NOTE 11—COMMITMENTS AND CONTINGENCIES

API Supply Agreement — On June 12, 2017, the Company entered into an API Supply Agreement (the “API Agreement”) with Telcon pursuant to which Telcon paid the Company approximately $31.8 million in consideration of the right to supply 25% of the Company’s requirements for bulk containers of PGLG for a fifteen-year term. The amount was recorded as deferred trade discount. On July 12, 2017, the Company entered into a raw material supply agreement with Telcon which revised certain terms of the API supply agreement (the “revised API agreement”). The revised API agreement is effective for a term of five years and will renew automatically for 10 successive one-year renewal periods, except as either party may determine. In the revised API agreement, the Company has agreed to purchase a cumulative total of $47.0 million of PGLG over the term of the agreement. The revised API agreement provided for an annual API purchase target of $5 million and a target “profit” (i.e., gross margin) to Telcon of $2.5 million. To the extent these targets are not met, Telcon may be entitled to payment of the shortfall or to offset the shortfall against the Telcon convertible bond and proceeds there of that are pledged as collateral to secure our obligations. In September 2018, the Company entered into an agreement with Ajinomoto and Telcon to facilitate Telcon’s purchase of PGLG from Ajinomoto for resale to the Company under the revised API agreement. The PGLG raw material purchased from Telcon is recorded in inventory at net realizable value and the excess purchase price is recorded against deferred trade discount. Refer to Notes 5 and 6 for more information.

Standby Letter of Credit —During 2023, the Company engaged third party foreign advisors, who proposed to arrange a $10 million standby letter of credit in favor of the Company to support a possible strategic transaction in return for which the Company was to pay a total of $650,000 in two installments. To facilitate the standby letter of credit arrangement, the Company agreed to deposit the fee in the foreign advisors trust account of a law firm purporting to act on behalf of the foreign advisors which was to be released from the client trust account only upon receipt of the standby letter of credit. After exchange of documentation regarding the standby letter of credit arrangement between the Company and the foreign advisors and the fee being released from the law firm's trust account by the Company, the standby letter of credit received by the Company was determined to be fraudulent. The payment of $650,000 is included in the general and administrative expenses in the consolidated statements of operations. Although the Company has demanded a return of the $650,000 fee from the foreign advisors and has filed reports with the FBI, management believes that the likelihood of recovery is unlikely.