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Item 9A. Controls and Procedures

2022-03-11 compared with 2021-03-12 · 269 added, 302 removed, 1118 unchanged (34% of the section changed)

Controls and Procedures.

Our Chief Executive Officer and Chief Financial Officer, with the participation of other members of management, have evaluated the effectiveness of our disclosure controls and procedures (as defined Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of the year ended December 31, 2020.

Based on such evaluations, our Chief Executive Officer and Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were effective (at the reasonable assurance level) to ensure that the information required to be included in this Annual Report on Form 10-K has been recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms and to ensure that such information was accumulated and communicated to management to allow for timely decisions regarding disclosure.

Our Chief Executive Officer and Chief Financial Officer, with the participation of other members of management, have evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act") as of December 31, 2021.

Based on such evaluations, our Chief Executive Officer and Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were effective (at the reasonable assurance level) to ensure that the information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized, and reported, within the time periods specified in the SEC’s rules and forms and to ensure that such information is accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

Management’s report on internal control over financial reporting is included on page F-1 of this annual report on Form 10-K, and incorporated herein by reference.

During our fourth quarter of 2020, there were no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) or 15d-15(f)).

During our fourth quarter of 2021, there were no changes in

our internal control over financial reporting (as defined in Rule 13a-15(f) or 15d-15(f))that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Other Information.

Form 8-K, Item 5.02(e).

Compensatory Arrangements of Certain Officers

On March 10, 2021, the Company entered into new employment agreements with each of A.J.

Kazimi, our Chief Executive Officer (the “ Kazimi Employment Agreement ”), Martin Cearnal, our Executive Vice President and Chief Commercial Officer (the “ Cearnal Employment Agreement ”), Leo Pavliv, our Executive Vice President, Operations and Chief Development Officer (the “ Pavliv Employment Agreement ”), James Herman, our Senior Vice President, National Accounts and Chief Compliance Officer (the “ Herman Employment Agreement ,” and Michael Bonner, our Senior Director, Finance and Accounting and Chief Financial Officer (the “ Bonner Employment Agreement ”), and together with the Kazimi Employment Agreement, the Cearnal Employment Agreement, the Pavliv Employment Agreement, and the Herman Employment Agreement, the “ Employment Agreements ”).

The Employment Agreements were effective as of January 1, 2021.

Employment Agreements

Each Employment Agreement provides for a salary for services performed, a potential annual bonus and a grant of restricted common shares pursuant to a restricted stock agreement.

Under the terms of each Employment Agreement, employment is at-will and may be terminated by the Company at any time, with or without notice and with or without cause.

Similarly, each of Mr.

Bonner, and Mr.

Herman may terminate his respective employment with us at any time, with or without notice.

The Employment Agreements do not provide for any severance payments in the event employment is terminated for cause nor any severance benefits in the event employment is terminated as a result of death or permanent disability.

The Employment Agreements include non-competition, non-solicitation and non-disclosure covenants on the part of employees.

The Employment Agreements impose obligations regarding confidential information and state that any discoveries or improvements conceived, developed or otherwise made by the employees, or with others, are deemed our sole property.

The Employment Agreements do not contain any termination or change in control provisions.

Kazimi Employment Agreement

Pursuant to the Kazimi Employment Agreement, Mr.

Kazimi will serve as the Company’s Chief Executive Officer and will receive a base salary of $610,132.

The foregoing descriptions of the Kazimi Employment Agreement are qualified in their entirety by reference to the Kazimi Employment Agreement, which is included as Exhibit 10.11 to this Annual Report on Form 10-K and are incorporated by reference into this Item.

The foregoing description of the Kazimi Employment Agreement does not purport to be complete and is qualified in its entirety by reference to such exhibit.

Cearnal Employment Agreement

Pursuant to the Cearnal Employment Agreement, Mr.

Cearnal will serve as the Company’s Executive Vice President and Chief Commercial Officer and will receive a base salary of $336,500.

The foregoing descriptions of the Cearnal Employment Agreement are qualified in their entirety by reference to the Cearnal Employment Agreement, which is included as Exhibit 10.12 to this Annual Report on Form 10-K and are incorporated by reference into this Item.

The foregoing description of the Cearnal Employment Agreement does not purport to be complete and is qualified in its entirety by reference to such exhibit.

Pavliv Employment Agreement

Pursuant to the Pavliv Employment Agreement, Mr.

Pavliv will serve as the Company’s Executive Vice President, Operations and Chief Development Officer and will receive a base salary of $437,500.

The foregoing descriptions of the Pavliv Employment Agreement are qualified in their entirety by reference to the Pavliv Employment Agreement, which is included as Exhibit 10.13 to this Annual Report on Form 10-K and are incorporated by reference into this Item.

The foregoing description of the Pavliv Employment Agreement does not purport to be complete and is qualified in its entirety by reference to such exhibit.

Herman Employment Agreement

Pursuant to the Herman Employment Agreement, Mr.

Herman will serve as the Company’s Senior Vice President, National Accounts and Chief Compliance Officer and will receive a base salary of $270,000.

The foregoing descriptions of the Herman Employment Agreement are qualified in their entirety by reference to the Herman Employment Agreement, which is included as Exhibit 10.15 to this Annual Report on Form 10-K and are incorporated by reference into this Item.

The foregoing description of the Herman Employment Agreement does not purport to be complete and is qualified in its entirety by reference to such exhibit.

Bonner Employment Agreement

Pursuant to the Bonner Employment Agreement, Mr.

Bonner will serve as the Company’s Senior Director, Finance and Accounting and Chief Financial Officer and will receive a base salary of $220,000.

The foregoing descriptions of the Bonner Employment Agreement are qualified in their entirety by reference to the Bonner Employment Agreement, which is included as Exhibit 10.14 to this Annual Report on Form 10-K and are incorporated by reference into this Item.

The foregoing description of the Bonner Employment Agreement does not purport to be complete and is qualified in its entirety by reference to such exhibit.

The information called for by Part III of Form 10-K (Item 10 – Directors, Executive Officers and Corporate Governance, Item 11 – Executive Compensation, Item 12 – Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters, Item 13 – Certain Relationships and Related Transactions, and Director Independence, Item 14 – Principal Accounting Fees and Services), is incorporated by reference from our proxy statement related to our 2021 annual meeting of shareholders, which is expected to be filed with the SEC on or around March 12, 2021.

Disclosure Regarding Foreign Jurisdictions that Prevent Inspections.

Not applicable.

The information called for by Part III of Form 10-K (Item 10 – Directors, Executive Officers and Corporate Governance, Item 11 – Executive Compensation, Item 12 – Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters, Item 13 – Certain Relationships and Related Transactions, and Director Independence, Item 14 – Principal Accountant Fees and Services), is incorporated by reference from our proxy statement related to our 2022 annual meeting of shareholders, which is expected to be filed with the SEC on or around March 11, 2022.

Exhibits, Financial Statement Schedules.

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Management’s Report on Internal Control over Financial Reporting

Report of Independent Registered Public Accounting Firm – Consolidated Financial Statements

Report s of Independent Registered Public Accounting Firm – Consolidated Financial Statements - BKD, LLP;

Nashville, TN PCAOB ID:

686 and BDO USA, LLP;

Nashville, TN PCAOB ID :

Consolidated Balance Sheets

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Valuation and Qualifying Accounts

1.1 At Market Issuance Sales Agreement, dated November 7, 2017, by and between Cumberland Pharmaceuticals Inc.

Riley FBR, Inc., incorporated herein by reference to the corresponding Exhibit 1.1 of our Registration Statement on Form S-3 (File No.

333-221402) as filed with the SEC on November 7, 2017.

1.2 Amendment No.

1 to At Market Issuance Sales Agreement, dated December 27, 2021, by and between Cumberland Pharmaceuticals Inc.

Riley Securities, Inc., incorporated herein by reference to the corresponding exhibit 1.2 of the Registrant’s Form 8-K (File No.

001-33637) as filed with the SEC on December 27, 2021

2.1 Asset Purchase Agreement, dated December 31, 2021, by and between Cumberland Pharmaceuticals Inc.

and Kyowa Kirin, Inc., incorporated herein by reference to the corresponding exhibit 2.1 of the Registrant’s Form 8-K (File No.

001- 001-33637) as filed with the SEC on January 6, 2022

3.1 Third Amended and Restated Charter of Cumberland Pharmaceuticals Inc., incorporated herein by reference to the corresponding exhibit to Amendment No.

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10.7.1† First Amendment to Exclusive Distribution Agreement, dated March 31, 2013, by and between Cardinal Health 105, Inc.

and Cumberland Pharmaceuticals Inc., incorporated herein by reference to the corresponding exhibit of the Registrant's Current Report o n Form 8-K (File No.

and Cumberland Pharmaceuticals Inc., incorporated herein by reference to the corresponding exhibit of the Registrant's Current Report on Form 8-K (File No.

001-33637) as filed with the SEC on June 3, 2013

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Pavliv and Cumberland Pharmaceuticals Inc.

10.14# Employment Agreement dated March 8 , 2021, effective as of January 1, 2021, by and between Michael P.

Bonner and Cumberland Pharmaceuticals Inc.

10.14# Employment Agreement dated March 8, 2021, effective as of January 1, 2021, by and between John M.

Hamm and Cumberland Pharmaceuticals Inc.

10.15# Employment Agreement dated March 8, 2021, effective as of January 1, 2021, by and between James L.

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001-33637) as filed with the SEC on November 13, 2020

10.42 Fourth Amendment to Revolving Credit Note and Fifth Amendment to Revolving Credit Loan Agreement, dated as of October 28, 2021, by and between Cumberland Pharmaceuticals Inc.

and Pinnacle Bank, incorporated herein by reference to Exhibit 10.1 of the Registrant’s Quarterly Report on Form 10-Q (File No.

001-33637) as filed with the SEC on November 12, 2021

10.43 Fifth Amendment to the Revolving Credit Note and Sixth Amendment to Revolving Credit Loan Agreement, dated as of December 31, 2021, by and between Cumberland Pharmaceuticals Inc.

and Pinnacle Bank

10.44 Lease Agreement, dated November 15, 2021, by and between Cumberland Pharmaceuticals Inc.

and 1600 West End Avenue Partners, LLC.

21 Subsidiaries of Cumberland Pharmaceuticals Inc., incorporated herein by reference to the corresponding exhibit to the Registrant’s Registration Statement on Form S-1 (File No.

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Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS INLINE XBRL INSTANCE DOCUMENT - THE INSTANCE DOCUMENT DOES NOT APPEAR IN THE INTERACTIVE DATA FILE BECAUSE ITS XBRL TAGS ARE EMBEDDED WITHIN THE INLINE XBRL DOCUMENT.

101.SCH INLINE XBRL TAXONOMY EXTENSION SCHEMA DOCUMENT

101.CAL INLINE XBRL TAXONOMY EXTENSION CALCULATION LINKBASE DOCUMENT

101.DEF INLINE XBRL TAXONOMY EXTENSION DEFINITION LINKBASE DOCUMENT

101.LAB INLINE XBRL TAXONOMY EXTENSION LABEL LINKBASE DOCUMENT

101.PRE INLINE XBRL TAXONOMY EXTENSION PRESENTATION LINKBASE DOCUMENT

104 Cover Page Interactive Data File (embedded within the Inline XBRL document).

# Indicates a management contract or compensatory plan.

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These portions have been omitted from the Registration Statement and submitted separately to the Securities and Exchange Commission.

* Schedules have been omitted pursuant to Item 601(b)(2) of Regulation S-K.

A copy of any omitted schedule will be furnished supplementally to the U.S.

Securities and Exchange Commission upon request, provided, however, that the parties may request confidential treatment pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended for any document so furnished.

** Furnished herewith.

Form 10-K Summary

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Kazimi (Principal Executive Officer and Director)

/s/ Michael P.

Bonner Senior Director and CFO March 12, 2021

Bonner (Principal Financial and

Hamm Senior Director and CFO March 11, 2022

Hamm (Principal Financial and

Accounting Officer

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Bernard Director March 11, 2022

/s/ Jonathan I.

Griggs Director March 12, 2021

Jones Director March 11, 2022

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and its subsidiaries (the "Company") is responsible for establishing and maintaining adequate internal control over financial reporting.

Cumberland Pharmaceuticals Inc.’s internal control system was designed to provide reasonable assurance to the Company’s management and board of directors regarding the preparation and fair presentation of published financial statements.

The Company's internal control system was designed to provide reasonable assurance to the Company’s management and board of directors regarding the preparation and fair presentation of published financial statements.

All internal control systems, no matter how well designed, have inherent limitations.

Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.

Cumberland Pharmaceuticals Inc.’s management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2020.

The Company’s management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2021.

In making this assessment, it used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control – Integrated Framework (2013) .

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March 11, 2022

/s/ Michael Bonner

Michael Bonner

Chief Financial Officer

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We have audited the accompanying consolidated balance sheets of Cumberland Pharmaceuticals Inc.

(the “Company”) as of December 31, 2020, and the related consolidated statements of operations, equity, and cash flows for the year ended December 31, 2020, and the related notes and schedule listed in the accompanying index (collectively referred to as the “financial statements”).

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2020, and the results of its operations and its cash flows for the year ended December 31, 2020 , in conformity with accounting principles generally accepted in the United States of America.

(Company) as of December 31, 2021 and 2020, and the related consolidated statements of operations, equity, and cash flows for each of the years in the two-year period ended December 31, 2021, and the related notes and schedule listed in the accompanying index (collectively referred to as the “financial statements”).

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2021 , in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These financial statements are the responsibility of the Company's management.

Our responsibility is to express an opinion on the Company's financial statements based on our audit.

Our responsibility is to express an opinion on the Company's financial statements based on our audits.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.

As part of our audit we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting.

As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting.

Accordingly, we express no such opinion.

Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that our audit provide a reasonable basis for our opinion.

We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

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Customer Allowances for Chargebacks, Discounts and Damaged Goods, and Accruals for Rebates, Coupons, Product Returns, and Certain Fees

As described in Note 2 to the consolidated financial statements, revenues from product sales are recorded net of estimated allowances for chargebacks, discounts and damaged goods and reflects sales related accruals for rebates,

coupons, product returns and certain fees.

As described in Note 2 to the financial statements, revenues from product sales are recorded net of estimated allowances for chargebacks, discounts and damaged goods and reflects sales-related accruals for rebates, coupons, product returns, and certain fees.

These allowances and accruals are determined on a product-by-product basis, and are established by management as the Company’s best estimate at the time of sale based on each product’s historical experience adjusted to reflect known changes in the factors that impact such allowances.

Management reviews these allowances on an ongoing basis and adjusts them based on the most recent information available, including actual results since the end of the reporting period.

As of December 31, 2020, consolidated allowances in accounts receivable for chargebacks, cash discounts and damaged goods were $1.0 million and consolidated estimated liability for rebates, coupons, product returns and certain fees were $4.1 million.

As of December 31, 2021, allowances in accounts receivable for chargebacks, cash discounts, and damaged goods were $0.3 million and the estimated liability for rebates, coupons, product returns, and certain fees were $3.7 million.

These provisions are recognized concurrently with the sales of products.

Provisions for chargebacks involve estimates of usage by retailers and other indirect buyers with varying contract prices for multiple wholesalers.

The provision for chargebacks varies in relation to changes in product mix, pricing and the level of inventory at the wholesalers.

The provision for chargebacks varies in relation to changes in sales volume, product mix, pricing, and the level of inventory at the wholesalers.

Provisions are calculated using historical chargeback experience, and/or expected chargeback levels for new products and anticipated pricing changes.

Provisions for rebates are recognized based on contractual obligations in place at the time of sales with consideration given to relevant factors that may affect the payment as well as historical experience for estimated market activity.

Provisions for Medicaid are based on historical trends of rebates paid, as well as on changes in wholesaler inventory levels, pricing data and increases or decreases in sales.

Provisions for product returns are calculated based on the expiration dates of products sold, the window where customers are permitted to return products and the history of returns for individual products in relation to the sales volume for each product.

The principal consideration for our determination that performing procedures relating to these allowances and accruals is a critical audit matter was the significant judgment by management to estimate the reserves due to the significant measurement uncertainty involved in developing the reserves.

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The primary procedures we performed to address this critical audit matter included:

• Testing the completeness and accuracy of the underlying data used to estimate the accrual by agreeing the sales data used in the calculation to reports that were reconciled to the financial statements, reconciling the various allowance percentages to signed customer contracts, tracing the allowance amounts used by the various customers during the year to supporting documentation and comparing the estimated allowances from the end of 2019 to actual results that occurred during 2020;

• Testing the assumptions used by management in the computation of selected allowances to historical results for the related products and any recent changes in factors that could influence the future allowances to be claimed;

• Comparing actual allowances reported since December 31, 2020 to the estimated reserves and accruals recorded on the December 31, 2020 consolidated balance sheet;

• Testing the clerical accuracy of the individual customer allowances computed by management and agreeing the total of all estimated allowances to the respective accounts on the financial statements.

• Testing of management’s process for calculating the allowances, including a look back analysis of prior year reserves compared to actual experience in the current year.

• Testing completeness and accuracy of underlying data used to estimate the accrual by agreeing sales data used in the calculations to reports that were reconciled to the financial statements, reconciling various allowance percentages to signed customer contracts, tracing allowance amounts used by various customers during the year to supporting documentation.

• Evaluating the reasonableness of significant assumptions used by management in the computation of selected allowances, including comparison to historical results and considering recent changes in factors that could influence the future allowances to be claimed.

• Testing the clerical accuracy of individual customer allowances computed by management and agreeing the total of all estimated allowances to the respective accounts on the financial statements.

• Developing our own independent expectation of the reserve balance for certain allowances and comparing that to the balance recorded on the December 31, 2021 balance sheet.

• Comparing actual allowances reported after December 31, 2021 to estimated reserves and accruals on the December 31, 2021 balance sheet.

We have served as the Company's auditor since 2020.

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Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of Cumberland Pharmaceuticals Inc.

(the “Company”) as of December 31, 2019, the related consolidated statements of operations, equity, and cash flows for each of the two years in the period ended December 31, 2019 and the related notes and financial statement schedule listed in the accompanying index (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2019, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2019 , in conformity with accounting principles generally accepted in the United States of America.

We have audited the accompanying the consolidated statements of operations, equity and cash flows of Cumberland Pharmaceuticals Inc.

(the Company) for the year ended December 31, 2019 and the related notes and financial statement schedule listed in the accompanying index (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the results of its operations and its cash flows for the year ended December 31, 2019 , in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management.

Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits.

Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audit.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.

The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.

Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Our audit included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that our audits provide a reasonable basis for our opinion.

Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that our audit provide a reasonable basis for our opinion.

/s/ BDO USA, LLP

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Prepaid and other current assets 3,339,969 2,199,926

Current assets associated with discontinued operations — 2,462,724

Total current assets 45,688,013 49,969,592

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Goodwill 882,000 882,000

Deferred tax assets, net — 21,802

Operating lease right-of-use assets 1,024,200 2,028,148

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Other current liabilities 8,668,303 11,254,381

Current liabilities associated with discontinued operations — 2,151,357

Total current liabilities 19,278,960 25,667,446

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Interest income 26,081 75,345 243,364

Other income 2,187,140 — —

Interest expense ( 98,031 ) ( 263,627 ) ( 246,186 )

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Share-based compensation 741,867 1,046,516 1,485,898

Excess tax benefit derived from exercise of stock options — — ( 81,886 )

Decrease in non-cash contingent consideration ( 1,147,750 ) ( 1,160,202 ) ( 804,167 )

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Noncash investment gains — — ( 26,315 )

Gain on forgiveness of debt ( 2,187,140 ) — —

Net changes in assets and liabilities affecting operating activities:

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Proceeds from surrender of life insurance policies 85,944 460,888 —

Increase in cash surrender value of life insurance policies ( 104,750 ) — —

Premiums paid for life insurance policies ( 33,375 ) ( 104,750 ) —

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

Note receivable investment funding ( 200,000 ) — —

Proceeds from sale of marketable securities — — 20,062,132

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Payments on line of credit ( 59,000,000 ) ( 62,500,000 ) ( 77,500,000 )

Sales of shares of common stock, net of offering costs — — 200,909

Payments made in connection with repurchase of common shares ( 1,386,849 ) ( 1,851,526 ) ( 3,494,921 )

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Change in unpaid invoices for intangible asset additions $ ( 43,471 ) $ ( 340,997 ) $ ( 576,837 )

Change in unpaid invoices for offering costs ( 90,512 ) — —

Noncash increase in liabilities related to other asset — 200,000 —

Noncash increase in liabilities related to acquisition (see Note 3) — — 14,034,000

Recognition of operating lease assets and liabilities through adoption of ASC 842 — — 3,629,320

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Net income (loss) — — ( 3,537,759 ) ( 8,752 ) ( 3,546,511 )

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

Sale of subsidiary shares to noncontrolling interest — 640,407 — 359,593 1,000,000

Vesting of common stock 180,000 862,200 — — 862,200

Share-based compensation 225,536 1,485,898 — — 1,485,898

Proceeds from sale of common stock, net of offering costs 30,704 200,909 — — 200,909

Repurchase of common shares ( 623,478 ) ( 3,486,835 ) — — ( 3,486,835 )

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Net income (loss) — — ( 3,339,408 ) ( 79,496 ) ( 3,418,904 )

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

Sale of subsidiary shares to noncontrolling interest — 640,407 — 359,593 1,000,000

Vesting of common stock 180,000 862,200 — — 862,200

Share-based compensation 228,500 1,046,516 — — 1,046,516

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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, gastroenterology and rheumatology.

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

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.

The Company promotes its approved products through its hospital, field and oncology 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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The Company's ownership in CET is now 85 %.

As noted above, the ownership interests of CET includes WinHealth and Cumberland, while the remaining interest is owned by Vanderbilt University and the Tennessee Technology Development Corporation.

While the remaining interest is owned by WinHealth, Vanderbilt University and the Tennessee Technology Development Corporation.

The operating results of CET allocated to noncontrolling interests in the consolidated statements of operations were $ 95,212 , $ 79,496 and $ 8,752 for the years ended December 31, 2021, 2020 and 2019, respectively.

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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 the 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.

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

In early 2020, the U.S.

declared a health care emergency following the outbreak of SARS-CoV-2, a novel strain of coronavirus that causes COVID-19, a respiratory illness.

The Company has managed through the resulting COVID-19 pandemic, continuing to operate our business – keeping facilities open and our organization intact.

We moved quickly to ensure the health and safety of our team.

We also maintained our ongoing compliance with the many laws and regulations that apply to us as a publicly traded pharmaceutical company.

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

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

We carefully monitored our supply chain, including the flow of raw materials and the batches of finished products emerging from the facilities that manufacture our products.

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 that includes other brands that have delivered a strong performance during the pandemic.

Overall, we have been able to continue the delivery of our products while addressing the interests of our shareholders, employees, partners and community.

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

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The revolving line of credit has a variable interest rate, which approximates the current market rate.

The Company's fair values of marketable securities are determined based on valuations provided by a third-party pricing service, as derived from such services' 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.

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.

The Company believes that the valuations provided by the third-party pricing service, as derived from such services' pricing models, represent prices that would be received to sell the assets at the measurement date (exit prices).

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Notes to Consolidated Financial Statements (Continued)

The Company's contingent consideration liability is a Level 3 fair value measurement that is updated on a recurring basis at each reporting period using a valuation model.

2 unchanged sentences

Cash and cash equivalents include highly liquid investments with original maturities of three months or less.

As of December 31, 2020 and 2019, cash equivalents consist primarily of money market funds as well as trading securities with original maturities of less than ninety days.

Marketable Securities

The Company invests in marketable debt 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 December 31, 2020 and 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.

At December 31, 2020 and December 31, 2019 , all our investments had original maturities of less than ninety days and as a result were classified as cash equivalents.

As of December 31, 2021 and 2020, cash equivalents consist primarily of money market funds.

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Notes to Consolidated Financial Statements (Continued)

Accounts Receivable

Trade accounts receivable are recorded at the invoiced amount.

The Company records allowances for amounts that could become uncollectible in the future based on historical experience, including amounts related to chargebacks and cash discounts.

The Company records allowances for amounts that could become uncollectible in the future based on historical experience, as well as amounts related to chargebacks and cash discounts.

The Company reviews each customer balance to assess collection status.

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Based on the customer relationship with the manufacturer or packager, the Company will either take title to finished goods at the time of shipment or at the time of arrival from the manufacturer.

The Company then warehouses such goods until distribution and sale.

The Company then warehouses such goods until distribution and sale at third party facilities.

Periodic inventory counts are made by the warehouse teams and by the Company on a regular basis.

In addition, the Company re-tests API inventory prior to use to confirm product expiration.

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 inventories for potential losses due to expired, short-dated or slow-moving inventory by comparing sales history and sales projections to the inventory on hand.

When evidence indicates the carrying value of a product may not be recoverable, a charge is recorded to reduce the inventory to its current net

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Notes to Consolidated Financial Statements (Continued)

realizable value.

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

The Company classifies the Vibativ inventories and ifetroban inventories that it does not expect to sell within one year as non-current inventories.

9 unchanged sentences

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

On December 27, 2021, the Company filed a related prospectus supplement in connection with the sale and issuance of shares having an aggregate gross sales price of up to $ 19 million.

The Company amended the At the Market Sales Agreement on December 27, 2021, in order to allow the Company to continue using its ATM feature to sell shares at market prices.

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Notes to Consolidated Financial Statements (Continued)

The Company intends to continue an ATM feature through B.

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

The Company has recorded deferred offering costs for payments directly related to the current Shelf Registration on Form S-3 that was completed during December 2020 and declared effective in January 2021.

The Company has recorded deferred offering costs for payments directly related to the current Shelf Registration on Form S-3 that was completed during December 2020 and 2021.

These costs consist of legal and accounting fees that the Company has capitalized.

1 unchanged sentence

The Company did not issue any shares under this ATM during the year ended December 31, 2021.

During the year ended December 31, 2020, the Company has expensed $ 0.4 million in deferred offering costs associated with the Shelf Registration that was declared effective in January 2018.

During the year ended December 31, 2020, the Company expensed $ 0.4 million in deferred offering costs associated with the Shelf Registration that was declared effective in January 2018.

Property and Equipment

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Capitalized patent costs consist of outside legal costs associated with obtaining and protecting patents on products that have been approved for marketing by the FDA.

If it becomes probable that a patent will not be issued or a patent has been declared invalid, related costs associated with the patent application are expensed at the time

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Notes to Consolidated Financial Statements (Continued)

such determination is made.

If it becomes probable that a patent will not be issued or a patent has been declared invalid, related costs associated with the patent application are expensed at the time such determination is made.

All costs associated with obtaining patents for products that have not been approved for marketing by the FDA are expensed as incurred.

3 unchanged sentences

Patents Life of patent

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Notes to Consolidated Financial Statements (Continued)

Impairment of Long-Lived Assets

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and Cumberland Emerging Technologies.

Revenue Recognition

Effective January 1, 2018, the Company adopted the Financial Accounting Standards Board’s (“FASB”) amended guidance in the form of Accounting Standards Update (“ASU”) No.

2014-09, "Revenue from Contracts with Customers," (ASC 606).

Net Product Revenue

5 unchanged sentences

Significant judgments must be made in determining the transaction price for our sales of products related to these adjustments.

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Notes to Consolidated Financial Statements (Continued)

Sales Rebates and Discounts

4 unchanged sentences

In conjunction with recognizing a sale to a wholesaler, sales revenues are reduced and accrued liabilities are increased by the Company’s estimate of the rebate that may be claimed.

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Notes to Consolidated Financial Statements (Continued)

Sales Returns

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Distribution costs $ 806,311 $ 890,686 $ 613,637

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Notes to Consolidated Financial Statements (Continued)

Advertising Costs

8 unchanged sentences

The Company accounts for these costs based on estimates of work performed, patients enrolled or fixed fees for services over the period of time the clinical trials are performed.

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Notes to Consolidated Financial Statements (Continued)

The Company provides for deferred taxes using the asset and liability approach.

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Prior to the lapse for those equity grants not valued on the grant date, the fair value is measured on the last day of the reporting period.

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Notes to Consolidated Financial Statements (Continued)

Collaborative Agreements

The Cumberland is a party to several collaborative arrangements with research institutions to identify and pursue promising pharmaceutical product candidates.

The Company 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.

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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.

Discontinued Operations

As discussed further in Note 20, 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.

Under the terms of the Dissolution Agreement, Cumberland is no longer involved directly or indirectly with the distribution, marketing and

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Notes to Consolidated Financial Statements (Continued)

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.

1 unchanged sentence

Recent Accounting Guidance

Recent Adopted Accounting Pronouncements

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

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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

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Notes to Consolidated Financial Statements (Continued)

cumulative-effect adjustment, if any, to retained earnings as of the beginning of the first reporting period in which the guidance is adopted.

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.

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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.

As consideration for the license Cumberland paid a deposit of $ 0.1 million 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.

2 unchanged sentences

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.

1 unchanged sentence

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

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 December 31, 2020.

During 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 began distributing RediTrex which also resulted in a $ 1.0 million milestone payment due to Nordic and recorded in accounts payable at December 31, 2020.

The full launch of RediTrex occurred in October 2021 and this milestone payment will be paid during 2022.

Cumberland has approximately $ 2.6 million and $ 2.8 million in net intangible assets related to RediTrex at December 31, 2021 and 2020, respectively.

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Notes to Consolidated Financial Statements (Continued)

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.

5 unchanged sentences

The Company paid an upfront payment of $ 20.0 million at closing and a $ 5.0 million cash payment during early 2019.

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Notes to Consolidated Financial Statements (Continued)

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

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

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

8 unchanged sentences

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

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Notes to Consolidated Financial Statements (Continued)

The following table presents the changes in the Company's Level 3 contingent consideration liability that is remeasured at fair value on a recurring basis.

14 unchanged sentences

Balance at December 31, 2020 $ 8,200,553

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Notes to Consolidated Financial Statements (Continued)

Cash payment of royalty during the period ( 2,166,682 )

Change in fair value of contingent consideration included in operating expenses ( 1,147,750 )

Contingent consideration earned and accrued in operating expenses 1,629,506

Balance at December 31, 2021 $ 6,515,627

The following table summarizes the allocation of the fair values of the assets acquired as of the acquisition date for Vibativ:

11 unchanged sentences

The current portion of the contingent consideration liability is $ 2.7 million and the non-current portion is $ 3.8 million, as of December 31, 2021.

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Notes to Consolidated Financial Statements (Continued)

Product Revenues

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As a result of these agreements, Cumberland recognized approximately $ 0.3 million of non-refundable up-front payments as other revenue in the consolidated statement of operations during 2019.

There were no payments received in 2020.

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Notes to Consolidated Financial Statements (Continued)

There were no payments received in 2020 or 2021.

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

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From 2012 through December 31, 2021, the Company has recognized a cumulative $ 1.2 million in upfront payments as other revenue and has recognized $ 0.1 million in revenue related to the milestone payments associated with these international agreements.

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Notes to Consolidated Financial Statements (Continued)

Other revenues during 2021, 2020 and 2019 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.

3 unchanged sentences

The Company's net inventories consisted of the following as of December 31:

Raw materials and work in process $ 16,223,162 $ 19,345,723

Raw materials and work in process, net of reserve $ 12,374,983 $ 16,223,162

Consigned inventory 164,378 128,005

10 unchanged sentences

At December 31, 2021 and 2020 the Company had recognized and maintained cumulative net realizable value charges for potential obsolescence and discontinuance losses of approximately $ 1.4 million and $ 0.2 million, respectively.

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Notes to Consolidated Financial Statements (Continued)

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 the third-party packagers.

3 unchanged sentences

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

At December 31, 2020, the Vibativ non-current inventory was $ 11.2 million and $ 15.3 million at December 31, 2019.

The Company had Vibativ finished goods included in the non-current inventories at December 31, 2020 of $ 2.1 million and we did not have any Vibativ finished goods included at December 31, 2019.

At December 31, 2020 and December 31, 2019, Cumberland had $ 0.4 million and $ 0.3 million, respectively, in non-current inventory for API related to its ifetroban clinical initiatives.

At December 31, 2021, the Vibativ non-current API inventory was $ 8.1 million and $ 11.2 million at December 31, 2020.

The Company had Vibativ finished goods included in the non-current inventories at December 31, 2021 of $ 0.5 million and $ 2.1 million Vibativ finished goods included at December 31, 2020.

At December 31, 2021 and December 31, 2020, Cumberland had $ 0.4 million in non-current inventory for API related to its ifetroban clinical initiatives.

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Notes to Consolidated Financial Statements (Continued)

(6) Property and Equipment

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(7) Intangible Assets and Goodwill

Intangible assets and Goodwill consisted of the following at December 31:

Intangible assets and Goodwill consisted of the following at December 31, 2021 and 2020.

Product and license rights $ 38,543,542 $ 38,543,542

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The intangible assets are being amortized through November 2028, the expected useful life of the acquired asset.

The $ 0.1 million increase in goodwill during 2019 was a result of changes in the purchase price allocation during the measurement period.

During 2021 and 2020, the Company recorded an additional $ 0.2 million and $ 0.5 million, respectively, in intangible assets for patents, trademarks and capitalized patent costs, including amounts incurred in the protection of the Company's intellectual property.

22 unchanged sentences

Accrued inventory purchases 18,211 294,000

Accrued payment for asset purchase — 1,000,000

Paycheck Protection Program liability — 2,187,140

9 unchanged sentences

Notes to Consolidated Financial Statements (Continued)

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

The original Pinnacle Agreement was dated July 2017.

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

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

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

On May 10, 2019, the Company entered into a third amendment ("Third Amendment") to the Pinnacle Agreement, 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 December 31, 2020.

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

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

The Company had $ 15.0 million in borrowings under the Pinnacle Agreement at December 31, 2020 and $ 18.5 million at December 31, 2019.

On December 31, 2021, the Company entered into a Fifth Amendment to the Revolving Credit Note and Sixth Amendment (the "Sixth Amendment") to Revolving Credit Loan Agreement with Pinnacle Bank (the "Pinnacle Agreement").

The Sixth Amendment increased the principal amount by $ 5 million to $ 20 million.

On October 28, 2021, the Company entered into a Fourth Amendment to the Revolving Credit Note and Fifth Amendment to Revolving Credit Loan Agreement with Pinnacle Bank.

Among other terms, the Fourth Amendment extended the maturity date to October 1, 2024.

The Pinnacle Agreement includes specific financial covenants including Debt Ratio and Tangible Capital Ratio.

The Company had $ 15 million in borrowings under the Pinnacle Agreement at December 31, 2021 and 2020.

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

2 unchanged sentences

Interest and the unused line fee are payable quarterly.

In 2022, the LIBOR benchmark rate is expected to be discontinued.

When the LIBOR rate is no longer available, the Pinnacle Agreement calls for a new Benchmark rate to be used to determine the interest rate for the Agreement.

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

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Notes to Consolidated Financial Statements (Continued)

Paycheck Protection Program Loan

2 unchanged sentences

Small Business Administration ("SBA").

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.

The loan was scheduled to mature April 14, 2022, and bears interest at a rate of 1.0 % per year, payable monthly.

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

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

3 unchanged sentences

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

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 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.

The Company will account for the anticipated forgiveness of the PPP loan under IAS 20 when the Company believes that the forgiveness is reasonably assured.

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 consolidated balance sheet as of December 31, 2020.

Cumberland applied for this loan after carefully considering, with its bank, the eligibility criteria to participate in this program, and determining that Cumberland met these criteria.

3 unchanged sentences

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

On June 11, 2021, the Company received a notice from the SBA that the full amount of the loan was forgiven.

The Company accounted for the forgiveness of the loan under IAS 20 and recorded the $ 2,187,140 as other income during the year ended December 31, 2021.

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Notes to Consolidated Financial Statements (Continued)

(10) Shareholders’ Equity

2 unchanged sentences

After deducting underwriting discounts of approximately $ 6.0 million and offering costs incurred of approximately $ 4.2 million, the net proceeds to the Company were approximately $ 74.8 million.

Contemporaneously with the offering, each outstanding share of preferred stock was automatically converted into two million shares of common stock.

(b) Preferred Stock

5 unchanged sentences

There were no option exercise transactions during 2021, 2020 and 2019.

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Notes to Consolidated Financial Statements (Continued)

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

4 unchanged sentences

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

On December 27, 2021, the Company filed a related prospectus supplement in connection with the sale and issuance of shares having an aggregate gross sales price of up to $ 19 million.

The Company intends to continue an ATM feature through B.

1 unchanged sentence

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

The Company did not issue any shares under this ATM during the year ended December 31, 2020 or 2019.

The Company issued 30,704 shares for proceeds of 0.2 million during the year end December 31, 2018.

In connection with the amendment to the debt agreements in 2009, the Company issued warrants to purchase up to 7,500 shares of common stock at $ 17.00 per share that expired in July 2019.

As of December 31, 2020, there were no outstanding warrants.

(e) Share Repurchases

The Company currently has a share repurchase program to repurchase up to $ 10 million of its common stock pursuant to Rule 10b-18 of the Securities Act.

The Company did not issue any shares under this ATM during the years ended December 31, 2021 or 2020.

(d) Share Repurchases

The Company 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, as amended.

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

1 unchanged sentence

There remains $ 4.8 million available under the current repurchase program available for share repurchases at December 31, 2021.

(f) Cumberland Emerging Technologies

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Notes to Consolidated Financial Statements (Continued)

(e) Cumberland Emerging Technologies

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

6 unchanged sentences

As CET is a consolidated subsidiary, the Company reports the operating results of CET and allocates the noncontrolling interests to the non-majority partners.

(g) Cumberland Foundation

(f) Cumberland Foundation

In December 2017, the Company formed the Cumberland Pharma Foundation (the "Foundation") to serve as a vehicle to facilitate the ongoing philanthropic endeavors of Cumberland Pharmaceuticals Inc.

2 unchanged sentences

In 2018, Cumberland provided a grant of 50,000 shares of the Company's common stock to the Foundation.

The shares will address the ongoing financial needs of the organization, with most of the shares expected to be held for the opportunity to realize long term appreciation to support the Foundation’s future.

The shares will address the ongoing financial needs of the Foundation.

The organization also plans to hold a portion of the shares for long-term appreciation.

The Foundation maintains separate financial statements and its ongoing operations will not impact the financial statements of Cumberland Pharmaceuticals.

Initial annual grants by the Foundation have been and are expected to remain consistent with the

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Notes to Consolidated Financial Statements (Continued)

historic level of contributions made by Cumberland Pharmaceuticals.

Initial annual grants by the Foundation have been and are expected to remain consistent with the historic level of contributions made by Cumberland Pharmaceuticals.

During 2019, Cumberland Pharmaceuticals committed approximately $ 50,000 in cash contributions that were paid to the Foundation during 2020.

(h) Nordic Group B.V.

Likewise, during 2020, the Company committed approximately $ 25,000 in cash contributions paid to the Foundation during 2021.

(g) Nordic Group B.V.

On November 27, 2019, Cumberland received approval from the FDA for the pre-filled syringe of the Methotrexate product.

1 unchanged sentence

The value of these shares at the date of approval was $ 0.9 million.

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Notes to Consolidated Financial Statements (Continued)

(11) Earnings (Loss) Per Share

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2031 - 2039 7,534,351 9,822,440

2031 - 2039 7,534,351 9,829,212

Indefinite Period 4,345,272 279,025

9 unchanged sentences

Federal 61,678 ( 21,802 ) ( 65,408 )

State ( 61,678 ) — —

Total deferred income tax (expense) benefit — ( 21,802 ) ( 65,408 )

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The Company believes that it is not more likely than not that its net deferred tax assets will be realized.

As such, the net deferred tax assets, with the exception of one noted below, are fully offset with a valuation allowance as of the periods ended December 31, 2020, December 31, 2019, and December 31, 2018.

The only deferred tax asset not offset with a valuation allowance as of the periods ended December 31, 2019 and December 31, 2018 was the Company’s AMT Credit Carryforward, which became refundable under the Tax Cuts and Jobs Act passed in 2017.

The Company received the balance of the refund related to this credit during the period ended December 31, 2020, and as such, the deferred tax asset has been realized and all remaining deferred tax assets are fully offset with a valuation allowance as of December 31, 2020.

As such, the net deferred tax assets are fully offset with a valuation allowance as of the periods ended December 31, 2021 and December 31, 2020.

CUMBERLAND PHARMACEUTICALS INC.

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2030-2039 648,120

2040-2041 410,709

Total federal and state credit carryforwards $ 1,681,105

4 unchanged sentences

During 2012, the 2009 federal tax return was examined by the Internal Revenue Service with no significant findings or adjustments.

The Company has no unrecognized tax benefits in 2020, 2019 and 2018.

The Company has no unrecognized tax benefits at December 31, 2021 and 2020.

(13) Stock-Based Compensation Plans

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Restricted stock issued to directors vests on the one year anniversary of the date of grant.

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Notes to Consolidated Financial Statements (Continued)

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

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Total share-based compensation $ 741,867 $ 1,046,516 $ 1,485,898

CUMBERLAND PHARMACEUTICALS INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

At December 31, 2021, there was approximately $ 1.1 million of unrecognized compensation cost related to share-based payments, which is expected to be recognized over a weighted-average period of 2.05 years.

This amount relates primarily to unrecognized compensation cost for employee restricted stock awards.

This amount relates primarily to unrecognized compensation cost for employee restricted stock and stock options awards.

Stock Options

Stock option activity for 2020 and 2019 was as follows:

Weighted-average exercise price per share Weighted-

Outstanding, December 31, 2018 5,800 $ 13.00 0.9 $ —

Options granted — —

Options exercised — —

Options forfeited or expired ( 5,800 ) 13.00

Outstanding, December 31, 2019 — — — —

Options granted — —

Options exercised — —

Options forfeited or expired — —

Outstanding, December 31, 2020 — — — —

Exercisable at December 31, 2020 — $ — — $ —

The Company did not grant any stock options and there were no options exercised during 2020, 2019 and 2018.

The Company granted 186,900 incentive stock options during 2021, which vest in four years .

There were no options exercised during 2021, 2020 and 2019.

As such, there was no intrinsic value of options or weighted-average fair value of options exercised for the periods.

For the incentive stock options issued to date, the weighted average grant price was $ 3.17 , and the weighted average fair value of these stock option grants was $ 1.52 .

The fair value of stock options is calculated using the Black-Scholes (“Black-Scholes-Merton”, or “BSM”) option-pricing model on the date of grant.

Since 2012, the Company had been issuing RSA’s (Restricted Share Awards) where the grant date Fair Value (“FV”) equaled the closing share price.

The ISO’s required a BSM valuation to approximate FV.

The following inputs were used in the creation of the valuation.

• Volatility - We estimate volatility in accordance with SAB No.

107, as amended by SAB No.

We have been publicly traded since August 2009, so we have sufficient years of trading history and volatility to appropriately evaluate this component of the BSM model.

As such, we are using our own historical volatility to value stock options.

We have noted no conditions that would indicate the historical volatility would not be an indicator of future volatility, as such we are using historical volatility over the same period as the expected term of the awards ( 7 years) back to 2017 and believe it to be sufficient.

Calculated volatility for the grants issued in 2021 ranges from 31 % to 43 %.

Our average volatility over the life of stock being public is 36 % and 38 % over the last 6 months.

Based on the similar amounts, we believe our volatility estimate for the ISO’s are appropriate.

• Expected Term - We estimate the expected life of employee share options based on the simplified method allowed by SAB No.

107, as amended by SAB No.

Under this approach, the expected term is presumed to be the average between the weighted-average vesting period and the contractual term.

The ISO’s have a 10-year contractual term and the vesting period is 4 years.

This results in a calculated expected term of 7 years.

• Risk Free rate - The risk-free interest rate is based on the U.S.

Treasury Note, on the date of grant with a term equal to the corresponding option’s expected term.

So, in this case, we are using the 7 year treasury note as of the date of grant, which ranges from 1.27 % and 1.44 % at the date of the grants.

• Dividend yield - We have never declared or paid any cash dividends and there is currently no expected cash dividend payments as of the date of this grant.

As such, dividend yield is zero .

CUMBERLAND PHARMACEUTICALS INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

Restricted Stock Awards

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Once vested they are included in the basic weighted shares outstanding computation.

CUMBERLAND PHARMACEUTICALS INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

(14) Employee Benefit Plans

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Prior to this extension, the lease would have expired in October 2016, the lease is now set to expire in October 2022.

On November 15, 2021, Cumberland entered into a lease, pursuant to which the Company will lease approximately 16,631 rentable square feet of space at the new development Broadwest located in Nashville, Tennessee with 1600 West End Avenue Partners, LLC.

The Leased Premise will serve as the Company's new corporate headquarters.

The initial term of the Lease is one hundred fifty-seven ( 157 ) months, with two consecutive options to renew for a period of five years each, and will commence on the earlier of November 1, 2022, the date

CUMBERLAND PHARMACEUTICALS INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

which Tenant takes occupancy of the Leased Premise, or the date which Tenant receives a temporary or permanent certificate of occupancy for the Leased Premise.

The Company will be responsible for paying rent to the Landlord under the Lease beginning three months after the Commencement Date.

The Company will pay a base rent of $ 33.06 per square foot of rentable space with a gradual rental rate increase of 2.5 % for each year period thereafter of the prior year's base rental.

In addition to the monthly base rent, the Company is responsible for its percentage share of the operating expenses of the Building.

The Lease also provides for a tenant improvement allowance for the space.

In addition, the research lab space at CET, under an agreement amended in July 2012, is leased through April 2023, with an option to extend the lease through April 2028.

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Sublease income* $ 699,889 $ 680,627 $ 688,020

*Minor amounts due in 2022.

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

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This lease currently expires in April 2023.

These operating leases resulted in initial ROU assets of $ 3.6 million and lease liabilities of $ 3.8 million as of January 1, 2019 for non-cancelable operating leases with original lease terms in excess of one year.

CUMBERLAND PHARMACEUTICALS INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

Operating lease liabilities were 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.

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Operating lease right-of-use assets $ 1,024,200 $ 2,028,148

CUMBERLAND PHARMACEUTICALS INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

Lease Liabilities December 31, 2021 December 31, 2020

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Total $ 1,059,693 $ 2,076,472

Cumulative future minimum sublease income under non-cancelable operating subleases totals approximately $ 0.4 million and will be paid through the leases ending in October 2022 and April 2023.

Excluding the Broadwest lease, cumulative future minimum sublease income under non-cancelable operating subleases totals approximately $ 0.1 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:

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2022 1,019,313

Total lease payments 1,111,791

1 unchanged sentence

Present value of lease liabilities $ 1,059,693

(16) Fair Value of Financial Instruments

The Company owns marketable securities that had a maturity date of less than ninety days and are classified as cash and cash equivalents at December 31, 2020 and December 31, 2019.

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

The following table summarizes the fair value of these marketable securities by level within the fair value hierarchy:

CUMBERLAND PHARMACEUTICALS INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

December 31, 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

The fair values of all other financial instruments outstanding as of December 31, 2020 and 2019 approximate their carrying values.

There were no changes to the valuation techniques for the Level 2 marketable securities during 2020 or 2019.

(16) Market Concentrations

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Customer 3 20 % 21 % 17 %

less than 10% of total

The Company’s accounts receivable, net of allowances, due from the customers representing 10% or more of consolidated revenue was 51 % and 60 % at December 31, 2021 and 2020, respectively.

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Although there are a limited number of manufacturers of pharmaceutical products, the Company believes it could utilize other suppliers to manufacture its prescription products on comparable terms.

A change in suppliers, problems with its third-party manufacturing operations or related production capacity, or contract disputes with suppliers could cause a delay in manufacturing or shipment of finished goods and possible loss of sales, which could adversely affect operating results.

(19) Employment Agreements

The Company has entered into employment agreements with all its full-time employees.

Each employment agreement provides for a salary for services performed, a potential annual bonus and, if applicable, a grant of restricted common shares pursuant to a restricted stock agreement.

A change in suppliers, problems with its third-party manufacturing operations or related production capacity, or contract disputes with

CUMBERLAND PHARMACEUTICALS INC.

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Notes to Consolidated Financial Statements (Continued)

suppliers could cause a delay in manufacturing or shipment of finished goods and possible loss of sales, which could adversely affect operating results.

(18) Employment Agreements

The Company has entered into employment agreements with all its full-time employees.

Each employment agreement provides for a salary for services performed, a potential annual bonus and, if applicable, a grant of restricted common shares pursuant to a restricted stock and incentive stock option agreement.

(19) Discontinued Operations

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Ethyol and Totect are collectively referred to herein as the "Products."

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

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.

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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 four quarterly installments totaling $ 3.0 million during the year ended December 31, 2020.

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

Cumberland recorded the last four quarterly installments totaling $ 2.0 million during the year ended December 31, 2021 and the first four quarterly installments totaling $ 3.0 million during the year ended December 31, 2020.

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

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Income from discontinued operations $ 1,994,322 $ 3,206,875 $ 5,665,177

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

Except for the Products' inventory as of December 31, 2019, no other operating assets and no liabilities were transferred to Clinigen, as such t he accounts receivable and accounts payable associated with discontinued operations were not sold or disposed of as part of the Dissolution Agreement.

The following assets and liabilities have been presented as assets associated with discontinued operations or liabilities associated with discontinued operations, as appropriate, in the consolidated balance sheets.

CUMBERLAND PHARMACEUTICALS INC.

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Notes to Consolidated Financial Statements (Continued)

Accounts receivable $ — $ 1,922,457

Inventory — 540,267

Current assets associated with discontinued operations $ — $ 2,462,724

Accounts payable $ — $ 1,918,868

Other current liabilities — 232,489

Current liabilities associated with discontinued operations $ — $ 2,151,357

(20) Commitments and Contingencies

In connection with the acquisition of certain Kristalose assets during 2011, the Company was required to make quarterly payments based on a percentage of Kristalose net sales through November 2018.

The payments were treated as consideration for the assets acquired and were capitalized.

They are being amortized over the remaining expected useful life of the acquired asset, currently through 2026.

In connection with its licensing agreements for Caldolor, the Company is required to pay royalties based on net sales over the life of the product.

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At the purchase date, Cumberland recorded the fair value of this liability and will continue to evaluate the liability each period and the royalty expense is recognized as a component of selling and marketing expense in the period that the change in fair value is recognized.

In connection with the acquisition of Sancuso, the Company is required to pay an upfront payment of $ 13.5 million to Kyowa Kirin upon closing, up to $ 3.5 million in milestones and tiered royalties ranging from 10 % to 5 % on U.S.

net product sales for ten years .

The Company has reviewed the relevant guidance and sought appropriate feedback from outside accounting and legal experts regarding the application of ASC 805.

Based on this review, the Company has concluded the Sancuso acquisition should be accounted for as a Business Combination.

The Company has hired an outside expert to prepare the valuation of the assets and liabilities acquired for Sancuso.

We expect to receive the valuation sometime in the second quarter of 2022.

Legal Matters

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Since 2012, Cumberland has continued to vigorously defend and protect its Acetadote product and related intellectual property rights including the use of all its legal options.

Melinta Litigation

On February 2, 2022, the Company filed an action for breach of contract against Melinta Therapeutics, LLC and Targanta Therapeutics Corporation (collectively, the “Defendants”) in the United States District Court for the Southern District of New York (Case No.

1:22-cv-00915-VM).

The Company and the Defendants are parties to an agreement (the “Agreement”), pursuant to which the Defendants have a license to develop and commercialize products under certain Company patents, in exchange for the Defendants paying the Company certain milestone payments and royalties on net sales of the licensed products.

Specifically, the Agreement requires the Defendants to, among other things, make a $ 500,000 payment to the Company within 30 days following the first filing of an sNDA in relation to the Product (as defined the Agreement) and a $ 500,000 payment to the Company following the approval of the first sNDA in relation to the Product.

The complaint alleges that, despite the Defendants filing an NDA and sNDA for the Product and receiving FDA approval for both applications, the Defendants failed to make the required total of $ 1 million in milestone payments to the Company.

The Company is seeking damages in the amount of no less than $ 1 million, prejudgment interest under N.Y.

§ 5001, costs, and such further relief as the court deems just and proper.

CUMBERLAND PHARMACEUTICALS INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

The Company is a party to various other legal proceedings in the ordinary course of its business.

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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-K

Item 9A. Controls and Procedures