UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 

FormFORM 10-Q/A (Amendment No. 1)

(Mark One)

 

For the transition period from ______________________ to_______________________

Commission File Number 001-08568

(Formerly IGI Laboratories, Inc.)

(856) 697-1441

 

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter). ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

The number of shares outstanding of the issuer's common stock is 53,400,28153,537,888 shares as of November 7, 2017.August 6, 2018.

OTHER INFORMATION

 

When used in this report, the terms, “we,” the “Company,” “our,” and “us” refer to Teligent, Inc., a Delaware corporation (formerly IGI Laboratories, Inc.), and its consolidated subsidiaries.

This report on Form 10-Q/A has been signed as of a current date and all certifications of the Company’s Chief Executive Officer and Chief Financial Officer are given as of a current date. Except as discussed above, the Company has not modified, or updated disclosures presented in this Amendment.Form 10-Q/A. Accordingly, this Amendmentthe Form 10-Q/A does not reflect events occurring after the Original Form 10-Q or modify or update those disclosures affected by subsequent events, except as specifically referenced herein. Information not affected by the restatementcorrection of the foregoing accounting errors is unchanged and reflects the disclosures made at the time of the Original Filing. As a result of these misstatements, the Company has concluded there were previously undetected material weaknesses in the Company's internal control over financial reporting as of September 30, 2017.

PART I

FINANCIAL INFORMATION

TELIGENT, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

TELIGENT, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(in thousands, except shares and per share information)thousands)

TELIGENT, INC. AND SUBSIDIARIES

NOTES TO (UNAUDITED)UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

TheSubsequent to the issuance of the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2018, management determined a material adjustment was needed to correct the accounting for the early and partial extinguishment of the Company’s Convertible 3.75% Senior Notes due 2019 (the “2019 Notes”) that resulted from the separate exchange agreements entered into with certain holders of the 2019 Notes in April 2018 (see Note 7 for further information regarding the 2019 Notes). Accordingly, the accompanying unaudited interim condensed consolidated financial statements of the Company for the three and six-months ended June 30, 2018, and the related notes hereto, have been restated to correct this error. In addition, the Company has restated its quarterlyelected to correct certain other accounting errors, which management believes are immaterial on an individual and aggregate basis to the Company’s unaudited interim condensed consolidated financial statements for the three and six-months ended June 30, 2018 and 2017. The correction of all the foregoing accounting errors is collectively referred to herein as "the Restatement". A summary of the correction of these accounting errors, and their impact on the unaudited condensed consolidated financial statements for the three and six-month periods ended June 30, 2018 and June 30, 2017, are as follows:

(6) Prior to the adoption of ASC 606, the Company classified Medicaid, Medicare and other rebates (the “Rebates”) as a reduction of accounts receivable, whereas subsequent to adoption of ASC 606 the Company began classifying the Rebates as accrued expenses. Upon further analysis, management determined that the Rebates should have always been classified as accrued expenses because their terms require cash settlement and are payable to third parties that are other than the Company’s customer. The correction of this error resulted in an increase of $0.1 million toin accounts receivable and increase in accrued expenses and a corresponding increase of approximately $2.6$2.5 million, to the operating loss, which is reflected in the restated stockholders’ equityrespectively, as of SeptemberJune 30, 2017 and $1.6 million, respectively, as of December 31, 2017.

The following tables summarize the effectseffect of the restatementsRestatement on the specific items presented in the Company’sCompany's unaudited interim condensed consolidated financial statements previously included inas of and for the Quarterly Report:

Teligent, Inc. and its subsidiaries (collectively the “Company”), is a specialty generic pharmaceutical company. Our mission is to become a leader in the specialty generic pharmaceutical market.market in alternate dosage forms. Under our own label, we currently market and sell generic topical and generic and branded generic injectable pharmaceutical products in the United States and Canada.  In the United States, we currently market 2128 generic topical pharmaceutical products and four branded generic injectable pharmaceutical products. In Canada, we sell a total ofover 30 generic and branded generic injectable products and medical devices. Generic pharmaceutical products are bioequivalent to their brand name counterparts. We also provide contract manufacturing services to the pharmaceutical, over-the-counter ("OTC"), and cosmetic markets. We operate our business under one reportable segment. Our common stock is tradingtraded on the NASDAQ Global Select Market under the

trading symbol “TLGT.”  Our principal executive office, laboratories and manufacturing facilities are located at 105 Lincoln Avenue, Buena, New Jersey. We have additional offices located in Iselin, New Jersey, Toronto, Canada, and Tallinn, Estonia.

The Company’s principal sourcesOur capital resources were comprised of liquidity have historically been cash and cash equivalents of approximately $38.2$13.7 million at Septemberand $26.7 million as of June 30, 2018 and December 31, 2017, andrespectively. The reduction in our cash provided by operations.

 

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”)U.S. (GAAP) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates include the historical valuation of the derivative liability, sales returns and allowances, (“SRA”), allowances for excess and obsolete inventories, allowances for doubtful accounts, provisions for income taxes and related deferred tax asset valuation allowances, stock based compensation, the assessment for the impairment of long-lived assets (including intangibles, in-process researchgoodwill and developmentproperty, plant and goodwill)equipment), property, plant and equipment and legal accruals for environmental cleanup and remediation costs. Actual results could differ from those estimates.

ASC 718-10 defines the fair-value-based method of accounting for stock-based employee compensation plans and transactions used by the Company to account for its issuances of equity instruments to record compensation cost for stock-based employee compensation plans at fair value as well as to acquire goods or services from non-employees. Transactions in which the Company issues stock-based compensation to employees, directors and advisors and for goods or services received from non-employees are accounted for based on the fair value of the equity instruments issued. The Company utilizes pricing models in determining the fair values of options, restricted stock units ("RSU's") and warrants issued as stock-based compensation. These pricing models utilize the market price of the Company’s common stock and the exercise price of the option or warrant, as well as time value and volatility factors underlying the positions. Stock-based compensation expense is recognized over the requisite service period of the award, which usually coincides with the vesting period of the grant.

Fair Value of Financial Instruments

 

The carrying amounts of cash and cash equivalents, trade receivables, notes payable, accounts payable and other accrued liabilities at SeptemberJune 30, 20172018 approximate their fair value for all periods presented.

Loss Per Share

 

Basic loss per share of common stock is computed based on the weighted average number of shares of common stock outstanding during the period. Diluted loss per share of common stock is computed using the weighted average number of shares of common stock and potential dilutive common stock equivalents outstanding during the period. Potential dilutive common stock equivalents include shares issuable upon the conversion of the 2019 and 2023 Notes, the exercise of options, and the vesting

The Company considersrecognizes revenue realizedwhen a customer obtains control of promised goods or realizableservices, in an amount that reflects the consideration which the entity expects to receive in exchange for those goods or services. The Company's revenue is recorded net of accruals for estimated chargebacks, rebates, cash discounts, other allowances, and earned when it has persuasive evidence of an arrangement, delivery has occurred or contractual services rendered, the sales price is fixed or determinable, and collection is reasonably assured in conformity with ASC 605, “Revenue Recognition”.

In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers (Topic 606).” The provision for chargebacksstandard, including subsequently issued amendments, replaces most existing revenue recognition guidance in U.S. GAAP. The key focus of the new standard is our most significant sales allowance. A chargeback representsthat an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount payablethat reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.

The Company performed a comprehensive review of its existing revenue arrangements as of January 1, 2018 following the future to a wholesaler foraforementioned five-step model. Based on the difference betweenCompany's analysis, there were no changes identified that impacted the invoice price paidamount or timing of revenues recognized under the new guidance as compared to the Company by our wholesale customer for a particular product andprevious guidance. Additionally, the negotiated contract priceCompany's analysis indicated that the wholesaler’s customer pays for that product. The Company’s chargeback provision and related reserve varies with changes in product mix, changes in customer pricing andthere were no changes to estimated wholesaler inventories.how costs to obtain and fulfill our customer contracts would be recognized under the new guidance as compared to the previous guidance. The provision for chargebacks also takes into account an estimateimpact of the expected wholesaler sell-through levels to indirect customers at contract prices. The Company will validateadoption of this standard on the chargeback accrual quarterly through a review of the inventory reports obtained from our largest wholesale customers. This customer inventory information is used to verify the estimated liability for future chargeback claims based on historical chargeback and contract rates. These large wholesalers represent 90% - 95% of the Company’s chargeback payments. The Company continually monitors current pricing trends and wholesaler inventory levels to ensure the liability for future chargebacks is fairly stated.

Leasehold improvements are amortized over the shorter of estimated useful life or the lease term. Repair and maintenance costs are charged to operations as incurred while major improvements are capitalized. Construction in progress ("CIP") costs are amortized based on the asset class when they are put into service. When assets are retired or disposed, the related cost and accumulated depreciation thereon are removed and any gains or losses are included in operating results. Interest expense and related payroll costs are capitalized on the portion of debt that is attributable to the expenditures for the plant expansion, related equipment and direct personnel costs.

For the three months ended SeptemberJune 30, 2018, domestic net revenues were $11.4 million and foreign net revenues were $4.9 million. For the six months ended June 30, 2018, domestic net revenues were $21.6 million and foreign net revenues were $9.2 million. As of June 30, 2018, domestic assets were $125.9 million and foreign assets were $60.9 million. For the three months ended June 30, 2017, domestic net revenues were $10.1$13.0 million and foreign net revenues were $2.8$3.4 million. For the ninesix months ended SeptemberJune 30, 2017, domestic net revenues were $41.8$27.8 million and foreign net revenues were $9.3$6.3 million. As of SeptemberJune 30, 2017, domestic assets were $124.7$124.8 million and foreign assets were $69.8 million. For the three months ended September 30, 2016, domestic net revenues were $13.5 million and foreign net revenues were $2.7 million. For the nine months ended September 30, 2016, domestic net revenues were $41.2 million and foreign net revenues were $7.7 million. As of September 30, 2016, domestic assets were $135.5 million and foreign assets were $51.7$68.7 million.

The net assets of international subsidiaries where the local currencies have been determined to be the functional currencies are translated into U.S. dollars using current exchange rates. The U.S. dollar effects that arise from translating the net assets of these subsidiaries at changing rates are recorded in the foreign currency translation account, which is included in Accumulated Other Comprehensive Income (Loss) ("AOCI") and reflected as a separate component of equity. For those subsidiaries

where the U.S. dollar has been determined to be the functional currency, non-monetary foreign currency assets and liabilities are translated using historical rates, while monetary assets and liabilities are translated at current rates, with the U.S. dollar effects of rate changes included in Foreign currency exchange gain line item under the Other income (expense), net section of the Income Statement.

Expenses related to debt financing activities are capitalized and amortized on an effective interest method, over the term of the loan. See detailed amounts per year in Note 6.

In April 2015,November 2016, the FASB issued Accounting Standards Update ("ASU") 2015-03, Interest—ImputationASU 2016-18, Statement of Interest (Subtopic 835-30)Cash Flows (Topic 230): "Simplifying"Restricted Cash (a consensus of the Presentation of Debt Issuance Costs"FASB Emerging Issues Task Force)". The update simplifiesaddresses the diversity in the industry with respect to classification and presentation of debt issuance costs by requiringchanges in restricted cash on the statement of cash flows. These amendments require that debt issuance costs related to a recognized debt liability be presentedstatement of cash flows explain the restricted cash change during the period in the balance sheettotal of cash, cash equivalents, and amounts generally described as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. ASU 2015-03 isrestricted cash or restricted cash equivalents. The amendments in this update were effective prospectively for fiscal years, and for interim periods within those years beginning after December 15, 2015.2017 for public business entities, including interim periods within those fiscal years. For the Company, the amendments were effective January 1, 2018. The Company's adoption of this ASU, effective January 1, 2016,2018, did not have any significant impact on its consolidated financial statements.

In January 2017, the FASB issued ASU 2017-01, Business Combinations (Topic 805): “Clarifying the Definition of a Business”. The update clarifies the definition of a business, specifically for companies to better evaluate whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The amendments in this update arewere effective for public companies for annual periods beginning after December 15, 2017, including interim periods within those annual periods. For the Company, the amendments areThe Company's adoption of this ASU, effective January 1, 2018. The Company is currently evaluating the2018, did not have a significant impact of this ASU on its consolidated financial statements.

In January 2017, the FASB issued ASU 2017-03, Accounting Changes and Error Corrections (Topic 250) and Investments—Equity Method and Joint Ventures (Topic 323): “Amendments to SEC Paragraphs Pursuant to Staff Announcements at the September 22, 2016 and November 17, 2016 EITF Meetings”. The update shows amendments to two SEC Announcements made late in 2016 regarding four specific standards as follows: ASU 2014-09, Revenue from Contracts with Customers (Topic 606), ASU 2016-02, Leases (Topic 842), ASU 2016-13, Financial Instruments - Credit Losses (Topic 326), and ASU 2014-01, Investments - Equity Method and Joint Ventures (Topic 323). The amendments in this update require changes to the U.S. GAAP Financial Reporting Taxonomy and the changes will be incorporated into the proposed 2018 Taxonomy which are available for public comment and finalized as part of the annual release process. The Company's adoption of this ASU, effective January 1, 2018, did not have a significant impact on its consolidated financial statements.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842): “Recognition and Measurement of Financial Assets and Financial Liabilities”. The update supersedes Topic 840, Leases and requires the recognition of lease assets and lease liabilities by lessees for those leases classified as operating leases under previous GAAP. Topic 842 retains a distinction between finance leases and operating leases, with cash payments from operating leases classified within operating activities in the statement of cash flows. The amendments in this update are effective for fiscal years beginning after December 15, 2018 for public business entities, which for the Company means January 1, 2019. The Company is reviewing all lease agreements inclusive of supplier agreements. The Company is currently evaluating the impact of this ASU on its consolidated financial statements.

In January 2017, the FASB issued ASU 2017-04, Intangibles - Goodwill and Other (Topic 350): “Simplifying the Test for Goodwill Impairment”. The update simplifies how an entity is required to test goodwill for impairment by eliminating Step 2 from the goodwill impairment test. Step 2 measures a goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount of that goodwill. It affects public entities that have goodwill reported in their financial statements and have not elected the private company alternative for the subsequent measurement of goodwill. A public entity that is a U.S. Securities and Exchange Commission ("SEC") filer should adopt the amendments in this update for its annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. For the Company, the amendments are effective January 1, 2020. The Company is currently evaluating the impact of this ASU on its consolidated financial statements.

In February 2017,2018, the FASB issued ASU 2017-05,2018-02, “Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Income—Gains and LossesComprehensive Income,” which allows a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Derecognition of Nonfinancial Assets (Subtopic 610-20): “Clarifying the Scope of Asset Derecognition GuidanceTax Cuts and Accounting for Partial Sales of Nonfinancial Assets”.Jobs Act. This update addresses guidance for partial sales of nonfinancial assets. It affects (i) an entity that enters into a contract to transfer to a customer a nonfinancial asset, group of nonfinancial assets, or ownership interest in a consolidated subsidiary that is not a business or nonprofit entity, (ii) an entity that historically had transactions within the scope of the real estate-specific derecognition guidance, and (iii) an entity that contributes nonfinancial assets that are not a business or a nonprofit activity to a joint venture or other noncontrolled investee. The amendments are effective at the same time as the amendments in ASU 2014-09. Therefore, for the Company, the amendments are effective for annual reporting periods beginning after December 15, 2017, includingall entities for fiscal years, and interim reporting periods within that reporting period. Public entities may apply the guidance earlier but only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. The Company does not currently expect to enter into any such nonfinancial asset or ownership interest in its consolidated subsidiaries agreements but will refer to the guidance in ASU 2017-05 should that occur. The Company is currently evaluating the impact of this ASU on its consolidated financial statements.

In May 2014,As of January 1, 2018, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers (Topic 606).” The standard, including subsequently issued amendments, will replace most existingCompany adopted the ASC 606 guidance for revenue recognition for contracts, using the modified retrospective method. The implementation of this guidance in U.S. GAAP when it becomes effective. The key focushad no material impact on the measurement or recognition of revenue from customer contracts of prior periods.

Revenue is recognized when a customer obtains control of promised goods or services, to customers in an amount that reflects the consideration to which the entity expects to be entitledreceive in exchange for those goods or services. To achieve this key focus, there is a five-step approach outlined in the standard. Entities are permitted to applyextent the new standard either retrospectively, subject to certain practical expedients, or the modified retrospective method that requires the application of the guidance only to contracts that are uncompleted on the date of initial application. Fortransaction price includes variable consideration, the Company Topic 606estimates the amount of variable consideration that should be included in the

Revenue from Company product sales is recognized upon transfer of control of a product to a customer at a point in time, generally as the Company's products are sold on an FOB destination basis and subsequently issued amendments will be effective January 1, 2018.because inventory risk and risk of ownership passes to the customer upon delivery.

The Company has completed its initial assessmentrecognizes revenue for contract manufacturing sales upon transfer of control of a product to a customer, which is generally upon shipment of products. However, with the new standard, including a detailed review of the Company’s contract portfolio and revenue streams to identify potential differences in accounting as a result of the new standard, and selected the modified retrospective method. Based on the Company’s initial assessment, we do not believe that the adoption of revenue recognition for contracts, the standardCompany recognizes the revenue over time, rather than upon shipment. These shipments are made in accordance with sales commitments and related amendments will have a significant impact on our revenue recognition patterns as compared to our current revenue recognition policies, assuming that contract structures similar to thosesales orders entered into with customers either verbally or in placewritten form.

Contract manufacturing sales are in effectrecognized net of accruals for cash discounts and returns which are established at the time of our adoption. However, theresale, and are certain industry-specific implementation issuesincluded in revenues, net in the Company's Condensed Consolidated Statement of Operations.

The Company establishes agreed upon product development agreements with its customers to perform product development services. Revenues are recognized in accordance with the agreement upon the completion of the phases of development and when the Company has no future performance obligations relating to that phase of development. Other types of revenue include royalty or licensing revenue, and would be recognized over time, or at a point in time, based upon the contractual term upon completion of the earnings process. Judgments are still unresolvedrequired to evaluate contingencies such as potential variances in schedule and depending on the resolution of these matters, conclusions oncosts, the impact on our revenue recognition patterns could change. Throughof change orders, liability claims, contract disputes and achievement of contractual performance standards.

The Company operates in one reportable segment and, therefore, the date of adoption, we will continue to evaluate the impactsresults of the standardCompany's operations are reported on a consolidated basis for purposes of segment reporting, consistent with internal management reporting for the chief decision makers. Net Sales (in thousands) for the three and six months ended June 30, 2018 and 2017 were as follows (prior-period amounts are not adjusted under the modified-retrospective method of adoption):

As is customary in the pharmaceutical industry, the Company’s product sales are subject to a variety of deductions including chargebacks, rebates, cash discounts, other allowances, and returns. Product sales are recorded net of accruals for SRA, which are established at the time of sale. The Company analyzes the adequacy of its accruals for SRA quarterly. Amounts accrued for sales deductions are adjusted when trends or significant events indicate that an adjustment is appropriate. Accruals are also adjusted to reflect actual results. These provisions are estimates based on historical payment experience, historical relationship to revenues, estimated customer inventory levels and current contract sales terms with direct and indirect customers. The Company uses a variety of methods to assess the adequacy of its SRA reserves to ensure that our preliminary conclusions continueits financial statements are fairly stated. These include periodic reviews of customer inventory data, customer contract programs, subsequent actual payment experience, and product pricing trends to remain accurate. Additionally, we will continue our assessmentanalyze and validate the SRA reserves.

Net Company product sales of $14.7 million and $13.9 million for the three months ended June 30, 2018 and 2017, respectively, are included in product sales, net in the Condensed Consolidated Statements of Operations. Net Company product revenue of $27.9 million and $28.1 million for the six months ended June 30, 2018 and 2017, respectively, are included in product sales, net in the Condensed Consolidated Statements of Operations. Accounts receivable are presented net of SRA balances of $19.3 million and $33.7 million at June 30, 2018 and 2017, respectively. For the six months ended June 30, 2018, the Company recorded income of $0.8 million due to a decrease in the Medicaid reserve primarily related to finalizing the payment per the terms of the impactproduct acquisition agreement.

The accrual for chargebacks is one of the standardCompany's most significant estimates for recognition of product sales. A chargeback represents an amount payable in the future to a wholesaler for the difference between the invoice price paid to the Company by its wholesale customer for a particular product and the negotiated contract price that the wholesaler’s customer pays for that product. The Company’s chargeback provision and related reserve varies with changes in product mix, changes in customer pricing and changes to estimated wholesaler inventories. The provision for chargebacks also takes into account an estimate of the expected wholesaler sell-through levels to indirect customers at contract prices. The Company validates the chargeback accrual quarterly through a review of the inventory reports obtained from its largest wholesale customers. This customer inventory information is used to establish the estimated liability for future chargeback claims based on our financial statement disclosureshistorical chargeback and contract rates. These large wholesalers represent a majority of the Company’s chargeback payments. The Company continually monitors current pricing trends and wholesaler inventory levels to ensure the liability for future chargebacks is fairly stated.