What changed in this filing

/stocks — the workspaceLOADING

Item 9A. Controls and Procedures

2023-03-13 compared with 2022-03-11 · 294 added, 337 removed, 1050 unchanged (38% of the section changed)

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Management’s Report on Internal Control over Financial Reporting

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

Nashville, TN PCAOB ID:

686 and BDO USA, LLP;

Reports of Independent Registered Public Accounting Firm – Consolidated Financial Statements - FORVIS , LLP (form er ly BKD, LLP) ;

Nashville, TN PCAOB ID:

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Consolidated Statements of Equity

Notes to the Consolidated Financial Statements

Notes to Consolidated Financial Statements

(2) Financial Statement Schedule

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333-142535) as filed with the SEC on July 11, 2007

Registrant's Quarterly Report on Form 10-Q (File No.

001-33637) as filed with the SEC on May13, 2022

10.11# Employment Agreement dated March 7 , 202 2 , effective as of January 1, 202 2 , by and between A.J.

Kazimi and Cumberland Pharmaceuticals Inc.

10 .12# Employment Agreement dated March 8, 2021, effective as of January 1, 2021, by and between Martin E.

Cearnal and Cumberland Pharmaceuticals Inc.

10.13# Employment Agreement dated March 8, 2021, effective as of January 1, 2021, by and between Leo B.

Pavliv and Cumberland Pharmaceuticals Inc.

, inco rporated 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 May 13, 2022

10.14# Employment Agreement dated March 7, 2022, effective as of January 1, 2022, by and between John M.

Hamm and Cumberland Pharmaceuticals Inc.

Hamm and Cumberland Pharmaceuticals Inc., incorporated herein by reference to Exhibit 10.3 of the Registrant’s Quarterly Report on Form 10-Q (File No.

001-33637) as filed with the SEC on May 13, 2022

10.15# Employment Agreement dated March 7 , 202 2 , effective as of January 1, 2021, by and between James L.

Herman and Cumberland Pharmaceuticals Inc.

, incorporated herein by reference to Exhibit 10.4 of the Registrant’s Quarterly Report on Form 10-Q (File No.

001-33637) as filed with the SEC on May 13, 2022

10.17# 1999 Stock Option Plan of Cumberland Pharmaceuticals Inc., incorporated herein by reference to the corresponding exhibit to the Registrant’s Registration Statement on Form S-1 (File No.

5 unchanged sentences

333-142535) as filed with the SEC on May 1, 2007

10.21† Lease Agreement, dated September 10, 2005, by and between Nashville Hines Development, LLC and Cumberland Pharmaceuticals Inc., incorporated herein by reference to the corresponding exhibit to Amendment No.

3 of the Registrant’s Registration Statement on Form S-1 (File No.

333-142535) as filed with the SEC on July 11, 2007

10.21.1† First Amendment to Office Lease Agreement, dated April 25, 2008, by and between 2525 West End, LLC (successor in interest to Nashville Hines Development LLC) and Cumberland Pharmaceuticals Inc., incorporated herein by reference to the corresponding exhibit to Amendment No.

10 of the Registrant’s Registration Statement on Form S-1 (File No.

333-142535) as filed with the SEC on May 21, 2008

10.21.2† Second Amendment to Office Lease Agreement, dated March 2, 2010, by and between 2525 West End, LLC (successor in interest to Nashville Hines Development LLC) and Cumberland Pharmaceuticals Inc., incorporated herein by reference to the corresponding exhibit to the Registrant’s Quarterly Report on Form 10-Q (File No.

001-33637) as filed with the SEC on May 17, 2010

10.21.3† Third Amendment to Office Lease Agreement, dated September 29, 2015, by and between 2525 West End, LLC (successor in interest to Nashville Hines Development LLC) and Cumberland Pharmaceuticals Inc., incorporated herein by reference to the corresponding exhibit to the Registrant's Quarterly Report on Form 10-Q (File No.

001-33637) as filed with the SEC on November 6, 2015

10.23† Amended and Restated Lease Agreement, dated November 11, 2004, by and between The Gateway to Nashville LLC and Cumberland Emerging Technologies, 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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001-33637) as filed with the SEC on August 14, 2020

10.40 Payment Protection Program Note dated April 20, 2020, by and between Cumberland Pharmaceuticals Inc.

and Pinnacle Bank, incorporated herein by reference to Exhibit 10.3 of the Registrant’s Quarterly Report on Form 10-Q (File No.

001-33637) as filed with the SEC on August 14, 2020

10.41 Third Amendment to Revolving Credit Note and Fourth Amendment to Revolving Credit Loan Agreement, dated as of October 7, 2020, by and between Cumberland Pharmaceuticals Inc.

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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

and Pinnacle Bank, incorporated herein by reference to the corresponding exhibit of the Registrant’s Annual Report on Form 10-K (File No.

001-33637) as filed with the SEC on March 11, 2022

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

and 1600 West End Avenue Partners, LLC.

and 1600 West End Avenue Partners, LLC., incorporated herein by reference to the corresponding exhibit of the Registrant’s Annual Report on Form 10-K (File No.

001-33637) as filed with the SEC on March 11, 2022

10.45 Seventh Amendment to Revolving Credit Loan Agreement, dated as of March 31, 2022, by and between Cumberland Pharmaceuticals Inc.

and Pinnacle Bank, incorporated herein by reference to Exhibit 10.5 of the Registrant’s Quarterly Report on Form 10-Q (File No.

001-33637) as filed with the SEC on May 13, 2022

10.46 Eighth Amendment to Revolving Credit Loan Agreement, dated as of June 30, 2022, 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 August 12, 2022

10.47 Ninth Amendment to Revolving Credit Loan Agreement, dated as of September 29, 2022, 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 14, 2022

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.

333-142535) as filed with the SEC on May 1, 2007

23.1 Consent of BDO USA, LLP

23.2 Consent of BKD, LLP

23.1 Consent of FORVIS , LLP

31.1 Certification of Chief Executive Officer Pursuant to Rule 13-14(a) of the Securities Exchange Act of 1934 as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

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Accounting Officer

/s/ Martin E.

Cearnal Director March 11, 2022

/s/ Gordon R.

1 unchanged sentence

Jones Director March 13, 2023

Jacobs Director March 11, 2022

/s/ Caroline R.

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Galante Director March 13, 2023

/s/ Martin S.

Director March 13, 2023

MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

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Nashville, Tennessee

Opinion on the Financial Statements

Opinion on the Consolidated Financial Statements

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

(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”).

(the "Company") as of December 31, 2022 and 2021, the related consolidated statements of operations, equity, and cash flows for each of the years in the two-year period ended December 31, 2022, and the related notes and schedule (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, 2022 and 2021, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2022 , in conformity with accounting principles generally accepted in the United States of America.

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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.

Our audits 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 audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that:

(1) relates to accounts or disclosures that are material to the financial statements, and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which it relates.

The critical audit matters communicated below are matters arising from the current-period audit of the financial statements that were communicated or required to be communicated to the audit committee and that:

(1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

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 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 described in Note 2 to the consolidated financial statements, the allowances against accounts receivable and accrued liabilities for chargebacks, discounts, service fees and expired product returns are determined on a product-by-product basis and 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.

These allowances are established based on the contractual terms with direct and indirect customers and analyses of historical levels of chargebacks, discounts and returns of expired product.

As of December 31, 2022, allowances in accounts receivable for chargebacks, cash discounts, and damaged goods were $0.6 million and the estimated liability for rebates, coupons, product returns, and certain fees were $8.3 million.

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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.

Management tracks the various types of allowances on several different schedules, each of which relates to different contracts agreed to with various customers or the interplay with government payors.

We identified the customer allowances for chargebacks, discounts, and damaged goods and accruals for rebates, coupons, product returns, and certain fees as a critical audit matter.

The principal consideration for our determination was the significant measurement uncertainty involved in developing the reserves.

Management exercises judgment in computing the amount of sales subject to the allowances and tracks the amount of allowances taken over time.

All of this in turn led to a high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating management’s significant assumptions.

We identified the estimated sales allowances and accruals as a critical audit matter.

All of this in turn led to a high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating management’s significant assumptions, which includes the assumption that historical activity is a good predictor of future allowance activity and modifications made to calculations based on more recent history.

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

• 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.

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

• Tested the 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 consolidated financial statements, reconciling various allowance percentages to signed customer contracts, and tracing allowance amounts used by various customers during the year to supporting documentation.

• Evaluated 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, such as changes in the shelf life of the products.

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

• Developed an independent expectation of the reserve balance for certain allowances and comparing that to the balance recorded on the December 31, 2022, consolidated balance sheet.

• Compared actual activity for chargebacks, discounts, and damaged goods and rebates, coupons, product returns, and certain fees reported after December 31, 2022, to estimated reserves and accruals on the December 31, 2022, consolidated balance sheet.

Valuation of Contingent Consideration, Acquired Intangible Assets and Inventory Associated with Business Combinations

As described in Note 3 to the consolidated financial statements, the Company 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.

during the year ended December 31, 2022, resulting in the expansion of the Company’s product offerings.

This acquisition resulted in additional goodwill of $0.03 million, additional intangible assets of $14.1 million, and contingent liabilities of $5.1 million being recognized on the Company’s consolidated balance

As part of this acquisition, management assessed that the acquisition qualified as a business combination and all identifiable assets and liabilities acquired were recorded at fair value as part of the purchase price allocation as of the asset date.

The identification and valuation of such acquired assets and assumed liabilities requires management to exercise significant judgment and consider the use of outside vendors to estimate the fair value allocations.

We identified the consummated acquisition and the valuation of acquired assets and assumed liabilities as a critical audit matter.

Our principal consideration for this determination included high degree of audit effort, including utilizing individuals with specialized skills, in evaluating management's significant assumptions including its forecasts of future performance of the component, discount rates and other inputs into the model used in computing the fair value of the intangible asset, acquired inventory and contingent consideration liability.

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

• We obtained an understanding of management’s process for determining the fair value measurements of the contingent consideration, acquired intangible assets and inventory, including reviewing the executed Asset Purchase Agreement documents to gain an understanding of the underlying terms of the consummated acquisition.

• Evaluated forward-looking assumptions, such as forecasted revenue and earnings used by management by performing procedures that included, but not limited to, comparisons to industry and historical performance data, and sensitivity analysis to assess their reasonableness.

• Utilizing a valuation specialist, we evaluated the significant assumptions and methods utilized in developing the fair value of the contingent consideration, acquired intangible assets, and inventory including:

◦ Evaluated the reasonableness of the Company’s third-party valuation models and methodologies, expected cash flow calculations, and reviewed significant assumptions.

◦ Developed an independent calculation of the discount rates used and compared our rates to those used by management.

◦ Prepared an independent calculation of the fair value of the contingent consideration and the intangible assets to test the accuracy of management’s valuation models.

• Reviewing and evaluating the adequacy of the disclosures made in the Company’s SEC filings.

/s/ FORVIS, LLP

(Formerly, BKD, LLP)

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

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March 13, 2023

Report of Independent Registered Public Accounting Firm

Shareholders and Board of Directors

CUMBERLAND PHARMACEUTICALS INC.

Nashville, Tennessee

Opinion on the Consolidated Financial Statements

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 audit.

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.

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.

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.

Accordingly, we express no such opinion.

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 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

We served as the Company's auditor from 2017 to 2020.

Nashville, Tennessee

March 20, 2020, except for the effects of presenting discontinued operations as discussed in Note 19, as to which the date is December 10, 2020.

CUMBERLAND PHARMACEUTICALS INC.

AND SUBSIDIARIES

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Years ended December 31, 2022 and 2021

2021 2020 2019

Net product revenue $ 40,681,182 $ 35,045,259

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Other income — 2,187,140

Other income - gain on insurance proceeds 611,330 —

Interest expense ( 585,995 ) ( 98,031 )

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Years ended December 31, 2022 and 2021

2021 2020 2019

Cash flows from operating activities:

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Decrease in non-cash contingent consideration ( 2,088,296 ) ( 1,147,750 )

Write off of deferred offering costs — 440,091 —

Increase in cash surrender value of life insurance policies over premiums paid ( 282,207 ) ( 154,611 ) —

Decrease (Increase) in cash surrender value of life insurance policies over premiums paid 613,657 ( 282,207 )

Noncash interest expense 11,237 34,053

Noncash investment gains — — ( 26,315 )

Noncash gain on RediTrex transaction ( 37,882 ) —

Gain on receipt of life insurance policies ( 611,330 ) —

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

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Other long-term liabilities 419,659 ( 1,343,605 )

Net cash provided by (used in) operating activities from continuing operations 4,348,121 1,896,819 ( 2,455,240 )

Net cash provided by operating activities from continuing operations 8,453,396 4,348,121

Discontinued operations — 1,994,322

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Additions to intangible assets ( 1,971,662 ) ( 250,930 )

Return of RediTrex 1,000,000 —

Proceeds from surrender of life insurance policies — 85,944

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

Life insurance policy proceeds received 877,597 —

Settlement of patent litigation 21,757 —

Cash paid for acquisition ( 13,500,000 ) —

Note receivable investment funding — ( 200,000 )

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

Purchases of marketable securities — — ( 11,745,138 )

Net cash provided by (used in) investing activities ( 501,893 ) ( 1,757,789 ) 2,297,848

2021 2020 2019

Net cash used in investing activities ( 13,674,456 ) ( 501,893 )

CUMBERLAND PHARMACEUTICALS INC.

AND SUBSIDIARIES

Consolidated Statements of Cash Flows

Years ended December 31, 2022 and 2021

Cash flows from financing activities:

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Cash settlement of contingent consideration ( 2,208,744 ) ( 2,166,681 )

Repurchase of subsidiary shares from noncontrolling interest — ( 800,000 ) —

Sale of subsidiary shares to noncontrolling interest — — 1,000,000

Payments of deferred equity offering costs — ( 135,405 ) —

Payments of deferred financing costs — ( 10,000 ) ( 52,500 )

Net cash provided by (used in) financing activities ( 3,553,530 ) ( 7,116,111 ) ( 5,080,529 )

Net cash used in financing activities ( 2,061,786 ) ( 3,553,530 )

Net increase (decrease) in cash and cash equivalents ( 7,282,846 ) 2,287,020

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Supplemental disclosure of cash flow information:

Net cash paid (refunded) during the year for:

Net cash paid during the year for:

Interest $ 523,161 $ 63,978

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Change in unpaid invoices for offering costs ( 94,689 ) ( 90,512 )

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

Recognition of operating lease assets and liabilities through adoption of ASC 842 4,590,978 —

Vesting of shares related to RediTrex approval — — 862,200

Repurchase of subsidiary shares from noncontrolling interests — — ( 800,000 )

Additions to intangible assets from final purchase price allocation — — 148,000

RediTrex forgiveness of milestone payable ( 1,000,000 ) —

Return of shares related to RediTrex 399,600 —

See accompanying notes to consolidated financial statements

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Net income (loss) — — ( 3,507,587 ) ( 95,212 ) ( 3,602,799 )

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 192,684 741,867 — — 741,867

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Net income (loss) — $ — $ ( 5,570,241 ) $ ( 79,798 ) $ ( 5,650,039 )

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

Repurchase of common shares ( 503,626 ) ( 1,839,471 ) — — ( 1,839,471 )

Balance, December 31, 2020 14,988,429 $ 49,121,523 $ ( 2,131,013 ) $ ( 117,116 ) $ 46,873,394

Net income (loss) — — ( 3,507,587 ) ( 95,212 ) ( 3,602,799 )

Return of common stock - Methotrexate ( 180,000 ) ( 399,600 ) — — ( 399,600 )

Share-based compensation 171,655 447,503 — — 447,503

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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, rheumatology and oncology.

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

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

The Company's ownership in CET is now 85 %.

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

The Company's ownership in CET is now 85 % 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 $ 79,798 and $ 95,212 for the years ended December 31, 2022 and 2021, respectively.

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CPSC is the subsidiary that employs the Company's hospital and field sales force personnel.

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.

The Foundation was formed as a nonprofit corporation designed to qualify as a tax-exempt organization pursuant to Section 501(a) of the Internal Revenue Code.

The Foundation’s Board of Directors is comprised of Cumberland Pharmaceuticals executives who are responsible for overseeing the Foundation’s ongoing activities including charitable contributions.

CUMBERLAND PHARMACEUTICALS INC.

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Notes to Consolidated Financial Statements (Continued)

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 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 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.

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

In 2022, the Company made a $ 25,000 cash contribution to the Foundation.

(2) Significant Accounting Policies

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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.

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

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

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

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

Use of Estimates

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Total revenues are primarily attributable to U.S.

Net revenues from customers outside the United States were approximately $ 2.2 million, $ 2.4 million and $ 1.5 million for the years ended December 31, 2021, 2020 and 2019, respectively.

Net revenues from customers outside the United States were approximately $ 1.5 million and $ 2.2 million for the years ended December 31, 2022 and 2021, respectively.

Fair Value of Financial Instruments

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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 at third party facilities.

The Company then warehouses such goods until distribution and sale at third party facilities located in the U.S.

and international locations.

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

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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 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 2021.

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

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The Company did not issue any shares under this ATM during the year ended December 31, 2022.

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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Intangible Assets and Goodwill

The Company’s intangible assets and goodwill consist of capitalized costs related to product and license rights, patents, trademarks and goodwill obtained in the Vibativ acquisition.

The Company’s intangible assets and goodwill consist of capitalized costs related to product and license rights, patents, trademarks and goodwill obtained in the Vibativ and Sancuso acquisitions.

Goodwill is not amortized for financial reporting purposes, but is subject to impairment analysis at least annually.

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The impairment analysis for goodwill requires a comparison of fair value to the carrying value of the reporting unit.

The Company's goodwill was acquired in November 2018 with the Vibativ acquisition.

As a result, the Vibativ component of the Company is the reporting unit evaluated for goodwill impairment.

Cumberland determined the fair value of the reporting unit through current and future estimated revenue and profitability of the product.

The Company's goodwill was acquired in November 2018 with the Vibativ acquisition and in January 2022 with the Sancuso acquisition.

As a result, the Vibativ and Sancuso components of the Company are the reporting units evaluated for goodwill impairment.

Cumberland determined the fair value of the reporting units through current and future estimated revenue and profitability of the product.

The Company recorded no impairment charges during 2022 and 2021.

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These allowances are established based on the contractual terms with direct and indirect customers and analyses of historical levels of chargebacks, discounts and returns of expired product.

Other organizations, such as managed care providers, pharmacy benefit management companies and government agencies, may receive rebates from the Company based on either negotiated contracts to carry the Company’s products or reimbursements for filled prescriptions.

These entities are considered indirect customers of the Company.

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.

CUMBERLAND PHARMACEUTICALS INC.

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Notes to Consolidated Financial Statements (Continued)

These entities are considered indirect customers of the Company.

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.

Sales Returns

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Distribution costs were as follows for the years ended December 31:

2021 2020 2019

Distribution costs $ 857,842 $ 806,311

2 unchanged sentences

Advertising costs were as follows for the years ended December 31:

2021 2020 2019

Advertising costs $ 2,927,041 $ 1,927,864

CUMBERLAND PHARMACEUTICALS INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

Research and Development

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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.

CUMBERLAND PHARMACEUTICALS INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

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

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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 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

CUMBERLAND PHARMACEUTICALS INC.

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Notes to Consolidated Financial Statements (Continued)

promotion of either Ethyol or Totect or any competing products following December 31, 2019.

incurred under these collaborative agreements are included in research and development expenses and funding received from grants are recorded as net revenues in the consolidated statements of operations.

Related Party Transactions

In July 2022, Cumberland 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 Martin is affiliated.

In 2022, the Company paid Martin's law firm $ 0.04 million.

Discontinued Operations

During May 2019, Cumberland entered into a Dissolution Agreement ("Dissolution Agreement") with Clinigen Healthcare Limited ("Clinigen") in which the Company returned the exclusive rights to commercialize Ethyol ® and Totect ® in the United States to Clinigen.

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

The Company's exit from 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.

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Recent Accounting Guidance

Recent Accounting Pronouncements - Not Yet Adopted

Recent Accounting Pronouncements Adopted

In June 2016, the FASB issued ASU No.

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

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

The Company 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.

(3) RediTrex ® and Vibativ ®

(3) RediTrex ® , Vibativ ® and Sancuso ®

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

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The Company provided $ 0.9 million in consideration through a grant of 180,000 restricted shares of Cumberland common stock to be vested upon the FDA approval of the first Nordic product.

Cumberland also agreed to provide Nordic a series of payments tied to the products’ FDA approval, launch and achievement of certain sales milestones.

Cumberland also agreed to provide Nordic a series of payments

CUMBERLAND PHARMACEUTICALS INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

tied to the products’ FDA approval, launch and achievement of certain sales milestones.

Under the terms of the agreement, Cumberland is responsible for the product registration and commercialization in the U.S.

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

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

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.

CUMBERLAND PHARMACEUTICALS INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

This milestone payment was paid in July 2020.

During December 2020, Cumberland began distributing RediTrex which also resulted in a $ 1.0 million milestone payment due to Nordic.

The full launch of RediTrex occurred in October 2021.

Effective July 12, 2022, the Company entered into an amendment to our agreement with Nordic whereby they may assume responsibility for RediTrex marketing authorization in the U.S.

and the opportunity to commercialize the product in the U.S.

after June 30, 2023.

Cumberland will continue to distribute and support the product until then.

In accordance with the terms of the amendment, Nordic has agreed to return the 180,000 restricted Cumberland shares we previously issued to Nordic which will be cancelled, refund to Cumberland the milestone payment of $ 1.0 million we made associated with the brand's U.S.

approval and issue a credit note in favor of the Company in the amount of $ 1.0 million for the unpaid milestone payment due from us for launch of the product line.

The companies will cooperate on any transition and Cumberland will receive a long-term royalty on any Nordic sales of the product.

Cumberland had approximately $ 2.6 million in net intangible assets related to RediTrex at December 31, 2021.

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.

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

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

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

In addition, 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 after a $ 2.5 million threshold is met.

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.

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

Consideration:

Cash paid at closing $ 20,000,000

Cash payment during early 2019 5,000,000

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

Total consideration $ 34,182,000

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

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

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

The following table presents the changes in the Company's Level 3 contingent consideration liability.

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

CUMBERLAND PHARMACEUTICALS INC.

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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.

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

Contingent consideration liability

Balance at November 12, 2018 $ 9,034,000

Change in fair value of contingent consideration included in operating expenses ( 40,000 )

Contingent consideration earned and accrued in operating expenses 508,000

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

Adjustment to initial fair value of the contingent consideration liability 148,000

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

Change in fair value of contingent consideration included in operating expenses ( 804,167 )

Contingent consideration earned and accrued in operating expenses 820,864

Change in fair value ( 1,147,750 )

Contingent consideration earned and accrued 1,629,506

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

Cash payment of royalty during the period ( 1,133,113 )

Change in fair value of contingent consideration included in operating expenses ( 1,160,202 )

Contingent consideration earned and accrued in operating expenses 1,546,346

Change in fair value ( 2,104,690 )

Contingent consideration earned and accrued 876,999

Balance at December 31, 2022 $ 4,154,823

The current portion of the contingent consideration liability is $ 1.3 million and the non-current portion is $ 2.8 million, as of December 31, 2022.

On January 3, 2022, Cumberland acquired the U.S.

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

("Kyowa Kirin"), the U.S.

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

Sancuso is the first and only FDA-approved prescription patch for the prevention of nausea and vomiting in patients receiving certain types of chemotherapy treatment.

The active drug in Sancuso, granisetron, slowly dissolves in the thin layer of adhesive that sticks to the patient’s skin and is released into their bloodstream over several days, working continuously to prevent chemotherapy-induced nausea and vomiting (“CINV”).

It is applied 24 to 48 hours before receiving chemotherapy and can prevent CINV for up to five consecutive days.

Alternative oral treatments must be taken several times (day and night) to deliver the same therapeutic doses.

Cumberland acquired U.S.

rights to Sancuso and assumed full commercial responsibility for the product in the U.S.

– including its marketing, promotion, distribution, manufacturing and medical support activities.

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

The Company made an upfront payment of $ 13.5 million at the closing of the transaction.

The Agreement calls for milestone payments of up to $ 3.5 million based on the attainment of various approvals and sales performance.

The Company believes that $ 1.5 million of the milestone payments will be earned and paid.

The remaining milestone of $ 2.0 million will be paid if and when annual net revenue exceeds $ 20 million.

In addition, Cumberland has agreed to pay a royalty of up to 10 % of on-going net sales of the product.

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

Cumberland has prepared a valuation of the contingent consideration liability utilizing significant unobservable inputs.

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

The acquisition was funded by cash and the Company's revolving credit facility.

The Company worked with an outside consultant firm to finalize the Sancuso valuation of the transaction.

The fair value for the assets and liabilities assumed were as follows:

prepaid expenses $ 1.8 million, inventory $ 2.6 million, goodwill $ 0.03 million, intangible assets $ 14.1 million, milestone payable $ 1.7 million and contingent liability $ 3.4 million.

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

CUMBERLAND PHARMACEUTICALS INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

Balance at January 3, 2022

Cash payment of royalty during the period

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

( 1,075,631 )

Change in fair value

Contingent consideration earned and accrued

Balance at December 31, 2022

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

Finished goods inventory $ 6,624,000

Work in process - unlabeled vials 3,970,000

Work in process - validation vials 1,827,000

Raw materials 9,129,000

Total inventory $ 21,550,000

Intellectual property amortizable intangible assets $ 11,750,000

Goodwill 882,000

Total intangibles and goodwill 12,632,000

Total assets acquired $ 34,182,000

The 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.

Consistent with Level 3 fair value measurements, there are significant inputs to the valuation model that are unobservable.

The current portion of the contingent consideration liability is $ 1.7 million and the non-current portion is $ 1.3 million, as of December 31, 2022.

Sancuso Intangible Assets, Goodwill, Revenue and Earnings

An outside consultant prepared the Sancuso valuation and the valuation is complete.

The goodwill of $ 0.03 million arising from this acquisition consists largely of the synergies and economies of scale expected from combining the operations of the Company and the acquired company.

Based on discussions with Management, the identified intangible assets were valued as a composite asset referred to as the Sancuso product rights.

It is comprised of:

• Technology – patented and unpatented IP and know-how;

• Marketing intangible assets including product trademarks/names/dress;

• Customer base to which the product is sold.

It is a common practice in the life sciences industry to value intangible assets under a portfolio approach given the nature of the intangible assets and facts and circumstances that are common to the industry.

The Goodwill amount to be deducted for tax purposes is expected to be $ 0.03 million and will be amortized over 15 years.

Sancuso was acquired on January 3, 2022.

For the year ended December 31, 2022, the amounts included in the income statement for revenue and operating profit were $ 13.6 million and $ 6.6 million, respectively.

On a pro-forma basis, the revenue and earnings of the combined entity as though the business combination had occurred in 2021 appears below:

Cumberland 2022 Results Pro-forma 2021 Results

Net Revenue $ 42,010,949 50,085,043

Operating income (loss) $ ( 5,704,929 ) ( 5,447,420 )

The 2021 pro-forma results include results for Sancuso as provided by the management of Kyowa Kirin.

The Seller is a pharmaceutical company similar to Cumberland.

The 2021 results for Sancuso as reported by Kyowa Kirin reflect accounting methodology and reporting which were similar to those employed by the Company.

The Company’s 2022 balance sheet reflects the full year impact of the Sancuso acquisition, as the acquisition occurred on January 3, 2022.

CUMBERLAND PHARMACEUTICALS INC.

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The Company’s net product revenues consisted of the following for the years ended December 31:

2021 2020 2019

Kristalose $ 15,205,155 $ 15,993,658

Sancuso 13,205,603 —

Vibativ 7,487,462 11,704,062

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Other Revenues

During 2019, Cumberland executed a License and Distribution agreement with HongKong WinHealth Pharma Group Co.

Limited (“WinHealth”) for our Caldolor and Acetadote brands in China and Hong Kong.

In conjunction with these new arrangements, the Company terminated a previous License and Distribution agreement with Gloria Pharmaceuticals Co ("Gloria Pharmaceuticals") for the two brands.

In addition, we also signed a new License and Distribution agreement with DB Pharm Korea Co., Ltd.

(“DB Pharm”) for Vibativ in South Korea.

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 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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The international agreements provide for $ 1.5 million in non-refundable up-front payments, milestone payments of up to $ 2.4 million related to regulatory approvals and up to $ 5.6 million in payments related to product sales.

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.

From 2012 through December 31, 2022, the Company has recognized a cumulative $ 1.9 million in upfront payments as other revenue and has recognized $ 0.5 million during the year 2022.

Other revenues during 2022 and 2021 also include funding from federal grant programs including those secured by CET through the Small Business Administration as well as lease income generated by CET’s Life Sciences Center.

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

Grant revenue from these programs totaled approximately $ 0.2 million and $ 0.4 million for the years ending December 31, 2022 and 2021, respectively.

CUMBERLAND PHARMACEUTICALS INC.

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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.

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

Grant revenue from these programs totaled approximately $ 0.4 million, $ 0.6 million, and $ 1.3 million for the years ending December 31, 2021, 2020 and 2019, respectively.

(5) Inventories

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Total inventories classified as current $ 9,863,581 $ 8,429,882

The Company works closely with third parties to manufacture and package finished goods for sale.

Based on the arrangements with the manufacturer or packager, the Company will either take title to the finished goods at the time of shipment or at the time of arrival at the Company’s warehouses.

The Company then holds such goods in inventory until distribution and sale.

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

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

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

At December 31, 2022 and 2021, the Company had recognized and maintained cumulative net realizable value charges for potential obsolescence and discontinuance losses of approximately $ 0.5 million and $ 1.4 million, respectively.

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API for the Company's Vaprisol brand is also included in the raw materials inventory total at December 31, 2022 and 2021.

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

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

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, 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.

The Vibativ non-current API inventory was $ 7.1 million at December 31, 2022 and $ 8.1 million at December 31, 2021.

The Company had no Vibativ finished goods included in the non-current inventories at December 31, 2022, and $ 0.5 million at December 31, 2021.

At December 31, 2022 and 2021, Cumberland had $ 0.3 million in non-current inventory for API related to its ifetroban clinical initiatives and $ 0.1 million of finished goods

CUMBERLAND PHARMACEUTICALS INC.

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Depreciation expense was as follows for the years ended December 31:

2021 2020 2019

Depreciation expense $ 260,745 $ 235,066

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Goodwill $ 914,000 $ 882,000

Product and license rights include assets associated with the Company's acquired products, including those discussed in Note 3, RediTrex and Vibativ.

In November 2016, the Company acquired the U.S.

rights to Nordic Group B.V.’s injectable methotrexate product line as an asset purchase.

The agreement requires the Company to provide unvested restricted shares of Cumberland common stock and make a series of payments tied to the products’ FDA approval, launch and achievement of certain sales milestones.

The payments are being treated as consideration for the assets acquired and are being capitalized and amortized over the expected useful life of the acquired asset.

To date, the intangible assets related to the product include the $ 100,000 deposit paid at closing, the 180,000 restricted shares valued at $ 0.9 million that vested upon the November 2019 FDA approval, the additional $ 1.0 million paid to Nordic during 2020 based on the 2019 FDA approval and the $ 1.0 million owed to Nordic based on the 2020 product launch.

As discussed in Note 3, during November 2018, the Company acquired Vibativ from Theravance.

This resulted in amortizable intangible assets related to the product rights of $ 11.8 million and goodwill of $ 0.9 million.

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

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.

Product and license rights include assets associated with the Company's acquired products, including those discussed in Note 3, RediTrex, Vibativ and Sancuso.

RediTrex is only represented in 2021.

During 2022 and 2021, the Company recorded an additional $ 0.2 million in each year in intangible assets for patents, trademarks and capitalized patent costs, including amounts incurred in the protection of the Company's intellectual property.

The Company also recorded an additional $ 14.1 million in product rights and $ 0.03 million in goodwill related to the Sancuso acquisition.

These costs will be amortized over the remaining expected useful life of the associated patents.

Amortization expense related to product and license rights, trademarks and patents were as follows for the years ended December 31:

2021 2020 2019

Amortization expense $ 5,067,368 $ 4,371,300

CUMBERLAND PHARMACEUTICALS INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

The expected amortization expense for the Company's current balance of intangible assets are as follows:

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2027 and thereafter 12,421,539

CUMBERLAND PHARMACEUTICALS INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

(8) Other Current and Other Long-term Liabilities

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Employee wages and benefits 1,440,859 1,340,846

Sancuso related liabilities 2,226,725 —

Current portion of accrued contingent consideration 3,006,310 2,685,531

Current deferred charges 614,551 —

Accrued inventory purchases 609,621 18,211

Paycheck Protection Program liability — 2,187,140

Other 1,342,631 943,038

13 unchanged sentences

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.

In 2022, the Company and Pinnacle Bank agreed to modify the financial covenants to align with the current use of the line of credit.

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.

The Company had $ 16.2 million and $ 15.0 million in borrowings outstanding under the Pinnacle Agreement at December 31, 2022 and 2021, respectively.

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

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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.

It is expected that SOFR will become the replacement benchmark.

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

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The Company evaluated and provided information on our payroll and other qualifying expenses to determine the amount of PPP funds to apply for.

CUMBERLAND PHARMACEUTICALS INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

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

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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.

CUMBERLAND PHARMACEUTICALS INC.

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Notes to Consolidated Financial Statements (Continued)

(10) Shareholders’ Equity

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During 2021, 2020 and 2019, the Company issued 192,684 shares, 228,500 shares and 225,536 shares of common stock, respectively, as a result of restricted shares vesting as well as other common share issuances.

During 2022 and 2021, the Company issued 171,655 shares and 192,684 shares of common stock, respectively, as a result of restricted shares vesting as well as other common share issuances.

There were no option exercise transactions during 2022 and 2021.

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.

The Shelf Registration was declared effective in January 2018.

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

Riley FBR Inc.

to support such a placement of shares.

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

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.

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 years ended December 31, 2021 or 2020.

(d) Share Repurchases

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

The Company repurchased 438,359 shares, 503,626 shares and 623,478 shares of common stock for approximately $ 1.4 million, $ 1.8 million, and $ 3.5 million during the years ended December 31, 2021, 2020 and 2019, respectively.

The Company repurchased 367,793 shares and 438,359 shares of common stock for approximately $ 1.0 million and $ 1.4 million during the years ended December 31, 2022 and 2021, respectively.

There remains $ 3.8 million available under the current repurchase program available for share repurchases at December 31, 2022.

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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.

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

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

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

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

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

After the additional investment, the Company’s ownership in CET is 85 %.

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

(f) Cumberland Foundation