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Commitments and Contingencies | 6 Months Ended
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Jun. 30, 2019
Commitments And Contingencies Disclosure [Abstract] |
Commitments and Contingencies | 11. 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 condensed 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 June 30, 2019, 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 Sanofi’s election to terminate a license and collaboration agreement (the “Sanofi License Agreement”) between the Company and sanofi-aventis U.S. LLC (“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 has appealed this ruling, and following an oral hearing before the Supreme Court of Israel, has decided to withdraw his appeal. Subsequently, in November 2018, the Company filed a motion to dismiss the certification motion. At a case conference in February 2019, the court directed the parties to negotiate a procedure for determining whether the plaintiff can distinguish the claims in the Israeli litigation from those in a U.S. case against the Company based on the same events (which was dismissed by the U.S. district court for the Central District of California in August 2016). In July 2019, the plaintiff asked the court to be allowed to amend his claim. This motion will be heard in September 2019. The Company will continue to vigorously defend against the claims advanced. Contingencies — In connection with the Facility Agreement, on July 1, 2013, the Company also entered into a Milestone Agreement with the Milestone Purchasers, pursuant to which the Company sold the Milestone Purchasers the Milestone Rights to receive payments up to $90.0 million upon the occurrence of specified strategic and sales milestones, $75.0 million of which remains payable upon achievement of such milestones (see Note 7 – Borrowings). Commitments — On July 31, 2014, the Company entered into a supply agreement (the “Insulin Supply Agreement”) with Amphastar France Pharmaceuticals S.A.S., a French corporation (“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. In December 2018, the Insulin Supply Agreement with Amphastar was amended to extend the term over which the Company is required to purchase insulin, without reducing the total amount of insulin to be purchased. Under the amendment, annual minimum quantities of insulin to be purchased for calendar years 2018 through 2024 total an aggregate purchase price of €90.3 million. As of June 30, 2019, the remaining purchase amount is €82.3 million. See also Note 13 – Subsequent Events.
2019 | € | 2.3 million
2020 | € | 15.9 million
2021 | € | 15.9 million
2022 | € | 19.8 million
2023 | € | 19.8 million
2024 | € | 8.6 million
Unless terminated earlier, the term of the Insulin Supply Agreement expires on December 31, 2024 and can be renewed for additional, successive two year term 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. On April 1, 2019, the Company entered into a foreign currency hedging transaction to mitigate its exposure to foreign currency exchange risks. The hedging transaction hedges against short-term currency fluctuations for the remaining current year purchase requirement amount of €3.9 million and is renewable every 90 days. The Company realized a de minimis currency loss during second quarter of 2019. This amount is recorded in other income and expense. Warrants - On April 5, 2018, the Company entered into securities purchase agreements with certain institutional investors. Pursuant to the terms of the purchase agreements, the Company sold to the purchasers in a registered offering an aggregate of 14,000,000 shares of its common stock and warrants to purchase up to an aggregate of 14,000,000 shares of its common stock at a combined purchase price of $2.00 per share and accompanying warrant. The shares of the common stock and the warrants were immediately separable. The Company determined that these warrants met the criteria for equity classification and accounted for such warrants in additional paid-in capital. The warrants were exercisable at a price of $2.38 per share and all warrants expired unexercised on April 9, 2019. On December 19, 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 are exercisable at a price of $1.60 per share and will expire on December 26, 2019. The net proceeds to the Company from the offering were approximately $37.3 million. The offering closed on December 26, 2018. The Company determined that the December warrants met the criteria for equity classification and accounted for such warrants in additional paid-in capital. Vehicle Leases – During the second quarter of 2018, the Company entered into a lease agreement with Enterprise Fleet Management Inc. for the lease of approximately 119 vehicles. The lease requires monthly payments of approximately $83,000 per month including the cost of maintaining the vehicles, taxes and insurance. This amount excludes other variable payments such as storage fees. 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. During the second quarter of 2019, 23 vehicles were removed from the fleet, resulting in a fleet size of 96 vehicles; no gain or loss was recorded. The revised monthly payment inclusive of maintenance fees, insurance and taxes is $69,000 and the reduction of the right of use asset and lease obligation is approximately $0.3 million in our condensed consolidated balance sheets. The lease expense is included in selling, general and administrative expenses in the accompanying condensed consolidated statement of operations for the three and six months ended June 30, 2019. Upon adoption of the new lease guidance, the agreement was classified as an operating lease which resulted in recording right-of-use assets and lease liabilities of approximately $1.6 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. Office Lease — On May 5, 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 condensed consolidated statement of operations for three and six months ended June 30, 2019. On November 29, 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 3% annual increases, plus the estimated operating costs 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 the new guidance, 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 three and six months ended June 30, 2019 was approximately $0.3 million and $0.8 million, respectively. Cash paid for all operating leases for the three and six months ended June 30, 2019 was $0.2 million and $0.7 million, respectively. Variable lease costs were approximately $0.1 million and $0.2 million for the three and six months ended June 30, 2019, respectively. The weighted average discount rate used was 7.2%. The weighted-average remaining lease term for all operating leases is 3.6 years. Rent expense under all operating leases for the three and six months ended June 30, 2018 including office space and equipment was approximately $0.1 million and $0.2 million, respectively, prior to the adoption of ASC topic 842. Future minimum office and vehicle lease payments as of June 30, 2019 and December 31, 2018, are as follows:
|  | June 30, 2019 |  |  | December 31, 2018 |
2019 (Remainder) |  | $ | 742,078 |  |  | $ | 1,595,421 |
2020 |  |  | 1,503,192 |  |  |  | 1,623,835 |
2021 |  |  | 1,532,458 |  |  |  | 1,653,101 |
2022 |  |  | 1,254,828 |  |  |  | 1,305,096 |
2023 |  |  | 87,957 |  |  |  | 87,957 |
|  | $ | 5,120,513 |  |  | $ | 6,265,410 |
The 2018 amounts above are inclusive of office and vehicle lease payments in order to conform to the current year presentation.

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