What changed in this filing

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Item 1. Financial Statements

2023-05-12 compared with 2022-11-14 · 127 added, 191 removed, 309 unchanged (51% of the section changed)

3 unchanged sentences

Condensed Consolidated Balance Sheets

September 30, 2022 December 31, 2021

March 31, 2023 December 31, 2022

Current assets:

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100,000,000 shares authorized;

14,436,583 and 14,742,754 shares issued and outstanding as of September 30, 2022 and December 31, 2021 , respectively

14,430,047 and 14,366,316 shares issued and outstanding as of March 31, 2023 and December 31, 2022 , respectively

47,377,168 47,474,973

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Condensed Consolidated Statements of Operations

Three months ended September 30, Nine months ended September 30,

2022 2021 2022 2021

Three months ended March 31,

Net revenues $ 9,224,638 $ 11,175,045

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Other income 1,847,065 —

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

Interest expense ( 186,353 ) ( 119,575 )

Income (loss) from continuing operations before income taxes ( 416,326 ) ( 1,576,022 ) ( 3,169,625 ) ( 1,187,170 )

Income (loss) before income taxes 179,224 ( 1,395,533 )

Income tax (expense) benefit ( 6,938 ) ( 6,900 )

Net income (loss) from continuing operations ( 423,226 ) ( 1,583,480 ) ( 3,190,325 ) ( 1,209,545 )

Discontinued operations — 496,787 — 1,491,004

Net income (loss) 172,286 ( 1,402,433 )

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Earnings (loss) per share attributable to common shareholders

- Continuing operations - basic $ ( 0.03 ) $ ( 0.10 ) $ ( 0.21 ) $ ( 0.08 )

- Discontinued operations - basic — 0.03 — 0.10

$ ( 0.03 ) $ ( 0.07 ) $ ( 0.21 ) $ 0.02

- Continuing operations - diluted $ ( 0.03 ) $ ( 0.10 ) $ ( 0.21 ) $ ( 0.08 )

- Discontinued operations - diluted — 0.03 — 0.10

$ ( 0.03 ) $ ( 0.07 ) $ ( 0.21 ) $ 0.02

- basic $ 0.01 $ ( 0.09 )

- diluted $ 0.01 $ ( 0.09 )

Weighted-average shares outstanding

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Condensed Consolidated Statements of Cash Flows

Nine months ended September 30,

Three months ended March 31,

Cash flows from operating activities:

Net income (loss) $ 172,286 $ ( 1,402,433 )

Discontinued operations — 1,491,004

Net income (loss) from continuing operations ( 3,190,325 ) ( 1,209,545 )

Adjustments to reconcile net income (loss) from continuing operations to net cash provided by operating activities:

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

Depreciation and amortization expense 1,255,675 1,653,746

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Increase in noncash interest expense 4,296 2,183

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

Gain on receivable of life insurance policy proceeds ( 611,330 ) —

Gain on receivable of FDA fees ( 1,847,065 ) —

Net changes in assets and liabilities affecting operating activities:

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Other long-term liabilities ( 530,872 ) ( 371,214 )

Net cash provided by operating activities from continuing operations 4,815,365 2,891,759

Discontinued operations — 1,491,004

Net cash provided by operating activities 4,815,365 4,382,763

Net cash used in operating activities ( 1,418,209 ) ( 150,498 )

Cash flows from investing activities:

Additions to property and equipment ( 107,260 ) ( 26,986 )

Settlement of patent litigation 21,757 —

Life insurance policy proceeds received 877,597 —

Note receivable investment funding — ( 200,000 )

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

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Net cash provided by (used in) financing activities ( 1,779,142 ) 3,918,365

Net increase (decrease) in cash and cash equivalents ( 7,499,278 ) 1,089,435

Net decrease in cash and cash equivalents ( 3,371,804 ) ( 9,774,031 )

Cash and cash equivalents at beginning of period $ 19,757,970 $ 27,040,816

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Repurchase of common shares ( 174,149 ) ( 566,043 ) — — ( 566,043 )

Net income (loss) — — 166,828 ( 22,167 ) 144,661

Balance, March 31, 2021 15,084,464 $ 48,981,395 $ ( 1,964,185 ) $ ( 139,283 ) $ 46,877,927

Share-based compensation — 191,954 — — 191,954

Repurchase of common shares ( 158,405 ) ( 484,965 ) — — ( 484,965 )

Net income (loss) — — 1,228,560 ( 5,069 ) 1,223,491

Balance, June 30, 2021 14,926,059 $ 48,688,384 $ ( 735,625 ) $ ( 144,352 ) $ 47,808,407

Share-based compensation 875 162,167 — — 162,167

Repurchase of common shares ( 76,408 ) ( 237,616 ) — — ( 237,616 )

Net loss — — ( 1,385,253 ) ( 17,180 ) ( 1,402,433 )

Balance, September 30, 2021 14,850,526 $ 48,612,935 $ ( 1,790,903 ) $ ( 175,767 ) $ 46,646,265

Balance, March 31, 2022 14,730,760 $ 48,046,764 $ ( 7,023,853 ) $ ( 229,508 ) $ 40,793,403

Common stock Retained earnings (deficit) Noncontrolling interests Total equity

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Repurchase of common shares ( 86,829 ) ( 187,961 ) — — ( 187,961 )

Net loss — — ( 1,385,253 ) ( 17,180 ) ( 1,402,433 )

Balance, March 31, 2022 14,730,760 $ 48,046,764 $ ( 7,023,853 ) $ ( 229,508 ) $ 40,793,403

Net income (loss) — — 192,184 ( 19,898 ) 172,286

Balance, March 31, 2023 14,430,047 $ 47,377,168 $ ( 11,016,657 ) $ ( 312,024 ) $ 36,048,487

Share-based compensation 2,250 ( 27,753 ) — — ( 27,753 )

Repurchase of common shares ( 83,317 ) ( 196,692 ) — — ( 196,692 )

Net loss — — ( 1,335,620 ) ( 29,046 ) ( 1,364,666 )

Balance, June 30, 2022 14,649,693 $ 47,822,319 $ ( 8,359,473 ) $ ( 258,554 ) $ 39,204,292

Return of common shares ( 180,000 ) ( 399,600 ) — — ( 399,600 )

Share-based compensation — 188,449 — — 188,449

Repurchase of common shares ( 33,110 ) ( 78,793 ) — — ( 78,793 )

Net loss — — ( 408,639 ) ( 14,587 ) ( 423,226 )

Balance, September 30, 2022 14,436,583 $ 47,532,375 $ ( 8,768,112 ) $ ( 273,141 ) $ 38,491,122

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

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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 pharmaceutical products.

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

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 served effectively by small, targeted sales forces.

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These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes included in our Annual Report on Form 10-K for the year ended December 31, 2022 (the “2022 Annual Report on Form 10-K”).

The results of operations for the three and nine months ended September 30, 2022, are not necessarily indicative of the results to be expected for the entire fiscal year or any future period.

Discontinued Operations

As discussed further in Note 10, during May 2019, Cumberland entered into a Dissolution Agreement ("Dissolution Agreement") with Clinigen Healthcare Limited ("Clinigen") in which the Company returned the exclusive rights to commercialize Ethyol ® and Totect ® in the United States to Clinigen.

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

The Company's exit from Ethyol and Totect meets the accounting criteria to be reported as discontinued operations and the discontinued operating results have been presented in the financial statements and footnotes to reflect the discontinued status of Ethyol and Totect.

Refer to Note 10, for additional information.

COVID-19 Pandemic

In March 2020, the U.S.

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

Cumberland has remained open for business, as the Company is considered to be essential by the United States Department of Homeland Security.

The Company has implemented measures to address the impact of the novel coronavirus on the business and taken appropriate action to protect its employees, secure the supply chain, and support the patients who can benefit from its medicines.

All of the Company's employees have been given the opportunity to work remotely, and those that wish to work from Cumberland's office and laboratories are encouraged to practice the behaviors outlined by the Centers for Disease Control.

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

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

During 2020, 2021 and the nine months ended September 30, 2022, we carefully monitored our supply chain, including the flow of raw materials into the plants that manufacture our products as well as the batches of finished product emerging from those facilities.

Several of our brands were negatively impacted by the lockdowns and postponement of physician office visits and elective procedures.

However, we are fortunate to have a diversified product portfolio, with other brands delivering a strong performance during the pandemic.

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

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

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

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

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

The results of operations for the three months ended March 31, 2023, are not necessarily indicative of the results to be expected for the entire fiscal year or any future period.

Recent Accounting Guidance

Recent Accounting Pronouncements - Not Yet Adopted

Recent Accounting Pronouncements

In June 2016, the Financial Accounting Standards Board ("FASB") issued ASU No.

2016-13, “Financial Instruments-Credit Losses,” which changes the impairment model for most financial assets and certain other instruments.

For trade and other receivables, held-to-maturity debt securities, loans and other instruments, companies will be required to use a new forward-looking “expected loss” model that generally will result in the earlier recognition of allowances for losses.

For available-for-sale debt securities with unrealized losses, companies will measure credit losses in a manner similar to what they do today, except that the losses will be recognized as allowances rather than as reductions in the amortized cost of the securities.

Companies will have to disclose additional information, including information they use to track credit quality by year of origination for most financing receivables.

Companies will apply the ASU’s provisions as a cumulative-effect adjustment, if any, to retained earnings (deficit) as of the beginning of the first reporting period in which the guidance is adopted.

For trade and other receivables, held-to-maturity debt securities, loans and other instruments, companies are required to use a new forward-looking “expected loss” model that generally result in the earlier recognition of allowances for losses.

For available-for-sale debt securities with unrealized losses, companies measure credit losses in a manner similar to what they do today, except that the losses are recognized as allowances rather than as reductions in the amortized cost of the securities.

Companies have to disclose additional information, including information they use to track credit quality by year of origination for most financing receivables.

Companies apply the ASU’s provisions as a cumulative-effect adjustment, if any, to retained earnings (deficit) as of the beginning of the first reporting period in which the guidance is adopted.

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

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

Please refer to Trade and Notes Receivables Policy .

Accounting Policies:

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Substantially all of the Company’s assets are located in the United States and total revenues are primarily attributable to U.S.

Trade and Note Receivables Policy

Management performed a scoping exercise to ensure completeness over the application of Current Expected Credit Losses (CECL) across the various financial instruments including trade and note receivables.

CECL is applicable to all financial assets measured at amortized cost.

The authoritative guidance requires that all financial instruments should be evaluated, including cash equivalents such as 3-month T-Bills, even if the expected loss is determined to be zero, or materially zero.

All bank balances are maintained in cash or money market funds.

Therefore for the Company, this principally relates to trade receivables and two note receivables.

CECL also requires the measurement of expected credit losses on a collective (pool) basis when similar risk characteristics exist.

This may include, either individually or in combination, some of the following characteristics (326-20-55-5):

Internal or external credit score/rating

Risk ratings or classification

Financial asset type

Effective interest rate

Geographical location

Historical or expected credit loss patterns

Reasonable and supportable forecast periods

The standard requires entities to pool financial assets but allows them to choose which risk characteristics to use.

Under the requirements of the guidance, the Company would need to reassess at the end of each reporting period whether the pool of assets continue to display similar risk characteristics.

With twenty years of experience, Cumberland has experienced virtually no write downs of receivables as most of our receivables are due from large successful pharmaceutical, healthcare or government customers, consistently making payments on account.

Although the payment behaviors of all of our customers are consistently reliable, for the sake of transparency, we have separated our customer base into seven separate pools.

The Company performs a monthly analysis of aged accounts receivable to determine how much, if any, of the accounts receivable balance should be reserved as potential bad debt.

The Company reviews all balances over 90 days past due for a possible reserve and considers any specific factors or information for balances aged under 90 days if there are indicators that the balance should be reserved, such as other aged balances with the customer or bankruptcy as well as any economic issues with a customer industry or region.

The adoption of ASC 326 did not result in a material impact to the company.

(2) EARNINGS (LOSS) PER SHARE

The following table reconciles the numerator and denominator used to calculate diluted earnings (loss) per share for the three and nine months ended September 30, 2022 and 2021:

Three months ended September 30,

Net income (loss) from continuing operations $ ( 423,226 ) $ ( 1,583,480 )

Discontinued operations — 496,787

Net income (loss) ( 423,226 ) ( 1,086,693 )

Net loss at subsidiary attributable to noncontrolling interest 14,587 31,415

Net income (loss) attributable to common shareholders $ ( 408,639 ) $ ( 1,055,278 )

Weighted-average shares outstanding – basic 14,477,478 14,880,887

Dilutive effect of other securities — —

Weighted-average shares outstanding – diluted 14,477,478 14,880,887

Nine months ended September 30,

Net income (loss) from continuing operations $ ( 3,190,325 ) $ ( 1,209,545 )

Discontinued operations — 1,491,004

The following table reconciles the numerator and denominator used to calculate basic and diluted earnings (loss) per share for the three months ended March 31, 2023 and 2022:

Three months ended March 31,

Net income (loss) $ 172,286 $ ( 1,402,433 )

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Weighted-average shares outstanding – diluted 14,587,843 14,691,623

As of September 30, 2022 and 2021, restricted stock awards and options to purchase 233,750 and 158,900 shares of common stock, respectively, were outstanding but were not included in the computation of diluted earnings per share because the effect would be antidilutive.

As of March 31, 2023 and 2022, restricted stock awards and options to purchase 331,338 and 131,225 shares of common stock, respectively, were outstanding but were not included in the computation of diluted earnings per share because the effect would be antidilutive.

Product Revenues

The Company accounts for revenues from contracts with customers under ASC 606, which became effective January 1, 2018.

The Company’s net revenues consisted of the following for the three and nine months ended September 30, 2022 and 2021:

Three months ended September 30, Nine months ended September 30,

2022 2021 2022 2021

The Company’s net revenues consisted of the following for the three months ended March 31, 2023 and 2022:

Three months ended March 31,

Kristalose $ 4,315,128 $ 3,945,097

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Caldolor 935,043 959,634

Vaprisol ( 436 ) 325,774 ( 252,059 ) 1,861,130

Acetadote 169,856 111,090

Vaprisol 16,008 ( 117,000 )

Omeclamox-Pak ( 2,518 ) 22,737

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Total net revenues $ 9,224,638 $ 11,175,045

The Omeclamox-Pak revenue for the third quarter of 2022 and 2021 was the result of Cumberland currently being out of commercial inventory of this product.

The Omeclamox-Pak net revenue for the first quarter of 2023 and 2022 was the result of Cumberland currently being out of commercial inventory of this product.

The packager for our Omeclamox-Pak product encountered financial difficulties due to the impact of COVID-19.

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Discussions with the packager are ongoing.

In the third quarter of 2022, the amounts noted were normal adjustments by channel partners.

Net revenue was positively impacted by product return adjustments.

In the first quarter of 2023, the amounts noted were normal adjustments by channel partners.

With regard to Vaprisol, we are in the process of transitioning to a new manufacturer, who was issued an FDA Form 483 in the second quarter of 2022.

Once these 483 related issues are satisfactorily resolved by the manufacturing plant, we will then resubmit our application to the FDA for approval.

Net revenue was negatively impacted by product return adjustments.

Net revenue was positively impacted by product return adjustments.

Other Revenues

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

Those agreements provide that each of the partners are responsible for seeking regulatory approvals for the product, and following approval, each partner will be responsible for the ongoing distribution and sales in the respective international territories.

Those agreements provide that each of the partners is responsible for seeking regulatory approvals for the product, and following approval, each partner will be responsible for the ongoing distribution and sales in the respective international territories.

The Company provides a dossier for product registration and maintains responsibility for the relevant intellectual property.

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The contractual payments associated with the partner’s achievement of regulatory approvals, sales milestones and royalties on future sales are recognized as revenue upon occurrence, or at such time that the Company has a high degree of confidence that the revenue would not be reversed in a subsequent period.

During the three and nine months ended September 30, 2022, we recorded $ 0.1 million and $ 0.6 million, respectively, for milestone and international licensee payments as part of other revenue.

Other revenues also include funding from federal grant programs including those secured from the FDA and from those secured by Cumberland Emerging Technologies Inc.

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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 federal grant programs totaled approximately $ 0.2 million and $ 0.02 million for the three months ended September 30, 2022 and 2021, respectively, and approximately $ 0.3 million each for the nine months ended September 30, 2022 and 2021.

Grant revenue from these federal grant programs totaled approximately $ 0.1 million and $ 0.04 million for the three months ended March 31, 2023 and 2022, respectively .

(4) INVENTORIES

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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 September 30, 2022 and December 31, 2021, the Company had recognized and maintained cumulative net realizable value charges for potential obsolescence and discontinuance losses of approximately $ 1.8 million and $ 1.4 million, respectively.

At March 31, 2023, there were no cumulative obsolescence and discontinuance losses necessary.

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

The Company is responsible for the purchase of the active pharmaceutical ingredient (“API”) for Kristalose and maintains the inventory at third-party packagers.

As that API is consumed in production, the value of the API is transferred from raw materials to finished goods.

API for the Company's Vaprisol brand is also included in the raw materials inventory at September 30, 2022 and December 31, 2021.

API for the Company's Vaprisol brand is also included in the raw materials inventory at March 31, 2023 and December 31, 2022.

Consigned inventory represents Authorized Generic inventory stored with our partner until shipment.

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

For the Sancuso acquisition, Cumberland acquired $ 3.0 million of work in progress non-current inventory.

At September 30, 2022 and December 31, 2021, total non-current inventory, including Vibativ, Sancuso and our clinical trial drug ifetroban, was $ 7.5 million and $ 9.0 million, respectively.

The Company had no Vibativ finished goods included in non-current inventory at September 30, 2022, and $ 0.5 million included at December 31, 2021.

The Company also has obtained $ 0.2 million and $ 0.4 million of finished goods in non-current inventory for API related to its ifetroban clinical initiatives at September 30, 2022 and December 31, 2021, respectively.

At September 30, 2022 and December 31, 2021 the Company's net inventories consisted of the following:

September 30, 2022 December 31, 2021

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

At March 31, 2023 and December 31, 2022, total non-current inventory, including Vibativ and our clinical trial drug ifetroban, was $ 7.5 million for each period.

The Company had Vibativ finished goods of $ 0.9 million included in non-current inventory at March 31, 2023, and no non-current inventory at December 31, 2022.

The Company also had $ 0.3 million in non-current inventory for API related to its ifetroban clinical initiatives at March 31, 2023 and December 31, 2022, and $ 0.2 million and $ 0.1 million of finished goods, respectively.

At March 31, 2023 and December 31, 2022, the Company's net inventories consisted of the following:

March 31, 2023 December 31, 2022

Raw materials and work in process $ 12,548,636 $ 12,899,659

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Total inventories classified as current $ 10,180,002 $ 9,863,581

Cumberland’s significant operating leases include the lease of approximately 25,500 square feet of office space in Nashville, Tennessee for its corporate headquarters.

This lease expired in October 2022.

The Company's operating leases also include the lease of approximately 14,200 square feet of wet laboratory and office space in Nashville, Tennessee by CET, our majority-owned subsidiary, where it operates the CET Life Sciences Center.

This lease currently expires in April 2023.

Operating lease liabilities are recorded as the present value of remaining lease payments not yet paid for the lease term discounted using the incremental borrowing rate associated with each lease.

On November 15, 2021, Cumberland entered into a lease, pursuant to which the Company leases approximately 16,903 rentable square feet of space at the new development Broadwest located in Nashville, Tennessee with 1600 West End Avenue Partners, LLC.

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

The initial term of the Lease is one hundred fifty-seven ( 157 ) months, with two consecutive options to renew for a period of five years each, with the commencement date of October 25, 2022.

This lease currently expires in November 2035.

The Company is responsible for paying rent to the Landlord under the Lease beginning three months after the commencement date.

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

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

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

In addition, the Company's operating leases also include the lease of approximately 14,200 square feet of wet laboratory and office space in Nashville, Tennessee by CET, our majority-owned subsidiary, where it operates the CET Life Sciences Center.

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

The Company also subleases a portion of the space under these leases.

Operating lease liabilities were recorded as the present value of remaining lease payments not yet paid for the lease term discounted using the incremental borrowing rate associated with each lease.

Operating lease right-of-use assets represent operating lease liabilities adjusted for lease incentives and initial direct costs.

As Cumberland’s leases do not contain implicit borrowing rates, the incremental borrowing rates were calculated based on information available at January 1, 2019.

As the Company’s leases do not contain implicit borrowing rates, the incremental borrowing rates were calculated based on information available at January 1, 2019 and October 25, 2022.

Incremental borrowing rates reflect the Company’s estimated interest rates for collateralized borrowings over similar lease terms.

The weighted-average incremental borrowing rate used to discount the present value of the remaining lease payments is 7.42 %.

The weighted-average remaining lease term at September 30, 2022 is 0.4 years.

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

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

The initial term of the Lease is one hundred fifty-seven ( 157 ) months, with two consecutive options to renew for a period of five years each.

The Broadwest lease calls for monthly base rent, operating expense and parking payments.

In year 1, the base rent starts at $ 33.06 per square foot of rentable area.

The lease also provides for several months of free rent plus a tenant improvement allowance.

Cumberland received approval for its building permit and began construction on the Leased Premise in June 2022.

On October 25, 2022, Cumberland received final building approval and a certificate of occupancy for the Leased Premise.

The weighted-average remaining lease term for the Broadwest lease is 12.62 years at March 31, 2023.

The weighted-average incremental borrowing rate used to discount the present value of the remaining lease payments is 9.28 % for the Broadwest lease and 7.42 % for the remaining CET lease.

Lease Position

At September 30, 2022 and December 31, 2021, the Company's lease assets and liabilities were as follows:

Right-of-Use Assets September 30, 2022 December 31, 2021

At March 31, 2023 and December 31, 2022, the Company's lease assets and liabilities were as follows:

Right-of-Use Assets March 31, 2023 December 31, 2022

Operating lease right-of-use assets $ 4,919,057 $ 5,218,403

Lease Liabilities September 30, 2022 December 31, 2021

Lease Liabilities March 31, 2023 December 31, 2022

Operating lease current liabilities $ 158,369 $ 172,910

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Total $ 4,707,519 $ 4,759,211

As of September 30, 2022, cumulative future minimum sublease income under non-cancelable operating subleases totals approximately $ 0.2 million and will be paid through the leases ending in October 2022 and April 2023.

Excluding the Broadwest lease agreement, future minimum lease payments under non-cancelable operating leases (with initial or remaining lease terms in excess of one year) are as follows:

Maturity of Lease Liabilities at September 30, 2022

As of March 31, 2023, cumulative future minimum sublease income under non-cancelable operating subleases totals approximately $ 0.03 million and will be paid through the leases ending in April 2023.

Future minimum lease payments under non-cancelable operating leases (with initial or remaining lease terms in excess of one year) are as follows:

Maturity of Lease Liabilities at March 31, 2023

Operating Leases

After 2027 5,324,178

Total lease payments 8,264,685

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Rent expense and sublease income were as follows:

Nine months ended September 30,

Three months ended March 31,

Rent expense $ 234,863 $ 285,963

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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.

During the nine months ended September 30, 2022 and September 30, 2021, the Company repurchased 290,576 shares and 326,537 shares of common stock for approximately $ 0.8 million and $ 1.0 million, respectively.

At September 30, 2022, approximately $ 3.9 million of common shares was left to repurchase under this program.

During the three months ended March 31, 2023 and March 31, 2022, the Company repurchased 86,829 shares and 174,149 shares of common stock for approximately $ 0.2 million and $ 0.6 million, respectively.

At March 31, 2023, approximately $ 3.6 million of common shares was left to repurchase under this program.

Share purchases and sales

During the Company's March 2022 trading window, several members of Cumberland's Board of Directors entered into share purchase agreements of the Company's stock pursuant to Rule 10b5-1 of the Securities Exchange Act of 1934.

In the Company's May 2023 trading window, several members of Cumberland's Board of Directors will enter into share purchase agreements of the Company's stock pursuant to Rule 10b5-1 of the Securities Exchange Act of 1934.

These purchases are designed to increase ownership in the Company by the members of the Board.

These purchases began in April 2022 and as of September 30, 2022, a total of 27,698 shares have been purchased through this trading plan.

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

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

The Company did not issue any shares under an ATM during the nine months ended September 30, 2022 or September 30, 2021.

The Company did not issue any shares under an ATM during the three months ended March 31, 2023 or March 31, 2022.

Restricted Share Grants and Incentive Stock Options

During the nine months ended September 30, 2022 and September 30, 2021, the Company issued 65,225 shares and 36,850 shares of restricted stock to employees, advisors and directors, respectively.

During the three months ended March 31, 2023 and March 31, 2022, the Company issued 28,250 shares and 65,225 shares of restricted stock to employees, advisors and directors, respectively.

Restricted stock issued to employees and advisors generally cliff-vests on the fourth anniversary of the date of grant and for directors on the one-year anniversary of the date of grant.

During the nine months ended September 30, 2022 and 2021, the Company also issued 172,300 and 174,800 incentive stock options, respectively, to employees that cliff-vest on the fourth anniversary of the date of grant, that are set to expire in 2032 and 2031, respectively.

During the three months ended March 31, 2023 and 2022, the Company also issued 183,250 and 166,350 incentive stock options, respectively, to employees that cliff-vest on the fourth anniversary of the date of grant, that are set to expire in 2033 and 2032, respectively.

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

For the nine months ended September 30, 2022, we recorded a credit of $ 0.1 million to share-based compensation related to the forfeiture of unvested restricted stock awards.

For the three months ended March 31, 2023, we recorded a credit of $ 0.04 million to share-based compensation related to the forfeiture of unvested restricted stock awards.

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 quarter ended September 30, 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 December 31, 2021, the Company entered into a Fifth Amendment to the Revolving Credit Note and Sixth Amendment (the "Sixth Amendment") to Revolving Credit Loan Agreement with Pinnacle Bank (the "Pinnacle Agreement").

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

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

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

The Pinnacle Agreement includes specific financial covenants.

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 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 and Pinnacle Bank entered into a Fourth Amendment to the Revolving Credit Note and Fifth Amendment to the Revolving Credit Loan Agreement to renew the Revolving Credit Loan.

The original Pinnacle Agreement was dated July 2017.

Beginning on August 14, 2018, and continuing until October 7, 2020, the Company and Pinnacle Bank entered into a series of amendments to extend and update the Revolving Credit Note and Revolving Credit Agreement.

The Fifth Amendment extends the maturity date three years through October 1, 2024.

For the quarter ended March 31, 2023, we were in compliance with the Funded Debt Ratio financial covenant.

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

The current pricing under the Pinnacle Agreement provides for an interest rate spread of 1.75 % to 2.75 % above LIBOR with a minimum LIBOR of 0.90 %.

The applicable interest rate under the Pinnacle Agreement was 5.25 % at September 30, 2022.

The applicable interest rate under the Pinnacle Agreement was 7.375 % at March 31, 2023.

In addition, a fee of 0.25 % per year is charged on the unused line of credit.

Interest and the unused line fee are payable quarterly.

The parties have agreed on a process to determine a new interest rate benchmark at the point the LIBOR rate is expected to be discontinued over the next 12 to 24 months.

As of September 30, 2022 and December 31, 2021, the Company had $ 17.7 million and $ 15.0 million, respectively, in borrowings outstanding under its revolving credit facility.

The LIBOR rate will no longer be used as of June 30, 2023, at which time the benchmark rate will be changed from LIBOR to Term SOFR.

As of March 31, 2023 and December 31, 2022, the Company had $ 16.1 million and $ 16.2 million, respectively, in borrowings outstanding under its revolving credit facility.

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

6 unchanged sentences

(7) INCOME TAXES

As of September 30, 2022, the Company has approximately $ 56.6 million in federal net operating loss carryforwards including approximately $ 44.1 million of net operating loss carryforwards resulting from the exercise of nonqualified stock options.

As of March 31, 2023, the Company has approximately $ 57.8 million in federal net operating loss carryforwards including approximately $ 44.1 million of net operating loss carryforwards resulting from the exercise of nonqualified stock options.

These have historically been used to significantly offset income tax obligations.

The Company expects it will continue to pay minimal income taxes during 2023 and beyond, through the continued utilization of these net operating loss carryforwards, on any taxable income generated from our operations.

The Company does not allocate any portion of its income tax expense (benefit) to discontinued operations.

(8) OTHER INCOME

The Company realized a $ 0.6 million gain in the second quarter of 2022 from insurance proceeds for a Company owned executive life insurance policy.

The Company realized a $ 1.8 million gain in the first quarter of 2023 for previously paid prescription drug fees.

In March 2023, the Company was granted a barrier-to-innovation waiver from the FDA for the fiscal year 2022 RediTrex prescription drug fees resulting in a refund of $ 1.8 million.

This refund is expected to be paid in second quarter of 2023.

(9) COLLABORATIVE AGREEMENTS

5 unchanged sentences

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

(10) COMMITMENTS AND CONTINGENCIES

The company is involved in litigation arising in the normal course of business.

The Company does not believe that the disposition or ultimate resolution of existing claims or lawsuits will have a material adverse effect on the business or financial condition of the Company.

(11) ADDITIONS AND RETURN OF PRODUCT RIGHTS

14 unchanged sentences

Contingent consideration earned and accrued in operating expenses —

Balance at September 30, 2022

The contingent consideration liability of $ 4.8 million was accounted for as $ 1.9 million of other current liabilities and $ 3.0 million of other long-term liabilities on the condensed consolidated balance sheet as of September 30, 2022.

Balance at March 31, 2023

The contingent consideration liability of $ 4.1 million was accounted for as $ 1.2 million of other current liabilities and $ 2.9 million of other long-term liabilities on the condensed consolidated balance sheet as of March 31, 2023.

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

12 unchanged sentences

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

after March 31, 2023.

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.

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

approval and issued 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.

Sancuso Acquisition

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

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

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

In March 2023, Cumberland paid $ 1.0 million of the $3.5 million milestone payments to Kwoya Kirin for the approval by the FDA of the manufacturing site for the product.

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 preliminary valuation of the contingent consideration liability utilizing significant unobservable inputs.

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 is working with an outside consultant firm to finalize the Sancuso valuation of the transaction which will be completed later this year.

The estimates of fair value for the more significant assets and liabilities assumed were as follows:

The Company worked with an outside consultant 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.

Balance at January 3, 2022 $ 3,946,716

Balance at December 31, 2022 $ 3,000,000

Cash payment of royalty during the period ( 244,920 )

1 unchanged sentence

Contingent consideration earned and accrued in operating expenses 188,679

Balance at September 30, 2022

Balance at March 31, 2023

The contingent consideration liability earned and accrued in operating expenses is paid to Kyowa Kirin quarterly.

The contingent consideration liability of $ 4.5 million was accounted for as $ 1.9 million of current liabilities and $ 2.6 million of other long-term liabilities on the condensed consolidated balance sheet as of September 30, 2022.

Ethyol and Totect

In 2016, Cumberland entered into an agreement with Clinigen for the rights and responsibilities associated with the commercialization of Ethyol in the United States.

In 2017, the Company entered into another agreement with Clinigen for the rights and responsibilities associated with the commercialization of Totect in the United States.

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

This review followed an accelerated business development initiative, which resulted in a series of transactions.

During May 2019, Cumberland entered into the Dissolution Agreement with Clinigen in which the Company returned the exclusive rights to commercialize Ethyol and Totect in the United States to Clinigen.

Under the final terms of the Dissolution Agreement, Cumberland was no longer responsible for the distribution, marketing and promotion of either Ethyol or Totect or any competing products after December 31, 2019.

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

Cumberland recorded the first four quarterly installments totaling $ 3.0 million during 2020 and the final four installments totaling $ 2.0 million during 2021 , as discontinued operations.

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

December 31, 2019, as the transition date, was the final day Cumberland was responsible for the products.

Cumberland was responsible for the products through December 31, 2019 and beginning on January 1, 2020, the products' rights transitioned back to Clinigen.

As a result, January 1, 2020, was the first day of discontinued operations for the Ethyol and Totect products.

The dissolution payments from Clinigen are reflected as revenue from discontinued operations.

The Company did not incur expenses associated with these payments from Clinigen.

Three months ended September 30, Nine months ended September 30,

2022 2021 2022 2021

Revenues $ — $ 496,787 $ — $ 1,491,004

Income from discontinued operations $ — $ 496,787 $ — $ 1,491,004

The contingent consideration liability of $ 2.5 million was accounted for as $ 1.3 million of current liabilities and $ 1.2 million of other long-term liabilities on the condensed consolidated balance sheet as of March 31, 2023.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements