MNKD 2017 Annual Report

payments received in revenue – other in the accompanying consolidated financial statements during the second quarter of 2017 as the deliverables under the agreement were substantially delivered as of June 30, 2017. See Note 2 — Summary of Significant Accounting Policies for additional information on the Company’s accounting for multiple element arrangements. The Company also evaluated the accounting for royalties and other consideration in the agreement. Since the amount of product that Fosun will ultimately be able to sell upon successfully utilizing this technology is uncertain, no royalty revenue will be recognized until such time when Fosun or its affiliates sell product to a third party and royalties are due to the Company. 10. Fair Value of Financial Instruments The availability of observable inputs can vary among the various types of financial assets and liabilities. To the extent that the valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for financial statement disclosure purposes, the level in the fair value hierarchy within which the fair value measurement is categorized is based on the lowest level input that is significant to the overall fair value measurement. The carrying amounts reported in the accompanying consolidated financial statements for cash, accounts receivable, accounts payable, and accrued expenses and other current liabilities (excluding the milestone rights liability) approximate their fair value due to their relatively short maturities. The fair value of the cash equivalents, note payable to principal stockholder (also referred to as The Mann Group Loan Arrangement), senior convertible notes, the facility financing obligation, the milestone rights liability and the warrant liability are disclosed in Note 10 – Fair Value of Financial Instruments. The fair value of the cash equivalents, note payable to principal stockholder, senior convertible notes, the Facility Financing Obligation (as defined below), the Milestone Rights (as defined below) and warrant liability are discussed below. Cash Equivalents — Cash equivalents consist of highly liquid investments with original or remaining maturities of 90 days or less at the time of purchase, that are readily convertible into cash. As of December 31, 2017 and 2016, the Company held $41.0 million and $20.5 million, respectively, of cash equivalents, comprised of money market funds. The fair value of these money market funds was determined by using quoted prices for identical investments in an active market (Level 1 in the fair value hierarchy). Note Payable to Principal Stockholder — The fair value of the note payable to the Company’s principal stockholder cannot be reasonably estimated as the Company would not be able to obtain a similar credit arrangement in the current economic environment. Therefore, the fair value is based upon carrying value. 106