UNITED STATES

 SECURITIES AND EXCHANGE COMMISSION

 Washington, D.C. 20549

 FORM 10-K

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

 For the fiscal year ended December 31, 2023

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

 For the transition period from to

 Commission File Number: 001-36329

 Societal CDMO, Inc.

 (Exact name of registrant as specified in its charter)

 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)

 ( 770) 534-8239

 (Registrant's telephone number, including area code)

 Securities registered pursuant to Section 12(b) of the Act:

 Title of each class

 Trading symbol

 Name of exchange on which registered

 Common Stock, par value $0.01

 SCTL

 The NASDAQ Stock Market LLC

 Securities registered pursuant to Section 12(g) of the Act:

 None

 Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes No

 Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes No

 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.

 Large accelerated filer

 Accelerated filer

 Emerging growth company

 Non-accelerated filer

 Smaller reporting company

 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 has filed a report on and attestation to its management's assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.

 If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements.

 Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant's executive officers during the relevant recovery period pursuant to §240.10D-1(b).

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

 On the last business day of the most recently completed second fiscal quarter, the aggregate market value (based on the closing sale price of its common stock on that date) of the voting stock held by non-affiliates of the registrant was $ 94.3 million.

 As of March 15, 2024, there were 105,690,922 shares of common stock, par value $0.01 per share, outstanding.

 DOCUMENTS INCORPORATED BY REFERENCE

 Portions of the registrant's proxy statement for the 2024 annual meeting of shareholders, if filed with the Securities and Exchange Commission within 120 days after December 31, 2023, are incorporated by reference into Part III of this Form 10-K, or such Part III information will be provided in an amendment filed on Form 10-K/A within 120 days after December 31, 2023.

 Auditor Name: KPMG LLP

 Auditor Location: Philadelphia, PA

 Auditor Firm ID: 185

 Page

 Item 1.

 Business

 Item 1A.

 Risk Factors

 Item 1B.

 Unresolved Staff Comments

 Item 1C.

 Cybersecurity

 Item 2.

 Properties

 Item 3.

 Legal Proceedings

 Item 4.

 Mine Safety Disclosures

 Item 5.

 Market for Registrant's Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities

 Item 6.

 [Reserved]

 Item 7.

 Management's Discussion and Analysis of Financial Condition and Results of Operations

 Item 7A.

 Quantitative and Qualitative Disclosures About Market Risk

 Item 8.

 Financial Statements and Supplementary Data

 Item 9.

 Changes in Disagreements with Accountants on Accounting and Financial Disclosures

 Item 9A.

 Controls and Procedures

 Item 9B.

 Other Information

 Item 9C.

 Disclosure Regarding Foreign Jurisdictions that Prevent Inspections

 Item 10.

 Directors, Executive Officers and Corporate Governance

 Item 11.

 Executive Compensation

 Item 12.

 Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters

 Item 13.

 Certain Relationships and Related Transactions, and Director Independence

 Item 14.

 Principal Accounting Fees and Services

 Item 15.

 Exhibits, Financial Statement Schedules

 Item 16.

 Form 10-K Summary

 Index to consolidated financial statements

 FORWARD-LOOKING STATEMENTS

 This Annual Report on Form 10-K 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 Annual Report on Form 10-K 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 Annual Report on Form 10-K and the documents incorporated herein by reference include, among other things, statements about:

 • our expectations regarding the planned acquisition by CoreRx, Inc., or CoreRx, including our ability to complete the pending transaction as contemplated by the Agreement and Plan of Merger, the parties' ability to satisfy the conditions to the consummation of the offer and other conditions set forth in such agreement, the expected timetable for completing the transaction and effects of the offer and merger;

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

 • our ability to continue as a going concern for the next twelve months;

 • 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, macroeconomic events, including those due to inflation, rising interest rates and banking instability, geopolitical turmoil, social unrest, global instability, including regional conflicts around the world, 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;

 • 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;

 • 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 Annual Report on Form 10-K, particularly under "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 Annual Report on Form 10-K 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 Annual Report on Form 10-K 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 Annual Report on Form 10-K are the property of their respective owners.

 SUMMARY OF RISK FACTORS

 The risk factors summarized below could materially harm our business, operating results and/or financial condition, impair our future prospects and/or cause the price of our common stock to decline. These are not all of the risks we face and other factors not presently known to us or that we currently believe are immaterial may also affect our business if they occur. Additional detail about these risks are included in Item 1A, "Risk Factors."

 Material risks that may affect our business, operating results and financial condition include, but are not necessarily limited to, those relating to:

 Risks Related to the Pending Acquisition

 • The completion of the Offer and the Merger are subject to conditions, some or all of which may not be satisfied or completed on a timely basis, if at all. Failure to complete the Offer and the Merger could have material adverse effects on our business, financial condition and results of operations.

 • Lawsuits may be filed against us and the members of our board of directors arising out of the proposed Offer and Merger, which may delay or prevent the proposed Offer and Merger.

 Risks Related to Our Business and Industry

 • 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.

 • Our failure to obtain new customer contracts or renew existing contracts may adversely affect our business.

 • We have a history of losses. If we cannot achieve and maintain profitability and secure additional business, we may have to raise additional capital.

 • Failure to obtain manufacturing components, supplies and related materials from third-party manufacturers, including due to supply chain disruptions and inflationary pressures on materials and labor, could affect our ability to manufacture and deliver our products and sustain our profitability.

 • Unstable market and macroeconomic conditions may have serious adverse consequences on our business, financial condition, and stock price.

 • Our customers' failure to receive or maintain regulatory approval for product candidates or products, or our failure to maintain regulatory approvals for manufacturing, could negatively impact our revenue and profitability.

 • We depend on spending and demand from our customers for our contract manufacturing and development services and any reduction in spending or demand could have a material adverse effect on our business.

 • Our future profitability could decline if we cannot sustain current operating conditions, including maintaining our current facility and equipment utilization and product mix.

 • Our manufacturing services are highly complex, and if we are unable to provide quality and timely services to our customers, our business could suffer.

 • If the products we manufacture for our customers do not gain market acceptance, and if there are adverse changes in the healthcare industry, our business, results of operations and financial condition may suffer.

 • Our operating results may fluctuate significantly, which could adversely impact our stock price.

 • We have incurred significant indebtedness, which could adversely affect our business.

 • We operate in a highly competitive market and competition may adversely affect our business.

 • Issues with product quality could have a material adverse effect upon our business, subject us to regulatory actions and cause a loss of customer confidence in us or our products.

 • If we fail to meet the stringent requirements of governmental regulation in the manufacture of pharmaceutical products, we could incur substantial costs and a reduction in revenues.

 • Technological change may cause our offerings to become obsolete over time. A decrease in our customers' purchases of our offerings could have a material adverse effect on our business, results of operations and financial condition.

 • We may be subject to litigation or government investigations for a variety of claims, which could adversely affect our operating results, harm our reputation or otherwise negatively impact our business.

 • We may acquire other assets or businesses, or form collaborations or make investments in other companies or technologies, that could have a material adverse effect on our operating results, dilute our shareholders' ownership, increase our debt or cause us to incur significant expense.

 • Our employees, partners, independent contractors, consultants and vendors may engage in misconduct or other improper activities, including noncompliance with regulatory standards and requirements.

 • We have faced and may continue to face potential product liability claims, and, if successful claims are brought against us, we may incur substantial liability.

 • The security of our information technology systems may be compromised in the event of system failures, unauthorized access, cyberattacks or a deficiency in our cybersecurity, and confidential information, including non-public personal information that we maintain, could be improperly disclosed.

 • If we fail to comply with data protection laws and regulations, we could be subject to government enforcement actions (which could include civil or criminal penalties), private litigation and/or adverse publicity, which could negatively affect our operating results and business.

 • Our U.S. government contracts require compliance with numerous laws that may present additional risk and liability.

 Risks Related to Our Intellectual Property

 • Litigation involving patents, patent applications and other proprietary rights is expensive and time-consuming. If we are involved in such litigation, it could interfere with our business.

 • Competitors can challenge the U.S. patents protecting our commercial partners' product candidates in connection with filing an ANDA for a generic version or a 505(b)(2) NDA for a modified version of our commercial partners' product candidates.

 • We may be unable to adequately prevent disclosure of trade secrets and other proprietary information.

 • Our ability to manufacture products for our commercial partners may be impaired if any of our manufacturing activities, or the activities of third parties involved in our manufacture and supply chain, are found to infringe patents of others.

 Risks Relating to Our Securities

 • The market price and trading volume of our common stock have been and may continue to be volatile, which could result in rapid and substantial losses for our shareholders.

 • Some provisions of our charter documents and Pennsylvania law may have anti takeover effects that could discourage an acquisition of us by others, even if an acquisition would be beneficial to our shareholders, and may prevent attempts by our shareholders to replace or remove our current management.

 Item 1. Business

 Acquisition by CoreRx

 On February 28, 2024, we entered into an Agreement and Plan of Merger, or the Merger Agreement, with CoreRx, Inc., or CoreRx, and Cane Merger Sub, Inc., a wholly owned subsidiary of CoreRx, or Merger Sub. Pursuant to the Merger Agreement, and upon the terms and subject to the conditions therein, CoreRx will commence a tender offer, or the Offer, to acquire all of our issued and outstanding shares of common stock, par value $0.01 per share, for approximately $1.10 per share of our common stock, or the Offer Price, in cash, subject to any applicable withholding of taxes and without interest. The Offer will initially expire one minute following 11:59 p.m. (Eastern Time) on the date that is 20 business days following the commencement of the Offer, subject to extension under certain circumstances.

 Following the consummation of the Offer, upon the terms and conditions set forth in the Merger Agreement, Merger Sub will merge with and into us, or the Merger, with us continuing as the surviving corporation in the Merger and a wholly owned subsidiary of CoreRx. Pursuant to the terms and subject to the conditions of the Merger Agreement, the Merger will be governed by and effected under Section 321(f) of the Pennsylvania Business Corporation Law, with no shareholder vote required to consummate the Merger. As a result of the Merger, we will cease to be a publicly traded company. The Merger Agreement includes customary representations, warranties and covenants of us, CoreRx and Merger Sub. However, there can be no assurance that the conditions to the completion of the Offer and the Merger will be satisfied or waived, that the Offer and the Merger will be completed on the expected timeframe or at all, or that the Offer and the Merger will be consummated as contemplated by the Merger Agreement. Except as otherwise indicated, we have prepared this Annual Report on Form 10-K and the forward-looking statements contained herein as if we were going to remain an independent, standalone company. If the acquisition is consummated, many of the forward-looking statements contained in this Annual Report on Form 10-K would no longer be applicable.

 Overview

 We are 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, we are 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, we have 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. In 2023, the FDA approved us as a manufacturer of a commercial tablet product. This FDA approval represents the first commercial tablet that we have been approved to manufacture, and we began commercial manufacturing of the product at our Gainesville, Georgia facilities 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 highly potent compounds and controlled substances, liposomes and nano/microparticles, topicals and oral liquids. 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.

 Our Strategy

 The CDMO market is large and growing and is expected to continue to expand as outsourced penetration is seen due to biotechnology and pharmaceutical companies outsourcing more of their operations. We believe companies, which include our customers and prospective customers, generally prefer fewer, higher quality suppliers with expertise in addressing their formulation and manufacturing challenges early in the development cycle. Our strategy for growth in this market includes executing segment-specific sales and marketing strategies; building stronger visibility and an updated identity for the organization; enhancing both our customers' and employees' experience working with and for the company; and continuing to achieve growth and strengthen our financial position. This strategic mission is comprised of five key objectives:

 • Market Segmentation & Corporate Identity. We have aligned our sales strategy to best serve each of three specific market segments that we currently support: (i) commercial oral solid dose products, including commercial tech transfer; (ii) our legacy profit-sharing products such as Verapamil; and (iii) early-stage development clients that represent a growing segment of our business. Our strategy calls for the development and execution of specific, targeted sales strategies for each segment. The decision-making processes, key drivers and metrics of success, project and product life-cycle management, and the approach to creating productive relationships with our clients are different enough for each of these three segments that we believe using this differentiated and focused approach is most effective for our customer base and our ability to optimize our operational and resource prioritization. This change also allows us to have a more focused management of legacy programs as outlined above. Lastly, the successful rebranding of the company to Societal™ CDMO, and the adoption of our tag line, "Bringing Science to Society," helps us improve our identity and brand strength as a true CDMO partner in the biopharma market. With this brand evolution, we continue to effectively communicate our commitment as a partner to our clients as well as to our people, both present and future.

 • Capabilities Optimization and Expansion. We continue to work to optimize our organizational structure and expand our capabilities. We have created and expect to continue to expand strong synergies and efficiencies in our sales and marketing, quality and regulatory systems, human resources and people engagement practices, environmental health and safety policies, business systems and operational excellence processes. We plan to also continue to enhance our current capabilities and expand our operations to accommodate our growing customer base and attract new customers. We are structuring our organization to ensure execution and delivery of success including identifying opportunities for automation and digitalization of processes and ways of working. We also plan to expand our capabilities by identifying additional acquisition or expansion opportunities to broaden our offerings and grow our base of business.

 • Client Experience and Trust. While we have long enjoyed our reputation as a high-quality partner, we believe that there is always room to improve. It is our goal to strengthen our client interactions, create unparalleled trust and establish valuable partnerships from process development through commercialization. This incorporates a multi-level contract approach which helps strengthen client relationships. Our 20/80 Second Source Technical Transfer service model for our commercial solid oral dose customers was created in response to the growing risks and vulnerabilities associated with the global supply chain that have significantly elevated the importance of second source suppliers within the pharmaceutical industry. It is also important that, where it makes sense, we harmonize the experience our clients have at each of our sites. We have effective approaches to client communications and project management and want to deploy those approaches consistently across our organization. Additionally, we have adapted a new sales and proposal writing process, with the goal of streamlining the RFP process. All of the changes have been positively received by our clients. While we continue to make great strides with our customer experience, we intend to further improve their overall experience with us.

 • Employee Experience and Culture. We aspire to establish an industry-leading employee experience and corporate culture of support, growth and professionalism that allows our employees not only to work but to thrive. During 2022, we were certified by Great Place to Work in the United States. As our employees drive our success, it is our goal to create an inspiring, flexible and rewarding experience for everyone at our company. In doing so, we believe we will strengthen both recruitment, employee engagement and retention, leading to a better workplace, better performance and better outcomes for our clients and for our company's financial performance.

 • Financial Position. We will continue to take steps to improve our financial position. In recent years, we successfully executed a multi-step strategy to recast our capital structure, improve our balance sheet and strengthen our overall financial profile. In 2023, we restructured our debt and certain covenants with our creditors to provide additional financial flexibility to the company during this time of market uncertainty and to align to the expected updated timing of the land sale. Further, we initiated a strategic restructuring plan to streamline and optimize operations, including a reduction in force of 26 then-current employees and nine open positions and appointing an executive chairman of our board of directors to provide more direct oversight on the implementation and execution of the corporate strategy. We will continue to carefully manage our cash, work to further reduce our debt, and engage in a consistent and transparent fashion with the investment community. If the planned merger is not completed as we currently anticipate, we will endeavor to work with our lenders to amend our credit agreements and other agreements to reasonably cure any events of defaults or provide additional financial flexibility for our company. Obtaining future credit agreement waivers or amendments to the credit agreement is not within our control, and if unsuccessful, the lenders may exercise the rights available to them under the credit agreement and other contractual agreements.

 Our Competitive Strengths

 We believe that the strong relationships we have with our commercial partners result from of our competitive strengths. In particular:

 • Our Operational Excellence. We maintain a commitment to continually improve productivity and customer service levels and maintain excellent quality and regulatory compliance systems. We measure our operational excellence using industry-standard performance indicators such as our on time, in full delivery rate. We believe that our strong historical track record for operational excellence differentiates us from our competitors.

 • Focus on Specialized Markets. We participate in specialized markets where significant technical expertise provides a competitive advantage. This includes differentiated drug delivery, controlled substance and complex formulation. One of our core areas of expertise is modified release oral solid dosage form development and manufacturing and custom release profile development, including for DEA controlled substance products. We developed extended, controlled and sustained release mechanisms for several current commercial products.

 • Our Longstanding Relationships with Our Partners. We continue to maintain longstanding, collaborative relationships with our customers. We believe this allows us to leverage our extensive experience and deep knowledge of their business to better address our commercial partners' business and developmental goals.

 • Our Integrated Full-Service Development and Manufacturing Facilities. We believe pharmaceutical companies generally prefer to engage with CDMOs that are able to work with a product throughout its lifecycle and have experienced a reliable track record of regulatory compliance and quality control first-hand. Our early-stage development and high-potency business feeds clinical and commercial manufacturing opportunities to our manufacturing business. We believe that by providing customers with a broad range of services from benchtop through commercial launch and supply, we can best support the needs of our customers throughout the lifecycle of their products. We provide fully integrated and customized biomanufacturing services that support our customers from the early preclinical stage through commercial launch and supply. Our services are all supported by modern facilities designed to meet customer needs from early-stage development to commercial supply.

 • Our Customer-Centric, Consultative Approach. We are highly collaborative throughout the product lifecycle, guiding our commercial partners through the development process towards commercialization, including support and guidance on regulatory matters and chemistry, manufacturing and controls, or CMC, regulatory document preparation. In particular, we provide differentiated capabilities across a broad array of services that support the ability to serve our commercial partners through the entire development spectrum.

 Services

 We offer integrated solutions for formulation development, analytical method development, pharmaceutical manufacturing, regulatory support, and pharmaceutical packaging and logistics of both commercial and development stage products with a primary focus in the area of small molecules. Our facilities are located on both coasts of the United States and include:

 • A 97,000 square foot manufacturing facility in Gainesville, Georgia that provides a full range of manufacturing capabilities from scale-up services to commercial manufacturing;

 • A 24,000 square foot cGMP development and high-potency product facility in Gainesville, Georgia that focuses on development and clinical packaging; and

 • A 24,500 square foot development facility in San Diego, California that focuses on development of advanced dosage forms (aseptic fill/finish, lyophilization and inhalation, etc.).

 Our end-to-end service capabilities allow our customers to start with us for early-phase projects and stay with us through late phase and commercial projects. Early-stage coordination with customers utilizing our development and high-potency product facilities help assure streamlined technology transfer for final scale up and manufacturing at our commercial manufacturing site. Our capabilities include:

 • Formulation development: Our formulation services support the development of a range of pharmaceutical products and advanced dosage forms. We have expertise in complex formulations, reformulation, physical characterization and excipient compatibility. We also conduct feasibility studies, identify critical variables and inefficiencies and optimize process.

 • Analytical methods development: We offer diverse analytical services designed to assess quality. Our advanced facilities offer a full range of analytical testing capabilities, including product testing, ICH stability, method development and validation, chromatography and spectroscopy equipment, stability chambers and microbial testing.

 • Pharmaceutical manufacturing: We can serve clients from small, early-phase batches to clinical and commercial production. We offer structured tech transfer services and key technologies including milling, blending, compression, spray and rotary granulation, particle and bead coating, encapsulation, liquids, lyophilization and sterile fill and finish.

 • Regulatory support: We have extensive experience across all steps of the drug approval process. Our regulatory support services include handling communications with the FDA on behalf of our sponsor companies and consultation and guidance for client FDA meetings and responses. We utilize industry best practices including standardized reports for eCTD submission and pharmacovigilance reporting support.

 • Pharmaceutical packaging and logistics: We offer contract packaging and logistics to maintain the safety and integrity of our customers' products. Our commercial-scale, single-line packaging operation has an annual maximum capacity of 2.5 million bottles per shift and can also serve late-phase clinical and development packaging needs. This line can package round or square bottles of various sizes and offers Drug Supply Chain Security Act, or DSCSA, compliant serialization services. We also offer smaller-scale primary and secondary packaging, labeling and kitting options suited for clinical trial materials and development packaging needs across a wide range of dosage forms.

 Our Commercial Partners

 We are party to agreements with each of our commercial partners governing the development, formulation and/or supply services we provide, as well as any applicable intellectual property licenses. Each commercial partner remains responsible for distributing, marketing and promoting their respective products. We are dependent on a small number of commercial partners, with our three largest customers or customer groups* (Teva Pharmaceutical Industries, Inc., or Teva, Novartis Pharma AG and Sandoz Group AG, or Novartis/Sandoz, and Lannett Company, Inc., or Lannett having generated 70% of our revenues for the year ended December 31, 2023, of which Teva generated 35%, Novartis/Sandoz generated 19% and Lannett generated 16%.

 * Novartis/Sandoz is presented in some disclosures as a single customer group above because they are both operating under the Novartis agreement, with Sandoz having been assigned certain rights by Novartis pursuant to that contract.

 The table below details the key products developed and/or manufactured with our key commercial partners:

 Product

 Indication

 Territory

 Revenue source

 Agreement term

 Teva

 Verapamil SR

 Hypertension

 United States

 Profit-sharing / manufacturing

 Through December 31, 2024

 Novartis

 Ritalin LA

 Attention Deficit Hyperactivity Disorder

 Worldwide, except Europe and United States

 Through December 31, 2026

 Sandoz

 Ritalin LA

 Attention Deficit Hyperactivity Disorder

 United States

 Through December 31, 2026

 Focalin XR

 Attention Deficit Hyperactivity Disorder

 Worldwide, except Canada

 Through December 31, 2026

 Lannett

 Verelan PM
 Verelan SR
 Verapamil PM

 Hypertension

 United States

 Profit-sharing / manufacturing

 Through December 31, 2024

 Advanz

 Donnatal liquids and tablets

 Irritable bowel syndrome and acute enterocolitis

 United States

 Through February 3, 2025

 InfectoPharm

 Ritalin LA

 Attention Deficit Hyperactivity Disorder

 Europe

 Through April 30, 2025

 Agreements with Key Commercial Partners

 Teva

 We are party to a License and Supply Agreement with Watson Laboratories, Inc., a subsidiary of Teva, or the Teva Agreement, pursuant to which we are the exclusive supplier of Verapamil SR to Teva. We own the authorized generic for Verapamil SR and, pursuant to the Teva Agreement, have granted Teva an exclusive license to commercialize and sell Verapamil SR in the United States. The Teva Agreement expires on December 31, 2024, after which it will renew for additional one-year periods unless terminated by either party. Under the Teva Agreement, Teva pays us a share of profits on sales of Verapamil SR.

 Novartis / Sandoz

 We are party to a Manufacturing and Supply Agreement with Novartis, or the Novartis Agreement, pursuant to which we continued our long-standing relationship with Novartis as the exclusive global supplier to Novartis of Ritalin LA and Focalin XR capsules. The Novartis Agreement has an original term expiring December 31, 2023, and will renew automatically thereafter for successive one-year periods unless terminated by either party at least 24 months prior. No notice of non-renewal has been delivered. Novartis may terminate the Agreement immediately if (i) any governmental regulatory authority prevents Novartis from supplying the active pharmaceutical ingredients in the products and/or exporting, purchasing or selling the products; (ii) any product cannot be reasonably commercialized for medical, scientific or legal reasons; or (iii) we fail to comply with certain health, safety and environmental protection requirements. After December 31, 2023, Novartis may terminate the Novartis Agreement upon 12 months' written notice in the event of any sale or divestment by us of our business or assets relating to the products. Novartis assigned certain rights under the agreement to Sandoz during 2023.

 Lannett

 We are party to a License and Supply Agreement with Kremers Urban Pharmaceutical, Inc., a subsidiary of Lannett, or the Lannett Agreement, pursuant to which we supply Verelan PM and SR and Verapamil PM to Lannett. We own the new drug application, or NDA, related to Verelan and license commercialization rights to Lannett under the Lannett Agreement. The Lannett Agreement expires on December 31, 2024 and will renew thereafter for successive two-year periods. Under the Lannett Agreement, Lannett pays us a share of profits on sales of Verelan PM and SR and Verapamil PM. Lannett additionally pays us an annual license fee of $0.5 million and is obligated to reimburse to us 50% of the Prescription Drug User Act program fees associated with Verelan. In July 2022 we entered into an amendment to the Lannett Agreement pursuant to which we received improved overall economics, including a 10% increase in the profit share component of revenue from Verapamil PM product sales, as well as immediate and scheduled increases in manufacturing prices. Additionally, the amendment awarded us potential new GMP manufacturing agreements targeting injectable products for multiple additional Lannett development projects.

 Advanz

 We are party to an Amended and Restated Manufacturing and Supply Agreement with AmdiPharm Ltd., a subsidiary of Advanz Pharma Corp, Ltd. (collectively "Advanz"), pursuant to which we continued our multi-year relationship as the exclusive supplier of Donnatal to Advanz for sale in the United States. Under the agreement, we are Advanz's exclusive manufacturer of Donnatal and its authorized generic version until February 3, 2025. Both we and Advanz may terminate this Agreement for any reason at any time by giving the other party not less than twenty-four months prior written notice.

 InfectoPharm

 We are party to a Commercial Manufacturing and Supply Agreement with InfectoPharm Arzneimittel und Consilium GmbH, or InfectoPharm, pursuant to which we were the exclusive supplier to InfectoPharm of Ritalin LA capsules in Europe through December 31, 2023. The agreement has a term of three years, expiring April 30, 2025, and is subject to auto-renewal. Either we or InfectoPharm may elect not to renew this agreement by giving the other party at least one hundred eighty days prior written notice prior to the expiration of the agreement.

 Backlog

 Our backlog represents, as of a point in time, future revenue from work not yet completed under clinical and pre-clinical signed contracts. As of December 31, 2023, our backlog was approximately $17 million. While we anticipate the majority of our backlog will be recognized during fiscal year 2024, our backlog is subject to a number of risks and uncertainties, including but not limited to: the risk that a customer timely cancels its commitments prior to our initiation of manufacturing services, in which case we may be required to refund some or all of the amounts paid to us in advance under those canceled commitments; and the risk that a customer may experience delays in its program(s) or otherwise, which could result in the postponement of anticipated manufacturing services; the risk that we may not successfully execute on all customer projects, any of which could have a negative impact on our liquidity, reported backlog and future revenue and profitability.

 Permits and Regulatory Approvals

 We are required to comply with the regulatory requirements of various local, state, national and international regulatory bodies having jurisdiction in the countries or localities where we manufacture products or where our customers' products are distributed. In particular, we are subject to laws and regulations concerning research and development, testing, manufacturing processes, equipment and facilities, including compliance with cGMPs, labeling and distribution, import and export, and product registration and listing, and compliance with post-marketing reporting obligations. As a result, our facilities are subject to regulation by the FDA, as well as regulatory bodies of other jurisdictions in which we operate.

 We hold various licenses and registrations for our manufacturing activities. The primary licenses and registrations held are FDA Registrations of Drug Establishments and DEA Controlled Substance Registration. Due to certain U.S. state law requirements, we also hold certain state licenses for distribution activities throughout certain states. We also hold cGMP certifications for European Union, or EU, importation of products made in Gainesville for sale in the EU and an ANVISA certification for sale in Brazil. Compliance with these licensing and regulatory requirements is a key aspect of our business and, if there are changes in the regulations applicable to our business in the United States or other jurisdictions, we may be required to obtain additional approvals or operate according to different manufacturing or operating standards or pay additional fees. This may require a change in our manufacturing techniques or additional capital investments in our facilities.

 In certain of our commercial partnerships, our commercial partner is the product authorization holder for products that have been developed on behalf of the commercial partner. In other commercial partnerships, we are the authorization holder. When our commercial partner holds the relevant authorization from the FDA or other national regulator, we support this authorization by furnishing a letter of reference to the Drug Master File, or the chemistry, manufacturing and related data to the relevant regulator or sponsor to provide adequate manufacturing support in respect of the product. We generally update this information annually with the relevant regulator.

 We hold the approved NDAs for Verelan SR and Verelan PM, which we license to Lannett and Teva, respectively. Verapamil SR and Verapamil PM are authorized generics.

 Environmental and Safety Matters

 Certain products manufactured by us involve the use, storage and transportation of toxic or hazardous material. Our operations are subject to extensive laws and regulations relating to the storage, handling, emissions, transportation and discharge of materials into the environment and the maintenance of safe working conditions. We maintain environmental and industrial safety and health compliance programs and training at our facilities.

 Prevailing legislation tends to hold companies primarily responsible for the proper disposal of their waste even after transfer to third party waste disposal facilities. Other future developments, such as increasingly strict environmental, health and safety laws and regulations, and enforcement policies, could result in substantial costs and liabilities to us and could subject the handling, manufacture, use, reuse or disposal of substances or pollutants at our facilities to more rigorous scrutiny than at present.

 Intellectual Property

 The products we produce for our commercial partners are also typically covered by patents and patent applications owned by them. Although certain patents may have expired or may expire in the future, we believe there are other barriers to entry for our commercial partners and competition, including ownership of regulatory filings, NDAs, abbreviated new drug applications, or ANDAs, and drug master files, or DMFs, manufacturing trade secrets, proprietary dosage strengths, pricing limitations in various geographies, costs to revalidate with another supplier, maturity and life-cycle stage of products. We have acquired and developed and continue to acquire and develop knowledge and expertise and trade secrets in the provision of formulation, process development and manufacturing services. We intend to rely on a combination of patents and trade secrets, as well as confidentiality agreements and license agreements, to protect our proprietary know-how.

 Competition

 The contract development and manufacturing industry for pharmaceuticals is intensely competitive and highly regulated. Our current and future competitors include other CDMOs as well as segments of larger pharmaceutical, biotechnology and specialty pharmaceutical companies. Many of our competitors have greater financial and other resources than we have, such as more commercial resources, larger staff and more extensive marketing and manufacturing organizations.

 We compete with other CDMOs such as Adare Pharma Solutions, Aenova Alcami, Avara Pharmaceutical Services, Corden Pharma, CoreRx, Pharmaceutics International, Quotient Sciences and Recipharm, segments of larger companies such as Patheon (a segment of ThermoFisher Scientific), Lonza and Catalent, as well as other development and manufacturing service providers.

 Government Regulation

 Governmental authorities in the United States at the federal, state and local level, and the equivalent regulatory authorities in other countries, extensively regulate the research, development, testing, manufacture, quality control, approval, labeling, packaging, storage, record-keeping, post-market reporting, promotion, distribution, marketing, export and import of prescription drugs, such as those we are developing and manufacturing. Any drug products developed or manufactured by us are subject to pervasive and continuing regulation by the FDA, including compliance with current Good Manufacturing Practices, or cGMP, which impose procedural and documentation requirements. The FDA or other regulatory agencies can delay approval of a drug if our manufacturing facilities are not able to demonstrate compliance with cGMPs, pass other aspects of pre-approval inspections (i.e., compliance with filed submissions) or properly scale up to produce commercial supplies. Drug manufacturers and their subcontractors, and those supplying products, ingredients and components of them, are required to register their establishments with the FDA and state agencies and are subject to periodic announced and unannounced inspections by the FDA and state agencies for compliance with cGMP and other regulations. In addition, changes to the manufacturing process are strictly regulated, and, depending on the significance of the change, may require prior FDA approval before being implemented. FDA regulations also require investigation and correction of any deviations from cGMP and impose reporting and documentation requirements. Accordingly, manufacturers must continue to expend time, money and effort in the area of production and quality control to maintain compliance with cGMPs and other aspects of regulatory compliance. Failure to comply with applicable requirements may result in restrictions on a product, manufacturer or holder of an approved NDA, including withdrawal of product approval, recall or seizure of the product or other voluntary, FDA initiated or judicial action that could delay or prohibit further operations.

 The DSCSA added new sections to the Federal Food, Drug & Cosmetic Act, or FD&C Act, that require manufacturers, repackagers, wholesale distributors, dispensers, and third-party logistics providers to take steps to identify and trace certain prescription drugs to protect against the threats of counterfeit, stolen, contaminated, or otherwise harmful drugs in the supply chain. Among other mandates, the DSCSA requires manufacturers and repackagers to affix or imprint a unique product identifier (comprised of a standardized numerical identifier, lot number, and expiration date of the product) on certain prescription drug packages in both a human-readable and on a machine-readable data carrier. The standardized numerical identifier is comprised of the product's corresponding National Drug Code combined with a unique alphanumeric serial number. A drug product is misbranded if it does not bear the product identifier as required by Section 582 of the FD&C Act. Section 582 also established several requirements relating to the verification of product identifiers.

 Certain products that we manufacture are regulated as "controlled substances" as defined in the Controlled Substances Act of 1970, or CSA, which establishes registration, security, recordkeeping, reporting, storage, distribution and other requirements administered and enforced by the DEA. The DEA is concerned with the control and handling of controlled substances, and with the equipment and raw materials used in their manufacture and packaging, in order to prevent loss and diversion into illicit channels of commerce. Annual registration is required for any facility that manufactures, distributes, dispenses, imports or exports any controlled substance. The registration is specific to the particular location, activity and controlled substance schedule.

 The DEA regulates controlled substances by controlling them in five schedules. Schedule I and II controlled substances have a high potential for abuse, whereas Schedule III-V controlled substances have relatively decreasing potential for abuse. Therefore, the DEA imposes more stringent controls on Schedule I and II substances than Schedule III-V substances, including stricter security controls, quotas, and increased recordkeeping and reporting requirements. Certain of the products we manufacture and/or develop are regulated as Schedule II controlled substances. The DEA establishes annually an aggregate quota for how much certain controlled substances that we manufacture may be produced in total in the United States, based on the DEA's estimate of the quantity needed to meet legitimate scientific and medicinal needs. This limited aggregate amount that the DEA allows to be produced in the United States each year is allocated among individual companies, who must submit applications annually to the DEA for individual production and procurement quotas. We must receive an annual quota from the DEA in order to produce any Schedule II substance. The DEA may adjust aggregate production quotas and individual production and procurement quotas from time to time during the year, although the DEA has substantial discretion in whether or not to make such adjustments. In April 2018, the DEA proposed new guidelines aimed at strengthening the process for setting controls over diversion of controlled substances and making other improvements in the quota managements regulatory system for the production, manufacturing and procurement of controlled substances. Following a public comment period, the DEA published the final guidelines, which were substantially similar to the proposed guidelines, in July 2018. For 2019, the DEA proposed decreased manufacturing quotas for the six most frequently misused opioids, including hydrocodone, which we used in the manufacture of certain products, by an average of 10% as compared to the 2018 quotas. The DEA proposed further decreasing manufacturing quotas in 2020 for five of the six opioids, including hydrocodone, by an average of 28%. Together with reductions in morphine, this is a 53% decrease since 2016. In October 2019, the DEA proposed additional regulations to amend the manner in which the agency grants quotas to manufacturers, and in August 2023, the DEA published a final rule to finalize the amended regulations. The final rule became effective on November 29, 2023, and the amended regulations establish use-specific quotas, including commercial sales, product development, transfer, replacement, and packaging/repackaging and labeling/relabeling. Further, to decrease the risk of diversion and increase accountability, the final rule reduces inventory allowances and requires procurement quota certifications. In April 2020, in response to the COVID-19 pandemic, the DEA adjusted the established 2020 aggregate production quotas and assessment of annual needs for select Schedule II substances. The DEA took this action to ensure that the country has an adequate and uninterrupted supply of these substances during the public health emergency. In November 2020, the DEA finalized further decreases to the quota for hydrocodone by 11.5%, which it had proposed in September 2020. In December 2021, the DEA further decreased the quota for hydrocodone by 4% for 2022, which it had proposed in October 2021. The DEA finalized the 2023 quotas in December 2022 and included a 5% decrease for Schedule II opioids such as oxycodone and hydrocodone. In January 2024, the DEA finalized the 2024 quotas and included slight decreases to the quotas for oxycodone and hydrocodone, which it had proposed in November 2023.

 The DEA requires facilities that manufacture controlled substances to adhere to certain security requirements. Security requirements vary by controlled substance schedule, with the most stringent requirements applying to Schedule I and Schedule II substances. Required security measures include background checks on employees and physical control of inventory through measures such as cages, surveillance cameras and inventory reconciliations. Records must be maintained for the handling of all controlled substances and periodic reports must be made to the DEA, for example, distribution, acquisition, and inventory reports for Schedule I and II controlled substances, Schedule III substances that are narcotics and other designated substances. Reports must also be made for thefts or losses of any controlled substance and suspicious orders. In addition, special authorization and notification requirements apply to imports and exports.

 The DEA requires drug manufacturers to design and implement a system that identifies suspicious orders of controlled substances, such as those of unusual size, those that deviate substantially from a normal pattern and those of unusual frequency, prior to completion of the sale. A compliant suspicious order monitoring, or SOM, system includes well-defined due diligence, "know your customer" efforts and order monitoring.

 To enforce these requirements, the DEA conducts periodic inspections of registered establishments that handle controlled substances. Individual states also independently regulate controlled substances. We are subject to state regulation of distribution for these products. Failure to maintain compliance with applicable requirements, particularly where noncompliance results in loss or diversion, can result in enforcement action that could have a material adverse effect on our business, results of operations and financial condition. The DEA may seek civil penalties, refuse to renew necessary registrations or initiate proceedings to revoke those registrations, or take other enforcement action. In certain circumstances, violations could result in criminal prosecution.

 In addition to DEA regulations, the U.S. government and state legislatures have enacted legislation and regulations intended to fight the opioid epidemic. In February 2016, the FDA released an action plan to address the opioid epidemic, which is part of a broader initiative led by the Department of Health and Human Services, which includes the release of a new Guideline for Prescribing Opioids for Chronic Pain, FDA's requirement of enhanced warnings and safety labeling, and institution of a class-wide Risk Evaluation and Mitigation Strategy, or REMS, as a condition of approval. Further, the Comprehensive Addiction and Recovery Act, or CARA, was passed in 2016. CARA provides resources to improve state monitoring of controlled substances, including opioids. A Senate bill introduced in February 2018, known as CARA 2.0, would further limit initial prescriptions for opioids to three days, while exempting initial prescriptions for chronic care, cancer care, hospice or end of life care, and palliative care. CARA 2.0 would also increase civil and criminal penalties for opioid manufacturers that fail to report suspicious orders for opioids or fail to maintain effective controls against diversion of opioids. More recently, the Substance Use-Disorder Prevention that Promotes Opioid Recovery and Treatment for Patients and Communities Act, or Support Act, has been enacted. It provides for further regulation as well as funding for research and development of non-addictive painkillers. State legislatures have followed in the footsteps of the federal government in passing similar laws intended to limit prescription sales and quantities as well as increase the ability to monitor and regulate the manufacture and sale of opioids.

 Corporate Information

 We were incorporated under the laws of the Commonwealth of Pennsylvania in November 2007. Our principal executive offices are located at 1 E. Uwchlan Ave, Suite 112, Exton, Pennsylvania 19341 and our telephone number is (770) 534-8239.

 Employees and Human Capital Resources

 Employees

 As of December 31, 2023, we had 258 full-time employees. None of our employees are represented by a labor union or covered by collective bargaining agreements, and we believe our relationship with our employees is good.

 Diversity & Inclusion

 We are fundamentally committed to creating and maintaining a work environment in which employees are treated fairly, with dignity, decency, respect and in accordance with all applicable laws. We strive to create a professional work environment that is free from all forms of harassment, discrimination and bullying in the workplace, including sexual harassment and any form of retaliation. We are an equal opportunity employer and we strive to administer all human resources actions and policies without regard to race, color, religion, sex, national origin, ethnicity, age, disability, sexual orientation, gender identification or expression, past or present military or veteran status, marital status, familial status, or any other status protected by applicable law. Our management team and employees are expected to exhibit and promote honest, ethical, and respectful conduct in the workplace. All employees must adhere to a code of conduct that sets standards for appropriate behavior and are required to attend annual training to help prevent, identify, report, and stop any type of discrimination and harassment. Our recruitment, hiring, development, training, compensation, and advancement at our company is based on qualifications, performance, skills, and experience without regard to gender, race and ethnicity.

 Competitive Pay & Benefits

 We provide robust compensation and benefits programs to help meet the needs of our employees. In addition to salaries, these programs include potential annual discretionary bonuses, a 401(k) plan, healthcare and insurance benefits, flexible spending accounts, paid time off, various leave programs and flexible work schedules, among others. In addition, we offer every full-time employee, both exempt and non-exempt, the benefit of equity ownership in the company through stock option grants. We have also used targeted equity-based grants with vesting conditions to facilitate retention of personnel, particularly those with critical drug development skills and experience.

 Safety

 The safety, health and wellness of our employees is a top priority. Employees receive employee health and safety focused training on a monthly basis, ranging from regulatory compliance to industry best practices. Departments hold monthly safety meetings covering a wide variety of applicable safety topics such as hazard communication, personal protective equipment, lab and material movement safety, fall protection and many others. These protocols were designed to comply with health and safety standards as required by federal, state, and local government agencies, taking into consideration guidelines of the Centers for Disease Control and Prevention and other public health authorities. In addition, we have provided work-at-home arrangements for employees who are able to do so.

 Available Information

 Our website address is www.ir.societalcdmo.com. Our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, any amendments to those reports, filed or furnished with the Securities and Exchange Commission, or SEC, are available free of charge through our website. We make these materials available through our website as soon as reasonably practicable after we electronically file such materials with, or furnish such materials to, the SEC. The reports filed with the SEC by our executive officers and directors pursuant to Section 16 of the Exchange Act are also made available, free of charge on our website, as soon as reasonably practicable after copies of those filings are provided to us by those persons. These materials can be accessed through the "Investor" section of our website. The information contained in, or that can be accessed through, our website is not part of this Annual Report.

 Item 1A. Risk Factors

 The following risk factors and other information included in this Annual Report on Form 10-K should be carefully considered. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties not presently known to us or that we presently deem less significant may also impair our business operations. Please see page 3 of this Annual Report on Form 10-K for a discussion of some of the forward-looking statements that are qualified by these risk factors. If any of the following risks occur, our business, financial condition, results of operations and future growth prospects could be materially and adversely affected. All references and risks related to the launch, commercialization or sale of any of our product candidates are predicated on such product candidates receiving the requisite marketing and regulatory approval in the United States and applicable foreign jurisdictions.

 Risks Related to the Pending Acquisition

 The completion of the Offer and the Merger are subject to conditions, some or all of which may not be satisfied or completed on a timely basis, if at all. Failure to complete the Offer and the Merger could have material adverse effects on our business, financial condition and results of operations.

 On February 28, 2024, we entered into the Merger Agreement with CoreRx and Merger Sub. Pursuant to the Merger Agreement, and upon the terms and subject to the conditions therein, CoreRx will commence the Offer to acquire all of the issued and outstanding shares of our common stock. Following the consummation of the Offer, upon the terms and conditions set forth in the Merger Agreement, Merger Sub will merge with and into us, with us continuing as the surviving corporation in the Merger. The completion of the Offer and the Merger are subject to a number of conditions, which make the completion and timing of the Offer and Merger uncertain. There can be no assurance that the conditions to the completion of the Offer and the Merger will be satisfied or waived, that the Offer and the Merger will be completed on the expected timeframe or at all, or that the Offer and the Merger will be consummated as contemplated by the Merger Agreement.

 If the Offer and Merger are not consummated within the expected time frame or at all, we may be subject to a number of material risks and our financial results and operations may be materially adversely affected. Our share price may fluctuate significantly based on announcement by CoreRx, other third parties or us regarding the Offer and Merger.

 In the event the Offer and the Merger are not timely consummated, the price of our common stock may decline. In addition, some costs related to the Offer and the Merger must be paid whether or not the Offer and the Merger are completed, and we have incurred, and will continue to incur, significant costs, expenses and fees for professional services and other transaction costs in connection with the proposed transaction, as well as the diversion of management and resources towards the Offer and Merger, for which we will have received little or no benefit if completion of the Merger does not occur. In such an event, we may also experience negative reactions from our investors, suppliers, and employees. In addition, if the Merger Agreement is terminated under specified circumstances, we will be required to pay CoreRx a termination fee of $5.0 million.

 The Merger Agreement limits our ability to pursue alternative transactions, which could deter a third party from proposing an alternative transaction.

 The Merger Agreement contains customary "no-shop" restrictions that, subject to certain exceptions, inhibit our ability to solicit alternative transaction proposals from third parties and engage in discussions or negotiations with third parties regarding transaction proposals. In the event we receive any alternative transaction proposal, then we are required to provide prompt notice (and in any event within 24 hours after receipt thereof) and certain information concerning such proposal to CoreRx. It is possible that these or other provisions in the Merger Agreement, including a termination fee of $5.0 million payable to CoreRx under certain circumstances, might discourage a potential competing acquirer that might have an interest in acquiring all or a significant part of our outstanding common stock from considering an acquisition or might result in a potential competing acquirer proposing an overall lower per-share consideration amount than it might otherwise have proposed to offer.

 Lawsuits may be filed against us and the members of our board of directors arising out of the proposed Offer and Merger, which may delay or prevent the proposed Offer and Merger.

 Putative shareholder complaints, including shareholder class action complaints, and other complaints may be filed against us, our board of directors, CoreRx, CoreRx's board of directors, and others in the future in connection with the transactions contemplated by the Merger Agreement. The outcome of future litigation is uncertain, and we may not be successful in defending against any such future claims. Future lawsuits that may be filed against us, our board of directors, CoreRx, or CoreRx's board of directors could delay or prevent the consummation of the Offer and the Merger, divert the attention of our management and employees from our day-to-day business, and otherwise adversely affect us financially.

 The following risk factors do not take into account the planned Offer and Merger and assume that we continue to operate our business.

 Risks Related to Our Business and Industry

 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 three largest customers or customer groups (Teva Pharmaceutical Industries, Inc., or Teva, Novartis Pharma AG and Sandoz Group AG, or Novartis/Sandoz, and Lannett Company, Inc., or Lannett) having generated 70% of our revenues for the year ended December 31, 2023, of which Teva generated 35%, Novartis/Sandoz generated 19% and Lannett generated 16%. Any increases in competition in the market, pricing adjustments, significantly reduced purchasing volume or financial difficulties (for example, the recent Lannett bankruptcy) with any one or more of our key commercial partners could adversely affect our revenue. If any one or more of these commercial partners faces increasing or new competition in their market, adjusts pricing, significantly reduces their purchasing volume or experiences financial difficulties such as bankruptcy, our revenues could be adversely affected.

 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 labor shortages, supply chain shortages, inflationary pressures, economic slowdown or recession, banking instability 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.

 Our failure to obtain new customer contracts or renew existing contracts may adversely affect our business.

 Our agreements with Teva and Lannett expire on December 31, 2024 and our agreement with Novartis/Sandoz expires on December 31, 2026. If any of these commercial partners fail to renew their contract, our revenues could be materially and adversely affected. We continually seek to renew existing customer contracts and secure new contracts, which subjects us to potentially significant pricing pressures. In the event we are unable to replace existing contracts in a timely manner or at all, or are forced to accept terms, including pricing terms, less favorable to us, our business, results of operations and financial condition could be materially and adversely affected.

 We have a history of losses. If we cannot achieve and maintain profitability and secure additional business, we may have to raise additional capital, which may not be on terms that are acceptable to us.

 We have incurred losses of $13.3 million, $19.9 million and $11.4 million for the years ended December 31, 2023, 2022 and 2021, respectively. As of December 31, 2023, we had an accumulated deficit of $278.9 million. We have financed our operations through the issuance of debt and equity and through operations, and as of December 31, 2023, we had $39.5 million of outstanding indebtedness, $35.1 million of which was with Royal Bank of Canada. In addition, in the event a customer timely cancels its commitments prior to our initiation of manufacturing services, we may be required to refund some or all of the advance payments made to us under those canceled commitments, which would have a negative impact on our liquidity and future revenue.

 In the event we are unable to maintain sufficient business to support our current operations, we may need to raise additional capital in the future. There can be no assurance that equity financing will be available on acceptable terms or at all. Our ability to raise additional capital in the equity markets to fund our future operations is dependent on a number of factors, including, but not limited to, the market demand for our common stock. The market demand or liquidity of our common stock is subject to a number of risks and uncertainties, including but not limited to, our financial results and economic and market conditions. In addition, even if we are able to raise additional capital, it may not be at a price or on terms that are acceptable to us.

 Our historical operating results indicate substantial doubt exists related to our ability to operate as a going concern.

 We have incurred net losses and used significant cash in operating activities since inception, and we expect to continue to generate operating losses for the foreseeable future. As of December 31, 2023, we had an accumulated deficit of $278.9 million. We held cash, cash equivalents and investments in debt securities of $8.1 million as of December 31, 2023. Based on current trends and activities, there is significant doubt that we can continue as a going concern beyond one year after the issuance of this report.

 Our consolidated audited financial statements as of and for the year ended December 31, 2023 have been prepared under the assumption that we will continue as a going concern for the next 12 months. Our future operations are highly dependent on the profitability of our development and manufacturing operations. The pharmaceutical industry has experienced a slowdown in clinical development activities resulting from reduced cash funding, and we have been experiencing higher rates of customer attrition and development program delays which have negatively impacted earnings and cash flows. As a result, management reduced its earnings and cash flow projections during 2023. These factors, and the related impact on debt covenant compliance, continue to impact us through the present day and are expected to continue. Our credit agreement with Royal Bank of Canada contains certain financial and other covenants, including minimum liquidity requirements, maximum net leverage ratios and minimum fixed charge coverage ratios, and includes limitations on, among other things, incurring additional indebtedness, paying dividends, acquisitions and certain investments. Due to the factors discussed above, there is significant uncertainty as to whether we will be able to comply with these covenants in future periods. Further, management concluded that substantial doubt about our ability to continue as a going concern exists as of the date of the issuance of these financial statements. Our auditors also included an explanatory paragraph in its report on our financial statements as of and for the year ended December 31, 2023 with respect to this uncertainty, the delivery to the lenders of which pursuant to the credit agreement would result in a default under the credit agreement in effect prior to giving effect to the third amendment to the credit agreement. On March 21, 2024, we entered into a third amendment to the credit agreement with Royal Bank of Canada, which extended the deadline until April 30, 2024 for delivery of (i) the audited financial statements for the fiscal year ended December 31, 2023, and (ii) the corresponding audit report without a "going concern" explanatory paragraph. The extension of the deadline to submit these documents effectively delays the default under the amended credit agreement until May 1, 2024. The third amendment also (i) defers the $4.0 million quarterly minimum liquidity covenant as of March 31, 2024 until as of April 30, 2024 and (ii) clarified that a $1.5 million monthly liquidity covenant was not applicable as of March 31, 2024. This amendment to the credit agreement was made, in part, to provide us with flexibility to complete the planned merger, to prevent the explanatory paragraph in the auditor's report from triggering a default under the credit agreement until May 1, 2024 and to allow certain discretionary cash payments that management intends to make prior to closing the planned merger from potentially triggering a default of the minimum liquidity covenant prior to April 30, 2024. Absent completion of the planned merger before May 1, 2024, which is expected to result in the repayment and termination of the credit agreement, or additional amendments to, or waivers under, the credit agreement, we expect that an event of default would be triggered once the audited financial statements are delivered to Royal Bank of Canada under the terms of the amended credit agreement. Any failure to comply with the other terms, covenants and conditions of the credit agreement or the debt agreements may also result in an event of default under such agreements, which could have a material adverse effect on the business, financial condition and results of operations.

 If we continue to experience operating losses, we may not be able to comply with financial and other covenants in future periods. In addition, we may not be able to generate additional liquidity through a capital raise or other cash infusion, we may need to secure additional sources of funds, which may or may not be available to us. If we are unable to raise additional capital in sufficient amounts or on terms acceptable to us, we may have to further scale back or initiate steps to cease operations.

 In addition, we may be unable to make required payments under our credit agreement with Royal Bank of Canada or otherwise comply with the provisions of our lease agreement with Tenet Equity Funding SPE Gainesville, LLC, or Lessor, or the subordinated promissory note with IriSys. Any such failure to make payments under our credit agreement with Royal Bank of Canada or otherwise comply with the provisions of our lease agreement with Lessor or the subordinated promissory note with IriSys could result in an "event of default" under each such agreement and also could result in a cross default under certain of the other agreements. Upon the occurrence of an "event of default" under the subordinated promissory note, the entire unpaid principal amount, all accrued and unpaid interest and any other amounts due automatically accelerate and are due on the date of occurrence of an event of default. Upon the occurrence of an "event of default" under the lease agreement, remedies available to the Lessor generally include, without limitation, terminating such lease agreement, repossessing and reletting the leased property, and recover all costs and losses paid or incurred by Lessor as a result of such breach. The exercise of the aforementioned remedies could have a material adverse effect on our business, financial condition and results of operations.

 Failure to obtain manufacturing components, supplies and related materials from third-party manufacturers, including due to supply chain disruptions and inflationary pressures on materials and labor, could affect our ability to manufacture and deliver our products and sustain our profitability.

 We rely on third-party manufacturers to supply many of our manufacturing components, supplies and related materials, which in some instances are supplied from a single source. We also rely on our labor force to sustain our operations. Prolonged disruptions in the supply of any of our key manufacturing components, supplies and related materials, difficulty implementing replacement materials or new sources of supply; or a significant increase in the prices of manufacturing components, supplies and related materials or labor could have a material adverse effect on our operating results, financial condition or cash flows. In particular, manufacturing problems may occur with these suppliers, and if a supplier provides us with manufacturing components, supplies and related materials that are deficient or defective or if a supplier fails to provide us with such materials or supplies in a timely manner, we may have limited ability to find appropriate substitutes or otherwise meet required specifications and deadlines. Moreover, we could experience inventory shortages if we are required to use an alternative supplier on short notice, which also could lead to manufacturing components, supplies and related materials being purchased on less favorable terms than we have with our regular suppliers. If such problems occur, we may not be able to manufacture our products profitably or on time, which could harm our reputation and have a material adverse effect on our business.

 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.

 If our suppliers are unable to provide the products and manufacturing components necessary to conduct our business, we may experience inventory shortages, and could be required to use an alternative supplier on short notice and enter into agreements on less favorable terms than we have with our regular suppliers. We also rely on third parties for the maintenance of our facilities and equipment.

 Unstable market and macroeconomic conditions may have serious adverse consequences on our business, financial condition, and stock price.

 Global financial markets have and may continue to experience extreme volatility and disruptions, declines in consumer confidence, declines in economic growth, increases in unemployment rates and uncertainty about economic stability, political unrest and other factors beyond control. There can be no assurance that further deterioration in credit and financial markets and confidence in economic conditions will not occur. Our general business strategy and ability to raise capital may be adversely affected by any such economic downturn, volatile business environment, or continued unpredictable and unstable market conditions, including as a result of liquidity constraints, failures and instability in U.S. and international financial banking systems. If the current equity and credit markets deteriorate, it may make any necessary debt or equity financing more difficult, more costly, and more dilutive. Failure to secure any necessary financing in a timely manner and on favorable terms could have a material adverse effect on our growth strategy, financial performance, and stock price. In addition, there is a risk that one or more of our current customers, vendors or other partners may not survive such difficult economic times, which could directly affect our business.

 In addition, the stock markets have experienced extreme price and volume fluctuations that have affected and continue to affect the market prices of equity securities of many companies, which has resulted in decreased stock prices for many companies notwithstanding the lack of a fundamental change in their underlying business models or prospects. These fluctuations have often been unrelated or disproportionate to the operating performance of those companies. Further, the impacts of geopolitical turmoil, such as the ongoing conflict between Russia and Ukraine and the current conflict in Israel and Gaza (including any escalation or expansion), social unrest, political instability in the United States and elsewhere, terrorism, cyber warfare or other acts of war could lead to disruption, instability and volatility in the global markets, which may have an adverse impact on our business or ability to access the capital markets. Broad market and industry factors, including potentially worsening economic conditions and other adverse effects, political, regulatory, and other market conditions, may negatively affect the market price of shares of our common stock, regardless of our actual operating performance.

 We anticipate the continuation of a general slowdown in clinical development activity as a result of clinical failures and/or a lack of adequate funding to go forward. In 2023, we made 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 and a strategic restructuring plan to address the financing challenges in the pharmaceutical industry and increase operational efficiency in areas of historical strength. The ongoing slowdown and/or the reconfiguration may continue to cause a reduction in the number of business development opportunities that we will be able to pursue in 2024.

 We expect to face continuing inflationary pressures on raw materials, labor and logistics during 2024. If inflation or other factors were to significantly increase our business costs, it may not be feasible to pass price increases on to our customers. Interest rates, the liquidity of the credit markets and the volatility of the capital markets could also affect our interest costs under our Secured Overnight Financing Rate, or SOFR, based term loan borrowings or our ability to access the capital markets. Any such increases in our costs or inability to access capital could have a material adverse effect on our business, results of operations and financial conditions.

 Our customers' failure to receive or maintain regulatory approval for product candidates or products, or our failure to maintain regulatory approvals for manufacturing, could negatively impact our revenue and profitability.

 Our business materially depends upon the regulatory approval of the products we manufacture. As such, if our customers experience a delay in, or failure to receive, approval for any of their product candidates or fail to maintain regulatory approval of products, our revenue and profitability could be adversely affected. Additionally, if the FDA or a comparable foreign regulatory authority does not approve of our facilities for the manufacture of a customer product or if it withdraws such approval in the future, our customers may choose to identify alternative manufacturing facilities and/or relationships, which could significantly impact our ability to expand our capacity and capabilities.

 We depend on spending and demand from our customers for our contract manufacturing and development services and any reduction in spending or demand could have a material adverse effect on our business.

 The amount that our customers spend on the development and manufacture of their products or product candidates, particularly the amount our customers choose to spend on outsourcing these services to us, substantially impacts our revenue and profitability. The outcomes of our customers' research, development and marketing also significantly influence the amount that our customers choose to spend on our services and offerings. Our customers determine the amounts that they will spend on our services based upon, among other things, the clinical and market success of their products, available resources, access to capital and their need to develop new products, which, in turn, depend upon a number of other factors, including their competitors' research, development and product initiatives and the anticipated market for any new products, as well as clinical and reimbursement scenarios for specific products and therapeutic areas. Due to economic developments related to stock market conditions and geopolitical turmoil, such as the ongoing conflict between Russia and Ukraine and the current conflict in Israel and Gaza (including any escalation or expansion), which continue to have adverse effects on the U.S. and global financial markets, we have been experiencing 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. The slowdown has caused us to experience delays in and reductions to our backlog and we may continue to experience adverse effects such as delays in and 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 recent years, the pharmaceutical industry has experienced pressure with respect to access to capital, which may require some of our customers to limit their spending on research and development as they re-assess budgets. Further, increasing consolidation in the pharmaceutical industry may impact such spending, particularly in the event that any of our customers choose to develop or acquire integrated manufacturing operations. Any reduction in customer spending on development and related services as a result of these and other factors could have a material adverse effect on our business, results of operations and financial condition.

 Our future profitability could decline if we cannot sustain current operating conditions, including maintaining our current facility and equipment utilization and product mix.

 Our business is complex and depends upon a number of variables to sustain our profitability, including how well we leverage our fixed manufacturing costs and maintain our product sales mix.

 We have incurred significant fixed costs to purchase equipment that supports our current and future customer base across a wide range of dosage forms and production scales. We depend on our workforce to operate our equipment, and we depend on customers to provide orders that will utilize our equipment. If we are not able to fully utilize our manufacturing capacity due to labor shortages, changes in customer or product mix, or changes in volume, our margins could be adversely affected. Further, there can be no assurance that our future revenue will be sufficient to ensure the economical operation of our facilities, in which case our results of operations could be adversely affected.

 Some of our commercial products are significantly more profitable than others and may include profit-sharing, royalty or other forms of associated income. As a result, if we experience more growth in products that are less profitable than others, even if our revenues remain consistent or grow overall, we could become less profitable. Achieving and sustaining our profitability depends upon us experiencing a similar or more favorable mix of revenue, that will depend upon the nature of the different products and services that we offer and/or our customers' request. If we recognize less revenue from our most profitable products as a percentage of total revenue, our future profitability could be materially adversely impacted.

 Our manufacturing services are highly complex, and if we are unable to provide quality and timely services to our customers, our business could suffer.

 The manufacturing services we offer are highly complex, due in part to strict regulatory requirements. A failure of our quality control systems in our facilities could cause problems to arise in connection with facility operations for a variety of reasons, including equipment malfunction, viral contamination, failure to follow specific manufacturing instructions, protocols and standard operating procedures, problems with raw materials or environmental factors. Such problems could affect production of a single manufacturing run or a series of runs, requiring the destruction of products, or could halt manufacturing operations altogether. In addition, our failure to meet required quality standards may result in our failure to timely deliver products to our customers, which in turn could damage our reputation for quality and service. Any such incident could, among other things, lead to increased costs, lost revenue, reimbursement to customers for lost drug substance, damage to and possibly termination of existing customer relationships, time and expense spent investigating the cause and, depending on the cause, similar losses with respect to other manufacturing runs. With respect to our commercial manufacturing, if problems are not discovered before the product is released to the market, we may be subject to regulatory actions, including product recalls, product seizures, injunctions to halt manufacture and distribution, restrictions on our operations, civil sanctions, including monetary sanctions, and criminal actions. In addition, such issues could subject us to litigation, the cost of which could be significant.

 If the products we manufacture for our customers do not gain market acceptance, and if there are adverse changes in the healthcare industry, our business, results of operations and financial condition may suffer.

 We depend on, and have no control over, consumer demand for the products we manufacture for our customers. Consumer demand for our customers' products could be adversely affected by, among other things, delays in regulatory review or approval, the inability of our customers to demonstrate the efficacy and safety of their products, the loss of patent and other intellectual property rights protection, the emergence of competing or alternative products, including generic drugs, the degree to which private and government payment subsidies for a particular product offset the cost to consumers and changes in the marketing strategies for such products. If the products we manufacture for our customers do not gain market acceptance, our revenues and profitability may be adversely affected.

 We believe that continued changes to the healthcare industry, including ongoing healthcare reform, adverse changes in government or private funding of healthcare products and services, legislation or regulations governing the privacy of patient information or patient access to care, or the delivery, pricing or reimbursement of pharmaceuticals and healthcare services or mandated benefits, may cause healthcare industry participants to purchase fewer services from us or influence the price that others are willing to pay for our services. Changes in the healthcare industry's pricing, selling, inventory, distribution or supply policies or practices could also significantly reduce our revenue and profitability.

 Our operating results may fluctuate significantly, which could adversely impact our stock price.

 Our operating results may be subject to quarterly and annual fluctuations. Our operating results will be affected by numerous factors, including:

 • fluctuations in the revenues, including the loss of a major commercial partner or product;

 • the timing of purchasing order patterns, safety stock methodology and habits of our commercial partners;

 • unsuccessful execution, postponement or cancellation of anticipated formulation, development and manufacturing services related to customer projects;

 • variations in the level of expenses related to our production volumes and development programs;

 • any intellectual property infringement lawsuit in which we may become involved;

 • CDMO or pharmaceutical competitors that introduce new products or take increased positions that may emerge and reduce market share for our existing customer/partner products;

 • our execution of any additional collaborative, licensing or similar arrangements, and the timing of payments we may make or receive under these arrangements;

 • our acquisition, divestiture, spin-off or in-licensing of new technologies or assets.

 Due to the various factors mentioned above, and others, the results of prior periods should not be relied upon as an indication of our future operating performance. If our operating results fall below the expectations of investors or securities analysts, the price of our common stock could decline substantially. Furthermore, any fluctuations in our operating results may, in turn, cause the price of our stock to fluctuate substantially.

 We have incurred significant indebtedness, which could adversely affect our business.

 As of December 31, 2023, we had outstanding indebtedness of $39.5 million. Our indebtedness could have important consequences to our shareholders. For example, it:

 • increases our vulnerability to adverse general economic or industry conditions;

 • limits our flexibility in planning for, or reacting to, changes in our business or the industries in which we operate;

 • reduces proceeds we may receive as a result of any sale;

 • makes us more vulnerable to increases in interest rates, as our largest debt instrument with Royal Bank of Canada is at a variable rate;

 • limits our ability to obtain additional financing or refinancing in the future for working capital or other purposes; and

 • places us at a competitive disadvantage compared to our competitors that have less indebtedness.

 Any of the above-listed factors could have a material adverse affect on our business, financial condition, results of operations and cash flows. Our credit agreement, as amended, with Royal Bank of Canada also contains certain financial and other covenants, including a minimum liquidity requirement, maximum net leverage ratios and minimum fixed charge coverage ratios, and includes limitations on, among other things, incurring additional indebtedness, paying dividends, acquisitions and certain investments. The credit agreement provides for certain mandatory prepayment events, including with respect to the proceeds of asset sales, extraordinary receipts, debt issuances and other specified events, based on the terms of the credit agreement with Royal Bank of Canada. Any failure to comply with the terms, covenants and conditions of the credit agreement may result in an event of default under such agreement, which could have a material adverse effect on our business, financial condition and results of operation. Additionally, pursuant to a related security agreement between us and Royal Bank of Canada, we granted Royal Bank of Canada a security interest in substantially all of our assets to secure their obligations to Royal Bank of Canada under the credit agreement. The security interest granted over our assets could limit our ability to obtain additional debt financing. As discussed in note 1 to the consolidated financial statements, we have concluded that substantial doubt exists about our ability to continue as a going concern. Absent completion of the planned merger before May 1, 2024, which is expected to result in the repayment and termination of the credit agreement, or additional amendments to, or waivers under, the credit agreement, we expect that an event of default would be triggered once the audited financial statements are delivered to Royal Bank of Canada under the terms of the amended credit agreement.

 We cannot assure you that our business will generate sufficient cash flow from operations or that future financing will be available to us in amounts sufficient to enable us to make required and timely payments on our indebtedness, enable us to comply with the covenants under our credit agreement, or to fund our operations.

 Our ability to close the sale of land adjacent to our Gainesville, Georgia manufacturing campus, or the Land Sale, is subject to several customary closing conditions, which may impact our ability to complete the Land Sale on the anticipated timeline or at all.

 We have signed a sales and purchase agreement, as amended, related to the Land Sale, pursuant to which we agreed to sell approximately 121 acres of land adjacent to our Gainesville, Georgia manufacturing campus for expected proceeds of $8.0 million. We are obligated to use the proceeds of the Land Sale to repay outstanding balances under our credit agreement with Royal Bank of Canada. We expect to close the Land Sale by the end of the second quarter of 2024; however, the closing of the Land Sale may be extended by three 30-day extensions and is also subject to customary closing conditions for transactions of this type, including completion of buyers permitting.

 Because the closing of the Land Sale did not occur within 12 months of closing under our credit agreement with Royal Bank of Canada, (i) the amortization percentages under the credit agreement have increased by an additional 0.625% for each installment due until such time as such real property is sold and the required payment is made to Royal Bank of Canada and (ii) we paid a fee equal to 1.00% of the original principal amount of the term loan.

 Any delay in the closing of the Land Sale, or failure of the Land Sale to close at all, could have a material adverse effect on our results of operations, cash flows and financing condition, including as a result of the changes under our credit agreement with Royal Bank of Canada as set forth above.

 We operate in a highly competitive market and competition may adversely affect our business.

 We operate in a market that is highly competitive. Our competition in the contract manufacturing market includes full-service contract manufacturers and large pharmaceutical companies offering third-party manufacturing services to fill their excess capacity. We may also compete with the internal operations of those pharmaceutical companies that choose to source their product offerings internally. Changes in the nature or extent of our customers' requirements may render our offerings obsolete or non-competitive and could adversely affect our results of operations and financial condition. In addition, most of our competitors may have substantially greater financial, marketing, technical or other resources than we do. Moreover, additional competition may emerge, particularly in lower-cost jurisdictions such as India and China, which could, among other things, result in a decrease in the fees paid for our services, which may adversely affect our results of operations and financial condition.

 Adverse developments affecting the financial services industry, including events or concerns involving liquidity, defaults or non-performance by financial institutions or transactional counterparties, could adversely affect our business, financial condition or results of operations.

 Events involving limited liquidity, defaults, non-performance or other adverse developments that affect financial institutions, transactional counterparties or other companies in 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. For example, in early 2023, several financial institutions closed and were taken into receivership by the Federal Deposit Insurance Corporation. Although 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.

 In addition, investor concerns regarding the U.S. or international financial systems could result in less favorable commercial financing terms, including higher interest rates or costs and tighter financial and operating covenants, or systemic limitations on access to credit and liquidity sources, thereby making it more difficult for us to acquire financing on acceptable terms or at all. Any decline in available funding or access to our cash and liquidity resources could, among other risks, adversely impact our ability to meet our operating expenses, financial obligations or fulfill our other obligations, result in breaches of our contractual obligations or result in violations of federal or state wage and hour laws. Any of these impacts, or any other impacts resulting from the factors described above or other related or similar factors not described above, could have material adverse impacts on our liquidity and our business, financial condition or results of operations.

 Our business, financial condition, and results of operations are subject to risks arising from the international scope of our manufacturing and supply relationships.

 Some of our customers source raw materials outside the United States. As such, we are subject to risks associated with such international manufacturing relationships, including:

 • unexpected changes in regulatory requirements;

 • problems related to markets with different cultural biases or political systems;

 • longer payment cycles and shipping lead-times;

 • increased risk relating to the transport of products internationally, including damage to our customers' API, shipment delays relating to the import or export of our products or the delivery of products by means of additional third-party vendors;

 • difficulties importing or exporting supplies or products;

 • unforeseen regional or global instability, including geopolitical turmoil, such as the ongoing conflict between Russia and Ukraine and the current conflict in Israel and Gaza (including any escalation or expansion), including any

 additional 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 in, for example, Russia;

 • compliance with the U.S. Foreign Corrupt Practices Act and other laws and regulations governing international trade;

 • changes to U.S. and foreign trade policies, including the enactment of tariffs on goods imported into the United States; and

 • imposition of domestic and international customs and tariffs, withholding or other taxes, including any value added taxes.

 Additionally, we are subject to periodic reviews and audits by governmental authorities responsible for administering import/export regulations. To the extent that we are unable to successfully defend against an audit or review, we may be required to pay assessments, penalties, and increased duties on products imported into the United States.

 Issues with product quality could have a material adverse effect upon our business, subject us to regulatory actions and cause a loss of customer confidence in us or our products.

 Our success depends upon the quality of our products. Quality management plays an essential role in meeting customer requirements, preventing defects, improving our customers' product candidates and services and assuring the safety and efficacy of their product candidates. Our future success depends on our ability to maintain and continuously improve our quality management program. A quality or safety issue may result in adverse inspection reports, warning letters, product recalls or seizures, monetary sanctions, injunctions to halt manufacture and distribution of products, civil or criminal sanctions, costly litigation, refusal of a government to grant approvals and licenses, restrictions on operations or withdrawal of existing approvals and licenses. An inability to address a quality or safety issue in an effective and timely manner may also cause negative publicity, a loss of customer confidence in us or our future products, which may result in difficulty in successfully launching product candidates and the loss of sales, which could have a material adverse effect on our business, financial condition, and results of operations.

 Our development and formulation services projects are typically for a shorter term than our manufacturing projects, and any failure by us to maintain an adequate volume of development and formulation services projects, including due to lower than expected success rates of the products for which we provide services, could have a material adverse effect on our business, results of operations and financial condition.

 Our pharmaceutical development services business contracts are generally shorter in term than our manufacturing contracts and typically require us to provide development services within a designated scope. Since our development and formulation services focus on products that are still in developmental stages, their viability depends on the ability of such products to reach their respective subsequent development phases. In many cases, such products do not reach subsequent development phases and, as a result, the profitability of the related pharmaceutical development service project may be limited. Even if a customer wishes to proceed with a project, the product we are developing on such customer's behalf may fail to receive necessary regulatory approval or may have its development hindered by other factors, such as the development of a competing product.

 If we are unable to continue to or timely obtain new projects from existing and new customers, our development and formulation services business could be adversely affected. Furthermore, although our development and formulation services business may act as a pipeline for our manufacturing services business, we cannot predict the conversion rate of our development and formulation services projects to commercial manufacturing services projects, or how successful we will be in winning new projects that lead to a viable product. As such, an increase in the turnover rate of our development and formulation services projects may not benefit our manufacturing services business at a later time.

 In addition, our backlog is subject to a number of risks and uncertainties, including risk that a customer timely cancels its commitments, the risk that a customer may experience delays in its program(s) or otherwise, which could result in the postponement or cancellation of anticipated formulation, development and manufacturing services revenue. There is risk that our business development efforts may not materialize as quickly as we have projected, that we may not successfully execute on all customer projects, any of which could have a negative impact on our liquidity, reported backlog and future revenue. Further, the discontinuation of a project as a result of our failure to satisfy a customer's requirements may also affect our ability to obtain future projects from such customer, as well as from new customers. Any failure by us to maintain a high volume of development and formulation services projects could have a material adverse effect on our business, results of operations and financial condition.

 If we fail to meet the stringent requirements of governmental regulation in the manufacture of pharmaceutical products, we could incur substantial costs and a reduction in revenues.

 We are required to maintain compliance with cGMP and applicable product tracking and tracing requirements, and our manufacturing facilities are subject to inspections by the FDA and other global regulators to confirm such compliance. Changes of suppliers or modifications of methods of manufacturing may require amending application(s) to the FDA and acceptance of the change by the FDA prior to release of our manufactured products. Because we produce multiple products at our manufacturing facilities, there are increased risks associated with cGMP compliance. We can provide no assurance that we will not encounter future inspections resulting in observations not acceptable by the FDA.

 Our inability to demonstrate ongoing cGMP compliance could require us to engage in additional lengthy and expensive remediation efforts, withdraw or recall products and/or interrupt commercial supply of any products. Any delay, interruption or other issue that arises in the manufacture, fill/finish, packaging, or storage of any drug product as a result of a failure of our facilities to pass any regulatory agency inspection or maintain cGMP compliance could significantly impair our relationships with our commercial partners, which would substantially harm our business, prospects, operating results and financial condition. Any ongoing or additional findings of non-compliance could also increase our costs and cause us to lose revenue from manufactured products, which could be seriously detrimental to our business, prospects, operating results and financial condition.

 Additionally, our manufacturing activities are subject to the Controlled Substances Act of 1970, or CSA, and the regulations of the DEA. Accordingly, we must adhere to a number of requirements with respect to controlled substances, including registration, recordkeeping and reporting requirements; labeling and packaging requirements; security controls, procurement and manufacturing quotas; and certain restrictions on refills. Failure to maintain compliance with applicable requirements can result in an enforcement action that could have a material adverse effect on our business, financial condition, operating results and cash flows. The DEA may seek civil penalties, refuse to renew necessary registrations or initiate proceedings to revoke those registrations. In certain circumstances, violations could result in criminal proceedings.

 Manufacturers of drug products and their facilities are subject to payment of substantial user fees and continual review and periodic inspections by the FDA and other regulatory authorities, including equivalent regulatory authorities in other countries, for compliance with cGMP regulations and adherence to commitments made in the NDA or the application for marketing authorization. If we, or a regulatory authority, discover previously unknown problems with a product, such as adverse events of unanticipated severity or frequency, or problems with a facility where the product is manufactured, a regulatory authority may impose restrictions relative to that product or the manufacturing facility, including requiring recall or withdrawal of the product from the market, suspension of manufacturing, or other FDA action or other action by the equivalent regulatory authorities in other countries.

 If we use hazardous materials in a manner that causes injury or violates applicable law, we may be liable for damages.

 Our operations involve the controlled use of hazardous materials and chemicals. We are subject to federal, state and local laws and regulations in the U.S. governing the use, manufacture, storage, handling and disposal of hazardous materials and chemicals. Although we believe that our procedures for using, handling, storing and disposing of these materials comply with legally prescribed standards, we may incur significant additional costs to comply with applicable laws in the future. Even if we comply with applicable laws, we cannot completely eliminate the risk of contamination or injury resulting from hazardous materials or chemicals. As a result of any such contamination or injury, we may incur liability or local, city, state or federal authorities may curtail the use of these materials and interrupt our business operations. In the event of an accident, we could be held liable for damages or penalized with fines, and the liability could exceed our resources. Compliance with applicable environmental laws and regulations is expensive, and current or future environmental regulations may impair our contract manufacturing operations, which could materially harm our business, financial condition and results of operations.

 We may not be able to successfully offer new services, which could have a material adverse effect on our business, results of operations and financial condition.

 In order to successfully compete, we will need to offer and develop new services. Without the timely introduction of enhanced or new services, our services and capabilities may become obsolete over time, in which case, our revenues and operating results would suffer. The related development costs may require a substantial investment before we can determine their commercial viability, and we may not have the financial resources to fund such initiatives.

 In addition, the success of enhanced or new services will depend on several factors, including but not limited to our ability to:

 • properly anticipate and satisfy customer needs, including increasing demand for lower cost services;

 • enhance, innovate, develop and manufacture new offerings in an economical and timely manner;

 • differentiate our deliverables from competitors' offerings;

 • meet quality requirements, authorization requirements, and other regulatory requirements of government agencies; and

 • avoid infringing the proprietary rights of third parties.

 Even if we were to succeed in creating enhanced or new services, those services may not result in commercially successful offerings or may not produce revenues in excess of the costs of development and capital investment and may be quickly rendered obsolete by changing customer preferences or by technologies or features offered by our competitors. In addition, innovations may not be accepted quickly in the marketplace due to, among other things, entrenched patterns of clinical practice, the need for regulatory authorization and uncertainty over market access or government or third-party reimbursement. If we are not able to offer new services and effectively compete, our business, financial condition, and results of operations could be negatively impacted.

 Technological change may cause our offerings to become obsolete over time. A decrease in our customers' purchases of our offerings could have a material adverse effect on our business, results of operations and financial condition.

 The healthcare industry is characterized by rapid technological change. Demand for our services may change in ways that we may not anticipate because of evolving industry standards or as a result of evolving customer needs that are increasingly sophisticated and varied or because of the introduction by competitors of new services and technologies. We may also need to purchase additional equipment, some of which can take several months or more to procure, install and validate, and increase or modify our manufacturing, maintenance, software and computing capabilities to meet changing demand. In addition, we require capital and resources to support the maintenance and improvement of our facilities, including replacing or repairing aging production equipment and updating overall facility master plans. If we are unable to maintain and improve our facilities, we may experience unscheduled equipment downtime and unpredicted machinery failure and become unable to supply our customers with products or services which may affect business continuity. Any such incident or disruption in business continuity could have a material adverse effect on our business, results of operations and financial condition.

 We may be adversely affected by natural disasters or other events that disrupt our business operations, and our business continuity and disaster recovery plans may not adequately protect us from a serious disaster.

 Our manufacturing facilities are located in Gainesville, Georgia and San Diego, California, where natural disasters or similar events, like hurricanes, blizzards, tornadoes, fires, floods, earthquakes or explosions or large-scale accidents or power outages, could severely disrupt our operations and have a material adverse effect on our business, prospects, results of operations and financial condition. If a disaster, power outage or other event occurred that prevented us from using all or a significant portion of our Gainesville and/or San Diego facilities, damaged critical infrastructures, such as manufacturing resource planning and enterprise quality systems, or otherwise disrupted operations at that location, it may be difficult or, in certain cases, impossible for us to continue our development, formulation and manufacturing business for a substantial period of time, which could have a material adverse effect on our business, financial condition, and results of operations.

 Currently, we maintain insurance coverage against damage to our property and equipment, and to cover business interruption expenses, in an amount we believe is sufficient for our development, formulation and manufacturing operations. However, there can be no assurance that such insurance will continue to be available on acceptable terms or that such insurance will provide adequate protection against actual losses. Even if we maintain adequate insurance coverage, claims could have a material adverse effect on our financial condition, liquidity and results of operations and on our ability to obtain suitable, adequate or cost-effective insurance in the future.

 We must comply with environmental and health and safety laws and regulations, which can be expensive and restrict how we do business.

 We are subject to federal, state and local laws, rules, regulations and policies concerning the environment and the health and safety of our employees. We may be required to incur significant costs to comply with environmental and health and safety regulations in the future. Current or future laws and regulations may impair our research, development or production efforts. Failure to comply with these laws and regulations also may result in substantial fines, penalties or other sanctions, which could have a material adverse effect on our business, financial condition, and results of operations.

 In addition, our business involves the use, generation and disposal of hazardous materials, including chemicals, solvents, agents and biohazardous materials. As a result, we are subject to federal, state and local laws, rules, regulations and policies governing the use, generation, manufacture, storage, air emission, effluent discharge, handling and disposal of certain materials, biological specimens and wastes. We cannot completely eliminate the risk of accidental contamination or injury from these materials. We currently contract with third parties to dispose of these substances that we generate, and we rely on these third parties to properly dispose of these substances in compliance with applicable laws and regulations. If these third parties do not properly dispose of these substances in compliance with applicable laws and regulations, we may be subject to legal action by governmental agencies or private parties for improper disposal of these substances. The costs of defending such actions and the potential liability resulting from such actions are often substantial amounts. In the event we are subject to such legal action or we otherwise fail to comply with applicable laws and regulations governing the use, generation and disposal of hazardous materials and chemicals, we could be held liable for any damages that result, and any such liability could exceed our resources. In addition, we may incur costs and expenses due to injuries to our employees, including those resulting from the use of hazardous materials; workers' compensation insurance may not provide adequate coverage against potential liabilities. If we become subject to any of the foregoing liabilities, our business, financial condition, and results of operations could be materially adversely impacted.

 We may be subject to litigation or government investigations for a variety of claims, which could adversely affect our operating results, harm our reputation or otherwise negatively impact our business.

 We may be subject to litigation or government investigations. These may include claims, lawsuits, and proceedings involving product liability, labor and employment, wage and hour, commercial and other matters. The outcome of any litigation or government investigation, regardless of its merits, is inherently uncertain. Any lawsuits or government investigations, and the disposition of such lawsuits and government investigations, could be time-consuming and expensive to resolve and divert management attention and resources. Any adverse determination related to litigation or government investigations could adversely affect our operating results, harm our reputation or otherwise negatively impact our business. In addition, depending on the nature and timing of any such dispute, a resolution of a legal matter or government investigation could materially affect our future operating results, our cash flows or both.

 Our future success depends on our ability to retain our key executives as well as to attract, retain and motivate other qualified personnel.

 We are highly dependent on the principal members of our executive team and, in particular, the services of J. David Enloe, Jr., our President and Chief Executive Officer, and Ryan Lake, our Chief Financial Officer, the loss of whose services would adversely impact the achievement of our objectives. We have entered into employment agreements with each of our executive officers. Recruiting and retaining qualified employees for our business, including business development, scientific and technical personnel, will also be critical to our success. There is currently a shortage of skilled executives in our industry, which is likely to continue. As a result, competition for skilled personnel is intense and the turnover rate can be high. We may not be able to attract and retain personnel on acceptable terms given the competition among numerous pharmaceutical companies for individuals with similar skill sets. The inability to recruit or loss of the services of any executive or key employee could impede the progress of our business development, manufacturing, quality, growth and diversification objectives.

 We may acquire other assets or businesses, or form collaborations or make investments in other companies or technologies, that could have a material adverse effect on our operating results, dilute our shareholders' ownership, increase our debt or cause us to incur significant expense.

 As part of our business strategy, we may pursue acquisitions of assets, including, businesses or strategic alliances and collaborations, to expand our existing technologies and operations. We may not identify or complete these transactions in a timely manner, on a cost effective basis, or at all, and we may not realize the anticipated benefits of any such transaction, any of which could have a material adverse effect on our financial condition, results of operations and cash flows. Integration of an acquired company or assets may also disrupt ongoing operations, require the hiring of additional personnel and the implementation of additional internal systems and infrastructure, especially the acquisition of commercial assets, and require management resources that would otherwise focus on developing our existing business.

 To finance any acquisitions or collaborations, we may choose to issue debt or shares of our common or preferred stock as consideration. Any such issuance of shares would dilute the ownership of our shareholders. If the price of our common stock is low or volatile, we may not be able to acquire other assets or companies or fund a transaction using our stock as consideration. Alternatively, it may be necessary for us to raise additional funds for acquisitions through public or private financings. Additional funds may not be available on terms that are acceptable to us, or at all.

 Our employees, partners, independent contractors, consultants and vendors may engage in misconduct or other improper activities, including noncompliance with regulatory standards and requirements.

 We are exposed to the risk that our employees, partners, independent contractors, consultants and vendors may engage in fraudulent or other illegal activity with respect to our business. Misconduct by these employees, partners, independent contractors, consultants and vendors could include intentional, reckless and/or negligent conduct or unauthorized activity that violates: (1) FDA or DEA regulations, including those laws requiring the reporting of true, complete and accurate information to the FDA; (2) manufacturing standards; (3) federal, state and foreign healthcare fraud and abuse laws and regulations; or (4) laws that require the true, complete and accurate reporting of financial information or data. Activities subject to these laws also involve the improper use of information obtained in the course of clinical trials, or illegal misappropriation of drug product, which could result in regulatory sanctions and serious harm to our reputation. Any incidents or any other conduct that leads to an employee receiving an FDA debarment could result in a loss of business from our partners and severe reputational harm. We have adopted a Code of Business Conduct and Ethics, but it is not always possible to identify and deter employee misconduct, and the precautions we take to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses or in protecting us from governmental investigations or other actions or lawsuits stemming from a failure to be in compliance with such laws or regulations. If any such actions are instituted against us, and we are not successful in defending ourselves or asserting our rights, those actions could have a significant impact on our business, including the imposition of civil, criminal and administrative penalties, damages, monetary fines, possible exclusion from participation in Medicare, Medicaid and other federal healthcare programs, contractual damages, reputational harm, diminished profits and future earnings, and curtailment of our operations, any of which could adversely affect our ability to operate our business, operating results and financial condition.

 We have faced and may continue to face potential product liability claims, and, if such claims are successful, we may incur substantial liability.

 The use of our products exposes us to the risk of product liability claims as well as potential toxic tort and other types of product liability claims that are inherent in the manufacture of pharmaceutical products. Product liability claims might be brought against us by consumers, health care providers, pharmaceutical companies or others selling or otherwise coming into contact with our products. If we cannot successfully defend against product liability claims, we could incur substantial liability and costs. In addition, regardless of merit or eventual outcome, product liability claims may result in:

 • impairment of our business reputation and negative media attention;

 • withdrawal of our customers clinical study participants or adverse effects occurring during such clinical trials;

 • costs due to related litigation;

 • distraction of management's attention from our primary business;

 • decreased demand for our manufacturing services or loss of any of our commercial partners;

 • substantial monetary awards to patients or other claimants;

 • the inability of our customers to commercialize their product candidates, if approved; and

 • increased scrutiny and potential investigation by, among others, the FDA, the Department of Justice, the Office of Inspector General of the U.S. Department of Health and Human Services, State Attorneys General, members of Congress and the public.

 Our current product liability insurance coverage may not be sufficient to reimburse us for any expenses or losses we may suffer. Moreover, insurance coverage is becoming increasingly expensive and, in the future, we may not be able to maintain insurance coverage at a reasonable cost or in sufficient amounts to protect us against losses due to liability.

 Our ability to use our net operating loss carryforwards and certain other tax attributes may be limited.

 As of December 31, 2023, we had federal and state net operating loss carry forwards, or NOLs, of approximately $133.5 million and $147.0 million, respectively. The Federal net operating losses, most of which are subject to annual limitations following a December 2022 change in control, were all incurred after 2018 and have an indefinite expiration under the 2017 Tax Cut & Jobs Act. The state carry forwards, including those generated in 2023, will expire in 2028 through 2040. A full allowance for the value of the NOLs is provided for in our consolidated financial statements as of December 31, 2023. We cannot guarantee what the ultimate outcome or amount of the benefit we may receive from the NOLs, if any, will be.

 The security of our information technology systems may be compromised in the event of system failures, unauthorized access, cyberattacks or a deficiency in our cybersecurity, and confidential information, including non-public personal information that we maintain, could be improperly disclosed.

 We rely extensively on information technology and systems including internet sites, data hosting, physical security, and software applications and platforms. Our information technology systems, some of which are managed by third parties, may be susceptible to damage, disruptions or shutdowns due to computer viruses, attacks by computer hackers, failures during the process of upgrading or replacing software, power outages, user errors or catastrophic events. A significant breakdown, invasion, corruption, destruction or interruption of critical information technology systems, by our employees, others with authorized access to our systems or unauthorized persons could negatively impact or interrupt operations. For example, the loss of data from completed or ongoing clinical trials for product candidates could result in delays in regulatory approval efforts and significantly increase our costs to recover or reproduce the data. The use of technology, including cloud-based computing, creates opportunities for the unintentional dissemination or intentional destruction of confidential information stored in our systems or our third-party systems. We could also experience a business interruption, theft of confidential information or reputational damage from malware or other cyberattacks, which may compromise our systems or lead to data leakage, either internally or at our third-party providers.

 As part of our business, we maintain large amounts of confidential information, including non-public personal information on our employees. The maintenance of such information is governed by various rules and regulations in the jurisdictions in which we conduct our business, including by the General Data Privacy Regulation, or GDPR, in the European Union. Breaches in security, either internally or at our third-party providers, could result in the loss or misuse of this information, which could, in turn, result in potential regulatory actions or litigation, including material claims for damages, interruption to our operations, damage to our reputation or otherwise have a material adverse effect on our business, financial condition and operating results. Our information security policies and systems may not prevent unauthorized use or disclosure of confidential information, including non-public personal information.

 Any such business interruption, theft of confidential information or reputational damage from malware or other cyberattacks, or violation of personal information laws, could have a material adverse effect on our business, financial condition, and results of operations.

 If we fail to comply with data protection laws and regulations, we could be subject to government enforcement actions (which could include civil or criminal penalties), private litigation and/or adverse publicity, which could negatively affect our operating results and business.

 We may be subject to laws and regulations that address privacy and data security of patients who use our customers' products in the United States and in states in which we conduct our business. In the United States, numerous federal and state laws and regulations, including state data breach notification laws, state health information privacy laws, and federal and state consumer protection laws (e.g., Section 5 of the Federal Trade Commission Act) govern the collection, use, disclosure, and protection of health-related and other personal information. For instance, the Health Insurance Portability and Accountability Act, or HIPAA, imposes certain obligations, including mandatory contractual terms, with respect to safeguarding the privacy, security and transmission of individually identifiable health information and imposes notification obligations in the event of a breach of the privacy or security of individually identifiable health information on entities subject to HIPAA and their business associates that perform certain activities that involve the use or disclosure of protected health information on their behalf. Failure to comply with applicable data protection laws and regulations could result in government enforcement actions and create liability for us, which could include civil and/or criminal penalties, as well as private litigation and/or adverse publicity that could negatively affect our operating results and business.

 Our U.S. government contracts require compliance with numerous laws that may present additional risk and liability.

 We provide services to the National Institutes of Health, a part of the U.S. Department of Health and Human Services. As a result, we must comply with certain laws and regulations relating to the award, administration, and performance of U.S. government contracts. U.S. government contracts typically contain a number of extraordinary provisions that would not typically be found in commercial contracts and which may create a disadvantage and additional risks to us as compared to competitors that do not rely on government contracts. As a U.S. government service provider and subcontractor, we are subject to increased risks of investigation, audit, criminal prosecution, and other legal actions and liabilities to which purely private sector companies are not. The results of any such actions could adversely impact our business and have an adverse effect on our financial performance.

 Additionally, a violation of specific laws and regulations could result in the imposition of fines and penalties or the termination of our contracts, as well as suspension or debarment. The suspension or debarment in any particular case may be limited to the facility, contract or subsidiary involved in the violation or could be applied to our entire enterprise in certain severe circumstances. Even a narrow scope suspension or debarment could result in negative publicity that could adversely affect our ability to renew contracts and to secure new contracts, both with the U.S. government and private customers, which could materially and adversely affect our business and results of operations. Fines and penalties could be imposed for failing to follow procurement integrity and bidding rules, employing improper billing practices, receiving or paying kickbacks, or filing false claims, among other potential violations. In addition, we could suffer serious reputational harm and the value of our common stock could be negatively affected if allegations of impropriety related to such contracts are made against us.

 Risks Related to Our Intellectual Property

 Litigation involving patents, patent applications and other proprietary rights is expensive and time-consuming. If we are involved in such litigation, it could interfere with our business.

 Our success depends in part on not infringing patents and proprietary rights of third parties. The pharmaceutical industry is characterized by extensive litigation regarding patents and other intellectual property rights.

 In a patent infringement claim against us, we may assert, as a defense, that we do not infringe the relevant patent claims, that the patent is invalid or both. The strength of our defenses will depend on the patents asserted, the interpretation of these patents and/or our ability to invalidate the asserted patents. However, we could be unsuccessful in advancing non-infringement and/or invalidity arguments in our defense. In the United States, issued patents enjoy a presumption of validity, and the party challenging the validity of a patent claim must present clear and convincing evidence of invalidity, which is a high burden of proof. Conversely, the patent owner need only prove infringement by a preponderance of the evidence, which is a low burden of proof.

 If we were found by a court to have infringed a valid patent, we could be prevented from using the patented technology or be required to pay the owner of the patent for the right to license the patented technology. If we decide to pursue a license to one or more of these patents, we may not be able to obtain a license on commercially reasonable terms, if at all, or the license we obtain may require us to pay substantial royalties or grant cross licenses to our patent rights. For example, if the relevant patent is owned by a competitor, that competitor may choose not to license patent rights to us. If we decide to develop alternative technology, we may not be able to do so in a timely or cost-effective manner, if at all.

 In addition, because patent applications can take years to issue and are often afforded confidentiality for some period of time, there may currently be pending applications, unknown to us, that later result in issued patents that could cover one or more of our products.

 It is possible that we may in the future receive, particularly as a public company, communications from competitors and other companies alleging that we may be infringing their patents, trade secrets or other intellectual property rights, offering licenses to such intellectual property or threatening litigation. In addition to patent infringement claims, third parties may assert copyright, trademark or other proprietary rights against us. We may need to expend considerable resources to counter such claims and may not be able to be successful in our defense. Our business may suffer if a finding of infringement is established.

 Competitors can challenge the U.S. patents protecting our commercial partners' product candidates in connection with filing an ANDA for a generic version or a 505(b)(2) NDA for a modified version of our commercial partners' product candidates.

 Separate and apart from the protection provided under the U.S. patent laws, drug candidates may be subject to the provisions of the Hatch-Waxman Act, which may provide drug candidates with either a three- or five-year period of marketing exclusivity following receipt of FDA approval. The Hatch-Waxman Act prohibits the FDA from accepting the filing of an ANDA application (for a generic product) or a 505(b)(2) NDA (for a modified version of the product) for three years for active drug ingredients previously approved by the FDA or for five years for active drug ingredients not previously approved by the FDA.

 There is an exception, however, for newly approved molecules that allows competitors to challenge a patent beginning four years into the five-year exclusivity period by alleging that one or more of the patents listed in the FDA's list of approved drug products are invalid, unenforceable and/or not infringed and submitting an ANDA for a generic version of the innovator drug or a 505(b)(2) NDA for a modified version of the innovator drug. This patent challenge is commonly known as a Paragraph IV certification. Within the past several years, the generic industry has aggressively pursued approvals of generic versions of innovator drugs at the earliest possible point in time.

 If a competitor is able to successfully obtain FDA approval for an ANDA or a 505(b)(2) NDA, the competitor may choose to launch its generic or modified version of the innovator drug. Any launch of a generic or modified version of our commercial partners' products will have a material adverse effect on demand for that product, our revenues and our results of operations.

 We may be unable to adequately prevent disclosure of trade secrets and other proprietary information.

 We may rely on trade secrets to protect our proprietary know-how and technological advances, especially where we do not believe patent protection is appropriate or obtainable. However, trade secrets are difficult to protect. We rely in part on confidentiality agreements with our employees, consultants, outside scientific collaborators, sponsored researchers and other advisors to protect our trade secrets and other proprietary information. These agreements may not effectively prevent disclosure of confidential information and may not provide an adequate remedy in the event of unauthorized disclosure of confidential information. In addition, others may independently discover our trade secrets and proprietary information. Costly and time-consuming litigation could be necessary to enforce and determine the scope of our proprietary rights. Failure to obtain or maintain trade secret protection could enable competitors to use our proprietary information to develop products that compete with our products or cause additional, material adverse effects on our competitive business position.

 Our ability to manufacture products for our commercial partners may be impaired if any of our manufacturing activities, or the activities of third parties involved in our manufacture and supply chain, are found to infringe patents of others.

 Our ability to continue to manufacture products for our commercial partners, to utilize third parties to supply raw materials or other products, or to perform fill/finish services or other steps in our manufacture and supply chain, depends on our and their ability to operate without infringing the patents and other intellectual property rights of others. Other parties may allege that our manufacturing activities, or the activities of third parties involved in our manufacturing and supply chain, infringe patents or other intellectual property rights. A judicial decision in favor of one or more parties making such allegations could preclude the manufacture of the products to which those intellectual property rights apply, which could materially harm our business, operating results and financial condition.

 We may not be able to enforce our intellectual property rights throughout the world.

 The laws of some foreign countries do not protect intellectual property rights to the same extent as the laws of the United States. Many companies have encountered significant problems in protecting and defending intellectual property rights in certain foreign jurisdictions. The legal systems of some countries, particularly developing countries, do not favor the enforcement of patents and other intellectual property protection, especially those relating to life sciences. This could make it difficult for us to stop the infringement of our patents or the misappropriation of our other intellectual property rights. For example, many foreign countries have compulsory licensing laws under which a patent owner must grant licenses to third parties. In addition, many countries limit the enforceability of patents against third parties, including government agencies or government contractors. In these countries, patents may provide limited or no benefit.

 Proceedings to enforce our patent rights in foreign jurisdictions could result in substantial costs and divert our efforts and attention from other aspects of our business. Accordingly, our efforts to protect our intellectual property rights in such countries may be inadequate. In addition, changes in the law and legal decisions by courts in the United States and foreign countries may affect our ability to obtain adequate protection for our technology and the enforcement of intellectual property. If we are unable to adequately enforce our intellectual property rights throughout the world, our business, financial condition, and results of operations could be adversely impacted.

 Any trademarks we have obtained or may obtain may be infringed or successfully challenged, resulting in harm to our business.

 We expect to rely on trademarks as one means to distinguish any of our products that are approved for marketing from the products of our competitors. Once we select new trademarks and apply to register them, our trademark applications may not be approved. Third parties may oppose or attempt to cancel our trademark applications or trademarks, or otherwise challenge our use of the trademarks. In the event that our trademarks are successfully challenged, we could be forced to rebrand our drugs, which could result in loss of brand recognition and could require us to devote resources to advertising and marketing new brands. Our competitors may infringe our trademarks and we may not have adequate resources to enforce our trademarks.

 Risks Relating to Our Securities

 The market price and trading volume of our common stock have been and may continue to be volatile, which could result in rapid and substantial losses for our shareholders.

 The market price for our common stock has been volatile and may continue to fluctuate or may decline significantly in the future. An active, liquid and orderly market for our common stock may not be achieved and sustained, which could depress the trading price of our common stock or cause it to continue to be highly volatile or subject to wide fluctuations. Some of the factors that could negatively affect our share price or result in fluctuations in the price or trading volume of our common stock include, among other things:

 • FDA, state or international regulatory actions, including actions on regulatory applications for any of our commercial partners' product candidates;

 • noncompliance with applicable state, federal and international data privacy and security laws and regulations including, without limitation, the General Data Protection Regulations (Regulation (EU) 2016/679), as amended, and the California Consumer Privacy Act of 2018, as amended legislative or regulatory changes;

 • judicial pronouncements interpreting laws and regulations;

 • changes in government programs;

 • announcements of new products, services or technologies, commercial relationships, acquisitions or other events by us or our competitors;

 • changes in demand for or pricing of our customers' products;

 • the sales ramp and trajectory for our formulation, development and manufacturing services;

 • market conditions in the pharmaceutical and biotechnology sectors;

 • fluctuations in stock market prices and trading volumes of similar companies;

 • changes in accounting principles;

 • litigation or public concern about the safety of our products or similar products;

 • sales of large blocks of our common stock, including sales by our executive officers, directors and significant shareholders;

 • our announcement of financing transactions, including debt, convertible notes, etc.; and

 • actions by institutional or activist shareholders.

 These broad market and industry factors may decrease the market price of our common stock, regardless of our actual operating performance. In addition, in the past, following periods of volatility in the overall market and decreases in the market price of a company's securities, securities class action litigation has often been instituted against these companies. Any other securities class actions that may be brought against us, could result in substantial costs and a diversion of our management's attention and resources.

 We have never paid cash dividends on our common stock and do not intend to do so for the foreseeable future, which may make our stock less attractive.

 We have never paid cash dividends on our common stock and we do not anticipate that we will pay any cash dividends on our common stock for the foreseeable future. Additionally, our ability to pay cash dividends is currently prohibited by the terms of our credit facility with Royal Bank of Canada. Accordingly, any return on an investment in our common stock will be realized, if at all, only when shareholders sell their shares. In addition, our failure to pay cash dividends may make our stock less attractive to investors, adversely impacting trading volume and price.

 Some provisions of our charter documents and Pennsylvania law may have anti takeover effects that could discourage an acquisition of us by others, even if an acquisition would be beneficial to our shareholders, and may prevent attempts by our shareholders to replace or remove our current management.

 Provisions in our articles of incorporation and amended and restated bylaws could make it more difficult for a third-party to acquire us or increase the cost of acquiring us, even if doing so would benefit our shareholders, or remove our current management. These include provisions that:

 • divide our board of directors into three classes with staggered three-year terms;

 • provide that a special meeting of shareholders may be called only by a majority of our board of directors;

 • establish advance notice procedures with respect to shareholder proposals to be brought before a shareholder meeting and the nomination of candidates for election as directors, other than nominations made by or at the direction of the board of directors or a committee of the board of director;

 • provide that shareholders may only act at a duly organized meeting; and

 • provide that members of our board of directors may be removed from office by our shareholders only for cause by the affirmative vote of 75% of the total voting power of all shares entitled to vote generally in the election of directors.

 These provisions may frustrate or prevent any attempts by our shareholders to replace or remove our current management by making it more difficult for shareholders to replace members of our board of directors, who are responsible for appointing the members of our management. Because we are incorporated in Pennsylvania, we are governed by the provisions of the Pennsylvania Business Corporation Law of 1988, which may discourage, delay or prevent someone from acquiring us or merging with us whether or not it is desired by or beneficial to our shareholders. Under Pennsylvania law, a corporation may not, in general, engage in a business combination with any holder of 20% or more of its capital stock unless the holder has held the stock for five years or, among other things, the board of directors has approved the transaction. Any provision of our articles of incorporation or bylaws or Pennsylvania law that has the effect of delaying or deterring a change in control could limit the opportunity for our shareholders to receive a premium for their shares of our common stock, and could also affect the price that some investors are willing to pay for our common stock.

 General Risk Factors

 Sales of a substantial number of shares of our common stock in the public market could cause our stock price to fall.

 Sales of a substantial number of shares of our common stock in the public market or the perception that these sales might occur, could depress the market price of our common stock and could impair our ability to raise capital through the sale of additional equity securities.

 If securities or industry analysts do not continue to publish research or reports, or if they publish unfavorable research or reports, about our business, our stock price and trading volume could decline.

 The trading market for our common stock depends in part on the research and reports that securities or industry analysts publish about us, our business, our market or our competitors. We currently have limited research coverage by securities and industry analysts. If additional securities or industry analysts do not commence coverage of our company, the trading price for our stock could be negatively impacted. In the event we obtain securities or industry analyst coverage, if one or more of the analysts who covers us downgrades our stock, our stock price would likely decline. If one or more of these analysts ceases to cover us or fails to regularly publish reports on us, interest in our stock could decrease, which could cause our stock price or trading volume to decline.

 Our disclosure controls and procedures may not prevent or detect all errors or acts of fraud.

 Our disclosure controls and procedures are designed to reasonably assure that information required to be disclosed by us in reports we file or submit under the Exchange Act is accumulated and communicated to management, recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC. We believe that any disclosure controls and procedures or internal controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met.

 These inherent limitations include the realities that judgments in decision making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by an unauthorized override of the controls. Accordingly, because of the inherent limitations in our control system, misstatements or insufficient disclosures due to error or fraud may occur and not be detected.

 If we fail to maintain proper and effective internal controls, our ability to produce accurate and timely financial statements could be impaired, which could harm our operating results, our ability to operate our business and investors' views of us.

 Ensuring that we have adequate internal financial and accounting controls and procedures in place so that we can produce accurate financial statements on a timely basis is a costly and time-consuming effort that will need to be frequently evaluated. Section 404 of the Sarbanes-Oxley Act requires public companies to conduct an annual review and evaluation of their internal controls and attestations of the effectiveness of internal controls by independent auditors (as a smaller reporting company, the latter requirement does not apply to us). Our failure to maintain the effectiveness of our internal controls in accordance with the requirements of the Sarbanes-Oxley Act could have a material adverse effect on our business. We could lose investor confidence in the accuracy and completeness of our financial reports, which could have an adverse effect on the price of our common stock.

 Item 1B. Unresolved Staff Comments

 None.

 Item 1C. Cybersecurity

 Cybersecurity Risk Management and Strategy

 We rely on information systems and the data stored on them to conduct our operations. As such, we have implemented processes designed to mitigate risks posed by cybersecurity threats.

 Our approach to cybersecurity risk management is multi-faceted and includes, but is not limited to, engaging third-party information technology and cybersecurity providers and consultants for support as appropriate, including to conduct annual penetration testing and cybersecurity risk assessments, as well as other vulnerability analyses on a periodic basis. We also utilize a third-party to implement and manage automated tools designed to conduct ongoing monitoring for potential critical risks from cybersecurity threats. Additionally, we have implemented an employee education and training program, offered during onboarding and on an ongoing, periodic basis thereafter, that is designed to raise awareness of cybersecurity threats. As part of this employee training, we engage in periodic phishing simulations designed to raise employee awareness of such risks.

 We maintain processes to inform and update management and, as needed, the audit committee, regarding security incidents that may pose a significant risk for the business, as applicable. We have not identified any cybersecurity incidents or threats that have materially affected us or are reasonably likely to materially affect us, including our business strategy, results of operations or financial condition; however, like other companies in our industry, we and our third-party vendors have experienced threats and security incidents relating to our and our third-party vendors' information systems. For more information, please see "Item 1A, Risk Factors."

 Governance

 Our Director of Information Technology, who reports directly to our Chief Financial Officer, is responsible for the day-to-day management of our cybersecurity risk management processes. The Director of Information Technology role is currently held by an individual who has thirty years of information technology and cybersecurity experience.

 Our audit committee is responsible for overseeing our cybersecurity risk management program. Our Director of Information Technology and/or Chief Financial Officer periodically update the audit committee on cybersecurity risks and mitigation strategies and related cyber matters. In the event of a cybersecurity incident, we have implemented processes for the Director of Information Technology and/or the Chief Financial Officer to discuss incident response strategies with the audit committee. The Director of Information Technology and/or the audit committee update the full board of directors on matters relating to cybersecurity risk management and critical cybersecurity risks as appropriate.

 Item 2. Properties

 Our principal executive offices are located at 1 E. Uwchlan Ave, Suite 112, Exton, Pennsylvania 19341. We also lease and operate:

 • a 97,000 square foot, DEA-licensed facility in Gainesville, Georgia, pursuant to a lease which expires in December 2042;

 • a 24,000 square foot development and high-potency product services facility in Gainesville, GA, pursuant to a lease which expires in June 2025; and

 • a 24,500 square foot development facility focused on advanced dosage forms in San Diego, California, pursuant to a lease which expires in January 2031.

 Item 3. Legal Proceedings

 Information regarding legal and regulatory proceedings is set forth in note 7 to our consolidated financial statements beginning on page F-1 of this Annual Report on Form 10-K, 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 4. Mine Safety Disclosures

 Not applicable.

 Item 5. Market for Registrant's Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities

 Market Information

 Our common stock is traded on the Nasdaq Capital Market under the symbol "SCTL."

 Holders of Common Stock

 As of March 15, 2024, there were 6 holders of record of our common stock. The actual number of holders of our common stock is greater than this number of record holders, and includes shareholders who are beneficial owners, but whose shares are held in street name by brokers or held by other nominees. This number of holders of record also does not include shareholders whose shares may be held in trust by other entities.

 Dividend Policy

 We have never declared or paid any cash dividends on our common stock and our ability to pay cash dividends is currently prohibited by the terms of our credit facility with Royal Bank of Canada. We do not anticipate paying cash dividends on our common stock in the foreseeable future. Payment of future dividends, if any, on our common stock will be at the discretion of our board of directors after taking into account various factors, including our financial condition, operating results, anticipated cash needs and plans for expansion.

 Recent Sales of Unregistered Offerings

 None.

 Issuer Repurchases of Equity Securities

 None.

 Securities Authorized for Issuance Under Equity Compensation Plans

 Other information about our equity compensation plans is incorporated herein by reference to Part III, Item 12 of this Annual Report on Form 10-K.

 Item 6. [Reserved]

 Item 7. 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 consolidated financial statements and the related notes appearing elsewhere. 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 this Annual Report on Form 10-K for factors that could cause or contribute to such differences.

 Overview

 We are 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, we are 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, we have 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. In 2023, the FDA approved us as a manufacturer of a commercial tablet product. This FDA approval represents the first commercial tablet that we have been approved to manufacture, and we began commercial manufacturing of the product at our Gainesville, Georgia facilities 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 highly potent compounds and controlled substances, liposomes and nano/microparticles, topicals and oral liquids. 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.

 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 may face continuing inflationary pressures on raw materials, labor and logistics.

 We closely monitor economic developments, stock market conditions and geopolitical conflicts, such as the conflict between Russia and Ukraine and the current conflict in Israel and Gaza (including any escalation or expansion), which continue to have adverse effects on the U.S. and global markets and supply chain.

 We have been experiencing 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. The slowdown has caused us to experience delays in and reductions to our backlog during 2023, and we may continue to experience adverse effects such as delays in and reductions to our backlog and/or a reduction in the number of business development opportunities that we will be able to pursue or close. We are making efforts to adapt to these market changes, including a reduction in force and a strategic refocus of operations resulting in the discontinuation of certain programs and services. While we believe these actions will drive improved cash flows, they will also reduce our overall revenue-generating capacity in the near term.

 Finally, while we have been able to capture overall interest savings as a result of the December 2022 refinancing, those improvements have been partially offset by a sustained increase in variable base interest rates, which could increase further in future periods.

 Corporate restructuring

 In September 2023, we initiated a strategic reorganization primarily impacting our San Diego operations. The reorganization included a reduction in force of 26 then-current employees and nine open positions, which was intended to reduce costs and streamline and optimize operations and resulted in a total charge of $1.8 million, of which $1.0 million was recorded in cost of sales and $0.8 million was recorded in selling, general and administrative expense. Restructuring charges included termination charges of $0.7 million, the write-off of certain assets valued at $0.6 million and other related charges of $0.5 million.

 Financial overview

 Revenues

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

 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.

 Development contracts generally do not contain variable consideration, but to the extent they do, we include in the transaction price only amounts that are considered probable of being achieved and estimate the amount to be included using the most likely amount method.

 In contracts that require revenue recognition over time, we utilize an input method that compares the cumulative achievement of contract tasks 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.

 Contract assets represent revenue recognized for performance obligations completed or in process before an unconditional right to payment exists, and therefore invoicing or associated reporting from the customer regarding the computation of the net product sales has not yet occurred. Contract liabilities represent payments received from customers prior to the completion of associated performance obligations.

 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 and business development functions as well as legal fees, patent-related expenses and consulting fees. Public company costs include compliance, audit, tax insurance and investor relations.

 Amortization expense relates to acquired customer relationships, backlog and trademarks and trade names from the 2021 IriSys acquisition. They were assigned estimated useful lives of 7.0, 2.4, and 1.5 years, respectively.

 Interest expense for 2023 primarily relates to a term loan borrowing with Royal Bank of Canada originally funded at $36.9 million and the 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 2022 and 2021 primarily relates to $100.0 million of senior secured term loans with Athyrium Opportunities III Acquisition LP. Interest expense in all periods also includes the non-cash amortization of deferred financing costs.

 Net operating losses and tax carryforwards

 As of December 31, 2023, we had federal net operating loss, or NOL, carry forwards of approximately $133.5 million, most of which are subject to annual limitations following a December 2022 change in control, and all of which have an indefinite carry forward period. We also had $147.0 million of state NOL carry forwards on an after-apportionment basis 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 years ended December 31, 2023 and 2022

 (in millions)

 2023

 2022

 Revenue

 $

 94.6

 $

 90.2

 Operating expenses:

 Cost of sales

 76.5

 67.1

 Selling, general and administrative

 21.0

 21.9

 0.7

 0.9

 Total operating expenses

 98.2

 89.9

 Operating loss

 (3.6

)

 0.3

 (10.0

)

 (14.2

)

 Interest income

 0.4

 0.1

 Loss on extinguishment of debt

 —

 (5.0

)

 Loss before income taxes

 (13.2

)

 (18.8

)

 Income tax expense

 0.1

 1.1

 $

 (13.3

)

 $

 (19.9

)

 Revenue. The increase of $4.4 million was primarily driven by the launch of two new commercial products during the second half of the year with Otsuka and Viatris. In addition, there was an increase in revenue from our largest commercial customer, Teva, due to the continued pull through in demand during the year resulting from market share gains against the sole competitor for the Verapamil SR products. Further, there was an increase in development revenue projects as the Company continues to expand its development programs. Finally, there was an increase in shipments to Lannett for Verapamil PM due to an increase in safety stock by Lannett. Offsetting these increases was a decrease in InfectoPharm shipments due to prior year inventory-build for InfectoPharm as a new customer.

 Cost of sales. The increase of $9.4 million was primarily due to higher commercial manufacturing revenue and higher fixed costs to support the newly installed aseptic fill/finish line. In addition, there were $1.0 million of restructuring costs recorded during the current year period.

 Selling, general and administrative. The decrease of $0.9 million was primarily driven by debt refinancing costs in the fourth quarter of 2022 offset by restructuring costs recorded in 2023.

 Amortization of intangible assets. The decrease of $0.2 million reflects the trademarks and trade names reaching the end of their amortizable life at the beginning of 2023.

 Interest expense. The decrease of $4.2 million was primarily due to a significantly reduced amount of aggregate principal and lower interest rates under the company's refinanced debt in 2023 as compared to 2022.

 Interest income. The increase in 2023 was due to the rising interest rate environment in the United States, which increased interest earned on cash and cash equivalents.

 Loss on extinguishment of debt. In December 2022, as a result of fully paying off our loan with Athyrium, we recorded a loss on extinguishment of debt for the write-off of certain deferred financing costs.

 Comparison of years ended December 31, 2022 and 2021

 (in millions)

 2022

 2021

 Revenue

 $

 90.2

 $

 75.4

 Operating expenses:

 Cost of sales (excluding amortization of intangible assets)

 67.1

 55.6

 Selling, general and administrative

 21.9

 18.4

 0.9

 1.0

 Total operating expenses

 89.9

 75.0

 Operating loss

 0.3

 0.4

 (14.2

)

 (15.1

)

 Interest income

 0.1

 —

 (Loss) gain on extinguishment of debt

 (5.0

)

 3.3

 Loss before income taxes

 (18.8

)

 (11.4

)

 Income tax expense

 1.1

 —

 $

 (19.9

)

 $

 (11.4

)

 Revenue. The increase of $14.8 million was primarily driven by an increase in European Ritalin LA demand from our new customer InfectoPharm, as well as an increase in revenue from our largest commercial customer Teva, correlated with pull through in demand resulting from market share gains against the sole competitor for the Verapamil SR products. In addition, there were higher revenues from our clinical trial materials business as well as a full year of revenue resulting from the acquisition of IriSys compared to approximately five months of revenue in 2021. The increase in revenue was partially offset by a decline in revenue from Lannett's commercial sales of the Verapamil PM products.

 Cost of sales. The increase of $11.5 million was primarily due to the acquisition of the San Diego facility and certain 2021 employment incentive tax credits that were not repeated in 2022 resulting in increased expense in 2022. These increases were partially offset by the reallocation of expenses reflecting the post-acquisition organizational structure. Additionally, for the year ended December 31, 2021, we qualified for approximately $4.4 million of federal employee retention credits, all of which was recognized as an offset to expense.

 Selling, general and administrative. The increase of $3.5 million was primarily related to costs associated with the debt refinancing in the fourth quarter of 2022 and increased personnel costs tied to the reallocation of expenses. Specifically, effective October 1, 2021, certain employees who previously supported our plant operations now support our multi-site organization structure and operations. Accordingly, expenses associated with these employees have been reclassified from cost of sales to selling, general and administrative expenses. These increases were offset by lower IriSys acquisition and integration costs.

 Amortization of intangible assets. The decrease of $0.1 million was primarily the result of amortizing a lower amount of IriSys intangible assets in 2022 as compared to a higher amount of historical intangible assets in the first part of 2021, partially offset by an approximately four-month period in 2021 prior to the IriSys acquisition when no intangible assets were being amortized.

 Interest expense. The decrease of $1.0 million was primarily due to the extension of the maturity date of our prior term loans, which deferred a portion of the interest expense from non-cash amortization of financing expenses until they were written off as loss on extinguishment of debt in December 2022 (see below), as well as increased capitalized interest. These decreases were partially offset by a full period of interest on the debt portion of the IriSys acquisition purchase price and an increase in the variable LIBOR component of interest on prior term loans with Athyrium.

 Loss or gain on extinguishment of debt. In December 2022, as a result of fully paying off our loan with Athyrium, we recorded a loss on extinguishment of debt for the write-off of certain deferred financing costs. In June 2021, we received forgiveness of principal and interest on a note issued under a Federal COVID-19 relief program and recorded a gain on extinguishment of debt.

 Liquidity and capital resources

 At December 31, 2023, we had $8.1 million in cash and cash equivalents. Our credit agreement with Royal Bank of Canada, as amended, contains minimum liquidity requirements ranging from $3.5 million to $5.0 million at quarter-ends through September 30, 2025 and minimum liquidity requirements of $1.5 million at month-ends that are not quarter-ends. Our ability to continue to comply with the minimum liquidity requirements 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.

 In August 2023, we raised net proceeds of approximately $7.4 million following completion of an underwritten public offering in which we issued and sold 14,640,000 shares of our common stock at a public offering price of $0.40 per share and pre-funded warrants to purchase up to 6,110,000 shares of our common stock.

 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 year ended December 31, 2023, our capital expenditures were $8.2 million to scale and support our expansion of capabilities.

 We are currently party to a credit agreement with Royal Bank of Canada for a term loan originally funded at $36.9 million. The principal is being repaid in quarterly amounts totaling $3.7 million in 2024 and $31.4 million in 2025 (which is inclusive of the remaining principal balance due at maturity on December 16, 2025. An additional $7.5 million will be paid upon completing a sale of certain real property (see below).

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

 We have signed a sales and purchase agreement, as amended, to sell approximately 121 acres of land adjacent to our Gainesville, Georgia manufacturing campus for expected proceeds of $8.0 million, $7.5 million of which we are obligated to use to repay the principal amount of loans under our credit agreement with Royal Bank of Canada. The land sale is currently expected to close by the end of second quarter of 2024; however, the closing of the land sale may be extended by three 30-day extensions. Until closing, the sale of the land is subject to customary closing conditions for transactions of this type, including completion of buyers permitting.

 Our future operations are highly dependent on the profitability of our development and manufacturing operations. The pharmaceutical industry has experienced a slowdown in clinical development activities resulting from reduced cash funding, and we have been experiencing higher rates of customer attrition and development program delays which have negatively impacted earnings and cash flows. As a result, management reduced its earnings and cash flow projections during 2023. These factors, and the related impact on debt covenant compliance, continue to impact us through the present day and are expected to continue.

 Our credit agreement with Royal Bank of Canada contains certain financial and other covenants, including minimum liquidity requirements, maximum net leverage ratios and minimum fixed charge coverage ratios, and includes limitations on, among other things, incurring additional indebtedness, paying dividends, acquisitions and certain investments. Due to the factors discussed above, there is significant uncertainty as to whether we will be able to comply with these covenants in future periods. Further, management concluded that substantial doubt exists about its ability to continue as a going concern as of the date of the issuance of these financial statements. As a result, we have classified the outstanding balance of the loan with Royal Bank of Canada as a current liability in the consolidated balance sheet as of December 31, 2023.

 In addition, our conclusion that substantial doubt exists about our ability to continue as a going concern resulted in an explanatory paragraph in the auditor's report on our financial statements as of and for the fiscal year ended December 31, 2023, the delivery to the lenders of which pursuant to the credit agreement would result in a default under the credit agreement in effect prior to giving effect to the third amendment to the credit agreement. On March 21, 2024, we entered into a third amendment to the credit agreement with Royal Bank of Canada, which extended the deadline until April 30, 2024 for delivery of (i) the audited financial statements for the fiscal year ended December 31, 2023, and (ii) the corresponding audit report without a "going concern" explanatory paragraph until April 30, 2024. The extension of the deadline to submit these documents effectively delays the default under the amended credit agreement until May 1, 2024. The third amendment also (i) defers the $4.0 million minimum liquidity covenant as of March 31, 2024 until as of April 30, 2024 and (ii) clarified that a $1.5 million monthly liquidity covenant was not applicable as of March 31, 2024. This amendment to the credit agreement was made, in part, to provide us with flexibility to complete the planned merger, to prevent the explanatory paragraph in the auditor's report from triggering a default under the credit agreement until May 1, 2024 and to allow for certain discretionary cash payments that management intends to make prior to closing the planned merger from potentially triggering a default of the minimum liquidity covenant prior to April 30, 2024. Absent completion of the planned merger before May 1, 2024, which is expected to result in the repayment and termination of the credit agreement, or additional amendments to, or waivers under, the credit agreement, we expect that an event of default would be triggered once the audited financial statements are delivered to Royal Bank of Canada under the terms of the amended credit agreement. Any failure to comply with the other terms, covenants and conditions of the credit agreement or the debt agreements may also result in an event of default under such agreements, which could have a material adverse effect on the business, financial condition and results of operations.

 An event of default under our amended credit agreement may constitute an event of default under our subordinated promissory note with the former equity holders of IriSys and under the lease of our manufacturing campus in Gainesville, Georgia. Upon the occurrence of an event of default under the subordinated promissory note, the entire unpaid principal amount, all accrued and unpaid interest and any other amounts due automatically accelerate and are due on the date of occurrence of an event of default. Upon the occurrence of an event of default under the lease agreement, remedies available to the lessor generally include, without limitation, terminating such lease agreement, repossessing and reletting the leased property, and recovery of all costs and losses paid or incurred by lessor as a result of such default. The exercise of the aforementioned remedies could have a material adverse effect on our business, financial condition and results of operations.

 Our ability to comply with the amended financial covenants and contractual requirements under our debt agreements is subject to the profitability of our development and manufacturing operations, maintaining sufficient cash and cash equivalents to satisfy the minimum liquidity financial maintenance covenants, and our success in implementing certain cost control measures, including our strategic reorganization which included a reduction in force, reducing capital expenditures and managing working capital in order to improve our ongoing financial performance and our liquidity position. However, given the uncertainty associated with on-going slowdown in the pharmaceutical industry, we may not be successful in undertaking these measures and therefore substantial doubt is not alleviated by management's plans as of the date of issuance of these financial statements.

 We may extend and/or supplement the actions we are taking if we continue to experience the adverse conditions described above. 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 additional amendment or waiver from our lenders. Obtaining future credit agreement waivers or amendments to the credit agreement is not within our control, and if we are unsuccessful in doing so and, thereafter, an event of default under the credit agreement occurs, then the lenders may exercise the rights available to them under the credit agreement.

 On February 28, 2024, we entered into an Agreement and Plan of Merger, in connection with which a tender offer was commenced to acquire all of our issued and outstanding shares of common stock for approximately $1.10 per share (see note 19). This information was not considered in the analysis of going concern because neither the completion of the tender offer nor the closing of the merger were within management's control as of the date of the issuance of these consolidated financial statements.

 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. 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

 (amounts in millions)

 2023

 2022

 2021

 Net cash (used in) provided by:

 Operating activities

 $

 (1.0

)

 $

 (3.6

)

 $

 10.9

 Investing activities

 (8.2

)

 (8.4

)

 (29.3

)

 Financing activities

 2.3

 1.8

 19.9

 Total

 $

 (6.9

)

 $

 (10.2

)

 $

 1.5

 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, deferred income tax expense and gains and losses on extinguishment of debt as well as changes in operating assets and liabilities. The $2.6 million increase in cash flows from operations in 2023 compared to 2022 was primarily due to the decrease in net loss, net of various non-cash items described above and an increase in accrued interest, partially offset by an increase in inventory. The $14.5 million decrease in cash flows from operations in 2022 compared to 2021 was primarily due to changes in operating assets and liabilities, including a $4.8 million effect from changes in accrued interest due to the timing of the fourth quarter 2021 interest payment on the prior Athyrium credit agreement that was not paid until 2022. Additionally, we experienced changes to inventory, accrued expenses and accounts receivable collectively resulting in a $10.0 million decrease in cash flows, primarily caused by accrued costs related to the December 2022 debt refinancing that were paid in 2023, growth in our development business and changes to customer ordering patterns.

 Net cash used in investing activities for each of the three years includes capital expenditures to scale and support our expansion of capabilities. In 2021, net cash used in investing activities also included $24.0 million paid to acquire IriSys.

 Net cash provided by financing activities included:

 • During 2023, net proceeds from the issuance of common stock of $6.8 million, partially offset by financing costs of $2.3 million, debt repayments of $1.8 million, and $0.3 million to pay employee tax withholdings upon vesting of equity awards.

 • During 2022, net proceeds from the issuance of preferred and common stock of $33.0 million, $36.9 million from the term loan with Royal Bank of Canada, and $37.3 million from the sale-leaseback of our commercial manufacturing campus in Gainesville, Georgia, partially offset by debt repayments of $103.0 million, financing costs of $2.2 million, and $0.2 million to pay employee tax withholdings upon vesting of equity awards.

 • During 2021, net proceeds from an issuance of common stock of $32.1 million, partially offset by debt repayments of $10.1 million, financing costs of $1.4 million paid in connection with the debt amendments and common stock issuances, and $0.7 million to pay employee tax withholdings upon vesting of equity awards.

 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, macroeconomic events, including those due to inflation, rising interest rates and banking instability, global instability, including regional conflicts around the world, 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 we 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.

 While the Merger Agreement is in effect, we are subject to restrictions on our business activities, generally requiring us to conduct our business in the ordinary course, consistent with past practice, and subject to a variety of specified limitations absent CoreRx's prior consent. These limitations include, among other things, restrictions on our ability to acquire other businesses and assets, sell, transfer or license our assets, make investments, repurchase or issue securities, pay dividends, make capital expenditures, amend our organizational documents, issue securities and incur indebtedness.

 Contractual commitments

 The table below reflects our contractual commitments as of December 31, 2023:

 Payments due by period

 (in millions)

 Total

 Less than
1 year

 1-3 years

 3-5 years

 More than
5 years

 Debt obligations (1):

 Principal

 $

 39.5

 $

 39.1

 $

 0.1

 $

 0.1

 $

 0.2

 Interest

 7.3

 3.9

 3.3

 0.1

 —

 Purchase obligations (2)

 8.5

 7.8

 0.6

 0.1

 —

 Operating leases (3)

 8.3

 1.2

 2.3

 2.3

 2.5

 Other long-term liabilities (4)(5)

 92.1

 4.7

 7.6

 8.0

 71.8

 Total

 $

 155.7

 $

 56.7

 $

 13.9

 $

 10.6

 $

 74.5

 (1) Debt obligations consist of scheduled principal repayments and interest on $35.1 million of outstanding term loan principal 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. Due to the existence of substantial doubt that the Company will continue as a going concern and the assessed likelihood of a covenant violation in the next 12 months (see note 1 to the consolidated financial statements), the entire principal balance of the term loan is presented as a payment due in less than 1 year. 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 December 31, 2023. In accordance with U.S. GAAP, the future interest obligations are not recorded on our consolidated balance sheet.

 (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 named executive officers that provide for, among other things, severance commitments of up to $1.4 million should we terminate the named 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 $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

 This management's discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and the disclosure of contingent assets and liabilities in our consolidated financial statements. On an ongoing basis, we evaluate our estimates and judgments. We base our estimates on historical experience, known trends and events and various other factors that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

 We have determined that certain accounting policies and estimates are critical to the preparation of the financial statements. We have prepared the following additional disclosures to supplement our summary of significant accounting policies located in note 2 to the consolidated financial statements beginning on page F-1 of this Annual Report on Form 10-K.

 Revenue recognition for variable consideration in sales-based profit-sharing arrangements

 For sales-based profit-sharing where the license for intellectual property is not deemed to be the predominant item to which the profit-sharing relates, 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.

 We are required to exercise significant judgment to estimate the value of the variable consideration, which we partially constrain 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. If we were to increase or decrease the percentage value of the constraint by 5%, we would recognize a corresponding decrease or increase, respectively, to revenue and earnings of $0.5 million.

 Impairment of goodwill and other long-lived assets

 We are required to review, on an annual basis, the carrying value of goodwill to determine whether impairment may exist. The impairment analysis for goodwill consists of an optional qualitative assessment potentially followed by a quantitative analysis. If we determine that the carrying value of our reporting unit exceeds its fair value, an impairment charge to goodwill is recorded for the excess.

 The critical judgments involved in our annual qualitative test of goodwill include an assessment of unfavorable events and a judgment whether those events put our goodwill at risk of impairment, which if determined to be at risk would require us to perform a quantitative test. The critical judgments and estimates in our quantitative tests for goodwill and long-lived assets include selection and weighting of available valuation methods and the selection of assumptions that may be used in those methods.

 In 2023, we determined that indicators of impairment were present for our goodwill and certain assets included in a long-lived asset group, including a decline in share price and the strategic reorganization primarily impacting our San Diego operations. Based on the quantitative analysis, we concluded that our goodwill and certain assets included in a long-lived asset group were not impaired due to the excess of fair value over the carrying value of these assets.

 Item 7A. Quantitative and qualitative disclosures about market risk

 We are exposed to market risks in the ordinary course of our business. These market risks are principally limited to interest rate fluctuations. At December 31, 2023, we had only a de minimis amount invested in money market instruments.

 Our Royal Bank of Canada term loan interest expense is currently based on the current committed rate of three-month forward SOFR plus 5%. An increase in SOFR of 1% would result in additional interest expense of $0.4 million annually.

 Item 8. Financial Statements and Supplementary Data

 Our consolidated financial statements and the report of our independent registered public accounting firm are included at the end of this Annual Report on Form 10-K beginning on page F-1.

 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosures

 None.

 Item 9A. 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 December 31, 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 December 31, 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.

 Management's Annual Report on Internal Control Over Financial Reporting

 Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is a process designed to provide reasonable assurance of the reliability of financial reporting and of the preparation of financial statements for external reporting purposes, in accordance with U.S. generally accepted accounting principles.

 Internal control over financial reporting includes policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect transactions and disposition of assets; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. generally accepted accounting principles, and that receipts and expenditures are being made only in accordance with the authorization of its management and directors; and (3) provide reasonable assurance regarding the prevention or timely detection of unauthorized acquisition, use, or disposition of our assets that could have a material effect on its financial statements.

 Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of the effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies and procedures included in such controls may deteriorate.

 Our management has assessed the effectiveness of our internal control over financial reporting as of December 31, 2023. In making this assessment, management used the criteria established by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control – Integrated Framework (2013). These criteria are in the areas of control environment, risk assessment, control activities, information and communication, and monitoring. Management's assessment included extensive documentation, evaluating and testing the design and operating effectiveness of its internal controls over financial reporting.

 Based on management's processes and assessment, as described above, management has concluded that, as of December 31, 2023, our internal control over financial reporting was effective.

 Item 9B. Other Information

 (a) On March 21, 2024, the Company entered into the Third Amendment to Credit Agreement, dated as of March 21, 2024 (the "Amendment"), with Royal Bank of Canada, as administrative agent, the guarantors party thereto, and the lenders party thereto, which amends the Credit Agreement, dated as of December 12, 2022, by and among the Company, as borrower, the guarantors party thereto from time to time, the lenders party thereto from time to time, and Royal Bank of Canada, as administrative agent.

 Pursuant to the Amendment, the parties thereto agreed that, among other things, (i) the deadline to deliver the Company's audited financial statements for the fiscal year ended December 31, 2023 shall be extended to April 30, 2024 and (ii) the compliance dates for certain financial maintenance covenants shall be extended to April 30, 2024.

 The foregoing description of the Amendment does not purport to be complete and is qualified in its entirety by reference to such document, which is filed as Exhibit 10.28 hereto and incorporated herein by reference.

 (b) During the fourth quarter of the fiscal year ended December 31, 2023, no director or "officer" as defined in Rule 16a-1(f) under the Exchange Act adopted or terminated any Rule 10b5-1 trading plan or arrangements or any non-Rule 10b5-1 trading plan or arrangements, in both cases as defined in Item 408(a) of Regulation S-K.

 Item 9C. Disclosure Regarding Foreign Jurisdictions That Prevent Inspections

 Not applicable

 Item 10. Directors, Executive Officers and Corporate Governance

 Information with respect to this item will be set forth in the Proxy Statement for the 2024 Annual Meeting of Shareholders, or the Proxy Statement, or in an amendment to this Annual Report on Form 10-K, or the Form 10-K/A, under the headings "Board of Directors," "Executive Officers," "Section 16(a) Beneficial Ownership Reporting Compliance," and "Corporate Governance and Risk Management" and is incorporated herein by reference. The Proxy Statement or Form 10-K/A will be filed with the SEC within 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K.

 Item 11. Executive Compensation

 Information with respect to this item will be set forth in the Proxy Statement or Form 10-K/A under the headings "Director Compensation," "Executive Compensation," and "Corporate Governance and Risk Management" and is incorporated herein by reference. The Proxy Statement or Form 10-K/A will be filed with the SEC within 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K.

 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters

 Information with respect to this item will be set forth in the Proxy Statement or Form 10-K/A under the headings "Security Ownership of Directors, Certain Beneficial Owners and Management," "Executive Compensation," and "Director Compensation," and is incorporated herein by reference. The Proxy Statement or Form 10-K/A will be filed with the SEC within 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K.

 Item 13. Certain Relationships and Related Transactions, and Director Independence

 Information with respect to this item will be set forth in the Proxy Statement or Form 10-K/A under the headings "Certain Relationships and Related Party Transactions" and "Corporate Governance and Risk Management" and is incorporated herein by reference. The Proxy Statement or Form 10-K/A will be filed with the SEC within 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K.

 Item 14. Principal Accounting Fees and Services

 Information with respect to this item will be set forth in the Proxy Statement or Form 10-K/A under the heading "Independent Registered Public Accounting Firm," and is incorporated herein by reference. The Proxy Statement or Form 10-K/A will be filed with the SEC within 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K.

 Item 15. Exhibits, Consolidated Financial Statement Schedules

 (a)(1) Consolidated Financial Statements.

 The following consolidated financial statements are filed as a part of this Annual Report on Form 10-K:

 • Consolidated Balance Sheets as of December 31, 2023 and 2022

 • Consolidated Statements of Operations for the three years in the period ended December 31, 2023

 • Consolidated Statements of Shareholders' Equity or Deficit for the three years in the period ended December 31, 2023

 • Consolidated Statements of Cash Flows for the three years in the period ended December 31, 2023

 (a)(2) Consolidated Financial Statement Schedules.

 Not applicable.

 (a)(3); (b) Exhibits:

 Exhibit No.

 Description

 Method of filing

 2.1

 Separation Agreement dated as of November 20, 2019 by and between Recro Pharma, Inc. and Baudax Bio, Inc.

 Incorporated herein by reference to Exhibit 2.1 to the Company's Current Report on Form 8-K filed on November 26, 2019 (File No. 001-36329).

 3.1

 Second Amended and Restated Articles of Incorporation of Recro Pharma, Inc.

 Incorporated herein by reference to Exhibit 3.1 to the Company's Current Report on Form 8-K filed on March 13, 2014 (File No. 001-36329).

 3.2

 Articles of Amendment to Second Amended and Restated Articles of Incorporation of Recro Pharma, Inc.

 Incorporated herein by reference to Exhibit 3.1 to the Company's Current Report on Form 8-K filed on March 21, 2022 (File No. 001-36329).

 3.3

 Articles of Amendment to Second Amended and Restated Articles of Incorporation, as amended, of Societal CDMO, Inc.

 3.4

 Fifth Amended and Restated Bylaws of Societal CDMO, Inc.

 Incorporated herein by reference to Exhibit 3.1 to the Company's Quarterly Report on Form 10-Q filed on May 10, 2023 (File No. 001-36329).

 3.5

 Certificate of Designation of Preferences, Rights and Limitations of Series A Convertible Preferred Stock of the Company.

 Incorporated herein by reference to Exhibit 3.1 to the Company's Current Report on Form 8-K filed on December 13, 2022 (File No. 001-36329).

 4.1

 Common Stock Purchase Warrant in favor of Warberg WF XI LP (as assigned by OTA LLC)

 Incorporated herein by reference to Exhibit 4.1 to the Company's Quarterly Report on Form 10-Q filed on August 14, 2023 (File No. 001-36329).

 4.2

 Common Stock Purchase Warrant in favor of IriSys, Inc.

 Incorporated herein by reference to Exhibit 4.2 to the Company's Quarterly Report on Form 10-Q filed on August 14, 2023 (File No. 001-36329).

 4.3

 Form of Pre-Funded Warrant

 Incorporated herein by reference to Exhibit 4.1 to the Company's Quarterly Report on Form 10-Q filed on November 8, 2023 (File No. 001-36329).

 4.4

 Description of Securities

 10.1

 Amended and Restated License and Supply Agreement, dated June 26, 2003, by and among Elan Corporation, plc (predecessor-in-interest to Recro Gainesville LLC) and Watson Laboratories, Inc.

 Incorporated herein by reference to Exhibit 10.6 to the Company's Quarterly Report on Form 10-Q filed on August 14, 2015 (File No. 001-36329).

 10.2

 Supplemental Agreement, dated December 8, 2004, to Amended and Restated License and Supply Agreement, dated June 26, 2003, by and among Elan Corporation, plc (predecessor-in-interest to Recro Gainesville LLC) and Watson Laboratories, Inc.

 Incorporated herein by reference to Exhibit 10.7 to the Company's Quarterly Report on Form 10-Q filed on August 14, 2015 (File No. 001-36329).

 10.3

 Supplemental Agreement No. 2, dated January 17, 2014, to Amended and Restated License and Supply Agreement, dated June 26, 2003, by and among Elan Corporation, plc (predecessor-in-interest to Recro Gainesville LLC) and Watson Laboratories, Inc.

 Incorporated herein by reference to Exhibit 10.8 to the Company's Quarterly Report on Form 10-Q filed on August 14, 2015 (File No. 001-36329).

 10.4

 Supplemental Agreement No. 3, dated April 15, 2019, to Amended and Restated License and Supply Agreement, dated June 26, 2003, by and among Elan Corporation, plc (predecessor-in-interest to Recro Gainesville LLC) and Watson Laboratories, Inc.

 Incorporated herein by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed on April 18, 2019 (File No. 001-36329).

 10.5•

 Asset Transfer and License Agreement, dated April 10, 2015, between Alkermes Pharma Ireland Limited and DV Technology, Inc.

 Incorporated herein by reference to Exhibit 10.5 to the Company's Quarterly Report on Form 10-Q filed on May 12, 2015 (File No. 001-36329).

 10.6•

 Amendment to Asset Transfer and License Agreement, dated December 23, 2015, between Alkermes Pharma Ireland Limited and Recro Gainesville LLC.

 Incorporated herein by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed on December 23, 2015 (File No. 001-36329).

 10.7•

 Second Amendment to Asset Transfer and License Agreement, dated December 20, 2018, between Alkermes Pharma Ireland Limited and Recro Gainesville LLC.

 Incorporated herein by reference to Exhibit 10.2 to the Company's Current Report on Form 8-K filed on December 28, 2018 (File No. 001-36329).

 10.8

 Manufacturing and Supply Agreement, dated as of February 8, 2019, by and between Recro Gainesville LLC and Novartis Pharma AG.

 Incorporated herein by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K/A filed on March 6, 2019 (File No. 001-3632).

 10.9

 License and Supply Agreement, dated as of January 1, 2014, by and between Alkermes Pharma Ireland Limited and Kremers Urban Pharmaceuticals, Inc.

 Incorporated herein by reference to Exhibit 10.29 to the Company's Annual Report on Form 10-K filed on March 4, 2020 (File No. 001-36329).

 10.10

 Amendment No. 1 to License and Supply Agreement, dated as of September 6, 2018, by and between Recro Gainesville LLC and Kremers Urban Pharmaceuticals, Inc.

 Incorporated herein by reference to Exhibit 10.30 to the Company's Annual Report on Form 10-K filed on March 4, 2020 (File No. 001-36329).

 10.11

 Amendment No. 2 to License and Supply Agreement, dated as of November 5, 2020 by and among Recro Gainesville LLC, Kremers Urban Pharmaceuticals, Inc. and Lannett Company, Inc.

 Incorporated herein by reference to Exhibit 10.3 to the Company's Quarterly Report on Form 10-Q filed on November 10, 2020 (File No. 001-36329).

 10.12

 Amendment No. 3 to License and Supply Agreement, dated as of July 1, 2022 by and among Societal CDMO Gainesville LLC and Lannett Company, Inc.

 Incorporated herein by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q filed on August 10, 2022 (File No. 001-36329).

 10.13

 Stock Issuance Agreement, dated as of February 19, 2021 by and between Recro Pharma, Inc., Athyrium Opportunities II Acquisition LP and Athyrium Opportunities III Acquisition LP.

 Incorporated herein by reference to Exhibit 10.2 to the Company's Current Report on Form 8-K filed on February 23, 2021 (File No. 001-36329).

 10.14

 Unit Purchase Agreement, dated August 13, 2021, by and among Recro Pharma, Inc., IriSys, LLC, the Sellers (as defined therein), and IriSys, Inc. as the Seller's Representative

 Incorporated herein by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed on August 13, 2021 (File No. 001-36329).

 10.15

 Form of Subordinated Promissory Note

 Incorporated herein by reference to Exhibit 10.2 to the Company's Current Report on Form 8-K filed on August 13, 2021 (File No. 001-36329).

 10.16

 First Amendment to Subordinated Promissory Note

 Incorporated herein by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q filed on August 14, 2023 (File No. 001-36329).

 10.17

 Purchase and Sale Agreement and Joint Escrow Instructions dated August 11, 2022, by and among Societal CDMO Gainesville, LLC, a Massachusetts limited liability company and Weekley Homes, LLC, a Delaware limited liability company.

 Incorporated herein by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed on August 16, 2022 (File No. 001-36329).

 10.18

 First Amendment to Purchase and Sale Agreement and Joint Escrow Instructions, dated November 22, 2022, by and among Societal CDMO Gainesville, LLC, a Massachusetts limited liability company, and Weekley Homes, LLC, a Delaware limited liability company

 Incorporated herein by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q filed on November 8, 2023 (File No. 001-36329).

 10.19

 Second Amendment to Purchase and Sale Agreement and Joint Escrow Instructions, dated January 23, 2023, by and among Societal CDMO Gainesville, LLC, a Massachusetts limited liability company, and Weekley Homes, LLC, a Delaware limited liability company

 Incorporated herein by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q filed on November 8, 2023 (File No. 001-36329).

 10.20

 Third Amendment to Purchase and Sale Agreement and Joint Escrow Instructions, dated April 21, 2023, by and among Societal CDMO Gainesville, LLC, a Massachusetts limited liability company, and Weekley Homes, LLC, a Delaware limited liability company

 Incorporated herein by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q filed on November 8, 2023 (File No. 001-36329).

 10.21

 Fourth Amendment to Purchase and Sale Agreement and Joint Escrow Instructions, dated October 3, 2023, by and among Societal CDMO Gainesville, LLC, a Massachusetts limited liability company, and Weekley Homes, LLC, a Delaware limited liability company

 Incorporated herein by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q filed on November 8, 2023 (File No. 001-36329).

 10.22

 Fifth Amendment to Purchase and Sale Agreement and Joint Escrow Instructions, dated as of November 27, 2023, by and among Societal CDMO Gainesville, LLC, a Massachusetts limited liability company, and Weekley Homes, LLC, a Delaware limited liability company

 Incorporated herein by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed on November 28, 2023 (File No. 001-36329).

 10.23

 Purchase and Sale Agreement, dated as of December 9, 2022, by and between Societal CDMO Gainesville, LLC and Tenet Equity Funding SPE Gainesville, LLC

 Incorporated herein by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed on December 12, 2022 (File No. 001-36329).

 10.24

 Lease Agreement dated December 14, 2022, by and between Societal CDMO Gainesville, LLC and Tenet Equity Funding SPE Gainesville, LLC

 Incorporated herein by reference to Exhibit 10.18 to the Company's Annual Report on Form 10-K filed on March 1, 2023 (File No. 001-36329).

 10.25

 Credit Agreement, dated as of December 12, 2022, by Societal CDMO, Inc. in favor of RBC Capital Markets, LLC

 Incorporated herein by reference to Exhibit 10.4 to the Company's Current Report on Form 8-K filed on December 12, 2022 (File No. 001-36329).

 10.26

 First Amendment to Credit Agreement dated as of April 4, 2023, by Societal CDMO, Inc. in favor of Royal Bank of Canada

 Incorporated herein by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q filed on May 10, 2023 (File No. 001-36329).

 10.27

 Second Amendment to Credit Agreement dated as of August 13, 2023, by Societal CDMO, Inc. in favor of Royal Bank of Canada

 Incorporated herein by reference to Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q filed on August 14, 2023 (File No. 001-36329).

 10.28

 Third Amendment to Credit Agreement dated as of March 21, 2024, by Societal CDMO, Inc. in favor of Royal Bank of Canada

 10.29•

 Recro Pharma, Inc. 2018 Amended and Restated Equity Incentive Plan.

 Incorporated herein by reference to Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q filed on May 9, 2018 (File No. 001-36329).

 10.30•

 Form of Non-Qualified Stock Option Inducement Award Agreement

 Incorporated herein by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q filed on August 9, 2021 (File No. 001-36329).

 10.31•

 Form of Inducement Award Agreement for Restricted Stock Units

 Incorporated herein by reference to Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q filed on August 9, 2021 (File No. 001-36329).

 10.32•

 Form of Non-Qualified Stock Option Award Agreement

 Incorporated herein by reference to Exhibit 10.26 to the Company's Annual Report on Form 10-K filed on February 26, 2021 (File No. 001-36329).

 10.33•

 Form of Award Agreement for Restricted Stock Units

 Incorporated herein by reference to Exhibit 10.27 to the Company's Annual Report on Form 10-K filed on February 26, 2021 (File No. 001-36329).

 10.34•

 Form of Award Agreement for Restricted Stock Units (performance-based)

 Incorporated herein by reference to Exhibit 10.28 to the Company's Annual Report on Form 10-K filed on February 26, 2021 (File No. 001-36329).

 10.35•

 Employment Agreement between Recro Pharma, Inc. and J. David Enloe, Jr., dated December 15, 2020.

 Incorporated by reference to exhibit 10.1 to the Company's Current Report on Form 8-K filed on December 21, 2020 (File No. 001-36329).

 10.36•

 Employment Agreement between Recro Pharma, Inc. and Ryan Lake, dated December 15, 2020.

 Incorporated by reference to exhibit 10.2 to the Company's Current Report on Form 8-K filed on December 21, 2020 (File No. 001-36329).

 21.1

 Subsidiaries of Societal CDMO, Inc.

 23.1

 Consent of KPMG LLP, Independent Registered Public Accounting Firm.

 31.1

 Rule 13a-14(a)/15d-14(a) certification of Principal Executive Officer.

 31.2

 Rule 13a-14(a)/15d-14(a) certification of Principal Financial Officer.

 32.1

 Section 1350 certification, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 97.1

 Societal CDMO, Inc. Compensation Recovery Policy

 101 SCH

 101 CAL

 101 DEF

 101 LAB

 101 PRE

 •

 Management contract or compensatory plan or arrangement.

 Portions of this exhibit (indicated by asterisks) have been omitted pursuant to a request for confidential treatment pursuant to Rule 406 under the Securities Act of 1933.

 (c) Not applicable

 Item 16. Form 10-K Summary

 None.

 SIGNATURES

 Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 Date: March 22, 2024

 SOCIETAL CDMO, INC.

 By:

 /s/ J. David Enloe, Jr.

 J. David Enloe, Jr.

 Chief Executive Officer

 Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, Annual Report on Form 10-K has been signed by the following persons in the capacities held on the dates indicated.

 Signature

 Title

 Date

 /s/ J. David Enloe, Jr.

 President, Chief Executive Officer and Director

 J. David Enloe, Jr.

 (Principal Executive Officer)

 /s/ Ryan D. Lake

 Chief Financial Officer

 Ryan D. Lake

 (Principal Financial Officer and Principal Accounting Officer)

 /s/ Matt Arens

 Matt Arens

 /s/ William L. Ashton

 William L. Ashton

 /s/ Elena Cant

 Elena Cant

 /s/ Winston J. Churchill

 Winston J. Churchill

 /s/ James C. Miller

 James C. Miller

 /s/ Laura L. Parks

 Laura L. Parks

 /s/ Bryan M. Reasons

 Bryan M. Reasons

 /s/ Wayne B. Weisman

 Executive Chairman of the Board

 Wayne B. Weisman

 Index to Consolidated Financial Statements

 Page

 Report of Independent Registered Public Accounting Firm

 Consolidated Balance Sheets

 Consolidated Statements of Operations

 Consolidated Statements of Shareholders' Equity or (Deficit)

 Consolidated Statements of Cash Flows

 Notes to Consolidated Financial Statements

 Report of Independent Registered Public Accounting Firm

 To the Shareholders and Board of Directors

 Societal CDMO, Inc.:

 Opinion on the Consolidated Financial Statements

 We have audited the accompanying consolidated balance sheets of Societal CDMO, Inc. and subsidiaries (the Company) as of December 31, 2023 and 2022, the related consolidated statements of operations, shareholders' equity (deficit), and cash flows for each of the years in the three-year period ended December 31, 2023, and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2023, in conformity with U.S. generally accepted accounting principles.

 Going Concern

 The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company has incurred net losses since inception, has an accumulated deficit and projects non-compliance with debt covenants, that raise substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 Basis for Opinion

 These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.

 Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

 Critical Audit Matter

 The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

 Variable consideration for profit-sharing revenue

 As discussed in Note 2 to the consolidated financial statements, the Company earns sales-based profit-sharing or royalty consideration, collectively referred to as profit-sharing revenue, which is computed based on the net product sales of the commercial partner. For arrangements that include product sales and sales-based profit-sharing where the license for intellectual property is not deemed to be the predominant item to which the profit-sharing relates, the profit-sharing is variable consideration and the Company recognizes revenue, including an estimate of profit-sharing, 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 the Company's commercial partners, which are outside of the Company's control. Factors causing price adjustments by the Company's commercial partners include increased competition in the products' markets, mix of volume between the commercial partners' customers, and changes in government pricing. The Company reported total revenue of $94.6 million for the year ended December 31, 2023, which included profit-sharing revenue.

 We identified the evaluation of the estimate of the variable consideration for arrangements that include sales-based profit-sharing where the license for intellectual property is not deemed to be the predominant item as a critical audit matter. A high degree of auditor judgment was required to evaluate the Company's determination of the constraint due to the uncertainty of price adjustments made by the Company's commercial partners in response to market conditions.

 The following are the primary procedures we performed to address this critical audit matter. We evaluated the design of certain internal controls related to the determination of the constraint used to estimate variable consideration. We evaluated the Company's ability to estimate variable consideration by comparing the actual amount of profit-sharing revenue realized by the Company to its historical estimates. We obtained and inspected third party market data regarding the effect of market conditions on the commercial partners and potential price adjustments they may offer with respect to their products, and assessed how the Company considered such market conditions in its determination of the constraint.

 /s/ KPMG LLP

 We have served as the Company's auditor since 2009.

 Philadelphia, Pennsylvania

 Consolidated Balance Sheets

 (amounts in thousands, except share and per share data)

 Assets

 Current assets:

 Cash and cash equivalents

 $

 8,095

 $

 14,995

 Accounts receivable, net

 16,576

 15,950

 12,837

 8,724

 10,262

 10,301

 Prepaid expenses and other current assets

 2,878

 2,848

 Assets held for sale

 2,813

 2,768

 Total current assets

 53,461

 55,586

 Property, plant and equipment, net

 49,795

 50,365

 Operating lease asset

 5,004

 5,491

 Intangible assets, net

 2,241

 2,928

 Goodwill

 41,077

 41,077

 Other assets

 1,896

 1,996

 Total assets

 $

 153,474

 $

 157,443

 Liabilities and shareholders' equity

 Current liabilities:

 Accounts payable

 $

 1,312

 $

 1,466

 Current portion of debt

 36,756

 7,577

 Current portion of operating lease liability

 1,105

 1,079

 Accrued expenses and other current liabilities

 10,814

 12,686

 Total current liabilities

 49,987

 22,808

 Debt, net of current portion

 30,967

 Operating lease liability, net of current portion

 4,153

 4,584

 Other liabilities

 40,332

 39,225

 Total liabilities

 94,811

 97,584

 Commitments and contingencies (note 7)

 Shareholders' equity:

 Convertible preferred stock, $ 0.01 par value. 10,000,000 shares authorized, 0 and 450,000 shares issued and outstanding at December 31, 2023 and December 31, 2022, respectively

 —

 4,350

 Common stock, $ 0.01 par value. 185,000,000 shares authorized, 104,856,247 and 84,588,868 shares issued and outstanding at December 31, 2023 and December 31, 2022, respectively

 1,049

 Additional paid-in capital

 336,523

 320,298

 Accumulated deficit

 ( 278,909

)

 ( 265,635

)

 Total shareholders' equity

 58,663

 59,859

 Total liabilities and shareholders' equity

 $

 153,474

 $

 157,443

 See accompanying notes to consolidated financial statements.

 Consolidated Statements of Operations

 (amounts in thousands, except share and per share data)

 2023

 2022

 2021

 Revenue

 $

 94,635

 $

 90,214

 $

 75,360

 Operating expenses:

 Cost of sales

 76,497

 67,076

 55,537

 Selling, general and administrative

 21,024

 21,954

 18,374

 1,037

 Total operating expenses

 98,208

 89,935

 74,948

 Operating (loss) income

 ( 3,573

)

 ( 9,963

)

 ( 14,176

)

 ( 15,136

)

 Interest income

 (Loss) gain on extinguishment of debt

 —

 ( 4,996

)

 3,352

 Loss before income taxes

 ( 13,142

)

 ( 18,776

)

)

 Income tax expense

 1,105

 —

 $

 ( 13,274

)

 $

 ( 19,881

)

 $

)

 Loss per share, basic and diluted

 $

 ( 0.14

)

 $

 ( 0.34

)

 $

 ( 0.26

)

 Weighted average shares outstanding, basic and diluted

 95,229,192

 57,877,920

 44,117,473

 See accompanying notes to consolidated financial statements.

 Consolidated Statements of Shareholders' Equity (Deficit)

 Convertible preferred stock

 Common stock

 Additional paid-in

 Accumulated

 (amounts in thousands, except share data)

 Shares

 Amount

 Shares

 Amount

 capital

 deficit

 Total

 Balance, December 31, 2020

 —

 —

 28,601,358

 219,998

 ( 234,384

)

 ( 14,100

)

 Fair value of shares issuable to former equity holders of IriSys, net of costs

 —

 —

 —

 —

 20,328

 —

 20,328

 Issuance of stock, net of costs

 —

 —

 17,535,752

 41,268

 —

 41,443

 —

 —

 —

 —

 6,514

 —

 6,514

 Vesting of restricted stock units, net

 —

 —

 544,263

 ( 757

)

 —

 ( 751

)

 Exercise of stock options, net

 —

 —

 —

 —

 —

 —

 —

 —

 —

 —

 —

)

)

 Balance, December 31, 2021

 —

 —

 46,681,453

 287,351

 ( 245,754

)

 42,064

 Issuance of stock, net of costs

 450,000

 4,350

 37,144,455

 27,694

 —

 32,415

 —

 —

 —

 —

 5,426

 —

 5,426

 Vesting of restricted stock units, net

 —

 —

 762,444

 ( 173

)

 —

 ( 165

)

 Exercise of stock options, net

 —

 —

 —

 —

 —

 —

 —

 —

 —

 —

 —

 ( 19,881

)

 ( 19,881

)

 Balance, December 31, 2022

 450,000

 $

 4,350

 84,588,868

 $

 $

 320,298

 $

 ( 265,635

)

 $

 59,859

 Issuance of preferred stock, net of costs

 —

 ( 18

)

 —

 —

 —

 —

 ( 18

)

 Issuance of common stock and warrants, net of costs

 —

 —

 14,640,000

 7,187

 —

 7,334

 Issuance of warrants

 —

 —

 —

 —

 —

 Conversion of preferred stock

 ( 450,000

)

 ( 4,332

)

 4,500,000

 4,287

 —

 —

 —

 —

 —

 —

 5,009

 —

 5,009

 Vesting of restricted stock units, net

 —

 —

 1,127,379

 ( 295

)

 —

 ( 284

)

 —

 —

 —

 —

 —

 ( 13,274

)

 ( 13,274

)

 Balance, December 31, 2023

 —

 $

 —

 104,856,247

 $

 1,049

 $

 336,523

 $

 ( 278,909

)

 $

 58,663

 See accompanying notes to consolidated financial statements.

 Consolidated Statements of Cash Flows

 (amounts in thousands)

 2023

 2022

 2021

 Cash flows from operating activities:

 $

 ( 13,274

)

 $

 ( 19,881

)

 $

)

 Adjustments to reconcile net loss to net cash used in operating activities:

 5,009

 5,426

 6,514

 Non-cash interest expense

 2,239

 4,845

 5,815

 Depreciation expense

 8,221

 7,413

 6,531

 Loss on disposal of equipment

 —

 —

 1,037

 Deferred income tax expense

 1,015

 —

 Loss (gain) on extinguishment of debt

 —

 4,996

 ( 3,352

)

 Changes in operating assets and liabilities:

 Accounts receivable

 ( 626

)

 ( 4,037

)

 ( 1,971

)

 ( 4,113

)

 ( 159

)

 ( 730

)

 ( 1,384

)

 3,380

 Prepaid expenses and other assets

 Accrued interest

 ( 2,278

)

 2,505

 Accounts payable, accrued expenses and other liabilities

 ( 85

)

 ( 810

)

 2,379

 Net cash (used in) provided by operating activities

 ( 1,005

)

 ( 3,644

)

 10,858

 Cash flows from investing activities:

 Acquisition of IriSys, net of cash acquired

 —

 —

 ( 24,002

)

 Purchases of property and equipment

 ( 8,237

)

 ( 8,351

)

 ( 5,289

)

 Net cash used in investing activities

 ( 8,237

)

 ( 8,351

)

 ( 29,291

)

 Cash flows from financing activities:

 Proceeds from issuance of stock, net of costs

 6,804

 33,030

 32,103

 Proceeds from issuance of debt

 —

 36,900

 —

 Proceeds from sale-leaseback liability (see note 9)

 —

 37,250

 —

 Payment of debt principal

 ( 1,845

)

 ( 103,039

)

 ( 10,100

)

 Payment of financing costs

 ( 2,333

)

 ( 2,203

)

 ( 1,362

)

 Net payments related to vesting of restricted stock units

 ( 284

)

 ( 165

)

 ( 751

)

 Net cash provided by financing activities

 2,342

 1,773

 19,890

 Net (decrease) increase in cash and cash equivalents

 ( 6,900

)

 ( 10,222

)

 1,457

 Cash and cash equivalents, beginning of period

 14,995

 25,217

 23,760

 Cash and cash equivalents, end of period

 $

 8,095

 $

 14,995

 $

 25,217

 Supplemental disclosures of cash flow information:

 Cash paid for interest

 $

 8,156

 $

 12,574

 $

 7,238

 Purchases of property, plant and equipment included in accrued expenses and accounts payable

 1,384

 1,045

 Fair value of warrants issued in connection with financing facility

 —

 —

 Offering costs included in accounts payable and accrued expenses

 —

 Deferred financing costs included in accounts payable and accrued expenses

 —

 1,359

 —

 Reclassification of deferred financing costs to equity

 —

 —

 Fair value of shares issuable to former equity holders of IriSys

 —

 —

 20,931

 Fair value of note issued to former equity holders of IriSys

 —

 —

 5,240

 Issuance of common stock to reduce debt principal and accrued exit fees

 —

 —

 6,060

 Issuance of common stock to settle interest obligations

 —

 —

 3,211

 See accompanying notes to consolidated financial statements.

 Notes to consolidated financial statements

 (amounts in thousands, except share and per share data)

 (1) Background
 Societal CDMO, Inc. (the "Company") was incorporated in the Commonwealth of Pennsylvania on November 15, 2007. The Company is a bi-coastal contract development and manufacturing organization 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, the Company provides therapeutic development, end-to-end regulatory support, clinical and commercial manufacturing, aseptic fill/finish, lyophilization, packaging and logistics services to the global pharmaceutical market.
 Liquidity and capital resources
 The Company has incurred net losses since inception and has an accumulated deficit of $ 278,909 as of December 31, 2023. As of December 31, 2023, the Company's cash and cash equivalents were $ 8,095. For the year-ended December 31, 2023, the Company reported $ 1,005 of net cash used in operating activities.
 The Company's future operations are highly dependent on the profitability of its development and manufacturing operations. The pharmaceutical industry has experienced a slowdown in clinical development activities resulting from reduced cash funding, and the Company has been experiencing higher rates of customer attrition and development program delays which have negatively impacted earnings and cash flows. As a result, management reduced its earnings and cash flow projections during 2023. These factors, and the related impact on debt covenant compliance, continue to impact the Company through the present day and are expected to continue.
 The Company's credit agreement with Royal Bank of Canada contains certain financial and other covenants, including minimum liquidity requirements, maximum net leverage ratios and minimum fixed charge coverage ratios (see note 8 for details), and includes limitations on, among other things, incurring additional indebtedness, paying dividends, acquisitions and certain investments. Due to the factors discussed above, there is significant uncertainty as to whether the Company will be able to comply with these covenants in future periods. Further, management concluded that substantial doubt exists about its ability to continue as a going concern as of the date of the issuance of these financial statements.
 The Company's conclusion that substantial doubt exists about its ability to continue as a going concern resulted in an explanatory paragraph in the auditor's report on the Company's financial statements as of and for the fiscal year ended December 31, 2023, the delivery to the lenders of which pursuant to the credit agreement would result in a default under the credit agreement in effect prior to giving effect to the third amendment to the credit agreement. On March 21, 2024, the Company entered into a third amendment to the credit agreement with Royal Bank of Canada, which extended the deadline until April 30, 2024 for delivery of (i) the audited financial statements for the fiscal year ended December 31, 2023, and (ii) the corresponding audit report without a "going concern" explanatory paragraph. The extension of the deadline to submit these documents effectively delays the default under the amended credit agreement until May 1, 2024. The third amendment also (i) defers the $4,000 quarterly minimum liquidity covenant as of March 31, 2024 until as of April 30, 2024 and (ii) clarified that a $1,500 monthly liquidity covenant was not applicable as of March 31, 2024. This amendment to the credit agreement was made, in part, to provide the Company with flexibility to complete the planned merger, to prevent the explanatory paragraph in the auditor's report from triggering a default under the credit agreement until May 1, 2024 and to allow certain discretionary cash payments that management intends to make prior to closing the planned merger from potentially triggering a default of the minimum liquidity covenant prior to April 30, 2024. Absent completion of the planned merger before May 1, 2024, which is expected to result in the repayment and termination of the credit agreement, or additional amendments to, or waivers under, the credit agreement, the Company expects that an event of default would be triggered once the audited financial statements are delivered to Royal Bank of Canada under the terms of the amended credit agreement.
 As a result, the Company has classified the outstanding balance of the loan with Royal Bank of Canada as a current liability in the consolidated balance sheet as of December 31, 2023.
 Any failure to comply with the other terms, covenants and conditions of the credit agreement or the debt agreements may also result in an event of default under such agreements, which could have a material adverse effect on the business, financial condition and results of operations.

 An event of default under the Company's amended credit agreement may constitute an event of default under the Company's subordinated promissory note with the former equity holders of IriSys and under the lease of the Company's manufacturing campus in Gainesville, Georgia. Upon the occurrence of an event of default under the subordinated promissory note, the entire unpaid principal amount, all accrued and unpaid interest and any other amounts due automatically accelerate and are due on the date of occurrence of an event of default. Upon the occurrence of an event of default under the lease agreement, remedies available to the lessor generally include, without limitation, terminating such lease agreement, repossessing and reletting the leased property, and recovery of all costs and losses paid or incurred by lessor as a result of such default. The exercise of the aforementioned remedies could have a material adverse effect on the Company's business, financial condition and results of operations.
 The Company's ability to comply with the amended financial covenants and contractual requirements under the Company's debt agreements is subject to the profitability of the Company's development and manufacturing operations, maintaining sufficient cash and cash equivalents to satisfy the minimum liquidity financial maintenance covenants, and the Company's success in implementing certain cost control measures, including the Company's strategic reorganization which included a reduction in force, reducing capital expenditures and managing working capital in order to improve the Company's ongoing financial performance and the Company's liquidity position. However, given the uncertainty associated with the ongoing slowdown in the pharmaceutical industry, the Company may not be successful in undertaking these measures and therefore substantial doubt is not alleviated by management's plans as of the date of issuance of these financial statements.
 The Company may extend and/or supplement the actions the Company is taking if the Company continues to experience the adverse conditions described above. If the Company is unable to achieve the results required to comply with the terms of the Company's credit agreement in one or more quarters over the next twelve months, the Company 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 additional amendment or waiver from its lenders. Obtaining future credit agreement waivers or amendments to the credit agreement is not within the Company's control, and if the Company is unsuccessful in doing so and, thereafter, and event of default under the credit agreement occurs, then the lenders may exercise the rights available to them under the credit agreement.
 On February 28, 2024, the Company entered into an Agreement and Plan of Merger, in connection with which a tender offer was commenced to acquire all of the Company's issued and outstanding shares of common stock for approximately $ 1.10 per share (see note 19). This information was not considered in the analysis of going concern because neither the completion of the tender offer nor the closing of the merger were within management's control as of the date of the issuance of these financial statements.
 These consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles assuming the Company will continue as a going concern. The going concern assumption contemplates the realization of assets and satisfaction of liabilities in the normal course of business. The consolidated financial statements do not include any adjustments to the carrying amounts and classification of assets, liabilities, and reported expenses that may be necessary if the Company were unable to continue as a going concern.

 (2) Summary of significant accounting principles
 Basis of presentation and principles of consolidation
 The accompanying consolidated financial statements of the Company and its subsidiaries have been prepared in accordance with U.S. generally accepted accounting principles ("U.S. GAAP"). The Company's consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated. The Company has determined that it operates in a single segment.

 Use of estimates
 The preparation of financial statements and the notes to the financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from such estimates.

 Business combinations
 The Company measures the purchase price paid for acquired companies based on fair value and allocates that purchase price to the assets acquired and liabilities assumed based on their estimated fair values. Valuations are performed to assist in determining the fair values of assets acquired and liabilities assumed, which requires management to make estimates and assumptions, in particular with respect to intangible assets. Management makes estimates of fair value based upon assumptions believed to be reasonable. These estimates are based in part on historical experience and information obtained from the acquired companies and expectations of future cash flows. Costs associated with business combinations are expensed as incurred as selling, general and administrative expenses.

 Cash and cash equivalents
 Cash and cash equivalents represent cash in banks and highly liquid short-term investments that have maturities of three months or less when acquired. These highly liquid short-term investments are both readily convertible to known amounts of cash and so near to their maturity that they present insignificant risk of changes in value due to changes in interest rates.

 Accounts receivable, net
 Accounts receivable generally represent amounts billed for services provided under our customer contracts and are recorded at the invoiced amount net of an allowance for credit losses, if necessary. We apply judgment in assessing the ultimate realization of our receivables, and we estimate an allowance for credit losses based on various factors, such as the aging of our receivables, historical experience, and the financial condition of our customers. The allowance for credit losses was not material as of the balance sheet dates presented.

 Inventory is stated at the lower of cost or net realizable value. Included in inventory are raw materials and work-in-process used in the production of commercial products. Items are issued out of inventory using the first-in, first-out method.
 Adjustments to inventory are determined at the raw materials, work-in-process, and finished good levels to reflect obsolescence or impaired balances. Factors influencing inventory obsolescence include changes in demand, product life cycle, product pricing, physical deterioration and quality concerns.

 Property, plant and equipment, net
 Property, plant and equipment are recorded at cost less accumulated depreciation and amortization. Depreciation and amortization are computed using the straight-line method over the estimated useful lives of the assets, which are as follows: three to ten years for furniture, office and computer equipment; six to ten years for manufacturing equipment; 40 years for buildings; and the shorter of the lease term or useful life for leasehold improvements. Repairs and maintenance costs are expensed as incurred. The Company reviews the carrying value of property, plant and equipment for recoverability whenever events occur or changes in circumstances indicate that the carrying amount of individual assets or asset groups may not be recoverable.
 The Company considers assets to be held for sale when (i) management commits to a plan to sell the asset; (ii) the asset is available for immediate sale in its present condition; (iii) the asset is actively being marketed for sale at a price that is reasonable given the estimate of current market value; and (iv) the sale is probable and will be completed within one year. Upon designation of an asset as held for sale, the Company records the asset's value at the lower of its carrying value plus selling costs or its estimated net realizable value.

 Goodwill and intangible assets
 Goodwill represents the excess of purchase price over the fair value of net assets acquired by the Company in a business combination. Goodwill is not amortized but assessed for impairment on an annual basis or more frequently if impairment indicators exist.
 The impairment analysis for goodwill consists of an optional qualitative assessment potentially followed by a quantitative analysis. If the Company determines that the carrying value of its reporting unit exceeds its fair value, an impairment charge is recorded for the excess.

 The Company performs its annual goodwill impairment test as of November 30th, or whenever an event or change in circumstance occurs that would require reassessment of the impairment of goodwill. In performing the evaluation, the Company assesses qualitative factors such as overall financial performance, actual and anticipated changes in industry and market conditions, and competitive environments. As a result of the most recent annual goodwill impairment test, the Company determined that there was no impairment of goodwill.
 Definite-lived intangible assets are amortized on a straight-line basis over their estimated useful life. The Company is required to review the carrying value of definite-lived intangible assets for recoverability whenever events occur or changes in circumstances indicate that the carrying amount of an asset or asset group may not be recoverable.

 Contingencies
 The Company's business exposes it to various contingencies including compliance with regulations, legal exposures and other matters. Loss contingencies are reflected in the financial statements based on management's assessments of their expected outcome or resolution:
 • They are recognized as liabilities on the balance sheet if the potential loss is probable and the amount can be reasonably estimated.

 • They are disclosed if the potential loss is material and considered at least reasonably possible.

 Significant judgment is required to determine probability and whether the amount can be reasonably estimated. Due to uncertainties related to these matters, accruals are based only on the information available at the time. As additional information becomes available, the Company reassesses potential liabilities and may revise previous estimates.

 Revenue recognition
 The Company generates revenues from manufacturing, profit-sharing and development services for multiple pharmaceutical companies.
 Manufacturing, packaging and other related services revenue is recognized upon transfer of control of a product to a customer, generally upon shipment, based on a transaction price that reflects the consideration the Company expects to be entitled to as specified in the agreement with the commercial partner, which could include variable consideration such as pricing and volume-based adjustments.
 Profit-sharing
 In addition to manufacturing and packaging 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. The Company has determined that, in its arrangements, the license for intellectual property is not the predominant item to which the profit-sharing relates, so the Company recognizes 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 the Company's commercial partners, which are outside of the Company's control. Factors causing price adjustments by the Company's 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.

 Development contracts generally do not contain variable consideration, but to the extent they do, the Company includes in the transaction price only amounts that are considered probable of being achieved and estimates the amount to be included using the most likely amount method.
 In contracts that require revenue recognition over time, the Company utilizes an input method that compares the cumulative achievement of contract tasks 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 the Company's services and can make changes to its process or specifications upon request.
 Contract assets represent revenue recognized for performance obligations completed or in process before an unconditional right to payment exists, and therefore invoicing or associated reporting from the customer regarding the computation of the net product sales has not yet occurred. Contract liabilities represent payments received from customers prior to the completion of associated performance obligations.

 Concentration of credit risk
 Financial instruments that potentially subject the Company to significant concentration of credit risk consist primarily of cash, cash equivalents and accounts receivable. The Company manages its cash and cash equivalents based on established guidelines that balance safety and liquidity.
 The Company's accounts receivable balances are primarily concentrated among three customers with balances in the aggregate accounting for 69 % of the balance as of December 31, 2023. If any of these customers' receivable balances should be deemed uncollectible, it could have a material adverse effect on the Company's results of operations and financial condition.
 The Company is dependent on its relationships with a small number of commercial partners. The Company's three largest customer contracts generated 70 % of revenues in 2023.

 The Company measures employee stock-based awards at grant-date fair value and recognizes employee compensation expense on a straight-line basis over the vesting period of the award. The Company accounts for forfeitures as they occur.
 Determining the appropriate fair value of stock options requires the use of subjective assumptions, including the expected life of the option and expected stock price volatility. The Company uses the Black-Scholes option pricing model to value its stock option awards. The assumptions used in calculating the fair value of stock-based awards represent management's best estimates and involve inherent uncertainties and the application of management's judgment. As a result, if factors change and/or management uses different assumptions, stock-based compensation expense could be materially different for future awards.
 The expected life of stock options was estimated using the "simplified method," which is based on the average of the vesting tranches and the contractual life of each grant. For stock price volatility, the Company uses the historical volatility of its publicly traded stock in order to estimate future stock price trends. The risk-free interest rate is based on U.S. Treasury notes with a term approximating the expected life of the option.
 Upon exercise of stock options or vesting of restricted stock units, the holder may elect to cover tax withholdings by forfeiting shares of an equivalent value. In such cases, the Company issues net new shares to the holder, pays the tax withholding on behalf of the participant and presents the payment similar to a capital distribution: a reduction to additional paid-in-capital and a financing cash outflow in the consolidated financial statements.

 Income taxes
 Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis, operating losses and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in operations in the period that includes the enactment date.

 In assessing the realizability of net deferred tax assets, the Company considers all relevant positive and negative evidence in determining whether it is more likely than not that some portion or all of the deferred income tax assets will not be realized. The realization of the gross deferred tax assets is dependent on several factors, including the generation of sufficient taxable income prior to the expiration of the net operating loss carryforwards. A full valuation allowance was recorded as of December 31, 2023 and December 31, 2022.
 Unrecognized income tax benefits represent income tax positions taken on income tax returns that have not been recognized in the consolidated financial statements. The Company recognizes the benefit of an income tax position only if it is more likely than not (greater than 50%) that the tax position will be sustained upon tax examination, based solely on the technical merits of the tax position. Otherwise, no benefit is recognized. The tax benefits recognized are measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. The Company does not anticipate significant changes in the amount of unrecognized income tax benefits over the next year.

 Leases
 The Company determines under U.S. GAAP if an arrangement is a lease at inception. The arrangement is a lease if it conveys the right to the Company to control the use of identified property, plant, or equipment for a period of time in exchange for consideration. Options to extend the lease are included in the lease term if the options are reasonably certain to be exercised. Operating lease expense is recognized on a straight-line basis over the lease term.
 In a sale-leaseback transaction, the Company determines if it relinquished control of the assets to the buyer-lessor. If control is not relinquished, it does not derecognize the asset and does not apply the lease accounting model.
 Operating lease balances are presented as separate captions on the balance sheets. Finance lease assets are included in property, plant and equipment. Finance lease liabilities are included in other liabilities.

 Income or loss per share
 Basic income or loss per share is determined by dividing net income or loss (the numerator) by the weighted average common shares outstanding during the period (the denominator). The denominator includes the weighted average common stock equivalents for warrants priced at $0.0001, as the underlying common shares will be issued for little cash consideration and the conditions for the issuance of the underlying common shares are met when such warrants are issued.
 To calculate diluted income or loss per share, the numerator and denominator are adjusted to eliminate the income or loss and the dilutive effects on shares, respectively, caused by outstanding common stock options, warrants and unvested restricted stock units, using the treasury stock method, if the inclusion of such instruments would be dilutive.
 For all years presented, the Company incurred a net loss. In periods of net loss, the inclusion of dilutive securities would be antidilutive because it would reduce the amount of loss incurred per share. As a result, no additional dilutive shares were included in diluted loss per share, and there were no differences between basic and diluted loss per share.
 The following table presents the potentially dilutive securities that were excluded from the computations of diluted loss per share:

 2023

 2022

 2021

 Restricted stock units

 2,762,057

 1,583,469

 731,525

 Stock options

 8,101,217

 7,317,274

 4,645,109

 Warrants

 484,857

 362,030

 348,664

 Amounts in the table above reflect the common stock equivalents of the noted instruments.

 (3) Inventory
 The following table presents the components of inventory:

 Raw materials

 $

 5,337

 $

 4,318

 Work in process

 3,310

 3,689

 Finished goods

 1,615

 2,294

 $

 10,262

 $

 10,301

 (4) Intangible assets, net
 The following table presents the components of other intangible assets:

 Gross value

 Accumulated amortization

 Carrying value

 Gross value

 Accumulated amortization

 Carrying value

 Customer relationships

 $

 18,900

 $

 16,674

 $

 2,226

 $

 18,900

 $

 16,188

 $

 2,712

 Backlog

 Trademarks and tradenames

 —

 Total

 $

 19,670

 $

 17,429

 $

 2,241

 $

 19,670

 $

 16,742

 $

 2,928

 The following table presents estimated future amortization of other intangible assets:

 Twelve months ending December 31,

 2024

 $

 2025

 2026

 2027

 2028

 Total

 $

 2,241

 (5) Property, plant and equipment, net
 The following table presents the components of property, plant and equipment:

 Land

 $

 $

 Building and improvements

 22,913

 22,751

 Furniture, office and computer equipment

 6,845

 6,388

 Manufacturing equipment

 68,002

 58,039

 Construction in process

 3,973

 7,024

 Property, plant and equipment, gross

 102,337

 94,806

 Less: accumulated depreciation

 ( 52,542

)

 ( 44,441

)

 Property, plant and equipment, net

 $

 49,795

 $

 50,365

 Interest expense capitalized to construction in process was $ 526 in 2023 and $ 1,195 in 2022.
 The Company is party to a sale and purchase agreement, as amended, to sell approximately 121 acres of land adjacent to its Gainesville, Georgia manufacturing campus for expected proceeds of $ 8,068. The cost of the land has been removed from property, plant and equipment, and together with cumulative closing costs of $ 155 through December 31, 2023, is currently presented as a held-for-sale asset of $ 2,813 within prepaid expenses and other current assets. The completion of the land sale is subject to customary closing conditions for transactions of this type, including completion of buyers permitting, which remained to be satisfied at December 31, 2023.

 (6) Accrued expenses and other current liabilities
 Accrued expenses and other current liabilities consist of the following:

 Payroll and related costs

 $

 5,807

 $

 4,276

 Professional and consulting fees

 Property, plant and equipment

 Contract liabilities (see note 11)

 2,211

 Accrued interest

 Accrued transaction costs

 3,653

 Other

 2,363

 1,029

 Total

 $

 10,814

 $

 12,686

 Accrued transaction costs at December 31, 2022 included 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.
 In 2023, the Company completed a strategic reorganization, including termination charges of $ 717, the write-off of certain San Diego assets valued at $ 595 and other related charges of $ 502. The restructuring actions resulted in a total charge of $ 1,814, of which $ 1,044 was recorded in cost of sales and $ 769 was recorded in selling, general and administrative expense. As of December 31, 2023, $ 126 of termination costs remain accrued and unpaid and are included in as part of payroll and related costs in the table above.

 (7) Commitments and contingencies
 The Company is involved, from time to time, in various claims and legal proceedings arising in the ordinary course of its business. 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.
 From time to time, the Company is involved in discussions with customers regarding ordinary disputes arising out of daily operations. Those types of discussions have increased in frequency following discussions the Company began to have in 2024 to customers of the San Diego facility regarding the Company's evaluation of certain strategic alternatives. Certain of those customers have responded that they may seek specific contractual remedies from the Company. The Company intends to vigorously assert its rights and protections under its agreements with customers. Based on the current status of the ongoing discussions, the Company does not believe that it will be required to pay any material amounts to resolve these disputes.
 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 December 31, 2023, the Company had outstanding cancelable and non-cancelable purchase commitments in the aggregate amount of $ 8,519 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 $ 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:

 Debt principal:

 Term loan under Credit Agreement

 $

 35,055

 $

 36,900

 Note with former equity holder of IriSys

 4,078

 4,078

 Other

 Debt principal

 39,472

 41,317

 Debt adjustments:

 Unamortized deferred issuance costs

 ( 2,172

)

 ( 2,476

)

 Unamortized original discount

 ( 205

)

 ( 297

)

 Carrying value of debt

 $

 37,095

 $

 38,544

 Current portion of debt

 $

 36,756

 $

 7,577

 Debt, net of current portion

 30,967

 Carrying value of debt

 $

 37,095

 $

 38,544

 The following table presents the future maturity of debt principal:

 Twelve months ending December 31,

 2024

 $

 39,149

 2025

 2026

 2027

 2028

 Thereafter

 Total debt principal

 $

 39,472

 Term loan under Credit Agreement
 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 is scheduled to be repaid in quarterly amounts totaling $ 3,690 in 2024 and $ 31,365 in 2025 (which is inclusive of the remaining principal balance due at maturity on December 16, 2025). The Company is also obligated to make a $ 7,500 mandatory principal prepayment upon completion of the sale of certain real property. Quarterly principal payments made after the completion of the land sale will be reduced proportionately to the reduction in principal.
 Substantial doubt exists that the Company will continue as a going concern (see note 1). Absent completion of the planned merger, which is expected to result in the repayment and termination of the credit agreement, or additional amendments to, or waivers under, the credit agreement, the Company expects that an event of default would be triggered once the audited financial statements are delivered to Royal Bank of Canada under the terms of the amended credit agreement. For these reasons, the entire principal balance of the term loan is classified as current and is presented as maturing during the twelve months ending December 31, 2024.

 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, debt issuances, upon a change of control and specified other events. The Company paid a fee of $ 369 and is required to increase its remaining quarterly principal payments by $ 231 as a result of not completing the sale of certain real property by a December 2023 deadline. Quarterly principal payment increases of $ 231 have been included in the debt maturity disclosures above.

 As of December 31, 2023, the Credit Agreement also included 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 through the quarter ending March 31, 2024, stepping down to 2.75:1.00 for each quarter thereafter; (ii) maintaining a fixed charge coverage ratio of 1.00:1.00 at September 30, 2023, increasing to 1.05:1.00 for the last day of each quarter thereafter; (iii) maintaining cash and cash equivalents on hand of no less than: (a) $ 4,000 on each of December 31, 2023 and March 31, 2024 (b) $ 3,500 on June 30, 2024 (c) $ 4,500 on September 30, 2024 (d) $ 5,000 on each of December 31, 2024, March 31, 2025, June 30, 2025 and September 30, 2025 and (e) $ 1,500 on every other month-end date through maturity. Beginning with the quarter ending December 31, 2023, funded capital expenditures, as defined, cannot exceed $ 9,000 in the aggregate for the preceding period of the four fiscal quarters most recently ended. As of December 31, 2023, the Company was in compliance with its financial covenants under the Credit Agreement. See notes 1 and 19 for additional information about subsequent amendments made to certain covenants related to the December 31, 2023 financial information as well as management's evaluation of forward looking covenant compliance.
 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 $ 1,086 in 2023 and $ 35 in 2022.
 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 December 31, 2023, the overall effective interest rate, including cash paid for interest and non-cash interest expense, was 13.8 %.
 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.
 During the term of Athyrium Credit Agreement, the Company paid financing costs and accreted an exit fee. These costs were recognized in interest expense using the effective interest method, resulting in non-cash interest expense of $ 4,411 in 2022 and $ 5,558 in 2021. 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. As a result of fully paying off the terms loans under the Athyrium Credit Agreement, the Company recorded a loss on extinguishment of debt of $ 4,996 primarily for the write-off of the remaining unamortized deferred financing costs.
 The overall effective interest rate, including cash paid for interest and non-cash interest expense, immediately prior to repayment was 16.4 %.
 Note with former equity holder of IriSys
 In connection with the acquisition of IriSys (see note 15), the Company issued a subordinated promissory note to a former equity holder of IriSys in the aggregate principal amount of $ 6,117 (as amended from time to time, 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 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 with Royal Bank of Canada.
 In August 2023, the Note was amended to defer the due date of the $ 2,039 payment due on August 12, 2023 of principal, plus accrued interest, 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 consideration for the payment deferral, the Company issued a warrant to purchase 100,000 shares of the Company's common stock, par value $ 0.01 per share at an exercise price of $ 1.00 with a term of three years.
 In connection with the Note, the Company has paid financing costs. These costs are being recognized as interest expense using the effective interest method over the term of the Note. At December 31, 2023, the overall effective interest rate, including the amortization of the original discount, was 15.3 %.
 Other
 In connection with the acquisition of IriSys (see note 15), the Company assumed a loan with a principal amount of $ 339.

 In May 2020, the Company entered into a $ 4,416 promissory note issued under a Federal COVID-19 relief program and shortly after prepaid $ 1,100 of principal to comply with emerging Federal guidance. The note had a two-year term and accrued interest at a rate of 1.0 % per annum, payable upon maturity. In June 2021, the Company received forgiveness of principal and interest on the note and recorded a gain on extinguishment of debt of $ 3,352, consisting of forgiveness of $ 3,316 of principal and $ 36 of accrued interest.

 (9) Other liabilities
 At December 31, 2023, other liabilities include a sale-leaseback liability of $ 39,010 and other liabilities of $ 1,322.
 Sale-leaseback liability
 In December 2022, the Company concurrently entered into sale and lease agreements related to its commercial manufacturing campus in Gainesville, Georgia. The selling price was $ 39,000, of which $ 1,750 was 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 December 31, 2023, the carrying value of the liability was $ 39,010, which is net of $ 820 of unamortized deferred financing costs. The Company will recognize interest expense at an approximately 11 % imputed rate of interest over a term of 20 years that includes the amortization of the deferred financing costs over the term of the lease. The gross liability balance 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
 In May 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.
 In August 2023, the Company closed an underwritten public offering of 14,640,000 shares of its common stock and pre-funded warrants to purchase 6,110,000 shares of common stock at an exercise price of $ 0.0001 per share for net proceeds to the Company of $ 7,352, after deducting underwriting discounts and commissions and offering expenses.
 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 was converted into ten shares of common stock automatically in May 2023 upon approval by the Company's shareholders to increase the number of authorized shares of common stock. As of December 31, 2023, no preferred stock was issued or outstanding.
 Warrants
 The following table presents the warrants outstanding to purchase shares of common stock as of December 31, 2023:

 Number of shares

 Exercise price per share

 Expiration date

 Athyrium warrants

 467,588

 $

 1.29

 November 17, 2024

 IriSys warrants

 100,000

 1.00

 August 13, 2026

 Pre-Funded warrants

 6,110,000

 0.0001

 None

 All outstanding warrants are equity-classified.

 (11) Revenue recognition
 The following table presents changes in contract assets and liabilities:

 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

 ( 10,826

)

 —

 Reclassification to revenue as the result of performance obligations satisfied

 1,809

 Changes in estimate

 1,416

 —

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

 12,560

 ( 360

)

 Balance at December 31, 2023

 $

 12,837

 $

 ( 762

)

 Less: noncurrent portion

 —

 Current portion

 $

 12,837

 $

 ( 543

)

 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:

 2023

 2022

 2021

 Point in time

 $

 73,316

 $

 70,325

 $

 60,992

 Over time

 21,319

 19,889

 14,368

 Total

 $

 94,635

 $

 90,214

 $

 75,360

 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) Retirement plan
 The Company has a voluntary 401(k) savings plan in which all employees are eligible to participate. The 401(k) plan features a discretionary employer match. The Company's current approach is to match 100 % of the employee contributions up to a maximum of 5 % of employee compensation, subject to company performance. Total Company contributions to the 401(k) plan were $ 1,537 for 2023, $ 1,348 for 2022 and $ 915 for 2021.

 (13) 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 December 31, 2023, a total of 6,369,829 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.
 No options were exercised in 2023. The intrinsic value of options exercised were negligible in 2022 and 2021.

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

 2023

 2022

 2021

 Weighted average grant date fair value

 $

 0.92

 $

 1.02

 $

 1.77

 Assumptions used to determine fair value:

 Range of expected option life

 5.5 - 6.0 years

 5.5 - 6.0 years

 5.5 - 6.0 years

 Expected volatility

 79 - 85 %

 79 - 81 %

 79 - 81 %

 Risk-free interest rate

 3.5 - 4.6 %

 1.5 - 4.0 %

 0.7 - 1.4 %

 Expected dividend yield

 —

 —

 —

 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

 Balance, December 31, 2022

 8,050,337

 $

 3.89

 Granted

 1,909,739

 1.31

 Forfeited or expired

 ( 2,224,541

)

 5.34

 Balance, December 31, 2023

 7,735,535

 2.83

 $

 7.3 years

 Exercisable

 4,682,431

 3.64

 6.5 years

 Included in the table above are 961,005 options outstanding as of December 31, 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).
 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 $ 1.30 in 2023, $ 1.32 in 2022 and $ 3.49 in 2021. The fair value of RSUs vested was $ 1,329 in 2023, $ 897 in 2022 and $ 2,663 in 2021.
 The following table presents information about recent RSU activity:

 Number of shares

 Weighted average grant date fair value

 Balance, December 31, 2022

 2,061,866

 $

 1.71

 Granted

 2,640,762

 1.30

 Vested

 ( 1,365,982

)

 3.17

 Forfeited

 ( 250,496

)

 1.84

 Balance, December 31, 2023

 3,086,150

 2.10

 Included in the table above are 40,503 time-based RSUs outstanding at December 31, 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).
 Other information
 The following table presents the classification of stock-based compensation expense:

 2023

 2022

 2021

 Cost of sales

 $

 1,953

 $

 1,868

 $

 2,797

 Selling, general and administrative expenses

 3,056

 3,558

 3,717

 Total

 $

 5,009

 $

 5,426

 $

 6,514

 As of December 31, 2023, there was $ 7,102 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 2.2 years.

 (14) Income taxes
 All of the Company's income from continuing operations is domestic. The components of the income tax provision from continuing operations are as follows:

 2023

 2022

 2021

 Current:

 Federal

 $

 —

 $

 $

 —

 State

 —

 Total current

 —

 Deferred:

 Federal

 ( 2,092

)

 1,399

 ( 2,396

)

 State

 ( 1,164

)

 4,266

 ( 677

)

 Total deferred

 ( 3,256

)

 5,665

 ( 3,073

)

 Change in valuation allowance

 3,345

 ( 4,650

)

 3,073

 Income tax expense

 $

 $

 1,105

 $

 —

 In 2022, the Company entered into a sale-leaseback transaction of its commercial manufacturing campus in Gainesville, Georgia, as discussed further in note 9. This transaction was treated as a sale for federal and state income tax purposes. The sale resulted in a taxable gain of approximately $ 25,350 that was mostly offset with net operating loss carryforwards, as discussed further below.
 A reconciliation of the statutory U.S. federal income tax rate to the Company's effective tax rate is as follows:

 2023

 2022

 2021

 U.S. federal statutory income tax rate

 %

 %

 %

 State taxes, net of federal benefit

 ( 2

)%

 %

 %

 Change in state tax rate

 %

 ( 22

)%

 ( 2

)%

 Nondeductible expenses

 ( 5

)%

 ( 5

)%

 ( 1

)%

 Research and development credits

 —

 ( 23

)%

 %

 Change in valuation allowance

 ( 16

)%

 %

 ( 27

)%

 Effective income tax rate

 ( 1

)%

 ( 6

)%

 —

 In 2022, the Commonwealth of Pennsylvania enacted a reduction to its corporate tax rate from 9.9 % to 8.9 % in 2023. Additionally, the rate will be further reduced by 0.5 % each year until 2031 when the rate will be 4.99 %. This resulted in a revaluation of outstanding state deferred taxes and the significant rate change above. In 2022, the Company also derecognized its deferred tax assets for research and development credits as discussed further below.
 The tax effects of temporary differences that gave rise to significant portions of the deferred tax assets were as follows:

 December 31,

 2023

 2022

 Deferred tax assets:

 Net operating loss carryforwards

 $

 35,650

 $

 33,352

 14,314

 12,944

 Sale-leaseback

 9,448

 9,093

 Stock-based compensation

 5,344

 4,681

 Other

 3,791

 3,950

 Gross deferred tax asset

 68,547

 64,020

 Valuation allowance

 ( 54,314

)

 ( 50,909

)

 Deferred tax assets, net of valuation allowance

 14,233

 13,111

 Deferred tax liabilities:

 Depreciation

 ( 11,088

)

 ( 10,750

)

 ( 3,112

)

 ( 2,082

)

 Other

 ( 1,197

)

 ( 1,294

)

 Deferred tax liabilities

 ( 15,397

)

 ( 14,126

)

 Net deferred tax liabilities

 $

 ( 1,164

)

 $

 ( 1,015

)

 The net deferred tax liability shown in the table above is recorded in other liabilities on the consolidated balance sheet at December 31, 2023. These net liabilities result from future tax years in which settlements of deferred tax liabilities are forecasted to exceed settlements of deferred tax assets. Beginning December 31, 2022, net operating loss carryforwards that could fully offset such liabilities are no longer available because they were all utilized for the December 2022 sale-leaseback transaction, as discussed further below.
 The Company continues to maintain a full valuation allowance against its U.S. and state deferred tax assets based on the available positive and negative evidence available. An important aspect of objective negative evidence evaluated was the Company's historical operating results over the prior three-year period. The Company maintains the valuation allowance as of December 31, 2023 as a result of historical losses, inclusive of discontinued operations, during the most recent three-year period. The Company will re-evaluate the need for a valuation allowance in future periods based on its operating results as a standalone entity.
 The following table summarizes carryforwards of net operating losses as of December 31, 2023:

 Amount

 Expiration

 Federal net operating losses, 2018 to 2022

 133,545

 No expiration

 State net operating losses that expire

 111,810

 2031 – 2044

 State net operating losses that do not expire

 35,165

 No expiration

 Under U.S. federal tax law, the utilization of a corporation's net operating loss and research and development tax credit carryforwards is limited following a greater than 50 % change in ownership during a three-year period. Any unused annual limitation may be carried forward to future years for the balance of the carryforward period. The Company has determined that it experienced ownership changes, as defined by the Act, during the 2008, 2014, 2016 and 2022 tax years; accordingly, the Company's ability to utilize the aforementioned carryforwards is subject to various annual limitations. As a result of the 2022 ownership change, the Company further determined its research and development tax credits would not be available in future periods, so the related deferred tax assets were written off in 2022. State net operating loss carryforwards may be further limited, including in Pennsylvania, which has a limitation of 40 % of taxable income after modifications and apportionment on state net operating losses utilized in any one year.
 At December 31, 2023, the Company had no accrued interest or penalties related to uncertain tax positions, and no amounts have been recognized in the Company's statements of operations. Due to net operating loss and tax credit carry forwards that remain unutilized, income tax returns for tax years since inception remain subject to examination by the taxing jurisdictions.

 (15) Acquisition of IriSys
 On August 13, 2021, the Company acquired all of the units of IriSys pursuant to a unit purchase agreement. IriSys provides contract pharmaceutical product development and manufacturing services, specializing in formulation research and development and good manufacturing practices of clinical trial materials and specialty pharmaceutical products. The acquisition advances the Company's ongoing growth strategy and leads to key synergies within business development, clinical development and commercial scale-up, as well as a strong cultural alignment and fit between the companies.
 The aggregate purchase price consideration was comprised of cash consideration, a subordinated promissory note and a contractual obligation to issue 9,302,718 shares of the Company's common stock, which were issued on February 14, 2022. The following table summarizes the consideration paid:

 August 13, 2021

 Cash paid, net of cash acquired

 $

 24,002

 Net working capital adjustment receivable

 ( 417

)

 Fair value of shares issuable to former equity holders of IriSys

 20,931

 Fair value of note with former equity holder of IriSys

 5,240

 Total estimated consideration

 $

 49,756

 The fair value of the shares issuable was determined by using the price of the Company's common stock on the acquisition date, less a discount for lack of marketability due to the shares being unregistered shares of the Company. The fair value of the note was determined using a discounted cash flow analysis that incorporated an estimate of the market interest rate for debt of similar terms and credit risk on the acquisition date.

 The Company incurred $ 1,211 in transaction costs related to the acquisition that were expensed as incurred and classified as selling, general and administrative expenses.
 The following table summarizes the fair values of the assets acquired and liabilities assumed at the date of acquisition:

 August 13, 2021

 Assets acquired:

 Accounts receivable

 $

 Prepaid expenses and other current assets

 Property and equipment

 9,304

 Operating lease asset

 5,648

 Intangible assets

 4,170

 Goodwill

 36,758

 Other assets

 Total assets acquired

 $

 58,216

 Liabilities assumed:

 Accounts payable

 $

 Accrued expenses and other current liabilities

 1,556

 Operating lease liability

 5,648

 Debt from finance loan

 Other liabilities

 Total liabilities assumed

 $

 8,460

 Net assets acquired

 $

 49,756

 The purchase price was allocated to the tangible assets and identifiable intangible assets acquired and liabilities assumed based on their acquisition date estimated fair values. The identifiable intangible assets are subject to amortization on a straight-line basis. The following table presents information about the acquired identifiable intangible assets:

 Fair value

 Weighted average amortization period

 Customer relationships

 $

 3,400

 7.0 years

 Backlog

 2.4 years

 Trademarks and tradenames

 1.5 years

 Total

 $

 4,170

 6.1 years

 The fair value of property, plant and equipment was determined using a cost approach valuation method. The customer relationships and acquired backlog were valued using the multi-period excess earnings method and trademarks and trade names were valued using the relief from royalty method. These methods require several judgments and assumptions to determine the fair value of intangible assets, including revenue growth rates, discount rates, EBITDA margins, and tax rates, among others. These nonrecurring fair value measurements are Level 3 measurements within the fair value hierarchy.
 Goodwill represents the excess of the purchase price over the net identifiable tangible and intangible assets acquired. The goodwill related to the acquisition was attributable to expected synergies, the value of the assembled workforce as well as the collective experience of the management team with regards to its operations, customers, and industry. The goodwill is deductible for tax purposes.
 Results for 2021 included revenue of $ 5,955 and net income of $ 440 from IriSys. The following table presents unaudited supplemental pro forma financial information as if the IriSys acquisition had occurred on January 1, 2020:

 2021

 2020

 Revenue

 $

 83,045

 $

 78,881

 Net income (loss)

 ( 11,809

)

 ( 28,290

)

 The pro forma financial information presented above has been prepared by combining the Company's historical results and the historical results of IriSys and adjusting those results to eliminate historical transaction costs and to reflect the effects of the acquisition as if they occurred on January 1, 2020. The effects of the acquisition on the historical pro forma financial information include additional depreciation and amortization expense from the increase of asset carrying values to fair value, the adoption of new accounting standards, additional interest expense from the issuance of the subordinated promissory note and the elimination of interest expense related to indebtedness of IriSys prior to the acquisition. These results do not purport to be indicative of the results of operations which actually would have resulted had the acquisitions occurred on the date indicated above, or that may result in the future, and do not reflect potential synergies or additional costs following the acquisition.

 (16) 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 $ 4 at December 31, 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 December 31, 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 December 31, 2023 due to the recent issuances of those instruments and taking into consideration management's current evaluation of market conditions.

 (17) 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 facility leases, which were the only material noncancelable leases at December 31, 2023, were as follows:

 Twelve months ending December 31,

 2024

 $

 1,193

 2025

 1,158

 2026

 1,097

 2027

 1,127

 2028

 1,159

 Thereafter

 2,521

 Total lease payments

 8,255

 Less imputed interest

 ( 2,997

)

 Total operating lease liabilities

 $

 5,258

 At December 31, 2023, the weighted average remaining lease term was 6.8 years, and the weighted average discount rate was 14.1 %. Total lease cost was $ 1,789 in 2023, $ 1,980 in 2022 and $ 814 in 2021.

 (18) Related Party Transactions
 The former equity holder of IriSys beneficially owned more than 10 % of the Company's common stock and became a related party on August 13, 2021 as a result of the acquisition of IriSys (see note 15). In December 2022, it ceased to meet the definition of a related party following the issuance of additional common stock.

 (19) Subsequent Event
 On February 28, 2024, the Company entered into an Agreement and Plan of Merger (the "Merger Agreement") with CoreRx, Inc., ("CoreRx"), and Cane Merger Sub, Inc., a wholly owned subsidiary of CoreRx ("Merger Sub"). Pursuant to the Merger Agreement, and upon the terms and subject to the conditions therein, CoreRx will commence a tender offer, or the Offer, to acquire all of the Company's issued and outstanding shares of common stock, par value $ 0.01 per share, for approximately $ 1.10 per share of common stock, in cash, subject to any applicable withholding of taxes and without interest. The Offer will initially expire one minute following 11:59 p.m. (Eastern Time) on the date that is 20 business days following the commencement of the Offer, subject to extension under certain circumstances.
 Following the consummation of the Offer, upon the terms and conditions set forth in the Merger Agreement, Merger Sub will merge with and into the Company, with the Company continuing as the surviving corporation in the Merger and a wholly owned subsidiary of CoreRx. Pursuant to the terms and subject to the conditions of the Merger Agreement, the Merger will be governed by and effected under Section 321(f) of the Pennsylvania Business Corporation Law, with no shareholder vote required to consummate the Merger. As a result of the Merger, the Company will cease to be a publicly traded company. The Merger Agreement includes customary representations, warranties and covenants of the Company, CoreRx and Merger Sub. The Company expects that the outstanding debt under the Credit Agreement and the Note with former equity holder of IriSys will be repaid on or about the closing the Merger Agreement. However, there can be no assurance that the conditions to the completion of the Offer and the Merger will be satisfied or waived, that the Offer and the Merger will be completed on the expected timeframe or at all, or that the Offer and the Merger will be consummated as contemplated by the Merger Agreement.
 On March 21, 2024, the Company entered into a third amendment to the credit agreement with Royal Bank of Canada, which extended the deadline until April 30, 2024 for delivery of (i) the audited financial statements for the fiscal year ended December 31, 2023, and (ii) the corresponding audit report without a "going concern" explanatory paragraph. The extension of the deadline to submit these documents effectively delays the default under the amended credit agreement until May 1, 2024. The third amendment also (i) defers the $4,000 quarterly minimum liquidity covenant as of March 31, 2024 until as of April 30, 2024 and (ii) clarified that a $1,500 monthly liquidity covenant was not applicable as of March 31, 2024.