What changed in this filing

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Item 9A. Controls and Procedures

2024-03-13 compared with 2023-03-13 · 428 added, 440 removed, 904 unchanged (49% of the section changed)

3 unchanged sentences

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

During our fourth quarter of 2022, there were no changes in

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

During our fourth quarter of 2023, there were no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) or 15d-15(f)) that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Other Information.

(a) Recent Developments

Form 8-K, Item 5.02(e).

Compensatory Arrangements of Certain Officers

On March 7, 2024, the Company entered into new employment agreements with each of A.J.

Kazimi, our Chief Executive Officer (the “ Kazimi Employment Agreement ”), Jim Herman, our Executive Vice President National Accounts and Chief Compliance Officer (the “ Herman Employment Agreement ”), Todd Anthony, our Vice President Organizational Development (the “Anthony Employment Agreement”), Chris T.

Bitterman, Vice President Sales and Marketing (the “Bitterman Employment Agreement”) and John M.

Hamm, our Vice President, Chief Financial Officer (the “Hamm Employment Agreement ”), and together with the Kazimi Employment Agreement, the Herman Employment Agreement, the Anthony Employment Agreement, the Bitterman Employment Agreement and the Hamm Employment Agreement, (the “ Employment Agreements ”).

The Employment Agreements were effective as of January 1, 2024.

Employment Agreements

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

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

Similarly, each of Mr.

Bitterman, and Mr.

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

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

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

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

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

Kazimi Employment Agreement

Pursuant to the Kazimi Employment Agreement, Mr.

Kazimi will serve as the Company’s Chief Executive Officer and will receive a base salary of $702,000.

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

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

Herman Employment Agreement

Pursuant to the Herman Employment Agreement, Mr.

Herman will serve as the Company’s Senior Vice President, National Accounts and Chief Compliance Officer and will receive a base salary of $310,000.

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

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

Anthony Employment Agreement

Pursuant to the Anthony Employment Agreement, Mr.

Anthony will serve as the Company’s Vice President Organizational Development and will receive a base salary of $286,125.

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

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

Bitterman Employment Agreement

Pursuant to the Bitterman Employment Agreement, Mr.

Bitterman will serve as the Company’s Vice President Sales and Marketing and will receive a base salary of $268,840.

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

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

Hamm Employment Agreement

Pursuant to the Hamm Employment Agreement, Mr.

Hamm will serve as the Company’s Vice President, Chief Financial Officer and will receive a base salary of $246,240.

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

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

(b) Insider Trading Arrangements and Policies

During the three months ended December 31, 2023, no “director” or “officer” (as defined in Rule 16a-1(f) under the Exchange Act) of the Company adopted or terminated a “Rule 10b5-1 trading arrangement” or a “non-Rule 10b5-1 trading arrangement,”as each term is defined in Item 408(a) of Regulation S-K.

Disclosure Regarding Foreign Jurisdictions that Prevent Inspections.

5 unchanged sentences

Management’s Report on Internal Control over Financial Reporting

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

Report of Independent Registered Public Accounting Firm - Consolidated Financial Statements - Carr, Riggs & Ingram;

Nashville, TN;

Report of Independent Registered Public Accounting Firm – Consolidated Financial Statements - FORVIS, LLP (formerly BKD, LLP);

Nashville, TN PCAOB ID:

6 unchanged sentences

Valuation and Qualifying Accounts

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

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

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

1.2 Amendment No.

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

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

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

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

48 unchanged sentences

Kazimi 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

10.12# Employment Agreement dated March 8, 2024, effective as of January 1, 2024, by and between Jim Herman and Cumberland Pharmaceuticals Inc.

10.13# Employment Agreement dated March 8, 2024, effective as of January 1, 2024, by and between Todd Anthony and Cumberland Pharmaceuticals Inc.

10.14# Employment Agreement dated March 7, 2024, effective as of January 1, 2024, by and between Chris Bitterman and Cumberland Pharmaceuticals Inc.

10.15# Employment Agreement dated March 7, 2024, effective as of January 1, 2024, by and between John M.

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

Hamm and Cumberland Pharmaceuticals Inc.

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.

26 unchanged sentences

001-33637) as filed with the SEC on March 12, 2013

10.34 Revolving Credit Loan Agreement, dated July 31, 2017, by and between Cumberland Pharmaceuticals Inc.

and Pinnacle Bank 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 8, 2017

10.35 Amendment to Revolving Credit Loan Agreement, by and between Pinnacle Bank and Cumberland Pharmaceuticals Inc., dated August 14, 2018, incorporated herein by reference to Exhibit 10.1 to the Registrant's Quarterly Report Form 10-Q (File No.

001-33637) as filed with the SEC on August 14, 2018

10.36 First Amendment to Revolving Credit Note and Second Amendment to Revolving Credit Loan Agreement, dated as of October 17, 2018, by and between Cumberland Pharmaceuticals Inc.

and Pinnacle Bank, incorporated herein by reference to Exhibit 10.1 to the Registrant's Current Report on Form 8-K (File No.

001-33637) as filed with the SEC on October 19, 2018

10.37 Second Amendment to Revolving Credit Note and Third Amendment to Revolving Credit Loan Agreement, dated as of May 10, 2019, by and between Cumberland Pharmaceuticals Inc.

and Pinnacle Bank, incorporated herein by reference to Exhibit 10.2 to the Registrant's Quarterly Report on Form 10-Q (File No.

001-336371) as filed with the SEC on May 15, 2019.

10.38# Amendment Number 2 to the Amended and Restated 2007 Long-Term Incentive Plan, incorporated herein by reference to Exhibit 10.1 of the Registrant’s Quarterly Report on Form 10-Q (File No.

2 unchanged sentences

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.

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 13, 2020

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

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

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

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

and Pinnacle Bank, 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.

1 unchanged sentence

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.

16 Letter to the SEC from FORVIS, LLP, incorporated herein by reference to Exhibit 16.1 of the Company’s Current Report on Form 8-K (File No.

001-33637) as filed with the SEC on May 24, 2023

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 Carr, Riggs & Ingram, LLC

23.2 Consent of FORVIS, LLP

1 unchanged sentence

31.2 Certification of Chief Financial 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.

97.1 Policy for the Recovery of Previously Awarded Incentive Compensation

32.1** Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C.

27 unchanged sentences

Kazimi (Principal Executive Officer and Director)

Hamm Senior Director and CFO March 13, 2023

Hamm Vice President, Chief Financial Officer March 12, 2024

Hamm (Principal Financial and

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Report of Independent Registered Public Accounting Firm

To the Shareholders, Board of Directors and Audit Committee

To the Shareholders, Board of Directors and Audit Committee of

Cumberland Pharmaceuticals Inc.

Nashville, Tennessee

Opinion on the Consolidated Financial Statements

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

(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.

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

and subsidiaries (the "Company") as of December 31, 2023, the related consolidated statements of operations, equity, and cash flows for the year then ended, 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, 2023, and the results of its operations and its cash flows for the year then ended , in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

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

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

Our responsibility is to express an opinion on the Company’s 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 audits in accordance with the standards of the PCAOB.

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

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the 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 audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.

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

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

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

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

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

Critical Audit Matter

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.

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

As described in Note 2 to the consolidated financial statements, 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, 2023, 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 $7.6 million.

These provisions are recognized concurrently with the sales of products.

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

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

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

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

Provisions for 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.

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, 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:

• Tested management’s process for calculating certain allowances and developed an independent expectation of the reserve balance for the remaining allowances.

• Performed 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 evaluating a service organization from which data was obtained, 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 claims, 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.

• Compared actual activity for chargebacks, discounts, and damaged goods and rebates, coupons, product returns, and certain fees reported after December 31, 2023, to estimated reserves and accruals on the December 31, 2023, consolidated balance sheet.

/s/ Carr, Riggs & Ingram, LLC

We have served as the Company’s auditor since 2023.

Nashville, Tennessee

March 12, 2024

Report of Independent Registered Public Accounting Firm

To the Shareholders, Board of Directors and Audit Committee

Cumberland Pharmaceuticals Inc.

Nashville, Tennessee

Opinion on the Consolidated Financial Statements

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

(“Company”) as of December 31, 2022, the related consolidated statements of operations, equity, and cash flows for the year 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 the results of its operations and its cash flows for the year ended December 31, 2022, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

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

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

We are a public accounting firm registered with the Public Company Accounting Oversight Board (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 (SEC) 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 financial statements are free of material misstatement, whether due to error or fraud.

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

Accordingly, we express no such opinion.

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

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

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

Critical Audit Matters

3 unchanged sentences

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

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.

13 unchanged sentences

• 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.

• Evaluated the reasonableness of significant assumptions used by management in the computation of 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.

6 unchanged sentences

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.

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/s/ FORVIS, LLP

(Formerly, BKD, LLP)

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

We served as the Company’s auditor from 2020 to 2023.

Nashville, Tennessee

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47,091,602 47,474,973

Retained earnings (deficit) ( 11,208,841 ) ( 5,638,600 )

Accumulated deficit ( 17,488,161 ) ( 11,208,841 )

Total shareholders’ equity 29,603,441 36,266,132

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General and administrative 10,651,915 10,180,120

Amortization 5,067,368 4,371,300

Amortization and impairment 8,102,648 5,067,368

Total costs and expenses 49,107,168 47,715,878

Operating income (loss) ( 5,704,929 ) ( 7,677,420 )

Operating loss ( 9,554,661 ) ( 5,704,929 )

Interest income 286,854 98,405

Other income 2,828,871 —

Other income - settlement 475,000 —

Other income - gain on insurance proceeds 346,800 611,330

Interest expense ( 667,861 ) ( 585,995 )

Income (loss) before income taxes ( 5,581,189 ) ( 5,562,230 )

Income tax (expense) benefit ( 68,850 ) ( 34,891 )

Net income (loss) from continuing operations ( 5,650,039 ) ( 5,597,121 )

Discontinued operations net of tax — 1,994,322

Net income (loss) ( 5,650,039 ) ( 3,602,799 )

Loss before income taxes ( 6,284,997 ) ( 5,581,189 )

Income tax expense ( 45,769 ) ( 68,850 )

Net loss ( 6,330,766 ) ( 5,650,039 )

Net loss at subsidiary attributable to noncontrolling interests 51,446 79,798

Net income (loss) attributable to common shareholders $ ( 5,570,241 ) $ ( 3,507,587 )

Earnings (loss) per share attributable to common shareholders:

-Continuing operations-basic $ ( 0.38 ) $ ( 0.37 )

-Discontinued operations-basic — 0.13

Net loss attributable to common shareholders $ ( 6,279,320 ) $ ( 5,570,241 )

Loss per share attributable to common shareholders:

Basic $ ( 0.44 ) $ ( 0.38 )

-Continuing operations-diluted $ ( 0.38 ) $ ( 0.37 )

-Discontinued operations-diluted — 0.13

Diluted $ ( 0.44 ) $ ( 0.38 )

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Cash flows from operating activities:

Net income (loss) $ ( 5,650,039 ) $ ( 3,602,799 )

Discontinued operations — 1,994,322

Net income (loss) from continuing operations ( 5,650,039 ) ( 5,597,121 )

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

Net loss $ ( 6,330,766 ) $ ( 5,650,039 )

Adjustments to reconcile net loss to net cash flows provided by operating activities:

Depreciation and amortization expense 4,935,954 5,328,113

Deferred tax expense — —

Share-based compensation 447,503 741,867

Impairment loss on intangible assets 3,343,842 —

Amortization of operating lease right-of-use asset 834,500 —

Disposal of assets 20,256 —

Stock-based compensation 365,040 447,503

Decrease in non-cash contingent consideration ( 1,253,840 ) ( 2,088,296 )

3 unchanged sentences

Gain on receipt of life insurance policies ( 346,800 ) ( 611,330 )

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

Net changes in assets and liabilities affecting operating activities:

Accounts receivable 3,404,949 ( 6,115,640 )

Inventories 911,078 4,816,450

Inventories, net ( 23,143 ) 911,078

Other current assets and other assets 65,684 689,260

Operating lease liabilities ( 1,405,363 ) —

Accounts payable and other current liabilities 3,724,174 14,536,076

Other long-term liabilities ( 1,131,453 ) 419,659

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

Discontinued operations — 1,994,322

Net cash provided by operating activities 6,093,821 8,453,396

3 unchanged sentences

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 347,356 877,597

1 unchanged sentence

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

Note receivable investment funding — ( 200,000 )

Net cash used in investing activities ( 105,695 ) ( 13,674,456 )

9 unchanged sentences

Net cash used in financing activities ( 7,424,472 ) ( 2,061,786 )

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

Net decrease in cash and cash equivalents ( 1,436,346 ) ( 7,282,846 )

Cash and cash equivalents, beginning of year 19,757,970 27,040,816

4 unchanged sentences

Income taxes 108,823 3,300

Total cash paid included in measurement of lease liability 804,818 1,011,313

Noncash investing and financing activities:

1 unchanged sentence

Change in unpaid invoices for offering costs 69,001 ( 94,689 )

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

Lease liability obtained from right-of-use assets 1,158,367 4,590,978

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

6 unchanged sentences

Cumberland Pharmaceuticals Inc.

Common stock Retained earnings (deficit) Non-controlling interest Total equity

Common stock Accumulated deficit Non-controlling interest Total equity

Shares Amount

Balance, December 31, 2021 14,742,754 $ 48,452,906 $ ( 5,638,600 ) $ ( 212,328 ) $ 42,601,978

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

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

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

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

1 unchanged sentence

Balance, December 31, 2022 14,366,616 $ 47,474,973 $ ( 11,208,841 ) $ ( 292,126 ) 35,974,006

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

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

Net loss — $ — ( 6,279,320 ) ( 51,446 ) ( 6,330,766 )

Share-based compensation 157,360 $ 365,040 — — 365,040

17 unchanged sentences

("CET"), which teams with universities and other research organizations to help advance scientific discoveries from the laboratory to the marketplace.

In 2014, the Company organized equity financing to recapitalize and strengthen the financial position of CET including an investment of approximately $ 1.0 million from Gloria Pharmaceuticals Co., Ltd.

As a result, Gloria received shares in CET and joined the CET ownership group.

In April, 2019, CET entered into an agreement with HongKong WinHealth Pharma Group Co.

2 unchanged sentences

In connection with WinHealth's investment in CET, Cumberland also made an additional $ 1.0 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 $ 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.

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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.

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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.

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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.

The Foundation maintains separate financial statements and its ongoing operations do 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.

Since 2019, Cumberland has made annual cash contributions to the Foundation.

During the years 2023 and 2022, the Company made cash contributions of $ 40,000 and $ 25,000 , respectively.

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Notes to Consolidated Financial Statements (Continued)

(2) Significant Accounting Policies

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All significant intercompany transactions and accounts have been eliminated in consolidation.

COVID-19 Pandemic

In early 2020, the U.S.

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

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

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

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

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

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

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

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

However, we are fortunate to have a diversified product portfolio that includes other brands that have delivered a strong performance during the pandemic.

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

Use of Estimates

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The Company’s most significant estimates include:

(1) its allowances for chargebacks and accruals for rebates and product returns (2) the allowances for obsolescent or unmarketable inventory and (3) valuation of contingent consideration liability associated with business combinations.

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Notes to Consolidated Financial Statements (Continued)

(1) its allowances for chargebacks and accruals for rebates and product returns, (2) the allowances for obsolescent or unmarketable inventory, (3) valuation of contingent consideration liability associated with business combinations and (4) evaluation of continuing utility of intangible assets.

Segment Reporting

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The following section describes the valuation methodologies we use to measure different financial instruments at fair value on a recurring basis.

CUMBERLAND PHARMACEUTICALS INC.

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Notes to Consolidated Financial Statements (Continued)

The Company’s financial instruments include cash and cash equivalents, accounts receivable, accounts payable, accrued liabilities, contingent consideration liability and a revolving line of credit.

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As of December 31, 2023 and 2022, cash equivalents consist primarily of money market funds.

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Notes to Consolidated Financial Statements (Continued)

The Company monitors concentration of credit risk with the financial institutions in which it conducts business.

The Company has cash deposits which fluctuate in excess of federally insured limits throughout the year.

Accounts Receivable

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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 and discounts.

The allowances in accounts receivable for chargebacks and cash discounts were $ 0.6 million at December 31, 2022 and $ 0.3 million at December 31, 2021.

The allowances in accounts receivable for chargebacks and cash discounts were $ 0.6 million at December 31, 2023 and 2022.

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.

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

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

Non-current inventories consist of active pharmaceutical ingredients which typically has an extended life and selected finished good products with extended life longer than one year.

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Notes to Consolidated Financial Statements (Continued)

Prepaid and Other Current Assets

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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.

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

The Company filed an updated Form S-3 with the SEC in December 2020 (the “Prior Registration Statement”), which was declared effective in January 2021.

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

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

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Notes to Consolidated Financial Statements (Continued)

The Company intends to continue an ATM feature through B.

Riley FBR, Inc.

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 2021.

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

This ATM program was under the Prior Registration Statement and is no longer active.

The Company filed an updated Form S-3 with the SEC on December 14, 2023, which was declared effective on December 26, 2023 (the “Current Registration Statement”).

The Company intends to enter into an agreement with H.C.

Wainwright & Co., LLC to establish a new ATM program under the Current Registration Statement.

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 and December 2023.

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

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Leasehold improvements are amortized over the shorter of the initial lease term plus renewal options, if reasonably assured, or the remaining useful life of the asset.

Upon retirement or disposal of assets, any gain or loss is reflected as a component of operating income (loss) in the consolidated statement of operations.

Upon retirement or disposal of assets, any gain or loss is reflected as a component of operating loss in the consolidated statement of operations.

Improvements that extend an asset’s useful life are capitalized.

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If there are any changes made to the useful life of the product and license rights, the costs associated with such a change, if any, will be capitalized and amortized over the revised useful life.

Given the delay in identifying a packager for Omeclamox-Pak, the Company has taken a non-cash write down of the related intangible asset of $ 3.3 million.

The financial statements reflect this adjustment as efforts to identify a packager continue.

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Notes to Consolidated Financial Statements (Continued)

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

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Patents Life of patent

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Notes to Consolidated Financial Statements (Continued)

Trade and Note Receivables

Current Expected Credit Losses (“CECL”) is applicable to all financial assets measured at amortized cost.

All financial instruments are evaluated, which principally relates to trade receivables and two notes receivable.

CECL 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 of Accounting Standards Codification ("ASC") 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 reassesses 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.

Impairment of Long-Lived Assets

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Fair value is determined through various valuation techniques including quoted market prices, third-party independent appraisals and discounted cash flow models.

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Notes to Consolidated Financial Statements (Continued)

Goodwill and other indefinite lived intangible assets that are not subject to amortization are tested at least annually for impairment.

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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.

The Company recorded no impairment charges during 2022.

In 2023, given the delay in identifying a packager for Omeclamox-Pak the Company has taken a non-cash write down of the related intangible assets of $ 3.3 million, which is included in amortization expense in the statement operations.

These intangible assets consisted of product and license rights and trademarks.

Joint Venture Agreement

In August 2020, Cumberland entered into an agreement with WinHealth Investment (Singapore) Ltd creating WHC Biopharmaceuticals, Pte.

The joint venture, as a limited liability company, will focus on acquiring, developing, registering, and commercializing development stage and commercial stage biopharmaceuticals for China, Hong Kong and other Asian markets.

The agreement provides for initial investment from WinHealth in the form of a $ 0.2 million equity contribution and an initial investment from Cumberland in the form of $ 0.2 million convertible note.

The joint venture, as a limited liability company, focuses on acquiring, developing, registering, and commercializing development stage and commercial stage biopharmaceuticals for China, Hong Kong and other Asian markets.

The agreement provided for initial investment from WinHealth in the form of a $ 0.2 million equity contribution and an initial investment from Cumberland in the form of $ 0.2 million convertible note.

The joint venture will seek additional future capital from additional investors and has entered into exclusive option agreements to license intellectual property from both Cumberland Pharmaceuticals Inc.

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

During the year ended December 31, 2023, the Company revised its estimate for rebates related to Sancuso revenues based on additional information related to actual product activities.

As a result, the Company recognized additional revenue allowances of $0.6 million for rebates as a change of estimate.

Sales Rebates and Discounts

1 unchanged sentence

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.

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Notes to Consolidated Financial Statements (Continued)

3 unchanged sentences

Consistent with industry practice, the Company maintains a return policy that allows customers to return product within a specified period prior to and subsequent to the expiration date.

The Company’s estimate of the provision for returns is based upon historical experience, expiration date by product as well as any other factor expected to impact future returns.

The Company’s estimate of the provision for returns is based upon historical experience, expiration date by product as well as any other factor

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Notes to Consolidated Financial Statements (Continued)

expected to impact future returns.

Any changes in the assumptions used to estimate the provision for returns are recognized in the period those assumptions are changed.

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Advertising costs $ 2,903,741 $ 2,927,041

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Notes to Consolidated Financial Statements (Continued)

Research and Development

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The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period of enactment.

The Company only recognizes income tax benefits associated with an income tax position in which it is “more likely than not” that the position would be sustained upon examination by the taxing authorities.

The Company only recognizes income tax benefits

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Notes to Consolidated Financial Statements (Continued)

associated with an income tax position in which it is “more likely than not” that the position would be sustained upon examination by the taxing authorities.

In assessing the realizability of deferred tax assets, management considers whether some portion or all of the deferred tax assets will not be realized.

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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.

Earnings (Loss) per Share

Basic earnings (loss) per share is calculated by dividing net income (loss) attributable to common shareholders by the weighted-average number of shares outstanding.

Except where the result would be antidilutive to income from continuing operations, diluted earnings (loss) per share is calculated by assuming the vesting of unvested restricted stock and the exercise of stock options and warrants and unrecognized compensation costs.

Loss per Share

Basic loss per share is calculated by dividing net loss attributable to common shareholders by the weighted-average number of shares outstanding.

Except where the result would be antidilutive, diluted loss per share is calculated by assuming the vesting of unvested restricted stock and the exercise of stock options and warrants and unrecognized compensation costs.

Share-Based Payments

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The funding for these programs is primarily provided through Federal Small Business Administration (SBIR/STTR) and other grant awards.

The Company has determined that these collaborative agreements, with the exception of the collaborative payment discussed in Note 3 do not meet the criteria for accounting under ASC Topic 808, Collaborative Agreements .

The Company has determined that these collaborative agreements, with the exception of the collaborative payment discussed in Note 3, related to the Vibativ and Sancuso contingent consideration payments, do not meet the criteria for accounting under ASC Topic 808, Collaborative Agreements .

The agreements do not specifically designate each party’s rights and obligations to each other under the collaborative arrangements.

Except for patent defense costs, expenses incurred by one party are not required to be reimbursed by the other party.

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Notes to Consolidated Financial Statements (Continued)

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.

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.

Related Party Transactions

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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.

Refer to Note 19, for additional information.

The Company relies on several law firms for legal advice, including the firm with which Mr.

Brown is affiliated.

In 2023 and 2022, the Company paid Mr.

Brown’s law firm $ 0.05 million and $ 0.04 million, respectively.

Recent Accounting Guidance

Recent Accounting Pronouncements Adopted

In June 2016, the FASB issued ASU No.

In June 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("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.

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 results in an earlier recognition of allowances for losses.

For available-for-sale debt securities with unrealized losses, companies measure credit losses in a manner similar with previous guidance, except that the losses are recognized as

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Notes to Consolidated Financial Statements (Continued)

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 the accumulated deficit 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.

Targeted Transition Relief" which provides transition relief for ASU 2016-13 by providing entities with an alternative to irrevocably elect 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.

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 ® , Vibativ ® and Sancuso ®

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

("Nordic") to acquire the exclusive U.S.

rights to Nordic’s injectable methotrexate product line designed for the treatment of active rheumatoid arthritis, juvenile idiopathic arthritis, severe psoriatic arthritis, and severe disabling psoriasis.

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

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

Cumberland also agreed to provide Nordic a series of payments

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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.

Nordic is responsible for product manufacturing and supply.

On November 27, 2019, Cumberland received FDA approval for the first Nordic injectable product and authorization to market them under the RediTrex brand name.

The 180,000 shares of restricted Cumberland common stock previously provided to Nordic vested upon approval and were valued at $ 0.9 million on the vesting date.

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

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.

The Company adopted both ASU 2016-13 and ASU 2019-05 on January 1, 2023 , and the adoption did not have a material impact on the Company’s consolidated financial statements.

Recently Issued Accounting Standards Not Yet Adpoted

In November 2023, the FASB issued final guidance intended to improve transparency of segment disclosures, primarily through expanded disclosures for significant segment expenses.

The guidance is effective for annual periods beginning in 2024 and interim periods beginning in 2025.

Early adoption is permitted.

This new guidance will result in incremental disclosures in the notes to the Company’s segment reporting disclosures.

In December 2023, the FASB issued final guidance to improve transparency of income tax disclosures.

The final guidance requires enhanced disclosures primarily related to existing rate reconciliation and income taxes paid information.

The guidance is effective for 2025 annual reporting.

Early adoption is permitted.

This new guidance will result in incremental disclosures in the notes to the Company’s income tax disclosures.

(3) Vibativ ® , Sancuso ® and RediTrex ® Products

During November 2018, the Company executed an agreement with Theravance Biopharma ("Theravance") to acquire the assets and global rights to Vibativ including responsibility for the marketing, distribution, manufacturing and regulatory activities associated with the brand.

Vibativ is a patented, FDA approved injectable anti-infective for the treatment of certain serious bacterial infections including hospital-acquired and ventilator-associated bacterial pneumonia and complicated skin and skin structure infections.

It addresses a range of Gram-positive bacterial pathogens, including those that are considered difficult-to-treat and multidrug-resistant.

Cumberland acquired Vibativ to further add to its product offerings, increase its net revenue and positively contribute to the Company's operating results.

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

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 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 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 $ 20 million at the closing of the transaction and a $ 5 million milestone payment in early April 2019.

In addition, Cumberland has agreed to pay royalties of up to 20 % of on-going net sales of the product in the U.S.

after a $ 2.5 million threshold is met.

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

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

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

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

The contingent consideration earned and accrued in operating expenses is paid to Theravance annually.

CUMBERLAND PHARMACEUTICALS INC.

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

The product’s FDA registration was subsequently transferred from Kyowa Kirin to Cumberland in August 2023.

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.

1 unchanged sentence

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 January 2023, Cumberland made a $ 1.0 million milestone payment to Kwoya Kirin based on the FDA approval of a manufacturing site for the product.

In October 2023, Cumberland made a $ 0.5 million milestone payment based on the successful transfer of the product’s FDA registration from Kyowa Kirin to Cumberland.

The remaining $ 2 million in milestone payments are tied to achievement of certain annual sales levels for the product.

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

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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.

The fair value for the assets and liabilities assumed using Level 3 fair value inputs were as follows:

prepaid expenses of $ 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.

CUMBERLAND PHARMACEUTICALS INC.

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Notes to Consolidated Financial Statements (Continued)

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

Contingent Consideration Liability Contingent Consideration Liability Including Milestone

Balance at January 3, 2022

$ 3,384,000 $ 3,946,716

Cash payment of royalty during the period

1 unchanged sentence

Change in fair value

16,394 1,210,678

Contingent consideration earned and accrued

675,237 675,237

Balance at December 31, 2022

$ 3,000,000 $ 4,757,000

Cash payment of royalty during the period

( 790,632 ) (2,249,632)

Change in fair value

( 685,355 ) (983,355)

Contingent consideration earned and accrued

781,987 781,987

Balance at December 31, 2023

$ 2,306,000 $ 2,306,000

The current portion of the contingent consideration liability is $ 1.3 million and the non-current portion is $ 1.0 million, as of December 31, 2023.

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.

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

("Nordic") to acquire the exclusive U.S.

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

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

Cumberland also agreed to provide Nordic a series of payments 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.

Nordic is responsible for product manufacturing and supply.

On November 27, 2019, Cumberland received FDA approval for the first Nordic injectable product and authorization to market them under the RediTrex brand name.

The 180,000 shares of restricted Cumberland common stock previously provided to Nordic vested upon approval and were valued at $ 0.9 million on the vesting date.

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

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.

In accordance with the terms of the amendment, Nordic a) returned the 180,000 restricted Cumberland shares we previously issued to Nordic which were cancelled;

b) refunded to Cumberland the milestone payment of $ 1.0 million we made associated with the brand’s U.S.

and c) 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 all in 2023.

Cumberland will receive a long-term royalty on any Nordic sales of the product.

CUMBERLAND PHARMACEUTICALS INC.

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Notes to Consolidated Financial Statements (Continued)

Product Revenues

Product Revenue

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

Kristalose $ 15,981,850 $ 15,205,155

Sancuso 13,205,603 —

Vibativ 8,812,692 7,487,462

Sancuso 8,096,788 13,205,603

Caldolor 4,333,923 4,827,200

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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.

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, 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.

In the second quarter of 2023, the Company received $ 1 million relating to a litigation settlement based on two $ 500,000 milestone payments due to us for the license associated with our Vibativ product that is included in other revenue for the year ended December 31, 2023.

Other revenues includes funding from federal grant programs including those secured from the FDA and from those secured by CET through the Small Business Administration.

Grant revenue from these federal grant programs totaled approximately $ 0.4 million and $ 0.2 million for the year ended December 31, 2023 and 2022,respectively.

Other revenues also includes lease income generated by CET’s Life Sciences Center.

It is a research facility that provides scientists with access to flexible lab space and other resources to develop biomedical products.

This lease income, as noted in Footnote 15 - Leases, was approximately $ 0.5 million for the years ended December 31, 2023 and 2022.

CUMBERLAND PHARMACEUTICALS INC.

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Notes to Consolidated Financial Statements (Continued)

(5) Inventories

(5) Inventories, Net

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

Raw materials and work in process, net of reserve $ 12,899,659 $ 12,374,983

Raw materials $ 12,619,092 $ 12,899,659

Consigned inventory 149,701 168,923

3 unchanged sentences

Total inventories classified as current $ 4,609,362 $ 9,863,581

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.

In connection with the acquisition of certain product rights related to the Kristalose brand, the Company is responsible for the purchase of the active pharmaceutical ingredient ("API") for Kristalose and maintains the inventory at the third-party packagers.

As the 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 total at December 31, 2022 and 2021.

The Company's non-current inventories consisted of the following as of December 31:

Vibativ - raw materials $ 6,611,426 $ 7,138,936

Vibativ - finished goods 810,454 —

Kristalose - raw materials 3,263,515 —

Vaprisol - raw materials 1,170,641 —

Caldolor - finished goods 67,307 —

Sancuso - raw materials 574,502 —

Study drug - raw materials 203,383 256,474

Study drug - finished goods — 131,757

Other products 103,300 —

Total non-current inventory $ 12,804,529 $ 7,527,167

The Company purchases the active pharmaceutical ingredient (“API”) for Kristalose and maintains the inventory of that raw material.

API for the Company's Vaprisol and Vibativ brands were included in the assets associated with the acquisition of those brands and are also included in the raw materials inventory.

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.

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.

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

At December 31, 2023, there were no cumulative obsolescence or discontinuance losses necessary to recognize.

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.

CUMBERLAND PHARMACEUTICALS INC.

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Depreciation expense $ 177,148 $ 260,745

CUMBERLAND PHARMACEUTICALS INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

(7) Intangible Assets and Goodwill

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Goodwill $ 914,000 $ 914,000

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.

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

CUMBERLAND PHARMACEUTICALS INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

During 2023 and 2022, the Company recorded an additional $ 0.1 million and $ 0.2 million, respectively, in intangible assets for patents, trademarks and capitalized patent costs, including amounts incurred in the protection of the Company's intellectual property.

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

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

Amortization and impairment expense $ 8,102,648 $ 5,067,368

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

5 unchanged sentences

2028 and thereafter 6,745,950

CUMBERLAND PHARMACEUTICALS INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

(8) Other Current and Other Long-term Liabilities

Other current liabilities consisted of the following at December 31:

Other current liabilities 2022 2021

Rebates, product returns, administrative fees

4 unchanged sentences

Current portion of accrued contingent consideration 2,424,000 3,006,310

Current deferred charges 614,551 —

Studies accrual 385,266 400,702

Accrued inventory purchases — 609,621

Current deferred charges 220,402 614,551

Other 961,432 941,929

Total other current liabilities $ 13,596,528 $ 17,587,911

Other long-term liabilities 2022 2021

Other long-term liabilities consisted of the following at December 31:

Non-current portion of accrued contingent consideration $ 3,284,672 $ 4,931,513

5 unchanged sentences

Notes to Consolidated Financial Statements (Continued)

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

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

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

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

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

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.

The pricing under the Fourth Amendment provides for an interest rate spread of 1.75 % to 2.75 % above LIBOR with a minimum LIBOR of 0.90 % (representing an interest rate of 6.875 % at December 31, 2022).

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.

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

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

It is expected that SOFR will become the replacement benchmark.

On September 5, 2023, the Company entered into a new Revolving Credit Loan Agreement with Pinnacle Bank.

This facility provides for an aggregate principal funding amount of up to $ 25 million.

The initial revolving line of credit is up to $ 20 million, with the ability for Cumberland to increase the amount to $ 25 million, under certain conditions.

It has a three year term expiring on October 1, 2026.

The interest rate is based on a benchmark (Term SOFR) plus a spread of 2.75 %.

Cumberland is subject to one financial covenant, the maintenance of a Funded Debt Ratio, determined on a quarterly basis.

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

Paycheck Protection Program Loan

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.

The PPP is administered by the U.S.

Small Business Administration ("SBA").

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

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

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

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 the Company has used the loan amount for such qualifying expenses.

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

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

As a result, the Company has recorded the $ 2,187,140 as a deferred income liability, which is included as a component of other current liabilities on the consolidated balance sheet as of December 31, 2021.

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

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.

In October 2020, the Company submitted a request for forgiveness of the PPP loan.

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

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

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

As of December 31, 2023 and December 31, 2022, the Company had $ 12.8 million and $ 16.2 million, respectively, in borrowings outstanding under its revolving credit facility.

The applicable interest rate under the Pinnacle Agreement was 8.125 % at December 31, 2023.

In 2022, under a previous agreement with Pinnacle Bank, the applicable interest rate was based on LIBOR plus an interest rate spread and was 6.75 % at December 31, 2022.

(10) Shareholders’ Equity

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(d) Share Repurchases

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

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

The Company currently has a share repurchase program available to repurchase up to $ 10 million of its common stock pursuant to Rule 10b-18 of the Securities Exchange Act of 1934.

The Company repurchased 402,143 shares and 367,793 shares of common stock for approximately $ 0.7 million and $ 1.0 million during the years ended December 31, 2023 and 2022, respectively.

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

There remains approximately $ 3 million available under the current repurchase program available for share repurchases at December 31, 2023.

CUMBERLAND PHARMACEUTICALS INC.

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Notes to Consolidated Financial Statements (Continued)

(11) Earnings (Loss) Per Share

The following table shows the computation of the numerator and the denominator used to calculate diluted earnings (loss) per share for the years ended December 31:

Net income (loss) from continuing operations $ ( 5,650,039 ) $ ( 5,597,121 )

Discontinued operations — 1,994,322

Net income (loss) ( 5,650,039 ) ( 3,602,799 )

(11) Loss Per Share

The following table shows the computation of the numerator and the denominator used to calculate diluted loss per share for the years ended December 31:

Net loss ( 6,330,766 ) ( 5,650,039 )

Net loss at subsidiary attributable to noncontrolling interests 51,446 79,798

Net income (loss) attributable to common shareholders $ ( 5,570,241 ) $ ( 3,507,587 )

Net loss attributable to common shareholders $ ( 6,279,320 ) $ ( 5,570,241 )

Weighted-average shares outstanding – basic 14,298,774 14,563,592

34 unchanged sentences

Notes to Consolidated Financial Statements (Continued)

Income tax (expense) benefit includes the following components for the years ended December 31:

Income tax expense includes the following components for the years ended December 31:

Federal $ — $ —

State and other 45,769 68,850

Total current income tax (expense) benefit 68,850 34,891

Federal — 61,678

State — ( 61,678 )

Total deferred income tax (expense) benefit — —

Total income tax (expense) benefit $ 68,850 $ 34,891

Total current income tax expense 45,769 68,850

Total deferred income tax expense — —

Total income tax expense $ 45,769 $ 68,850

The Company’s effective income tax rate for 2023 and 2022 reconciles with the federal statutory tax rate as follows:

4 unchanged sentences

Other permanent differences ( 6.51 ) ( 2.58 )

Other — % — %

Net income tax expense ( 1 ) % ( 1 ) %

Expiring tax credits ( 3.32 ) —

Deferred True-ups ( 7.16 ) —

Net loss tax expense $ ( 0.73 ) $ ( 1.23 )

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

As such, the net deferred tax assets are fully offset with a valuation allowance as of the periods ended December 31, 2023 and 2022.

CUMBERLAND PHARMACEUTICALS INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

As of December 31, 2023, the Company has general business credit carryforwards of $ 1.3 million.

8 unchanged sentences

Loss carryforwards and credit carryforwards generated or utilized in years earlier than 2020 remain subject to examination and adjustment.

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

The Company has no unrecognized tax benefits at December 31, 2022 and 2021.

The Company has no unrecognized tax benefits in 2023 and 2022.

CUMBERLAND PHARMACEUTICALS INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

(13) Stock-Based Compensation Plans

5 unchanged sentences

The Company has reserved 3.2 million shares of common stock for issuance under the 2007 Plan and 250,000 shares for issuance under the Directors’ Plan.

The exercise price of stock options is generally 100 % of the fair market value of the underlying common stock on the grant date.

The maximum contractual term of stock options is ten years from the date of grant, except for incentive stock options granted to 10 % shareholders, which is five years .

As of December 31, 2023, the Company had 933,517 shares available for future grants under the 2007 Plan and 130,507 shares available under the Directors’ Plan.

The exercise price of stock options is generally 100 % of the fair market value of the underlying common stock on the grant date, except for incentive stock options granted to 10 % shareholders, which the exercise price is no less than 110 % of the fair market value.

The maximum contractual term of stock options is ten years from the grant date, except for incentive stock options granted to 10 % shareholders, which is no more than five years .

During 2011, the Company began issuing shares of restricted stock with no exercise price to employees and directors.

Restricted stock issued to employees generally cliff-vests on the fourth anniversary of the date of grant.

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

Restricted stock issued to employees generally cliff-vests on the fourth anniversary of the grant date.

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

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

Stock compensation expense consisted of the following for the years ended December 31:

Share-based compensation - employees $ 449,467 $ 730,412

Share-based compensation - nonemployees ( 1,964 ) 11,455

Total share-based compensation $ 447,503 $ 741,867

Stock compensation expense was $ 0.4 million for the years ended December 31, 2023 and 2022.

At December 31, 2023, there was approximately $ 0.5 million of unrecognized compensation cost related to share-based payments, which is expected to be recognized over a weighted-average period of 1.85 years.

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

CUMBERLAND PHARMACEUTICALS INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

Stock Options

The Company granted 178,950 and 186,900 incentive stock options during 2022 and 2021, respectively, which vest in four years .

There were no options exercised during 2022 and 2021.

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

Incentive Stock Options

Incentive stock options activity was as follows:

Stock options activity was as follows:

of option shares

1 unchanged sentence

Weighted-average remaining contractual term

Nonvested, December 31, 2020 — $ —

Options shares granted 186,900 3.32

Options shares vested — —

Option shares forfeited ( 16,300 ) 3.22

Nonvested, December 31, 2021 170,600 3.33

Options shares granted 178,950 2.68

Options shares vested — —

Option shares forfeited ( 29,900 ) 2.98

Nonvested, December 31, 2022 319,650 $ 3.00 6.15

Outstanding, December 31, 2021

Granted 178,950 2.68

Exercised — —

Forfeited/canceled ( 29,900 ) 2.98

Outstanding, December 31, 2022

319,650 $ 3.00 6.15

Granted 192,750 2.06

Exercised — $ —

Forfeited/canceled ( 25,150 ) $ 2.55

Outstanding, December 31, 2023

487,250 $ 2.65 5.59

The weighted-average grant-date fair value of options granted during the years 2023 and 2022 was 1.16 and 1.29 , respectively.

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

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

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

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

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

107, as amended by SAB No.

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

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

We have noted no conditions that would indicate the historical volatility would not be an indicator of future volatility, as such we are using historical volatility over the same period as the expected term of the awards ( 7 years) back to 2015 and believe it to be sufficient.

Calculated volatility for the grants issued in 2022 ranges from 44 % to 45 %.

Our average volatility over the life of stock being public is 42 % and 45 % over the last 6 months.

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

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

107, as amended by SAB No.

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

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

This results in a calculated expected term of 7 years.

No options were vested and exercisable at December 31, 2023.

The aggregate intrinsic value of options outstanding was minimal.

CUMBERLAND PHARMACEUTICALS INC.

1 unchanged sentence

Notes to Consolidated Financial Statements (Continued)

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

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

So, in this case, we are using the 7 year treasury note as of the date of grant, which ranges from 2.22 % and 3.92 % at the date of the grants.

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

As such, dividend yield is zero .

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

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

The assumptions used in the Black-Scholes valuation to determine the FV of stock options were as follows at December 31:

Expected term (in years) 5.71 5.88

Expected volatility 65.87 % 54.38 %

Risk free interest rate 3.45 % 2.29 %

Expected dividend yield — —

• Expected Term - The Company has estimated the expected life of its stock options using the simplified method, whereby the expected life equals the average of the vesting term and the original contractual term of the option.

• Expected volatility - Based on the Company’s historical stock price volatility.

• Risk Free rate - The Company bases the risk-free interest rate assumption for equity awards on the rates for U.S.

Treasury zero-coupon bonds with maturities similar to those of the expected term of the award being valued.

• Expected dividend yield - The Company’s expected dividend yield assumption is zero as it has never paid dividends and has no present intention to do so in the future.

Restricted Stock Awards

Restricted stock activity was as follows:

Number of shares

Weighted-average grant-date

Nonvested, December 31, 2021

Shares granted 36,850 3.21

Shares vested ( 192,684 ) 6.29

Shares forfeited ( 55,400 ) 5.39

Granted 65,225 2.59

Vested/released ( 171,655 ) 6.42

Forfeited/canceled ( 66,000 ) 4.67

Nonvested, December 31, 2022

Shares granted 65,225 2.59

Shares vested ( 171,655 ) 6.42

Shares forfeited ( 66,000 ) 4.67

395,751 $ 4.29

Granted 34,250 1.93

Vested/released ( 157,360 ) 5.73

Forfeited/canceled ( 12,075 ) 3.63

Nonvested, December 31, 2023

The fair value of restricted stock granted was based on the closing market price of the Company’s common stock on the date of grant.

260,566 $ 3.14

The fair value of restricted stock granted was based on the closing market price of the Company’s common stock on the grant date.

The fair value of restricted stock awards that vested during the years 2023 and 2022 was $ 0.3 million and $ 0.5 million, respectively.

At December 31, 2023, there was approximately $ 0.2 million of unrecognized compensation costs related to restricted stock awards, which is expected to be recognized over a weighted-average period of less than a year.

The restricted stock grants are included in the diluted weighted shares outstanding computation until they cliff-vest.

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Employee contributions are invested in various investment funds based upon elections made by the employees.

During 2022 and 2021, the Company contributed approximately $ 60,000 and 50,000 , respectively, in each year to the Plan as an employer match of participant contributions.

During 2023 and 2022, the Company contributed approximately $ 0.08 million and $ 0.06 million, respectively, in each year to the Plan as an employer match of participant contributions.

In 2012 and 2013, the Company established non-qualified unfunded deferred compensation plans that allow participants to defer receipt of a portion of their compensation.

1 unchanged sentence

The Company had assets consisting of company-owned life insurance contracts generally designated to pay benefits of the deferred compensation plans reflected in other assets in the consolidated balance sheet of $ 2.4 million and $ 2.3 million as of December 31, 2023 and 2022, respectively.

CUMBERLAND PHARMACEUTICALS INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

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.

6 unchanged sentences

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

In addition, the 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.

Rent expense is recognized over the expected term of the lease, including renewal option periods, if applicable, on a straight-line basis as a component of general and administrative expense.

On October 24, 2022, the CET lease with The Gateway to Nashville, LLC provided the notice of exercise to extend the lease for five years .

The lease is for approximately 14,200 square feet of wet laboratory and office space in Nashville, Tennessee where CET operates the CET Life Sciences Center.The wet laboratory and office space is leased through April 2028.

The Company also subleases a portion of the space under this lease.

Also included within the right-of-use assets are start up expenditures related to a new supply agreement with Nephron Pharmaceuticals Corporation (“Nephron”).

These expenditures are classified as an embedded lease resulting in a right-of-use asset to be amortized over the life of the Nephron contract.

As of December 31, 2023, the value of this asset was $ 1.0 million.

Rent expense is recognized over the expected term of the lease on a straight-line basis as a component of general and administrative expense.

Rent expense and sublease income as follows for the years ended December 31:

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The primary effect of adopting ASU 2016-02 to the Company was to record right-of-use assets and obligations for the leases currently classified as operating 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 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 remaining lease term for the Broadwest lease is 12.7 years and for the CET lease is 0.1 years.

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

CUMBERLAND PHARMACEUTICALS INC.

1 unchanged sentence

Notes to Consolidated Financial Statements (Continued)

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

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

As the Company’s leases do not contain implicit borrowing rates, the incremental borrowing rates were calculated based on information available at October 25, 2022 and May 1, 2023.

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

The weighted-average remaining lease term for the Broadwest and Gateway leases is 10.42 years and 12.69 years for the years ended December 31, 2023 and 2022, respectively..

The weighted-average incremental borrowing rate used to discount the present value of the remaining lease payments of both leases is 9.40 % and 9.24 % for the years ended December 31, 2023 and 2023, respectively.

Lease Position

35 unchanged sentences

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

CUMBERLAND PHARMACEUTICALS INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Continued)

(19) Discontinued Operations

In 2016, Cumberland entered into an agreement with Clinigen Group Plc ("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.

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

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.

Because of that progress, Cumberland felt that it was prudent to take a fresh look at our product portfolio, partners, and organization to ensure proper focus and capabilities.

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

This Dissolution Agreement originally targeted a transition from the Company's arrangements with Clinigen effective September 30, 2019, but was then amended to change the transition date to December 31, 2019.

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

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

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

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

As a result, January 1, 2020, was the first day of discontinued operations for the Products.

The Products provided revenue, incurred direct expenses and resulted in discontinued operations income during the periods presented.

The following amounts have been separated from continuing operations, as discontinued operations, for all periods presented.

The direct expenses separated for discontinued operations do not reflect the direct selling and marketing costs attributable to the individuals at Cumberland responsible for promotion of the Products.

Subsequent to the transaction date, th ose sales and marketing individuals who supported the Products shifted their efforts from the Products and continue to support other Cumberland brands.

(19) Commitments and Contingencies

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

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

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

After Defendants disclosed the domiciles of its limited partners to the Company, as required by the Court, on October 24, 2022, the action for breach of contract was refiled in the Supreme Court of the State of New York, County of New York (Index No.

1 unchanged sentence

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

The Company is seeking damages in the amount of no less than $ 1 million, pre- and post-judgment interest under N.Y.

The Company was seeking damages in the amount of no less than $ 1 million, pre- and post-judgment interest under N.Y.

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

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

In the opinion of management, the liability associated with these matters, will not have a material adverse effect on the Company's consolidated financial position, results of operations or cash flows.

On April 18, 2023 the state court ruled in favor of the Company.

On June 16, 2023, the Company received consideration related to the breach of contract action with the Defendants that finalized a settlement agreement that was entered into by the Company and the Defendants to close the case.

CUMBERLAND PHARMACEUTICALS INC.

5 unchanged sentences

Operating income (loss) ( 1,531,678 ) 22,859 ( 1,866,603 ) ( 6,179,239 ) ( 9,554,661 )

Net income (loss) from continuing operations ( 1,402,433 ) ( 1,364,666 ) ( 423,226 ) ( 2,459,714 ) ( 5,650,039 )

Net income (loss) 172,286 862,154 ( 1,063,219 ) ( 6,301,987 ) ( 6,330,766 )

Net income (loss) attributable to common shareholders 192,184 872,200 ( 1,049,298 ) ( 6,294,406 ) ( 6,279,320 )

Earnings (loss) per share attributable to common shareholders (1)

Continuing operations - basic $ ( 0.09 ) $ ( 0.09 ) $ ( 0.03 ) $ ( 0.17 ) $ ( 0.38 )

Discontinued operations - basic — — — — —

Basic $ 0.01 $ 0.06 $ ( 0.07 ) $ ( 0.44 ) $ ( 0.44 )

Continuing operations - diluted $ ( 0.09 ) $ ( 0.09 ) $ ( 0.03 ) $ ( 0.17 ) $ ( 0.38 )

Discontinued operations - diluted — — — — —

Diluted $ 0.01 $ 0.06 $ ( 0.07 ) $ ( 0.44 ) $ ( 0.44 )

Net revenues $ 11,175,045 $ 10,299,152 $ 11,413,072 $ 9,123,680 $ 42,010,949

Operating income (loss) ( 324,300 ) ( 1,435,729 ) ( 1,563,395 ) ( 4,353,996 ) ( 7,677,420 )

Net income (loss) from continuing operations ( 350,749 ) 724,684 ( 1,583,480 ) ( 4,387,576 ) ( 5,597,121 )

Net income (loss) from discontinued operations 495,410 498,807 496,787 503,318 1,994,322

Net income (loss) attributable to common shareholders 166,828 1,228,560 ( 1,055,278 ) ( 3,847,697 ) ( 3,507,587 )

Earnings (loss) per share attributable to common shareholders (1)

Operating loss ( 1,291,999 ) ( 1,846,538 ) ( 288,588 ) ( 2,277,804 ) ( 5,704,929 )

Net loss ( 1,402,433 ) ( 1,364,666 ) ( 423,226 ) ( 2,459,714 ) ( 5,650,039 )

Net loss attributable to common shareholders ( 1,385,253 ) ( 1,335,620 ) ( 408,639 ) ( 2,440,729 ) ( 5,570,241 )

Loss per share attributable to common shareholders (1)

Continuing operations - basic $ ( 0.09 ) $ ( 0.09 ) $ ( 0.03 ) $ ( 0.17 ) $ ( 0.38 )

Discontinued operations - basic 0.03 0.03 0.03 0.03 0.13

Basic $ 0.01 $ 0.08 $ ( 0.07 ) $ ( 0.26 ) $ ( 0.24 )

Continuing operations - diluted $ ( 0.09 ) $ ( 0.09 ) $ ( 0.03 ) $ ( 0.17 ) $ ( 0.38 )

Discontinued operations - diluted 0.03 0.03 0.03 0.03 0.13

Diluted $ 0.01 $ 0.08 $ ( 0.07 ) $ ( 0.26 ) $ ( 0.24 )

(1) Due to the nature of interim earnings per share calculations, the sum of the quarterly earnings (loss) per share amounts may not equal the reported earnings (loss) per share for the full year.

16 unchanged sentences

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

What changed 10-K

Item 9A. Controls and Procedures