share
 
Basic loss per share of common stock is computed based on the weighted average number of shares of common stock outstanding during the period. Diluted loss per share of common stock is computed using the weighted average number of shares of common stock and potentially dilutive common stock equivalents outstanding during the period. Potential dilutive common stock equivalents include shares issuable upon the conversion of the notes and the exercise of options
15


and warrants. For the three and six months ended June 30, 2021, the potential dilutive common stock equivalents have been excluded from the computation of diluted loss per share, as their effect would have been anti-dilutive.

(in thousands except shares and per share data) 
Three months ended June 30,Six months ended June 30,
2021202020212020
Basic loss per share computation:
Net loss - basic and diluted$(12,866)$(14,332)$(10,713)$(41,168)
Weighted average common shares - basic and diluted93,410,017 5,593,557 76,037,735 5,491,554 
Basic and diluted loss per share$(0.14)$(2.56)$(0.14)$(7.50)

Concentration of Credit Risk
 
Major customers of the Company are defined as those constituting greater than 10% of the Company's total revenue. For the three months ended June 30, 2021, two of the Company's customers accounted for 45% of the Company's revenue, consisting of 34% and 11% respectively. For the three months ended June 30, 2020, one of the Company’s customers accounted for 27% of the Company’s revenue. For the six months ended June 30, 2021, one of the Company's customers accounted for 33% of the Company's revenue. For the six months ended June 30, 2020, two of the Company's customers accounted for 30% of the Company's revenue, consisting of 19% and 11%, respectively. Accounts receivable related to the Company’s major customers comprised 46% of all accounts receivable as of June 30, 2021 and 45% as of June 30, 2020, respectively. The loss of one or more of these major customers could have a significant impact on our revenues, our business, and results of operations.
 
For the three months ended June 30, 2021, domestic net revenues were $6.4 million and foreign net revenues were $4.0 million. For the six months ended June 30, 2021, domestic net revenues were $14.5 million and foreign net revenues were $7.5 million. As of June 30, 2021, domestic assets were $66.0 million and foreign assets were $24.4. For the three months ended June 30, 2020, domestic net revenues were $9.5 million and foreign net revenues were $4.1 million. For the six months ended June 30, 2020, domestic net revenues were $15.1 million and foreign net revenues were $5.9 million. As of June 30, 2020, domestic assets were $145.6 million and foreign assets were $44.7 million.

Foreign Currency Translation

Foreign subsidiary earnings are translated into U.S. dollars using average exchange rates. The net assets of foreign subsidiaries are translated into U.S. dollars using current exchange rates. Translation adjustments are accumulated in a separate component of stockholder's deficit in the Condensed Consolidated Balance Sheet and are included in the determination of comprehensive loss.

Recently Adopted Accounting Pronouncements

In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting (“ASU No. 2020-04”). The update provides optional guidance for a limited period to ease the potential burden in accounting for (or recognizing the effects of) contract modifications on financial reporting caused by reference rate reform. ASU 2020-04 is effective for all entities as of March 12, 2020 through December 31, 2022. The Company adopted this guidance in the second quarter of 2020. The adoption of this guidance had no impact on the Company's Condensed Consolidated Financial Statements or the related disclosures.

In December 2019, the FASB issued an accounting standard update to simplify the accounting for income taxes. The standard’s amendments include changes in various subtopics of accounting for income taxes including, but not limited to, accounting for “hybrid” tax regimes, tax basis step-up in goodwill obtained in a transaction that is not a business combination, intraperiod tax allocation exception to an incremental approach, ownership changes in investments, interim-period accounting for enacted changes in tax law, and year-to-date loss limitation in interim-period tax accounting. The guidance is effective for fiscal years beginning after December 15, 2020 with early adoption permitted, including the interim periods within those years. The Company has implemented the guidance on the Company’s Condensed Consolidated Financial Statements and related disclosures in the enclosed statements.

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Recently Issued Not Yet Adopted Accounting Pronouncements

In May 2021, the FASB issued ASU 2021-04, Earnings Per Share (Topic 260), Debt—Modifications and Extinguishments (Subtopic 470-50), Compensation—Stock Compensation (Topic 718), and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options (a consensus of the FASB Emerging Issues Task Force). ASU 2021-04 clarifies and reduces diversity in an issuer’s accounting for modifications or exchanges of freestanding equity-classified written call options (for example, warrants) that remain equity classified after modification or exchange. The ASU provides guidance that will clarify whether an issuer should account for a modification or an exchange of a freestanding equity-classified written call option that remains equity classified after modification or exchange as (1) an adjustment to equity and, if so, the related earnings per share (EPS) effects, if any, or (2) an expense and, if so, the manner and pattern of recognition. The new guidance is effective for annual and interim periods beginning after December 15, 2021, and early adoption is permitted, including adoption in an interim period. The Company is currently evaluating the impact that this new guidance will have on its Condensed Consolidated Financial Statements and related disclosures.

In August 2020, the FASB issued ASU No. 2020-06 (“ASU 2020-06”) “Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity.” ASU 2020-06 simplifies the accounting for convertible instruments by reducing the number of accounting models for convertible debt instruments and convertible preferred stock. Limiting the accounting models results in fewer embedded conversion features being separately recognized from the host contract as compared with current GAAP. Convertible instruments that continue to be subject to separation models are (1) those with embedded conversion features that are not clearly and closely related to the host contract, that meet the definition of a derivative, and that do not qualify for a scope exception from derivative accounting and (2) convertible debt instruments issued with substantial premiums for which the premiums are recorded as paid-in capital. In addition, ASU 2020-06 amends the guidance for the derivatives scope exception for contracts in an entity’s own equity to reduce form-over-substance-based accounting conclusions. The amendments also affect the diluted EPS calculation for instruments that may be settled in cash or shares and for convertible instruments. The amendments are effective for public entities excluding smaller reporting companies for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. The Company is evaluating the impact this guidance will have on its Condensed Consolidated Financial Statements and related disclosures upon adoption effective January 1, 2024.

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU No. 2016-13”), which requires that a financial asset (or a group of financial assets) measured at an amortized cost basis be presented at the net amount expected to be collected. This approach to estimating credit losses applies to most financial assets measured at amortized cost and certain other instruments, including but not limited to, trade and other receivables. The amendments in this update are initially effective for public business entities for fiscal years beginning after December 15, 2019. The Financial Accounting Standards Board subsequently postponed the effective date for small reporting companies to January 2023, which for the Company means January 1, 2023. Based on the current status of the evaluation, the Company believes the adoption of the guidance will not have a material impact on its Condensed Consolidated Financial Statements and related disclosures. The Company expects to continue and finalize its evaluation and assessment as required by the guidance upon adoption.

3. Revenues, Recognition and Allowances

Revenue Recognition

The Company derives its revenues from three types of transactions: sales of its own pharmaceutical products (Company product sales), sales of the manufactured products for its customers (contract manufacturing sales), and research and product development services performed for third parties.

Revenue is recognized when a customer obtains control of promised goods or services, in an amount that reflects the consideration which the entity expects to receive in exchange for those goods or services. To the extent the transaction price includes variable consideration, the Company estimates the amount of variable consideration that should be included in the transaction price using the expected value method based on historical experience as well as applicable information currently available.

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Company Product Sales

Revenue from Company product sales is recognized upon transfer of control of a product to a customer at a point in time, generally as the Company's products are sold on a FOB destination basis and because of the inventory risk and risk of ownership pass to the customer upon delivery and acceptance by the customer.

Company product sales are recorded net of accruals for estimated chargebacks, rebates, cash discounts, other allowances, and returns customary to the generic product pharmaceutical industry.
 
Contract Manufacturing Sales

The Company recognizes revenue for contract manufacturing sales over-time, as milestones are achieved. Shipments are made in accordance with sales commitments and related sales orders that the Company entered into with customers either verbally or in written form.

Contract manufacturing sales are recognized net of accruals for cash discounts which are established at the time of sale and are included in Revenue, net in the Company's Condensed Consolidated Statement of Operations.

Research and Development Services and Other Income

The Company establishes agreed-upon product development agreements with its customers to perform product development services. Revenues are recognized in accordance with the agreement upon the completion of the phases of development and when the Company has no future performance obligations relating to that phase of development. Other types of revenue include royalty or licensing revenue that would be recognized over time, at a point in time, or based upon the contractual term upon completion of the earnings process. Judgments are required to evaluate contingencies such as potential variances in the schedule or costs, the impact of change orders, liability claims, contract disputes, or the achievement of contractual performance standards.

Customer Deposits

Customer deposits, which are a contract liability, represents amounts received by the Company for which the related revenues have not been recognized because one or more of the revenue recognition criteria have not been met. The Company’s current customer deposits represent the amount expected to be recognized within one year from the consolidated balance sheet date based on the estimated performance period of the underlying performance obligation.

Revenues by Transaction Type

The Company operates under one reportable segment and therefore the results of the Company's operations are reported on a consolidated basis, which is consistent with internal management reporting utilized by the chief decision maker.

Net revenues for the three and six months ended June 30, 2021 and 2020 are as follows:
Three months ended June 30,Six months ended June 30,
Dollars in thousands2021202020212020
Company product sales$9,716 $13,025 $20,311 $20,164 
Contract manufacturing sales713 310 1,531 507 
Research and development services and other income4 251 179 362 
Revenue, net$10,433 $13,586 $22,021 $21,033 

Disaggregated information for the Company product sales revenue has been recognized in the accompanying unaudited interim Condensed Consolidated Statements of Operations and is presented below according to product type (in thousands):

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Three months ended June 30,Six months ended June 30,
Company Product Sales2021202020212020
Topical$5,474 $8,776 $12,494 $14,156 
Injectables4,242 4,249 7,817 6,008 
Total$9,716 $13,025 $20,311 $20,164 

The Company did not incur, and therefore did not defer, any material incremental costs to obtain contracts during the three and six months ended June 30, 2021 and 2020.

Accounts Receivable, net

Accounts receivable, net consists of the following:

Dollars in thousandsJune 30, 2021December 31, 2020
Trade receivables$40,788 $45,482 
Deductions to trade receivable:
Chargebacks5,670 6,568 
Wholesaler fees for service8,139 9,029 
Sales discounts and other allowances14,454 16,267 
Allowance for doubtful accounts2,694 2,399 
Trade receivables, net9,831 11,219 
Other receivables18 38 
Accounts receivable, net$9,849 $11,257 

Sales Returns and Allowances

As is customary in the generic pharmaceutical industry, the Company’s product sales are subject to a variety of deductions, including chargebacks, rebates, cash discounts, other allowances, and returns. Product sales are recorded net of accruals for returns and allowances, which are established at the time of sale. The Company analyzes the adequacy of its accruals for returns and allowances quarterly. Amounts accrued for sales deductions are adjusted when trends or significant events indicate that an adjustment is appropriate. Accruals are also adjusted to reflect actual results. These provisions are estimates based on historical payment experience, historical relationship to revenues, estimated customer inventory levels and current contract sales terms with direct and indirect customers. The Company uses a variety of methods to assess the adequacy of its returns and allowances reserves to ensure that its financial statements are fairly stated. These include periodic reviews of customer inventory data, customer contract programs, subsequent actual payment experience, and product pricing trends to analyze and validate the return and allowances reserves.

The allowance for doubtful accounts was $2.7 million and $2.4 million at June 30, 2021 and December 31, 2020, respectively. The allowance for doubtful accounts was primarily related to one specific customer for $1.7 million.

Chargebacks are one of the Company's most significant estimates for recognition of product sales. A chargeback represents an amount payable in the future to a wholesaler for the difference between the invoice price paid to the Company by its wholesale customer for a particular product and the negotiated contract price that the wholesaler’s customer pays for that product. The Company’s chargeback provision and related reserve vary with changes in product mix, changes in customer pricing and changes to estimated wholesaler inventories. The provision for chargebacks estimates the expected wholesaler sell-through levels to indirect customers at contract prices. The Company validates the chargeback accrual quarterly through a review of the inventory reports obtained from its largest wholesale customers. This customer inventory information is used to establish the estimated liability for future chargeback claims based on historical chargeback and contract rates. These large wholesalers represent the majority of the Company’s chargeback payments. The Company continually monitors current pricing trends and wholesaler inventory levels to ensure the liability for future chargebacks is fairly stated.

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Rebates are used for various discounts which can be programs or one-time events. The Company reviews the percentage of products sold through these programs by reviewing chargeback data and uses the appropriate percentages to calculate the rebate accrual. Rebates are invoiced monthly, quarterly, or annually and reviewed against the accruals. Other items that could be included in accrued rebates would be price protection fees, shelf stock adjustments (SSAs), or other various amounts that would serve as one-time discounts on specific products.

The Company's adjustments for the deductions to gross product sales are as follows:
Three months ended June 30,Six months ended June 30,
Dollars in thousands2021202020212020
Gross Company product sales$26,064 $36,717 $58,912 $59,883 
Deductions to gross Company product sales:
Chargebacks and billbacks12,702 17,551 29,682 29,506 
Wholesaler fees for service426 1,604 1,785 2,746 
Sales discounts and other allowances3,220 4,537 7,134 7,467 
Total reduction to gross Company product sales$16,348 $23,692 $38,601 $39,719 
Company product sales, net$9,716 $13,025 $20,311 $20,164 

Financing and Payment

The Company's payment terms vary by the type of the customer and the products or services offered. The term between invoicing and when payment is due is not significant. Generally, the Company does not incur incremental costs to obtain contracts. The Company does not adjust revenue for the effects of a significant financing component as the Company's customers generally pay within 100 days.

Costs to Obtain or Fulfill a Customer Contract

Costs related to shipping and handling are comprised of outbound freight and associated labor. The Company accounts for shipping and handling activities related to contracts with customers as fulfillment costs which are included in the cost of sales in the Condensed Consolidated Statements of Operations.

The Company is required to pay a 40% royalty on certain product net sales to a pharmaceutical partner. There are currently 4 products manufactured and distributed under the Company’s label in the U.S. which are subject to this agreement. Payments are made quarterly. Royalty expense of $0.2 million and $0.1 million was included in the cost of sales in the Condensed Consolidated Statements of Operations for the three months ended June 30, 2021 and 2020, respectively. Royalty expense of $0.4 million and $0.2 million was included in the cost of sales in the Condensed Consolidated Statements of Operations for the six months ended June 30, 2021 and 2020, respectively.


4. Inventories

Inventories are valued at the lower of cost or net realizable value and using the first-in-first-out method. Inventories consists of the following:

Dollars in thousandsJune 30, 2021December 31, 2020
Raw materials$12,673 $13,487 
Work in progress514 386 
Finished goods14,413 21,525 
Inventories reserve(10,541)(12,002)
Inventories, net$17,059 $23,396 

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5. Property, Plant and Equipment
 
Property, plant and equipment consists of the following:

Dollars in thousandsJune 30, 2021December 31, 2020
Land$257 $257 
Building and improvements11,660 11,660 
Machinery and equipment1,626 1,625 
Computer hardware and software304 300 
Furniture and fixtures74 74 
Construction in progress2,459 2,302 
16,380 16,218 
Less accumulated depreciation and amortization(452)(87)
Property, plant and equipment, net$15,928 $16,131 
 
The Company recorded depreciation expense of $0.2 million and $1.0 million for the three months ended June 30, 2021, and 2020, respectively. The Company recorded depreciation expense of $0.4 million and $2.0 million for the six months ended June 30, 2021, and 2020, respectively.

For the three and six months ended June 30, 2021, there were no payroll costs capitalized as construction in progress. For the three and six months ended June 30, 2020, there was $0.2 million and $0.4 million of payroll costs, respectively, capitalized as construction in progress.


6. Leases

The Company has operating and finance leases for its corporate, manufacturing, and international facilities as well as certain equipment. Its leases have remaining terms of less than 1 year to up to 9 years, including available options to extend some of its lease terms for up to 5 years. One of its lease agreements has an early termination option within one year. As the interest rates implicit in the Company's leases are typically not readily determinable, the Company has elected to utilize an incremental borrowing rate as the discount rate, determined based on the expected term of the lease, the Company’s credit risk and existing borrowings.

In May 2020, the Company modified one of its office lease agreements and obtained a deferral of 2 months rental payments amid the pandemic. According to FASB Staff Q&A on Topic 842 and 841, because the amount of the total consideration paid under the modified lease agreement is substantially the same as the original agreement, except the deferral of the lease payments which only affect the timing of the payments, the Company accounted for the concession as if no changes to the lease contract were made and continues to recognize expenses during the deferral period.

The discount rates utilized ranged from 4.86% to 8.60% and were utilized to determine the present value of the lease liabilities. The components of lease expense are as follows:
Three months ended June 30,Six months ended June 30,
Dollars in thousands2021202020212020
Operating lease cost$129 $158 $265 $316 
Finance lease cost:
        Amortization of right-of-use assets3 4 7 7
        Interest on lease liabilities1 1 2 3
Total finance lease cost$4 $5 $9 $10 
Supplemental balance sheet information related to leases as of the periods presented are as follows:
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Dollars in thousandsJune 30, 2021December 31, 2020
Operating Leases
Other assets$1,832 $2,001 
Capital lease obligation, current453 422 
Other long-term liabilities1,512 1,761 
Total operating lease liabilities1,965 2,183 
Finance Leases
Property, plant and equipment82 81 
Accumulated depreciation(36)(25)
Property, plant and equipment, net46 56 
Capital lease obligation, current14 14 
Other long-term liabilities36 43 
Total finance lease liabilities$50 $57 

The weighted average remaining lease terms as of June 30, 2021 for operating and financing leases were 5.5 years and 3.2 years, respectively. The weighted average discount rates for operating and finance leases as of June 30, 2021 were 8.4% and 8.0%, respectively.





















As of June 30, 2021, maturities of lease liabilities are as follows (in thousands):
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Operating Financing
LeasesLeases
2021$277 $9 
2022553 18 
2023552 18 
2024239 12 
2025211  
2026211  
Thereafter435  
Total lease payments2,478 57 
Less imputed interest513 7 
Total $1,965 $50 



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7. Series D Preferred Stock

As discussed in Note 8, the lenders under the Second Lien Credit Agreement agreed to convert a portion of the outstanding term loans constituting 100% of the approximately $24.5 million in accrued PIK interest into an aggregate of approximately 85,412 shares of the Company’s newly created Series D Preferred Stock, par value $0.01 per share (the “Series D Preferred Stock”). The Series D Preferred Stock does not qualify as a liability instrument under ASC 480 – Distinguishing Liabilities from Equity, because it is not mandatorily redeemable. However, the Company classified the Series D Preferred Stock as mezzanine-equity, as the Series D Preferred Stock is contingently redeemable upon a change-in-control event that is outside of the Company’s control.

Each share of Series D Preferred Stock is non-voting and, subject to an increase in the number of shares of common stock available for issuance under the Company’s amended and restated certificate of incorporation, is convertible into 200 shares of common stock. The shares of Series D Preferred Stock issued in connection with the PIK Interest Exchange are convertible into an aggregate of 17,082,285 shares of common stock. The holders of shares of Series D Preferred Stock may not convert such shares of Series D Preferred Stock into shares of common stock to the extent such a conversion would result in a holder thereof, together with its affiliates, collectively owning more than 15% of the number of shares of common stock then outstanding. Upon the occurrence of a sale of the Company, subject to customary exceptions, the Company must redeem each share of Series D Preferred Stock by paying each holder of Series D Preferred Stock an amount equal to the amount such holder would have received in connection with such sale had such holder converted such share of Series D Preferred Stock into common stock immediately prior to such sale. The holders of Series D Preferred Stock are entitled to dividends on shares of Series D Preferred Stock equal (on an as-if-converted-to-Common-Stock basis) to and in the same form as dividends (other than dividends in the form of common stock) actually paid on shares of common stock when, as and if such dividends (other than dividends in the form of common stock) are paid on shares of common stock.

Pursuant to the terms of the Exchange Agreement, the Company is required to seek the requisite approval of its stockholders for an amendment to its amended and restated certificate of incorporation to allow for the conversion in full of all shares of Series D Preferred Stock into shares of common stock (either by an increase in the number of authorized shares of Common Stock, the effectuation of a reverse stock split, or otherwise) (the “Stockholder Approval”). The Exchange Agreement provides that, if the Company is unable to obtain the Stockholder Approval on or before July 1, 2021, then the Company will issue to each holder of Series D Preferred Stock, on a quarterly basis, additional shares of Series D Preferred Stock equal to 2.5% of the number of shares of Series D Preferred Stock originally issued to such holder until the Stockholder Approval is obtained (with a prorated amount of Series D Preferred Stock to be issued in the event the Stockholder Approval is obtained during any such calendar quarter).

On July 21, 2021, the Company held its adjourned annual meeting of stockholders (the “Annual Meeting”). At the Annual Meeting, the holders of 53,944,510 shares of the Company’s common stock were present in person or represented by proxy, which represented 58.12% of the total shares of outstanding common stock entitled to vote as of the record date of May 17, 2021. The proposal to amend the Amended and Restated Certification of Incorporation of the Company to effect a reverse stock split necessary to allow for the full conversion of the Series D Preferred Stock did not pass as, despite a majority of those shares actually voting supporting the passage of the proposal, it did not receive the affirmative vote of the holders of a majority of the issued and outstanding voting power of all common stock entitled to vote. As a result the Company has issued the first tranche of additional Series D Preferred Stock and is examining its alternatives in regard to a Special Meeting of stockholders to consider a revised proposal for Stockholder Approval.
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8. Debt

Convertible Notes

2023 Series A Convertible Notes

On April 27, 2018, the Company entered into separate exchange agreements with certain holders of the then outstanding Convertible 3.75% Senior Notes, due 2019 (the "2019 Notes") that effected the exchange, in aggregate, of $75.1 million of the 2019 Notes for $75.1 million of Convertible 4.75% Senior Notes due 2023 (the "2023 Series A Notes"). The 2023 Series A Notes bear a fixed interest rate of 4.75% per year, payable semi-annually with the principal payable in May 2023. At the option of the holders, the 2023 Series A Notes are convertible into shares of the Company’s common stock, cash or a combination thereof. The initial conversion rate was $44.50 per share, subject to certain adjustments, related to either the Company's stock price volatility, or the Company's declaration of a stock dividend, stock distribution, share combination or share split expected dividends or other anti-dilutive activities. In addition, holders will be entitled to receive additional shares of common stock under a make-whole provision in some circumstances that could reduce the per share conversion rate to as low as $35.60 per share. The Company incurred debt issuance costs of $1.6 million upon issuance of the 2023 Notes. The 2019 Notes had been previously settled during 2019.

In accordance with accounting for convertible debt within the cash conversion guidance of ASC 470-20, the Company allocated the principal amount of the 2023 Series A Notes between its liability and equity components. The carrying amount of the liability component was determined by measuring the fair value of a similar debt instrument of similar credit quality and maturity that did not have the conversion feature. The carrying amount of the equity component, representing the embedded conversion option, was determined by deducting the fair value of the liability component from the principal amount of the 2023 Notes as a whole. The equity component was recorded to additional paid-in capital and is not remeasured as long as it continues to meet the conditions for equity classification. The excess of the principal amount of the 2023 Series A Notes over the carrying amount of the liability component was recorded as a debt discount of $19.0 million and is being amortized to interest expense using the effective interest method through the maturity date. The Company allocated the total amount of debt issuance costs incurred to the liability and equity components using the same proportions as the proceeds from the 2023 Notes. The debt issuance costs attributable to the liability component were recorded as a direct deduction from the liability component of the 2023 Notes and are being amortized to interest expense using the effective interest method through the maturity date. Transaction costs attributable to the equity component were netted with the equity component of the 2023 Notes in additional paid-in capital. The effective interest rate of the 2023 Notes, inclusive of the debt discount and issuance costs, was 11.90%.

Following the issuance of the 2023 Series D Convertible Notes described below, all outstanding debt with respect to the 2023 Series A Convertible Notes had been extinguished through exchange of 2023 Series C and 2023 Series D Convertible Notes (see below).

2023 Series B Convertible Notes

On October 31, 2019, the Company closed its offering of the 2023 Series B Convertible Notes in the aggregate principal amount of $34.4 million (“2023 Series B Notes”). The 2023 Series B Notes will mature in May 2023 and are convertible at the option of the holder at any time prior to its maturity. The initial conversion price was $7.20 per share, subject to adjustment under certain circumstances.

As part of the offering, the Company entered into agreements with certain holders of its existing 2023 Series A Notes to exchange $9.0 million of the 2023 Series A Notes for $5.1 million of the 2023 Series B Notes. The gross cash proceeds of approximately $29.3 million from the financing were used to extinguish the Company’s previously existing 2019 Notes in December 2019 and intended to pay amounts owing with respect to other indebtedness and to fund general corporate and working capital requirements. The net proceeds from the financing were $26.9 million after deducting a total of $2.3 million of the initial purchasers’ discounts and professional fees associated with the transaction. The 2023 Series B Notes bear interest at a rate of 7.00% per annum if paid in cash, semiannually in arrears on May 1 and November 1 of each year, beginning on May 1, 2020. The Company also has an option, and has agreed with its senior lender, to pay-in-kind ("PIK") the interest at 8.00% per annum, to defer cash payments. The Company has elected the paid-in-kind interest option and increased the principal balance of the 2023 Series B Notes by $0 during the three months ended March 31, 2021 and March 31, 2020, respectively.

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Under ASC 470-60, Troubled Debt Restructurings by Debtors, the exchange of the $9.0 million of the 2023 Series A Notes for the $5.1 million of the 2023 Series B Notes represents a troubled debt restructuring ("TDR"). The TDR did not result in a gain recognition. As a result, a new effective interest rate was established based on the $7.2 million carrying value of the original debt, net of the $2.0 million fair value of the embedded derivative liability related to the new debt issued in the TDR and $0.2 million issuance costs, getting accreted to $6.8 million representing the total amount of the future undiscounted cash flows related to the $