What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2025-03-31 compared with 2024-03-27 · 257 added, 314 removed, 599 unchanged (49% of the section changed)

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Report of Independent Registered Public Accounting Firm (Marcum LLP, New York, USA, PCAOB ID # 688 )

Report of Independent Registered Public Accounting Firm (BDO LLP, London, United Kingdom, PCAOB ID # 1295)

Consolidated Balance Sheets as of December 31, 2024, and 2023

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Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheet of SmartKem, Inc.

and subsidiaries (the “Company”) as of December 31, 2023, the related consolidated statements of operations and comprehensive loss, stockholders’ equity, and cash flows for the year ended December 31, 2023, and the related notes (collectively referred to as the “financial statements”).

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023, and the results of its operations and its cash flows for the year ended December 31, 2023, in conformity with accounting principles generally accepted in the United States of America.

We have audited the accompanying consolidated balance sheets of SmartKem, Inc.

and Subsidiaries (the “Company”) as of December 31, 2024 and 2023, the related consolidated statements of operations and comprehensive loss, stockholders’ equity, and cash flows for each of the two years in the period ended December 31, 2024 , and the related notes (collectively referred to as the “financial statements”).

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2024 and 2023, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2024, in conformity with accounting principles generally accepted in the United States of America.

Explanatory Paragraph – Going Concern

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern.

As more fully described in Note 2, the Company has incurred recurring losses and needs to raise additional funds to meet its obligations and sustain its operations.

These conditions raise substantial doubt about the Company's ability to continue as a going concern.

Management's plans in regard to these matters are also described in Note 2.

The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Basis for Opinion

These financial statements are the responsibility of the Company's management.

Our responsibility is to express an opinion on the Company's financial statements based on our audit.

Our responsibility is to express an opinion on the Company's financial statements based on our audits.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

We conducted our audits in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.

As part of our audit, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting.

As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting.

Accordingly, we express no such opinion.

Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that our audit provides a reasonable basis for our opinion.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that our audits provide a reasonable basis for our opinion.

/s/ Marcum LLP

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March 31, 2025

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Shareholders and Board of Directors

SMARTKEM, INC.

Manchester, United Kingdom

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheet of SmartKem, Inc.

(the “Company”) as of December 31, 2022, the related consolidated statements of operations and comprehensive loss, stockholders’ equity, and cash flows for the year ended December 31, 2022, and the related notes (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2022, and the results of its operations and its cash flows for the year ended December 31, 2022 , in conformity with accounting principles generally accepted in the United States of America.

Going Concern Uncertainty

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern.

As discussed in Note 2 to the consolidated financial statements, the Company has suffered recurring losses from operations and has a net capital deficiency that raise substantial doubt about its ability to continue as a going concern.

Management’s plans in regard to these matters are also described in Note 2.

The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management.

Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audit.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.

The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.

As part of our audit we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.

Accordingly, we express no such opinion.

Our audit included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements.

Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that our audit provides a reasonable basis for our opinion.

We have served as the Company's auditor from 2020 through to 2023.

Manchester, United Kingdom

March 30, 2023, except for the effects of the reverse stock split as described in Notes 2 and 8, which is dated March 27, 2024

SMARTKEM, INC.

AND SUBSIDIARIES

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Lease liabilities, current

Income tax payable

Other current liabilities

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Stockholders’ equity:

Preferred stock, par value $ 0.0001 per share, 10,000,000 shares authorized, 13,765 and zero shares issued and outstanding , at December 31, 2023 and December 31, 2022, respectively

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

Common stock, par value $ 0.0001 per share, 300,000,000 shares authorized, 3,590,217 and 889,668 shares issued and outstanding, at December 31, 2024 and December 31, 2023, respectively

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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 consolidated financial statements.

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Research and development

Selling, general and administrative

Loss on foreign currency transactions

General and administrative

(Gain)/loss on foreign currency transactions

Total operating expenses

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Transaction costs allocable to warrants

Change in fair value of the warrant liability, net

Interest income

Change in fair value of the warrant liability

Interest income/(expense)

Total non-operating income/(expense)

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Income tax expense

Preferred stock deemed dividends

Net loss attributed to common stockholders

Weighted average shares outstanding - basic and diluted

Basic and diluted net loss per common share attributed to common stockholders

Other comprehensive loss:

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Total comprehensive loss

Basic and diluted net loss per common share *

Basic and diluted weighted average shares outstanding *

* 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 consolidated financial statements.

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Preferred Stock

Common stock *

$0.0001 par value

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Stock-based compensation expense

Issuance of stock awards

Issuance of common stock to vendor

Issuance of preferred stock, net of issuance costs

Exchange of Preferred stock into common stock warrants

Deemed dividend on extinguishment of Preferred stock

Cashless exercise of warrants into common stock

Fair value of warrants reclassified from liability to equity

Issuance of common stock and warrants, net of issuance costs

Deemed dividend on general release and amendment of Preferred stock

Conversion of preferred stock into common stock

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Preferred Stock

Common stock *

$0.0001 par value

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Issuance of common stock to vendor

Issuance of common stock in private placement

Issuance costs related to common stock in private placement

Reverse stock split rounding

Issuance of preferred stock, net of issuance costs

Conversion of preferred stock into common stock

Exercise of warrants into common stock

Foreign currency translation adjustment

Balance at December 31, 2023

* 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 consolidated financial statements.

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Transaction costs allocable to warrants

Change in fair value of the warrant liability, net

Change in fair value of the warrant liability

Change in operating assets and liabilities:

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Research and development tax credit receivable

Prepaid expenses and other current assets

Prepaid expenses and other assets

Accounts payable and accrued expenses

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Proceeds from the issuance of warrants in private placement

Proceeds from the issuance of common stock in private placement

Proceeds from the issuance of common stock and warrants in private placement

Proceeds from the issuance of common stock and warrants in public offering

Payment of issuance costs

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Supplemental disclosure of cash and non-cash investing and financing activities

Issuance of common shares for consulting services

Initial classification of fair value of warrants

Right-of-use asset and lease liability additions

Issuance of common shares for consulting services

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

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As a result of the Exchange, Parasol legally acquired the business of SmartKem Limited, and continues as the existing business operations of SmartKem Limited as a public reporting company under the name SmartKem, Inc.

Under ASC 805, Business Combinations, SmartKem Limited was deemed the accounting acquirer based on the following predominate factors:

Parasol was created as a “shell” company to effect a business combination and had no operations, the former shareholders of SmartKem Limited own more than a majority of the outstanding voting stock of the Company, the Company’s board of directors and management consists of the former board of directors and management of SmartKem Limited, SmartKem Limited was the largest entity by assets at the time of the Exchange, and the principal operating location of the Company is SmartKem Limited’s premises which are located in Manchester, United Kingdom.

The Exchange was accounted for as a reverse recapitalization, with no goodwill or other intangible assets recorded, in accordance with accounting principles generally accepted in the United States of America (“US GAAP”).

Under this method of accounting, Parasol was treated as the “acquired” company for financial reporting purposes.

Accordingly, for accounting purposes, the Exchange was treated as the equivalent of SmartKem Limited issuing stock for the net assets of Parasol, accompanied by a recapitalization.

The net assets of Parasol are stated at historical cost, with no goodwill or other intangible assets recorded.

The consolidated assets, liabilities, and results of operations prior to the Exchange are those of SmartKem Limited.

Reported shares and earnings per share available to holders of the Company’s common stock, prior to the Exchange, have been retroactively restated as shares reflecting the exchange ratios established in the Exchange.

At the closing of the Exchange (the “Closing”), each SmartKem Limited ordinary share issued and outstanding immediately prior to the Closing (other than the Deferred Shares) was exchanged for 0.0111907 of a share of the Company’s common stock and each SmartKem Limited A ordinary share issued and outstanding immediately prior to the Closing was exchanged for 0.0676668 of a share of the Company’s common stock, with the maximum number of shares of our common stock issuable to the former holders of SmartKem Limited’s ordinary shares and A ordinary shares equal to 12,725,000 .

This includes enterprise management incentive options to purchase 124,497,910 SmartKem Limited ordinary shares (the “SmartKem Limited EMI Options”) issued and outstanding immediately prior to the Closing that were accelerated and exercised by the holders thereof for a like number of ordinary shares and exchanged for shares of the Company’s common stock pursuant to the Exchange.

In aggregate 1,127,720,477 SmartKem Ltd shares were exchanged for 12,725,000 of the Company’s common stock, an average exchange ratio of 0.011283825 .

Immediately prior to the Closing, an aggregate of 2,500,000 shares of the Company’s common stock owned by the stockholders of Parasol prior to the Exchange were forfeited and cancelled (the “Stock Forfeiture”).

SMARTKEM, INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

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 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.

COVID-19 Pandemic

In March 2020, the World Health Organization declared the outbreak of COVID-19 as a global pandemic (the “Pandemic”).

The Pandemic has had a widespread and detrimental effect on the global economy and has adversely impacted the Company’s business and results of operations.

The Company has experienced travel bans, states of emergency, quarantines, lockdowns, “shelter in place” orders, business restrictions and shutdowns in the countries where it operates.

The Company’s containment measures have impacted its day-to-day operations and disrupted its business.

Because the severity, magnitude and duration of the Pandemic and its economic consequences are highly uncertain, rapidly changing and difficult to predict, the ultimate impact of the Pandemic on the Company’s business, financial condition and results of operations is currently unknown.

The additional costs incurred by the Company related to COVID-19 for the years ended December 31, 2023, and 2022, respectively were deemed to be immaterial to the consolidated financial statements.

We are seeking to change the world of electronics with a new class of transistor developed using our proprietary advanced semiconductor materials that we believe has the potential to revolutionize the display industry.

Our TRUFLEX® semiconductor polymers enable low temperature printing processes that are compatible with existing manufacturing infrastructure to deliver low-cost, high-performance displays.

Our semiconductor platform can be used in a range of display technologies including MicroLED, miniLED and AMOLED, as well as in applications in advanced chip packaging, sensors and logic.

The consolidated entity presented is referred to herein as “SmartKem”, “we”, “us”, “our”, or the “Company”, as the context requires and unless otherwise noted.

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These consolidated financial statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission and accounting principles generally accepted in the United States of America (“US GAAP”) as defined by the Financial Accounting Standards Board (FASB) within the FASB Accounting Standards Codification (“ASC”) and are presented in thousands, except number of shares and per share data.

Reclassification

Certain accounts in the prior period consolidated financial statements have been reclassified to conform to the presentation of the current year consolidated financial statements.

These reclassifications had no effect on the previously reported operating results.

Reverse Stock Split

All share numbers and per share amounts presented in these financial statements, including these footnotes reflect a one-for-thirty-five (1:35) reverse stock split effected on September 21, 2023 (see also Note 8).

Going Concern

As of December 31, 2024, we have incurred recurring losses including net losses of $ 10.3 million and $ 8.5 million for the years ended December 31, 2024, and 2023, respectively.

We anticipate operating losses to continue for the

We anticipate 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.

In December 2024, the Company raised $ 7.7 million through an offering of common stock and warrants.

Net proceeds after related expenses were $ 6.5 million.

SMARTKEM, INC.

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Notes to Consolidated Financial Statements

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.

In June 2023 the Company raised $ 14.2 million through two closings of a private placement of Preferred Stock and Warrants.

Net proceeds after related expenses was $ 12.7 million.

In addition, the company has also gone through various cost cutting measures such as lowering personnel costs through a reduction in force, reduced spending on professional service fees and reduced our lease and related utility costs by consolidating office and lab space.

All of these actions together have alleviated the going concern that was reported in 2022.

We expect that our cash and cash equivalents of $ 8.8 million as of December 31, 2023, 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.

The Company expects that its cash and cash equivalents of $ 7.1 million as of December 31, 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.

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.

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

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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.

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, 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 Consolidation

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and its wholly-owned subsidiary, SmartKem Limited.

The Company does not have any nonconsolidated subsidiaries.

The Company does not have any non-consolidated subsidiaries.

All intercompany balances and transactions have been eliminated on consolidation, including unrealized gains and losses on transactions between the companies.

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The preparation of consolidated financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, including disclosure of contingent assets and liabilities, at the date of the consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period.

The most significant estimates in the Company’s consolidated financial statements relates to the valuation of common share, fair value of share options, and the fair value of warrant liability.

These estimates and assumptions are based on current facts, historical experience and various other factors believed

The most significant estimates in the Company’s consolidated financial statements relates to the fair value of share options and the fair value of warrant liability.

These estimates and assumptions are based on current facts, historical experience and various other factors believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the recording of expenses that are not readily apparent from other sources.

Due to the uncertainty of

SMARTKEM, INC.

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Notes to Consolidated Financial Statements

to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the recording of expenses that are not readily apparent from other sources.

Due to the uncertainty of factors surrounding the estimates or judgments used in the preparation of the consolidated financial statements, actual results may materially vary from these estimates.

factors surrounding the estimates or judgments used in the preparation of the consolidated financial statements, actual results may materially vary from these estimates.

Certain Risk and Uncertainties

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The Company entered into several collaboration agreements during 2024.

The business arrangements between the two parties are not accounted for as a Collaborative Arrangement, as defined within the guidance under ASC 808, Collaborative Arrangement , as both parties are not exposed to significant risks and rewards dependent on the commercial success of the activity.

It has also determined that other parties are a vendor and not a customer, as defined within the guidance under ASC 606, as the other parties did not primarily contract with SmartKem to obtain goods or services that are an output of the entity’s ordinary activities in exchange for consideration.

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or c) consideration for sales incentives offered to customers by manufacturers.

Contract Liability

As of December 31, 2024, the Company has recognized contract liabilities of $ 0.5 million, primarily related to advance payments received from collaboration agreements for services to be performed in future periods.

These contract liabilities are expected to be recognized as revenue within the next 12 months.

Research and Development Expenses

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Other Operating Income

The Company’s 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.

Such incentives are recorded as other income when it is probable the amounts are collectible and can be reasonably estimated.

The Company has applied the guidance of IAS 20, Accounting for Government Grants and Disclosure of Government Assistance to account for grants and recognition of the other operating income related to the grant.

The government

SMARTKEM, INC.

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Notes to Consolidated Financial Statements

grant is recognized only when there is reasonable assurance that a) the Company will comply with any conditions attached to the grant and, (b) the grant will be received.

relief for small and medium-sized enterprises, which is a government tax incentive designed to reward innovative companies for investing in research and development.

Such incentives are recorded as other income when it is probable the amounts are collectible and can be reasonably estimated.

The government grant is recognized only when there is reasonable assurance that a) the Company will comply with any conditions attached to the grant and, (b) the grant will be received.

The grant is recognized as income over the period necessary to match the related costs, for which the grant is intended to compensated, on a systematic basis.

A grant receivable as compensation for costs already incurred or for immediate financial support, with no future related costs, is recognized as other operating income in the period in which it is receivable.

For the year ended December 31, 2023 and 2022, the Company recorded grant income and research & development tax credits of $ 836 thousand and $ 1,172 thousand, respectively, which are recorded as other operating income in the accompanying consolidated statements of operations.

As of December 31, 2023 and 2022, the Company had receivables related to research & development tax credits for payments not yet received of $ 610 thousand and $ 1,121 thousand, respectively and receivables related to a government grants of $ 160 thousand as of December 31, 2023.

The Company had no receivables related to government grants as of December 31, 2022.

Ordinary Shares Valuation

Due to the absence of public trading market for the Company’s common stock before February 2022, the Company utilized methodologies in accordance with the framework of the American Institute of Certified Public Accountants Technical Practice Aid, Valuation of Privately-Held Company Equity Securities Issued as Compensation, to estimate the fair value of its ordinary shares.

In determining the exercise prices for options to be issued, the estimated fair value of the Company’s common stock on each grant date was estimated based upon a variety of factors, including:

● the issuance prices of shares of common stock;

● the rights and preferences of holders of preferred stock;

● the progress of the Company’s research and development programs;

● the Company’s stage of development and business strategy;

● external market conditions affecting the technology industry and trends within the technology industry;

● the Company’s financial position, including cash on hand;

● the Company’s historical and forecasted performance and operating results;

● the lack of active public market for the Company’s ordinary shares;

● the likelihood of achieving a liquidity event, such as a securities offering, initial public offering or a sale of the Company’s common stock

From February 2022, the Company’s common stock is publicly traded, and the Company no longer has to estimate the fair value of the common stock, rather the value is determined based on quoted market prices.

Significant changes to the key assumptions underlying the factors used could result in different fair values of ordinary shares at each valuation date.

Shares of common stock are classified in stockholders’ equity and represent issued share capital.

For the year ended December 31, 2024 and 2023, the Company recorded grant income and research & development tax credits of $ 1.0 million and $ 0.8 million, respectively, which are recorded as other operating income in the accompanying consolidated statements of operations.

As of December 31, 2024 and 2023, the Company had receivables related to research & development tax credits for payments not yet received of $ 0.5 million and $ 0.6 million, respectively and receivables related to a government grants of $ 62 thousand as of December 31, 2024 and $ 160 thousand as of December 31, 2023.

Share-based compensation

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Options become exercisable when service requirements are met.

In the case of performance-based options, options become exercisable when there is a liquidity event, such as a change in control or sale or admission (listing as a public company or initial public offering (“IPO”)), and the employee, or consultant, must be providing services to the Company at the time of the event.

In the case of performance-based options, options become exercisable when there is a liquidity event, such as a change in control, sale, or admission (listing as a public company or initial public offering (“IPO”)), and the employee, or consultant, must be providing services to the Company at the time of the event.

Due to the Exchange, all options outstanding immediately prior to the event with a performance obligation requirement became vested and exercisable.

SMARTKEM, INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Non-cash stock-based compensation expense for the year ended December 31, 2024 and 2023 were $ 0.9 million and $ 0.7 million, respectively (see also Note 9).

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The predecessor’s functional currency was the respective local currency of the primary economic environment in which an entity’s operations are conducted.

The predecessor translated the consolidated financial statements into the presentation currency using exchange rates in effect on the balance sheet date for assets and liabilities and average exchanges rates for the period for statement of operations accounts, with the difference recognized in accumulated other comprehensive income/ (loss).

The Company’s functional currency is the U.S.

dollar (“USD”).

SMARTKEM, INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

The Company’s functional currency is USD.

The functional currency of the Company’s foreign operation is the respective local currency.

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As of December 31, 2024, and 2023, there were no material uncertain tax positions.

SMARTKEM, INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Contingent Liabilities

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Segment Information

The Company has determined that it operates and reports in one segment , which focuses on the development of materials and processes used to make organic thin-film transistors (OTFTs) for the manufacture of flexible electronics.

The Company’s operating segment is reported in a manner consistent with the internal reporting provided to the chief operating decision maker (“CODM”).

The Company’s CODM has been identified as its Chairman and Chief Executive Officer.

Operating segments are defined as components of an enterprise about which separate discrete information is available for evaluation by the chief operating decision-maker, or decision-making group, in deciding how to allocate resources and in assessing performance.

The Company views its operations and manages its business as one operating segment:

Semiconductor materials.

Basic and Diluted Loss Per Share

Basic and diluted net loss per share is determined by dividing net loss by the weighted average ordinary shares outstanding during the period.

For all periods presented with a net loss, the shares underlying the ordinary share options and warrants have been excluded from the calculation because their effect would be anti-dilutive.

Therefore, the weighted-average shares outstanding used to calculate both basic and diluted loss per share are the same for periods with a net loss.

The loss per share information in these consolidated financial statements is reflected and calculated as if the Company had existed since January 1, 2021.

Accordingly, loss per share for all periods was calculated based on the number of shares retroactively adjusted for the exchange ratio determined in the reverse recapitalization (see also Note 1).

As of December 31, 2023, the Company had 61,587 pre-funded common stock warrants and 769,826 Class B Warrants outstanding and exercisable.

As the pre-funded common stock warrants and Class B Warrants are exercisable for $ 0.35 , these shares are considered outstanding common shares and included in computation of basic and diluted Earnings Per Share as the exercise of the pre-funded common stock warrants is virtually assured.

The following potentially dilutive securities have been excluded from the computation of diluted weighted average shares outstanding as they would be anti-dilutive:

Basic net loss per share is determined by dividing net loss by the weighted average shares of common stock outstanding during the period, without consideration of potentially dilutive securities, except for those shares that are issuable for little or no cash consideration.

Diluted net loss per share is determined by dividing net loss by diluted weighted average shares outstanding.

Diluted weighted average shares reflects the dilutive effect, if any, of potentially dilutive common shares, such as stock options and warrants calculated using the treasury stock method.

SMARTKEM, INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

with reported net operating losses, all common stock options and warrants are generally deemed anti-dilutive such that basic net loss per share and diluted net loss per share are equal.

The following potentially dilutive securities were excluded from the computation of earnings per share as of December 31, 2024 and 2023 because their effects would be anti-dilutive:

Common stock warrants

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Recent Accounting Pronouncements

In June 2016, the FASB issued ASU No.

2016-13, Financial Instruments:

Credit Losses (Topic 326) , which requires measurement and recognition of expected losses for financial assets held.

The new standard changes the impairment model for most financial instruments, including trade receivables, from an incurred loss method to a new forward-looking approach, based on expected losses.

The estimate of expected credit losses will require organizations to

SMARTKEM, INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

incorporate considerations of historical information, current conditions and reasonable and supportable forecasts.

The standards update is effective prospectively for annual and interim periods in fiscal years beginning after December 15, 2019, with early adoption permitted, for U.S.

Securities Exchange filers.

However, the standard was not applicable until January 1, 2023, because the company has elected to apply the extended transition period available for emerging growth companies.

Emerging growth companies can delay adopting new or revised accounting standards until such time as those standards apply to private companies, which is effective prospectively for annual and interim periods beginning after December 15, 2022.

The adoption of this guidance did not have a material impact in the interim condensed consolidated financial statements of the Company.

In November 2023, the 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").

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 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.

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

The standard requires disaggregated information about a reporting entity’s effective tax rate reconciliation as well as information on income taxes paid.

The standard is intended to provide more detailed income tax disclosures.

For public business entities (PBEs), the new requirements will be effective for annual periods beginning after December 15, 2024.

The guidance will be applied on a prospective basis with the option to apply the standard retrospectively.

The adoption of this guidance did not have a material impact in the consolidated financial statements of the Company.

See Note 14 – Segment Reporting for further information.

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

2023-09, Income Taxes (Topic 740), Improvements to Income Tax Disclosures which will require companies to make additional income tax disclosures.

The pronouncement is effective for annual filings for the year ended December 31, 2025.

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 OECD reached an agreement among various countries to implement a minimum 15% tax rate on certain multinational enterprises, commonly referred to as Pillar Two.

On November 2024, the FASB issued Accounting Standards Update (ASU) No.

2024-03, Income Statement (Topic 220):

Reporting Comprehensive Income - Expense Disaggregation Disclosures, Disaggregation of Income Statement Expenses, which requires public companies to disclose, in interim and annual reporting periods, additional information about certain expenses in the financial statements.

The amendments in this pronouncement will be effective for annual periods beginning after December 15, 2026, and interim reporting periods beginning after December 15, 2027.

Early adoption is permitted and is effective on either a prospective basis or retrospective basis.

The Company is currently assessing the potential impacts of adoption on its consolidated financial statements and related disclosures.

The Organization for Economic Co-operation and Development (OECD) reached an agreement among various countries to implement a minimum 15% tax rate on certain multinational enterprises, commonly referred to as Pillar Two.

Many countries continue to announce changes in their tax laws and regulations based on Pillar Two Proposals.

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Given the numerous proposed changes in law and uncertainty regarding such proposed changes, the impact cannot be determined at this time.

As the Company is U.S.

headquartered and subject to the controlled foreign corporation regime in the United States, we expect the impact would be minimal.

SMARTKEM, INC.

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(in thousands)

Prepaid facility costs

Prepaid insurance

Prepaid professional service fees

Deferred research & development costs

Research grant receivable

Prepaid software licenses

Prepaid facility costs

VAT receivable

Prepaid software licenses

Prepaid professional service fees

Other receivable and other prepaid expenses

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Property, plant and equipment, net

Depreciation expense was $ 145 thousand and $ 198 thousand for the year ended December 31, 2023 and 2022, respectively, and is classified as research and development expense.

Depreciation expense was $ 0.3 million and $ 0.1 million for the year ended December 31, 2024 and 2023, respectively, and is classified as research and development expense.

ACCOUNTS PAYABLE AND ACCRUED EXPENSES:

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(in thousands)

Accounts payable

Accrued expenses – lab refurbishments

Accrued expenses – technical fees

Accounts payable - trade

Payroll liabilities

Accrued expenses – audit & accounting fees

Accrued expenses – technical fees

Accrued expenses – other

Payroll liabilities

Total accounts payable and accrued expenses

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Research and development

Selling, general and administrative

General and administrative

Total lease cost

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Total lease liabilities

The Company had no right of use lease assets or lease liabilities for financing leases as of December 31, 2023 and 2022.

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

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

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STOCKHOLDERS’ EQUITY:

Reverse Stock Split

At the Company’s Annual Meeting of Stockholders held on August 25, 2023 (the “Annual Meeting”), the Company’s stockholders approved a proposal to approve and adopt an amendment to the Company’s Amended and Restated Certificate of Incorporation to effect a reverse stock split of its shares of common stock, issued and outstanding or reserved for issuance, at a specific ratio within a range from 1-for- 30 to 1-for- 60 , inclusive, prior to the first anniversary of stockholder approval of the proposal, and to grant authorization to the Board of Directors to determine, in its sole discretion, whether to effect the reverse stock split, as well as its specific timing and ratio.

On September 19, 2023, the Company’s Board of Directors adopted resolutions to effect as soon as reasonably practicable the reverse split of the issued and outstanding shares of the Common Stock at a ratio of 1-for- 35 .

On September 19, 2023, the Company filed with the Secretary of State of the State of Delaware a Certificate of Amendment to the Company’s Amended and Restated Certificate of Incorporation (the “Charter Amendment”) to effect a reverse stock split of the issued and outstanding shares of the Company’s common stock, $ 0.01 par value per

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Notes to Consolidated Financial Statements

share, at a ratio of 1-for- 35 to be effective as of September 21, 2023 at 12:01 a.m., New York City time (the “Reverse Stock Split”).

The Charter Amendment did not change the par value or any other terms of the common stock.

Preferred Stock

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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”).

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:

On January 29, 2024, the Company filed an Amended and Restated Certificate of Designation of Preferences, Rights and Limitation with the Secretary of the State of Delaware designating 11,100 shares of Series A-1 Preferred Stock, and on December 20, 2024, the Company filed a Second Amended and Restated Certificate of Designation of Preferences, Rights and Limitation with the Secretary of the State of

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Notes to Consolidated Financial Statements

Delaware designating 11,100 shares 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 Second 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.

In addition, in the event that on the 18th month anniversary of the Closing Date, the trailing 30-day VWAP (as defined in the Series A-1 Certificate of Designation) is less than the then-effective Series A-1 Conversion Price, the Series A-1 Preferred Stock will begin accruing dividends at the annual rate of 19.99 % of the stated value thereof (the “Series A-1 Dividend”).

The Series A-1 Dividend would be paid in cash, or, at the option of the Company if certain equity conditions are met, in shares of Common Stock at a price per share equal to ninety percent (90%) of the trailing 10-day VWAP for the last 10 trading date prior to the date the Series A-1 Dividend is paid.

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.

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, the Series A-2 Certificate of Designation (as defined below) 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, other than 3,050 shares of Series A-2 Preferred Stock of the Company, (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.

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 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) increase the number of authorized shares of Series A-1 Preferred Stock, (d) issue any Series A-1 Preferred Stock except pursuant to the Purchase Agreement, or (e) enter into any agreement to do any of the foregoing.

Upon any liquidation, dissolution or winding-up of the Company, whether voluntary or involuntary (a “Liquidation”), the then holders of the Series A-1 Preferred Stock are entitled to receive, pari passu with holders of the common stock, out of the assets available for distribution to stockholders of the Company an amount equal to the amount that would otherwise be payable to them if all of the shares of Series A-1 Preferred Stock had converted into shares of common stock immediately prior to such Liquidation.

The Series A-1 Preferred Stock is convertible into common stock at a conversion price of $ 4.34 .

Conversion at the Option of the Holder

From and after the earlier of (i) the date on which the registration statement covering the resale or other disposition of the additional shares of common stock that are issuable as a result of the Second Amended and Restated Certificate of Designation of the Series A-1 Preferred Stock is declared effective by the SEC (the “Effective Date”) and (ii) the six-month anniversary of December 20, 2024, the Series A-1 Preferred Stock is convertible at the then-effective Series A-1 Conversion Price at the option of the holder at any time and from time to time.

Mandatory Conversion

All outstanding shares of Series A-1 Preferred Stock shall automatically be converted into shares of common stock upon the earlier of (i) the Effective Date and (ii) the date and time, or upon the occurrence of an event, specified by vote or written consent of the holders of a majority of the then outstanding

SMARTKEM, INC.

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Notes to Consolidated Financial Statements

Upon any liquidation, dissolution or winding-up of the Company, whether voluntary or involuntary (a “Liquidation”), the then holders of the Series A-1 Preferred Stock are entitled to receive out of the assets available for distribution to stockholders of the Company an amount equal to 100 % of the stated value, plus any accrued and unpaid dividends thereon and any other fees or liquidated damages then due and owing thereon, prior and in preference to the Common Stock or any other series of preferred stock (other than the Series A-2 Preferred Stock).

The Series A-1 Preferred Stock is convertible into Common Stock at any time at a conversion price of $ 87.50 , subject to adjustment for certain anti-dilution provisions set forth in the Series A-1 Certificate of Designation (the “Series A-1 Conversion Price”).

Upon conversion the shares of Series A-1 Preferred Stock will resume the status of authorized but unissued shares of preferred stock of the Company.

Conversion at the Option of the Holder

The Series A-1 Preferred Stock is convertible at the then-effective Series A-1 Conversion Price at the option of the holder at any time and from time to time.

Mandatory Conversion at the Option of the Company

So long as certain equity conditions are satisfied, the Company may give notice requiring the holders to convert all of the outstanding shares of Series A-1 Preferred Stock into shares of Common Stock at the then-effective Series A-1 Conversion Price.

shares of the Series A-1 Preferred Stock which must include AIGH for so long as AIGH is holding at least $ 1,500,000 in aggregate Stated Value of Series A-1 Preferred Stock (a “Mandatory Conversion”).

In the case of a Mandatory Conversion, the holders of Series A-1 Preferred Stock shall receive (i) shares of shares in an amount that would not cause such holder to exceed its Beneficial Ownership Limitation (as defined below) (after giving effect to the Mandatory Conversion of shares of Series A-1 Preferred Stock held by the other holders), and (ii) Class C Warrants exercisable for the remaining shares which the holder would otherwise be entitled to receive.

Beneficial Ownership Limitation

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The shares of Series A-1 Preferred Stock are not redeemable by the Company.

Negative Covenants

As long as any Series A-1 Preferred Stock is outstanding, unless the holders of more than 50 % in stated value of the then outstanding shares of Series A-1 Preferred Stock shall have otherwise given prior written consent (which must include 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), the Company cannot, subject to certain exceptions, (a) enter into, create, incur, assume, guarantee or suffer to exist any indebtedness, (b) enter into, create, incur, assume or suffer to exist any liens, (c) repay, repurchase or offer to repay, repurchase or otherwise

SMARTKEM, INC.

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Notes to Consolidated Financial Statements

acquire more than a de minimis number of shares of its Common Stock, Common Stock equivalents or junior securities, (d) enter into any transaction with any affiliate of the Company which would be required to be disclosed in any public filing with the Commission, unless such transaction is made on an arm’s-length basis and expressly approved by a majority of the disinterested directors of the Company, (e) declare or pay a dividend on junior securities or (f) enter into any agreement with respect to any of the foregoing.

Trading Market

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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-2 Preferred Stock with a stated value of $ 1,000 per share (the “Series A-2 Certificate of Designation”).

The following is a summary of the principal terms of the Series A-2 Preferred Stock as set forth in the Series A-2 Certificate of Designation:

The holders of Series A-2 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.

Voting Rights

The shares of Series A-2 Preferred Stock have no voting rights, except to the extent required by the DGCL.

As long as any shares of Series A-2 Preferred Stock are outstanding, the Company may not, without the approval of a majority of the then outstanding shares of Series A-2 Preferred Stock (a) alter or change the powers, preferences or rights of the Series A-2 Preferred Stock, (b) alter or amend the Charter, the Series A-2 Certificate of Designation or the Bylaws in such a manner so as to materially adversely affect any rights given to the Series A-2 Preferred Stock, (c) authorize or create any class of stock ranking as to dividends, redemption or distribution of assets upon a liquidation senior to, or otherwise pari passu with, the Series A-2 Preferred Stock or (d) enter into any agreement to do any of the foregoing.

Upon a Liquidation, the then holders of the Series A-2 Preferred Stock are entitled to receive out of the assets available for distribution to stockholders of the Company an amount equal to 100 % of the stated value, plus any accrued and unpaid dividends thereon and any other fees or liquidated damages then due and owing thereon, prior and in preference to the Common Stock or any other series of preferred stock (other than the Series A-1 Preferred Stock).

The Series A-2 Preferred Stock is convertible into Common Stock at any time at a conversion price of $ 8.75 , subject to adjustment for certain anti-dilution provisions set forth in the Series A-2 Certificate of Designation (the

SMARTKEM, INC.

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Notes to Consolidated Financial Statements

“Series A-2 Conversion Price”).

Upon conversion the shares of Series A-2 Preferred Stock will resume the status of authorized but unissued shares of preferred stock of the Company.

Conversion at the Option of the Holder

The Series A-2 Preferred Stock is convertible at the then-effective Series A-2 Conversion Price at the option of the holder at any time and from time to time.

Automatic Conversion

On the trading day immediately preceding the date on which shares of Common Stock commence trading on the NYSE American, the Nasdaq Capital Market, the Nasdaq Global Market, the Nasdaq Global Select Market or the New York Stock Exchange all, but not less than all, of the outstanding shares of Series A-2 Preferred Stock shall automatically convert, without any action on the part of the holder thereof and without payment of any additional consideration, into that number of shares of Common Stock determined by dividing the stated of such share of Series A-2 Preferred Stock by the then applicable Series A-2 Conversion Price.

Beneficial Ownership Limitation

The Series A-2 Preferred Stock cannot be converted to common stock if the holder and its affiliates would beneficially own more than 4.99 % (or 9.99 % at the election of the holder) of the outstanding common stock.

However, any holder may increase or decrease such percentage to any other percentage not in excess of 9.99 % upon notice to us, provided that any increase in this limitation will not be effective until 61 days after such notice from the holder to us and such increase or decrease will apply only to the holder providing such notice.

Preemptive Rights

No holders of Series A-2 Preferred Stock will, as holders of Series A-2 Preferred Stock, have any preemptive rights to purchase or subscribe for Common Stock or any of our other securities.

The shares of Series A-2 Preferred Stock are not redeemable by the Company.

Trading Market

There is no established trading market for any of the Series A-2 Preferred Stock, and the Company does not expect a market to develop.

The Company does not intend to apply for a listing for any of the Series A-2 Preferred Stock on any securities exchange or other nationally recognized trading system.

Without an active trading market, the liquidity of the Series A-2 Preferred Stock will be limited.

Series A-1 and A-2 Preferred Stock and Class A and Class B Warrant Issuances

On June 14, 2023, the Company and certain investors entered into a securities purchase agreement (the “Purchase Agreement”) pursuant to which the Company sold an aggregate of (i) 9,229 shares of Series A-1 Convertible Preferred Stock at a price of $ 1,000 per share (the “Series A-1 Preferred Stock”), (ii) 2,950 shares of the Company’s Series A-2 Convertible Preferred Stock at a price of $ 1,000 per share (“Series A-2 Preferred Stock” and together with the Series A-1 Preferred Stock, the “Preferred Stock”), (iii) Class A Warrants to purchase up to an aggregate of 1,391,927 shares of common stock (the “Class A Warrant”), and (iv) Class B Warrants to purchase up to an aggregate of 798,396 shares of common stock (the “Class B Warrant” and together with the Class A Warrant, the “Warrants”) for aggregate gross

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.

The Company filed a Certificate of Elimination with respect to the Series A-2 Certificate of Designation, pursuant to which, effective June 18, 2024, all matters set forth in the Series A-2 Certificate of Designation were eliminated from the Company’s Amended and Restated Certificate of Incorporation.

Series A-1 and A-2 Preferred Stock and Class A and Class B Warrant Issuances and related Amendments

SMARTKEM, INC.

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Notes to Consolidated Financial Statements

proceeds of $ 12.2 million (the “June 2023 PIPE”).

Series A-2 Convertible Preferred Stock at a price of $ 1,000 per share (“Series A-2 Preferred Stock” and together with the Series A-1 Preferred Stock, the “Preferred Stock”), (iii) Class A Warrants to purchase up to an aggregate of 1,391,927 shares of common stock (the “Class A Warrant”), and (iv) Class B Warrants to purchase up to an aggregate of 798,396 shares of common stock (the “Class B Warrant” and together with the Class A Warrant, the “Warrants”) for aggregate gross proceeds of $ 12.2 million (the “June 2023 PIPE”).

In addition, 34,286 Class B Warrants were issued in lieu of cash payments for consulting services related to the offering.

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The Warrants expire five years from the issuance date.

There were an additional 127,551 warrants issues related to a placement agent fee.

There were an additional 127,551 warrants issued related to a placement agent fee.

The fair value of this fee is $ 31 thousand.

The Company has accounted for the Class A and Class B Warrants as derivative instruments in accordance with ASC 815, Derivatives and Hedging.

The Company classified the Warrants as a liability because they cannot be considered indexed to the Company’s stock due to provisions that, in certain circumstances, adjust the number of shares to be issued if the exercise price is adjusted and the existence of a pre-specified volatility input to the Black-Scholes calculation which could be used to calculate consideration in the event of a Fundamental Transaction, as defined in the agreements.

The Company accounted for the Class A and Class B Warrants as derivative instruments in accordance with ASC 815, Derivatives and Hedging.

The Company classified the Warrants as a liability because they could not be considered indexed to the Company’s stock due to provisions that, in certain circumstances, adjust the number of shares to be issued if the exercise price is adjusted and the existence of a pre-specified volatility input to the Black-Scholes calculation which could be used to calculate consideration in the event of a Fundamental Transaction, as defined in the agreements.

Upon the Company’s May 31, 2024 uplisting to the Nasdaq Capital Market, the provisions relating to the adjustment in the number of shares were no longer in effect.

Additionally, the Company re-evaluated the pre-specified volatility input and determined that this did not preclude the Warrants from being considered indexed to the Company’s stock.

As a result, the Warrants are accounted for as an equity instrument beginning on May 31, 2024.

The Company received net proceeds after expenses of $ 12.7 million.

Of the net proceeds, the Company allocated an estimated fair value of $ 1.8 million to the Warrants.

The Company also expensed $ 0.2 million of issuance costs that were allocated to the warranty liability during the three and six months ended June 30, 2023.

The terms of the June 2023 PIPE include a number of restrictions on our operations and on our ability to raise additional capital.

The Purchase Agreement, among other things, provides that, for a period ending on June 14, 2024, we may not use cash from operating activities (as defined under GAAP) of more than an average of $ 2.8 million for any consecutive three-month period (subject to certain exceptions).

This provision may cause us to delay certain actions that may benefit our business and may prevent us from pursuing potentially favorable business opportunities, even if a majority of our board of directors believes such actions or opportunities are in the best interest of our company and our stockholders.

Under the terms of the Purchase Agreement, for a period ending on December 15, 2025, in the event that we issue common stock or common stock equivalents in a subsequent financing (as defined in the Purchase Agreement), the significant purchasers (defined in the Purchase Agreement as a purchaser acquiring at least 1,000 shares of Series A-1 Preferred Stock) will have the right to purchase up to 40 % of the securities sold in the subsequent financing.

This provision may make it more difficult for us to raise additional capital because other investors may want to provide all, or a larger portion of the capital provided in the subsequent financing or may be unwilling to co-invest with one or more of the significant purchasers or may be unwilling to commit to provide financing without knowing how much of the subsequent financing will be provided by the significant purchasers.

In addition, during such period, the Company may not issue common stock or common stock equivalents in a subsequent financing with an effective price per share of common stock that is or may become lower than the then-effective conversion price of the Series A-1 Preferred Stock without the consent of the significant purchasers, which must include AIGH Investment Partners LP and its affiliates for so long as they are holding at least $ 1,500,000 in aggregate stated value of Series A-1 Preferred Stock acquired pursuant to the Purchase Agreement.

This provision may prevent the Company from obtaining additional capital on market terms even if a majority of the Company’s board of directors believes that the terms of the subsequent financing are in the best interests of the Company and its stockholders.

This provision may also have the effect of increasing the cost of obtaining additional capital either because the significant purchasers refuse to consent to any such subsequent financing unless provided by them on

Of the net proceeds, the Company initially allocated an estimated fair value of $ 1.8 million to the derivative instrument liability related to the Warrants.

The Company also expensed $ 0.2 million of issuance costs that were allocated to the warrant liability.

January 2024 Consent, Conversion and Amendment Agreement

On January 26, 2024, the Company entered into a Consent, Conversion and Amendment Agreement (the “Consent Agreement”) with each holder of the Series A-1 Preferred Stock (each a “Holder” and together, the “Holders”).

Pursuant to the Consent Agreement, each Holder converted, subject to the terms and conditions of the Consent Agreement, 90 % of its Series A-1 Preferred Stock (the “Conversion Commitment”) into shares of common stock or Class C Warrants (each a “Class C Warrant”) covering the shares of common stock that would have been issued to such Holder but for the Beneficial Ownership Limitation (the “Exchange”).

The Class C Warrants have an exercise price of $ 0.0001 , were exercisable upon issuance and will expire when exercised in full.

Under the Consent Agreement, the Company issued (i) 412,293 shares of common stock and (ii) Class C Warrants to purchase up to 726,344 shares of common stock upon the conversion or exchange of an aggregate of 9,963 shares of Series A-1 Preferred Stock.

1,106 shares of Series A-1 Preferred Stock remained outstanding after giving effect to the transactions contemplated by the Consent Agreement.

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Notes to Consolidated Financial Statements

terms approved by them or because the Company is required to provide additional consideration to such significant purchasers in exchange for their consent.

In the event that the Company issues common stock or common stock equivalents in a subsequent financing prior to the time the common stock is listed on a national securities exchange, the Purchase Agreement provides that if a significant purchaser reasonably believes that any of the terms and conditions of the subsequent financing are more favorable to an investor in the subsequent financing than the terms of the June 2023 PIPE, such significant purchaser has the right to require the Company to amend the terms of the June 2023 PIPE to include such more favorable term for such significant purchaser.

This provision may make it more expensive to obtain additional capital prior to an uplisting because it permits any significant purchaser to “cherry pick” the terms of the subsequent financing and to require any term deemed to be more favorable to be included retroactively in the terms of the June 2023 PIPE.

This provision also potentially creates uncertainty around the terms of a subsequent financing because the significant purchasers have the right to review terms of a completed subsequent financing before deciding which, if any, of the terms thereof they find more favorable to them.

The Purchase Agreement provides that, until June 14, 2025, a significant purchaser may participate in a subsequent transaction by exchanging some or all of its Series A-1 Preferred Stock having a stated value equal to its subscription amount in the subsequent financing.

This provision may adversely affect the amount of capital the Company raises in a subsequent financing, as it permits a significant purchaser to roll its existing investment into the new financing rather than being required to invest cash.

This provision also has the potential to make it more difficult for the Company to raise additional capital as other investors may want to provide all or a larger portion of the capital provided in the subsequent financing or may require the Company to raise a minimum amount of new capital or may be unwilling to commit to provide financing without knowing how much of the subsequent financing will be provided by the significant purchasers in cash.

If the Company is unable to raise additional capital when needed, the Company may be required to delay, limit, reduce or terminate commercialization, its research and product development, or grant rights to develop and market its products that the Company would otherwise prefer to develop and market itself and may have a material adverse effect on the Company’s business, financial condition and results of operations.

Pursuant to the Consent Agreement, the Company and the Holders agreed to amend and restate the Certificate of Designation of Preferences, Rights and Limitations for the Series A-1 Preferred Stock to (i) make certain adjustments to reflect the Company’s one -for-thirty-five (1:35) reverse stock split effected on September 21, 2023, (ii) remove all voting rights, except as required by applicable law, (iii) increase the stated value of the Series A-1 Preferred Stock to $ 10,000 from $ 1,000 , and (iv) adjust the conversion price of the Series A-1 Preferred Stock to $ 87.50 as a result of the increase in stated value.

The Company credited additional paid in capital $ 7.1 million for deemed dividends as a result of (i) the exchange of Series A-1 Preferred Shares for Series C Warrants, based on the fair value of the Series C Warrants in excess of the carrying value of the preferred shares and (ii) the amendment of Series A-1 Preferred Stock accounted for as an extinguishment, based on the fair value of the Series A-1 Preferred Stock immediately before and after the amendments.

The Company estimated the fair value of the deemed dividend related to the exchange of Series A-1 Preferred Stock for Series C Warrants as part of the fair value model utilized to value all the securities issued in the transaction with the stock price input estimated as of the January 26, 2024, transaction date.

The Company estimated the fair value of the deemed dividend related to the amendment of preferred stock using an option pricing model based on the following assumptions:

(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.

December 2024 Consent and Amendment Agreement and Hewlett Release

On December 17, 2024, the Company entered into a Consent and Amendment Agreement (the “December 2024 Consent and Amendment Agreement”) with certain holders of securities issued in the Company’s June 2023 PIPE pursuant to which, among other things, such holders agreed to (i) amend certain of the terms of the Purchase Agreement, dated June 14, 2023 and (ii) amend and restate certain of the provisions of the Company’s Series A-1 Preferred Stock effective immediately prior to the closing of the December 2024 Registered Direct Financing and Concurrent Private Placement discussed further below (the “Effective Time”).

In the December 2024 Consent and Amendment Agreement, the such holders agreed to further amend and restate the Amended and Restated Series A-1 Certificate of Designation to, among other things:

(i) remove the obligation of the Company to pay dividends on shares of the Series A-1 Preferred Stock in certain circumstances;

(ii) remove the provisions of the Amended and Restated Series A-1 Certificate of Designation that required the Company to obtain the consent of the holders of a majority of the outstanding shares of Series A-1 Preferred Stock to take certain actions, such as the incurrence of certain indebtedness, the granting of liens and the purchase or redemption of outstanding equity securities;

(iii) remove the liquidation preference applicable to the Series A-1 Preferred Stock;

(iv) reduce the conversion price of the Series A-1 Preferred Stock to $ 4.34 ;

(v) prevent the conversion of the Series A-1 Preferred Stock for a period ending on the earlier of (A) the effective date of a resale registration statement covering the additional shares of common stock issuable upon the conversion of the Series A-1 Preferred Stock as a result of the reduction in the conversion price and (B) the six-month anniversary of the Effective Time;

(vi) provide for the automatic conversion of the Series A-1 Preferred Stock into either shares of common stock or the Company’s Class C Warrants at the conversion price upon the earlier of (A) the Effective Date or (B) as determined by the written consent of the holders of at least a majority of the outstanding shares of Series A-1 Preferred Stock which must include AIGH for so long as AIGH holds at least $ 1,500,000 in aggregate Stated Value of Series A-1 Preferred Stock acquired pursuant to the Purchase Agreement;

and (vii) remove certain price protection provisions which had expired pursuant to their terms.

The Company also entered into a General Release with the Hewlett Fund LP pursuant to which the Hewlett Fund LP agreed on its own behalf and on behalf of certain of its related parties to release the Company and certain of its related parties from any claims, including claims arising out of the transactions contemplated by the Purchase Agreement, effective as of the Effective Time, in exchange for Class C Warrants to purchase 750,000 shares of common stock.

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AND SUBSIDIARIES

Notes to Consolidated Financial Statements

The Company credited additional paid in capital $ 2.0 million for deemed dividends as a result of (i) the amendment of Series A-1 Preferred Stock accounted for as an extinguishment, based on the fair value of the Series A-1 Preferred Stock immediately before and after the amendments and (ii) the issuance of Class C Warrants to purchase 750,000 shares of common stock.

The Company estimated the fair value immediately prior to the amendment of preferred stock using an option pricing model based on the following assumptions:

(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 December 31, 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.

Voting Rights

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Market Information

Quotations on the Company’s common stock on the OTC Market Group’s OTCQB® Market quotation system (“OTCQB”) commenced under the ticker symbol “SMTK” in February 2022.

There was no trading of the common stock on the OTCQB or any other over-the-counter market prior to February 2022.

The Company’s common stock has been trading on the Nasdaq Stock Market LLC under the symbol “SMTK” since May 31, 2024.

December 2024 Registered Direct Financing and Concurrent Private Placement

On December 18, 2024, the Company entered into a securities purchase agreement with certain institutional investors pursuant to which the Company agreed to issue and sell:

(i) in a registered direct public offering 1,449,997 shares of common stock;

and (ii) in a concurrent private placement Class D Common Stock Purchase Warrants (the “Class D Warrants”) to purchase up to 1,449,997 shares of common stock.

The purchase price for each share of common stock sold in the Public Offering was $ 3.00 .

Concurrently, the Company entered into a securities purchase agreement with certain institutional investors pursuant to which the Company agreed to issue and sell in a private placement:

(i) 169,784 shares of common stock;

(ii) Pre-funded Warrants to purchase up to 930,215 shares of common stock;

and (iii) Class D Warrants to purchase up to 1,099,999 shares of common stock.

The purchase price for each share of common stock sold in the Private Placement was $ 3.00 .

The purchase price for each Pre-funded Warrant sold in the Private Placement was $ 2.9999 .

SMARTKEM, INC.

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Notes to Consolidated Financial Statements

Pre-funded Warrants

The Pre-funded Warrants may be exercised at any time until all of the Pre-funded Warrants are exercised in full.

Each Pre-funded Warrant is exercisable for one share of common stock at an exercise price of $ 0.0001 per share of common stock.

Class D Warrants

The Class D Warrants have an exercise price of $ 3.00 per share of common stock.

The Class D Warrants were exercisable upon issuance and will expire on December 31, 2025.

If at the time of exercise more than six months after the issuance date there is no effective registration statement registering, or the prospectus contained therein is not available for the resale or other disposition of the shares of common stock underlying the Class D Warrants, then the Class D Warrants may be exercised, in whole or in part, at such time by means of a cashless exercise, in which case the holder would receive upon such exercise the net number of shares of common stock determined according to the formula set forth in the Class D Warrant.

The Company issued an additional 127,499 warrants to the placement agent.

The Company received gross proceeds of $ 7.7 million, before deducting offering expenses payable by the Company.

Common Stock Issued to Vendors for Services

On January 6, 2023, the Company issued 1,429 shares of common stock, as payment for investor relations and other financial consulting services.

On February 27, 2023, the Company issued 1,508 shares of common stock as payment for investor relations services.

On March 7, 2024, the Company issued 50,000 shares of common stock, as payment for consulting services.

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

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

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AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Common Stock Warrants

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Warrants outstanding at January 1, 2024

$ 0.35 - $ 70.00

Warrants outstanding at December 31, 2024

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Pre-funded warrants outstanding at December 31, 2024

For any issuance dates prior to February 2022, the fair value of common stock warrants is determined using the Black Scholes option-pricing model.

There was no public trading market for our shares before February 2022 and the Company estimates its expected stock volatility based on historical volatility of publicly traded peer companies..

The Company’s pre-funded warrants have no expiration date and may be exercised at any time until all of the pre-funded warrants are exercised in full .

August 2024 Shelf Registration Statement

On August 18, 2024, the Company filed a universal shelf registration statement on Form S-3 (the “August 2024 Shelf Registration Statement”) with the SEC, pursuant to which the Company may offer, issue and sell any combination of shares of the Company’s common stock, shares of the Company’s preferred stock, debt securities, subscription rights, warrants, and units consisting of any combination of the other types of securities registered under such August 2024 Shelf Registration Statement in an aggregate amount of up to $ 100 million, in each case, to the public in one or more registered offerings.

The August 2024 Shelf Registration Statement was declared effective on August 22, 2024.

SHARE-BASED COMPENSATION:

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or 3) such number of shares of the Company’s common stock as the administrator may determine.

At the 2023 Annual Meeting, the Company’s stockholders approved an amendment (the “2021 Plan Amendment”) to the Company’s 2021 Plan, increasing the number of the shares of common stock reserved for issuance under the 2021

SMARTKEM, INC.

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Notes to Consolidated Financial Statements

Plan from 125,045 shares to 743,106 shares.

The Company’s Board of Directors (the “Board”) had previously approved the 2021 Plan Amendment, subject to stockholder approval.

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Expected term (years)

6 years - 6.3 years

Risk-free interest rate

3.1 % - 3.6 %

Expected volatility

Expected dividend yield

There were no options granted under the 2021 Plan during the year ended December 31, 2023.

Prior to February 2022, in the absence of a public trading market for the common stock, on each grant date, the Company developed an estimate of the fair value of the shares of common stock underlying the option grants.

The Company estimated the fair value of the shares of common stock by referencing arms-length transactions inclusive of the shares of common stock underlying which occurred on or near the valuation date(s).

The Company determined the fair value of the common stock using methodologies, approaches and assumptions consistent with the AICPA Practice Guide, Valuation of Privately Held Company Equity Securities Issued as Compensation and based in part on input from an independent third-party valuation firm.

From February 2022, the Company’s common stock is publicly traded, and the Company no longer has to estimate the fair value of the shares of common stock, rather the value is determined based on quoted market prices.

The Company estimates its expected volatility by using a combination of historical share price volatilities of similar companies within our industry.

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Options exercisable at December 31, 2024

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AND SUBSIDIARIES

Notes to Consolidated Financial Statements

The aggregate intrinsic value of options is calculated as the difference between the exercise price of the options and the fair value of our common stock at the end of the year for those options that had exercise prices lower than the fair value of our common stock.

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Research and development

Selling, general and administration

As of December 31, 2023, there was $ 0.7 million of compensation cost related to non-vested stock option awards not yet recognized that will be recognized on a straight-line basis through the end of the vesting periods in July 2026.

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

General and administration

As of December 31, 2024, there was $ 1.7 million of compensation cost related to non-vested stock option awards not yet recognized that will be recognized on a straight-line basis through the end of the vesting periods in June 2027.

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Notes to Consolidated Financial Statements

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

INCOME TAXES:

United States and foreign profit/(loss) from operations before income taxes was as follows:

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Effective tax rate

SMARTKEM, INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

The components of income tax provision/(benefit) are as follows:

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Total Deferred

SMARTKEM, INC.

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Notes to Consolidated Financial Statements

Deferred income taxes reflect the net tax effects of temporary differences between the carrying value of assets and liabilities for financial reporting purposes and amounts used for income tax purposes.

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state net operating loss carry-forwards were generated in the tax years from 2021 to 2022 expiring at various dates through 2042.

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Notes to Consolidated Financial Statements

The Company has no uncertain tax positions, or penalties and interest accrued, that if recognized would reduce net operating loss carry-forwards or affect tax expense.

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As of December 31, 2024 and December 31, 2023, the Company had no accrued interest and penalties related to uncertain tax positions and no amounts have been recognized in the Company’s statements of operations.

SMARTKEM, INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

DEFINED CONTRIBUTION PENSION:

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Research and development

Selling, general and administration

General and administration

As of December 31, 2024, there was $ 16 thousand owed to the pension scheme that is recorded under accounts payable and accrued expenses on the consolidated balances sheets.

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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 December 31, 2024

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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.

The Company has accounted for them as derivative instruments in accordance with ASC 815, adjusting the fair value at the end of each reporting period.

SMARTKEM, INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

The fair value of the common warrants at December 31, 2023, June 22, 2023 and June 14, 2023 was determined by using option pricing models assuming the following:

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

The Company initially accounted for the warrants as derivative instruments in accordance with ASC 815, adjusting the fair value at the end of each reporting period.

Upon the Company’s uplisting to the Nasdaq Capital Market on May 31, 2024, certain provisions within the warrant agreements were no longer in effect.

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 stock warrants at May 30, 2024 and December 31, 2023 was determined by using option pricing models assuming the following:

Expected term (years)

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Expected dividend yield

Additionally, the Company has determined that the warrant liability should be classified within Level 3 of the fair-value hierarchy by evaluating each input for the option pricing models against the fair-value hierarchy criteria and using the lowest level of input as the basis for the fair-value classification as called for in ASC 820.

SMARTKEM, INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Additionally, the Company had determined that the warrant liability should be classified within Level 3 of the fair-value hierarchy by evaluating each input for the option pricing models against the fair-value hierarchy criteria and using the lowest level of input as the basis for the fair-value classification as called for in ASC 820.

There are six inputs:

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

There were no assets or liabilities measured at fair value as of December 31, 2024.

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.

We had no movement in or out of level 3 during the year.

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

Quoted Prices

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RELATED PARTY TRANSACTIONS:

On January 27, 2022, we sold an aggregate of 28,572 shares of our common stock at a purchase price of $ 70.00 per share to Octopus Titan VCT plc and Octopus Investments Nominees Limited in accordance with the Letter Agreement, dated as of February 23, 2021, between the Company and Octopus Titan VCT plc and certain related parties.

During the year ended December 31, 2022, the Company reimbursed an owner for legal fees and other expenses as a result of the Octopus Share Purchase.

The reimbursement of these fees for services resulted in an expense of $ 11 thousand for the year ended December 31, 2022 and there was zero payable as of December 31, 2022.

The were no related party transaction during the year ended December 31, 2024.

SEGMENT REPORTING:

We manage our business activities on a consolidated basis and operate as a single operating segment:

Semiconductor materials.

Our revenue is mostly generated from R&D grants and R&D tax credits.

The accounting policies of the semiconductor materials are the same as those described in Note 2 – Summary of Significant Accounting Policies.

Our CODM is our Chief Executive Officer and President, Ian Jenks.

The CODM uses Net income, as reported on our Consolidated Statements of Comprehensive Income, in evaluating performance of the Semiconductor materials segment and determining how to allocate resources of the Company as a whole and making decisions on perspective joint development and collaboration agreements.

The CODM does not review assets in evaluating the results of the Semiconductor materials segment, and therefore, such information is not presented.

SMARTKEM, INC.

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Notes to Consolidated Financial Statements

The following table provides the net losses of the Semiconductor materials segment:

Year Ended December 31,

Cost of revenue

Other operating income

Operating expenses

Research and development

General and administrative

(Gain)/loss on foreign currency transactions

Total operating expenses

Loss from operations

Total non-operating income/(expense)

Loss before income taxes

Income tax expense

SUBSEQUENT EVENTS:

Consent, Conversion and Amendment Agreement

Pursuant to the Consent Agreement, each Holder converted, subject to the terms and conditions of the Consent Agreement, 90 % of its Series A-1 Preferred Stock (the “Conversion Commitment”) into shares of Common Stock or Class C warrants (each a “Class C Warrant”) covering the shares of Common Stock that would have been issued to such Holder but for the Beneficial Ownership Limitation (the “Exchange”).

The Class C Warrants have an exercise price of $ 0.0001 , were exercisable upon issuance and will expire when exercised in full.

Under the Consent Agreement, the Company issued (i) 412,293 shares of Common Stock and (ii) Class C Warrants to purchase up to 726,344 shares of Common Stock upon the conversion or exchange of an aggregate of 9,963 shares of Series A-1 Preferred Stock.

1,106 shares of Series A-1 Preferred Stock remain outstanding after giving effect to the transactions contemplated by the Consent Agreement.

Pursuant to the Consent Agreement, the Company and the Holders agreed to amend and restate the Certificate of Designation of Preferences, Rights and Limitations for the Series A-1 Preferred Stock (the “Amended and Restated Series A-1 Certificate of Designation”) to (i) make certain adjustments to reflect the Reverse Split, (ii) remove all voting rights, except as required by applicable law, (iii) increase the stated value of the Series A-1 Preferred Stock to $ 10,000 from $ 1,000 , and (iv) adjust the conversion price of the Series A-1 Preferred Stock to $ 87.50 as a result of the increase in stated value.

The Consent Agreement, the Registration Rights Agreement, the Amended and Restated Series A-1 Certificate of Designation and the form of Class C Warrant, are attached as Exhibits 10.1, 10.2, 3.1 and 4.2 to the Form 8-K files with the SEC on January 29, 2024.

Under the evergreen adjustment provisions of the 2021 Plan, on January 1, 2024, the number of shares of the Company’s common stock available for issuance under the 2021 Plan was increased by 35,586 or four percent ( 4 %) of the total number of shares of Common Stock outstanding on December 31, 2023.

Under the evergreen adjustment provisions of the 2021 Plan, on January 1, 2025, the number of shares of the Company’s common stock available for issuance under the 2021 Plan was increased by 65,000 .

After giving effect to the increase, the total number of shares of common stock that may be issued under the 2021 Plan is 843,692 .

On January 31, 2024, the Company granted its employees a total 3,400 shares of common stock.

The shares were issued pursuant to the 2021 Plan.

Consultant Shares

In March 2024, 50,000 shares of our common stock were issued to a vendor in consideration for services to be provided.

On January 1, 2025, 10,000 shares of our common stock were issued to a vendor in consideration for services to be provided.

On February 3, 2025, 10,000 shares of our common stock were issued to a vendor in consideration for services to be provided.

On March 3, 2025, 10,000 shares of our common stock were issued to a vendor in consideration for services to be provided.

New CPIIS Framework Agreement

On March 22, 2024 we executed a new Framework Agreement with CPIIS for a twelve-month term commencing on April 1, 2024.

On March 28, 2025 we executed a two-month extension of the Framework Agreement with CPIIS commencing on April 1, 2025.

New CPIIS License of Office Space Agreement

On March 28, 2025, we executed a twelve-month agreement for the lease of office space at CPIIS commencing on April 1, 2025.

Changes In And Disagreements With Accountants On Accounting And Financial Disclosure

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 8. Financial Statements and Supplementary Data