# Cumberland Pharmaceuticals Inc: Form 10-Q for the period ended Mar 31, 2019

- Company: [Cumberland Pharmaceuticals Inc](/companies/cpix.md) (CIK 1087294)
- Form: 10-Q
- Filed: 2019-05-15
- Accepted by EDGAR: May 15, 2019, 17:12 ET
- Period: 2019-03-31
- Accession: 0001628280-19-006841
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1087294/000162828019006841/cpix-20190331.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1087294/000162828019006841/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2019-03-31.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2019-01-01 to 2019-03-31 | $11.9m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Cost of revenue | 3 months, 2019-01-01 to 2019-03-31 | $2.0m | us-gaap:CostOfGoodsAndServicesSold |
| Research and development | 3 months, 2019-01-01 to 2019-03-31 | $1.3m | us-gaap:ResearchAndDevelopmentExpense |
| Operating income | 3 months, 2019-01-01 to 2019-03-31 | −$176.8k | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2019-01-01 to 2019-03-31 | $60.9k | us-gaap:InterestExpense |
| Income tax | 3 months, 2019-01-01 to 2019-03-31 | −$81.4k | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2019-01-01 to 2019-03-31 | −$73.9k | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2019-01-01 to 2019-03-31 | $0.00 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2019-01-01 to 2019-03-31 | $0.00 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2019-01-01 to 2019-03-31 | 15,472,952 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 3 months, 2019-01-01 to 2019-03-31 | −$385.7k | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 3 months, 2019-01-01 to 2019-03-31 | $27.5k | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Share repurchases | 3 months, 2019-01-01 to 2019-03-31 | $712.9k | us-gaap:PaymentsForRepurchaseOfCommonStock |
| Cash and equivalents | at 2019-03-31 | $24.6m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2019-03-31 | $58.0m | us-gaap:AssetsCurrent |
| Total assets | at 2019-03-31 | $114.6m | us-gaap:Assets |
| Current liabilities | at 2019-03-31 | $28.0m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2019-03-31 | $59.4m | us-gaap:Liabilities |
| Shareholders' equity | at 2019-03-31 | $55.4m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 29,505 characters.

#### Disclosure regarding forward-looking statements

The following discussion contains certain forward-looking statements which reflect management’s current views of future events and operations. These statements involve certain risks and uncertainties, and actual results may differ materially from them. Forward-looking statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. We caution you that our actual results may differ significantly from the results we discuss in these forward-looking statements. Some important factors which may cause results to differ from expectations include: availability of additional debt and equity capital required to finance the business model; market conditions at the time additional capital is required; our ability to continue to acquire branded products; product sales; and management of our growth and integration of our acquisitions. While forward-looking statements reflect our beliefs and best judgment based upon current information, they are not guarantees of future performance. Other important factors that may cause actual results to differ materially from forward-looking statements are discussed in the sections entitled “Risk Factors” and “Special Note Regarding Forward-Looking Statements” of our Annual Report on Form 10-K for the year ended December 31, 2018 (“2018 Annual Report on Form 10-K”). We do not undertake to publicly update or revise any of our forward-looking statements, even in the event that experience or future changes indicate that the anticipated results will not be realized. The following presentation of management’s discussion and analysis of financial condition and results of operations should be read in conjunction with our unaudited condensed consolidated financial statements and related notes included in this report on Form 10-Q.

### OVERVIEW

### Our Business

Cumberland Pharmaceuticals Inc. (“Cumberland,” the “Company,” or as used in the context of “we,” “us,” or “our”), is a specialty pharmaceutical company focused on the acquisition, development, and commercialization of branded prescription products. Our primary target markets are hospital acute care, gastroenterology, and oncology supportive care. These medical specialties are characterized by relatively concentrated prescriber bases that we believe can be penetrated effectively by small, targeted sales forces. Cumberland is dedicated to providing innovative products that improve the quality of care for patients and address unmet or poorly met medical needs. We promote our approved products through our hospital and field sales forces in the United States and are establishing a network of international partners to bring our medicines to patients in their countries.

Our portfolio of FDA approved brands includes:

- **Acetadote® (***acetylcysteine*) Injection, for the treatment of acetaminophen poisoning;
- **Caldolor® (***ibuprofen*) Injection, for the treatment of pain and fever;
- **Kristalose® (***lactulose*) for Oral Solution, a prescription laxative, for the treatment of chronic and acute constipation;
- **Omeclamox®-Pak, (***omeprazole, clarithromycin, amoxicillin*) for the treatment of Helicobacter pylori (*H. pylori*) infection and related duodenal ulcer disease;
- **Vaprisol® (***conivaptan*) Injection, to raise serum sodium levels in hospitalized patients with euvolemic and hypervolemic hyponatremia;
- **Ethyol®** *(amifostine)* Injection, for the reduction of xerostomia (dry mouth) in patients undergoing post-operative radiation treatment for head and neck cancer and the renal toxicity associated with the administration of cisplatin in patients with advanced ovarian cancer;
- **Totect®** *(dexrazoxane hydrochloride)* Injection, for emergency oncology intervention, to treat the toxic effects of anthracycline chemotherapy in case of extravasation (drug leakage from the bloodstream into the tissues); and
- **Vibativ® (***telavancin*) Injection, for the treatment of certain serious bacterial infections including hospital-acquired and ventilator-associated bacterial pneumonia, as well as complicated skin and skin structure infections.

Our pipeline of product candidates includes:

- **Hepatoren® (***ifetroban*) Injection, a Phase II candidate for the treatment of critically ill patients suffering from liver and kidney failure associated with hepatorenal syndrome ("HRS");
- **Boxaban®** *(ifetroban)* Oral Capsules, a Phase II candidate for the treatment of asthma patients with aspirin-exacerbated respiratory disease ("AERD");
- **Vasculan®** *(ifetroban)* Oral Capsules, a Phase II candidate for the treatment of patients with the systemic sclerosis ("SSc") form of autoimmune disease;
- **Portaban®** *(ifetroban)* Injection and Oral Capsules, a Phase II candidate for the treatment of patients with portal hypertension associated with liver disease; and
- **RediTrex™ (***methotrexate*) Injection, an approval submission candidate for the treatment of active rheumatoid, juvenile idiopathic and severe psoriatic arthritis, as well as severe disabling psoriasis.

We have both product development and commercial capabilities and believe we can leverage our existing infrastructure to support our expected growth. Our management team consists of pharmaceutical industry veterans experienced in business development, product development, regulatory, manufacturing, sales, marketing, and finance. Our business development team identifies, evaluates and negotiates product acquisition, licensing and co-promotion opportunities. Our product development team creates proprietary product formulations, manages our clinical studies, prepares all regulatory submissions and manages our medical call center. Our quality and manufacturing professionals oversee the manufacture, release, and shipment of our products. Our marketing and sales professionals are responsible for our commercial activities, and we work closely with our distribution partners to ensure availability and delivery of our products.

### Growth Strategy

Our growth strategy involves maximizing the potential of our existing brands, while continuing to build a portfolio of differentiated products. We currently market eight FDA approved products for sale in the United States. Through our international partners, we are working to bring our products to patients in their countries. We also look for opportunities to expand our products into additional patient populations through clinical trials, new indications, and select investigator-initiated studies. We actively pursue opportunities to acquire additional marketed products, as well as late-stage development product candidates in our target medical specialties. Our clinical team is developing a pipeline of new product candidates to address unmet medical needs. Further, we are supplementing these activities with the early stage drug development activities at Cumberland Emerging Technologies ("CET"), our majority-owned subsidiary. Specifically, we are seeking long term sustainable growth by executing the following plans:

**Support and expand the use of our marketed products.** We continue to evaluate our products following their FDA approval to determine if additional clinical data could expand their market and use. We will continue to explore opportunities for label expansion to bring our products to new patient populations. We have secured pediatric approval, expanding the labeling for both our Acetadote and Caldolor brands.

**Selectively add complementary brands.** In addition to our product development activities, we are also seeking to acquire products or late-stage development product candidates to continue to build a portfolio of complementary brands. We focus on under-promoted, FDA approved drugs, as well as late-stage development products that address poorly met medical needs. We will continue to target product acquisition candidates that are competitively differentiated, have valuable intellectual property or other protective features, and allow us to leverage our existing infrastructure. Our acquisition of Vibativ represents our largest product acquisition.

**Progress clinical pipeline and incubate future product opportunities at CET.** We believe it is important to build a pipeline of innovative new product opportunities. Our ifetroban Phase II development programs represent the implementation of this strategy. At CET, we are supplementing our acquisition and late-stage development activities with the early-stage drug development activities. CET partners with universities and other research organizations to develop promising, early-stage product candidates, which Cumberland has the opportunity to further develop and commercialize. We expanded our network of university collaborations with the addition of Louisiana State University and the Medical University of South Carolina.

**Leverage our infrastructure through co-promotion partnerships.** We believe that our commercial infrastructure can help drive prescription volume and product sales. We look for strategic partners that can complement our capabilities and enhance the opportunity for our brands. Our recent co-promotion partnerships with Poly Pharmaceuticals, Inc. and Foxland Pharmaceuticals, Inc allow us to expand current promotional support for Kristalose across the United States.

**Build an international contribution to our business.** We have established our own commercial capabilities, including two sales divisions to cover the U.S. market for our products. We are also building a network of select international partners to register our products and make them available to patients in their countries.

We will continue to develop and expand our network of international partners while supporting our partners’ registration and commercialization efforts in their respective territories. The acquisition of Vibativ resulted in several new international partners and market opportunities.

**Manage our operations with financial discipline.** We continually work to manage our expenses in line with our revenues in order to deliver positive cash flow from operations. We remain in a strong financial position, with favorable gross margins, and a strong balance sheet. We use excess cash flow for our ongoing share repurchase program.

We were incorporated in 1999 and have been headquartered in Nashville, Tennessee since inception. During 2009, we completed an initial public offering of our common shares and listing on the Nasdaq stock exchange. Our website address is www.cumberlandpharma.com. We make available through our website our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and all material press releases and other reports as soon as reasonably practicable after their filing with the U.S. Securities and Exchange Commission, (“SEC”). These filings are also available to the public at *www.sec.gov.*

### RECENT DEVELOPMENTS

### Methotrexate

On January 18, 2019, the Company received notification from the U.S Food and Drug Administration (“FDA”) that the new drug application (“NDA”) for our new line of methotrexate products is complete and acceptable for filing. Furthermore, the FDA has set September 2019 as the Prescription Drug User Fee (“PDUFA”) action date for an approval decision. In November 2018, we submitted the NDA for approval from the FDA. In conjunction with this submission, we remitted payment of $1.3 million to the FDA for the PDUFA Application Fee associated with this methotrexate product line application. These products are designed to treat adult and pediatric patients with rheumatoid arthritis, as well as adults with psoriasis.

### Caldolor

On January 28, 2019, the FDA approved the application of our next generation Caldolor (ibuprofen) injection product. In February 2018, Cumberland completed and filed with the FDA an application for approval. The product features a new, patented formulation in a more convenient to use package. In April 2018, the FDA determined that the application was complete and notified us of their acceptance for review. On August 2, 2018, we received a complete response from the FDA outlining additional quality and nonclinical data needed for the application’s approval. On September 26, 2018, the Company submitted an amendment to our application containing additional quality and nonclinical data.

### New CET Collaboration Agreement

At CET, we are working with a select group of academic research institutions located in the mid-south region of the U.S. These relationships enable CET to identify therapeutic compounds addressing poorly met medical needs and partner with university-based researchers to advance their scientific discoveries through pre-clinical development. CET contributes product design and development support services to help our collaborators bridge the gap between discovery and clinical investigation.

In February 2019, CET and the technology transfer organization for the Medical University of South Carolina ("MUSC") entered into an agreement, adding to CET’s roster of academic collaborations which also includes Vanderbilt University, the University of Mississippi, Louisiana State University and the University of Tennessee Research Foundation. Under the agreement, CET will evaluate MUSC discoveries, license intellectual property rights to promising technologies, and partner with MUSC research scientists to advance product development toward commercialization.

### New Hospital Product Candidate Study

Cumberland was responsible for the formulation, development and FDA approval of both Acetadote and Caldolor. Our Medical Advisory Board has helped us identify additional opportunities that address unmet or poorly met medical needs. As a result, Cumberland has successfully designed, formulated and completed the preclinical studies for a cholesterol reducing agent for use in the hospital setting.

During 2017, we completed a Phase I study which defined the pharmacokinetic properties and provided a favorable safety profile for this new product candidate. The study results and a proposed clinical development plan were discussed with the FDA and, as a result, in 2018 a Phase II study was initiated.

### Strategic Review

On March 29, 2019, we announced that we had initiated a strategic review of our brands, capabilities and international partners. This review followed our accelerated business development initiative, which delivered a series of transactions over the last thirty-six months. Because of that progress, we felt that it was prudent to take a fresh look at our portfolio, partners, and organization to ensure we have the proper focus and capabilities. As a result:

- In China, the largest market for pharmaceutical products outside the U.S., we have reached an agreement with Hong Kong WinHealth Pharmaceuticals (“WinHealth”) to assume responsibility for our Acetadote and Caldolor brands in that market. WinHealth will provide $2 million in milestone payments and up to an estimated $290 million in revenue contribution over a ten - year period for supplies following the registration of both products in China.
- Meanwhile, we have reached an agreement with Clinigen Group plc to return the U.S. rights to their Ethyol and Totect brands to them later this year in exchange for $5 million in financial consideration paid over a two year period.
- As a result, our hospital product efforts will now be focused on our three key acute care products. We are expanding our hospital sales division as well as our field-based medical science team in order to ensure coverage and support for the majority of our acute care business in the U.S.
- We have also been meeting with our other key international partners and expect to announce additional improvements to that network over the remainder of the year.

### CRITICAL ACCOUNTING POLICIES AND SIGNIFICANT JUDGMENTS AND ESTIMATES

Please see a discussion of our critical accounting policies and significant judgments and estimates in Note 1 to the Company's Condensed Consolidated Financial Statements accompanying this report and the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our 2018 Annual Report on Form 10-K.

### Accounting Estimates and Judgments

The preparation of condensed consolidated financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates, judgments and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the period. We base our estimates on past experience and on other factors we deem reasonable given the circumstances. Past results help form the basis of our judgments about the carrying value of assets and liabilities that cannot be determined from other sources. Actual results could differ from these estimates. These estimates, judgments and assumptions are most critical with respect to our accounting for revenue recognition, fair value of marketable securities, inventories, provision for income taxes, share-based compensation, research and development expenses and intangible assets.

### RESULTS OF OPERATIONS

### Three months ended March 31, 2019 compared to the three months ended March 31, 2018

The following table presents the unaudited interim statements of operations for the three months ended March 31, 2019 and 2018:

|  | Three months ended March 31, 2019 | 2018 | Change |
| --- | ---: | ---: | ---: |
| Net revenues | $11,902,747 | $8,587,605 | $3,315,142 |
| Costs and expenses: |  |  |  |
| Cost of products sold | 1,999,736 | 1,527,961 | 471,775 |
| Selling and marketing | 5,120,505 | 4,670,511 | 449,994 |
| Research and development | 1,267,601 | 1,874,939 | (607,338) |
| General and administrative | 2,670,056 | 2,330,281 | 339,775 |
| Amortization | 1,021,645 | 636,135 | 385,510 |
| Total costs and expenses | 12,079,543 | 11,039,827 | 1,039,716 |
| Operating income (loss) | (176,796) | (2,452,222) | 2,275,426 |
| Interest income | 115,861 | 82,494 | 33,367 |
| Interest expense | (60,911) | (18,302) | (42,609) |
| Income (loss) before income taxes | (121,846) | (2,388,030) | 2,266,184 |
| Income tax (expense) benefit | 81,428 | (4,159) | 85,587 |
| Net income (loss) | $(40,418) | $(2,392,189) | $2,351,771 |

The following table summarizes net revenues by product for the periods presented:

| Products: | Three months ended March 31, 2019 | 2018 | Change |
| --- | ---: | ---: | ---: |
| Acetadote | $849,502 | $1,273,764 | $(424,262) |
| Omeclamox-Pak | 199,537 | 141,392 | 58,145 |
| Kristalose | 3,307,658 | 3,269,901 | 37,757 |
| Vaprisol | 286,676 | 93,890 | 192,786 |
| Caldolor | 1,317,074 | 1,039,747 | 277,327 |
| Ethyol | 3,091,991 | 2,256,073 | 835,918 |
| Totect | 80,896 | 412,774 | (331,878) |
| Vibativ | 2,060,195 | — | 2,060,195 |
| Other | 709,218 | 100,064 | 609,154 |
| Total net revenues | $11,902,747 | $8,587,605 | $3,315,142 |

*Net revenues.* Net revenues for the three months ended March 31, 2019 were $11.9 million compared to $8.6 million for the three months ended March 31, 2018, representing an increase of $3.3 million, or 39%. The increase is due primarily to net revenues associated with our newest product, Vibativ and as detailed in the table above, five of our eight marketed products experienced increases in net revenue during the quarter: Omeclamox-Pak, Kristalose, Vaprisol, Caldolor, and Ethyol. This increase was partially offset by a decrease in Totect and Acetadote net revenue compared to the prior year period.

Vaprisol revenue experienced an increase of $0.2 million during the first quarter of 2019 when compared to the prior year period due to higher sales volumes.

Ethyol revenue increased by $0.8 million for the three months ended March 31, 2019 compared to three months ended March 31, 2018 as a result of higher sales volume.

Kristalose revenue increased by 1.2% during the first quarter of 2019 when compared to the prior year period. The product's net revenue experienced an improvement in net pricing for the product.

Omeclamox-Pak revenue increased $0.1 million for the first quarter of 2019 compared to the first quarter of 2018 primarily due to higher sales volumes and improved net pricing during the period.

Acetadote revenue includes net sales of our Acetadote brand and our share of net sales from our Authorized Generic. During the quarter, there was a $0.4 million decrease in revenue from our Acetadote brand when compared to the prior year period as a result of generic competition.

Caldolor revenue increased $0.3 million for the three months ended March 31, 2019 primarily due to increased domestic and international sales revenue in the first quarter of 2019 compared to the first quarter of 2018. The product also experienced an improvement in net pricing.

*Cost of products sold.* Cost of products sold for the first quarter of 2019 increased $0.5 million compared to the prior year period as a result of increased sales. Cost of products sold, as a percentage of net revenues, improved to 16.8% during the three months ended March 31, 2019 compared to 17.8% during the three months ended March 31, 2018. This improvement in costs of products sold as a percentage of revenue was attributable to a change in the product sales mix, including the decrease in Totect sales, during the quarter compared to the prior year period.

*Selling and marketing*. Selling and marketing expense for the first quarter of 2019 increased $0.4 million compared to the prior year period. This increase is primarily attributable to higher royalties related to the increased product sales during the first quarter of 2019.

*Research and development*. Research and development costs for the first quarter of 2019 were $1.3 million, compared to $1.9 million for the same period last year. A portion of our research and development costs is variable based on the number of trials, study sites, cost of the per patient study protocol and patients involved in the development of our new product candidates. The $0.6 million decrease was the result of a lower amount of variable spending required during the period compared to the prior year period for our ongoing clinical initiatives associated with our pipeline products.

*General and administrative*. General and administrative expense for the first quarter of 2019 increased to $2.7 million from $2.3 million during the first quarter of 2018 as a result of increases in advisory, legal and professional fees during the period. A portion of these increased costs were related to our acquisition of Vibativ.

*Amortization.* Amortization expense is the ratable use of our capitalized intangible assets including product and license rights, patents, trademarks and patent defense costs. Amortization for the three months ended March 31, 2019 and the three months ended March 31, 2018 totaled approximately $1.0 million and $0.6 million, respectively. This increase was driven primarily by the amortization of the intangible assets acquired in the Vibativ transaction.

*Income taxes*. Income tax benefit for the three months ended March 31, 2019 was $0.1 million. As a percentage of income (loss) before income taxes, the income tax benefit was 66.8% for the three months ended March 31, 2019 compared to income tax expense of 0.2% for the three months ended March 31, 2018.

As of March 31, 2019, we have approximately $44 million of net operating loss carryforwards resulting from the exercise of nonqualified stock options in 2009 that have historically been used to significantly offset future income tax obligations. Since they were generated during 2009, we have utilized these net operating loss carryforwards to pay minimal income taxes. We will continue to pay minimal income taxes during 2019 and beyond, through the continued utilization of these net operating loss carryforwards, as we are able to achieve taxable income through our operations.

### LIQUIDITY AND CAPITAL RESOURCES

### Working Capital

Our primary sources of liquidity are cash flows provided by our operations, the amounts borrowed and available under our line of credit and the cash proceeds from our initial public offering of common stock that was completed in August 2009. We believe that our internally generated cash flows, existing working capital and our line of credit, including its recent expansion to $20 million, will be adequate to finance internal growth, finance business development initiatives, and fund capital expenditures for the foreseeable future.

We invest a portion of our cash reserves in marketable securities including short-term cash investments, U.S. Treasury notes and bonds, corporate bonds, commercial paper and other marketable securities. At March 31, 2019 and December 31, 2018, we had approximately $9.7 million and $8.3 million, respectively, invested in marketable securities.

The following table summarizes our liquidity and working capital as of March 31, 2019 and December 31, 2018:

|  | March 31, 2019 | December 31, 2018 |
| --- | ---: | ---: |
| Cash and cash equivalents | $24,609,415 | $27,938,960 |
| Marketable securities | 9,667,073 | 8,290,679 |
| Total cash, cash equivalents and marketable securities | $34,276,488 | $36,229,639 |
| Working capital (current assets less current liabilities) | $29,967,524 | $31,311,813 |
| Current ratio (multiple of current assets to current liabilities) | 2.1 | 2.1 |
| Revolving line of credit availability | $— | $— |

The following table summarizes our net changes in cash and cash equivalents for the three months ended March 31, 2019 and March 31, 2018:

| Net cash provided by (used in): | Three months ended March 31, 2019 | 2018 |
| --- | ---: | ---: |
| Operating activities | $(385,733) | $235,589 |
| Investing activities | (1,723,388) | (11,522,126) |
| Financing activities | (1,220,424) | 1,136,645 |
| Net increase (decrease) in cash and cash equivalents | $(3,329,545) | $(10,149,892) |

The net $3.3 million decrease in cash and cash equivalents for the three months ended March 31, 2019 was attributable to cash used in investing, financing and operating activities. Cash used in operating activities of $0.4 million was primarily impacted by the increase in accounts receivable of $2.1 million. The use of operating cash was partially offset by the add back of non-cash expenses of depreciation and amortization and share-based compensation expense totaling $1.4 million. Cash used in investing activities included net cash invested in marketable securities of $1.3 million and additions to intangibles of $0.4 million. Our financing activities reflected the $0.7 million in cash used to repurchase shares of our common stock.

The net $10.1 million decrease in cash and cash equivalents for the three months ended March 31, 2018 was attributable to cash used in investing activities partially offset by cash provided by financing and operating activities. Cash provided by operating activities of $0.2 million was primarily impacted by changes in our working capital which provided net cash of $1.6 million, including net collections of accounts receivable of $2.1 million and non-cash expenses of depreciation and amortization and share-based compensation expense totaling $1.0 million. The generation of operating cash was offset by a net loss for the period of $2.4 million. Cash used in investing activities included net cash investment in marketable securities of $10.9 million and additions to intangibles of $0.5 million. Our financing activities included $2.2 million in net cash provided by borrowings under our line of credit offset by $1.0 million in cash used to repurchase shares of our common stock.

### Debt Agreement

On May 10, 2019, we entered into a third amendment ("Third Amendment") to the Revolving Credit Loan Agreement, dated July 28, 2017, with Pinnacle Bank (“Pinnacle Agreement”). The Third Amendment extended the term of the Pinnacle Agreement through July 31, 2021 as well as modified certain definitions and terms of the existing financial covenants. On October 17, 2018, we entered into a second amendment (“Second Amendment”) which increased the maximum aggregate principal available for borrowing under the Pinnacle Agreement to $20.0 million. For a summary of the material terms of the Pinnacle Agreement, as amended, see Note 7 to the accompanying unaudited condensed consolidated financial statements

Under the Pinnacle Agreement, we were initially subject to one financial covenant, the maintenance of a Funded Debt Ratio. On August 14, 2018 we amended the Pinnacle Agreement ("First Amendment") to replace the single financial covenant with the maintenance of either the Funded Debt Ratio or a Tangible Capital Ratio, as defined in the First Amendment. The Third Amendment modified the definition of the Funded Debt Ratio and the compliance target of the Tangible Capital Ratio. Both Third Amendment modifications were related to the Vibativ transaction. As a result of the Third Amendment, we were in compliance with the Tangible Capital Ratio financial covenant as of March 31, 2019 and expect to maintain compliance with this covenant in future periods.

### OFF-BALANCE SHEET ARRANGEMENTS

During the three months ended March 31, 2019 and 2018, we did not engage in any off-balance sheet arrangements.

## Market risk

As filed, 2,323 characters.

### Interest Rate Risk

We are exposed to market risk related to changes in interest rates on our cash on deposit in highly-liquid money market accounts and our revolving credit facility. We do not utilize derivative financial instruments or other market risk-sensitive instruments to manage exposure to interest rate changes. The main objective of our cash investment activities is to preserve principal while maximizing interest income through low-risk investments.

We believe that our interest rate risk related to our cash and cash equivalents is not material. The risk related to interest rates for these accounts would produce less income than expected if market interest rates fall. Based on current interest rates, we do not believe we are exposed to significant downside risk related to a change in interest on our money market accounts. Based on the $9.7 million in marketable securities outstanding at March 31, 2019, a 1% decrease in the fair value of the securities would result in a reduction in pretax net income (loss) of $0.1 million.

Based on current interest rates, we do not believe we are exposed to significant downside risk related to change in interest on our investment accounts.

The interest rate risk related to borrowings under our line of credit is based on LIBOR plus an interest rate spread. There is no LIBOR minimum and the LIBOR pricing provides for an interest rate spread of 1.75% to 2.75% (representing an interest rate of 5.2% at March 31, 2019). As of March 31, 2019, we had $20 million in borrowings outstanding under our revolving credit facility.

### Exchange Rate Risk

While we operate primarily in the United States, we are exposed to foreign currency risk. Currently, we do not utilize financial instruments to hedge exposure to foreign currency fluctuations. We believe our exposure to foreign currency fluctuation is minimal as our purchases in foreign currency have a maximum exposure of 90 days based on invoice terms with a portion of the exposure being limited to 30 days based on the due date of the invoice. Foreign currency exchange gains and losses were immaterial for the three months ended March 31, 2019 and 2018. Neither a five percent increase nor decrease from current exchange rates would have a material effect on our operating results or financial condition.

## Controls and procedures

As filed, 1,084 characters.

Management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15-15(e) of the Exchange Act, as of March 31, 2019. Based on that evaluation, our CEO and CFO concluded that, as of March 31, 2019, our disclosure controls and procedures are considered effective to ensure that the information required to be disclosed by the Company in reports filed under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms and that such information is accumulated and communicated to the Company's management, including the Company's CEO and CFO, as appropriate, to allow for timely decisions regarding required disclosure.

During the three months ended March 31, 2019, there has not been any change in our internal control over financial reporting that has materially affected, or is likely to materially affect, our internal control over financial reporting.

## Risk factors

As filed, 170 characters.

There have been no material changes to the information regarding risk factors that appears in the 2018 Annual Report on Form 10-K under the section titled "Risk Factors."

Filed May 15, 2019.
Source: SEC EDGAR, the filing index for accession 0001628280-19-006841. Last ingested by Listed: Nov 11, 2026, 03:05 ET. No prices; not investment advice.