☒ Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

☐ Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of ~~May 3,~~August 7, 2023, there were ~~84,922,711~~90,127,280 shares of common stock, par value $0.01 per share, outstanding.

(5) Property, plant and equipment, net

The following table presents the components of property, plant and equipment:


	March 31, 2023			December 31, 2022			June 30, 2023			December 31, 2022
Land	$	604		$	604		$	604		$	604
Building and improvements		22,781			22,751			22,867			22,751
Furniture, office and computer equipment		6,573			6,388			6,789			6,388
Manufacturing equipment		59,332			58,039			63,846			58,039
Construction in process		7,913			7,024			5,485			7,024
Property, plant and equipment, gross		97,203			94,806			99,591			94,806
Less: accumulated depreciation		(46,346	)		(44,441	)		(48,379	)		(44,441	)
Property, plant and equipment, net	$	50,857		$	50,365		$	51,212		$	50,365

Interest expense capitalized to construction in process was $~~206~~59 and $~~268~~294 for the three months ended ~~March 31,~~June 30, 2023 and 2022, respectively, and $266 and $563 for the six months ended June 30, 2023 and 2022, respectively.

~~In September 2022, the~~The Company ~~signed~~is party to a ~~sales~~sale and purchase agreement to sell approximately 121 acres of land adjacent to its Gainesville, Georgia manufacturing campus for expected proceeds of $9,075. The cost of the land ~~was determined to be held for sale at September 30, 2022~~has been removed from property, plant and ~~reclassified at cost to other current assets~~equipment, and together with ~~a carrying value of $2,659. Selling~~cumulative closing costs of $~~142~~143 ~~have also been capitalized into the asset.~~through June 30, 2023, is currently presented as a held-for-sale asset of $2,802 within prepaid expenses and other current assets. The ~~sale~~completion of the land sale is subject to customary closing conditions for transactions of this type, including completion of title and environmental due diligence and receipt of certain zoning approvals and permits, which remained to be satisfied at ~~March 31,~~June 30, 2023.

(6) Accrued expenses and other current liabilities

Accrued expenses and other current liabilities consist of the following:


	March 31, 2023		December 31, 2022		June 30, 2023		December 31, 2022
Payroll and related costs					$	2,902	$	4,276
Contract liabilities (see note 11)						1,281		2,211
Accrued transaction costs	$	2,046	$	3,653		781		3,653
Contract liabilities (see note 11)		1,757		2,211
Payroll and related costs		1,576		4,276
Property, plant and equipment		247		934		162		934
Professional and consulting fees		213		356
Accrued interest		205		227
Other		2,169		1,029		2,011		1,612
Total	$	8,213	$	12,686	$	7,137	$	12,686

Accrued transaction costs include costs incurred related to the refinancing completed in December 2022 which included the sale and subsequent leaseback of the Company’s commercial manufacturing campus located in Gainesville, Georgia (see note 9), the issuance of common and preferred stock, a borrowing of $36,900 under a new term loan with Royal Bank of Canada (see note 8) and a one-time cash transaction bonus to certain executive officers and employees.

(7) Commitments and contingencies

Litigation

The Company is involved, from time to time, in various claims and legal proceedings arising in the ordinary course of its business. ~~Except as disclosed below, the~~The Company is not currently a party to any such claims or proceedings that, if decided adversely to it, would either individually or in the aggregate have a material adverse effect on its business, financial condition or results of operations.

On July 2, 2022, a product liability lawsuit was filed against the Company and various other defendants in the State Court of Cobb County, Georgia that claimed injuries and damages caused by Plaintiff Jakob Cuble’s alleged ingestion of, among other things, Focalin XR. The complaint sought compensatory and punitive damages. On April 14, 2023, Plaintiff's counsel withdrew the case.

Purchase commitments

As of ~~March 31,~~June 30, 2023, the Company had outstanding cancelable and non-cancelable purchase commitments in the aggregate amount of $~~9,933~~7,992 related to inventory, capital expenditures and other goods and services.

Employment agreements and certain other contingencies

The Company has entered into employment agreements with each of its executive officers that provide for, among other things, severance commitments of up to $1,393 should the Company terminate the executive officers for convenience or if certain events occur following a change in control. In addition, the Company is subject to other contingencies of up to $~~3,944~~4,597 in the aggregate if certain events occur following a change in control.

(8) Debt

The following table presents the components and classification of debt:


	March 31, 2023			December 31, 2022			June 30, 2023			December 31, 2022
Debt principal:
Term loan under Credit Agreement	$	36,439		$	36,900		$	35,978		$	36,900
Note with former equity holder of IriSys		4,078			4,078			4,078			4,078
Other		339			339			339			339
Debt principal		40,856			41,317			40,395			41,317
Debt adjustments:
Unamortized deferred issuance costs		(2,325	)		(2,476	)		(2,076	)		(2,476	)
Unamortized original discount		(229	)		(297	)		(161	)		(297	)
Carrying value of debt	$	38,302		$	38,544		$	38,158		$	38,544

Current portion of debt	$	7,840		$	7,577		$	7,148		$	7,577
Debt, net of current portion		30,462			30,967			31,010			30,967
Carrying value of debt	$	38,302		$	38,544		$	38,158		$	38,544

The following table presents the future maturity of debt principal:


Twelve months ending March 31,
Twelve months ending June 30,
2024	$	7,840	$	7,148
2025		5,060		5,299
2026		27,673		27,675
2027		41		42
2028		49		51
Thereafter		193		180
Total debt principal	$	40,856	$	40,395

Term loan under Credit Agreement

See note 16 for information about an amendment to the Credit Agreement that occurred subsequent to June 30, 2023.

The Company is currently party to a credit agreement (as amended from time to time, the “Credit Agreement”) with Royal Bank of Canada. The Credit Agreement has been fully drawn in the form of a term loan of $36,900. The outstanding principal amount will be repaid in quarterly amounts totaling $~~2,076~~2,306, $~~2,998~~3,229 and $~~1,845~~923 during the twelve months ending ~~March 31,~~June 30, 2024, 2025 and 2026, respectively. The final payment of all remaining outstanding principal is due on December 16, 2025. ~~If the Company completes a sale of certain real property by December 14, 2023 and makes the $10,000~~ ~~principal repayment disclosed below, the quarterly principal payments will be reduced proportionately to the reduction in principal.~~

Subject to certain exceptions, the Company is required to make mandatory prepayments with the cash proceeds received in respect of asset sales, certain equity sales, extraordinary receipts, ~~and~~ debt issuances, upon a change of control and specified other events. Additionally, the Company is obligated ~~to repay $10,000~~ ~~of principal~~ by December 14, 2023 ~~upon~~to complete the sale of certain real property adjacent to its Gainesville, Georgia manufacturing campus (see note 5). If that property is not sold by December 14, 2023, the Company will be required to pay a fee of $369 and increase each of its quarterly principal payments by $231 until that property is sold and ~~the $10,000~~ ~~principal payment~~any mandatory prepayment is made. Because the Company concluded that the sale of the property is probable as of ~~March 31,~~June 30, 2023, an additional $~~3,726~~2,802 of debt principal has been presented as current, representing the carrying value of the current asset held for ~~sale plus the $925~~ ~~excess of the principal payment over the expected proceeds from the asset.~~sale.

The Credit Agreement also includes certain financial covenants that the Company will need to satisfy on a quarterly ~~basis, including: (i) maintaining a net leverage ratio less than~~ ~~3.75:1.00, stepping down to~~ ~~2.75:1.00 at the end of 2023; (ii) maintaining a fixed charge coverage ratio greater than~~ ~~1.15:1.00; and (iii) maintaining no less than $4,000~~ ~~cash and cash equivalents on hand, stepping up to $5,000~~ ~~by the end of 2024.~~basis. As of ~~March 31,~~June 30, 2023, the Company was in compliance with its covenants under the Credit Agreement.

~~The Credit Agreement was amended in March 2023 to clarify the terms and definitions of the aforementioned financial covenants.~~

In connection with the Credit Agreement, the Company has paid financing costs. These costs are being recognized in interest expense using the effective interest method over the term of the Credit Agreement, resulting in non-cash interest expense of $~~236~~233 and $469 for the three and six months ended ~~March 31, 2023.~~June 30, 2023, respectively.

The Credit Agreement bears interest at a floating rate equal to the three-month term Secured Overnight Financing Rate, or SOFR, with an initial floor of 1.00%, plus an applicable margin that is equal to 4.50% per annum for the first year, 5.00% for the second year and 5.50% for the third year, with quarterly interest payments due until maturity. At ~~March 31,~~June 30, 2023, the overall effective interest rate, including cash paid for interest and non-cash interest expense, was ~~12.1~~12.4%.

Historical term loans with Athyrium

The Company was previously party to a credit agreement with Athyrium Opportunities III Acquisition LP (“Athyrium Credit Agreement”). The Athyrium Credit Agreement included $100,000 of term loans at an interest rate equal to the three-month LIBOR rate plus 8.25% per annum.

~~The~~During the term of Athyrium Credit Agreement, ~~was amended numerous times with~~ the Company ~~paying~~paid financing costs and ~~accreting~~accreted an exit fee. These costs were recognized in interest expense using the effective interest method, resulting in non-cash interest expense of $~~1,137~~1,151 and $1,618 for the three and six months ended ~~March 31, 2022.~~June 30, 2022, respectively. The Company repaid the term loans in full using the proceeds from the new Credit Agreement, the sale-leaseback transaction (see note 9) and the issuance of preferred and common stock (see note 10) in December 2022.

Note with former equity holder of IriSys

See note 16 for information about an amendment to the Note that occurred subsequent to June 30, 2023.

In connection with the acquisition of IriSys, LLC (“IriSys”), the Company issued a subordinated promissory note to a former equity holder of IriSys in the aggregate principal amount of $6,117 (the “Note”). The Note is unsecured, has a three-year term, and bears interest at a rate of 6% per annum. The Note must be repaid in three equal ~~annual~~ installments through its maturity date, August 13, 2024. The Note may be prepaid in whole or in part at any time prior to the maturity date. The Note is expressly subordinated in right of payment and priority to the term loan under the Credit Agreement.

The Note was initially recognized at fair value as part of the consideration paid for the acquisition of IriSys, resulting in an original discount recognized of $877 that is being recognized as interest expense using the effective interest method over the term of the Note. At ~~March 31,~~June 30, 2023, the overall effective interest rate, including the amortization of the original discount, was 13.0%.

~~The Company has accrued interest of $154~~ ~~through March 31, 2023 that will become payable to the former equity holder of IriSys on August 13, 2023.~~

(9) Other liabilities

At ~~March 31,~~June 30, 2023, other liabilities include a sale-leaseback liability of $~~38,382~~38,589 and other liabilities of $~~1,105~~1,131.

Sale-leaseback liability

In December 2022, the Company concurrently entered into sale and lease agreements ~~with Tenet Equity Funding SPE Gainesville, LLC (“Tenet”)~~ related to its commercial manufacturing campus in Gainesville, Georgia. The selling price was $39,000, of which $1,750 was ~~retained by Tenet~~placed as a lease deposit and classified within other assets, resulting in cash proceeds to the Company of $37,250 in 2022. The lease is for an initial term of 20 years with four renewal options of ten years each. Rent under the lease will be payable monthly at a rate of $3,510 per year, increasing annually by 3%, except for the first year where annual base rent will increase by the change in the consumer price index, not to exceed 5%, if greater. The Company is responsible for the payment of all operating expenses, property taxes and insurance for the property. Pursuant to the terms of the lease, the Company will have a purchase option every ten years and a right of first offer and a right of first refusal to purchase the property should the buyer-lessor intend to sell the property to a third party.

The Company determined that it did not relinquish control of the assets to the buyer-lessor. Therefore, the assets were not derecognized, and the selling price was recorded as a financial liability. As of ~~March 31,~~June 30, 2023, the ~~Company has recognized a~~carrying value of the liability ofwas $~~38,382~~38,589, ~~that~~which is net of $~~847~~838 of unamortized deferred financing costs. The Company will recognize interest expense at aan approximately ~~10.95~~11% imputed rate of interest over a term of 20 years~~. The~~ that includes the amortization of the deferred financing costs ~~will also be amortized and recognized as interest expense using the effective interest method~~ over the term of the lease. The gross liability balance ~~will~~is scheduled to increase through 2034, at which point it will decrease through the end of lease term on December 31, 2042.

(10) Shareholders’ equity or deficit

Common stock

On May 17, 2023, the Company's shareholders approved an amendment to the articles of incorporation to increase the number of authorized shares of common stock from 95,000,000 to 185,000,000.

Convertible preferred stock

In December 2022, the Company issued 450,000 shares of Series A Convertible Preferred Stock for proceeds of $11.00 per share. Each share iswas convertible into ten shares of common stock automatically upon approval by the Company’s shareholders to increase the number of authorized shares of common stock. ~~If the approval is not obtained by~~As of June 30, 2023, ~~the conversion rate will be immediately increased by~~ 10no% and annually thereafter until approval has been obtained. Shares of Series A Convertible Preferred Stock feature a liquidation preference over common shares, have no voting rights and are entitled to receive dividends equally with shares of common preferred stock ~~on an as-if-converted basis.~~was issued or outstanding.

Warrants

See note 16 for information about warrants that were issued subsequent to June 30, 2023.

At ~~March 31,~~June 30, 2023, warrants to purchase 402,126 shares of common stock were outstanding. The warrants were originally issued to Athyrium in connection with the Athyrium Credit Agreement, are equity-classified, exercisable at $1.50 per share and expire in November 2024.

(11) Revenue recognition

The following table presents changes in contract assets and liabilities:

Contract assets

Contract liabilities

Balance at December 31, 2022
$
8,724

$
(2,211
)
Changes to the beginning balance arising from:

Reclassification to receivables as the result of rights to consideration becoming unconditional

(6,519
)

—

Reclassification to revenue as the result of performance obligations satisfied

344

1,237

Changes in estimate

768

—

Net change to contract balance recognized since beginning of period due to recognition of revenue, amounts billed and changes in estimate

5,287

(783
)
Balance at March 31, 2023
$
8,604

$
(1,757
)


	Contract assets			Contract liabilities
Balance at December 31, 2022	$	8,724		$	(2,211	)
Changes to the beginning balance arising from:
Reclassification to receivables as the result of rights to consideration becoming unconditional		(9,625	)		—
Reclassification to revenue as the result of performance obligations satisfied		688			1,579
Changes in estimate		1,579			—
Net change to contract balance recognized since beginning of period due to recognition of revenue, amounts billed and changes in estimate		6,381			(649	)
Balance at June 30, 2023	$	7,747		$	(1,281	)

Contract assets and contract liabilities are reported at the contract level. Contracts with multiple performance obligation are reported as a net contract asset or contract liability on the consolidated balance sheet. The reclassification to revenue appearing in the contract assets column results from the recognition of revenue on contract liabilities that are presented as a net contract asset at the beginning of the year.

The following table disaggregates revenue by timing of revenue recognition:


	Three months ended March 31,				Three months ended June 30,				Six months ended June 30,
	2023		2022		2023		2022		2023		2022
Point in time	$	16,813	$	16,880	$	16,368	$	19,406	$	33,181	$	36,286
Over time		4,714		4,314		5,431		3,746		10,145		8,060
Total	$	21,527	$	21,194	$	21,799	$	23,152	$	43,326	$	44,346

The Company’s payment terms for manufacturing revenue and development services are typically 30 to 45 days. Profit-sharing revenue is recorded to accounts receivable in the quarter that the product is sold by the commercial partner upon reporting from the commercial partner and payment terms are generally 45 days after quarter end.

(12) Stock-based compensation

In October 2013, the Company established an equity incentive plan that has been subsequently amended and restated to become the 2018 Amended and Restated Equity Incentive Plan (the “A&R Plan”). At ~~March 31,~~June 30, 2023, a total of ~~4,411,012~~299,809 shares were available for future grants under the A&R Plan. On December 1st of each year, pursuant to an “evergreen” provision of the A&R Plan, the number of shares available under the A&R Plan may be increased by the board of directors by an amount equal to 5% of the outstanding common stock on December 1st of that year.

Stock options

Stock options are exercisable generally for a period of ten years from the date of grant and generally vest over four years.

The following table presents information about the fair value of stock options granted:


	Three months ended March 31,						Six months ended June 30,
	2023			2022			2023		2022
Weighted average grant date fair value	$	0.84		$	1.16		$	0.96	$	1.02
Assumptions used to determine fair value:
Range of expected option life	6.0 years			6.0 years			5.5 - 6.0 years		5.5 - 6.0 years
Expected volatility		80	%		79	%	79 - 83%		79 - 81%
Risk-free interest rate	3.6%			1.5 - 2.4%			3.5 - 4.1%		1.5 - 3.0%
Expected dividend yield		—			—			—		—

No options were exercised in the ~~three~~six months ended ~~March 31,~~June 30, 2023. The intrinsic value of options exercised was negligible in the ~~three~~six months ended ~~March 31,~~June 30, 2022.

The following table presents information about stock option balances and activity:


	Number of shares			Weighted average exercise price		Aggregate intrinsic value		Weighted average remaining contractual life	Number of shares			Weighted average exercise price		Aggregate intrinsic value		Weighted average remaining contractual life
Balance, December 31, 2022		8,050,337		$	3.89			6.6 years		8,050,337		$	3.89
Granted		135,060			1.19					1,813,879			1.35
Forfeited or expired		(1,337,589	)		7.65					(1,470,052	)		7.13
Balance, March 31, 2023		6,847,808			3.10	$	—	7.6 years
Balance, June 30, 2023										8,394,164			2.77	$	10	7.7 years
Exercisable		3,100,519			4.83		—	6.2 years		4,291,287			3.81		—	6.5 years

Included in the table above are ~~1,023,264~~1,043,949 options outstanding as of ~~March 31,~~June 30, 2023 that were granted outside the A&R Plan. The grants were made pursuant to the inducement grant exception in accordance with Nasdaq Listing Rule 5635(c)(4).

~~The table above does not include~~ ~~1,455,906~~ options that were granted during the period as they are subject to shareholders approving an increase in the number of authorized shares of common stock at the Company's 2023 annual meeting of shareholders, subject to continued service with the Company.

Restricted stock units

Restricted stock units (“RSUs”) vest over six months to four years depending on the purpose of the award and sometimes include performance conditions in addition to service conditions. The fair value of RSUs on the date of grant is measured as the closing price of the Company’s common stock on that date. The weighted average grant-date fair value of RSUs awarded to employees was $~~1.66~~1.30 in the ~~three~~six months ended ~~March 31,~~June 30, 2023 and $1.32 in the six months ended June 30, 2022. The fair value of RSUs vested was $~~682~~1,183 and $~~414~~719 in the ~~three~~six months ended ~~March 31,~~June 30, 2023 and 2022, respectively.

The following table presents information about recent RSU activity:


	Number of shares			Weighted average grant date fair value		Number of shares			Weighted average grant date fair value
Balance, December 31, 2022		2,061,866		$	1.71		2,061,866		$	1.71
Granted		—			—		2,640,762			1.30
Vested		(498,982	)		2.31		(1,160,599	)		1.53
Forfeited		(2,738	)		8.32		(45,049	)		2.37
Balance, March 31, 2023		1,560,146			4.28
Balance, June 30, 2023							3,496,980			2.69

Included in the table above are ~~77,256~~73,506 time-based RSUs outstanding at ~~March 31,~~June 30, 2023 that were granted outside of the A&R Plan. The grants were made pursuant to the inducement grant exception in accordance with Nasdaq Listing Rule 5635(c)(4).

~~The table above does not include~~

~~1,793,262~~15

~~time-based RSUs and~~ ~~358,060~~ performance-based RSUs that were granted during the period as they are subject to shareholders approving an increase in the number of authorized shares of common stock at the Company's 2023 annual meeting of shareholders, subject to continued service with the Company.

Other information

The following table presents the classification of stock-based compensation expense:


	Three months ended March 31,				Three months ended June 30,				Six months ended June 30,
	2023		2022		2023		2022		2023		2022
Cost of sales	$	407	$	403	$	588	$	525	$	995	$	916
Selling, general and administrative expenses		637		1,076		1,005		883		1,642		1,971
Total	$	1,044	$	1,479	$	1,593	$	1,408	$	2,637	$	2,887

As of ~~March 31,~~June 30, 2023, there was $~~6,066~~9,358 of unrecognized compensation expense related to unvested options and RSUs that are expected to vest and will be expensed over a weighted average period of ~~1.9~~2.6 years.

(13) Income taxes

The tax provision for interim periods is determined using the estimated annual effective consolidated tax rate, based on the current estimate of full-year earnings before taxes, adjusted for the impact of discrete quarterly items.

The provision for income taxes was $7239 and $111 for the three and six months ended ~~March 31,~~June 30, 2023, ~~and the effective tax rate was approximately (~~2~~)% for the same period.~~respectively. There was no provision for income taxes for the three or six months ended ~~March 31,~~June 30, 2022. The change in effective tax rate to (1)% in the 2023 period from 0% in the prior periods was due to the utilization of all net operating loss carryforwards without limitations during 2022 in connection with the sale-leaseback transaction (see note 9).

(14) Fair value of financial instruments

The Company follows the provisions of FASB ASC Topic 820, “Fair Value Measurements and Disclosures,” for fair value measurement recognition and disclosure purposes for its financial assets and financial liabilities that are remeasured and reported at fair value each reporting period. The Company measures certain financial assets and liabilities at fair value on a recurring basis, including cash equivalents, short-term investments and certain warrants. The Company’s assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the valuation of financial assets and financial liabilities and their placement within the fair value hierarchy. Categorization is based on a three-tier valuation hierarchy, which prioritizes the inputs used in measuring fair value, as follows:

•

Level 1: Observable inputs such as quoted prices (unadjusted) in active markets for identical assets or liabilities;

•

Level 2: Inputs that are other than quoted prices in active markets for identical assets and liabilities, inputs that are quoted prices for identical or similar assets or liabilities in inactive markets, or other inputs that are either directly or indirectly observable; and

•

Level 3: Unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions.

Items measured at fair value on a recurring basis

Cash equivalents of $~~5,394~~2,525 at ~~March 31,~~June 30, 2023 and $6,034 at December 31, 2022 consisted entirely of money market mutual funds whose fair value were determined using Level 1 measurements.

Fair value disclosures

The Company follows the disclosure provisions of FASB ASC Topic 825, “Financial Instruments” (ASC 825), for disclosure purposes for financial assets and financial liabilities that are not measured at fair value. As of ~~March 31,~~June 30, 2023, the financial assets and liabilities recorded on the consolidated balance sheets that are not measured at fair value on a recurring basis include accounts receivable, accounts payable and accrued expenses. The carrying values of these financial assets and liabilities approximate fair value due to their short-term nature.

The fair value of long-term debt, where a quoted market price is not available, is evaluated based on, among other factors, interest rates currently available to the Company for debt with similar terms, remaining payments and considerations of the Company’s creditworthiness. The Company determined that the recorded book value of its debt, a level 2 measurement, approximated fair value at ~~March 31,~~June 30, 2023 due to the recent issuances of those instruments and taking into consideration management’s current evaluation of market conditions.

(15) Leases

The Company is party to two operating leases for development facilities in California and Georgia that end in 2031 and 2025, respectively, as well as other immaterial operating leases for office space, storage and office equipment. The development facility leases each include options to extend, none of which are included in the lease terms. Short-term and variable lease costs were not material for the periods presented. The development facility leases do not provide an implicit rate, so the Company uses its incremental borrowing rate to discount the lease liabilities.

Undiscounted future lease payments for the two development leases, which were the only material noncancelable leases at ~~March 31,~~June 30, 2023, were as follows:


Twelve months ended March 31,
Twelve months ended June 30,
2024	$	1,172		$	1,179
2025		1,201			1,208
2026		1,126			1,094
2027		1,104			1,112
2028		1,135			1,143
Thereafter		3,395			3,109
Total lease payments		9,133			8,845
Less imputed interest		(3,565	)		(3,371	)
Total operating lease liabilities	$	5,568		$	5,474

At ~~March 31,~~June 30, 2023, the weighted average remaining lease term was ~~7.5~~7.3 years, and the weighted average discount rate was 14.1%. Total lease cost was $~~480~~321 and $~~488~~485 for the three months ended ~~March 31,~~June 30, 2023 and 2022, respectively, and $801 and $973 for the six months ended June 30, 2023 and 2022, respectively.

(16) Subsequent ~~event~~events

~~The~~Amendment to Seller Note

In August 2023, the Company ~~is party to an amended License~~ and ~~Supply Agreement with Lannett Company,~~IriSys, Inc. ~~(“Lannett”~~(the “Seller”)~~. In May 2023, Lannett announced that it had~~ entered into a ~~restructuring support agreement with certain of its lenders and that it had commenced Chapter 11 cases and filed a prepackaged plan of reorganization in~~First Amendment to Subordinated Promissory Note (the “Note Amendment”) pursuant to which the ~~United States Bankruptcy Court for~~parties agreed to defer the ~~District of Delaware. As part~~due date of the ~~announcement, Lannett stated that it will continue~~payment due to ~~operate in~~ the ~~ordinary course~~Seller on August 12, 2023 of ~~business during~~$2,039 of principal, plus accrued interest, under the ~~bankruptcy process~~Subordinated Promissory Note to the earlier of (i) June 24, 2024; and (ii) the date on which the Company completes its previously announced sale of certain land at its Gainesville, Georgia location (see note 5). In addition, the Note Amendment provides that the ~~Chapter 11 cases~~Company will pay up to $1,000 of the deferred payment upon completion of certain financings. In consideration of Seller’s entry into the Note Amendment, the Company paid the Seller a $150 amendment fee, agreed to pay up to $50 of Seller’s legal fees in connection with the Note Amendment and ~~prepackaged plan~~issued the Seller a warrant to purchase 100,000 shares of ~~reorganization, which are subject to court approval, provide for vendors to be paid in~~ the ~~normal course~~Company’s common stock, par value $0.01 per share at an exercise price of ~~business for obligations incurred prior to and subsequent~~$1.00 with a term of three years.

Amendment to the ~~commenced bankruptcy. At this time, Lannett continues~~RBC Credit Agreement

In August 2023, the Company amended its Credit Agreement with Royal Bank of Canada pursuant to ~~perform under~~a Second Amendment and Waiver to Credit Agreement (the “Credit Agreement Amendment”). Pursuant to the terms of the ~~amended License and Supply~~Credit Agreement ~~which generated~~ Amendment: (i) the Company is obligated to make a $177,500% mandatory principal prepayment upon the sale of the Company’s ~~revenue~~real property located adjacent to its Gainesville, Georgia manufacturing campus (see note 5); (ii) effective for the fiscal quarter ending September 30, 2023 through the quarter ending March 31, 2024, the net leverage ratio is permitted to be no greater than 3.75:1.00, stepping down to 2.75:1.00 for each quarter thereafter; (iii) effective for the quarter ending September 30, 2023, the permitted fixed charge coverage ratio was decreased to 1.00:1.00, which increases to 1.05:1.00 for each quarter thereafter; (iv) the permitted quarterly minimum liquidity amount of $4,000 was extended through June 30, 2024, after which the quarterly minimum liquidity amount increases to $4,500 through September 30, 2024 and increases to $5,000 through September 30, 2025; (v) a new permitted monthly minimum liquidity amount was established applicable to all month-end dates, other than quarter-end dates, and equal to $1.5 million; and (vi) beginning with the quarter ending December 31, 2023, funded capital expenditures, as defined, cannot exceed $9,000 in the ~~three months ended March 31, 2023,~~ aggregate for the preceding twelve-month period. In connection with the amendment, the Company paid an amendment fee of $1990~~% of accounts receivable at March 31, 2023 (all of which were subsequently collected on May 8, 2023) and~~ .27~~% of contract assets at March 31, 2023. As of March 31, 2023,~~ no ~~allowances for credit losses or other provisions for losses have been recognized based on Lannett’s stated intent to continue to operate in the ordinary course of business.~~

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Item 2. Management’s discussion and analysis of financial condition and results of operations

You should read the following discussion and analysis of our financial condition and results of operations together with our unaudited consolidated financial statements and notes thereto in Part I, Item 1 of this Quarterly Report on Form 10-Q, or Quarterly Report, and the audited consolidated financial statements and notes thereto for the year ended December 31, 2022 and the related Management’s Discussion and Analysis of Financial Condition and Results of Operations, both of which are contained in our Annual Report on Form 10-K for the year ended December 31, 2022, filed with the SEC on March 1, 2023, or Annual Report.

In addition to historical information, this discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions and other factors that could cause actual results to differ materially from those made, projected or implied in the forward-looking statements. Our actual results may differ materially from those discussed below. Please see “Forward-Looking Statements” and “Risk Factors” included in Part I, Item 1A of our Annual Report for factors that could cause or contribute to such differences.

Cautionary note regarding forward-looking statements

This Quarterly Report and the documents incorporated by reference herein contain forward-looking statements that involve substantial risks and uncertainties. All statements, other than statements of historical facts, included in this Quarterly Report or the documents incorporated by reference herein regarding our strategy, future operations, future financial position, future revenues, projected costs, prospects, plans and objectives of management are forward-looking statements. The words “anticipate,” “believe,” “estimate,” “expect,” “intend,” “may,” “plan,” “predict,” “project,” “will,” “would” “could,” “should,” “potential,” “seek,” “evaluate,” “pursue,” “continue,” “design,” “impact,” “affect,” “forecast,” “target,” “outlook,” “initiative,” “objective,” “designed,” “priorities,” “goal,” or the negative of such terms and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. Such statements are based on assumptions and expectations that may not be realized and are inherently subject to risks, uncertainties and other factors, many of which cannot be predicted with accuracy and some of which might not even be anticipated.

The forward-looking statements in this Quarterly Report and the documents incorporated herein by reference include, among other things, statements about:

•

our estimates regarding expenses, future revenue, cash flow, capital requirements and timing and availability of and the need for additional financing;

•

our ability to maintain or expand our relationships, profitability and contracts with our key commercial partners, including the impact of changes in consumer demand for the products we manufacture for our commercial partners;

•

our ability to grow and diversify our business with new customers, including our ability to meet desired project outcomes with development customers, and the potential loss of development customers if they do not receive adequate funding or if their products do not obtain U.S. Food and Drug Administration, or FDA, approval;

•

our ability to operate under the lending covenants under our credit agreement and to pay required interest and principal amortization payments when due;

•

the extent to which health epidemics and other outbreaks of communicable diseases, inflation, geopolitical turmoil, social unrest, global instability, including political instability and any resulting sanctions, terrorism, or other acts of war, supply chain disruptions, trade restrictions, export controls or other restrictive actions that may be imposed by the U.S. and/or other countries against governmental or other entities may disrupt our business operations or our financial condition or the financial condition of our customers and suppliers, including our ability to initiate and continue relationships with manufacturers and third-party logistics providers;

•

~~our ability to operate under the lending covenants under our credit agreement and to pay required interest and principal amortization payments when due;~~

•

the performance of third-party suppliers upon which we depend for Active Pharmaceutical Ingredients, or APIs, various other direct and indirect materials, and other third parties involved with maintenance of our facilities and equipment;

•

our ability to maintain and defend our intellectual property rights against third-parties;

•

pharmaceutical industry market forces that may impact our commercial customers’ success and continued demand for the products we produce for those customers;

•

our ability to recruit or retain key scientific, technical, business development, and management personnel and our executive officers, including as a result of applicable state and federal vaccine mandates;

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•

our ability to maintain the listing of our common stock on the Nasdaq Capital Market;

•

our ability to comply with stringent U.S. and foreign government regulation in the manufacture of pharmaceutical products, including current Good Manufacturing Practice, or cGMP, compliance and U.S. Drug Enforcement Agency, or DEA, compliance and other relevant regulatory authorities applicable to our business; and

•

our ability to realize the expected benefits of the IriSys, LLC, or IriSys, acquisition.

We may not achieve the plans, intentions or expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements we make. We have included important factors in the cautionary statements included in this Quarterly Report, particularly under “Item 1A. Risk Factors,” that we believe could cause actual results or events to differ materially from the forward-looking statements that we make. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures, collaborations or investments we may make. You should read this Quarterly Report and the documents that we incorporate by reference herein completely and with the understanding that our actual future results may be materially different from what we expect. We do not assume any obligation to update any forward-looking statements.

Solely for convenience, tradenames referred to in this Quarterly Report appear without the ® symbol, but those references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights or that the applicable owner will not assert its rights, to these tradenames. All trademarks, service marks and tradenames included or incorporated by reference in this Quarterly Report are the property of their respective owners.

Overview

Societal CDMO, Inc. is a bi-coastal contract development and manufacturing organization, or CDMO, with capabilities spanning pre-investigational new drug development to commercial manufacturing and packaging for a wide range of therapeutic dosage forms with a primary focus on small molecules. With an expertise in solving complex manufacturing problems, Societal is a leading CDMO providing development, end-to-end regulatory support, clinical and commercial manufacturing, aseptic fill/finish, lyophilization, packaging and logistics services to the global pharmaceutical market. In addition to our experience in handling DEA-controlled substances and developing and manufacturing modified-release dosage forms, Societal has the expertise to deliver on our clients’ pharmaceutical development and manufacturing projects, regardless of complexity level. We do all of this in our state-of-the-art facilities that, in the aggregate, total 145,000 square feet, in Gainesville, Georgia and San Diego, California.

We currently manufacture the following key products with our key commercial partners: Ritalin LA®, Focalin XR®, Verelan PM®, Verelan SR®, Verapamil PM, Verapamil SR and Donnatal liquids and tablets. We also support numerous development stage products. During the first quarter of 2023, the FDA approved the Company as a manufacturer of a commercial tablet product. This FDA approval represents the first commercial tablet that Societal CDMO has been approved to manufacture, and the Company ~~expects to begin~~began commercial manufacturing of the product at its Gainesville, Georgia facilities ~~later this year.~~in the middle of 2023.

Our manufacturing and development capabilities include product development from formulation through clinical trial and commercial manufacturing, and specialized capabilities for solid oral dosage forms, with specialization in modified release technologies and facilities to handle high potent compounds and controlled substances, liposomes and nano/microparticles, topicals and oral liquids. In September 2022, Societal announced a new state-of-the-art, aseptic fill/finish and lyophilization suite in our San Diego facility to further our goal of offering end-to-end solutions to our clients. In addition to providing manufacturing capabilities, we offer our customers clinical trial support including over-encapsulation, comparator sourcing, packaging, labeling, storage and distribution. We have a bi-coastal footprint from which to better serve clients within the U.S., as well as globally. In a typical collaboration between us and our commercial partners, we continue to work with our partners to develop product candidates or new formulations of existing product candidates. We also typically exclusively manufacture and supply clinical and commercial supplies of these proprietary products and product candidates.

We use cash flow generated by our business primarily to fund the growth of our CDMO business and to make payments under our credit facility. We believe our business will continue to contribute cash to fund our growth, to make payments under our credit facility and for other general corporate purposes.

Global economic and supply conditions

Global economic conditions, logistics and supply chain issues continue to present obstacles to our business.

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We rely on third-party manufacturers to supply our manufacturing components, supplies and related materials, which in some instances are supplied from a single source. Prolonged disruptions in the supply of any of our third-party materials, difficulty implementing new sources of supply or significant price increases could have an adverse effect on our results. We are experiencing a higher level of residual supply chain disruptions that we are actively managing to meet our production timelines and that may constrain our ability to capture additional growth opportunities, beyond our established projections, from customers who would otherwise want to increase their safety stock of the products that we produce.

We also continue to closely monitor global economic developments and geopolitical conflicts, such as the conflict between Russia and Ukraine, which continue to have adverse effects on the U.S. and global markets and supply chain.

We ~~continue~~have begun to ~~anticipate~~see the effects of a general slowdown in clinical development activity as a result of clinical failures and/or a lack of adequate funding to go forward. We are making efforts to adapt to these market changes, including a reconfiguration of our business development team to be better positioned in the longer-term by focusing on account management roles and replacing lost positions in strategic focus areas. The ~~anticipated~~slowdown has caused us to experience reductions to our backlog during the first half of 2023. Going forward, the slowdown and/or the reconfiguration may cause us to experience additional reductions to our backlog and/or a reduction in the number of business development opportunities that we will be able to pursue or close in 2023.

We also expect to face continuing inflationary pressures on raw materials, labor and logistics during 2023. Finally, we were impacted by higher variable base interest rates on our borrowings under credit agreements during the second half of 2022, and while we believe that we have been able to capture overall interest savings as a result of the December 2022 refinancing, we expect those improvements could be partially offset by that sustained variable base interest rate increases from 2022.

Financial overview

Revenues

We recognize three types of revenue: manufacturing, profit-sharing and development.

InAs previously disclosed, in May 2023, Lannett, which represented 16% of our revenue in 2022, commenced prepackaged Chapter 11 cases in the United States Bankruptcy Court for the District of Delaware and entered into a restructuring support agreement with certain of its lenders. AtOn June 8, 2023, Lannett emerged from the Chapter 11 bankruptcy as a privately-held company under the ownership of its prepetition lenders. While our agreement with Lannett remains in place, at this time we do not know ~~how our agreement with Lannett will be treated in the bankruptcy case or how~~whether Lannett's performance with sales of Verapamil PM will be impacted by these events or might otherwise impact our economics going forward.

Manufacturing

We recognize manufacturing revenue from the sale of products we manufacture for our commercial partners. Manufacturing revenues are recognized upon transfer of control of a product to a customer, generally upon shipment, based on a transaction price that reflects the consideration we expect to be entitled to as specified in the agreement with the commercial partner, which could include pricing and volume-based adjustments.

Profit-sharing

In addition to manufacturing revenue, certain customers who use our technologies are subject to agreements that provide us intellectual property sales-based profit-sharing and/or royalties consideration, collectively referred to as profit-sharing, computed on the net product sales of the commercial partner. Profit-sharing revenues are generally recognized under the terms of the applicable license, development and/or supply agreement. We have determined, that in our arrangements, the license for intellectual property is not the predominant item to which the profit-sharing relates, so we recognize revenue upon transfer of control of the manufactured product. In these cases, significant judgment is required to calculate the estimated variable consideration from such profit-sharing using the expected value method based on historical commercial partner pricing and deductions. Estimated variable consideration is partially constrained due to the uncertainty of price adjustments made by our commercial partners, which are outside of our control. Factors causing price adjustments by our commercial partners include increased competition in the products’ markets, mix of volume between the commercial partners’ customers, and changes in government pricing.

Development

Development revenue includes services associated with formulation, process development, clinical trial materials services, as well as custom development of manufacturing processes and analytical methods for a customer’s non-clinical, clinical and commercial products. Such revenues are recognized at a point in time or over time depending on the nature and particular facts and circumstances associated with the contract terms.

In contracts that specify milestones, we evaluate whether the milestones are considered probable of being achieved and estimate the amount to be included in the transaction price using the most likely amount method. Milestone payments related to arrangements under which we have continuing performance obligations are deferred and recognized over the period of performance. Milestone payments that are not within our control, such as submission for approval to regulators by a commercial partner or approvals from regulators, are not considered probable of being achieved until those submissions are submitted by the customer or approvals are received.

In contracts that require revenue recognition over time, we utilize input or output methods, depending on the specifics of the contract, that compare the cumulative work-in-process to date to the most current estimates for the entire performance obligation. Under these contracts, the customer typically owns the product details and process, which have no alternative use. These projects are customized to each customer to meet its specifications, and typically only one performance obligation is included. Each project represents a distinct service that is sold separately and has stand-alone value to the customer. The customer also retains control of its product as the product is being created or enhanced by our services and can make changes to its process or specifications upon request.

Cost of sales and selling, general and administrative expenses

Cost of sales consists of inventory costs, including production wages, material costs and overhead, and other costs related to the recognition of revenue. Selling, general and administrative expenses consist of salaries and related costs for administrative, public company ~~costs,~~and business development ~~personnel~~functions as well as legal fees, patent-related expenses and consulting fees. Public company costs include compliance, ~~auditing services,~~audit, tax, ~~services,~~ insurance and investor relations.

Amortization of intangible assets

We are recognizing amortization expense related to acquired customer relationships, backlog and trademarks and trade names on a straight-line basis over estimated useful lives of 7.0, 2.4, and 1.5 years, respectively.

Interest expense

Interest expense for the current period presented primarily relates to our new term loan borrowing with Royal Bank of Canada oforiginally funded at $36.9 million and the ~~other~~financial liability related to the sale and leaseback of our commercial manufacturing campus in Gainesville, Georgia for gross proceeds of $39.0 million. Interest expense for the prior period presented primarily relates to the $100.0 million senior secured term loans with Athyrium Opportunities III Acquisition LP and the amortization of related financing costs.

As a result of these changes, interest expense was lower in the first ~~quarter~~half of 2023 and will continue to be lower in future periods due to the lower amount of aggregate principal and lower variable interest margins as compared to the Athyrium borrowings.

Net operating losses and tax carryforwards

As of December 31, 2022, we had federal net operating loss, or NOL, carry forwards of approximately $125.6 million, substantially all of which are subject to annual limitations following a December 2022 change in control and have an indefinite carry forward period. We also had $135.4 million of state NOL carry forwards available to offset future taxable income that will begin to expire at various dates beginning in 2028 if not utilized. We believe that it is more likely than not that our deferred income tax assets will not be realized, and as such, there is a full valuation allowance.

Key indicators of performance

To evaluate our performance, we monitor a number of industry-standard key indicators such as:

•

Safety and human capital management, as measured by recordable injuries, good saves and employee retention;

•

Operational excellence, as measured by the percentage of our orders that are delivered on-time and in full;

•

New business growth, as measured by value of new contracts signed; and

•

Financial operating results, as measured by revenue and EBITDA, as adjusted.

EBITDA, as adjusted, is a non-GAAP measure that we discuss and reconcile to its nearest GAAP measure elsewhere in our public financial reporting. We believe that supplementing our financial results presented in accordance with GAAP with non-GAAP measures is useful to investors, creditors and others in assessing our performance. These measurements should not be considered in isolation or as a substitute for reported GAAP results because they may include or exclude certain items as compared to similar GAAP-based measurements, and such measurements may not be comparable to similarly-titled measurements reported by other companies. Rather, these measurements should be considered as an additional way of viewing aspects of our operations and gaining an understanding of our business.

Results of operations

Comparison of ~~three~~second quarters 2023 and 2022


	Three months ended June 30,
(in millions)	2023			2022
Revenue	$	21.8		$	23.2
Operating expenses:
Cost of sales		17.3			17.5
Selling, general and administrative		5.3			5.2
Amortization of intangible assets		0.2			0.2
Total operating expenses		22.8			22.9
Operating (loss) income		(1.0	)		0.3
Interest expense		(2.3	)		(3.4	)
Interest income		0.1			—
Loss before income taxes		(3.2	)		(3.1	)
Income tax expense		—			—
Net loss	$	(3.2	)	$	(3.1	)

Revenue. The decrease of $1.4 million was primarily driven by a decrease in revenue from our largest commercial customer, Teva, due to a scheduled shutdown of our packaging line to implement the upgrades required to comply with new serialization aggregation compliance standards. In addition, the manufacturing revenue associated with then new customer, InfectoPharm’s, inventory-build during the second quarter of 2022, was greater than the normalized quarterly revenue recorded in the second quarter of 2023. These reductions in revenue were partially offset by increased pre-commercial development revenues from our clinical trial materials and technology transfer projects.

Cost of sales. The decrease of $0.2 million was primarily due to lower commercial manufacturing revenue based on the timing of the serialization aggregation compliance project offset by higher fixed costs primarily to support the newly installed aseptic fill/finish line that has expanded our capabilities.

Selling, general and administrative. Selling, general and administrative expenses were relatively consistent for the periods presented.

Amortization of intangible assets. The amortization related to the acquisition of IriSys for acquired customer relationships, backlog and trademarks and trade names.

Interest expense. The decrease of $1.1 million was primarily due to a significantly reduced amount of aggregate principal and lower interest rates under the company's refinanced debt as compared to the borrowings outstanding during the period ended June 30, 2022.

Comparison of six months ended 2023 and 2022


	Three months ended March 31,						Six months ended June 30,
(in millions)	2023			2022			2023			2022
Revenue	$	21.5		$	21.2		$	43.3		$	44.3
Operating expenses:
Cost of sales		19.3			16.2			36.6			33.6
Selling, general and administrative		4.6			5.7			9.9			10.9
Amortization of intangible assets		0.2			0.2			0.4			0.4
Total operating expenses		24.1			22.1			46.9			44.9
Operating loss		(2.6	)		(0.9	)		(3.6	)		(0.6	)
Interest expense		(2.1	)		(3.4	)		(4.4	)		(6.8	)
Interest income		0.1			—			0.2			—
Loss before income taxes		(4.6	)		(4.3	)		(7.8	)		(7.4	)
Income tax expense		0.1			—			0.1			—
Net loss	$	(4.7	)	$	(4.3	)	$	(7.9	)	$	(7.4	)

Revenue. The ~~increase~~decrease of ~~$0.3~~$1.0 million was primarily driven by the decreases in revenues from Teva and InfectoPharm, which were partially offset by an increase in revenue from the company’s largest commercial customer Teva, correlated with pull through in demand resulting from market share gains against the sole competitor for the Verapamil SR products, partially offset by lowerpre-commercial development revenues, ~~from product sales to Lannett due to timing of customer orders.~~as described above.

Cost of sales. The increase of ~~$3.1~~$3.0 million was primarily due to mix of revenue and related fixed cost absorption, including increased costs associated with the new aseptic fill/finish line ~~as we expand~~that has expanded our capabilities and increased material ~~costs.~~costs..

Selling, general and administrative. The decrease of ~~$1.1~~$1.0 million was primarily related to lower public company costs and administrative costs than the prior year.

Amortization of intangible assets. The amortization related to the acquisition of IriSys for acquired customer relationships, backlog and trademarks and trade names.

Interest expense. The decrease of ~~$1.3~~$2.4 million was primarily due to a significantly reduced amount of aggregate principal and lower interest rates under the company's refinanced debt as compared to the borrowings outstanding during the period ended ~~March 31,~~June 30, 2022.

Liquidity and capital resources

At ~~March 31,~~June 30, 2023, we had ~~$6.3~~$4.7 million in cash and cash equivalents. Our credit agreement with Royal Bank of Canada, as amended, contains a quarterly minimum liquidity requirement of $4.0 million through June 30, 2024. Our ability to continue to comply with the minimum liquidity requirement is subject to our success in implementing certain cost control measures, reducing capital expenditures and managing working capital in order to improve our ongoing financial performance and our liquidity position.

Since our inception, we have financed our operations and capital expenditures primarily from results of operations, from the issuance of equity and debt, and recently, to a lesser extent, from real estate transactions. During the first ~~quarter~~half of 2023, our capital expenditures were ~~$3.4~~$5.5 million to maintain, scale and support ~~our~~ expansion of our capabilities.

See Part II, Item 5 for information about an amendment to the Credit Agreement that occurred subsequent to June 30, 2023.

We are currently party to a credit agreement with Royal Bank of Canada, or the Credit Agreement, for a term loan ~~with a principal amount of~~originally funded at $36.9 million. The ~~outstanding~~ principal ~~amount will be~~is being repaid in quarterly amounts, ~~totaling $2.1~~including $2.3 million, ~~$3.0~~$3.2 million and ~~$1.8~~$0.9 million to be paid during the twelve months ending ~~March 31,~~June 30, 2024, 2025 and 2026, respectively. The final payment of all remaining outstanding principal is due on December 16, 2025. If the Company completes a sale of certain real property by December 14, 2023, and makes the $10.0 million principal repayment disclosed below, the quarterly principal payments will be reduced proportionately to the reduction in principal.

Subject to certain exceptions, we are required to make mandatory prepayments with the cash proceeds received in respect of asset sales, certain equity sales, extraordinary receipts, ~~and~~ debt issuances, upon a change of control and specified other events. Additionally, we are obligated ~~to repay $10.0 million of principal~~ by December 14, 2023 ~~upon~~to complete the sale of certain real property adjacent to our Gainesville, Georgia manufacturing campus. If that property is not sold by December 14, 2023, we will be required to pay a fee of $0.4 million and increase each of our quarterly principal payments by $0.2 million until that property is sold and ~~the $10,000~~any mandatory principal ~~payment~~prepayment is made.

The Credit Agreement also includes certain financial covenants that the Company will need to satisfy on a quarterly basis, including: (i) maintaining a net leverage ratio less than 3.75:1.00, stepping down to 2.75:1.00 at the end of 2023; (ii) maintaining a fixed charge coverage ratio greater than 1.15:1.00; and (iii) maintaining no less than $4.0 million cash and cash equivalents on hand, stepping up to $5.0 million by the end of 2024.

In September 2022, we signed a sales and purchase agreement to sell approximately 121 acres of land adjacent to our Gainesville, Georgia manufacturing campus for expected proceeds of $9.1 million, which we are obligated to use to repay outstanding balances on the Credit Agreement. The land sale is expected to close in the ~~second~~first half of ~~2023.~~2024. Until closing, the sale of the land is subject to customary closing conditions for transactions of this type, including completion of title and environmental due diligence and receipt of certain zoning approvals and permits.

The pharmaceutical industry is experiencing a slowdown in clinical development activities resulting from reduced cash funding and other liquidity resources and we are experiencing higher rates of customer attrition and development program delays that caused us to revise our 2023 earnings and cash projections during the second quarter of 2023. As a result of these factors, we took actions to amend our debt agreements to align financial covenants and other terms of the indebtedness with our revised projections. Absent these amendments, we would not have been able to conclude that it was probable that we would comply with the provisions of our debt agreements through August 14, 2024.

We believe that our results of operations will allow us to comply with the financial and other covenants and contractual requirements of the agreements for at least the next twelve months. Our ability to comply is subject to our success in implementing certain cost control measures, reducing capital expenditures and managing working capital in order to improve our ongoing financial performance and our liquidity position.

We may extend and or supplement the actions we are taking if we continue to experience adverse conditions described above, among others, that might impact the forecasted performance. If we are unable to achieve the results required to comply with the terms of our credit agreement in one or more quarters over the next twelve months, we may be required to take specific actions in addition to those described above, including but not limited to, additional cost control measures, or alternatively, seeking an amendment or waiver from our lenders. Obtaining a waiver or an amendment is not within our control, and if unsuccessful, the lenders may exercise the rights available to them under the credit agreement.

We may require additional financing or choose to refinance certain of these instruments, which could include strategic development, licensing activities and/or marketing arrangements, public or private sales of equity or debt securities or debt refinancing. Financing may not be available on acceptable terms, or at all, and our failure to raise capital when needed could materially adversely impact our growth plans and our financial condition or results of operations. If and until we are able to obtain shareholder approval to increase the number of shares of common stock authorized under our articles of incorporation, we will be limited in the number of additional shares we will be able to issue in future periods. Further, our ability to access capital market or otherwise raise capital may be adversely impacted by potential worsening global economic conditions and the recent disruptions to, and volatility in, financial markets in the United States and worldwide, including as a result of diseases, geopolitical conflicts, recent liquidity constraints or failures and instability in U.S. and international financial banking systems on the global financial markets. Additional debt or equity financing, if available, may be dilutive to the holders of our common stock and may involve significant cash payment obligations and covenants that restrict our ability to operate our business or to access capital, and may further restrict dividend payments.

Sources and uses of cash


	Three months ended March 31,						Six months ended June 30,
(amounts in millions)	2023			2022			2023			2022
Net cash used in:
Operating activities	$	(2.9	)	$	(8.1	)	$	(1.6	)	$	(6.1	)
Investing activities		(3.4	)		(1.7	)		(5.5	)		(3.3	)
Financing activities		(2.5	)		(0.1	)		(3.1	)		(0.3	)
Total	$	(8.8	)	$	(9.9	)	$	(10.2	)	$	(9.7	)

Cash flows from operating activities represents our net loss as adjusted for stock-based compensation expense, non-cash interest expense, depreciation expense, amortization of intangible assets and deferred income tax expense as well as changes in operating assets and liabilities. The ~~$5.2~~$4.5 million decrease in cash flows used for operating activities in 2023 compared to 2022 was primarily due to favorable working capital changes, partially offset by a decrease in earnings exclusive of non-cash items.

Net cash used in investing activities for each period includes capital expenditures to scale and support our expansion of capabilities.

Net cash used in financing activities increased ~~$2.4~~$2.8 million primarily due to debt repayments of ~~$0.5~~$0.9 million and payments of ~~$1.8~~$2.0 million related to the December 2022 debt refinancing.

Forward-looking factors

Our future use of operating cash and capital requirements will depend on many forward-looking factors, including the following:

•

the extent to which we in-license, acquire or invest in products, businesses and technologies;

•

the timing and extent of our manufacturing and capital expenditures;

•

our ability to maintain or expand our relationships and contracts with our commercial partners;

•

our ability to grow and diversify our business with new customers, including our ability to meet desired project outcomes with development customers;

•

our ability to regain profitability;

•

our ability to comply with stringent U.S. & foreign government regulation in the manufacture of pharmaceutical products, including cGMP and DEA requirements;

•

our ability to raise additional funds through equity or debt financings or sale of real estate or other assets;

•

the costs of maintaining, enforcing and defending intellectual property claims; and

•

the extent to which health epidemics and other outbreaks of communicable diseases, inflation, global instability, including political instability and any resulting sanctions, export controls or other restrictive actions that may be imposed by the U.S. and/or other countries against governmental or other entities may disrupt our business operations or financial condition or the financial condition of our customers and suppliers.

We may use existing cash and cash equivalents on hand, additional debt, equity financing, sale of real-estate or other assets or out-licensing revenue or a combination thereof to fund our operations or acquisitions. If we increase our debt levels, we might be restricted in our ability to raise additional capital and might be subject to financial and restrictive covenants. If ~~and until~~ we are able to obtain shareholder approval to increase the number of shares of common stock authorized under our articles of incorporation, we will be limited in the number of additional shares we will be able to issue in future periods. If we do issue additional equity in future periods, our shareholders may experience dilution. This dilution may be significant depending upon the amount of equity or debt securities that we issue and the prices at which we issue any securities.

Contractual commitments

The table below reflects our contractual commitments as of ~~March 31,~~June 30, 2023:


	Payments due by period										Payments due by period
(in millions)	Total		Less than 1 year		1-3 years		3-5 years		More than 5 years		Total		Less than 1 year		1-3 years		3-5 years		More than 5 years
Debt obligations (1):
Principal	$	40.8	$	7.8	$	32.7	$	0.1	$	0.2	$	40.4	$	7.1	$	33.0	$	0.1	$	0.2
Interest		9.2		3.5		5.6		0.1		—		8.3		3.5		4.7		0.1		—
Purchase obligations (2)		9.9		9.5		0.4		—		—		8.0		7.4		0.6		—		—
Operating leases (3)		9.1		1.2		2.3		2.2		3.4		8.9		1.2		2.3		2.3		3.1
Other long-term liabilities (4)(5)		93.6		3.5		7.4		7.9		74.8		92.8		3.6		7.5		7.9		73.8
Total	$	162.6	$	25.5	$	48.4	$	10.3	$	78.4	$	158.4	$	22.8	$	48.1	$	10.4	$	77.1

(1)

Debt obligations consist of principal and interest on ~~$36.4~~$36.0 million of an outstanding term loan under our credit facility with Royal Bank of Canada, $4.1 million of notes issued to the former members of IriSys and a small finance lease. Because the Royal Bank of Canada term loan bears interest at a variable rate based on SOFR, we estimated future interest commitments utilizing the SOFR rate as of ~~March 31,~~June 30, 2023. In accordance with U.S. GAAP, the future interest obligations are not recorded on our consolidated balance sheet.

In August 2022, we amended our credit agreeement and note issued to the former members of IriSys, which resulted in no changes to the presentation of the table. See Part II, Item 5 of this Quarterly Report on Form 10-Q.

(2)

Purchase obligations consist of cancelable and non-cancelable purchase commitments related to inventory, capital expenditures and other goods or services. In accordance with U.S. GAAP, these obligations are not recorded on our consolidated balance sheets.

(3)

We are party to two operating leases for development facilities in California and Georgia that end in 2031 and 2025, respectively. The leases each include options to extend at our discretion.

(4)

We are party to a lease for a DEA-licensed facility in Georgia that ends in 2042. The lease includes the option to extend at our discretion. The principal component of this obligation is classified as a liability under U.S. GAAP, therefore we did not present it as an operating or capital lease in the table.

(5)

We have entered into employment agreements with each of our executive officers that provide for, among other things, severance commitments of up to $1.4 million should we terminate the executive officers for convenience or if certain events occur following a change in control. In addition, we would be subject to other contingencies of up to ~~$3.9~~$4.6 million in the aggregate if certain events occur following a change in control. Because these obligations are contingent, the amounts are not included in the table above.

Critical accounting policies and estimates

Our critical accounting policies and estimates are disclosed in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section of our Annual Report.

Item 3. Quantitative and qualitative disclosures about market risk

There has been no material change in our assessment of our sensitivity to market risk described in the Annual Report.

Item 4. Controls and procedures

Evaluation of disclosure controls and procedures

Our management, with the participation of our principal executive officer and principal financial officer, evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act) as of ~~March 31,~~June 30, 2023. We maintain disclosure controls and procedures that are designed to provide reasonable assurance that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow for timely decisions regarding required disclosure.

A control system, no matter how well conceived and operated, can provide only reasonable, and not absolute, assurance that the objectives of the control system will be met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the company have been detected. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected. However, our disclosure controls and procedures are designed to provide reasonable assurance of achieving their objectives. Based on the evaluation of our disclosure controls and procedures as of ~~March 31,~~June 30, 2023, our principal executive officer and principal financial officer concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.

Changes in internal control over financial reporting

There has been no change in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during our most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

2527

PART II. OTHER INFORMATION

Item 1. Legal proceedings.

Information regarding legal and regulatory proceedings is set forth in note 7 to our consolidated financial statements included in Part I, Item 1 of this Quarterly Report, and is incorporated by reference herein.

We are also engaged in various other legal actions arising in the ordinary course of our business (such as, for example, proceedings relating to employment matters or the initiation or defense of proceedings relating to intellectual property rights) and, while there can be no assurance, we believe that the ultimate outcome of these other legal actions will not have a material adverse effect on our business, results of operations, financial condition or cash flows.

Item 1A. Risk factors.

Investing in our securities involves certain risks. In addition to any risks and uncertainties described elsewhere in this Quarterly Report, investors should carefully consider the risks and uncertainties discussed in Part I, Item 1A. “Risk Factors” in our Annual Report. These risks are not the only risks that could materialize. Other than as set forth below, there have been no material changes in our risk factors from those previously disclosed in our Annual ~~Report.~~Report and Quarterly Report for the quarter ended March 31, 2023.

Our revenues are dependent on a small number of commercial partners, and the loss of any one of these partners, or a decline in their orders, may adversely affect our business.

We are dependent on a small number of commercial partners, with our four largest customers (Teva Pharmaceutical Industries, Inc., or Teva, Novartis Pharma AG, or Novartis, Lannett Company, Inc., or Lannett, and InfectoPharm Arzneimittel und Consilium GmbH, or InfectoPharm) having generated 77% of our revenues for the year ended December 31, 2022, of which Teva generated 34%, Novartis generated 18%, Lannett generated 16%, and InfectoPharm generated 9%. In May 2023, Lannett, which represented 16% of our revenue in 2022, commenced prepackaged Chapter 11 cases in the United States Bankruptcy Court for the District of Delaware and entered into a restructuring support agreement with certain of its lenders. AtOn June 8, 2023, Lannett emerged from the Chapter 11 bankruptcy as a privately-held company under the ownership of its prepetition lenders. While our agreement with Lannett remains in place, at this time we do not know ~~how~~whether Lannett's performance with sales of Verapamil PM post-bankruptcy will impact our ~~agreement with Lannett will be treated in the bankruptcy case, how our relationship with Lannett will be impacted~~economics going ~~forward, and whether Lannett will continue to be able to satisfy its payment and other obligations to the Company.~~forward. In addition, Novartis has provided us notice it intends to assign our agreement to Sandoz, its generic division, as part of the public spin-off of Sandoz. Such developments with Lannett and Novartis, as well as any increases in competition in the market, pricing adjustments, significantly reduced purchasing volume or financial difficulties (for example, the Lannett bankruptcy) with any one or more of our key commercial partners could adversely affect our revenue.

Our profit sharing, royalty, and manufacturing revenues also depend on the ability of our commercial partners to effectively market and sell their products to their customers. A commercial partner may choose to devote its efforts to its other products or reduce or fail to devote the necessary resources to provide effective sales and marketing support for the products we manufacture and supply. Furthermore, the acquisition of or change in strategy by one of our customers could impact projects we are currently working on or planning to work on in the future. Our commercial partners face competition from other pharmaceutical companies for sales of products to end users. Competition from sellers of generic drugs is a major challenge for our commercial partners, and the loss or expiration of intellectual property rights for the products we manufacture can have a significant adverse effect on their sales volume and price. Our commercial partners have also experienced difficulties in recent years as the pharmaceutical industry was impacted by the COVID-19 pandemic, labor shortages, supply chain shortages, inflationary pressures and geopolitical turmoil. Similar pressures could lead a partner to discontinue a product, make pricing changes or change ordering patterns. In addition, as pharmaceutical product pricing faces scrutiny by governments, legislative bodies and enforcement agencies, our commercial partners may lower their prices or adopt cost-savings measures which could be passed on to us or otherwise impact our profit-sharing revenues. Further, any commercial partner may divest the product we manufacture for them in whole or in certain markets, which may involve termination of our contract with such partner or the assignment of such contract to a new partner who may not be as effective at selling or commercializing such product. Pricing changes and any significant reduction, delay or cancellation of orders from our commercial partners could adversely affect our revenues.

2628

~~Adverse developments affecting~~We are currently listed on the ~~financial services industry, including events~~Nasdaq Capital Market. If we are unable to maintain listing of our securities on Nasdaq or ~~concerns involving~~any stock exchange, our stock price could be adversely affected and the liquidity ~~defaults or non-performance by financial institutions or transactional counterparties,~~of our stock and our ability to obtain financing could ~~adversely affect~~be impaired and it may be more difficult for our ~~business, financial condition or results of operations.~~shareholders to sell their securities.

~~Events involving limited liquidity, defaults, non-performance~~Although our common stock is currently listed on the Nasdaq Capital Market, we may not be able to continue to meet the exchange’s minimum listing requirements or those of any other ~~adverse developments that affect financial institutions, transactional counterparties or other companies in~~national exchange. On May 23, 2023, we received a deficiency letter from the financial services industry or the financial services industry generally, or concerns or rumors about any events of these kinds or other similar risks, have in the past and may in the future lead to market-wide liquidity problems. Most recently, in March 2023, Silicon Valley Bank (“SVB”) was closed by the CaliforniaNasdaq Listing Qualifications Department of ~~Financial Protection~~the Nasdaq Stock Market LLC notifying us that, for the 30 consecutive business day period preceding the date of the letter, the closing bid price for our common stock was below the minimum $1.00 per share required for continued listing on the Nasdaq Capital Market pursuant to Nasdaq Listing Rule 5550(a)(2). The Nasdaq deficiency letter only pertains to our stock price, and ~~Innovation, which appointed~~there are no other deficiencies related to our ongoing listing on the ~~Federal Deposit Insurance Corporation (“FDIC”) as receiver. Similarly, in March~~Nasdaq Capital Market. In accordance with Nasdaq Listing Rule 5810(c)(3)(A), we have been given 180 calendar days, or until November 20, 2023, ~~Signature Bank and Silvergate Capital Corp. were each swept into receivership, and in May~~to regain compliance with Rule 5550(a)(2). If at any time before November 20, 2023, ~~First Republic was swept into receivership and its assets were sold to JPMorgan Chase. Although~~the bid price of our common stock closes at $1.00 per share or more for a minimum of 10 consecutive business days, the Nasdaq Listing Qualifications Department will provide written confirmation that we assess our banking and customer relationships as we believe necessary or appropriate, our access to funding sources and other credit arrangements in amounts adequate to finance or capitalize our current and projected future business operations could be significantly impaired by factors that affect us, the financial services industry or economy in general. These factors could include, among others, events such as liquidity constraints or failures, the ability to perform obligations under various types of financial, credit or liquidity agreements or arrangements, disruptions or instability in the financial services industry or financial markets, or concerns or negative expectations about the prospects for companies in the financial services industry.have achieved compliance.

~~In addition, investor concerns regarding~~If we do not regain compliance with Rule 5550(a)(2) by November 20, 2023, we may be afforded a second 180 calendar day period to regain compliance. To qualify, we would be required to meet the ~~U.S. or international financial systems could result in less favorable commercial financing terms, including higher interest rates or costs~~continued listing requirement for market value of publicly held shares and ~~tighter financial and operating covenants, or systemic limitations on access to credit and liquidity sources, thereby making~~all other initial listing standards for the Nasdaq Capital Market, except for the minimum bid price requirement.

The delisting of our common stock from the Nasdaq Capital Market may make it more difficult for us to ~~acquire financing~~raise capital on ~~acceptable~~favorable terms in the future. Such a delisting would likely a result in a reduction in some or ~~at all. Any decline in available funding~~all of the following may occur, each of which could have a material adverse effect on our shareholders and may impair your ability to sell or ~~access~~purchase our common stock when you wish to do so:

•

the liquidity of our ~~cash and liquidity resources could, among other risks, adversely impact~~ common stock;

•

the market price of our common stock;

•

our ability to ~~meet our operating expenses, financial obligations or fulfill our other obligations, result in breaches~~obtain financing for the continuation of our ~~contractual obligations or result~~operations;

•

the number of investors that will consider investing in ~~violations~~our common stock;

•

the number of ~~federal or state wage~~market makers in our common stock;

•

the availability of information concerning the trading prices and ~~hour laws. Any~~volume of ~~these impacts, or any other impacts resulting~~our common stock; and

•

the number of broker-dealers willing to execute trades in shares of our common stock.

Further, if we were to be delisted from the ~~factors described above~~Nasdaq Capital Market and we are unable to obtain listing on another national securities exchange, our common stock would cease to be recognized as covered securities and we would be subject to regulation in each state in which we offer our securities. Moreover, there is no assurance that any actions that we take to restore our compliance with the minimum bid price requirement would stabilize the market price or ~~other related~~improve the liquidity of our common stock, prevent our common stock from falling below the minimum bid price required for continued listing again, or ~~similar factors not described above, could have material adverse impacts on our liquidity and our business, financial condition or results of operations.~~prevent future non-compliance with Nasdaq’s listing requirements.

2729

Item 2. Unregistered sales of equity securities and use of proceeds.

None.

Item 3. Defaults upon senior securities.

None.

Item 4. Mine safety disclosures.

Not applicable.

Item 5. Other information.

Amendment to Seller Note

On ~~May 9,~~August 13, 2023, ~~our Board approved~~the Company and ~~adopted~~IriSys, Inc. (the “Seller”) entered into a First Amendment to Subordinated Promissory Note (the “Note Amendment”) pursuant to which the ~~Fifth Amended and Restated Bylaws, or~~parties agreed to defer the ~~Amended Bylaws. The amendments address matters relating~~due date of the payment due to ~~Rule 14a-19~~the Seller on August 13, 2023 of approximately $2.0 million of principal, plus accrued interest, under the ~~Exchange Act, or~~Subordinated Promissory Note to the ~~Universal Proxy Rules, providing, among other things, that:~~

•

~~a shareholder delivering a notice~~earlier of ~~nomination must include a representation~~(i) June 24, 2024; and (ii) the date on which the Company completes its previously announced sale of certain land at its Gainesville, Georgia location. In addition, the Note Amendment provides that ~~it intends~~the Company will pay up to ~~solicit proxies from shareholders representing at least 67%~~$1.0 million of the ~~voting power~~deferred payment upon completion of certain financings. In consideration of Seller’s entry into the Note Amendment, the Company paid the Seller a $150,000 amendment fee, agreed to pay up to $50,000 of Seller’s legal fees in connection with the Note Amendment and issued the Seller a warrant to purchase 100,000 shares ~~entitled to vote on~~of the ~~election~~Company’s common stock, par value $0.01 per share (“Common Stock”) at an exercise price of ~~directors;~~

•

$1.00 with a ~~shareholder delivering a notice~~term of ~~nomination must certify~~three years (the “Warrant”).

Amendment to the RBC Credit Agreement

On August 13, 2023, the Company ~~in writing that it has complied~~amended its Credit Agreement with Royal Bank of Canada pursuant to a Second Amendment and Waiver to Credit Agreement (the “Credit Agreement Amendment”). Pursuant to the terms of the Credit Agreement Amendment: (i) the Company is obligated to make a $7.5 million mandatory principal prepayment upon the sale of the Company’s real property located adjacent to its Gainesville, Georgia manufacturing campus; (ii) effective for the fiscal quarter ending September 30, 2023 through the quarter ending March 31, 2024, the net leverage ratio is permitted to be no greater than 3.75:1.00, stepping down to 2.75:1.00 for each quarter thereafter; (iii) effective for the quarter ending September 30, 2023, the permitted fixed charge coverage ratio was decreased to 1.00:1.00, which increases to 1.05:1.00 for each quarter thereafter; (iv) the permitted quarterly minimum liquidity amount of $4.0 million was extended through June 30, 2024, after which the quarterly minimum liquidity amount increases to $4.5 million through September 30, 2024, and increases to $5.0 million through September 30, 2025; (v) a new permitted monthly minimum liquidity amount was established applicable to all month-end dates, other than quarter-end dates, and equal to $1.5 million; and (vi) beginning with the ~~Universal Proxy Rules requirements;~~

•

quarter ending December 31, 2023, funded capital expenditures, as defined, cannot exceed $9.0 million in the aggregate for the preceding twelve-month period. In connection with the amendment, the Company ~~may disqualify a shareholder’s nomination if such stockholder fails to satisfy the Universal Proxy Rules requirements;~~

•

a shareholder providing notice pursuant to the Company’s advance notice bylaws must inform the Company if the shareholder no longer plans to solicit proxies in accordance with the Universal Proxy Rules; and

•

~~the shareholder will use a proxy card color other than white, which is reserved for the exclusive use~~paid an amendment fee of ~~the Board.~~

$90,000.

The ~~above~~foregoing description of the ~~Amended Bylaws~~Note Amendment, the Credit Agreement Amendment and the Warrant does not purport to be complete and is qualified in its entirety by reference to the ~~full text~~Note Amendment, the Amendment and the Warrant, copies of ~~the Fifth Amended and Restated Bylaws,~~ which isare filed as ~~Exhibit 3.1~~Exhibits 10.1, 10.2 and 4.2 hereto and are hereby incorporated herein by reference.

Item 6. Exhibits.

(a)

The following exhibits are filed herewith or incorporated by reference herein:

EXHIBIT INDEX

~~EXHIBIT INDEX~~


Exhibit No.	Description	Method of filing
~~3.1~~	~~Fifth Amended and Restated Bylaws of Societal CDMO, Inc.~~	~~Filed herewith~~
4.1	Common Stock Purchase Warrant in favor of ~~OTA LLC~~Warberg WF XI LP (as assigned by ~~Athyrium)~~OTA LLC)	Filed herewith
4.2	Common Stock Purchase Warrant in favor of IriSys, Inc.	Filed herewith
10.1	First Amendment to Subordinated Promissory Note	Filed herewith
10.2	Second Amendment to Credit Agreement dated as of ~~April 4,~~August 13, 2023, by Societal CDMO, Inc. in favor of Royal Bank of Canada	Filed herewith
31.1	Rule 13a-14(a)/15d-14(a) certification of Principal Executive Officer	Filed herewith
31.2	Rule 13a-14(a)/15d-14(a) certification of Principal Financial and Accounting Officer	Filed herewith
32.1	Section 1350 certification, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	Filed herewith
101 INS	XBRL Instance Document	Filed herewith
101 SCH	XBRL Taxonomy Extension Schema	Filed herewith
101 CAL	XBRL Taxonomy Extension Calculation Linkbase	Filed herewith
101 DEF	XBRL Taxonomy Extension Definition Linkbase	Filed herewith
101 LAB	XBRL Taxonomy Extension Label Linkbase	Filed herewith
101 PRE	XBRL Taxonomy Extension Presentation Linkbase Document	Filed herewith

2931

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.


	SOCIETAL CDMO, INC.

Date: ~~May 10,~~August 14, 2023	By:	/s/ J. David Enloe, Jr.
		J. David Enloe, Jr.
		President and Chief Executive Officer
		(Principal Executive Officer)

Date: ~~May 10,~~August 14, 2023	By:	/s/ Ryan D. Lake
		Ryan D. Lake
		Chief Financial Officer
		(Principal Financial and Accounting Officer)

3032


Pennsylvania	26-1523233
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

1 E. Uwchlan Ave, Suite 112, Exton, Pennsylvania	19341
(Address of principal executive offices)	(Zip Code)


Title of each class	Trading symbol	Name of exchange on which registered
Common Stock, par value $0.01	SCTL	The NASDAQ Stock Market LLC


Large accelerated filer ☐	Accelerated filer ☐
Non-accelerated filer ☒	Smaller reporting company ☒
	Emerging growth company ☐


(amounts in thousands, except share and per share data)	March 31, 2023			December 31, 2022			June 30, 2023			December 31, 2022
Assets
Current assets:
Cash and cash equivalents	$	6,293		$	14,995		$	4,703		$	14,995
Accounts receivable, net		15,229			15,950			15,522			15,950
Contract assets		8,604			8,724			7,747			8,724
Inventory		11,574			10,301			12,859			10,301
Prepaid expenses and other current assets		3,337			2,848			2,988			2,848
Assets held for sale		2,801			2,768			2,802			2,768
Total current assets		47,838			55,586			46,621			55,586
Property, plant and equipment, net		50,857			50,365			51,212			50,365
Operating lease asset		5,372			5,491			5,254			5,491
Intangible assets, net		2,744			2,928			2,576			2,928
Goodwill		41,077			41,077			41,077			41,077
Other assets		2,050			1,996			1,996			1,996
Total assets	$	149,938		$	157,443		$	148,736		$	157,443
Liabilities and shareholders’ equity
Current liabilities:
Accounts payable	$	2,392		$	1,466		$	3,929		$	1,466
Current portion of debt		7,840			7,577			7,148			7,577
Current portion of operating lease liability		1,086			1,079			1,093			1,079
Accrued expenses and other current liabilities		8,213			12,686			7,137			12,686
Total current liabilities		19,531			22,808			19,307			22,808
Debt, net of current portion		30,462			30,967			31,010			30,967
Operating lease liability, net of current portion		4,482			4,584			4,381			4,584
Other liabilities		39,487			39,225			39,720			39,225
Total liabilities		93,962			97,584			94,418			97,584
Commitments and contingencies (note 7)
Shareholders’ equity:
Convertible preferred stock, $0.01 par value. 10,000,000 shares authorized, 450,000 shares issued and outstanding at March 31, 2023 and December 31, 2022		4,332			4,350
Common stock, $0.01 par value. 95,000,000 shares authorized, 84,902,318 and 84,588,868 shares issued and outstanding at March 31, 2023 and December 31, 2022, respectively		849			846
Convertible preferred stock, $0.01 par value. 10,000,000 shares authorized, 0 and 450,000 shares issued and outstanding at June 30, 2023 and December 31, 2022, respectively								—			4,350
Common stock, $0.01 par value. 185,000,000 shares authorized, 90,046,925 and 84,588,868 shares issued and outstanding at June 30, 2023 and December 31, 2022, respectively								900			846
Additional paid-in capital		321,114			320,298			326,949			320,298
Accumulated deficit		(270,319	)		(265,635	)		(273,531	)		(265,635	)
Total shareholders’ equity		55,976			59,859			54,318			59,859
Total liabilities and shareholders’ equity	$	149,938		$	157,443		$	148,736		$	157,443


	Three months ended March 31,						Three months ended June 30,						Six months ended June 30,
(amounts in thousands, except share and per share data)	2023			2022			2023			2022			2023			2022
Revenue	$	21,527		$	21,194		$	21,799		$	23,152		$	43,326		$	44,346
Operating expenses:
Cost of sales		19,279			16,114			17,327			17,470			36,606			33,584
Selling, general and administrative		4,662			5,710			5,272			5,160			9,934			10,870
Amortization of intangible assets		184			221			168			220			352			441
Total operating expenses		24,125			22,045			22,767			22,850			46,892			44,895
Operating loss		(2,598	)		(851	)
Operating (loss) income								(968	)		302			(3,566	)		(549	)
Interest expense		(2,145	)		(3,418	)		(2,314	)		(3,430	)		(4,459	)		(6,848	)
Interest income		131			5			109			9			240			14
Loss before income taxes		(4,612	)		(4,264	)		(3,173	)		(3,119	)		(7,785	)		(7,383	)
Income tax expense		72			—			39			—			111			—
Net loss	$	(4,684	)	$	(4,264	)	$	(3,212	)	$	(3,119	)	$	(7,896	)	$	(7,383	)

Loss per share, basic and diluted	$	(0.06	)	$	(0.08	)	$	(0.04	)	$	(0.06	)	$	(0.09	)	$	(0.13	)

Weighted average shares outstanding, basic and diluted		84,799,670			56,351,178			87,330,496			56,598,706			86,072,074			56,475,626


		Page
PART I. FINANCIAL INFORMATION		1
Item 1. Financial statements		1
Item 2. Management's discussion and analysis of financial condition and results of operations		1819
Item 3. Quantitative and qualitative disclosures about market risk		2527
Item 4. Controls and procedures		2527
PART II. OTHER INFORMATION		2628
Item 1. Legal proceedings		2628
Item 1A. Risk factors		2628
Item 2. Unregistered sales of equity securities and use of proceeds		2830
Item 3. Defaults upon senior securities		2830
Item 4. Mine safety disclosures		2830
Item 5. Other information		2830
Item 6. Exhibits		2930
SIGNATURES		3032


	Convertible preferred stock					Common stock				Additional paid-in			Accumulated						Convertible preferred stock						Common stock				Additional paid-in			Accumulated
(amounts in thousands, except share data)	Shares		Amount			Shares		Amount		capital			deficit			Total			Shares			Amount			Shares		Amount		capital			deficit			Total
Balance, December 31, 2022		450,000	$	4,350			84,588,868	$	846	$	320,298		$	(265,635	)	$	59,859			450,000		$	4,350			84,588,868	$	846	$	320,298		$	(265,635	)	$	59,859
Issuance of stock, net of costs		—		(18	)		—		—		(18	)		—			(36	)		—			(18	)		—		—		(18	)		—			(36	)
Stock-based compensation expense		—		—			—		—		1,044			—			1,044			—			—			—		—		1,044			—			1,044
Vesting of restricted stock units, net		—		—			313,450		3		(210	)		—			(207	)		—			—			313,450		3		(210	)		—			(207	)
Net loss		—		—			—		—		—			(4,684	)		(4,684	)		—			—			—		—		—			(4,684	)		(4,684	)
Balance, March 31, 2023		450,000	$	4,332			84,902,318	$	849	$	321,114		$	(270,319	)	$	55,976			450,000		$	4,332			84,902,318	$	849	$	321,114		$	(270,319	)	$	55,976
Conversion of preferred stock																				(450,000	)		(4,332	)		4,500,000		45		4,287			—			—
Stock-based compensation expense																				—			—			—		—		1,593			—			1,593
Vesting of restricted stock units, net																				—			—			644,607		6		(45	)		—			(39	)
Net loss																				—			—			—		—		—			(3,212	)		(3,212	)
Balance, June 30, 2023																				—		$	—			90,046,925	$	900	$	326,949		$	(273,531	)	$	54,318


Balance, December 31, 2021	—	$	—	46,681,453	$	467	$	287,351		$	(245,754	)	$	42,064		—	$	—	46,681,453	$	467	$	287,351		$	(245,754	)	$	42,064
Issuance of stock, net of costs	—		—	9,302,718		93		(109	)		—			(16	)	—		—	9,302,718		93		(109	)		—			(16	)
Stock-based compensation expense	—		—	—		—		1,479			—			1,479		—		—	—		—		1,479			—			1,479
Exercise of stock options, net	—		—	220		—		—						—		—		—	220		—		—						—
Vesting of restricted stock units, net	—		—	487,695		5		(106	)		—			(101	)	—		—	487,695		5		(106	)		—			(101	)
Net loss	—		—	—		—		—			(4,264	)		(4,264	)	—		—	—		—		—			(4,264	)		(4,264	)
Balance, March 31, 2022	—	$	—	56,472,086	$	565	$	288,615		$	(250,018	)	$	39,162		—	$	—	56,472,086	$	565	$	288,615		$	(250,018	)	$	39,162
Issuance of common stock, net of costs																—		—	—		—		(113	)		—			(113	)
Stock-based compensation expense																—		—	—		—		1,408			—			1,408
Vesting of restricted stock units, net																—		—	172,477		1		(10	)		—			(9	)
Net loss																—		—	—		—		—			(3,119	)		(3,119	)
Balance, June 30, 2022																—	$	—	56,644,563	$	566	$	289,900		$	(253,137	)	$	37,329


	Three months ended March 31,						Six months ended June 30,
(amounts in thousands)	2023			2022			2023			2022
Cash flows from operating activities:
Net loss	$	(4,684	)	$	(4,264	)	$	(7,896	)	$	(7,383	)
Adjustments to reconcile net loss to net cash used in operating activities:
Stock-based compensation expense		1,044			1,479			2,637			2,887
Non-cash interest expense		314			1,257			624			2,530
Depreciation expense		1,905			1,792			3,938			3,594
Amortization of intangible assets		184			221			352			441
Deferred income tax expense		72			—			98			—
Changes in operating assets and liabilities:
Accounts receivable		721			(2,211	)		428			(4,611	)
Contract assets		120			(369	)		977			(794	)
Inventory		(1,273	)		(553	)		(2,558	)		551
Prepaid expenses and other assets		(416	)		1,134			125			884
Accrued interest		(22	)		(2,274	)		83			(2,182	)
Accounts payable, accrued expenses and other liabilities		(818	)		(4,292	)		(436	)		(2,028	)
Net cash used in operating activities		(2,853	)		(8,080	)		(1,628	)		(6,111	)
Cash flows from investing activities:
Purchases of property and equipment		(3,376	)		(1,708	)		(5,517	)		(3,306	)
Net cash used in investing activities		(3,376	)		(1,708	)		(5,517	)		(3,306	)
Cash flows from financing activities:
Payment of costs for issuance of stock		(553	)		(16	)		(563	)		(129	)
Payment of debt principal		(461	)		—			(922	)		—
Payment of financing costs		(1,252	)		(36	)		(1,416	)		(80	)
Net payments related to vesting of restricted stock units		(207	)		(101	)		(246	)		(110	)
Net cash used in financing activities		(2,473	)		(153	)		(3,147	)		(319	)
Net decrease in cash and cash equivalents		(8,702	)		(9,941	)		(10,292	)		(9,736	)
Cash and cash equivalents, beginning of period		14,995			25,217			14,995			25,217
Cash and cash equivalents, end of period	$	6,293		$	15,276		$	4,703		$	15,481
Supplemental disclosures of cash flow information:
Cash paid for interest	$	2,144		$	4,676		$	3,888		$	7,015
Purchases of property, plant and equipment included in accrued expenses and accounts payable		405			774			652			582
Deferred financing costs included in accounts payable and accrued expenses		240			—			81			—
Offering costs included in accounts payable and accrued expenses		10			—


	March 31, 2023						December 31, 2022
	Gross value		Accumulated amortization		Carrying value		Gross value		Accumulated amortization		Carrying value
Customer relationships	$	18,900	$	16,309	$	2,591	$	18,900	$	16,188	$	2,712
Backlog		460		307		153		460		261		199
Trademarks and tradenames		310		310		—		310		293		17
Total	$	19,670	$	16,926	$	2,744	$	19,670	$	16,742	$	2,928