10-12G/A

As filed with the Securities and Exchange Commission on August 18, 2017

File No. 000-27945

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10/A

Amendment No. 2

GENERAL FORM FOR REGISTRATION OF SECURITIES

Pursuant to Section 12(b) or (g) of the Securities Exchange Act of 1934

DOUGHERTY’S PHARMACY, INC.

(Exact name of Registrant as specified in its charter)

Delaware	75-2900905
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
5924 Royal Lane, Suite 250, Dallas, Texas	75230
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: 972-250-0945

Securities to be registered pursuant to Section 12(b) of the Act

Title of each class to be so registered	Name of each exchange on which Each class is to be registered
None	None

Securities to be registered pursuant to Section 12(g) of the Act:

Common Stock, par value $0.0001

(Title of class)

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.

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☐ (Do not check if a smaller reporting company)	Smaller reporting company	☒
		Emerging growth company	☐

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. ☐

TABLE OF CONTENTS

		Page
ITEM 1.	BUSINESS	1
ITEM 1A.	RISK FACTORS	5
ITEM 2.	FINANCIAL INFORMATION	12
ITEM 3.	PROPERTIES	18
ITEM 4.	SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT	18
ITEM 5.	DIRECTORS AND EXECUTIVE OFFICERS	19
ITEM 6.	EXECUTIVE COMPENSATION	23
ITEM 7.	CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE	25
ITEM 8.	LEGAL PROCEEDINGS	25
ITEM 9.	MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS	25
ITEM 10.	RECENT SALES OF UNREGISTERED SECURITIES	26
ITEM 11.	DESCRIPTION OF REGISTRANT’S SECURITIES TO BE REGISTERED	26
ITEM 12.	INDEMNIFICATION OF DIRECTORS AND OFFICERS	27
ITEM 13.	FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA	28
ITEM 14.	CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE	29
ITEM 15.	FINANCIAL STATEMENTS AND EXHIBITS	29
SIGNATURES
EXHIBIT INDEX

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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Registration Statement 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:

· We have limited funds and may require additional financing;

· 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 may be negatively affected by restrictive terms and covenants in our existing credit facility;

· We may be required to perform as a co-guarantor on certain indebtedness obligations, and if such event were to occur, we do not anticipate that we would have sufficient cash resources to meet such obligations;

· 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.

These and other risks, assumptions and uncertainties are described in Item 1A. “Risk Factors”. 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.

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ITEM 1. BUSINESS

Our Business

Dougherty’s Pharmacy, Inc. (“Dougherty’s,” which is also referred to in this Registration Statement 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. Dougherty’s was incorporated as Ascendant Solutions, Inc. in Delaware on August 8, 2000. On May 10th, 2017, the Company amended its Certificate of Incorporation to change its name from “Ascendant Solutions, Inc.” to “Dougherty’s Pharmacy, Inc.” to reflect the current focus and operating structure from the previous focus on making equity investments in underperforming or distressed U.S. lower middle-market businesses in the manufacturing, distribution, service, healthcare, finance and retail industries. Since December 31, 2013, the Company investments included its wholly owned subsidiary Dougherty’s Holdings, Inc. (“DHI”), under which it operates its retail pharmacy business; its wholly owned subsidiary ASDS of Orange County, Inc. which operated as a holding company for the investment in CRESA Partners of Orange County, Inc., a tenant representation and real estate advisory services company that was liquidated on February 7, 2017, and a 5.8% partnership interest in Fairways Frisco, L.P., a mixed-use real estate development services company for which it ceased reporting effective December 31, 2016, since the previous equity method investment balance remained at zero since 2008 and the partnership is in the process of dissolution.

Effective December 31, 2013, the Company changed its focus to acquire, manage, and grow community-based pharmacies in the Southwest Region of the United States, and since then has engaged in a number of acquisition transactions to expand our pharmacy business and to minimize and ultimately divest our other business interests.

On August 4, 2014, DHI acquired the patient prescription files of Family Pharmacy located in Lewisville, Texas.

On September 2, 2014, DHI acquired Northeast Compounding Pharmacy, LP (d/b/a Thrifty Health and Compounding Pharmacy), located in Humble, Texas. On May 6, 2017, the Company sold this pharmacy 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 January 5, 2015, DHI acquired McCrory’s Pharmacy located in El Paso, Texas.

On June 29, 2015, DHI acquired Medicine Shoppe Pharmacy, located in McAlester, Oklahoma.

On August 31, 2015, DHI acquired Springtown Drug Pharmacy located in Springtown, Texas.

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 held by ASDS of Orange County, Inc. in its entirety. As of December 31, 2016, the estimated value of this investment was recorded at $1,295,000, which represents the estimated future cash payments for this transaction. The Company received $367,500 at closing, recorded $320,000 as a short term other receivable, and recorded the remainder of the Closing Price as a long term receivable due in three increments over 49 months, contingent on certain milestones expected to be achieved.

Current Operations. 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.

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Most Recent Acquisitions

On January 5, 2015, June 29, 2015, and August 31, 2015, we acquired McCrory’s Pharmacy located in El Paso, Texas, Medicine Shoppe Pharmacy, located in McAlester, Oklahoma, and Springtown Drug Pharmacy located in Springtown Texas, respectively, for a total purchase price of $5,640,000 of which $4,413,000 was financed with notes payable with the remainder paid in cash funded from the revolving line of credit.

Plans for Future Acquisitions.

Dougherty’s plans for its future growth through continued strategic acquisitions of independent pharmacies (a) that meet our acquisition criteria (“Pharmacy Acquisition Opportunities”), (b) for which we have or can obtain sufficient cash resources to acquire, and (c) for which we have obtained the prior written consent of the lender for the revolving credit facility, the First National Bank of Omaha.

Acquisition Criteria. We value and seek community based Pharmacy Acquisition Opportunities that place high value in customer service and patient care. We believe that as we identify and evaluate Pharmacy Acquisition Opportunities, Dougherty’s can offer a unique exit strategy for independent pharmacy owners as they consider their options in selling their pharmacies and monetizing the time and resources that they have deployed in developing their businesses. We believe that our commitment to ensuring that customers of such Pharmacy Acquisition Opportunities continue to receive individualized, personal, and local customer service is a significant factor in independent pharmacy owners’ decision whether to sell, and to whom to sell, their existing businesses.

Our criteria when evaluating Pharmacy Acquisition Opportunities, may include, but not necessarily be limited to, the following criteria:

· Annual revenues of $5-10 million

· Stable history of profitability and positive cash flow

· Strong management team committed to the business

· Established location and customer base

· Single and or multiple store operations

· Businesses, or situations, where we can most effectively deploy our net operating loss carryforwards

We will continue to look for Pharmacy Acquisition Opportunities and to identify, negotiate, and consummate the purchase of Pharmacy Acquisition Opportunities that meet our acquisition criteria, present synergies with our prior acquisitions, and whose acquisition would reasonably be expected to increase stockholder value (each a “Pharmacy Acquisition”); however, our current cash resources are limited. Therefore, we will be required to expend significant executive time to close any purchase of a Pharmacy Acquisition and to handle the transition of ownership and the on-going management of any such Pharmacy Acquisition. We will continue seeking to (1) most effectively deploy our remaining cash and debt capacity (if any), (2) capitalize on the experience and contacts of our officers and directors, and (3) explore other Pharmacy Acquisition Opportunities.

Industry Overview

The pharmacy industry is highly competitive and has been experiencing consolidation in recent years. Prescription drugs play a significant role in healthcare and constitute a first line of treatment for many medical conditions. We believe the long-term outlook for prescription drug utilization is strong due, in part, to aging populations, increases in life expectancy, increases in the availability and utilization of generic drugs, the continued development of innovative drugs that improve quality of life and control healthcare costs, and increases in the number of persons with insurance coverage for prescription drugs, including, in the United States, the expansion of healthcare insurance coverage under the Patient Protection and Affordable Care Act (the “ACA”) and “baby boomers” increasingly becoming eligible for the federally funded Medicare Part D prescription program. Pharmaceutical wholesalers act as a vital link between drug manufacturers and pharmacies and healthcare providers in supplying pharmaceuticals to patients.

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The pharmacy industry relies significantly on private and governmental third party payors. Many private organizations throughout the healthcare industry, including pharmacy benefit management (“PBM”) companies and health insurance companies, have consolidated in recent years to create larger healthcare enterprises with greater bargaining power. Third party payors, including the Medicare Part D plans and the state-sponsored Medicaid and related managed care Medicaid agencies can change eligibility requirements or reduce certain reimbursement rates. Changes in law or regulation also can impact reimbursement rates and terms. For example, the ACA seeks to reduce federal spending by altering the Medicaid reimbursement formula (“AMP”) for multi-source drugs in the United States. These changes generally are expected to reduce Medicaid reimbursements. State Medicaid programs are also expected to continue to seek reductions in reimbursements independent of AMP. When third party payors or governmental authorities take actions that restrict eligibility or reduce prices or reimbursement rates, sales and margins in the pharmacy industry could be reduced, which would adversely affect industry profitability. In some cases, these possible adverse effects may be partially or entirely offset by controlling inventory costs and other expenses, dispensing more higher margin generics, finding new revenue streams through pharmacy services or other offerings and/or dispensing a greater volume of prescriptions.

Generic prescription drugs have continued to help lower overall costs for customers and third party payors. We expect the utilization of generic pharmaceuticals to continue to increase. In general, generic versions of drugs generate lower sales dollars per prescription, but higher gross profit dollars, as compared with patent-protected brand name drugs. The positive impact on pharmacy gross profit dollars can be significant in the first several months after a generic version of a drug is first allowed to compete with the branded version, which is generally referred to as a “generic conversion”. In any given year, the number of major brand name drugs that undergo a conversion from branded to generic status can vary and the timing of generic conversions can be difficult to predict, which can have a significant impact on retail pharmacy sales and gross profit dollars.

We expect that market demand, government regulation, third-party reimbursement policies, government contracting requirements and other pressures will continue to cause the industries in which we compete to evolve. Pharmacists are on the frontlines of the healthcare delivery system, and we believe rising healthcare costs and the limited supply of primary care physicians present new opportunities for pharmacists and retail pharmacies to play an even greater role in driving positive outcomes for patients and payors through expanded service offerings such as immunizations and other preventive care, healthcare clinics, pharmacist-led medication therapy management and chronic condition management.

Pharmacy Revenue

Our sales, and gross profit are impacted by, among other things, both the percentage of prescriptions that we fill that are generic and the rate at which new generic drugs are introduced to the market. Because any number of factors outside of our control can affect timing for a generic conversion, we face substantial uncertainty in predicting when such conversions will occur and what effect they will have on particular future periods. The current environment of our pharmacy business also includes ongoing reimbursement pressure and a shift in pharmacy mix towards 90-day at retail (one prescription that is the equivalent of three 30-day prescriptions) and Medicare Part D prescriptions. Further consolidation among generic manufacturers coupled with changes in the number of major brand name drugs anticipated to undergo a conversion from branded to generic status may also result in gross margin pressures within the industry.

We continuously face reimbursement pressure from PBM companies, health maintenance organizations, managed care organizations and other commercial third party payors; our agreements with these payors are regularly subject to expiration, termination or renegotiation. In addition, plan changes with rate adjustments often occur in January and our reimbursement arrangements may provide for rate adjustments at prescribed intervals during their term. We experienced lower reimbursement rates in fiscal 2016 as compared to the same period in the prior year. Further, we accepted lower Medicare Part D reimbursement rates for calendar 2016 compared to calendar 2015 in order to secure preferred relationships with Medicare Part D plans serving senior patients with significant pharmacy needs. We expect this trend to continue.

Our 90-day at retail prescription drug offering is typically at a lower margin than comparable 30-day prescriptions, but provides us with the opportunity to increase business with patients with chronic prescription needs while offering increased convenience, helping facilitate improved prescription adherence and resulting in a lower cost to fill the 90-day prescription.

Seasonal variations in business

Our business is affected by a number of factors including, among others, our sales performance during holiday periods (including particularly the winter holiday season) and during the cough, cold and flu season (the timing and severity of which is difficult to predict), significant weather conditions, the timing of our own or competitor discount programs and pricing actions, and the timing of changes in levels of reimbursement from governmental agencies and other third party payors.

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Sources and availability of materials

We source substantially all of our generic and branded pharmaceutical drugs to fill prescriptions from a single supplier, Cardinal Health 110, Inc. and Cardinal Health 411, Inc. (“Cardinal Health”). We purchase products from Cardinal Health under a long-term prime vendor agreement that was amended in November of 2016. The current agreement extends through April 30, 2019, and provides the Company with tiered reduced pricing based on minimum purchase volume in the form of rebates. The minimum purchase commitment includes at least 90% of our pharmaceutical product requirements (if carried by Cardinal Health) and at least 90% of our generic pharmaceutical product be purchased from the Cardinal Health Generic Source Product Program. We received in 2017, and are scheduled to receive in 2018, certain cash prepayments from Cardinal Health that we are obligated to repay if the agreement is terminated before we have accrued rebate credits in excess of such prepayments. As of June 30, 2017, we had no prepayment liabilities under the 2017 advance. Alternative sources for most generic and brand name pharmaceuticals we sell are readily available, and, if necessary, we believe that we could obtain and qualify for a comparative agreement with another national primary vendor for substantially all of the prescription drugs we sell; however, we can offer no assurances that losing Cardinal Health, as our majority supplier, would not result in supply disruptions as we focused on a transition to one or more substitute suppliers, or that such transition would not have a material adverse effect on our business and our results of operations. We purchase our non-pharmaceutical retail merchandise from numerous manufacturers and wholesalers.

Working capital practices

Effective inventory management is important to our operations. We use various inventory management techniques, including demand forecasting and planning and various forms of replenishment management. Our working capital needs typically are greater in the months leading up to the winter holiday season. We generally finance our inventory and expansion needs with internally generated funds and short-term borrowings. For additional information, see the Liquidity and Capital Resources section in Management’s Discussion and Analysis of Financial Condition and Results of Operations below.

Customers

We sell primarily to retail customers. No single customer accounted for more than 10% of the Company’s consolidated sales for any of the periods presented. No single payor accounted for more than 10% of retail prescription revenues in fiscal 2016.

Regulation

In the states in which we do business, we are subject to national, state and local laws, regulations, and administrative practices concerning retail and wholesale pharmacy operations, including regulations relating to our participation in Medicare, Medicaid and other publicly financed health benefit plans; regulations prohibiting kickbacks, beneficiary inducement and the submission of false claims; the Health Insurance Portability and Accountability Act (“HIPAA”); the ACA; licensure and registration requirements concerning the operation of pharmacies and the practice of pharmacy; and regulations of the U.S. Food and Drug Administration, the U.S. Federal Trade Commission, the U.S. Drug Enforcement Administration and the U.S. Consumer Product Safety Commission, as well as regulations promulgated by comparable state and local governmental authorities concerning the operation of our business. We are also subject to laws and regulations relating to licensing, tax, intellectual property, privacy and data protection, currency, political and other business restrictions.

We are also governed by federal, state and local laws of general applicability in the states in which we do business, including laws regulating matters of working conditions, health and safety and equal employment opportunity. In connection with the operation of our business, we are subject to laws and regulations relating to the protection of the environment and health and safety matters, including those governing exposure to, and the management and disposal of, hazardous substances.

Environmental protection requirements did not have a material effect on our results of operations or capital expenditures in fiscal 2016.

Competitive conditions

The industry in which we operate is highly competitive, and we compete with various local, regional, national pharmacy companies, including chain and independent pharmacies, mail order prescription providers, grocery stores, convenience stores, mass merchants, online and omni-channel pharmacies and retailers, warehouse clubs, dollar stores and other discount merchandisers.

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Intellectual Property; Research and Development

The Company has obtained a registered service mark for the Dougherty’s Pharmacy name to protect its branding, but otherwise has no material intellectual property necessary for our current operations, through copyright or otherwise. The Company has not, and does not expect to, make expenditures on research and development efforts.

Employees

We had the following full time and part-time employees as of March 31, 2017:

Full-Time Employees	108
Part-Time Employees	11
Total Employees	119

In addition to our own employees, we use from time to time, and are dependent upon, various outside consultants or contractors to perform various support services including, technology, legal and accounting services.

ITEM 1A. RISK FACTORS

We have limited funds and may require additional financing.

We have limited funds, and such funds may not be adequate to take advantage of available Pharmacy Acquisition Opportunities or fund our current Pharmacy Acquisitions. Our ultimate success will likely depend upon our ability to raise additional capital. We have not investigated the availability, source, or terms that might govern the acquisition of additional capital and we do not expect to do so until we determine a more definitive and specific need for additional financing. Our access to capital is limited since our stock is not currently traded on any national exchange and the fact that we have incurred significant debt resulting in approximately $7.2M in long term notes payable as of March 31, 2017. We expect to incur additional debt for future Pharmacy Acquisitions. If additional capital is needed, there is no assurance that funds will be available from any source or, if available, that they can be obtained on terms acceptable to us. If not available, our operations will be limited to our current Pharmacy Acquisitions and any additional Pharmacy Acquisitions that can be financed with our existing capital.

We may not be able to effectively integrate and manage our current and anticipated growth strategies.

Our failure to effectively manage our recent and anticipated future growth could strain our management infrastructure and other resources and adversely affect our results of operations. We expect our recent and anticipated future growth to present management, infrastructure, systems, and other operating issues and challenges. These issues include controlling expenses, retention of employees, the diversion of management attention, the development and application of consistent internal controls and reporting processes, the integration and management of a geographically diverse group of employees, and the monitoring of third parties.

Any change in management may make it more difficult to integrate an acquired business with our existing operations. Any failure to address these issues at a pace consistent with our business could cause inefficiencies, additional operating expenses and inherent risks and financial reporting difficulties.

We are dependent upon management.

We currently have two individuals who are serving as management, our President and Chief Financial Officer and President of Pharmacy Operations. We are heavily dependent upon our management’s skills, talents and abilities to implement our business plan. Because investors will not be able to evaluate the merits of our future Pharmacy Acquisition Opportunities, they should critically assess the information concerning our management and Board of Directors. In addition to our own employees, we use from time to time, and are dependent upon, various consultants or contractors to perform various support services including, technology, legal and accounting.

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We are dependent on a small staff to execute our business plan.

Because of the limited size of our staff, each Pharmacy Acquisition becomes more difficult to integrate. Furthermore, it is difficult to maintain a complete segregation of duties related to the authorization, recording, processing and reporting of all such transactions. In addition, our strategy of pursuing Pharmacy Acquisitions will require our management and other personnel to devote significant amounts of time to integrating the acquired businesses with our existing operations. These efforts may temporarily distract their attention from day-to-day business and other business opportunities.

Unforeseen costs associated with Pharmacy Acquisitions could reduce our profitability.

We have implemented our business strategy and made Pharmacy Acquisitions that may not prove to be successful over time. It is likely that we will encounter unanticipated difficulties and expenditures relating to our Pharmacy Acquisitions, including contingent liabilities, or needs for significant management attention that would otherwise be devoted to our general business strategies related to our other Pharmacy Acquisitions. These factors may negatively affect our results of operations. Unforeseen costs at our Pharmacy Acquisitions and potentially upon the closing of the purchase of future Pharmacy Acquisition Opportunities, which have significant liabilities and commitments, could result in our inability to make required payments on our indebtedness, which would have a material adverse affect on our ability to implement our pursuit of Pharmacy Acquisition Opportunities, manage our existing Pharmacy Acquisitions, retain Pharmacy Acquisitions for which outstanding payment obligations remain, or continue our business as a going concern.

We may enter into additional leveraged transactions in connection with a Pharmacy Acquisition Opportunity.

Based on our current cash position, it is likely that if we enter into any additional Pharmacy Acquisitions, such acquisitions will be leveraged, i.e., we may finance the acquisition of the business opportunity by borrowing against the assets of the Pharmacy Acquisition, or against the projected future revenues or profits of the Pharmacy Acquisition. This could increase our exposure to larger losses. A Pharmacy Acquisition Opportunity acquired through a leveraged transaction is profitable only if it generates enough cash flow to cover the related debt and expenses. Failure to make payments on the debt incurred to complete the Pharmacy Acquisition could result in the loss of a portion or all of the assets acquired. There is no assurance that any Pharmacy Acquisition effected through a leveraged transaction will generate sufficient cash flow to cover the related debt and expenses.

The terms and covenants relating to our existing credit facility could adversely impact our financial performance and liquidity.

Our existing credit facility contains covenants requiring us to, among other things, provide financial and other information reporting, provide notice upon certain events, and maintain cash management arrangements. These covenants also place restrictions on our ability to incur additional indebtedness, pay dividends or make other distributions, redeem or repurchase capital stock, make investments and loans, and enter into certain transactions, including selling assets, engaging in mergers or acquisitions, or engaging in transactions with affiliates. If we fail to satisfy one or more of the covenants under our credit facility, we would be in default thereunder, and may be required to repay such debt with capital from other sources or otherwise not be able to draw down against our line of credit. Under such circumstances, other sources of capital may not be available to us on reasonable terms or at all.

Any debt service obligations relating to any future indebtedness for future Pharmacy Acquisitions will reduce the funds available for other business purposes.

To the extent we incur significant debt in the future for Pharmacy Acquisitions, capital expenditures, working capital, or otherwise, we will be subject to risks typically associated with debt financing, such as insufficient cash flow to meet required debt service payment obligations and the inability to refinance existing indebtedness.

We are restricted in our use of net operating loss carryforwards.

Our federal net operating loss (“NOL”) carryforwards permit us the opportunity to offset net operating losses from prior years to taxable income in future years in order to reduce our tax liability. The use of these losses to reduce future income taxes will depend on the generation of sufficient taxable income prior to the expiration of the NOL carryforwards.

The federal net operating loss carryforwards, if not fully utilized, will expire between 2020 and 2035. Section 382 of the Internal Revenue Code of 1986, as amended (the “Code”) imposes an annual limitation on the portion of our federal NOL carryforwards that may be used to offset taxable income.

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In order to preserve our NOL carryforwards, we must ensure that there has not been a “change of control” of our Company. A “change of control” includes a more than 50 percentage point increase in the ownership of our company by certain equity holders who are defined in Section 382 of the Internal Revenue Code as “5 percent stockholders”. Calculating whether an ownership change has occurred is subject to uncertainty, both because of the complexity of Section 382 of the Code and because of limitations on a publicly-traded company’s knowledge as to the ownership of, and transactions in, its securities. Therefore, the calculation of the amount of our NOL carryforwards may be changed as a result of a challenge by a governmental authority or our learning of new information about the ownership of, and transactions in, our securities. Our ability to fully utilize our NOL could be limited if there have been past ownership changes or if there are future ownership changes resulting in a change of control for Code Section 382. Additionally, future changes in tax legislation could negatively affect our ability to use the tax benefits associated with our net operating losses. Therefore, we can provide no assurance that a change in ownership of the Company would allow for the transfer of our existing NOL’s to the surviving entity.

We are controlled by our principal stockholders, officers and directors.

Our principal stockholders, officers and directors, and affiliates beneficially own approximately 17.8% of our Common Stock. As a result, such persons may have the ability to control and direct our affairs and business, perhaps in ways contrary to the interests of the Company’s other stockholders. Such concentration of ownership may also have the effect of delaying, deferring or preventing a change in control or other transaction that could benefit the Company’s stockholders.

Certain provisions of the Company’s charter and rights plan may make a takeover of our company difficult even if such takeover could be beneficial to some of the Company’s stockholders 

The Company’s restated articles of incorporation authorize the issuance of “blank check” preferred stock with such designations, rights and preferences as may be determined from time to time by the Company’s board of directors. Accordingly, the Company’s board is empowered, without further stockholder action, to issue shares or series of preferred stock with dividend, liquidation, conversion, voting or other rights that could adversely affect the voting power or other rights, including the ability to receive dividends, of the Company’s common stockholders. The issuance of such preferred stock could be utilized, under certain circumstances, as a method of discouraging, delaying or preventing a change in control.

Our stock is not listed on a National Securities Exchange.

Our stock is currently traded on the Pink Sheets. Such a security is not listed or traded on a national securities exchange, and issuers of securities quoted on the Pink Sheets are not subject to periodic filing requirements with the Securities and Exchange Commission or other regulatory authority. We are filing this Form 10-Registration Statement to voluntarily register the shares of our common stock under Section 12(g) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), which will require the Company to file the periodic and current reports required under Section 13(d) of the Exchange Act.

In addition, our common stock is subject to penny stock regulations, which could cause fewer brokers and market makers to execute trades in our common stock. This is likely to hamper our common stock trading with sufficient volume to provide liquidity and could cause our stock price to further decrease. The penny stock regulations require that broker-dealers who recommend penny stocks to persons other than institutional accredited investors must make a special suitability determination for the purchaser, receive the purchaser’s written consent to the transaction prior to the sale, and provide the purchaser with risk disclosure documents which identify risks associated with investing in penny stocks. These requirements have historically resulted in reducing the level of trading activity in securities that become subject to the penny stock rules. Holders of our common stock may find it difficult to sell their shares of common stock, which is expected to have an adverse effect on the market price of the common stock.

Should we be required to perform as a co-guarantor on an indebtedness obligation, we do not anticipate that we would have sufficient current cash resources to meet such obligation.

We may be required to make payment as co-guarantor on a promissory note issued by a bank in favor of an individual who was previously, through August 2008, a related party of the Company (discussed further in Note 13 of the Dougherty’s Consolidated Financial Statements contained herein) and as set forth in the Guarantee and the subsequent Forbearance Agreement included, respectively, as Exhibits 10.11 and 10.12 to this Registration Statement, in the total principal amount as of July 15, 2017, of $1,887,884 (the “Guarantee Payment”) and as the co-guarantor, the Company could be liable for the entire amount of the Guarantee Payment. We currently do not have cash on hand in sufficient amounts that would permit us to make the Guarantee Payment, and should we be required to make the Guarantee Payment, we would be required to obtain funding to meet this obligation. Therefore, if we became obligated to make the Guarantee Payment, such obligation would significantly impair the Company’s ability to continue as a going concern or to even be able to continue operations.

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Our industry is highly litigious and future litigation or other proceedings could subject us to significant monetary damages or penalties or require us to change our business practices, which could impair our reputation and result in a material adverse effect on our business.

We are subject to risks relating to litigation, enforcement actions, regulatory proceedings, government inquiries and investigations, and other similar actions in connection with our business operations, including the dispensing of pharmaceutical products by pharmacies, claims, and complaints related to the various regulations to which we are subject and services rendered in connection with business activities. While we are currently not subject to any material litigation of this nature, such litigation is not unusual in our industry. Further, while certain costs are covered by insurance, we may incur uninsured costs related to the defense of such proceedings that could be material to our financial performance. In addition, as a public company, any material decline in the market price of our common stock may expose us to purported class action lawsuits that, even if unsuccessful, could be costly to defend or indemnify (to the extent not covered by insurance) and a distraction to management. Furthermore, unexpected volatility in insurance premiums or retention requirements or claims in excess of our insurance coverage could have a material adverse effect on our business and results of operations.

Risks Related to Our Business and Industry

Our business is subject to extensive regulation.

Our pharmacists and pharmacies are required to be licensed by State Boards of Pharmacy. The pharmacies are also registered with the federal Drug Enforcement Administration. By virtue of these license and registration requirements, the entities owned by us are obligated to observe certain rules and regulations, and a violation of such rules and regulations could result in fines and/or in a suspension or revocation of a license or registration.

In addition, a portion of our revenue is derived from high-end, technical pharmacy services, such as compounded prescriptions and pain management products that are not typically offered by chain drug stores, grocery pharmacies or mass merchandise pharmacies. Additional federal and/or state regulations could also affect our business by putting additional burdens on us.

If we do not adequately respond to competitive pressures, demand for our products and services could decrease.

Our retail pharmacies operate in a highly competitive industry. The markets we serve are subject to relatively few barriers to entry. These pharmacies compete primarily on the basis of customer service; convenience of location; and store design, price and product mix and selection. Some of our competitors have greater financial, technical, marketing, and managerial resources than we have. Local, regional, and national companies are currently competing in many of the health care markets we serve and others may do so in the future. In addition to traditional competition from independent pharmacies and other drugstore and pharmacy chains, our pharmacies face competition from discount stores, supermarkets, combination food and drugstores, mass merchants, warehouse clubs, mail order prescription providers online and omni-channel pharmacies and retailers, hospitals and health maintenance organizations (“HMOs”). These other formats have experienced significant growth in their market share of the prescription and over-the-counter drug business. Consolidation among our competitors, such as pharmacy benefit managers (PBM’s) and regional and national pharmacy providers could result in price competition and other competitive factors that could cause a decline in our revenue and profitability.

We expect to continue to encounter competition in the future that could limit our ability to grow revenue and/or maintain acceptable pricing levels.

Risk related to third party payors.

Our revenues and profitability are affected by the continuing efforts of all third-party payors, including but not limited to HMOs, managed care organizations, PBMs and government programs (which are subject to statutory and regulatory requirements, administrative rulings, interpretations of policy, implementation of reimbursement procedures, retroactive payment adjustments, governmental funding restrictions and changes to existing legislation such as Medicare, Medicaid and other federal and state funded programs) to contain or reduce the costs of health care by lowering reimbursement rates, narrowing the scope of covered services, increasing case management review of services and negotiating reduced contract pricing. Any changes in reimbursement levels from these third-party payor sources and any changes in applicable government regulations could have a material adverse effect on our revenues and profitability. While manufacturers have increased the price of drugs, payors have generally decreased reimbursement rates as a percentage of drug cost. We expect pricing pressures from third-party payors to continue given the high and increasing costs of pharmaceutical drugs. Changes in the mix of pharmacy prescriptions covered by third party payors among Medicare, Medicaid and other payor sources may also impact our revenues and profitability. There can be no assurance that we will continue to maintain the current payor, revenue or profitability mix.

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Collectability of accounts receivable.

Our failure to maintain controls and processes over billing and collecting, or the deterioration of the financial condition of our payors, could have a significant negative impact on our results of operations and financial condition. The collection of accounts receivable is one of our most significant challenges and requires constant focus and involvement by management and ongoing enhancements to information systems and billing center operating procedures. Further some of our payors and/or patients may experience financial difficulties, or may otherwise not pay accounts receivable when due, resulting in increased write-offs. There can be no assurance that we will be able to maintain our current levels of collectability and days sales outstanding in future periods. If we are unable to properly bill and collect our accounts receivable, our operating results will be adversely affected.

We are substantially dependent on a single supplier of pharmaceutical products to sell products to us on satisfactory terms. A disruption in our relationship with this supplier could have a material adverse effect on our business.

We obtain a majority of our total merchandise, including over 83% of our pharmaceuticals, from a single supplier, Cardinal Health 110, Inc. and Cardinal Health 411, Inc. (“Cardinal Health”), with whom we have a long-term supply contract. Any significant disruptions in our relationship with Cardinal Health, or deterioration in Cardinal Health’s financial condition, could have a material adverse effect on us.

Failure to maintain sufficient sales to qualify for favorable pricing under our long term supply contract could increase the costs of our products.

Our long term supply agreement with Cardinal Health, as amended in November 2016, provides us with pricing and credit terms that are improved from those previously provided by Cardinal Health. The minimum purchase commitment includes at least 90% of pharmaceutical product requirements (if carried by Cardinal Health) and at least 90% of generic pharmaceutical product be purchased from the Cardinal Health Generic Source Product Program.

If we are unable to satisfy these minimum purchase requirements, we may be required to purchase our pharmaceutical products on less favorable pricing and credit terms.

Our business is seasonal in nature, and adverse events during the holiday and cough, cold and flu seasons could adversely impact our operating results.

Our business is seasonal in nature, with the months of December, January and February typically generating a higher proportion of retail sales and earnings than other months. Adverse events, such as deteriorating economic conditions, higher unemployment, higher gas prices, public transportation disruptions, or unanticipated adverse weather, could result in lower-than-planned sales during key selling months. For example, frequent or unusually heavy snowfall, ice storms, rainstorms, windstorms or other extreme weather conditions could make it difficult for our customers to travel to our stores. This could lead to lower sales, thus negatively impacting our financial condition and results of operations. In addition, both prescription and non-prescription drug sales are affected by the timing and severity of the cough, cold and flu season, which can vary considerably from year to year.

Our operating results may fluctuate significantly, which makes our future operating results difficult to predict and could cause our operating results to fall below expectations or our guidance.

Our quarterly and annual operating results, and in particular our revenues, have fluctuated in the past and may fluctuate significantly in the future. These fluctuations make it difficult for us to predict our future operating results. Our operating results may fluctuate due to a variety of factors, many of which are outside of our control and are difficult to predict, including the following:

· changes in the reimbursement policies of payors;

· the effect of the expiration of drug patents and the introduction of generic drugs;

· whether revenues and margins on sales of drugs that come to market are properly estimated;

· expenditures that we will or may incur to acquire or develop additional capabilities; and

· timing of increases in drug costs by manufacturers; and the amount of DIR fees and the timing for assessing us for such fees.

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These factors, individually or in the aggregate, could result in large fluctuations and unpredictability in our quarterly and annual operating results. Thus, comparing our operating results on a period-to-period basis may not be meaningful. Investors should not rely on our past results as an indication of our future performance. This variability and unpredictability could also result in our failing to meet the expectations of industry or financial analysts or investors for any period.

We could be adversely affected by a decrease in the introduction of new brand name and generic prescription drugs as well as increases in the cost to procure prescription drugs.

New brand name drugs can result in increased drug utilization and associated sales, while the introduction of lower priced generic alternatives typically results in relatively lower sales, but relatively higher gross profit margins. Accordingly, a decrease in the number or magnitude of significant new brand name drugs or generics successfully introduced, or delays in their introduction, could materially and adversely affect our results of operations.

In addition, if we experience an increase in the amounts we pay to procure pharmaceutical drugs, including generic drugs, it could have a material adverse effect on our results of operations. Our gross profit margins would be adversely affected to the extent we are not able to offset such cost increases. Any failure to fully offset any such increased prices and costs or to modify our activities to mitigate the impact could have a material adverse effect on our results of operations. Additionally, any future changes in drug prices could be significantly different than our projections.

We may experience a significant disruption in our computer systems.

We rely extensively on our computer systems to manage our ordering, pricing, point-of-sale, pharmacy fulfillment, inventory replenishment, finance and other processes. Our systems are subject to damage or interruption from power outages, computer and telecommunications failures, computer viruses, security breaches, cyber-attacks, vandalism, natural disasters, catastrophic events and human error, and our disaster recovery planning cannot account for all eventualities. If any of our systems are damaged, fail to function properly or otherwise become unavailable, we may incur substantial costs to repair or replace them, and may experience loss or corruption of critical data and interruptions or disruptions and delays in our ability to perform critical functions, which could materially and adversely affect our business and results of operations. In addition, we are currently making, and expect to continue to make, substantial investments in our information technology systems and infrastructure, some of which are significant. Upgrades involve replacing existing systems with successor systems, making changes to existing systems, or cost-effectively acquiring new systems with new functionality. Implementing new systems carries significant potential risks, including failure to operate as designed, potential loss or corruption of data or information, cost overruns, implementation delays, disruption of operations, and the potential inability to meet business and reporting requirements. While we are aware of inherent risks associated with replacing these systems and believe we are taking reasonable action to mitigate known risks, there can be no assurance that we will not experience significant issues with our existing systems prior to implementation, that our technology initiatives will be successfully deployed as planned or that they will be timely implemented without significant disruption to our operations. We also could be adversely affected by any significant disruption in the systems of third parties we interact with, including key payors and vendors.

We outsource certain operations of our business to third-party vendors, which could leave us vulnerable to data security failures of third parties.

We outsource certain operations to third-party vendors to achieve efficiencies. Such outsourced functions include but are not limited to pharmacy system software updates and maintenance, payment processing, prescription data processing, and technology services. Although we expect our business partners to maintain the same vigilance as we do with respect to data security, we cannot control the operations of these third parties. While we engage in certain actions to reduce the exposure resulting from outsourcing, vulnerabilities in the information security infrastructure of our business partners could make us vulnerable to attacks or disruptions in service.

Possible changes in industry pricing benchmarks.

It is possible that the pharmaceutical industry or regulators may evaluate and/or develop an alternative pricing reference to replace average wholesale price (“AWP”), which is the pricing reference used for many pharmaceutical purchase agreements, retail network contracts, specialty payor agreements, and other contracts with third party payors in connection with the reimbursement of specialty drug payments. Future changes to the use of AWP or to other published pricing benchmarks used to establish pharmaceutical pricing, including changes in the basis for calculating reimbursement by federal and state health programs and/or other payors, could impact our pricing arrangements. The effect of these possible changes on our business cannot be predicted at this time.

10

Legislative or regulatory policies in the U.S. designed to manage healthcare costs or alter healthcare financing practices or changes to government policies in general may adversely impact our business and results of operations.

Currently, there are numerous congressional, legislative and/or regulatory proposals which seek to amend and or replace the Affordable Care Act (“ACA”), including proposals to manage the cost of healthcare, including prescription drug cost. Such proposals may include changes in reimbursement rates, restrictions on rebates and discounts, restrictions on access or therapeutic substitution, limits on more efficient delivery channels, taxes on goods and services, price controls on prescription drugs, and other significant healthcare reform proposals, including their repeal or replacement. Further, more exacting regulatory policies and requirements specific to the pharmacy sector may cause a rise in costs, labor, and time to meet all such requirements. We are unable to predict whether any such policies or proposals will be enacted, or the specific terms thereof. Certain of these policies or proposals, if enacted, could have a material adverse impact on our business.

Our business operations involve the substantial receipt and use of confidential health information concerning individuals. A failure to adequately protect any of this information could result in severe harm to our reputation and subject us to significant liabilities, each of which could have a material adverse effect on our business.

Most of our activities involve the receipt or use of personal health information (“PHI”) concerning individuals. There is substantial regulation at the federal and state levels addressing the use, disclosure, and security of patient identifiable health information. At the federal level, HIPAA and the regulations issued thereunder impose extensive requirements governing the transmission, use, and disclosure of health information by all participants in health care delivery, including physicians, hospitals, insurers, and other payors. Many of these obligations were expanded under Health Information Technology for Economic and Clinical Health, passed as part of the American Recovery and Reinvestment Act of 2009. Failure to comply with standards issued pursuant to federal or state statutes or regulations may result in criminal penalties and civil sanctions. In addition to regulating privacy of individual health information, HIPAA includes several anti-fraud and abuse laws, extends criminal penalties to private health care benefit programs and, in addition to Medicare and Medicaid, to other federal health care programs, and expands the Office of Inspector General’s authority to exclude persons and entities from participating in the Medicare and Medicaid programs. Further, future regulations and legislation that severely restrict or prohibit our use of patient identifiable or other information could limit our ability to use information critical to the operation of our business. If we violate a patient’s privacy or are found to have violated any federal or state statute or regulation with regard to confidentiality or dissemination or use of PHI, we could be liable for significant damages, fines, or penalties and suffer severe reputational harm, each of which could have a material adverse effect on our reputation, our business, our results of operations, and our future prospects.

Our business, financial position, and operations could be adversely affected by environmental regulations, and health and safety laws and regulations applicable to our business.

Certain federal, state, and local environmental regulations and health and safety laws and regulations are applicable to our business, including the management of hazardous substances, storage, and transportation of possible hazardous materials, and various other disclosure and procedure requirements that may be promulgated by the Occupational Safety and Health Administration or the Environmental Protection Agency that may apply to our operations. Violations of these laws and regulations could result in substantial statutory penalties, sanctions, and, in certain circumstances, a private right of action by consumers, employees, or the general public.

Health Reform Legislation

Congress passed major health reform legislation, including the Patient Protection and ACA, as amended by the Health Care and Education Reconciliation Act of 2010 (the “Health Reform Laws”). This legislation affects virtually every aspect of health care in the U.S. In addition to establishing the framework for every individual to have health coverage beginning in 2014, the Health Reform Laws enacted a number of significant health care reforms. President Donald Trump has stated his intentions to support the repeal and possible replacement of the Health Reform Laws during his term of office and on May 4, 2017, the House of Representatives passed the American Health Care Act as the first proposed change to health reform legislation. While not all of these reforms, or their repeal or replacement, affect our business directly, they could affect the coverage and plan designs that are or will be provided by many of our health plan clients. As a result, these reforms, or their repeal or replacement, could impact many of our services and business practices. There is considerable uncertainty as to the continuation of these reforms, their repeal, or their replacement.

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Current economic conditions may adversely affect our industry, business and results of operations.

The United States economy is continuing to feel the impact of the economic downturn that began in late 2007, and the future economic environment may not fully recover to levels prior to the downturn. This economic uncertainty has and could further lead to reduced consumer spending. If consumer spending decreases or does not grow, we may not be able to sustain or grow sales. In addition, reduced or flat consumer spending may drive us and our competitors to offer additional products at promotional prices, which would have a negative impact on our gross profit. A continued softening or slow recovery in consumer spending may adversely affect our industry, business and results of operations. Reduced revenues as a result of decreased consumer spending may also reduce our liquidity and otherwise hinder our ability to implement our long term strategy.

Certain risks are inherent in providing pharmacy services, and our insurance may not be adequate to cover any claims against us.

Pharmacies are exposed to risks inherent in the packaging and distribution of pharmaceuticals and other health care products. Although we maintain professional liability and errors and omissions liability insurance, we cannot assure you that the coverage limits under our insurance programs will be adequate to protect us against future claims, or that we will maintain this insurance on acceptable terms in the future.

ITEM 2. FINANCIAL INFORMATION

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

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 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.

RESULTS OF OPERATIONS 

Comparison of the Year Ended December 31, 2016 to the Year Ended December 31, 2015 (000’s omitted).

Revenue

	2016			2015			$ Change
Revenue	$	42,786		$	40,952		$	1,834
Cost of sales (exclusive of depreciation and amortization shown separately below)		31,736			29,654			2,082
Gross profit		11,050			11,298			(248	)
Operating expenses
Selling, general and administrative		10,449			10,628			(179	)
Depreciation and amortization		1,052			771			281
Dividend income		84			88			(4	)
Other income		1			5			(4	)
Interest expense		443			336			107
Investments impairment		4,008			–			4,008
Income tax provision		42			52			(10	)
Net loss	$	(4,859	)	$	(396	)	$	(4,463	)
plus:
Interest expense	$	443		$	336		$	107
Depreciation and amortization		1,052			771			281
Investments impairment		4,008			–			4,008
Income tax provision		42			52			(10	)
EBITDA (Adjusted)	$	686		$	763		$	(77	)
Prescriptions sold		443,467			375,505			67,962

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Total revenues increased $1,834 during the year ended December 31, 2016 to $42,786. This represents a 4.5% increase over revenue of $40,952 in 2015. The increase includes an 18.1% increase in the number of retail pharmacy prescriptions sold and increased sales of front end merchandise. $4,457 of the increase in revenue was attributable to a full year of results for two pharmacies acquired at the end of the second quarter of 2015 offset by $2,623 of decreases in revenue attributable to the change in mix of prescriptions.

Gross Profit

Gross profit decreased $248 for the year ended December 31, 2016 to $11,050, or 25.8% of revenue. Gross profit was $11,298 or 27.6% of sales in 2015. The overall decrease in gross profit is primarily due to lower reimbursement rates. Gross profit includes all direct costs related to the sale of prescriptions.

Operating Expense

SG&A expense decreased $179 for the year ended December 31, 2016, to $10,449 from $10,628 in 2015. SG&A expense represented 24.4% of revenue in 2016 as compared to 26.0% of revenue in 2015. The decrease in SG&A as a percentage of revenue is due primarily to cost savings implemented to counter the expected lower gross profit. Depreciation and amortization increased $281 for the year ended December 31, 2016, to $1,052 from $771 in 2015, attributable to a full year of results for two pharmacies acquired at the end of the second quarter of 2015.

Interest Expense

Interest expense increased $107 for the year ended December 31, 2016, to $443 from $336 in 2015. The increase in interest expense is attributable to the financing on the two pharmacies acquired at the end of the second quarter of 2015.

Earnings Before Interest, Taxes, Depreciation and Amortization

The one time non-operating investments impairment of $4,008, of which $3,812 is described in Note 13 of the Dougherty’s Consolidated Financial Statements contained herein, is added back to income to calculate EBITDA (Adjusted) for the year ended December 31, 2016. The $3,812 charge is related to the liquidation of a partnership interest located in California that performs real estate advisory services to corporate clients around the United States. The investments impairments are not a result of ongoing operations and added back by management to derive comparative results year over year. EBITDA (Adjusted) decreased by $77 to EBITDA (Adjusted) of $686 in for the year ended December 31, 2016, from EBITDA of $763 in 2015. This overall decrease is due primarily to lower gross margin noted above.

Results of Operations: Comparison of the Three Months Ended March 31, 2017 to the Three Months Ended March 31, 2016 (000’s Omitted)

	2017			2016			$ Change
Revenue	$	10,055		$	10,816		$	(761	)
Cost of sales (exclusive of depreciation and amortization shown separately below)		7,268			7,894			(626	)
Gross profit		2,787			2,922			(135	)
Operating expenses
Selling, general and administrative		2,576			2,761			(185	)
Depreciation and amortization		266			261			5
Other income		–			1			(1	)
Interest expense		102			107			(5	)
Income tax provision		11			10			1
Net loss	$	(168	)	$	(216	)	$	48
plus:
Interest expense	$	102		$	107		$	(5	)
Depreciation and amortization		266			261			5
Income tax provision		11			10			1
EBITDA	$	211		$	162		$	49
Prescriptions sold		111,845			111,071			774

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Revenues

Total revenues decreased $761 during the first quarter of 2017 to $10,055. This represents a 7% decrease over revenue of $10,816 in the first quarter of 2016. Retail pharmacy prescriptions increased 0.7%. Revenues per prescription sold declined in the first quarter of 2017 as compared to the same quarter for 2016 due to the conversion of over 1,000 prescriptions previously sold as brand name drugs to generic name drugs, causing the average selling price for these prescriptions to decline from $363 to $44. Management believes this trend for the remainder of 2017 will continue, resulting in lower revenues per prescription filled due to the brand to generic conversion and lower generic selling prices in 2017. The remainder of the decrease in revenues was due to the decrease in average selling price of generic prescriptions from $48 to $44. .Management believes the average selling price for generic prescriptions will remain consistent for the foreseeable future. Prescriptions sold are expected to remain consistent with prior years.

Gross profit

Gross profit decreased $135 as a result of the factors discussed in Revenues above. Gross profit improved to 27.7% of revenue in the first quarter of 2017 as compared to 27.0% of revenue in the first quarter of 2016 as a result of the improved pricing secured in the November 2016 pricing agreement with Cardinal Health, offset by an increase in third party payor fees. Management expects this trend to continue during 2017. Direct and Indirect Remuneration (“DIR”) fees are new fees charged to pharmacies that relate to Medicare Part D plans. These fees occur at the point of sale and are new fees added to other fees assessed after adjudication of a claim. In particular, the methodology and transparency around how PBMs are applying these DIR fees changed materially in 2016 and commenced to result in significant DIR fees assessed beginning in the first quarter of 2017. DIR fees for the first quarter of 2017 were $50 bringing the total adjudicated fees to $69 for the quarter compared to $19 in the first quarter of 2016, an increase of 263%. Total adjudicated fees increased from 0.26% of third party payor revenues for the first quarter of 2016 to 1.01% in 2017. While DIR fees are expected to continue and increase to as much as 1.5% of third party payor revenues going forward, Management expects the improved pricing from Cardinal Health to offset the fees for a continued improved gross margin as a percent of revenues.

Operating expenses

SG&A expenses decreased $185 from $2,761 in the first quarter of 2016 to $2,576 in the first quarter of 2017. The decrease in operating expenses is due primarily to cost reduction initiatives that were implemented during 2016. Management expects this trend to continue for the remainder of 2017.

Earnings Before Interest, Taxes, Depreciation and Amortization

EBITDA increased by $49 to EBITDA of $211 in the first quarter of 2017 from EBITDA of $162 in the first quarter of 2016, or an improvement of or 30.2%. This overall increase is due primarily to the cost improvements realized over prior year.

LIQUIDITY AND CAPITAL RESOURCES

As of March 31, 2017, we had cash of $826,000, of which $303,000 was restricted, as compared to cash of $361,000, of which $303,000 was restricted, at December 31, 2016. As of March 31, 2017, the Company had total current assets of $6,406,000 and total current liabilities of $4,115,000 creating working capital of approximately $2,291,000 as compared to total current assets of $6,013,000 and total current liabilities of $4,065,000 creating working capital of approximately $1,948,000 at December 31, 2016. The increase in total cash of $465,000 and working capital of $343,000 is primarily due to cash proceeds received upon the disposition of CPOC of $617,000, of which $100,000 of the proceeds were used to pay off a term note with our bank and the remainder was held in cash. The change in total cash as of March 31, 2017, without the proceeds of $617,000 from the sale of CPOC would have been a decrease of cash and working capital of $152,000.

For the three months ended March 31, 2017, net cash flow provided by operating activities of $554,000 primarily reflects the net loss of $168,000, the add-back of non-cash depreciation and amortization expense of $266,000, the add-back of stock-based compensation of $12,000, and changes in operating assets and liabilities of positive $269,000 for accounts receivable, due to the decrease in revenues, negative $102,000 for inventory, due to an increase in inventory, negative $25,000 for prepaid expenses and other assets, positive $238,000 for accounts payable, due to the increase in inventory and timing of invoices payable and positive $64,000 for accrued liabilities.

Net cash flow provided by investing activities was $576,000. Cash used to purchase property and equipment was $41,000 and cash provided by the proceeds of the disposition of CPOC was $617,000.

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Net cash flow used in financing activities was $665,000. For the three months ended March 31, 2017, borrowings of $4,418,000 and payments of $4,739,000 were made on the revolving credit facility. Payments of $344,000 were made on notes payable.

We had negative cash flow of $10,000 during the year ended December 31, 2016, and positive cash flow of $465,000 for the three months ended March 31, 2017 as compared to a positive cash flow of $61,000 for the year ended December 31, 2015, and negative cash flow of $3,000 for the three months ended March 31, 2016.

As of December 31, 2016, we had working capital of approximately $1,948,000 as compared to $3,069,000 at December 31, 2015. The decrease of $1,121,000 in working capital is related to increases in accounts payables of $684,000, notes payable, current portion of $41,000 and decreases in cash of $11,000, accounts and other receivables of $143,000, inventory of $207,000, and other net assets and liabilities of $35,000.

We had negative cash flow of $10,000 during the year ended December 31, 2016, as compared to a positive cash flow of $61,000 during 2015.

Net cash flow provided by operations was $1,374,000 during the year ended December 31, 2016, compared to $105,000 during 2015. Net cash provided by operations during the year ended December 31, 2016, primarily reflects the net loss of $4,859,000, the add-back of non-cash depreciation and amortization expense of $1,052,000, the investments impairment of $3,812,000 and other impairments of $196,000 totaling $4,008,000 and changes in operating assets and liabilities of positive $207,000 for inventory, $179,000 for prepaid expenses and other assets and $684,000 for accounts payable. Net cash provided by operations during the year ended December 31, 2015, primarily reflects the net loss of $396,000, the add-back of non-cash depreciation and amortization expense of $771,000, and changes in operating assets and liabilities of negative $695,000 for accounts receivable, negative $66,000 for inventory, positive $59,000 for prepaid expenses and other assets, positive $441,000 for accounts payable and negative $58,000 for accrued liabilities.

Cash used in investing activities was $447,000 during the year ended December 31, 2016, compared to $1,753,000 during 2015. The cash used to purchase of property and equipment was $447,000 in 2016 and $526,000 in 2015. In addition, during 2015, net cash paid for the acquisition of pharmacies was $1,227,000. Net cash paid of $1,227,000 for pharmacy acquisitions was primarily comprised of $1,125,000 of inventory, $174,000 of property and equipment, $4,310,000 of intangible assets for patient prescription data and $31,000 of other, offset by notes payable proceeds of $4,413,000.

Cash used in financing activities was $937,000 during the year ended December 31, 2016, compared to cash provided of $1,709,000 during 2015. During 2016 borrowings of $22,779,000 and payments of $22,727,000 were made on the revolving credit facility. Borrowings of $1,407,000 and payments of $2,396,000 were made on notes payable. During the year ended 2015, borrowings of $29,414,000 and payments of $26,960,000 were made on the revolving credit facility. Borrowings of $2,194,000 and payments of $2,949,000 were made on notes payable. Borrowings and payments on notes payable was primarily related to Pharmacy Acquisitions.

Our principal indebtedness at March 31, 2017 consists of the following:

· A number of term notes in favor of Cardinal Health in the aggregate amount of $3,859,000, secured by certain retail pharmacy assets, and maturing between August 2019 and August 2020;

· A revolving credit facility in the principal amount of $4,750,000, of which the Company has currently borrowed $3,850,000 on the revolving credit facility, leaving $900,000 available for future borrowings;

· A number of notes payable to sellers of acquired pharmacies in the aggregate amount of $256,000, unsecured, and maturing on or before September 18, 2018.

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 the First National Bank of Omaha.

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In addition, the Company is 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 (as set forth in the Guarantee and the subsequent Forbearance Agreement included, respectively, as Exhibits 10.11 and 10.12 to this Registration Statement). The total principal amount due and owing under the promissory note as of July 15, 2017, of $1,887,884 (the “Guarantee Payment”), of which $136,000 payments have been made during 2017. The Company has received written assurance that the primary obligors are current in their payment obligations under the promissory note as of August 1, 2017. The promissory note is collateralized by a property that is currently held for sale, is expected to sell before the end of the calendar year and for which the proceeds will be sufficient and are expected to be used to pay off the balance of the promissory note. Upon payment of the promissory note in full, the restricted cash balance of $303,000, for which the Company was required to provide as escrow, and for which there are no additional escrow provisions, will be released and unrestricted for use in operations, financing or investing as determined Management. As the co-guarantor, the Company could be liable for the entire amount of the Guarantee Payment in the event of default, which management deems to be highly unlikely.

Our future capital needs are uncertain. Management anticipates funding our capital needs through a combination of projected positive cash flow after debt service and available borrowings under our revolving line of credit; however cash flow projections are based on anticipated operations of our business, for which we can provide no assurance. Additionally, if we were to make additional acquisitions, we would likely need additional capital to fund all, or a portion, of those acquisitions. If the company does not generate the necessary cash flow, the Company will need additional financing in excess of our current revolving line of credit to fund operations in the future. We do not know whether additional financing will be available when needed, or that, if available, we will be able to obtain financing on terms favorable, or even acceptable, to the Company. 

Tax Loss Carryforwards

At December 31, 2016, we had approximately $48 million of federal NOL carryforwards available to offset future taxable income, which, if not utilized, will fully expire from 2020 to 2035. 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, except for $3 million that is estimated to offset future taxable income from pharmacy operations and or the sale of pharmacy businesses. The estimated deferred tax asset is consistent with the prior year, accordingly, no tax benefit has been recognized in the periods presented.

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.

Please see Note 13 of the Dougherty’s Consolidated Financial Statements contained herein.

	Contractual Obligations As of December 31, 2016
	Payments due by Period ($-000’s omitted)
	Less than		1-3		4-5		More than
	1 year		Years		Years		5 years		Total
Lease obligations		621		761		325		535		2,242
Notes payable		1,129		6,180		1,427		–		8,736
Total	$	1,750	$	6,941	$	1,752	$	535	$	10,978

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Critical Accounting Policies

The consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America and include amounts based on management’s prudent judgments and estimates. Actual results may differ from these estimates. Management believes that any reasonable deviation from those judgments and estimates would not have a material impact on our consolidated financial position or results of operations. To the extent that the estimates used differ from actual results, however, adjustments to the statement of earnings and corresponding balance sheet accounts would be necessary. These adjustments would be made in future periods. Some of the more significant estimates include intangible asset impairment, cost method investments and income taxes. We use the following methods to determine our estimates:

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.

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 market. 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.

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.

Cost Method Investments

Cost method investments represent investments in limited partnerships accounted for using the cost method of accounting. None of these investments are investments in publicly traded companies. The cost method is used because the Company does not have a controlling interest and does not have significant influence over the operations of the respective companies. Accordingly, the Company does not record its proportionate share of the income or losses generated by the limited partnerships in the consolidated statement of operations. The Company recognizes as income dividends that are distributed from net accumulated earnings of the investees since the date of acquisition. The investments are recorded at carrying value and based on information obtained from the entities in which the Company owns these interests, and management does not believe these to be impaired.

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.

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.

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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.

ITEM 3. PROPERTIES

The physical properties used by the Company are summarized below:

Property Type	Owned/Leased	Number	Location	Approximate Square Feet
Retail pharmacy	Leased	1	Dallas, TX	13,000
Retail pharmacies	Leased	3	Texas	9,000
Retail pharmacy	Leased	1	Oklahoma	3,000
Corporate office	Leased	1	Dallas, TX	3,000

ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

Beneficial Ownership of Certain Stockholders, Directors and Executive Officers

The following table sets forth information with respect to the beneficial ownership of our common stock at May 1, 2017, by:

· each of our named executive officers and directors;

· all of our executive officers and directors as a group; and

· each person or group of affiliated persons, known to us to own beneficially more than 5% of our common stock

In accordance with the rules of the SEC, the table gives effect to the shares of common stock that could be issued upon the vesting of outstanding restricted share units within 60 days of May 1, 2017. Unless otherwise noted in the footnotes to the table, and subject to community property laws where applicable, the individuals listed in the table have sole voting and investment control with respect to the shares beneficially owned by them. Unless otherwise noted in the footnotes to the table, the address of each stockholder, executive officer and director is c/o Dougherty’s Pharmacy, Inc., 5924 Royal Lane, Suite 250, Dallas, Texas 75230. We have calculated the percentages of shares beneficially owned based on 22,476,346 shares of common stock outstanding at May 1, 2017.

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	Shares of Common Stock Beneficially Owned *
Person or Group	Number			Percentage
Directors and Named Executive Officers
James C. Leslie (Director & Chairman of the Board)		1,708,483	(1)		7.60%
Anthony J. LeVecchio (Director)		335,801	(2)		1.50%
Will Cureton (Director)		40,955	(3)		*
Troy Phillips (Director)		3,705,630			16.50%
Mark Heil (President and Chief Financial Officer)		185,041	(4)		*
Andrew Komuves		21,098	(5)		*
All Executive Officers and Directors as a Group (6 Persons)		5,997,008	(6)		26.60%
* Denotes less than one percent.

(1)	Includes 10,150 shares represented by restricted stock units that are scheduled to vest on or before July 1, 2107. Also Includes 77,686 shares held in trust for the benefit of James Josiah Leslie, and 77,273 shares held in trust for the benefit of Jenna L. Leslie. Mr. Leslie disclaims beneficial ownership for all 154,959 of these shares.
(2)	Includes 10,150 shares represented by restricted stock units that are scheduled to vest on or before July 1, 2017.
(3)	Includes 10,150 shares represented by restricted stock units that are scheduled to vest on or before July 1, 2017.
(4)	Includes 10,100 shares represented by restricted stock units that are scheduled to vest on or before July 1, 2017.
(5)	Includes 7,575 shares represented by restricted stock units that are scheduled to vest on or before July 1, 2017.
(6)	Includes 48,125 shares represented by restricted stock units that are scheduled to vest on or before July 1, 2017.

Change in Control Arrangements.

There are no arrangements, known to the Company, including any pledge by any person of the Company’s securities or any of its parents, the operation of which may at a subsequent date result in a change in control of the Company.

ITEM 5. DIRECTORS AND EXECUTIVE OFFICERS

DIRECTORS AND EXECUTIVE OFFICERS

Our business affairs are managed under the direction of the board of directors, or the Board, consisting, as of the date of this Registration Statement, of four persons, divided into three classes. Currently, there is an open Class A director position, and the Board will be evaluating whether and how to replace that open Class A Director position. The Company’s Bylaws provide that a majority of the members of the Board may designate a successor to fill the unexpired term of a vacancy on the Board without a vote, or the approval, of the Company’s stockholders. Members of each class serve offset terms of three years so that only one class is elected each year. The following table sets forth each class, the directors comprising each class and their respective terms:

CLASS	DIRECTORS	TERM EXPIRING
Class A	Troy Phillips, One Position Open	2018 Annual Meeting
Class B	Will Cureton	2019 Annual Meeting
	Anthony J. LeVecchio
Class C	James C. Leslie	2020 Annual Meeting

Based on its review of the applicable rules of The NASDAQ Global Market, the Board believes that Messrs. Cureton, LeVecchio, and Phillips are "independent" within the meaning of The NASDAQ Global Market listing standards. According to these standards, the Board believes Mr. Leslie is not “independent”.

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Will Cureton, Age 66, director since 2005. Mr. Cureton is a partner in Ascension Development, LLC, a development firm focusing on multifamily projects. From 1997 to 2013, Mr. Cureton was a member and manager of CLB Holdings, LLC, a Texas limited liability company and general partner of CLB Partners, Ltd., a Texas limited partnership ("CLB") engaged in real estate development and which he co-founded in 1997.  Prior to co-founding CLB, Mr. Cureton was Chief Operating Officer of Columbus Realty Trust, a real estate investment trust, from 1993 to 1997. In 1987 Mr. Cureton co-founded Texana, a commercial real estate investment and property management company, and served as its President and Chief Executive Officer until 1993. From 1981 to 1987, Mr. Cureton served as an executive officer with The DicoGroup, Inc., a Dallas based real estate investment company. Mr. Cureton started his career with Coopers & Lybrand, where he worked from 1974 to 1981. Mr. Cureton received a Bachelor of Business Administration degree in accounting from East Texas State University (now known as Texas A&M University - Commerce). Mr. Cureton was selected to serve on our Board because of his extensive business dealings.

Anthony J. LeVecchio, Age 70, director since 2004. Mr. LeVecchio has been the President and Principal of The James Group, a general business consulting firm that has advised clients across a range of high-tech industries, since 1988. Prior to forming The James Group in 1988, Mr. LeVecchio was the Senior Vice President and Chief Financial Officer for VHA Southwest, Inc., a regional healthcare system. Mr. LeVecchio currently serves as director, advisor and executive of private and public companies in a variety of industries. He currently serves as Co-Chairman of the Board of Directors of UniPixel, Inc. (UNXL) an industrial film design and manufacturing firm in Santa Clara, California that is listed on The NASDAQ Global Market, and serves on the Audit Committee. He also currently serves as Chairman of the Board of Directors and as Chairman of the Audit Committee for LegacyTexas Bank (LTXB), a community bank based in Plano, Texas that is listed on The NASDAQ Global Select Market. His prior public company boards include Microtune, Inc., DG FastChannel, Inc., and Maxum Health, Inc. Mr. LeVecchio holds a Bachelor of Economics and a M.B.A. in Finance from Rollins College where he serves on the Board of Trustees. Mr. LeVecchio is a lecturing professor for financial statement analysis classes at the University of Texas, Dallas. Mr LeVecchio was selected to serve on our Board and as the Chairman of the Audit Committee because of his standing as a financial expert and corporate governance expert.

James C. Leslie, Age 61, director since July 2001 and Chairman of the Board since March 2002. Mr. Leslie has served as Chairman of Dougherty’s since March 2002 and as a Director since July 2001. Mr. Leslie held the position of Chief Executive Officer of CRESA, a national tenant representation and real estate advisory services firm headquartered in Boston, Massachusetts from 2012 to 2015, after serving on its Board for 10 years. From 2001 to 2011, Mr. Leslie focused primarily on managing his personal investments. Mr. Leslie has positions in one or more of our subsidiaries or affiliates. From 1996 through 2001, Mr. Leslie served as President and Chief Operating Officer of The Staubach Company, a full-service international real estate strategy and services firm. From 1988 through March 2001, Mr. Leslie also served as a director of The Staubach Company. Mr. Leslie was President of Staubach Financial Services from 1992 until 1996. From 1982 until 1992, Mr. Leslie served as Chief Financial Officer of The Staubach Company. Mr. Leslie serves on boards of several private companies. Mr. Leslie holds a B.S. degree from The University of Nebraska and an M.B.A. degree from The University of Michigan Graduate School of Business. Mr Leslie was selected to serve as Chairman of the Board because of his leadership, financial and management experience as well as his ability to provide guidance and valuable insight through his involvement with entrepreneurs and emerging companies consistently during his career.

Troy Phillips, Age 70, director since 2017. Mr. Phillips has been the Chairman of the Board and CEO of Glast, Phillips & Murray, P.C., a law firm, since 1992. Mr. Phillips specializes in business litigation, devoting a substantial portion of his practice to prebankruptcy strategies, loan workouts, purchase of assets from bankruptcy estates, and refinancings. He also has extensive experience in corporate reorganizations, leveraged buy-outs and avoidance of prebankruptcy transfers. Mr. Phillips has practiced law privately since 1974. Mr. Phillips received his bachelor's degree from North Texas State University and his law degree from the University of Texas at Austin in 1974, where he was a member of the Order of Barristers and the University of Texas State Champion Moot Court Team. He is a member of the College of the State Bar of Texas, and is an occasional speaker at legal and professional seminars as well as an author on business bankruptcy law. Mr. Phillips has been admitted to practice and has handled cases before Courts in the State of Texas, the Northern and Eastern Federal Districts of Texas, the Fifth Circuit Court of Appeals, and the United States Supreme Court.

Mark S. Heil, 55, President since 2014, Chief Financial Officer since 2007. Mr. Heil was named President of Dougherty’s in April 2014, and he has served as Chief Financial Officer since 2007. Mr. Heil has significant experience in finance and accounting matters having served in various executive positions, including various chief financial officer roles and chief operating officer capacities along with consulting experience in the executive services field. Prior to joining Dougherty’s, Mr. Heil served as a consulting associate at Tatum LLC, which provides financial consulting and executive services to its clients. Previous to Tatum, Mr. Heil held various Chief Financial Officer positions at The Loomis Agency, a full service advertising company and at American Excelsior Company, a manufacturing and distribution company. In addition, he held the position of Chief Operating Officer of American Excelsior's Earth Science Division during his tenure with this firm. Mr. Heil began his career in the audit division of KPMG. Mr. Heil graduated from the University of Texas with a BBA in Accounting. He also served on the board of directors of American Excelsior Company. He is a Certified Public Accountant in the State of Texas and is a member of the Financial Executives International (FEI).

Andrew J. Komuves, Jr. RPh, FIACP 55, President Pharmacy Operations since 2013. Mr. Komuves joined Dougherty’s Pharmacy Inc. in 2012 with over 26 years of experience as a compounding pharmacist and pharmacy owner. Prior to joining Dougherty’s Mr. Komuves served as executive with Horizon Pharmacies, a 52 store drug chain. Mr. Komuves serves as a board member for the Alliance of Independent Pharmacists of Texas and Cardinal Health’s National and Regional Retail Advisory Board. Mr. Komuves has previously served as a board member for the International Academy of Compounding Pharmacists and the North Texas Red Cross. In addition to, Mr. Komuves holds a BBA degree from Texas Christian University, a Bachelor’s of Science in Pharmacy from the University of Houston and completed a fellowship in pharmaceutical compounding conferred by the International Academy of Compounding Pharmacists.

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There are no family relationships among the executive officers or directors. There are no arrangements or understandings pursuant to which any of these persons were elected as an executive officer or director. No director or officer has been involved in any legal proceedings required to be disclosed under Item 401(f) of Regulation SK, but for a personal bankruptcy filed in 2013 by one of our directors, Mr. Will Cureton.

COMPENSATION OF DIRECTORS

Non Employee Director Compensation

As of December 31, 2016

Annual Cash Retainer	Per Meeting Fees	Annual Restricted Stock Grant
Non-Employee Director $10,000; $2,500 per quarter	In person $500, telephonic $250	20,000 shares vesting over four years
Non-Employee Director and Committee Chairman $20,000; $5,000 per quarter	In person $500, telephonic $250	20,000 shares vesting over four years
Non-Employee Director and Chairman of the Board  $120,000; $10,000 per month	In person $500, telephonic $250	20,000 shares vesting over four years

Note: All payment terms were effective as of January 1, 2013. Annual Restricted Stock Grant as approved by the Compensation Committee.

2016 Director Compensation Table

Name	Fees Earned or Paid in Cash		Nonqualified Deferred Compensation Earnings		Total
	($)		($)		($)
James C. Leslie	$	120,000	$	3,253	$	123,253
Anthony J. LeVecchio	$	22,000	$	3,253	$	25,253
Will Cureton	$	11,500	$	3,253	$	14,753

Note: Nonqualified deferred compensation earnings represents the market value of vested shares under our Restricted Share Unit (“RSU”) Incentive Plan. For a description of the RSU Incentive Plan, please see Item 6. "Executive Compensation."

CORPORATE GOVERNANCE

Committees of the Board of Directors; Meetings

The Board has two standing committees, the Audit Committee and the Compensation Committee. The Board does not have a separate Nominating Committee and performs all of the functions of that committee.

The Audit Committee

The Audit Committee has as its primary responsibilities the appointment of the independent auditor for the Company, the pre-approval of all audit and non-audit services, and assistance to the Board in monitoring the integrity of our financial statements, the independent auditor's qualifications, independence and performance and our compliance with legal requirements. The Audit Committee operates under a written charter adopted by the Board, a copy of which is available on the Company's website at www.doughertys.com (the contents of such website are not incorporated into this Registration Statement). Anthony J. LeVecchio is the current member and Chairman of the Audit Committee.

The Securities and Exchange Commission ("SEC") has adopted rules to implement certain requirements of the Sarbanes-Oxley Act of 2002 pertaining to public company audit committees. One of the rules adopted by the SEC requires a company to disclose whether the members of its Audit Committee are "independent." Since we are not a "listed" company, we are not subject to rules requiring the members of our Audit Committee to be independent. The SEC also requires a company to disclose whether it has an "Audit Committee Financial Expert" serving on its audit committee.

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Based on its review of the applicable rules of The NASDAQ Global Market governing audit committee membership, the Board believes that Mr. LeVecchio is "independent" within the meaning of The NASDAQ Global Market listing standards. The Board does believe that the current member of the Audit Committee satisfies the general definition of an independent director under The NASDAQ Marketplace Rule 4200. 

Based on its review of the criteria of an Audit Committee Financial Expert under the rule adopted by the SEC, the Board, after reviewing all of the relevant facts, circumstances and attributes, has determined that Mr. LeVecchio, the Chairman of the Audit Committee is qualified as an "audit committee financial expert" on the Audit Committee. 

Compensation Committee

The Compensation Committee recommends to the Board annual salaries for executive management and reviews all company benefit plans. The Compensation Committee operates under a written charter adopted by the Board, a copy of which is available on the Company's website at www.doughertys.com (the contents of such website are not incorporated into this Registrations Statement). The Chairman of the Compensation Committee position is open. The current member of the Compensation Committee is Anthony J. LeVecchio. After a review of the applicable rules of The NASDAQ Global Market governing compensation committee membership, the Board believes that Mr. LeVecchio is “independent” within the meaning of The NASDAQ Global Market Listing Standards.

Nomination Process

The Board does not have a separate Nominating Committee or Charter and performs all of the functions of that committee. The Board believes that it does not need a separate nominating committee because the full Board is relatively small, has the time to perform the functions of selecting Board nominees, and in the past has acted unanimously in regard to nominees.

In view of Dougherty’s size, resources and limited scope of operations, the Board has determined that it will not increase the size of the Board from its current size of five members, including the current vacancies in the Class A director positions that the Board intends to fill. In the future, the Board may determine that increased size, scope of operations or other factors would make it advisable to add additional directors. In considering an incumbent director whose term of office is to expire, the Board reviews the director's overall service during the person's term, the number of meetings attended, level of participation and quality of performance. In the case of new directors, the directors will consider suggestions from many sources, including stockholders, regarding possible candidates for directors. The Board may engage a professional search firm to locate nominees for the position of director of the Company. However, to date the Board has not engaged professional search firms for this purpose. A selection of a nominee by the Board requires a majority vote of the Company's directors.

The Board seeks candidates for nomination to the position of director who have excellent decision-making ability, business experience, personal integrity and a high reputation and who meet such other criteria as may be set forth in a writing adopted by a majority vote of the Board of Directors. The committee will use the same criteria in evaluating candidates suggested by stockholders as for candidates suggested by other sources.

Pursuant to a policy adopted by the Board, the directors will take into consideration a director nominee submitted to the Company by a stockholder; provided that the stockholder submits the director nominee and reasonable supporting material concerning the nominee by the due date for a stockholder proposal to be included in the Company's proxy statement for the applicable annual meeting as set forth in the rules of the Securities and Exchange Commission then in effect. 

Director Attendance at Annual Meetings

We do not have a policy regarding attendance by members of the Board of Directors at our annual meeting of stockholders. The Board has always encouraged its members to attend its annual meeting.

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ITEM 6. EXECUTIVE COMPENSATION

Summary compensation

The following table provides summary information concerning compensation paid by us to our principal executive officers and each person who served as our principal financial officer in 2016. In 2016, no other person who served as an executive officer of Dougherty’s at any time during the year had total annual salary and bonus in excess of $100,000.

SUMMARY COMPENSATION TABLE

Name and Principal Position	Year	Salary		Bonus		Other		Nonqualified Deferred Compensation Earnings		Total
		($)		($)		($)(1)		($)(2)		($)
Mark S. Heil	2016	$	204,615		–	$	8,223	$	6,383	$	219,221
President and Chief Financial Officer	2015	$	220,000	$	49,750	$	10,262	$	4,949	$	284,961
Andrew J. Komuves, Jr.,	2016	$	209,615	$	13,701	$	8,791	$	1,667	$	233,774
President Pharmacy Operations	2015	$	225,000	$	65,790	$	12,817	$	–	$	303,607

(1) Fully vested matching contributions to the Company’s 401(k) plan, which all participating employees receive.

(2) Nonqualified deferred compensation earnings represents the market value of vested shares under our RSU Incentive Plan.

Restricted Share Unit Incentive Plan

On November 13, 2013, the Board of Directors approved and adopted the RSU Incentive Plan. The plan has not been approved by the stockholders. 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. There is not a limit on the number of shares that can be issued from the plan and shares are issued from available common stock. As of December 31, 2016, there were 50,000,000 shares authorized, 23,447,679 shared issued and 22,417,679 shares outstanding. The Board considers the number of shares outstanding adequate for purposes of administering the plan.

As of December 31, 2016, the following shares had been issued under the 2013 RSU Plan 

Year of Issuance:	Number of Shares		Fair Value at Date of Grant		Shares Vested		Non- Vested
2013		120,000	$	26,400		90,000		30,000
2014		122,100	$	30,946		61,200		60,900
2015		150,000	$	39,000		37,500		112,500
		392,100	$	96,346		188,700		203,400

Option Grants in Last Fiscal Year

As of December 31, 2016, the Company does not currently have a stock option plan and there are no outstanding options.

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Vested Share Units in Last Fiscal Year and Fiscal Year-End Share Unit Values

The following table provides information regarding outstanding restricted stock awards granted to the directors and named executive officers under the RSU Incentive Plan that were still outstanding as of December 31, 2016 and the values of those awards. The value is based on the market price of 21 cents as of December 31, 2016.

OUTSTANDING EQUITY AWARDS AT YEAR-END
	Stock Awards
	Equity Incentive Plan Awards
	Number of Unearned Units That Have Not Vested		Market or Payout Value of Unearned Units That Have Not Vested
Name	(#)		($)
James C. Leslie		30,150	$	6,332
Anthony J. LeVecchio		30,150	$	6,332
Will Cureton		30,150	$	6,332
Mark S. Heil		60,300	$	12,663
Andrew J. Komuves, Jr.		22,500	$	4,725

The following table provides information, for the directors and named executive officers, on restricted stock awards vested during 2016. 

STOCK VESTED
	Stock Awards
	Equity Incentive Plan Awards
	Number of Share Units Received on Vesting		Value of Share Units Received on Vesting
Name	(#)		($)
James C. Leslie		15,250	$	3,253
Anthony J. LeVecchio		15,250	$	3,253
Will Cureton		15,250	$	3,253
Mark S. Heil		30,400	$	6,383
Andrew J. Komuves, Jr.		7,575	$	1,667

Potential Payments Upon Termination Or Change In Control

The Company’s President and Chief Financial Officer, Mr. Mark Heil, is entitled to continued salary payments for the four months following a termination “without cause,” which would have equaled an aggregate payment over four months equal to $48,750 if such termination had occurred on December 31, 2016. Mr. Heil serves without a formal, written employment agreement.

The Company’s President of Pharmacy Operations, Mr. Andrew Komuves, is entitled to continue salary payments for the six months following a termination “without cause,” which would have equaled an aggregate payment over six months equal to $100,000 if such termination had occurred on December 31, 2016.  Mr. Komuves serves without a formal, written employment agreement.

The Company could terminate either Mr. Heil’s or Mr. Komuves’ employment “without cause” for the following:

· gross negligence or willful misconduct or malfeasance or the commission of an act constituting dishonesty or other act of material misconduct by the executive that affects the Company, its business, the executive’s employment or his business reputation;

· any violation of the non-disclosure and invention agreement in place between the executive, provided that the Company acts in a bona fide manner;

· any other intentional and material breach, including but not limited to, the material failure of the executive to perform the duties reasonably assigned to him, which is not cured without 30 days of written notice of such breach.

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ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, DIRECTOR INDEPENDENCE.

Through May 31, 2015, the Company’s Chairman of the Board, James C. Leslie, was a limited partner in the entity that owned and controlled the building in which our corporate offices were located and which we also shared office space with the Company’s Chairman in this building. We remitted monthly rent of approximately $5,200 and certain shared office costs (primarily administrative services) of approximately $1,300 monthly to the entity controlled by the Company’s Chairman.

The Company subleased certain shared office space for approximately $2,200 per month and pays certain operating expenses (primarily outsourced technology and communications services) of the other entities sharing its office space for which Mr. Leslie is an affiliate: Amerrock Partners L.P., Fairways Equities, LLC, and Wolverine Interests, LLC. Effective June 1, 2015, in conjunction with the sale of the building, the Chairman relocated within the building under a revised lease that included the previous space for which we remitted monthly rent of $7,000 from June 2015 through June 2017, and shared office costs of $1,000 from January 2016 through June 2017. At December 31, 2016 and 2015, the Company had the following receivables due from these affiliates for rent and operating expenses totaling approximately $12,000 and $42,000 in 2015 and 2016 respectively: Amerrock Partners, L.P ($2,800 and $30,367, respectively); Fairways Equities, LLC ($4,875 and $5,282, respectively), and Wolverine Interests, LLC ($4,347 and $6,089, respectively). The receivables due from these affiliates are classified in current assets based on the agreements with the various affiliates for repayment.

ITEM 8. 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 9. MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Our stock is quoted and traded on the Pink Sheets (“Pink Sheets: MYDP”), having changed its symbol from ASDS to reflect its recent name change to Dougherty’s Pharmacy, Inc. A Pink Sheet security is not listed or traded on a national securities exchange. Issuers quoted on the Pink Sheets are not subject to periodic filing requirements with the Securities and Exchange Commission or other regulatory authority. Upon the effectiveness of this Registration Statement, we expect to apply for listing on the OTCQB, which would require the Company stay current with all Exchange Act filings after the effectiveness of this Registration Statement.

The following is a summary of our stock’s quarterly market price ranges for the two most recent fiscal years and for the quarter ended March 31, 2017. The price quotations noted herein represent prices between dealers, without retail mark-ups, mark-downs or commissions and may not represent actual transactions.

Fiscal year 2015:	High		Low
First quarter*	$	0.30	$	0.25
Second quarter*		0.29		0.20
Third quarter*		0.27		0.18
Fourth quarter*		0.27		0.20

Fiscal year 2016:
First quarter*	$	0.26	$	0.18
Second quarter*		0.24		0.20
Third quarter*		0.30		0.20
Fourth quarter*		0.24		0.18

Fiscal year 2017:
First quarter*	$	0.24	$	0.18

*These quotations represent high and low bid prices for our stock as reported by the Pink Sheets.

At May 1, 2017, there were approximately 113 holders of record of our common stock.

The aggregate market value of the voting stock held by non-affiliates of the Company, based upon the closing price for our common stock on the Pink Sheets on June 30, 2016, the last trading date of our most recently completed second fiscal quarter was approximately $3.7 million.

25

On December 12, 2016 and December 14, 2015, the Company issued a 1 percent per share dividend to stockholders of record on December 5, 2016 and December 7, 2015, respectively. Based on the number of common shares outstanding on the record date, the Company issued 221,948 and 216,560 new shares at a fair market value of $44,000 and $43,000, respectively, which was charged to accumulated deficit.

ITEM 10. RECENT SALES OF UNREGISTERED SECURITIES

None

ITEM 11. DESCRIPTION OF REGISTRANT’S SECURITIES TO BE REGISTERED.

Description of Capital Stock

Our authorized capital stock consists of 50,000,000 shares of common stock, par value $.0001 per share, and 7,500,000 shares of preferred stock, $.0001 par value per share. As of the date of this Registration Statement, there is no preferred stock issued or outstanding; there are:

· 22,428,221 shares of common stock outstanding, held of record by 114 holders; and

· 48,125 shares of common stock to be issued pursuant to unvested RSUs.

The following summary of the material provisions of our common stock, preferred stock, amended and restated articles of incorporation and bylaws is qualified by reference to the provisions of applicable law and to our amended restated articles of incorporation and bylaws included as exhibits to this Registration Statement.

Common Stock

The holders of common stock are entitled to one vote per share on all matters to be voted upon by the stockholders. Subject to preferences that may be applicable to any outstanding preferred stock, the holders of common stock are entitled to receive ratably such dividends, if any, that may be declared from time to time by the board of directors out of funds legally available therefor. In the event of our liquidation, dissolution or winding-up, the holders of common stock are entitled to share ratably in all assets remaining after payment of liabilities, subject to prior distribution rights of holders of preferred stock, if any. The common stock has no preemptive or conversion rights or other subscription rights. There are no redemption or sinking fund provisions applicable to the common stock.

Preferred Stock

"Blank Check" Preferred. Our board of directors has the authority to issue preferred stock in one or more series and to fix the rights, preferences, privileges and restrictions thereof, including dividend rights, dividend rates, conversion rights, voting rights, terms of redemption, redemption prices, liquidation preferences and the number of shares constituting any series or the designation of such series, without further vote or action by the stockholders. The issuance of preferred stock may have the effect of delaying, deferring or preventing a change in control of the Company without further action by our stockholders and may adversely affect the voting, dividend and other rights of the holders of common stock. As further discussed below, the issuance of preferred stock with voting and conversion rights may adversely affect the voting power of the holders of common stock, including the loss of voting control to others. At present, we have no shares of preferred stock issued and outstanding.

26

ITEM 12. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

Item 6. Indemnification of Directors and Officers.

Section 145 of the Delaware General Corporation Law ("DGCL") permits a corporation, under specified circumstances, to indemnify its directors, officers, employees or agents against expenses (including attorneys' fees), judgments, fines and amounts paid in settlements actually and reasonably incurred by them in connection with any action, suit or proceeding brought by third parties by reason of the fact that they were or are directors, officers, employees or agents of the corporation, if such directors, officers, employees or agents acted in good faith and in a manner that they reasonably believed to be in or not opposed to the best interests of the corporation, and with respect to any criminal action or proceeding, had no reasonable cause to believe their conduct was unlawful. In a derivative action (i.e., one by or in right of the corporation), indemnification may be made only for expenses actually and reasonably incurred by directors, officers, employees or agents in connection with the defense or settlement of an action or suit, and only with respect to a matter as to which they shall have acted in good faith and in a manner they reasonably believed to be in or not opposed to the best interests of the corporation, except that no indemnification shall be made if such persons shall have been adjudged liable to the corporation, unless and only to the extent that the court in which the action or suit was brought shall determine upon application that the defendant directors, officers, employees or agents are fairly and reasonably entitled to indemnify for such expenses, despite such adjudication or liability.

Section 102(b)(7) of the DGCL permits a corporation organized under Delaware law to eliminate or limit the personal liability of a director to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director subject to certain limitations.

Article Seventh of the Company's Certificate of Incorporation provides the following:

"No director of the Corporation shall be personally liable to the Corporation or any of its stockholders for monetary damages for breach of fiduciary duty as a director of the Corporation; PROVIDED, HOWEVER, that the foregoing is not intended to eliminate or limit the liability of a director of the Corporation for (i) any breach of a director's duty of loyalty to the Corporation or its stockholders, (ii) acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) a violation of Section 174 of the DGCL, or (iv) any transaction from which the director derived an improper personal benefit. If the DGCL is hereafter amended to authorize corporate action further eliminating or limiting the personal liability of directors, then the liability of a director of the Corporation shall be eliminated or limited to the fullest extent permitted by the DGCL, as so amended. No amendment to or repeal of this Article SEVENTH shall apply to or have any effect on the liability or alleged liability of any director of the Corporation for or with respect to any acts or omissions of such director occurring prior to such amendment or repeal."

Article Eighth of the Company's Certificate of Incorporation and Article XI of the Company's Bylaws provide that the Company shall indemnify its directors and officers to the fullest extent permitted by the DGCL.

The Company currently has in effect a directors and officers liability insurance policy covering the directors and executive officers of the Company.

The Company has entered into various Indemnification Agreements with each of its directors and executive officers that provide for indemnification and expense advancement to the fullest extent permitted under the DGCL.

As a result of these provisions or agreements, the Company and its stockholders may be unable to obtain monetary damages from a director or officer for breach of the duty of care. Although stockholders may continue to seek injunctive or other equitable relief for an alleged breach of fiduciary duty by a director or officer, stockholders may not have any effective remedy against the challenged conduct if equitable remedies are unavailable.

27

ITEM 13. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Set forth below is a list of our audited financial statements included in this Registration Statement.

Index to Financial Statements	F-1
Report of Independent Registered Public Accounting Firm	F-2
Consolidated Balance Sheets as of December 31, 2016 and 2015	F-3
Consolidated Statements of Operations for the Years Ended December 31, 2016 and 2015	F-4
Consolidated Statements of Stockholders’ Equity for the Years Ended December 31, 2016 and 2015	F-5
Consolidated Statements of Cash Flows for the Years Ended December 31, 2016 and 2015	F-6
Notes to Consolidated Financial Statements	F-7
Consolidated Balance Sheets as of March 31, 2017 and December 31, 2016	F-22
Consolidated Statements of Operations for the Three Months Ended March 31, 2017 and 2016	F-23
Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2017 and 2016	F-24
Notes to Consolidated Financial Statements	F-25

28

ITEM 14. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) The Financial Statements listed in the Index to Consolidated Financial Statements are filed as part of this Registration Statement, see Item 13, "Consolidated Financial Statements and Supplementary Data." 

(b) The Exhibits listed in the accompanying Exhibit Index are attached and incorporated herein by reference and filed as part of this report.

29

SIGNATURES

Pursuant to the requirements of Section 12 of the Securities Exchange Act of 1934, the registrant has duly caused this Registrations Statement to be signed on its behalf by the undersigned, thereunto duly authorized on August 18, 2017.

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

30

EXHIBIT INDEX

Exhibit Number	Description
3.1	Certificate of Incorporation of The Registrant filed on August 8, 2000 (1)
3.2	Certificate of Ownership and Merger of ASD Systems, Inc. (a Texas corporation) with and into Ascendant Solutions, Inc. (a Delaware corporation and wholly owned subsidiary of ASD Systems, Inc.) filed on October 19, 2000. (1)
3.3	Certificate of Amendment to the Certificate of Incorporation of the Registrant filed on May 10, 2017. (1)
3.4	Bylaws of The Registrant. (1)
4.1	Specimen of The Registrant Common Stock Certificate (1)
4.2	Floating Rate Term Note dated February 9, 2012, by and between Dougherty’s Holdings, Inc. and Cardinal Health, Inc. (1)
4.3	Security Agreement dated February 9, 2012, by and between Dougherty’s Pharmacy Forest Park Dallas, LLC and Cardinal Health, Inc. (1)
4.4	Security Agreement dated February 9, 2012, by and between the Registrant and Cardinal Health, Inc. (1)
4.5	Security Agreement dated February 9, 2012, by and between Dougherty’s Holdings, Inc. and Cardinal Health, Inc. (1)
4.6	Security Agreement dated February 9, 2012, by and between Dougherty’s Pharmacy, Inc. and Cardinal Health, Inc. (1)
4.7	Unconditional Guaranty dated February 9, 2012, by and among the Registrant; Dougherty’s Pharmacy, Inc.; Dougherty’s Pharmacy Forest Park Dallas, LLC; and Cardinal Health, Inc. (1)
4.8	Floating Rate Term Note dated August 1, 2014 by and between Dougherty’s Holdings, Inc. and Cardinal Health, Inc. (1)
4.9	Unconditional Guaranty dated August 1, 2014, by and between the Registrant; Dougherty’s Pharmacy, Inc.; and Dougherty’s Pharmacy Forest Park Dallas, LLC; and Cardinal Health, Inc. (1)
4.10	Floating Rate Term Note dated August 29, 2104, by and between Dougherty’s Holdings, Inc. and Cardinal Health, Inc. (1)
4.11	Unconditional Guaranty dated August 29, 2014, by the Registrant, Dougherty’s Pharmacy, Inc., Dougherty’s Pharmacy Forest Park Dallas, LLC, Dougherty’s Pharmacy Humble, LLC, and Cardinal Health, Inc. (1)
4.12	Floating Rate Term Note dated January 2, 2015, between Dougherty’s Holdings, Inc. and Cardinal Health, Inc. (1)
4.13	Unconditional Guaranty dated January 2, 2015, by the Registrant, Dougherty’s Pharmacy, Inc.; Dougherty’s Pharmacy Forest Park Dallas, LLC; Dougherty’s Pharmacy Humble, LLC; Dougherty’s Pharmacy El Paso, LLC; and Cardinal Health, Inc. (1)
4.14	Floating Term Note dated June 26, 2015, by and between Dougherty’s Holdings, Inc. and Cardinal Health, Inc. (1)
4.15	Unconditional Guaranty dated June 26, 2015, by the Registrant, Dougherty’s Pharmacy, Inc.; Dougherty’s Pharmacy Forest Park Dallas, LLC; Dougherty’s Pharmacy Humble, LLC; Dougherty’s Pharmacy El Paso, LLC; Dougherty’s Pharmacy McAlester, LLC; and Cardinal Health, Inc. (1)
4.16	Floating Rate Term Note dated August 27, 2015, by and between Dougherty’s Holdings, Inc., Dougherty’s Pharmacy Springtown, LLC, and Cardinal Health, Inc. (1)
4.17	Unconditional Guaranty dated August 27, 2015, by the Registrant; Dougherty’s Pharmacy, Inc.; Dougherty’s Pharmacy Forest Park Dallas, LLC; Dougherty’s Pharmacy Humble, LLC; Dougherty’s Pharmacy El Paso, LLC; Dougherty’s Pharmacy McAlester, LLC; and Cardinal Health, Inc. (1)
4.18	Promissory Note dated July 1, 2016, by and between Dougherty’s Holdings, Inc.; Dougherty’s Pharmacy, Inc.; Dougherty’s Pharmacy El Paso, LLC; Dougherty’s Pharmacy Humble, LLC; Dougherty’s Pharmacy McAlester, LLC; Dougherty’s Pharmacy Forest Park Dallas, LLC; Dougherty’s Pharmacy Springtown, LLC; and First National Bank of Omaha. (1)
4.19	Promissory Note dated July 1, 2016, by and between Dougherty’s Holdings, Inc.; Dougherty’s Pharmacy, Inc.; Dougherty’s Pharmacy El Paso, LLC; Dougherty’s Pharmacy Humble, LLC; Dougherty’s Pharmacy McAlester, LLC; Dougherty’s Pharmacy Forest Park Dallas, LLC; Dougherty’s Pharmacy Springtown, LLC; and First National Bank of Omaha. (1)
4.20	Commercial Security Agreement dated July 1, 2016, by and among Dougherty’s Holdings, Inc.; Dougherty’s Pharmacy, Inc.; Dougherty’s Pharmacy El Paso, LLC; Dougherty’s Pharmacy Humble, LLC; Dougherty’s Pharmacy McAlester, LLC; Dougherty’s Pharmacy Forest Park Dallas, LLC; and Dougherty’s Pharmacy Springtown, LLC (as “Grantors”) and First National Bank of Omaha. (1)
4.21	Business Loan Agreement dated July 1, 2016, by and among Dougherty’s Holdings, Inc.; Dougherty’s Pharmacy, Inc.; Dougherty’s Pharmacy El Paso, LLC; Dougherty’s Pharmacy Humble, LLC; Dougherty’s Pharmacy McAlester, LLC; Dougherty’s Pharmacy Forest Park Dallas, LLC; and Dougherty’s Pharmacy Springtown, LLC (as “Borrower”) and First National Bank of Omaha. (1)
4.22	Commercial Guaranty dated July 1, 2016, by and between the Registrant and First National Bank of Omaha. (1)
4.23	Amended and Restated Fixed Rate Note dated March 31, 2017, by and between Dougherty Holdings, Inc. and Cardinal Health 100, LLC.(1)
4.24	Security Agreement dated March 31, 2017, by and between Dougherty’s Pharmacy El Paso, LLC and Cardinal Health 110, LLC. (1)
4.25	Security Agreement dated March 31, 2017, by and between Dougherty’s Pharmacy Humble, LLC and Cardinal Health 110, LLC. (1)
4.26	Security Agreement dated March 31, 2017, by and between Dougherty’s Pharmacy McAlester, LLC and Cardinal Health 110, LLC. (1)
4.27	Unconditional Guaranty dated March 31, 2017 by and among the Registrant, Dougherty’s Pharmacy, Inc., and Dougherty’s Pharmacy Forest Park, LLC, Dougherty’s Pharmacy Humble, LLC, Dougherty’s Pharmacy El Paso, LLC, and Dougherty’s Pharmacy McAlester, LLC (the “Guarantors”) in favor of Cardinal Health 110, LLC. (1)

31

4.28	Loan Extension Agreement, by and among Dougherty’s Holdings, Inc.; Dougherty’s Pharmacy, Inc.; Dougherty’s Pharmacy El Paso, LLC; Dougherty’s Pharmacy McAlester, LLC; Dougherty’s Pharmacy Forest Park Dallas, LLC; and Dougherty’s Pharmacy Springtown, LLC and First National Bank of Omaho, dated July 1, 2017. (4)
4.29	Business Loan Agreement, effective September 1, 2017, by and among Dougherty's Holdings, Inc.; the Registrant; Dougherty's Pharmacy El Paso, LLC; Dougherty's Pharmacy McAlester, LLC; Dougherty's Pharmacy Forest Park Dallas, LLC; and Dougherty's Pharmacy Springtown, LLC and First National Bank of Omaha. (2)
4.30	Commercial Guaranty, by and among Dougherty's Holdings, Inc.; the Registrant; Dougherty's Pharmacy El Paso, LLC; Dougherty's Pharmacy McAlester, LLC; Dougherty's Pharmacy Forest Park Dallas, LLC; and Dougherty's Pharmacy Springtown, LLC and First National Bank of Omaha, in favor of Dougherty’s Pharmacy, Inc. (2)
4.31	Commercial Security Agreement, effective September 1, 2017, by and among Dougherty's Holdings, Inc.; the Registrant; Dougherty's Pharmacy El Paso, LLC; Dougherty's Pharmacy McAlester, LLC; Dougherty's Pharmacy Forest Park Dallas, LLC; and Dougherty's Pharmacy Springtown, LLC and First National Bank of Omaha. (2)
10.1	Form of Director and Officers Indemnification Agreement (1)
10.2	Restricted Share Unit Incentive Plan (1)
10.3	Specimen of the Restricted Share Unit Plan Agreement (1)
10.4	Prime Vendor Agreement by and between Cardinal Health 110, LLC and Cardinal Health 411, Inc. and the Registrant, dated May 1, 2014 (1)(3) (4)
10.5	First Amendment to the Prime Vendor Agreement by and between Cardinal Health 220, LLC and Cardinal Health 411, Inc. and the Registrant, dated May 1, 2015. (1)(3)
10.6	Second Amendment to the Prime Vendor Agreement by and between Cardinal Health 220, LLC and Cardinal Health 411, Inc. and the Registrant, dated July 1, 2015. (1)(3)
10.7	Third Amendment to the Prime Vendor Agreement by and between Cardinal Health 220, LLC and Cardinal Health 411, Inc. and the Registrant, dated October 1, 2015. (1)(3)
10.8	Fourth Amendment to the Prime Vendor Agreement by and between Cardinal Health 220, LLC and Cardinal Health 411, Inc. and the Registrant, dated January 1, 2016. (1)(3)
10.9	Fifth Amendment to the Prime Vendor Agreement by and between Cardinal Health 220, LLC and Cardinal Health 411, Inc. and the Registrant, dated November 1, 2016. (1)(3)
10.10	Sixth Amendment to the Prime Vendor Agreement by and between Cardinal Health 220, LLC and Cardinal Health 411, Inc. and the Registrant, dated December 1, 2016. (3)
10.11	Commercial Guaranty dated May 4, 2011 by and between the Registrant and Sunwest Bank. (1)
10.12	Forbearance Agreement dated December 30, 2016, by and among Kevin H. Hayes, Sr., Alice H. Hayes, the Registrant, and Sunwest Bank. (1)
21	Subsidiaries of The Registrant (1)
23.1	Consent of Whitley Penn LLP (2)

(1) Filed as the corresponding Exhibit Number with the Company’s Registration Statement on Form 10, File Number 000-27945 filed with the Commission on June 2, 2017.

(2) Filed herewith.

(3) Portions of this exhibit have been omitted and filed separately with the Securities and Exchange Commission pursuant to a request for confidential treatment.

(4) Filed as the corresponding Exhibit Number with the Company’s Registration Statement on Form 10 Amendment No. 1, File Number 000-27945 filed with the Commission on July 21, 2017.

32

INDEX TO FINANCIAL STATEMENTS

Report of Independent Registered Public Accounting Firm	F-2
Consolidated Balance Sheets as of December 31, 2016 and 2015	F-3
Consolidated Statements of Operations for the Years Ended December 31, 2016 and 2015	F-4
Consolidated Statements of Stockholders’ Equity for the Years Ended December 31, 2016 and 2015	F-5
Consolidated Statements of Cash Flows for the Years Ended December 31, 2016 and 2015	F-6
Notes to Consolidated Financial Statements	F-7
Consolidated Balance Sheets as of March 31, 2017 and December 31, 2016	F-22
Consolidated Statements of Operations for the Three Months Ended March 31, 2017 and 2016	F-23
Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2017 and 2016	F-24
Notes to Consolidated Financial Statements	F-25

F-1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of

Ascendant Solutions, Inc.

We have audited the accompanying consolidated balance sheets of Ascendant Solutions, Inc. (the “Company”), as of December 31, 2016 and 2015, and the related consolidated statements of operations, stockholders’ equity, and cash flows for the years then ended. The Company’s management is responsible for these consolidated financial statements. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company, as of December 31, 2016 and 2015, and the results of their operations and their cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

/s/ Whitley Penn LLP

Dallas, Texas

March 21, 2017

F-2

Ascendant Solutions, Inc.

Consolidated Balance Sheets

December 31, 2016 and 2015

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

	2016			2015
ASSETS
Current Assets
Cash	$	58		$	69
Restricted cash		303			302
Trade accounts receivable, net		1,901			1,967
Other receivables		113			160
Receivable from affiliates		12			42
Inventories, net		3,340			3,547
Prepaid expenses		286			329
Total current assets		6,013			6,416
Property and equipment, net		1,386			1,406
Intangible assets, net		3,681			4,377
Investments carried at cost		1,295			5,107
Deferred tax asset		3,000			3,000
Total assets	$	15,375		$	20,306
LIABILITIES
Current Liabilities
Accounts payable	$	2,643		$	1,959
Accrued liabilities		293			300
Notes payable, current portion		1,129			1,088
Total current liabilities		4,065			3,347
Notes payable, long-term portion		7,607			8,418
Total liabilities		11,672			11,765
STOCKHOLDERS' EQUITY
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; 23,447,679 shares issued and 22,417,679 shares outstanding at December 31, 2016;23,126,756 shares issued and 22,096,756 shares outstanding at December 31, 2015		2			2
Additional paid-in capital		60,144			60,079
Accumulated deficit		(56,046	)		(51,143	)
Treasury stock, at cost, 1,030,000 shares		(397	)		(397	)
Total stockholders' equity		3,703			8,541
Total liabilities and stockholders' equity	$	15,375		$	20,306

See Notes to Consolidated Financial Statements

F-3

Ascendant Solutions, Inc.

Consolidated Statements of Operations

Years Ended December 31, 2016 and 2015

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

	2016			2015
Revenue	$	42,786		$	40,952
Cost of sales (exclusive of depreciation and amortization shown separately below)		31,736			29,654
Gross profit		11,050			11,298
Operating expenses
Selling, general and administrative expenses		10,428			10,608
Non-cash stock compensation		21			20
Depreciation and amortization		1,052			771
Total operating expenses		11,501			11,399
Operating loss		(451	)		(101	)
Dividend income		84			88
Other income		1			5
Interest expense		(443	)		(336	)
Investments impairment		(4,008	)		–
Loss before provision for income tax		(4,817	)		(344	)
Income tax provision		(42	)		(52	)
Net loss	$	(4,859	)	$	(396	)
Basic and diluted net loss per share attributable to common stockholders	$	(0.22	)	$	(0.02	)
Weighted-average number of shares-Basic and diluted		22,161,920			21,855,168

See Notes to Consolidated Financial Statements

F-4

Ascendant Solutions, Inc.

Consolidated Statements of Stockholders’ Equity

Years Ended December 31, 2016 and 2015

(000’s omitted, except share amounts)

	Class A									Treasury
	Shares		Amount		APIC		Accumulated Deficit			Shares			Amount			Total
Balance at December 31, 2014		22,847,596	$	2	$	60,015	$	(50,703	)		(1,030,000	)	$	(397	)	$	8,917
Amortization of restricted stock units		–		–		6		–			–			–			6
Issue vested restricted stock units		60,600		–		14		–			–			–			14
Issue stock dividend		218,560		–		44		(44	)		–			–			–
Net loss		–		–		–		(396	)		–			–			(396	)
Balance at December 31, 2015		23,126,756	$	2	$	60,079	$	(51,143	)		(1,030,000	)	$	(397	)	$	8,541
Issue vested restricted stock units		98,975		–		21		–			–			–			21
Issue stock dividend		221,948		–		44		(44	)		–			–			–
Net loss		–		–		–		(4,859	)		–			–			(4,859	)
Balance at December 31, 2016		23,447,679	$	2	$	60,144	$	(56,046	)		(1,030,000	)	$	(397	)	$	3,703

See Notes to Consolidated Financial Statements

F-5

Ascendant Solutions, Inc.

Consolidated Statements of Cash Flows

Years Ended December 31, 2016 and 2015

(000’s omitted)

	2016			2015
Operating Activities
Net loss	$	(4,859	)	$	(396	)
Items not requiring (providing) cash
Provision for doubtful accounts		91			29
Depreciation and amortization		1,052			771
Stock-based compensation		21			20
Investments impairment		4,008			–
Changes in operating assets and liabilities:
Accounts receivable		(2	)		(695	)
Inventories		207			(66	)
Prepaid expenses and other assets		179			59
Accounts payable		684			441
Accrued liabilities		(7	)		(58	)
Net cash provided by operating activities		1,374			105
Investing Activities
Purchases of property and equipment		(447	)		(526	)
Cash paid in acquisitions		–			(1,227	)
Net cash used in investing activities		(447	)		(1,753	)
Financing Activities
Payments on notes payable		(25,123	)		(29,909	)
Proceeds from notes payable		24,186			31,618
Net cash (used in) provided by financing activities		(937	)		1,709
Net (decrease) increase in cash		(10	)		61
Cash, beginning of year		371			310
Cash, end of year	$	361		$	371
Supplemental Cash Flow Information
Cash paid for income taxes	$	43		$	44
Cash paid for interest	$	441		$	329
Notes payable incurred for insurance obligations	$	167		$	173
Reconciliation of Cash to the Consolidated Balance Sheets
Cash	$	58		$	69
Restricted cash		303			302
Total cash	$	361		$	371

See Notes to Consolidated Financial Statements

F-6

Ascendant Solutions, Inc.

Notes to Consolidated Financial Statements

December 31, 2016 and 2015

1.       Organization and Significant Accounting Policies

Description of Business

Ascendant Solutions, Inc. (“Ascendant” or the “Company”) is a value oriented investment firm focused on successfully acquiring, managing and growing community based pharmacies in the Southwest Region. Ascendant was incorporated in Delaware on August 8, 2000.

A summary of the Company’s investments at December 31, 2016, is shown in the table below:

Date	Entity	Transaction Description	% Ownership
March 2004	Dougherty’s Holdings, Inc. and subsidiaries (“DHI”)	Acquisition of retail pharmacy	100%
September 2010	ASDS of Orange County, Inc. (“ASDS”), CRESA Partners of Orange County, L.P. (“CPOC”)	Investment in tenant representation and other real estate advisory services company	100% and 8%

On January 5, 2015, June 29, 2015 and August 31, 2015, DHI acquired McCrory’s Pharmacy located in El Paso, Texas, Medicine Shoppe Pharmacy, located in McAlester, Oklahoma and Springtown Drug Pharmacy located in Springtown, Texas, respectively, for a total purchase price of $5,640,000 of which $4,413,000 was financed with notes payable with the remainder paid in cash funded from the revolving line of credit (see Note 9). The excess of the purchase price over the fair value of the net tangible assets of $1,330,000 for property, equipment and inventory of $4,310,000 has been allocated to intangible assets as patient prescriptions (see Note 6).

Certain transactions related to business activities are more fully described in Notes 7 and 14 of these consolidated financial statements. The Company’s consolidated financial statements include the operating results of each business from the date of acquisition.

Significant Accounting Policies

Basis of Presentation

The consolidated financial statements include the accounts of Ascendant and all subsidiaries for which the Company has a controlling financial interest. Ascendant uses the equity method of accounting to recognize investments in and income from entities where Ascendant has significant influence, but not a controlling interest. Other investments where Ascendant does not have significant influence are accounted for using the cost method of accounting. All intercompany balances and transactions have been eliminated in consolidation.

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.

F-7

Ascendant Solutions, Inc.

Notes to Consolidated Financial Statements

December 31, 2016 and 2015

1.       Organization and Significant Accounting Policies (Continued)

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 December 31, 2016 and 2015, 100% of the trade accounts receivable 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 market. 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.

F-8

Ascendant Solutions, Inc.

Notes to Consolidated Financial Statements

December 31, 2016 and 2015

1.       Organization and Significant Accounting Policies (Continued)

Cost Method Investments 

Cost method investments represent investments in limited partnerships accounted for using the cost method of accounting. None of these investments are investments in publicly traded companies. The cost method is used because the Company does not have a controlling interest and does not have significant influence over the operations of the respective companies. Accordingly, the Company does not record its proportionate share of the income or losses generated by the limited partnerships in the consolidated statement of operations. The Company recognizes as income dividends that are distributed from net accumulated earnings of the investees since the date of acquisition. The investments are recorded at carrying value and based on information obtained from the entities in which the Company owns these interests, management does not believe these to be impaired. Transactions related to the cost method investments are more fully described in Notes 7 and 15.

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.

Revenues generated from investments in real estate transactions are recognized upon the Company’s receipt of their proportionate share of funds in accordance with the contract.

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 all revenues earned during the years ended December 31, 2016 and 2015, 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.

F-9

Ascendant Solutions, Inc.

Notes to Consolidated Financial Statements

December 31, 2016 and 2015

1.       Organization and Significant Accounting Policies (Continued)

Income Taxes (Continued)

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 years ended December 31, 2016 and 2015.

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 2012.

Advertising Expense

Advertising expense is comprised of media, agency, coupon, trade shows and other promotional expenses. Advertising expenses are charged to operations during the period incurred, except for expenses related to the development of a major commercial or media campaign that are charged to operations during the period in which the advertisement or campaign is first presented by the media. Advertising expenses totaled $109,000 in 2016 and $152,000 in 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. See Note 11 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-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 for 2016 and 2015 is $32,000 and $55,000, respectively; the unvested restricted stock units is 203,400 and 301,500, respectively. Due to the net losses for both years, restricted stock units for 2016 and 2015 were anti-dilutive.

New Accounting Pronouncements

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

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) ("ASU 2016-02"). ASU 2016-02 requires the lessee to recognize assets and liabilities for leases with lease terms of more than twelve months. For leases with a term of twelve months or less, the Company is permitted to make an accounting policy election by class of underlying asset not to 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. Operating leases generally recognize the associated expense on a straight line basis. ASU 2016-02 requires the Company to adopt the standard using a modified retrospective approach and becomes effective on January 1, 2019. The Company is currently evaluating the impact that ASU 2016-02 will have on its financial position, results of operations and cash flows.

F-10

Ascendant Solutions, Inc.

Notes to Consolidated Financial Statements

December 31, 2016 and 2015

1.       Organization and Significant Accounting Policies (Continued)

New Accounting Pronouncements (Continued)

Accounting Standards Update ("ASU") No. 2014-09 "Revenue from Contracts with Customers (Topic 606)”

In August 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers (Topic 606), an update to ASU 2014-09. This ASU amends ASU 2014-09 to defer the effective date by one year for annual reporting periods beginning after December 15, 2017. Subsequently, the FASB has also issued accounting standards updates which clarify the guidance. This ASU removes inconsistencies, complexities and allows transparency and comparability of revenue transactions across entities, industries, jurisdictions and capital markets by providing a single comprehensive principles-based model with additional disclosures regarding uncertainties. The principles-based revenue recognition model has a five-step analysis of transactions to determine when and how revenue is recognized. The core principle is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Early adoption is permitted for annual reporting periods beginning after December 15, 2016. In transition, the ASU may be applied retrospectively to each prior period presented or retrospectively with the cumulative effect recognized as of the date of adoption. The Company is evaluating the effect of adopting this new accounting guidance including the transition method.

2.       Trade Accounts Receivable

Trade accounts receivable consist of the following at December 31:

	2016			2015
Trade accounts receivable-retail pharmacy	$	1,930,000		$	2,000,000
Less:  Allowance for doubtful accounts		(29,000	)		(33,000	)
	$	1,901,000		$	1,967,000

3.       Inventories

Inventories consist of the following at December 31:

	2016			2015
Inventories - retail pharmacy	$	3,372,000		$	3,581,000
Less:  Inventory reserves		(32,000	)		(34,000	)
	$	3,340,000		$	3,547,000

4.       Prepaid Expenses

Prepaid expenses consist of the following at December 31:

	2016		2015
Prepaid insurance	$	195,000	$	204,000
Other prepaid expenses		91,000		125,000
	$	286,000	$	329,000

F-11

Ascendant Solutions, Inc.

Notes to Consolidated Financial Statements

December 31, 2016 and 2015

5.       Property and Equipment, Net

Property and equipment, net consist of the following at December 31:

	Estimated
	Useful Lives	2016			2015
Computer equipment and software	3 to 5 years	$	1,483,000		$	1,389,000
Furniture, fixtures and equipment	5 to 7 years		1,106,000			1,049,000
Leasehold improvements	Life of lease
	(generally 15 years)		1,373,000			1,237,000
			3,962,000			3,675,000
Less accumulated depreciation			(2,576,000	)		(2,269,000	)
		$	1,386,000		$	1,406,000

Depreciation expense was $356,000 and $309,000 for the years ended December 31, 2016 and 2015, respectively.

6.       Intangible Assets, Net

Intangible assets, net consist of the following at December 31:

	Estimated
	Useful Lives	2016			2015
Patient prescriptions	7 years	$	4,870,000		$	4,870,000
Less accumulated amortization			(1,189,000	)		(493,000	)
		$	3,681,000		$	4,377,000

Amortization expense was $696,000 and $462,000 for the years ended December 31, 2016 and 2015, respectively.

Amortization expense for the years ended December 31, are as follows:

2017	$	696,000
2018		696,000
2019		696,000
2020		696,000
2021		664,000
Thereafter		233,000
	$	3,681,000

F-12

Ascendant Solutions, Inc.

Notes to Consolidated Financial Statements

December 31, 2016 and 2015

7.       CRESA Partners of Orange County, L.P.

Effective May 1, 2004, the Company acquired through ASDS all of the issued and outstanding stock of CPOC, pursuant to a Stock Purchase Agreement dated March 23, 2004, between the sole stockholder and Chairman of CPOC (the “Seller”), and ASDS for $6.9 million, plus closing costs. CPOC is located in Newport Beach, California, and provides performance based corporate real estate advisory services to corporate clients around the United States, such as tenant representation services to commercial and industrial users of real estate.

The acquisition of CPOC assets in 2004 were accounted for using the purchase method of accounting, and the purchase price was allocated to identifiable assets, including intangible assets, and liabilities at their fair market value at the date of acquisition.

Pursuant to the partnership agreement, upon the payoff of the original acquisition debt by CPOC, which was paid in full on August 31, 2010, the Company’s residual interest in CPOC became 10% and the principles of consolidation for financial reporting purposes were no longer satisfied. As of August 31, 2010, the Company deconsolidated the results of operations of CPOC and recognized the Company’s remaining investment in CPOC at estimated fair value. The continuing investment is accounted for on the cost method of accounting as the Company does not have significant influence over CPOC. Distributions of $84,000 and $88,000 were recognized as dividend income during the years ended December 31, 2016 and 2015, respectively.

The carrying value of the investment in CPOC as of December 31, 2015 was $5,107,000. During February, 2017, the partnership agreement was dissolved in its entirety in conjunction with the sale to Savills Studley, Inc. As a result, the Company recorded a $3,812,000 loss on impairment to write down the investment to the estimated value to be received from the sale of $1,295,000 (see Note 15).

8.       Accrued Liabilities

Accrued liabilities consist of the following at December 31:

	2016		2015
Accrued payroll and related costs	$	186,000	$	143,000
Accrued expenses - other		14,000		12,000
Accrued rent		32,000		59,000
Accrued property, federal, state and sales taxes		61,000		86,000
	$	293,000	$	300,000

F-13

Ascendant Solutions, Inc.

Notes to Consolidated Financial Statements

December 31, 2016 and 2015

9.       Notes Payable

Notes payable consist of the following at December 31:

	2016			2015
First National Bank of Omaha Credit Facility and Promissory Note secured by certain retail pharmacy assets
Revolving line of credit in the principal amount of $4,750,000, interest at LIBOR plus 3.25% (3.79% at December 31, 2016)	$	4,179,000		$	4,126,000
Term note in the principal amount of $150,000 with interest payable at LIBOR plus 3.25% (3.79% at December 31, 2016) per annum payable in monthly installments of $10,000 plus all accrued and unpaid interest due. Paid in full February 8, 2017.		100,000			–
Cardinal Health Term Notes, secured by certain retail pharmacy assets
Term note in the principal amount of $1,500,000 with interest payable at prime plus 2.75 (6.5% at December 31, 2016) per annum payable in monthly installments of $17,861 plus interest, a final payment of $446,533 plus all accrued and unpaid interest due in full on February 20, 2017.		447,000			661,000
Term note in the principal amount of $1,827,850 with interest payable at prime plus 2.6% (6.35% at December 31, 2016) 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.		1,553,000			1,736,000
Term note in the principal amount of $1,241,350 with interest payable at prime plus 2.6% (6.35% at December 31, 2016) 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.		993,000			1,117,000
Term note in the principal amount of $744,100 with interest payable at prime plus 2.38% (6.13% at December 31, 2016) 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.		645,000			719,000
Term note in the principal amount of $305,350 with interest payable at prime plus 2.4% (6.15% at December 31, 2016) 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.		231,000			262,000
Term note in the principal amount of $168,350 with interest payable at prime plus 2.6% (6.35% at December 31, 2016) per annum payable in monthly installments of $2,004 plus interest, a final payment of $50,356 plus all accrued and unpaid interest due in full on September 10, 2019.		112,000			136,000
Acquisition Notes Payable, unsecured
Notes payable to sellers of acquired pharmacies with varying monthly payments with interest at 5.5% due through September 2018.		309,000			514,000
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 2017. Interest rates vary up to 3.68%		167,000			173,000
Equipment notes payable, secured by the respective equipment
Notes payable for equipment purchased with varying monthly payments due through August 2016. Interest rates vary up to 9.88%		–			62,000
		8,736,000			9,506,000
Less current portion		(1,129,000	)		(1,088,000	)
	$	7,607,000		$	8,418,000

F-14

Ascendant Solutions, Inc.

Notes to Consolidated Financial Statements

December 31, 2016 and 2015

9.       Notes Payable (Continued)

Future maturities of notes payable at December 31, 2016 are as follows:

2017	$	1,129,000
2018		4,943,000
2019		1,237,000
2020		1,427,000
	$	8,736,000

The revolving line of credit is secured by the accounts receivable, inventory, and the fixed assets of the Borrowers as well as the stock of Dougherty’s Pharmacy, Inc. and includes nonfinancial and financial covenants including debt service coverage and funded debt to operating EBITDA ratios. As of December 31, 2016 the Borrowers were in compliance with these financial covenants via waiver letter by the lender. This revolving line of credit is scheduled to mature in July 2017; however, the Company believes this revolving line of credit will be extended with the same lender for another term of one year or greater. Accordingly, the revolving line of credit has been excluded from current liabilities in the accompanying 2016 consolidated balance sheet.

The Company is in the process of refinancing the Cardinal Health Term Note due February 20, 2017 to a term of 36 months at 7.95% fixed rate interest.

In conjunction with pharmacy acquisitions discussed in Note 1, DHI secured term notes payable to Cardinal Health, its primary vendor (see Note 13), and promissory notes to the sellers as described above.

10.       Income Taxes

The provision for income taxes is reconciled with the federal statutory rate for the years ended December 31 is as follows:

	2016			2015
Provision computed at federal statutory rate	$	(1,638,000	)	$	(117,000	)
State income taxes, net of federal tax effect		30,000			40,000
Other permanent differences		6,000			5,000
Change in valuation allowance		1,645,000			685,000
Change in current year estimate and other		(1,000	)		(561,000	)
Income tax provision	$	42,000		$	52,000

F-15

Ascendant Solutions, Inc.

Notes to Consolidated Financial Statements

December 31, 2016 and 2015

10.       Income Taxes (Continued)

Significant components of the net deferred tax assets at December 31 are as follows:

	2016			2015
Current deferred income tax assets:
Allowance for doubtful accounts	$	10,000		$	11,000
Inventory reserves		11,000			12,000
Income from Pass-through		32,000			63,000
UNICAP - Sec 263A		30,000			41,000
Accrued liabilities		25,000			20,000
Net current deferred income tax assets		108,000			147,000
Valuation allowance		(108,000	)		(147,000	)
	$	–		$	–

	2016			2015
Non-current deferred income tax assets:
Net operating loss carryforward	$	16,348,000		$	14,777,000
Alternative minimum tax credit		223,000			220,000
Other		252,000			142,000
Non-current deferred income tax assets		16,823,000			15,139,000
Valuation allowance		(13,823,000	)		(12,139,000	)
	$	3,000,000		$	3,000,000

As of December 31, 2016, the Company had approximately $223,000 of alternative minimum tax credits available to offset future federal income taxes. The credits have no expiration date. The Company also has unused operating loss carryforwards of $48,042,000, which expire between 2020 and 2035.

The realization of the deferred tax assets, including net operating loss carryforwards, is subject to the Company’s ability to generate sufficient taxable income during the periods in which the temporary differences become realizable. In evaluating whether a valuation allowance is required, management considered all available positive and negative evidence, including prior operating results, the nature and reason of any losses, the forecast of future taxable income and the dates on which any deferred tax assets are expected to expire. These assumptions require a significant amount of judgment, including estimates of future taxable income. The estimates are based on management’s best judgment at the time made based on current and projected circumstances and conditions. The estimate of the realizability of the net deferred tax asset is a significant estimate that is subject to change in the near term. Management’s estimate of the use of net operating losses includes the estimated gain or loss resulting from the ultimate sale of the pharmacy businesses.

Management believes that the issuance of shares of common stock pursuant to the initial public offering on November 15, 1999, caused an “ownership change” for purposes of Section 382 of the Code on such date. Consequently, the Company believes that utilization of the portion of the Company’s federal net operating loss carryforwards attributable to the period prior to November 16, 1999, is limited by Section 382 of the Code. If an “ownership change” is determined to have occurred at a date after November 15, 1999, additional federal net operating loss carryforwards would be limited by Section 382 of the Code.

In addition, an “ownership change” may occur in the future as a result of future changes in the ownership of the Company’s stock, including the issuance by the Company of stock in connection with the acquisition of a business by the Company. A future “ownership change” would result in Code Section 382 limiting the Company’s deduction of federal operating loss carryforwards attributable to periods before the future ownership change.

F-16

Ascendant Solutions, Inc.

Notes to Consolidated Financial Statements

December 31, 2016 and 2015

11.       Stock and Share-Based Compensation

Preferred Stock

The Company has authorized preferred stock as follows:

	Number of
	Shares
Series A convertible preferred stock, $.0001 par value		1,111,111
Series B redeemable preferred stock, $.0001 par value		1,111,111
Series C non-voting preferred stock, $.0001 par value		3,200,000
“Blank Check” preferred stock, $.0001 par value		2,077,778
Total		7,500,000

No preferred stock was outstanding at December 31, 2016 or 2015.

Stock Dividend

On December 12, 2016 and December 14, 2015, the Company issued a $.0001 per share dividend to stockholders of record on December 5, 2016 and December 7, 2015, respectively. Based on the number of common shares outstanding on the record date, the Company issued 221,948 and 216,560 new shares at a fair market value of $44,000 and $43,000, respectively, which was charged to accumulated deficit.

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 December 31, 2016, the following shares had been issued under the 2013 RSU Plan:

Year of Issuance:	Number of Shares		Fair Value at Date of Grant		Shares Vested		Non- Vested
2013		120,000	$	26,400		90,000		30,000
2014		122,100	$	30,946		61,200		60,900
2015		150,000	$	39,000		37,500		112,500
		392,100	$	96,346		188,700		203,400

During 2016 and 2015, non-cash compensation expense of $21,000 and $20,000, respectively, was recognized for vested shares awarded in stock.

12.       Employee Benefit Plan

The Company has an employee benefit plan which is subject to ERISA guidelines and contains a safe harbor match in which the Company matches 100% on the first 4% of eligible compensation that participant’s contribute and vest 100% upon contribution. For the years ended December 31, 2016 and 2015, the Company made matching contributions totaling $140,000 and $129,000, respectively.

F-17

Ascendant Solutions, Inc.

Notes to Consolidated Financial Statements

December 31, 2016 and 2015

13.       Commitments and Contingencies

Prime Vendor Agreement

On April 10, 2012, DHI entered into agreements with Cardinal Health 110, Inc. and Cardinal Health 411, Inc. (“Cardinal Health”) for a three-year period pursuant to which DHI and its subsidiaries agreed to purchase substantially all of their prescription pharmaceutical drugs, generic and over-the-counter pharmaceutical products. The Prime Vendor Agreement provides for minimum annual and aggregate net purchase volumes, certain percentage participation in vendor programs, bi-monthly payment terms, pricing discounts and volume rebates. Subsequent amendments provide for improved pricing and rebates due to increased volume; the amendment dated November 1 2016, extended the agreement through April 30, 2019. For the years ended December 31, 2016 and 2015, DHI purchased approximately $28,457,000 and $26,484,000 of its pharmaceutical products from Cardinal Health. All minimum commitments were made pursuant to these agreements during 2016 and 2015.

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. Total rent expense for operating leases was approximately $996,000 and $984,000 for the years ended December 31, 2016 and 2015, respectively.

Minimum lease payments under all non-cancelable operating lease agreements for the years ended December 31, are as follows:

2017	$	621,000
2018		542,000
2019		219,000
2020		186,000
2021		139,000
Thereafter		535,000
	$	2,242,000

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.

Guarantee

The Company is a co-guarantor on a promissory note with a bank in the amount of $2,024,800. The borrower, who at the time the note was entered into was a related party of the Company, has secured the loan with collateral. On February 13, 2013, the lender renegotiated the terms of the promissory note with the borrower which included a requirement for the Company to provide assignments of deposits totaling $200,000 during 2013, $50,000 during 2014 and $50,000 during 2015 as additional collateral. These deposits are recorded in restricted cash on the accompanying consolidated balance sheets. The Company’s guarantee is in effect through the December 2018 maturity date of the note, which was delinquent and renegotiated in conjunction with the liquidation of the related party’s partnership interest in CPOC (see Note 15). Upon repayment by the borrower, the deposits will be returned to the Company. Should the Company be obligated to perform under the guarantee agreement, the Company may seek recourse from the related party in the form of the loan collateral. No liability has been recorded as of December 31, 2016 or 2015, related to this guarantee.

F-18

Ascendant Solutions, Inc.

Notes to Consolidated Financial Statements

December 31, 2016 and 2015

14.       Related Party Transactions

Through May 31, 2015, the Company’s Chairman and one of the Company’s directors were limited partners in the entity that owned and controlled the building in which the Ascendant and DHI corporate offices are located. Ascendant and DHI shared office space with the Company’s Chairman in the building. Ascendant remitted monthly rent of approximately $5,200 and certain shared office costs of approximately $1,300 monthly to the entity controlled by the Company’s Chairman. The Company subleased certain shared office space for approximately $2,200 per month and pays certain operating expenses of the other entities sharing its office space and that are controlled by the Company’s Chairman and records receivables due from these entities. Effective June 1, 2015, in conjunction with the sale of the building, the Chairman relocated within the building under a revised lease that includes the previous space for which Ascendant and DHI now remits monthly rent of $7,000 and effective January 1 2016, shared office costs of $1,000. At December 31, 2016 and 2015, the Company had receivables due from these affiliates totaling approximately $12,000 and $42,000, respectively. The receivables due from affiliates are classified in current assets based on the agreements with the affiliates for repayment.

During the years ended December 31, 2016 and 2015, the Company paid fees to its directors of $56,000 for their roles as members of the Board of Directors and its related committees. Fees paid to the Company’s Chairman totaled $120,000 for management and other services provided.

See also the guarantee agreement with a partner of CPOC described in Note 13.

15.       Subsequent Events

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 of Orange County, Inc. As of December 31, 2016, the estimated value of this investment was recorded at $1,295,000, which represents the estimated future cash payments for this transaction. The Company received $367,500 at closing, recorded $320,000 as a short term other receivable, and recorded the remainder as a long term receivable due in three increments over 49 months, contingent on certain milestones expected to be achieved.

The Company has evaluated subsequent events through March 15, 2017, the date which the consolidated financial statements were available to be issued.

F-19

ASCENDANT SOLUTIONS, INC.

Consolidated Financial Statements

March 31, 2017 and 2016

F-20

	Page
Consolidated Balance Sheets as of March 31, 2017 and December 31, 2016	F-22
Consolidated Statements of Operations for the Three Months Ended March 31, 2017 and 2016	F-23
Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2017 and 2016	F-24
Notes to Consolidated Financial Statements	F-25

F-21

Ascendant Solutions, Inc.

Consolidated Balance Sheets

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

	March 31,			December 31,
	2017			2016
	(Unaudited)
ASSETS
Current Assets
Cash	$	523		$	58
Restricted cash		303			303
Trade accounts receivable, net		1,632			1,901
Other receivables		225			113
Receivable from affiliates		12			12
Inventories, net		3,442			3,340
Prepaid expenses		269			286
Total current assets		6,406			6,013
Long term receivable		608			–
Property and equipment, net		1,335			1,386
Intangible assets, net		3,507			3,681
Investments carried at cost		–			1,295
Deferred tax asset		3,000			3,000
Total assets	$	14,856		$	15,375
LIABILITIES
Current Liabilities
Accounts payable	$	2,881		$	2,643
Accrued liabilities		357			293
Notes payable, current portion		877			1,129
Total current liabilities		4,115			4,065
Notes payable, long-term portion		7,194			7,607
Total liabilities		11,309			11,672
STOCKHOLDERS' EQUITY
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; 23,447,921 shares issued and 22,417,921 shares outstanding at March 31, 2017;23,447,679 shares issued and 22,417,679 shares outstanding at December 31, 2016		2			2
Additional paid-in capital		60,156			60,144
Accumulated deficit		(56,214	)		(56,046	)
Treasury stock, at cost, 1,030,000 shares		(397	)		(397	)
Total stockholders' equity		3,547			3,703
Total liabilities and stockholders' equity	$	14,856		$	15,375

See Notes to Consolidated Financial Statements

F-22

Ascendant Solutions, Inc.

Consolidated Statements of Operations

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

(Unaudited)

	Three Months Ended March 31,
	2017			2016
Revenue	$	10,055		$	10,816
Cost of sales (exclusive of depreciation and amortization shown separately below)		7,268			7,894
Gross profit		2,787			2,922
Operating expenses
Selling, general and administrative expenses		2,572			2,755
Non-cash stock compensation		4			6
Depreciation and amortization		266			261
Total operating expenses		2,842			3,022
Operating loss		(55	)		(100	)
Other income		–			1
Interest expense		(102	)		(107	)
Loss before provision for income tax		(157	)		(206	)
Income tax provision		(11	)		(10	)
Net loss	$	(168	)	$	(216	)
Basic and diluted net loss per share attributable to common stockholders	$	(0.01	)	$	(0.01	)
Weighted-average number of shares-Basic and diluted		22,417,760			22,096,756

See Notes to Consolidated Financial Statements

F-23

Ascendant Solutions, Inc.

Consolidated Statements of Cash Flows

(000’s omitted)

(Unaudited)

	Three Months Ended March 31,
	2017			2016
Operating Activities
Net loss	$	(168	)	$	(216	)
Items not requiring (providing) cash
Depreciation and amortization		266			261
Stock-based compensation		12			6
Changes in operating assets and liabilities:
Accounts receivable		269			(118	)
Inventories		(102	)		(97	)
Prepaid expenses and other assets		(25	)		93
Accounts payable		238			973
Accrued liabilities		64			117
Net cash provided by operating activities		554			1,019
Investing Activities
Purchases of property and equipment		(41	)		(102	)
Cash proceeds from disposition of CPOC		617			–
Net provided by (used in) investing activities		576			(102	)
Financing Activities
Payments on notes payable		(5,083	)		(7,472	)
Proceeds from notes payable		4,418			6,552
Net cash (used in) financing activities		(665	)		(920	)
Net increase (decrease) increase in cash		465			(3	)
Cash, beginning of period		361			371
Cash, end of period	$	826		$	368
Supplemental Cash Flow Information
Cash paid for income taxes	$	1		$	2
Cash paid for interest	$	100		$	106
Reconciliation of Cash to the Consolidated Balance Sheets
Cash	$	523		$	66
Restricted cash		303			302
Total cash	$	826		$	368

See Notes to Consolidated Financial Statements

F-24

Ascendant Solutions, Inc.

Notes to Consolidated Financial Statements

1.       Organization and Significant Accounting Policies

Description of Business

Ascendant Solutions, Inc. (“Ascendant” or the “Company”) is a value oriented investment firm focused on successfully acquiring, managing and growing community based pharmacies in the Southwest Region. Ascendant was incorporated in Delaware on August 8, 2000.

A summary of the Company’s investments at March 31, 2017, is shown in the table below:

Date	Entity	Transaction Description	% Ownership
March 2004	Dougherty’s Holdings, Inc. and subsidiaries (“DHI”)	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 of Orange County, Inc. As of December 31, 2016, the estimated value of this investment was recorded at $1,295,000, which represents the estimated future cash payments for this transaction. The Company has received payments of $617,000 and recorded $70,000 included in short term other receivables with the remainder as a long term receivable due in three increments over 49 months, contingent on certain milestones expected to be achieved.

Certain transactions related to business activities are more fully described in the Company’s consolidated financial statements included in the Company’s Audited Financial Statements for 2016 and 2015.

Significant Accounting Policies

Basis of Presentation

The consolidated financial statements include the accounts of Ascendant and all subsidiaries for which the Company has a controlling financial interest. 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, 2016 included in the Company’s Form 10. 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 three months ended March 31, 2017, are not necessarily indicative of the results to be expected for any future interim period for the year ending December 31, 2017.

Use of Estimates

The preparation of the consolidated financial statements in conformity with GAAP 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.

F-25

Ascendant Solutions, Inc.

Notes to Consolidated Financial Statements

1.       Organization and Significant Accounting Policies (Continued)

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 March 31, 2017 and 2016, 100% of the trade accounts receivable 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 market. 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.

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.

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.

All revenues earned during the three months ended March 31, 2017 and 2016, 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. 

F-26

Ascendant Solutions, Inc.

Notes to Consolidated Financial Statements

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.

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-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 March 31, 2017 and 2016 is $146,000 and $58,000, respectively; the unvested restricted stock units is 766,400 and 301,500 respectively. Due to the net losses for both years, restricted stock units for 2017 and 2016 were anti-dilutive.

Accounting Pronouncements Not Yet Adopted

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

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) ("ASU 2016-02"). ASU 2016-02 requires the lessee to recognize assets and liabilities for leases with lease terms of more than twelve months. For leases with a term of twelve months or less, the Company is permitted to make an accounting policy election by class of underlying asset not to 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. Operating leases generally recognize the associated expense on a straight line basis. ASU 2016-02 requires the Company to adopt the standard using a modified retrospective approach and becomes effective on January 1, 2019. The Company is currently evaluating the impact that ASU 2016-02 will have on its financial position, results of operations and cash flows.

F-27

Ascendant Solutions, Inc.

Notes to Consolidated Financial Statements

Accounting Standards Update ("ASU") No. 2014-09 "Revenue from Contracts with Customers (Topic 606)”

In August 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers (Topic 606), an update to ASU 2014-09. This ASU amends ASU 2014-09 to defer the effective date by one year for annual reporting periods beginning after December 15, 2017. Subsequently, the FASB has also issued accounting standards updates which clarify the guidance. This ASU removes inconsistencies, complexities and allows transparency and comparability of revenue transactions across entities, industries, jurisdictions and capital markets by providing a single comprehensive principles-based model with additional disclosures regarding uncertainties. The principles-based revenue recognition model has a five-step analysis of transactions to determine when and how revenue is recognized. The core principle is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Early adoption is permitted for annual reporting periods beginning after December 15, 2016. In transition, the ASU may be applied retrospectively to each prior period presented or retrospectively with the cumulative effect recognized as of the date of adoption. The Company is evaluating the effect of adopting this new accounting guidance including the transition method.

2.       Notes Payable

Remainder of this page left blank intentionally. Note 2 continues on the next page.

F-28

Ascendant Solutions, Inc.

Notes to Consolidated Financial Statements

Notes payable consist of the following:

	March 31, 2017			December 31, 2016
	(Unaudited)
First National Bank of Omaha Credit Facility and Promissory Note secured by certain retail pharmacy assets
Revolving line of credit in the principal amount of $4,750,000, interest at LIBOR plus 3.25% (4.04% at March 31, 2017)	$	3,850,000		$	4,179,000
Term note in the principal amount of $150,000 with interest payable at LIBOR plus 3.25% (4.04% at March 31, 2017) per annum payable in monthly installments of $10,000 plus all accrued and unpaid interest due. Paid in Full February 8, 2017.		–			100,000
Cardinal Health Term Notes, secured by certain retail pharmacy assets
Term note in the principal amount of $1,500,000 with interest payable at prime plus 2.75 (6.75% at March 31, 2017) per annum payable in monthly installments of $17,861 plus interest, a final payment of $446,533 plus all accrued and unpaid interest due in full on February 20, 2017. Refinanced March 31, 2017.		–			447,000
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.		433,000			–
Term note in the principal amount of $1,827,850 with interest payable at prime plus 2.6% (6.6% at March 31, 2017) 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.		1,508,000			1,553,000
Term note in the principal amount of $1,241,350 with interest payable at prime plus 2.6% (6.6% at March 31, 2017) 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.		962,000			993,000
Term note in the principal amount of $744,100 with interest payable at prime plus 2.38% (6.38% at March 31, 2017) 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.		626,000			645,000
Term note in the principal amount of $305,350 with interest payable at prime plus 2.4% (6.4% at March 31, 2017) 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.		224,000			231,000
Term note in the principal amount of $168,350 with interest payable at prime plus 2.6% (6.6% at March 31, 2017) per annum payable in monthly installments of $2,004 plus interest, a final payment of $50,356 plus all accrued and unpaid interest due in full on September 10, 2019.		106,000			112,000
Acquisition Notes Payable, unsecured
Notes payable to sellers of acquired pharmacies with varying monthly payments with interest at 5.5% due through September 2018.		256,000			309,000
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 2017. Interest rates vary up to 3.68%		106,000			167,000
		8,071,000			8,736,000
Less current portion		(877,000	)		(1,129,000	)
	$	7,194,000		$	7,607,000

F-29

Ascendant Solutions, Inc.

Notes to Consolidated Financial Statements

2.       Notes Payable (Continued)

Future maturities of notes payable at March 31, 2017 are as follows:

2017	$	877,000
2018		4,639,000
2019		1,192,000
2020		1,363,000
	$	8,071,000

The revolving line of credit (“the Revolver”) with the First National Bank of Omaha (“the Lender”) is secured by, but not limited to, the accounts receivable, inventory, and the fixed assets of the Borrowers and includes nonfinancial and financial covenants including debt service coverage and funded debt to operating EBITDA ratios. As of March 31, 2017 the Borrowers were in compliance with these financial covenants via waiver letter by the Lender. Subsequent to March 31, 2017, the Revolver was extended and renegotiated (See Note 6, Subsequent Events). Accordingly, the revolving line of credit has been excluded from current liabilities in the accompanying 2017 and 2016 consolidated balance sheets.

The Company refinanced the Cardinal Health Term Note due February 20, 2017 to a term of 36 months at 8.11% fixed rate interest.

3.       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 March 31, 2017, the following shares had been issued under the 2013 RSU Plan:

Year of Issuance:	Number of Shares		Fair Value at Date of Grant		Shares Vested		Non- Vested
2013		120,000	$	26,400		90,000		30,000
2014		122,100	$	30,946		61,200		60,900
2015		150,000	$	39,000		37,500		112,500
2016		–		–		–		–
2017		563,000	$	118,230		–		563,000
		955,100	$	214,576		188,700		766,400

F-30

Ascendant Solutions, Inc.

Notes to Consolidated Financial Statements

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. Effective January 1, 2017, the Company extended the lease for the flagship pharmacy located at the intersection of Preston and Royal in Dallas, Texas, that would have expired in December 2018, until December 2028.

Minimum lease payments under all non-cancelable operating lease agreements for the twelve months ended March 31, are as follows:

2017	$	666,000
2018		527,000
2019		786,000
2020		707,000
2021		663,000
Thereafter		4,625,000
	$	7,974,000

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.

5.       Related Party Transactions

During the three months ended March 31, 2017 and 2016, the Company paid fees to its directors of $13,000 for their roles as members of the Board of Directors and its related committees. Fees paid to the Company’s Chairman totaled $30,000 for management and other services provided.

6.       Subsequent Events

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 May 10, 2017, the Company amended its Certificate of Incorporation to change its name from “Ascendant Solutions, Inc.” to “Dougherty’s Pharmacy, Inc.”

On July 1, 2017, the Company obtained an extension of the Revolver, discussed in Note 2, through September 1, 2017. On August 9, 2017, the Company obtained an additional term for the Revolver in the amount of $4,450,000 effective September 1, 2017, and then effective February 1, 2018, in the amount of $4,000,000. Outstanding advances under the Revolver will bear interest at LIBOR plus 3.25% (4.49% at August 9 2017). Accrued and unpaid interest on the Revolver is due monthly beginning on September 1, 2017. All outstanding principal under the Revolver plus all accrued and unpaid interest thereon is due and payable in full on August 1, 2018. The Revolver is secured by certain retail pharmacy assets, specifically but not limited to, inventory, equipment, software, accounts receivable, intangibles and deposit accounts of the Company. The Revolver is subject to certain financial restrictions, subject to the Lender’s prior written approval, including, but not limited to, capital expenditures not to exceed $200,000, additional indebtedness, acquisitions of entities and payment of dividends and distributions. Furthermore, the loan agreement provides that the Borrowers will maintain a minimum debt service coverage ratio of not less than 1.00 to 1.00, as defined.

F-31

EX-4.29

Exhibit 4.29

*#########000004571681579909012017*

BUSINESS LOAN AGREEMENT (ASSET BASED)

Principal	Loan Date	Maturity	Loan No	Call / Coll	Account	Officer	Initials
$4,450,000.00	09-01-2017	08-01-2018	4571681			274722

References in the boxes above are for Lender's use only and do not limit the applicability of this document to any particular loan or item.

Any item above containing "***" has been omitted due to text length limitations.

Borrower: Dougherty's Holdings, Inc.; DOUGHERTY'S PHARMACY, INC.; Dougherty's Pharmacy El Paso, LLC; Dougherty's Pharmacy McAlester, LLC; Dougherty's Pharmacy Forest Park Dallas, LLC; and Dougherty's Pharmacy Springtown, LLC 5924 Royal Lane Ste 250 Dallas, TX 75230 Lender: First National Bank of Omaha Branch #042 4500 Preston Road Frisco, TX 75034

THIS BUSINESS LOAN AGREEMENT (ASSET BASED) dated August 9, 2017, is made and executed between Dougherty's Holdings, Inc.; DOUGHERTY'S PHARMACY, INC.; Dougherty's Pharmacy El Paso, LLC; Dougherty's Pharmacy McAlester, LLC; Dougherty's Pharmacy Forest Park Dallas, LLC; and Dougherty's Pharmacy Springtown, LLC ("Borrower") and First National Bank of Omaha ("Lender") on the following terms and conditions. Borrower has received prior commercial loans from Lender or has applied to Lender for a commercial loan or loans or other financial accommodations, including those which may be described on any exhibit or schedule attached to this Agreement. Borrower understands and agrees that: (A) in granting, renewing, or extending any Loan, Lender is relying upon Borrower's representations, warranties, and agreements as set forth in this Agreement; (B) the granting, renewing, or extending of any Loan by Lender at all times shall be subject to Lender's sole judgment and discretion; and (C) all such Loans shall be and remain subject to the terms and conditions of this Agreement. This Agreement shall apply to any and all present and future loans, loan advances, extension of credit, financial accommodations and other agreements and undertakings of every nature and kind that may be entered into by and between Borrower and Lender now and in the future.

TERM. This Agreement shall be effective as of August 9, 2017, and shall continue in full force and effect until such time as all of Borrower's Loans in favor of Lender have been paid in full, including principal, interest, costs, expenses, attorneys' fees, and other fees and charges, or until such time as the parties may agree in writing to terminate this Agreement.

LINE OF CREDIT. Lender agrees to make Advances to Borrower from time to time from the date of this Agreement to the Expiration Date, provided the aggregate amount of such Advances outstanding at any time does not exceed the Borrowing Base. Within the foregoing limits, Borrower may borrow, partially or wholly prepay, and reborrow under this Agreement as follows:

1

Conditions Precedent to Each Advance. Lender's obligation to make any Advance to or for the account of Borrower under this Agreement is subject to the following conditions precedent, with all documents, instruments, opinions, reports, and other items required under this Agreement to be in form and substance satisfactory to Lender:

(1) Lender shall have received evidence that this Agreement and all Related Documents have been duly authorized, executed, and delivered by Borrower to Lender.

(2) Lender shall have received such opinions of counsel, supplemental opinions, and documents as Lender may request.

(3) The security interests in the Collateral shall have been duly authorized, created, and perfected with first lien priority and shall be in full force and effect.

(4) All guaranties required by Lender for the credit facility(ies) shall have been executed by each Guarantor, delivered to Lender, and be in full force and effect.

(5) Lender, at its option and for its sole benefit, shall have conducted an audit of Borrower's Accounts, Inventory, books, records, and operations, and Lender shall be satisfied as to their condition.

(6) Borrower shall have paid to Lender all fees, costs, and expenses specified in this Agreement and the Related Documents as are then due and payable.

(7) There shall not exist at the time of any Advance a condition which would constitute an Event of Default under this Agreement, and Borrower shall have delivered to Lender the compliance certificate called for in the paragraph below titled "Compliance Certificate."

Making Loan Advances. Advances under this credit facility, as well as directions for payment from Borrower's accounts, may be requested orally or in writing by authorized persons. Lender may, but need not, require that all oral requests be confirmed in writing. Each Advance shall be conclusively deemed to have been made at the request of and for the benefit of Borrower (1) when credited to any deposit account of Borrower maintained with Lender or (2) when advanced in accordance with the instructions of an authorized person. Lender, at its option, may set a cutoff time, after which all requests for Advances will be treated as having been requested on the next succeeding Business Day.

Mandatory Loan Repayments. If at any time the aggregate principal amount of the outstanding Advances shall exceed the applicable Borrowing Base, Borrower, immediately upon written or oral notice from Lender, shall pay to Lender an amount equal to the difference between the outstanding principal balance of the Advances and the Borrowing Base. On the Expiration Date, Borrower shall pay to Lender in full the aggregate unpaid principal amount of all Advances then outstanding and all accrued unpaid interest, together with all other applicable fees, costs and charges, if any, not yet paid.

Loan Account. Lender shall maintain on its books a record of account in which Lender shall make entries for each Advance and such other debits and credits as shall be appropriate in connection with the credit facility. Lender shall provide Borrower with periodic statements of Borrower's account, which statements shall be considered to be correct and conclusively binding on Borrower unless Borrower notifies Lender to the contrary within thirty (30) days after Borrower's receipt of any such statement which Borrower deems to be incorrect.

COLLATERAL. To secure payment of the Primary Credit Facility and performance of all other Loans, obligations and duties owed by Borrower to Lender, Borrower (and others, if required) shall grant to Lender Security Interests in such property and assets as Lender may require. Lender's Security Interests in the Collateral shall be continuing liens and shall include the proceeds and products of the Collateral, including without limitation the proceeds of any insurance. With respect to the Collateral, Borrower agrees and represents and warrants to Lender:

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Perfection of Security Interests. Borrower agrees to execute all documents perfecting Lender's Security Interest and to take whatever actions are requested by Lender to perfect and continue Lender's Security Interests in the Collateral. Upon request of Lender, Borrower will deliver to Lender any and all of the documents evidencing or constituting the Collateral, and Borrower will note Lender's interest upon any and all chattel paper and instruments if not delivered to Lender for possession by Lender. Contemporaneous with the execution of this Agreement, Borrower will execute one or more UCC financing statements and any similar statements as may be required by applicable law, and Lender will file such financing statements and all such similar statements in the appropriate location or locations. Borrower hereby appoints Lender as its irrevocable attorney-in-fact for the purpose of executing any documents necessary to perfect or to continue any Security Interest. Lender may at any time, and without further authorization from Borrower, file a carbon, photograph, facsimile, or other reproduction of any financing statement for use as a financing statement. Borrower will reimburse Lender for all expenses for the perfection, termination, and the continuation of the perfection of Lender's security interest in the Collateral. Borrower promptly will notify Lender before any change in Borrower's name including any change to the assumed business names of Borrower. Borrower also promptly will notify Lender before any change in Borrower's Social Security Number or Employer Identification Number. Borrower further agrees to notify Lender in writing prior to any change in address or location of Borrower's principal governance office or should Borrower merge or consolidate with any other entity.

Collateral Records. Borrower does now, and at all times hereafter shall, keep correct and accurate records of the Collateral, all of which records shall be available to Lender or Lender's representative upon demand for inspection and copying at any reasonable time. With respect to the Accounts, Borrower agrees to keep and maintain such records as Lender may require, including without limitation information concerning Eligible Accounts and Account balances and agings. Records related to Accounts (Receivables) are or will be located at 5924 Royal Lane Ste 250, Dallas, TX 75230. With respect to the Inventory, Borrower agrees to keep and maintain such records as Lender may require, including without limitation information concerning Eligible Inventory and records itemizing and describing the kind, type, quality, and quantity of Inventory, Borrower's Inventory costs and selling prices, and the daily withdrawals and additions to Inventory. Records related to Inventory are or will be located at 5924 Royal Lane Ste 250, Dallas, TX 75230. The above is an accurate and complete list of all locations at which Borrower keeps or maintains business records concerning Borrower's collateral.

Collateral Schedules. Concurrently with the execution and delivery of this Agreement, Borrower shall execute and deliver to Lender schedules of Accounts and Inventory and schedules of Eligible Accounts and Eligible Inventory in form and substance satisfactory to the Lender. Thereafter supplemental schedules shall be delivered according to the following schedule: With respect to Eligible Accounts, schedules shall be delivered within thirty (30) days of each month end. With respect to Eligible Inventory, schedules shall be delivered within thirty (30) days of each month end.

Representations and Warranties Concerning Accounts. With respect to the Accounts, Borrower represents and warrants to Lender: (1) Each Account represented by Borrower to be an Eligible Account for purposes of this Agreement conforms to the requirements of the definition of an Eligible Account; (2) All Account information listed on schedules delivered to Lender will be true and correct, subject to immaterial variance; and (3) Lender, its assigns, or agents shall have the right at any time and at Borrower's expense to inspect, examine, and audit Borrower's records and to confirm with Account Debtors the accuracy of such Accounts.

Representations and Warranties Concerning Inventory. With respect to the Inventory, Borrower represents and warrants to Lender: (1) All Inventory represented by Borrower to be Eligible Inventory for purposes of this Agreement conforms to the requirements of the definition of Eligible Inventory; (2) All Inventory values listed on schedules delivered to Lender will be true and correct, subject to immaterial variance; (3) The value of the Inventory will be determined on a consistent accounting basis; (4) Except as agreed to the contrary by Lender in writing, all Eligible Inventory is now and at all times hereafter will be in Borrower's physical possession and shall not be held by others on consignment, sale on approval, or sale or return; (5) Except as reflected in the Inventory schedules delivered to Lender, all Eligible Inventory is now and at all times hereafter will be of good and merchantable quality, free from defects; (6) Eligible Inventory is not now and will not at any time hereafter be stored with a bailee, warehouseman, or similar party without Lender's prior written consent, and, in such event, Borrower will concurrently at the time of bailment cause any such bailee, warehouseman, or similar party to issue and deliver to Lender, in form acceptable to Lender, warehouse receipts in Lender name evidencing the storage of Inventory; and (7) Lender, its assigns, or agents shall have the right at any time and at Borrower's expense to inspect and examine the Inventory and to check and test the same as to quality, quantity, value, and condition.

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CONDITIONS PRECEDENT TO EACH ADVANCE. Lender's obligation to make the initial Advance and each subsequent Advance under this Agreement shall be subject to the fulfillment to Lender's satisfaction of all of the conditions set forth in this Agreement and in the Related Documents.

Loan Documents. Borrower shall provide to Lender the following documents for the Loan: (1) the Note; (2) Security Agreements granting to Lender security interests in the Collateral; (3) financing statements and all other documents perfecting Lender's Security Interests; (4) evidence of insurance as required below; (5) guaranties; (6) together with all such Related Documents as Lender may require for the Loan; all in form and substance satisfactory to Lender and Lender's counsel.

Borrower's Authorization. Borrower shall have provided in form and substance satisfactory to Lender properly certified resolutions, duly authorizing the execution and delivery of this Agreement, the Note and the Related Documents. In addition, Borrower shall have provided such other resolutions, authorizations, documents and instruments as Lender or its counsel, may require.

Fees and Expenses Under This Agreement. Borrower shall have paid to Lender all fees, costs, and expenses specified in this Agreement and the Related Documents as are then due and payable.

Representations and Warranties. The representations and warranties set forth in this Agreement, in the Related Documents, and in any document or certificate delivered to Lender under this Agreement are true and correct.

No Event of Default. There shall not exist at the time of any Advance a condition which would constitute an Event of Default under this Agreement or under any Related Document.

MULTIPLE BORROWERS. This Agreement has been executed by multiple obligors who are referred to in this Agreement individually, collectively and interchangeably as "Borrower." Unless specifically stated to the contrary, the word "Borrower" as used in this Agreement, including without limitation all representations, warranties and covenants, shall include all Borrowers. Borrower understands and agrees that, with or without notice to any one Borrower, Lender may (A) make one or more additional secured or unsecured loans or otherwise extend additional credit with respect to any other Borrower; (B) with respect to any other Borrower alter, compromise, renew, extend, accelerate, or otherwise change one or more times the time for payment or other terms of any indebtedness, including increases and decreases of the rate of interest on the indebtedness; (C) exchange, enforce, waive, subordinate, fail or decide not to perfect, and release any security, with or without the substitution of new collateral; (D) release, substitute, agree not to sue, or deal with any one or more of Borrower's or any other Borrower's sureties, endorsers, or other guarantors on any terms or in any manner Lender may choose; (E) determine how, when and what application of payments and credits shall be made on any indebtedness; (F) apply such security and direct the order or manner of sale of any Collateral, including without limitation, any non-judicial sale permitted by the terms of the controlling security agreement or deed of trust, as Lender in its discretion may determine; (G) sell, transfer, assign or grant participations in all or any part of the Loan; (H) exercise or refrain from exercising any rights against Borrower or others, or otherwise act or refrain from acting; (I) settle or compromise any indebtedness; and (J) subordinate the payment of all or any part of any of Borrower's indebtedness to Lender to the payment of any liabilities which may be due Lender or others.

REPRESENTATIONS AND WARRANTIES. Borrower represents and warrants to Lender, as of the date of this Agreement, as of the date of each disbursement of loan proceeds, as of the date of any renewal, extension or modification of any Loan, and at all times any Indebtedness exists:

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Organization. Dougherty's Holdings, Inc. is a corporation for profit which is, and at all times shall be, duly organized, validly existing, and in good standing under and by virtue of the laws of the State of Texas. Dougherty's Holdings, Inc. is duly authorized to transact business in all other states in which Dougherty's Holdings, Inc. is doing business, having obtained all necessary filings, governmental licenses and approvals for each state in which Dougherty's Holdings, Inc. is doing business. Specifically, Dougherty's Holdings, Inc. is, and at all times shall be, duly qualified as a foreign corporation in all states in which the failure to so qualify would have a material adverse effect on its business or financial condition. Dougherty's Holdings, Inc. has the full power and authority to own its properties and to transact the business in which it is presently engaged or presently proposes to engage. Dougherty's Holdings, Inc. maintains an office at 5924 Royal Lane Ste 250, Dallas, TX 75230. Unless Dougherty's Holdings, Inc. has designated otherwise in writing, the principal office is the office at which Dougherty's Holdings, Inc. keeps its books and records including its records concerning the Collateral. Dougherty's Holdings, Inc. will notify Lender prior to any change in the location of Dougherty's Holdings, Inc.'s state of organization or any change in Dougherty's Holdings, Inc.'s name. Dougherty's Holdings, Inc. shall do all things necessary to preserve and to keep in full force and effect its existence, rights and privileges, and shall comply with all regulations, rules, ordinances, statutes, orders and decrees of any governmental or quasi-governmental authority or court applicable to Dougherty's Holdings, Inc. and Dougherty's Holdings, Inc.'s business activities.

DOUGHERTY'S PHARMACY, INC. is a corporation for profit which is, and at all times shall be, duly organized, validly existing, and in good standing under and by virtue of the laws of the State of Texas. DOUGHERTY'S PHARMACY, INC. is duly authorized to transact business in all other states in which DOUGHERTY'S PHARMACY, INC. is doing business, having obtained all necessary filings, governmental licenses and approvals for each state in which DOUGHERTY'S PHARMACY, INC. is doing business. Specifically, DOUGHERTY'S PHARMACY, INC. is, and at all times shall be, duly qualified as a foreign corporation in all states in which the failure to so qualify would have a material adverse effect on its business or financial condition. DOUGHERTY'S PHARMACY, INC. has the full power and authority to own its properties and to transact the business in which it is presently engaged or presently proposes to engage. DOUGHERTY'S PHARMACY, INC. maintains an office at 5924 Royal Lane Ste 250, Dallas, TX 75230. Unless DOUGHERTY'S PHARMACY, INC. has designated otherwise in writing, the principal office is the office at which DOUGHERTY'S PHARMACY, INC. keeps its books and records including its records concerning the Collateral. DOUGHERTY'S PHARMACY, INC. will notify Lender prior to any change in the location of DOUGHERTY'S PHARMACY, INC.'s state of organization or any change in DOUGHERTY'S PHARMACY, INC.'s name. DOUGHERTY'S PHARMACY, INC. shall do all things necessary to preserve and to keep in full force and effect its existence, rights and privileges, and shall comply with all regulations, rules, ordinances, statutes, orders and decrees of any governmental or quasi-governmental authority or court applicable to DOUGHERTY'S PHARMACY, INC. and DOUGHERTY'S PHARMACY, INC.'s business activities.

Dougherty's Pharmacy El Paso, LLC is a limited liability company which is, and at all times shall be, duly organized, validly existing, and in good standing under and by virtue of the laws of the State of Texas. Dougherty's Pharmacy El Paso, LLC is duly authorized to transact business in all other states in which Dougherty's Pharmacy El Paso, LLC is doing business, having obtained all necessary filings, governmental licenses and approvals for each state in which Dougherty's Pharmacy El Paso, LLC is doing business. Specifically, Dougherty's Pharmacy El Paso, LLC is, and at all times shall be, duly qualified as a foreign limited liability company in all states in which the failure to so qualify would have a material adverse effect on its business or financial condition. Dougherty's Pharmacy El Paso, LLC has the full power and authority to own its properties and to transact the business in which it is presently engaged or presently proposes to engage. Dougherty's Pharmacy El Paso, LLC maintains an office at 5924 Royal Lane Ste 250, Dallas, TX 75230. Unless Dougherty's Pharmacy El Paso, LLC has designated otherwise in writing, the principal office is the office at which Dougherty's Pharmacy El Paso, LLC keeps its books and records including its records concerning the Collateral. Dougherty's Pharmacy El Paso, LLC will notify Lender prior to any change in the location of Dougherty's Pharmacy El Paso, LLC's state of organization or any change in Dougherty's Pharmacy El Paso, LLC's name. Dougherty's Pharmacy El Paso, LLC shall do all things necessary to preserve and to keep in full force and effect its existence, rights and privileges, and shall comply with all regulations, rules, ordinances, statutes, orders and decrees of any governmental or quasi-governmental authority or court applicable to Dougherty's Pharmacy El Paso, LLC and Dougherty's Pharmacy El Paso, LLC's business activities.

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Dougherty's Pharmacy McAlester, LLC is a limited liability company which is, and at all times shall be, duly organized, validly existing, and in good standing under and by virtue of the laws of the State of Texas. Dougherty's Pharmacy McAlester, LLC is duly authorized to transact business in all other states in which Dougherty's Pharmacy McAlester, LLC is doing business, having obtained all necessary filings, governmental licenses and approvals for each state in which Dougherty's Pharmacy McAlester, LLC is doing business. Specifically, Dougherty's Pharmacy McAlester, LLC is, and at all times shall be, duly qualified as a foreign limited liability company in all states in which the failure to so qualify would have a material adverse effect on its business or financial condition. Dougherty's Pharmacy McAlester, LLC has the full power and authority to own its properties and to transact the business in which it is presently engaged or presently proposes to engage. Dougherty's Pharmacy McAlester, LLC maintains an office at 5924 Royal Lane Ste 250, Dallas, TX 75230. Unless Dougherty's Pharmacy McAlester, LLC has designated otherwise in writing, the principal office is the office at which Dougherty's Pharmacy McAlester, LLC keeps its books and records including its records concerning the Collateral. Dougherty's Pharmacy McAlester, LLC will notify Lender prior to any change in the location of Dougherty's Pharmacy McAlester, LLC's state of organization or any change in Dougherty's Pharmacy McAlester, LLC's name. Dougherty's Pharmacy McAlester, LLC shall do all things necessary to preserve and to keep in full force and effect its existence, rights and privileges, and shall comply with all regulations, rules, ordinances, statutes, orders and decrees of any governmental or quasi-governmental authority or court applicable to Dougherty's Pharmacy McAlester, LLC and Dougherty's Pharmacy McAlester, LLC's business activities.

Dougherty's Pharmacy Forest Park Dallas, LLC is a limited liability company which is, and at all times shall be, duly organized, validly existing, and in good standing under and by virtue of the laws of the State of Texas. Dougherty's Pharmacy Forest Park Dallas, LLC is duly authorized to transact business in all other states in which Dougherty's Pharmacy Forest Park Dallas, LLC is doing business, having obtained all necessary filings, governmental licenses and approvals for each state in which Dougherty's Pharmacy Forest Park Dallas, LLC is doing business. Specifically, Dougherty's Pharmacy Forest Park Dallas, LLC is, and at all times shall be, duly qualified as a foreign limited liability company in all states in which the failure to so qualify would have a material adverse effect on its business or financial condition. Dougherty's Pharmacy Forest Park Dallas, LLC has the full power and authority to own its properties and to transact the business in which it is presently engaged or presently proposes to engage. Dougherty's Pharmacy Forest Park Dallas, LLC maintains an office at 5924 Royal Lane Ste 250, Dallas, TX 75230. Unless Dougherty's Pharmacy Forest Park Dallas, LLC has designated otherwise in writing, the principal office is the office at which Dougherty's Pharmacy Forest Park Dallas, LLC keeps its books and records including its records concerning the Collateral. Dougherty's Pharmacy Forest Park Dallas, LLC will notify Lender prior to any change in the location of Dougherty's Pharmacy Forest Park Dallas, LLC's state of organization or any change in Dougherty's Pharmacy Forest Park Dallas, LLC's name. Dougherty's Pharmacy Forest Park Dallas, LLC shall do all things necessary to preserve and to keep in full force and effect its existence, rights and privileges, and shall comply with all regulations, rules, ordinances, statutes, orders and decrees of any governmental or quasi-governmental authority or court applicable to Dougherty's Pharmacy Forest Park Dallas, LLC and Dougherty's Pharmacy Forest Park Dallas, LLC's business activities.

Dougherty's Pharmacy Springtown, LLC is a limited liability company which is, and at all times shall be, duly organized, validly existing, and in good standing under and by virtue of the laws of the State of Texas. Dougherty's Pharmacy Springtown, LLC is duly authorized to transact business in all other states in which Dougherty's Pharmacy Springtown, LLC is doing business, having obtained all necessary filings, governmental licenses and approvals for each state in which Dougherty's Pharmacy Springtown, LLC is doing business. Specifically, Dougherty's Pharmacy Springtown, LLC is, and at all times shall be, duly qualified as a foreign limited liability company in all states in which the failure to so qualify would have a material adverse effect on its business or financial condition. Dougherty's Pharmacy Springtown, LLC has the full power and authority to own its properties and to transact the business in which it is presently engaged or presently proposes to engage. Dougherty's Pharmacy Springtown, LLC maintains an office at 5924 Royal Lane Ste 250, Dallas, TX 75230. Unless Dougherty's Pharmacy Springtown, LLC has designated otherwise in writing, the principal office is the office at which Dougherty's Pharmacy Springtown, LLC keeps its books and records including its records concerning the Collateral. Dougherty's Pharmacy Springtown, LLC will notify Lender prior to any change in the location of Dougherty's Pharmacy Springtown, LLC's state of organization or any change in Dougherty's Pharmacy Springtown, LLC's name. Dougherty's Pharmacy Springtown, LLC shall do all things necessary to preserve and to keep in full force and effect its existence, rights and privileges, and shall comply with all regulations, rules, ordinances, statutes, orders and decrees of any governmental or quasi-governmental authority or court applicable to Dougherty's Pharmacy Springtown, LLC and Dougherty's Pharmacy Springtown, LLC's business activities.

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Assumed Business Names. Borrower has filed or recorded all documents or filings required by law relating to all assumed business names used by Borrower. Excluding the name of Borrower, the following is a complete list of all assumed business names under which Borrower does business: None.

Authorization. Borrower's execution, delivery, and performance of this Agreement and all the Related Documents have been duly authorized by all necessary action by Borrower, do not require the consent or approval of any other person, regulatory authority, or governmental body, and do not conflict with, result in a violation of, or constitute a default under (1) any provision of (a) Borrower's articles of incorporation or organization, or bylaws, or (b) Borrower's articles of organization or membership agreements, or (c) any agreement or other instrument binding upon Borrower or (2) any law, governmental regulation, court decree, or order applicable to Borrower or to Borrower's properties. Borrower has the power and authority to enter into the Note and the Related Documents and to grant collateral as security for the Loan. Borrower has the further power and authority to own and to hold all of Borrower's assets and properties, and to carry on Borrower's business as presently conducted.

Financial Information. Each of Borrower's financial statements supplied to Lender truly and completely disclosed Borrower's financial condition as of the date of the statement, and there has been no material adverse change in Borrower's financial condition subsequent to the date of the most recent financial statement supplied to Lender. Borrower has no material contingent obligations except as disclosed in such financial statements.

Legal Effect. This Agreement constitutes, and any instrument or agreement Borrower is required to give under this Agreement when delivered will constitute legal, valid, and binding obligations of Borrower enforceable against Borrower in accordance with their respective terms.

Properties. Except as contemplated by this Agreement or as previously disclosed in Borrower's financial statements or in writing to Lender and as accepted by Lender, and except for property tax liens for taxes not presently due and payable, Borrower owns and has good title to all of Borrower's properties free and clear of all Security Interests, and has not executed any security documents or financing statements relating to such properties. All of Borrower's properties are titled in Borrower's legal name, and Borrower has not used or filed a financing statement under any other name for at least the last five (5) years.

Hazardous Substances. Except as disclosed to and acknowledged by Lender in writing, Borrower represents and warrants that: (1) During the period of Borrower's ownership of the Collateral, there has been no release or threatened release of any Hazardous Substance by any person on, under, about or from any of the Collateral. (2) Borrower has no knowledge of, or reason to believe that there has been (a) any breach or violation of any Environmental Laws; (b) any release or threatened release of any Hazardous Substance on, under, about or from the Collateral by any prior owners or occupants of any of the Collateral; or (c) any actual or threatened litigation or claims of any kind by any person relating to such matters. (3) Neither Borrower nor any tenant, contractor, agent or other authorized user of any of the Collateral shall release any Hazardous Substance on, under, about or from any of the Collateral; and any such activity shall be conducted in compliance with all applicable federal, state, and local laws, regulations, and ordinances, including without limitation all Environmental Laws. Borrower authorizes Lender and its agents to enter upon the Collateral to make such inspections and tests as Lender may deem appropriate to determine compliance of the Collateral with this section of the Agreement. Any inspections or tests made by Lender shall be at Borrower's expense and for Lender's purposes only and shall not be construed to create any responsibility or liability on the part of Lender to Borrower or to any other person. The representations and warranties contained herein are based on Borrower's due diligence in investigating the Collateral for hazardous waste and Hazardous Substances. Borrower hereby (1) releases and waives any future claims against Lender for indemnity or contribution in the event Borrower becomes liable for cleanup or other costs under any such laws, and (2) agrees to indemnify, defend, and hold harmless Lender against any and all claims, losses, liabilities, damages, penalties, and expenses which Lender may directly or indirectly sustain or suffer resulting from a breach of this section of the Agreement or as a consequence of any use, generation, manufacture, storage, disposal, release or threatened release of a hazardous waste or substance on the Collateral. The provisions of this section of the Agreement, including the obligation to indemnify and defend, shall survive the payment of the Indebtedness and the termination, expiration or satisfaction of this Agreement and shall not be affected by Lender's acquisition of any interest in any of the Collateral, whether by foreclosure or otherwise.

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Litigation and Claims. No litigation, claim, investigation, administrative proceeding or similar action (including those for unpaid taxes) against Borrower is pending or threatened, and no other event has occurred which may materially adversely affect Borrower's financial condition or properties, other than litigation, claims, or other events, if any, that have been disclosed to and acknowledged by Lender in writing.

Taxes. To the best of Borrower's knowledge, all of Borrower's tax returns and reports that are or were required to be filed, have been filed, and all taxes, assessments and other governmental charges have been paid in full, except those presently being or to be contested by Borrower in good faith in the ordinary course of business and for which adequate reserves have been provided.

Lien Priority. Unless otherwise previously disclosed to Lender in writing, Borrower has not entered into or granted any Security Agreements, or permitted the filing or attachment of any Security Interests on or affecting any of the Collateral directly or indirectly securing repayment of Borrower's Loan and Note, that would be prior or that may in any way be superior to Lender's Security Interests and rights in and to such Collateral.

Binding Effect. This Agreement, the Note, all Security Agreements (if any), and all Related Documents are binding upon the signers thereof, as well as upon their successors, representatives and assigns, and are legally enforceable in accordance with their respective terms.

Commercial Purposes. Borrower intends to use the Loan proceeds solely for business or commercially related purposes.

Employee Benefit Plans. Each employee benefit plan as to which Borrower may have any liability complies in all material respects with all applicable requirements of law and regulations, and (1) no Reportable Event nor Prohibited Transaction (as defined in ERISA) has occurred with respect to any such plan, (2) Borrower has not withdrawn from any such plan or initiated steps to do so, (3) no steps have been taken to terminate any such plan or to appoint a trustee to administer such a plan, and (4) there are no unfunded liabilities other than those previously disclosed to Lender in writing.

Investment Company Act. Borrower is not an "investment company" or a company "controlled" by an "investment company", within the meaning of the Investment Company Act of 1940, as amended.

Public Utility Holding Company Act. Borrower is not a "holding company", or a "subsidiary company" of a "holding company", or an "affiliate" of a "holding company" or of a "subsidiary company" of a "holding company", within the meaning of the Public Utility Holding Company Act of 1935, as amended.

Regulations T and U. Borrower is not engaged principally, or as one of its important activities, in the business of extending credit for the purpose of purchasing or carrying margin stock (within the meaning of Regulations T and U of the Board of Governors of the Federal Reserve System).

Information. All information previously furnished or which is now being furnished by Borrower to Lender for the purposes of or in connection with this Agreement or any transaction contemplated by this Agreement is, and all information furnished by or on behalf of Borrower to Lender in the future will be, true and accurate in every material respect on the date as of which such information is dated or certified; and no such information is or will be incomplete by omitting to state any material fact the omission of which would cause the information to be misleading.

Claims and Defenses. There are no defenses or counterclaims, offsets or other adverse claims, demands or actions of any kind, personal or otherwise, that Borrower, any Grantor, or any Guarantor could assert with respect to the Note, Loan, this Agreement, or the Related Documents.

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AFFIRMATIVE COVENANTS. Borrower covenants and agrees with Lender that, so long as this Agreement remains in effect, Borrower will:

Repayment. Repay the Loan in accordance with its terms and the terms of this Agreement.

Notices of Claims and Litigation. Promptly inform Lender in writing of (1) all material adverse changes in Borrower's financial condition, and (2) all existing and all threatened litigation, claims, investigations, administrative proceedings or similar actions affecting Borrower or any Guarantor which could materially affect the financial condition of Borrower or the financial condition of any Guarantor. In addition, Borrower shall provide Lender with written notice of the occurrence of any Event of Default, the occurrence of any Reportable Event under, or the institution of steps by Borrower to withdraw from, or the institution of any steps to terminate, any employee benefit plan as to which Borrower may have any liability.

Financial Records. Maintain its books and records in accordance with GAAP, applied on a consistent basis, and permit Lender to examine and audit Borrower's books and records at all reasonable times.

Financial Statements. Furnish Lender with the following:

Additional Requirements.

For Dougherty's Holdings, Inc., the following:

Aging Accounts Receivables. As soon as available, but in no event later than thirty (30) days after the end of each month, an Aging Accounts Receivable Report for the most recent reporting period most recently ended. Said reports shall be in a format reasonably acceptable to Lender.

Borrowing Base Certificate.  Within thirty (30) days of end of each month during the term of this Agreement, deliver to Lender a Borrowing Base Certificate. “Borrowing Base Certificate” means a fully completed certificate in a form acceptable to Lender certified to be correct by the chief financial officer of the Borrower or other Borrower representative who shall be approved by Lender. The email, facsimile or other electronic transmission of the Certificate, if in a form acceptable to Lender, shall constitute Borrower’s certification that the information therein is true and correct and consistent with Borrower’s internal records.

FYE Financial Statements. As soon as available, but in no event later than thirty (30) days after the end of each fiscal year, a balance sheet and income statement for the fiscal year most recently ended. Said report shall be prepared by Borrower in a format reasonably acceptable to Lender that includes both direct and contingent liabilities and audited by an independent certified public accountant.

Inventory Report. As soon as available, but in no event later than thirty (30) days after the end of each month, a complete and accurate listing of inventory for the most recent reporting period most recently ended. Said report shall be prepared in a format reasonably acceptable to Lender.

Tax Returns. As soon as available, but in no event later than forty-five (45) days after the applicable filing date for the tax reporting period ended, Borrower’s Federal and other governmental tax returns.

Interim Financial Statements. As soon as available, but in no event later than thirty (30) days after the end of each month, a balance sheet and income statement for the fiscal period most recently ended. Said report shall be prepared by Borrower in a format reasonably acceptable to Lender that includes both direct and contingent liabilities.

For Dougherty's Pharmacy, Inc., the following:

FYE Financial Statements. As soon as available, but in no event later than thirty (30) days after the end of each fiscal year, a balance sheet and income statement for the fiscal year most recently ended. Said report shall be prepared by Borrower in a format reasonably acceptable to Lender that includes both direct and contingent liabilities.

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Interim Financial Statements. As soon as available, but in no event later than thirty (30) days after the end of each month, a balance sheet and income statement for the fiscal period most recently ended. Said report shall be prepared by Borrower in a format reasonably acceptable to Lender that includes both direct and contingent liabilities.

All financial reports required to be provided under this Agreement shall be prepared in accordance with GAAP, applied on a consistent basis, and certified by Borrower as being true and correct.

Additional Information. Furnish such additional information and statements, as Lender may request from time to time.

Additional Requirements.

For Dougherty's Holdings, Inc., the following:

Minimum Consolidated Debt Service Coverage Ratio. Maintain a Consolidated Debt Service Coverage Ratio of not less than 1.00 to 1.00. “Consolidated Debt Service Coverage Ratio” means for all Borrowers and/or Borrowers’ parent companies, affiliates and subsidiaries: (1) the amount of Borrower’s net income after taxes; plus (2) interest, depreciation, and amortization expenses; less (3) any amounts distributed or paid to cover income taxes of members, shareholders or other owners and any other non-discretionary distributions; divided by (4) the sum of Borrower’s contractual principal and interest payments. “Non-discretionary distributions” means all dividend or other distributions made to members, shareholders or others pursuant to a written agreement or other legally binding obligation as determined for inclusion in the calculation by Lender in its sole discretion. “Contractual principal and interest payments” means all payments for Borrower debt as evidenced by a contract, agreement, promissory note, lease or other agreement(s) with Lender or third-parties, as determined for inclusion in the calculation by Lender in its sole discretion. The ratio shall be maintained at all times, will be measured and evaluated by Lender no less than at the end of each month beginning December 31, 2017, and will be based upon the rolling average of the month ending totals of said items for the prior twelve (12) months as set forth in Borrower’s financial statements..

Insurance. Maintain fire and other risk insurance, public liability insurance, and such other insurance as Lender may require with respect to Borrower's properties and operations, in form, amounts, and coverages reasonably acceptable to Lender and by insurance companies authorized to transact business in Texas. BORROWER MAY FURNISH THE INSURANCE REQUIRED BY THIS AGREEMENT WHETHER THROUGH EXISTING POLICIES OWNED OR CONTROLLED BY BORROWER OR THROUGH EQUIVALENT COVERAGE FROM ANY INSURANCE COMPANY AUTHORIZED TO TRANSACT BUSINESS IN TEXAS. Borrower, upon request of Lender, will deliver to Lender from time to time the policies or certificates of insurance in form satisfactory to Lender, including stipulations that coverages will not be cancelled or diminished without at least thirty (30) days prior written notice to Lender. Each insurance policy also shall include an endorsement providing that coverage in favor of Lender will not be impaired in any way by any act, omission or default of Borrower or any other person. In connection with all policies covering assets in which Lender holds or is offered a security interest for the Loans, Borrower will provide Lender with such lender's loss payable or other endorsements as Lender may require. For Borrower’s properties and operations outside of the State of Texas, Borrower shall maintain insurance through insurance companies authorized to transact business in those jurisdictions.

Insurance Reports. Furnish to Lender, upon request of Lender, reports on each existing insurance policy showing such information as Lender may reasonably request, including without limitation the following: (1) the name of the insurer; (2) the risks insured; (3) the amount of the policy; (4) the properties insured; (5) the then current property values on the basis of which insurance has been obtained, and the manner of determining those values; and (6) the expiration date of the policy. In addition, upon request of Lender (however not more often than annually), Borrower will have an independent appraiser satisfactory to Lender determine, as applicable, the actual cash value or replacement cost of any Collateral. The cost of such appraisal shall be paid by Borrower.

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Guaranties. Prior to disbursement of any Loan proceeds, furnish executed guaranties of the Loans in favor of Lender, executed by the guarantor named below, on Lender's forms, and in the amount and under the conditions set forth in those guaranties.

Name of Guarantor Amount

DOUGHERTY'S PHARMACY, INC. Unlimited

Other Agreements. Comply with all terms and conditions of all other agreements, whether now or hereafter existing, between Borrower and any other party and notify Lender immediately in writing of any default in connection with any other such agreements.

Loan Proceeds. Use all Loan proceeds solely for Borrower's business operations, unless specifically consented to the contrary by Lender in writing.

Taxes, Charges and Liens. Pay and discharge when due all of its indebtedness and obligations, including without limitation all assessments, taxes, governmental charges, levies and liens, of every kind and nature, imposed upon Borrower or its properties, income, or profits, prior to the date on which penalties would attach, and all lawful claims that, if unpaid, might become a lien or charge upon any of Borrower's properties, income, or profits. Provided however, Borrower will not be required to pay and discharge any such assessment, tax, charge, levy, lien or claim so long as (1) the legality of the same shall be contested in good faith by appropriate proceedings, and (2) Borrower shall have established on Borrower's books adequate reserves with respect to such contested assessment, tax, charge, levy, lien, or claim in accordance with GAAP.

Performance. Perform and comply, in a timely manner, with all terms, conditions, and provisions set forth in this Agreement, in the Related Documents, and in all other instruments and agreements between Borrower and Lender, and in all other loan agreements now or in the future existing between Borrower and any other party. Borrower shall notify Lender immediately in writing of any default in connection with any agreement.

Operations. Maintain executive and management personnel with substantially the same qualifications and experience as the present executive and management personnel; provide written notice to Lender of any change in executive and management personnel; conduct its business affairs in a reasonable and prudent manner.

Environmental Studies. Promptly conduct and complete, at Borrower's expense, all such investigations, studies, samplings and testings as may be requested by Lender or any governmental authority relative to any substance, or any waste or by-product of any substance defined as toxic or a hazardous substance under applicable federal, state, or local law, rule, regulation, order or directive, at or affecting any property or any facility owned, leased or used by Borrower.

Compliance with Governmental Requirements. Comply with all laws, ordinances, and regulations, now or hereafter in effect, of all governmental authorities applicable to the conduct of Borrower's properties, businesses and operations, and to the use or occupancy of the Collateral, including without limitation, the Americans With Disabilities Act. Borrower may contest in good faith any such law, ordinance, or regulation and withhold compliance during any proceeding, including appropriate appeals, so long as Borrower has notified Lender in writing prior to doing so and so long as, in Lender's sole opinion, Lender's interests in the Collateral are not jeopardized. Lender may require Borrower to post adequate security or a surety bond, reasonably satisfactory to Lender, to protect Lender's interest.

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Inspection. Permit employees or agents of Lender at any reasonable time to inspect any and all Collateral for the Loan or Loans and Borrower's other properties and to examine or audit Borrower's books, accounts, and records and to make copies and memoranda of Borrower's books, accounts, and records. If Borrower now or at any time hereafter maintains any records (including without limitation computer generated records and computer software programs for the generation of such records) in the possession of a third party, Borrower, upon request of Lender, shall notify such party to permit Lender free access to such records at all reasonable times and to provide Lender with copies of any records it may request, all at Borrower's expense.

Change of Location. Immediately notify Lender in writing of any additions to or changes in the location of Borrower's businesses.

Title to Assets and Property. Maintain good and marketable title to all of Borrower's assets and properties.

Notice of Default, Litigation and ERISA Matters. Forthwith upon learning of the occurrence of any of the following, Borrower shall provide Lender with written notice thereof, describing the same and the steps being taken by Borrower with respect thereto: (1) the occurrence of any Event of Default, or (2) the institution of, or any adverse determination in, any litigation, arbitration proceeding or governmental proceeding, or (3) the occurrence of a Reportable Event under, or the institution of steps by Borrower to withdraw from, or the institution of any steps to terminate, any employee benefit plan as to which Borrower may have any liability.

Other Information. From time to time Borrower will provide Lender with such other information as Lender may reasonably request.

Employee Benefit Plans. So long as this Agreement remains in effect, Borrower will maintain each employee benefit plan as to which Borrower may have any liability, in compliance with all applicable requirements of law and regulations.

Environmental Compliance and Reports. Borrower shall comply in all respects with any and all Environmental Laws; not cause or permit to exist, as a result of an intentional or unintentional action or omission on Borrower's part or on the part of any third party, on property owned and/or occupied by Borrower, any environmental activity where damage may result to the environment, unless such environmental activity is pursuant to and in compliance with the conditions of a permit issued by the appropriate federal, state or local governmental authorities; shall furnish to Lender promptly and in any event within thirty (30) days after receipt thereof a copy of any notice, summons, lien, citation, directive, letter or other communication from any governmental agency or instrumentality concerning any intentional or unintentional action or omission on Borrower's part in connection with any environmental activity whether or not there is damage to the environment and/or other natural resources.

Additional Assurances. Make, execute and deliver to Lender such promissory notes, mortgages, deeds of trust, security agreements, assignments, financing statements, instruments, documents and other agreements as Lender or its attorneys may reasonably request to evidence and secure the Loans and to perfect all Security Interests.

LENDER'S EXPENDITURES. If any action or proceeding is commenced that would materially affect Lender's interest in the Collateral or if Borrower fails to comply with any provision of this Agreement or any Related Documents, including but not limited to Borrower's failure to discharge or pay when due any amounts Borrower is required to discharge or pay under this Agreement or any Related Documents, Lender on Borrower's behalf may (but shall not be obligated to) take any action that Lender deems appropriate, including but not limited to discharging or paying all taxes, liens, security interests, encumbrances and other claims, at any time levied or placed on any Collateral and paying all costs for insuring, maintaining and preserving any Collateral. All such expenditures paid by Lender for such purposes will then bear interest at the Note rate from the date paid by Lender to the date of repayment by Borrower. To the extent permitted by applicable law, all such expenses will become a part of the Indebtedness and, at Lender's option, will (A) be payable on demand; (B) be added to the balance of the Note and be apportioned among and be payable with any installment payments to become due during either (1) the term of any applicable insurance policy; or (2) the remaining term of the Note; or (C) be treated as a balloon payment which will be due and payable at the Note's maturity.

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NEGATIVE COVENANTS. Borrower covenants and agrees with Lender that while this Agreement is in effect, Borrower shall not, without the prior written consent of Lender:

Indebtedness and Liens. (1) Except for trade debt incurred in the normal course of business and indebtedness to Lender contemplated by this Agreement, create, incur or assume indebtedness for borrowed money, including capital leases, (2) sell, transfer, mortgage, assign, pledge, lease, grant a security interest in, or encumber any of Borrower's assets (except as allowed as Permitted Liens), or (3) sell with recourse any of Borrower's accounts, except to Lender.

Additional Financial Restrictions.

For Dougherty's Holdings, Inc., the following:

Maximum Capital Expenditures. Make or incur any capital expenditures that, in the aggregate in any fiscal year exceed $200,000.00. “Capital expenditures” means any expenditure to acquire or upgrade a fixed asset including, but not necessarily limited to, equipment, real estate, fixtures, or other asset the expense of which is normally capitalized or amortized for a period exceeding one (1) year.

Continuity of Operations. (1) Engage in any business activities substantially different than those in which Borrower is presently engaged, (2) cease operations, liquidate, merge, transfer, acquire or consolidate with any other entity, change its name, dissolve or transfer or sell Collateral out of the ordinary course of business, or (3) pay any dividends on Borrower's stock (other than dividends payable in its stock), provided, however that notwithstanding the foregoing, but only so long as no Event of Default has occurred and is continuing or would result from the payment of dividends, if Borrower is a "Subchapter S Corporation" (as defined in the Internal Revenue Code of 1986, as amended), Borrower may pay cash dividends on its stock to its shareholders from time to time in amounts necessary to enable the shareholders to pay income taxes and make estimated income tax payments to satisfy their liabilities under federal and state law which arise solely from their status as Shareholders of a Subchapter S Corporation because of their ownership of shares of Borrower's stock, or purchase or retire any of Borrower's outstanding shares or alter or amend Borrower's capital structure.

Loans, Acquisitions and Guaranties. (1) Loan, invest in or advance money or assets to any other person, enterprise or entity, (2) purchase, create or acquire any interest in any other enterprise or entity, or (3) incur any obligation as surety or guarantor other than in the ordinary course of business.

Agreements. Enter into any agreement containing any provisions which would be violated or breached by the performance of Borrower's obligations under this Agreement or in connection herewith.

CESSATION OF ADVANCES. If Lender has made any commitment to make any Loan to Borrower, whether under this Agreement or under any other agreement, Lender shall have no obligation to make Loan Advances or to disburse Loan proceeds if: (A) Borrower or any Guarantor is in default under the terms of this Agreement or any of the Related Documents or any other agreement that Borrower or any Guarantor has with Lender; (B) Borrower or any Guarantor dies, becomes incompetent or becomes insolvent, files a petition in bankruptcy or similar proceedings, or is adjudged a bankrupt; (C) there occurs a material adverse change in Borrower's financial condition, in the financial condition of any Guarantor, or in the value of any Collateral securing any Loan; or (D) any Guarantor seeks, claims or otherwise attempts to limit, modify or revoke such Guarantor's guaranty of the Loan or any other loan with Lender.

RIGHT OF SETOFF. After an Event of Default, and the extent permitted by applicable law, Lender reserves a right of setoff in all Borrower's accounts with Lender (whether checking, savings, or some other account). This includes all accounts Borrower holds jointly with someone else and all accounts Borrower may open in the future. However, this does not include any IRA or Keogh accounts, or any trust accounts for which setoff would be prohibited by law. Borrower authorizes Lender, to the extent permitted by applicable law, to charge or setoff all sums owing on the Indebtedness against any and all such accounts, and, at Lender's option, to administratively freeze all such accounts to allow Lender to protect Lender's charge and setoff rights provided in this paragraph.

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DEFAULT. Each of the following shall constitute an Event of Default under this Agreement:

Payment Default. Borrower fails to make any payment when due under the Loan.

Other Defaults. Borrower fails to comply with or to perform any other term, obligation, covenant or condition contained in this Agreement or in any of the Related Documents or to comply with or to perform any term, obligation, covenant or condition contained in any other agreement between Lender and Borrower.

Default in Favor of Third Parties. Borrower or any Grantor defaults under any loan, extension of credit, security agreement, purchase or sales agreement, or any other agreement, in favor of any other creditor or person that may materially affect any of Borrower's or any Grantor's property or Borrower's or any Grantor's ability to repay the Loans or perform their respective obligations under this Agreement or any of the Related Documents.

False Statements. Any warranty, representation or statement made or furnished to Lender by Borrower or on Borrower's behalf, or made by Guarantor, under this Agreement or the Related Documents in connection with the obtaining of the Loan evidenced by the Note or any security document directly or indirectly securing repayment of the Note is false or misleading in any material respect, either now or at the time made or furnished or becomes false or misleading at any time thereafter.

Insolvency. The dissolution or termination of Borrower's existence as a going business, the insolvency of Borrower, the appointment of a receiver for any part of Borrower's property, any assignment for the benefit of creditors, any type of creditor workout, or the commencement of any proceeding under any bankruptcy or insolvency laws by or against Borrower.

Defective Collateralization. This Agreement or any of the Related Documents ceases to be in full force and effect (including failure of any collateral document to create a valid and perfected security interest or lien) at any time and for any reason.

Creditor or Forfeiture Proceedings. Commencement of foreclosure or forfeiture proceedings, whether by judicial proceeding, self-help, repossession or any other method, by any creditor of Borrower or by any governmental agency against any collateral securing the Loan. This includes a garnishment of any of Borrower's accounts, including deposit accounts, with Lender. However, this Event of Default shall not apply if there is a good faith dispute by Borrower as to the validity or reasonableness of the claim which is the basis of the creditor or forfeiture proceeding and if Borrower gives Lender written notice of the creditor or forfeiture proceeding and deposits with Lender monies or a surety bond for the creditor or forfeiture proceeding, in an amount determined by Lender, in its sole discretion, as being an adequate reserve or bond for the dispute.

Execution; Attachment. Any execution or attachment is levied against the Collateral, and such execution or attachment is not set aside, discharged or stayed within thirty (30) days after the same is levied.

Change in Zoning or Public Restriction. Any change in any zoning ordinance or regulation or any other public restriction is enacted, adopted or implemented, that limits or defines the uses which may be made of the Collateral such that the present or intended use of the Collateral, as specified in the Related Documents, would be in violation of such zoning ordinance or regulation or public restriction, as changed.

Default Under Other Lien Documents. A default occurs under any other mortgage, deed of trust or security agreement covering all or any portion of the Collateral.

Judgment. Unless adequately covered by insurance in the opinion of Lender, the entry of a final judgment for the payment of money involving more than two hundred thousand dollars ($200,000.00) against Borrower and the failure by Borrower to discharge the same, or cause it to be discharged, or bonded off to Lender's satisfaction, within thirty (30) days from the date of the order, decree or process under which or pursuant to which such judgment was entered.

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Events Affecting Guarantor. Any of the preceding events occurs with respect to any Guarantor of any of the Indebtedness or any Guarantor dies or becomes incompetent, or revokes or disputes the validity of, or liability under, any Guaranty of the Indebtedness.

Change in Ownership. Any change in ownership of twenty-five percent (25%) or more of the common stock of Borrower.

Adverse Change. A material adverse change occurs in Borrower's financial condition, and Lender believes in good faith that the prospect of payment or performance of the Loan is impaired.

Change in Membership. If Borrower or Guarantor is a limited liability company, any change in ownership of twenty-five percent (25%) or more of the membership interest of Borrower or Guarantor is an Event of Default.

EFFECT OF AN EVENT OF DEFAULT. If any Event of Default shall occur, except where otherwise provided in this Agreement or the Related Documents, all commitments and obligations of Lender under this Agreement or the Related Documents or any other agreement immediately will terminate (including any obligation to make further Loan Advances or disbursements), and, at Lender's option, all Indebtedness immediately will become due and payable, all without notice of any kind to Borrower, except that in the case of an Event of Default of the type described in the "Insolvency" subsection above, such acceleration shall be automatic and not optional. In addition, Lender shall have all the rights and remedies provided in the Related Documents or available at law, in equity, or otherwise. Except as may be prohibited by applicable law, all of Lender's rights and remedies shall be cumulative and may be exercised singularly or concurrently. Election by Lender to pursue any remedy shall not exclude pursuit of any other remedy, and an election to make expenditures or to take action to perform an obligation of Borrower or of any Grantor shall not affect Lender's right to declare a default and to exercise its rights and remedies.

ADDITIONAL DOCUMENTS. Borrower shall provide Lender with the following additional documents:

Corporate Resolution. Dougherty's Holdings, Inc. has provided or will provide Lender with a certified copy of resolutions properly adopted by Dougherty's Holdings, Inc.'s Board of Directors, and certified by Dougherty's Holdings, Inc.'s corporate secretary, assistant secretary, or other authorized officer, under which Dougherty's Holdings, Inc.'s Board of Directors authorized one or more designated officers or employees to execute this Agreement, the Note and any and all Security Agreements directly or indirectly securing repayment of the same, and to consummate the borrowings and other transactions as contemplated under this Agreement, and to consent to the remedies following any default by Dougherty's Holdings, Inc. as provided in this Agreement and in any Security Agreements.

Corporate Resolution. DOUGHERTY'S PHARMACY, INC. has provided or will provide Lender with a certified copy of resolutions properly adopted by DOUGHERTY'S PHARMACY, INC.'s Board of Directors, and certified by DOUGHERTY'S PHARMACY, INC.'s corporate secretary, assistant secretary, or other authorized officer, under which DOUGHERTY'S PHARMACY, INC.'s Board of Directors authorized one or more designated officers or employees to execute this Agreement, the Note and any and all Security Agreements directly or indirectly securing repayment of the same, and to consummate the borrowings and other transactions as contemplated under this Agreement, and to consent to the remedies following any default by DOUGHERTY'S PHARMACY, INC. as provided in this Agreement and in any Security Agreements.

Articles of Organization and Company Resolutions. Dougherty's Pharmacy El Paso, LLC has provided or will provide Lender with a certified copy of Dougherty's Pharmacy El Paso, LLC's Articles of Organization, together with a certified copy of resolutions properly adopted by the members of the company, under which the members authorized one or more designated members or employees to execute this Agreement, the Note and any and all Security Agreements directly or indirectly securing repayment of the same, and to consummate the borrowings and other transactions as contemplated under this Agreement, and to consent to the remedies following any default by Dougherty's Pharmacy El Paso, LLC as provided in this Agreement and in any Security Agreements.

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Articles of Organization and Company Resolutions. Dougherty's Pharmacy McAlester, LLC has provided or will provide Lender with a certified copy of Dougherty's Pharmacy McAlester, LLC's Articles of Organization, together with a certified copy of resolutions properly adopted by the members of the company, under which the members authorized one or more designated members or employees to execute this Agreement, the Note and any and all Security Agreements directly or indirectly securing repayment of the same, and to consummate the borrowings and other transactions as contemplated under this Agreement, and to consent to the remedies following any default by Dougherty's Pharmacy McAlester, LLC as provided in this Agreement and in any Security Agreements.

Articles of Organization and Company Resolutions. Dougherty's Pharmacy Forest Park Dallas, LLC has provided or will provide Lender with a certified copy of Dougherty's Pharmacy Forest Park Dallas, LLC's Articles of Organization, together with a certified copy of resolutions properly adopted by the members of the company, under which the members authorized one or more designated members or employees to execute this Agreement, the Note and any and all Security Agreements directly or indirectly securing repayment of the same, and to consummate the borrowings and other transactions as contemplated under this Agreement, and to consent to the remedies following any default by Dougherty's Pharmacy Forest Park Dallas, LLC as provided in this Agreement and in any Security Agreements.

Articles of Organization and Company Resolutions. Dougherty's Pharmacy Springtown, LLC has provided or will provide Lender with a certified copy of Dougherty's Pharmacy Springtown, LLC's Articles of Organization, together with a certified copy of resolutions properly adopted by the members of the company, under which the members authorized one or more designated members or employees to execute this Agreement, the Note and any and all Security Agreements directly or indirectly securing repayment of the same, and to consummate the borrowings and other transactions as contemplated under this Agreement, and to consent to the remedies following any default by Dougherty's Pharmacy Springtown, LLC as provided in this Agreement and in any Security Agreements.

Opinion of Counsel. When required by Lender, Borrower has provided or will provide Lender with an opinion of Borrower's counsel certifying to and that: (1) Borrower's Note, any Security Agreements and this Agreement constitute valid and binding obligations on Borrower's part that are enforceable in accordance with their respective terms; (2) Borrower is validly existing and in good standing; (3) Borrower has authority to enter into this Agreement and to consummate the transactions contemplated under this Agreement; and (4) such other matters as may have been requested by Lender or by Lender's counsel.

GUARANTOR PROVISION. Borrower agrees to deliver to Lender any required Guarantor financial items per the Agreement.

ELECTRONIC COPIES. Lender may copy, electronically or otherwise, and thereafter destroy, the originals of this Agreement and/or Related Documents in the regular course of Lender’s business. All such copies produced from an electronic form or by any other reliable means (i.e., photographic image or facsimile) shall in all respects be considered equivalent to an original, and Borrower hereby waives any rights or objections to the use of such copies.

MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of this Agreement:

Amendments. This Agreement, together with any Related Documents, constitutes the entire understanding and agreement of the parties as to the matters set forth in this Agreement. No alteration of or amendment to this Agreement shall be effective unless given in writing and signed by the party or parties sought to be charged or bound by the alteration or amendment.

Attorneys' Fees; Expenses. Borrower agrees to pay upon demand all of Lender's costs and expenses, including Lender's reasonable attorneys' fees and Lender's legal expenses, incurred in connection with the enforcement of this Agreement. Lender may hire or pay someone else to help enforce this Agreement, and Borrower shall pay the costs and expenses of such enforcement. Costs and expenses include Lender's reasonable attorneys' fees and legal expenses whether or not there is a lawsuit, including Lender's reasonable attorneys' fees and legal expenses for bankruptcy proceedings (including efforts to modify or vacate any automatic stay or injunction), appeals, and any anticipated post-judgment collection services. Borrower also shall pay all court costs and such additional fees as may be directed by the court.

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Borrower Information. Borrower consents to the release of information on or about Borrower by Lender in accordance with any court order, law or regulation and in response to credit inquiries concerning Borrower.

Caption Headings. Caption headings in this Agreement are for convenience purposes only and are not to be used to interpret or define the provisions of this Agreement.

Consent to Loan Participation. Borrower agrees and consents to Lender's sale or transfer, whether now or later, of one or more participation interests in the Loan to one or more purchasers, whether related or unrelated to Lender. Lender may provide, without any limitation whatsoever, to any one or more purchasers, or potential purchasers, any information or knowledge Lender may have about Borrower or about any other matter relating to the Loan, and Borrower hereby waives any rights to privacy Borrower may have with respect to such matters. Borrower additionally waives any and all notices of sale of participation interests, as well as all notices of any repurchase of such participation interests. Borrower also agrees that the purchasers of any such participation interests will be considered as the absolute owners of such interests in the Loan and will have all the rights granted under the participation agreement or agreements governing the sale of such participation interests. Borrower further waives all rights of offset or counterclaim that it may have now or later against Lender or against any purchaser of such a participation interest and unconditionally agrees that either Lender or such purchaser may enforce Borrower's obligation under the Loan irrespective of the failure or insolvency of any holder of any interest in the Loan. Borrower further agrees that the purchaser of any such participation interests may enforce its interests irrespective of any personal claims or defenses that Borrower may have against Lender.

Governing Law. This Agreement will be governed by federal law applicable to Lender and, to the extent not preempted by federal law, the laws of the State of Texas without regard to its conflicts of law provisions. This Agreement has been accepted by Lender in the State of Texas.

Choice of Venue. If there is a lawsuit, and if the transaction evidenced by this Agreement occurred in Collin County, Borrower agrees upon Lender's request to submit to the jurisdiction of the courts of Collin County, State of Texas.

Joint and Several Liability. All obligations of Borrower under this Agreement shall be joint and several, and all references to Borrower shall mean each and every Borrower. This means that each Borrower signing below is responsible for all obligations in this Agreement. Where any one or more of the parties is a corporation, partnership, limited liability company or similar entity, it is not necessary for Lender to inquire into the powers of any of the officers, directors, partners, members, or other agents acting or purporting to act on the entity's behalf, and any obligations made or created in reliance upon the professed exercise of such powers shall be guaranteed under this Agreement.

Non-Liability of Lender. The relationship between Borrower and Lender created by this Agreement is strictly a debtor and creditor relationship and not fiduciary in nature, nor is the relationship to be construed as creating any partnership or joint venture between Lender and Borrower. Borrower is exercising Borrower's own judgment with respect to Borrower's business. All information supplied to Lender is for Lender's protection only and no other party is entitled to rely on such information. There is no duty for Lender to review, inspect, supervise or inform Borrower of any matter with respect to Borrower's business. Lender and Borrower intend that Lender may reasonably rely on all information supplied by Borrower to Lender, together with all representations and warranties given by Borrower to Lender, without investigation or confirmation by Lender and that any investigation or failure to investigate will not diminish Lender's right to so rely.

Notice of Lender's Breach. Borrower must notify Lender in writing of any breach of this Agreement or the Related Documents by Lender and any other claim, cause of action or offset against Lender within thirty (30) days after the occurrence of such breach or after the accrual of such claim, cause of action or offset. Borrower waives any claim, cause of action or offset for which notice is not given in accordance with this paragraph. Lender is entitled to rely on any failure to give such notice.

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Indemnification of Lender. Borrower agrees to indemnify, to defend and to save and hold Lender harmless from any and all claims, suits, obligations, damages, losses, costs and expenses (including, without limitation, Lender's Lender's reasonable attorneys' fees), demands, liabilities, penalties, fines and forfeitures of any nature whatsoever that may be asserted against or incurred by Lender, its officers, directors, employees, and agents arising out of, relating to, or in any manner occasioned by this Agreement and the exercise of the rights and remedies granted Lender under this, as well as by: (1) the ownership, use, operation, construction, renovation, demolition, preservation, management, repair, condition, or maintenance of any part of the Collateral; (2) the exercise of any of Borrower's rights collaterally assigned and pledged to Lender hereunder; (3) any failure of Borrower to perform any of its obligations hereunder; and/or (4) any failure of Borrower to comply with the environmental and ERISA obligations, representations and warranties set forth herein. The foregoing indemnity provisions shall survive the cancellation of this Agreement as to all matters arising or accruing prior to such cancellation and the foregoing indemnity shall survive in the event that Lender elects to exercise any of the remedies as provided under this Agreement following default hereunder. Borrower's indemnity obligations under this section shall not in any way be affected by the presence or absence of covering insurance, or by the amount of such insurance or by the failure or refusal of any insurance carrier to perform any obligation on its part under any insurance policy or policies affecting the Collateral and/or Borrower's business activities. Should any claim, action or proceeding be made or brought against Lender by reason of any event as to which Borrower's indemnification obligations apply, then, upon Lender's demand, Borrower, at its sole cost and expense, shall defend such claim, action or proceeding in Borrower's name, if necessary, by the attorneys for Borrower's insurance carrier (if such claim, action or proceeding is covered by insurance), or otherwise by such attorneys as Lender shall approve. Lender may also engage its own attorneys at its reasonable discretion to defend Borrower and to assist in its defense and Borrower agrees to pay the fees and disbursements of such attorneys.

Counterparts. This Agreement may be executed in multiple counterparts, each of which, when so executed, shall be deemed an original, but all such counterparts, taken together, shall constitute one and the same Agreement.

No Waiver by Lender. Lender shall not be deemed to have waived any rights under this Agreement unless such waiver is given in writing and signed by Lender. No delay or omission on the part of Lender in exercising any right shall operate as a waiver of such right or any other right. A waiver by Lender of a provision of this Agreement shall not prejudice or constitute a waiver of Lender's right otherwise to demand strict compliance with that provision or any other provision of this Agreement. No prior waiver by Lender, nor any course of dealing between Lender and Borrower, or between Lender and any Grantor, shall constitute a waiver of any of Lender's rights or of any of Borrower's or any Grantor's obligations as to any future transactions. Whenever the consent of Lender is required under this Agreement, the granting of such consent by Lender in any instance shall not constitute continuing consent to subsequent instances where such consent is required and in all cases such consent may be granted or withheld in the sole discretion of Lender.

Notices. Any notice required to be given under this Agreement shall be given in writing, and shall be effective when actually delivered, when actually received by telefacsimile (unless otherwise required by law), when deposited with a nationally recognized overnight courier, or, if mailed, when deposited in the United States mail, as first class, certified or registered mail postage prepaid, directed to the addresses shown near the beginning of this Agreement. Any party may change its address for notices under this Agreement by giving formal written notice to the other parties, specifying that the purpose of the notice is to change the party's address. For notice purposes, Borrower agrees to keep Lender informed at all times of Borrower's current address. Unless otherwise provided or required by law, if there is more than one Borrower, any notice given by Lender to any Borrower is deemed to be notice given to all Borrowers.

Payment of Interest and Fees. Notwithstanding any other provision of this Agreement or any provision of any Related Document, Borrower does not agree or intend to pay, and Lender does not agree or intend to charge, collect, take, reserve or receive (collectively referred to herein as "charge or collect"), any amount in the nature of interest or in the nature of a fee for the Loan which would in any way or event (including demand, prepayment, or acceleration) cause Lender to contract for, charge or collect more for the Loan than the maximum Lender would be permitted to charge or collect by any applicable federal or Texas state law. Any such excess interest or unauthorized fee will, instead of anything stated to the contrary, be applied first to reduce the unpaid principal balance of the Loan, and when the principal has been paid in full, be refunded to Borrower.

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Severability. If a court of competent jurisdiction finds any provision of this Agreement to be illegal, invalid, or unenforceable as to any person or circumstance, that finding shall not make the offending provision illegal, invalid, or unenforceable as to any other person or circumstance. If feasible, the offending provision shall be considered modified so that it becomes legal, valid and enforceable. If the offending provision cannot be so modified, it shall be considered deleted from this Agreement. Unless otherwise required by law, the illegality, invalidity, or unenforceability of any provision of this Agreement shall not affect the legality, validity or enforceability of any other provision of this Agreement.

Sole Discretion of Lender. Whenever Lender's consent or approval is required under this Agreement, the decision as to whether or not to consent or approve shall be in the sole and exclusive discretion of Lender and Lender's decision shall be final and conclusive.

Subsidiaries and Affiliates of Borrower. To the extent the context of any provisions of this Agreement makes it appropriate, including without limitation any representation, warranty or covenant, the word "Borrower" as used in this Agreement shall include all of Borrower's subsidiaries and affiliates. Notwithstanding the foregoing however, under no circumstances shall this Agreement be construed to require Lender to make any Loan or other financial accommodation to any of Borrower's subsidiaries or affiliates.

Successors and Assigns. All covenants and agreements by or on behalf of Borrower contained in this Agreement or any Related Documents shall bind Borrower's successors and assigns and shall inure to the benefit of Lender and its successors and assigns. Borrower shall not, however, have the right to assign Borrower's rights under this Agreement or any interest therein, without the prior written consent of Lender.

Survival of Representations and Warranties. Borrower understands and agrees that in extending Loan Advances, Lender is relying on all representations, warranties, and covenants made by Borrower in this Agreement or in any certificate or other instrument delivered by Borrower to Lender under this Agreement or the Related Documents. Borrower further agrees that regardless of any investigation made by Lender, all such representations, warranties and covenants will survive the extension of Loan Advances and delivery to Lender of the Related Documents, shall be continuing in nature, shall be deemed made and redated by Borrower at the time each Loan Advance is made, and shall remain in full force and effect until such time as Borrower's Indebtedness shall be paid in full, or until this Agreement shall be terminated in the manner provided above, whichever is the last to occur.

Time is of the Essence. Time is of the essence in the performance of this Agreement.

Waive Jury. All parties to this Agreement hereby waive the right to any jury trial in any action, proceeding, or counterclaim brought by any party against any other party.

DEFINITIONS. The following capitalized words and terms shall have the following meanings when used in this Agreement. Unless specifically stated to the contrary, all references to dollar amounts shall mean amounts in lawful money of the United States of America. Words and terms used in the singular shall include the plural, and the plural shall include the singular, as the context may require. Words and terms not otherwise defined in this Agreement shall have the meanings attributed to such terms in the Uniform Commercial Code. Accounting words and terms not otherwise defined in this Agreement shall have the meanings assigned to them in accordance with generally accepted accounting principles as in effect on the date of this Agreement:

Account. The word "Account" means a trade account, account receivable, other receivable, or other right to payment for goods sold or services rendered owing to Borrower (or to a third party grantor acceptable to Lender).

Account Debtor. The words "Account Debtor" mean the person or entity obligated upon an Account.

Advance. The word "Advance" means a disbursement of Loan funds made, or to be made, to Borrower or on Borrower's behalf under the terms and conditions of this Agreement.

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Agreement. The word "Agreement" means this Business Loan Agreement (Asset Based), as this Business Loan Agreement (Asset Based) may be amended or modified from time to time, together with all exhibits and schedules attached to this Business Loan Agreement (Asset Based) from time to time.

Borrower. The word "Borrower" means Dougherty's Holdings, Inc.; DOUGHERTY'S PHARMACY, INC.; Dougherty's Pharmacy El Paso, LLC; Dougherty's Pharmacy McAlester, LLC; Dougherty's Pharmacy Forest Park Dallas, LLC; and Dougherty's Pharmacy Springtown, LLC and includes all co-signers and co-makers signing the Note and all their successors and assigns.

Borrowing Base. The words "Borrowing Base" means, until February 1, 2018, the amount computed as Total Borrowing Base on the Borrowing Base Certificate most recently delivered to, and accepted by, the Bank in accordance with this Agreement, and equal to the lesser of:

A. $4,450,000.00, OR,

B. The sum of the following percentages of the value(s) of item(s):

i. (80%) of Eligible Accounts Receivable minus receivables aged more than 90 days, include: Contra Accounts, US Government Accounts, Cross Aged Accounts and Foreign/Employee Accounts;

ii. (85%) of Eligible Inventory, Retail, OTC and Compound;

iii. (50%) of Eligible Inventory, Gifts, Cosmetics and Home Medical Equipment.

The words "Borrowing Base" means, on or after February 1, 2018, the amount computed as Total Borrowing Base on the Borrowing Base Certificate most recently delivered to, and accepted by, the Bank in accordance with this Agreement, and equal to the lesser of:

A. $4,000,000.00, OR,

B. The sum of the following percentages of the value(s) of item(s):

i. (80%) of Eligible Accounts Receivable minus receivables aged more than 90 days, include: Contra Accounts, US Government Accounts, Cross Aged Accounts and Foreign/Employee Accounts;

ii. (85%) of Eligible Inventory, Retail, OTC and Compound;

iii. (50%) of Eligible Inventory, Gifts, Cosmetics and Home Medical Equipment.

Said items shall be reflected on Borrower's financial statements submitted to Lender as required by this Agreement.

Borrowing Base Certificate. Means a fully completed certificate in a form acceptable to Lender and certified by the chief financial officer of the Borrower to be correct and delivered to, and accepted by, Lender. The Borrowers' e-mail and fax submission of this Borrowing Base to Lender, shall, if acceptable to Lender, constitute the Borrowers' certification that this Borrowing Base is a true and correct representation of the information contained in the Borrowers' records and financial statements.

Business Day. The words "Business Day" mean a day on which commercial banks are open in the State of Texas.

Collateral. The word "Collateral" means all property and assets granted as collateral security for a Loan, whether real or personal property, whether granted directly or indirectly, whether granted now or in the future, and whether granted in the form of a security interest, mortgage, collateral mortgage, deed of trust, assignment, pledge, crop pledge, chattel mortgage, collateral chattel mortgage, chattel trust, factor's lien, equipment trust, conditional sale, trust receipt, lien, charge, lien or title retention contract, lease or consignment intended as a security device, or any other security or lien interest whatsoever, whether created by law, contract, or otherwise. The word Collateral also includes without limitation all collateral described in the Collateral section of this Agreement.

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Eligible Accounts. The words "Eligible Accounts" mean at any time, all of Borrower's Accounts which contain selling terms and conditions acceptable to Lender. The net amount of any Eligible Account against which Borrower may borrow shall exclude all returns, discounts, credits, and offsets of any nature. Unless otherwise agreed to by Lender in writing, Eligible Accounts do not include:

(1) Accounts with respect to which the Account Debtor is member, employee or agent of Borrower.

(2) Accounts with respect to which the Account Debtor is a subsidiary of, or affiliated with Borrower or its shareholders, officers, or directors.

(3) Accounts with respect to which goods are placed on consignment, guaranteed sale, or other terms by reason of which the payment by the Account Debtor may be conditional.

(4) Accounts with respect to which the Account Debtor is not a resident of the United States, except to the extent such Accounts are supported by insurance, bonds or other assurances satisfactory to Lender.

(5) Accounts with respect to which Borrower is or may become liable to the Account Debtor for goods sold or services rendered by the Account Debtor to Borrower.

(6) Accounts which are subject to dispute, counterclaim, or setoff.

(7) Accounts with respect to which the goods have not been shipped or delivered, or the services have not been rendered, to the Account Debtor.

(8) Accounts with respect to which Lender, in its sole discretion, deems the creditworthiness or financial condition of the Account Debtor to be unsatisfactory.

(9) Accounts of any Account Debtor who has filed or has had filed against it a petition in bankruptcy or an application for relief under any provision of any state or federal bankruptcy, insolvency, or debtor-in-relief acts; or who has had appointed a trustee, custodian, or receiver for the assets of such Account Debtor; or who has made an assignment for the benefit of creditors or has become insolvent or fails generally to pay its debts (including its payrolls) as such debts become due.

(10) Accounts with respect to which the Account Debtor is the United States government or any department or agency of the United States.

(11) Accounts which have not been paid in full within 90 days from the invoice date. The entire balance of any Account of any single Account Debtor will be ineligible whenever the portion of the Account which has not been paid within 90 days from the invoice date is in excess of 10.000% of the total amount outstanding on the Account.

(12) That portion of the Accounts of any single Account Debtor which exceeds 20.000% of all of Borrower's Accounts.

Eligible Inventory. The words "Eligible Inventory" mean, at any time, all of Borrower's Inventory as defined below, except:

(1) Inventory which is not owned by Borrower free and clear of all security interests, liens, encumbrances, and claims of third parties.

(2) Inventory which Lender, in its sole discretion, deems to be obsolete, unsalable, damaged, defective, or unfit for further processing.

Environmental Laws. The words "Environmental Laws" mean any and all state, federal and local statutes, regulations and ordinances relating to the protection of human health or the environment, including without limitation the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended, 42 U.S.C. Section 9601, et seq. ("CERCLA"), the Superfund Amendments and Reauthorization Act of 1986, Pub. L. No. 99-499 ("SARA"), the Hazardous Materials Transportation Act, 49 U.S.C. Section 1801, et seq., the Resource Conservation and Recovery Act, 42 U.S.C. Section 6901, et seq., or other applicable state or federal laws, rules, or regulations adopted pursuant thereto.

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ERISA. The word "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time, and including all regulations and published interpretations of the act.

Event of Default. The words "Event of Default" mean individually, collectively, and interchangeably any of the events of default set forth in this Agreement in the default section of this Agreement.

Expiration Date. The words "Expiration Date" mean the date of termination of Lender's commitment to lend under this Agreement.

GAAP. The word "GAAP" means generally accepted accounting principles.

Grantor. The word "Grantor" means each and all of the persons or entities granting a Security Interest in any Collateral for the Loan, including without limitation all Borrowers granting such a Security Interest.

Guarantor. The word "Guarantor" means any guarantor, surety, or accommodation party of any or all of the Loan, and, in each case, Borrower's successors, assigns, heirs, personal representatives, executors and administrators of any guarantor, surety, or accommodation party.

Guaranty. The word "Guaranty" means the guaranty from Guarantor to Lender, including without limitation a guaranty of all or part of the Note.

Hazardous Substances. The words "Hazardous Substances" mean materials that, because of their quantity, concentration or physical, chemical or infectious characteristics, may cause or pose a present or potential hazard to human health or the environment when improperly used, treated, stored, disposed of, generated, manufactured, transported or otherwise handled. The words "Hazardous Substances" are used in their very broadest sense and include without limitation any and all hazardous or toxic substances, materials or waste as defined by or listed under the Environmental Laws. The term "Hazardous Substances" also includes, without limitation, petroleum and petroleum by-products or any fraction thereof and asbestos.

Indebtedness. The word "Indebtedness" means the indebtedness evidenced by the Note or Related Documents, including all principal and interest together with all other indebtedness and costs and expenses for which Borrower is responsible under this Agreement or under any of the Related Documents.

Inventory. The word "Inventory" means all of Borrower's raw materials, work in process, finished goods, merchandise, parts and supplies, of every kind and description, and goods held for sale or lease or furnished under contracts of service in which Borrower now has or hereafter acquires any right, whether held by Borrower or others, and all documents of title, warehouse receipts, bills of lading, and all other documents of every type covering all or any part of the foregoing. Inventory includes inventory temporarily out of Borrower's custody or possession and all returns on Accounts.

Lender. The word "Lender" means First National Bank of Omaha , its successors and assigns.

Loan. The word "Loan" means any and all loans and financial accommodations from Lender to Borrower whether now or hereafter existing, and however evidenced, including without limitation those loans and financial accommodations described herein or described on any exhibit or schedule attached to this Agreement from time to time, and further including any and all subsequent amendments, additions, substitutions, renewals and refinancings of any of Borrower's Loans.

Note. The word "Note" means any and all of Borrower's liabilities, obligations and debts to Lender, now existing or hereinafter incurred or created, including, without limitation, all loans, advances, interest, costs debts, overdraft indebtedness, credit card indebtedness, lease obligations, liabilities and obligations under interest rate protection agreements or foreign currency exchange agreements or commodity price protection agreements, other obligations, and liabilities of Borrower together with all modifications, increases, renewals, and extensions of the aforementioned. Additionally, hereby incorporated as if fully set forth herein are the terms and conditions of any promissory note, agreement or other document executed by Borrower and/or Lender indicating this security instrument or the property described herein shall be considered "Collateral" securing such promissory note, agreement, or other instrument, or any similar reference.

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Permitted Liens. The words "Permitted Liens" mean (1) liens and security interests securing Indebtedness owed by Borrower to Lender; (2) liens for taxes, assessments, or similar charges either not yet due or being contested in good faith; (3) liens of materialmen, mechanics, warehousemen, or carriers, or other like liens arising in the ordinary course of business and securing obligations which are not yet delinquent; (4) purchase money liens or purchase money security interests upon or in any property acquired or held by Borrower in the ordinary course of business to secure indebtedness outstanding on the date of this Agreement or permitted to be incurred under the paragraph of this Agreement titled "Indebtedness and Liens"; (5) liens and security interests which, as of the date of this Agreement, have been disclosed to and approved by the Lender in writing; and (6) those liens and security interests which in the aggregate constitute an immaterial and insignificant monetary amount with respect to the net value of Borrower's assets.

Primary Credit Facility. The words "Primary Credit Facility" mean the credit facility described in the Line of Credit section of this Agreement.

Related Documents. The words "Related Documents" mean all promissory notes, credit agreements, loan agreements, environmental agreements, guaranties, security agreements, mortgages, deeds of trust, security deeds, collateral mortgages, and all other instruments, agreements and documents, whether now or hereafter existing, executed in connection with the Loan.

Security Agreement. The words "Security Agreement" mean and include without limitation any agreements, promises, covenants, arrangements, understandings or other agreements, whether created by law, contract, or otherwise, evidencing, governing, representing, or creating a Security Interest.

Security Interest. The words "Security Interest" mean, individually, collectively, and interchangeably, without limitation, any and all types of collateral security, present and future, whether in the form of a lien, charge, encumbrance, mortgage, deed of trust, security deed, assignment, pledge, crop pledge, chattel mortgage, collateral chattel mortgage, chattel trust, factor's lien, equipment trust, conditional sale, trust receipt, lien or title retention contract, lease or consignment intended as a security device, or any other security or lien interest whatsoever whether created by law, contract, or otherwise.

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BORROWER ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS BUSINESS LOAN AGREEMENT (ASSET BASED) AND BORROWER AGREES TO ITS TERMS. THIS BUSINESS LOAN AGREEMENT (ASSET BASED) IS DATED AUGUST 9, 2017.

BORROWER:

DOUGHERTY'S HOLDINGS, INC.

By: /s/ Mark S. Heil                        

Mark S. Heil,
President of Dougherty's Holdings, Inc.

DOUGHERTY'S PHARMACY, INC.

By: /s/ Mark S. Heil                        

Mark S. Heil,
Chief Financial Officer of DOUGHERTY'S PHARMACY, INC.

DOUGHERTY'S PHARMACY EL PASO, LLC

By: /s/ Mark S. Heil                        

Mark S. Heil,
Manager of Dougherty's Pharmacy El Paso, LLC

DOUGHERTY'S PHARMACY MCALESTER, LLC

By: /s/ Mark S. Heil                        

 Mark S. Heil,
Manager of Dougherty's Pharmacy McAlester, LLC

DOUGHERTY'S PHARMACY FOREST PARK DALLAS, LLC

By: /s/ Mark S. Heil                        

Mark S. Heil,
Manager of Dougherty's Pharmacy Forest Park Dallas, LLC

DOUGHERTY'S PHARMACY SPRINGTOWN, LLC

By: /s/ Mark S. Heil                        

Mark S. Heil,
Manager of Dougherty's Pharmacy Springtown, LLC

LENDER:

FIRST NATIONAL BANK OF OMAHA

By: /s/ Nate Johns                 

Nate Johns, Vice President

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EX-4.30

Exhibit 4.30

*#########000004571681579609012017*

COMMERCIAL GUARANTY

Borrower: Dougherty's Holdings, Inc.; DOUGHERTY'S PHARMACY, INC.; Dougherty's Pharmacy El Paso, LLC; Dougherty's Pharmacy McAlester, LLC; Dougherty's Pharmacy Forest Park Dallas, LLC; and Dougherty's Pharmacy Springtown, LLC 5924 Royal Lane Ste 250 Dallas, TX 75230 Lender: First National Bank of Omaha Branch #042 4500 Preston Road Frisco, TX 75034

Guarantor: DOUGHERTY'S PHARMACY, INC. 5924 Royal Lane Ste 250 Dallas, TX 75230

CONTINUING GUARANTEE OF PAYMENT AND PERFORMANCE. For good and valuable consideration, Guarantor absolutely and unconditionally guarantees full and punctual payment and satisfaction of the Indebtedness of Borrower, or any one or more of them, to Lender, and the performance and discharge of all Borrower's obligations under the Note and the Related Documents. This is a guaranty of payment and performance and not of collection, so Lender can enforce this Guaranty against Guarantor even when Lender has not exhausted Lender's remedies against anyone else obligated to pay the Indebtedness or against any collateral securing the Indebtedness, this Guaranty or any other guaranty of the Indebtedness. Guarantor will make any payments to Lender or its order, on demand, in legal tender of the United States of America, in same-day funds, without set-off or deduction or counterclaim, and will otherwise perform Borrower's obligations under the Note and Related Documents. Under this Guaranty, Guarantor's liability is unlimited and Guarantor's obligations are continuing.

INDEBTEDNESS. The word "Indebtedness" as used in this Guaranty means all of the principal amount outstanding from time to time and at any one or more times, accrued unpaid interest thereon and all collection costs and legal expenses related thereto permitted by law, Lender's reasonable attorneys' fees, arising from any and all debts, liabilities and obligations of every nature or form, now existing or hereafter arising or acquired, that Borrower individually or collectively or interchangeably with others, owes or will owe Lender. "Indebtedness" includes, without limitation, loans, advances, debts, overdraft indebtedness, credit card indebtedness, lease obligations, liabilities and obligations under any interest rate protection agreements or foreign currency exchange agreements or commodity price protection agreements, other obligations, and liabilities of Borrower, or any one or more of them, and any present or future judgments against Borrower, or any one or more of them, future advances, loans or transactions that renew, extend, modify, refinance, consolidate or substitute these debts, liabilities and obligations whether: voluntarily or involuntarily incurred; due or to become due by their terms or acceleration; absolute or contingent; liquidated or unliquidated; determined or undetermined; direct or indirect; primary or secondary in nature or arising from a guaranty or surety; secured or unsecured; joint or several or joint and several; evidenced by a negotiable or non-negotiable instrument or writing; originated by Lender or another or others; barred or unenforceable against Borrower for any reason whatsoever; for any transactions that may be voidable for any reason (such as infancy, insanity, ultra vires or otherwise); and originated then reduced or extinguished and then afterwards increased or reinstated. However, "Indebtedness" shall not include any liabilities and obligations under any agreement regulated as a "swap" by the Commodity Exchange Act, as amended, unless otherwise agreed in writing.

If Lender presently holds one or more guaranties, or hereafter receives additional guaranties from Guarantor, Lender's rights under all guaranties shall be cumulative. This Guaranty shall not (unless specifically provided below to the contrary) affect or invalidate any such other guaranties. Guarantor's liability will be Guarantor's aggregate liability under the terms of this Guaranty and any such other unterminated guaranties.

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CONTINUING GUARANTY. THIS IS A "CONTINUING GUARANTY" UNDER WHICH GUARANTOR AGREES TO GUARANTEE THE FULL AND PUNCTUAL PAYMENT, PERFORMANCE AND SATISFACTION OF THE INDEBTEDNESS OF BORROWER, OR ANY ONE OR MORE OF THEM, TO LENDER, NOW EXISTING OR HEREAFTER ARISING OR ACQUIRED, ON AN OPEN AND CONTINUING BASIS. ACCORDINGLY, ANY PAYMENTS MADE ON THE INDEBTEDNESS WILL NOT DISCHARGE OR DIMINISH GUARANTOR'S OBLIGATIONS AND LIABILITY UNDER THIS GUARANTY FOR ANY REMAINING AND SUCCEEDING INDEBTEDNESS EVEN WHEN ALL OR PART OF THE OUTSTANDING INDEBTEDNESS MAY BE A ZERO BALANCE FROM TIME TO TIME.

DURATION OF GUARANTY. This Guaranty will take effect when received by Lender without the necessity of any acceptance by Lender, or any notice to Guarantor or to Borrower, and will continue in full force until all the Indebtedness incurred or contracted before receipt by Lender of any notice of revocation shall have been fully and finally paid and satisfied and all of Guarantor's other obligations under this Guaranty shall have been performed in full. If Guarantor elects to revoke this Guaranty, Guarantor may only do so in writing. Guarantor's written notice of revocation must be mailed to Lender, by certified mail, at Lender's address listed above or such other place as Lender may designate in writing. Written revocation of this Guaranty will apply only to new Indebtedness created after actual receipt by Lender of Guarantor's written revocation and Lender's written acknowledgment of receipt. For this purpose and without limitation, the term "new Indebtedness" does not include the Indebtedness which at the time of notice of revocation is contingent, unliquidated, undetermined or not due and which later becomes absolute, liquidated, determined or due. For this purpose and without limitation, "new Indebtedness" does not include all or part of the Indebtedness that is: incurred by Borrower prior to revocation; incurred under a commitment that became binding before revocation; any renewals, extensions, substitutions, and modifications of the Indebtedness. This Guaranty shall bind Guarantor's estate as to the Indebtedness created both before and after Guarantor's death or incapacity, regardless of Lender's actual notice of Guarantor's death. Subject to the foregoing, Guarantor's executor or administrator or other legal representative may terminate this Guaranty in the same manner in which Guarantor might have terminated it and with the same effect. Release of any other guarantor or termination of any other guaranty of the Indebtedness shall not affect the liability of Guarantor under this Guaranty. A revocation Lender receives from any one or more Guarantors shall not affect the liability of any remaining Guarantors under this Guaranty. It is anticipated that fluctuations may occur in the aggregate amount of the Indebtedness covered by this Guaranty, and Guarantor specifically acknowledges and agrees that reductions in the amount of the Indebtedness, even to zero dollars ($0.00), shall not constitute a termination of this Guaranty. This Guaranty is binding upon Guarantor and Guarantor's heirs, successors and assigns so long as any of the Indebtedness remains unpaid and even though the Indebtedness may from time to time be zero dollars ($0.00).

GUARANTOR'S AUTHORIZATION TO LENDER. Guarantor authorizes Lender, either before or after any revocation hereof, without notice or demand and without lessening or otherwise affecting Guarantor's liability under this Guaranty, from time to time: (A) prior to revocation as set forth above, to make one or more additional secured or unsecured loans to Borrower, to lease equipment or other goods to Borrower, or otherwise to extend additional credit to Borrower; (B) to alter, compromise, renew, extend, accelerate, or otherwise change one or more times the time for payment or other terms of the Indebtedness or any part of the Indebtedness, including increases and decreases of the rate of interest on the Indebtedness; extensions may be repeated and may be for longer than the original loan term; (C) to take and hold security for the payment of this Guaranty or the Indebtedness, and exchange, enforce, waive, subordinate, fail or decide not to perfect, and release any such security, with or without the substitution of new collateral; (D) to release, substitute, agree not to sue, or deal with any one or more of Borrower's sureties, endorsers, or other guarantors on any terms or in any manner Lender may choose; (E) to determine how, when and what application of payments and credits shall be made on the Indebtedness; (F) to apply such security and direct the order or manner of sale thereof, including without limitation, any nonjudicial sale permitted by the terms of the controlling security agreement or deed of trust, as Lender in its discretion may determine; (G) to sell, transfer, assign or grant participations in all or any part of the Indebtedness; and (H) to assign or transfer this Guaranty in whole or in part.

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GUARANTOR'S REPRESENTATIONS AND WARRANTIES. Guarantor represents and warrants to Lender that (A) no representations or agreements of any kind have been made to Guarantor which would limit or qualify in any way the terms of this Guaranty; (B) this Guaranty is executed at Borrower's request and not at the request of Lender; (C) Guarantor has full power, right and authority to enter into this Guaranty; (D) the provisions of this Guaranty do not conflict with or result in a default under any agreement or other instrument binding upon Guarantor and do not result in a violation of any law, regulation, court decree or order applicable to Guarantor; (E) Guarantor has not and will not, without the prior written consent of Lender, sell, lease, assign, encumber, hypothecate, transfer, or otherwise dispose of all or substantially all of Guarantor's assets, or any interest therein; (F) upon Lender's request, Guarantor will provide to Lender financial and credit information in form acceptable to Lender, and all such financial information which currently has been, and all future financial information which will be provided to Lender is and will be true and correct in all material respects and fairly present Guarantor's financial condition as of the dates the financial information is provided; (G) no material adverse change has occurred in Guarantor's financial condition since the date of the most recent financial statements provided to Lender and no event has occurred which may materially adversely affect Guarantor's financial condition; (H) no litigation, claim, investigation, administrative proceeding or similar action (including those for unpaid taxes) against Guarantor is pending or threatened; (I) Lender has made no representation to Guarantor as to the creditworthiness of Borrower; and (J) Guarantor has established adequate means of obtaining from Borrower on a continuing basis information regarding Borrower's financial condition. Guarantor agrees to keep adequately informed from such means of any facts, events, or circumstances which might in any way affect Guarantor's risks under this Guaranty, and Guarantor further agrees that, absent a request for information, Lender shall have no obligation to disclose to Guarantor any information or documents acquired by Lender in the course of its relationship with Borrower.

GUARANTOR'S FINANCIAL STATEMENTS. Guarantor agrees to furnish Lender with the following:

Additional Requirements.

FYE Financial Statements. As soon as available, but in no event later than one hundred twenty (120) days after the end of each fiscal year, a balance sheet and income statement for the fiscal year most recently ended. Said report shall be prepared by Guarantor in a format reasonably acceptable to Lender that includes both direct and contingent liabilities, and audited by an independent certified public accountant.

Tax Returns. As soon as available, but in no event later than 45 days after the applicable filing date for the tax reporting period ended, Guarantor’s Federal and other governmental tax returns.

All financial reports required to be provided under this Guaranty shall be prepared in accordance with GAAP, applied on a consistent basis, and certified by Guarantor as being true and correct.

GUARANTOR'S WAIVERS. Except as prohibited by applicable law, Guarantor waives any right to require Lender (A) to continue lending money or to extend other credit to Borrower; (B) to make any presentment, protest, demand, or notice of any kind, including notice of any nonpayment of the Indebtedness or of any nonpayment related to any collateral, or notice of any action or nonaction on the part of Borrower, Lender, any surety, endorser, or other guarantor in connection with the Indebtedness or in connection with the creation of new or additional loans or obligations; (C) to resort for payment or to proceed directly or at once against any person, including Borrower or any other guarantor; (D) to proceed directly against or exhaust any collateral held by Lender from Borrower, any other guarantor, or any other person; (E) to give notice of the terms, time, and place of any public or private sale of personal property security held by Lender from Borrower or to comply with any other applicable provisions of the Uniform Commercial Code; (F) to pursue any other remedy within Lender's power; or (G) to commit any act or omission of any kind, or at any time, with respect to any matter whatsoever.

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Guarantor waives all rights of Guarantor under Chapter 43 of the Texas Civil Practice and Remedies Code. Guarantor also waives any and all rights or defenses based on suretyship or impairment of collateral including, but not limited to, any rights or defenses arising by reason of (A) any "one action" or "anti-deficiency" law or any other law which may prevent Lender from bringing any action, including a claim for deficiency, against Guarantor, before or after Lender's commencement or completion of any foreclosure action, either judicially or by exercise of a power of sale; (B) any election of remedies by Lender which destroys or otherwise adversely affects Guarantor's subrogation rights or Guarantor's rights to proceed against Borrower for reimbursement, including without limitation, any loss of rights Guarantor may suffer by reason of any law limiting, qualifying, or discharging the Indebtedness; (C) any disability or other defense of Borrower, of any other guarantor, or of any other person, or by reason of the cessation of Borrower's liability from any cause whatsoever, other than payment in full in legal tender, of the Indebtedness; (D) any right to claim discharge of the Indebtedness on the basis of unjustified impairment of any collateral for the Indebtedness; (E) any statute of limitations, if at any time any action or suit brought by Lender against Guarantor is commenced, there is outstanding Indebtedness which is not barred by any applicable statute of limitations; or (F) any defenses given to guarantors at law or in equity other than actual payment and performance of the Indebtedness. If payment is made by Borrower, whether voluntarily or otherwise, or by any third party, on the Indebtedness and thereafter Lender is forced to remit the amount of that payment to Borrower's trustee in bankruptcy or to any similar person under any federal or state bankruptcy law or law for the relief of debtors, the Indebtedness shall be considered unpaid for the purpose of the enforcement of this Guaranty.

Guarantor further waives and agrees not to assert or claim at any time any deductions to the amount guaranteed under this Guaranty for any claim of setoff, counterclaim, counter demand, recoupment or similar right, whether such claim, demand or right may be asserted by the Borrower, the Guarantor, or both.

GUARANTOR'S UNDERSTANDING WITH RESPECT TO WAIVERS. Guarantor warrants and agrees that each of the waivers set forth above is made with Guarantor's full knowledge of its significance and consequences and that, under the circumstances, the waivers are reasonable and not contrary to public policy or law. If any such waiver is determined to be contrary to any applicable law or public policy, such waiver shall be effective only to the extent permitted by law or public policy.

RIGHT OF SETOFF. To the extent permitted by applicable law, Lender reserves a right of setoff in all Guarantor's accounts with Lender (whether checking, savings, or some other account). This includes all accounts Guarantor holds jointly with someone else and all accounts Guarantor may open in the future. However, this does not include any IRA or Keogh accounts, or any trust accounts for which setoff would be prohibited by law. Guarantor authorizes Lender, to the extent permitted by applicable law, to hold these funds if there is a default, and Lender may apply the funds in these accounts to pay what Guarantor owes under the terms of this Guaranty.

SUBORDINATION OF BORROWER'S DEBTS TO GUARANTOR. Guarantor agrees that the Indebtedness, whether now existing or hereafter created, shall be superior to any claim that Guarantor may now have or hereafter acquire against Borrower, whether or not Borrower becomes insolvent. Guarantor hereby expressly subordinates any claim Guarantor may have against Borrower, upon any account whatsoever, to any claim that Lender may now or hereafter have against Borrower. In the event of insolvency and consequent liquidation of the assets of Borrower, through bankruptcy, by an assignment for the benefit of creditors, by voluntary liquidation, or otherwise, the assets of Borrower applicable to the payment of the claims of both Lender and Guarantor shall be paid to Lender and shall be first applied by Lender to the Indebtedness. Guarantor does hereby assign to Lender all claims which it may have or acquire against Borrower or against any assignee or trustee in bankruptcy of Borrower; provided however, that such assignment shall be effective only for the purpose of assuring to Lender full payment in legal tender of the Indebtedness. If Lender so requests, any notes or credit agreements now or hereafter evidencing any debts or obligations of Borrower to Guarantor shall be marked with a legend that the same are subject to this Guaranty and shall be delivered to Lender. Guarantor agrees, and Lender is hereby authorized, in the name of Guarantor, from time to time to file financing statements and continuation statements and to execute documents and to take such other actions as Lender deems necessary or appropriate to perfect, preserve and enforce its rights under this Guaranty.

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MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of this Guaranty:

Amendments. This Guaranty, together with any Related Documents, constitutes the entire understanding and agreement of the parties as to the matters set forth in this Guaranty. No alteration of or amendment to this Guaranty shall be effective unless given in writing and signed by the party or parties sought to be charged or bound by the alteration or amendment.

Attorneys' Fees; Expenses. Guarantor agrees to pay upon demand all of Lender's costs and expenses, including Lender's reasonable attorneys' fees and Lender's legal expenses, incurred in connection with the enforcement of this Guaranty. Lender may hire or pay someone else to help enforce this Guaranty, and Guarantor shall pay the costs and expenses of such enforcement. Costs and expenses include Lender's reasonable attorneys' fees and legal expenses whether or not there is a lawsuit, including Lender's reasonable attorneys' fees and legal expenses for bankruptcy proceedings (including efforts to modify or vacate any automatic stay or injunction), appeals, and any anticipated post-judgment collection services. Guarantor also shall pay all court costs and such additional fees as may be directed by the court.

Caption Headings. Caption headings in this Guaranty are for convenience purposes only and are not to be used to interpret or define the provisions of this Guaranty.

Governing Law. This Guaranty will be governed by federal law applicable to Lender and, to the extent not preempted by federal law, the laws of the State of Texas without regard to its conflicts of law provisions.

Choice of Venue. If there is a lawsuit, and if the transaction evidenced by this Guaranty occurred in Collin County, Guarantor agrees upon Lender's request to submit to the jurisdiction of the courts of Collin County, State of Texas.

Integration. Guarantor further agrees that Guarantor has read and fully understands the terms of this Guaranty; Guarantor has had the opportunity to be advised by Guarantor's attorney with respect to this Guaranty; the Guaranty fully reflects Guarantor's intentions and parol evidence is not required to interpret the terms of this Guaranty. Guarantor hereby indemnifies and holds Lender harmless from all losses, claims, damages, and costs (including Lender's attorneys' fees) suffered or incurred by Lender as a result of any breach by Guarantor of the warranties, representations and agreements of this paragraph.

Interpretation. In all cases where there is more than one Borrower or Guarantor, then all words used in this Guaranty in the singular shall be deemed to have been used in the plural where the context and construction so require; and where there is more than one Borrower named in this Guaranty or when this Guaranty is executed by more than one Guarantor, the words "Borrower" and "Guarantor" respectively shall mean all and any one or more of them. The words "Guarantor," "Borrower," and "Lender" include the heirs, successors, assigns, and transferees of each of them. If a court finds that any provision of this Guaranty is not valid or should not be enforced, that fact by itself will not mean that the rest of this Guaranty will not be valid or enforced. Therefore, a court will enforce the rest of the provisions of this Guaranty even if a provision of this Guaranty may be found to be invalid or unenforceable. If any one or more of Borrower or Guarantor are corporations, partnerships, limited liability companies, or similar entities, it is not necessary for Lender to inquire into the powers of Borrower or Guarantor or of the officers, directors, partners, managers, or other agents acting or purporting to act on their behalf, and any indebtedness made or created in reliance upon the professed exercise of such powers shall be guaranteed under this Guaranty.

Notices. Any notice required to be given under this Guaranty shall be given in writing, and, except for revocation notices by Guarantor, shall be effective when actually delivered, when actually received by telefacsimile (unless otherwise required by law), when deposited with a nationally recognized overnight courier, or, if mailed, when deposited in the United States mail, as first class, certified or registered mail postage prepaid, directed to the addresses shown near the beginning of this Guaranty. All revocation notices by Guarantor shall be in writing and shall be effective upon delivery to Lender as provided in the section of this Guaranty entitled "DURATION OF GUARANTY." Any party may change its address for notices under this Guaranty by giving formal written notice to the other parties, specifying that the purpose of the notice is to change the party's address. For notice purposes, Guarantor agrees to keep Lender informed at all times of Guarantor's current address. Unless otherwise provided or required by law, if there is more than one Guarantor, any notice given by Lender to any Guarantor is deemed to be notice given to all Guarantors.

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No Waiver by Lender. Lender shall not be deemed to have waived any rights under this Guaranty unless such waiver is given in writing and signed by Lender. No delay or omission on the part of Lender in exercising any right shall operate as a waiver of such right or any other right. A waiver by Lender of a provision of this Guaranty shall not prejudice or constitute a waiver of Lender's right otherwise to demand strict compliance with that provision or any other provision of this Guaranty. No prior waiver by Lender, nor any course of dealing between Lender and Guarantor, shall constitute a waiver of any of Lender's rights or of any of Guarantor's obligations as to any future transactions. Whenever the consent of Lender is required under this Guaranty, the granting of such consent by Lender in any instance shall not constitute continuing consent to subsequent instances where such consent is required and in all cases such consent may be granted or withheld in the sole discretion of Lender.

Successors and Assigns. Subject to any limitations stated in this Guaranty on transfer of Guarantor's interest, this Guaranty shall be binding upon and inure to the benefit of the parties, their successors and assigns.

Waive Jury. Lender and Guarantor hereby waive the right to any jury trial in any action, proceeding, or counterclaim brought by either Lender or Guarantor against the other.

Electronic Copies. Lender may copy, electronically or otherwise, and thereafter destroy, the originals of this Agreement and/or Related Documents in the regular course of Lender’s business. All such copies produced from an electronic form or by any other reliable means (i.e., photographic image or facsimile) shall in all respects be considered equivalent to an original, and Borrower hereby waives any rights or objections to the use of such copies.

DEFINITIONS. The following capitalized words and terms shall have the following meanings when used in this Guaranty. Unless specifically stated to the contrary, all references to dollar amounts shall mean amounts in lawful money of the United States of America. Words and terms used in the singular shall include the plural, and the plural shall include the singular, as the context may require. Words and terms not otherwise defined in this Guaranty shall have the meanings attributed to such terms in the Uniform Commercial Code:

Borrower. The word "Borrower" means Dougherty's Holdings, Inc.; DOUGHERTY'S PHARMACY, INC.; Dougherty's Pharmacy El Paso, LLC; Dougherty's Pharmacy McAlester, LLC; Dougherty's Pharmacy Forest Park Dallas, LLC; and Dougherty's Pharmacy Springtown, LLC and includes all co-signers and co-makers signing the Note and all their successors and assigns.

GAAP. The word "GAAP" means generally accepted accounting principles.

Guarantor. The word "Guarantor" means everyone signing this Guaranty, including without limitation DOUGHERTY'S PHARMACY, INC., and in each case, any signer's successors and assigns.

Guaranty. The word "Guaranty" means this guaranty from Guarantor to Lender.

Indebtedness. The word "Indebtedness" means Borrower's indebtedness to Lender as more particularly described in this Guaranty.

Lender. The word "Lender" means First National Bank of Omaha , its successors and assigns.

Note. The word "Note" means any and all of Borrower's liabilities, obligations and debts to Lender, now existing or hereinafter incurred or created, including, without limitation, all loans, advances, interest, costs debts, overdraft indebtedness, credit card indebtedness, lease obligations, liabilities and obligations under interest rate protection agreements or foreign currency exchange agreements or commodity price protection agreements, other obligations, and liabilities of Borrower together with all modifications, increases, renewals, and extensions of the aforementioned. Additionally, hereby incorporated as if fully set forth herein are the terms and conditions of any promissory note, agreement or other document executed by Borrower and/or Lender indicating this security instrument or the property described herein shall be considered "Collateral" securing such promissory note, agreement, or other instrument, or any similar reference.

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Related Documents. The words "Related Documents" mean all promissory notes, credit agreements, loan agreements, environmental agreements, guaranties, security agreements, mortgages, deeds of trust, security deeds, collateral mortgages, and all other instruments, agreements and documents, whether now or hereafter existing, executed in connection with the Indebtedness.

EACH UNDERSIGNED GUARANTOR ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS GUARANTY AND AGREES TO ITS TERMS. IN ADDITION, EACH GUARANTOR UNDERSTANDS THAT THIS GUARANTY IS EFFECTIVE UPON GUARANTOR'S EXECUTION AND DELIVERY OF THIS GUARANTY TO LENDER AND THAT THE GUARANTY WILL CONTINUE UNTIL TERMINATED IN THE MANNER SET FORTH IN THE SECTION TITLED "DURATION OF GUARANTY". NO FORMAL ACCEPTANCE BY LENDER IS NECESSARY TO MAKE THIS GUARANTY EFFECTIVE. THIS GUARANTY IS DATED AUGUST 9, 2017.

GUARANTOR:

DOUGHERTY'S PHARMACY, INC.

By: /s/ Mark S. Heil

Mark S. Heil,
Chief Financial Officer of DOUGHERTY'S PHARMACY, INC.

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EX-4.31

Exhibit 4.31

*#########000004571681580509012017*

COMMERCIAL SECURITY AGREEMENT

Principal	Loan Date	Maturity	Loan No	Call / Coll	Account	Officer	Initials
$4,450,000.00	09-01-2017	08-01-2018	4571681			274722

References in the boxes above are for Lender's use only and do not limit the applicability of this document to any particular loan or item.

Any item above containing "***" has been omitted due to text length limitations.

Grantor: Dougherty's Holdings, Inc.; DOUGHERTY'S PHARMACY, INC.; Dougherty's Pharmacy El Paso, LLC; Dougherty's Pharmacy McAlester, LLC; Dougherty's Pharmacy Forest Park Dallas, LLC; and Dougherty's Pharmacy Springtown, LLC 5924 Royal Lane Ste 250 Dallas, TX 75230 Lender: First National Bank of Omaha Branch #042 4500 Preston Road Frisco, TX 75034

THIS COMMERCIAL SECURITY AGREEMENT dated August 9, 2017, is made and executed between Dougherty's Holdings, Inc.; DOUGHERTY'S PHARMACY, INC.; Dougherty's Pharmacy El Paso, LLC; Dougherty's Pharmacy McAlester, LLC; Dougherty's Pharmacy Forest Park Dallas, LLC; and Dougherty's Pharmacy Springtown, LLC ("Grantor") and First National Bank of Omaha ("Lender").

GRANT OF SECURITY INTEREST. For valuable consideration, Grantor grants to Lender a security interest in the Collateral to secure the Indebtedness and agrees that Lender shall have the rights stated in this Agreement with respect to the Collateral, in addition to all other rights which Lender may have by law.

COLLATERAL DESCRIPTION. The word "Collateral" as used in this Agreement means the following described property, whether now owned or hereafter acquired, whether now existing or hereafter arising, and wherever located, in which Grantor is giving to Lender a security interest for the payment of the Indebtedness and performance of all other obligations under the Note and this Agreement:

All inventory, equipment, accounts (including but not limited to all health-care-insurance receivables), chattel paper, instruments (including but not limited to all promissory notes), letter-of-credit rights, letters of credit, documents, deposit accounts, investment property, money, other rights to payment and performance, and general intangibles (including but not limited to all software and all payment intangibles); all oil, gas and other minerals before extraction; all oil, gas, other minerals and accounts constituting as-extracted collateral; all fixtures and building materials; all timber to be cut; all attachments, accessions, accessories, fittings, increases, tools, parts, repairs, supplies, and commingled goods relating to the foregoing property, and all additions, replacements of and substitutions for all or any part of the foregoing property; all insurance refunds relating to the foregoing property; all good will relating to the foregoing property; all records and data and embedded software relating to the foregoing property, and all equipment, inventory and software to utilize, create, maintain and process any such records and data on electronic media; and all supporting obligations relating to the foregoing property; all whether now existing or hereafter arising, whether now owned or hereafter acquired or whether now or hereafter subject to any rights in the foregoing property; and all products and proceeds (including but not limited to all insurance payments) of or relating to the foregoing property.

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In addition, the word "Collateral" also includes all the following, whether now owned or hereafter acquired, whether now existing or hereafter arising, and wherever located:

(A) All accessions, attachments, accessories, tools, parts, supplies, replacements of and additions to any of the collateral described herein, whether added now or later.

(B) All products and produce of any of the property described in this Collateral section.

(C) All accounts, general intangibles, instruments, rents, monies, payments, and all other rights, arising out of a sale, lease, consignment or other disposition of any of the property described in this Collateral section.

(D) All proceeds (including insurance proceeds) from the sale, destruction, loss, or other disposition of any of the property described in this Collateral section, and sums due from a third party who has damaged or destroyed the Collateral or from that party's insurer, whether due to judgment, settlement or other process.

(E) All records and data relating to any of the property described in this Collateral section, whether in the form of a writing, photograph, microfilm, microfiche, or electronic media, together with all of Grantor's right, title, and interest in and to all computer software required to utilize, create, maintain, and process any such records or data on electronic media.

CROSS-COLLATERALIZATION. In addition to the Note, this Agreement secures all obligations, debts and liabilities, plus interest thereon, of Grantor to Lender, or any one or more of them, as well as all claims by Lender against Grantor or any one or more of them, whether now existing or hereafter arising, whether related or unrelated to the purpose of the Note, whether voluntary or otherwise, whether due or not due, direct or indirect, determined or undetermined, absolute or contingent, liquidated or unliquidated, whether Grantor may be liable individually or jointly with others, whether obligated as guarantor, surety, accommodation party or otherwise. However, this Agreement shall not secure, and the "Indebtedness" shall not include, any obligations arising under Subchapters E and F of Chapter 342 of the Texas Finance Code, as amended.

FUTURE ADVANCES. In addition to the Note, this Agreement secures all future advances made by Lender to Grantor regardless of whether the advances are made a) pursuant to a commitment or b) for the same purposes.

RIGHT OF SETOFF. To the extent permitted by applicable law, Lender reserves a right of setoff in all Grantor's accounts with Lender (whether checking, savings, or some other account). This includes all accounts Grantor holds jointly with someone else and all accounts Grantor may open in the future. However, this does not include any IRA or Keogh accounts, or any trust accounts for which setoff would be prohibited by law. Grantor authorizes Lender, to the extent permitted by applicable law, to charge or setoff all sums owing on the Indebtedness against any and all such accounts, and, at Lender's option, to administratively freeze all such accounts to allow Lender to protect Lender's charge and setoff rights provided in this paragraph.

GRANTOR'S REPRESENTATIONS AND WARRANTIES WITH RESPECT TO THE COLLATERAL. With respect to the Collateral, Grantor represents and promises to Lender that:

Perfection of Security Interest. Grantor agrees to take whatever actions are requested by Lender to perfect and continue Lender's security interest in the Collateral. Upon request of Lender, Grantor will deliver to Lender any and all of the documents evidencing or constituting the Collateral, and Grantor will note Lender's interest upon any and all chattel paper and instruments if not delivered to Lender for possession by Lender. This is a continuing Security Agreement and will continue in effect even though all or any part of the Indebtedness is paid in full and even though for a period of time Grantor may not be indebted to Lender.

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Notices to Lender. Grantor will promptly notify Lender in writing at Lender's address shown above (or such other addresses as Lender may designate from time to time) prior to any (1) change in Grantor's name; (2) change in Grantor's assumed business name(s); (3) change in the management of any Corporation or in the management or in the members or managers of the limited liability company Grantor; (4) change in the authorized signer(s); (5) change in Grantor's principal office address; (6) change in Grantor's state of organization; (7) conversion of Grantor to a new or different type of business entity; or (8) change in any other aspect of Grantor that directly or indirectly relates to any agreements between Grantor and Lender. No change in Grantor's name or state of organization will take effect until after Lender has received notice.

No Violation. The execution and delivery of this Agreement will not violate any law or agreement governing Grantor or to which Grantor is a party, and its certificate or articles of incorporation and bylaws do not prohibit any term or condition of this Agreement, and its membership agreement does not prohibit any term or condition of this Agreement.

Enforceability of Collateral. To the extent the Collateral consists of accounts, chattel paper, or general intangibles, as defined by the Uniform Commercial Code, the Collateral is enforceable in accordance with its terms, is genuine, and fully complies with all applicable laws and regulations concerning form, content and manner of preparation and execution, and all persons appearing to be obligated on the Collateral have authority and capacity to contract and are in fact obligated as they appear to be on the Collateral. At the time any account becomes subject to a security interest in favor of Lender, the account shall be a good and valid account representing an undisputed, bona fide indebtedness incurred by the account debtor, for merchandise held subject to delivery instructions or previously shipped or delivered pursuant to a contract of sale, or for services previously performed by Grantor with or for the account debtor. So long as this Agreement remains in effect, Grantor shall not, without Lender's prior written consent, compromise, settle, adjust, or extend payment under or with regard to any such Accounts. There shall be no setoffs or counterclaims against any of the Collateral, and no agreement shall have been made under which any deductions or discounts may be claimed concerning the Collateral except those disclosed to Lender in writing.

Location of the Collateral. Except in the ordinary course of Grantor's business, Grantor agrees to keep the Collateral (or to the extent the Collateral consists of intangible property such as accounts or general intangibles, the records concerning the Collateral) at Grantor's address shown above or at such other locations as are acceptable to Lender. Upon Lender's request, Grantor will deliver to Lender in form satisfactory to Lender a schedule of real properties and Collateral locations relating to Grantor's operations, including without limitation the following: (1) all real property Grantor owns or is purchasing; (2) all real property Grantor is renting or leasing; (3) all storage facilities Grantor owns, rents, leases, or uses; and (4) all other properties where Collateral is or may be located.

Removal of the Collateral. Except in the ordinary course of Grantor's business, including the sales of inventory, Grantor shall not remove the Collateral from its existing location without Lender's prior written consent. To the extent that the Collateral consists of vehicles, or other titled property, Grantor shall not take or permit any action which would require application for certificates of title for the vehicles outside the State of Texas, without Lender's prior written consent. Grantor shall, whenever requested, advise Lender of the exact location of the Collateral.

Transactions Involving Collateral. Except for inventory sold or accounts collected in the ordinary course of Grantor's business, or as otherwise provided for in this Agreement, Grantor shall not sell, offer to sell, or otherwise transfer or dispose of the Collateral. While Grantor is not in default under this Agreement, Grantor may sell inventory, but only in the ordinary course of its business and only to buyers who qualify as a buyer in the ordinary course of business. A sale in the ordinary course of Grantor's business does not include a transfer in partial or total satisfaction of a debt or any bulk sale. Grantor shall not pledge, mortgage, encumber or otherwise permit the Collateral to be subject to any lien, security interest, encumbrance, or charge, other than the security interest provided for in this Agreement, without the prior written consent of Lender. This includes security interests even if junior in right to the security interests granted under this Agreement. Unless waived by Lender, all proceeds from any disposition of the Collateral (for whatever reason) shall be held in trust for Lender and shall not be commingled with any other funds; provided however, this requirement shall not constitute consent by Lender to any sale or other disposition. Upon receipt, Grantor shall immediately deliver any such proceeds to Lender.

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Title. Grantor represents and warrants to Lender that Grantor holds good and marketable title to the Collateral, free and clear of all liens and encumbrances except for the lien of this Agreement. No financing statement covering any of the Collateral is on file in any public office other than those which reflect the security interest created by this Agreement or to which Lender has specifically consented. Grantor shall defend Lender's rights in the Collateral against the claims and demands of all other persons.

Repairs and Maintenance. Grantor agrees to keep and maintain, and to cause others to keep and maintain, the Collateral in good order, repair and condition at all times while this Agreement remains in effect. Grantor further agrees to pay when due all claims for work done on, or services rendered or material furnished in connection with the Collateral so that no lien or encumbrance may ever attach to or be filed against the Collateral.

Inspection of Collateral. Lender and Lender's designated representatives and agents shall have the right at all reasonable times to examine and inspect the Collateral wherever located.

Taxes, Assessments and Liens. Grantor will pay when due all taxes, assessments and liens upon the Collateral, its use or operation, upon this Agreement, upon any promissory note or notes evidencing the Indebtedness, or upon any of the other Related Documents. Grantor may withhold any such payment or may elect to contest any lien if Grantor is in good faith conducting an appropriate proceeding to contest the obligation to pay and so long as Lender's interest in the Collateral is not jeopardized in Lender's sole opinion. In any contest Grantor shall defend itself and Lender and shall satisfy any final adverse judgment before enforcement against the Collateral. Grantor shall name Lender as an additional obligee under any surety bond furnished in the contest proceedings. Grantor further agrees to furnish Lender with evidence that such taxes, assessments, and governmental and other charges have been paid in full and in a timely manner. Grantor may withhold any such payment or may elect to contest any lien if Grantor is in good faith conducting an appropriate proceeding to contest the obligation to pay and so long as Lender's interest in the Collateral is not jeopardized.

Compliance with Governmental Requirements. Grantor shall comply promptly with all laws, ordinances, rules and regulations of all governmental authorities, now or hereafter in effect, applicable to the ownership, production, disposition, or use of the Collateral, including all laws or regulations relating to the undue erosion of highly-erodible land or relating to the conversion of wetlands for the production of an agricultural product or commodity. Grantor may contest in good faith any such law, ordinance or regulation and withhold compliance during any proceeding, including appropriate appeals, so long as Lender's interest in the Collateral, in Lender's opinion, is not jeopardized.

Hazardous Substances. Grantor represents and warrants that the Collateral never has been, and never will be so long as this Agreement remains a lien on the Collateral, used in violation of any Environmental Laws or for the generation, manufacture, storage, transportation, treatment, disposal, release or threatened release of any Hazardous Substance. The representations and warranties contained herein are based on Grantor's due diligence in investigating the Collateral for Hazardous Substances. Grantor hereby (1) releases and waives any future claims against Lender for indemnity or contribution in the event Grantor becomes liable for cleanup or other costs under any Environmental Laws, and (2) agrees to indemnify, defend, and hold harmless Lender against any and all claims and losses resulting from a breach of this provision of this Agreement. This obligation to indemnify and defend shall survive the payment of the Indebtedness and the satisfaction of this Agreement.

Maintenance of Casualty Insurance. Grantor shall procure and maintain all risks insurance, including without limitation fire, theft and liability coverage together with such other insurance as Lender may require with respect to the Collateral, in form, amounts, coverages and basis reasonably acceptable to Lender. Grantor, upon request of Lender, will deliver to Lender from time to time the policies or certificates of insurance in form satisfactory to Lender, including stipulations that coverages will not be cancelled or diminished without at least thirty (30) days' prior written notice to Lender and not including any disclaimer of the insurer's liability for failure to give such a notice. Each insurance policy also shall include an endorsement providing that coverage in favor of Lender will not be impaired in any way by any act, omission or default of Grantor or any other person. In connection with all policies covering assets in which Lender holds or is offered a security interest, Grantor will provide Lender with such loss payable or other endorsements as Lender may require. If Grantor at any time fails to obtain or maintain any insurance as required under this Agreement, Lender may (but shall not be obligated to) obtain such insurance as Lender deems appropriate, including if Lender so chooses "single interest insurance," which will cover only Lender's interest in the Collateral.

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Application of Insurance Proceeds. Grantor shall promptly notify Lender of any loss or damage to the Collateral, whether or not such casualty or loss is covered by insurance. Lender may make proof of loss if Grantor fails to do so within fifteen (15) days of the casualty. All proceeds of any insurance on the Collateral, including accrued proceeds thereon, shall be held by Lender as part of the Collateral. If Lender consents to repair or replacement of the damaged or destroyed Collateral, Lender shall, upon satisfactory proof of expenditure, pay or reimburse Grantor from the proceeds for the reasonable cost of repair or restoration. If Lender does not consent to repair or replacement of the Collateral, Lender shall retain a sufficient amount of the proceeds to pay all of the Indebtedness, and shall pay the balance to Grantor. Any proceeds which have not been disbursed within six (6) months after their receipt and which Grantor has not committed to the repair or restoration of the Collateral shall be used to prepay the Indebtedness.

Insurance Reserves. Lender may require Grantor to maintain with Lender reserves for payment of insurance premiums, which reserves shall be created by monthly payments from Grantor of a sum estimated by Lender to be sufficient to produce, at least fifteen (15) days before the premium due date, amounts at least equal to the insurance premiums to be paid. If fifteen (15) days before payment is due, the reserve funds are insufficient, Grantor shall upon demand pay any deficiency to Lender. The reserve funds shall be held by Lender as a general deposit and shall constitute a non-interest-bearing account which Lender may satisfy by payment of the insurance premiums required to be paid by Grantor as they become due. Lender does not hold the reserve funds in trust for Grantor, and Lender is not the agent of Grantor for payment of the insurance premiums required to be paid by Grantor. The responsibility for the payment of premiums shall remain Grantor's sole responsibility.

Insurance Reports. Grantor, upon request of Lender, shall furnish to Lender reports on each existing policy of insurance showing such information as Lender may reasonably request including the following: (1) the name of the insurer; (2) the risks insured; (3) the amount of the policy; (4) the property insured; (5) the then current value on the basis of which insurance has been obtained and the manner of determining that value; and (6) the expiration date of the policy. In addition, Grantor shall upon request by Lender (however not more often than annually) have an independent appraiser satisfactory to Lender determine, as applicable, the cash value or replacement cost of the Collateral.

Financing Statements. Grantor authorizes Lender to file a UCC financing statement, or alternatively, a copy of this Agreement to perfect Lender's security interest. At Lender's request, Grantor additionally agrees to sign all other documents that are necessary to perfect, protect, and continue Lender's security interest in the Property. Grantor will pay all filing fees, title transfer fees, and other fees and costs involved unless prohibited by law or unless Lender is required by law to pay such fees and costs. Grantor irrevocably appoints Lender to execute documents necessary to transfer title if there is a default. Lender may file a copy of this Agreement as a financing statement.

GRANTOR'S RIGHT TO POSSESSION AND TO COLLECT ACCOUNTS. Until default and except as otherwise provided below with respect to accounts, Grantor may have possession of the tangible personal property and beneficial use of all the Collateral and may use it in any lawful manner not inconsistent with this Agreement or the Related Documents, provided that Grantor's right to possession and beneficial use shall not apply to any Collateral where possession of the Collateral by Lender is required by law to perfect Lender's security interest in such Collateral. Until otherwise notified by Lender, Grantor may collect any of the Collateral consisting of accounts. At any time and even though no Event of Default exists, Lender may exercise its rights to collect the accounts and to notify account debtors to make payments directly to Lender for application to the Indebtedness. If Lender at any time has possession of any Collateral, whether before or after an Event of Default, Lender shall be deemed to have exercised reasonable care in the custody and preservation of the Collateral if Lender takes such action for that purpose as Grantor shall request or as Lender, in Lender's sole discretion, shall deem appropriate under the circumstances, but failure to honor any request by Grantor shall not of itself be deemed to be a failure to exercise reasonable care. Lender shall not be required to take any steps necessary to preserve any rights in the Collateral against prior parties, nor to protect, preserve or maintain any security interest given to secure the Indebtedness.

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LENDER'S EXPENDITURES. If any action or proceeding is commenced that would materially affect Lender's interest in the Collateral or if Grantor fails to comply with any provision of this Agreement or any Related Documents, including but not limited to Grantor's failure to discharge or pay when due any amounts Grantor is required to discharge or pay under this Agreement or any Related Documents, Lender on Grantor's behalf may (but shall not be obligated to) take any action that Lender deems appropriate, including but not limited to discharging or paying all taxes, liens, security interests, encumbrances and other claims, at any time levied or placed on the Collateral and paying all costs for insuring, maintaining and preserving the Collateral. All such expenditures paid by Lender for such purposes will then bear interest at the Note rate from the date paid by Lender to the date of repayment by Grantor. To the extent permitted by applicable law, all such expenses will become a part of the Indebtedness and, at Lender's option, will (A) be payable on demand; (B) be added to the balance of the Note and be apportioned among and be payable with any installment payments to become due during either (1) the term of any applicable insurance policy; or (2) the remaining term of the Note; or (C) be treated as a balloon payment which will be due and payable at the Note's maturity. The Agreement also will secure payment of these amounts. Such right shall be in addition to all other rights and remedies to which Lender may be entitled upon Default.

DEFAULT. Each of the following shall constitute an Event of Default under this Agreement:

Payment Default. Grantor fails to make any payment when due under the Indebtedness.

Other Defaults. Grantor fails to comply with or to perform any other term, obligation, covenant or condition contained in this Agreement or in any of the Related Documents or to comply with or to perform any term, obligation, covenant or condition contained in any other agreement between Lender and Grantor.

Default in Favor of Third Parties. Any guarantor or Grantor defaults under any loan, extension of credit, security agreement, purchase or sales agreement, or any other agreement, in favor of any other creditor or person that may materially affect any of any guarantor's or Grantor's property or ability to perform their respective obligations under this Agreement or any of the Related Documents.

False Statements. Any warranty, representation or statement made or furnished to Lender by Grantor or on Grantor's behalf under this Agreement or the Related Documents is false or misleading in any material respect, either now or at the time made or furnished or becomes false or misleading at any time thereafter.

Defective Collateralization. This Agreement or any of the Related Documents ceases to be in full force and effect (including failure of any collateral document to create a valid and perfected security interest or lien) at any time and for any reason.

Insolvency. The dissolution or termination of Grantor's existence as a going business, the insolvency of Grantor, the appointment of a receiver for any part of Grantor's property, any assignment for the benefit of creditors, any type of creditor workout, or the commencement of any proceeding under any bankruptcy or insolvency laws by or against Grantor.

Creditor or Forfeiture Proceedings. Commencement of foreclosure or forfeiture proceedings, whether by judicial proceeding, self-help, repossession or any other method, by any creditor of Grantor or by any governmental agency against any collateral securing the Indebtedness. This includes a garnishment of any of Grantor's accounts, including deposit accounts, with Lender. However, this Event of Default shall not apply if there is a good faith dispute by Grantor as to the validity or reasonableness of the claim which is the basis of the creditor or forfeiture proceeding and if Grantor gives Lender written notice of the creditor or forfeiture proceeding and deposits with Lender monies or a surety bond for the creditor or forfeiture proceeding, in an amount determined by Lender, in its sole discretion, as being an adequate reserve or bond for the dispute.

Events Affecting Guarantor. Any of the preceding events occurs with respect to any Guarantor of any of the Indebtedness or Guarantor dies or becomes incompetent or revokes or disputes the validity of, or liability under, any Guaranty of the Indebtedness.

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Adverse Change. A material adverse change occurs in Grantor's financial condition, or Lender believes the prospect of payment or performance of the Indebtedness is impaired.

Insecurity. Lender in good faith believes itself insecure.

RIGHTS AND REMEDIES ON DEFAULT. If an Event of Default occurs under this Agreement, at any time thereafter, Lender shall have all the rights of a secured party under the Texas Uniform Commercial Code. In addition and without limitation, Lender may exercise any one or more of the following rights and remedies:

Accelerate Indebtedness. Lender may declare the entire Indebtedness immediately due and payable, without notice of any kind to Grantor.

Assemble Collateral. Lender may require Grantor to deliver to Lender all or any portion of the Collateral and any and all certificates of title and other documents relating to the Collateral. Lender may require Grantor to assemble the Collateral and make it available to Lender at a place to be designated by Lender. Lender also shall have full power to enter, provided Lender does so without a breach of the peace or a trespass, upon the property of Grantor to take possession of and remove the Collateral. If the Collateral contains other goods not covered by this Agreement at the time of repossession, Grantor agrees Lender may take such other goods, provided that Lender makes reasonable efforts to return them to Grantor after repossession.

Sell the Collateral. Lender shall have full power to sell, lease, transfer, or otherwise deal with the Collateral or proceeds thereof in Lender's own name or that of Grantor. Lender may sell the Collateral at public auction or private sale. Unless the Collateral threatens to decline speedily in value or is of a type customarily sold on a recognized market, Lender will give Grantor, and other persons as required by law, reasonable notice of the time and place of any public sale, or the time after which any private sale or any other disposition of the Collateral is to be made. However, no notice need be provided to any person who, after Event of Default occurs, enters into and authenticates an agreement waiving that person's right to notification of sale. The requirements of reasonable notice shall be met if such notice is given at least ten (10) days before the time of the sale or disposition. All expenses relating to the disposition of the Collateral, including without limitation the expenses of retaking, holding, insuring, preparing for sale and selling the Collateral, shall become a part of the Indebtedness secured by this Agreement and shall be payable on demand, with interest at the Note rate from date of expenditure until repaid.

Appoint Receiver. Lender shall have the right to have a receiver appointed to take possession of all or any part of the Collateral, with the power to protect and preserve the Collateral, to operate the Collateral preceding foreclosure or sale, and to collect the rents from the Collateral and apply the proceeds, over and above the cost of the receivership, against the Indebtedness. The receiver may serve without bond if permitted by law. Lender's right to the appointment of a receiver shall exist whether or not the apparent value of the Collateral exceeds the Indebtedness by a substantial amount. Employment by Lender shall not disqualify a person from serving as a receiver.

Collect Revenues, Apply Accounts. Lender, either itself or through a receiver, may collect the payments, rents, income, and revenues from the Collateral. Lender may at any time in Lender's discretion transfer any Collateral into Lender's own name or that of Lender's nominee and receive the payments, rents, income, and revenues therefrom and hold the same as security for the Indebtedness or apply it to payment of the Indebtedness in such order of preference as Lender may determine. Insofar as the Collateral consists of accounts, general intangibles, insurance policies, instruments, chattel paper, choses in action, or similar property, Lender may demand, collect, receipt for, settle, compromise, adjust, sue for, foreclose, or realize on the Collateral as Lender may determine, whether or not Indebtedness or Collateral is then due. For these purposes, Lender may, on behalf of and in the name of Grantor, receive, open and dispose of mail addressed to Grantor; change any address to which mail and payments are to be sent; and endorse notes, checks, drafts, money orders, documents of title, instruments and items pertaining to payment, shipment, or storage of any Collateral. To facilitate collection, Lender may notify account debtors and obligors on any Collateral to make payments directly to Lender.

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Obtain Deficiency. If Lender chooses to sell any or all of the Collateral, Lender may obtain a judgment against Grantor for any deficiency remaining on the Indebtedness due to Lender after application of all amounts received from the exercise of the rights provided in this Agreement. Grantor shall be liable for a deficiency even if the transaction described in this subsection is a sale of accounts or chattel paper.

Other Rights and Remedies. Lender shall have all the rights and remedies of a secured creditor under the provisions of the Uniform Commercial Code, as may be amended from time to time. In addition, Lender shall have and may exercise any or all other rights and remedies it may have available at law, in equity, or otherwise.

Election of Remedies. Except as may be prohibited by applicable law, all of Lender's rights and remedies, whether evidenced by this Agreement, the Related Documents, or by any other writing, shall be cumulative and may be exercised singularly or concurrently. Election by Lender to pursue any remedy shall not exclude pursuit of any other remedy, and an election to make expenditures or to take action to perform an obligation of Grantor under this Agreement, after Grantor's failure to perform, shall not affect Lender's right to declare a default and exercise its remedies.

ELECTRONIC COPIES. Lender may copy, electronically or otherwise, and thereafter destroy, the originals of this Agreement and/or Related Documents in the regular course of Lender’s business. All such copies produced from an electronic form or by any other reliable means (i.e., photographic image or facsimile) shall in all respects be considered equivalent to an original, and Borrower hereby waives any rights or objections to the use of such copies.

MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of this Agreement:

Amendments. This Agreement, together with any Related Documents, constitutes the entire understanding and agreement of the parties as to the matters set forth in this Agreement. No alteration of or amendment to this Agreement shall be effective unless given in writing and signed by the party or parties sought to be charged or bound by the alteration or amendment.

Attorneys' Fees; Expenses. Grantor agrees to pay upon demand all of Lender's costs and expenses, including Lender's reasonable attorneys' fees and Lender's legal expenses, incurred in connection with the enforcement of this Agreement. Lender may hire or pay someone else to help enforce this Agreement, and Grantor shall pay the costs and expenses of such enforcement. Costs and expenses include Lender's reasonable attorneys' fees and legal expenses whether or not there is a lawsuit, including Lender's reasonable attorneys' fees and legal expenses for bankruptcy proceedings (including efforts to modify or vacate any automatic stay or injunction), appeals, and any anticipated post-judgment collection services. Grantor also shall pay all court costs and such additional fees as may be directed by the court.

Caption Headings. Caption headings in this Agreement are for convenience purposes only and are not to be used to interpret or define the provisions of this Agreement.

Governing Law. This Agreement will be governed by federal law applicable to Lender and, to the extent not preempted by federal law, the laws of the State of Texas without regard to its conflicts of law provisions. This Agreement has been accepted by Lender in the State of Texas.

Choice of Venue. If there is a lawsuit, and if the transaction evidenced by this Agreement occurred in Collin County, Grantor agrees upon Lender's request to submit to the jurisdiction of the courts of Collin County, State of Texas.

Joint and Several Liability. All obligations of Grantor under this Agreement shall be joint and several, and all references to Grantor shall mean each and every Grantor. This means that each Grantor signing below is responsible for all obligations in this Agreement. Where any one or more of the parties is a corporation, partnership, limited liability company or similar entity, it is not necessary for Lender to inquire into the powers of any of the officers, directors, partners, members, or other agents acting or purporting to act on the entity's behalf, and any obligations made or created in reliance upon the professed exercise of such powers shall be guaranteed under this Agreement.

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No Waiver by Lender. Lender shall not be deemed to have waived any rights under this Agreement unless such waiver is given in writing and signed by Lender. No delay or omission on the part of Lender in exercising any right shall operate as a waiver of such right or any other right. A waiver by Lender of a provision of this Agreement shall not prejudice or constitute a waiver of Lender's right otherwise to demand strict compliance with that provision or any other provision of this Agreement. No prior waiver by Lender, nor any course of dealing between Lender and Grantor, shall constitute a waiver of any of Lender's rights or of any of Grantor's obligations as to any future transactions. Whenever the consent of Lender is required under this Agreement, the granting of such consent by Lender in any instance shall not constitute continuing consent to subsequent instances where such consent is required and in all cases such consent may be granted or withheld in the sole discretion of Lender.

Notices. Any notice required to be given under this Agreement shall be given in writing, and shall be effective when actually delivered, when actually received by telefacsimile (unless otherwise required by law), when deposited with a nationally recognized overnight courier, or, if mailed, when deposited in the United States mail, as first class, certified or registered mail postage prepaid, directed to the addresses shown near the beginning of this Agreement. Any party may change its address for notices under this Agreement by giving formal written notice to the other parties, specifying that the purpose of the notice is to change the party's address. For notice purposes, Grantor agrees to keep Lender informed at all times of Grantor's current address. Unless otherwise provided or required by law, if there is more than one Grantor, any notice given by Lender to any Grantor is deemed to be notice given to all Grantors.

Power of Attorney. Grantor hereby appoints Lender as Grantor's irrevocable attorney-in-fact for the purpose of executing any documents necessary to perfect, amend, or to continue the security interest granted in this Agreement or to demand termination of filings of other secured parties. Lender may at any time, and without further authorization from Grantor, file a carbon, photographic or other reproduction of any financing statement or of this Agreement for use as a financing statement. Grantor will reimburse Lender for all expenses for the perfection and the continuation of the perfection of Lender's security interest in the Collateral.

Severability. If a court of competent jurisdiction finds any provision of this Agreement to be illegal, invalid, or unenforceable as to any person or circumstance, that finding shall not make the offending provision illegal, invalid, or unenforceable as to any other person or circumstance. If feasible, the offending provision shall be considered modified so that it becomes legal, valid and enforceable. If the offending provision cannot be so modified, it shall be considered deleted from this Agreement. Unless otherwise required by law, the illegality, invalidity, or unenforceability of any provision of this Agreement shall not affect the legality, validity or enforceability of any other provision of this Agreement.

Successors and Assigns. Subject to any limitations stated in this Agreement on transfer of Grantor's interest, this Agreement shall be binding upon and inure to the benefit of the parties, their successors and assigns. If ownership of the Collateral becomes vested in a person other than Grantor, Lender, without notice to Grantor, may deal with Grantor's successors with reference to this Agreement and the Indebtedness by way of forbearance or extension without releasing Grantor from the obligations of this Agreement or liability under the Indebtedness.

Survival of Representations and Warranties. All representations, warranties, and agreements made by Grantor in this Agreement shall survive the execution and delivery of this Agreement, shall be continuing in nature, and shall remain in full force and effect until such time as Grantor's Indebtedness shall be paid in full.

Time is of the Essence. Time is of the essence in the performance of this Agreement.

Waive Jury. All parties to this Agreement hereby waive the right to any jury trial in any action, proceeding, or counterclaim brought by any party against any other party.

DEFINITIONS. The following capitalized words and terms shall have the following meanings when used in this Agreement. Unless specifically stated to the contrary, all references to dollar amounts shall mean amounts in lawful money of the United States of America. Words and terms used in the singular shall include the plural, and the plural shall include the singular, as the context may require. Words and terms not otherwise defined in this Agreement shall have the meanings attributed to such terms in the Uniform Commercial Code:

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Agreement. The word "Agreement" means this Commercial Security Agreement, as this Commercial Security Agreement may be amended or modified from time to time, together with all exhibits and schedules attached to this Commercial Security Agreement from time to time.

Borrower. The word "Borrower" means Dougherty's Holdings, Inc.; DOUGHERTY'S PHARMACY, INC.; Dougherty's Pharmacy El Paso, LLC; Dougherty's Pharmacy McAlester, LLC; Dougherty's Pharmacy Forest Park Dallas, LLC; and Dougherty's Pharmacy Springtown, LLC and includes all co-signers and co-makers signing the Note and all their successors and assigns.

Collateral. The word "Collateral" means all of Grantor's right, title and interest in and to all the Collateral as described in the Collateral Description section of this Agreement.

Default. The word "Default" means the Default set forth in this Agreement in the section titled "Default".

Environmental Laws. The words "Environmental Laws" mean any and all state, federal and local statutes, regulations and ordinances relating to the protection of human health or the environment, including without limitation the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended, 42 U.S.C. Section 9601, et seq. ("CERCLA"), the Superfund Amendments and Reauthorization Act of 1986, Pub. L. No. 99-499 ("SARA"), the Hazardous Materials Transportation Act, 49 U.S.C. Section 1801, et seq., the Resource Conservation and Recovery Act, 42 U.S.C. Section 6901, et seq., or other applicable state or federal laws, rules, or regulations adopted pursuant thereto.

Event of Default. The words "Event of Default" mean any of the events of default set forth in this Agreement in the default section of this Agreement.

Grantor. The word "Grantor" means Dougherty's Holdings, Inc.; DOUGHERTY'S PHARMACY, INC.; Dougherty's Pharmacy El Paso, LLC; Dougherty's Pharmacy McAlester, LLC; Dougherty's Pharmacy Forest Park Dallas, LLC; and Dougherty's Pharmacy Springtown, LLC.

Guarantor. The word "Guarantor" means any guarantor, surety, or accommodation party of any or all of the Indebtedness.

Guaranty. The word "Guaranty" means the guaranty from Guarantor to Lender, including without limitation a guaranty of all or part of the Note.

Hazardous Substances. The words "Hazardous Substances" mean materials that, because of their quantity, concentration or physical, chemical or infectious characteristics, may cause or pose a present or potential hazard to human health or the environment when improperly used, treated, stored, disposed of, generated, manufactured, transported or otherwise handled. The words "Hazardous Substances" are used in their very broadest sense and include without limitation any and all hazardous or toxic substances, materials or waste as defined by or listed under the Environmental Laws. The term "Hazardous Substances" also includes, without limitation, petroleum and petroleum by-products or any fraction thereof and asbestos.

Indebtedness. The word "Indebtedness" means the indebtedness evidenced by the Note or Related Documents, including all principal and interest together with all other indebtedness and costs and expenses for which Grantor is responsible under this Agreement or under any of the Related Documents. Specifically, without limitation, Indebtedness includes the future advances set forth in the Future Advances provision, together with all interest thereon and all amounts that may be indirectly secured by the Cross-Collateralization provision of this Agreement.

Lender. The word "Lender" means First National Bank of Omaha , its successors and assigns.

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Note. The word "Note" means any and all of Borrower's liabilities, obligations and debts to Lender, now existing or hereinafter incurred or created, including, without limitation, all loans, advances, interest, costs debts, overdraft indebtedness, credit card indebtedness, lease obligations, liabilities and obligations under interest rate protection agreements or foreign currency exchange agreements or commodity price protection agreements, other obligations, and liabilities of Borrower together with all modifications, increases, renewals, and extensions of the aforementioned. Additionally, hereby incorporated as if fully set forth herein are the terms and conditions of any promissory note, agreement or other document executed by Borrower and/or Lender indicating this security instrument or the property described herein shall be considered "Collateral" securing such promissory note, agreement, or other instrument, or any similar reference.

Property. The word "Property" means all of Grantor's right, title and interest in and to all the Property as described in the "Collateral Description" section of this Agreement.

Related Documents. The words "Related Documents" mean all promissory notes, credit agreements, loan agreements, environmental agreements, guaranties, security agreements, mortgages, deeds of trust, security deeds, collateral mortgages, and all other instruments, agreements and documents, whether now or hereafter existing, executed in connection with the Indebtedness.

GRANTOR HAS READ AND UNDERSTOOD ALL THE PROVISIONS OF THIS COMMERCIAL SECURITY AGREEMENT AND AGREES TO ITS TERMS. THIS AGREEMENT IS DATED AUGUST 9, 2017.

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GRANTOR:

DOUGHERTY'S HOLDINGS, INC.

By: /s/ Mark S. Heil

Mark S. Heil,
President of Dougherty's Holdings, Inc.

DOUGHERTY'S PHARMACY, INC.

By: /s/ Mark S. Heil

Mark S. Heil, Chief Financial Officer of DOUGHERTY'S PHARMACY, INC.

DOUGHERTY'S PHARMACY EL PASO, LLC

By: /s/ Mark S. Heil

Mark S. Heil, Manager of Dougherty's Pharmacy El Paso, LLC

DOUGHERTY'S PHARMACY MCALESTER, LLC

By: /s/ Mark S. Heil

Mark S. Heil, Manager of Dougherty's Pharmacy McAlester, LLC

DOUGHERTY'S PHARMACY FOREST PARK DALLAS, LLC

By: /s/ Mark S. Heil

Mark S. Heil, Manager of Dougherty's Pharmacy Forest Park Dallas, LLC

DOUGHERTY'S PHARMACY SPRINGTOWN, LLC

By: /s/ Mark S. Heil

Mark S. Heil, Manager of Dougherty's Pharmacy Springtown, LLC

LENDER:

FIRST NATIONAL BANK OF OMAHA

/s/ Nate Johns

Nate Johns, Vice President

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EX-23.1

Exhibit 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the inclusion in this Registration Statement on Form 10 Amendment No. 2 of Dougherty’s Pharmacy, Inc. our report dated March 21, 2017, relating to our audit of the consolidated financial statements of Dougherty’s Pharmacy, Inc. (formerly known as Ascendant Solutions, Inc.) as of and for the years ended December 31, 2016 and 2015.

/s/ Whitley Penn LLP

Dallas, Texas

August 16, 2017