CUMBERLAND PHARMACEUTICALS INC 10-Q

Item 1. Financial Statements (Unaudited) CUMBERLAND PHARMACEUTICALS INC. AND SUBSIDIARIES Condensed Consolidated Balance Sheets (Unaudited) June 30, 2021 December 31, 2020 ASSETS Current assets: Cash and cash equivalents $ 25,670,462 $ 24,753,796 Accounts receivable, net 9,147,493 12,377,713 Inventories 10,104,219 10,638,157 Prepaid and other current assets 1,758,332 2,199,926 Total current assets 46,680,506 49,969,592 Non-current inventories 9,880,766 11,656,742 Property and equipment, net 493,256 574,169 Intangible assets, net 25,888,622 28,118,316 Goodwill 882,000 882,000 Operating lease right-of-use assets 1,535,556 2,028,148 Other assets 3,490,768 3,234,338 Total assets $ 88,851,474 $ 96,463,305 LIABILITIES AND EQUITY Current liabilities: Accounts payable $ 8,962,916 $ 13,396,286 Operating lease current liabilities 1,067,880 1,016,779 Other current liabilities 8,615,995 11,254,381 Total current liabilities 18,646,791 25,667,446 Revolving line of credit 14,000,000 15,000,000 Operating lease noncurrent liabilities 512,324 1,059,693 Other long-term liabilities 7,883,952 7,862,772 Total liabilities 41,043,067 49,589,911 Commitments and contingencies Equity: Shareholders’ equity: Common stock— no par value; 100,000,000 shares authorized; 14,926,059 and 14,988,429 shares issued and outstanding as of June 30, 2021 and December 31, 2020, respectively 48,688,384 49,121,523 Retained earnings (deficit) ( 735,625 ) ( 2,131,013 ) Total shareholders’ equity 47,952,759 46,990,510 Noncontrolling interests ( 144,352 ) ( 117,116 ) Total equity 47,808,407 46,873,394 Total liabilities and equity $ 88,851,474 $ 96,463,305 See accompanying Notes to Unaudited Condensed Consolidated Financial Statements. 1 CUMBERLAND PHARMACEUTICALS INC. AND SUBSIDIARIES Condensed Consolidated Statements of Operations (Unaudited) Three months ended June 30, Six months ended June 30, 2021 2020 2021 2020 Net revenues $ 9,055,483 $ 9,598,177 $ 19,592,642 $ 17,928,911 Costs and expenses: Cost of products sold 1,740,649 2,609,982 4,157,978 4,244,163 Selling and marketing 4,121,817 3,865,406 7,909,157 7,573,082 Research and development 1,360,398 1,421,502 2,617,765 3,144,057 General and administrative 2,097,130 2,190,764 4,327,639 4,227,048 Amortization 1,171,218 1,091,485 2,340,132 2,167,524 Total costs and expenses 10,491,212 11,179,139 21,352,671 21,355,874 Operating income (loss) ( 1,435,729 ) ( 1,580,962 ) ( 1,760,029 ) ( 3,426,963 ) Interest income 6,591 28,661 12,017 58,549 Other income 2,187,140 — 2,187,140 — Interest expense ( 25,859 ) ( 119,455 ) ( 50,276 ) ( 152,520 ) Income (loss) from continuing operations before income taxes 732,143 ( 1,671,756 ) 388,852 ( 3,520,934 ) Income tax (expense) benefit ( 7,459 ) ( 7,455 ) ( 14,917 ) ( 41,695 ) Net income (loss) from continuing operations 724,684 ( 1,679,211 ) 373,935 ( 3,562,629 ) Discontinued operations 498,807 738,622 994,217 1,556,895 Net income (loss) 1,223,491 ( 940,589 ) 1,368,152 ( 2,005,734 ) Net (income) loss at subsidiary attributable to noncontrolling interests 5,069 22,314 27,236 31,839 Net income (loss) attributable to common shareholders $ 1,228,560 $ ( 918,275 ) $ 1,395,388 $ ( 1,973,895 ) Earnings (loss) per share attributable to common shareholders - Continuing operations - basic $ 0.05 $ ( 0.11 ) $ 0.02 $ ( 0.23 ) - Discontinued operations - basic 0.03 0.05 0.07 0.10 $ 0.08 $ ( 0.06 ) $ 0.09 $ ( 0.13 ) - Continuing operations - diluted $ 0.05 $ ( 0.11 ) $ 0.02 $ ( 0.23 ) - Discontinued operations - diluted 0.03 0.05 0.07 0.10 $ 0.08 $ ( 0.06 ) $ 0.09 $ ( 0.13 ) Weighted-average shares outstanding - basic 14,976,034 15,241,463 14,970,241 15,241,020 - diluted 15,109,246 15,241,463 15,171,589 15,241,020 See accompanying Notes to Unaudited Condensed Consolidated Financial Statements. 2 CUMBERLAND PHARMACEUTICALS INC. AND SUBSIDIARIES Condensed Consolidated Statements of Cash Flows (Unaudited) Six months ended June 30, 2021 2020 Cash flows from operating activities: Net income (loss) $ 1,368,152 $ ( 2,005,734 ) Discontinued operations 994,217 1,556,895 Net income (loss) from continuing operations 373,935 ( 3,562,629 ) Adjustments to reconcile net income (loss) from continuing operations to net cash provided by (used in) operating activities: Depreciation and amortization expense 2,455,576 2,334,669 Share-based compensation 354,914 542,923 Decrease in non-cash contingent consideration ( 180,110 ) ( 645,571 ) Decrease (increase) in cash surrender value of life insurance policies over premiums paid ( 226,897 ) 215,116 Noncash interest expense 27,666 22,973 Gain on forgiveness of debt ( 2,187,140 ) — Net changes in assets and liabilities affecting operating activities: Accounts receivable 3,230,220 ( 80,421 ) Inventories 2,309,914 1,158,916 Other current assets and other assets 866,987 802,534 Accounts payable and other current liabilities ( 3,008,323 ) 2,413,768 Other long-term liabilities ( 526,189 ) ( 869,644 ) Net cash provided by (used in) operating activities from continuing operations 3,490,553 2,332,634 Discontinued operations 994,217 1,371,437 Net cash provided by operating activities 4,484,770 3,704,071 Cash flows from investing activities: Additions to property and equipment ( 34,531 ) ( 50,883 ) Note receivable investment funding ( 200,000 ) — Additions to intangible assets ( 132,323 ) ( 722,131 ) Net cash used in investing activities ( 366,854 ) ( 773,014 ) Cash flows from financing activities: Borrowings on line of credit 29,000,000 35,500,000 Repayments on line of credit ( 30,000,000 ) ( 37,000,000 ) Cash payment of contingent consideration ( 1,423,586 ) ( 260,735 ) Repurchase of subsidiary shares from noncontrolling interest — ( 800,000 ) Repurchase of common shares ( 777,664 ) ( 1,209,220 ) Net cash used in financing activities ( 3,201,250 ) ( 3,769,955 ) Net increase (decrease) in cash and cash equivalents 916,666 ( 838,898 ) Cash and cash equivalents at beginning of period $ 24,753,796 $ 28,212,635 Cash and cash equivalents at end of period $ 25,670,462 $ 27,373,737 See accompanying Notes to Unaudited Condensed Consolidated Financial Statements. 3 CUMBERLAND PHARMACEUTICALS INC. AND SUBSIDIARIES Condensed Consolidated Statements of Equity (Unaudited) Common stock Retained earnings (deficit) Noncontrolling interests Total equity Shares Amount Balance, December 31, 2019 15,263,555 $ 49,914,478 $ 1,208,395 $ ( 37,620 ) $ 51,085,253 Share-based compensation 219,850 264,574 — — 264,574 Repurchase of common shares ( 164,866 ) ( 441,624 ) — — ( 441,624 ) 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 Balance, March 31, 2020 15,318,539 $ 49,737,428 $ 152,775 $ ( 47,145 ) $ 49,843,058 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 Common stock Retained earnings (deficit) Noncontrolling interests Total equity Shares Amount Balance, December 31, 2020 14,988,429 $ 49,121,523 $ ( 2,131,013 ) $ ( 117,116 ) $ 46,873,394 Share-based compensation 187,759 162,960 — — 162,960 Repurchase of common shares ( 91,724 ) ( 303,088 ) — — ( 303,088 ) 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 Balance, March 31, 2021 15,084,464 $ 48,981,395 $ ( 1,964,185 ) $ ( 139,283 ) $ 46,877,927 Share-based compensation 191,954 191,954 Repurchase of common shares ( 158,405 ) ( 484,965 ) ( 484,965 ) Net income (loss) 1,228,560 ( 5,069 ) 1,223,491 Balance, June 30, 2021 14,926,059 $ 48,688,384 $ ( 735,625 ) $ ( 144,352 ) $ 47,808,407 See accompanying Notes to Unaudited Condensed Consolidated Financial Statements. 4 CUMBERLAND PHARMACEUTICALS INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements (Unaudited) (1) ORGANIZATION AND BASIS OF PRESENTATION Cumberland Pharmaceuticals Inc. (“Cumberland,” the “Company,” or as used in the context of “we,” “us,” or “our”) is a specialty pharmaceutical company focused on the acquisition, development and commercialization of branded prescription products. 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. The Company’s products are manufactured by third parties, which are overseen by Cumberland’s quality control and manufacturing professionals. The Company works closely with its third-party distribution partners to make its products available in the United States. In the opinion of management, the accompanying unaudited condensed consolidated financial statements of the Company have been prepared on a basis consistent with the December 31, 2020, audited consolidated financial statements and include all adjustments, consisting of only normal recurring adjustments, necessary to fairly present the information set forth herein. All significant intercompany accounts and transactions have been eliminated in consolidation. The unaudited condensed consolidated financial statements have been prepared in accordance with the regulations of the Securities and Exchange Commission (the “SEC”), and certain information and disclosures have been condensed or omitted as permitted by the SEC for interim period presentation. 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 six months ended June 30, 2021, are not necessarily indicative of the results to be expected for the entire fiscal year or any future period. Discontinued Operations As discussed further in Note 9, during May 2019, Cumberland entered into a Dissolution Agreement ("Dissolution Agreement") with Clinigen Healthcare Limited ("Clinigen") in which the Company returned the exclusive rights to commercialize Ethyol ® and Totect ® in the United States to Clinigen. 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 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. 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 In March 2020, the U.S. declared a health care emergency following the outbreak of the SARS-CoV-2, a novel strain of coronavirus that causes COVID-19, a respiratory illness. 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 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. 5 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 and 2021, 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. 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. The Company continues to monitor the COVID-19 pandemic situation both in the U.S. 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 Accounting Pronouncements - Not Yet Adopted 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. For trade and other receivables, held-to-maturity debt securities, loans and other instruments, companies will be required to use a new forward-looking “expected loss” model that generally will result in the earlier recognition of allowances for losses. For available-for-sale debt securities with unrealized losses, companies will measure credit losses in a manner similar to what they do today, except that the losses will be recognized as allowances rather than as reductions in the amortized cost of the securities. Companies will have to disclose additional information, including information they use to track credit quality by year of origination for most financing receivables. Companies will apply the ASU’s provisions as a cumulative-effect adjustment, if any, to retained earnings as of the beginning of the first reporting period in which the guidance is adopted. Related to ASU No. 2016-13 discussed above, in May 2019, the FASB issued ASU 2019-05, "Financial Instruments-Credit Losses (Topic 326): Targeted Transition Relief" which provides transition relief for ASU 2016-13 by providing entities with an alternative to irrevocably elect the fair value option for eligible financial assets measured at amortized cost upon adoption of the new credit losses standard. Certain eligibility requirements must be met and the election must be applied on an instrument-by-instrument basis. The election is not available for either available-for-sale or held-to-maturity debt securities. The Company will adopt both ASU 2016-13 and ASU 2019-05 on January 1, 2023. The adoption of ASU 2016-13 and ASU 2019-05 are not expected to have a material impact on the Company’s consolidated financial statements. Accounting Policies: Use of Estimates The preparation of the condensed consolidated financial statements in conformity with U.S. generally accepted accounting principles requires management of the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the period. Actual results could differ from those estimates under different assumptions and conditions. 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 and (3) valuation of a contingent consideration liability associated with a business combination. Operating Segments The Company has one operating segment which is specialty pharmaceutical products. Management has chosen to organize the Company based on the type of products sold. Operating segments are identified as components of an enterprise about which separate discrete financial information is evaluated by the chief operating decision maker, or decision-making group, in making decisions regarding resource allocation and assessing performance. The Company, which uses consolidated financial information in determining how to allocate resources and assess performance, has concluded that our specialty pharmaceutical products compete in similar economic markets and similar circumstances. Substantially all of the Company’s assets are located in the United States and total revenues are primarily attributable to U.S. customers. 6 (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 six months ended June 30, 2021 and 2020: Three months ended June 30, 2021 2020 Numerator: Net income (loss) from continuing operations $ 724,684 $ ( 1,679,211 ) Discontinued operations 498,807 738,622 Net income (loss) 1,223,491 ( 940,589 ) Net (income) loss at subsidiary attributable to noncontrolling interest 5,069 22,314 Net income (loss) attributable to common shareholders $ 1,228,560 $ ( 918,275 ) Denominator: Weighted-average shares outstanding – basic 14,976,034 15,241,463 Dilutive effect of other securities 133,212 — Weighted-average shares outstanding – diluted 15,109,246 15,241,463 Six months ended June 30, 2021 2020 Numerator: Net income (loss) from continuing operations $ 373,935 $ ( 3,562,629 ) Discontinued operations 994,217 1,556,895 Net income (loss) 1,368,152 ( 2,005,734 ) Net income (loss) at subsidiary attributable to noncontrolling interest 27,236 31,839 Net income (loss) attributable to common shareholders $ 1,395,388 $ ( 1,973,895 ) Denominator: Weighted-average shares outstanding – basic 14,970,241 15,241,020 Dilutive effect of other securities 201,348 — Weighted-average shares outstanding – diluted 15,171,589 15,241,020 As of June 30, 2021 and 2020, restricted stock awards and options to purchase 198,300 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. 7 (3) REVENUES Product Revenues The Company accounts for revenues from contracts with customers under ASC 606, which became effective January 1, 2018. The Company’s net revenues consisted of the following for the three and six months ended June 30, 2021 and 2020: Three months ended June 30, Six months ended June 30, 2021 2020 2021 2020 Products: Kristalose $ 5,275,065 $ 3,477,471 $ 8,269,443 $ 6,771,433 Vibativ 1,844,936 3,299,507 6,897,179 5,721,708 Caldolor 938,328 1,166,569 2,477,824 2,261,286 Vaprisol 399,952 174,159 1,534,216 382,016 Acetadote 152,781 595,310 269,972 1,308,711 Omeclamox-Pak ( 24,109 ) 10,948 ( 474,371 ) 124,371 RediTrex 7,382 — ( 24,870 ) — Other revenue 461,148 874,213 643,249 1,359,386 Total net revenues $ 9,055,483 $ 9,598,177 $ 19,592,642 $ 17,928,911 The Omeclamox-Pak revenue for the first and second 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. They are under new management and are in the process of a reorganization. Discussions with the packager are ongoing. Net revenue was also negatively impacted by product returns during the periods. 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. The Company provides a dossier for product registration and maintains responsibility for the relevant intellectual property. Cumberland is typically entitled to receive a non-refundable, up-front payment at the time each agreement is executed as consideration for the product dossier and for the rights to the distinct intellectual property rights in the respective international territory. These agreements also typically provide for additional payments upon a partner’s achievement of a defined regulatory approval and sales milestones. The Company may also be entitled to receive royalties on future sales of the products and a transfer price on supplies. The contractual payments associated with the partner’s achievement of regulatory approvals, sales milestones and royalties on future sales are recognized as revenue upon occurrence, or at such time that the Company has a high degree of confidence that the revenue would not be reversed in a subsequent period. Other revenues also include funding from federal grant programs including those secured by CET through the Small Business Administration as well as lease income generated by CET’s Life Sciences Center. 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 $ 0.2 million and $ 0.5 million for the three months ended June 30, 2021 and 2020 , respectively. (4) INVENTORIES The Company works closely with third parties to manufacture and package finished goods for sale. Based on the arrangements with the manufacturer or packager, the Company will either take title to the finished goods at the time of shipment or at the time of arrival at the Company’s warehouses. The Company then holds such goods in inventory until distribution and sale. 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 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 June 30, 2021 and December 31, 2020, the 8 Company had recognized and maintained cumulative net realizable value charges for potential obsolescence and discontinuance losses of approximately $ 0.3 million and $ 0.2 million, respectively. 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 June 30, 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 June 30, 2021 and December 31, 2020, total non-current inventory, including Vibativ and ifetroban, was $ 9.9 million and $ 11.7 million, respectively. The Company had $ 0.3 million and $ 2.1 million of Vibativ finished goods included in non-current inventory at June 30, 2021 and December 31, 2020, respectively. The Company also has obtained $ 0.4 million of finished goods in non-current inventory for API related to its ifetroban clinical initiatives at June 30, 2021 and December 31, 2020. At June 30, 2021 and December 31, 2020 the Company's net inventories consisted of the following: June 30, 2021 December 31, 2020 Raw materials and work in process $ 14,156,248 $ 16,223,162 Consigned inventory 189,141 128,005 Finished goods 5,639,596 5,943,732 Total inventories 19,984,985 22,294,899 less non-current inventories ( 9,880,766 ) ( 11,656,742 ) Total inventories classified as current $ 10,104,219 $ 10,638,157 9 (5) 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. This lease currently expires in October 2022. The Company's operating leases also include the lease of approximately 14,200 square feet of wet laboratory and office space in Nashville, Tennessee by CET, our majority-owned subsidiary, where it operates the CET Life Sciences Center. This lease currently expires in April 2023. Operating lease liabilities are recorded as the present value of remaining lease payments not yet paid for the lease term discounted using the incremental borrowing rate associated with each lease. Operating lease right-of-use assets represent operating lease liabilities adjusted for lease incentives and initial direct costs. As Cumberland’s leases do not contain implicit borrowing rates, the incremental borrowing rates were calculated based on information available at January 1, 2019. Incremental borrowing rates reflect the Company’s estimated interest rates for collateralized borrowings over similar lease terms. 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, 2021 is 1.5 years. Lease Position At June 30, 2021 and December 31, 2020 , the Company's lease assets and liabilities were as follows: Right-of-Use Assets June 30, 2021 December 31, 2020 Operating lease right-of-use assets $ 1,535,556 $ 2,028,148 Lease Liabilities June 30, 2021 December 31, 2020 Operating lease current liabilities $ 1,067,880 $ 1,016,779 Operating lease noncurrent liabilities 512,324 1,059,693 Total $ 1,580,204 $ 2,076,472 Cumulative future minimum sublease income under non-cancelable operating subleases totals approximately $ 0.2 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 June 30, 2021 Operating Leases 2021 $ 579,183 2022 1,019,313 2023 92,478 After 2023 — Total lease payments 1,690,974 Less: Interest ( 110,770 ) Present value of lease liabilities $ 1,580,204 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: Six months ended June 30, 2021 2020 Rent expense $ 605,130 $ 571,399 Sublease income $ 348,411 $ 323,489 10 (6) SHAREHOLDERS’ EQUITY AND DEBT Share repurchases Cumberland currently has a share repurchase program to repurchase up to $ 10 million of its common stock pursuant to Rule 10b-18 of the Securities Exchange Act of 1934. 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, 2021 and June 30, 2020, the Company repurchased 250,129 shares and 306,329 shares, respectively, of common stock for approximately $ 0.8 million and $ 1.2 million, respectively. At June 30, 2021, approximately $5.4 million of common shares was left to repurchase under this program. Share purchases and sales During the Company's March 2021 trading window, several members of Cumberland's Board of Directors entered into share purchase agreements of the Company's stock pursuant to Rule 10b-18 of the Securities Exchange Act of 1934. These purchases are designed to increase ownership in the Company by the members of the Board. Share Sales 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. It also included an At the Market ("ATM") feature that allowed 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 six months ended June 30, 2021 or June 30, 2020. Restricted Share Grants and Incentive Stock Options During the six months ended June 30, 2021 and June 30, 2020, the Company issued 36,850 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 six months ended June 30, 2021, the Company also issued 173,350 incentive stock options to employees that cliff-vest on the fourth anniversary of the date of grant, that are set to expire in March and May 2031. Stock compensation expense is presented as a component of general and administrative expense in the condensed consolidated statements of operations. Debt 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. 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. 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, 2021. As of June 30, 2021 and December 31, 2020, the Company had $ 14.0 million and $ 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 3.65 % at June 30, 2021. In addition, a fee of 0.25 % per year is charged on the unused line of credit. Interest and the unused line fee are payable quarterly. 11 Borrowings under the line of credit are collateralized by substantially all of the Company's assets. Paycheck Protection Program Loan 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"). Pursuant to the PPP requirements, loan funds were used to maintain payroll, continue group health care benefits, and pay for rent and utilities during the pandemic. We applied for this loan after carefully considering, with our bank, the eligibility criteria to participate in this program, and determining that Cumberland met those criteria. We evaluated and provided information on our payroll and other qualifying expenses to determine the amount of PPP funds to apply for. 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. Cumberland used the PPP loan funds for such qualifying expenses. Due to assistance from our PPP loan, the Company did not lay off or furlough any employees as a result of the COVID-19 pandemic. Cumberland 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 a result, the Company recorded the $ 2,187,140 as a deferred income liability, which was included as a component of other current liabilities on the condensed consolidated balance sheet at December 31, 2020. In October 2020, Cumberland submitted a request for the loan’s forgiveness. On June 11, 2021, the Company received a formal notice from the SBA that the full amount of the loan was forgiven. The Company accounted for the forgiveness of the PPP loan under IAS 20 and recorded the $ 2,187,140 as other income. Joint Venture Agreement In August 2020, Cumberland entered into an agreement with WinHealth Investment (Singapore) Ltd creating WHC Biopharmaceuticals, Pte. Ltd . 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 a $ 0.2 million convertible note, which was funded during the first quarter 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 June 30, 2021, the Company has approximately $ 56.5 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. The Company expects it will continue to pay minimal income taxes during 2021 and beyond, through the continued utilization of these net operating loss carryforwards, on any taxable income generated from our operations. The Company does not allocate any portion of its income tax expense (benefit) to discontinued operations. (8) COLLABORATIVE AGREEMENTS Cumberland is a party to several collaborative arrangements with research institutions to identify and pursue promising pharmaceutical product candidates. 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 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. Expenses incurred under these collaborative agreements are included in research and development expenses and funding received from grants are recorded as net revenues in the condensed consolidated statements of operations. 12 (9) ADDITIONS AND RETURN OF PRODUCT RIGHTS Vibativ During November 2018, the Company closed on an agreement with Theravance Biopharma ("Theravance") to acquire the global responsibility for Vibativ including the marketing, distribution, manufacturing and regulatory activities associated with the brand. Vibativ is a patented, Food and Drug Administration ("FDA") approved injectable anti-infective for the treatment of certain serious bacterial infections including hospital-acquired and ventilator-associated bacterial pneumonia and complicated skin and skin structure infections. It addresses a range of Gram-positive bacterial pathogens, including those that are considered difficult-to-treat and multidrug-resistant. 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. The Company made an upfront payment of $ 20.0 million at the closing of the transaction and a $ 5.0 million milestone payment in early April 2019. In addition, Cumberland has agreed to pay a royalty of up to 20 % of on-going net sales of the product. 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 Theravance quarterly. Balance at December 31, 2020 $ 8,200,552 Cash payment of royalty during the period ( 1,423,586 ) Change in fair value of contingent consideration included in operating expenses ( 180,110 ) Contingent consideration earned and accrued in operating expenses 760,225 Balance at June 30, 2021 $ 7,357,081 The contingent consideration liability of $ 7.4 million was classified as other current liabilities of $ 2.9 million and other long-term liabilities of $ 4.5 million on the condensed consolidated balance sheet as of June 30, 2021. RediTrex 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. As consideration for the license Cumberland paid a deposit of $ 100,000 at closing. The Company provided $ 0.9 million in consideration through a grant of 180,000 restricted shares of Cumberland common stock to be vested upon the FDA approval of the first Nordic product. Cumberland also agreed to provide Nordic a series of payments tied to the products’ FDA approval, launch and achievement of certain sales milestones. Under the terms of the agreement, Cumberland is responsible for the product registration and commercialization in the U.S. Nordic is responsible for product manufacturing and supply. 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. During December 2020, Cumberland introduced RediTrex and the launch that will take place in late 2021 will result in a $ 1.0 million milestone payment due to Nordic. This milestone payment will be paid during 2022 and is being reported as a current liability at June 30, 2021. Cumberland has approximately $ 2.7 million in net intangible assets related to RediTrex at June 30, 2021. 13 Ethyol and Totect 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 next two installments totaling $ 1.0 million during the six months ended June 30, 2021, as discontinued operations. The Company will record the remaining two 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. Three months ended June 30, Six months ended June 30, 2021 2020 2021 2020 Revenues $ 498,807 $ 738,622 $ 994,217 $ 1,556,895 Costs of products sold — — — — Selling, Marketing and other — — — — Income from discontinued operations $ 498,807 $ 738,622 $ 994,217 $ 1,556,895 14