What changed in this filing

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Item 7. Management’s Discussion and Analysis

2024-03-27 compared with 2023-03-30 · 77 added, 169 removed, 79 unchanged (76% of the section changed)

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Risk Factors” in this Report for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statement.

We are seeking to reshape the world of electronics with our proprietary organic semiconductor platform that we believe has the potential to affect the form and function of the next generation of low-cost displays and sensors.

Our patented TRUFLEX® inks are solution deposited at a low temperature, on low-cost substrates to make OTFT circuits.

Our organic semiconductor platform can be used in a number of applications including mini- and micro-LED displays, AMOLED displays, AR and VR headsets, fingerprint sensors and integrated logic circuits.

We have a research and development facility in Manchester, UK, and manufacture product protypes for prospective customers using our semiconductor manufacturing processes housed at the Centre for Process Innovation (CPI) at Sedgefield, UK.

We have an extensive IP portfolio including over 125 issued patents across 19 patent families.

Since our inception in 2009, we have devoted substantial amounts of our resources to the research and development of materials and production processes for the manufacture of organic thin film transistors and the enhancement of our intellectual property.

We are seeking to reshape the world of electronics with our disruptive organic thin-film transistors (“OTFTs”) that we believe have the potential to drive the next generation of displays.

Our patented TRUFLEX® semiconductor and dielectric inks, or electronic polymers, are used to make a new type of transistor that we believe have the capability to potentially revolutionize the display industry.

Our inks enable low temperature printing processes that are compatible with existing manufacturing infrastructure to deliver low-cost displays that outperform existing technologies.

Our electronic polymer platform can be used in a range of display technologies including microLED, miniLED and AMOLED displays for next generation televisions, laptops, augmented reality (“AR”) and virtual reality (“VR”) headsets, smartwatches and smartphones.

Our loss before income taxes was $8.5 million and $11.5 million for the year ended December 31, 2023, and 2022, respectively.

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Overall Demand for Products and Applications using Organic thin film transistors

Our potential for growth depends significantly on the adoption of organic thin film transistor (OTFT) materials in the display and sensor markets and our ability to capture a significant share of any market that does develop.

Our potential for growth depends significantly on the adoption of OTFT materials in the display and sensor markets and our ability to capture a significant share of any market that does develop.

We expect that demand for our technology will also fluctuate based on various market cycles, continuously evolving industry supply chains, trade and tariff terms, as well as evolving competitive dynamics in each of the respective markets.

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Protection of intellectual property is critical.

Therefore, steps

such as additional patent applications, confidentiality, and non-disclosure agreements, as well as other security measures are important.

While we believe we have a strong patent portfolio and there is no actual or, to our knowledge, threatened litigation against us for patent-related matters, litigation or threatened litigation is a common method to effectively enforce or protect intellectual property rights.

Therefore, steps such as additional patent applications, confidentiality, and non-disclosure agreements, as well as other security measures are important.

While we believe we have a strong patent portfolio and there is no actual or, to our knowledge,

threatened litigation against us for patent-related matters, litigation or threatened litigation is a common method to effectively enforce or protect intellectual property rights.

Such action may be initiated by or against us and would require significant management time and expenses.

Components of Results of Operations

Our revenue currently consists of revenue from the sale of TRUFLEX® inks and demonstration products.

Our revenue consists of revenue from the sale of TRUFLEX® inks and demonstration products.

Cost of Revenues.

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The income associated with these items is recognized in the period which the research and development expenses occurred.

Additionally, during the year ended December 31, 2021, the Company received government grants under the United Kingdom’s Coronavirus Job Retention Scheme.

Operating Expenses

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Non-Operating Income (Expense)

Financial Income/(Expense), Net aggregates the following amounts:

Interest Expense.

We entered into a term loan facility agreement in 2021 and incurred interest charges on the amount drawn down.

The facility was repaid in full and there were no balances outstanding at December 31, 2022, and 2021.

Non-operating income/expense aggregates the following amounts:

Foreign Currency Translation.

Foreign currency translation reflects adjustments made due to currency fluctuations.

Transaction Costs.

Costs for equity contracts that are classified as a liability.

Fair Value of Warrant Liability.

The fair value of equity contracts that are classified as a liability.

Interest Income.

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Income tax expense consists primarily of income taxes in jurisdictions in which we conduct business.

We incurred income tax expense of $24 thousand in 2022 and zero in 2021.

Foreign Currency Translation.

Foreign currency translation reflects adjustments made due to currency fluctuations.

Results of Operations

The following tables set forth our results of operations for the periods presented.

The information in the tables below should be read in conjunction with our consolidated financial statements and related notes included in Part II, Item 8 of this Form 10-K.

The period-to-period comparisons of financial results in the tables below are not necessarily indicative of future results.

Comparison of Loss from Operations for the years ended December 31, 2022 and 2021

Our results of operations for the years ended December 31, 2022 and 2021 are as follows:

Year Ended December 31,

Increase (Decrease)

Cost of revenue

Other operating income

Research and development expenses

Selling, general and administrative expenses

Transaction expenses

Total operating expenses

Loss from operations

Twelve months ended December 31, 2023 compared with the twelve months ended December 31, 2022

Revenue and Cost of Revenue

Our revenue currently consists of revenue from the sale of TRUFLEX® inks and demonstration products.

The year-over-year change in revenue and gross profit reflects the largely one-off nature of these sales, consistent with our current stage of commercialization.

Our revenue and cost of revenue reflects sales of TRUFLEX® inks and demonstration products and the direct costs associated with those sales.

Revenues were $27.0 thousand for the year ended December 31, 2023, compared to $40.0 thousand for the same period of 2022.

Cost of revenue was $23.0 thousand for the twelve months ended December 31, 2023, compared to $33.0 thousand for the same period of 2022.

The decrease is mainly the results of less unit sales in 2023 compared to 2022, reflecting the largely one-off nature of these sales, consistent with our current stage of commercialization.

Other Operating Income

Year Ended December 31,

Increase (Decrease)

Research & development tax credit

Research & development grants

Sale of fixed assets

Total other operating income

Our Other Operating Income includes government grants received for qualifying research and development projects, and research and development tax credits related to the United Kingdom’s Research and Development tax relief for small and medium-sized enterprises, which is a government tax incentive designed to reward innovative companies for investing in research and development.

The increase in R&D Tax Credit reflects higher eligible expenditure in 2022

compared to 2021.

In 2021, R&D grant funding was secured for the “SmartLight” project that successfully demonstrated OTFT mini-LED backlights for displays with improved light uniformity and lower defects.

Other operating income was $0.8 million and $1.2 million for the years ended December 31, 2023 and 2022, respectively.

The primary sources of the other operating income in these periods were a research grant and research and development tax credits.

The decrease is mostly attributable to a reduction in the allowable research and development expenses and a lowering of the tax credit rate to be applied to the allowable expenses of which both went into effect in 2023.

Operating Expenses

Year Ended December 31,

Increase (Decrease)

Research and development

Selling, general and administrative

Transaction expenses

Total operating expenses

Operating expenses decreased by $6.7 million, or 38%, to $10.9 million for the year ended December 31, 2022, compared to $17.6 million for the comparable period of 2021.

Research and development expense, which represents 53% and 47% of our total operating expenses for the twelve months ended December 31, 2022 and 2021, respectively, decreased by $2.4 million to $5.8 million for the period, primarily due to a $2.7 million decrease in stock compensation expense, a $0.6 million reduction from the effect of exchange rate movement compared to the prior year, partially offset by a $0.9 million increase in expenses incurred in further developing core materials and in fabricating demonstrator devices to promote our technology to prospective customers and partners.

Selling, general and administrative expense, which represents 47% and 46% of our total operating expenses for the twelve months ended December 31, 2022 and 2021, respectively decreased by $3.0 million to $5.1 million for the period.

This decrease was mainly due to a $2.9 million decrease in stock compensation expense, a $0.3 million reduction from the effect of exchange rate movements compared to the prior period, partially offset by $0.2 million additional expense from the additional insurance and professional services expenses of operating as a public company and from increased marketing and related expenses promoting our products.

Transaction costs of $1.3 million associated with the Share Exchange Agreement with SmartKem Limited, pursuant to which all of the equity interests in SmartKem Limited, except certain “deferred shares” which had no economic or voting rights and which were purchased by us for an aggregate purchase price of $1.40, were exchanged for shares of our common stock and SmartKem Limited became our wholly owned subsidiary (the “Exchange”) were incurred in the year ended December 31, 2021.

The Exchange was consummated during the first quarter of 2021 and no significant additional Exchange-related expenses were recorded thereafter.

We expect to continue to incur significant expenses and operating losses for the foreseeable future.

We expect our expenses will increase in connection with our ongoing activities as we:

● continue to develop our core material, EDA tools and foundry services;

● add sales and field applications personnel and incur related expenses to support operational growth;

● increase activity directly related to promoting our products to increase revenues;

● add financial accounting and management systems to position us for growth.

Non-Operating (Expenses)/Income and Net Loss

Year Ended December 31,

(Increase) Decrease

Loss from operations

Non-operating (expense)/income

Loss on foreign currency transactions

Interest expense

Interest income

Total non-operating expense

Loss before income taxes

Income tax expense

The increase in loss on foreign currency transactions was due to fluctuations in U.S.

pound value arising from transactions denominated in foreign currencies and the translation of foreign currency denominated balances on intra-group loans that were first advanced in 2021.

Operating expenses decreased by $0.1 million to $10.8 million for the year ended December 31, 2023, compared to $10.9 million for the comparable period of 2022.

Research and development expense, which represents 51.3% and 53.4% of our total operating expenses for the twelve months ended December 31, 2023 and 2022, respectively, decreased by $0.2 million to $5.6 million for the year ended December 31, 2023, compared to $5.8 million for the same period of 2022.

The decrease is mainly due to lower personnel costs related to reductions in force effected in December 2022 and September 2023 and lower technical research and development costs, including consulting, testing and lab supplies.

Selling, general and administrative expense, which represents 47.9% and 46.6% of our total operating expenses for the twelve months ended December 31, 2023 and 2022, respectively, increased by $0.1 million to $5.2 million for year ended December 31, 2023 as compared to $5.1 million for the same period in 2022.

There was an increase in personnel costs due to severance costs and the accrual of bonus payments in 2023.

This was offset by a reduction in investor relations cost and other professional service fees.

Non-Operating Income/(Expenses) and Net Loss

The increase of $3.0 million in gain on foreign currency transactions was due to fluctuations in U.S.

pound value arising from transactions denominated in foreign currencies and the translation of foreign currency denominated balances on intra-group loans.

Issuance costs of $0.2 million allocated to the warrant liability were expensed in full during the year ended December 31, 2023.

The majority of costs were legal, placement and consulting fees specifically related to the private placement transaction.

There were no similar gains or losses recorded during the prior year.

A gain of $0.5 million related to the valuation of the warrant liability was recorded during the year ended December 31, 2023.

There were no similar gains or losses recorded during the prior year.

The loss before income taxes was $8.5 million for the year ended December 31, 2023, a decrease of $3.0 million, compared to a loss before income taxes of $11.5 million for the year ended December 31, 2022.

The decrease in loss was attributable to lower stock compensation expense, the absence of transaction costs in 2022, partially offset by increases in loss on foreign currency transactions and lower operating expenses as described in the preceding paragraphs.

The decrease in the 2023 period was attributable increases in gains on foreign currency transactions and lower operating expenses as described in the preceding paragraphs.

Liquidity and Capital Resources

Our future results are subject to substantial risks and uncertainties.

We have operated at a loss for our entire history and anticipate that losses will continue over the coming year.

To date, we have funded our liquidity and capital requirements primarily with proceeds from the private sale of our equity and debt securities and borrowing against our research and development credits.

We will need to obtain additional funds to satisfy our operational needs and to fund our sales and marketing efforts, research and development expenditures, and business development activities.

Our future liquidity and working capital requirements will depend on many factors including our ability to generate revenue from product sales, the timing and extent of spending to support our sales and marketing, product development and research and development efforts, our entry into one or more material agreements containing significant performance obligations and our needs for working capital to support our business operations.

Until such time, if ever, as we can generate sufficient cash through 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.

We may be unable to raise additional funds or enter into such other agreements or arrangements when needed on favorable terms, or at all.

As of December 31, 2023, our cash and cash equivalents were $8.8 million compared with $4.2 million as of December 31, 2022.

We believe that our cash and cash equivalents will be sufficient to support our expected liquidity and working capital requirements through the end of May 2023.

However, in the event that we enter into contracts involving significant sales of our products, development agreements, license agreements, collaborations, acquisitions or other material transactions, we may require additional working capital to support our increased obligations.

To date, we have not recorded significant revenues related to product sales and therefore do not have any present need to fund inventory or accounts receivable.

Our consolidated financial statements as of December 31, 2022 have been prepared under the assumption that we will continue as a going concern for the next twelve months.

We expect to incur significant expenses and operating losses for the foreseeable future.

These factors raise substantial doubt about our ability to continue as a going concern.

Because our business does not generate positive cash flow from operating activities, we will need to obtain substantial additional capital in order to support our development efforts and fully commercialize our technology.

We believe we

will be able to raise additional capital in the event it is in our best interest to do so.

Management’s plans are to finance the working capital requirements through a combination of equity offerings, debt financings, collaborations, strategic alliances and marketing, distribution or licensing arrangements.

We believe this will be sufficient to fund our operating expenses and capital expenditure requirements through the end of April 2025.

It is possible this period could be shortened if there are any significant increases in planned spending or development programs or more rapid progress of development programs than anticipated.

Our future viability is dependent on our ability to raise additional capital to fund our operations.

We will need to obtain additional funds to satisfy our operational needs and to fund our sales and marketing efforts, research and development expenditures, and business development activities.

Until such time, if ever, as we can generate sufficient cash through revenue, management’s plans are to finance our working capital requirements through a combination of equity offerings, debt financings, collaborations, strategic alliances and marketing, distribution or licensing arrangements.

If we raise additional funds by issuing equity securities, our existing security holders will likely experience dilution.

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If we enter into a collaboration, strategic alliance or other similar arrangement, we may be forced to give up valuable rights.

To the extent additional capital is not available when needed or on acceptable terms, we may be forced to abandon some or all of our development and commercialization efforts, which would have a material adverse effect on the prospects of the business.

Further, our assumptions relating to our cash requirements may differ materially from our actual requirements because of a number of factors, including significant unforeseen delays, changes in timing, scope, focus and direction of our development efforts and costs related to commercialization.

The following table shows a summary of our cash flows for the years ended December 31, 2022 and 2021, respectively:

Year Ended December 31,

Increase (Decrease)

Net cash used in operating activities

Net cash used by investing activities

Net cash provided by financing activities

Effect of exchange rate changes on cash

Net change in cash

Cash, beginning of year

Cash, end of year

Operating Activities

There can be no assurance however that such financing will be available in sufficient amounts, when and if needed, on acceptable terms or at all.

The precise amount and timing of the funding needs cannot be determined accurately at this time, and will depend on a number of factors, including the market demand for the Company’s products and services, the quality of product development efforts, management of working capital, and continuation of normal payment terms and conditions for purchase of services.

If the Company is unable to substantially increase revenues, reduce expenditures, or otherwise generate cash flows for operations, then the Company will need to raise additional funding.

Cash Flow from Operating Activities

Net cash used in operating activities was $8.0 million for the year ended December 31, 2023, compared to $9.0 million for the year ended December 31, 2022, a decrease of $1.0 million.

The decrease resulted primarily from a decrease in our net loss of $5.6 million, partially offset by a decrease of non-cash expense of $4.6 million and a net decrease in operating assets and liabilities of $0.3 million.

Investing Activities

Net cash used in investing activities was $79 thousand for the year ended December 31, 2021, compared to $0.3 million for the year ended December 31, 2021, a decrease of $0.2 million.

The decrease resulted from a reduced level of investment in laboratory and capital equipment purchases in 2022 after investment in these in previous years.

In the future, we expect to continue to incur capital expenditures to support our research and development activities and wider business operations.

Financing Activities

Net cash flows provided by financing activities was $1.8 million for the year ended December 31, 2022, compared to $22.2 million for the year ended December 31, 2021, a decrease of $20.4 million.

During the first half of 2022, we consummated a private placement of our common stock resulting in net proceeds of $1.8 million.

In connection with the Exchange in February 2021, we consummated a private placement resulting in net cash of $22.2 million in the first half of 2021.

The decrease resulted primarily from a decrease in our net loss of $3.0 million, partially offset by an increase of non-cash activities of $3.3 million and a net increase in operating assets and liabilities of $1.3 million.

Cash Flow from Investing Activities

Net cash used in investing activities was $18.0 thousand for the year ended December 31, 2023, compared to $79.0 thousand for the year ended December 31, 2022, a decrease of $61.0 thousand.

The decrease resulted from a reduced level of investment in laboratory and capital equipment purchases in 2023.

Cash Flow from Financing Activities

Net cash flows provided by financing activities was $12.7 million for the year ended December 31, 2023, compared to $1.8 million for the year ended December 31, 2022, an increase of $10.9 million.

In June 2023, we completed a private placement of our preferred stock and warrants resulting in net proceeds of $12.4 million with an additional $1.8 million related to the issuance of warrants.

We incurred $1.5 million in issuance costs in connection with this private placement.

Contractual Payment Obligations

Our principal commitments primarily consist of obligations under leases for office space and purchase commitments in the normal course of business for research & development facilities and services, communications infrastructure, and administrative services.

These will be funded from the Company’s cash balances and working capital.

Payments Due by Period

Operating lease liabilities

Purchase obligations

We expect to fund these commitments from our cash balances and working capital.

Recently Issued Accounting Pronouncements

For recently issued accounting announcements, see “Recently Issued Accounting Pronouncements” in Note 2, Significant Accounting Policies and Recent Accounting Pronouncements, in the Notes to our Consolidated Financial Statements included in this Annual Report on Form 10-K.

Critical Accounting Policies and Estimates

Our consolidated financial statements and the related notes thereto included in this Report are prepared in accordance with US GAAP.

The preparation of consolidated financial statements also requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, costs and expenses, and related disclosures.

These estimates are developed based on historical experience and various other assumptions that we believe to be reasonable under the circumstances.

Actual results could differ significantly from the estimates made by management.

To the extent that there are differences between our estimates and actual results, our future financial statement presentation, financial condition, results of operation, and cash flows will be affected.

We believe that the accounting policies discussed below are critical to understanding our historical and future performance, as these policies relate to the more significant areas involving management’s judgments and estimates.

Critical accounting policies and estimates are those that we consider the most important to the portrayal of our financial condition and results of operations because they require our most difficult, subjective, or complex judgments, often as a result of the need to make estimates about the effect of the matters that are inherently uncertain.

Accounting for Stock-Based Compensation

We account for stock-based compensation in accordance with ASC 718, Compensation-Stock Compensation .

ASC 718 requires companies to estimate the fair value of equity-based payment awards on the date of grant using a Black-Scholes option-pricing model.

We recognize compensation expenses for the value of our equity awards granted based on the straight-line method over the requisite service period of each of the awards.

We periodically grant stock options for a fixed number of shares of common stock to our employees, directors, and non-employee contractors, with an exercise price greater than or equal to the fair market value of the common stock at the date of the grant.

We estimate the fair value of each stock option award using the Black-Scholes option-pricing model, which uses as inputs the fair value of our common stock and assumptions we make for the volatility of our common stock, the expected term of our stock-based awards, the risk-free interest rate for a period that approximates the expected term of our stock-based awards, and our expected dividend yield.

Estimates of fair value are not intended to predict actual future events or the value ultimately realized by persons who receive equity awards.

Critical Accounting Estimates

We prepare our consolidated financial statements in accordance with U.S.

generally accepted accounting principles, which require our management to make estimates that affect the reported amounts of assets, liabilities and disclosures of contingent assets and liabilities at the balance sheet dates, as well as the reported amounts of revenues and expenses during the reporting periods.

To the extent that there are material differences between these estimates and actual results, our financial condition or results of operations would be affected.

We base our estimates on our own historical experience and other assumptions that we believe are reasonable after taking account of our circumstances and expectations for the future based on available information.

We evaluate these estimates on an ongoing basis.

We consider an accounting estimate to be critical if:

(i) the accounting estimate requires us to make assumptions about matters that were highly uncertain at the time the accounting estimate was made, and (ii) changes in the estimate that are reasonably likely to occur from period to period or use of different estimates that we reasonably could have used in the current period, would have a material impact on our financial condition or results of operations.

Management has discussed the development and selection of these critical accounting estimates with the Audit Committee of our Board of Directors.

In addition, there are other items within our financial statements that require estimation but are not deemed critical as defined above.

Changes in estimates used in these and other items could have a material impact on our financial statements.

Share-Based Compensation

The Company determines the fair value of certain share-based awards using the Black-Scholes option-pricing model which uses both historical and current market data to estimate the fair value.

This method incorporates various assumptions such as the risk-free interest rate, expected volatility, expected dividend yield, and expected life of the options.

Prior to February 2022, the Company’s common stock was not traded on an over the counter or national securities exchange and consequently the Company developed estimates for the inputs to the option-pricing model.

The assumptions used in determining the fair value of stock-based awards represent our best estimates, but the estimates involve inherent uncertainties and the application of our judgment.

As a result, if factors change and we use

significantly different assumptions or estimates, our stock-based compensation expense could be materially different in the future.

Valuation allowance of deferred tax assets

Income taxes are recorded in accordance with ASC 740, Income Taxes (“ASC 740”), which provides for deferred taxes using an asset and liability approach.

We recognize deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the consolidated financial statements or tax returns.

Deferred tax assets and liabilities are determined based on the difference between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse.

Valuation allowances are provided, if based upon the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized.

We considered the positive and negative evidence bearing upon our ability to realize the deferred tax assets.

In addition to our history of cumulative losses, we cannot be certain that future taxable income will be sufficient to realize our deferred tax assets.

Accordingly, a full valuation allowance has been provided against our net deferred tax assets at both December 31, 2022, and 2021.

Should we change our determination, based on the evidence available as to the amount of our deferred tax assets that can be realized, the valuation allowance will be adjusted with a corresponding impact to the provision for income taxes in the period in which such determination is made and which may be material.

Derivative Asset for Embedded Conversion Features

We do not use derivative instruments to hedge exposures to cash flow, market, or foreign currency risks.

We evaluate convertible notes to determine if those contracts or embedded components of those contracts qualify as derivatives to be accounted for separately.

In circumstances where the embedded conversion option in a convertible instrument is required to be bifurcated and there are also other embedded derivative instruments in the convertible instrument that are required to be bifurcated, the bifurcated derivative instruments are accounted for as a single, compound derivative instrument.

The result of this accounting treatment is that the fair value of the embedded derivative is recorded as either an asset or a liability and marked-to-market each balance sheet date, with the change in fair value recorded in the statements of operations as other income or expense.

Upon conversion or exercise of a derivative instrument, the instrument is marked to fair value at the conversion date and then that fair value is reclassified to equity.

The fair value of the embedded conversion features is estimated using a Monte Carlo simulation model, in which possible outcomes and their values are simulated repeatedly and randomly.

Under the Monte Carlo method we estimated the fair value of the convertible notes conversion feature at the time of issuance and subsequent remeasurement dates, utilizing the with-and without method, where the value of the derivative feature is the difference in values between a note simulated with the embedded conversion feature and the value of the same note simulated without the embedded conversion feature.

Estimating fair values of embedded conversion features requires the development of significant and subjective estimates that may, and are likely to, change over the duration of the instrument with related changes in internal and external market factors.

For more information regarding our accounting policies, see Note 2, Summary of Significant Accounting Policies and Recent Accounting Pronouncements, in our Notes to Consolidated Financial Statements in this Annual Report on Form 10-K.

Going Concern Evaluation

Our consolidated financial statements included elsewhere herein have been presented on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business.

We have financed our activities principally from the issuance of ordinary shares and debt securities.

We have experienced recurring losses since inception and expect to incur additional losses in the future in connection with research and development activities.

In the year ended December 31, 2022, we raised net proceeds of $1.8 million through the sale of our common stock.

and at December 31, 2022, we had $4.2 million of cash and cash equivalents after funding net cash used in operations for the year ended December 31, 2022, of $9.0 million.

Our future viability is dependent on our ability to raise additional capital to satisfy our operational needs and to fund our sales and marketing efforts, research and development expenditures, and business development activities.

We may be unable to raise additional funds or enter into such other agreements or arrangements when needed on favorable terms, or at all.

There is substantial doubt that the Company will be able to pay its obligations as they fall due, and this substantial doubt is not alleviated by management plans.

The consolidated financial statements as of December 31, 2022 have been prepared assuming that the Company will continue as a going concern.

Accordingly, the consolidated financial statements do not include any adjustments to the amounts and classification of assets and liabilities that may be necessary should the Company be unable to continue as a going concern.

Warrant Liability

The valuation of the warrant liability was determined using an option pricing model.

This model uses inputs such as the underlying price of the shares issued at the measurement date, expected volatility, risk free interest rate and expected life of the instrument.

Since our common stock was not publicly traded until February 2022 there has been insufficient volatility data available.

Accordingly, we have used an expected volatility based on historical common stock volatility of our peers.

In addition, we used the probability of uplisting as an input in the model to determine the fair value of the warrant liability.

JOBS Act Accounting Election

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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 7. Management’s Discussion and Analysis