MNKD 2017 Annual Report

marketing Afrezza in 2017 using an internal sales force, versus marketing Afrezza for a partial year in 2016 using a contracted sales force. This resulted in a $16.0 million increase in expense related to the transition and build-out of our internal sales-force, which was offset by a $7.7 million decrease in spending on contracted sales efforts. In addition, there was a $5.0 million increase in product advertising expense, primarily attributed to television advertisements, a $3.9 million increase in expenses for marketing and branding, a $3.5 million increase in travel expenses, a $1.0 million increase in expenses related to promotional materials, a $0.5 million increase in facilities expense, and a $0.3 million increase in sponsorship expense. General and administrative expenses include payroll, employee benefits, stock-based compensation expense, severance expense, and other headcount-related expenses associated with finance, legal, facilities, human resources and other administrative personnel, certain taxes, professional services, and legal and other administrative fees. General and administrative expense increased for the year ended December 31, 2017 by $5.3 million, or 20%, compared to the prior year, primarily due to increases in salaries of $2.6 million related to new executives hired in late 2016 and 2017, a $1.5 million increase in professional fees, primarily related to debt recapitalization, a $1.4 million increase in expense for consulting services related to accounting, human resources, and business development, a $0.7 million increase in expenses for performance bonuses, a $0.5 million increase in expenses associated with executive recruitment and relocation, and a $0.2 million increase in expenses for software infrastructure. These increases were partially offset by a $2.1 million decrease in legal expenses. Under the Insulin Supply Agreement with Amphastar, payment obligations are denominated in Euros. We are required to record the foreign currency translation impact of the U.S. dollar to Euro exchange rate associated with the recognized loss on purchase commitments. The loss on foreign currency translation for the year ended December 31, 2017 was $13.6 million as compared to a gain in 2016 of $3.4 million, resulting in a $17.1 million net change due to unfavorable U.S. dollar to Euro exchange rates. (Gain) loss on purchase commitments changed by $2.1 million as a result of a gain recorded in 2016 of $2.3 million versus $0.2 million in 2017. The $2.3 million gain on purchase commitments in 2016 related to a renegotiation of certain of our purchase commitments (primarily the reduction in cancellation fees under the Insulin Supply Agreement). Other Income (Expense) The following table provides a comparison of the other income (expense) categories for the years ended December 31, 2017 and 2016 (dollars in thousands): Year Ended December 31, 2017 2016 $ Change % Change Change in fair value of warrant liability . . . . . . . . . . . $ 5,488 $ 5,369 $ 119 2% Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 293 85 208 245% Interest expense on notes . . . . . . . . . . . . . . . . . . . . . . . (9,494) (15,576) 6,082 (39%) Interest expense on note payable to principal stockholder . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3,782) (2,901) (881) 30% (Loss) gain on extinguishment of debt . . . . . . . . . . . . (1,611) 72,024 (73,635) (102%) Other income (expense) . . . . . . . . . . . . . . . . . . . . . . . . 13 (597) 610 (102%) Total other (expense) income . . . . . . . . . . . . . . . $(9,093) $ 58,404 $(67,497) (116%) During the year ended December 31, 2017 we recorded a $5.5 million change in the fair value of the warrant liability from the beginning of the year through the date the Series A Common Stock Purchase Warrants (“A Warrants”) and Series B Common Stock Purchase Warrants (“B Warrants”) were exchanged, compared to $5.4 million for the prior year due to the volatility in our stock price. On September 29, 2017, we entered into 54