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Item 7. Management’s Discussion and Analysis

2023-03-13 compared with 2022-03-11 · 83 added, 194 removed, 229 unchanged (55% of the section changed)

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Our commercial portfolio includes eight branded products approved for marketing by the U.S.

Food and Drug Administration (“FDA”) - Acetadote ® , Caldolor ® , Kristalose ® , Omeclamox ® -Pak, RediTrex ® , Sancuso ® , Vaprisol ® and Vibativ ® .

In addition to these commercial brands, we have Phase II clinical programs underway evaluating our ifetroban product candidates for 1) patients with cardiomyopathy associated with Duchenne Muscular Dystrophy , a fatal, genetic neuromuscular disease, 2) Systemic Sclerosis or scleroderma, a debilitating autoimmune disorder characterized by fibrosis of the skin and internal organs and 3) Aspirin-Exacerbated Respiratory Disease , a severe form of asthma.

Our primary target markets are hospital acute care, gastroenterology, rheumatology and oncology.

Food and Drug Administration (“FDA”).

In addition to these commercial brands, we have Phase II clinical programs underway evaluating our ifetroban product candidate for patients with 1) cardiomyopathy associated with Duchenne Muscular Dystrophy , a fatal, genetic neuromuscular disease, 2) Systemic Sclerosis or scleroderma, a debilitating autoimmune disorder characterized by fibrosis of the skin and internal organs and 3) Aspirin-Exacerbated Respiratory Disease , a severe form of asthma.

Our primary target markets are hospital acute care, gastroenterology and oncology.

These medical specialties are characterized by relatively concentrated prescriber bases that we believe can be served effectively by small, targeted sales forces.

We promote our approved products through our hospital, field and oncology sales divisions in the United States and are establishing a network of international partners to register and provide our medicines to patients in their countries.

We promote our approved products through our hospital, field, and oncology sales divisions in the United States and are building a network of international partners to register and provide our medicines to patients in their countries.

We have established the capabilities needed to acquire, develop, and commercialize branded pharmaceuticals in the U.S.

and believe we can leverage this existing infrastructure to support our expected growth.

We believe we can leverage this existing infrastructure to support new products and our expected growth.

Our management team consists of pharmaceutical industry veterans with significant experience in their areas of responsibility.

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Our quality and manufacturing professionals oversee the manufacturing, release and shipment of our products.

Our marketing and sales organization is responsible for our commercial activities, and we work closely with our distribution partners to ensure the availability of our products.

The following is a summary of our 2021 highlights and recent developments.

Our marketing and sales organization is responsible for our commercial activities, and we work closely with our distribution partners to ensure the availability of our brands.

2022 Highlights

Below is a list of our company’s highlights from 2022.

For more information, please see Part I, Item I, Business , of this Form 10-K.

• Agreement to acquire the U.S.

rights to Sancuso ® (granisetron transdermal patch), an FDA-approved oncology supportive care medicine.

• FDA approval of expanded labeling for our Caldolor ® product (intravenously delivered ibuprofen), for use prior to surgery.

• Commencement of the national launch of our RediTrex ® product line (prefilled methotrexate syringes).

• Agreement to relocate our corporate headquarters to the new Broadwest campus in the West End/Vanderbilt corridor in Nashville, with a move planned for late 2022.

• Extension of our line of credit with Pinnacle Bank for a new three-year term, and expansion of the facility for up to $20 million.

• Renewal of our At-the-Market facility, for up to $19 million in equity financing.

• Continuation of our share repurchase initiative along with a group of our Board members purchasing shares through trading plans in the market, in order to add to their holdings in the company.

• Publication of a series of study results and patient case studies in support of several of our brands.

• The release of our second annual Sustainability Report, which details the company’s activities pertaining to its environmental, social and governance (ESG) matters.

COVID-19 Pandemic

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 pandemic, which included stay-at-home orders, the emergence of new variants, compliance with differing federal, state and local guidelines, among other challenges, to continue 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 has faced the same challenges affecting other companies that rely on hospital admissions and patient visits to drive revenue.

Our clinical studies were also 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 into 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.

Despite the challenges of operating during a pandemic, Cumberland has remained committed to our mission of providing innovative products that improve the quality of care for patients.

We continued to build our portfolio of innovative and differentiated products through a multifaceted strategy that includes the development of new candidates and acquisition of established brands.

Our resulting, diversified product line has enabled us to weather external challenges, while our team has remained responsive to the evolving medical market.

We are prepared for and look forward to future opportunities to carry out our mission.

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

In July 2021, we released our second annual Sustainability Report, which details Cumberland’s activities pertaining to our environmental, social and governance (“ESG”) matters.

After issuing our inaugural ESG Report the prior year, we remain committed to sustainability and to maintaining transparency of our corporate operations.

We hold ourselves to the highest standards of ethical practices and understand the importance of recognizing and addressing our impact on our constituents, the community and the environment.

The Sustainability Report notes that during that year we provided nearly 2.5 million patient doses of our products, safely disposed of over 4,000 pounds of expired and damaged products, and had no product recalls.

We also had no Company brands listed on the FDA’s MedWatch Safety Alerts for Human Medical Products, no Company product issues identified by the FDA’s Adverse Event Reporting System and no clinical trials terminated due to failure to practice good clinical standards.

The Sustainability Report also highlights our investment in our employees through our continuing education programs, employee development initiatives and employee recognition awards.

We reported that women represented 46% of Cumberland’s workforce – and 18% of our employees were minorities.

Cybersecurity

The Company has taken appropriate steps to monitor an adequate level of cybersecurity.

The Company is insured against cyber attacks and has appropriate detection and mitigation controls in place.

We were incorporated in 1999 and have been headquartered in Nashville, Tennessee since our inception.

The Company’s common shares are listed on the Nasdaq stock exchange, our website address is www.cumberlandpharma.com and our various filings are available to the public at www.sec.gov.

• Acquired the U.S.

rights to the FDA-approved oncology-supportive care medicine Sancuso ® from Kyowa Kirin, Inc., the U.S.

affiliate of Japan-based Kyowa Kirin Co., Ltd.

• Formed a specialty sales division, Cumberland Oncology, to support Sancuso.

To augment those efforts, we also entered into a co-promotion agreement to feature Sancuso through another national oncology sales organization.

• Launched Vibativ ® in Puerto Rico, through a partnership with Verity Pharmaceuticals, who has a particular strength and experience in that market.

• Announced a new partnership with Saudi Arabia-based Tabuk Pharmaceutical Manufacturing Co., a fully owned subsidiary of the Astra Industrial Group, to introduce Vibativ in the Middle East.

• Signed a new agreement with Laboratorios Pisa, S.A.

for the exclusive supply and distribution of Caldolor ® , Cumberland’s ibuprofen injection product, in Mexico.

• Entered into two amendments to our agreement with Nordic Group B.V.

who had provided us with a license for the U.S.

rights associated with our RediTrex ® line.

Pursuant to the amendment, in exchange for financial consideration, Nordic may assume responsibility for distributing the methotrexate products in the U.S.

after June 30, 2023.

• Announced the relocation of our headquarters into new offices located on the Broadwest campus in the Vanderbilt/West End corridor of Nashville, which will allow us to accommodate our expected growth and better serve our international base of customers and partners.

• Named Martin S.

to our Board of Directors.

Brown is an attorney with over 30 years of corporate law experience who brings significant legal, public company, health care and civic experience to our board.

The Company relies on several law firms for legal advice, including the firm in which Martin is affiliated.

• Released our third annual Sustainability Report, which details the company’s activities pertaining to our environmental, social and governance matters.

• Modified our line of credit with Pinnacle Bank, which provides for a remaining three-year facility for up to $20 million which ends in October 2024.

• Continued our corporate share repurchase initiative, with a group of our board members also purchasing shares through Rule 10b5-1 trading plans in order to add to their holdings in the company.

CRITICAL ACCOUNTING POLICIES AND SIGNIFICANT JUDGMENTS AND ESTIMATES

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Other revenue, which is a component of net revenues, includes non-refundable upfront payments and milestone payments under licensing agreements along with grant and rental income.

Other income was approximately 2.6% percent of net revenues in 2021, 4.3% in 2020, and 5.8% in 2019 respectively.

Other revenue was approximately 3.2% percent of net revenues in 2022 and 2.6% in 2021.

Our financial statements reflect accounts receivable allowances of $0.6 million and $0.3 million at December 31, 2022 and 2021, respectively, for chargebacks and early pay discounts for products.

The following table reflects our sales-related accrual activity for the periods indicated below:

2021 2020 2019

Balance, January 1 $ 3,680,677 $ 4,063,435

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The allowances for chargebacks and accruals for rebates and product returns are the most significant estimates used in the recognition of our revenue from product sales.

Of the accounts receivable allowances and our sales related accruals, our accrual for fee for services and product returns represents the majority of the balance.

Sales related accrued liabilities for rebates, product returns, service fees, and administrative fees totaled $3.7 million, $4.1 million and $4.6 million as of December 31, 2021, 2020 and 2019, respectively.

Of these amounts, our estimated liability for fee for services represented $1.0 million, $1.0 million and $1.4 million, respectively, while our accrual for product returns totaled $1.9 million, $1.7 million and $1.9 million, respectively.

Of the accounts receivable allowances and our sales related accruals, our accrual for product returns and rebates represents the majority of the balance.

Sales related accrued liabilities for rebates, product returns, service fees, and administrative fees totaled $8.3 million and $3.7 million as of December 31, 2022 and 2021 , respectively.

Of these amounts, our estimated liability for fee for services represented $1.5 million and $1.0 million, respectively, while our accrual for product returns totaled $2.7 million and $1.9 million, respectively.

If the actual amount of cash discounts, chargebacks, rebates, and product returns differs from the amounts estimated by management, material differences may result from the amount of our revenue recognized from product sales.

A change in our rebate estimate of one percentage point would have impacted net sales by approximately $0.4 million for the years ended December 31, 2021, 2020 and 2019.

A change in our product return estimate of one percentage point would have impacted net sales by $0.4 million for the years ended December 31, 2021, and 2020 and $0.3 million for the year ended December 31, 2019.

A change in our rebate estimate of one percentage point would have impacted net sales by approximately $0.6 million and $0.4 million for the year ended December 31, 2022 and 2021, respectively.

A change in our product return estimate of one percentage point would have impacted net sales by $0.4 million for the years ended December 31, 2022 and 2021.

We record amounts for estimated obsolescence or unmarketable inventory in an amount equal to the difference between the cost of inventory and the net realizable value based upon assumptions about remaining shelf life, future demand and market conditions.

The estimated inventory obsolescence amounts are calculated based upon specific review of the inventory expiration dates and the quantity on-hand at December 31, 2022, in comparison to our expected inventory usage.

The amount of actual inventory obsolescence and unmarketable inventory could differ (either higher or lower) in the near term from the estimated amounts.

The amount of actual inventory obsolescence and unmarketable inventory could differ

(either higher or lower) in the near term from the estimated amounts.

Changes in our estimates would be recorded in our statement of operations in the period of the change.

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Interest income 98,405 26,081 72,324

Other income - gain on insurance proceeds 611,330 — 611,330

Other income — 2,187,140 (2,187,140)

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Kristalose $ 15,205,155 $ 15,993,658 $ (788,503)

Sancuso 13,205,603 — 13,205,603

Vibativ 7,487,462 11,704,062 (4,216,600)

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Net revenues.

Net revenues for the year ended December 31, 2021 were approximately $36.0 million compared to $37.4 million for the year ended December 31, 2020, representing a decrease of $1.5 million or 3.9%.

As detailed in the table above, net revenue increased during the 2021 period for three of our marketed products:

Kristalose, Vibativ and Vaprisol.

The improvement was led by Vibativ which delivered $0.8 million in revenue growth, followed by Vaprisol, which delivered an additional $0.8 million during 2021 compared to 2020.

Our largest product, Kristalose, contributed $0.4 million in incremental revenue.

These increases were offset by decreased net sales of Caldolor, Acetadote, Omeclamox-Pak and RediTrex.

We returned the exclusive rights to commercialize Ethyol and Totect in the United States to Clinigen effective January 1, 2020.

In exchange for the return of these product license rights and associated non-compete provision, Cumberland received $5 million in financial consideration paid over the two-years following the return date.

The final four installments totaling $2.0 million due from Clinigen were recorded during the year ended December 31, 2021, as discontinued operations.

We do not incur expenses associated with these payments from Clinigen.

Kristalose revenue increased by $0.4 million, or 2.7%, compared to December 31, 2020 primarily as a result of improved sales volume for the product.

Net revenues for the year ended December 31, 2022, were approximately $42.0 million compared to $36.0 million for the year ended December 31, 2021, representing an increase of $6.0 million or 16.7%.

Net revenue increased during the 2022 period as a result of our newest product Sancuso which contributed net revenue of $13.2 million.

This increase was offset by decreased net sales of Vibativ and Vaprisol.

Kristalose revenue declined by $0.8 million, or (4.9)%, compared to December 31, 2021, primarily as a result of timing of sales of our shipments to one of our co-promotion partners.

Vibativ revenue was $7.5 million compared to $11.7 million in the prior year.

This $0.8 million or 7.7% increase in net revenue was a result of improved sales volume for the product.

This $4.2 million decline in net revenue was a result higher sales volume for the product in 2021 associated in part with wholesale stocking of our new packaged product.

Caldolor revenue experienced a 2.9% decrease to $4.8 million during the year ended December 31, 2022, compared to $5.0 million in the same period last year.

This decrease in Caldolor revenue for the year ended December 31, 2021 w as the result of lower domestic shipments of the product, significantly impacted by COVID-19 and a reduction in elective surgeries.

Vaprisol revenue increased $0.8 million during the year ended December 31, 2021 compared to the prior year period due primarily to increased sales of the product.

This decrease in Caldolor revenue for the year ended December 31, 2022, w as the result of the timing of international shipments.

Vaprisol revenue decreased $2.3 million during the year ended December 31, 2022, compared to the prior year period due primarily to a temporary out of stock situation associated with a change in manufacturers.

Acetadote revenue included net sales of our branded product and our share of net sales from our Authorized Generic.

For the year ended December 31, 2021, the Acetadote net revenue decreased $1.0 million compared to the prior year due to a reduction in sales volume, primarily impacting the Authorized Generic.

Omeclamox-Pak revenue decreased $0.6 million during the year ended December 31, 2021 compared to the prior year.

The decrease was due to ownership changes at our packager which resulted in a tempoary out of stock situation.

For the year ended December 31, 2022, the Acetadote net revenue decreased $0.3 million compared to the prior year due to an increase in expired product returns in 2022.

Omeclamox-Pak revenue increased $0.4 million during the year ended December 31, 2022, compared to the prior year.

The increase was due to favorable sales adjustments and ownership changes at our packager which resulted in a temporary out of stock situation.

Reditrex revenue decreased $0.2 million in 2022 compared to 2021.

Our wholesale customers initially stocked the product in Q420, but we delayed the launch until October 2021 due to pandemic delays and supply issues.

Our 2022 gross wholesale revenue increased by $0.4 million, but the revenue growth was offset by expired product returns.

Cost of products sold .

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As a percentage of net revenues, cost of products sold were 21.7% compared to 24.5% during the prior year.

This change in costs of products sold as a percentage of revenue was attributable to a change in the product sales mix, particularly the increase in sales of Vibativ.

The Vibativ inventory sold during the period was acquired and paid for by Cumberland as part of the acquisition of the brand during 2018.

The increase in costs of product sold expense was due to the write off of expired inventory.

This change in costs of products sold as a percentage of revenue was attributable to a change in the product sales mix, particularly the addition of our Sancuso sales.

Selling and marketing .

Selling and marketing expense for the year ended December 31, 2022, were $16.7 million compared to $15.0 million in the prior year, which was an increase of $1.6 million.

This increase was primarily a result of increases in direct promotional spending.

This increase was primarily a result of an increase in marketing expenses associated with the Sancuso acquisition including royalty costs, promotional spending and the cost associated with our new Oncology division.

Research and development .

Research and development costs for the year ended December 31, 2021 were $5.7 million, compared to $5.8 million last year, representing a decrease of $0.1 million.

Research and development costs for the year ended December 31, 2022, were $6.7 million, compared to $5.7 million last year, representing an increase of $1.0 million.

A portion of our research and development costs is variable based on the number of trials, study sites, number of patients and the cost per patient in each of our clinical programs.

We continue to fund our ongoing clinical initiatives associated with our pipeline products.

During 2021, we experienced a decrease in study activity which was partially offset by increases in our annual FDA user fees.

During 2022, we also experienced an increase in our annual FDA user fees.

General and administrative .

General and administrative expenses for the year ended December 31, 2022, were $10.2 million compared to $9.8 million in the prior year.

The decrease resulted from a decrease in legal and professional fees as well as lower stock based compensation during the period partially offset by corporate bonuses.

The change resulted from an increase in insurance expenses.

The components of the statements of operations discussed above reflect the following impacts from Vibativ:

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Net revenue (1)

$ 7,637,462 $ 11,704,062

Cost of products sold (2)

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Vibativ contribution $ 4,018,466 $ 4,878,140

(1) 2022 net revenue includes a $150,000 payment to Cumberland required under the terms of a new licensee agreement.

(2) The Vibativ inventory included in the costs of product sold during the period was acquired and paid for by Cumberland as part of the acquisition of the brand during 2018.

Amortization.

Amortization expenses represent the ratable use of our capitalized intangible assets including product and license rights, patents, trademarks and patent defense costs.

Amortization for 2021 totaled approximately $4.4 million consistent with the prior year.

Income taxes .

Income taxes totaled $34,891 for the year ended December 31, 2021 and $55,902 for the year ended December 31, 2020.

Year ended December 31, 2020 compared to year ended December 31, 2019

The following table presents the statements of operations for the years ended December 31, 2020 and 2019:

Years ended December 31,

2020 2019 Change

Net revenues $ 37,441,134 $ 34,388,295 $ 3,052,839

Costs and expenses:

Cost of products sold 8,653,020 7,421,316 1,231,704

Selling and marketing 14,765,465 15,277,740 (512,275)

Research and development 5,773,825 6,868,480 (1,094,655)

General and administrative 10,196,299 9,974,384 221,915

Amortization 4,434,120 4,134,557 299,563

Total costs and expenses 43,822,729 43,676,477 146,252

Operating income (loss) (6,381,595) (9,288,182) 2,906,587

Interest income 75,345 243,364 (168,019)

Interest expense (263,627) (246,186) (17,441)

Income (loss) before income taxes (6,569,877) (9,291,004) 2,721,127

Income tax (expense) benefit (55,902) 79,316 (135,218)

Net income (loss) from continuing operations $ (6,625,779) $ (9,211,688) $ 2,585,909

The following table summarizes net revenues for the years presented:

Years ended December 31,

2020 2019 Change

Kristalose $ 15,567,562 $ 12,895,120 $ 2,672,442

Vibativ 10,870,990 8,691,550 2,179,440

Caldolor 5,336,943 5,222,282 114,661

Acetadote 1,874,206 3,824,449 (1,950,243)

Omeclamox-Pak 257,088 837,829 (580,741)

Vaprisol 1,077,227 936,615 140,612

RediTrex 856,657 — 856,657

Other 1,600,461 1,980,450 (379,989)

Total net revenues $ 37,441,134 $ 34,388,295 $ 3,052,839

Net revenues.

Net revenues for the year ended December 31, 2020 were approximately $37.4 million compared to $34.4 million for the year ended December 31, 2019, representing an increase of $3.1 million or 8.9%.

As detailed in the table above, net revenue increased during the 2020 period for four of our marketed products:

Kristalose, Vibativ, Caldolor and Vaprisol.

The improvement was led by largest product, Kristalose which delivered $2.7 million in revenue growth, followed by Vibativ, which delivered an additional $2.2 million during 2020 compared to 2019.

Our newest product, at the time, RediTrex, contributed $0.9 million in incremental revenue during the year.

These increases were partially offset by decreased net product sales of Acetadote and Omeclamox-Pak.

We returned the exclusive rights to commercialize Ethyol and Totect in the United States to Clinigen effective January 1, 2020.

As a result, the 2019 revenues and expenses associated with the products are combined and reclassified into discontinued operations in our financial statements.

In exchange for the return of these product license rights and associated non-compete provision, Cumberland is receiving $5 million in financial consideration paid over the two-years following the return date.

The first four installments totaling $3.0 million due from Clinigen were recorded during the year ended December 31, 2020, as discontinued operations.

We do not incur expenses associated with these payments from Clinigen.

Kristalose revenue increased by $2.7 million, or 20.7%, compared to December 31, 2019 primarily as a result of improved sales volume for the product.

Vibativ revenue was $10.9 million compared to $8.7 million in the prior year.

This $2.2 million or 25.1% increase in net revenue was a result of improved sales volume for the product.

Caldolor revenue experienced a 2.2% increase to $5.3 million during the year ended December 31, 2020 compared to $5.2 million in the same period in the prior year.

This increase in Caldolor revenue for the year ended December 31, 2020 w as the result of an increase in international shipments when compared to the prior year, which were partially offset by lower domestic shipments of the product, significantly impacted by COVID-19 and a reduction in elective surgeries.

Vaprisol revenue increased $0.1 million during the year ended December 31, 2020 compared to the prior year period due primarily to increased sales of the product.

Acetadote revenue included net sales of our branded product and our share of net sales from our Authorized Generic.

For the year ended December 31, 2020, the Acetadote net revenue decreased $2.0 million compared to the prior year due to a reduction in sales volume, primarily impacting the Authorized Generic.

Omeclamox-Pak revenue decreased $0.6 million during the year ended December 31, 2020 compared to the prior year.

The decrease was largely the result of decreased sales volume, which were negatively impacted by COVID-19.

Cost of products sold .

Cost of products sold for the year ended December 31, 2020 were $8.7 million compared to $7.4 million in the prior year.

As a percentage of net revenues, cost of products sold were 23.1% compared to 21.6% during the prior year.

This change in costs of products sold as a percentage of revenue was attributable to a change in the product sales mix, particularly the increase in sales of Vibativ.

The Vibativ inventory sold during the period was acquired and paid for by Cumberland as part of the acquisition of the brand during 2018.

The increase in costs of product sold expense was also the result of a step up in the fair value of the inventory over the cost to Theravance, as required under purchase accounting rules.

Selling and marketing .

Selling and marketing expense for the year ended December 31, 2020 were $14.8 million compared to $15.3 million in the prior year, which was a decrease of $0.5 million.

This decrease was primarily a result of decreases in direct promotional spending, meeting costs and travel expenses.

These decreases were partially offset by increases in salaries as well as increases in royalty costs associated with growth in Vibativ sales during the period.

Research and development .

Research and development costs for the year ended December 31, 2020 were $5.8 million, compared to $6.9 million in the prior year, representing a decrease of $1.1 million.

A portion of our research and development costs is variable based on the number of trials, study sites, number of patients and the cost per patient in each of our clinical programs.

We continue to fund our ongoing clinical initiatives associated with our pipeline products.

During 2020, we experienced a decrease in study activity which was partially offset by increases in our annual FDA user fees.

General and administrative .

General and administrative expenses for the year ended December 31, 2020 were $10.2 million compared to $10.0 million in the prior year.

The increase resulted from an increase in legal and professional fees partially offset by lower stock based compensation during the period.

The components of the statements of operations discussed above reflect the following impacts from Vibativ:

Financial Impact of Vibativ Years ended December 31,

The components of the statements of operations discussed above reflect the following impacts from Sancuso:

Financial Impact of Sancuso Years ended December 31,

Net revenue (1)

Cost of products sold (1)

$ 13,555,603 $ —

Cost of products sold (2)

Royalty and operating expenses 4,202,026 —

Vibativ contribution $ 5,552,441 $ 4,365,681

(1) The Vibativ inventory included in the costs of product sold during the period was acquired and paid for by Cumberland as part of the acquisition of the brand during 2018.

Sancuso contribution $ 7,809,977 $ —

(1) 2022 net revenue includes a $250,000 payment to Cumberland required under the terms of a new licensee agreement and a $100,000 payment to Cumberland required under a sales representation agreement.

(2) The Sancuso inventory included in the costs of product sold during the period was acquired and paid for by Cumberland as part of the acquisition of the brand during 2022.

Amortization.

Amortization expenses represent the ratable use of our capitalized intangible assets including product and license rights, patents, trademarks and patent defense costs.

Amortization for 2020 totaled approximately $4.4 million compared to $4.1 million in the prior year.

The increase in expense was attributable to the amortization of additional product rights and capitalized patents.

Amortization for 2022 totaled approximately $5.1 million which is an increase of $0.7 million due to the addition of Sancuso.

Income taxes .

Income taxes totaled $55,902 for the year ended December 31, 2020 and were an income tax benefit of $79,316 for the year ended December 31, 2019.

Income taxes totaled $68,850 for the year ended December 31, 2022, and $34,891 for the year ended December 31, 2021.

LIQUIDITY AND CAPITAL RESOURCES

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The following table summarizes our net changes in cash and cash equivalents for the years ended December 31:

2021 2020 2019

Cash provided by (used in):

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$ (7,282,846) $ 2,287,020

The net $2.3 million increase in cash and cash equivalents for the year ended December 31, 2021 was attributable to cash provided by operating activities partially offset by cash used by investing and financing activities.

The net $7.3 million decrease in cash and cash equivalents for the year ended December 31, 2022, was attributable to cash provided by operating activities offset by cash used in investing and financing activities.

Cash provided by operating activities of $8.5 million includes a decrease of inventory of $0.9 million, most of which was Vibativ and Sancuso related, an increase in accounts payable and other accrued liabilities of $14.5 million, partially offset by a $6.1 million increase in accounts receivable and a decrease in non-cash contingent consideration of $2.1 million.

Cash used in investing activities of $13.7 million was the result of the acquisition of Sancuso of $13.5 million, additions to intangibles of $2.0 million, additions to property and equipment of $0.1 million and the proceeds of officer life insurance proceeds of $0.9 million.

Our financing activities included payments of $2.2 million of contingent consideration for Vibativ and Sancuso and $1.1 million in cash used to repurchase shares of our common stock.

As noted above, we continue to repurchase shares of our common stock, as discussed in Part II, Item 5, "Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities", of this Form 10-K.

The net $2.3 million increase in cash and cash equivalents for the year ended December 31, 2021, was attributable to cash provided by operating activities partially offset by cash used in investing and financing activities.

Cash provided by operating activities of $6.3 million includes a reduction of inventory of $4.8 million, most of which was Vibativ related, and cash payments received of $2.0 million provided by discontinued operations.

Cash used by investing activities of $0.5 million was the result of additions to intangibles of $0.3 million, additions to property and equipment of $0.1 million and the payment of $0.2 million to the WHC joint venture.

Cash used in investing activities of $0.5 million was the result of additions to intangibles of $0.3 million, additions to property and equipment of $0.1 million and the payment of $0.2 million to the WHC joint venture.

Our financing activities included payments of $2.2 million of contingent consideration for Vibativ and $1.4 million in cash used to repurchase shares of our common stock.

The net $3.5 million decrease in cash and cash equivalents for the year ended December 31, 2020 was attributable to cash used by investing and financing activities partially offset by cash provided by operating activities.

Cash provided by operating activities of $5.4 million included non-cash expense add backs for depreciation and amortization and share-based compensation expense totaling $5.8 million and changes in our

working capital that provided net cash of $5.4 million.

The cash provided by operating activities included $3.5 million provided by discontinued operations.

This increase was partially offset by a net loss for the period of $6.6 million.

Cash used by investing activities of $1.8 million was the result of additions to intangibles of $2.0 million, which included the payment of $1.0 million for product rights, additions to property and equipment of $0.1 million and partially offset by proceeds from the surrender of life insurance of $0.5 million.

Our financing activities included a net repayment of $3.5 million under our line of credit net, $1.9 million in cash used to repurchase shares of our common stock as well as the $0.8 million used for the repurchase of a portion of CET's shares.

The net $0.3 million increase in cash and cash equivalents for the year ended December 31, 2019 was attributable to cash provided by operating and investing activities offset by cash used in financing activities.

Cash provided by operating activities of $3.1 million included non-cash expense add backs for depreciation and amortization and share-based compensation expense totaling $5.9 million.

The cash provided by operating activities included $5.5 million provided by discontinued operations.

These increases were partially offset by a net loss for the period of $3.5 million.

Changes in our working capital provided net cash of $1.6 million.

Cash provided by investing activities of $2.3 million included net sales of marketable securities of $8.3 million, partially offset by the $5 million payment to Theravance as part of the acquisition of Vibativ and the addition to intangibles of $0.8 million.

Our financing activities included a net repayment of $1.5 million under our line of credit net and $3.5 million in cash used to repurchase shares of our common stock.

Shelf Registration

5 unchanged sentences

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

The Company intends to continue an ATM feature through B.

Riley FBR, Inc.

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

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

3 unchanged sentences

which allows 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, 2022.

Debt Agreement

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

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

On September 29, 2022, the Company entered into the Ninth Amendment to the Revolving Credit Loan Agreement with Pinnacle Bank (as amended, the "Pinnacle Agreement") to update the Funded Debt Ratio to mean the ratio of (i) Funded Debt less the amount of Unrestricted Cash in excess of $8,500,000, to (ii) EBITDA, as determined at the end of each fiscal quarter on a rolling four (4) quarter basis.

For the year ended December 31, 2022, we were in compliance with the Funded Debt Ratio financial covenant.

On June 30, 2022, the Company entered into the Eighth Amendment to the Revolving Credit Loan Agreement with Pinnacle Bank permitting the Maximum Funded Debt Ratio to be calculated on a rolling four-quarter basis to be no more than 3.00 to 1.00 for the second and third quarters of 2022 and 2.50 to 1.00 for each quarter thereafter.

On March 31, 2022, the Company and Pinnacle Bank entered into a Seventh Amendment to the Revolving Credit Loan Agreement to revise and update the Maximum Funded Debt Ratio financial covenant and to delete from the Pinnacle Agreement the Funded Debt to Tangible Capital Ratio financial covenant.

These changes were made to more appropriately reflect the impact from the Sancuso acquisition.

On December 31, 2021, the Company and Pinnacle Bank entered into the Fifth Amendment to the Revolving Credit Note and the Sixth Amendment to the Revolving Credit Loan Agreement in order to increase the principal amount of the Note from $15 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.

Under the Pinnacle Agreement, we were initially subject to one financial covenant, the maintenance of a Funded Debt Ratio.

On August 14, 2018, we 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 Third Amendment modified 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.

We were in compliance with the Tangible Capital Ratio financial covenant as of December 31, 2021 and we expect to maintain compliance with the Tangible Capital Ratio financial covenant in future periods.

Paycheck Protection Program

2 unchanged sentences

From the date of funding, we have used the loan amount for such qualifying expenses.

Due to the assistance from our PPP loan, the Company did not lay off or furlough any employees as a result of the Covid-19 pandemic.

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

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

As a result, the Company recorded the $2,187,140 as a deferred income liability, which was included as a component of other current liabilities on the condensed consolidated balance sheet at December 31, 2020.

In October 2020, Cumberland submitted a request for the loan’s forgiveness.

14 unchanged sentences

4,154,823 1,008,120 439,749 493,145 452,050 1,761,759

Sancuso upfront purchase payment 13,500,000 13,500,000 — — — —

Sancuso contingent consideration liability payments (4)

10 unchanged sentences

The contingent consideration liability represents the fair value of the royalty payments of up to 10% of future net sales as part of the Sancuso acquisition.

The Broadwest contractual cash obligation will begin upon commencement in Q4 2022.

The Broadwest contractual cash obligation began upon commencement in October 2022.

OFF-BALANCE SHEET ARRANGEMENTS

13 unchanged sentences

The election is not available for either available-for-sale or held-to-maturity debt securities.

We will adopt both ASU 2016-13 and ASU 2019-05 on January 1, 2023.

We adopted both ASU 2016-13 and ASU 2019-05 on January 1, 2023.

The adoption of ASU 2016-13 and ASU 2019-05 are not expected to have a material impact on the Company’s consolidated financial statements.

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 7. Management’s Discussion and Analysis