Item 7. Management’s Discussion and Analysis
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis of our financial position and results of operations should be read together with our audited consolidated financial statements and related notes appearing elsewhere in this Form 10-K. This discussion and analysis may contain forward-looking statements that involve risks and uncertainties – please refer to the section entitled, “Special Note Regarding Forward-Looking Statements,” contained in Part I, Item 1A, “Risk Factors,” of this Form 10-K. You should review the “Risk Factors” section of this Form 10-K for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements described in the following discussion and analysis.
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EXECUTIVE SUMMARY
We are a specialty pharmaceutical company focused on the acquisition, development and commercialization of branded prescription pharmaceutical products. We are dedicated to providing innovative products that improve the quality of care for patients and address poorly met medical needs.
Our commercial portfolio includes eight branded products approved for marketing by the U.S. 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 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. 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. Our business development team identifies, evaluates, and negotiates product acquisition, licensing and co-promotion agreements. Our product development team creates proprietary formulations, manages our clinical studies, prepares our FDA submissions and staffs our medical call center. 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 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.
• 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. de C.V. 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.
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• 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. Brown Jr. to our Board of Directors. Mr. 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
Accounting Estimates and Judgments
The preparation of the consolidated financial statements in conformity with GAAP requires management to make estimates, judgments and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the period. We base our estimates on past experience and on other factors we deem reasonable given the circumstances. Past results help form the basis of our judgments about the carrying value of assets and liabilities that are not determined from other sources. Actual results could differ from these estimates. These estimates, judgments and assumptions are most critical with respect to our accounting for revenue recognition, inventory, intangible assets and goodwill, research and development accounting, contingent consideration liability, provision for income taxes and share-based payments.
Revenue Recognition
We recognize revenue in accordance with the Accounting Standards Codification (ASC) Topic 606. Effective January 1, 2018, we adopted the Financial Accounting Standards Board’s (“FASB”) amended guidance in the form of Accounting Standards Update (“ASU”) No. 2014-09, "Revenue from Contracts with Customers," (ASC 606).
Our revenue is derived primarily from the product sales of our FDA approved pharmaceutical brands. Revenue from sales of products is recognized at the point where the customer obtains control of the goods and we satisfy our performance obligation, which occurs upon either shipment of the product or arrival at its destination, depending upon the shipping terms of the transaction. Payment terms typically range from 30 to 60 days from date of shipment. Our net product revenue reflects the reduction from gross product revenue for estimated allowances for chargebacks, and discounts and reflects sales related accruals for rebates, coupons, product returns, and certain administrative and service fees. Significant judgments must be made in determining the transaction price for our sales of products related to these adjustments. 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 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.
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The following table reflects our sales-related accrual activity for the periods indicated below:
2022 2021
Balance, January 1 $ 3,680,677 $ 4,063,435
Current provision 24,426,431 12,127,410
Actual product returns and credits issued (19,759,894) (12,510,168)
Balance, December 31 $ 8,347,214 $ 3,680,677
The allowances for chargebacks and discounts and sales related accruals for rebates, fee for service and product returns are determined on a product-by-product basis. We establish them using our 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;
• The contractual terms with direct and indirect customers;
• Analyses of historical levels of chargebacks, discounts and returns of product;
• Communications with customers;
• Purchased information about the rate of prescriptions being written and the level of inventory remaining in the distribution channel, if known; and
• Expectations about the market for each product, including any anticipated introduction of competitive products.
Other organizations, such as managed care providers, pharmacy benefit management companies and government agencies, may receive rebates from us based on either negotiated contracts to carry our products or reimbursements for filled prescriptions. These entities are considered our indirect customers. When recognizing a sale to a wholesaler, sales revenues are reduced and accrued liabilities are increased by our estimate of the rebate that may be claimed.
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 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 $0.6 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.
Inventories
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
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(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.
Non-current inventories consist of API which typically has an extended life and selected finished good products with extended life longer than one year.
Income Taxes
We provide for deferred taxes using the asset and liability approach. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to operating loss and tax credit carry-forwards and differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Our principal differences are related to the timing of deductibility of certain items such as depreciation, amortization and expense for options issued to nonemployees. Deferred tax assets and liabilities are measured using management’s estimate of tax rates expected to apply to taxable income in the years in which management believes those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in our results of operations in the period that includes the enactment date.
In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment.
The Company’s accounting policy with respect to interest and penalties arising from income tax settlements is to recognize them as part of the provision for income taxes.
Share-Based Payments
We recognize compensation expense for all share-based payments based on the fair value of the award on the date of grant. In addition, incremental compensation expense is recognized upon the modification of equity awards.
We issue restricted stock and incentive stock option awards to employees, directors and consultants. Compensation expense for restricted equity awards granted to employees and directors is generally equal to the fair market value of the underlying common stock on the date of grant. If a sufficient disincentive for nonperformance does not exist at the date of grant, the compensation cost is remeasured at each reporting date at the then-current fair market value of the underlying common stock until the award vests.
Research and Development
We accrue for and expense research and development costs based on estimates of work performed, patient enrollment or fixed-fee-for-services. As work is performed and/or invoices are received, we adjust our estimates and accruals. To date, our accruals have not differed materially from our estimates. Total research and development costs are a function of studies being conducted and will increase or decrease based on the level of activity in any particular year.
Intangible Assets and Goodwill
Intangible assets include product rights, license agreements, other identifiable intangible assets and goodwill associated with the Vibativ acquisition. We assess the impairment of goodwill at least annually. We assess the impairment of identifiable intangible assets subject to amortization whenever events or changes in circumstances indicate the carrying value may not be recoverable. In determining the recoverability of our intangible assets, we make assumptions regarding estimated future cash flows and other factors. If the estimated undiscounted future cash flows do not exceed the carrying value of the intangible assets, we must determine the fair value of the intangible assets. If the fair value of the intangible assets is less than the carrying value, an impairment loss will be recognized in an amount equal to the difference. Fair value is determined through various valuation techniques including quoted market prices, third-party independent appraisals and discounted cash flow models, as considered necessary.
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RESULTS OF OPERATIONS
Year ended December 31, 2022 compared to year ended December 31, 2021
The following table presents the statements of operations for the years ended December 31, 2022 and 2021:
Years ended December 31,
2022 2021 Change
Net revenues $ 42,010,949 $ 35,985,043 $ 6,025,906
Costs and expenses:
Cost of products sold 9,118,521 8,811,248 307,273
Selling and marketing 16,660,945 15,015,424 1,645,521
Research and development 6,688,924 5,684,465 1,004,459
General and administrative 10,180,120 9,780,026 400,094
Amortization 5,067,368 4,371,300 696,068
Total costs and expenses 47,715,878 43,662,463 4,053,415
Operating income (loss) (5,704,929) (7,677,420) 1,972,491
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)
Interest expense (585,995) (98,031) (487,964)
Income (loss) before income taxes (5,581,189) (5,562,230) (18,959)
Income tax (expense) benefit (68,850) (34,891) (33,959)
Net income (loss) from continuing operations $ (5,650,039) $ (5,597,121) $ (52,918)
The following table summarizes net revenues for the years presented:
Years ended December 31,
2022 2021 Change
Products:
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)
Caldolor 4,827,200 4,970,301 (143,101)
Acetadote 501,040 850,993 (349,953)
Omeclamox-Pak 29,145 (388,657) 417,802
Vaprisol (447,697) 1,859,581 (2,307,278)
RediTrex (126,726) 55,321 (182,047)
Other 1,329,767 939,784 389,983
Total net revenues $ 42,010,949 $ 35,985,043 $ 6,025,906
Net revenues. 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.
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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 $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, 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, 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 2022 gross wholesale revenue increased by $0.4 million, but the revenue growth was offset by expired product returns.
Cost of products sold . Cost of products sold for the year ended December 31, 2022, were $9.1 million compared to $8.8 million in the prior year. 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 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 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, 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 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 change resulted from an increase in insurance expenses.
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The components of the statements of operations discussed above reflect the following impacts from Vibativ:
Financial Impact of Vibativ Years ended December 31,
2022 2021
Net revenue (1)
$ 7,637,462 $ 11,704,062
Cost of products sold (2)
3,535,851 4,814,464
Royalty and operating expenses 83,145 2,011,458
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.
The components of the statements of operations discussed above reflect the following impacts from Sancuso:
Financial Impact of Sancuso Years ended December 31,
2022 2021
Net revenue (1)
$ 13,555,603 $ —
Cost of products sold (2)
1,543,600 —
Royalty and operating expenses 4,202,026 —
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 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 $68,850 for the year ended December 31, 2022, and $34,891 for the year ended December 31, 2021.
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LIQUIDITY AND CAPITAL RESOURCES
Our primary sources of liquidity are cash flows provided by our operations, the amounts borrowed and available under our line of credit and the cash proceeds from our initial public offering of common stock that was completed in August 2009. We believe that our internally generated cash flows, existing working capital and our line of credit will be adequate to finance internal growth, finance business development initiatives, and fund capital expenditures for the foreseeable future.
At December 31, 2022 and December 31, 2021, all our investments had original maturities of less than ninety days and as a result were classified as cash equivalents.
The following table summarizes our liquidity and working capital as of the years ended December 31:
2022 2021
Cash and cash equivalents $ 19,757,970 $ 27,040,816
Total cash and cash equivalents $ 19,757,970 $ 27,040,816
Working capital (current assets less current liabilities) $ 17,290,378 $ 26,409,053
Current ratio (multiple of current assets to current liabilities) 1.6 2.4
Revolving line of credit availability $ 3,800,000 $ 5,000,000
The following table summarizes our net changes in cash and cash equivalents for the years ended December 31:
2022 2021
Cash provided by (used in):
Operating activities $ 8,453,396 $ 6,342,443
Investing activities (13,674,456) (501,893)
Financing activities (2,061,786) (3,553,530)
Net (decrease) increase in cash and
cash equivalents
$ (7,282,846) $ 2,287,020
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.
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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 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.
Shelf Registration
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 amended the At the Market Sales Agreement on December 27, 2021, in order to allow the Company to continue using its ATM feature to sell shares at market prices. The Company intends to continue an ATM feature through B. Riley FBR, Inc. 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 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.
Paycheck Protection Program
On April 20, 2020, Cumberland received the funding of a loan from Pinnacle Bank in the aggregate amount of $2,187,140 pursuant to the Paycheck Protection Program (the “PPP”) under the Federal Coronavirus Aid, Relief, and Economic Security Act ("CARES Act"), which was enacted March 27, 2020.
Under the terms of the PPP, certain amounts of the loan may be forgiven if they are used for qualifying expenses as described in the CARES Act, including qualifying payroll costs, covered rent payments, and covered utilities. From the date of funding, 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.
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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.
In October 2020, Cumberland submitted a request for the loan’s forgiveness. On June 11, 2021, the Company received a formal notice from the SBA that the full amount of the loan was forgiven. The Company accounted for the forgiveness of the PPP loan under IAS 20 and recorded the $2,187,140 as other income.
Minimum Product Purchase Requirements
Our manufacturing and supply agreements do not require minimum annual purchase obligations.
Contractual cash obligations
The following table summarizes our contractual cash obligations as of December 31, 2022:
Payments Due by Year
Contractual obligations (1)
Total
2023 2024 2025 2026 2026 and thereafter
Line of credit (2)
$ 16,200,000 $ — $ 16,200,000 $ — $ — $ —
Estimated interest on debt (2)
1,949,063 1,113,750 835,313 — — —
Vibativ contingent consideration liability payments (3)
4,154,823 1,008,120 439,749 493,145 452,050 1,761,759
Sancuso contingent consideration liability payments (4)
4,757,000 2,608,393 426,543 294,970 266,770 1,160,324
Operating leases (5)
8,427,446 607,061 575,209 539,347 604,254 6,101,575
Total (1)
$ 35,488,332 $ 5,337,324 $ 18,476,814 $ 1,327,462 $ 1,323,074 $ 9,023,658
1. The sum of the individual amounts may not agree due to rounding.
2. The line of credit payments represent the estimated unused line of credit payments and the amount due at maturity. The estimated interest on debt represents the interest on the principal outstanding on the line of credit. These amounts are based on the $16.2 million line of credit assuming the current $16.2 million balance outstanding on December 31, 2022 is consistently outstanding through maturity of October 2024. Interest and unused line of credit payments are due and payable quarterly in arrears.
3. The contingent consideration liability represents the fair value of the royalty payments of up to 20% of future net sales as part of the Vibativ acquisition.
4. 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.
5. The Broadwest contractual cash obligation began upon commencement in October 2022.
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OFF-BALANCE SHEET ARRANGEMENTS
During 2022 and 2021 we did not engage in any off-balance sheet arrangements.
RECENT ACCOUNTING PRONOUNCEMENTS
Recent Accounting Pronouncements - Not Yet Adopted
In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments-Credit Losses,” which changes the impairment model for most financial assets and certain other instruments. For trade and other receivables, held-to-maturity debt securities, loans and other instruments, companies will be required to use a new forward-looking “expected loss” model that generally will result in the earlier recognition of allowances for losses. For available-for-sale debt securities with unrealized losses, companies will measure credit losses in a manner similar to what they do today, except that the losses will be recognized as allowances rather than as reductions in the amortized cost of the securities. Companies will have to disclose additional information, including information they use to track credit quality by year of origination for most financing receivables. Companies will apply the ASU’s provisions as a cumulative-effect adjustment, if any, to retained earnings as of the beginning of the first reporting period in which the guidance is adopted.
Related to ASU No. 2016-13 discussed above, in May 2019, the FASB issued ASU 2019-05, "Financial Instruments-Credit Losses (Topic 326): Targeted Transition Relief" which provides transition relief for ASU 2016-13 by providing entities with an alternative to irrevocably electing the fair value option for eligible financial assets measured at amortized cost upon adoption of the new credit losses standard. Certain eligibility requirements must be met and the election must be applied on an instrument-by-instrument basis. The election is not available for either available-for-sale or held-to-maturity debt securities. 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.
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