MNKD 2017 Annual Report

During the year ended December 31, 2017, there was no research and development tax credit. During the years ended December 31, 2016 and 2015, research and development expenses were offset by research and development tax credits of $0.2 million and $0.7 million, respectively. Prepaid Expenses and Other Current Assets — As of December 31, 2017 and 2016, prepaid expenses and other current assets primarily consist of prepaid expenses for goods and services to be received and includes a certificate of deposit for $0.4 million as collateral as required by an agreement with the bank. Assets Held for Sale — The Company classifies long-lived assets anticipated to be sold within one year as held for sale at the lower of their carrying value or fair value less estimated selling costs. Property and Equipment — Property and equipment are depreciated using the straight-line method over the estimated useful lives of the related assets. Leasehold improvements are amortized over the term of the lease or the service lives of the improvements, whichever is shorter. Maintenance and repairs are expensed as incurred. Assets under construction are not depreciated until placed into service. Impairment of Long-Lived Assets — The Company evaluates long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. Assets are considered to be impaired if the carrying value may not be recoverable. If the Company believes an asset to be impaired, the impairment recognized is the amount by which the carrying value of the asset exceeds the fair value of the asset. Fair value is determined using the market, income or cost approaches as appropriate for the asset. Any write-downs are treated as permanent reductions in the carrying amount of the asset and recognized as an operating loss. The Company recorded an asset impairment of $0.2 million, $1.3 million and $140.6 million for the years ended December 31, 2017, 2016 and 2015, respectively (see Note 4 — Property and Equipment). Recognized Loss on Purchase Commitments — The Company assesses whether losses on long term purchase commitments should be accrued. Losses that are expected to arise from firm, non-cancellable, commitments for the future purchases are recognized unless recoverable. When making the assessment, the Company also considers whether it is able to renegotiate with its vendors. The recognized loss on purchase commitments is reduced as inventory items are received. If, subsequent to an accrual, a purchase commitment is successfully renegotiated, the gain is recognized in the Company’s consolidated statement of operations. During the year ended December 31, 2015, the Company recorded a loss on purchase commitments amounting to $116.2 million offset by $50 million expected to be recovered from Sanofi, primarily due to a long term purchase commitment for insulin raw materials. During the year ended December 31, 2016, the balance was adjusted for the recovery received from Sanofi, current purchases on the contracts and a reduction in the recognized loss related to amendments to purchase contracts. The balance of the recognized loss on insulin purchase commitments is $109.3 million as of December 31, 2017. No new contracts were identified in 2017 or 2016 requiring a new loss on purchase commitment accrual. Milestone Rights Liability — On July 1, 2013, in conjunction with the execution of the Facility Agreement, the Company issued Milestone Rights to Deerfield whereby the Company agreed to provide Deerfield with pre-specified Milestone Payments upon the achievement of 13 specific Milestone Events related to the commercial release and future cumulative net sales of Afrezza. The Company analyzed the Milestone Rights and determined that the agreement does not meet the definition of a freestanding derivative. Since the Company has not elected to apply the fair value option to the Milestone Rights Purchase Agreement, the Company recorded the Milestone Rights at their estimated initial fair value and accounted for the Milestone Rights as a liability. The initial fair value estimate of the Milestone Rights was calculated using the income approach in which the cash flows associated with the specified contractual payments were adjusted for both the expected timing and 91