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Item 1A. Risk Factors

2026-04-08 compared with 2025-03-31 · 71 added, 149 removed, 348 unchanged (39% of the section changed)

An investment in our securities is highly speculative and involves a high degree of risk.

We face a variety of risks that may affect our operations or financial results and many of those risks are driven by factors that we cannot control or predict.

You should carefully consider the risks described below together with all of the other information in this Report, including our consolidated financial statements and the related notes and the information described in the section entitled “Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and in our other filings with the SEC.

If any of the risks described below occur, our business, financial condition, results of operations and prospects could be materially adversely affected.

In that case, the market price of our common stock would likely decline, and investors could lose all or a part of their investment.

Only those investors who can bear the risk of loss of their entire investment should consider an investment in our securities.

Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also impair our operations.

Summary of Risk Factors

● We have a history of losses, anticipate continued operating losses in the future, and may not be able to achieve or maintain profitability.

If we cannot achieve or maintain profitability, stockholders could lose all or part of their investment.

● Our quarterly results of operations are likely to vary from period to period, which could cause the market price of our common stock to fluctuate or decline.

● We may not be able to develop technologies and products to satisfy changes in customer demand or industry standards, and our competitors could develop products that decrease the demand for our products.

● If MicroLED technology is not widely adopted by display manufacturers, our business would be harmed.

● We compete in highly competitive markets characterized by rapid technological changes, and existing and new companies may introduce products that compete with ours, which may adversely affect our business and operating results.

● If we are unable to establish sales capabilities on our own or through third parties, we may not be able to market and sell our existing or future products - or generate product revenue.

● We rely on access to third-party facilities for prototyping and commercial process development and expect to enter into arrangements with third parties to fabricate our products at commercial scale.

The loss of access to a third-party facility, or our inability to enter into agreements with third-party fabricators could have a material adverse effect on our business development .

● Because we will depend on third-party fabricators to manufacture products for us, we will be susceptible to manufacturing delays and pricing fluctuations that could prevent us from shipping customer orders on time, if at all, or on a cost-effective basis, which may result in the loss of sales, income and customers.

● We rely on our management team and other key employees and will need additional personnel to grow our business.

The loss of one or more key employees or our inability to attract and retain qualified personnel could harm our business.

● Any failure by us to protect our proprietary technologies or maintain the right to use certain technologies may negatively affect our ability to compete.

● We incur significant costs as a result of operating as a public company.

● If we fail to maintain effective internal controls, we may not be able to report financial results accurately or on a timely basis, or to detect fraud, which could have a material adverse effect on our business or share price.

● An active trading market for our common stock may not develop or be sustained, which may make it difficult for investors to sell shares of our common stock and may make it difficult for us to raise capital.

● If our common stock were to be delisted from Nasdaq due to our failure to meet all applicable Nasdaq listing requirements the market liquidity of our common stock would be adversely affected, the market price of our common stock could decrease and our ability to access the capital markets could be negatively impacted.

● We do not anticipate paying dividends on our common stock, and investors may lose the entire amount of their investment.

Risks Related to Our Financial Position, Financial Reporting Matters and Need for Capital

We have generated no revenue from commercial sales to date, and our future profitability is uncertain.

We were incorporated in 2009, and since inception we have incurred losses and expect to continue to operate at a net loss for at least the next several years as we continue our research and development efforts and develop manufacturing, sales, marketing and distribution capabilities for our TRUFLEX® materials.

Our comprehensive losses for the years ended December 31, 2025 and 2024 were $13.0 million and $9.9 million, respectively, and our accumulated deficit as of December 31, 2025 was $125.1 million.

There can be no assurance that the products and technologies under development by us will achieve commercial acceptance or generate meaningful revenue.

Furthermore, there can be no assurance that if our products are adopted by customers they will be successfully commercialized at scale, and the extent of our future losses and the timing of our profitability are highly uncertain.

If we are unable to achieve profitability, we may be unable to continue our operations.

If we fail to obtain the capital necessary to fund our operations, we will be unable to continue or complete our product development, and you will likely lose your entire investment.

We will need to raise capital from time to time to continue the development of our products and technologies.

There can be no assurance that any revenues we may generate in the future will be sufficient to fund our ongoing operations.

We believe that we will need to raise substantial additional capital to fund our operations and the development and commercialization of our products and technologies, and there can be no assurance that such capital will be available on acceptable terms, or at all.

Risks Related to Our Business and the Industry in Which We Operate

We have a history of losses, anticipate continued operating losses in the future, and may not be able to achieve or maintain profitability.

If we cannot achieve or maintain profitability, stockholders could lose all or part of their investment .

Since our inception, we have generated substantial net losses as we have devoted our resources to the development of our technology, and our business model has not been proven.

As of December 31, 2024, we had an accumulated deficit of $114.6 million.

For the years ended December 31, 2024 and December 31, 2023 our total comprehensive loss was $9.9 million and $9.6 million, respectively.

We expect our operating losses to continue for the foreseeable future as we continue to invest in our infrastructure and research and development of our technologies.

These efforts may be more costly than we expect, and we may not be able to generate revenue to offset our increased operating expenses.

If we are unable to generate substantial revenue, we may never become profitable or be able to maintain any future profitability.

If this were to occur, our stockholders could lose all or part of their investment.

Our recurring losses from operations have raised substantial doubt regarding our ability to continue as a going concern and will likely require additional capital to support our business and objectives .

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Until such time, if ever, as we can generate substantial product revenue, we expect to finance our working capital requirements through a combination of equity offerings, debt financings, collaborations, strategic alliances and marketing, distribution or licensing arrangements.

To the extent that we raise additional capital through the sale of equity or convertible debt securities, your ownership interest will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect your rights as a common stockholder.

To the extent that we raise additional capital through the sale of equity or

convertible debt securities, your ownership interest will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect your rights as a common stockholder.

Debt financing and preferred equity financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making acquisitions or capital expenditures or declaring dividends.

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If we are unable to raise additional funds through equity or debt financings or other arrangements when needed, we may be required to delay, limit, reduce or terminate commercialization, our research and product development, or grant rights to develop and market our products that we would otherwise prefer to develop and market ourselves, it may also impact our ability to continue as a going concern.

The perception that we may not be able to continue as a going

concern may cause others to choose not to deal with us due to concerns about our ability to meet our contractual obligations.

The perception that we may not be able to continue as a going concern may cause others to choose not to deal with us due to concerns about our ability to meet our contractual obligations.

Our quarterly results of operations are likely to vary from period to period, which could cause the market price of our common stock to fluctuate or decline.

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In addition, products or technologies developed by others may render our products or technologies obsolete or non-competitive.

Further, if our products are not in compliance with prevailing industry

standards, such non-compliance could materially and adversely affect our financial condition, cash flows and results of operations.

If MicroLED technology is not widely adopted by display manufacturers, our business would be harmed.

A significant share of our growth is dependent on the adoption by display manufacturers of MicroLED technology.

To date, MicroLED technology has not achieved widespread adoption because of the complexity and high cost of manufacturing MicroLED displays using existing materials, device architecture and processes.

Given the high cost of manufacturing (resulting in approximately $100,000 sales price for a large high-definition display screen), it is unlikely that MicroLED technology will be adopted for use in consumer products unless significant efficiencies and fundamental process changes in the manufacturing of MicroLED displays occur.

For example, in 2024 Apple Inc.

abandoned a project to manufacture its own MicroLED displays for its Apple Watch products.

While we believe our technology, including its use in chip-first architectures, has the potential to make manufacturing of MicroLED displays more efficient and cheaper, our technology has not been utilized commercially and there can be no assurance that our technology will reduce the cost and improve the efficiency of manufacturing MicroLEDs to the point where display manufacturers can profitably price MicroLED displays for mass market consumption.

In addition, even if our technology achieves its goals, there may be technical delays in implementing our technology that could affect the willingness of display manufacturers to manufacture MicroLEDs at commercial scale or could affect the timing and extent of such manufacturing.

It is also possible that, despite the advantages of MicroLED displays, other technologies that, while not having all of benefits of MicroLEDs, are less expensive or easier to manufacture, will emerge and be adopted by display manufacturers for similar applications.

If the market for MicroLED technology does not develop as we expect or develops more slowly than we expect, our business, prospects, financial condition and operating results will be harmed.

Further, if our products are not in compliance with prevailing industry standards, such non-compliance could materially and adversely affect our financial condition, cash flows and results of operations.

We participate in highly competitive markets characterized by rapid technological changes, and existing and new companies may introduce products that compete with ours, which may adversely affect our business and operating results .

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Some of our larger competitors have substantially broader product offerings and may be able to leverage their relationships with channel partners and customers based on other products to gain business in a manner that discourages users from purchasing our products, including by selling at zero or negative margins or product bundling.

Potential customers may also prefer to purchase from their existing suppliers rather than a new supplier regardless of

product performance or features.

Potential customers may also prefer to purchase from their existing suppliers rather than a new supplier regardless of product performance or features.

As a result, even if the features of our products are superior, customers may not purchase our products.

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Building an internal sales organization is time-consuming and expensive and will significantly increase our compensation expense.

We may be unable to secure contracts with distributors on favorable terms or at all.

We may be unable to secure

contracts with distributors on favorable terms or at all.

We have no prior experience in the marketing, sale and distribution of our products and there are significant risks involved in building and managing a sales organization, including our ability to hire, retain and motivate qualified individuals, generate sufficient sales leads, provide adequate training to sales and marketing personnel, and effectively oversee a geographically dispersed sales and marketing team.

If we are unable to build an effective sales organization and/or if we are unable to secure relationships with third-party distributors, we will not be able to successfully commercialize our products, our future product revenue will suffer, and we would incur significant additional losses.

We rely on access to third-party facilities for prototyping and commercial process development and expect to enter into arrangements with third parties to fabricate our products at commercial scale.

The loss of access to a third-party facility, or our inability to enter into agreements with third-party fabricators could have a material adverse effect on our business development .

We do not have our own prototyping or fabrication facilities, and we rely on CPI for access to its facility for fabrication of prototypes and demonstration products.

We also rely on access to ITRI’s facilities for the development of commercial processes for the future commercial manufacturing of our products.

The current agreement with CPIIS expires on March 31, 2025, but has been extended as described below.

CPIIS is in the process of reviewing the operation of the clean room facility used by Smartkem and is seeking to reduce the facility’s operating costs by, among other things, consolidating its clean rooms and seeking to pass more of its operating costs to users including us.

On March 28, 2025, we entered into an agreement with CPIIS pursuant to which the term of the current CPIIS agreement was extended until May 31, 2025.

We intend to use the extension period to complete negotiations with CPIIS regarding a longer-term agreement.

Under the terms of the extension, we have agreed to an increase in our share of the costs of the CPI facility and to increased minimum usage obligations during the extension period.

We expect that any longer-term agreement with CPIIS will require us to bear additional costs.

If we are unable to reach a new agreement with CPIIS on terms that are satisfactory to us, we intend to find an alternative facility.

We believe that there are adequate alternative sites available at which we could conduct our prototyping operations.

In the event that we decide to move our prototyping operation to an alternative facility, we believe that the move would take between two and nine months, depending on equipment availability and any required facility modifications, during which time we would incur additional costs to prepare the new facility and install any necessary equipment.

In such event, we intend to schedule our prototyping activities to minimize any disruption to those operations and would use ITRI’s prototyping line as an interim facility for such work.

If we are unable to obtain access to another prototyping facility on similar terms to our arrangements with CPI, our business would be materially and adversely affected.

We have approximately 11 employees located at CPI.

Even if we are able to locate a suitable replacement facility on acceptable terms, we cannot assure investors that the key employees at CPI would accept positions at a new facility, particularly if it is located remotely from the CPI facility.

Even if we locate a suitable replacement facility, it is possible that our ability to engage in product development,

prototyping of demonstration products and process improvement activities may be significantly delayed as a result of the relocation of those functions.

If we lost access to ITRI’s fabrication facility, our ability to co-develop commercial scale manufacturing processes could also be significantly delayed until such time as we found a suitable replacement facility and completed the transfer of technology and know-how from ITRI to another fabricator.

Accordingly, the loss of access to ITRI’s facility could delay our commercialization efforts.

We expect to enter into arrangements with third-party fabricators to produce products for customer demonstration and for commercial product sale, other than for our formulated materials.

The third-party fabricators are often located in Asia but could also be in the United States.

No assurance can be given that we will be able to negotiate agreements with third-party fabricators on terms that are acceptable to us.

Third-party fabricators may not have the ability to provide us with access to adequate capacity for our needs and our customers’ needs.

We will also have less control over delivery schedules and overall support compared to competitors who have commercial fabrication operations.

If the fabricators we use are unable or unwilling to manufacture our products in our required volumes, or at specified times, we may have to identify and qualify acceptable additional or alternative fabricators.

This qualification process could typically take three to six months, and we may not find sufficient capacity in a timely manner or at an acceptable cost to satisfy our production requirements.

Some companies that supply products to our customers are similarly dependent on a limited number of suppliers.

These other companies’ products may represent important components of the displays into which our products are designed.

If these companies are unable to produce the volumes demanded by our customers, our customers may be forced to slow down or halt production on the equipment for which our products are designed, which could materially impact our order levels and our results of operations .

The transfer of our technology and manufacturing know-how to a third-party commercial manufacturer may result in unanticipated costs and delays that could have a material and adverse effect our business, financial condition and results of operations.

We do not have the ability to produce our flexible transistors at commercial scale.

We have engaged ITRI, a third-party foundry service in Taiwan, to assist us in developing a commercial manufacturing process for our products with the ultimate goal of enabling one or more third parties to manufacture our products at commercial scale for customers that do not have their own facilities.

While we believe that display products utilizing our proprietary OTFTs can be made using existing commercial processes, we expect that transferring our technology and manufacturing know-how to a third-party manufacturer will be a time-intensive and costly process.

We may also be required to adapt our manufacturing processes to enable our display products to be made at commercial scale.

Any contract manufacturer will be required to manufacture products to our customers’ specifications.

We may be required to expend significant management and financial resources to enable contract manufacturers to meet those specifications.

In addition, any contract manufacturer may not be able to manufacture products meeting the required specifications at the cost, in the volume or on the schedule that we expect.

As a result, we may be subject to unanticipated costs and delays that could have a material adverse effect on our business, financial condition and results of operations

Because we will depend on third-party fabricators to manufacture products for us, we will be susceptible to manufacturing delays and pricing fluctuations that could prevent us from shipping customer orders on time, if at all, or on a cost-effective basis, which may result in the loss of sales, income and customers.

We expect to rely on third-party fabricators to manufacture products containing our proprietary inks for certain of our future customers.

Our reliance on these third-party fabricators reduces our control over the manufacturing process and exposes us to risks, including reduced control over quality assurance, product costs, product supply and timing.

Any manufacturing disruption by these third-party fabricators could severely impair our ability to fulfill orders.

Our reliance on third-party fabricators also creates the potential for infringement or misappropriation of our intellectual property.

If we are unable to manage our relationships with third-party fabricators effectively, or if our third-party fabricators experience delays or disruptions for any reason, increased manufacturing lead-times, capacity constraints or quality control problems in their fabrication operations, or if they otherwise fail to meet our future requirements for timely delivery, our ability to ship products to our customers would be severely impaired, and our business and results of operations would be seriously harmed.

We expect that our sales cycles will be long and unpredictable, and our sales efforts will require considerable time and expense.

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Additionally, to the extent our competitors develop products that our prospective customers view as equivalent or superior to ours, the average duration of our sales cycles may increase, and our sales efforts may be less successful.

Risks Related to Our Operations and Manufacturing

We rely on access to third-party facilities, including ITRI, for prototyping and commercial process development, and the loss of access to such facilities could have a material adverse effect on our business.

We rely on third-party facilities, including the Industrial Technology Research Institute ("ITRI") in Taiwan, for prototyping and the development of commercial-scale manufacturing processes for our TRUFLEX® materials.

Our ability to demonstrate our technology to potential customers and to develop commercially viable manufacturing processes depends in significant part on our continued access to these facilities.

If our agreements with ITRI or other third-party facility providers are terminated or not renewed, or if we are unable to enter into new agreements with alternative third-party fabricators on acceptable terms, our ability to develop and commercialize our products could be materially impaired.

In addition, we expect to rely on third-party fabricators to manufacture our products at commercial scale.

Such third-party fabricators may experience manufacturing delays, capacity constraints, quality control issues or pricing fluctuations that could prevent us from delivering products to customers on time or on a cost-effective basis, which could result in the loss of sales and customers and have a material adverse effect on our business, financial condition and results of operations.

Our current operations are concentrated, and in the event of an earthquake, terrorist attack or other disaster affecting these locations or those of our major suppliers, our operations may be interrupted, and our business may be harmed.

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Certain of our partners are and many of our potential customers will be located in Taiwan, which increases the risk that a natural disaster, epidemic, labor strike, war or political unrest could have a material adverse effect on our business, financial condition and results of operations.

Certain of our partners, including ITRI, are located in Taiwan.

Certain of our partners are located in Taiwan.

In addition, we expect that many of our potential customers will be located in Taiwan.

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Public health crises, such as pandemics, epidemics, or widespread outbreaks of infectious disease, have had, and could in the future have, an adverse effect on our business, financial condition and results of operations .

The occurrence of pandemics, epidemics, or widespread outbreaks of infectious diseases, as well as the imposition of related public health measures and travel and business restrictions or other actions that may be taken by governmental authorities in an effort to contain such pandemics, epidemics or outbreaks, have had, and could in the future have, a material adverse effect on our business.

material adverse effect on our business.

For example, the COVID-19 global pandemic adversely impacted us by disrupting our operations and increasing our costs as a result of, among other things, measures to address the health and safety of our employees, government work from home directives, quarantines, worker absenteeism as a result of illness, social distancing and travel restrictions that prevented face to face meetings with joint development partners, prospects and suppliers.

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The degree to which the future pandemics and similar events ultimately impact our business and results of operations will depend on future developments beyond our control.

Risks Related to Our International Operations and Regulatory Compliance

We are subject to risks associated with international sales and operations.

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As a result, we must hire and train experienced personnel to staff and manage our foreign operations.

To the extent that we experience difficulties in recruiting, training, managing and retaining international employees, particularly managers and other members of our international sales team, we may experience difficulties in sales productivity in, or market penetration of, foreign markets.

To the extent that we experience difficulties in recruiting, training, managing and retaining international employees, particularly managers and

other members of our international sales team, we may experience difficulties in sales productivity in, or market penetration of, foreign markets.

We may enter into strategic distributor and reseller relationships with companies in certain international markets where we do not have a local presence.

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We are also subject to other laws and regulations governing international operations, including regulations administered by the governments of the U.K and the U.S., and authorities in the European Union, including applicable export control regulations, economic sanctions and embargoes on certain countries and persons, anti-money laundering laws, import and customs requirements and currency exchange regulations, collectively referred to as the Trade Control laws.

Any violation of the Bribery Act, FCPA or other applicable anti-bribery, anti-corruption laws and anti-money laundering laws including Trade Control laws could result in whistleblower complaints, adverse media coverage, investigations, imposition of significant legal fees, loss of export privileges, severe criminal or civil sanctions or suspension or debarment from government contracts, substantial diversion of management’s attention, drop in stock

price or overall adverse consequences to our business, all of which may have an adverse effect on our reputation, business, financial condition, and results of operations.

In order to comply with environmental laws and regulations, we may need to modify our activities or incur substantial costs, and such laws and regulations, including any failure to comply with such laws and regulations, could subject us to substantial costs, liabilities, obligations and fines.

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While the ultimate outcome of investigations, inquiries, information requests and legal proceedings is difficult to predict, defense of litigation claims can be expensive, time-consuming, and distracting, and adverse resolutions or settlements of those matters may result in, among other things, modification of our business practices, costs and significant payments, any of which could have a material adverse effect on our business, financial condition, results of operations and prospects.

Risks Related to Our Information Technology and Cybersecurity

Security breaches, computer malware, computer hacking attacks and other security incidents could harm our business, reputation, brand and operating results.

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Any failure by us to protect our proprietary technologies or maintain the right to use certain technologies may negatively affect our ability to compete.

To compete effectively, we must protect our intellectual property.

We rely on a combination of patents, trademarks, copyrights, trade secret laws, confidentiality procedures and licensing arrangements to protect our intellectual property rights.

We hold numerous patents and have a number of pending patent applications.

However, our portfolio of patents evolves as new patents are issued and older patents expire, and the expiration of patents could have a negative effect on our ability to prevent competitors from duplicating certain or all of our products.

We might not succeed in obtaining patents from any of our pending applications.

Even if we are awarded patents, they may not provide any meaningful protection or commercial advantage to us, as they may not be of sufficient scope or strength or may not be issued in all countries where our products can be sold.

In addition, our competitors may be able to design around our patents.

SmartKem agreed to assign, transfer, and convey to SmartKem IP LLC, a Delaware limited liability company, certain of the Company's right, title, and interest in and to certain patents and patent applications, together with all continuations, continuations-in-part, divisionals, reissues, reexaminations, extensions, foreign counterparts, and all rights to sue for past, present, and future infringement thereof.

In furtherance thereof, the Company and its subsidiary, SmartKem Ltd, a corporation organized under English law (the "Assignor"), entered into an Intellectual Property Assignment Agreement (the "IP Assignment Agreement") with SmartKem IP LLC (the "Assignee"), pursuant to which the Assignor irrevocably conveyed, transferred, and assigned to the Assignee certain of the Assignor's right, title, and interest in and to certain patents, patent applications, and related intellectual property rights, together with all royalties, fees, income, and proceeds related thereto, and all claims and causes of action with respect thereto.

The Company also agreed to maintain the employment of a designated patent liaison for a period of six (6) months following the effective date of the Settlement Agreements to provide the Holders with information, assistance, and support relating to the Assigned IP.

There can be no assurance that an issued patent will remain valid and enforceable in a court of law through the entire patent term.

Should the validity of a patent be challenged, the legal process associated with defending the patent can be costly and time consuming.

Issued patents can be subject to oppositions, interferences and other third-party challenges that can result in the revocation of the patent or limit patent claims such that patent coverage lacks sufficient breadth to protect subject matter that is commercially relevant.

subject matter that is commercially relevant.

Competitors may be able to circumvent our patents.

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This could consume significant resources and divert the efforts of our technical and management personnel, regardless of the litigation’s outcome.

Risks Related to our Financial Control Environment

Risks Related to Our Financial Controls and Reporting

We incur significant costs as a result of operating as a public company.

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In addition, Nasdaq listing requirements and other applicable securities rules and regulations impose various requirements on public companies.

Our management and other personnel are required to devote a substantial amount of time to these compliance initiatives.

Moreover, these rules and regulations significantly increase our legal and

financial compliance costs and make some activities more time-consuming and costly.

Our management and other personnel are required to devote a substantial amount of time to these

compliance initiatives.

Moreover, these rules and regulations significantly increase our legal and financial compliance costs and make some activities more time-consuming and costly.

Among other things, we are required to:

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A material weakness is defined as a deficiency, or combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of annual or interim financial statements will not be prevented or detected and corrected on a timely basis.

In connection with our preparation of our financial statements for the second quarter of 2023, a material weakness in our internal control over financial reporting was identified relating to the complex financial reporting and accounting associated with our private placement that closed in June of 2023.

a non-cash item.

None of our filed financial statements were impacted.

Management implemented measures designed to ensure that the control deficiency contributing to the material weakness was remediated, such that the controls are designed, implemented, and operating effectively.

The remediation actions included the enhancement of control activity evidence, improvement of management review controls, and recording of the fair value of the warrant liability.

In connection with the preparation of our financial statements for the first quarter of 2024, a material weakness in our internal control over financial reporting was identified relating to the complex financial reporting and accounting associated with the Consent, Conversion and Amendment Agreement we entered into on January 26, 2024, a non-cash item .

None of the Company’s filed financial statements were impacted.

The remediation actions included the implementation of an additional step in the valuation process used to work with external consultants to review all equity-related activity and events that may have occurred since the prior fair value calculations were performed.

Additionally, the Company’s move to Nasdaq has facilitated a change in its approach to the stock price input used in its fair value models.

Rather than using a calculated stock price in these models, the Company now uses the quoted stock price thereby reducing subjectivity and judgment in the fair value models and equity-based compensation calculations.

Our management evaluated the effectiveness of our disclosure controls and procedures as defined in Rule 13a-15 and 15d-15(e) under the Exchange Act, as of December 31, 2024.

Based on this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were effective at a reasonable assurance level as of December 31, 2024.

In connection with the preparation of our financial statements for the first quarter of 2025, we identified a material weakness in our internal control over financial reporting relating to the lack of an independent review and assessment of our internal controls environment.

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected and corrected on a timely basis.

Although the financial statements contained in this Annual Report on Form 10-K reflect the appropriate accounting for the relevant period and no prior financial statements were impacted, we cannot assure you that we will be able to remediate this material weakness in a timely manner, or at all, or that additional material weaknesses or significant deficiencies in our internal control over financial reporting will not be identified in the future.

Due to fiscal constraints during the year ended December 31, 2025, we were not able to fund an independent assessment of our internal control environment;

however, with the financing activities described in Note 15 to our consolidated financial statements, we intend to reinstitute the independent evaluation of our internal control environment.

If we fail to remediate this material weakness or if we identify additional material weaknesses or significant deficiencies in our internal controls, we may be unable to accurately report our financial results or report them within the timeframes required by law or applicable stock exchange regulations, which could adversely affect investor confidence in the accuracy and completeness of our financial reports and cause the price of our common stock to decline.

In addition, failure to maintain effective internal control over financial reporting could potentially subject us to sanctions or investigations by the SEC or other regulatory authorities or to stockholder litigation, any of which could require additional financial and management resources and have a material adverse effect on our business, financial condition, and results of operations.

As of the end of the year covered by this Report, we were unable to carry out an independent evaluation of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) of the Exchange Act) pursuant to Rule 13a-15 of the Exchange Act.

As a result, and as of the date of this evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that our disclosure controls and procedures were not effective as of December 31, 2025.

See “Item 9A Controls and Procedures.”

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Risks Related to Our Common Stock

We are an “emerging growth company” and we cannot be certain if the reduced reporting requirements applicable to emerging growth companies will make our common stock less attractive to investors.

We are an “emerging growth company” as defined in the JOBS Act.

For as long as we continue to be an emerging growth company, we may take advantage of exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies, including (1) not being required to comply with the

auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, (2) reduced disclosure obligations regarding executive compensation in this Report and our periodic reports and proxy statements, and (3) exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved.

In addition, as a smaller reporting company, we are only required to provide two years of audited financial statements and two years of selected financial data in this Report.

We could be an emerging growth company until the fifth anniversary of the first sale of our common stock pursuant to a registration statement occurs, although circumstances could cause us to lose that status earlier, including if the market value of our common stock held by non-affiliates exceeds $700.0 million as of June 30 of any year or if we have total annual gross revenue of $1.235 billion or more during any fiscal year, in which cases we would no longer be an emerging growth company as of the following December 31, or if we issue more than $1.0 billion in nonconvertible debt during any three-year period, in which case we would no longer be an emerging growth company immediately.

Even after we no longer qualify as an emerging growth company, we may still qualify as a “smaller reporting company” which would allow us to take advantage of many of the same exemptions from disclosure requirements including not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act and reduced disclosure obligations regarding executive compensation in this Report and our periodic reports and proxy statements.

We cannot predict if investors will find our common stock less attractive because we may rely on these exemptions.

If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our share price may be more volatile.

Under the JOBS Act, emerging growth companies can also delay adopting new or revised accounting standards until such time as those standards apply to private companies.

We have elected to use the extended transition period under the JOBS Act until the earlier of the date we (i) are no longer an emerging growth company or (ii) affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act.

As a result, our financial statements may not be comparable to companies that comply with new or revised accounting pronouncements as of public company effective dates.

We are a smaller reporting company, and we cannot be certain if the reduced disclosure requirements applicable to smaller reporting companies will make our common stock less attractive to investors.

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In the event that we are still considered a smaller reporting company at such time as we cease being an “emerging growth company,” we will be required to provide additional disclosure in our SEC filings.

However, similar to emerging growth companies, smaller reporting companies are able to provide simplified executive compensation disclosures in their filings;

However, similar to emerging growth

companies, smaller reporting companies are able to provide simplified executive compensation disclosures in their filings;

are exempt from the provisions of Section 404(b) of the Sarbanes-Oxley Act requiring that independent registered public accounting firms provide an attestation report on the effectiveness of internal control over financial reporting;

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The lack of an active market for our common stock may impair investors’ ability to sell their common stock at the time they wish to sell them or at a price that they consider reasonable, may reduce the fair market value of their shares of common stock and may impair our ability to raise capital to continue to fund operations by selling securities.

No assurance can be given that an active

trading market for our common stock will develop or be sustained.

No assurance can be given that an active trading market for our common stock will develop or be sustained.

The lack of an active market for our common stock may make it difficult for investors to sell shares of our common stock and may make it difficult for us to raise capital.

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We must satisfy the continued listing requirements of Nasdaq to maintain the listing of our common stock on The Nasdaq Capital Market.

On November 15, 2024, we received a letter (the “Letter”) from the Listing Qualifications Department of Nasdaq indicating that we were not in compliance with the minimum stockholders’ equity requirement for continued listing on the Nasdaq Capital Market, under Listing Rule 5550(b)(1) (the “Minimum Stockholders’ Equity Requirement”), because our stockholders’ equity of $2.3 million as reported in our Quarterly Report on Form 10-Q for the period ended September 30, 2024 was below the required minimum of $2.5 million, and because, as of November 15, 2024, we did not meet the alternative compliance standards relating to the market value of listed securities of $35 million or net income from continuing operations of $500,000 in the most recently completed fiscal year or in two of the last three most recently completed fiscal years.

Pursuant to the Letter, Nasdaq gave us 45 calendar days, or until December 30, 2024, to submit to Nasdaq a plan to regain compliance.

As a result of the closing of the December 2025 Offering (as defined below), our stockholders’ equity increased above the $2.5 million requirement, and Nasdaq informed us that we were not required to submit a plan to regain compliance.

On August 15, 2025, we received a letter (the “Letter”) from the Listing Qualifications Department of Nasdaq indicating that we were not in compliance with the minimum stockholders’ equity requirement for continued listing on the Nasdaq Capital Market, under Listing Rule 5550(b)(1) (the “Minimum Stockholders’ Equity Requirement”), because our stockholders’ equity of $(0.1) million as reported in our Quarterly Report on Form 10-Q for the period ended June 30, 2025 was below the required minimum of $2.5 million, and because, as of August 15, 2025, we did not meet the alternative compliance standards relating to the market value of listed securities of $35 million or net income from continuing operations of $500,000 in the most recently completed fiscal year or in two of the last three most recently completed fiscal years.

Pursuant to the Letter, Nasdaq gave us 180 calendar days, or until February 11, 2026, to regain compliance.

On February 12, 2026, Nasdaq notified us that, based upon our continued non-compliance with the Equity Rule, the Staff had determined to delist our securities from Nasdaq unless we timely request a hearing before the Nasdaq Hearings Panel (the “Panel”).

We timely requested a hearing, which stayed the delisting and suspension of our securities pending the decision of the Hearings Panel.

There can be no assurance that we will be able to evidence compliance with the Equity Rule or other applicable requirements for continued listing on The Nasdaq Capital Market prior to the hearing or that the Panel will grant us a further extension period in accordance with the Nasdaq Listing Rules.

On March 5, 2026, we received an additional letter (the “Bid Price Deficiency Letter”) from the Listing Qualifications Department of Nasdaq indicating that we are not in compliance with the minimum bid price requirement set forth in Nasdaq Listing Rule 5550(a)(2) (the “Minimum Bid Price Rule”) for continued listing on the Nasdaq Capital Market.

Based on the closing bid price of our common stock between January 21, 2026, and March 4, 2026, we no longer meet the minimum bid price requirement.

The Bid Price Deficiency Letter has no immediate effect on the listing or trading of our common stock on the Nasdaq Capital Market.

The Bid Price Deficiency Letter provides us with 180 calendar days, or until September 1, 2026, to regain compliance with Nasdaq Listing Rule 5550(a)(2).

To regain compliance, our common stock must have a closing bid price of at least $1.00 per share for a minimum of 10 consecutive business days.

If we do not regain compliance by September 1, 2026, an additional 180 days may be granted to regain compliance, so long as we meet the Nasdaq Capital Market initial listing

requirement of $5 million in stockholders’ equity and all other continued listing requirements (except for the bid price requirement) and notifies Nasdaq in writing of its intention to cure the bid price deficiency during the second compliance period.

We currently have less than $5 million in stockholders’ equity;

however, the determination on eligibility for a second bid price grace period will not be made until the first bid price grace period expires.

If we do not qualify for the second compliance period or fails to regain compliance during the second 180-day period, then Nasdaq will notify us of its determination to delist the Company's common stock, at which point the Company will have an opportunity to request a hearing before the Panel.

The Company intends to monitor the closing bid price of its common stock and may, if appropriate, consider implementing available options, including, but not limited to, implementing a reverse stock split of its outstanding securities, to regain compliance with the minimum bid price requirement under the Nasdaq Listing Rules.

There can be no assurance that we will be able to maintain compliance with the Nasdaq continued listing requirements, and if we are unable to maintain compliance with the continued listing requirements, including the $1.00 minimum bid price requirement set forth in Nasdaq Listing Rule 5550(a)(2) and the Minimum Stockholders’ Equity Requirement, our shares may be delisted from Nasdaq, which could reduce the liquidity of our common stock materially and result in a corresponding material reduction in the price of our common stock.

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As a result, these stockholders, acting together have the ability to significantly impact the outcome of matters submitted to our stockholders for approval, including the election of directors and any merger, consolidation, or sale of all or substantially all of our assets.

In addition, these stockholders, acting together, have the ability to significantly impact the management and affairs of our

In addition, these stockholders, acting together, have the ability to significantly impact the management and affairs of our company.

The interests of these stockholders may not be the same as or may even conflict with your interests.

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

What changed 10-K

Item 1A. Risk Factors