What changed in this filing

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Item 1. Financial Statements

2024-11-08 compared with 2024-08-12 · 76 added, 64 removed, 511 unchanged (22% of the section changed)

3 unchanged sentences

(in thousands, except number of shares and per share data)

September 30,

Current assets

18 unchanged sentences

Stockholders’ equity:

Preferred stock, par value $ 0.0001 per share, 10,000,000 shares authorized, 1,106 and 13,765 shares issued and outstanding , at June 30, 2024 and December 31, 2023, respectively

Common stock, par value $ 0.0001 per share, 300,000,000 shares authorized, 1,721,900 and 889,668 shares issued and outstanding , at June 30, 2024 and December 31, 2023, respectively*

Preferred stock, par value $ 0.0001 per share, 10,000,000 shares authorized, 856 and 13,765 shares issued and outstanding , at September 30, 2024 and December 31, 2023, respectively

Common stock, par value $ 0.0001 per share, 300,000,000 shares authorized, 1,780,472 and 889,668 shares issued and outstanding , at September 30, 2024 and December 31, 2023, respectively

Additional paid-in capital

3 unchanged sentences

Total liabilities and stockholders’ equity

* reflects a one-for-thirty-five (1:

35 ) reverse stock split effected on September 21, 2023

The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements.

2 unchanged sentences

(in thousands, except number of shares and per share data)

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

Cost of revenue

3 unchanged sentences

Selling, general and administrative

Loss on foreign currency transactions

(Gain)/loss on foreign currency transactions

Total operating expenses

4 unchanged sentences

Change in fair value of the warrant liability

Interest income

Interest income/(expense)

Total non-operating income/(expense)

40 unchanged sentences

Balance at June 30, 2024

Stock-based compensation expense

Issuance of common stock to vendor

Conversion of Preferred stock into common stock

Foreign currency translation adjustment

Balance at September 30, 2024

SMARTKEM, INC.

Condensed Consolidated Statements of Stockholders’ Equity (continued)

(in thousands, except share data)

Preferred Stock

14 unchanged sentences

Balance at June 30, 2023

Stock-based compensation expense

Conversion of Preferred stock into common stock

Exercise of warrants into common stock

Foreign currency translation adjustment

Balance at September 30, 2023

* reflects a one-for-thirty-five (1:

4 unchanged sentences

(in thousands)

Six Months Ended June 30,

Nine Months Ended September 30,

Cash flow from operating activities:

3 unchanged sentences

Right-of-use asset amortization

Gain/(loss) on foreign currency transactions

Loss on foreign currency transactions

Transaction costs allocable to warrants

35 unchanged sentences

Pursuant to the Exchange Agreement all of the equity interests in SmartKem Limited, except certain deferred shares which had no economic or voting rights and which were purchased by Parasol for an aggregate purchase price of $ 1.40 , were exchanged for shares of Parasol common stock and SmartKem Limited became a wholly owned subsidiary of Parasol (the “Exchange”).

The Company is seeking to reshape the world of electronics with its disruptive organic thin-film transistors (“OTFTs”) that have the potential to drive the next generation of displays.

The Company’s patented TRUFLEX® semiconductor and dielectric inks, or electronic polymers, are used to make a new type of transistor that has the potential to revolutionize the display industry.

The Company is seeking to reshape the world of electronics with its disruptive organic thin-film transistors (“OTFTs”) that have the potential to revolutionize the display industry.

The Company’s patented TRUFLEX® liquid semiconductor polymers are used to make a new type of transistor that can be used in a number of display technologies including next generation microLED displays.

The Company’s inks enable low temperature printing processes that are compatible with existing manufacturing infrastructure to deliver low-cost displays that outperform existing technology.

The Company’s electronic polymer platform can be used in a number 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.

The Company develops its materials at its research and development facility in Manchester, UK and provides prototyping services at the Centre for Process Innovation (“CPI”) at Sedgefield, UK.

9 unchanged sentences

Going Concern

The Company has incurred continuing losses including net losses of $ 4.8 million for the six months ended June 30, 2024.

The Company’s cash as of June 30, 2024 was $ 4.4 million with net cash used in operating activities of $ 4.4 million for the six months ended June 30, 2024.

The Company has incurred continuing losses including net losses of $ 7.6 million for the nine months ended September 30, 2024.

The Company’s cash as of September 30, 2024 was $ 1.8 million with net cash used in operating activities of $ 7.0 million for the nine months ended September 30, 2024.

The Company anticipates operating losses to continue for the foreseeable future due to, among other things, costs related to research funding, further development of our technology and products and expenses related to the commercialization of our products.

The Company expects that its cash and cash equivalents of $ 1.8 million as of September 30, 2024, will not be sufficient to fund its operating expenses and capital expenditure requirements for the 12 months from the issuance of these financial statements and that the Company will require additional capital funding to continue

SMARTKEM, INC.

Notes to Condensed Consolidated Financial Statements

The Company expects that its cash and cash equivalents of $ 4.4 million as of June 30, 2024, will not be sufficient to fund its operating expenses and capital expenditure requirements for the 12 months from the issuance of these financial statements and that the Company will require additional capital funding to continue its operations and research development activity thereafter.

its operations and research development activity thereafter.

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

9 unchanged sentences

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 condensed consolidated financial statements as of June 30, 2024 have been prepared assuming that the Company will continue as a going concern.

The condensed consolidated financial statements as of September 30, 2024 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.

Basis of Presentation

The unaudited interim condensed consolidated financial statements of the Company as of June 30, 2024 and December 31, 2023 and for the three and six months ended June 30, 2024 and 2023 should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2023 (the “Annual Report”), which was filed with the Securities and Exchange Commission (the “SEC”) on March 27, 2024 and may also be found on the Company’s website (www.smartkem.com).

The unaudited interim condensed consolidated financial statements of the Company as of September 30, 2024 and December 31, 2023 and for the three and nine months ended September 30, 2024 and 2023 should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2023 (the “Annual Report”), which was filed with the Securities and Exchange Commission (the “SEC”) on March 27, 2024 and may also be found on the Company’s website (www.smartkem.com).

In these notes to the interim condensed consolidated financial statements the terms “us,” “we” or “our” refer to the Company and its consolidated subsidiaries.

3 unchanged sentences

The preparation of interim condensed consolidated financial statements requires management to make assumptions and estimates that impact the amounts reported.

These interim condensed consolidated financial statements reflect all adjustments, consisting of normal recurring accruals, necessary for a fair presentation of the Company’s results of operations, financial position and cash flows for the interim periods ended June 30, 2024 and 2023;

however, certain information and footnote disclosures normally included in our audited consolidated financial statements included in our Annual Report have been condensed or omitted as permitted by GAAP.

14 unchanged sentences

Recent Accounting Pronouncements

In November 2023, the FASB issued Accounting Standards Update (ASU) No.

In November 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (ASU) No.

2023-07, Segment Reporting (Topic 280), Improvements to Reportable Segment Disclosures which will require companies to disclose significant segment expenses that are regularly provided to the chief operating decision maker (“CODM”).

The pronouncement is effective for annual filings for the year ended December 31, 2024.

The Company is still assessing the impact of the adoption of this standard but does not expect it to have a material impact on its results of operations, financial position or cash flows.

The Company is still assessing the impact of the adoption of this standard.

On December 14, 2023, the FASB issued ASU 2023-09, Improvements to Income Tax Disclosures which applies to all entities subject to income taxes.

8 unchanged sentences

Prepaid expenses and other current assets consist of the following:

September 30,

(in thousands)

4 unchanged sentences

Prepaid software licenses

Prepaid stock exchange fees

Prepaid professional service fees

3 unchanged sentences

Property, plant and equipment consist of the following:

September 30,

(in thousands)

4 unchanged sentences

Property, plant and equipment, net

Depreciation expense was $ 124.9 thousand and $ 81.4 thousand for the six months ended June 30, 2024 and 2023, respectively and is classified as research and development expense.

Depreciation expense was $ 194.4 thousand and $ 121.7 thousand for the nine months ended September 30, 2024 and 2023, respectively and is classified as research and development expense.

ACCOUNTS PAYABLE AND ACCRUED EXPENSES

Accounts payable and accrued expenses consist of the following:

September 30,

(in thousands)

Accounts payable

Accounts payable - trade

Payroll liabilities

Accrued expenses – audit & accounting fees

Accrued expenses – legal fees

Accrued expenses – technical fees

Accrued expenses – other professional service fees

Accrued expenses – other

5 unchanged sentences

The table below presents certain information related to the lease costs for the Company’s operating leases for the periods ended:

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

(in thousands)

4 unchanged sentences

The total lease cost is included in the unaudited condensed consolidated statements of operations as follows:

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

(in thousands)

3 unchanged sentences

Right of use lease assets and lease liabilities for the Company’s operating leases were recorded in the unaudited condensed consolidated balance sheet as follows:

September 30,

(in thousands)

6 unchanged sentences

Total lease liabilities

The Company had no right of use lease assets and lease liabilities for financing leases as of June 30, 2024 and December 31, 2023.

The Company had no right of use lease assets and lease liabilities for financing leases as of September 30, 2024 and December 31, 2023.

The table below presents certain information related to the cash flows for the Company’s operating leases for the periods ended:

September 30,

(in thousands)

2 unchanged sentences

The table below presents certain information related to the weighted average remaining lease term and the weighted average discount rate for the Company’s operating leases as of the period ended:

September 30,

Weighted average remaining lease term (in years) – operating leases

3 unchanged sentences

Remaining maturities of the Company’s operating leases, excluding short-term leases, are as follows:

September 30,

(in thousands)

17 unchanged sentences

On June 14, 2023, the Company filed a Certificate of Designation of Preferences, Rights and Limitations with the Secretary of State of the State of Delaware designating 18,000 shares out of the authorized but unissued shares of its preferred stock as Series A-1 Preferred Stock with a stated value of $ 1,000 per share (the “Series A-1 Certificate of Designation”).

On January 29, 2024, the Company filed an Amended and Restated Certificate of Designation of Preferences, Rights and Limitation with the Secretary of State of Delaware designating 11,100 shares of Series A-1 Preferred Stock The following is a summary of the

On January 29, 2024, the Company filed an Amended and Restated Certificate of Designation of Preferences, Rights and Limitation (the “Amended and Restated Series A-1 Certificate of Designation”) with the Secretary of State of Delaware designating 11,100 shares

SMARTKEM, INC.

Notes to Condensed Consolidated Financial Statements

principal amended and restated terms of the Series A-1 Preferred Stock as set forth in the Amended and Restated Series A-1 Certificate of Designation:

of Series A-1 Preferred Stock The following is a summary of the principal amended and restated terms of the Series A-1 Preferred Stock as set forth in the Amended and Restated Series A-1 Certificate of Designation:

The holders of Series A-1 Preferred Stock will be entitled to dividends, on an as-if converted basis, equal to and in the same form as dividends actually paid on shares of common stock, when and if actually paid.

2 unchanged sentences

Voting Rights

The shares of Series A-1 Preferred Stock have no voting rights, except to the extent required by the Delaware General Corporation Law.

The shares of Series A-1 Preferred Stock have no voting rights, except to the extent required by the Delaware General Corporation Law (the “DGCL”).

As long as any shares of Series A-1 Preferred Stock are outstanding, the Company may not, without the approval of a majority of the then outstanding shares of Series A-1 Preferred Stock which must include AIGH Investment Partners LP and its affiliates (“AIGH”) for so long as AIGH is holding at least $ 1,500,000 in aggregate stated value of Series A-1 Preferred Stock acquired pursuant to the Purchase Agreement (a) alter or change the powers, preferences or rights given to the Series A-1 Preferred Stock, (b) alter or amend the Amended and Restated Certificate of Incorporation (the “Charter”), the Series A-1 Certificate of Designation, or the bylaws of the Company (the “Bylaws”) in such a manner so as to materially adversely affect any rights given to the Series A-1 Preferred Stock, (c) authorize or create any class of stock ranking as to dividends, redemption or distribution of assets upon a Liquidation (as defined below) senior to, or otherwise pari passu with, the Series A-1 Preferred Stock, (d) increase the number of authorized shares of Series A-1 Preferred Stock, (e) issue any Series A-1 Preferred Stock except pursuant to the Purchase Agreement, or (f) enter into any agreement to do any of the foregoing.

100 unchanged sentences

(1) dividend yield of 19.99 %, (2) expected volatility of 50.0 %, (3) risk-free interest rate of 4.15 %, and (4) expected life of 10.0 years.

As of June 30, 2024, there were an aggregate of 1,106 shares of Series A-1 Preferred Stock outstanding.

As of September 30, 2024, there were an aggregate of 856 shares of Series A-1 Preferred Stock outstanding.

Pursuant to the terms of the Series A -2 Certificate of Designation, on May 30, 2024, the trading day immediately prior to the listing of the common stock on the Nasdaq Capital Market, the 2,411 then outstanding shares of Series A-2 Preferred Stock automatically converted into an aggregate of 275,576 shares of common stock.

10 unchanged sentences

Common Stock Issued to Vendors for Services

On May 2, 2024, the Company issued 50,000 shares of common stock, as payment for financial consulting services.

On September 10, 2024, the Company issued 30,000 shares of common stock, as payment for consulting services.

Common Stock Warrants

3 unchanged sentences

$ 0.35 - $ 70.00

Warrants outstanding at June 30, 2024

Warrants outstanding at September 30, 2024

$ 0.35 - $ 70.00

1 unchanged sentence

Pre-funded warrants outstanding at January 1, 2024

Pre-funded warrants outstanding at June 30, 2024

Pre-funded warrants outstanding at September 30, 2024

SHARE-BASED COMPENSATION

13 unchanged sentences

As a result, if factors change and management uses different assumptions, the share-based compensation expense could be materially different for future awards.

During the three months ended June 30, 2024, the Company issued options for 568,000 shares of common stock to employees, directors and consultants.

The Company did not issue any options during the three months ended September 30, 2024.

During the nine months ended September 30, 2024, the Company issued options for 568,000 shares of common stock to employees, directors and consultants.

The option vesting periods range from immediate to three years, have an exercise price of $ 6.50 and expire on the ten-year anniversary of the grant date.

The following table reflects share activity under the share option plans for the six months ended June 30, 2024:

The following table reflects share activity under the share option plans for the nine months ended September 30, 2024:

Fair Value at

2 unchanged sentences

Cancelled/Forfeited

Options outstanding at June 30, 2024

Options exercisable at June 30, 2024

Options outstanding at September 30, 2024

Options exercisable at September 30, 2024

Stock-based compensation is included in the unaudited interim condensed consolidated statements of operations as follows:

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

(in thousands)

1 unchanged sentence

Selling, general and administration

Total compensation cost related to non-vested stock option awards not yet recognized as of June 30, 2024 was $ 2.3 million and will be recognized on a straight-line basis through the end of the vesting periods in June 2027.

Total compensation cost related to non-vested stock option awards not yet recognized as of September 30, 2024 was $ 2.0 million and will be recognized on a straight-line basis through the end of the vesting periods in June 2027.

The amount of future stock option compensation expense could be affected by any future option grants or by any forfeitures.

6 unchanged sentences

Notes to Condensed Consolidated Financial Statements

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

(in thousands, except share data)

9 unchanged sentences

35 ) reverse stock split effected on September 21, 2023

The following potentially dilutive securities were excluded from the computation of earnings per share as of June 30, 2024 and 2023 because their effects would be anti-dilutive:

The following potentially dilutive securities were excluded from the computation of earnings per share as of September 30, 2024 and 2023 because their effects would be anti-dilutive:

September 30,

Common stock warrants

1 unchanged sentence

Stock options

At June 30, 2024, the Company had 61,587 pre-funded warrants, 761,426 Class B Warrants and 726,344 Class C Warrants outstanding.

The following table provides a reconciliation of the weighted average shares outstanding calculation for the three and six months ended June 30, 2024 and 2023:

Three Months Ended June 30,

Six Months Ended June 30,

At September 30, 2024, the Company had 61,587 pre-funded warrants, 761,426 Class B Warrants and 726,344 Class C Warrants outstanding.

The following table provides a reconciliation of the weighted average shares outstanding calculation for the three and nine months ended September 30, 2024 and 2023:

Three Months Ended September 30,

Nine Months Ended September 30,

Weighted average shares issued

6 unchanged sentences

Pension cost is included in the unaudited interim condensed consolidated statements of operations as follows:

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

(in thousands)

4 unchanged sentences

FAIR VALUE MEASUREMENTS

The table below presents activity within Level 3 of the fair value hierarchy, our liabilities carried at fair value during the six months ended June 30, 2024:

The table below presents activity within Level 3 of the fair value hierarchy, our liabilities carried at fair value during the nine months ended September 30, 2024:

(in thousands)

1 unchanged sentence

Balance at January 1,2024

Fair value of warrant issued in Private Placement Offering

Total change in the liability included in earnings

Reclass from liability to equity

Balance at June 30, 2024

Balance at September 30, 2024

The valuation of the warrants was determined using option pricing models.

5 unchanged sentences

As a result, the warrants are accounted for as an equity instrument with the balance of the derivative liability on May 31, 2024 being transferred to Additional Paid-In Capital.

The fair value of the common warrants at June 30, 2024 was determined by using an option pricing model assuming the following:

The fair value of the common warrants was determined by using an option pricing model assuming the following:

Expected term (years)

15 unchanged sentences

Since the lowest level input is a Level 3, the Company determined the warrant liability was most appropriately classified within Level 3 of the fair value hierarchy.

SMARTKEM, INC.

Notes to Condensed Consolidated Financial Statements

The following tables present information about the Company’s financial assets and liabilities that have been measured at fair value as of June 30, 2024 and indicate the fair value hierarchy of the valuation inputs utilized to determine such fair value.

The following tables present information about the Company’s financial assets and liabilities that have been measured at fair value as of December 31, 2023 and indicate the fair value hierarchy of the valuation inputs utilized to determine such fair value.

In general, the fair values were determined using Level 3:

3 unchanged sentences

Total liabilities

SUBSEQUENT EVENTS:

Preferred Stock Conversions

Subsequent to June 30, 2024, the Company issued 28,572 shares of the Company’s common stock upon the conversion of 250 shares Series A-1 Preferred Stock.

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-Q

Item 1. Financial Statements