CUMBERLAND PHARMACEUTICALS INC 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 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. Actual results may differ significantly from the results discussed in these forward-looking statements. Some important factors which may cause results to differ from expectations include: availability of additional debt and equity capital; market conditions at the time additional capital is required; our ability to continue to acquire branded products; product sales; management of our growth and integration of our acquisitions and impacts on our business as well as national and international markets and economies resulting from the COVID-19 pandemic. 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, 2020 and our other filings with the SEC. 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. 14 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 rheumatology. 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 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 register and provide our medicines to patients in their countries. Our portfolio of FDA approved brands include: • 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, and 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; • 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; and • RediTrex ® ( methotrexate ) Injection, for the treatment of active rheumatoid, juvenile idiopathic and severe psoriatic arthritis, as well as disabling psoriasis. In addition to these commercial brands, we have Phase II clinical programs underway evaluating our ifetroban product candidates in patients with cardiomyopathy associated with Duchenne Muscular Dystrophy (“DMD”), a degenerative disease, Systemic Sclerosis (“SSc”), a deadly autoimmune condition, and Aspirin-Exacerbated Respiratory Disease ("AERD"), a severe form of asthma. Cumberland has built core competencies in both product development and commercial capabilities. We have established the capabilities needed to acquire, develop and commercialize branded pharmaceuticals in the U.S. and believe we can leverage this 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 agreements. Our product development team creates proprietary product formulations, manages our clinical studies, prepares all regulatory submissions and staffs our medical call center. Our quality and manufacturing professionals oversee the manufacture, release and shipment of our products. Our marketing and sales team is responsible for our commercial activities, and we work closely with our distribution partners to ensure availability and delivery of our products. Growth Strategy Cumberland's growth strategy involves maximizing the potential of our existing brands, while continuing to build a portfolio of differentiated products. We currently feature seven FDA products approved for sale in the United States. Through our international partners, we are working to bring our medicines to patients in their countries. We also look for opportunities to expand our products into additional patient populations through clinical trials, new presentations, and our support for 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 largely to address poorly met medical needs. 15 We are supplementing these activities with the earlier stage drug development at Cumberland Emerging Technologies ("CET"), our majority-owned subsidiary. CET partners with academic research institutions to identify and progress promising, new product candidates, which Cumberland has the opportunity to further develop and commercialize. Specifically, we are seeking long term sustainable growth by executing on the following: 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. As examples, we have secured pediatric approvals, 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 the largest product acquisition we have completed. 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. 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 co-promotion partnership with Poly Pharmaceuticals, Inc. and Foxland Pharmaceuticals, Inc. has allowed us to expand the 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 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 . 16 RECENT DEVELOPMENTS COVID-19 Pandemic In March 2020, the U.S. declared a health care emergency following the outbreak of the SARS-CoV-2, a novel strain of coronavirus that causes COVID-19, a respiratory illness. The Company managed through the COVID-19 pandemic during 2020, continuing to operate our business - keeping facilities open and our organization intact. We also maintained our ongoing compliance with the many laws and regulations that apply to us as a publicly traded, pharmaceutical company. Throughout the pandemic, Cumberland faced the same headwinds affecting other companies that rely on hospital admissions and patient visits to drive revenue. Our business and our clinical studies were impacted as less patients sought elective surgeries and our access to medical facilities was substantially limited. During 2020, we carefully monitored our supply chain during the pandemic including the flow of raw materials into the plants that manufacture our products as well as the batches of finished product emerging from those facilities. Several of our brands were negatively impacted by the lockdowns and postponement of physician office visits and elective procedures. However, we are fortunate to have a diversified product portfolio, with other brands delivering a strong performance. Hyponatremia Publication The recently published Health Outcome Predictive Evaluation (HOPE) COVID-19 Registry Analysis, an international study of over 4,000 patients, found that patients hospitalized with COVID-19 had a high risk of developing hyponatremia. These COVID-19 patients also had a higher incidence of mortality due to their hyponatremia. The study results support the use of an intravenous vaptan to treat hyponatremia in critically ill patients afflicted with COVID-19. Hyponatremia, an imbalance of serum sodium to body water, is the most common electrolyte disorder among hospitalized patients. Our Vaprisol product is one of two branded prescription products indicated for the treatment of hyponatremia, and the only intravenously administered branded treatment. Vaprisol has a proven day-1 response rate to normalize serum sodium levels in hyponatremic patients and move them out of the ICU as efficiently as possible. Vibativ Case Studies Cumberland’s Vibativ product has been used to treat COVID-19 patients who developed secondary bacterial pneumonia and other Gram-positive infections while in the hospital. The Company subsequently compiled a dossier of patient case studies from across the country outlining several real-world instances where Vibativ effectively and safely treated the hospital-acquired bacterial pneumonia and ventilator-associated bacterial pneumonia resulting from MSSA and MRSA infections that developed in patients hospitalized with COVID-19. Omeclamox-Pak Supply Update Cumberland has partnered with a select group of FDA-approved facilities to manufacture its line of branded pharmaceutical products and has been carefully monitoring its supply chain during the pandemic. The packager for our Omeclamox-Pak product encountered financial difficulties due to the impact of COVID-19, and their operations are currently suspended. We are awaiting resumption of those operations, while also exploring other alternatives to restart the product’s packaging. Meanwhile, we informed the FDA of a shortage of the Omeclamox-Pak effective October 14, 2020 and have not provided a date for the availability of new inventory. RediTrex Launch During late 2018, we completed the submission and filed with the FDA a New Drug Application for our methotrexate products. In December 2019, we received FDA approval for RediTrex and began planning for a launch of this product line. In November 2020, we provided initial shipments of RediTrex to select accounts and are currently planning a national launch of the product line in the second half of 2021, once additional product supplies are received and market conditions return to normal. 17 Paycheck Protection Program On April 20, 2020, Cumberland received the funding of a loan from Pinnacle Bank in the aggregate amount of $2,187,140 pursuant to the Paycheck Protection Program (the “PPP”) under the Federal Coronavirus Aid, Relief, and Economic Security Act ("CARES Act"), which was enacted March 27, 2020. The PPP is administered by the U.S. Small Business Administration. The loan matures April 14, 2022 and bears interest at a rate of 1.0% per year, payable monthly. The loan may be prepaid at any time prior to maturity with no prepayment penalties. Funds from the loan are to be used to maintain payroll, continue group health care benefits and pay for rent and utilities. Under the terms of the PPP, certain amounts of the loan may be forgiven if they are used for qualifying expenses as described in the CARES Act, including qualifying payroll costs, covered rent payments, and covered utilities. From the date of funding, we used the loan amount for such qualifying expenses. We applied for this loan after carefully considering, with our bank, the eligibility criteria to participate in this program, and determining that Cumberland met these criteria. We evaluated and provided information on our payroll and other qualifying expenses to determine the amount of PPP funds to apply for. Cumberland has not laid off or furloughed any employees as a result of the COVID-19 pandemic and, due to assistance from our PPP loan, we currently do not foresee doing so. In October 2020, the Company submitted a request for the loan’s forgiveness. The request has been approved by the lender, Pinnacle Bank, and will require the approval of the U.S. Small Business Administration which we are awaiting. Ifetroban Phase II Clinical Programs We have been evaluating our ifetroban product candidate in a series of clinical studies. We are sponsoring Phase II clinical programs which are underway evaluating our ifetroban product candidates in 1) patients with cardiomyopathy associated with Duchenne Muscular Dystrophy, a rare, fatal, genetic neuromuscular disease results in deterioration of the skeletal, heart and lung muscles, 2) Systemic Sclerosis or scleroderma, a debilitating autoimmune disorder characterized by diffuse fibrosis of the skin and internal organs and 3) Aspirin-Exacerbated Respiratory Disease, a severe form of asthma. In addition, we have completed two pilot Phase II studies involving 1) patients suffering from Hepatorenal Syndrome, a life-threatening condition involving liver and kidney failure and 2) patients with Portal Hypertension associated with chronic liver disease. Additional pilot preclinical and clinical studies of ifetroban are underway, including several investigator-initiated trials. Enrollment in our clinical studies was interrupted due to the COVID-19 pandemic. While enrollment of new patients has been limited, many of our clinical study sites have reopened and resumed screening of patients for potential enrollment into our studies. We are awaiting results from the studies underway before deciding on the best development path for the registration of ifetroban, our first new chemical entity. New Hospital Product Candidate 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. 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. We also completed a Phase II study to further evaluate administration, dosing and pharmacokinetics of the product. We are now evaluating the next steps for this product development program. 18 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 2020 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, inventories, fair value of contingent consideration liability associated with a business combination, share-based compensation and intangible assets. 19 RESULTS OF OPERATIONS Three months ended March 31, 2021 compared to the three months ended March 31, 2020 The following table presents the unaudited interim statements of operations for continuing operations for the three months ended March 31, 2021 and 2020: Three months ended March 31, 2021 2020 Change Net revenues $ 10,537,159 $ 8,330,734 $ 2,206,425 Costs and expenses: Cost of products sold 2,417,329 1,634,181 783,148 Selling and marketing 3,787,340 3,707,676 79,664 Research and development 1,257,367 1,722,555 (465,188) General and administrative 2,230,509 2,036,284 194,225 Amortization 1,168,914 1,076,039 92,875 Total costs and expenses 10,861,459 10,176,735 684,724 Operating income (loss) (324,300) (1,846,001) 1,521,701 Interest income 5,426 29,888 (24,462) Interest expense (24,417) (33,065) 8,648 Income (loss) from continuing operations before income taxes (343,291) (1,849,178) 1,505,887 Income tax (expense) benefit (7,458) (34,240) 26,782 Net income (loss) from continuing operations $ (350,749) $ (1,883,418) $ 1,532,669 The following table summarizes net revenues by product for the periods presented: Three months ended March 31, 2021 2020 Change Products: Kristalose $ 2,994,378 $ 3,311,696 $ (317,318) Vibativ 5,052,243 2,425,755 2,626,488 Caldolor 1,539,496 1,096,291 443,205 Acetadote 117,191 713,899 (596,708) Omeclamox-Pak (450,263) 114,770 (565,033) Vaprisol 1,134,264 208,763 925,501 RediTrex (32,252) — (32,252) Other revenue 182,102 459,560 (277,458) Total net revenues $ 10,537,159 $ 8,330,734 $ 2,206,425 Net revenues. Net revenues for the three months ended March 31, 2021, were $10.5 million compared to $8.3 million for the three months ended March 31, 2020. As detailed in the table above, net revenue increased for three of our marketed products: Vibativ, Caldolor and Vaprisol during the quarter. We returned the exclusive rights to commercialize Ethyol and Totect in the United States to Clinigen effective January 1, 2020. In exchange for the return of these product license rights and associated non-compete provisions, Cumberland is receiving $5 million in financial consideration paid over the two-years following the return date. The installments of $0.5 million and $0.8 million due from Clinigen were recorded during the three months ended March 31, 2021 and March 31, 2020, as discontinued operations, respectively. We do not incur expenses associated with these payments from Clinigen. Vibativ revenue was $5.1 million for the three months ended March 31, 2021, an increase of $2.6 million over the same period last year. The 108% increase was a result of increased net pricing and improved sales volumes during the period as a result of increased utilization in supporting patients impacted by COVID-19 infections. Kristalose revenue decreased by $0.3 million during the first quarter of 2021, when compared to the prior year period. The decrease was primarily the result of decreased sales volumes for the product. 20 Caldolor revenue was $1.5 million for the first quarter of 2021, an increase of $0.4 million compared to the same period last year. The 40.4% improvement in net revenue was the result of an increase in international shipments of Caldolor when compared to the prior year period and an improvement in net pricing. These improvements were partially offset by lower domestic shipments of the product, impacted by COVID-19 and a reduction in elective surgeries. Vaprisol revenue was $1.1 million for the first quarter of 2021, an increase of $0.9 million. This increase of net sales compared to the first quarter of 2020 is primarily due to increased sales volumes during the period as a result of increased utilization in supporting patients impacted by COVID-19 infections. Omeclamox-Pak revenue decreased $0.6 million for the first quarter of 2021, compared to the first quarter of 2020. The decrease was the result of no sales during the first quarter of 2021 as Cumberland is currently out of commercial inventory of this product. The packager for our Omeclamox-Pak product encountered financial difficulties due to the impact of COVID-19, and their operations are currently suspended. We are awaiting resumption of their operations, while also exploring other alternatives to restart the product’s packaging. Net revenue for the first quarter of 2021 was also negatively impacted by product returns 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 decrease of $0.6 million in the product's revenue when compared to the prior year period as a result of lower sales volumes during the period, impacted by generic competition. Cost of products sold . Co st of products sold for the first quarter of 2021 and 2020 were $2.4 million and $1.6 million, respectively. Cost of products sold, as a percentage of net revenues, were 22.9% during the three months ended March 31, 2021, compared to 19.6% during the three months ended March 31, 2020. This change in costs of products sold as a percentage of revenue was attributable to a change in the product sales mix, particularly the increase in sales of Vibativ and increased international sales. The Vibativ inventory sold during the period was acquired and paid for by Cumberland as part of the acquisition of the brand during 2018. The increase in costs of product sold expense was also the result of a step up in the fair value of the inventory over the cost to Theravance, as required under purchase accounting rules. Selling and marketing . Selling and marketing expense for the first quarter of 2021 increased $0.1 million compared to the prior year period. This increase is primarily attributable to increases in royalty costs associated with growth in Vibativ sales during the current quarter. Higher royalty costs were partially offset by decreases in direct promotional spending, meeting costs and travel expenses during the current quarter. Research and development . Research and development costs were $1.3 million for the first quarter of 2021 and $1.7 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, number of patients and the cost per patient in each of our clinical programs. We continue to fund our ongoing clinical initiatives associated with our pipeline products. The cost decreases were primarily the result of decreased study activity as well as a decrease in salaries expense associated with a reduction in personnel. General and administrative . General and administrative expense for the first quarter of 2021 increased to $2.2 million from $2.0 million during the first quarter of 2020 as a result of increases in professional, legal and insurance costs. These increases were partially offset by decreases in non-cash stock based compensation during the period. The components of the statements of operations discussed above reflect the following impacts from Vibativ: Financial Impact of Vibativ Three months ended March 31, 2021 2020 Net revenue $ 5,052,243 $ 2,425,755 Cost of products sold (1) 1,456,816 550,394 Royalty and operating expenses 402,352 (92,863) Vibativ contribution $ 3,193,075 $ 1,968,224 (1) The Vibativ inventory included in the costs of product sold during the period was acquired and paid for by Cumberland as part of the acquisition of the brand during 2018. 21 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, 2021, and three months ended March 31, 2020, totaled approximately $1.2 million and $1.1 million, respectively. Income taxes . Income tax expense for the three months ended March 31, 2021, was comparable to the income tax expense for the three months ended March 31, 2020. As of March 31, 2021, we had approximately $44 million of net operating loss carryforwards resulting from the exercise of nonqualified stock options that have historically been used to significantly offset income tax obligations. We expect to continue to pay minimal income taxes during 2021 and beyond, through the continued utilization of these net operating loss carryforwards, on any taxable income generated from our operations. LIQUIDITY AND CAPITAL RESOURCES Working Capital Our primary sources of liquidity are cash flows provided by our operations, the proceeds from the Paycheck Protection Program loan, 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 will be adequate to finance internal growth, finance business development initiatives, and fund capital expenditures for the foreseeable future. The following table summarizes our liquidity and working capital as of March 31, 2021 and December 31, 2020: March 31, 2021 December 31, 2020 Cash and cash equivalents $ 24,922,925 $ 24,753,796 Working capital (current assets less current liabilities) $ 26,535,447 $ 24,302,146 Current ratio (multiple of current assets to current liabilities) 2.2 1.9 Revolving line of credit availability $ — $ — The following table summarizes our net changes in cash and cash equivalents for the three months ended March 31, 2021 and March 31, 2020: Three months ended March 31, 2021 2020 Net cash provided by (used in): Operating activities $ 1,785,549 $ 888,539 Investing activities (318,341) (571,161) Financing activities (1,298,079) (1,503,279) Net increase (decrease) in cash and cash equivalents $ 169,129 $ (1,185,901) The net $0.2 million increase in cash and cash equivalents for the three months ended March 31, 2021, was primarily attributable to cash provided by operating activities, partially offset by cash used in investing and financing activities. Cash provided by operating activities of $1.8 million was positively impacted by decreases in inventory of $1.9 million, as well as the add back of non-cash expenses of depreciation, amortization and share-based compensation expense totaling $1.4 million. Cash used by investing activities was the result of additions to intangibles of $0.1 million and the payment of $0.2 million to the WHC JV. Our financing activities included the $0.3 million in cash used to repurchase shares of our common stock as well as the $1.0 million used for the payment of royalties to Theravance for sales of Vibativ. The net $1.2 million decrease in cash and cash equivalents for the three months ended March 31, 2020 was primarily attributable to cash used in investing and financing activities. Cash provided by operating activities of $0.9 million was positively impacted by decreases in accounts receivable of $2.0 million and inventory of $0.7 million, as well as the add back of non-cash expenses of depreciation, amortization and share-based compensation expense totaling $1.4 million. This was partially offset by a decrease in accounts payable of $2.4 million. Cash used in investing activities was the result of additions to intangibles of $0.5 million. Our financing activities reflected the $0.4 million in cash used to repurchase shares of our common stock as well as the $0.8 million used for the repurchase of subsidiary shares. 22 Debt Agreement On October 7, 2020, we entered into a Fourth Amendment (“Fourth Amendment”) to the Revolving Credit Loan Agreement with Pinnacle Bank (the “Pinnacle Agreement”). The Fourth Amendment extends the maturity date of the Pinnacle Agreement through October 1, 2022 and provides for a principal available for borrowing of up to $15 million. We also have the ability to request an increase of up to an additional $5 million, upon the satisfaction of certain conditions and approval by Pinnacle Bank. If fully expanded, the Fourth Amendment would provide a maximum principal available for borrowing of up to $20 million. 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. For a summary of the material terms of the Pinnacle Agreement, as amended, see Note 6 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. We were in compliance with the Tangible Capital Ratio financial covenant as of March 31, 2021. We expect to maintain compliance with the Tangible Capital Ratio financial covenant in future periods. Paycheck Protection Program Loan On April 20, 2020, Cumberland received the funding of a loan from Pinnacle Bank in the aggregate amount of $2,187,140 pursuant to the Paycheck Protection Program (the “PPP”) under the Federal Coronavirus Aid, Relief, and Economic Security Act ("CARES Act"), which was enacted March 27, 2020. For a summary of the material terms of the Paycheck Protection Program loan, see Note 6 to the accompanying unaudited condensed consolidated financial statements. Under the terms of the PPP, certain amounts of the loan may be forgiven if they are used for qualifying expenses as described in the CARES Act, including qualifying payroll costs, covered rent payments, and covered utilities. From the date of funding we used the loan amount for such qualifying expenses. Cumberland has not laid off or furloughed any employees as a result of the COVID-19 pandemic and, based on assistance from our PPP loan, we currently do not foresee doing so. In October 2020, we submitted a request for forgiveness of the PPP loan. The request was approved by the lender, Pinnacle Bank, who then submitted it to the U.S. Small Business Administration ("SBA") for the SBA's review and approval. 23 OFF-BALANCE SHEET ARRANGEMENTS During the three months ended March 31, 2021 and 2020, we did not engage in any off-balance sheet arrangements.