Item 2. Management’s Discussion and Analysis
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, 2021, 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.
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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 pharmaceutical products. We are dedicated to providing innovative products that improve the quality of care for patients and address poorly met medical needs.
Our primary target sectors are hospital acute care, oncology, gastroenterology and rheumatology. These medical specialties are characterized by relatively concentrated prescriber bases that we believe can be served effectively by small, targeted sales forces. We promote our approved products through our hospital, oncology and field sales forces in the United States. We have also established partnerships in Puerto Rico and the Middle East for our Vibativ ® product and are continuing to build a network of international partners to register and provide 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 ) oral, a prescription laxative, for the treatment of constipation;
• Omeclamox ® -Pak , ( omeprazole, clarithromycin, amoxicillin ) oral, for the treatment of Helicobacter pylori ( H. pylori ) infection and related duodenal ulcer disease;
• RediTrex ® ( methotrexate ) injection, for the treatment of active rheumatoid, juvenile idiopathic and severe psoriatic arthritis, as well as disabling psoriasis;
• Sancuso ® ( granisetron) transdermal, for the prevention of nausea and vomiting in patients receiving certain types of chemotherapy treatment;
• Vaprisol ® ( conivaptan ) injection, to raise serum sodium levels in hospitalized patients with euvolemic and hypervolemic hyponatremia; 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.
In addition to these commercial brands, we have Phase II clinical programs underway evaluating our ifetroban product candidates for patients with cardiomyopathy associated with 1) Duchenne Muscular Dystrophy (“DMD”), a fatal, genetic neuromuscular disease; 2) Systemic Sclerosis (“SSc”) or scleroderma, a debilitating autoimmune disorder characterized by fibrosis of the skin and internal organs; and 3) Aspirin-Exacerbated Respiratory Disease (“AERD”), a severe form of asthma.
Cumberland has built core competencies in the acquisition, development and commercialization of pharmaceutical products in the U.S. - and we believe we can leverage this existing infrastructure to support our continued growth both domestically and internationally. Our management team consists of pharmaceutical industry veterans with experience 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 formulations, manages our clinical studies, prepares our FDA submissions and staffs our medical call center. Our quality and manufacturing professionals oversee the manufacturing, release and shipment of our products. Our marketing and sales organization is responsible for our commercial activities, and we work closely with our distribution partners to ensure the availability and delivery of our products.
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GROWTH STRATEGY
Cumberland’s growth strategy involves maximizing the success of our existing brands while continuing to build a portfolio of differentiated products. We currently feature eight FDA products approved for sale in the United States. We are also continuing to explore international partnerships to bring our medicines to patients in other countries. Additionally, we look for opportunities to expand our products into additional patient populations through clinical trials, new presentations and our support of 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.
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 support the progress of promising new product candidates, which Cumberland could further develop and commercialize.
Specifically, we are seeking long-term sustainable growth by:
• Supporting and expanding 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. For example, we have secured pediatric approval of Acetadote and Caldolor and are expanding the labeling for both brands accordingly. We also recently further expanded the labeling for Caldolor to allow its use prior to surgery. We will continue to explore such opportunities to bring our products to new patient populations.
• Selectively adding 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 and Sancuso are examples of this strategy.
• Progressing our clinical pipeline and incubating future product opportunities at CET. We believe it is important to build a pipeline of innovative new product opportunities, as we are doing though our ifetroban Phase II development programs. We are also supplementing our acquisitions and late-stage development activities with early-stage drug development activities with CET.
• Leveraging 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 opportunities for our brands. For example, our co-promotion partnerships have allowed us to expand the support for Kristalose and Sancuso across the U.S.
• Building an international contribution to our business. We have established our own commercial capabilities, including three 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.
• Managing our operations with financial discipline. We continually work to manage our expenses in line with our revenues to deliver cash flow from operations. We remain in a strong financial position, with favorable gross margins and a strong balance sheet.
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RECENT DEVELOPMENTS
COVID-19 Pandemic
In early 2020, the U.S. declared a health care emergency following the outbreak of SARS-CoV-2, a novel strain of coronavirus that causes COVID-19, a respiratory illness. Cumberland managed through the resulting pandemic, continuing to operate our business – keeping facilities open and our organization intact. We moved quickly to ensure the health and safety of our team. 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, we faced the same challenges affecting other companies that rely on hospital admissions and patient visits to drive revenue. Our clinical studies were also impacted, as fewer patients sought elective surgeries and our access to medical facilities was substantially limited. We carefully monitored our supply chain, including the flow of raw materials and the batches of finished products emerging from the facilities that manufacture our products.
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 that includes brands that have delivered a strong performance during the pandemic.
Despite the challenges of operating during a pandemic, Cumberland has remained committed to our mission of providing innovative products that improve the quality of care for patients and address poorly met medical needs. We have continued to build our portfolio of innovative and differentiated products through a multifaceted strategy that includes the development of new candidates and acquisition of established brands. Our resulting, diversified product line has enabled us to weather external challenges, while our team has remained responsive to the evolving medical market. We are prepared for and look forward to future opportunities to carry out our mission. Overall, we have been able to continue the delivery of our products while addressing the interests of our shareholders, employees, partners and community.
Sancuso Acquisition
We started off the first quarter of 2022 with an exciting announcement – Cumberland acquired the FDA-approved oncology-supportive care medicine Sancuso from Kyowa Kirin, Inc., the U.S. affiliate of Japan-based Kyowa Kirin Co., Ltd.
Sancuso is the first and only FDA-approved prescription patch for the prevention of nausea and vomiting in patients receiving certain types of chemotherapy treatment. The active drug in Sancuso, granisetron, slowly dissolves in the thin layer of adhesive that sticks to the patient’s skin and is released into their bloodstream over several days, working continuously to prevent chemotherapy-induced nausea and vomiting (“CINV”). It is applied 24 to 48 hours before receiving chemotherapy and can prevent CINV for up to five consecutive days. Alternative oral treatments must be taken several times (day and night) to deliver the same therapeutic doses.
Cumberland acquired U.S. rights to Sancuso and assumed full commercial responsibility for the product – including its marketing, promotion, distribution, manufacturing and medical support activities.
Sancuso Promotion
To support Sancuso, we have established an oncology sales division, which is initially comprised of two former Kyowa Kirin employees and their five contracted inside sales individuals.
Effective April 19, 2022, we also entered into an agreement with Verity Pharmaceuticals International Limited (“Verity”) for the national co-promotion of Sancuso. Verity is a specialty pharmaceutical company that will utilize its established oncology commercial organization and customer network to co-promote Sancuso throughout the United States.
Verity will cover a majority of the U.S. market for an initial three-year term, with an option to extend for an additional two years. Verity and Cumberland will share in the incremental contribution margin resulting from Verity’s efforts.
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New Vibativ Agreements
1. In March 2022, we announced the launch of our Vibativ product in Puerto Rico. The announcement followed an August 2021 agreement with Verity to license and commercialize our Vibativ product in that territory. Verity has a particular strength and experience in the Puerto Rican market. Vibativ can serve as a potentially life-saving treatment in patients with hospital-acquired and ventilator-associated pneumonia resulting from infections, including the flu and COVID-19.
2. Also in March 2022, we announced that we have entered into an agreement with Tabuk Pharmaceutical Manufacturing Company (“Tabuk”), a fully owned subsidiary of Saudi Arabia’s publicly traded Astra Industrial Group. Under the terms of the agreement, Tabuk received an exclusive license to distribute Vibativ in Saudi Arabi and Jordan, with an option to expand into other countries in the region. Cumberland has recognized an upfront payment from Tabuk. In addition, the agreement calls for milestone payments as well as an agreed transfer price on supplies of the product for that territory.
Omeclamox-Pak Supply Update
The packager for our Omeclamox-Pak product has been unable to provide us with supplies of the product, having encountered difficulties and therefore suspending operations during the pandemic. We are currently awaiting the facility’s packaging to resume, while also exploring other alternatives to restart the product’s packaging, before we build new inventory and resupply the market.
Vaprisol Supply Update
We are transitioning to a new manufacturer for our Vaprisol product. During 2021, we shipped all remaining inventory of the product and notified the FDA that supplies of the product were then not currently available. We have transferred manufacturing to a new facility, and await the submission and FDA approval for that plant before resuming shipments. That company plans to provide an interim supply of compounded product to the market while awaiting the needed facility approval.
Ifetroban Clinical Studies
We have been evaluating our ifetroban product candidate, a selective thromboxane-prostanoid receptor (“TPr”) antagonist, in a series of clinical studies. It has been dosed in nearly 1,400 subjects and was found to be safe and well tolerated in healthy volunteers and various patient populations.
Cumberland is currently sponsoring three Phase II clinical programs to evaluate ifetroban in 1) Aspirin-Exacerbated Respiratory Disease, a severe form of asthma; 2) Systemic Sclerosis or scleroderma; a debilitating autoimmune disorder characterized by diffuse fibrosis of the skin and internal organs; and 3) patients with cardiomyopathy associated with Duchenne Muscular Dystrophy, a genetic neuromuscular disease that results in deterioration of the skeletal, heart and lung muscles.
After being interrupted by the pandemic, enrollment in these studies has resumed as many of our clinical study sites have reopened and begun screening patients for potential participation. We are awaiting results from the studies underway before deciding on the best development path for the registration of ifetroban.
We are also designing a Phase II study to evaluate the use of ifetroban to treat patients with Progressive Fibrosing Interstitial Lung Diseases. We are preparing an application to the FDA to support the new program.
In addition to our company-sponsored studies, an NIH-funded, Harvard-clinical-investigator-led trial has closed enrollment of patients with Aspirin Exacerbated Respiratory Disease. This Phase II, placebo-controlled study, complements our programs and we will announce top-line results following a completion of the data analysis.
Summary
Cumberland remains committed to our mission of providing innovative products that improve the quality of care for patients and address poorly met medical needs. We are working to fulfill this mission by building a portfolio of innovative and differentiated products through a multifaceted strategy that includes the development of new candidates as well as the acquisition of established brands. Our resulting, diversified product line has enabled us to weather external challenges amid the pandemic, while our team remains responsive to the evolving medical market. We are prepared for and look forward to future opportunities to carry out our mission throughout the remainder of the year.
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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 2021 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 liabilities associated with business combinations, share-based compensation and intangible assets.
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RESULTS OF OPERATIONS
Three months ended March 31, 2022 compared to the three months ended March 31, 2021
The following table presents the unaudited interim statements of operations for continuing operations for the three months ended March 31, 2022 and 2021:
Three months ended March 31,
2022 2021 Change
Net revenues $ 11,175,045 $ 10,537,159 $ 637,886
Costs and expenses:
Cost of products sold 2,211,885 2,417,329 (205,444)
Selling and marketing 4,614,429 3,787,340 827,089
Research and development 1,745,136 1,257,367 487,769
General and administrative 2,302,349 2,230,509 71,840
Amortization 1,593,245 1,168,914 424,331
Total costs and expenses 12,467,044 10,861,459 1,605,585
Operating income (loss) (1,291,999) (324,300) (967,699)
Interest income 16,041 5,426 10,615
Interest expense (119,575) (24,417) (95,158)
Income (loss) from continuing operations before income taxes (1,395,533) (343,291) (1,052,242)
Income tax (expense) benefit (6,900) (7,458) 558
Net income (loss) from continuing operations $ (1,402,433) $ (350,749) $ (1,051,684)
The following table summarizes net revenues by product for the periods presented:
Three months ended March 31,
2022 2021 Change
Products:
Kristalose $ 3,945,097 $ 2,994,378 $ 950,719
Sancuso 3,397,209 — 3,397,209
Vibativ 2,501,434 5,052,243 (2,550,809)
Caldolor 959,634 1,539,496 (579,862)
Vaprisol (117,000) 1,134,264 (1,251,264)
Acetadote 111,090 117,191 (6,101)
Omeclamox-Pak 22,737 (450,263) 473,000
RediTrex 59,226 (32,252) 91,478
Other revenue 295,618 182,102 113,516
Total net revenues $ 11,175,045 $ 10,537,159 $ 637,886
Net revenues. Net revenues for the three months ended March 31, 2022, were $11.2 million compared to $10.5 million for the three months ended March 31, 2021. As detailed in the table above, net revenue increased for two of our marketed products: Kristalose and RediTrex during the quarter, as well as the addition of Sancuso.
Kristalose revenue increased by 31.8% during the first quarter of 2022 to $3.9 million, when compared to the prior year period. The increase was primarily the result of growth in shipments of the product to our wholesale customers.
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 slight decrease in the product's revenue when compared to the prior year period.
Vaprisol revenue was $(0.1) million for the first quarter of 2022, a decrease of $1.3 million compared to the same period last year. This decrease of net sales compared to the first quarter of 2021 is primarily due to a stock shortage as we await pending FDA approval on a new manufacturer.
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Caldolor revenue was $1.0 million for the first quarter of 2022, a decrease of $0.6 million compared to the same period last year. The decrease was the result of lower international shipments of the product, due to order timing.
Vibativ revenue was $2.5 million for the three months ended March 31, 2022, compared to $5.1 million for the same period last year. The decrease was a result of increased purchases in 2021 due in part to a new packaging change.
Sancuso revenue was $3.4 million for the first quarter of 2022, which was $0.3 million higher than the first quarter of 2021 U.S. results reported by Kyowa Kirin, from whom Cumberland acquired the U.S. rights to Sancuso on January 3, 2022.
Omeclamox-Pak had no sales for the first quarter of 2022, as Cumberland is currently out of commercial inventory of this product. The packager for our Omeclamox-Pak product encountered financial difficulties, and currently is under new management and a reorganization. We are in discussions about the resumption of packaging the product. Net revenue for the first quarter of 2022 was positively impacted by various revenue adjustments.
Cost of products sold . Co st of products sold for the first quarter of 2022 and 2021 were $2.2 million and $2.4 million, respectively. Cost of products sold, as a percentage of net revenues, were 19.8% during the three months ended March 31, 2022, compared to 22.9% during the three months ended March 31, 2021. This change in costs of products sold as a percentage of revenue was attributable to a change in the product sales mix.
Selling and marketing . Selling and marketing expense for the first quarter of 2022 increased $0.8 million compared to the prior year period. This increase is primarily attributable to an increase in marketing spending for Sancuso as well as royalty costs, direct promotional spending, meeting costs and travel expenses for all of our existing brands including our new oncology sales force.
Research and development . Research and development costs for the first quarter of 2022 and 2021 were $1.7 million and $1.3 million, respectively. 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.
General and administrative . General and administrative expense for the first quarter of 2022 was $2.3 million, which was $0.1 million higher than the first quarter of 2021. The increase was primarily attributable to increases in compensation expense.
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The components of the statements of operations discussed above reflect the following impacts from Vibativ:
Financial Impact of Vibativ Three months ended March 31,
2022 2021
Net revenue (1)
$ 2,651,434 $ 5,052,243
Cost of products sold (2)
927,160 1,456,816
Royalty and operating expenses 681,317 402,352
Vibativ contribution $ 1,042,957 $ 3,193,075
(1) 2022 net revenue includes a $150,000 payment to Cumberland required under the terms of a new licensee agreement.
(2) 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.
Financial Impact of Vibativ Since Acquisition
Net revenue (1)
$ 38,772,457
Cost of products sold (2)
13,116,416
Royalty and operating expenses 7,135,362
Vibativ contribution $ 18,520,679
(1) 2022 net revenue includes a $150,000 payment to Cumberland required under the terms of a new licensee agreement.
(2) 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.
The components of the statements of operations discussed above reflect the following impacts from Sancuso:
Financial Impact of Sancuso Three months ended March 31,
2022 2021
Net revenue $ 3,397,209 $ —
Cost of products sold (1)
388,264 —
Royalty and operating expenses 910,100 —
Sancuso contribution $ 2,098,845 $ —
(1) The Sancuso 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 2022.
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, 2022, and three months ended March 31, 2021, totaled approximately $1.6 million and $1.2 million, respectively. The increase in amortization expense is due to the acquisition of Sancuso.
Income taxes . Income tax expense for the three months ended March 31, 2022, was comparable to the income tax expense for the three months ended March 31, 2021.
As of March 31, 2022, we had approximately $56.6 million in federal net operating loss carryforwards including 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 2022 and beyond, through the continued utilization of these net operating loss carryforwards, on any taxable income generated from our operations.
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LIQUIDITY AND CAPITAL RESOURCES
Working Capital
Our primary sources of liquidity are cash equivalents, cash flows from operations and the amounts borrowed under our line of credit. 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, 2022 and December 31, 2021:
March 31, 2022 December 31, 2021
Cash and cash equivalents $ 17,266,785 $ 27,040,816
Working capital (current assets less current liabilities) $ 20,784,529 $ 26,409,053
Current ratio (multiple of current assets to current liabilities) 1.8 2.4
Revolving line of credit availability $ — $ —
The following table summarizes our net changes in cash and cash equivalents for the three months ended March 31, 2022 and March 31, 2021:
Three months ended March 31,
2022 2021
Net cash provided by (used in):
Operating activities $ (150,498) $ 1,785,549
Investing activities (13,541,898) (318,341)
Financing activities 3,918,365 (1,298,079)
Net increase (decrease) in cash and cash equivalents $ (9,774,031) $ 169,129
The net $9.8 million decrease in cash and cash equivalents for the three months ended March 31, 2022, was primarily attributable to cash used in investing and partially offset by cash provided by financing activities. Cash used in operating activities of $0.2 million was primarily the result of accounts receivable increasing by $7.8 million mainly from Sancuso sales, positively impacted by decreases in inventory of $2.3 million and increases in accounts payable and other liabilities of $4.1 million, as well as the add back of non-cash expenses of depreciation, amortization and share-based compensation expense totaling $1.8 million. Cash used in investing activities was the result of the acquisition of Sancuso. Our financing activities included the increase in our line of credit of $5.0 million partially offset by the $0.6 million in cash used to repurchase shares of our common stock as well as the $0.5 million used for the payment of royalties for sales of Vibativ and Sancuso.
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 in 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.
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Debt Agreement
On March 31, 2022, the Company and Pinnacle Bank entered into a Seventh Amendment to the Revolving Credit Loan Agreement (the "Pinnacle Agreement") to revise and update the Maximum Funded Debt Ratio financial covenant and to delete from the Pinnacle Agreement the Funded Debt to Tangible Capital Ratio financial covenant. These changes were made to more appropriately reflect the impact from the Sancuso acquisition.
On December 31, 2021, the Company and Pinnacle Bank entered into the Fifth Amendment to the Revolving Credit Note and the Sixth Amendment to the Revolving Credit Loan Agreement in order to increase the principal amount of the Note from $15 million to $20 million.
On October 28, 2021, the Company and Pinnacle Bank entered into a Fourth Amendment to the Revolving Credit Note and Fifth Amendment ("Fifth Amendment") to the Revolving Credit Loan Agreement to renew the Revolving Credit Loan.
The original Pinnacle Agreement was dated July 2017. Beginning on August 14, 2018, and continuing until October 7, 2020, the Company and Pinnacle Bank entered into a series of amendments to extend and update the Revolving Credit Note and Revolving Credit Agreement. The Fifth Amendment extends the maturity date three years through October 1, 2024.
The interest rate on the Pinnacle Agreement is based on LIBOR plus an interest rate spread. The current pricing under the Pinnacle Agreement provides for an interest rate spread of 1.75% to 2.75% above LIBOR with a minimum LIBOR of 0.90%. The applicable interest rate under the Pinnacle Agreement was 3.65% at March 31, 2022. In addition, a fee of 0.25% per year is charged on the unused line of credit. Interest and the unused line fee are payable quarterly. The parties have agreed on a process to determine a new interest rate benchmark at the point the LIBOR rate is expected to be discontinued over the next 12 to 24 months.
As of March 31, 2022 and December 31, 2021, the Company had $20.0 million and $15.0 million, respectively, in borrowings outstanding under its revolving credit facility. The Company was in compliance with the Maximum Funded Debt Ratio financial covenant as of March 31, 2022.
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.
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. Cumberland used the PPP loan funds for such qualifying expenses. Due to assistance from our PPP loan, the Company did not lay off or furlough any employees as a result of the COVID-19 pandemic.
In October 2020, Cumberland submitted a request for the loan’s forgiveness. On June 11, 2021, the Company received a formal notice from the SBA that the full amount of the loan was forgiven.
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OFF-BALANCE SHEET ARRANGEMENTS
During the three months ended March 31, 2022 and 2021, we did not engage in any off-balance sheet arrangements.