TELIGENT 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:
•our capital resources are not currently sufficient for us to meet our obligations as they become due, and there is substantial doubt about our ability to continue as a going concern;
•our substantial indebtedness coupled with our significant losses and negative cash flows makes it unlikely that we will be able to generate cash sufficient to repay our indebtedness; •if we fail to comply with the financial covenants contained in our Senior Credit Facilities, our senior lenders could accelerate all amounts owing thereunder which, in turn, could result in the acceleration of all amounts owing under our 2023 Series D Convertible Notes; •if we fail to maintain compliance with the continued listing standards of Nasdaq, it may result in the delisting of our common stock from the Nasdaq Global Select Market and in the acceleration of amounts owing under our 2023 Series D Convertible Notes and our Senior Credit Facilities; •in the event we pursue an in-court bankruptcy restructuring, we will be subject to the risks and uncertainties associated with bankruptcy proceedings, including the potential delisting of our common stock from trading on the Nasdaq Global Select Market and all notes becoming due and payable; and
•issues identified by the FDA in its warning letter and additional product quality issues identified by the Company will have a negative impact on the Company's business, financial position and results of operations, and cash flows
In addition, these risks and uncertainties include 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 theSecurities and Exchange Commission , including the "Risk Factors" section as set forth in our Annual Report on Form 10-K for the year endedDecember 31, 2020 . 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. (the "Company") is a generic pharmaceutical company. All references to "Teligent ," the "Company," "we," "us," and "our" refer toTeligent, Inc. and its subsidiaries. Our mission is to become a leader in high-barrier to entry generic pharmaceuticals. Our platform for growth is centered around the development, manufacturing and marketing of a portfolio of generic pharmaceutical products under our own label and private labeled for other pharmaceutical companies in topical, injectable and other high-barrier dosage forms. We believe that expanding our development and commercial base beyond topical generics, historically the cornerstone of our expertise, to include injectable generics and other high-barrier generics, will leverage our existing expertise and capabilities, and broaden our platform for more diversified strategic growth. 41 -------------------------------------------------------------------------------- We currently market and sell generic topical and generic and branded generic injectable pharmaceutical products inthe United States andCanada . Inthe United States , we market 37 generic topical pharmaceutical products and 2 branded injectable pharmaceutical products. We have received FDA approvals for 36 topical generic products from our internally developed pipeline and we have 7 Abbreviated New Drug Applications, ("ANDAs") on topical products and 3 New Drug Application ("NDA") Prior Approval Supplements ("PASs") for sterile injectable products submitted to the FDA that are awaiting approval. We market 25 generic injectable, 3 generic topical, and 3 generic ophthalmic products. We have 1 Abbreviated New Drug Submission ("ANDS") pending atHealth Canada . Inthe United States , approved ANDA generic drugs are usually interchangeable with the innovator drug. This means that the generic version may generally be substituted for the branded product by either a physician or pharmacist when dispensing a prescription. We also provide contract development and manufacturing services to the prescription and over-the-counter ("OTC") pharmaceutical and cosmetic markets. We operate our business under one operating segment. Our common stock is traded on the Nasdaq Global Select Market under the trading symbol "TLGT." Our principal executive office, laboratories and manufacturing facilities are located at105 Lincoln Avenue ,Buena, New Jersey . We have additional offices located inIselin, New Jersey , andMississauga, Canada . In late 2020, we decided to reposition the research and development operation mainly performed at ourTallinn, Estonia office to our US manufacturing site atBuena, New Jersey and consequently we have divested our limited assets inEstonia and are in the process of formally dissolving ourEstonia operations. The manufacturing and commercialization of generic pharmaceutical products is competitive, and there are established manufacturers, suppliers and distributors actively engaged in all phases of our business. We currently manufacture and sell topical, injectable and ophthalmic generic pharmaceutical products under our own label in both the US andCanada . Inthe United States , the three large wholesale drug distributors are AmerisourceBergen Corporation ("ABC"); Cardinal Health, Inc. ("Cardinal"); andMcKesson 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. There are generally three major negotiating entities in the US market.Walgreens Boots Alliance Development (WBAD) consists of Walgreens and AmerisourceBergen's PRxO Generics program. Red Oak Sourcing consists of CVS and Cardinal's source programs. Finally, ClarusOne consists of Walmart,RiteAid and McKesson's OneStop program. A loss of any of these major entities could result in a significant reduction in revenue. We consider our business relationships withABC , Cardinal and McKesson to be in good standing and we 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 explore business development opportunities to add additional products and/or capabilities to our existing portfolio and to expand our private label and contract manufacturing service opportunities. For the three months endedMarch 31, 2021 , we had sales to one customer, which individually accounted for 10% or more of our total revenue. Total sales to this customer represented 33% of total revenues. For the three months endedMarch 31, 2020 , we had sales to one customer, which individually accounted for 10% or more of our total revenue. Total sales to this customer represented 16.9% of total revenues. Accounts receivable related to the Company's major customers comprised 46% of all accounts receivable as ofMarch 31, 2021 and 12% as ofMarch 31, 2020 , 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. 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 endedMarch 31, 2021 , approximately 86% of our contract manufacturing revenue was derived from pharmaceutical projects, as compared to 39% of total contract manufacturing revenue for the three months endedMarch 31, 2020 . None of our contract manufacturing services customers represented greater than 10% of total revenue for the three months endedMarch 31, 2021 and 2020, respectively.
FDA Warning Letter and Quality Issues
As part of our efforts to remediate the issues identified in theFDA's warning letter issued inNovember 2019 (the "FDA Warning Letter") and to strengthen our quality systems, we undertook a comprehensive review of all of our products. This 42 -------------------------------------------------------------------------------- review was completed inDecember 2020 . While the review did not identify material issues with many of our products, it identified certain issues of non-conformance with respect to certain products which have resulted in recalls and halting the production of certain products, that we are actively reviewing and remediating. We have experienced and may continue to experience, among other matters, product recalls, long-term production pauses, short-term clear path to market production pauses, and continued production with minor process corrections. We believe the foregoing disruptions with respect to certain of our products and the diversion of resources to remediate the product quality issues will have a negative impact on our business, financial position, results of operations and cash flows during 2021, including reducing our revenue, negatively impacting operating/(loss), and possibly resulting in impairment and other charges. Further, we anticipate that theFDA's issuance of the warning letter and review of our processes will continue to delay theFDA's pre-approval inspection for commercial production on the newly installed injectable line at theBuena, NJ facility. The continued failure to address the issues identified by the FDA in its warning letter and those subsequently identified by us in our comprehensive product quality review as well as the continued delay in obtaining theFDA's pre-approval inspection for commercial production on the newly installed injectable line at theBuena, NJ facility will have a negative impact on our business, financial position, results of operations and cash flows.
COVID-19 Pandemic Update:
As a pharmaceutical manufacturing facility, we are considered "essential" under applicable directives from the state ofNew Jersey . During the COVID-19 Public Health Emergency and State of Emergency we maintained our manufacturing operations and monitored conditions in order to maintain a safe workplace for our employees. Among other preventative measures, we have directed all employees that could perform their function remotely to work from home in accordance with applicable guidelines, implemented social distancing measures on-site at our manufacturing facility, provided daily personal protective equipment to our onsite employees upon their arrival to the site and implemented temperature monitoring services at our newly established single point of entrance. We have also implemented a more frequent sanitization process of the facility. As the Public Health Emergency, State of Emergency and restrictions have abated, we are in the process of implementing a phased 'return to office' protocol under which we will maintain social distanced workspace and continue to sanitize our facilities. In order to preserve cash and align manufacturing-related resources with downward adjustments made to our production schedule, we initiated a reduction in force at ourBuena, NJ manufacturing facility effectiveJune 19, 2020 . In connection with the reduction, we terminated 53 employees, furloughed another 15 employees and eliminated the 2nd shift packaging operation. Many of the furloughed employees have now been recalled. Our employee base is currently 146 versus 153 onDecember 31, 2020 , down 4.6%. In addition, we decided to shift our research and development operation being performed in ourTallinn, Estonia office to our US manufacturing site atBuena, New Jersey and subsequently to wind-down ourEstonia operation. OnSeptember 30, 2020 , we sold certain of our assets located inEstonia , primarily lab machinery, equipment and office furniture and are in the process of completing the wind-down of ourEstonia operations.
Product Approvals
There were no significant approvals announced in 2021 to date.
Results of Operations
Three months ended
We had net income of$2.2 million , or$0.04 per share, for the three months endedMarch 31, 2021 (the "Current Period"), compared to a net loss of$26.8 million , or$4.98 per share, for the three months endedMarch 31, 2020 (the "Prior Period"). Product Sales, net, include Company Product Sales and Contract Manufacturing Sales. 43 --------------------------------------------------------------------------------
Revenues:
Three Months Ended March 31, Increase/(Decrease)
Components of Revenue: 2021 2020 $ %
Product sales, net $ 11,413 $ 7,336 $ 4,077 56 %
Research and development services and
other income 175 111 64 58 %
Total Revenues $ 11,588 $ 7,447 $ 4,141 56 %
Total revenues increased by $4.1 million to $11.6 million in the first quarter
of 2021 versus $7.4 million in Prior Period. The increase was driven primarily
by timing of orders from private label customers, wholesale restocking and fewer
Canadian supply constraints that were present
Research and development services and other revenues 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:
Three Months Ended March 31, Increase/(Decrease)
2021 2020 $ %
Cost of revenues $ 12,799 $ 8,610 $ 4,189 49 %
Selling, general and administrative
expenses 6,272 6,717 (445) (7) %
Impairment charge 24 8,373 (8,349) (100) %
Product development and research
expenses 1,463 1,800 (337) (19) %
Totals costs and expenditures $ 20,558 $ 25,500 $ (4,942) (19) %
Cost of revenues increased by
Selling, general and administrative expenses in the Current Period decreased by$0.4 million to$6.3 million as compared to a$6.7 million in the Prior Period. The decrease was primarily due to lower professional fees versus the first Quarter of 2020. An impairment charge was recorded in the Current Period of$24 thousand related to property, plant and equipment. An impairment charge was recorded in the Prior Period of$8.4 million related to trademark and technology of$4.9 million and product acquisition costs of$3.5 million . Product development and research expenses were$1.5 million in the Current Period and$1.8 million in the Prior Period. The change was primarily due to a decrease in personnel costs, outside testing and pilot batch expenses partially offset by an increase of API expenses and increase in clinical studies.
Other Income (Expense), net:
Three Months Ended March 31, (Increase)/Decrease
2021 2020 $ %
Interest and other expense, net $ (4,119) $ (5,876) $ 1,757 30 %
Foreign currency exchange loss (2,092) (1,597) (495) 31 %
Gain on debt restructuring 22,439 - 22,439 (100) %
Inducement loss (1,889) - (1,889) (100) %
Change in the fair value of derivative
liabilities (3,186) (1,258) (1,928) (100) %
Other income/(expense), net $ 11,153 $ (8,731) $ 19,884 228 %
The net decrease in interest and other expense in the Current Period of
44
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Foreign exchange loss of $2.1 million in the Current Period was mainly related
to the foreign currency translation of our intercompany loans denominated in
U.S. dollars to our foreign 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 remaining term of these
loans.
The gain on debt restructuring and inducement loss of
The change in the fair value of derivatives of$3.2 million was related to the SeniorC Notes up to theJanuary 2021 Debt Exchange Transactions. Net income/(loss) attributable to common stockholders (in thousands, except per share numbers): Three Months Ended March 31, Increase/(Decrease) 2021 2020 $ % Net income/(loss) attributable to common stockholders$ 2,153 $ (26,836) $ (28,989) (108) % Basic income/(loss) per share$ 0.04 $ (4.98) $ (5.02) 101 % Diluted income/(loss) per share$ 0.03 $ (4.98) $ (5.01) 101 % Net income for the Current Period was$2.2 million as compared to a net loss of$26.8 million of the Prior Period. The increase was primarily due to an increase in revenues of$4.1 million and a gain on debt restructuring and inducement loss of$20.6 million , offset by the a change in costs and expenses of$4.9 million , change in the fair value of derivative liabilities of$1.9 million and a$0.5 million increase on foreign currency exchange gain, as discussed above.
Liquidity and Capital Resources
The Company 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, we had an accumulated deficit of$241.1 million , total principal amount of outstanding borrowings of$108.8 million , and limited capital resources to fund ongoing operations atMarch 31, 2021 . These capital resources were comprised of cash and equivalents of$28.3 million atMarch 31, 2021 and the generation of cash inflows from working capital. The Company is not currently generating revenues from operations that are sufficient to cover its operating expenses, and its available capital resources are not sufficient for it to continue to meet its obligations as they become due. As a result, the Company has engaged financial and legal advisors to assist it in, among other things, analyzing all available strategic alternatives to address its liquidity and capital structure. However, the Company cannot provide assurances that additional capital will be available when needed or that any strategic alternatives or restructuring pursued will be on acceptable terms. The Company's liquidity needs have typically arisen from the funding of its new manufacturing facility, product manufacturing costs, research and development programs, and the launch of new products. In the past, the Company has met these cash requirements through cash inflows from operations, working capital management, and proceeds from borrowings. Although the construction of the Company's new manufacturing facility was substantially completed inOctober 2018 , additional investment was made in order to prepare the facility and the Company's employees for a prior approval inspection from the FDA for the new injectable line. The Company's liquidity was negatively impacted in 2020 as a result of the COVID-19 pandemic, and the Company believes its liquidity will be negatively impacted during 2021 by disruptions with respect to certain of its products and the diversion of resources to remediate the product quality issues identified in connection with the Company's response to theFDA's warning letter. In addition, the Company expects to continue to incur significant expenditures for the development of new products in its pipeline, and the manufacturing, sales and marketing of its existing products. As described above, notwithstanding the Company's significant current liquidity needs, the Company cannot provide assurances that additional capital will be available on acceptable terms or at all.
Series A Notes
In the beginning of 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 Convertible 3.75% Senior Notes (the "2019 Notes"). The repurchase of the 2019 Notes was considered a debt extinguishment under ASC 470-50. The 2019 Notes were accounted for under cash conversion guidance ASC 45 -------------------------------------------------------------------------------- 470-20, which required 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 Condensed 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 was already net of any unamortized debt issuance costs). The reduction of Additional Paid in Capital in connection with this extinguishment was immaterial. The Company settled the remaining 2019 Notes of$13.0 million in principal upon its maturity inDecember 2019 . Following the issuance of the Series D Notes described below, all amounts owing with respect to the Series A Notes were extinguished through exchange of Series C Notes and Series D Notes (see below).
Series B Notes
OnOctober 31, 2019 , the Company closed its offering of the Series B Notes. The Series B Notes were scheduled to mature inMay 2023 and were convertible at the option of the holder at any time prior to their maturity. The initial conversion price was$7.20 per share, subject to adjustment under certain circumstances.
As part of the offering, the Company entered into agreements with certain
holders of its existing Series A Notes to exchange
The gross cash proceeds of approximately$29.3 million on from the financing were used to extinguish the Company's existing 2019 Notes inDecember 2019 and intended to pay amounts owing with respect to other indebtedness and to fund general corporate and working capital requirements. The net proceeds from the financing were$26.9 million after deducting a total of$2.3 million of the initial purchasers' discounts and professional fees associated with the transaction. The Series B Notes bore interest at a rate of 7.00% per annum if paid in cash, semiannually in arrears onMay 1 andNovember 1 of each year, beginning onMay 1, 2020 . The Company also had an option, and agreed with its senior lender, to PIK the interest at 8.00% per annum, to defer cash payments. The Company elected the paid-in-kind interest option and increased the principal balance of the Series B Notes by$2.0 million for the year endedDecember 31, 2020 . Following the issuance of the Series D Notes described below, all outstanding debt with respect to the Series B Notes had been extinguished through exchange of Series C and Series D Notes (see below).
Series C Notes
OnJuly 20, 2020 , the Company completed the sale and issuance of$13.8 million aggregate principal amount of Series C Notes. After taking into account an original issue discount and other fees payable to the Purchasers, the Company received net cash proceeds of approximately$10.0 million , which the Company is using for general corporate purposes. The Company also issued approximately$32.3 million in aggregate principal amount of Series C Notes in exchange for approximately$35.9 million in aggregate principal amount, plus accrued but unpaid interest thereon, of the Company's outstanding Series B Notes, giving effect to a 10% discount on the principal amount of the Series B Notes exchanged. In addition, the Company issued approximately$3.7 million in aggregate principal amount of Series C Notes in exchange for approximately$8.2 million in aggregate principal amount, plus accrued but unpaid interest thereon, of the Company's outstanding Series A Notes, giving effect to a 55% discount on the principal amount of the Series A Notes exchanged. Interest on the Series C Notes accrues at the rate of 9.5% per annum and is payable in kind and capitalized with principal semiannually in arrears onMarch 1 andSeptember 1 of each year, beginning onSeptember 1, 2020 . The Series C Notes will mature onMarch 30, 2023 , unless earlier converted or repurchased and are subordinate to the indebtedness under the Senior Credit Facilities. The Company has elected the paid-in-kind interest option and increased the principal balance of the Series C Notes by$0.5 million in the year endedDecember 31, 2020 . The Company has agreed to use its commercially reasonable best efforts to obtain the approval of its stockholders that is required under applicable Nasdaq rules and regulations to permit holders of the Series C Notes to beneficially own shares of common stock without being subject to the Nasdaq Change of Control Cap. In the event that the Company did not obtain such stockholder approval at an annual or special meeting of its stockholders on or beforeOctober 31, 2020 , holders of a majority in aggregate principal amount of outstanding Series C Secured Convertible Notes may elect to increase the interest rate payable on the 2023 Series C Secured Convertible Notes to 18.0% per annum until such stockholder approval is obtained, which will continue to be paid in kind in the form of additional principal with respect to any applicable period in which the increased interest rate remains in effect. Pursuant to a notice datedNovember 2, 2020 , the holders of a majority in principal amount of the outstanding 2023 Series C Secured Convertible Notes elected to increase the 46 -------------------------------------------------------------------------------- interest rate payable on the 2023 Series C Secured Convertible Notes from 9.5% to 18.0%. The Company convened and adjourned a special meeting of stockholders onOctober 22, 2020 , and further adjourned such special meeting onNovember 11, 2020 andNovember 25, 2020 due to a lack of quorum. The special meeting of stockholders was held onDecember 16, 2020 , pursuant to which the stockholders of the Company approved the holders of the 2023 Series C Secured Convertible Notes beneficially owning shares of common stock without being subject to the Nasdaq Change of Control Cap. As a result of the approval, the interest rate payable on the 2023 Series C Secured Convertible Notes was decreased to 9.5%.
In
Series D Notes
OnSeptember 22, 2020 , the Company completed the issuance of approximately$27.5 million aggregate principal amount of Series D Notes in exchange for approximately$59.0 million in aggregate principal amount, plus accrued but unpaid interest, of Series A Notes, giving effect to a 53.4% discount on the principal amount of the Series A Notes exchanged. The Company also issued approximately$0.4 million aggregate principal amount of the Series D Notes in exchange for approximately$0.5 million in aggregate principal amount, plus accrued but unpaid interest, of the Company's outstanding Series B Notes, giving effect to a 31.9% discount on the principal amount of the Series B Notes exchanged. Following the issuance of the Series D Notes, all amounts owing with respect to the Series A Notes and Series B Notes had been paid and the related indentures and the Company's obligations thereunder were satisfied and discharged.
Senior Credit Facilities
OnNovember 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 dueNovember 2022 ("Revolver"), a term loan of$80.0 million dueFebruary 2023 ("2023 Term Loan"), and a delayed draw term loan of$15.0 million also due inFebruary 2023 ("2023 Delayed Draw Term Loan"). The interest rate under the Revolver was 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 bore 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 to the Company should it choose to 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. The Initial Term Loan of$50.0 million and$15.0 million of the Revolver were drawn by the Company onDecember 13, 2018 . OnDecember 21, 2018 , the Company drew$20.0 million of the Delayed Draw Term Loan A. InJanuary 2019 , the Company drew$5.0 million and subsequently the remaining$5.0 million under the Revolver were drawn down by the Company inApril 2019 . OnSeptember 18, 2019 , pursuant to terms of the First Lien Credit Agreement, the Company borrowed an advance in the aggregate principal amount of$2.5 million (the "Protective Advance"). The Protective Advance is a secured Obligation under the First Lien Credit Agreement and bears interest at the rate applicable to the Revolver. The Protective Advance was subsequently repaid inNovember 2019 along with a repayment fee of$0.1 million . The Company drew down the remaining$10.0 million under its borrowing capacity of Delayed Draw Term Loan A before its expiry in December of 2019. The$15.0 million Delayed Draw Term Loan B expired upon the issuance of the Series B Notes, prior to the Company drawing down any monies. The Term Loans are governed by the Second Lien Credit Agreement. The 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. OnApril 6, 2020 , the Company entered (i) Amendment No. 2 of the Revolver and Amendment No. 4 of the Term Loans (the "Amendment 4"), effective as ofDecember 31, 2019 (together, the "April 2020 Amendments"). TheApril 2020 Amendments together, among other things, (i) increase the interest rates, (ii) reset certain prepayment premiums and modify the terms of certain mandatory prepayments and (iii) modify certain financial covenant levels inclusive of the disposition of prior covenants as of and for the period endedDecember 31, 2019 . The additions and changes to financial covenants set forth in theApril 2020 Amendments: (i) add a new minimum net revenue covenant that is tested on the last day of each fiscal quarter fromMarch 31, 2020 until the quarter endingDecember 31, 2020 , (ii) reset a minimum consolidated adjusted EBITDA covenant that is tested on the last day of each fiscal quarter ending during the period fromMarch 31, 2021 to maturity, (iii) eliminate a total net leverage covenant and (iv) add a minimum liquidity covenant tested at all times during the term of the Senior Credit Facilities. 47 -------------------------------------------------------------------------------- The associated increases in interest rates were effective as ofApril 6, 2020 . The Revolver bears interest at a fluctuating rate of interest equal to the one, two, three or six-month LIBOR plus a margin of 5.5% or a rate based on the prime rate plus a margin of 4.5%, with a LIBOR floor of 1.5%. The Term Loans bear interest at a fluctuating rate of interest equal to the one, two, three or six-month LIBOR plus a margin of 13.0% or a rate based on the prime rate plus a margin of 12.0%, with a LIBOR floor of 1.5%. Interest on the Senior Credit Facilities is payable in cash quarterly in arrears (or more frequently in connection with customary LIBOR interest provisions), provided, that the Company may elect (and has covenanted to the lenders under its Senior Credit Facilities and subsequent amendments thereto) to pay interest on the Term Loans in kind throughDecember 13, 2021 but only if the following occurs: (1) the Company receives a "warning letter close-out letter" from theFederal Drug Administration in response to corrective actions taken by the Company since receipt of the warning letter inNovember 2019 and (2) the Company receives a written recommendation from theFederal Drug Administration setting forth its approval decision in respect of the pre-approval inspection for commercial production on the newly installed injectable line at the Company'sNew Jersey facility. If only one of those items occurs byDecember 13, 2020 , then the Company may still elect to pay interest in kind during 2021, but only from the time the second condition has been satisfied untilDecember 13, 2021 . Thereafter, a portion of interest on the loans accruing at a rate of 4.25% per annum may continue to be paid in kind. BothApril 2020 Amendments provide that in the event of receipt of net proceeds from a disposition triggering a mandatory prepayment, net proceeds of such disposition will be applied as follows: (i) first, to be retained by the Company or applied to amounts outstanding under the First Lien Credit Agreement until such time as liquidity of the Company and its subsidiaries equals$10.0 million , (ii) next to amounts outstanding under the Revolver (without a permanent reduction in the revolving loan commitments of the lenders) until such amounts are paid in full (with the first lien administrative agent having the right to waive such prepayment, in which event, such net proceeds are applied to amounts outstanding under the Second Lien Credit Agreement), and (iii) finally, to amounts outstanding under the Term Loans. In addition, pursuant to the Revolver, the Company has agreed at all times to maintain book cash of the Company and its subsidiaries not in excess of$10.0 million with any excess being required to prepay the outstanding obligations under the Revolver.
After giving effect to the April Amendments, the effective interest rates, inclusive of the debt discounts and issuance costs for the Initial Term Loan and Delayed Draw Term Loan A were between 16.6% and 17.7% and for the various borrowing tranches of the Revolver, were between 9.6% and 10.9%.
In connection with the Term Loan Amendments datedApril 6, 2020 , the Company issued to the Term Loan lenders certain Warrants to purchase up to, in the aggregate, 538,995 of post reverse stock split shares of the Company's common stock at an exercise price of$0.01 per share. The Warrants initially were recorded at fair value upon issuance and classified as a liability as the Company did not have sufficient authorized unissued shares for the Warrants' exercise. The Warrants were remeasured to fair value up to the reverse stock split date, with any fair value adjustments recognized in the condensed consolidated statements of operations. The Warrants were reclassified as equity at their fair value upon the reverse stock split date and will not be remeasured subsequently. The estimated fair value of the Warrants on the date of issuance of$1.4 million was recorded as a debt discount. The Warrants had a fair value of$2.2 million as of the reverse stock split date which was reclassified to equity. The Warrants are exercisable at any time after the reverse stock split which occurred onMay 28, 2020 and will remain exercisable, in whole or in part, for a period of 5 years from the issuance date. As ofMarch 31, 2021 , all 538,995 Warrants remain outstanding (Note 9). The number of shares issuable upon the exercise of the Warrants is subject to customary adjustments upon the occurrence of certain events, including (i) payment of a dividend or distribution to holders of shares of the Company's common stock payable in shares of the Company's common stock, (ii) a subdivision, capital reorganization or reclassification of the Company's common stock or (iii) a merger, sale or other change of control transaction. OnJuly 20, 2020 , the Company entered into (i) a Consent and Amendment No. 3 to First Lien Revolving Credit Agreement (the "First Lien Amendment"), and (ii) a Consent and Amendment No. 5 to Second Lien Credit Agreement (the "Second Lien Amendment"). The First Lien Amendment amended the First Lien Credit Agreement to, among other things, (i) permit the issuance of the Series C Notes and the other transactions contemplated by the indenture related thereto, (ii) modify the terms of certain mandatory prepayments, (iii) modify certain negative covenants and (iv) modify certain financial covenants. TheJuly 2020 Second Lien Amendment amended the Second Lien Credit Agreement to, among other things, (i) permit the issuance of the Series C Notes and the other transactions contemplated by the indenture related thereto, (ii) modify the terms of certain mandatory prepayments, (iii) modify certain negative covenants, (iv) modify certain financial covenants and (v) extend the time period in which the Company may elect to pay interest in kind. 48 -------------------------------------------------------------------------------- In connection with the transactions contemplated by theJuly 2020 Second Lien Amendment, the Company issued to the lenders party to the SecondLien Credit Agreement certain Warrants to purchase shares of the Company's common stock. The Warrants are exercisable for up to, in the aggregate, 134,667 shares of the Company's common stock at an exercise price of$0.01 per share of common stock. The Warrants are immediately exercisable upon issuance and will remain exercisable, in whole or in part, for a period of five years from the original issuance date. The number of shares issuable upon the exercise of the Warrants is subject to customary adjustments upon the occurrence of certain events, including (i) payment of a dividend or distribution to holders of shares of the Company's common stock payable in shares of the Company's common stock, (ii) a subdivision, capital reorganization or reclassification of the Company's common stock or (iii) a merger, sale or other change of control transaction. As ofMarch 31, 2021 , all 134,667 Warrants remain outstanding. The Company was in compliance with its financial covenants as ofMarch 31, 2021 . However, the Company is at risk of failing the trailing twelve month Adjusted EBITDA covenant for the first quarter of 2022. If the Company fails to comply with its trailing twelve months revenue covenant, events of default under the First Lien Credit Agreement and the Second Lien Credit Agreement would be triggered and its obligations under the Senior Credit Facilities or other agreements (including as a result of cross-default provisions of the indentures relating to the Series C Notes and Series D Notes) may be accelerated. As such, the Company recorded a$5.6 million derivative liability associated with certain mandatory prepayment penalties and the recognition of future interest payments in the anticipation of a potential future default on its Senior Credit Facilities. The Company reversed the event of default liability of in the third quarter of 2020 based on the Series C Notes offering which terminates the previous revenue covenant under the Senior Credit Facilities, according to which the Company recognized a$5.6 million gain in change in the fair value of the derivative liability line on the Condensed Consolidated Statement of Operations for the three months endedMarch 31, 2021 (Note 8).
Government Grant Advance
OnMay 15, 2020 , the Company received$3.4 million of proceeds from theU.S. Small Business Administration (the "SBA") Paycheck Protection Program (the "Government Grant Advance") and utilized the advance to balance its employee-related actions previously taken with the business needs to ensure a significant portion of the loan will be forgiven. The Government Grant Advance matures in 2 years with accrued interest at an annual rate of 1.00%, being deferred for payments on amounts not forgiven at the later of (a) 10 months following the borrower's covered period, or (b) when the SBA remits any amounts forgiven to the lender. According to IAS 20, Accounting for Government Grants and Disclosure of Government Assistance, the Company recorded$3.4 million in other income on the Consolidated Statements of Operations for the year endedDecember 31, 2020 . Nasdaq Delisting Notice OnApril 9, 2021 , the Company received a notice (the "Notice") fromThe Nasdaq Stock Market informing the Company that for the last 30 consecutive business days, the bid price of the Company's securities had closed below$1.00 per share, which is the minimum required closing bid price for continued listing on Nasdaq pursuant to Listing Rule 5450(a)(1) (the "Bid Price Requirement"). The Notice has no immediate effect on the Company's Nasdaq listing or trading of the Company's common stock. The Company has 180 calendar days, or untilOctober 6, 2021 , to regain compliance. To regain compliance, the closing bid price of the Company's securities must be at least$1.00 per share for a minimum of ten consecutive business days. If the Company does not regain compliance byOctober 6, 2021 , the Company may be eligible for additional time to regain compliance or if the Company is otherwise not eligible, the Company may request a hearing before aHearings Panel . The negative financial conditions described above raise substantial doubt about our ability to continue as a going concern as ofMarch 31, 2021 . To that end, and as described above, the Company is not currently generating revenues from operations that are sufficient to cover its operating expenses, and its available capital resources are not sufficient for it to continue to meet its obligations as they become due. As a result, the Company has engaged financial and legal advisors to assist it in, among other things, analyzing all available strategic alternatives to address its liquidity and capital structure. However, the Company cannot provide assurances that additional capital will be available when needed or that any strategic alternatives or restructuring pursued will be on acceptable. The accompanying financial statements do not include any adjustments that might result from the outcome of this uncertainty. 49 -------------------------------------------------------------------------------- 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: Three months ended March 31, 2021 2020 Net cash provided by (used in) Operating Activities $ (10,874)$ (2,946) Investing Activities $ (47)$ (880) Financing Activities $ 32,415$ (3) Operating Activities Our operating activities used$10.9 million of cash and cash equivalents in the three months endedMarch 31, 2021 mainly to support our operational activities, which included continued inventory management/build to help avoid failure-to-supply fees and normal timing differences in working capital balances.
Investing Activities
Our investing activities used$47 thousand of cash and equivalents during the three months endedMarch 31, 2021 , compared to$0.9 million used during the same period last year, which was used for the continued facility expansion inBuena, NJ . Financing Activities
During the three months ended
Our capital resources were comprised of cash and cash equivalents of
In order to continue normal business operations and execution of the Company's growth strategy, the Company may exercise its ability to significantly defer or reduce planned discretionary investments in research and development and capital projects or seek other financing alternatives. Other financing alternatives may include raising additional capital through the sale of its equity, a strategic alliance with a third party or securing debt. If additional acquisition and growth opportunities arise, external financing will be required.
OnJanuary 27, 2021 , we completed a recapitalization and equitization transaction pursuant to an Exchange Agreement, datedJanuary 27, 2021 , among the Company, the Series C Noteholders (as defined below) and Ares (as defined below) (the "Exchange Agreement"). Under the Exchange Agreement, the holders (the "Series C Noteholders") of all of our 9.5% Series C Senior Secured Convertible Notes due 2023 (the "Series C Notes") exchanged an aggregate of approximately$50.3 million of outstanding principal under the Series C Notes, representing 100% of the outstanding principal under the Series C Notes, together with accrued interest thereon, for an aggregate of 29,862,641 shares (the "Series C Exchange Shares") of our common stock (the "Series C Equitization"). The Series C Equitization resulted in the extinguishment of all of our obligations under the Indenture, dated as ofJuly 20, 2020 , between us andWilmington Trust, National Association , as trustee and collateral agent (the "Series C Indenture"). Additionally, under the Exchange Agreement, certain credit funds and accounts managed by affiliates of Ares Management Corporation (such funds and accounts, collectively, "Ares" and, together with the Series C Noteholders, the "Participating Parties") that are lenders under our SecondLien Credit Agreement, datedDecember 13, 2018 , by and among the Company, certain of its subsidiaries, the lenders from time to time party thereto, and Ares Capital Corporation as Administrative Agent (as amended, including by the Second Lien Amendment (as defined below), the "Second Lien Credit Agreement") converted a portion of the outstanding term loans under the Second Lien Credit Agreement constituting 100% of the approximately$24.5 million in accrued PIK interest under the Second Lien Credit Agreement into an aggregate of approximately 85,412 shares of our newly created Series D Preferred Stock, par value$0.01 per share (the "Series D Preferred Stock", and such transaction, the "PIK Interest Exchange" and, together with the Series C Equitization, the "January 2021 Debt Exchange Transactions"). Each 50 -------------------------------------------------------------------------------- share of Series D Preferred Stock is non-voting and, subject to an increase in the number of shares of our common stock available for issuance under our amended and restated certificate of incorporation, is convertible into 200 shares of our common stock. The shares of Series D Preferred Stock issued in connection with the PIK Interest Exchange are currently convertible into an aggregate of 17,082,285 shares of our common stock. The holders of shares of Series D Preferred Stock may not convert such shares of Series D Preferred Stock into shares of our common stock to the extent such a conversion would result in a holder thereof, together with its affiliates, collectively owning more than 15% of the number of shares of our common stock then outstanding. TheJanuary 2021 Debt Exchange Transactions reduced the amount of indebtedness on our balance sheet from approximately$186.3 million to approximately$109.7 million . After giving effect to theJanuary 2021 Debt Exchange Transactions and prior exchange transactions in which we extinguished all outstanding 4.75% Convertible Senior Notes dueMay 2023 (the "Series A Notes") and all outstanding 7.0% Cash / 8.0% PIK Series B Senior Unsecured Convertible Notes due 2023 (the "Series B Notes"), our remaining indebtedness. as ofJanuary 27, 2021 , consisted of: •$105.0 million in outstanding borrowings under the Senior Credit Agreements; and •$1.3 million outstanding principal amount of our Zero Coupon Convertible Senior Notes due 2023 (the "Series D Notes") (described further below). Our current amended and restated certificate of incorporation authorizes 100,000,000 shares of common stock for issuance. As of the date of this Form 10-Q filing, we have 92,817,493 shares of common stock issued and outstanding. In addition, after giving effect to theJanuary 2021 Debt Exchange Transactions, there are approximately 85,412 shares of Series D Preferred Stock outstanding, which are convertible into, in the aggregate, 17,082,285 shares of our common stock as of the date of this 10-K filing. As a result, there are presently an insufficient number of shares authorized and available for issuance under our amended and restated certificate of incorporation to effect the conversion of all outstanding shares of Series D Preferred Stock into common stock pursuant to the terms of such Series D Preferred Stock. Pursuant to the terms of the Exchange Agreement, we are required to seek the requisite approval of our stockholders to an amendment to our amended and restated certificate of incorporation to allow for the conversion in full of all shares of Series D Preferred Stock into shares of our common stock (either by an increase in the number of authorized shares of our common stock, the effectuation of a reverse stock split, or otherwise) (the "Stockholder Approval"). The Exchange Agreement provides that, if we are unable to obtain the Stockholder Approval on or beforeJuly 1, 2021 , we will issue to each holder of Series D Preferred Stock, on a quarterly basis, additional shares of Series D Preferred Stock equal to 2.5% of the number of shares of Series D Preferred Stock originally issued to such holder until the Stockholder Approval is obtained (with a prorated amount of Series D Preferred Stock to be issued in the event the Stockholder Approval is obtained during any such calendar quarter). We intend to seek Stockholder Approval at our Annual Meeting of Stockholders scheduled to be held onJune 18, 2021 . As a condition to entering into the Exchange Agreement, we entered into a Stockholders' Agreement with theParticipating Parties and B. Riley Securities (the "Stockholders' Agreement"), pursuant to which, among other matters, the Company granted (i) the Participating Parties registration rights for the shares of our common stock issuable upon conversion of the Series D Preferred Stock and for the Series C Exchange Shares, and (ii)B. Riley Securities registration rights for the shares of common stock issued toB. Riley Securities as a commitment fee in connection with an At Market Issuance Sales Agreement (the "ATM Sales Agreement"), datedJanuary 27, 2021 , withB. Riley Securities , pursuant to which we conducted an at-the-market equity offering (the "ATM Offering"). In addition to the voting restrictions discussed further below, the Stockholders' Agreement also contains terms restricting the transfer of shares of our common stock and Series D Preferred Stock held by the Participating Parties, including, subject to certain exceptions, a restriction on all sales or other transfers or dispositions of such shares (i) in respect of our recently completed at-the-market common stock offering, (ii) in any period during which we are conducting a follow-on public offering of our common stock within 11 months after the ATM Offering and ending on the earlier of 60 days after commencement of such offering or five trading days following its completion, (iii) in violation of certain volume restrictions set forth in the Stockholders' Agreement (including the Rule 144 Volume Limitation (as defined in the Stockholders' Agreement)) at any time when suchParticipating Party holds at least 9.9% of the outstanding shares of our common stock (including shares issuable upon conversion of the Series D Preferred Stock) and (iv) to any person or entity that is required to file a statement on Schedule 13D or Schedule 13G with respect to our securities. The Stockholders' Agreement also (x) subjects eachParticipating Party to certain standstill provisions for a period of 18 months following the date of the Stockholders' Agreement, (y) requires eachParticipating Party to include, in any Schedule 13D or Schedule 13G that suchParticipating Party may be required to file in respect of our securities, an acknowledgment that suchParticipating Party has no intent to directly or indirectly control us or to take any actions contemplated by Section 5 of the Stockholders' Agreement and (z) provides that the rights of each ofNantahala Capital Management, LLC ("Nantahala") andSilverback Asset Management, LLC , two of our Series C Noteholders, to appoint a non-voting observer to our board of directors terminated upon the consummation of the Series C Exchange. 51 -------------------------------------------------------------------------------- The Stockholders' Agreement also contains certain voting restrictions as follows: (a) each Series C Noteholder and each of such Series C Noteholder's affiliates will not vote any shares of our common stock held by such Series C Noteholder or such affiliates to the extent such vote would result in such Series C Noteholder and such affiliates, collectively, voting in excess of 4.9% of the outstanding shares of our common stock as of the record date for such vote, and (b) Ares will not vote any shares of our common stock held by it to the extent such vote would result in Ares and its affiliates, collectively, voting in excess of 15% of the outstanding shares of our common stock as of the record date for such vote. In addition, pursuant to Voting Trust Agreements amongWilmington Savings Fund Society , FSB ("WSFS Bank "), us and each of Nantahala and Silverback (the "Voting Trust Agreements"), we and each of Nantahala and Silverback established voting trusts withWSFS Bank to hold all Series C Exchange Shares issued to Nantahala or Silverback, respectively, in excess of 4.9% of the outstanding shares of our common stock, andWSFS Bank has agreed to vote all such Series C Exchange Shares on all matters presented to the vote of our stockholders in the same proportions as all shares of our common stock other than (x) the Series C Exchange Shares held in trust byWSFS Bank ; (y) any other shares of our common stock held by Nantahala or Silverback, as applicable and (z) other shares of our common stock held by the other Participating Parties.
Amendments to First Lien Credit Agreement and Second Lien Credit Agreement
Also in connection with theJanuary 2021 Debt Exchange Transactions, we entered into (i) Amendment No. 4 to First Lien Revolving Credit Agreement (the "First Lien Amendment"), amending the First Lien Credit Agreement, datedDecember 13, 2018 , by and among the Company, certain of its subsidiaries, the lenders from time to time party thereto, andACF Finco I LP as Administrative Agent (as amended by the First Lien Amendment, the "First Lien Credit Agreement"), and (ii) Amendment No. 6 to Second Lien Credit Agreement (the "Second Lien Amendment"), pursuant to which all identified defaults and events of default thereunder were waived and certain amendments were made to the FirstLien Credit Agreement and Second Lien Credit Agreement, respectively, including those described below. The First Lien Credit Agreement and SecondLien Credit Agreement are referred to herein as the "Senior Credit Agreements,", and such indebtedness outstanding under the Senior Credit Agreements is referred to herein as the "Senior Credit Facilities". The First Lien Amendment amended the First Lien Credit Agreement to, among other things, (i) permit borrowings under the revolving credit facility under the First Lien Credit Agreement, subject to availability (which is$0 as of the date of this Form 10-K filing) and the other terms and conditions of the First Lien Credit Agreement, provided, that such borrowings are only available until the commitments of the lenders under the Second Lien Credit Agreement under the Second Lien Delayed Draw Term Loan C Facility (as defined below) have been reduced to$0 , (ii) reduce from$10.0 million to$3.0 million (from and after the first draw of the Second Lien Delayed Drawn Term Loan C Facility described below) the maximum amount of cash that we and our subsidiaries that are credit parties under the First Lien Credit Agreement are permitted to maintain prior to triggering a mandatory prepayment of the revolving credit facility (without a permanent reduction of the revolving credit commitments), which$3.0 million threshold automatically increased by the net proceeds received from theJanuary 28, 2021 ATM Offering and any other equity offering, (iii) reduce from$3.0 million to$1.0 million the minimum liquidity (as defined in the First Lien Credit Agreement) required to be maintained by us and our subsidiaries that are credit parties under the First Lien Credit Agreement on a consolidated basis until the earlier of (a) the date on which the net proceeds from theJanuary 28, 2021 offering exceed$15.0 million in the aggregate and (b)February 15, 2021 , at which time the liquidity covenant increases to$3.0 million on a consolidated basis, (iv) from and afterMarch 31, 2022 , further increase the minimum liquidity covenant from$3.0 million to$4.0 million on a consolidated basis and (v) suspend testing of the minimum consolidated adjusted EBITDA covenant untilMarch 31, 2022 , at which time such minimum consolidated adjusted EBITDA covenant levels will resume to the levels in effect prior to the closing of the First Lien Amendment. The Second Lien Amendment amended the Second Lien Credit Agreement to (i) permit, among other things, theJanuary 2021 Debt Exchange Transactions, (ii) provide for a new multiple-draw delayed draw term loan facility in the aggregate principal amount of up to$4.6 million (the "Second Lien Delayed Draw Term Loan C Facility") which will be made available to us untilDecember 31, 2021 , subject to satisfaction of the conditions to borrowing, including, following the launch of this offering, a pro forma maximum liquidity test of$4.0 million , the proceeds of which may be used to pay expenses specified in a budget approved by the administrative agent under the Second Lien Credit Agreement, (iii) and afterMarch 31, 2022 , increase from$3.0 million to$1.0 million the minimum liquidity (as defined in the Second Lien Credit Agreement) required to be maintained by us and our subsidiaries that are credit parties under the SecondLien Credit Agreement on a consolidated basis until the earlier of (a) the date on which the net proceeds from theJanuary 28, 2021 offering exceed$15.0 million in the aggregate and (b)February 15, 2021 , at which time the minimum liquidity covenant increases to$3.0 million on a consolidated basis, (iv) from and afterMarch 31, 2022 , further increase the minimum liquidity covenant to$4.0 million on a consolidated basis, (v) suspend testing of the minimum consolidated adjusted EBITDA covenant untilMarch 31, 2022 , at which time such minimum consolidated adjusted EBITDA covenant levels will resume to the levels in effect prior to the closing of the Second Lien 52 --------------------------------------------------------------------------------
Amendment and (vi) extend the date on which we may elect to pay interest in kind. Loans made under the Second Lien Delayed Draw Term Loan C Facility will be pari passu with, and have the same interest and payment terms (including maturity) as those applicable to, the existing loans under the Second Lien Credit Agreement.
Off Balance Sheet Arrangements
We have no significant off-balance sheet arrangements that 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 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 withU.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 endedDecember 31, 2020 for a complete list of all Critical Accounting Policies and Estimates. See also Item 1 for our Condensed Consolidated Financial Statements.
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