What changed in this filing

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Item 1. Financial Statements

2021-05-14 compared with 2020-11-13 · 128 added, 216 removed, 302 unchanged (53% of the section changed)

3 unchanged sentences

Condensed Consolidated Balance Sheets

September 30, 2020 December 31, 2019

March 31, 2021 December 31, 2020

Current assets:

2 unchanged sentences

Inventories 10,010,763 10,638,157

Current assets of discontinued operations 727,670 2,477,813

Prepaid and other current assets 1,900,032 2,199,926

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Goodwill 882,000 882,000

Deferred tax assets, net 21,802 21,802

Operating lease right-of-use assets 1,784,142 2,028,148

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Accounts payable $ 10,466,281 $ 13,396,286

Current liabilities of discontinued operations — 1,918,868

Operating lease current liabilities 1,042,074 1,016,779

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

Other current liabilities 11,339,215 11,254,381

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100,000,000 shares authorized;

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

15,084,464 and 14,988,429 shares issued and outstanding as of March 31, 2021 and December 31, 2020, respectively

48,981,395 49,121,523

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Condensed Consolidated Statements of Operations

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

2020 2019 2020 2019

Three months ended March 31,

Net revenues $ 10,537,159 $ 8,330,734

30 unchanged sentences

Condensed Consolidated Statements of Cash Flows

Nine months ended September 30,

Three months ended March 31,

Cash flows from operating activities:

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Depreciation and amortization expense 1,227,607 1,152,062

Deferred tax expense — 43,605

Share-based compensation 162,960 264,574

Decrease in non-cash contingent consideration ( 280,020 ) ( 543,006 )

Decrease (increase) in cash surrender value of life insurance policies over premiums paid ( 76,300 ) 548,261

Noncash interest expense 13,833 11,333

Noncash investment gains — ( 34,303 )

Net changes in assets and liabilities affecting operating activities:

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Additions to property and equipment ( 19,458 ) ( 22,726 )

Purchases of marketable securities — ( 9,627,191 )

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 )

Note receivable investment funding ( 200,000 ) —

Additions to intangible assets ( 98,883 ) ( 548,435 )

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

Net cash used in investing activities ( 318,341 ) ( 571,161 )

Cash flows from financing activities:

1 unchanged sentence

Repayments on line of credit ( 15,000,000 ) ( 18,500,000 )

Payments of deferred loan costs — ( 52,500 )

Cash payment of contingent consideration ( 995,277 ) ( 260,735 )

2 unchanged sentences

Net cash used in financing activities ( 1,298,079 ) ( 1,503,279 )

Net decrease in cash and cash equivalents ( 1,566,105 ) ( 960,536 )

Net increase (decrease) in cash and cash equivalents 169,129 ( 1,185,901 )

Cash and cash equivalents at beginning of period $ 24,753,796 $ 28,212,635

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Balance, March 31, 2020 15,318,539 $ 49,737,428 $ 152,775 $ ( 47,145 ) $ 49,843,058

Balance, March 31, 2019 15,547,517 $ 50,759,257 $ 4,672,276 $ ( 240,806 ) $ 55,190,727

Share-based compensation 8,000 396,548 — — 396,548

Repurchase of subsidiary shares from noncontrolling interest — ( 685,805 ) — ( 114,195 ) ( 800,000 )

Repurchase of common shares ( 84,447 ) ( 531,746 ) — — ( 531,746 )

Net loss — — ( 549,507 ) ( 17,305 ) ( 566,812 )

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

3 unchanged sentences

Repurchase of common shares ( 91,724 ) ( 303,088 ) — — ( 303,088 )

Net loss — — ( 1,055,620 ) ( 9,525 ) ( 1,065,145 )

Balance, March 31, 2020 15,318,539 $ 49,737,428 $ 152,775 $ ( 47,145 ) $ 49,843,058

Net income (loss) — — 166,828 ( 22,167 ) 144,661

Balance, March 31, 2021 15,084,464 $ 48,981,395 $ ( 1,964,185 ) $ ( 139,283 ) $ 46,877,927

Share-based compensation 4,200 278,349 — — 278,349

Repurchase of common shares ( 141,463 ) ( 769,648 ) — — ( 769,648 )

Net loss — — ( 918,275 ) ( 22,314 ) ( 940,589 )

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.

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(“Cumberland,” the “Company,” or as used in the context of “we,” “us,” or “our”) is a specialty pharmaceutical company focused on the acquisition, development and commercialization of branded prescription products.

The Company's primary target markets are hospital acute care and gastroenterology.

The Company's primary target markets are hospital acute care, gastroenterology and rheumatology.

These medical specialties are characterized by relatively concentrated prescriber bases that the Company believes can be penetrated effectively by small, targeted sales forces.

Cumberland is dedicated to providing innovative products that improve quality of care for patients and address unmet or poorly met medical needs.

The Company promotes its approved products through its hospital and field sales forces in the United States and is establishing a network of international partners to bring its medicines to patients in their countries.

Cumberland focuses its resources on maximizing the commercial potential of its products, as well as developing new product candidates, and has both internal development and commercial capabilities.

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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, 2020 (the “2020 Annual Report on Form 10-K”).

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.

The results of operations for the three months ended March 31, 2021, are not necessarily indicative of the results to be expected for the entire fiscal year or any future period.

Discontinued Operations

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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 in the financial statements and footnotes for all periods presented to reflect the discontinued status of these products.

The Company's exit from Ethyol and Totect meets the accounting criteria to be reported as discontinued operations and the discontinued operating results have been presented in the financial statements and footnotes to reflect the discontinued status of Ethyol and Totect.

Refer to Note 9, for additional information.

Reclassification of prior period amounts

The Company has made certain reclassifications to prior period amounts to conform to the current-year presentation of the reporting of research and development expense and general and administrative expense on the condensed consolidated statements of operations.

Certain costs and expenses related to research and development were previously reported as general and administrative expenses on the condensed consolidated statements of operations.

These reclassifications have no effect on the reported operating loss or equity for the 2019 periods presented.

Revision of prior period condensed consolidated statement of cash flows presentation

The Company has made a revision to prior period amounts to conform to the current year presentation of the cash surrender value of life insurance policies over premiums paid on the condensed consolidated statement of cash flows.

The revised amounts were previously included as net changes in assets affecting operating activities.

These revisions have no net effect on the reported net cash provided by operating activities nor any impact on the reported operating results or balance sheet for the 2020 period presented.

COVID-19 Pandemic

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Cumberland has remained open for business, as the Company is considered to be essential by the United States Department of Homeland Security.

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.

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

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.

However, much of their contact has shifted from in person to telephonic and electronic communications.

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.

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

Our business and our clinical studies were impacted as less patients sought elective surgeries and our access to medical facilities was substantially limited.

During 2020, we carefully monitored our supply chain during the pandemic including the flow of raw materials into the plants that manufacture our products as well as the batches of finished product emerging from those facilities.

Several of our brands were negatively impacted by the lockdowns and postponement of physician office visits and elective procedures.

However, we are fortunate to have a diversified product portfolio, with other brands delivering a strong performance.

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

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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.

and internationally in order to maintain its 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

Recent Adopted Accounting Pronouncement

In November 2018, the FASB issued ASU No.

2018-18, “Collaboration Arrangements:

Clarifying the Interaction between Topic 808 and Topic 606” (ASU 2018-18).

The issuance of ASU 2014-09 raised questions about the interaction between the guidance on collaborative arrangements and revenue recognition.

ASU 2018-18 addresses this uncertainty by (1) clarifying that certain transactions between collaborative arrangement participants should be accounted for as revenue under ASU 2014-09 when the collaboration arrangement participant is a customer, (2) adding unit of account guidance to assess whether the collaboration arrangement or a part of the arrangement is with a customer and (3) precluding a company from presenting transactions with collaboration arrangement participants that are not directly related to sales to third parties together with revenue from contracts with customers.

Cumberland adopted the standard effective January 1, 2020 with no impact on the Company's consolidated financial statements.

In January 2017, the FASB issued ASU No.

2017-04, “Simplifying the Test for Goodwill Impairment” (ASU 2017-04).

The guidance removes Step 2 of the goodwill impairment test, which requires a hypothetical purchase price allocation.

As a result of the revised guidance, a goodwill impairment will be the amount by which a reporting unit's carrying value exceeds its fair value, not to exceed the carrying amount of goodwill.

The new standard was adopted by Cumberland effective January 1, 2020 and was applied prospectively with no impact on the Company's consolidated financial statements.

Recent Accounting Pronouncements - Not Yet Adopted

In June 2016, the FASB issued ASU No.

In June 2016, the Financial Accounting Standards Board ("FASB") issued ASU No.

2016-13, “Financial Instruments-Credit Losses,” which changes the impairment model for most financial assets and certain other instruments.

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The Company's most significant estimates include:

(1) its allowances for chargebacks and accruals for rebates and product returns (2) the allowances for obsolescent or unmarketable inventory (3) assumptions used in estimating acquisition date fair value of assets acquired in business combinations and (4) valuation of contingent consideration liability associated with business combinations.

(1) its allowances for chargebacks and accruals for rebates and product returns, (2) the allowances for obsolescent or unmarketable inventory and (3) valuation of a contingent consideration liability associated with a business combination.

Operating Segments

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Substantially all of the Company’s assets are located in the United States and total revenues are primarily attributable to U.S.

(2) INVESTMENTS IN CASH EQUIVALENTS AND MARKETABLE SECURITIES

The Company invests in marketable securities in order to maximize its return on cash.

Marketable securities consist of short-term cash investments, U.S.

Treasury notes and bonds, corporate bonds and commercial paper.

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 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 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.

It applies whenever other guidance requires (or permits) assets or liabilities to be measured at fair value and gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements).

A summary of the fair value hierarchy that prioritizes observable and unobservable inputs used to measure fair value into three broad levels is described below:

Level 1 - Quoted prices for identical instruments in active markets.

Level 2 - Quoted prices for similar instruments in active markets;

quoted prices for identical or similar instruments in markets that are not active;

and model-derived valuations whose inputs are observable or whose significant value drivers are observable.

Level 3 - Significant inputs to the valuation model are unobservable.

The Company's fair values of marketable securities are determined based on valuations provided by a third-party pricing service, as derived from such service's pricing models, and are considered either Level 1 or Level 2 measurements, depending on the nature of the investment.

The Company has no marketable securities in which the fair value is determined based on Level 3 measurements.

The level of management judgment required in evaluating fair value for Level 1 investments is minimal.

Similarly, there is little subjectivity or judgment required for Level 2 investments valued using valuation models that are standard across the industry and whose parameter inputs are quoted in active markets.

Inputs to the models may include, but are not limited to, reported trades, executable bid and ask prices, broker/dealer quotations, prices or yields of securities with similar characteristics, benchmark curves or information pertaining to the issuer, as well as industry and economic events.

Based on the information available, the Company believes that the valuations provided by the third-party pricing service, as derived from such service's pricing models, are representative of prices that would be received to sell the assets at the measurement date (exit prices).

There were no transfers of assets between levels within the fair value hierarchy.

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

September 30, 2020 December 31, 2019

Level 1 Level 2 Total Level 1 Level 2 Total

Commercial paper — — — — $ 2,119,607 $ 2,119,607

Total fair value of marketable securities — — — — $ 2,119,607 $ 2,119,607

(2) EARNINGS (LOSS) PER SHARE

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 )

Discontinued operations 777,916 1,349,351

Net (income) loss at subsidiary attributable to noncontrolling interest 15,967 13,267

Net income (loss) attributable to common shareholders $ ( 481,737 ) $ ( 1,953,668 )

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

Dilutive effect of other securities — —

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

Nine months ended September 30,

The following table reconciles the numerator and denominator used to calculate diluted earnings (loss) per share for the three months ended March 31, 2021 and 2020:

Three months ended March 31,

Net income (loss) from continuing operations $ ( 350,749 ) $ ( 1,883,418 )

Discontinued operations 495,410 818,273

Net income (loss) 144,661 ( 1,065,145 )

Net (income) loss at subsidiary attributable to noncontrolling interest 22,167 9,525

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Weighted-average shares outstanding – diluted 15,244,146 15,578,309

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.

As of March 31, 2021 and 2020, restricted stock awards and options to purchase 215,600 and 431,226 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

The Company accounts for revenues from contracts with customers under ASC 606, which became effective January 1, 2018.

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 nine months ended September 30, 2020 and 2019:

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

2020 2019 2020 2019

The Company’s net revenues consisted of the following for the three months ended March 31, 2021 and 2020:

Three months ended March 31,

Kristalose $ 2,994,378 $ 3,311,696

Vibativ 5,052,243 2,425,755

Caldolor 1,539,496 1,096,291

Acetadote 117,191 713,899

Omeclamox-Pak ( 450,263 ) 114,770

Kristalose 3,615,557 2,924,237 10,387,046 9,720,434

Vaprisol 1,134,264 208,763

Caldolor 1,416,146 1,170,567 3,677,434 3,543,166

Vibativ 2,813,249 1,451,595 8,551,125 6,156,653

RediTrex ( 32,252 ) —

Other revenue 182,102 459,560

Total net revenues $ 10,537,159 $ 8,330,734

The Omeclamox-Pak revenue for the first quarter of 2021 was the result of Cumberland currently being out of commercial inventory of this product.

The packager for our Omeclamox-Pak product encountered financial difficulties due to the impact of COVID-19, and their operations are currently suspended.

The Company is awaiting resumption of their operations.

Net revenue for the first quarter of 2021 was also negatively impacted by product returns during the period.

Other Revenues

The Company has agreements with international partners for commercialization of the Company's products with associated payments included in other revenues.

Those agreements provide that each of the partners are responsible for seeking regulatory approvals for the product, and following approval, each partner will be responsible for the ongoing distribution and sales in the respective international territories.

respective international territories.

The Company provides a dossier for product registration and maintains responsibility for the relevant intellectual property.

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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 September 30, 2020 and 2019, and $ 0.4 million and $ 0.9 million for the nine months ended September 30, 2020 and 2019, respectively.

Grant revenue from these programs totaled approximately $ 0.1 million and $ 0.2 million for the three months ended March 31, 2021 and 2020 , respectively.

(4) INVENTORIES

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These finished goods inventories are stated at the lower of cost or net realizable value with cost determined using the first-in, first-out method.

The Company evaluates inventory for potential losses due to excess, obsolete or slow-moving goods by comparing sales history and projections to the inventory on hand.

The Company continually evaluates inventory for potential losses due to excess, obsolete or slow-moving goods by comparing sales history and projections to the inventory on hand.

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 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.

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

The consigned inventory represents Authorized Generic product which is shipped to the Company’s distribution partner and stored until sale.

As part of the Vibativ acquisition, Cumberland acquired API and work in process inventories that are classified as non-current inventories.

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

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:

September 30, 2020 December 31, 2019

At March 31, 2021 and December 31, 2020, the Company had recognized and maintained cumulative net realizable value charges for potential obsolescence and discontinuance losses of approximately $ 0.1 million and $ 0.2 million, respectively.

In connection with the acquisition of certain product rights related to the Kristalose brand, the Company is responsible for the purchase of the active pharmaceutical ingredient (“API”) for Kristalose and maintains the inventory at third-party packagers.

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

API for the Company's Vaprisol brand is also included in the raw materials inventory at March 31, 2021 and December 31, 2020.

Consigned inventory represents Authorized Generic inventory stored with Perrigo until shipment.

As part of the Vibativ acquisition, Cumberland acquired API and work in process inventories of $ 15.6 million that were all initially classified as non-current inventories at the date of acquisition.

At March 31, 2021 and December 31, 2020, total non-current inventory, including Vibativ and ifetroban, was $ 10.4 million and $ 11.7 million, respectively.

The Company had $ 0.8 million and $ 2.1 million of Vibativ finished goods included in non-current inventory at March 31, 2021 and December 31, 2020.

The Company also has obtained $ 0.4 million of finished goods in non-current inventory for API related to its ifetroban clinical initiatives at March 31, 2021 and December 31, 2020.

At March 31, 2021 and December 31, 2020 t he Company's net inventories consisted of the following:

March 31, 2021 December 31, 2020

Raw materials and work in process $ 14,763,418 $ 16,223,162

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Total inventories classified as current $ 10,010,763 $ 10,638,157

In March 2016, the FASB issued ASU 2016-02.

ASU 2016-02’s core principle is to increase transparency and comparability among organizations by recognizing lease assets and liabilities on the balance sheet and disclosing key information.

The primary effect of adopting ASU 2016-02 to the Company was to record right-of-use assets and obligations for the leases classified as operating leases.

Cumberland’s significant operating leases include the lease of approximately 25,500 square feet of office space in Nashville, Tennessee for its corporate headquarters.

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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 September 30, 2020 is 2.2 years.

The weighted-average remaining lease term at March 31, 2021 is 1.7 years.

Lease Position

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

At March 31, 2021 and December 31, 2020 , the Company's lease assets and liabilities were as follows:

Right-of-Use Assets March 31, 2021 December 31, 2020

Operating lease right-of-use assets $ 1,784,142 $ 2,028,148

Lease Liabilities September 30, 2020 December 31, 2019

Lease Liabilities March 31, 2021 December 31, 2020

Operating lease current liabilities $ 1,042,074 $ 1,016,779

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Total $ 1,831,274 $ 2,076,472

Maturity of Leases Liabilities at September 30, 2020

Cumulative future minimum sublease income under non-cancelable operating subleases totals approximately $ 0.3 million and will be paid through the leases ending in October 2022 and April 2023.

Future minimum lease payments under non-cancelable operating leases (with initial or remaining lease terms in excess of one year) are as follows:

Maturity of Lease Liabilities at March 31, 2021

Operating Leases

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2022 1,019,313

Total lease payments 1,974,473

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Present value of lease liabilities $ 1,831,274

Rent expense is recognized over the expected term of the lease, including renewal option periods, if applicable, on a straight-line basis as a component of general and administrative expense.

Rent expense and sublease income were as follows:

Three months ended March 31,

Rent expense $ 227,395 $ 221,201

Sublease income $ 178,029 $ 169,631

(6) SHAREHOLDERS’ EQUITY AND DEBT

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

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.

During the three months ended March 31, 2021 and March 31, 2020, the Company repurchased 91,724 shares and 164,866 shares, respectively, of common stock for approximately $ 0.3 million and $ 0.4 million, respectively.

Share purchases and sales

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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 nine months ended September 30, 2020 or September 30, 2019.

Restricted Share Grants

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.

The Shelf Registration was declared effective in January 2018.

It also included an At the Market ("ATM") feature that allows the Company to sell common shares at market prices, along with an agreement with B.

Riley FBR Inc.

to support such a placement of shares.

The Company filed an updated Form S-3 with the SEC in December 2020, which was declared effective in January 2021.

The Company does not currently have an ATM feature in place.

Cumberland plans to continue to evaluate the market for its common shares, and if favorable, will further evaluate whether or not to enter into an ATM feature through B.

Riley FBR, Inc.

that would allow the Company to issue shares of its common stock.

The Company did not issue any shares under an ATM during the three months ended March 31, 2021 or March 31, 2020.

Restricted Share Grants and Incentive Stock Options

During the three months ended March 31, 2021 and March 31, 2020, the Company issued 35,850 shares and 229,141 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.

During the three months ended March 31, 2021, the Company also issued 172,350 incentive stock options to employees that cliff-vest on the fourth anniversary of the date of grant, that are set to expire in March 2031.

Stock compensation expense is presented as a component of general and administrative expense in the condensed consolidated statements of operations.

Cumberland Emerging Technologies

In April 2019, Cumberland Emerging Technologies ("CET"), our majority-owned subsidiary, entered into an agreement whereby Hongkong WinHealth Pharma Group Ltd.

("WinHealth") made a $ 1 million investment in CET through the purchase of shares of its common stock.

As part of the agreement, WinHealth obtained the rights to name an individual for appointment to the CET Board of Directors as well as the first opportunity to license CET products for the Chinese market.

In connection with WinHealth's investment in CET, during 2019, Cumberland also made an additional $ 1 million investment in CET.

Cumberland purchased additional CET common shares through contribution of $ 0.3 million in cash and a conversion of $ 0.7 million in intercompany loans payable.

Upon completion of the additional investment by WinHealth and Cumberland, Gloria Pharmaceuticals returned its shares in CET in exchange for $ 0.8 million that was funded during 2020.

Debt Agreement

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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.

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

The Fourth Amendment extended 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, which 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.

Both Third Amendment modifications were related to the Vibativ transaction.

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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 September 30, 2020.

The Company was in compliance with the Tangible Capital Ratio financial covenant as of March 31, 2021.

As of March 31, 2021 and December 31, 2020, the Company had $ 15.0 million in borrowings outstanding under its revolving credit facility.

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

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.

applicable interest rate under the Pinnacle Agreement was 3.65 % at March 31, 2021.

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

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

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

On April 20, 2020, Cumberland received the funding of a loan from Pinnacle Bank in the aggregate amount of $ 2,187,140 pursuant to the Paycheck Protection Program (the “PPP”) under the Federal Coronavirus Aid, Relief, and Economic Security Act ("CARES Act"), which was enacted March 27, 2020.

On April 20, 2020, Cumberland received the funding of a loan from Pinnacle Bank in the amount of $ 2,187,140 pursuant to the Paycheck Protection Program (the “PPP”) under the Federal Coronavirus Aid, Relief, and Economic Security Act ("CARES Act"), which was enacted March 27, 2020.

The PPP is administered by the U.S.

Small Business Administration ("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 loan matures April 14, 2022, and bears interest at a rate of 1.0% per year, payable monthly.

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

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Under the terms of the PPP, certain amounts of the loan may be forgiven if they are used for qualifying expenses as described in the CARES Act, including qualifying payroll costs, covered rent payments, and covered utilities.

From the date of funding the Company has used the loan amount for such qualifying expenses.

From the date of funding the Company used the loan amount for such qualifying expenses.

Cumberland has elected to account for the proceeds of the loan as a government grant under International Accounting Standard 20 ("IAS 20"), Accounting for Government Grants and Disclosure of Government Assistance.

The permitted analogous use of IAS 20 outlines a model for the accounting for government assistance, including forgivable loans.

As result, the Company has recorded the $ 2,187,140 as a deferred income liability, which is included as a component of other current liabilities on the condensed consolidated balance sheet.

As a result, the Company has recorded the $ 2,187,140 as a deferred income liability, which is included as a component of other current liabilities on the condensed consolidated balance sheet.

The Company intends to apply IAS 20 to the PPP loan forgiveness and has presented the amounts expected to be forgiven as deferred income.

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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.

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 a $ 0.2 million convertible note, which was funded during the three months ended March 31, 2021.

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.

(7) INCOME TAXES

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.

As of March 31, 2021, 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.

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The funding for these programs is primarily provided through Federal Small Business Administration (SBIR/STTR) and other grant awards.

The Company has determined that these collaborative agreements, with the exception of the collaborative payment discussed in Note 10 do not meet the criteria for accounting under ASC Topic 808, Collaborative Agreements .

The agreements do not specifically designate each party’s rights and obligations to each other under the collaborative arrangements.

The Company has determined that these collaborative agreements, with the exception of the collaborative payment received related to RediTrex, do not meet the criteria for accounting under ASC Topic 808, Collaborative Agreements .

The agreements do not specifically designate each party’s rights and obligations to each

other under the collaborative arrangements.

Except for patent defense costs, expenses incurred by one party are not required to be reimbursed by the other party.

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It addresses a range of Gram-positive bacterial pathogens, including those that are considered difficult-to-treat and multidrug-resistant.

Cumberland acquired Vibativ to further add to its product offerings, increase its net revenue and positively contribute to the Company's operating results.

The Company expects to deduct the goodwill acquired in the acquisition for tax purposes.

Cumberland has accounted for the transaction as a business combination in accordance with ASC 805 and the product sales are included in the results of operations subsequent to the acquisition date.

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In addition, Cumberland has agreed to pay a royalty of up to 20 % on future net sales of the product.

The future royalty payments are required to be recognized at their acquisition-date fair value as part of the contingent consideration transferred in the business combination.

The following table summarizes the initial payments and consideration for the business combination:

Consideration:

Cash paid at closing $ 20,000,000

Cash payment during 2019 5,000,000

Fair value of contingent consideration - net sales royalty 9,182,000

Total consideration $ 34,182,000

The following table summarizes the final allocation of the fair values of the assets acquired as part of the acquisition of Vibativ:

Finished goods inventory $ 6,624,000

Work in process - unlabeled vials 3,970,000

Work in process - validation vials 1,827,000

Raw materials 9,129,000

Total inventory $ 21,550,000

Intellectual property amortizable intangible assets 11,750,000

Goodwill 882,000

Total intangibles and goodwill 12,632,000

Total assets acquired $ 34,182,000

The contingent consideration liability represents the future net sales royalty payments discussed above.

Cumberland prepared the valuations of the contingent consideration liability and the intangible assets utilizing significant unobservable inputs.

As a result, the valuations are classified as Level 3 fair value measurements.

The future royalty payments were required to be recognized at their acquisition-date fair value as a contingent consideration liability, as part of the contingent consideration transferred in the business combination.

Cumberland prepared the valuations of the contingent consideration liability utilizing significant unobservable inputs.

As a result, the valuation is classified as Level 3 fair value measurement.

The following table presents the changes in the fair value of the contingent consideration liability that is remeasured on a recurring basis.

The contingent consideration earned and accrued in operating expenses is paid to the seller quarterly.

The contingent consideration earned and accrued in operating expenses is paid to Theravance quarterly.

Balance at December 31, 2020

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Contingent consideration earned and accrued in operating expenses 410,790

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.

Balance at March 31, 2021

The contingent consideration liability of $ 7.3 million was classified as other current liabilities of $ 2.7 million and other long-term liabilities of $ 4.6 million on the condensed consolidated balance sheet as of March 31, 2021.

In November 2016, the Company announced an agreement with the Nordic Group B.V.

("Nordic") to acquire the exclusive U.S.

rights to Nordic’s injectable methotrexate product line designed for the treatment of active rheumatoid arthritis, juvenile idiopathic arthritis, severe psoriatic arthritis, and severe disabling psoriasis.

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Nordic is responsible for product manufacturing and supply.

On November 27, 2019, Cumberland received FDA approval for the first Nordic injectible product and authorization to market them under the RediTrex brand name.

On November 27, 2019, Cumberland received FDA approval for the first Nordic injectable product and authorization to market them under the RediTrex brand name.

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 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.

The payment was received during July 2020.

During December 2020, Cumberland launched RediTrex and the launch also resulted in a $ 1.0 million milestone payment due to Nordic.

This milestone payment will be paid during 2021 and was recorded as an other current liability at December 31, 2020.

Cumberland has approximately $ 2.8 million in net intangible assets related to RediTrex at March 31, 2021.

Ethyol and Totect

During May 2019, Cumberland entered into the Dissolution Agreement with Clinigen in which the Company returned the exclusive rights to commercialize Ethyol and Totect (“the Products”) in the United States to Clinigen.

This Dissolution Agreement originally targeted a transition from the Company's arrangements with Clinigen effective September 30, 2019, but was then amended to change the transition date to December 31, 2019.

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 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.

Those sales and marketing individuals who supported the Products have subsequently shifted their efforts to support other Cumberland brands.

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 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.

In 2016, Cumberland entered into an agreement with Clinigen for the rights and responsibilities associated with the commercialization of Ethyol in the United States.

In 2017, the Company entered into another agreement with Clinigen for the rights and responsibilities associated with the commercialization of Totect in the United States.

Early in 2019, Cumberland announced a strategic review of the Company's brands, capabilities, and international partners.

This review followed an accelerated business development initiative, which resulted in a series of transactions.

During May 2019, Cumberland entered into the Dissolution Agreement with Clinigen in which the Company returned the exclusive rights to commercialize Ethyol and Totect in the United States to Clinigen.

Under the final terms of the Dissolution Agreement, Cumberland was no longer responsible for the distribution, marketing and promotion of either Ethyol or Totect 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 four quarterly installments totaling $ 3.0 million during 2020 and the fifth installment of $ 0.5 million during the three months ended March 31, 2021 as discontinued operations.

The Company will record the remaining quarterly installments during the balance of 2021.

The exit from Ethyol and Totect meets the accounting criteria to be reported as discontinued operations.

December 31, 2019, as the transition date, was the final day Cumberland was responsible for the products.

Cumberland was responsible for the products through December 31, 2019 and beginning on January 1, 2020, the products' rights transitioned back to Clinigen.

As a result, January 1, 2020, was the first day of discontinued operations for the Ethyol and Totect products.

The dissolution payments from Clinigen are reflected as revenue from discontinued operations.

The Company does not incur expenses associated with these payments from Clinigen.

Revenues $ 495,410 $ 818,273

Costs of products sold — —

Selling, Marketing and other — —

Income from discontinued operations $ 495,410 $ 818,273

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