UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark one)

☒x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~September~~March 3031, ~~2018~~2019

☐o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number: 000-27945

DOUGHERTY’S PHARMACY, INC.

(Exact name of registrant as specified in its charter)

Delaware		75-2900905
(State or other jurisdiction		(I.R.S. Employer
of incorporation or organization)		Identification No.)

5924 ROYAL LANE SUITE 250

DALLAS, TEXAS 75230

(Address of principal executive offices) (Zip code)

972-250-0945

(Registrant’s telephone number, including area code)

~~Indicate~~Securities byregistered ~~check~~pursuant ~~mark whether the registrant: (1) has filed all reports required~~ to ~~be filed by~~ Section ~~13 or 15~~ 12(db) of ~~the Securities Exchange Act of 1934 during the preceding~~ ~~12 months (or for such shorter period that~~ the ~~registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☐ No ☒~~ Act: None

~~Indicate~~Securities byregistered ~~check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted~~ pursuant to ~~Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding~~ Section 12 ~~months~~ (~~or for such~~g) of ~~shorter period that~~ the ~~registrant was required to submit and post such files). Yes ☐ No ☒~~Act:

Common Stock, $0.0001 par value

(Title of class)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant has submitted electronically, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one)

Large accelerated filer ☐o Accelerated filer ☐o Non-accelerated filer ☐o Smaller reporting company ☒x Emerging growth company ☐o

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐o No ☒x

Number of shares of common stock, $0.0001 par value, of registrant outstanding at ~~April~~May 2215, 2019: 2423,~~127~~097,914.

TABLE OF CONTENTS

		Page
PART I. FINANCIAL INFORMATION		3
Item 1.	FINANCIAL STATEMENTS	3
	Consolidated Balance Sheets as of September 30, 2018 and December 31, 2017	3
	Consolidated Balance Sheets as of March 31, 2019 and December 31, 2018	3
	Consolidated Statements of Operations for the Three and Nine Months ended September 30, 2018 and 2017	4
	Consolidated Statements of Operations for the Three Months ended March 31, 2019 and 2018	4
	Consolidated Statements of Cash Flows for the Nine Months ended September 30, 2018 and 2017	5
	Consolidated Statements of Stockholder’s Equity (Deficit) for the Three Months ended March 31, 2019 and 2018	5
	Notes to Consolidated Financial Statements	6
	Consolidated Statements of Cash Flows for the Three Months ended March 31, 2019 and 2018	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	13
	Notes to Consolidated Financial Statements	7
Item 4.	Controls and Procedures	19
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	16
PART II. OTHER INFORMATION		20
Item 4.	Controls and Procedures	18
Item 1.	Legal Proceedings	20
PART II. OTHER INFORMATION		23
Item 3.	Default on Senior Securities	20
Item 1.	Legal Proceedings	25
Item 6.	Exhibits	20
Item 1A	Risk Factors	25
SIGNATURES		21
Item 6.	Exhibits	25
SIGNATURES		26

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

Dougherty’s Pharmacy, Inc.

Consolidated Balance Sheets

(000’s omitted, except par value and share amounts)

	September 30,			December 31,
	March 31,			December 31,
	2018			2017
	2019			2018
	~~(Unaudited)~~	(Unaudited)		~~(Audited)~~	(Audited)
ASSETS
Current Assets
Cash	$	~~206~~69		$	86248
Restricted cash		–			303
Trade accounts receivable, net		1,422			1,387
Trade accounts receivable, net		1,585			1,673
Other receivables		307			301
Other receivables		218			345
Inventories, net		2,727			2,689
Receivable from affiliates		–			6
Prepaid expenses		212			277
Inventories, net		2,854			3,562
Total current assets		4,737			4,902
Prepaid expenses		77			267
Long term receivable		448			451
Total current assets		4,940			6,242
Property and equipment, net		836			888
Long term receivable		472			448
Operating lease right-of-use asset		4,533			–
Property and equipment, net		956			1,045
Intangible assets, net		2,054			2,221
Intangible assets, net		2,389			2,892
Total assets	$	12,608		$	8,462
Deferred tax asset		–			2,000
Total assets	$	8,757		$	12,627
LIABILITIES
Current Liabilities
Accounts payable	$	23,~~896~~105		$	3,~~123~~133
Accrued liabilities		~~483~~435			~~429~~293
Notes payable, current portion		~~1,326~~820			~~813~~886
Revolving credit facility		3,956			3,831
Operating lease liabilities, current portion		446			–
Total current liabilities		8,661			8,196
Revolving credit facility		3,956			3,956
Notes payable, long-term portion		1,653			2,801
Total current liabilities		8,762			8,268
Total liabilities		10,314			10,997
Operating lease liabilities, long-term portion		4,148			–
STOCKHOLDERS' EQUITY
Notes payable, long-term portion		2,096			2,096
Total liabilities		15,006			10,364
STOCKHOLDERS' EQUITY (DEFICIT)
Stockholders' equity:
Preferred stock, $0.0001 par value; 7,500,000 shares authorized: none issued and outstanding
Common stock, $0.0001 par value; 50,000,000 shares authorized; 24,112,164 shares issued and 23,082,164 shares outstanding at September 30, 2018; 24,003,310 shares issued and 22,973,310 shares outstanding at December 31, 2017		2			2
Common stock, $0.0001 par value; 50,000,000 shares authorized; 24,127,914 shares issued and 23,097,914 shares outstanding at March 31, 2019; 24,127,914 shares issued and 23,097,914 shares outstanding at December 31, 2018		2			2
Additional paid-in capital		60,~~214~~219			60,~~221~~217
Accumulated deficit		(6162,~~376~~222	)		(5861,~~196~~724	)
Treasury stock, at cost, 1,030,000 shares		(397	)		(397	)
Total stockholders' equity		(1,557	)		1,630
Total stockholders' equity (deficit)		(2,398	)		(1,902	)
Total liabilities and stockholders' equity	$	8,757		$	12,627
Total liabilities and stockholders' equity (deficit)	$	12,608		$	8,462

See Notes to Consolidated Financial Statements

Dougherty’s Pharmacy, Inc.

Consolidated Statements of Operations

(000’s omitted, except share and per share amounts)

(Unaudited)

	Three Months Ended						Nine Months Ended
	Three Months Ended March 31,
	September 30,						September 30,
	2019			2018
	2018			2017			2018			2017
Revenue	$	7,767		$	9,455
Revenue	$	8,761		$	9,947		$	27,384		$	30,213
Cost of sales (exclusive of depreciation and amortization shown separately below)		5,754			6,887
Cost of sales (exclusive of depreciation and amortization shown separately down below)		6,650			7,367			20,431			22,083
Gross profit		2,013			2,568
Gross profit		2,111			2,580			6,953			8,130
Operating expenses
Operating expenses
Selling, general and administrative expenses		2,168			2,518
Selling, general and administrative expenses		2,285			2,632			7,233			7,820
Non-cash stock compensation		2			(9	)
Non-cash stock compensation		1			11			(6	)		26
Depreciation and amortization		224			242
Depreciation and amortization		231			249			713			769
Total operating expenses		2,394			2,751
Total operating expenses		2,517			2,892			7,940			8,615
Operating loss		(381	)		(183	)
Operating loss		(406	)		(312	)		(987	)		(485	)
Other income		–			37
Other income		47			–			135			–
Interest expense		(112	)		(110	)
Interest income		–			–			33			–
Loss before provision for income tax		(493	)		(256	)
Interest expense		(118	)		(115	)		(339	)		(317	)
Income tax provision		(5	)		(10	)
Loss on disposal of assets and investment impairment		–			–			–			(75	)
Net loss	$	(498	)	$	(266	)
Loss before provision for income tax		(477	)		(427	)		(1,158	)		(877	)
Basic and diluted net loss per share attributable to common stockholders	$	(0.02	)	$	(0.01	)
Income tax provision		(2,006	)		(9	)		(2,022	)		(32	)
Weighted-average number of shares - basic and diluted		23,097,914			23,087,164
Net loss	$	(2,483	)	$	(436	)	$	(3,180	)	$	(909	)
Basic and diluted net loss per share attributable to common stockholders	$	(0.11	)	$	(0.02	)	$	(0.14	)	$	(0.04	)
Weighted-average number of shares-basic and diluted		23,097,914			22,476,821			23,087,347			22,450,017

See Notes to Consolidated Financial Statements

Dougherty’s Pharmacy, Inc.

Consolidated Statements of Stockholders’ Equity

Periods Ended March 31, 2019 and December 31, 2018

(000’s omitted, except share amounts)

	Class A Common Stock											Treasury
	Shares			Amount		APIC			Accum Deficit			Shares			Amount			Total
Balance at December 31, 2017		24,003,310		$	2	$	60,221		$	(58,196	)		(1,030,000	)	$	(397	)	$	1,630
Issue vested restricted stock units		145,204			–		12			–			–			–			12
Retired restricted stock units		(20,600	)		–		(16	)		–			–			–			(16	)
Net loss		–			–		–			(3,528	)		–			–			(3,528	)
Balance at December 31, 2018		24,127,914		$	2	$	60,217		$	(61,724	)		(1,030,000	)	$	(397	)	$	(1,902	)
Vested restricted stock units		–			–		2			–			–			–			2
Net loss		–			–		–			(498	)		–			–			(498	)
Balance at March 31, 2019		24,127,914		$	2	$	60,219		$	(62,222	)		(1,030,000	)	$	(397	)	$	(2,398	)

See Notes to Consolidated Financial Statements

Dougherty’s Pharmacy, Inc.

Consolidated Statements of Cash Flows

(000’s omitted)

(Unaudited)

	Nine Months Ended September 30,
	Three Months Ended March 31,
	2018			2017
	2019			2018
Operating Activities
Net loss	$	(~~3,180~~498	)	$	(~~909~~266	)
Items not requiring (providing) cash
Loss from disposal of assets		–			75
Depreciation and amortization		224			242
Provision for doubtful accounts		–			6
Stock-based compensation		2			(9	)
Depreciation and amortization		713			769
Change in deferred tax asset		2,000			–
Stock-based compensation		(7	)		26
Changes in operating assets and liabilities:
Accounts receivable		~~197~~(38	)		9447
Inventories		~~708~~(38	)		~~(193~~44	)
Prepaid expenses and other assets		~~190~~65			1244
Accounts payable		(227	)		388
Right of use asset		(4,533	)		–
Accrued liabilities		54			334
Accounts payable		(28	)		(106	)
Net cash provided by operating activities		448			602
Accrued liabilities		142			154
Operating lease		4,594			–
Net cash provided by(used in) operating activities		(108	)		150
Investing Activities
Purchases of property and equipment		(~~121~~5	)		(8575	)
Cash received upon disposition of pharmacy		–			274
Net cash used in investing activities		(5	)		(75	)
Cash received upon disposition of CPOC		–			688
Net (used in) provided by investing activities		(121	)		877
Financing Activities
Payments on notes payable		(~~8,561~~66	)		(154,~~735~~545	)
Proceeds from notes payable		~~8,051~~–			144,~~345~~444
Net cash used in financing activities		(~~510~~66	)		(~~1,390~~101	)
Net (decrease) increase in cash		(183	)		89
Net decrease in cash		(179	)		(26	)
Cash, beginning of period		~~389~~248			~~361~~389
Cash, end of period	$	~~206~~69		$	~~450~~363
Supplemental Cash Flow Information
Cash paid for income taxes	$	24–		$	422
Cash paid for interest	$	~~336~~57		$	~~315~~111
Reconciliation of Cash to the Consolidated Balance Sheets
Cash	$	206		$	147
Restricted cash		–			303
Total cash	$	206		$	450

See Notes to Consolidated Financial Statements

Dougherty’s Pharmacy, Inc.

Notes to Consolidated Financial Statements

1. Organization and Significant Accounting Policies

Description of Business

Dougherty’s Pharmacy, Inc. (“Dougherty’s” or the “Company”) is a value- oriented ~~company~~investment firm focused on successfully acquiring, managing and growing community~~-based~~ based pharmacies in the Southwest Region. Dougherty’s was incorporated in Delaware on August 8, 2000.

A summary of the Company’s investments at ~~September~~December 3031, 2018, is shown in the table below:

Date	Entity	Transaction Description	% Ownership

March 2004	Dougherty’s Holdings, Inc. and subsidiaries (“DHI”or “the Borrowers”)	Acquisition of retail pharmacy	100%

September 2010	ASDS of Orange County, Inc. (“ASDS”),	Holding company for Investment in CRESA Partners of Orange County, L.P. (“CPOC”)	100%

On February 7, 2017, CRESA Partners of Orange County, L.P., an affiliate of Cresa Partners-West, Inc. was acquired by Savills Studley, Inc. liquidating the partnership interest in its entirety held by ASDS. ~~ASDS~~of ~~remains~~Orange ~~active~~County, ~~as a holding company for the remaining payouts~~Inc.

On May 6, 2017, the Company sold its pharmacy in Humble, Texas, acquired in September 2014, and received total cash proceeds of $274,000 related to this transaction. The revenues and earnings of the pharmacy are not significant to the consolidated financial statements taken as a whole.

On ~~February~~March 622, ~~2018~~2019, the Company ~~opened~~secured a ~~new~~letter ~~retail~~of ~~pharmacy~~credit ~~location~~in atthe ~~The~~amount ~~Campus~~of at$825,000 issued by Legacy ~~West~~Texas inBank ~~Plano,~~for ~~Texas~~the ~~(“Legacy”).~~benefit ~~This~~of ~~new~~Associated ~~location~~Food ~~will~~Stores, ~~offer pharmacy~~Inc. ~~services~~that ~~and~~renews annually ~~retail~~with ~~products~~a toreduction ~~approximately~~of 3$100,000 ~~JCPenney~~on ~~Home~~each ~~Office~~anniversary ~~employees~~date. ~~and~~On ~~will~~April be1, ~~open~~2019, towe ~~all~~entered ~~other~~into ~~future~~a Letter of Credit Collateralization ~~tenants~~Agreement, ~~and~~effective ~~visitors~~March of22, ~~The~~2019, ~~Campus~~in atfavor of Legacy ~~West.~~Texas ~~Dougherty’s~~Bank iswhereby ~~initially~~10 ~~filling~~of ~~prescriptions~~our ~~via~~current ~~concierge~~stockholders, ~~service~~including ~~from its~~six ~~pharmacy~~of onour directors, ~~Campbell~~pledged ~~Road~~certain ~~until~~deposit ~~Legacy~~accounts ~~completes~~to ~~its~~collateralize ~~third-party~~the ~~contract~~letter ~~enrollment~~of ~~process~~credit. ~~The~~In ~~first~~consideration ~~year~~for ~~revenues~~entering ~~for~~into this agreement, ~~location~~we ~~were~~issued ~~less~~warrants ~~than~~to ~~$150~~purchase a total of 330,000 shares of our common stock at an exercise price of $0.20 ~~The~~per ~~location~~share, ~~was~~exercisable until ~~closed~~March 22, 2022, and each warrant holder will receive quarterly maintenance payments under the warrants equal to ten percent (10%) per year on ~~February~~the 7,amount ~~2019~~each warrant holder’s collateral commitment.

~~Our~~Historically, ~~business~~we ~~has~~have ~~historically~~maintained ~~required us to rely on cash flow from operations and upon borrowing under~~ a ~~$4,000,000 revolving credit facility (“the Revolver”)~~level ~~with the First National Bank~~ of ~~Omaha~~liquidity ~~(the~~sufficient ~~“Lender”)~~to asallow ~~our~~us ~~primary sources of funding~~ to ~~operate~~cover ~~and meet~~ our ~~financial obligations.~~cash ~~Historically,~~needs ~~much of our debt, including the Revolver, has been renewed or refinanced~~ in the ~~ordinary course of business~~short-term. ~~However,~~ onOver ~~August~~the 1long-term, ~~2018, the~~we ~~Company~~have ~~was~~managed ~~obligated~~our tocash ~~make payment of the outstanding principal of $3,956,000 plus~~and ~~$18,000~~capital instructure ~~accrued and unpaid interest under the Revolver. Failure~~ to ~~make~~maintain ~~this~~our ~~payment~~financial onposition ~~the~~and ~~August~~maintain 1,flexibility ~~2018,~~for ~~maturity~~future ~~date was~~strategic aninitiatives ~~event~~through ~~of default~~ borrowings under ~~the~~our Revolver. ~~The accrued interest of $18~~However,~~000~~ was paid on August 2, 2018. An event of default under the Revolver permits the Lender, among other things, to foreclose on the assets securing the Revolver, which includes certain retail pharmacy assets, specifically but not limited to, inventory, equipment, software, accounts receivable, intangibles and deposit accounts of the Company (the “Secured Assets”). In addition to the failure to make the payment on the maturity date, as of August 1, 2018, ~~the~~we ~~Company~~have ~~was~~been ~~not~~ in ~~compliance~~default ~~with~~in ~~its~~our ~~covenant~~Revolver toand ~~maintain~~have ano ~~minimum~~significant ~~debt~~financing ~~service coverage ratio of~~source ~~not less than 1.00~~ to ~~1.00,~~rely asupon ~~defined under the Revolver. Failure~~ to ~~maintain~~meet ~~this~~our ~~financial~~short ~~covenant~~or ~~also~~long ~~constitutes~~term ~~an event of default under the Revolver. In light of these uncertainties, Management cannot provide any assurance that it can fund the Company’s~~ capital needs ~~in the near or long term~~.

6In addition, the audit opinion that accompanied our financial statements as of and for the year ended December 31, 2018 was qualified in that our auditors expressed substantial doubt about our ability to continue as a going concern.

On August 10, 2018, the Lender notified the Company that the Revolver had been sold to OSK VII, LLC (the “Current Lender”) effective on August 10, 2018. This assignment of the Revolver from the Lender to the Current Lender does not affect any terms and condition of the Revolver and the associated loan documents. The Company does not currently have the ability to cure either events of default under the Revolver. Should the Current Lender elect to foreclose against the Secured Assets, it would significantly impair the Company's ability to continue as a going concern or to even be able to continue its operations. The Company is evaluating all of its options in light of these circumstances, including, without limitation, refinancing the indebtedness with another lender, negotiating a settlement arrangement with the Current Lender, or obtaining a temporary waiver or forbearance from the Current Lender; provided, however, the Company can provide no assurances that any of these arrangements can be entered into or if entered into would be upon terms and conditions beneficial to and acceptable by the Company. In light of these uncertainties, Management cannot provide any assurance that it can fund the Company’s capital needs in the near or long term.7

We ~~have~~continuously ~~historically~~assess ~~maintained~~our aworking capital ~~level~~needs, ofdebt ~~liquidity~~and ~~sufficient~~leverage tolevels, ~~allow~~capital usexpenditure torequirements, ~~cover~~and future investments or acquisitions. We do not believe our operating cash ~~needs~~flows inwill ~~the~~be ~~short-term.~~sufficient ~~Over~~to ~~the~~fund these future payments and long-term, weinitiatives ~~have~~unless ~~managed~~we ~~our~~significantly ~~cash~~increase ~~and~~our ~~capital~~revenue. ~~structure~~If tothe ~~maintain~~Company ~~our~~does ~~financial~~not ~~position~~generate ~~and~~the ~~maintain~~necessary ~~flexibility~~increase ~~for~~in ~~future~~cash ~~strategic~~flow, ~~initiatives~~the Company will need additional financing in the future. We ~~continuously assess~~do ~~our~~not ~~working~~know ~~capital~~whether ~~needs,~~additional ~~debt~~financing ~~and~~will ~~leverage~~be ~~levels~~available when needed, ~~capital~~or ~~expenditure~~that, ~~requirements~~if available, ~~and~~we ~~future~~will ~~investments~~be orable ~~acquisitions.~~to Asobtain offinancing ~~September~~on 30terms favorable, ~~2018~~or even acceptable, weto ~~had~~the ~~cash~~Company. Without a significant source of ~~approximately~~lender ~~$206~~financing,~~000,~~ we ~~working~~will ~~capital~~find ~~deficit~~it ofdifficult, $3if not impossible,~~720,000~~ ~~and~~to ~~total~~maintain ~~outstanding~~our ~~debt of~~current $6operations,~~935,000.~~ ~~Cash~~implement ~~provided~~our ~~from~~plans ~~operating~~for ~~activities~~material ~~for~~growth ~~the~~in ~~nine~~our business, ~~months~~or ~~ended~~even ~~September~~continue ~~30,~~operating ~~2018~~as ~~was~~a ~~$448,000~~going concern.

On March 22, 2019, the Company secured a letter of credit in the amount of $825,000 issued by Legacy Texas Bank for the benefit of Associated Food Stores, Inc. that renews annually with a reduction of $100,000 on each anniversary date.

Significant Accounting Policies

Basis of Presentation

The consolidated financial statements include the accounts of Dougherty’s and all subsidiaries for which the Company has a controlling financial interest. ~~Dougherty’s uses the cost method of accounting to recognize investments in and income from entities where Dougherty’s does not have a significant influence.~~ All intercompany balances and transactions have been eliminated in consolidation. The accompanying unaudited consolidated financial statements of the Company and its wholly owned subsidiaries have been prepared by the Company, in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and are presented in accordance with the requirements of Form 10-Q and Rule 10-01 of Regulation S-X and have not been audited. Accordingly, these unaudited consolidated financial statements do not include all of the information and notes required by GAAP for complete financial statements and should be read in conjunction with the audited consolidated financial statements and notes thereto for the fiscal year ended December 31, 2017 included in the Company’s Form 10-K. In the opinion of management, the interim unaudited consolidated financial statements included herein contain all adjustments, including normal recurring adjustments, considered necessary to present fairly the Company’s financial position, the results of operations and cash flows for the periods presented. Due to seasonality, the results of operations for the nine months ended September 30, 2018, are not necessarily indicative of the results to be expected for any future interim period for the year ending December 31, 2018.

Use of Estimates

The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Concentration of Credit Risk

The Company’s credit risk relates primarily to its trade accounts receivables and its receivables from affiliates, along with cash deposits maintained at financial institutions in excess of federally insured limits on interest bearing accounts. Management performs continuing evaluations of debtors’ financial condition and maintains an allowance for uncollectible accounts as determined necessary.

Accounts Receivable

Receivables recorded in the financial statements represent valid claims against debtors for services rendered or other charges arising on or before the balance sheet date. Management makes estimates of the collectability of accounts receivable. Specifically, management analyzes accounts receivable and historical bad debts, customer credit-worthiness, current economic trends, and changes in customer payment terms and collections trends when evaluating the adequacy of the allowance for doubtful accounts. Any change in the assumptions used in analyzing accounts receivable may result in additional allowances for doubtful accounts being recognized in the periods in which the change in assumptions occurs.

At ~~September~~March 3031, ~~2018~~2019 and ~~2017~~December 31, ~~all~~2018, 100% of the trade accounts receivable ~~were~~is from retail pharmacy operations.

Inventories

Inventories consist of health care product finished goods held for resale, valued at the lower of cost using the first-in, first-out method or net realizable value. The Company maintains an estimated reserve against inventory for excess, slow-moving, and obsolete inventory as well as inventory for which carrying value is in excess of its net realizable value.

Property and Equipment

Property and equipment is carried at cost. Depreciation and amortization are provided over the estimated useful lives of the assets (generally three to seven years) using the straight-line method. Leasehold improvements are amortized on a straight-line basis over the lesser of either the lease term or the estimated useful life of the asset.

Long-Lived Assets

The Company evaluates the recoverability of the carrying value of its long-lived assets whenever events or circumstances indicate the carrying amount may not be recoverable. If a long-lived asset is tested for recoverability and the undiscounted estimated future cash flows expected to result from the use and eventual disposition of the asset is less than the carrying amount of the asset, the asset cost is adjusted to fair value and an impairment loss is recognized as the amount by which the carrying amount of a long-lived asset exceeds its fair value.

Intangible Assets

Intangible assets with finite lives are being amortized on the straight-line basis over seven years. Such assets are periodically evaluated as to the recoverability of their carrying values.

Treasury Stock

Common stock shares repurchased are recorded at cost. Cost of shares retired or reissued is determined using the first-in, first-out method.

Revenue Recognition

Revenues generated by the retail pharmacy operations are reported at the estimated net realizable amounts expected to be received from individuals, third-party payors, institutional health care providers and others. The Company recognizes revenue from the sale of pharmaceutical products and retail merchandise as transactions occur and product is delivered to the customer. Revenue from product sales is recognized at the point of sale and service revenue is recognized at the time services are provided.

Sales and similar taxes collected from clients are excluded from revenues. The obligation is included in accounts payable until the taxes are remitted to the appropriate taxing authorities.

~~Substantially~~The ~~all~~retail ~~revenues~~pharmacy ~~earned~~operations ~~during~~recognize revenue for pharmaceutical products sold under prescriptions and non-pharmaceutical products at the ~~nine~~time ~~months~~the ~~ended~~customer ~~September~~takes ~~30,~~possession of ~~2018~~the merchandise through the point of sale system as transactions occur. Each prescription claim is its own arrangement with the customer and ~~2017,~~is ~~were~~a ~~earned~~performance ~~from~~obligation that is reported at the ~~retail~~estimated ~~pharmacy~~net ~~operations~~realizable amounts expected to be received from individuals, third-party payors, institutional health care providers and others.

The Company provides retail pharmacy prescriptions and products to residents at long-term care facilities. Revenue is recognized through the billing system at the time of delivery as transactions occur. Each prescription claim is its own arrangement with the customer and is a performance obligation that is reported at the estimated net realizable amounts expected to be received from individuals, third-party payors, institutional health care providers and others. Prescription co-payments are typically not collected at the time products are delivered but are billed to the individuals as part of normal billing procedures and subject to normal accounts receivable collections procedures. The Company has contracts with certain of the long-term care facilities for the delivery of those prescriptions, certain computer and medication dispensing equipment and software and support services all of which are specifically outlined in the contract. The contracts provide for reimbursement of certain costs for certain of these services. As it relates to the long-term care contracts and any other support services provided to its customers, the Company has determined that no revenue is recognized from separate and distinct performance obligations other than the retail sale of the pharmacy prescriptions and products.

Substantially all revenues earned during the periods ended March 31, 2019 and 2018, were earned from the retail pharmacy business.

Cost of Sales

Cost of sales includes the purchase price of goods sold, prescription packaging, compounded prescription direct labor, inventory obsolescence, freight costs, cash discounts and vendor rebates. Rebates or refunds received by the Company from its suppliers are considered as an adjustment of the prices of the supplier’s products purchased by the Company.

Income Taxes

The Company accounts for income taxes in accordance with income tax accounting guidance (ASC 740, Income Taxes). The income tax accounting guidance results in two components of income tax expense: current and deferred. Current income tax expense reflects taxes to be paid or refunded for the current period by applying the provisions of the enacted tax law to the taxable income or excess of deductions over revenues. The Company determines deferred income taxes using the liability (or balance sheet) method. Under this method, the net deferred tax asset or liability is based on the tax effects of the differences between the book and tax bases of assets and liabilities, and enacted changes in tax rates and laws are recognized in the period in which they occur. Deferred income tax expense results from changes in deferred tax assets and liabilities between periods. Deferred tax assets are reduced by a valuation allowance if, based on the weight of evidence available, it is more-likely-than-not that some portion or all of a deferred tax asset will not be realized.

Tax positions are recognized if it is more-likely-than-not, based on the technical merits, that the tax position will be realized or sustained upon examination. The term more-likely-than-not means a likelihood of more than 50%; the terms examined and upon examination also include resolution of the related appeals or litigation processes, if any. A tax position that meets the more-likely-than-not recognition threshold is initially and subsequently measured as the largest amount of tax benefit that has a greater than 50% likelihood of being realized upon settlement with a taxing authority that has full knowledge of all relevant information. The determination of whether or not a tax position has met the more-likely-than-not recognition threshold considers the facts, circumstances and information available at the reporting date and is subject to management’s judgment.

On December 22, 2017, the President signed into law the “Tax Cuts and Jobs Act” (the “TCJA”). Among numerous changes to existing tax laws, the TCJA permanently reduces the federal corporate income tax rate from 35% to 21% effective January 1, 2018. The effects on deferred ~~tax~~ tax balances of changes in tax rates are required to be taken into consideration in the period in which the changes are enacted, ~~regardless~~ regardless of when they are effective. As the result of the reduction of the corporate income tax rate under the TCJA, the Company ~~estimated~~ estimated the revaluation of its net deferred tax assets and recorded a provisional noncash income tax loss of approximately $1.0 ~~million~~ million for year ended December 31, 2017. AsDuring ~~of September 30,~~ 2018, the Company fully reserved its deferred tax ~~asset~~asst resulting in a $2.0 million charge to the ~~income~~Statement ~~statement~~of Operations due to uncertainty of future income to utilize such ~~assets~~asset.

Interest and penalties on income tax related items are included within the income tax provision and are recorded in income tax expense. The Company did not incur any interest and penalties during the periods ended March 31, 2019 and 2018.

With a few exceptions, the Company is no longer subject to U.S. federal, state and local or non-U.S. income tax examinations by tax authorities for years before 2015.

Stock-Based Compensation

The Company recognizes compensation expense for equity awards over the requisite service period (usually the vesting period) based on their grant date fair value and non-vested units adjusted quarterly to reflect current market price. See Note 12 for additional information on stock-based compensation.

Earnings per Share

Basic earnings per share is computed by dividing net loss by the weighted-average number of common shares outstanding during the period. Diluted earnings per share is computed by dividing net loss and unrecognized stock- based compensation by the weighted-average number of common shares outstanding during the period and the unvested restricted stock units. The unrecognized stock- based compensation as of ~~September~~March 3031, ~~2018~~2019 ~~and~~2019 ~~2017~~and 2018 is $1218,~~000~~600 and $~~116~~22,000, respectively; the unvested restricted stock units ~~are~~is ~~140~~105,000 and ~~658~~170,~~500~~150, respectively. Due to ~~the~~ the net losses for both ~~years~~periods, restricted stock units for ~~2018~~2019 and ~~2017~~2018 were anti-dilutive.

New Accounting Pronouncements

ASU No. 2016-02, Leases (Topic 842)

In February 2016, the FASB issued ~~ASU~~Accounting Standards Update No. 2016-02, Leases (Topic 842) ~~("ASU 2016-02")~~. ~~ASU~~Topic ~~2016-02~~842 requires ~~the~~companies ~~lessee~~ to generally recognize ~~assets~~on ~~and~~the ~~liabilities~~balance ~~for~~sheet ~~leases~~operating ~~with~~and financing lease ~~terms~~liabilities and corresponding right-of-use ~~more~~assets. ~~than~~We ~~twelve~~elected ~~months.~~the ~~For~~available ~~leases~~practical ~~with~~expedients aand ~~term~~adopted ofASC ~~twelve~~842 ~~months~~effective January or1, ~~less~~2019, ~~the~~prospectively. ~~Company~~The isadoption ~~permitted~~of tothis ~~make~~standard anresulted ~~accounting policy~~in ~~election~~the byrecognition ~~class~~ of ~~underlying asset not~~ right-to-use ~~recognize lease~~ assets and lease liabilities~~. Further, the lease requires a~~ ~~finance lease to recognize both an interest expense and an amortization~~ of ~~the associated expense~~$4.5 ~~Operating~~million ~~leases~~and ~~generally recognize the associated expense on a straight-line basis~~$4.6 ~~ASU 2016-02 requires the Company to adopt the standard using a modified retrospective approach and becomes effective on January 1~~million, ~~2019.~~with ~~The~~no ~~Company~~material ~~is currently evaluating the~~ impact ~~that ASU 2016-02 will have~~ on ~~its~~ ~~financial~~the ~~position,~~ results of operations and cash flows. ~~Our~~See ~~current~~below ~~minimum~~Note ~~lease~~3 ~~commitments~~“Leases" for ~~are~~additional ~~disclosed~~information inregarding ~~Note~~our 4leases.

2. Notes Payable

Notes payable consist of the following:

	September 30, 2018			December 31, 2017
	March 31, 2019			December 31, 2018
		(Unaudited)			(Audited)
First National Bank of Omaha Credit Facility and Promissory Note secured by certain retail pharmacy assets
Term note OSK VII, LLC principal amount of $3,956,000, interest at LIBOR plus 3.25% (5.36% at March 31, 2019). Matured on August 31, 2018 (see below).	$	3,956,000		$	3,956,000
Revolving line of credit in the principal amount of $4,000,000 and $4,450,000, interest at LIBOR plus 3.25% (5.24% at September 30, 2018)	$	–		$	3,831,000
Cardinal Health Term Notes, secured by retail pharmacy assets
Term note OSK VII, LLC principal amount of $3,956,000, interest at LIBOR plus 3.25% (5.36% at September 30, 2018)		3,956,000
Term note in the principal amount of $432,859 at fixed interest rate of 8.11% per annum payable in 36 monthly installments of $13,641. Final payment plus accrued and unpaid interest due in full on April 10, 2020.		194,000			194,000
Term note in the principal amount of $432,859 at fixed interest rate of 8.11% per annum payable in 36 monthly installments of $13,641. Final payment plus accrued and unpaid interest due in full on April 10, 2020.		242,000			335,000
Term note in the principal amount of $1,827,850 with interest payable at prime plus 2.6% (7.35% at Mar 31, 2018) per annum payable in monthly installments of $15,232 plus interest, a final payment of $929,157 plus all accrued and unpaid interest due in full on July 10, 2020.		1,188,000			1,188,000
Term note in the principal amount of $1,827,850 with interest payable at prime plus 2.60% (7.85% at September 30, 2018) per annum payable in monthly installments of $15,232 plus interest, a final payment of $929,157 plus all accrued and unpaid interest due in full on July 10, 2020.		1,249,000			1,371,000
Term note in the principal amount of $1,241,350 with interest payable at prime plus 2.6% (7.35% at Mar 31, 2018 ) per annum payable in monthly installments of $10,344 plus interest, a final payment of $638,850 plus all accrued and unpaid interest due in full on January 10, 2020.		745,000			745,000
Term note in the principal amount of $1,241,350 with interest payable at prime plus 2.60% (7.85% at September 30, 2018) per annum payable in monthly installments of $10,344 plus interest, a final payment of $638,850 plus all accrued and unpaid interest due in full on January 10, 2020.		786,000			869,000
Term note in the principal amount of $744,100 with interest payable at prime plus 2.38% (7.13% at Mar 31, 2018 ) per annum payable in monthly installments of $6,200 plus interest, a final payment of $378,251 plus all accrued and unpaid interest due in full on August 10, 2020.		496,000			496,000
Term note in the principal amount of $744,100 with interest payable at prime plus 2.38% (7.63% at September 30, 2018) per annum payable in monthly installments of $6,200 plus interest, a final payment of $378,251 plus all accrued and unpaid interest due in full on August 10, 2020.		521,000			570,000
Term note in the principal amount of $305,350 with interest payable at prime plus 2.4% (7.15% at Mar 31, 2018 ) per annum payable in monthly installments of $2,545 plus interest, a final payment of $155,220 plus all accrued and unpaid interest due in full on August 10, 2019.		170,000			170,000
Term note in the principal amount of $305,350 with interest payable at prime plus 2.40% (7.65% at September 30, 2018) per annum payable in monthly installments of $2,545 plus interest, a final payment of $155,220 plus all accrued and unpaid interest due in full on August 10, 2019.		181,000			202,000
Acquisition Notes Payable, unsecured
Notes payable to sellers of acquired pharmacies with varying monthly payments with interest at 5.5% due through September 2018.		–			97,000
Insurance notes payable, secured by the respective insurance policies
Notes payable for the Company’s insurance policy premiums with varying monthly payments due through September 2018. Interest rates vary up to 4.076%		–			170,000
Notes payable for the Company’s insurance policy premiums with varying monthly payments due through September 2019. Interest rates vary up to 4.76%		123,000			189,000
		6,935,000			7,445,000
		6,872,000			6,938,000
Less current portion		(54,~~282~~776,000	)		(4,~~644~~842,000	)
	$	12,~~653~~096,000		$	2,~~801~~096,000

1012

Future maturities of notes payable at ~~September~~March 3031, ~~2018~~2019, are as as follows:

2018		$	4,130,000
	2019			$	4,776,000
2019			1,324,000
	2020				2,096,000
2020			1,481,000
				$	6,872,000
		$	6,935,000

The revolving credit facility (“the Revolver”) with the First National Bank of Omaha (“the Lender”) iswas secured by, but not limited to, the accounts receivable, inventory, and the fixed assets of the Borrowers. On ~~July~~August 1, ~~2017~~2018, the Company ~~obtained~~was anobligated ~~extension~~to make payment of the ~~Revolver,~~ ~~through~~outstanding ~~September~~principal ~~1, 2017. On August 9, 2017, the Company obtained an additional term for the Revolver in the amount~~ of $43,~~450~~956,000 ~~effective~~ ~~September~~plus ~~1, 2017, and then effective February 1, 2018, in the amount of~~ $418,000~~,000.~~ ~~Outstanding~~in ~~advances under the Revolver bore interest at LIBOR plus 3.25% (5.36% at September 30, 2018);~~ accrued and unpaid interest onunder the Revolver ~~was~~with ~~due~~the ~~monthly~~Lender. ~~All~~Failure to ~~outstanding~~make ~~principal~~this ~~under~~payment ~~the Revolver plus all accrued and unpaid interest thereon was due and payable in full~~ on the August 1, 2018, ~~(See~~maturity ~~Note~~date ~~6).~~was Onan ~~August~~event ~~10,~~of ~~2018,~~default ~~the~~under ~~Lender notified~~ the ~~Company that the~~ Revolver. ~~had~~The ~~been~~accrued ~~sold~~interest toof ~~the~~$18,000 was ~~Current~~paid ~~Lender effective~~ on August 102, 2018. ~~This~~An ~~assignment~~event of ~~the~~default ~~Revolver~~under ~~from~~ the ~~Lender~~Revolver topermits the ~~Current~~ Lender, ~~does~~among ~~not~~other ~~affect~~things, ~~any~~to ~~terms~~foreclose ~~and~~on ~~condition~~the ofassets ~~the~~securing ~~Revolver and~~ the ~~associated loan documents. The~~ Revolver, iswhich ~~secured~~includes by certain retail pharmacy assets, specifically but not limited to, inventory, equipment, software, accounts receivable, intangibles and deposit accounts of the Company. ~~The~~(the ~~Revolver is~~“Secured ~~subject~~Assets”). toIn ~~certain financial restrictions, now subject~~ addition to the ~~Current~~failure ~~Lender’s~~to ~~prior~~make ~~written~~the ~~approval,~~payment ~~including,~~on ~~but not~~the ~~limited~~maturity todate, ~~capital~~as ~~expenditures~~of ~~not~~August ~~to exceed $200~~1,~~000,~~ ~~additional indebtedness~~2018, ~~acquisitions~~the ofCompany ~~entities~~was ~~and~~not ~~payment~~in ofcompliance ~~dividends and~~with ~~distributions.~~its ~~Effective December 31, 2017, the Borrowers agreed~~ covenant to maintain a minimum debt service coverage ratio of not less than 1.00 to 1.00, as defined. Asunder ofthe ~~September~~Revolver. ~~30,~~Failure ~~2018,~~to ~~the~~maintain this ~~Borrowers~~financial ~~were~~covenant ~~not~~also inconstitutes ~~compliance~~an ~~with~~event ~~this~~of ~~financial~~default ~~covenant~~under the Revolver.

3On August 10, 2018, the Lender notified the Company that the Revolver had been sold to OSK VII, LLC (the “Current Lender”) effective on August 10, 2018. ~~Stock~~ This assignment of the Revolver from the Lender to the Current Lender does not affect any terms and ~~Share-Based~~condition ~~Compensation~~of the Revolver and the associated loan documents. The Company does not currently have the ability to cure either events of default under the Revolver. Should the Current Lender elect to foreclose against the Secured Assets, it would significantly impair the Company's ability to continue as a going concern or to even be able to continue its operations. In light of these uncertainties, Management cannot provide any assurance that it can fund the Company’s capital needs in the near or long term. The Company is evaluating all of its options in light of these circumstances, including, without limitation, refinancing the indebtedness with another lender, negotiating a settlement arrangement with the Current Lender, or obtaining a temporary waiver or forbearance from the Current Lender; provided, however, the Company can provide no assurances that any of these arrangements can be entered into or if entered into would be upon terms and conditions beneficial to and acceptable by the Company. In light of these uncertainties, Management cannot provide any assurance that it can fund the Company’s capital needs in the near or long term.

In conjunction with pharmacy acquisitions, DHI secured term notes payable to Cardinal Health, its primary vendor (see Note 14), and promissory notes to the sellers, as described above. The Company refinanced the Cardinal Health Term Note due February 20, 2017 to a term of 36 months at 8.11% fixed rate interest due in full on April 10, 2020.

3. Leases

Effective January 1, 2019, the Company adopted ASC 842, which requires recognition of a right-of-use asset and lease liability for all leases at the commencement date based on the present value of lease payments over the lease term. Additional qualitative and quantitative disclosures regarding the Company's leasing arrangements are also required. The Company adopted ASC 842 prospectively and elected the package of transition practical expedients that does not require reassessment of (1) whether any existing or expired contracts are or contain leases, (2) lease classification and (3) initial direct costs. In addition, the Company has elected other available practical expedients to not separate lease and nonlease components for all classes of underlying assets and to exclude leases with an initial term of 12 months or less.

The Company determines if a contract is or contains a lease at inception. The Company has operating leases for their pharmacy locations, corporate offices, and certain pharmacy equipment. The Company has entered into lease contracts ranging from 1 to 14 years, many of which include options to extend in various increments. Variable lease costs consist primarily of variable common area maintenance, taxes, insurance, parking and utilities. The Company’s leases do not have any residual value guarantees or restrictive covenants.

As the implicit rate is not readily determinable for most of the Company’s lease agreements, the Company uses an estimated incremental borrowing rate to determine the initial present value of lease payments. These estimated discount rates for leases are calculated using the Company's interest rates on its term loans.

The components of lease costs are as follows:

	Three Months ended March 31, 2019
Operating lease costs	$	210
Variable lease costs		67
Total lease costs	$	277

Supplemental cash flow information related to leases are as follows:

	Three Months ended March 31, 2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flow from operating leases	$	210
Right-of-use assets obtained in exchange for lease obligations:
Operating Leases	$	–

Weighted average remaining lease term and weighted average discount rate are as follows:

Weighted Average Remaining Lease Term (Years)
Operating leases			9
Weighted Average Discount Rate
Operating Leases			8%

Maturities of lease liabilities are as follows:

2019 ₍₁₎	$	605,000
2020		740,000
2021		674,000
2022		672,000
2023		684,000
Thereafter		3,131,000
Total lease payments		6,506,000
Less imputed interest		(1,912,000	)
Total lease liabilities	$	4,594,000

(1)

2019 excluding the three months ended March 31, 2019

4. Stock and Share-Based Compensation

Restricted Share Unit Incentive Plan

On November 13, 2013, the Board of Directors approved and adopted the Restricted Share Unit (“RSU”) Incentive Plan. Under the plan the Company can award RSUs to employees and non-employee directors and consultants pursuant to restricted stock agreements contingent upon continuous service. Under the restricted stock agreements, the restricted shares will vest annually over a four-year period and will be payable in stock, valued at the fair market value on the grant date.

As of ~~September~~March 3031, ~~2018~~2019, the following ~~shares~~ shares had been issued under the 2013 RSU Plan:

Year of Issuance:		~~Number of Shares~~		Number of Shares		~~Fair Value at Date of Grant~~		Fair Value at Date of Grant		~~Shares Vested~~		Shares Vested		~~Non-Vested~~		Non-Vested		~~Cancelled~~		Cancelled
~~2013~~	2013		~~120,000~~		120,000	$	~~26,000~~	$	26,400		~~115,000~~		115,000		–		–		~~5,000~~		5,000
~~2014~~	2014		~~122,100~~		122,100	$	~~31,000~~	$	30,946		~~101,850~~		101,850		–		–		~~20,250~~		20,250
~~2015~~	2015		~~150,000~~		150,000	$	~~39,000~~	$	39,000		~~85,000~~		85,000		~~15,000~~		15,000		~~50,000~~		50,000
~~2016~~	2016		–		–		–		–		–		–		–		–		–		–
~~2017~~	2017		~~563,000~~		563,000	$	~~114,000~~	$	114,030		~~111,600~~		126,600		~~45,000~~		30,000		~~406,400~~		406,400
~~2018~~	2018		~~80,000~~		80,000	$	~~11,000~~	$	11,192		–		20,000		~~80,000~~		60,000		–		–
			~~1,035,100~~		1,035,100	$	~~221,000~~	$	221,568		~~413,450~~		448,450		~~140,000~~		105,000		~~481,650~~		481,650

115. Commitments and Contingencies

4. Commitments and Contingencies

Operating Leases

The Company leases their pharmacy, corporate offices and certain pharmacy equipment under non-cancelable operating lease agreements. Certain leases contain renewal options and provide that the Company pay taxes, insurance, maintenance and other operating expenses.

Minimum lease payments under all non-cancelable operating lease agreements for the nine months ended September 30, 2018, are as follows:

2018	$	788,000
2019		806,000
2020		670,000
2021		674,000
2022		685,000
Thereafter		3,372,000
	$	6,995,000

Legal Proceedings

The Company is occasionally involved in other claims and proceedings, which are incidental to its business. It is the opinion of management that the disposition or ultimate resolution of such claims and lawsuits will not have a material adverse effect on the consolidated financial position, results of operations and cash flows of the Company.

56. Related Party Transactions

During the three ~~and nine~~ months ended ~~September~~ 30March 31, 2019 and 2018, the Company paid fees to its directors of $~~5,000~~0 and $3312,000 for their roles as members of the Board of Directors ~~and~~ and its related committees; fees paid to the Company’s Chairman totaled $3010,000 ~~and $90,000~~ for management and other services provided.

~~6. Subsequent Events~~15

The Legacy West Campus in Plano, Texas was closed on February 4, 2019.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operation

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

~~Should~~This ~~one~~Registration orStatement ~~more~~and ofother ~~these~~documents that ~~risks~~we file or ~~uncertainties materialize,~~furnish orwith ~~should~~the ~~any~~SEC ofcontain ~~our~~forward-looking ~~assumptions~~statements ~~prove~~that ~~incorrect~~are based on current expectations, ~~actual~~estimates, ~~results~~forecasts and ~~may~~projections ~~vary~~about inour ~~material~~future ~~respects~~performance, ~~from~~our ~~those~~business, ~~projected in~~our ~~these~~beliefs ~~forward-looking~~and ~~statements~~our management’s assumptions. We ~~undertake~~In noaddition, ~~obligation~~we, or toothers ~~update~~on orour ~~revise~~behalf, ~~any~~may make forward-looking statements, ~~whether as~~in apress ~~result~~releases ofor ~~new~~written ~~information~~statements, ~~future~~on ~~events,~~the Company’s website or ~~otherwise,~~in ~~except~~our ascommunications ~~may~~and bediscussions ~~required~~with ~~under~~investors ~~applicable~~and ~~securities~~analysts ~~laws~~in the normal course of business through meetings, webcasts, phone calls, conference calls and other communications.

The forward-looking statements contained in this Form 10-Q and other documents that we file or furnish with the SEC contain forward-looking statements that are based on current expectations, estimates, forecasts and projections about our future performance, our business, our beliefs and our management’s assumptions. In addition, we, or others on our behalf, may make forward-looking statements in press releases or written statements, on the Company’s website or in our communications and discussions with investors and analysts in the normal course of business through meetings, webcasts, phone calls, conference calls and other communications.

Statements that are not historical facts are forward-looking statements, including, without limitation, those regarding estimates of and goals for future financial and operating performance as well as forward-looking statements concerning the expected execution and effect of our business strategies. Words such as “expect,” “likely,” “outlook,” “forecast,” “preliminary,” “would,” “could,” “should,” “can,” “will,” “project,” “intend,” “plan,” “goal,” “guidance,” “continue,” “sustain,” “synergy,” “believe,” “seek,” “estimate,” “anticipate,” “may,” “possible,” “assume,” and variations of such words and similar expressions are intended to identify such forward-looking statements.

These forward-looking statements are not guarantees of future performance and are subject to risks, uncertainties and assumptions, known or unknown, that could cause actual results to vary materially from those indicated or anticipated, including, but not limited to the following:

· ~~Management cannot provide any assurance that it can fund the Company’s capital needs in the near or long-term. ·~~ We ~~are~~currently inhave ~~default~~no ~~under our revolving credit facility, which jeopardizes our ability to continue current operations in the event that the~~ lender ~~elects to foreclose against the Company’s material assets securing this indebtedness; · We have limited funds and will require additional~~ financing to maintain our ~~current~~ operations; · We have material weaknesses in our internal controls over financial reporting; · Our disclosure controls are not effective; · We may not be able to effectively integrate and manage our current and anticipated growth strategies; · We could be subject to unforeseen costs associated with our Pharmacy Acquisitions which could reduce our profitability; · We may enter into additional leveraged transactions in connection with future Pharmacy Acquisitions; · We are substantially dependent on a single supplier of pharmaceutical products; · We must maintain sufficient sales to qualify for favorable pricing under our long-term supply contract; · We may be affected by the introduction of new brand name and generic prescription drugs, the conversion rate and mix of prescriptions filled, the reimbursement rate by third party payors of prescriptions and increases in the cost to procure those drugs; · We are subject to considerable uncertainty as to how current Health Reform Laws will affect our business and operations; · We could be negatively affected by future legislative or regulator policies designed to manage healthcare costs or alter healthcare financing practices; and · We handle confidential healthcare information for our customers and are subject to the risk in securing such confidential information and protecting it from cyber-attacks.

13· Our auditors have expressed substantial doubt that we will be able to continue as a going concern. · We cannot provide any assurance that we can fund the Company’s capital needs in the near or long term;

~~These~~· ~~and~~We ~~other~~need ~~risks,~~significant ~~assumptions~~amounts ~~and uncertainties~~of ~~include,~~cash ~~but are not limited~~ to, ~~those~~service ~~factors described in the “Risk Factors” sections of~~ our ~~Registration Statement on Annual Report on Form 10-K filed on March 29, 2018~~debt. ~~Should~~If ~~one~~we or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those indicated or anticipated by such forward-looking statements. Accordingly, you are ~~cautioned~~unable ~~not~~ to ~~place~~generate ~~undue~~sufficient ~~reliance~~cash onto ~~these~~service ~~forward-looking~~our ~~statements~~debt, ~~which speak~~our ~~only as of the date they are made. Except to the extent required by law~~liquidity, wefinancial docondition ~~not undertake,~~ and ~~expressly~~results ~~disclaim,~~of ~~any duty~~operation orcould ~~obligation~~be tonegatively ~~update publicly any forward-looking statement after the date the statement.~~affected;

We may not be able to renegotiate our current prime vendor agreement on terms favorable to us, if at all;

	·	We are in default under our revolving credit facility;
	·	Our line of credit with our prime vendor has been significantly reduced putting increased pressure on our cash flow and negatively affecting our ability to procure pharmaceuticals for resale to our customers;

	·	Our failure to re-credential with Caremark has resulted in an inability to fill prescriptions for Caremark and ultimately in our termination with Caremark;

	·	We have identified certain material weaknesses in our internal control over financial reporting;

	·	We have determined that our disclosure controls are not effective;

	·	We may be affected by the introduction of new brand name and generic prescription drugs, the conversion rate and mix of prescriptions filled, the reimbursement rate by third party payors of prescriptions and increases in the cost to procure those drugs;

We are subject to considerable uncertainty as to how current Health Reform Laws will affect our business and operations;

We could be negatively affected by future legislative or regulator policies designed to manage healthcare costs or alter healthcare financing practices; and

We handle confidential healthcare information for our customers and are subject to the risk in securing such confidential information and protecting it from cyber-attacks.

These and other risks, assumptions and uncertainties include, but are not limited to, those factors described in the “Risk Factors” sections of our Registration Statement on Annual Form 10-K filed on May 6, 2019. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those indicated or anticipated by such forward-looking statements. Accordingly, you are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date they are made. Except to the extent required by law, we do not undertake, and expressly disclaim, any duty or obligation to update publicly any forward-looking statement after the date the statement.

OVERVIEW

Key measures used by the Company’s management to evaluate business performance include revenue, gross profit, selling, general and administrative expense (“SG&A”) and EBITDA. EBITDA is calculated as net income before deducting interest, taxes, depreciation and amortization. EBITDA is a non-GAAP measure that the Company’s management considers to best present the results of ongoing operations and is useful when comparing the performance between different reporting periods. In those instances, we have identified when the Company is presenting adjusted EBITDA. Although EBITDA is not a measure of actual cash flow because it does not consider changes in assets and liabilities that may impact cash balances, the Company believes it is a useful metric to evaluate operating performance and has therefore included such measures in the discussion of operating results below.

The Company also tracks prescriptions sold to assess operational performance.

Overview of Our Business

Dougherty’s Pharmacy, Inc. (“Dougherty’s,” which is also referred to in this Quarterly Report on Form 10-Q as “we,” “us,” or “the Company”) is a value- oriented company focused on successfully acquiring, managing and growing community- based pharmacies in the Southwest Region. Our wholly owned subsidiary, Dougherty’s Holdings, Inc., owns and operates multiple Dougherty’s Pharmacies, which we operate as a single segment in our financial reporting. The flagship store, Dougherty’s Pharmacy, is a turn-key multi-service pharmacy located in a highly prestigious area of Dallas, Texas. Centrally located, we believe that Dougherty’s Pharmacy continues to provide a level of service not typically provided by national pharmacy chain stores. We fulfill virtually any prescription need, from the simplest to the most complex compounding prescriptions. Most national pharmacy chains do not provide complex pharmacy prescription services. We specialize in providing solutions for our retail customers’ pharmacy needs and also for our customers residing in assisted living facilities. Dougherty’s long history began in 1929 and continues today as one of Dallas’s oldest, largest and best-known full-service pharmacies, which also includes durable medical equipment, home healthcare products services, and health and wellness supplements. We have a customer service- oriented philosophy and typically do not attempt to compete solely based on price, as is the case with most of the national pharmacy chains.

Additional community pharmacies are located in Dallas, El Paso, and Springtown, Texas and in McAlester, Oklahoma.

Key measures used by the Company’s management to evaluate business performance include revenue, gross profit, selling, general and administrative expense (“SG&A”) and EBITDA. EBITDA is calculated as net income before deducting interest, taxes, depreciation and amortization. EBITDA is a non-GAAP measure that Company’s management considers to best present the results of ongoing operations and is useful when comparing the performance between different reporting periods. In certain instances, we have presented EBITDA (Adjusted) which also excludes certain one-time, non-recurring, non-operating losses or impairments, as the Company considers excluding these adjustments necessary to derive the results of ongoing operations. In those instances, we have identified when the Company is presenting adjusted EBITDA. Although EBITDA or EBITDA (Adjusted) is not a measure of actual cash flow because it does not consider changes in assets and liabilities that may impact cash balances, the Company believes it is a useful metric to evaluate operating performance and has therefore included such measures in the discussion of operating results below.

The Company also tracks prescriptions sold to assess operational performance.

Recent Developments

The revolving credit facility (“the Revolver”) with the First National Bank of Omaha (“the Lender”) was secured by, but not limited to, the accounts receivable, inventory, and the fixed assets of the Borrowers. On August 1, 2018, the Company was obligated to make payment of the outstanding principal of $3,956,000 plus $18,000 in accrued and unpaid interest under the Revolver with the Lender. Failure to make this payment on the August 1, 2018, maturity date was an event of default under the Revolver. The accrued interest of $18,000 was paid on August 2, 2018. An event of default under the Revolver permits the Lender, among other things, to foreclose on the assets securing the Revolver, which includes certain retail pharmacy assets, specifically but not limited to, inventory, equipment, software, accounts receivable, intangibles and deposit accounts of the Company (the “Secured Assets”). In addition to the failure to make the payment on the maturity date, as of August 1, 2018, the Company was not in compliance with its covenant to maintain a minimum debt service coverage ratio of not less than 1.00 to 1.00, as defined under the Revolver. Failure to maintain this financial covenant also constitutes an event of default under the Revolver.

On August 10, 2018, the Lender notified the Company that the Revolver had been sold to OSK VII, LLC (the “Current Lender”) effective on August 10, 2018. This assignment of the Revolver from the Lender to the Current Lender does not affect any terms and condition of the Revolver and the associated loan documents. The Company does not currently have the ability to cure either events of default under the Revolver. Should the Current Lender elect to foreclose against the Secured Assets, it would significantly impair the Company's ability to continue as a going concern or to even be able to continue its operations. In light of these uncertainties, Management cannot provide any assurance that it can fund the Company’s capital needs in the near or long term. The Company is evaluating all of its options in light of these circumstances, including, without limitation, refinancing the indebtedness with another lender, negotiating a settlement arrangement with the Current Lender, or obtaining a temporary waiver or forbearance from the Current Lender; provided, however, the Company can provide no assurances that any of these arrangements can be entered into or if entered into would be upon terms and conditions beneficial to and acceptable by the Company. In light of these uncertainties, Management cannot provide any assurance that it can fund the Company’s capital needs in the near or long term.

In January 2018, in an attempt to maintain a higher tier rebate with Cardinal and avoid a margin shrink, management increased order volume resulting in higher inventory levels and less working capital and the maxing out of Dougherty’s line of credit by September 2018. This was in addition to the default on the revolver in August 2018 and the discontinuation of the corporate credit card program. The lower working capital resulted in a reduction in the ability to procure OTC stock (higher margin sales), an increase in out-of-stocks and poor customer service levels. This in turn had the opposite impact on our margin from what was intended – we lost sales on high margin OTC items and January’s high rebate was offset by lower rebates in February and March.

The loss of the line of credit and switch to COD ordering in turn exacerbated the poor level of service as it resulted in an increase in partial fills and out-of-stocks of essential prescription medications. Cardinal chose to decrease the line of credit by $64,000 / month beginning in February 2019 to offset Dougherty’s defaulted loan agreement putting further pressure on free cash flow and Dougherty’s ability to procure drugs. This issue was further compounded when Cardinal on several occasions did not release the orders even after receiving payments for them. In February 2019 all stores were allocated maximum weekly purchasing ability from Cardinal – focusing on medication owed to the customer and chronic medication. Our inability to renegotiate the loan agreement with Cardinal has affected Dougherty’s ability to ensure the safety and continual medication supply to their customers and forced management to seek alternative suppliers.

In September 2018, the company received notification from JC Penny that they would discontinue the subsidy for fiscal year 2019. No new agreement could be reached in January and the Legacy Pharmacy was closed in February and the contract with JC Penny terminated.

In December 2018, the Long Term Care pharmacy was wound down due to the inability of Dougherty’s to manage it profitably. All residual business was transferred to the Preston Royal store.

In January 2019, in an attempt to curtail spending, the decision was made to change phone carriers. The result was devastating; customers were unable to get through to the pharmacy, were being kept on hold for hours or the calls continually dropped. More labor was added in an attempt to improve the conditions with little impact.

In February 2019, Caremark, which represents a little over 30% of Dougherty’s business sent a letter out to all their members letting them know that Dougherty’s will no longer be able to fill prescriptions for them as a result of management failing to re-credential with Caremark by the cutoff date of 12/18. In spite of a $30,000 marketing campaign to reassure our customers, numerous customers transferred out. On 3/31 the Caremark contract was terminated and re-credentialing started as soon as all information on the State Secretary and Texas State Board of Pharmacy was updated.

In February 2019, TI money from Eden’s for the Preston Royal location was renegotiated and reinstated allowing management to start renovations with an emphasis on improving workflow and thus customer service, upgrading and expanding the sterile and non-sterile compounding departments to increase manufacturing capacity and reduce wait times. It also allowed Dougherty’s to ensure USP 800 standards, required by December 2019 to continue operations, were both met and exceeded. The LTC area was upgraded in anticipation of relaunching that business in the second quarter 2019. The central fill and mail order rooms were installed and application for licensing submitted to allow those businesses to launch in the 3rd quarter 2019.

On May 10, 2019, the Company signed an agreement to sell certain prescription files of three locations to a national Fortune 500 pharmaceutical and healthcare retail company, with the planned proceeds to reduce the Company’s debt and improve its balance sheet. However, as of May 20, 2019, the parties have terminated this agreement. The Company anticipates proceeding with a sale of these assets, but no other buyer has been identified, nor can we give any assurances that we could locate another interested buyer and close a deal on terms acceptable to the Company.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

RESULTS OF OPERATIONS

The following discussion explains the material changes in our results of operations for the ~~nine~~three months ended ~~September~~March 3031, ~~2018~~2019 and ~~2017~~2018, and the significant developments affecting our financial condition since the Form 10-K filed ~~March~~May 296, ~~2018~~2019. We strongly recommend that you read our audited consolidated ~~financial~~ financial statements and notes thereto and Management’s Discussion and Analysis of Financial Condition and Results of Operations ~~for~~ for the years ended December 31, ~~2017~~2018 and ~~2016~~2017 filed in that report, along with this report.

14Comparison of the Three months ended March 31, 2019, to the Three months ended March 31, 2018 (000’s Omitted)

Comparison of the Three and Nine Months ended September 30, 2018, to the Three and Nine Months ended September 30, 2017 (000’s Omitted)

	Three Months Ended March 31,
	2019			2018			$ Change

Revenue	$	7,767		$	9,455		$	(1,688	)
Cost of sales (exclusive of depreciation and amortization shown separately below)		5,754			6,887			1,133
Gross profit		2,013			2,568			(555	)
Operating expenses
Selling, General and Administrative		2,170			2,509			(339	)
Depreciation and amortization		224			242			(18	)
Other income		–			37			(37	)
Interest expense		(112	)		(110	)		2
Income tax provision		(5	)		(10	)		(5	)
Net loss	$	(498	)	$	(266	)	$	272
plus:
Interest expense	$	112		$	110		$	2
Depreciation and amortization		224			242			(18	)
Income tax provision		5			10			(5	)
EBITDA	$	(157	)	$	96		$	(253	)

Prescription count		87,057			103,098			(16,041	)

	Three Months ended September 30,						Nine Months Ended September 30,
	2018			2017			2018			2017
Revenue	$	8,761		$	9,947		$	27,384		$	30,213
Cost of sales		6,650			7,367			20,431			22,083
Gross profit		2,111			2,580			6,953			8,130
Operating expenses
Selling, General and Administrative		2,286			2,643			7,227			7,846
Depreciation and amortization		231			249			713			769
Other income		47			–			135			–
Interest income		–			–			33			–
Interest expense		(118	)		(115	)		(339	)		(317	)
Loss of disposal of assets		–			–			–			(75	)
Income tax provision		(2,006	)		(9	)		(2,022	)		(32	)
Net loss	$	(2,483	)	$	(436	)	$	(3,180	)	$	(909	)
plus:
Interest expense	$	118		$	115		$	339		$	317
Depreciation and amortization		231			249			713			769
Loss on disposal of assets		–			–			–			75
Income tax provision		2,006			9			2,022			32
EBITDA (Adjusted)	$	(128	)	$	(63	)	$	(106	)	$	284
Prescription count		98,115			107,178			303,923			328,399

Revenues

Net revenues decreased approximately $1,~~186~~688,000 or 1117.9%, ~~and $2,829,000, or 9.4%~~ in the three ~~and nine~~ months ended ~~September~~March 3031, ~~2018~~2019 as compared to prior year. Retail pharmacy prescriptions sold decreased ~~9,000~~ ~~or 8.5% and 24~~16,~~000~~ 041 or 715.56% for the ~~three~~same ~~and nine months ended September 30, 2018~~period. ~~Net~~Third ~~revenues~~party ~~and~~fees ~~prescriptions~~netted ~~for~~against ~~the nine~~revenue ~~months~~increase ~~ended September 30, 2017 includes~~ $~~177~~70,000, ~~and~~to 2~~,313, respectively, from the Humble, Texas pharmacy, sold on May 6, 2017~~.3% ~~Net revenues for the three and nine months ended September 30, 2018 includes $24,000,and $57,000, respectively,~~ of ~~front-end sales~~total ~~at the Legacy store, opened February 6, 2018 and also $27,000, and $75,000, respectively, of net retail pharmacy~~ revenues ~~and~~ ~~949~~compared and 2,212, retail pharmacy prescriptions, respectively. For the three and nine months ended September 30, 2018, pharmacy net revenues and prescriptions declined $923,000, and 10,000, respectively, and $2,559,000, and 24,000, respectively, after adjusting for the Humble, Texas and Legacy stores, primarily attributable to ~~the transition of prescriptions filled for certain long-term care facilities and under certain third-party payor benefit plans that changed effective January~~ 1~~, 2018, to other pharmacy providers~~.1% ~~The~~for ~~initial focus of~~ the ~~Managing~~same ~~Director~~period ofin ~~Business Development appointed during~~ the ~~first~~prior ~~quarter of 2018 has been to recoup these prescriptions~~year.

Gross profit

Gross profit dollars decreased $~~469~~555,000, or 1821.26% ~~and~~as ~~$1,177,000,~~a orresult ~~14.5%~~of in the ~~three~~factors ~~and~~discussed ~~nine~~in ~~months~~Revenues ~~ended September 30, 2018, as compared to prior year~~above. Gross profit as a percent of revenues ~~decreased~~declined ~~180~~to ~~basis~~25.9% ~~points~~ for the three months ended ~~September~~March 3031, ~~2018~~2019, ~~to 24.1%~~ as compared to ~~prior year~~27.2% ~~Gross~~during ~~profit as a percentage of net revenues decreased approximately 150 basis points in~~ the ~~nine~~same ~~months~~period ~~ended September 30, 2018 to 25.4%, as compared to~~ prior year asdue ato ~~result~~an ofincrease ~~reduced~~in ~~reimbursement from certain~~ third- party payor ~~benefit plans~~ fees that ~~changed~~began ~~effective~~increasing ~~January~~at 1,the ~~2018,~~beginning ~~and~~of ~~continued increases in third party payor fees~~2017. Total third- party fees for the three ~~and~~ ~~nine~~ months ~~September~~March 3031, ~~2018~~2019, ended increased $5371,000, ~~and $140,000,~~ as compared to the same quarter prior year. Net Direct and Indirect Remuneration fees during the three ~~and nine~~ months ended ~~September 30~~March 31, 2018, were comparable to the same quarter prior year.

SG&A expenses

SG&A expenses decreased $~~357~~339,000, or 13.5% ~~and $619,000, or 7.9%~~ for the three ~~and nine~~ months ended ~~September~~March 3031, ~~2018~~2019, as compared to prior year. SG&A expenses as a percentage of revenues for ~~both~~ the three months ended ~~September~~March 3031, ~~2018~~2019, ~~decreased~~increased to 2627.19% as compared to 26.65% ~~prior year. SG&A expenses as a percentage of revenues~~ for ~~both~~ the ~~three~~same ~~ended~~period ~~September 30, 2018, decreased to 26.4% as compared to 26.6%~~ prior year~~, for the nine months ended September SG&A percentage of revenue increased to 26~~.3% ~~from 26.0%.~~ The decrease in SG&A expenses during the ~~nine~~three months ended ~~September~~March 3031, ~~2018~~2019, is due to salary and payroll related cost savings from the ~~resignations~~corporate wide ofreorganization. ~~the~~The ~~President~~increase ofin ~~Pharmacy~~operating ~~Operations~~expenses ~~and~~as ~~President~~a ~~and~~percentage ~~Chief Financial Officer during the fourth quarter~~ of ~~2017~~revenues ~~and~~is ~~first~~due ~~quarter of~~to ~~2018,~~lower ~~respectively,~~revenue ~~offset~~as bycompared ~~the~~to ~~addition~~prior ~~of the Managing Director of Business Development during the first quarter of 2018~~year. Management plans to continue cost reduction initiatives during ~~2018~~2019 to decrease SG&A expenses as a percentage of revenues.

Earnings Before Interest, Taxes, Depreciation and Amortization

EBITDA decreased $65253,000, ~~and~~or ~~$390,000, respectively,~~263.5% for the three ~~and nine~~ months ended ~~September~~March 3031, ~~2018~~2019, as compared to the same ~~periods~~ prior year. ~~EBITDA~~during ~~as a percentage of revenues decreased 133 basis points for~~ the ~~nine months ended September 30, 2018, to -0.4% as compared to~~ prior year. EBITDA as a percentage of ~~net~~ revenues was ~~decreased~~-2.0% ~~133~~and ~~basis~~1.0% ~~points~~during in the ~~nine~~three months ended ~~September~~in 30March 31, ~~2018 to -0~~2019.4% ~~as compared to prior year.~~ The decrease in EBITDA ~~basis points~~ for the three ~~and nine~~ months ended ~~September~~March 3031, ~~2018~~ 2019, compared to the same period during prior year, is primarily due to lower gross profit dollars offset by SG&A savings and a ~~result~~decrease in other income of ~~corresponding~~$37,000 ~~decreases~~derived infrom ~~gross~~a ~~profit~~non-pharmacy ~~discussed~~related ~~above~~transaction.

LIQUIDITY AND CAPITAL RESOURCES

WeAs ~~have~~of ~~historically~~March ~~maintained~~31, a2019, ~~level~~we had working capital deficit of ~~liquidity~~approximately ~~sufficient~~$4.0 tomillion ~~allow~~as uscompared to ~~cover~~working ~~our~~capital ~~cash~~deficit ~~needs~~of inapproximately ~~the~~$3.4 ~~short-term~~million at December 31, 2018. Negative ~~Over~~working capital is due to the ~~long-term,~~reclassification weof ~~have~~the ~~managed~~Revolver ~~our~~balance ~~cash~~of $4.0 million as of both March 31, 2019 and December ~~capital~~31, ~~structure~~2018, to ~~maintain~~current ~~our~~liabilities to present the consolidated financial ~~position~~statements ~~and~~in ~~maintain~~conformity ~~flexibility~~with ~~for~~GAAP ~~future~~(See ~~strategic~~Note ~~initiatives~~2). WeThe ~~continuously~~reclassification ~~assess~~does ~~our~~not affect the representation of the Company’s overall performance. The net increase in negative working capital ~~needs,~~of $0.6 ~~debt~~million ~~and~~is ~~leverage~~discussed ~~levels,~~below. ~~capital~~The ~~expenditure~~Company ~~requirements,~~is ~~and~~actively ~~future~~engaged ~~investments~~in ornegotiating ~~acquisitions~~the re-financing of this indebtedness.

As of ~~September~~March 3031, ~~2018~~2019, we had ~~working capital~~cash ~~deficit~~ of approximately $364,~~720,~~000, as compared to ~~working~~approximately ~~capital deficit of~~ $1248,~~954,~~000, ~~million~~ at December 31, ~~2017~~2018. The ~~change~~net decrease in ~~working~~ ~~capital~~cash isfor ~~due~~the tothree ~~decreases~~months inended ~~inventory~~March 31, ~~and~~2019, ~~accounts~~of ~~payable.~~$179,000 ~~Note~~was 6due into ~~Item~~the ~~1of~~an ~~the~~increase ~~Financial~~in ~~Statements~~accounts ~~included~~receivable ~~in Part~~and 1inventory ofand ~~the~~a ~~Financial~~reduction ~~Information~~accounts ~~above~~payable and note payments.

As of ~~September~~March 3031, ~~2018~~2019, wethe Company had ~~cash~~total current assets of $~~206~~4,737,000 and total current liabilities of $8,762,000 creating negative working capital of approximately $4,025,000 as compared to total current assets of $~~389~~4,~~000~~902,000 ofand ~~which~~total current liabilities of $~~303~~8,268,000 ~~was~~creating ~~restricted~~negative working capital of approximately $3,366,000 at December 31, ~~2017~~2018. The ~~net~~overall ~~decrease~~increase in ~~cash~~negative ~~for~~working ~~the~~capital ~~nine months ended September 30, 2018,~~ of $~~183~~659,000 ~~was~~is ~~due~~primarily due to ~~the~~increases ~~use~~in oftrade ~~cash~~accounts ~~provided~~receivable, byinventory ~~operating~~and ~~activities~~prepaid ~~for~~expenses ~~capital expenditures~~ and ~~financing~~decreases ~~activities~~in ~~discussed~~accrued ~~below~~liabilities and the Revolver.

As of September 30, 2018, the Company had total current assets of $4,940,000 and total current liabilities of $8,661,000 creating a working capital deficit of $3,720,000 as compared to total current assets of $6,242,000 and total current liabilities of $8,196,000 creating a working capital deficit of $1,954,000 at December 31, 2017. The overall decrease in working capital of $1,766,000 is primarily due to increased current portion of notes payable and decreases in cash, trade accounts receivable and inventory as a result of the decline in revenues discussed above.20

The change in cash and cash equivalents is as follows:

	Nine Months Ended September 30,
	Three Months Ended March 31,
	2018			2017
	2019			2018
Net cash provided by operating activities	$	448		$	602
Net cash (used in) provided by operating activities	$	(108	)	$	150
Net provided by (used in) investing activities		(121	)		877
Net (used in) provided by investing activities		(5	)		(75	)
Net cash used in financing activities		(~~510~~66	)		(~~1,390~~101	)
Net increase (decrease) increase in cash	$	(183	)	$	89
Net (decrease) increase in cash	$	(179	)	$	(26	)

16Net cash used in operating activities was approximately $108,000 in the three months ended March 31, 2019, compared to $150,000 provided by operating activities in the three months ended March 31, 2018. The decrease of $258,000 was primarily related to the decline in revenues discussed in “Revenues” above resulting in an increase in net loss of $232,000, a decrease in cash provided by accounts receivable of $85,000, an decrease in cash used by inventory of $82,000 and a decrease in cash used by accounts payable of $78,000, and net increases in cash provided by other changes of $70,000.

Net cash ~~provided~~used byin ~~operating~~investing activities was approximately $~~448~~5,000 infor the ~~nine~~three months ended ~~September~~March 3031, ~~2018~~2019, compared to $~~602~~75,000 in the ~~nine~~three months ended ~~September 30~~March 31, ~~2017~~2018. Cash ~~The~~used ~~decrease of $154,000 was primarily related~~ to ~~the~~purchase ~~decline~~property inand ~~revenues~~equipment ~~discussed~~was ~~in “Revenues” above resulting in an increase in net loss of~~ $~~252~~5,000, ~~increases~~for ~~cash~~the ~~provided~~three ~~from~~months ~~accounts~~ended ~~receivable~~March ~~of $94~~31,~~000,~~ ~~inventory of $708~~2019,~~000,~~ ~~prepaid expenses,~~compared ~~other~~to ~~assets of~~ $~~160~~75,000 ~~and~~for ~~accrued liabilities of $54,000 and increases in cash used by accounts payable of $227,000,~~the ~~accrued~~prior ~~liabilities of $281 and net decreases in cash provided by other changes of $188,000~~year.

Net cash (used in) ~~provided~~financing ~~by investing~~ activities was ~~approximately~~ $~~(121~~66,000) ~~for~~in the ~~nine~~three months ended ~~September~~March 3031, ~~2018~~2019, compared to $~~877~~101,000 ~~provided by in the nine months ended September 30, 2017. Cash used to purchase property and equipment was $121,000~~ for the ~~nine~~same ~~months~~period ~~ended September~~in ~~30,~~ 2018,. ~~compared~~The to $8566,000 ~~for~~was ~~the~~used ~~prior year due~~ to ~~capital expenditures to open the new retail pharmacy location~~ atpay ~~The~~down ~~Campus~~insurance atnote ~~Legacy West in Plano, Texas, to expand long-term care facilities and for upgrades to the Preston Royal, Dallas, Texas location~~payable. ~~For the nine months ended September 30, 2017, cash provided by the proceeds of the disposition of the Humble, Texas location was $274,000 and CPOC was $688,000.~~

~~Net~~Our ~~cash~~principal ~~used~~indebtedness inat ~~financing~~March ~~activities was $510~~31,~~000 in the nine months ended September 30, 2018, compared to cash used of $1,390,000 for the same period in 2017. For~~ ~~the nine months ended September 30~~2019, ~~2018,~~consists ~~borrowings~~ of ~~$8,051,000 and payments of $7,926,000 were made on~~ the revolving credit facility; payments of $634,000 were made on notes payable. For the nine months ended September 30, 2017, borrowings of $14,345,000 payments of $14,808,000 were made on the revolving credit facility; payments of $927,000 were made on notes payable. Certain proceeds from the disposition of CPOC were used to make certain payments on notes payable for the nine months ended September 30, 2017.following:

Our principal indebtedness at September 30, 2018, consists of the following:

	·	A number of term notes in favor of Cardinal Health in the aggregate amount of $3,209,000, secured by certain retail pharmacy assets, and maturing between August 2019 and August 2020;
	·	A revolving credit facility in the principal amount of $4,000,000, of which the Company has currently borrowed $3,975,000 on the revolving credit facility, leaving $25,000 available for future borrowings;

	·	A number of term notes in favor of Cardinal Health in the aggregate amount of $2,979,000, secured by certain retail pharmacy assets, and maturing between August 2019 and August 2020;
	·	A revolving credit facility (the “Revolver”), which as of August 10, 2018, is in favor of OSK VII, LLC (the “Current Lender”) in the amount of $3,956,000 secured by certain retail pharmacy assets, and maturing between August 2019 and August 2020;

The material terms under these agreements include, without limitation, notice requirements for certain material events, the provision of periodic financial statements, the maintenance of certain financial ratios, maintaining certain minimum insurance requirements, as well as restrictions on our ability to incur additional indebtedness, incur future capital expenditures, as well as restrictions on our ability purchase, create or acquire any interest in any other pharmacy store or distributing company, or loan, invest in or advance money or assets to any other person, enterprise or entity for the acquisition of a pharmacy store or distributing company without the prior written consent of OSK VII, LLC.

~~The~~On ~~material~~August ~~terms~~1, ~~under~~2018, ~~these~~the ~~agreements~~Company was obligated ~~include~~to make payment of the outstanding principal of $3,956,000 ~~without~~plus ~~limitation~~$18,000 ~~notice~~in ~~requirements~~accrued ~~for~~and ~~certain~~unpaid ~~material~~interest ~~events,~~under the ~~provision~~Revolver ofwith the ~~periodic~~Lender. ~~financial~~Failure ~~statements~~to make this payment on the August 1, 2018, maturity date was an event of default under the Revolver. The accrued ~~maintenance~~interest of ~~certain~~$18,000 ~~financial~~was ~~ratios~~paid on August 2, ~~maintaining~~2018. ~~certain~~An ~~minimum~~event ~~insurance~~of ~~requirements,~~default asunder ~~well~~the asRevolver ~~restrictions~~permits onthe ~~our~~Lender, ~~ability~~among other things, to ~~incur~~foreclose ~~additional~~on ~~indebtedness,~~the ~~incur~~assets ~~future~~securing ~~capital~~the ~~expenditures~~Revolver, aswhich ~~well~~includes ascertain ~~restrictions~~retail onpharmacy ~~our~~assets, ~~ability~~specifically but not limited to, inventory, ~~purchase~~equipment, ~~create~~software, accounts receivable, intangibles and deposit accounts of the Company (the “Secured Assets”). orIn ~~acquire~~addition ~~any~~to ~~interest~~the infailure ~~any~~to ~~other~~make ~~pharmacy~~the ~~store~~payment oron ~~distributing~~the ~~company~~maturity date, oras ~~loan,~~of ~~invest~~August in1, or2018, ~~advance~~the ~~money~~Company orwas ~~assets~~not toin ~~any~~compliance with ~~other~~its ~~person,~~covenant ~~enterprise~~to ormaintain ~~entity~~a ~~for~~minimum ~~the~~debt ~~acquisition~~service coverage ratio of anot ~~pharmacy~~less ~~store~~than or1.00 ~~distributing~~to ~~company~~1.00, ~~without~~as ~~the~~defined ~~prior~~under ~~written~~the ~~consent~~Revolver. Failure ofto ~~the~~maintain ~~First~~this ~~National~~financial ~~Bank~~covenant also constituted an event of ~~Omaha~~default under the Revolver.

In addition, the Company was a co-guarantor on a promissory note issued by a bank in favor of an individual who was previously, through August of 2008, a related party of the Company. On April 3, 2018, total principal amount due and owing under the promissory note (the “Guarantee Payment”), was satisfied in full by the primary obligor. The restricted cash balance of $303,000, for which the Company was required to provide as escrow, was released as unrestricted and used for operations. In conjunction with the satisfaction of the of the obligation and release of restricted funds, the primary obligor paid the Company $33,000 interest for the 11 months ended September 30, 2018 during April of 2018 and $12,000 for the nine months ended September 31, 2017 during May of 2017.21

On August 110, 2018, the ~~Company~~Lender ~~was~~notified ~~obligated to make payment of~~ the ~~outstanding~~Company ~~principal~~that ~~of $3,956,000 plus $18,000 in accrued and unpaid interest under~~ the Revolver ~~with~~ ~~the~~had ~~First~~been ~~National~~sold ~~Bank~~to ofOSK ~~Omaha~~VII, LLC (the “Current Lender”.) ~~Failure~~effective ~~to make this payment~~ on ~~the~~ August 110, 2018,. ~~maturity date~~This ~~was~~assignment ~~an event~~ of ~~default under~~ the Revolver. ~~The~~from ~~accrued~~the ~~interest~~Lender ofto ~~$18,000~~the ~~was~~Current ~~paid~~Lender ondoes ~~August~~not 2,affect ~~2018.~~any Anterms ~~event~~and condition of ~~default under~~ the Revolver ~~permits~~and the associated ~~Lender,~~loan ~~among~~documents. ~~other~~The ~~things,~~Company todoes ~~foreclose~~not oncurrently ~~the~~have ~~assets securing~~ the ~~Revolver,~~ability ~~which includes certain retail pharmacy assets, specifically but not limited~~ to, ~~inventory,~~cure ~~equipment,~~either ~~software,~~events ~~accounts receivable, intangibles and deposit accounts~~ of ~~the~~default ~~Company~~under (the ~~“Secured Assets”)~~Revolver. Should Inthe ~~addition~~Current toLender ~~the~~elect ~~failure~~ to ~~make~~foreclose ~~the~~against ~~payment on~~ the ~~maturity~~Secured ~~date~~Assets, as ofit ~~August~~would 1,significantly ~~2018,~~impair the Company's ~~was~~ability ~~not in compliance with its covenant~~ to continue ~~maintain~~as a ~~minimum~~going ~~debt~~concern ~~service~~or ~~coverage ratio of not less than 1.00~~ to ~~1.00,~~even asbe ~~defined~~able ~~under the Revolver. Failure~~ to ~~maintain~~continue ~~this~~its ~~financial covenant also constitutes an event of default under the Revolver~~operations.

17Further, in February 2019 Cardinal chose to decrease the Company’s line of credit by $64,000/month to offset Dougherty’s defaulted loan agreement putting further pressure on free cash flow and Dougherty’s ability to procure drugs. This issue was further compounded when Cardinal on several occasions did not release the orders even after receiving payments for them. As a result, beginning in February 2019 all stores were allocated maximum weekly purchasing ability from Cardinal – focusing on medication owed to the customer and chronic medication.

On August 10, 2018, the Lender notified the Company that the Revolver had been sold to the Current Lender effective on August 10, 2018. This assignment of the Revolver from the Lender to the Current Lender does not affect any terms and condition of the Revolver and the associated loan documents. The Company does not currently have the ability to cure either events of default under the Revolver. Should the Current Lender elect to foreclose against the Secured Assets, it would significantly impair the Company's ability to continue as a going concern or to even be able to continue its operations. In light of these uncertainties, Management cannot provide any assurance that it can fund the Company’s capital needs in the near or long term. The Company is evaluating all of its options in light of these circumstances, including, without limitation, refinancing the indebtedness with another lender, negotiating a settlement arrangement with the Current Lender, or obtaining a temporary waiver or forbearance from the Current Lender; provided, however, the Company can provide no assurances that any of these arrangements can be entered into or if entered into would be upon terms and conditions beneficial to and acceptable by the Company. In light of these uncertainties, Management cannot provide any assurance that it can fund the Company’s capital needs in the near or long term.

In addition, the audit opinion that accompanies our audited financial statements for the year ended December 31, 2018, is qualified in that our auditors have expressed substantial doubt about our ability to continue as a going concern.

On April 1, 2019, we entered into a Letter of Credit Collateralization Agreement, effective March 22, 2019, in favor of Legacy Texas Bank whereby 10 of our current stockholders, including six of our directors, pledged certain deposit accounts to collateralize the letter of credit. In consideration for entering into this agreement, we issued warrants to purchase a total of 330,000 shares of our common stock at an exercise price of $0.20 per share, exercisable until March 22, 2022, and each warrant holder will receive quarterly maintenance payments under the warrants equal to ten percent (10%) per year on the amount each warrant holder’s collateral commitment.

Historically, we have maintained a level of liquidity sufficient to allow us to cover our cash needs in the short-term. Over the long-term, we have managed our cash and capital structure to maintain our financial position and maintain flexibility for future strategic initiatives through borrowings under our Revolver. However, since we have been in default in our Revolver, we have no significant financing source to rely upon to meet our short or long term capital needs.

We anticipate that our principal sources of liquidity will only be sufficient to fund our activities and debt service needs through January 1, 2020. In order to have sufficient cash to fund our operations, we will need to significantly increase our revenues or raise additional equity or debt capital by January 1, 2020 in order to continue as a going concern, and we cannot provide any assurance that we will be successful in doing so.

The Company is evaluating all of its options in light of these circumstances, including, without limitation, refinancing the indebtedness with another lender, negotiating a settlement arrangement with the Current Lender, or obtaining a temporary waiver or forbearance from the Current Lender; provided, however, the Company can provide no assurances that any of these arrangements can be entered into or if entered into would be upon terms and conditions beneficial to and acceptable by the Company. In light of these uncertainties, Management cannot provide any assurance that it can fund the Company’s capital needs in the near or long term.

Tax Loss Carryforwards

At December 31, ~~2017~~2018, we had approximately $4849 million of federal ~~net~~NOL ~~operating loss~~ carryforwards available to offset future taxable income, which, if not utilized, will fully expire from 2021 ~~2020~~ to ~~2037~~2036. We believe that the issuance of shares of our common stock pursuant to our initial public offering on November 15, 1999 caused an “ownership change” for purposes of Section 382 of the Internal Revenue Code of 1986, as amended. Consequently, we believe that the portion of our federal NOL carryforwards attributable to the period prior to November 16, 1999 is subject to an annual limitation pursuant to Section 382. Our total deferred tax assets have been fully reserved as a result of the uncertainty of future taxable income. ~~The~~On ~~estimated~~December ~~deferred~~22, 2017, the President signed into law the “Tax Cuts and Jobs Act” (the “TCJA”). Among numerous changes to existing tax ~~asset~~laws, asthe ofTCJA ~~September~~permanently 30reduces the federal corporate income tax rate from 35% to 21% effective January 1, 2018. ~~has~~The ~~been~~effects ~~fully reserved~~on ~~due~~deferred tax balances of changes in tax rates are required to ~~uncertainty~~be taken into consideration in the period in which the changes are enacted, regardless of ~~future~~when they are effective. As the result of the reduction of the corporate income tax rate under the TCJA, the Company estimated the revaluation of its net deferred tax assets from $3 million to ~~utilize~~$2 ~~such~~million and ~~asset~~recorded a provisional noncash income tax loss of approximately $1.0 million for year ended December 31, 2017.

During 2018, the Company fully reserved its deferred tax asset resulting in a $2.0 million charge to the statement of operations due to the uncertainty of future income to utilize such assets.

Off Balance Sheet Arrangements

We do not have any unconsolidated special purpose entities and, except as described herein, we do not have significant exposure to any off-balance sheet arrangements. The term “off-balance sheet arrangement” generally means any transaction, agreement or other contractual arrangement to which an entity unconsolidated with us is a party, under which we have: (i) any obligation arising under a guarantee contract, derivative instrument or variable interest; or (ii) a retained or contingent interest in assets transferred to such entity or similar arrangement that serves as credit, liquidity or market risk support for such assets.

Critical Accounting Policies

We prepare our consolidated financial statements in conformity with GAAP, which requires management to make certain estimates and apply judgment. We base our estimates and judgments on historical experience, current trends and other factors that management believes to be important at the time the condensed consolidated financial statements are prepared. On a regular basis, we review our accounting policies and how they are applied and disclosed in our condensed consolidated financial statements.

While we believe that the historical experience, current trends and other factors considered support the preparation of our condensed consolidated financial statements in conformity with GAAP, actual results could differ from our estimates and such differences could be material.

For a full description of our significant accounting policies, please refer to the Notes to Consolidated Financial Statements in Item 1.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

~~Our~~The ~~interim~~Company ~~chief~~maintains ~~executive~~disclosure ~~officer~~controls and ~~interim~~procedures ~~chief~~that ~~financial~~are ~~officer~~designed ~~evaluated~~to ~~the~~ensure ~~effectiveness~~that ofinformation ~~our~~required ~~disclosure~~to ~~controls~~be ~~and~~disclosed ~~procedures~~in ~~(as~~the ~~defined~~Company’s inreports ~~Rule 13a–15(e)~~ under the Securities Exchange Act) as of ~~September 30~~1934, ~~2018.~~as ~~Based~~amended ~~upon that evaluation, and in light of~~ (the ~~Company’s~~ ~~delinquency~~“Exchange ~~in filing this quarterly report on Form 10-Q~~Act”), ~~our~~is ~~interim chief executive officer and interim chief financial officer concluded that as of September 30~~recorded, ~~2018~~processed, ~~our~~summarized ~~disclosure controls~~ and ~~procedures~~reported ~~were~~within ~~not~~the ~~effective.~~time Weperiods ~~have~~specified ~~taken~~in the ~~initial steps to remediate this failure in our disclosure controls by engaging an~~ SEC’s ~~compliance~~rules ~~resource to~~and ~~assist~~forms, inand ~~the~~that ~~preparation~~such ofinformation ~~our~~is ~~filing~~accumulated ~~obligations.~~and Incommunicated ~~addition~~ to ~~this~~management, including wethe ~~are~~Company’s ~~exploring~~Chief ~~the~~Executive ~~possibility~~Officer of(“CEO”) ~~engaging~~and ~~a full-time~~ Chief Financial Officer ~~who would have responsibility for~~(“CFO”), ~~among~~as ~~other things~~appropriate, ~~overseeing the collection,~~ ~~dissemination,~~to ~~and~~allow ~~processing~~timely ofdecisions ~~the~~regarding ~~information (financial and otherwise)~~ required ~~for us to meet our future~~ disclosure ~~obligations~~.

Our interim chief executive officer and interim chief financial officer evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a–15(e) under the Exchange Act) as of December 31, 2018. Based upon that evaluation and in light of the Company’s delinquency in filing its quarterly report on Form 10-Q for the Company’s third quarter of 2018 and its delinquency in filing this annual report on Form 10-K, our interim chief executive officer and interim chief financial officer concluded that as of December 31, 2018, our disclosure controls and procedures were not effective.

We have taken the initial steps to remediate this failure in our disclosure controls by engaging an SEC compliance resource to assist in the preparation of our filing obligations. In addition to this, we are exploring the possibility of engaging a full-time Chief Financial Officer who would have responsibility for, among other things, overseeing the collection, dissemination, and processing of the information (financial and otherwise) required for us to meet our future disclosure obligations.

Changes in Internal Control over Financial Reporting

There were no changes in the Company’s internal control over financial reporting during the quarter ended ~~September~~March 3031, ~~2018~~2019, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

1924

PART II – OTHER INFORMATION

Item 1. Legal Proceedings

From time to time, the Company may be subject to legal proceedings and claims in the ordinary course of business. We are not currently aware of any such proceedings or claims that we believe will have, individually or in the aggregate, a material adverse effect on our business, financial condition or results of operations.

Item 31A. ~~Defaults~~Risk ~~on Senior Securities.~~Factors

OnOur ~~August~~line ~~1, 2018, the Company was obligated to make payment~~ of ~~the~~credit ~~outstanding principal of $3,956,000 plus $18,000 in accrued and unpaid interest under the Revolver~~ with ~~the~~ ~~First~~our ~~National Bank of Omaha (the “Lender”. Failure to make this payment on the August 1, 2018, maturity date was~~prime anvendor ~~event~~has ofbeen ~~default~~significantly ~~under~~reduced ~~the~~putting ~~Revolver.~~increased ~~The~~pressure ~~accrued interest of $18,000 was paid~~ on ~~August~~our 2,cash ~~2018.~~flow An event of default under the Revolver permits the Lender, among other things, to foreclose on the assets securing the Revolver, which includes certain retail pharmacy assets, specifically but not limited to, inventory, equipment, software, accounts receivable, intangibles and ~~deposit accounts~~negatively ofaffecting ~~the~~our ~~Company~~ability ~~(the “Secured Assets”). In addition~~ to ~~the failure to make the payment on the maturity date,~~procure aspharmaceuticals offor ~~August~~resale ~~1, 2018, the Company was not in compliance with its covenant~~ to ~~maintain~~our ~~a minimum debt service coverage ratio of not less than 1~~customers.~~00 to 1.00, as defined under the Revolver. Failure to maintain this financial covenant also constitutes an event of default under the Revolver.~~

OnCardinal ~~August~~chose ~~10,~~to ~~2018,~~decrease the ~~Lender~~line ~~notified~~of ~~the~~credit ~~Company~~by ~~that the Revolver had been sold to the Current Lender effective on August 10~~$64,000 ~~2018.~~/ ~~This~~month ~~assignment~~beginning ofin ~~the~~February ~~Revolver from~~2019 ~~the Lender~~ to ~~the~~offset ~~Current~~Dougherty’s ~~Lender~~defaulted ~~does~~loan ~~not~~agreement ~~affect~~putting ~~any~~further ~~terms~~pressure on ~~and~~free ~~condition~~cash offlow ~~the Revolver~~ and ~~the~~Dougherty’s ~~associated loan documents. The Company does not currently have the~~ ability to ~~cure~~procure ~~either~~drugs. ~~events~~This ofissue ~~default~~was ~~under~~further ~~the~~compounded ~~Revolver.~~when ~~Should~~Cardinal ~~the~~on ~~Current~~several ~~Lender~~occasions ~~elect~~did tonot ~~foreclose~~release ~~against~~ the ~~Secured~~orders ~~Assets, it would significantly impair the Company's ability to continue as a going concern or to~~ even beafter ~~able~~receiving topayments ~~continue~~for ~~its operations~~them. In ~~light~~February of2019 ~~these~~all ~~uncertainties,~~stores ~~Management~~were ~~cannot~~allocated ~~provide~~maximum ~~any~~weekly ~~assurance~~purchasing ability ~~that~~from ~~it can~~Cardinal ~~fund~~– ~~the~~focusing ~~Company’s~~on ~~capital~~medication ~~needs~~owed into the ~~near~~customer orand ~~long~~chronic ~~term~~medication. ~~The~~Dougherty’s ~~Company~~ is ~~evaluating~~unable ~~all of its options in light of these~~to ~~circumstances,~~ensure ~~including, without limitation, refinancing~~ the ~~indebtedness~~safety ~~with~~and ~~another~~continual ~~lender,~~medication ~~negotiating~~supply ato ~~settlement~~our ~~arrangement with~~customers ~~the~~and ~~Current~~management ~~Lender, or~~has ~~obtaining~~been aforced ~~temporary~~to ~~waiver~~seek oralternative ~~forbearance from the Current Lender; provided, however, the Company~~suppliers. ~~can~~This ~~provide~~will nolikely ~~assurances~~negatively ~~that~~impact ~~any~~our ofability ~~these~~to ~~arrangements~~operate ~~can~~our bebusiness ~~entered~~and ~~into~~in orturn ifcould ~~entered~~have ~~into~~a ~~would~~material beadverse ~~upon~~effect ~~terms~~on ~~and conditions~~our ~~beneficial~~results ~~to and acceptable by the Company. In light~~ of ~~these~~operations ~~uncertainties,~~and ~~Management~~our ~~cannot~~ability ~~provide~~to ~~any~~continue ~~assurance~~as ~~that it~~a ~~can~~going ~~fund the Company’s capital needs in the near or long term~~concern.

Our failure to re-credential with Caremark has resulted in an inability to fill prescriptions for Caremark and ultimately in our termination with Caremark.

In February 2019, Caremark, which represents a little over 30% of Dougherty’s insurance reimbursement business sent a letter out to all their members letting them know that Dougherty’s will no longer be able to fill prescriptions for them as a result of management failing to re-credential with Caremark by the cutoff date of 12/18. In spite of a $30,000 marketing campaign to reassure our customers, numerous customers transferred out. On 3/31 the Caremark contract was terminated and re-credentialing started as soon as all information on the State Secretary and Texas State Board of Pharmacy was updated.

Item 6. Exhibits

Exhibit Number		Description
10.1		Letter of Credit in the amount of $825,000 issued by Legacy Texas Bank for the benefit of Associated Food Stores Inc. (1)
31.1		Certification of the President - Chief Executive Officer pursuant to Rule 13a-14(a) of the Exchange Act (1)
31.2		Certification of the Chief Financial Officer pursuant to Rule 13a-14(a) of the Exchange Act (1)
32		Certification of the President - Chief Executive Officer and Chief Financial Officer pursuant to Rule 13a-14(b) of the Exchange Act and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (1)

101.INS		XBRL Instances Document (1*)
101.SCH		XBRL Taxonomy Extension Schema Document (1*)
101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document (1*)
101.DEF		XBRL Taxonomy Extension Definition Linkbase Document (1*)
101.LAB		XBRL Taxonomy Extension Label Linkbase Document (1*)
101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document (1*)

(1) Filed herewith.

(1)	Filed herewith.
*	To be filed by amendment.

2025

SIGNATURES

Pursuant to the requirements of Section 12 of the Securities Exchange Act of 1934, the Company has duly caused this Quarterly Report on Form 10-Q to be signed on its behalf by the undersigned, thereunto duly authorized on ~~April~~May 2920, 2019.

DOUGHERTY’S PHARMACY, INC. By: /s/ Stewart I. Edington Stewart I. Edington President and Chief Financial Officer (Duly Authorized Principal Executive Officer and Principal Financial Officer)

2126

EXHIBIT INDEX

Exhibit Number		Description
		Letter of Credit in the amount of $825,000 issued by Legacy Texas Bank for the benefit of Associated Food Stores Inc. (1)
10.1
31.1		Certification of the President - Chief Executive Officer pursuant to Rule 13a-14(a) of the Exchange Act (1)
31.2		Certification of the Chief Financial Officer pursuant to Rule 13a-14(a) of the Exchange Act (1)
32		Certification of the President - Chief Executive Officer and Chief Financial Officer pursuant to Rule 13a-14(b) of the Exchange Act and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (1)

101.INS		XBRL Instances Document (1*)
101.SCH		XBRL Taxonomy Extension Schema Document (1*)
101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document (1*)
101.DEF		XBRL Taxonomy Extension Definition Linkbase Document (1*)
101.LAB		XBRL Taxonomy Extension Label Linkbase Document (1*)
101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document (1*)

(1) Filed herewith.

(1)	Filed herewith.
*	To be filed by amendment.

2227

Filing Compare · Dougherty's Pharmacy, Inc.