What changed in this filing

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Item 1. Financial Statements

2020-11-13 compared with 2020-08-14 · 88 added, 54 removed, 430 unchanged (25% of the section changed)

3 unchanged sentences

Condensed Consolidated Balance Sheets

June 30, 2020 December 31, 2019

September 30, 2020 December 31, 2019

Current assets:

18 unchanged sentences

Operating lease current liabilities 991,969 920,431

Current portion of revolving line of credit 2,000,000 —

Other current liabilities 10,112,100 11,317,358

8 unchanged sentences

100,000,000 shares authorized;

15,181,276 and 15,263,355 shares issued and outstanding as of June 30, 2020 and December 31, 2019, respectively

15,084,372 and 15,263,355 shares issued and outstanding as of September 30, 2020 and December 31, 2019, respectively

49,176,040 49,914,478

8 unchanged sentences

Condensed Consolidated Statements of Operations

Three months ended June 30, Six months ended June 30,

Three months ended September 30, Nine months ended September 30,

2020 2019 2020 2019

31 unchanged sentences

Condensed Consolidated Statements of Cash Flows

Six months ended June 30,

Nine months ended September 30,

Cash flows from operating activities:

17 unchanged sentences

Discontinued operations 2,166,086 2,483,796

Net cash provided by (used in) operating activities 3,704,071 1,464,926

Net cash provided by operating activities 4,561,140 2,199,356

Cash flows from investing activities:

2 unchanged sentences

Proceeds from sale of marketable securities — 15,686,334

Proceeds from surrender of life insurance policies 460,888 —

Cash paid for acquisition — ( 5,000,000 )

Additions to intangible assets ( 1,807,467 ) ( 498,003 )

Net cash used in investing activities ( 773,014 ) ( 6,547,278 )

Net cash provided by (used in) investing activities ( 1,441,768 ) 394,733

Cash flows from financing activities:

1 unchanged sentence

Repayments on line of credit ( 45,500,000 ) ( 56,000,000 )

Payments of deferred loan costs — ( 52,500 )

Cash payment of contingent consideration ( 834,014 ) ( 908,347 )

22 unchanged sentences

Balance, June 30, 2019 15,471,070 $ 49,938,254 $ 4,122,769 $ ( 372,306 ) $ 53,688,717

Share-based compensation 6,450 346,835 — — 346,835

Repurchase of subsidiary shares from noncontrolling interest — 640,407 — 359,593 1,000,000

Repurchase of common shares ( 246,242 ) ( 1,361,689 ) — — ( 1,361,689 )

Net loss — — ( 1,953,668 ) ( 13,267 ) ( 1,966,935 )

Balance, September 30, 2019 15,231,278 $ 49,563,807 $ 2,169,101 $ ( 25,980 ) $ 51,706,928

Common stock Retained earnings (deficit) Noncontrolling interests Total equity

10 unchanged sentences

Balance, June 30, 2020 15,181,276 $ 49,246,129 $ ( 765,500 ) $ ( 69,459 ) $ 48,411,170

Share-based compensation 4,450 262,415 — — 262,415

Repurchase of common shares ( 101,354 ) ( 332,504 ) — — ( 332,504 )

Net loss — — ( 481,737 ) ( 15,967 ) ( 497,704 )

Balance, September 30, 2020 15,084,372 $ 49,176,040 $ ( 1,247,237 ) $ ( 85,426 ) $ 47,843,377

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

15 unchanged sentences

These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes included in our Annual Report on Form 10-K for the year ended December 31, 2019 (the “2019 Annual Report on Form 10-K”).

The results of operations for the three and six months ended June 30, 2020 are not necessarily indicative of the results to be expected for the entire fiscal year or any future period.

The results of operations for the three and nine months ended September 30, 2020 are not necessarily indicative of the results to be expected for the entire fiscal year or any future period.

Discontinued Operations

1 unchanged sentence

Under the terms of the Dissolution Agreement, Cumberland is no longer involved directly or indirectly with the distribution, marketing and promotion of either Ethyol or Totect or any competing products following December 31, 2019.

The Company's exit from the products meets the accounting criteria to be reported as discontinued operations and the discontinued operating results have been reclassified on the face of the financial statements and footnotes for all periods presented to reflect the discontinued status of these products.

The Company's exit from the products meets the accounting criteria to be reported as discontinued operations and the discontinued operating results have been reclassified in the financial statements and footnotes for all periods presented to reflect the discontinued status of these products.

Refer to Note 10, for additional information.

8 unchanged sentences

The Company has implemented measures to address the impact of the novel coronavirus on the business and taken appropriate action to protect the employees, secure the supply chain, and support the patients who can benefit from its medicines.

All of the Company's corporate, sales and Cumberland Emerging Technologies (“CET”) employees have been given the opportunity to work remotely, and those that wish to work from Cumberland's office and laboratories are encouraged to practice the behaviors outlined by the Centers for Disease Control.

All of the Company's employees have been given the opportunity to work remotely, and those that wish to work from Cumberland's office and laboratories are encouraged to practice the behaviors outlined by the Centers for Disease Control.

Cumberland's sales organization has continued to interact with medical professionals, providing information and product samples as requested.

1 unchanged sentence

Travel across the organization and attendance at medical meetings have largely been discontinued.

Cumberland has faced the same headwinds affecting other companies that rely on hospital admissions and patient visits to drive revenue.

pandemic, less patients sought care, some patients postponed elective surgeries and Cumberland's access to medical facilities was substantially limited.

Cumberland relies on third-party organizations around the world to supply components, manufacture and distribute its products.

The Company is aware that it may experience revenue loss, supply interruptions, time delays and incur unplanned expenses as a result of the impact of the ongoing COVID-19 pandemic.

Given the uncertainty, magnitude and impact of such changes, the Company is unable to quantify the impact on the future results as of the date of this filing.

The Company continues to monitor the COVID-19 pandemic situation both in the U.S.

and internationally in order to maintain the employees’ safety and well-being, while also keeping its business operating.

Given the uncertainty, magnitude and impact of such changes, the Company is unable to quantify the impact on the future results as of the date of this filing.

Recent Accounting Guidance

43 unchanged sentences

At the time of purchase, the Company classifies marketable securities as either trading securities or available-for-sale securities, depending on the intent at that time.

As of June 30, 2020 and December 31, 2019, marketable securities were comprised solely of trading securities.

As of September 30, 2020 and December 31, 2019, marketable securities were comprised solely of trading securities.

Trading securities are carried at fair value with unrealized gains and losses recognized as a component of interest income in the consolidated statements of operations.

As of June 30, 2020 and December 31, 2019, all trading securities were investments with original maturities of less than ninety days and as a result, were classified as cash equivalents.

As of September 30, 2020 and December 31, 2019, all trading securities were investments with original maturities of less than ninety days and as a result, were classified as cash equivalents.

The Company's fair value measurements follow the appropriate rules as well as the fair value hierarchy that prioritizes the information used to develop the measurements.

14 unchanged sentences

The following table summarizes the fair value of our marketable securities, by level within the fair value hierarchy, as of each period end:

June 30, 2020 December 31, 2019

September 30, 2020 December 31, 2019

Level 1 Level 2 Total Level 1 Level 2 Total

2 unchanged sentences

(3) EARNINGS (LOSS) PER SHARE

The following table reconciles the numerator and denominator used to calculate diluted earnings (loss) per share for the three and six months ended June 30, 2020 and 2019:

Three months ended June 30,

The following table reconciles the numerator and denominator used to calculate diluted earnings (loss) per share for the three and nine months ended September 30, 2020 and 2019:

Three months ended September 30,

Net income (loss) from continuing operations $ ( 1,275,620 ) $ ( 3,316,286 )

5 unchanged sentences

Weighted-average shares outstanding – diluted 15,134,583 15,368,027

Six months ended June 30,

Nine months ended September 30,

Net income (loss) from continuing operations $ ( 4,838,250 ) $ ( 5,842,361 )

5 unchanged sentences

Weighted-average shares outstanding – diluted 15,206,179 15,454,159

As of June 30, 2020 and 2019, restricted stock awards and options to purchase 199,210 and 13,500 shares of common stock, respectively, were outstanding but were not included in the computation of diluted earnings per share because the effect would be antidilutive.

As of September 30, 2020 and 2019, restricted stock awards and options to purchase 197,210 and 3,600 shares of common stock, respectively, were outstanding but were not included in the computation of diluted earnings per share because the effect would be antidilutive.

Product Revenues

1 unchanged sentence

As part of the adoption of ASC 606, the Company applied the new standard on a modified retrospective basis analyzing open contracts as of January 1, 2018.

The Company’s net revenues consisted of the following for the three and six months ended June 30, 2020 and 2019:

Three months ended June 30, Six months ended June 30,

The Company’s net revenues consisted of the following for the three and nine months ended September 30, 2020 and 2019:

Three months ended September 30, Nine months ended September 30,

2020 2019 2020 2019

17 unchanged sentences

The Life Sciences Center is a research center that provides scientists with access to flexible lab space and other resources to develop biomedical products.

Grant revenue from these programs totaled approximately $ 0.1 million and $ 0.2 million for the three months ended June 30, 2020 and 2019, and $ 0.3 million and $ 0.8 million for the six months ended June 30, 2020 and 2019, respectively.

Grant revenue from these programs totaled approximately $ 0.1 million and $ 0.2 million for the three months ended September 30, 2020 and 2019, and $ 0.4 million and $ 0.9 million for the nine months ended September 30, 2020 and 2019, respectively.

(5) INVENTORIES

5 unchanged sentences

When evidence indicates that the carrying value may not be recoverable, a charge is taken to reduce the inventory to its current net realizable value.

At June 30, 2020 and December 31, 2019, there were no cumulative obsolescence and discontinuance losses necessary.

At September 30, 2020 and December 31, 2019, there were no cumulative obsolescence and discontinuance losses necessary.

The Company is responsible for the purchase of the active pharmaceutical ingredient (“API”) for Kristalose and maintains the inventory at multiple locations.

As that API is consumed in production, the value of the API is transferred from raw materials to finished goods inventory.

As that API is consumed in production, the value of the API is transferred from raw materials to

finished goods inventory.

Cumberland also maintains API for its Vaprisol brand which is classified as raw materials inventory.

2 unchanged sentences

The Company also has obtained $ 0.4 million in non-current inventory for API related to its ifetroban clinical initiatives.

At June 30, 2020 and December 31, 2019, total non-current inventory, including Vibativ and ifetroban, was $ 15.6 million.

The Company did not have any finished goods included in the non-current inventories at June 30, 2020 or December 31, 2019, respectively.

At September 30, 2020 and December 31, 2019, total non-current inventory, including Vibativ and ifetroban, was $ 12.6 million and $ 15.6 million, respectively.

The Company had $ 2.7 million of Vibativ finished goods included in non-current inventory at September 30, 2020 and did not have any finished goods included in the non-current inventories at December 31, 2019.

The Company's net inventories consisted of the following:

June 30, 2020 December 31, 2019

September 30, 2020 December 31, 2019

Raw materials and work in process $ 17,064,269 $ 19,345,723

16 unchanged sentences

The weighted-average incremental borrowing rate used to discount the present value of the remaining lease payments is 7.42 %.

The weighted-average remaining lease term at June 30, 2020 is 2.5 years.

The weighted-average remaining lease term at September 30, 2020 is 2.2 years.

Lease Position

At June 30, 2020 and December 31, 2019 , the Company's lease assets and liabilities were as follows:

Right-of-Use Assets June 30, 2020 December 31, 2019

At September 30, 2020 and December 31, 2019 , the Company's lease assets and liabilities were as follows:

Right-of-Use Assets September 30, 2020 December 31, 2019

Operating lease right-of-use assets $ 2,267,669 $ 2,960,569

Lease Liabilities June 30, 2020 December 31, 2019

Lease Liabilities September 30, 2020 December 31, 2019

Operating lease current liabilities $ 991,969 $ 920,431

1 unchanged sentence

Total $ 2,315,761 $ 2,996,903

Maturity of Leases Liabilities at June 30, 2020

Maturity of Leases Liabilities at September 30, 2020

Operating Leases

9 unchanged sentences

In January 2019, the Company's Board of Directors established the current $ 10 million repurchase program to replace the prior authorizations.

During the six months ended June 30, 2020 and June 30, 2019, the Company repurchased 306,329 shares and 205,913 , respectively, of common stock for approximately $ 1.2 million during both 2020 and 2019.

During the nine months ended September 30, 2020 and September 30, 2019, the Company repurchased 407,683 shares and 452,155 , respectively, of common stock for approximately $ 1.5 million and $ 2.6 million, respectively.

Share purchases and sales

1 unchanged sentence

These purchases are designed to increase ownership in the Company by the members of the Board.

During the nine months ended September 30, 2020, a total of 10,080 shares have been purchased.

In November 2017, Cumberland filed a Shelf Registration on Form S-3 with the SEC associated with the sale of up to $ 100 million in corporate securities.

The Shelf Registration was declared effective in January 2018 including an At-The-Market ("ATM") feature enabling the Company to sell shares at market prices.

The Company did not issue any shares under the ATM during the six months ended June 30, 2020 or June 30, 2019.

The Company did not issue any shares under the ATM during the nine months ended September 30, 2020 or September 30, 2019.

Restricted Share Grants

During the six months ended June 30, 2020, and June 30, 2019, the Company issued 229,141 shares and 222,469 shares of restricted stock to employees and directors, respectively.

During the nine months ended September 30, 2020, and September 30, 2019, the Company issued 230,491 shares and 225,869 shares of restricted stock to employees and directors, respectively.

Restricted stock issued to employees generally cliff-vests on the fourth anniversary of the date of grant and for directors on the one-year anniversary of the date of grant.

8 unchanged sentences

Debt Agreement

On May 10, 2019, the Company entered into a third amendment ("Third Amendment") to the Revolving Credit Loan Agreement, dated July 28, 2017, with Pinnacle Bank (“Pinnacle Agreement”).

On October 7, 2020, the Company entered into a Third Amendment to the Revolving Credit Note and Fourth Amendment (“Fourth Amendment”) to the Revolving Credit Loan Agreement with Pinnacle Bank (the “Pinnacle Agreement”).

The original Pinnacle Agreement was dated July 2017.

The Fourth Amendment provides for a principal available for borrowing of up to $ 15 million and Cumberland has the ability to request an increase of up to an additional $ 5 million, upon the satisfaction of certain conditions and approval by Pinnacle Bank.

If fully expanded, the Fourth Amendment would provide a maximum principal available for borrowing of up to $ 20 million, which was also the maximum aggregate principal available for

borrowing under the previously amended Pinnacle Agreement.

The Fourth Amendment extends the maturity date of the Pinnacle Agreement through October 1, 2022.

On May 10, 2019, the Company entered into a third amendment ("Third Amendment") to the Pinnacle Agreement.

The Third Amendment extended the term of the Pinnacle Agreement through July 31, 2021 as well as modified certain definitions and terms of the existing financial covenants, including the definition of the Funded Debt Ratio and the compliance target of the Tangible Capital Ratio.

1 unchanged sentence

Under the Pinnacle Agreement, Cumberland was initially subject to one financial covenant, the maintenance of a Funded Debt Ratio, as such term is defined in the agreement and determined on a quarterly basis.

On August 14, 2018, the Company amended the Pinnacle Agreement ("First Amendment") to replace the single financial covenant with the maintenance of either the Funded Debt Ratio or a Tangible Capital Ratio, as

defined in the First Amendment.

The Company was in compliance with the Tangible Capital Ratio financial covenant as of June 30, 2020.

The initial revolving line of credit under the Pinnacle Agreement was for up to an aggregate principal amount of $ 12.0 million with the ability to increase the principal amount available for borrowing up to $ 20.0 million, upon the satisfaction of certain conditions.

On October 17, 2018, the Company entered into a second amendment (“Second Amendment”) which increased the maximum aggregate principal available for borrowing under the Pinnacle Agreement to $ 20.0 million.

The Company was in compliance with the Tangible Capital Ratio financial covenant as of September 30, 2020.

The interest rate on the Pinnacle Agreement is based on LIBOR plus an interest rate spread.

There is no LIBOR minimum and the LIBOR pricing provides for an interest rate spread of 1.75 % to 2.75 % (representing an interest rate of 2.92 % at June 30, 2020).

The pricing under the Fourth Amendment provides for an interest rate spread of 1.75 % to 2.75 % above LIBOR with a minimum LIBOR of 0.90 %.

The applicable interest rate under the Pinnacle Agreement was 2.90 % at September 30, 2020, prior to entering into the Fourth Amendment.

In addition, a fee of 0.25 % per year is charged on the unused line of credit.

1 unchanged sentence

Borrowings under the line of credit are collateralized by substantially all of our assets.

As of June 30, 2020 and December 31, 2019, the Company had $ 17.0 million and $ 18.5 million in borrowings outstanding under our revolving credit facility, respectively.

As of September 30, 2020 and December 31, 2019, the Company had $ 17.0 million and $ 18.5 million in borrowings outstanding under our revolving credit facility, respectively.

Of the $ 17.0 million in borrowings outstanding at September 30, 2020, $ 2.0 million is classified as current based on the terms of the Fourth Amendment.

Paycheck Protection Program Loan

1 unchanged sentence

The PPP is administered by the U.S.

Small Business Administration.

Small Business Administration ("SBA").

The loan matures April 14, 2022, and bears interest at a rate of 1.0 % per year, payable monthly commencing during November 2020.

The note may be prepaid at any time prior to maturity with no prepayment penalties.

The loan may be prepaid at any time prior to maturity with no prepayment penalties.

Funds from the loan are to be used to maintain payroll, continue group health care benefits and pay for rent and utilities.

9 unchanged sentences

Cumberland has not laid off or furloughed any employees as a result of the COVID-19 pandemic and, based on assistance from the PPP loan, the Company currently does not foresee doing so.

Cumberland will continue to monitor and evaluate changes to this program as they emerge and will take appropriate action, if necessary.

In October 2020, the Company submitted a request for forgiveness of the PPP loan.

The request was approved by the lender, Pinnacle Bank, who then submitted it to SBA for the SBA's review and approval.

Joint Venture Agreement

In August 2020, Cumberland entered into an agreement with WinHealth Investment (Singapore) Ltd creating WHC Biopharmaceuticals, Pte.

The joint venture, as a limited liability company, will focus on acquiring, developing, registering, and commercializing development stage and commercial stage biopharmaceuticals for China, Hong Kong and other Asian markets.

The agreement provides for initial investment from WinHealth in the form of a $ 0.2 million equity contribution and an initial investment from Cumberland in the form of $ 0.2 million convertible note.

The joint venture will seek additional future

capital from additional investors and has entered into exclusive option agreements to license intellectual property from both Cumberland Pharmaceuticals Inc.

and Cumberland Emerging Technologies.

(8) INCOME TAXES

As of June 30, 2020, the Company has approximately $ 56.3 million in federal net operating loss carryforwards including approximately $ 44.1 million of net operating loss carryforwards resulting from the exercise of nonqualified stock options.

As of September 30, 2020, the Company has approximately $ 56.3 million in federal net operating loss carryforwards including approximately $ 44.1 million of net operating loss carryforwards resulting from the exercise of nonqualified stock options.

These have historically been used to significantly offset income tax obligations.

43 unchanged sentences

Contingent consideration earned and accrued in operating expenses 1,112,393

Balance at June 30, 2020

The contingent consideration liability of $ 8.3 million was classified as other current liabilities of $ 2.8 million and other long-term liabilities of $ 5.5 million on the condensed consolidated balance sheet as of June 30, 2020.

Balance at September 30, 2020

The contingent consideration liability of $ 8.1 million was classified as other current liabilities of $ 2.8 million and other long-term liabilities of $ 5.3 million on the condensed consolidated balance sheet as of September 30, 2020.

In November 2016, the Company announced an agreement with the Nordic Group B.V.’ ("Nordic") to acquire the exclusive U.S.

7 unchanged sentences

The 180,000 shares of restricted Cumberland common stock previously provided to Nordic vested upon approval and were valued at $ 0.9 million on the vesting date.

The FDA approval also resulted a $ 1.0 million milestone payment due to Nordic.

This milestone payment was paid in July 2020 and is recorded as an other current liability at both June 30, 2020 and December 31, 2019.

The FDA approval also resulted in a $ 1.0 million milestone payment due to Nordic.

This milestone payment was paid in July 2020 and was recorded as an other current liability at December 31, 2019.

Cumberland has approximately $ 1.9 million in net intangible assets related to RediTrex at September 30, 2020.

During the three months ended June 30, 2020, Cumberland recognized $ 0.5 million of other revenue in its condensed consolidated statement of operations for a collaborative payment due from Nordic.

4 unchanged sentences

Under the terms of the Dissolution Agreement, Cumberland was no longer responsible for the distribution, marketing and promotion of either the Products or any competing products after December 31, 2019.

In exchange for the return of these product license rights and the non-compete provisions of the Dissolution Agreement, Cumberland is receiving $ 5 million in financial consideration paid in quarterly installments over the two-years following the transition date.

Cumberland recorded the first two quarterly installments totaling $ 1.5 million during the six months ended June 30, 2020 as discontinued operations and will record each future quarterly installment over the two year period.

As there are no expenses associated with these payments, approximately $ 1.5 million in discontinued operations income was recorded during the period ended June 30, 2020.

The Products provided $ 5.3 million in revenue, with $ 3.4 million in direct expenses resulting in $ 1.9 million in discontinued operations income during the six months ended June 30, 2019.

In exchange for the return of these product license rights and the non-compete provisions of

the Dissolution Agreement, Cumberland is receiving $ 5 million in financial consideration paid in quarterly installments over the two-years following the transition date.

Cumberland recorded the first three quarterly installments totaling $ 2.3 million during the nine months ended September 30, 2020 as discontinued operations and will record each future quarterly installment over the two year period.

As there are no expenses associated with these payments, approximately $ 2.3 million in discontinued operations income was recorded during the period ended September 30, 2020.

The Products provided $ 8.8 million in revenue, with $ 5.5 million in direct expenses resulting in $ 3.3 million in discontinued operations income during the nine months ended September 30, 2019.

These direct expenses do not reflect the direct selling and marketing costs attributable to the individuals at Cumberland responsible for promotion of the Products.

1 unchanged sentence

The December 31, 2019 current assets of discontinued operations included $ 0.5 million in remaining inventory for the Products sold and returned to Clinigen as part of the transaction.

As of June 30, 2020, and December 31, 2019, the remaining balance of the current assets of discontinued operations were accounts receivable and the current liabilities of discontinued operations were accounts payable associated with Ethyol and Totect.

As of December 31, 2019, the remaining balance of the current assets of discontinued operations were accounts receivable and the current liabilities of discontinued operations were accounts payable associated with Ethyol and Totect.

As of September 30, 2020, the remaining balance of the current assets of discontinued operations was accounts receivable.

The accounts receivable and accounts payable balances were not sold or disposed of as part of the Dissolution Agreement.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements