MNKD 2017 Annual Report

Restricted Cash – The Company records restricted cash when cash and cash equivalents are restricted as to withdrawal or usage. The Company presents amounts of restricted cash that will be available for use within twelve months of the reporting date as restricted cash in current assets. Restricted cash amounts that will not be available for use in the Company’s operations within twelve months of the reporting date are presented as restricted cash in long term assets. Concentration of Credit Risk — Financial instruments which potentially subject the Company to concentration of credit risk consist of cash and cash equivalents. Cash and cash equivalents are held in high credit quality institutions. Cash equivalents consist of interest-bearing money market accounts, which are regularly monitored by management. Accounts Receivable and Allowance for Doubtful Accounts — Accounts receivable are recorded at the invoiced amount and are not interest bearing. The Company maintains an allowance for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments. The Company makes ongoing assumptions relating to the collectability of its accounts receivable in its calculation of the allowance for doubtful accounts. If the Company estimates that inventory that has been shipped to wholesale distributors will be returned for credit because there is a risk of product expiration, the Company reduces deferred revenue and increases the allowance for returns of such inventory. As of December 31, 2017 and 2016, the allowance for returns was de minimis. As of December 31, 2017 and 2016, there was no allowance for doubtful accounts. As of December 31, 2017 and 2016, the Company had three wholesale distributors representing approximately 93% and 95% of gross accounts receivable, respectively. Inventories — Inventories are stated at the lower of cost or net realizable value. The Company determines the cost of inventory using the first-in, first-out, or FIFO, method. The Company capitalizes inventory costs associated with the Company’s products based on management’s judgment that future economic benefits are expected to be realized; otherwise, such costs are expensed as cost of goods sold. The Company periodically analyzes its inventory levels to identify inventory that may expire or has a cost basis in excess of its estimated realizable value and writes down such inventories, as appropriate. In addition, the Company’s products are subject to strict quality control and monitoring which the Company performs throughout the manufacturing process. If certain batches or units of product no longer meet quality specifications or may become obsolete or are forecasted to become obsolete due to expiration, the Company will record a charge to write down such unmarketable inventory to its estimated net realizable value. The Company analyzed its inventory levels to identify inventory that may expire or has a cost basis in excess of its estimated realizable value. The Company performed an assessment of projected sales and evaluated the lower of cost or net realizable value and the potential excess inventory on hand at December 31, 2017 and 2016. As a result of these assessments, the Company recorded a $3.0 million charge for the year ended December 31, 2017, to write-off inventory that may expire prior to sale. For the year ended December 31, 2016 there were no write-offs to inventory. For the year ended December 31, 2015, the Company recorded a charge of $39.3 million to record the inventory raw materials on hand at the lower of cost or net realizable value, inventory expiry and write-off other inventory related assets. Leases — The Company records rent expense for leases that contain scheduled rent increases on a straight- line basis over the lease term. When determining lease terms, the Company begins with the point at which the Company obtains control and possession of the leased property. State Research and Development Credit Exchange Receivable — The State of Connecticut provides certain companies with the opportunity to exchange certain research and development income tax credit carryforwards for cash in exchange for foregoing the carryforward of the research and development credits (the “State Program”). The State Program provides for an exchange of research and development income tax credits for cash equal to 65% of the value of corporation tax credit available for exchange. Estimated amounts receivable under the State Program are recorded as a reduction of research and development expenses. These amounts are included in prepaid expenses and other current assets on the consolidated balance sheets. 90