UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
 
FORM 10-Q
(Mark One)
 
þ☑QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended September 30, 2017
2019
¨☐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)
Delaware01-0355758
(State or other Jurisdiction of(I.R.S. Employer Identification No.)
incorporation or organization)
105 Lincoln Avenue
Buena, New Jersey08310
(Address of Principal Executive Offices)(Zip Code)
 
(856) 697-1441
(Registrant's telephone number, including area code)
 
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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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, or a smaller reporting company or an emerging growth company. See the definitions of "large“large accelerated filer," "accelerated” “accelerated filer,"” “smaller reporting company” and "smaller reporting company"“emerging growth company” in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer¨Accelerated filerþ☑
Non-accelerated filer¨Smaller 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). ☐




1

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 is 53,400,281was 53,850,427 shares as of November 7, 2017.1, 2019.














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)
 September 30, 2017
(Unaudited)		 December 31,
2016*		September 30, 2019 (unaudited)December 31, 2018
ASSETS  
  
ASSETS
Current assets:  
  
Current assets:
Cash and cash equivalents $38,231
 $66,006
Cash and cash equivalents$6,707  $9,705  
Accounts receivable, net 27,568
 21,735
Restricted cashRestricted cash206  2,892  
Accounts receivable, net of allowance for doubtful accounts of $2,539 and $2,636, as of September 30, 2019 and December 31, 2018, respectivelyAccounts receivable, net of allowance for doubtful accounts of $2,539 and $2,636, as of September 30, 2019 and December 31, 2018, respectively20,361  16,120  
Inventories 14,199
 12,708
Inventories22,633  16,296  
Prepaid expenses and other receivables 2,390
 2,847
Prepaid expenses and other receivables1,670  3,373  
Total current assets 82,388
 103,296
Total current assets51,577  48,386  
    
Property, plant and equipment, net 57,248
 26,215
Property, plant and equipment, net96,088  91,775  
Intangible assets, net 56,112
 52,465
Intangible assets, net44,287  48,375  
Goodwill 476
 446
Goodwill484  470  
Other 784
 804
Other assetsOther assets3,757  1,886  
Total assets $197,008
 $183,226
Total assets$196,193  $190,892  
    
LIABILITIES AND STOCKHOLDERS’ EQUITY  
  
LIABILITIES AND STOCKHOLDERS’ EQUITY/ (DEFICIT)LIABILITIES AND STOCKHOLDERS’ EQUITY/ (DEFICIT)
Current liabilities:  
  
Current liabilities:
Accounts payable $8,865
 $4,614
Accounts payable$8,822  $5,933  
Accrued expenses 16,260
 10,349
Accrued expenses10,438  9,842  
Deferred incomeDeferred income—  2,426  
Revolver, current portionRevolver, current portion2,500  —  
Convertible 3.75% Senior Notes, net of debt discount and debt issuance costs (face of $13,022 and $15,702 as of September 30, 2019 and December 31, 2018, respectively)Convertible 3.75% Senior Notes, net of debt discount and debt issuance costs (face of $13,022 and $15,702 as of September 30, 2019 and December 31, 2018, respectively)12,777  14,411  
Other current liabilitiesOther current liabilities434  —  
Total current liabilities 25,125
 14,963
Total current liabilities34,971  32,612  
    
Convertible 3.75% senior notes, net of debt discount and debt issuance costs (face of $143,750) 118,463
 111,391
RevolverRevolver25,000  15,000  
2023 Term Loans, net of debt issuance costs (face of $76,359 and $70,000 as of September 30, 2019 and December 31, 2018, respectively)2023 Term Loans, net of debt issuance costs (face of $76,359 and $70,000 as of September 30, 2019 and December 31, 2018, respectively)74,353  67,662  
Convertible 4.75% Senior Notes, net of debt discount and debt issuance costs (face of $75,090 as of September 30, 2019 and December 31, 2018, respectively)Convertible 4.75% Senior Notes, net of debt discount and debt issuance costs (face of $75,090 as of September 30, 2019 and December 31, 2018, respectively)59,434  56,909  
Deferred tax liability 239
 205
Deferred tax liability223  215  
Other long term liabilitiesOther long term liabilities2,367  73  
Total liabilities 143,827
 126,559
Total liabilities196,348  172,471  
    
Stockholders’ equity:  
  
Common stock, $0.01 par value, 100,000,000 shares authorized; 53,391,948 and 53,148,441 shares issued and outstanding as of September 30, 2017 and December 31, 2016, respectively 554
 551
Commitments and ContingenciesCommitments and Contingencies
Stockholders’ equity/ (deficit):Stockholders’ equity/ (deficit):
Common stock, $0.01 par value, 100,000,000 shares authorized; 53,850,427 and 53,774,221 shares issued and outstanding as of September 30, 2019 and December 31, 2018, respectivelyCommon stock, $0.01 par value, 100,000,000 shares authorized; 53,850,427 and 53,774,221 shares issued and outstanding as of September 30, 2019 and December 31, 2018, respectively558  557  
Additional paid-in capital 105,418
 102,624
Additional paid-in capital117,782  116,864  
Accumulated deficit (51,319) (44,903)Accumulated deficit(116,176) (96,350) 
Accumulated other comprehensive loss (1,472) (1,605)Accumulated other comprehensive loss(2,319) (2,650) 
Total stockholders’ equity 53,181
 56,667
Total liabilities and stockholders' equity $197,008
 $183,226
Total stockholders’ equity / (deficit)Total stockholders’ equity / (deficit)(155) 18,421  
Total liabilities and stockholders' equity/ (deficit)Total liabilities and stockholders' equity/ (deficit)$196,193  $190,892  
 
*Derived from the audited December 31, 2016 financial statements

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 September 30,Nine months ended September 30,
2019201820192018
Revenue, net$18,466  $18,294  $49,929  $49,088  
Costs and expenses:
Cost of revenues11,186  11,575  28,346  32,365  
Selling, general and administrative expenses5,007  4,845  15,707  15,932  
Product development and research expenses2,064  3,087  7,721  10,445  
Total costs and expenses18,257  19,507  51,774  58,742  
Operating income/(loss)209  (1,213) (1,845) (9,654) 
Other Expense:
Foreign currency exchange loss(2,167) (176) (2,458) (2,071) 
Debt partial extinguishment of 2019 Notes—  —  (185) (2,467) 
Interest and other expense, net(5,160) (2,693) (15,262) (7,764) 
Loss before income tax expense(7,118) (4,082) (19,750) (21,956) 
Income tax (benefit)/expense(5) (137) 76  (90) 
Net loss attributable to common shareholders$(7,113) $(3,945) $(19,826) $(21,866) 
Basic and diluted loss per share$(0.13) $(0.07) $(0.37) $(0.41) 
Weighted average shares of common stock outstanding:
Basic and diluted shares53,850,427  53,625,768  53,835,336  53,532,277  
  Three months ended September 30, Nine months ended September 30,
  2017 2016 2017 2016
Revenues:  
  
  
  
Product sales, net $13,634
 $15,709
 $51,782
 $48,156
Research and development services and other income 21
 442
 172
 790
Total revenues 13,655
 16,151
 51,954
 48,946
         
Costs and expenses:  
  
  
  
Cost of revenues 10,313
 8,137
 29,641
 23,421
Selling, general and administrative expenses 4,121
 3,694
 13,126
 10,813
Product development and research expenses 4,606
 4,017
 13,387
 12,496
Total costs and expenses 19,040
 15,848
 56,154
 46,730
Operating (loss) income (5,385) 303
 (4,200) 2,216
         
Other income (expense):  
  
  
  
Foreign currency exchange gain 1,744
 364
 6,645
 1,295
Interest and other expense, net (2,663) (3,347) (8,731) (9,997)
Loss before income tax expense (6,304) (2,680) (6,286) (6,486)
         
Income tax expense 24
 23
 130
 68
         
Net loss $(6,328) $(2,703) $(6,416) $(6,554)
         
Basic and diluted (loss) per share $(0.12) $(0.05) $(0.12) $(0.12)
         
Weighted average shares of common stock outstanding:  
  
  
  
Basic and diluted shares 53,391,948
 53,093,368
 53,297,889
 53,061,630



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



5

TELIGENT, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)LOSS
(in thousands, except shares and per share information)thousands)
(Unaudited)
 
Three months ended September 30,Nine months ended September 30,
2019201820192018
Net loss$(7,113) $(3,945) $(19,826) $(21,866) 
Other comprehensive income loss, net of tax:
Foreign currency translation adjustment36  108  331  (224) 
Other comprehensive income loss36  108  331  (224) 
Comprehensive loss$(7,077) $(3,837) $(19,495) $(22,090) 
  Three months ended September 30, Nine months ended September 30,
  2017 2016 2017 2016
Net loss $(6,328) $(2,703) $(6,416) $(6,554)
         
Other comprehensive income (loss), net of tax;  
  
  
  
Foreign currency translation adjustment 378
 (282) 133
 (992)
Other comprehensive income (loss) 378
 (282) 133
 (992)
         
Comprehensive loss $(5,950) $(2,985) $(6,283) $(7,546)


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



6

TELIGENT, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
For the nine months ended September 30, 2017
(in thousands, except share information)
(Unaudited)
 
AdditionalAccumulated
Other		Total
Common StockPaid-InAccumulatedComprehensiveStockholders’
SharesAmountCapitalDeficit(Loss)/IncomeEquity/ (Deficit)
Balance, December 31, 2018 (audited)53,774,221  $557  $116,864  $(96,350) $(2,650) $18,421  
Stock based compensation expense—  —  919  —  —  919  
Issuance of stock for vested restricted stock units76,206  1  (1) —  —  —  
Cumulative translation adjustment—  —  —  —  331  331  
Net loss—  —  —  (19,826) —  (19,826) 
Balance, September 30, 2019 (unaudited)53,850,427  $558  $117,782  $(116,176) $(2,319) $(155) 
      Additional Accumulated
Other		   Total
  Common Stock Paid-In Comprehensive Accumulated Stockholders’
  Shares Amount Capital Loss Deficit Equity
Balance, December 31, 2016 53,148,441
 $551
 $102,624
 $(1,605) $(44,903) $56,667
             
Stock based compensation expense —
 —
 2,528
 —
 —
 2,528
Stock options exercised 171,566
 2
 267
 —
 —
 269
Issuance of stock for vested restricted stock units 71,941
 1
 (1) —
 —
 —
Cumulative translation adjustment —
 —
 —
 133
 —
 133
Net loss —
 —
 —
 —
 (6,416) (6,416)
             
Balance, September 30, 2017 53,391,948
 $554
 $105,418
 $(1,472) $(51,319) $53,181


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


7

TELIGENT, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the nine months ended September 30, 2017 and 2016
(in thousands)
(Unaudited)

Nine months ended September 30,
 September 30,
2017		 September 30,
2016		20192018
Cash flows from operating activities:  
  
Cash flows from operating activities:
Net loss $(6,416) $(6,554)Net loss$(19,826) $(21,866) 
Reconciliation of net loss to net cash (used in) provided by operating activities  
  
Depreciation and amortization of fixed assets 1,264
 679
Reconciliation of net loss to net cash (used in) provided by operating activities:Reconciliation of net loss to net cash (used in) provided by operating activities:
Depreciation of fixed assets and leasesDepreciation of fixed assets and leases2,700  1,703  
Provision for bad debtProvision for bad debt(97) 601  
Provision for write down of inventory 1,489
 1,000
Provision for write down of inventory(295) 844  
Issuance of stock to consultantIssuance of stock to consultant—  102  
Stock based compensation 2,427
 2,255
Stock based compensation896  1,572  
Amortization of debt issuance costs 695
 611
Amortization of intangibles 2,143
 2,146
Foreign currency exchange gain (6,645) (1,295)
Amortization of debt discount on convertible 3.75% senior notes 6,376
 5,606
Loss on impairment 113
 —
Loss on disposal of property —
 16
Changes in operating assets and liabilities  
  
Amortization of debt costs and debt discountAmortization of debt costs and debt discount4,657  7,080  
Amortization of intangible assetsAmortization of intangible assets2,260  2,302  
Non cash lease expenseNon cash lease expense308  —  
Foreign currency exchange lossForeign currency exchange loss2,458  2,071  
Partial extinguishment of Convertible 3.75% Senior NotesPartial extinguishment of Convertible 3.75% Senior Notes185  2,467  
Gain on sale of fixed assetsGain on sale of fixed assets—  (20) 
Loss on impairment of intangible assetsLoss on impairment of intangible assets—  22  
Non cash interest expense Non cash interest expense6,359  —  
Changes in operating assets and liabilities:Changes in operating assets and liabilities:
Accounts receivable (5,764) (3,168)Accounts receivable(4,018) (4,587) 
Inventories (2,767) (4,358)Inventories(5,970) (2,746) 
Prepaid expenses and other current receivables 510
 3,718
Other assets 21
 283
Prepaid expenses, other current receivables and assetsPrepaid expenses, other current receivables and assets1,666  2,085  
Accounts payable and accrued expenses 3,894
 2,356
Accounts payable and accrued expenses2,747  (6,944) 
Operating liabilitiesOperating liabilities(265) —  
Deferred income —
 (475)Deferred income(2,426) —  
    
Net cash (used in) provided by operating activities (2,660) 2,820
    
Net cash used in operating activitiesNet cash used in operating activities(8,661) (15,314) 
Cash flows from investing activities:  
  
Cash flows from investing activities:
Capital expenditures (26,002) (11,956)Capital expenditures(6,082) (18,315) 
Product acquisition costs —
 (3,422)
    
Proceeds from sale of fixed assetsProceeds from sale of fixed assets—  38  
Net cash used in investing activities (26,002) (15,378)Net cash used in investing activities(6,082) (18,277) 
    
Cash flows from financing activities:  
  
Cash flows from financing activities:
Proceeds from exercise of common stock options 269
 35
Proceeds from exercise of common stock options—  246  
Principal payments on capital lease obligations —
 (70)
Recovery from stockholder, net —
 (36)
    
Net cash provided by (used in) financing activities 269
 (71)
    
Proceeds from RevolverProceeds from Revolver12,500  —  
Proceeds from 2021 Term LoanProceeds from 2021 Term Loan—  25,000  
Debt issuance costsDebt issuance costs(269) (2,539) 
Repurchase of 3.75% senior notesRepurchase of 3.75% senior notes(2,686) —  
Principal paid on lease obligationPrincipal paid on lease obligation(9) —  
Net cash provided by financing activitiesNet cash provided by financing activities9,536  22,707  
Effect of exchange rate on cash and cash equivalents 618
 70
Effect of exchange rate on cash and cash equivalents(481) (542) 
Net decrease in cash and cash equivalents (28,393) (12,629)
Cash and cash equivalents at beginning of period 66,006
 87,191
    
Cash and cash equivalents at end of period $38,231
 $74,632
Net decrease in cash, cash equivalents and restricted cashNet decrease in cash, cash equivalents and restricted cash(5,207) (10,884) 
Cash, cash equivalents and restricted cash at beginning of periodCash, cash equivalents and restricted cash at beginning of period13,069  27,165  
Cash, cash equivalents and restricted cash at end of periodCash, cash equivalents and restricted cash at end of period$7,381  $15,739  
Supplemental Cash flow information:  
  
Supplemental Cash flow information:
Cash payments for interest $2,695
 $2,698
Cash payments for interest$3,211  $3,136  
Cash payments for income taxes 102
 70
Cash payments for income taxes68  66  
Non-cash operating, investing and financing transactions:Non-cash operating, investing and financing transactions:
    
Non cash investing and financing transactions:  
  
Issuance of stock to a consultant —
 189
Issuance of stock to a consultant—  102  
Acquisition of capital expenditures in accounts payable and accrued expenses 5,029
 42
Acquisition of capital expenditures in accounts payable and accrued expenses938  1,316  
Capitalized interest in capital expenditures 1,058
 139
Capitalized interest in capital expenditures—  2,013  
Capitalized stock compensation in capital expenditures 101
 39
Capitalized stock compensation in capital expenditures23  82  
The accompanying notes are an integral part of the condensed consolidated financial statements.


8

TELIGENT, INC. AND SUBSIDIARIES
NOTES TO (UNAUDITED)UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with 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.S-X. Accordingly, they do not include all of the information and footnotes required by GAAP.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 Form 10-K for the year ended December 31, 2016,2018, 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, 20162018 has been derived from those audited consolidated financial statements. Operating results for the nine month period ended September 30, 20172019 are not necessarily indicative of the results that may be expected for the year ending December 31, 2017.2019.

9

1. OrganizationNature of the Business and Liquidity

Nature of the Business


Teligent, Inc. and its subsidiaries (collectively the “Company”), is a specialty generic pharmaceutical company. Our mission is to become a leader in the specialty generic pharmaceutical market.market in alternate dosage forms. Under our own label, we currently market and sell generic topical and generic and branded generic injectable pharmaceutical products in the United States and Canada. In the United States, we currently market 21NaN generic topical pharmaceutical products and four4 branded generic injectable pharmaceutical products. In Canada, we sell a total of 30NaN generic and branded generic injectable products and medical devices. Generic pharmaceutical products are bioequivalent to their brand name counterparts. We also provide contract manufacturing services to the pharmaceutical, over-the-counterover the counter ("OTC"), and cosmetic markets. We operate our business under one1 reportable segment. Our common stock is tradingtraded on the NASDAQNasdaq 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, Toronto,Mississauga, Canada, and Tallinn, Estonia.

2. Liquidity

The Company’sCompany has incurred significant losses and generated negative cash flows from operations in recent years and expects to continue to incur losses and generate negative cash flow for the foreseeable future. As a result, the Company had an accumulated deficit of $116.2 million, total principal sourcesamount of liquidity have historically beenoutstanding borrowings of $174.1 million, and limited capital resources to fund ongoing operations at September 30, 2019. These capital resources were comprised of cash and cash equivalents of approximately $38.2$6.7 million at September 30, 20172019, the generation of cash inflows from working capital, and cash provided byan additional $10.0 million of borrowing capacity under the Delayed Draw Term Loan A portion of the Company’s Senior Credit Facilities that expires on December 13, 2019. In addition, subsequent to September 30, 2019, the Company issued Series B Senior Unsecured Convertible Notes for aggregate proceeds of $34.4 million, of which the Company expects approximately $27.3 million will be available to fund operations. See Note 7 for additional information regarding the Company’s Senior Credit Facilities and Note 13 for additional information regarding the Company’s Series B Senior Unsecured Convertible Notes.

The Company’s available capital resources may not be sufficient for it to continue to meet its obligations as they become due over the next twelve months if the Company may require additional funding and this funding will depend, in part, oncannot improve its operating results or increase its operating cash inflows. In the timing and structure of potential business arrangements. If necessary,event these capital resources are not sufficient, the Company may continue to seekneed to raise additional capital through the sale of its equity or through adebt securities, enter into strategic alliancebusiness collaboration agreements with a third party. There may also beother companies, seek other funding facilities, or sell assets. However, the Company cannot provide assurances that additional acquisition and growth opportunities that may require external financing. There can be no assurance that such financingcapital will be available on terms acceptable to the Company,terms or at all. Moreover, if the Company is unable to meet its obligations when they become due over the next twelve months through its available capital resources, or obtain new sources of capital when needed, the Company may have to delay expenditures, reduce the scope of its manufacturing operations, reduce or eliminate one or more of its development programs, or make significant changes to its operating plan. The accompanying financial statements do not include any adjustments that might result from the outcome of this uncertainty.

In addition, as disclosed in Note 7, the Company also hasis subject to certain financial covenants that are required to be met under the Senior Credit Facilities. These financial covenants include a trailing twelve months (“TTM”) Minimum Revenue covenant that was required to be met each quarterly period through June 30, 2019, a TTM Minimum Adjusted EBITDA that is required to be met each quarterly period from September 30, 2019 through September 30, 2020, and a Maximum Total Net Leverage Ratio that is required to be met each quarterly period thereafter. As of September 30, 2019, the Company was in compliance with the TTM Adjusted EBITDA covenant and currently anticipates it will remain in compliance with this covenant through September 30, 2020. However, a material change in the Company’s operating results over the next twelve months could negatively affect the Company’s ability to defer certain product developmentmaintain compliance with the TTM Adjusted EBITDA covenant. Moreover, while the Company is not required to comply with the Maximum Total Net Leverage ratio until December 31, 2020, the Company currently anticipates that it will not be in compliance with this covenant absent a significant reduction in the Company’s total principal amount of outstanding debt. In the event the Company is unable to comply with this covenant, or obtain a waiver from its lenders, the total amounts outstanding under the Senior Credit Facilities and Convertible Notes would immediately become due in January 2021 for which the Company does not currently expect to have readily available capital resources to meet these obligations without raising additional capital through the sale of equity or debt securities. If the Company is unable to raise additional capital to meet these obligations if they become due in January 2021, the Company may have to seek other programs, if necessary.strategic alternatives. The accompanying financial statements do not include any adjustments that might result from the outcome of this uncertainty.

10

In June 2019, the Company received a de-listing notice from the NASDAQ due to its share price being below $1.00 for 30 consecutive trading days. The notice specifies that the Company’s share price must trade above $1.00 per share for ten consecutive trading days prior to December 2, 2019 in order to prevent the Company’s common stock from being de-listed. As of September 30, 2019, and through the date of issuance of the accompanying financial statements, the share price of the Company’s common stock has not traded above $1.00 per share for the required ten consecutive trading days and, as such, the Company has filed a request from the NASDAQ for a 180-day extension. While the Company believes that the ongoing execution of its existing capital resourcesbusiness plan will ultimately increase the Company’s share price above $1.00 for the required ten consecutive trading days, the Company can provide no assurances that its shares will trade above $1.00 per share within the 180-day extension period, if at all. Moreover, while the Company believes the NASDAQ will grant the 180-day extension request, the Company can provide no assurances that such extension will be sufficientgranted. As a result, if the Company’s shares are de-listed from the NASDAQ, the Company would be in default of the non-financial covenant required by the Company’s Senior Credit Facilities and Convertible Notes for which the Company would have to support its current business plan and operations beyond November 2018.seek a waiver from the lenders or seek new capital through the sale of equity or debt securities. If the Company is unable to obtain a waiver or raise new capital to meet these obligations if they become due, the Company may have to seek other strategic alternatives. The accompanying financial statements do not include any adjustments that might result from the outcome of this uncertainty.





3.
11

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 for a fair presentation of the results for the interim periods of the fiscal years ending December 31, 2019 and 2018. 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, 2018, as filed with the Securities and Exchange Commission on April 1, 2019. Certain amounts in prior periods have been reclassified to conform to the current year presentation. Such reclassifications did not have a material effect on the Company's financial condition, results of operations, or cash flows as previously reported.

Principles of Consolidation

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

Use of Estimates
 
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”)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 sales returns and allowances, (“SRA”), allowances for excess and obsolete inventories, allowances for doubtful accounts, provisions for income taxes and related deferred tax asset valuation allowances, stock based compensation, the assessment for the impairment of long-lived assets (including intangibles, in-process researchgoodwill and developmentproperty, plant and goodwill)equipment) and legal accruals for environmental cleanup and remediation costs. Actual results could differ from those estimates.

Stock Based CompensationCash Equivalents
 
ASC 718-10 definesThe Company considers all highly liquid instruments purchased with the fair-value-based methodoriginal maturity of accountingthree months or less to be cash equivalents to the extent the funds are not being held for stock-based employee compensation plansinvestment purposes. Cash and transactionscash equivalents include cash on hand and bank demand deposits used byin the Company’s cash management program.

The Company has restricted cash, consisting of escrow accounts and letter of credits, which is included within other assets, non-current on the Company's Condensed Consolidated Balance Sheet. In addition, pursuant to the Credit Facilities agreement, proceeds from the 2023 Term Loans are deposited in a blocked bank account and restricted for use with the exception of repurchasing remaining 2019 Notes. During the first quarter of 2019, the Company used a total of $2.7 million of restricted cash to account for its issuances of equity instruments to record compensation cost for stock-based employee compensation plans at fair value as well as to acquire goods or services from non-employees. Transactions in which the Company issues stock-based compensation to employees, directors and advisors and for goods or services received from non-employees are accounted for based on the fair valuerepurchase a portion of the equity instruments issued. remaining 2019 Notes (Note 7).

The Company utilizes pricing modelsfollowing table provides a reconciliation of cash and cash equivalents and restricted cash reported in determining the fair valuesCondensed Consolidated Balance Sheet to the total amounts in the Condensed Consolidated Statement of options and warrants issuedCash Flows as stock-based compensation. These pricing models utilize the market price of the Company’s common stock and the exercise price of the option or warrant, as well as time value and volatility factors underlying the positions. Stock-based compensation expense is recognized over the vesting period of the grant.follows:

September 30, 2019September 30, 2018
Cash and cash equivalents$6,707  $15,267  
Restricted cash206  —  
Restricted cash in other assets468  472  
Cash, cash equivalents and restricted cash in the statement of cash flows$7,381  $15,739  

Fair Value of Financial Instruments
 
12

The carrying amounts of cash and cash equivalents, trade receivables, notes payable,restricted cash, accounts payable and other accrued liabilities at September 30, 20172019 approximate their fair value for all periods presented.

The Company measures fair value in accordance with ASC 820-10, "Fair“Fair Value Measurements and Disclosures"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 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 September 30, 2017,2019, based on level 2 inputs, the net carryingfair value of theour Notes (discussed in Note 6)(2019 Notes and 2023 Notes) was approximately $118.5$57.2 million compared to their facecarrying value of $143.75$72.2 million. However, this variance is due toIn addition, the conversion feature in the Notes rather than to changes in market interest rates. The Notes carry a fixed interest rate and therefore do not subject the Company to interest rate risk.value of our Senior Credit Facilities was stated at carrying value at September 30, 2019.


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 potential dilutive common stock equivalents outstanding during the period. Potential dilutive common stock equivalents include shares issuable upon the conversion of the Notes,notes and the exercise of options and the vesting


of restricted stock units ("RSU's").warrants. For the three and nine months ended September 30, 2017,2019, 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 September 30,Nine months ended September 30,
2019201820192018
Basic loss per share computation:
Net loss - basic and diluted$(7,113) $(3,945) $(19,826) $(21,866) 
Weighted average common shares - basic and diluted53,850,427  53,625,768  53,835,336  53,532,277  
Basic and diluted loss per share$(0.13) $(0.07) $(0.37) $(0.41) 
 Three months ended 
September 30,		 Nine months ended 
September 30,
 2017 2016 2017 2016
Basic loss per share computation: 
  
  
  
Net loss - basic and diluted$(6,328) $(2,703) $(6,416) $(6,554)
Weighted average common shares - basic and diluted53,391,948
 53,093,368
 53,297,889
 53,061,630
Basic and diluted loss per share$(0.12) $(0.05) $(0.12) $(0.12)

Revenue Recognition

The Company considers revenue realized or realizable and earned when it has persuasive evidence of an arrangement, delivery has occurred or contractual services rendered, the sales price is fixed or determinable, and collection is reasonably assured in conformity with ASC 605, “Revenue Recognition”.

The Company derives its revenues from three basic types of transactions: sales of its own pharmaceutical products, sales of manufactured product for its customers included in product sales, and research and product development services and other services performed for third parties.  Due to differences in the substance of these transaction types, the transactions require, and the Company utilizes, different revenue recognition policies for each.
Product Sales, net, include Company Product Sales and Contract Manufacturing Sales, as follows:

Product Sales, Net
(in thousands)
 Three months ended 
September 30,		 Nine months ended 
September 30,
 2017 2016 2017 2016
Company product sales$11,751
 $13,901
 $44,075
 $34,185
Contract manufacturing sales1,883
 1,808
 7,707
 13,971
Product sales, net$13,634
 $15,709
 $51,782
 $48,156

Company Product Sales: The Company records revenue from Company product sales when title and risk of ownership have been transferred to the customer, which is typically upon delivery of products to the customer.
As is customary in the pharmaceutical industry, the Company’s gross product sales from Company label products are subject to a variety of deductions in arriving at reported net product sales. When the Company recognizes revenue from the sale of products, an estimate of SRA is recorded, which reduces product sales. Accounts receivable and/or accrued expenses are also reduced and/or increased by the SRA amount. These adjustments include estimates for chargebacks, rebates, cash discounts and returns and other allowances. 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 estimation process used to determine our SRA provision has been applied on a consistent basis and no material adjustments have been necessary to increase or decrease our reserves for SRA as a result of a significant change in underlying estimates. The Company will use a variety of methods to assess the adequacy of our SRA reserves to ensure that our financial statements are fairly stated. These will include periodic reviews of customer inventory data, customer contract programs, subsequent actual payment experience, and product pricing trends to analyze and validate the SRA reserves.


The provision for chargebacks is our most significant sales allowance. A chargeback represents an amount payable in the future to a wholesaler for the difference between the invoice price paid to the Company by our 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 varies with changes in product mix, changes in customer pricing and changes to estimated wholesaler inventories. The provision for chargebacks also takes into account an estimate of the expected wholesaler sell-through levels to indirect customers at contract prices. The Company will validate the chargeback accrual quarterly through a review of the inventory reports obtained from our largest wholesale customers. This customer inventory information is used to verify the estimated liability for future chargeback claims based on historical chargeback and contract rates. These large wholesalers represent 90% - 95% 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.
Net revenues and accounts receivable balances in the Company’s consolidated financial statements are presented net of SRA estimates. Certain SRA balances are included in accounts payable and accrued expenses.

Gross-To-Net Sales Deductions
(in thousands)
 Three months ended 
September 30,		 Nine months ended 
September 30,
 2017 2016 2017 2016
Gross Company product sales$53,460
 $64,943
 $174,504
 $136,329
Reduction to gross Company product sales: 
  
  
  
Chargebacks and billbacks30,150
 43,161
 104,255
 82,565
Sales discounts and other allowances11,559
 7,881
 26,174
 19,579
Total reduction to gross product sales41,709
 51,042
 130,429
 102,144
        
Company product sales, net$11,751
 $13,901
 $44,075
 $34,185
Net Company product sales of $11.8 million and $13.9 million for the three months ended September 30, 2017 and 2016, respectively, are included in product sales, net in the Condensed Consolidated Statements of Operations. Net Company product sales of $44.1 million and $34.2 million for the nine months ended September 30, 2017 and 2016, respectively, are included in product sales, net in the Condensed Consolidated Statements of Operations. Accounts receivable are presented net of SRA balances of $28.1 million and $26.0 million at September 30, 2017 and 2016, respectively. Accounts payable and accrued expenses include $6.2 million and $2.9 million at September 30, 2017 and 2016, respectively, for certain fees related to services provided by the wholesalers. Wholesale fees of $1.5 million and $1.5 million for the three months ended September 30, 2017 and 2016, respectively, were included in cost of goods sold. Wholesale fees of $5.7 million and $2.8 million for the nine months ended September 30, 2017 and 2016, respectively, were included in cost of goods sold. In addition, in connection with four of the 22 products the Company currently markets and distributes in its own label in the U.S., in accordance with an agreement entered into in December 2011, the Company is required to pay a royalty calculated based on net sales to one of its pharmaceutical partners. The royalty is calculated based on contracted terms of 40% of net sales for the four products, which is to be paid quarterly to the pharmaceutical partner. In accordance with the agreement, net sales exclude fees related to services provided by the wholesalers. Accounts payable and accrued expenses include $0.6 million and $0.8 million at September 30, 2017 and 2016, respectively, related to these royalties. Royalty expense of $0.6 million and $0.9 million was included in cost of goods sold for the three months ended September 30, 2017 and 2016, respectively. Royalty expense of $1.4 million and $2.2 million was included in cost of goods sold for the nine months ended September 30, 2017 and 2016, respectively. The Company includes significant estimates to arrive at net product sales arising from wholesaler chargebacks, Medicaid and Medicare rebates, allowances and other pricing and promotional programs.
Contract Manufacturing Sales: The Company recognizes revenue when title transfers to its customers, which is generally upon shipment of products. These shipments are made in accordance with sales commitments and related sales orders entered into with customers either verbally or in written form. The revenues associated with these transactions, net of appropriate cash discounts, product returns and sales reserves, are recorded upon shipment of the products and are included in product sales, net on the Company’s Condensed Consolidated Statement of Operations. Contract manufacturing sales were $1.9 million and $1.8 million for the three months ended September 30, 2017 and September 30, 2016, respectively. Contract manufacturing sales were $7.7 million and $14.0 million for the nine months ended September 30, 2017 and 2016, respectively.


Research and Development Services and Other Income:  The Company establishes agreed upon product development agreements with its customers to perform product development services. Product development revenues are recognized in accordance with the product development agreement upon the completion of the phases of development and when the Company has no future performance obligations relating to that phase of development. Revenue recognition requires the Company to assess progress against contracted obligations to assure completion of each stage. These payments are generally non-refundable and are reported as deferred until they are recognizable as revenue. If no such arrangement exists, product development fees are recognized ratably over the entire period during which the services are performed. Other types of revenue include royalty or licensing revenue, and would be recognized based upon the contractual agreement upon completion of the earnings process.

Property, Plant and Equipment
Depreciation and amortization of property, plant and equipment is provided for under the straight-line method over the assets’ estimated useful lives as follows:
Useful Lives
Buildings and Improvements10 - 40 years
Machinery and Equipment3 - 10 years
Repair and maintenance costs are charged to operations as incurred while major improvements are capitalized. When assets are retired or disposed, the related cost and accumulated depreciation thereon are removed and any gains or losses are included in operating results. Interest expense and related payroll costs are capitalized on the portion of debt that is attributable to the expenditures for the plant expansion, related equipment and direct personnel costs.

Concentration of Credit Risk
 
Major customers of the Company are defined as those constituting greater than 10% of ourthe Company's total revenue. For the three months ended September 30, 2017, three2019, two of the Company’s customers accounted for 55%47% of the Company’s revenue, consisting of 30%, 13%,35% and 12%, respectively. For the three months ended September 30, 2016, two2018, three of the Company’s customers accounted for 31%49% of the Company’s revenue, consisting of 18%25%, 12% and 13%12%, respectively. For the nine months ended September 30, 2017, three2019, two of the Company'sCompany’s customers accounted for 56%48% of the Company'sCompany’s revenue, consisting of 27%29% and 19%, 15% and 14%.respectively. For the nine months ended September 30, 2016,2018, three of the Company'sCompany’s customers accounted for 40%54% of the Company'sCompany’s revenue, consisting of 19%32%, 11%12% and 10%., respectively. Accounts receivable related to the Company’s major customers comprised 87%47% of all accounts receivable as of September 30, 2017,2019 and 45% of all accounts receivable56% as of September 30, 2016.2018 respectively. The loss of one or more of these major customers could have a significant impact on our revenues and harm our business and results of operations.operations.
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For the three months ended September 30, 2017,2019, domestic net revenues were $10.1$13.4 million and foreign net revenues were $3.6$5.1 million. For the nine months ended September 30, 2017,2019, domestic net revenues were $41.8$36.5 million and foreign net revenues were $10.1$13.4 million. As of September 30, 2017,2019, domestic assets were $126.4$142.5 million and foreign assets were $70.6$53.7 million. For the three months ended September 30, 2016,2018, domestic net revenues were $13.5$13.3 million and foreign net revenues were $2.7$5.0 million. For the nine months ended September 30, 2016,2018, domestic net revenues were $41.2$34.9 million and foreign net revenues were $7.7$14.2 million. As of September 30, 2016,2018, domestic assets were $135.5$131.9 million and foreign assets were $51.7$61.0 million.


Foreign Currency Translation
The net assets of international subsidiaries where the local currencies have been determined to be the functional currencies are translated into U.S. dollars using current exchange rates. The U.S. dollar effects that arise from translating the net assets of these subsidiaries at changing rates are recorded in the foreign currency translation account, which is included in Accumulated Other Comprehensive Income (Loss) ("AOCI") and reflected as a separate component of equity. For those subsidiaries where the U.S. dollar has been determined to be the functional currency, non-monetary foreign currency assets and liabilities are translated using historical rates, while monetary assets and liabilities are translated at current rates, with the U.S. dollar effects of rate changes included in Foreign currency exchange gain line item under the Other income (expense), net section of the Income Statement.



Reclassification

Certain prior year amounts were reclassified to conform to current year presentation. In addition, the Company has reclassified certain non-cash transactions related to the capital expenditures, in the amount of $220,000, for the nine months ended September 30, 2016, reducing both cash from operating activities and cash used in investing activities.  For the year ended December 31, 2016, the impact of such reclassification of the non-cash portion of the capital expenditures would have been a reduction of both cash from operating activities and cash used in investing activities, in the amount of $1.8 million.

Prior period adjustment

During the third quarter ended September 30, 2017, the Company recorded an adjustment in the amount of $0.5 million to reduce the foreign exchange gain on the statement of operations, $0.3 million decrease in cash and $0.2 million decrease in other comprehensive income, that related to the three months ended June 30, 2017, as a result of an error regarding the classification and translation of a cash amount related to their wholly owned subsidiary, “Teligent, OU” and as a result of an error regarding the translation of the foreign subsidiaries. The Company concluded that the correction of these errors was immaterial, both quantitatively and qualitatively.

Debt Issuance Costs
Expenses related to debt financing activities are capitalized and amortized on an effective interest method, over the term of the loan. See detailed amounts per year in Note 6.

ASU 2015-3 specifies that debt issuance costs are to be netted against the carrying value of the financial liability. Under prior guidance, debt issuance costs were recognized as a deferred charge and reported as a separate asset on the balance sheet. The updated guidance aligns the treatment of debt issuance costs and debt discounts in that both reduce the carrying value of the liability. Amortization of debt issuance costs is to be recorded as interest expense on the income statement.
Adoption of RecentRecently Adopted Accounting Pronouncements
In April 2015, the FASB issued Accounting Standards Update ("ASU") 2015-03, Interest—Imputation of Interest (Subtopic 835-30): "Simplifying the Presentation of Debt Issuance Costs". The update simplifies the presentation of debt issuance costs by requiring that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. ASU 2015-03 is effective prospectively for fiscal years, and for interim periods within those years, beginning after December 15, 2015. The Company's adoption of this ASU, effective January 1, 2016, did not have any significant impact on its consolidated financial statements.

In July 2015, the FASB issued ASU 2015-11, Inventory (Topic 330): “Simplifying the Measurement of Inventory”. ASU 2015-11 requires inventory measured using any method other than last-in, first out (“LIFO”) or the retail inventory method to be subsequently measured at the lower of cost or net realizable value, rather than at the lower of cost or market. Under this ASU, subsequent measurement of inventory using the LIFO and retail inventory method is unchanged. ASU 2015-11 is effective prospectively for fiscal years, and for interim periods within those years, beginning after December 15, 2016. The Company's adoption of this ASU, effective January 1, 2017, did not have any significant impact on its consolidated financial statements.

In March 2016, the FASB issued ASU 2016-09, Compensation—Stock Compensation (Topic 718): “Improvements to Employee Share-Based Payment Accounting”. The update includes multiple provisions intended to simplify various aspects of the accounting for share-based payments, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. The amendments in this update are effective for public companies for annual periods beginning after December 15, 2016, and interim periods within those annual periods. The Company has adopted this ASU, effective January 1, 2017, and is recognizing windfall tax benefits in additional paid in capital on a prospective basis.

Recently Issued Accounting Pronouncements


In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842): “Recognition and Measurement of Financial Assets and Financial Liabilities”., which supersedes the existing lease guidance under Topic 840. The update supersedes Topic 840, Leases andnew standard requires the recognition of leaselessees to recognize Right-of-Use ("ROU") assets and lease liabilities by lessees for all leases with terms greater than 12 months, including those leases that were previously classified as operating leases under previous GAAP.leases. Topic 842 retains a distinction between finance leases and operating leases, with measurement and presentation of expenses and cash paymentsflows being dependent upon the classification. The Company adopted the new standard effective January 1, 2019 utilizing the optional transition method allowed under ASU 2018-11, Leases (Topic 842): Targeted Improvements. See Note 6 for the Company's additional required disclosures under Topic 842.

In February 2018, the FASB issued ASU 2018-02, “Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from operating leases classified within operating activities inAccumulated Other Comprehensive Income,” which allows a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the statement of cash flows. The amendments in this update areTax Cuts and Jobs Act. This guidance is effective for all entities for fiscal years, and interim periods within those years, beginning after December 15,


2018, for public business entities,with early adoption permitted. The amendments in ASU 2018-02 should be applied either in the period of adoption or retrospectively to each period in which for the Company means January 1, 2019.effect of the change in the U.S. federal corporate income tax rate in the Tax Cuts and Jobs Act is recognized. The Company's adoption of this ASU, iseffective January 1, 2019, did not expected to have any significanta material impact on its condensed consolidated financial statements.


Recently Issued Not Yet Adopted Accounting Pronouncements

In January 2017,June 2016, the FASB issued ASU 2017-01, Business CombinationsNo. 2016-13, Financial Instruments-Credit Losses (Topic 805)326): “ClarifyingMeasurement 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 Definition of a Business”. The update clarifies the definition of a business, specifically for companiesnet amount expected to better evaluate whether transactions should be accounted for as acquisitions (or disposals) ofcollected. This approach to estimating credit losses applies to most financial assets or businesses.measured at amortized cost and certain other instruments, including but not limited to, trade and other receivables. The amendments in this update are effective for public companiesbusiness entities for annual periodsfiscal years beginning after December 15, 2017, including interim periods within those annual periods. For2019, which for the Company the amendments are effectivemeans January 1, 2018.2020. The Company is currently evaluating the impact of this ASU on its condensed consolidated financial statements.

In January 2017, the FASB issued ASU 2017-03, Accounting Changes and Error Corrections (Topic 250) and Investments—Equity Method and Joint Ventures (Topic 323): “Amendments to SEC Paragraphs Pursuant to Staff Announcements at the September 22, 2016 and November 17, 2016 EITF Meetings”. The update shows amendments to two SEC Announcements made late in 2016 regarding four specific standards as follows: ASU 2014-09, Revenue from Contracts with Customers (Topic 606), ASU 2016-02, Leases (Topic 842), ASU 2016-13, Financial Instruments - Credit Losses (Topic 326), and ASU 2014-01, Investments - Equity Method and Joint Ventures (Topic 323). The amendments in this update require changes to the U.S. GAAP Financial Reporting Taxonomy and the changes will be incorporated into the proposed 2018 Taxonomy which are available for public comment and finalized as part of the annual release process. The Company is currently evaluating the impact of this ASU on its consolidated financial statements.


In January 2017, the FASB issued ASU 2017-04, Intangibles - Goodwill and Other (Topic 350): “Simplifying the Test for Goodwill Impairment”. The update simplifies how an entity is required to test goodwill for impairment by eliminating Step 2 from the goodwill impairment test. Step 2 measures a goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount of that goodwill. It affects public entities that have goodwill reported in their financial statements and have not elected the private company alternative for the subsequent measurement of goodwill. A public entity that is a U.S. Securities and Exchange Commission ("SEC") filer should adopt the amendments in this update for its annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. For the Company, the amendments are effective January 1, 2020. The Company is currently evaluating the impact of this ASU on its condensed consolidated financial statements.


In February 2017,November 2018, the FASB issued ASU 2017-05, Other Income—Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic 610-20)2018-18, Collaborative Arrangements (Topic 808): “Clarifying the Scope of Asset Derecognition GuidanceInteraction between Topic 808 and AccountingTopic 606”. The guidance clarifies that certain transactions between collaborative arrangement participants should be accounted for Partial Sales of Nonfinancial Assets”. This update addresses guidance for partial sales of nonfinancial assets. It affects (i) an entity that enters intoas revenue under Topic 606 when the collaborative arrangement participant is a contract to transfer to a customer a nonfinancial asset, group of nonfinancial assets, or ownership interest in a consolidated subsidiary that is not a business or nonprofit entity, (ii) an entity that historically had transactions within the scope of the real estate-specific derecognition guidance, and (iii) an entity that contributes nonfinancial assets that are not a business or a nonprofit activity to a joint venture or other noncontrolled investee. The amendments are effective at the same time as the amendments in ASU 2014-09. Therefore, forcustomer. For the Company, the amendments areamendment will be effective for annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period. Public entities may apply the guidance earlier but only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. The Company does not currently expect to enter into any such nonfinancial asset or ownership interest in its consolidated subsidiaries agreements but will refer to the guidance in ASU 2017-05 should that occur.January 1, 2020. The Company is currently evaluating the impact of this ASUguidance will have on its consolidated financial statements.


In May 2017, the FASB issued ASU 2017-09, Compensation—Stock Compensation (Topic 718): “Scope of Modification Accounting”. This update provides guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718, Compensation—Stock Compensation, to a change to the terms or conditions of a share-based payment award. The amendments affect any entity that changes the terms or conditions of a share-based payment award. The amendments are effective for fiscal years beginning after December 15, 2017. For the Company, the amendments are effective January 1, 2018.
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3. Revenues, Recognition and Allowances

Revenue Recognition

The Company has not made any changes to the terms or conditionsderives its revenues from 3 types of share-based payment awards but will refer to the guidance in ASU 2017-09 should that occur. The Company's adoptiontransactions: sales of this ASU is not expected to have any significant impact on its consolidated financial statements.own pharmaceutical products (Company product sales), sales of manufactured product for its customers (contract manufacturing sales), and research and product development services performed for third parties.


Revenue Topic 606 Recent Accounting Pronouncements

In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers (Topic 606).” The standard, including subsequently issued amendments, will replace most existing revenue recognition guidance in U.S. GAAPis recognized when it becomes effective. The key focus of the new standard is that an entity should recognize revenue to depict the transfera customer obtains control of promised goods or services, to customers in an amount that reflects the consideration to which the entity expects to be entitledreceive in


exchange for those goods or services. To achieve this key focus, there is a five-step approach outlinedthe extent the transaction price includes variable consideration, the Company estimates the amount of variable consideration that should be included in the standard. Entitiestransaction price using the expected value method based on historical experience as well as applicable information currently available.

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 permittedsold on an FOB destination basis and because inventory risk and risk of ownership passes to apply the new standard either retrospectively, subject to certain practical expedients, or the modified retrospective method that requires the applicationcustomer upon delivery.

Company product sales are recorded net of the guidance only to contracts that are uncompleted on the date of initial application. For the Company, Topic 606accruals for estimated chargebacks, rebates, cash discounts, other allowances, and subsequently issued amendments will be effective January 1, 2018.returns.

Contract Manufacturing Sales

The Company has completed its initial assessment of the new standard, including a detailed review of the Company’srecognizes revenue for contract portfolio and revenue streams to identify potential differencesmanufacturing sales over-time, as milestones are achieved. Shipments are made in accounting as a result of the new standard, and selected the modified retrospective method. Based on the Company’s initial assessment, we do not believe that the adoption of the standardaccordance with sales commitments and related amendments will have a significant impact on our revenue recognition patterns as compared to our current revenue recognition policies, assuming that contract structures similar to thosesales orders entered into with customers either verbally or in placewritten form.

Contract manufacturing sales are in effectrecognized net of accruals for cash discounts which are established at the time of our adoption. However, theresale, and are certain industry-specific implementation issuesincluded 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 would be recognized over time, or at a point in time, based upon the contractual term upon completion of the earnings process. Judgments are still unresolved and, depending onrequired to evaluate contingencies such as potential variances in the resolution of these matters, conclusions onschedule or costs, the impact on our revenue recognition patterns could change. Throughof change orders, liability claims, contract disputes or the dateachievement of adoption, we will continue to evaluatecontractual performance standards.

Revenues by Transaction Type

The Company operates in 1 reportable segment and therefore, the impactsresults of the standardCompany's operations are reported on a consolidated basis, consistent with internal management reporting utilized by the chief decision maker.

Net revenues for the three and nine months ended September 30, 2019 and 2018 were as follows:

Three months ended September 30,Nine months ended September 30,
2019201820192018
Company product sales$18,228  $16,375  $48,591  $44,288  
Contract manufacturing sales167  1,878  1,097  4,626  
Research and development services and other income71  41  $241  $174  
Revenue, net$18,466  $18,294  $49,929  $49,088  

15

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 contract type:

Three months ended September 30,Nine months ended September 30,
Company Product Sales2019201820192018
Topical$13,271  $10,503  $35,240  $26,297  
Injectables4,957  5,872  13,351  17,991  
Total$18,228  $16,375  $48,591  $44,288  

In the nine months ended September 30, 2019, the Company did not incur, and therefore did not defer, any material incremental costs to obtain contracts.

Sales Returns and Allowances

As is customary in the 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 our preliminary conclusions continueits 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 remain accurate. Additionally, we will continue our assessmentanalyze and validate the return and allowances reserves.

The sales returns and allowances were $19.2 million and $18.1 million at September 30, 2019 and December 31, 2018 respectively. In addition, the allowance for doubtful accounts was $2.5 million and $2.6 million at September 30, 2019 and December 31, 2018, respectively. The allowance for doubtful accounts was primarily related to one specific customer in the amount of $1.7 million.

Chargebacks are one of the impactCompany'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 varies with changes in product mix, changes in customer pricing and changes to estimated wholesaler inventories. The provision for chargebacks also takes into account an estimate of the standardexpected 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 our financial statement disclosureshistorical chargeback and contract rates. These large wholesalers represent a 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.

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.

Consistent with its cash management strategy, the Company reduced the price paid by wholesalers (also referred to as the “WAC” or wholesaler acquisition cost) on several of its products in the second and third quarters of 2018. As a result, its gross product sales and related chargebacks and billbacks are declined in 2019. The Company's adjustments for the deductions to gross product sales are as follows:

16

Three months ended September 30,Nine months ended September 30,
2019201820192018
Gross product sales$41,814  $40,111  $108,550  $124,801  
Deduction to gross product sales:
Chargebacks and billbacks14,573  10,739  37,285  49,103  
Wholesaler fees for service2,355  1,662  6,303  2,774  
Sales discounts and other allowances6,658  11,335  16,371  28,636  
Total reduction to gross product sales$23,586  $23,736  $59,959  $80,513  
Company product sales, net$18,228  $16,375  $48,591  $44,288  

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 expectedincluded in cost of sales in the Condensed Consolidated Statements of Operations.

The Company is required to be more extensive basedpay a 40% royalty on certain product net sales to a pharmaceutical partner. There are currently 4 products manufactured and distributed under the requirementsCompany’s label in the U.S. which are subject to this agreement. Payments are made quarterly. Royalty expense of $0.5 million was included in cost of sales in the new standard.Condensed Consolidated Statements of Operations for the three months ended September 30, 2019 and 2018, respectively. Royalty expense of $1.1 million and $2.0 million was included in cost of sales in the Condensed Consolidated Statements of Operations for the nine months ended September 30, 2019 and 2018, respectively.



17

4. Inventories

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

September 30, 2019December 31, 2018
Raw materials$14,143  $10,456  
Work in progress388  116  
Finished goods10,473  8,391  
Inventories reserve(2,371) (2,667) 
Inventories, net$22,633  $16,296  


18
 September 30, 2017 December 31, 2016
 (Unaudited) (Audited)
 (in thousands)
Raw materials$7,273
 $6,834
Work in progress629
 —
Finished goods8,019
 6,284
Reserve(1,722) (410)
Total$14,199
 $12,708


5. Property, Plant and Equipment
 
Property, plant and equipment consists of the following:
September 30, 2017 December 31, 2016
(Unaudited) (Audited)
(in thousands)September 30, 2019December 31, 2018
Land$257
 $257
Land$401  $401  
Building and improvements8,576
 8,515
Building and improvements58,889  53,813  
Machinery and equipment12,573
 8,583
Machinery and equipment14,717  12,229  
Computer hardware and softwareComputer hardware and software4,738  4,182  
Furniture and fixturesFurniture and fixtures698  694  
Construction in progress43,742
 15,496
Construction in progress29,807  30,949  
65,148
 32,851
109,250  102,268  
Less accumulated depreciation and amortization(7,900) (6,636)Less accumulated depreciation and amortization(13,162) (10,493) 
Property, plant and equipment, net$57,248
 $26,215
Property, plant and equipment, net$96,088  $91,775  
 
The Company recorded depreciation expense of $1,264,000$0.9 million and $679,000$0.6 million for the three months ended September 30, 2019 and September 30, 2018, respectively. The Company recorded depreciation expense of $2.7 million and $1.7 million for the nine months ended September 30, 20172019 and September 30, 2016,2018, respectively. During

There was no interest expense capitalized as construction in progress during the three and nine months ended September 30, 2019. Interest expense of $1.5 million and $4.4 million was capitalized as construction in progress during the three and nine months ended September 30, 2018 respectively. In addition, during the three months ended September 30, 20172019 and September 30, 2016,2018, there was $1,058,000$0.3 million and $0.4 million of interest and $139,000 of interest,payroll costs, respectively, capitalized intoas construction in progress. For the nine months ended September 30, 20172019 and September 30, 2016,2018, there was $2,285,000$0.9 million and $1.5 million of interest and $236,000 of interest,payroll costs, respectively, capitalized intoas construction in progress.


19

6. Leases

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which supersedes the existing lease guidance under Topic 840. The new standard requires lessees to recognize Right-of-Use ("ROU") assets and lease liabilities for all leases with terms greater than 12 months, including those leases that were previously classified as operating leases. Topic 842 retains a distinction between finance leases and operating leases, with measurement and presentation of expenses and cash flows being dependent upon the classification. The Company adopted the new standard on January 1, 2019 utilizing the optional transition method allowed under ASU 2018-11, Leases (Topic 842): Targeted Improvements.

The Company elected to adopt the package of practical expedients allowed under the new accounting guidance, which allows the Company to not reassess previous conclusions regarding 1) whether existing or expired leases are or contain leases 2) the lease classification of existing or expired leases and 3) initial direct costs for existing leases. In addition, the Company adopted the practical expedient to combine lease and non-lease components for all classes of underlying assets.

The Company reviewed its portfolio of lease agreements, and other service contracts to identify embedded leases, and reached conclusions on key accounting assessments related to the standard and finalized the related accounting policies. As a result of the implementation of the new standard, all leases with a term greater than 12 months previously classified as operating leases and only expensed through the Consolidated Statements of Operations are now recorded on the Consolidated Balance Sheets. Per the requirements of the standard, the Company has recorded a ROU asset and a lease liability representing the present value of future lease payments to be paid in exchange of the use of an asset of $1.9 million and $2.0 million respectively as of January 1, 2019. However, there was no cumulative effect adjustment to the opening balance of retained earnings as the assets and the liabilities recorded upon adoption off-set each other.

We have operating and finance leases for our corporate, manufacturing and international facilities as well as certain equipment. Our leases have remaining terms of less than one year to up to 10 years, including available options to extend some of our lease terms for up to 5 years. One of our lease agreements has an early termination option within one year. As the interest rates implicit in our 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. 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 were as follows:

Three months ended
September 30, 2019		Nine months ended
September 30, 2019
Operating lease cost$159  $476  
Finance lease cost:
        Amortization of right-of-use assets$5  $11  
        Interest on lease liabilities$1  $5  
Total finance lease cost$6  $16  

Right-of-use assets obtained in exchange for new operating lease liabilities were $1.0 million as of September 30, 2019. Cash paid for amounts included in the measurement of operating lease liabilities during the three and nine months ended September 30, 2019 was $0.1 million and $0.4 million respectively. Cash paid for amounts included in the measurement of finance lease liabilities during the three and nine months ended September 30, 2019 was not material.

20

Supplemental balance sheet information related to leases were as follows:

September 30, 2019
Operating Leases
Other assets$2,547 
Other current liabilities421 
Other long-term liabilities2,307 
Total operating lease liabilities2,728 
Finance Leases
Property, plant, and equipment81 
Accumulated depreciation(10)
Property, plant, and equipment, net71 
Other current liabilities13 
Other long-term liabilities60 
Total finance lease liabilities$73 

The weighted average remaining lease terms for operating and financing leases are 6.5 years and 4.9 years, respectively. The weighted average discount rates for operating and finance leases are 8.2% and 8.0%, respectively.

As of September 30, 2019 maturities of lease liabilities were as follows:
OperatingFinancing
Year Ending December 31,LeasesLeases
2019 (excluding the nine months ended September 30, 2019)$161  $4  
2020631  18  
2021607  18  
2022548  18  
2023548  18  
2024235  12  
Thereafter841  —  
Total lease payments3,571  88  
Less imputed interest843  15  
Total$2,728  $73  

As previously disclosed in our 2018 Annual Report on Form 10-K and under the previous lease accounting standard, future minimum lease payments for operating leases having initial or remaining noncancellable lease terms in excess of one year would have been as follows:

21

Commitments
2019$573  
2020611  
2021633  
2022610  
2023607  
2024200  
$3,234  

22

7. Debt

Convertible 3.75% Senior Notes


On December 16, 2014, the Company issued $125$125.0 million aggregate principal amount of Convertible 3.75% Convertible Senior Notes, due 2019 (the “Notes”“2019 Notes”). On December 22, 2014, the Company announced the closing of the initial purchasers’ exercise in full of their option to purchase an additional $18.75 million aggregate principal amount of 2019 Notes. The Notes were offered and sold only to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended (the “Securities Act”). The net proceeds from the sale of the Notes were approximately $139 million, after deducting underwriting fees and other related expenses of approximately $4.8 million. Accrued interest in the amount of $1.6 million related to the Notes was included in accrued expenses as of September 30, 2017.
The2019 Notes bear interest at a fixed rate of 3.75% per year, payable semiannually in arrears on June 15 and December 15 of each year, beginning on June 15, 2015, and mature on December 15, 2019, unless earlier repurchased, redeemed or converted. The 2019 Notes are convertible into shares of the Company’s common stock, cash or a combination thereof. On May 20, 2015, the Company received shareholder approval for the increase in the number of shares of common stock authorized and available for issuance upon conversion of the 2019 Notes.

On April 27, 2018, the Company entered into separate exchange agreements with certain holders of the 2019 Notes. The agreements gave the holders the right to exchange, in aggregate, $75.1 million of the 2019 Notes for $75.1 million of new Convertible 4.75% Senior Notes due 2023 (the “2023 Notes”). The new 2023 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 Notes are convertible into shares of the Company’s common stock, cash or a combination thereof. The Notes are convertible at an initial conversion price of approximately $11.29 per share, which is equivalent to an initial conversion rate is $224.71 per share, subject to certain adjustments, related to either the Company's stock price volatility, or the Company's declaration of 88.5716a 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 for a potential increase of the conversion rate up to $280.90 per $1,000share under a make-whole provision in some circumstances. The Company incurred loan issue costs of $1.6 million upon issuance of the 2023 Notes.

In accordance with accounting for convertible debt within the cash conversion guidance of ASC 470-20, we allocated the principal amount of the 2023 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 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. We allocated the total amount of transaction costs incurred to the liability and equity components using the same proportions as the proceeds from the 2023 Notes. Transaction 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, is 11.90%.

The exchange of $75.1 million of the 2019 Notes for the 2023 Notes is considered an extinguishment under ASC 470-50. The 2019 Notes are accounted for under cash conversion guidance ASC 470-20, which requires the Company to allocate the fair value of the consideration transferred upon settlement to the extinguishment of the liability component and the reacquisition of the equity component upon derecognition. In accordance with the aforementioned guidance, the Company recorded $2.5 million of non-cash interest expense as an extinguishment loss related to the 2019 Notes in the Condensed Consolidated Statement of Operations. In addition, the Company recorded a $7.6 million reduction of Additional Paid in Capital in connection with the extinguishment of $75.1 million of the 2019 Notes.

In December 2018 the Company used $52.8 million of proceeds from the Senior Credit Facilities (see below) to repurchase the 2019 Notes as well as $0.3 million of proceeds to pay for transaction costs. The repurchase of the 2019 Notes is considered a debt extinguishment under ASC 470-50. The 2019 Notes are accounted for under cash conversion guidance ASC 470-20, which requires the Company to allocate the fair value of the consideration transferred upon settlement to the extinguishment of the liability component and the reacquisition of the equity component upon derecognition. In accordance with the guidance above, the Company allocated a portion of the $52.8 million to the extinguishment of the liability component equal to the fair value of that component immediately before extinguishment and recognized a $1.7 million extinguishment loss in the Consolidated Statement of Operations to measure the difference between (i) the fair value of the liability component and (ii) the net carrying value amount of the liability component (which is net of any unamortized debt issuance costs). In addition, the Company recorded a $2.9 million reduction of Additional Paid in Capital in connection with the extinguishment of the 2019 Notes.

23

During the quarter ended March 31, 2019, the Company used a total of $2.7 million of proceeds from the Senior Credit Facilities to repurchase a portion of the remaining 2019 Notes. The repurchase of the 2019 Notes is considered a debt extinguishment under ASC 470-50. The 2019 Notes are accounted for under cash conversion guidance ASC 470-20, which requires the Company to allocate the fair value of the consideration transferred upon settlement to the extinguishment of the liability component and the reacquisition of the equity component upon derecognition. In accordance with the guidance above, the Company allocated a portion of the $2.7 million to the extinguishment of the liability component equal to the fair value of that component immediately before extinguishment and recognized a $0.2 million extinguishment loss in the Consolidated Statement of Operations to measure the difference between (i) the fair value of the liability component and (ii) the net carrying value amount of the liability component (which is already net of any unamortized debt issuance costs). In addition, the reduction of Additional Paid in Capital in connection with this extinguishment was immaterial.

Senior Credit Facilities

The Company’s Senior Credit Facilities consist of a $25.0 million revolver (the "Revolver") and 3 term loans totaling $95.0 million (collectively the "2023 Term Loans") that it entered via an agreement with Ares Management LLC on December 13, 2018. The 2023 Term Loans consist of (i) a $50.0 million Initial Term Loan; (ii) a $30.0 million Delayed Draw Term Loan A; and (iii) a $15.0 million Delayed Draw Term Loan B. The $15.0 million Delayed Draw Term Loan B was then expired in conjunction with the New 2023 Notes that the Company closed on October 31, 2019. The Initial Term Loan matures on the earlier to occur of (a) three months prior to maturity of the 2023 Notes or (b) June 13, 2024. The Company extended commitments related to undrawn amounts of the Delayed Draw Term Loan A from June 30, 2019 to December 13, 2019, pursuant to an amendment the Company entered with Ares Management LLC on July 18, 2019. Drawn amounts under the Delayed Draw Term Loans mature at the same time as the Initial Term Loan. The Revolver matures on the earlier to occur of (a) six months prior to the maturity of the 2023 Notes or (b) December 13, 2023. The Company’s ability to borrow under the Revolver is subject to adjustment in certain events, such as distributions of dividends or stock splits. Holders may convert their Notes at their option prior to September 15, 2019, when or if certain conditions have been met or circumstances have occurred, such as if the Company’s stock price exceeds 130% of the conversion price under the Notes for a designated period of time, or if the trading price of the Notes is, for a designated period of time, less than 98% of the closing sale priceborrowing base determined based upon eligible inventory, eligible equipment, eligible real estate and eligible receivables. The Senior Credit Facilities are secured by substantially all of the Company’s common stock multipliedassets. All of the Company’s debt is subordinated to the Senior Credit Facilities. The 2023 Term Loans are subordinate to the Revolver. The Senior Credit Facilities have customary financial and non-financial covenants, including affirmative, negative and reporting covenants, representations and warranties, and events of default, including cross-defaults on other material indebtedness, as well as events of default triggered by a change of control and certain actions initiated by the then-current conversion rateFDA. The financial covenants starts with a minimum revenue test through the quarter ended June 30, 2019, then converts to a minimum adjusted EBITDA test through the quarter ended September 30, 2020 and then converts to a maximum total net leverage ratio through expiry of the Notes, or ifSenior Credit Facilities.

The interest rate under the Revolver is calculated, at the option of the Company, calls Notes for redemption,at either the one, two, three or if certain specified corporate events occur. Holders may also convert their Notessix-month London Inter-Bank Offered Rate (or LIBOR) plus 3.75% or the base rate plus 2.75%. The interest rate on the 2023 Term Loans is calculated, at theirthe option of the Company, at any timeeither the one, two, three or six-month LIBOR plus 8.75% or the base rate plus 7.75%. Interest on the Senior Credit Facilities is payable in cash except that interest on the 2023 Term Loans is payable, at the option of the Company, in cash or after September 15, 2019 and priorin kind by being added to the closeprincipal balance thereof, until the earlier of businessDecember 13, 2020 and the date the Company has provided the lenders of the Senior Credit Facilities financial statements demonstrating that the Company has attained twelve months of revenue of at least $125.0 million. A commitment fee of 1.0% per annum is payable by the Company quarterly in arrears on the business day immediately precedingunused portion of the statedDelayed Draw Term Loans.

Amounts drawn under the Revolver may be prepaid at the option of the Company without premium or penalty, subject, in the case of acceleration of the Revolver or termination of the revolving credit commitments thereunder, to certain call protections which vary depending on the time at which such prepayments are made. Amounts drawn under the Revolver are subject to mandatory prepayment to the extent that aggregate extensions under the Revolver exceed the lesser of the revolving credit commitment then in effect and the borrowing base then in effect, and upon the occurrence of certain events and conditions, including non-ordinary course asset dispositions, receipt of certain insurance proceeds and condemnation awards and issuances of certain debt obligations. Amounts outstanding under the 2023 Term Loans may be prepaid at the option of the Company subject to applicable premiums, including a make-whole premium, and certain call protections which vary depending on the time at which such prepayments are made. Subject to payment of outstanding obligations under the Revolver as a result of any corresponding mandatory prepayment requirements thereunder, amounts outstanding under the 2023 Term Loans are subject to mandatory prepayment upon the occurrence of certain events and conditions, including non-ordinary course asset dispositions, receipt of certain insurance proceeds and condemnation awards, issuances of certain debt obligations and a change of control transaction.

24

In connection with the Revolver the Company incurred a debt discount of $0.5 million and debt issuance issue costs of $0.3 million. The debt discount relates to annual fees and lender fees paid on the initial drawdown of $15.0 million. The debt issuance costs and debt discount are recorded as an asset on the Consolidated Balance Sheet and are amortized to interest expense using the straight-line method through the estimated Revolver maturity date. The annual fees related to the Revolver and the Initial Term Loan are amortized to interest expense using the straight-line method over the annual period they relate to. In connection with the Initial Term Loan and Delayed Draw Term Loan A, the Company incurred a debt discount of $1.8 million and debt issuance issue costs of $0.8 million. The debt discount is due to lender fees paid on the Initial Term Loan of $50.0 million and drawdown of Delayed Draw Term Loan A of $20.0 million. The debt issuance costs and debt discount costs are amortized to interest expense using the effective interest rate method through the estimated maturity date. In addition, following the occurrenceCompany incurred $0.5 million of certain changes of controldebt issuance costs related to the commitment fees paid to the lenders for the undrawn amounts of the Company described inDelayed Draw Term Loans. These debt issuance costs are recorded as an asset on the Indenture governingbalance sheet and amortized on a straight-line basis over the Notes or termination of tradingaccess period of the Company’s common stock or other securities into whichDelayed Draw Term Loans through June 30, 2019. As of December 31, 2018, the Notes are convertible (a “make-whole fundamental change”) oreffective interest, inclusive of the deliverydebt discounts and issue costs, of the Revolver and Initial Term Loan and Delayed Draw Term Loan A is 9.3% and 12.4%, respectively.

The Initial Term Loan of $50.0 million and $15.0 million of the Revolver were drawn by the Company of a notice of redemption, the conversion rate for a holder who elects to convert its Notes in connection with such make-whole fundamental change or such notice of redemption will increase in certain circumstances. Additionally, subject to certain conditions,on December 13, 2018. On December 21, 2018, the Company may redeem for cash any or all outstanding Notes on or after December 19, 2017drew $20.0 million of the Delayed Draw Term Loan A. In January 2019, the Company drew $5.0 million and subsequently the remaining $5.0 million under the Revolver were drawn down by the Company in April 2019. On September 18, 2019, pursuant to the Protective Advance clause in the Company’s First Lien Credit Agreement with Ares Capital, the Company borrowed an amount equalincremental $2.5 million from it’s existing revolving credit facility. Consistent with the terms of the revolving credit facility, Protective Advances are secured by the Administrative Agent’s liens, constitute Obligations pursuant to the First Lien Credit Agreement, and bear interest at the rate applicable to the outstanding revolving credit facility balances, however, the Protective Advance is repayable on demand. The liability was classified as a short-term obligation as of September 30, 2019. The Term Loans are governed by the Second Lien Credit Agreement. The 2023 Term Loans include a 24-month paid-in-kind interest option available to the Company should it choose to defer cash payments in order to maintain the liquidity needed to continue launching new products, and preparing for an FDA prior approval inspection of its new injectable manufacturing facility. The Company has elected the paid-in-kind interest option and increased the principal amountbalance of such Notes, plus accrued2023 Term Loans by $2.2 million and unpaid interest.$6.4 million for the three and nine months periods ended September 30, 2019 respectively.


The Notes and any common stock issuable upon conversionAres Senior Credit Facilities require that the Company remains in compliance with certain financial performance covenants including a trailing-twelve-month minimum revenue through June 30, 2019, which then transitions to a trailing-twelve-month EBITDA from September 30, 2019 through September 30, 2020 which then finally transitions to a leverage ratio through expiration of the Notes have not been registered underfacility. Pursuant to the Securities Act, applicable state securities laws or the securities laws of any other jurisdiction, and may not be offered or soldAres Credit Agreement, in the United States without registrationevent of a default related to the failure to meet certain covenants, the lender shall have the right, but not the obligation, to permanently reduce the commitment in whole or an applicable exemption from registration requirements.in part or to declare all or any portion of the outstanding balance to become due and payable. The Company does not intend to file a registration statement forwas in compliance with all financial covenants within its Credit Agreement as of September 30, 2019 and will continuously monitor its compliance with the resale ofcovenants contained in the Notes or any common stock issuable upon conversion ofCredit Agreement.

At September 30, 2019 and December 31, 2018, the Notes, nor shall there be any sale of these securities in any jurisdiction in which such offer, solicitation, or sale would be unlawful.
The remaining unamortized discount and unamortized debt financing costs will be amortized over the remaining termnet carrying value of the debt of 2.25 years. At September 30, 2017 and December 31, 2016, the net carrying amount of the Notes and the remaining unamortized debt discountdiscounts and debt issuance costs were as follows:

September 30, 2019December 31, 2018
Face amount of the 2019 Notes (due December 2019)$13,022  $15,702  
Revolver, current2,500  —  
Less unamortized discounts and debt issuance costs(245) (1,291) 
Total net carrying value, current$15,277  $14,411  
September 30, 2019December 31, 2018
Face amount of the 2023 Notes (due May 2023)$75,090  $75,090  
Face amount of the Revolver Credit Facility (due December 2022)25,000  15,000  
Face amount of the 2023 Loan (due February 2023)76,359  70,000  
Total carrying value, non-current176,449  160,090  
Less unamortized discounts and debt issuance costs(17,662) (20,519) 
Total net carrying value, non-current$158,787  $139,571  
25

 September 30,
2017		 December 31,
2016
 (in thousands)
Face amount of the Notes$143,750
 $143,750
Unamortized discount(22,784) (29,160)
Debt issuance costs$(2,503) $(3,199)
Carrying amount of the Notes$118,463
 $111,391
Debt issuance costs associated with the Notes include fees of $2.5 million at September 30, 2017 and $3.2 million at December 31, 2016.
For the three and the nine months ended September 30, 2017 and 2016, the Company recorded the following expenses in relation to the Notes:


 Three months ended 
September 30,		 Nine months ended 
September 30,
 2017 2016 2017 2016
 (in thousands)
Interest Expense at 3.75% coupon rate$1,348
 $1,348
 $4,043
 $4,043
Debt discount amortization2,193
 1,929
 6,376
 5,606
Amortization of deferred financing costs239
 210
 695
 611
Total interest expense (1)$3,780
 $3,487
 $11,114
 $10,260
(1) Included within "Interest and other expense, net" on the Condensed Consolidated Statements of Operations, offset by interest income and capitalized interest

7.8. Goodwill and Intangible Assets


Goodwill
 
The Company assesses the recoverability of the carrying value of goodwill in the fourth quarteron a reporting unit basis on October 1 of each year, and whenever events occur or changes in circumstances change that would, more likely than not, reduceindicate the faircarrying value of our reporting unit below its carrying value.goodwill may not be recoverable. There have been no events or changes in circumstances that would have reducedindicate the faircarrying value of our reporting unit below its carrying value from December 31, 2016,goodwill may not be recoverable through September 30, 2017. No impairment losses were recognized during the nine months ended September 30, 2017.2019.
 

Changes in goodwill during the nine months ended September 30, 2017 2019 and the year ended December 31, 2018
were as follows (in thousands):follows: 

Goodwill
Goodwill balance at December 31, 2017$471 
Foreign currency translation(1)
Goodwill balance at December 31, 2018$470 
Foreign currency translation14 
Goodwill balance at September 30, 2019$484 
 Goodwill
Goodwill balance at December 31, 2016$446
Foreign currency translation30
Goodwill balance at September 30, 2017$476

Intangible Assets
 
The following sets forth the major categories of the Company’s intangible assets and the weighted-average remaining amortization period as of September 30, 20172019 and December 31, 2016.2018.


September 30, 2017 September 30, 2019
Gross Carrying
Amount
 
Accumulated
Amortization
 
Net Carrying
Amount
 
Weighted Average
Remaining Amortization
Period
Gross Carrying
Amount		Accumulated
Amortization		Net Carrying
Amount		Weighted Average
Remaining Amortization
Period (Years)
Trademarks and Technology$40,182
 $(4,991) $35,191
 13.0Trademarks and Technology$39,243  $(10,228) $29,015  11.0
Product acquisition costsProduct acquisition costs12,836  —  12,836  N/A- See description below
In process research and development ("IPR&D")17,797
 —
 17,797
 N/A - Indefinite livedIn process research and development ("IPR&D")217  —  217  N/A- See description below
Customer relationships3,803
 (679) 3,124
 8.1Customer relationships3,629  (1,410) 2,219  6.1
Total$61,782
 $(5,670) $56,112
  Total$55,925  $(11,638) $44,287  

December 31, 2018
Gross Carrying
Amount		Accumulated
Amortization		Net Carrying
Amount		Weighted Average
Remaining Amortization
Period (Years)
Trademarks and Technology$40,169  $(8,239) $31,930  11.8
Product acquisition costs13,308  —  13,308  N/A- See description below
In-process research and development ("IPR&D")719  —  719  N/A- See description below
Customer relationships3,557  (1,139) 2,418  6.9
Total$57,753  $(9,378) $48,375  



 December 31, 2016  
 Gross Carrying
Amount		 
Accumulated
Amortization
 
Net Carrying
Amount
 
Weighted Average
Remaining Amortization
Period
Trademarks and Technology35,403
 (3,123) 32,280
 13.8
In-process research and development ("IPR&D")17,024
 —
 17,024
 N/A - Indefinite lived
Customer relationships3,565
 (404) 3,161
 8.9
Total55,992
 (3,527) 52,465
  

Changes in intangibles during the nine months ended September 30, 2017 were as follows (in thousands):
 
Trademarks
and Technology
 IPR&D 
Customer
Relationships
Balance at January 1, 2017$32,280
 $17,024
 $3,161
Amortization(1,868) —
 (275)
Loss on impairment—
 (113) —
Foreign currency translation4,779
 886
 238
Balance at September 30, 2017$35,191
 $17,797
 $3,124
Assuming no additions, disposals or adjustments are made to the carrying values and/orThe useful lives of the intangible assets, annual amortization expense on product rightsCompany’s intangibles are as follows:

26

Intangibles CategoryAmortizable Life
Product Acquisition Costs10 years
Trademarks and Technology15 years
Customer Relationships10 years

IPR&D and other related intangibles as of September 30, 2017 over the remainder of 2017 and each of the next five years is estimated to be as follows ($ in thousands):
 
Amortization
Expense *
2017 (for the remainder of the year)$743
20182,971
20192,971
20202,971
20212,971
20222,971
Thereafter17,885
*IPR&D amounts are assessed for impairment at least annually andProduct Acquisition costs will be amortized over their estimated useful lives once products become saleable.are commercialized.
8.
27

9. Stock-Based Compensation
 
Stock Options
 
The 1999 Director Stock Option Plan, as amended (the “Director Plan”), provides for the grantCompany recognized $0.2 million and $0.4 million of compensation expense related to stock options to non-employee directors ofduring the Company at an exercise price equal to the fair market value per share on the date of the grant. An aggregate of 1,975,000 shares have been approved and authorized for issuance pursuant to the Director Plan. A total of 2,634,798 options have been granted to non-employee directors throughthree months ended September 30, 2017,2019 and 807,782 of those have been forfeited through2018, respectively, and $0.7 million and $1.2 million during the nine months ended September 30, 20172019 and returned to the option pool for future issuance. The options granted under the Director Plan vest in full one year after their respective grant dates and have a maximum term of ten years. As of September 30, 2017, there were 500,000 shares of common stock options outstanding under the Director Plan. As of September 30, 2017, the 147,984 options available were transferred to the 2016 Plan that has superseded the Director Plan, as discussed further in this section.2018, respectively.

The 1999 Stock Incentive Plan, as amended (“1999 Plan”), replaced all previously authorized employee stock option plans, and no additional options may be granted under those previous plans. Under the 1999 Plan, options or stock awards may be granted to all of the Company’s employees, officers, directors, consultants and advisors to purchase a maximum of 3,200,000


shares of common stock. However, pursuant to the terms of the 1999 Plan, no awards may be granted after March 16, 2009. A total of 2,892,500 options, having a maximum term of ten years, have been granted at 100% of the fair market value of the Company’s common stock at the date of grant. Options outstanding under the 1999 Plan are generally exercisable in cumulative increments over four years commencing one year from date of grant.

On June 26, 2009,May 25, 2016, the Board of Directors adopted, andapproved the Company’s stockholders subsequently approved by written consent, the IGI Laboratories, Inc. 20092016 Equity Incentive Plan (the “2009“2016 Plan”). The 2009 Plan became effective on July 29, 2009. The 2009 Plan allows the Company to continue to grant options and restricted stock, as under the 1999 Plan, but also authorizes the Board of Directors to grant a broad range of other equity-based awards, including stock appreciation rights, restricted stock units (“RSUs”) and performance awards. The 2009 Plan has been created, pursuant to and consistent with the Company's current compensation philosophy, to assist the Company in attracting, retaining and rewarding designated employees, directors, consultants and other service providers of the Company and its subsidiaries and affiliates, in a manner that will be cost efficient to the Company from both an economic and financial accounting perspective. On April 12, 2010,May 21, 2018, the Board of Directors adopted, and the Company’s stockholders subsequently approved, an amendment and restatement of the 20092016 Plan to increase the number of shares of Common Stock available for grant under such plan by adding 2,000,000 shares of Common Stock. The 20092016 Plan, as amended, on May 29, 2010, authorizes up to 5,000,000 shares of the Company’s common stock for issuance pursuant to the terms of the 2009 Plan. The maximum number of shares that may be subject to awards made to any individual in any single calendar year under the 2009 Plan is 1,000,000 shares. As of September 30, 2017, there were 107,959 RSUs outstanding, 1,413,687 shares of stock outstanding, and options to purchase 3,069,634 shares of common stock outstanding under the 2009 Plan. As of September 30, 2017, the 218,052 options available were transferred to the 2016 Plan that has superseded the 2009 Plan, as discussed further in this section.

On May 25, 2016, the Board of Directors approved the Company’s 2016 Equity Incentive Plan (the “2016 Plan”). The 2016 Plan provides for the issuance of awards of up to 2,000,0004,000,000 shares of the Company’s common stock, plus any shares of common stock that are represented by awards granted under our Director Plan and 2009 Plan that are forfeited, expire or are canceled without delivery of shares of common stock or which result in the forfeiture of shares of common stock back to the Company on or after May 25, 2016.2016, up to 2,500,000 shares. Generally, shares of common stock reserved for awards under the 2016 Plan that lapse or are canceled, will be added back to the share reserve available for future awards. However, shares of common stock tendered in payment for an award or shares of common stock withheld for taxes will not be available again for grant. The 2016 Plan provides that no participant may receive awards for more than 1,000,000 shares of common stock in any fiscal year. As the 2016 Plan supersedes both the Director Plan and the 2009 Plan, any available shares from both are now incorporated into the 2016 Plan. As of September 30, 2017,2019, there were 89,00375,048 RSUs outstanding, 20,000136,496 shares of common stock outstanding and options to purchase 748,5433,131,033 shares of common stock outstanding under the 2016 Plan. As of December 31, 2018, there were 161,214 RSUs outstanding, 74,667 shares of common stock outstanding and options to purchase 1,394,285 shares of common stock outstanding under the 2016 Plan. As of September 30, 2017,2019 and December 31, 2018, there were a total of 1,508,4901,764,961 shares of common stock and 3,113,374 shares of common stock available under the 2016 Plan.Plan, respectively.
 
As of September 30, 2017,2019 and December 31, 2018, there were options to purchase 4,318,1775,725,141 and 4,352,391 shares of common stock outstanding, respectively, collectively in the Director Plan, 2009 Plan, and the 2016 Plan.


In the interest of maintaining consistency with the Company's 2016 Equity Incentive Plan, on March 13, 2017, the Company entered into (i) an amendment to the option agreements governing each option grant currently outstanding under the Company's 2009 Equity Incentive Plan, and (ii) an amendment to the RSU, agreements governing each RSU grant currently outstanding under the 2009 Plan. The amendments provide for the automatic vesting upon a change of control of the Company of each option grant and RSU grant, as applicable, outstanding under the 2009 Plan. The amendments had a de minimis value to the holders as of September 30, 2017,2019, and therefore no additional stock compensation expense was recognized.recognized related to the amendments.

The fair value of each option award is estimated on the date of grant using the Black-Scholes option-pricing formula that uses assumptions noted in the following table. Expected volatilities and risk-free interest rates are based upon the expected life of the grant.

Nine months endedNine Months Ended September 30,
AssumptionsSeptember 30, 2017 September 30, 2016Assumptions20192018
Expected dividends—% —%Expected dividends—  —  
Risk-free rate1.55% 1.11%Risk-free rate1.38% - 2.47%  2.38 %
Expected volatility58.0% - 69.7%
 68.0% - 70.4%
Expected volatility64.3% - 75.2%53.2% - 72.5%
Expected term (in years)3.2 - 3.3
 3.1 - 3.3
Expected term (in years)3.2 - 3.3 years3.2 - 3.3 years
  


Expected volatility was calculated using the historical volatility of the Company's stock over the expected life of the options. The expected life of the options was estimated based on the Company's historical data. The risk free interest rate is based on U.S. Treasury yields for securities with terms approximating the terms of the grants. Forfeitures are recognized in the period they occur. The assumptions used in the Black-Scholes options valuation model are highly subjective, and can materially affect the resulting valuation.

Based upon application of the Black-Scholes option-pricing formula described above, the weighted-average grant-date fair value of options granted during the nine months ended September 30, 2017 and September 30, 2016, were $3.41 per share of common stock and $3.44 per share of common stock, respectively.


A summary of option activity under the 1999 Director Stock Option Plan, the 2009 Equity Incentive Plan, and the 2016 Equity Incentive Plan as of September 30, 20172019 and changes during the period are presented below:

28

Number of
Options
Weighted Average
Exercise Price
Number of
Options
 
Weighted
Average
Exercise Price
Outstanding as of January 1, 20174,105,369
 $4.76
Outstanding as of January 1, 2019Outstanding as of January 1, 20194,352,391  $4.61  
Issued558,345
 7.35
Issued2,365,357  1.44  
Exercised(171,566) 1.56
Exercised—  —  
Forfeited(173,971) 7.44
Forfeited(569,516) 2.48  
Expired—
 —
Expired(423,091) 4.10  
Outstanding as of September 30, 20174,318,177
 $5.11
Outstanding as of September 30, 2019Outstanding as of September 30, 20195,725,141  $3.55  


  
Exercisable as of September 30, 20172,981,134
 $3.91
Exercisable as of September 30, 2019Exercisable as of September 30, 20193,291,600  $4.77  
 
The following table summarizestables summarize information regarding options outstanding and exercisable at September 30, 2017:2019:
 
Outstanding:
Stock
Options		Weighted
Average		Weighted
Average
Remaining
Range of Exercise PricesOutstandingExercise PriceContractual Life
$0.00 - $0.78163,905  $0.66  9.78
$0.79 - $1.501,712,347  1.03  4.56
$1.51 - $5.502,197,871  2.22  8.61
$5.51 - $10.671,651,018  8.21  6.64
Total5,725,141  $3.55  6.87

  
Stock
Options
 
Weighted
Average
 
Weighted
Average
Remaining
Range of Exercise Prices Outstanding Exercise Price Contractual Life
$0.79 - $1.00 25,000
 $0.79
 2.26
$1.01 - $1.50 1,721,000
 1.06
 4.39
$1.51 - $10.67 2,572,177
 7.87
 8.01
Total 4,318,177
 $5.11
 6.53

Exercisable:

Exercisable:
  
Stock
Options
 
Weighted
Average
Range of Exercise Prices Exercisable Exercise Price
$0.79 - $1.00 25,000
 $0.79
$1.01 - $1.50 1,721,000
 1.06
$1.51 - $10.67 1,235,134
 7.93
Total 2,981,134
 $3.91
Range of Exercise PricesStock Options ExercisableWeighted Average Exercise Price
$0.79 - $1.501,257,500  $1.03  
$1.51 - $5.50470,250  3.17  
$5.51 - $10.671,563,850  8.26  
Total3,291,600  $4.77  
 
As of September 30, 2017,2019, the intrinsic value of the options outstanding was $10.8$0.1 million and the intrinsic valuenone of the options exercisable was $10.7 million.were exercisable. As of September 30, 2017,2019, there was $2.9$1.3 million of total unrecognized compensation costexpense related to non-vested share-based compensation arrangements granted under the Plan. The costs will be recognized through September 2020.


2022.
 
Restricted Stock and RSUs
 
The Company periodically grants restricted stock and RSU awards to certain officers and other employees that typically vest one to three years from their grant date. The Company recognized $241,500immaterial and $192,000$0.1 million of compensation expense respectively during the three months ended September 30, 20172019 and 2016,2018, respectively and $709,600$0.2 million and $564,000$0.4 million of compensation expense during the nine months ended September 30, 20172019 and 2016,2018, respectively related to restricted stock and RSU awards. Stock compensation expense is recognized over the vesting period of the restricted stock and RSUs. At September 30, 2017,2019, the Company had approximately $1.0$0.2 million of total unrecognized compensation cost related to non-vested restricted stock and RSUs, all of which will be recognized through April 2020.March 2021. The following table summarizes the number of unvested RSUs and their weighted average exercise price for the nine months ended September 30, 2017.2019.

29

Number of RSUsWeighted Average Grant Date Fair Value
 Number of
RSUs		 Weighted Average
Exercise Price
Non-vested balance at January 1, 2017 179,900
 $9.35
Non-vested balance at January 1, 2019Non-vested balance at January 1, 2019175,591  $4.78  
Changes during the period:  
  
Changes during the period:
Shares granted 93,468
 7.26
Shares granted—  —  
Shares vested (71,941) 9.82
Shares vested(76,206) 5.39  
Shares forfeited (4,465) 7.09
Shares forfeited(24,337) 4.40  
Non-vested balance at September 30, 2017 196,962
 $8.23
Non-vested balance at September 30, 2019Non-vested balance at September 30, 201975,048  $4.29  


9.
30

10. Income Taxes


The Company conducts operations in the United StatesCompany’s income tax expense (benefit) was nil and certain foreign countries. It is the intent of the Company to permanently reinvest any earnings and profits generated by its foreign affiliates. One of its foreign affiliates is subject to tax in Estonia. Estonia has a dual tax rate: 0% for earnings and profits as they are generated and 20% for earnings and profits that are distributed to shareholders. The Company has taken the position that the 20% tax rate applies only when dividends have been declared and recognized as a liability. Accordingly, the Company has provided no taxes on the current earnings generated by its Estonian affiliate.

Income tax expense$(0.1) million for the three months ended September 30, 2019 and 2018, with effective tax rates of 0.07% and 3.36%, respectively. The Company's income tax expense (benefit) for the nine months ended September 30, 20172019 and the three2018 was $0.1 million and nine months ended September 30, 2016, is recognized based on the Company’s estimated annual$(0.1) million with effective tax rate, which is based upon the tax rate expected for the full calendar year applied to the pre-tax incomerates of the interim period adjusted for discrete items. (0.38)% and 0.41%, respectively.

The Company excludes from the calculation of the annual effective tax rate those jurisdictionsany entities that are projected to operate at a loss, and in which ahave no tax benefit will notthat can reasonably be recognized orexpected, and those entities which operate in a zero tax rate jurisdiction. Due to continuing operating losses in the United States, the tax provision is based on minimum U.S. state income taxes and the operations of certain foreign affiliates that are subject to taxes in their respective countries.


Beginning in 2018, the Company’s net interest expense became subject to limitations imposed by the Tax Cuts and Jobs Act of 2017 (TCJA). Based on actual and projected operating results, the Company is subject to an interest expense limitation. The limitation serves to reduce the net operating loss and create an additional attribute for the disallowed net interest expense. Therefore, there is no effect on earnings.

Also beginning in 2018, TCJA imposed a new tax on the current earnings of controlled foreign subsidiaries called Global Intangible Low-Taxed Income (“GILTI”). The Company continues to monitor the new GLITI tax provisions, associated regulations and rulings as they are issued with the application of ASC 740, Income Taxes. The Company is allowed to make an accounting policy choice of either (1) treating taxes due on future U.S. inclusions in taxable income related to GILTI as a current-period expense when incurred (the “period cost method”) or (2) factoring such amounts into the Company's measurement of its deferred taxes (the “deferred method”). The Company's selection of an accounting policy with respect to the new GILTI tax rules will depend, in part, on analyzing its global income to determine whether it expects to have future U.S. inclusions in taxable income related to GILTI and, if so, what the impact is expected to be. Whether the Company expects to have future U.S. inclusions in taxable income related to GILTI depends not only on the Company's current structure and estimated future results of global operations, but also on its intent and ability to modify its structure. The Company is currently in the process of analyzing its structure. For 2018, the Company’s foreign entities as a whole generated an operating loss and that loss exceeds the projected foreign entities’ income for 2019. Therefore, the Company has not made any adjustments related to potential GILTI tax in its financial statements and has not yet made a policy decision regarding whether or not to record deferred taxes associated with GILTI.

The Company evaluates the recoverability of its net deferred tax assets based on its history of operating results, its expectations for the future and the expiration dates of the netits attributes including operating loss carry forwards. Based on the preponderance of the evidence, thelosses. The Company has concluded that it is more likely than not that it will be unable to realize the net deferred tax assets in the immediate future and has established a valuation allowance for all suchU.S. and foreign net deferred tax assets.

At December 31, 2016,2018, the Company’s U.S. federal net operating loss carryforwards totaled $33.7$45.1 million. The Company’s ability to use net operating loss carry forwards is subject to substantial limitation in future periods under certain provisions of Section 382 of the Internal Revenue Code of 1986, as amended, which limit the utilization of net operating losses upon a more than 50% change in ownership of the Company’s stock that is held by 5% or greater stockholders.stock. The Company examined the application of Section 382 with respect to an ownership change that took place during 2010, as well as the limitation on the application of net operating loss carry forwards. The Company believes that net operating losses subsequent to the change date in 2010 (aggregating $15.0$26.5 million) are not subject to Section 382 limitations. The Company has estimated that the annual limitation starting in 2010 aggregates from $1.0 million to $2.3 million per year including the effect of amortization of built in gains. The Company’s net loss carryforwards may be further limited in the future if additional ownership changes occur.


In accordance with ASU 2016-09 “Improvements to Employee Share-Based Payment Accounting” issued by FASB, the Company has recognized windfall profits as an increase in deferred tax assets resulting from an increase in net operating loss carryforwards.  The Company has provided a full valuation allowance for these deferred tax assets.



The Company is subject to the provisions of ASC 740-10-25, “Income Taxes”. (ASC 740740) which prescribes a more likely-than-not threshold for the financial statement recognition of uncertain tax positions. ASC 740 clarifies the accounting for income taxes by prescribing a minimum recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. On a quarterly basis, the Company undergoes a process to evaluate whether income tax accruals are in accordance with ASC 740 guidance on uncertain tax positions. For federal purposes, post 1998 tax years remain open to examination as a result of net operating loss carryforwards. The Company is currently open to audit by the appropriate state income taxing authorities for tax years 20132014 to 2016.2017. The Company has not recorded any liability for uncertain tax positions atpositions.
11. Accrued Expenses

Accrued expenses represent various obligations of the Company including certain operating expenses and taxes payable.

31

As of September 30, 2017 or2019 and December 31, 2016.2018, the largest components of accrued expenses were:


The U.S. Internal Revenue Service (“IRS”) has concluded its review of the Company’s 2015 income tax return with no additional income tax expense effect.
September 30, 2019December 31, 2018
Interest expense$2,103  $1,042  
Payroll1,968  1,908  
Professional fees1,754  2,153  
Wholesaler fees1,376  203  
Medicaid and Medicare rebates1,161  383  
Rebates601  714  
Royalties585  222  
Clinical studies334  334  
Income Tax64  45  
Capital expenditures52  275  
Inventory and Supplies42  1,809  
Other398  754  
$10,438  $9,842  


10.
32

12. Legal and U.S. Regulatory Proceedings
 
The Company is involved from time to time in claims which arise in the ordinary course of business. In the opinion of management, the Company has made adequate provision for potential liabilities, if any, arising from any such matters. However, litigation is inherently unpredictable, and the costs and other effects of pending or future litigation, governmental investigations, legal and administrative cases and proceedings (whether civil or criminal), settlements, judgments and investigations, claims and changes in any such matters, and developments or assertions by or against the Company relating to intellectual property rights and intellectual property licenses, could have a material adverse effect on its business, financial condition and operating results.

To date, twelve13 putative class action antitrust lawsuits have been filed against the Company along with co-defendants, including Taro Pharmaceuticals U.S.A., Inc. and Perrigo Company PLCNew York Inc., regarding the pricing of generic econazole nitrate cream. The actions have been transferred by the Judicial Panel on Multidistrict Litigation to the Eastern District of Pennsylvania for pre-trial proceedings as part of the In re Generic Pharmaceuticals Pricing Antitrust Litigation matter, and consolidated into direct purchaser, end payer and indirect reseller actions.

cream ("econazole"). The class plaintiffs seek to represent nationwide or state classes consisting of persons who directly purchased, indirectly purchased, paid and/or reimbursed patients for the purchase of generic econazole from July 1, 2014 until the time the defendants’defendants' allegedly unlawful conduct ceased or will cease.

The class plaintiffs allege a conspiracy to fix prices for generic econazole in violation of federal antitrust laws or state antitrust, consumer protection, and other laws. Plaintiffs seek treble damages for alleged price overcharges for generic econazole during the alleged period of conspiracy, and certain of the end payer and indirect reseller class plaintiffs also seek injunctive relief against the defendants.

All actions have been consolidated by the Judicial Panel on Multidistrict Litigation to the Eastern District of these cases are in their initial stages and motionsPennsylvania for pre-trial proceedings as part of the In re Generic Pharmaceuticals Pricing Antitrust Litigation matter. On October 16, 2018 the court dismissed the class plaintiffs' claims against the Company with leave to replead. On December 21, 2018 the class plaintiffs filed amended complaints, which the Company moved to dismiss on February 21, 2019. This motion remains pending.

Three "opt-out" antitrust lawsuits have been filed with respect to eachagainst the Company by Humana Inc., The Kroger Co. et al., and United HealthCare Services, Inc., and consolidated into the In re Generic Pharmaceuticals Pricing Antitrust Litigation matter by the Judicial Panel on Multidistrict Litigation. Each of the complaints. opt-out complaints names between NaN and NaN defendants (including the Company) and involves allegations regarding the pricing of econazole along with between NaN and NaN other drug products that were not manufactured or sold by the Company during the period at issue. The opt-out plaintiffs seek treble damages for alleged overcharges for the drug products identified in the complaint during the alleged period of conspiracy, and two of the complaints also seek injunctive relief. A motion to dismiss the Humana Inc. and The Kroger Co., et al. opt-out complaints was filed on February 21, 2019. A motion to dismiss the United HealthCare Services, Inc. opt-out complaint has not yet been filed. A writ of summons initiating a Pennsylvania state lawsuit has also been filed against the Company and sixty-nine other defendants by apparent additional “opt-out” insurers that purchased, paid and/or reimbursed patients for the purchase of generic econazole in connection with the foregoing, but no complaint has been filed in that matter.

Due to the early stage of these cases, we are unable to form a judgment at this time as to whether an unfavorable outcome is either probable or remote or to provide an estimate of the amount or range of potential loss. We believe these cases are without merit, and we intend to vigorously defend against these claims.


On October 20, 2017, a Demand for Arbitration was filed with the American Arbitration Association by Stayma Consulting Services, Inc. (“Stayma”("Stayma") against the Company regarding the Company’sCompany's development and manufacture for Stayma of two generic drug products, one a lotion and one a cream, containing 0.05% of the active pharmaceutical ingredient flurandrenolide. The Company developed the two products and Stayma purchased commercial quantities of each; however, Stayma now alleges that the Company breached agreements between the parties by developing an additional and different generic drug product, an ointment, containing flurandrenolide, and failing to meet certain contractual requirements. Stayma seeks monetary damages. We intendThe Arbitrator has issued an interim award finding that the Company is not liable to fileStayma on two of Stayma’s three claims against the Company. The third claim will proceed to a counter-claimdamages phase. The Company believes that Stayma did not suffer any damages related to this claim and will vigorously pursue complete dismissal of this claim. Notwithstanding the Company’s current belief regarding no damages and notwithstanding the Company’s continuing efforts to secure the dismissal of this claim, the Arbitrator may eventually assess damages against the Company. However, the Company is unable at this time, because of the early stages of the assessment of damages, if any, to provide an estimate of the amount or range of the potential loss. In addition, the Arbitrator will determine money damages owed by Stayma for itsto Company relating to Stayma’s failure to pay several past due invoices of approximately $1.7 million relatingmillion.

On December 13, 2018, Valdepharm SA filed a lawsuit alleging that the Company breached contracts regarding two drug products that the Company had sought to have Valdepharm manufacture. On February 12, 2019 the developmentCompany answered the complaint and commercial supply ofcounterclaimed, alleging that Valdepharm breached the two subject products.contracts by failing to perform its work in compliance with FDA regulations and current Good Manufacturing Practices. Each party seeks damages associated with the alleged breach and related claims. Due to the early stage of this matter,the case we are unable to form a judgment at this time as to whether an unfavorable outcome is either probable or remote or to provide an estimate of the amount or range of potential loss. We believe this case isthe claims against Teligent are without merit, and we intend to vigorously defend against these claims.them.




On April 15, 2019, Mo-Kan Iron Workers Pension Fund, on behalf of itself and all other persons or entities, except defendants, who purchased Teligent common stock between May 2, 2017 and November 7, 2017, commenced a putative

33

class action against the Company and its CEO, Jason Grenfell-Gardner, alleging violations of the securities laws. The complaint alleges that the defendants made materially misleading statements regarding the Company's business, operational and compliance policies. On July 1, 2019, the Oklahoma Police Pension Fund and Retirement System was appointed as lead plaintiff in the case ("Lead Plaintiff"). Lead Plaintiff filed a consolidated amended complaint on September 13, 2019. Defendants have until November 13, 2019 to answer or move with respect to the consolidated amended complaint. Due to the early stage of the case, we are unable to form a judgment at this time as to whether an unfavorable outcome is either probable or remote or to provide an estimate of the amount or range of potential loss. We believe the claims are without merit, and we intend to vigorously defend against them.



34

13. Subsequent Events

On October 28, 2019, the Company filed the prior approval supplement for its planned first injectable product to be manufactured out of its newly completed expansion of manufacturing site in Buena, NJ. As this is the first injectable filing related to the new expansion, the review will be subject to a pre-approval inspection of the manufacturing site by the FDA, which the Company expects to occur within four months of the date of the filing.

On October 31, 2019, the Company closed its Series B Senior Unsecured Convertible Notes offering in the aggregate principal amount of $34.4 million. The New 2023 Notes will mature in May 2023 and are convertible at the option of the holder at any time prior to maturity at an initial conversion price of $0.72 per share, subject to adjustment under certain circumstances. The New 2023 Notes and any shares of common stock issuable upon conversion of the New 2023 Notes (the “Conversion Shares”) have not been registered under the Securities Act of 1933, as amended (the “Securities Act”), or any state or other jurisdiction’s securities laws, and the New 2023 Notes and the Conversion Shares may not be offered or sold in the United States absent registration or an applicable exemption from the registration requirements of the Securities Act and applicable state or other jurisdictions’ securities laws. The Company does not intend to file a registration statement for the resale of the New 2023 Notes or any Conversion Shares. The gross cash proceeds of approximately $29.3 million from the offering are being used to extinguish the Company’s existing 2019 Notes due December 2019, pay amounts owing with respect to other indebtedness, and to fund general corporate and working capital requirements. As part of the offering, the Company entered into agreements with certain holders of its existing 2023 Notes to exchange $9.0 million of the old 2023 Series A Unsecured Convertible Notes for $5.1 million of the Series B Senior Unsecured Convertible Notes. The New 2023 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 PIK the interest at 8.00% per annum, to defer cash payments. The net proceeds from the offering were $27.3 million after deducting the initial purchasers’ discounts and professional fees associated with the transaction.

In connection with the issuance of the New 2023 Series B Unsecured Convertible Notes, the expiration of the $15.0 million Delayed Draw Term Loan B, a part of the Company’s Senior Credit Facility, was accelerated to
October 31, 2019.

35

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
This "Management's Discussion and Analysis of Financial Condition and Results of Operations" section and other sections of this Quarterly Report on Form 10-Q contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, Section 21E of the Securities Exchange Act of 1934, as amended, and the Private Securities Litigation Reform Act of 1995, that are based on current expectations, estimates, forecasts and projections about the industry and markets in which the Company operates and on management's beliefs and assumptions. In addition, other written or oral statements, which constitute forward-looking statements, may be made by or on behalf of the Company. Words such as "expects," "anticipates," "intends," "plans," "believes," "seeks," "estimates," variations of such words and similar expressions are intended to identify such forward-looking statements. These statements are based on current expectations of management and are not guarantees of future performance, and involve certain risks, uncertainties and assumptions, which are difficult to predict. These risks and uncertainties include, without limitation, competitive factors, outsourcing trends in the pharmaceutical industry, the general economic conditions in the markets in which the Company operates, levels of industry research and development spending, the Company’s ability to continue to attract and retain qualified personnel, the fixed price nature of product development agreements or the loss of customers and other factors described in the Company’s filings with the Securities and Exchange Commission, including the “Risk Factors” section as set forth in our Annual Report on Form 10-K for the year ended December 31, 2016,2018, as updated below in this Quarterly Report on Form 10-Q. Therefore, actual outcomes and results may differ materially from what is expressed or forecasted in such forward-looking statements. The forward-looking statements set forth herein speak only as of the date of this report. The Company undertakes no obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required by applicable law. The Company operates its business under one reportable segment.


Company Overview
 
Strategic Overview
 
Teligent, Inc. and its subsidiaries (collectively the “Company”) is a specialty generic pharmaceutical company. All references to "Teligent," the "Company," "we," "us," and "our" refer to Teligent, Inc. Our mission is to become a leader in the specialty generic pharmaceutical market. Our platform for growth is centered around the development, manufacturing and marketing a portfolio of generic pharmaceutical products in our own label in topical, injectable, complex and ophthalmic dosage forms. We believe that expanding our development and commercial base beyond topical generics, historically the cornerstone of our expertise, to include injectable generics, complex generics and ophthalmic generics (what we call our "TICO" strategy"), will leverage our existing expertise and capabilities, and broaden our platform for more diversified strategic growth.

Our pipeline includes 32 Abbreviated New Drug Applications ("ANDAs") for additional pharmaceutical products filed with the FDA. Our pipeline also includes one Prior Approval Supplement for our first opthalmic product filed in the second quarter 2017. In addition, we have four abbreviated new drug submissions ("ANDSs") on file with Health Canada, and have an additional 34 product candidates at various stages of our development pipeline. We expect to continue to expand our presence in the generic topical pharmaceutical market through the filing of additional ANDAs with the FDA, the filing of applications to Health Canada, and the subsequent launch of products as these applications are approved. We will also seek to license or acquire further products, intellectual property, or pending applications to expand our portfolio.


We currently market and sell generic topical and generic and branded generic injectable pharmaceutical products in the United States and Canada. In the United States, we currently market 2136 generic topical pharmaceutical products and four branded generic injectable pharmaceutical products. We have received FDA approvals for 36 topical generic products from our internally developed pipeline and we have 17 Abbreviated New Drug Applications, ("ANDAs") submitted to the FDA that are awaiting approval. In Canada, we sell a total of 3032 generic and branded generic injectable products and medical devices. In addition, we have 45 product candidates at various stages of our development pipeline. Generic pharmaceutical products are bioequivalent to their brand name counterparts. We also provide contract manufacturing services to the pharmaceutical, OTC,("OTC"), and cosmetic markets. We operate our business under one segment. Our common stock is tradingtraded on the NASDAQNasdaq 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, Toronto,Mississauga, Canada, and Tallinn, Estonia.
  
The manufacturing and commercialization of generic specialty pharmaceutical markets is competitive, and there are established manufacturers, suppliers and distributors actively engaged in all phases of our business. We currently manufacture and sell topical generic pharmaceutical products under our own label. In October 2015, we acquired and began to sell our first generic injectable products. We currently market 30 products in Canada. As we continue to execute our TICO strategy, we will compete in other markets, including the injectable and ophthalmic generic pharmaceutical markets, and expect to face other competitors.


The three large wholesale drug distributors are AmerisourceBergen Corporation ("ABC"); Cardinal Health, Inc. ("Cardinal"); and McKesson Drug Company, ("McKesson"). ABC, Cardinal and McKesson are key distributors of our products, as well as a broad


range of health care products for many other companies. None of these distributors is an end user of our products. Generally, if sales to any one of these distributors were to diminish or cease, we believe that the end users of our products would likely find little difficulty obtaining our products either directly from us or from another distributor. However, the loss of one or more of these distributors, together with a delay or inability to secure an alternative distribution source for end users, could have a material negative impact on our revenue, business, financial condition and results of operations. Furthermore, these distributors have entered into strategic alliances as follows: ABC withThere are generally three major negotiating entities in the US market. Walgreens Cardinal withBoot Alliance, Inc. consists of Walgreens, Amerisource
36

Bergen's PRxO Generics program, and Econdisc members. Red Oak Sourcing consists of CVS Caremark and McKesson with Rite-AidCardinal’s source program. Finally, ClarusOne consists of Walmart, RiteAid and Wal-Mart. Since Walgreens, CVS Caremark, Rite-Aid and Wal-Mart are customers for several of our products, theMcKesson’s OneStop program. A loss of our distributor relationship with any of the three large wholesalersthese major entities could result in a significant reduction to our revenues.in revenue.
 
We consider our business relationships with ABC, Cardinal and McKesson to be in good standing and have fee for services contracts with each of them. However, a change in purchasing patterns, a decrease in inventory levels, an increase in returns of our products, delays in purchasing products and delays in payment for products by one or more of these distributors could have a material negative impact on our revenue, business, financial condition and results of operations. We continue to analyze the market for other specialty generic drug products through internal research and development. In addition, we continue to explore business development opportunities to add additional products and/or capabilities to our existing portfolio.
 
For the three months ended September 30, 2017,2019, we had sales to two customers, which individually accounted for 10% or more of our total revenue. Total sales to these customers represented 35% and 12%, respectively, and represented 47% of total revenues. Accounts receivable related to the Company’s major customers comprised 47% of all accounts receivable as of September 30, 2019. For the three months ended September 30, 2018, we had sales to three customers which individually accounted for more than 10% of our total revenue. Total sales to these customers represented 30%25%, 13%12% and 12%, respectively, and represented 55%49% of total revenues. Accounts receivable related to thesethe Company’s major customers comprised 87%56% of all accounts receivable as of September 30, 2017.2018. For the threenine months ended September 30, 2016,2019, we had sales to two customers, which individually accounted for 10% or more than 10% of our total revenue. Total sales to these customers represented 18%29% and 13%,19% respectively, and represented 31%48% of total revenues. Accounts receivable related to these major customers comprised 45% of all accounts receivable as of September 30, 2016. For the nine months ended September 30, 2017,2018, we had sales to three customers, which individually accounted for 10% or more than 10% of our total revenue. Total sales to these customers represented 27%32%, 15% and 14%, respectively, and represented 56% of total revenues. For the nine months ended September 30, 2016, we had sales to three customers, which individually accounted for more than 10% of our total revenue. Total sales to these customers represented 19%, 11%12% and 10%, respectively, and represented 40%54% of total revenues.
 
Our customers in the contract manufacturing business generally consist of pharmaceutical companies, as well as cosmetic and OTC product marketers, who require product development/manufacturing support. For the three months ended September 30, 2017,2019, approximately 91%0% of our contract manufacturing revenue was derived from pharmaceutical customers,projects, as compared to 78%80% of total contract manufacturing revenue for the three months ended September 30, 2016.2018. For the nine months ended September 30, 2017,2019, approximately 87%53% of our contract manufacturing revenue was derived from pharmaceutical customers,projects, as compared to 90%78% of total contract manufacturing revenue for the nine months ended September 30, 2016.2018. None of our contract manufacturing services customers represented greater than 10% of total revenue for both the three months ended September 30, 20172019 and the three months ended September 30, 2016.2018. None of our contract manufacturing services customers represented greater than 10% of total revenue for both the nine months ended September 30, 20172019 and one contract manufacturing services customer represented greater than 10%2018.

Product and Pipeline Approvals

The following is a summary of total revenue for the nine months ended September 30, 2016.significant approvals announced in 2019:

Recent Events

On July 21, 2017,January 2, 2019, we announced approval of an ANDA for Erythromycin Topical GelGentamicin Sulfate Ointment USP, 2%0.1%. This is Teligent's thirdwas our thirteenth approval for 2017,2018, and its fourteenthour thirty-second approval from its internally-developedinternally developed pipeline of topical generic pharmaceutical medicines. We launched this product in the thirdfirst quarter of 2017.2019.


On August 22, 2017,January 24, 2019, we announced approval of an ANDA for ClobestasolClobetasol Propionate CreamOintment USP, 0.05%, Emollient.. This is Teligent's fourthwas our first approval for 2017,2019, and its fifteenthour thirty-third approval from its internally-developedinternally developed pipeline of topical generic pharmaceutical medicines. We launched this product in the fourthfirst quarter of 2017.2019.


On September 19, 2017,March 14, 2019, we announced approval of an ANDA for Triamcinolone Acetonide Cream USP, 0.1%Desonide ointment, 0.05%. This is Teligent's fifthwas our second approval for 2017,of 2019, and its sixteenthour thirty-fourth approval from its internally-developedinternally developed pipeline of topical generic pharmaceutical medicines. We launched this product in the fourthsecond quarter of 2017.2019.


On October 2, 2017,March 19, 2019, we announced approval of an ANDA for Desonide Lotion,Fluocinonide Topical Solution USP, 0.05%. This is Teligent's sixthwas our third approval of 2019, and our thirty-fifth approval from its internally developed pipeline of topical generic pharmaceutical medicines. We launched this product in the early third quarter of 2019.

On April 4, 2019, we announced approval of an ANDA for 2017.Fluocinonide Cream USP, 0.1%. This was our fourth approval of 2019, and our thirty-sixth approval from its internally developed pipeline of topical generic pharmaceutical medicines. We expect to launch this product in the second half of 2021.

37

On October 18, 2019, we announced approval of an ANDA for Gentamicin Sulfate Cream USP, 0.1% (gentamicin base). This was submitted under a partnered development agreement by Teligent, Inc. with Impax Laboratories, Inc. This the Company's firstour fifth approval received under this agreement,of 2019, and it is the third product approvedour thirty-seventh approval from our originalinternally developed pipeline of five partnered submissions.topical generic pharmaceutical medicines. We expect to launch this product to be launched in the fourth quarter of 2017.2019.





Results of Operations

Three months ended September 30, 20172019 compared to September 30, 20162018
 
We had a net loss of $6.3$7.1 million, or $0.12$0.13 per share, for the three months ended September 30, 2017,2019 ("Current Period"), compared to a net loss of $2.7$3.9 million, or $0.05$0.07 per share, for the three months ended September 30, 2016, which resulted from the following:2018 ("Prior Period"). Product Sales, net, include Company Product Sales and Contract Manufacturing Sales, as follows:



Revenues:
Revenues (in thousands):
Three months ended September 30,Increase/(Decrease)
Components of Revenue:20192018$%
Product sales, net$18,395  $18,253  $142  1 %
Research and development services and other income71  41  30  73 %
Total Revenues$18,466  $18,294  $172  1 %

  Three Months Ended
September 30,		 Increase/(Decrease)
Components of Revenue: 2017 2016 $ %
Product sales, net $13,634
 $15,709
 $(2,075) (13)%
Research and development services and other income 21
 442
 (421) (95)%
Total Revenues $13,655
 $16,151
 $(2,496) (15)%


Revenues were $13.7Total revenues increased by 1% to $18.5 million for the three months ended September 30, 2017, compared to $16.2Current Period from $18.3 million for the same period in the prior year. This represents a $2.5 million decrease in 2017 from the same period in the prior year. This decrease in product sales of $2.1Prior Period. The $0.2 million wasincrease primarily due to a decrease in revenue from Lidocaine Ointment 5%, which represented 33% of total revenue in the third quarter of 2016, as compared to 16% of total revenue in the third quarter of 2017, partially offset by product launches and the expansion of our own generic pharmaceutical pipeline. Revenueresulted from our contract manufacturing services was consistent quarter over quarter.efforts to broaden and diversify our customer base. As a result we have been able to increase demand for our in-line generic topical portfolio as well as enter into increasingly favorable contracts which have allowed us to increase our gross margin.

Research and development services and other income will not be consistent and will vary, from period to period, depending on the required timeline of each development project and/or agreement.

Costs and Expenses (in thousands):Expenses:
Three months ended September 30,Increase/(Decrease)
20192018$%
Cost of revenues$11,186  $11,575  $(389) (3)%
Selling, general and administrative expenses5,007  4,845  162  3 %
Product development and research expenses2,064  3,087  (1,023) (33)%
Totals costs and expenditures$18,257  $19,507  $(1,250) (6)%
  Three Months Ended
September 30,		 Increase/(Decrease)
  2017 2016 $ %
Cost of revenues $10,313
 $8,137
 $2,176
 27%
Selling, general and administrative expenses 4,121
 3,694
 427
 12%
Product development and research expenses 4,606
 4,017
 589
 15%
Totals costs and expenditures $19,040
 $15,848
 $3,192
 20%


Cost of sales increased as a percentage of total revenuerevenues decreased by 3% to 75.5%$11.2 million for the three months ended September 30, 2017 as comparedCurrent Period from $11.6 million from the Prior Period. Gross margin increased to 50.4% for same period39% in 2016. This increase in costthe Current Period from 37% from the Prior Period which reflects our efforts to optimize our product portfolio and improve our product profitability from the second half of revenue was primarily due to increased revenue from our generic pharmaceutical product line. The increase in cost of sales as a percentage of revenue was driven by new product launches as well as changes in product mix, pricing and related fees, such as wholesaler fees, in addition to customer and product mix for our contract services revenue. For the three months ended September 30, 2017, cost of revenues also included an increase in inventory reserves of $0.6 million of costs related to inventory and raw materials that were expected to expire in less than six months. Consistent with our strategy, we have increased headcount in our production and quality groups to support our growth and expansion into injectable manufacturing. Total employee related costs increased by $0.2 million, headcount increased from 83 at September 30, 2016 to 112 at September 30, 2017. In addition, our rapid growth has contributed to some production inefficiencies, as we are expanding our manufacturing footprint and capacity in topical manufacturing, and adding sterile manufacturing capabilities at the existing facility.2018.


Selling, general and administrative expenses forin the three months ended September 30, 2017Current Period increased by $0.4$0.2 million as compared to the same period in 2016. In 2017 therePrior Period. This change was due to an increase in personnel costs of $0.5$0.3 million, $0.1 million increase in legal andfees offset by decline in professional fees an $0.1 million related to


impairment of intangible asset, offset by a decrease of $0.2 million in salary and related costs including stock based compensation related to stock options and restricted stock.
 
Product development and research expenses for the three months ended September 30, 2017 increaseddecreased by approximately $0.6$1.0 million as compared to the same periodPrior period. The decrease in 2016. Thisproduct development and research expenses was primarily due to increases of $0.6(i) $0.3 million decrease in GDUFA fee (the “Generic Drug User Fee Amendments”) and associated Abbreviated New Drug Applications filings, (ii) $0.3 million decrease in exhibit and pilot batch costs, (iii) $0.2 million decrease in personnel costs, (iv) $0.1 million decrease in clinical costs, $0.3studies and a $0.1 million decrease in other costs.

Other (Expense) Income, net:
38

Three months ended September 30,(Increase)/Decrease
20192018$%
Interest and other expense, net$(5,160) $(2,693) $(2,467) (92)%
Foreign currency exchange gain / (loss)(2,167) (176) (1,991) 1131 %
$(7,327) $(2,869) $(4,458) 155 %

Interest and other expense, net increased in the Current Period primarily as a result of an increase in salaries and related costs including stock compensation related to options and restricted stock which is consistent with our hiring plan, $0.1interest expense of $0.8 million increase in overhead costs, offset by decrease of $0.5 million in pilot and exhibit batch costs.


Other Expense (in thousands):

  Three Months Ended
September 30,		 Increase/(Decrease)
  2017 2016 $ %
Interest and other expense, net $(2,663) $(3,347) $(684) (20)%
Foreign currency exchange gain $1,744
 $364
 $1,380
 (379)%

Interest expense decreased by $0.7 million for the three months ended September 30, 2017 as compared to the same period in 2016. The decrease is related to the interest expense, amortization ofcurrent debt discountstructure and amortization of debt issuance costs of the Notes (see Note 6), partially offset by capitalized interest of $1.1$1.6 million relatedfrom the Prior Period pertaining to our facility expansion. the Buena facility.

Foreign exchange gainloss of $1.7$2.2 million was recorded in the three months ended September 30, 2017, primarilyCurrent Period was related to the foreign currency translation of our intercompany loans denominated in U.S. dollars to our foreign subsidiaries.subsidiaries to be repaid in November 2022. Depending on the changes in foreign currency exchange rates, we will continue to record a non-cash gain or loss on translation for the remainder of theremaining term of these loans. Due to the nature of this transaction, there is no economic benefit to the Company to hedge this transaction.

Net Lossloss attributable to common stockholders (in thousands, except per share numbers):

Three months ended September 30,Increase/(Decrease)
20192018$%
Net loss attributable to common stockholders$(7,113) $(3,945) $3,168  80 %
Basic and diluted loss per share$(0.13) $(0.07) $0.06  (86)%
  Three Months Ended
September 30,		 Increase/(Decrease)
  2017 2016 $ %
Net loss attributable to common stockholders $(6,328) $(2,703) $(3,625) (134)%
Basic and diluted loss per share $(0.12) $(0.05) $(0.07) (140)%

Net loss for the three months ended September 30, 2017Current Period was $6.3$7.1 million as compared to $2.7net loss of $3.9 million infor the same period last year.Prior Period. The decrease was primarily due to an increase in loss is due to decrease in revenuesi) interest expenses of $2.5 million and increases in costs and expenses in 2017ii) greater foreign exchange losses of $3.2$2.0 million, offset by an increase in the foreign currency exchange gain of $1.4 million and a decrease in interestproduct development and other expenseresearch expenses of $0.7 million, as noted above.$1.0 million.


Nine months ended September 30, 20172019 compared to September 30, 20162018

We had a net loss of $6.4$19.8 million, or $0.12$0.37 per share, for the nine months ended September 30, 2017,2019 ("Current Year"), compared to a net loss of $6.6$21.9 million, or $0.12$0.41 per share, for the nine months ended September 30, 2016, which resulted from the following:2018 ("Prior Year"). Product Sales, net, include Company Product Sales and Contract Manufacturing Sales, as follows:



Revenues:

Nine months ended September 30,Increase/(Decrease)
Components of Revenue:20192018$%
Product sales, net$49,688  $48,914  $774  2 %
Research and development services and other income241  174  67  39 %
Total Revenues$49,929  $49,088  $841  2 %


Revenues (in thousands):

  Nine Months Ended
September 30,		 Increase/(Decrease)
Components of Revenue: 2017 2016 $ %
Product sales, net $51,782
 $48,156
 $3,626
 8 %
Research and development services and other income 172
 790
 (618) (78)%
Total Revenues $51,954
 $48,946
 $3,008
 6 %
Revenues were $52.0Total revenues increased by 2% to $49.9 million for the nine months ended September 30, 2017, compared to $49.0 million for the same period in the prior year. This represents a $3.0 million increase in 2017Current Year from the same period in the prior year. This increase was primarily due to increased revenue from the expansion of our own generic pharmaceutical product line, increased revenue from Lidocaine Hydrochloride topical solution and Zantac injectable and approximately $2.3 million of increased revenue from our specialty generic injectable portfolio in Canada. These increases were offset by a decrease in contract manufacturing revenues of $6.3$49.1 million from the same period inPrior Year. The $0.8 million increase primarily resulted from our efforts to broaden and diversify our customer base. As a result, we have been able to increase the prior year, specifically a decline in salesdemand surrounding our in-line generic topical portfolio as well as enter into increasingly favorable contracts which have allowed us to one ofimprove our customers. Consistent with our strategy, we continue to expect contract manufacturing revenue as a percentage of total revenue to decline over time.gross margin.


Research and development services and other income will not be consistent and will vary, from period to period, depending on the required timeline of each development project and/or agreement.



Costs and Expenses (in thousands):

Expenses:
39

 Nine Months Ended
September 30,		 Increase/(Decrease)Nine months ended September 30,Increase/(Decrease)
 2017 2016 $ %20192018$%
Cost of revenues $29,641
 $23,421
 $6,220
 27%Cost of revenues$28,346  $32,365  $(4,019) (12)%
Selling, general and administrative expenses 13,126
 10,813
 2,313
 21%Selling, general and administrative expenses15,707  15,932  (225) (1)%
Product development and research expenses 13,387
 12,496
 891
 7%Product development and research expenses7,721  10,445  (2,724) (26)%
Totals costs and expenditures $56,154
 $46,730
 $9,424
 20%Totals costs and expenditures$51,774  $58,742  $(6,968) (12)%



Cost of sales increasedrevenues decreased by 12% to $28.3 million for the nine months ended September 30, 2017 as comparedCurrent Period from $32.4 million from the Prior Period. Gross margin increased to 43% in the same period in 2016 due toCurrent Year from 34% from the increase in total revenue. Cost of sales increased as a percentage of total revenue to 57% for the nine months ended September 30, 2017 as compared to 48% for the same period in 2016. This increase in cost of revenue was primarily due to increased revenue from our generic pharmaceutical product line. Increase in cost of sales as a percentage of revenue was driven by new product launches as well as changes in product mix, pricing and related fees, such as wholesaler fees, in addition to customer and product mix for our contract services revenue. For the period ended September 30, 2017, cost of revenues included $0.6 million of costs related to the write off of inventory related to two presentationsPrior Year which is reflective of our frozen bag products.  We have one remaining frozen bagefforts to optimize our product that we will distributeportfolio and sell throughimprove our product profitability from the endsecond half of 2017. For the period ended September 30, 2017, cost of revenues also included an increase in inventory reserves of $1.0 million of costs related to inventory and raw materials that were expected to expire in less than six months. Consistent with our strategy, we have increased headcount in our production and quality groups to support our growth and expansion into injectable manufacturing. Total employee related costs increased by $0.3 million, headcount increased from 83 at September 30, 2016 to 112 at September 30, 2017. In addition, our rapid growth has contributed to some production inefficiencies, as we are expanding our manufacturing footprint and capacity in topical manufacturing, and adding sterile manufacturing capabilities at the existing facility. In addition, costs as a percentage of sales increased as revenue from contract services decreased by $6.3 million as compared to the same period in 2016, and the change in product mix resulted in an increase in costs as a percentage of sales.2018.


Selling, general and administrative expenses forin the nine months ended September 30, 2017 increasedCurrent Period decreased by $2.3$0.2 million as compared to the same periodPrior Period. This change was due to a reduction in 2016. In 2017, there were increasespersonnel costs of $1.2$0.4 million, a decline in salariesbad debt expense of $0.9 million and related costs, including stock based compensation related to options and restricted stock consistent with our hiring plan, an increase of $1 milliona decrease in legal and professional fees and $0.1other costs of $0.2 million offset by an increase related to an impairmentin legal fees of an intangible asset.


$1.3 million.
 
Product development and research expenses for the nine months ended September 30, 2017 increaseddecreased by approximately $0.9$2.7 million as compared to the same periodPrior Year. The decrease in 2016. Thisproduct development and research expenses was primarily due to increases of(i) $0.9 million increasedecrease in salariesGDUFA fees and relatedassociated Abbreviated New Drug Applications filings, (ii) $0.7 million decrease in exhibit and pilot batch costs, including stock compensation related to options and restricted stock which is consistent with our hiring plan, $0.5(iii) $0.7 million increasedecrease in overheadpersonnel costs, $0.4 million in pilot and exhibit batch costs; offset by $0.6(iv) $0.3 million decrease in clinical studies costs and $0.3 million$0.1 decrease in professional fees.other costs.



Other (Expense) Income, net:
Other Expense (in thousands):
Nine months ended September 30,(Increase)/Decrease
20192018$%
Interest and other expense, net$(15,262) $(7,764) $(7,498) 97 %
Foreign currency exchange loss(2,458) (2,071) (387) 19 %
Partial debt extinguishment of 2019 Notes(185) (2,467) 2,282  (93)%
$(17,905) $(12,302) $(5,603) 46 %

  Nine Months Ended
September 30,		 Increase/(Decrease)
  2017 2016 $ %
Interest and other expense, net $(8,731) $(9,997) $(1,266) (13)%
Foreign currency exchange gain $6,645
 $1,295
 $5,350
 413 %


Interest and other expense, decreased by $1.3net increased in the Current Year primarily as a result of a decrease in capitalized interest of $4.5 million for the nine months ended September 30, 2017 as comparedfrom Prior Year pertaining to the same periodBuena facility and an increase in 2016. The decrease isinterest expense of $3.0 million related to the interest expense, amortization ofcurrent debt discount and amortization of debt issuance costs of the Notes (see Note 6), partially offset by capitalized interest of $2.3 million related to our facility expansion and interest income from the intercompany loans. structure.

Foreign exchange gainloss of $6.6$2.5 million was recorded in the nine months ended September 30, 2017, primarilyCurrent Year was related to the foreign currency translation of our intercompany loans denominated in U.S. dollars to our foreign subsidiaries.subsidiaries to be repaid in November 2022. Depending on the changes in foreign currency exchange rates, we will continue to record a non-cash gain or loss on translation for the remainder of theremaining term of these loans. Due

The change in the partial debt extinguishment of the 2019 Notes of $2.3 million was due to the naturepartial debt extinguishment loss of this transaction, there is no economic benefit$2.5 million in connection with the exchange of certain of the 2019 Notes for the 2023 Notes during the second quarter of 2018, in comparison to the Company to hedge this transaction.

During the third quarter ended September 30, 2017, the Company recorded an adjustment in the amount of $0.5 million to reduce the foreign exchange gain on the statement of operations, $0.3 million decrease in cash and $0.2 million decreaseof partial debt extinguishment loss in other comprehensive income, that related toconnection with the three months ended June 30, 2017,repurchase of $2.7 million of our 2019 Notes during the first quarter of 2019, as a result of an error regarding the classification and translation of a cash amount related to their wholly owned subsidiary, “Teligent, OU” and as a result of an error regarding the translation of the foreign subsidiaries. The Company concluded that the correction of these errors was immaterial, both quantitatively and qualitatively.discussed in Note 7.



Net Lossloss attributable to common stockholders (in thousands, except per share numbers):


Nine months ended September 30,Increase/(Decrease)
20192018$%
Net loss attributable to common stockholders$(19,826) $(21,866) $(2,040) (9)%
Basic and diluted loss per share$(0.37) $(0.41) $(0.04) (10)%


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  Nine Months Ended
September 30,		 Increase/(Decrease)
  2017 2016 $ %
Net loss attributable to common stockholders $(6,416) $(6,554) $(138) (2)%
Basic and diluted loss per share $(0.12) $(0.12) $—
 — %


Net loss for the nine months ended September 30, 2017Current Year was $6.4$19.8 million as compared to $6.6 million in the same period last year. The decrease in net loss isof $21.9 million for the Prior Year. The improvement was primarily due to increasesan increase in revenues of $3.0$0.8 million, an increasea decrease in cost of goods sold of $4.0 million, the decrease of research and development costs of $2.7 million, foreign currency exchange gainmovement of $5.4$0.4 million, and a $2.3 million decrease of loss on the partial debt extinguishment in the Current Year, offset by an increase in interest and other expense of $1.3 million, offset by the increase in costs and expenses of $9.4$7.5 million in 2017, notedas discussed above.




Liquidity and Capital Resources

We have incurred significant losses and generated negative cash flows from operations in recent years and expect to continue to incur losses and generate negative cash flow for the foreseeable future. As a result, we had an accumulated deficit of $116.2 million, total principal amount of outstanding borrowings of $174.1 million, and limited capital resources to fund ongoing operations at September 30, 2019. These capital resources were comprised of cash and equivalents of $6.7 million at September 30, 2019, the generation of cash inflows from working capital, and an additional $10.0 million of borrowing capacity under the Delayed Draw Term Loan A portion of our Senior Credit Facilities that expires on December 13, 2019. In addition, subsequent to September 30, 2019, we issued Series B Senior Unsecured Convertible Notes for aggregate proceeds of $34.4 million, of which we expect approximately $27.3 million will be available to fund operations. See Note 7 for additional information regarding our Senior Credit Facilities and Note 13 for additional information regarding our Series B Senior Unsecured Convertible Notes.

Our available capital resources may not be sufficient for us to continue to meet our obligations as they become due over the next twelve months if we cannot improve our operating results or increase our operating cash inflows. In the event these capital resources are not sufficient, we may need to raise additional capital through the sale of equity or debt securities, enter into strategic business collaboration agreements with other companies, seek other funding facilities, or sell assets. However, we cannot provide assurances that additional capital will be available on acceptable terms or at all. Moreover, if we are unable to meet our obligations when they become due over the next twelve months through our available capital resources, or obtain new sources of capital when needed, we may have to delay expenditures, reduce the scope of our manufacturing operations, reduce or eliminate one or more of our development programs, or make significant changes to our operating plan. The accompanying financial statements do not include any adjustments that might result from the outcome of this uncertainty.

In addition, as disclosed in Note 7, we are subject to certain financial covenants that are required to be met under the Senior Credit Facilities. These financial covenants include a trailing twelve months (“TTM”) Minimum Revenue covenant that was required to be met each quarterly period through June 30, 2019, a TTM Minimum Adjusted EBITDA that is required to be met each quarterly period from September 30, 2019 through September 30, 2020, and a Maximum Total Net Leverage Ratio that is required to be met each quarterly period thereafter. As of September 30, 2019, we were in compliance with the TTM Adjusted EBITDA covenant and currently anticipate we will remain in compliance with this covenant through September 30, 2020. However, a material change in our operating results over the next twelve months could negatively affect our ability to maintain compliance with the TTM Adjusted EBITDA covenant. Moreover, while we are not required to comply with the Maximum Total Net Leverage ratio until December 31, 2020, we currently anticipate that we will not be in compliance with this covenant absent a significant reduction in our total principal amount of outstanding debt. In the event we are unable to comply with this covenant, or obtain a waiver from our lenders, the total amounts outstanding under the Senior Credit Facilities and Convertible Notes would immediately become due in January 2021 for which we do not currently expect to have readily available capital resources to meet these obligations without raising additional capital through the sale of equity or debt securities. If we are unable to raise additional capital to meet these obligations if they become due in January 2021, we may have to seek other strategic alternatives. The accompanying financial statements do not include any adjustments that might result from the outcome of this uncertainty.

In June 2019, we received a de-listing notice from the NASDAQ due to our share price being below $1.00 for 30 consecutive trading days. The notice specifies that our share price must trade above $1.00 per share for ten consecutive trading days prior to December 2, 2019 in order to prevent our common stock from being de-listed. As of September 30, 2019, and through the date of issuance of the accompanying financial statements, the share price of our common stock has not traded above $1.00 per share for the required ten consecutive trading days and, as such, we have filed a request from the NASDAQ for a 180-day extension. While we believe that the ongoing execution of our business plan will ultimately increase our share price above $1.00 for the required ten consecutive trading days, we can provide no assurances that our shares will trade above $1.00 per share within the 180-day extension period, if at all. Moreover, while we believe the NASDAQ will grant the 180-day extension request, we can provide no assurances that such extension will be granted. As a result, if our shares are de-listed from the NASDAQ, we would be in default of the non-financial covenant required by our Senior Credit Facilities and Convertible Notes for which we would have to seek a waiver from the lenders or seek new capital through the sale of equity or debt securities. If we are unable to obtain a waiver or raise new capital to meet these obligations if they become due, we may have to seek other strategic
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alternatives. The accompanying financial statements do not include any adjustments that might result from the outcome of this uncertainty. 

Our cash flows from operating, investing and financing activities, as reflected in the condensed Consolidated Statements of Cash Flows, are summarized in the following table (in thousands):table:
          Nine months ended September 30,  
20192018
Net cash provided by (used in)
Operating Activities$(8,661) $(15,314) 
Investing Activities$(6,082) $(18,277) 
Financing Activities$9,536  $22,707  
 Nine Months Ended September 30,
 2017 2016
Net cash provided by (used in) 
  
Operating Activities$(2,660) $2,820
Investing Activities$(26,002) $(15,378)
Financing Activities$269
 $(71)
Operating Activities
 
Our operating activities used $2.7$8.7 million and $15.3 million of cash and cash equivalents in the nine months ended September 30, 2017, compared2019 and 2018, respectively, mainly to $2.8support our operational activities, which includes a $6.0 million provided during the same period last year. The cash usedbuild in operating activitiesinventory to help avoid failure-to-supply fees and for the nine months ended September 30, 2017 was a resultanticipated launch of our net loss, adjusted for $7.9 million of non-cash expenses offset by a $4.1 million change in operating assets and liabilities. The cash provided by operating activities for the nine months ended September 30, 2016 was a result of the non-cash expenses and changes in operating assets and liabilities, including the receipt of $4.4 million Goods and Services Tax (GST) refund from the Canadian Revenue Agency, originally paid during the Alveda acquisition in the fourth quarter of 2015.injectable manufacturing.

Investing Activities
 
Our investing activities used $26.0$6.1 million of cash and equivalents during the nine months ended September 30, 2017,2019, compared to $15.4$18.3 million of cash used in investing activities during the same period last year. The funds used for both periods were for capital expenditures, mainlyyear, which was primarily related to the ongoingour facility expansion locatedproject in Buena, New Jersey. The increase duringNJ. We received our certification of our certificate of occupancy for our expanded facility in the nine months ended September 30, 2017 is duefourth quarter of 2018 and continued to develop and file ANDAs with the progression of the facility expansion and timing of the more expensive purchases. The Company expects the facility expansion to be substantially complete at the end of 2017.FDA in 2019.


Financing Activities
 
Our financing activities provided $269,000$9.6 million of cash and cash equivalents during the nine months ended September 30, 2017, compared to $71,000 of2019. The cash usedprovided during the nine months ended September 30, 2016. The $269,0002019 consisted of $12.5 million of proceeds from the Revolver, offset by the $2.7 million repurchase of our 2019 Notes. Our financing activities provided $22.7 million of cash provided inand cash equivalents during the nine months ended September 30, 2017 consisted of proceeds2018 primarily due to $25.0 million borrowed from the exercise of options to purchase common stock. The cash used in the nine months ended September 30, 2016 consisted mainly of $70,000 of principal payments on capital lease obligations and $36,000 in expenses related to recovery from a stockholder,2021 Term loan offset by proceeds from$2.5 million used to pay costs associated with the exercise of options to purchase common stock of $35,000.2019 Notes, 2023 Notes and 2021 Term loan. The 2021 Term loan was repaid in December 2018.

Our principal sourcescapital resources were comprised of liquidity are cash and cash equivalents of approximately $38.2$6.7 million and $9.7 million as of September 30, 2019 and December 31, 2018 respectively. We had working capital of $16.6 million at September 30, 20172019 and future cash from operations. Our working capital was $57.3$15.8 million at September 30, 2017.December 31, 2018 respectively.

WeIn order to continue normal business operations and execution of the Company’s growth strategy, the Company may require additional fundingexercise its ability to significantly defer or reduce planned discretionary investments in research and this funding will depend, in part, on the timingdevelopment and structure of potential business arrangements. If necessary, wecapital projects or seek other financing alternatives. Other financing alternatives may continue to seek to raiseinclude raising additional capital through the sale of ourits equity, or through a strategic alliance with a third party. There may also beparty or securing debt. If additional acquisition and growth opportunities that may requirearise, external financing. There can be no assurance that such financing will be required. 

On November 12, 2018, the Company secured a credit agreement for $120.0 million. The facility includes three tranches of funding, an asset based revolving credit facility of $25.0 million due November 2022 (“Revolver”), a term loan of $80.0 million due February 2023 (“2023 Term Loan”), and a delayed draw term loan of $15.0 million also due in February 2023 (“2023 Delayed Draw Term Loan”).

The interest rate under the Revolver is calculated, at the option of the Company, at either the one, two, three or six-month LIBOR plus 3.75% or the base rate plus 2.75%. The interest rate on the 2023 Term Loan and the 2023 Delayed Draw Term Loan bear interest, at the option of the Company, at either the one, two, three or six-month LIBOR plus 8.75% or the base rate plus 7.75%, with a 24-month paid-in-kind interest option available on terms acceptable to us, or at all. We believe that our existing capital resources will be sufficientthe Company should it choose to support our current business plan beyond November 2018.defer cash payments in order to maintain the liquidity needed to continue launching new products, build inventory, and prepare for the FDA prior approval inspection. As of September 30, 2019, the Company elected the paid-in-kind interest option which increased the principal balance of the 2023 Term Loan by $6.4 million to $76.4 million.

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Off Balance Sheet Arrangements
 
We do not have any off balanceno significant off-balance sheet arrangements asthat have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of the date of this report.operations, liquidity, capital expenditures or capital resources that are material to our shareholders.


Critical Accounting Policies and Estimates
 
Our condensed consolidated financial statements are prepared in accordance with U.S. generally accepted accounting principles, which require management to make estimates and assumptions about future events that affect the amounts reported in the financial statements and the accompanying notes. Actual results could differ from these estimates.
 


Please refer to our Annual Report on Form 10-K for the year ended December 31, 20162018 for a complete list of all Critical Accounting Policies and Estimates. See also Note 3 toItem 1 for our Condensed Consolidated Financial Statements.
 


ITEM 3. Quantitative and Qualitative Disclosures About Market Risk
 
As of September 30, 2017,2019, our principal debt obligation was related to our Notes.2019 and 2023 Notes and Senior Credit Facilities. Interest accrues at a fixed rate of 3.75% on the outstanding principal amount of the 2019 Notes and is paid semi-annually every June 15 and December 15 until the 2019 Notes mature on December 15, 2019.  Interest accrues at a fixed rate of 4.75% on the outstanding principal amount of the 2023 Notes and is paid semi-annually every May 1 and November 1 until the 2023 Notes mature on May 1, 2023.  Since the interest rate is fixed, we have no market risk related to the 2019 and 2023 Notes.
 
We hadOn December 13, 2018, pursuant to a revolvingCommitment Letter, dated November 12, 2018, between us and Ares Management LLC, we entered into: (i) a First Lien Revolving Credit Agreement, by and Securityamong us, as the borrower, certain subsidiaries of the ours, as guarantors, the lenders from time to time party thereto, and ACF Finco I LP, as administrative agent and (ii) a Second Lien Credit Agreement, with General Electricby and among the Company, as the borrower, certain subsidiaries of the Company, as guarantors, the lenders from time to time party thereto, and Ares Capital Corporation, that called foras administrative agent.

The Senior Credit Facilities consist of an asset based revolving credit facility of $27.5 million (the "Revolver") due November 2022 and three term loans totaling $95.0 million (collectively the "2023 Term Loans") due February 2023. The interest to accrue based on a premium aboverate under the Revolver is calculated, at the option of the Company, at either the current primeone, two, three or six-month LIBOR plus 3.75% or the base rate plus 2.75%. The interest rate on the 2023 Term Loan and 2023 Delayed Draw Term Loan bear interest, at the option of the Company, at either the one, two, three or currentsix-month LIBOR rates. We terminated this credit facilityplus 8.75% or the base rate plus 7.75%, with a 24-month paid-in-kind interest option available to us should the Company choose to defer cash payments in February 2016.order to maintain the liquidity needed to continue launching new products. As of September 30, 2019, the Company was utilizing a short-term advance of $2.5 million on the Revolver which was subsequently repaid on October 31, 2019. Each tranche of the funding is subject to market risk.

Our financial instruments include cash and cash equivalents, accounts receivable, accounts payable and the Notes. The fair values of cash and cash equivalents, accounts receivable and accounts payable approximate book value because of the short maturity of these instruments.  Based on the closing price of our common stock asAs of September 30, 2017,2019, based on level 2 inputs, the fair value of our Notes (2019 Notes and 2023 Notes) was approximately $118$57.2 million compared to their facecarrying value of $143.75 million as$72.2 million.  For description of the fair value hierarchy and the Company's fair value methodologies, see Note 2 " Summary of Significant Accounting Policies". In addition, the value of our Senior Credit Facilities was stated at carrying value at September 30, 2017.  However, this variance is due to the conversion feature in the Notes rather than to changes in market interest rates.  As noted above, the Notes carry a fixed interest rate and therefore do not subject us to interest rate risk.2019.


At September 30, 2017,2019, the bulkmajority of our cash and cash equivalents was invested in overnight instruments, the interest rates of which may change daily.  Accordingly, these overnight investments are subject to market risk.
 
ITEM 4. Controls and Procedures


Evaluation of Disclosure Controls and Procedures
 
Our management evaluatedIn connection with the filing of this Form 10-Q for the quarter ended September 30, 2019, our Chief Executive Officer ("CEO") and our Chief Financial Officer ("CFO") conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended)amended (“Exchange Act”)). As a result of this evaluation, our CEO and CFO concluded that those material weaknesses previously identified in Item 9A. “Controls and Procedures” of our Annual Report on Form 10-K for the year ended December
43

31, 2018 were still present as of September 30, 2017. Due to 2019 (“the Evaluation Date”). Based on those material weakness in internal control over financial reporting described below,weaknesses, and the evaluation of our Chief Executive Officerdisclosure controls and Principal Financialprocedures, our CEO and Accounting Officer haveCFO concluded that as of September 30, 2017, the Company'sour disclosure controls and procedures were not effective as of September 30, 2017.the Evaluation Date.

During the third quarter of fiscal 2017, management identified a material weakness in our internal control over financial reporting resulting from the lack of timely and effective review of the Company's period-end closing processes. Specifically, management concluded that the material weakness relates to the Company not having adequate personnel and resources in place for its implementation of a new enterprise-wide financial system ("ERP"), and consequently, the same financial reporting personnel were not able to perform a timely and effective review of our period-end closing process.


Changes in Internal Control over Financial Reporting


There waswere no changechanges during the quarter ended September 30, 2019 in our internal control over financial reporting during our third quarter that hashave materially affected, or isare reasonably likely to materially affect, our internal control over financial reporting. However,

Remediation Plan and Status

Our remediation efforts previously identified in Item 9A. “Controls and Procedures” of our Annual Report on Form 10-K for the year ended December 31, 2018 are ongoing and we continue our initiatives to implement and document policies, procedures, and internal controls. Remediation of the identified material weaknesses and strengthening our internal control environment will require a substantial effort throughout 2019 and beyond, as noted below,necessary. We will test the operating effectiveness of certain new and existing controls in connection with our annual evaluation of the effectiveness of internal control over financial reporting; however, the material weaknesses cannot be considered completely remediated until the applicable controls have operated for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively. While we have implemented changesbelieve the steps taken to date and those planned for implementation will improve the effectiveness of our internal control over financial reporting, we have not completed all remediation efforts. Accordingly, as we continue to addressmonitor the effectiveness of our internal control over financial reporting in the areas affected by the material weakness described above.

Remediation

To remediateweaknesses, we have and will continue to perform additional procedures prescribed by management, including the material weakness, the Company has begun to implement newuse of manual mitigating control procedures and employemploying any additional tools and resources includingdeemed necessary, to ensure that our consolidated financial statements are fairly stated in all material respects. The planned remediation activities described in Item 9A. “Controls and Procedures” of our Annual Report on Form 10-K for the following:year ended December 31, 2018 highlight our commitment to remediating our identified material weaknesses and remain largely unchanged through the date of filing this Quarterly Report on Form 10-Q.


• The Company hired new team members and has engaged external resources with significant prior experience with systems similar to the Company's new ERP system to provide additional capacity, analytical and functional capabilities, and cross-training.
• The Company implemented business process improvements, particularly relating to its foreign subsidiaries, that are anticipated to enable a faster month-end close and should result in fewer journal entries for quarter-end.
• A review of the appropriate training of personnel performing transactions in the Company's ERP system was performed in October 2017, along with a review of all information system access.




PART II
OTHER INFORMATION
 
ITEM 1. Legal Proceedings

We are involved from timeInformation about the legal proceedings is included in Item 1, Notes to time in claims which arise in the ordinary course of business. In the opinion of management, we have made adequate provision for potential liabilities, if any, arising from any such matters. However, litigation is inherently unpredictable, and the costs and other effects of pending or future litigation, governmental investigations, legal and administrative cases and proceedings (whether civil or criminal), settlements, judgments and investigations, claims and changes in any such matters, and developments or assertions by or against us relating to intellectual property rights and intellectual property licenses, could have a material adverse effect on our business, financial condition and operating results.

To date, twelve putative class action antitrust lawsuits have been filed against the Company along with co-defendants, including Taro Pharmaceuticals U.S.A., Inc. and Perrigo Company PLC regarding the pricing of econazole nitrate cream. The actions have been transferred by the Judicial Panel on Multidistrict Litigation to the Eastern District of Pennsylvania for pre-trial proceedings as part of the In re Generic Pharmaceuticals Pricing Antitrust Litigation matter, and consolidated into direct purchaser, end payer and indirect reseller actions.

The class plaintiffs seek to represent nationwide or state classes consisting of persons who directly purchased, indirectly purchased or reimbursed patients for the purchase of generic econazole from any of the defendants from July 1, 2014 until the time the defendants’ allegedly unlawful conduct ceased or will cease.

The plaintiffs allege a conspiracy to fix prices for generic econazole in violation of federal antitrust laws or state antitrust, consumer protection, and other laws. Plaintiffs seek treble damages for alleged price overcharges for generic econazole during the alleged period of conspiracy, and the end payer and indirect reseller class plaintiffs also seek injunctive relief against the defendants.

All of these cases are in their initial stages and motions to dismiss have been filed with respect to each of the complaints. Due to the early stage of these cases, we are unable to form a judgment at this time as to whether an unfavorable outcome is either probable or remote or to provide an estimate of the amount or range of potential loss. We believe these cases are without merit, and we intend to vigorously defend against these claims.

On October 20, 2017, a Demand for Arbitration was filed with the American Arbitration Association by Stayma Consulting Services, Inc. (“Stayma”) against the Company regarding the Company’s development and manufacture for Stayma of two generic drug products, one a lotion and one a cream, containing 0.05% of the active pharmaceutical ingredient flurandrenolide. The Company developed the two products and Stayma purchased commercial quantities of each; however, Stayma now alleges that the Company breached agreements between the parties by developing an additional and different generic drug product, an ointment, containing flurandrenolide, and failing to meet certain contractual requirements. Stayma seeks monetary damages. We intend to file a counter-claim against Stayma for its failure to pay several past due invoices of approximately $1.7 million relating to the development and commercial supply of the two subject products. Due to the early stageunaudited Condensed Consolidated Financial Statements of this matter, we are unable to form a judgment at this time as to whether an unfavorable outcome is either probable or remote or to provide an estimate of the amount or range of potential loss. We believe this case is without merit, and we intend to vigorously defend against these claims.Form 10-Q.


ITEM 1A. Risk Factors
 
Part I, Item 1A, “Risk Factors,” of our Annual Report on Form 10-K for the year ended December 31, 20162018 includes a detailed discussion of risks and uncertainties which could adversely affect our future results. Except as set forth below, theThe risks described in our Annual Report on Form 10-K for the year ended December 31, 20162018 have not materially changed.
 
Risks Related to Our Business 

We have a history of losses and cannot assure you that we will become profitable, and as a result, we may have to cease operations and liquidate our business.
With the exception of 2015 and the three month period ended March 31, 2017, our expenses have exceeded our revenue in each of the last 12 years, and no net income has been available to common stockholders during each of these years. As of September 30, 2017, our stockholders’ equity was $53.2 million and we had an accumulated deficit of $51.3 million. Our future profitability depends on revenue exceeding expenses, but we cannot assure you that this will occur. If we do not become profitable or continue


to raise external financing, we could be forced to curtail operations and sell or liquidate our business, and you could lose some or all of your investment.

We rely on a limited number of customers for a large portion of our revenues.
We depend on a limited number of customers for a large portion of our revenue. Three of our customers accounted for 55% of our revenue for the three months ended September 30, 2017 and two of our customers accounted for 31% of our revenue for the three months ended September 30, 2016. For the nine months ended September 30, 2017, three of our customers accounted for 56% of our revenue and for the nine months ended September 30, 2016, three of our customers accounted for 40% of our revenue. The loss of one or more of these customers could have a significant impact on our revenues and harm our business and results of operations.

Due to our dependence on a limited number of products, our business will be materially adversely affected if these products do not perform as well as expected.

We expect to generate a significant portion of our total revenues and gross margin from the sale of a limited number of products. While we continue to diversify our product portfolio, two of our products accounted for greater than 10% of our net revenues for either the three or nine month periods ended September 30, 2017. Lidocaine ointment, which we launched at the end of the first quarter of 2016, accounted for 16% and 33% of total revenues for the three months ended September 30, 2017 and 2016, respectively, and 19% and 17% of total revenues for the nine months ended September 30, 2017 and 2016, respectively. Zantac accounted for 7% and 6% of net revenues, for the three months ended September 30, 2017 and 2016, respectively and 12% and 4% of total revenues for the nine months ended September 30, 2017 and 2016, respectively. Any material adverse developments, including increased competition, loss of customers, pricing pressures and supply shortages, with respect to the sale or use of our products and prospective products, or our failure to successfully introduce such products, could have a material adverse effect on our revenues and gross margin.

If we fail to maintain an effective system of internal control over financial reporting, we may not be able to accurately report our financial results, and current and potential stockholders may lose confidence in our financial reporting.

We are required by the SEC to establish and maintain adequate internal control over financial reporting that provides reasonable assurance regarding the reliability of our financial reporting and the preparation of financial statements in accordance with generally accepted accounting principles. We are likewise required, on a quarterly basis, to evaluate the effectiveness of our internal controls and to disclose any changes and material weaknesses in those internal controls.

As disclosed elsewhere herein, in connection with our financial review management concluded that a material weakness related to the Company not having adequate personnel and resources in place for its implementation of a new ERP existed, and consequently, the same financial reporting personnel were not able to perform a timely and effective review of our period-end closing process.

Since the determination regarding this material weakness, we have devoted, and will continue to devote, significant effort and resources to the remediation and improvement of our internal control over financial reporting. Our plans include the following: new internal and external personnel, new business process improvements and a review of relevant training. The elements of our remediation plan can only be accomplished over time and we can offer no assurance that these initiatives will ultimately have the intended effects. Any failure to maintain such internal controls could adversely impact our ability to report our financial results on a timely and accurate basis. If our financial statements are not accurate, investors may not have a complete understanding of our operations, which may have a material adverse effect on our business.

We are subject to stringent regulatory requirements. Failure to adhere to such requirements could harm our business and results of operations. 

In the United States, we and our suppliers of raw materials are also subject to regulation under the Occupational Safety and Health Act, the Toxic Substances Control Act, the Resource Conservation and Recovery Act and other current and potential future federal, state or local regulations. Failure to adhere to such regulations, by either us or our suppliers, could harm our business and results of operations. In addition, our analytical department uses certain hazardous materials and chemicals in limited and controlled quantities. We have implemented safety procedures for handling and disposing of such materials, however, such procedures may not comply with the standards prescribed by federal, state and local regulations. Even if we follow such safety procedures for handling and disposing of hazardous materials and chemicals and such procedures comply with applicable law, the risk of accidental contamination or injury from these materials cannot be completely eliminated. In the event of such an accident, we could be held liable for any damages and any such liability could exceed our resources. Our operations and properties are also subject to a wide variety of increasingly complex and stringent federal, state and local environmental laws and regulations, including those governing


the remediation of contaminated soil and groundwater. Such environmental laws may apply to conditions at properties and facilities presently or formerly owned or operated by us, as well as to conditions at properties at which wastes or other contamination attributable to us have been sent or otherwise come to be located. One of our facilities has undergone remediation of environmental contamination, and one of our facilities is currently undergoing remediation of environmental contamination. The total estimated costs for the clean-up and remediation is $0.9 million as of September 30, 2017, and remaining costs accrued at September 30, 2017 totaled $0.1 million. Based on information provided to us from our environmental consultants and what is known to date, we believe the reserves are sufficient for the remaining remediation of the environmental contamination. There is a possibility, however, that the remediation costs may exceed our estimates. In addition, we can give no assurance that the future cost of compliance with existing environmental laws will not give rise to additional significant expenditures or liabilities that would be material to us. Future events, such as new information, changes in existing environmental laws or their interpretation, and more vigorous enforcement policies of federal, state or local regulatory agencies, may have a material adverse effect on our business, financial condition and results of operations. In Canada, we and our suppliers of raw materials are also subject to regulation under Hazardous Products Act, Controlled Products Regulations, Consumer Product Safety Act. Canadian Environmental Protection Act and other current and potential future federal, provincial/territorial or local regulations. Failure to adhere to such regulations, by either us or our suppliers, could harm our business and results of operations. In addition, our analytical department uses certain hazardous materials and chemicals in limited and controlled quantities. We have implemented safety procedures for handling and disposing of such materials, however, such procedures may not comply with the standards prescribed by federal, provincial/territorial and local regulations. Even if we follow such safety procedures for handling and disposing of hazardous materials and chemicals and such procedures comply with applicable law, the risk of accidental contamination or injury from these materials cannot be completely eliminated. In the event of such an accident, we could be held liable for any damages and any such liability could exceed our resources. Future events, such as new information, changes in existing environmental laws or their interpretation, and more vigorous enforcement policies of federal, provincial/territorial or local regulatory agencies, may have a material adverse effect on our business, financial condition and results of operations.
Significant balances of intangible assets, including goodwill, are subject to impairment testing and may result in impairment charges, which may materially and adversely affect our results of operations and financial condition. 

A significant amount of our total assets is related to goodwill and intangible assets. As of September 30, 2017, the value of our goodwill and intangible assets net of accumulated amortization was $56.6 million. Goodwill and other intangible assets are tested for impairment annually when events occur or circumstances change that could potentially reduce the fair value of the reporting unit or intangible asset. Impairment testing compares the fair value of the reporting unit or intangible asset to its carrying amount. Any future goodwill or other intangible asset impairment, if any, would be recorded in operating income and could have a material adverse effect on our results of operations and financial condition.

Our ability to use our net operating loss carry forwards and certain other tax attributes may be limited. 

As of December 31, 2016, we had federal net operating loss carry forwards, or NOLs, of approximately $33.7 million which expire from 2020 through 2035. Our ability to utilize our NOLs may be limited under Section 382 of the Internal Revenue Code. The limitations apply if an ownership change, as defined by Section 382, occurs. Generally, an ownership change occurs when certain shareholders increase their aggregate ownership by more than 50 percentage points over their lowest ownership percentage in a testing period (typically three years). Our ability to use net operating loss carry forwards is subject to substantial limitation in future periods under certain provisions of Section 382 of the Internal Revenue Code, which limit the utilization of net operating losses upon a more than 50% change in ownership of our stock that is held by 5% or greater stockholders. We examined the application of Section 382 with respect to an ownership change that took place during 2010, as well as the limitation on the application of net operating loss carry forwards. We believe that operating losses subsequent to the change date in 2010 (aggregating $15.0 million) are not subject to Section 382 limitations. We have estimated that the annual limitation starting in 2010 aggregates from $1.0 million to $2.3 million per year including the effect of amortization of built in gains.
Currency fluctuations and changes in exchange rates could adversely affect our business, financial condition, results of operations, cash flows, and/or common stock price.
Although we report our financial results in U.S. Dollars, a portion of our revenues and other liabilities and our costs are denominated in non-U.S. currencies, including the Euro and Canadian Dollar. Our results of operations and, in some cases, cash flows, have in the past been and may in the future be adversely affected by certain movements in currency exchange rates. The occurrence of any of the above risks could cause a material adverse effect on our business, financial condition, results of operations, cash flows, and/or share price.



The Company is exposed to market risk from fluctuations in currency exchange rates.

The Company operates in multiple jurisdictions denominated in currencies of the local jurisdiction. Additionally, the Company
may enter into acquisition, licensing, borrowing or other financial transactions that may give rise to currency exposure. Since
the Company cannot, with certainty, foresee and mitigate against such adverse fluctuations, fluctuations in currency exchange
rates could negatively affect the Company’s results of operations, financial position and cash flows.

Risks Related to our Indebtedness
Our substantial indebtedness could materially adversely affect our business, financial condition or results of operations and prevent us from fulfilling our obligations under the Notes.
On December 16, 2014, the Company issued $125 million aggregate principal amount of 3.75% Convertible Senior Notes due 2019 (the “Notes”). After giving effect to the issuance of the Notes, we will have a substantial amount of indebtedness. As of September 30, 2017, our total consolidated indebtedness was $143.7 million. Our substantial level of indebtedness increases the possibility that we may be unable to generate cash sufficient to pay, when due, the principal of, interest on, or other amounts due in respect of our indebtedness. Our substantial indebtedness, combined with our other financial obligations and contractual commitments, may have a material adverse impact on us. For example, it could

make it difficult for us to satisfy our obligations with respect to our outstanding and other future debt obligations;
increase our vulnerability to general adverse economic conditions or a downturn in the industries in which we operate;
impair our ability to obtain additional financing in the future for working capital, investments, acquisitions and other general corporate purposes;
require us to dedicate a substantial portion of our cash flows to the payment to our financing sources, thereby reducing the availability of our cash flows to fund working capital, investments, acquisitions and other general corporate purposes; and
place us at a disadvantage compared to our competitors.

Risks Related to Our Securities
Shares of our common stock are relatively illiquid which may affect the trading price of our common stock.
For the nine months ended September 30, 2017, the average daily trading volume of our common stock on the NASDAQ Global Select Market was approximately 346,068 shares. As a result of our relatively small public float, our common stock may be less liquid than the stock of companies with broader public ownership. Among other things, trading of a relatively small volume of our common stock may have a greater impact on the trading price for our shares than would be the case if our public float were larger.

ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds
 
None.
 
ITEM 3. Defaults Upon Senior Securities
 
None.
 
ITEM 4. Mine Safety Disclosures


None.



ITEM 5. Other Information

None.



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ITEM 6. Exhibits


Exhibit NumberDescription
Exhibit31.1*
NumberDescription
31.1*
31.2*
32.1*
32.2*
101*
101*The following financial information from this Quarterly Report on Form 10-Q for the period ended September 30, 2017,2019, formatted in XBRL (Extensible Business Reporting Language): (i) the Condensed Consolidated Statements of Operations; (ii) the Condensed Consolidated Balance Sheets; (iii) the Condensed Consolidated Statements of Cash Flows; (iv) the Condensed Consolidated Statement of Comprehensive Income(Loss); (v) the Condensed Consolidated Statement of Equity; and (vi) the Notes to Condensed Consolidated Financial Statements, tagged as blocks of text.
 
* Filed herewith.


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SIGNATURES
 
Pursuant to the requirements 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.
Teligent, Inc.
Date: November 9, 2017By:/s/   Jason Grenfell-Gardner
Jason Grenfell-Gardner
President and Chief Executive Officer
Date: November 9, 2017By:/s/   Jenniffer Collins
Jenniffer Collins
Chief Financial Officer

 
Exhibit Index
 
Exhibit NumberDescription
Exhibit31.1*
NumberDescription
31.1*
31.2*
32.1*
32.2*
101*
101*The following financial information from this Quarterly Report on Form 10-Q for the period ended September 30, 2017,2019, formatted in XBRL (Extensible Business Reporting Language): (i) the Condensed Consolidated Statements of Operations; (ii) the Condensed Consolidated Balance Sheets; (iii) the Condensed Consolidated Statements of Cash Flows; (iv) the Condensed Consolidated Statement of Comprehensive Income(Loss); (v) the Condensed Consolidated Statement of Equity; and (vi) the Notes to Condensed Consolidated Financial Statements, tagged as blocks of text.
 
* Filed herewith.



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