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Item 9A. Controls and Procedures

2025-03-31 compared with 2024-03-27 · 225 added, 147 removed, 462 unchanged (45% of the section changed)

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Changes in Internal Control over Financial Reporting

In connection with the preparation of our financial statements for the second quarter of 2023, a material weakness in our internal control over financial reporting was identified relating to the complex financial reporting and accounting associated with the June 2023 PIPE, a non-cash item.

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

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

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

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

In addition to the reviews the Company was already performing on the valuation models provided by the outside consultants, the Company has implemented one additional

step in its review process.

The initial review is conducted by the VP, Finance and with the CFO performing a final review and approving the valuation before the entry is booked.

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

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

Rather than using a calculated stock price in these models, the Company now uses the quoted

stock price thereby reducing subjectivity and judgment in the fair value models and equity-based compensation calculations.

Other than the changes to remediate the material weaknesses noted above, there was no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter ended December 31, 2024, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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Chairman of the Board, Chief Executive Officer and President

Jonathan Watkins

Chief Operating Officer

Chief Financial Officer

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in Aeronautical Engineering from Bristol University.

We believe that Mr.

Jenks’ significant management experience and experience in the technology industry qualify him to serve on our board of directors.

Jonathan Watkins has served as our Chief Operating Officer since March 2025.

From July 2024 until his appointment as the Company’s Chief Operating Officer, Mr.

Watkins served as a consultant to our company.

Since September 2024, Mr.

Watkins has served as the Executive Chairman of HFQ Technology Associates, a materials technology company.

He also has served as the founder and chairman of DITEVEN Limited, a technology consulting services company (“DITEVEN”) since November 2015.

From August 2016 through June 2024, Mr.

Watkins served as the chief executive officer of Impression Technologies Limited (“ITL”), where he led the development, licensing and scaling of a novel aluminum light-weighting technology for automotive, aerospace and consumer electronics markets, as well as securing manufacturing partners in Europe, China and North America.

ITL entered voluntary liquidation in June 2024.

Prior thereto, Mr.

Watkins served as an advisor to government agencies on cleantech business models, including commercializing novel technologies.

From 2008 to 2015, Mr.

Watkins held roles as chief operating officer and commercial director of Ceres Power plc, a leading developer of fuel cell technology having responsibilities for manufacturing, supply chain management and business development.

Watkins has a Postgraduate Certificate in Design Manufacture, and Management Masters in Manufacturing, Design & Management from University of Cambridge and a BEng degree in Materials Science & Technology from University of Birmingham.

He is also a Chartered Engineer and holds a Certified Diploma in Accounting and Finance.

Keck has served as our Chief Financial Officer since December 2022 and has served as a member of our board of directors from February 2021 to November 2022.

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Keck served as the chief financial officer of Deverra Therapeutics, Inc., a developer of cell therapies.

From January 2009 until May 2020, she held positions of increasing responsibility at Delcath Systems, Inc., an interventional oncology company, starting as controller and ultimately becoming a senior vice president in March 2015 and chief financial officer in February 2017.

officer in February 2017.

Keck received an M.B.A.

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From April 2007 to July 2015, Dr.

Ogier was Head of Research and

Development within the U.K.’s Printable Electronics Technology Centre (“PETEC”) at CPI.

Ogier was Head of Research and Development within the U.K.’s Printable Electronics Technology Centre (“PETEC”) at CPI.

He was responsible for the establishment of the PETEC facility and for developing the technical programs of work to build a capability within the U.K.

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degree in Applied Physics from Delft University of Technology and his M.B.A.

We believe that Mr.

de Boer’s venture capital experience, experience with complex technology companies and previous experience as a director of publicly traded companies qualify him to serve on our board of directors.

Steven DenBaars has served as a member of our board of directors since June 2022.

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Professor DenBaars joined UCSB in February 1991 and currently holds the Mitsubishi Chemical Chair in Solid State Lighting and Displays.

He has served on the board of directors of Akoustis Technologies, Inc.

(NASDAQ:AKTS), a developer and manufacturer of radio frequency filters for mobile devices since May 2015 and has served on its technology committee since July 2017.

He has also been a member of the board of directors of Aeluma, Inc., a privately held start-up engaged in the manufacture high performance sensors for mobile devices and vehicles, since June 2021.

He has been a member of the board of directors of Aeluma, Inc.

(NASDAQ:ALMU), a company engaged in the manufacture high performance sensors for mobile devices and vehicles since June 2021.

Professor DenBaars served on the board of directors of Akoustis Technologies, Inc.

(NASDAQ:AKTS), a developer and manufacturer of radio frequency filters for mobile devices from May 2015 to November 2024.

Professor DenBaars was formerly a co-founder and board member of privately held technology start-up companies, Soraa Inc.

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Professor DenBaars is a member of the National Academy of Engineering, and a Fellow of IEEE and National Academy of Inventors.

We believe that Professor DenBaars’s years of experience in the electronics industry and his extensive research involving semiconductors qualify him to serve on our board of directors.

Denis has served as a member of our board of directors since November 2023.

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Denis has served as a member of the Board of Regents and chair of the audit committee for the University of North Texas System since January 2020, an advisory board member of Women Corporate Directors since 2011, and a board member of Enactus, a global non-profit, since 2019.

Denis is a Certified Public Accountant and received her degree in accounting and her Bachelor of Science and Master of Science from the University of North Texas.

We believe that Ms.

Denis’s accounting and public company experience qualifies her to serve on our board of directors.

Certified Public Accountant and received her degree in accounting and her Bachelor of Science and Master of Science from the University of North Texas.

Sriram Peruvemba has served as a member of our board of directors since July 2023.

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Since June 2020, Mr.

Peruvemba has served on the board of directors of WiSA Technologies, Inc.

WISA), an audio wireless technology company.

Peruvemba has served on the board of directors of Datavault AI Inc.

(previously WiSA Technologies, Inc.)(NASDAQ:

DVLT), a data technology company.

He has also served as a board member of Visionect d.o.o, an electronics company in Slovenia since September 2017.

Peruvemba has also served as chairman of the board of Omniply, a Montreal-based electronics and display company since May 2020 and as board member of Edgehog Advanced Technologies an anti-reflective technology company in

Canada since January 2023.

Peruvemba has a B.S.

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from Barton School of Business, WSU and a post-graduate diploma in management from Indira Gandhi National University.

We believe that Mr.

Peruvemba’s experience in the technology industry qualifies him to serve on our board of directors.

Code of Business Conduct and Ethics

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We intend to disclose future amendments to certain provisions of our code of business conduct and ethics, or waivers of such provisions applicable to any principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, and our directors, on our website identified above or in filings with the SEC.

Insider Trading Policy

The Company has an insider trading policy governing the purchase, sale and other dispositions of the Company’s securities and certain other securities that applies to all Company personnel, including directors, officers, and employees.

The Company believes that its insider trading policy is reasonably designed to promote compliance with insider trading laws, rules and regulations, and listing standards applicable to the Company.

A copy of the Company’s insider trading policy is filed as Exhibit 19.1 to this Form 10-K.

Director Independence

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Peruvemba is not an independent director under these rules, because, prior to his appointment to the board of directors, he served as a consultant to the Company and had earned compensation from the Company in excess of $120,000 during any period of twelve consecutive months within the last three years.

Keck, who resigned from the board of directors in November of 2023, was not an independent director under these rules because she is an executive officer of the Company.

In making such independence determination, our board of directors considered the relationships that each non-employee director has with us and all other facts and circumstances that our board of directors deemed relevant in determining their independence, including the beneficial ownership of our capital stock by each non-employee director.

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Board Committees

As our common stock is not presently listed for trading or quotation on a national securities exchange, we are not presently required to have board committees.

However, our board of directors has established an audit committee, a compensation committee and a nominating and corporate governance committee, each of which operates pursuant to a charter adopted by the board of directors.

Our board of directors has established an audit committee, a compensation committee and a nominating and corporate governance committee, each of which operates pursuant to a charter adopted by the board of directors.

Members serve on these committees until their resignation or until otherwise determined by the board of directors.

The composition and functioning of all of our committees complies with all applicable requirements of the Sarbanes-Oxley Act and SEC rules and regulations and, at the time, if any, that shares of our common stock are listed on Nasdaq or another national securities exchange, we intend to comply with any applicable requirements of such exchange with respect to the composition of our committees of the board of directors.

The composition and functioning of all of our committees complies with all applicable requirements of the Sarbanes-Oxley Act and SEC and Nasdaq rules and regulations.

Audit Committee

DenBaars and Mr.

de Boer serve on the audit committee, which is chaired by Ms.

de Boer and Mr.

DenBaars serve on the audit committee, which is chaired by Ms.

Our board of directors has determined that each has sufficient knowledge in financial and auditing matters to serve on the audit committee and that each are “independent” for audit committee purposes as that term is defined under SEC and Nasdaq Marketplace Rules.

The board of directors had designated Ms.

The board of directors has designated Ms.

Denis as an “audit committee financial expert,” as defined under the applicable rules of the SEC.

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● pre-approving auditing and permissible non-audit services, and the terms of such services, to be provided by our independent registered public accounting firm;

● reviewing the overall audit plan with our independent registered public accounting firm and members of management responsible for preparing our financial statements;

● obtaining and reviewing the overall audit plan with our independent registered public accounting firm and members of management responsible for preparing our financial statements;

● reviewing and discussing with management and our independent registered public accounting firm our annual and quarterly financial statements and related disclosures as well as critical accounting policies and practices used by us;

● discussing with our independent registered public accounting firm our understanding of our relationships and transactions with related parties that are significant to us and the auditor’s evaluation of our identification of and disclosure of our relationships and transactions with related parties;

● coordinating the oversight and reviewing the adequacy of our internal control over financial reporting;

● establishing policies and procedures for the receipt and retention of accounting-related complaints and concerns;

● discussing guidelines and policies with respect to risk assessment and risk management and the steps that our management takes to monitor and control financial risk exposure;

● recommending, based upon the audit committee’s review and discussions with management and our independent registered public accounting firm, whether our audited financial statements will be included in our Annual Report on Form 10-K;

● conducting activities relating to our code of business conduct and ethics;

● monitoring the integrity of our financial statements and our compliance with legal and regulatory requirements as they relate to our financial statements and accounting matters;

● preparing the audit committee report required by SEC rules to be included in our annual proxy statement;

● reviewing with legal counsel legal and regulatory matters;

● annually evaluating the performance of the audit committee and reviewing and reassessing the audit committee charter;

● reviewing all related person transactions for potential conflict of interest situations and making recommendations to our board of directors regarding all such transactions;

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(i) recommending to the board of directors the cash compensation of our Chief Executive Officer and (ii) reviewing and recommending to the independent directors on the board of directors regarding grants and awards to our Chief Executive Officer under equity-based plans;

● determining bases for and fix compensation levels for all executive officers;

● reviewing and approving the cash compensation of our other executive officers;

● reviewing and establishing our overall management compensation, philosophy and policy;

● overseeing and administering our compensation and similar plans;

● supervising, administering, and evaluating our compensation and similar plans and making grants and awards thereunder;

● reviewing and approving, subject to stockholder approval, the creating or amendment of any incentive, equity-based and other compensatory plans in which executive officers and key employees participate;

● reviewing and approving any employment agreements, severance agreements, change-in-control arrangements or special employee benefits;

● reporting to the board of directors significant matters arising from the work of the compensation committee;

● to the extent applicable under federal securities law, reviewing and discussing the Compensation and Discussion and Analysis disclosure;

● evaluating and assessing potential and current compensation advisors in accordance with the independence standards identified in the Nasdaq Marketplace Rules;

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● reviewing and recommending to the board of directors the compensation of our directors;

annually evaluating the performance of the compensation committee;

● annually evaluating the adequacy of the director’s fees and the composition of the director’s fees;

● preparing the compensation committee report required by SEC rules, if and when required, to be included in our annual proxy statement;

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The nominating and corporate governance committee’s responsibilities include, but are not limited to:

● recommending to the board of directors the size of the board, composition of the board, process for filing vacancies and tenure of the board members;

● developing and recommending to the board of directors criteria for board and committee membership;

● establishing procedures for identifying and evaluating board of director candidates, including nominees recommended by stockholders;

● Recommending that the board select director nominees for election at each annual meeting of stockholders;

● Reviewing stockholder proposals and proposed responses;

● Developing and recommending to the board a set of corporate governance guidelines applicable to the Company, reviewing the guidelines at least once a year and recommending changes, and overseeing corporate governance practices and procedures;

● reviewing the composition of the board of directors to ensure that it is composed of members containing the appropriate skills and expertise to advise us;

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● recommending to the board of directors the persons to be nominated for election as directors and to each of the board’s committees;

● periodically reviewing and reassessing the adequacy of the code of business conduct and ethics and the corporate governance guidelines;

● reviewing and discussing with management the disclosure regarding the operations of the nominating and corporate governance committee and director independence;

● reviewing the adequacy of the committee charter and recommending changes;

● annually conducting and presenting to the board a performance evaluation of the nominating and corporate governance committee;

● overseeing the evaluation of our board of directors and management.

Our board of directors may, from time to time, establish other committees.

Delinquent Section 16(a) Reports

Section 16(a) of the Exchange Act requires our directors, executive officers and persons who beneficially own more than 10% of our outstanding common shares to file reports with the SEC regarding their share ownership and changes in their ownership of our common shares.

Based on our records and representations from our directors and executive officers, we believe that all Section 16(a) filing requirements applicable to our directors and executive officers were complied with during the fiscal year ended December 31, 2024, except for the following:

due to administrative error, Klaas de Boer filed a late Form 4 on June 5, 2024 to report the automatic conversion of shares of Series A-2 Preferred Stock held by his spouse into shares of common stock on May 30, 2024.

Executive Compensation

Summary Compensation Table

The following table shows the compensation awarded to or earned by our principal executive officer during the fiscal year ended December 31, 2023 and December 31, 2022, our two other most highly compensated executive officers

who were serving as executive officers as of December 31, 2023 and December 31, 2022, and up to two additional individuals for whom disclosure would have been provided but for the fact that the individual was not serving as an executive officer as of December 31, 2023.

The following table shows the compensation awarded to or earned by our principal executive officer during the fiscal year ended December 31, 2024 and December 31, 2023, our two other most highly compensated executive officers who were serving as executive officers as of December 31, 2024 and December 31, 2023, and up to two additional individuals for whom disclosure would have been provided but for the fact that the individual was not serving as an

executive officer as of December 31, 2024.

The persons listed in the following table are referred to herein as the “named executive officers.”

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Chief Executive Officer

Barbra Keck (4)

Chief Financial Officer

Beverly Brown (3)

Chief Scientist

Simon Ogier, Ph.D.

Chief Technology Officer

(1) The amounts reported represent the aggregate grant-date fair value of the stock awards awarded to the named executive officer, calculated in accordance with ASC 718.

(2) The amounts reported represent the aggregate grant-date fair value of the stock options awarded to the named executive officer, calculated in accordance with ASC 718.

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(3) Represents our contributions to our workplace pension scheme, the 401(k) Plan (as defined below) and private healthcare insurance.

(3) Represents consulting fees paid to Dr.

Brown’s consulting company.

(4) Includes a payment of $14,773 for 2022 salary paid in January 2023.

In accordance with the U.K.

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We sponsor a 401(k) savings plan (the “401(k) Plan”) for all eligible employees.

Under the 401(k) Plan, we do make matching contributions into the 401(k) Plan other than the annual required safe harbor match.

Under the 401(k) Plan, we do make matching contributions into the 401(k) Plan including the annual required safe harbor match.

Employment and Change in Control Agreements

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The Jenks Employment Agreement also contains customary confidentiality and assignment of inventions provisions.

In September 2023, the compensation

committee approved an increase to Mr.

In September 2023, the compensation committee approved an increase to Mr.

Jenks’ annual base salary to $400,000 from $300,000, effective September 1, 2023, and increased Mr.

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The Keck Employment Agreement also contains customary confidentiality and assignment of inventions provisions.

We entered into a consultancy agreement with B Brown Consultants Ltd, Dr.

Brown’s consultancy company, dated as of February 23, 2021 (the “Brown Consultancy Agreement”).

The Brown Consultancy Agreement provides, among other things, for:

Brown (or, with the approval of our board a substitute) is to provide defined services to SmartKem;

(ii) the Brown Consultancy Agreement will continue for a fixed term of three years unless terminated (a) by either party giving not less than 12 months’ prior notice in writing, or (b) by SmartKem for “cause”;

and (iii) a monthly fee, payable monthly in arrears within 30 days of receipt of an invoice, by reference to daily rate of $1,119 plus applicable value added taxes and an hourly rate of $139.90 plus applicable value added taxes.

SmartKem also agreed to reimburse certain expenses incurred in connection with the services to be provided under the Brown Consultancy Agreement.

Effective on May 31, 2024, the date the Company’s common stock became listed on Nasdaq, Ms.

Keck’s salary was increased to $350,000.

We entered into a service agreement with Dr.

Ogier, dated as of February 23, 2021 (the “Ogier Employment Agreement”).

The Ogier Employment Agreement will continue until terminated (a) by either party giving not less than six months’ prior notice in writing, (b) by SmartKem electing to make a “Payment in Lieu” whereby SmartKem pays to Dr.

Ogier an amount equal to his salary which he would have been entitled to receive during the notice period referenced in clause (a), or (c) for “cause”;

(iii) an annual base salary of $163,788;

Ogier’s participation in SmartKem’s pension program and death in service (life insurance) scheme.

The Ogier Employment Agreement also contains customary confidentiality and assignment of inventions provisions.

One-Time Bonuses

On February 28, 2025, the compensation committee approved one-time bonuses to Mr.

Brown and Mr.

Ogier, in amounts equal to $150,000, $99,041, $31,618 and $31,618, respectively.

On July 31, 2024, the compensation committee approved one-time bonuses to Ms.

Brown and Mr.

Ogier, each equal to $32,110.

On June 14, 2024, the compensation committee approved one-time bonuses to Mr.

Jenks and Ms.

Keck in amounts equal to $26,767 and $45,000, respectively, in light of their significant contributions to our uplisting to Nasdaq.

On September 6, 2023, the compensation committee approved one-time bonuses (the “2023 Bonuses”) to Mr.

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Keck in amounts equal to $100,000 and $75,000, respectively.

Fifty percent of the Bonuses were paid upon approval, and the remaining 50% will be paid upon the listing of the shares of the Company’s common stock on the NYSE American, the Nasdaq Capital Market, the Nasdaq Global Market, the Nasdaq Global Select Market or the New York Stock Exchange.

Outstanding Equity Awards at December 31, 2023

Fifty percent of the 2023 Bonuses were paid upon approval, and the remaining 50% were paid upon the listing of the shares of the Company’s common stock on Nasdaq

Outstanding Equity Awards as of December 31, 2024

The following table presents information regarding the outstanding options held by each of our named executive officers as of December 31, 2024.

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Unexercisable

Beverly Brown (2)

Simon Ogier, Ph.D.

(1) The expiration date shown is the normal expiration date and the latest date that options may be exercised subject to certain extraordinary events.

(2) Consists of SmartKem Unapproved Options held by Dr.

Brown’s consulting company.

Director Compensation

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Melisa Denis (4)

Barbra Keck (5)

The aggregate number of shares of common stock underlying stock options outstanding as of December 31, 2024 held by Mr.

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Peruvemba was 21,887.

Denis was appointed to our board of directors in November 2023.

The aggregate number of shares of common stock underlying stock options outstanding as of December 31, 2024 held by Ms.

Denis was zero.

Keck, our Chief Financial Officer, resigned as a member of our board of directors in November 2023.

Keck, who is our Chief Financial Officer, received no additional compensation for services provided as a director in 2023.

The aggregate number of shares of common stock underlying stock options outstanding as of December 31, 2023 held by Ms.

Keck was 13,545.

Options to purchase 12,858 shares of common stock were issued to Ms.

Keck in connection with her appointment as our Chief Financial Officer.

Denis was 20,000.

Non-Employee Director Compensation

On March 31, 2021, the board of directors, upon recommendation of the Compensation Committee, adopted a non-employee director compensation policy (the “Policy”), pursuant to which each non-employee employee director is entitled to receive an annual cash retainer of $36,000.

In addition, each non-employee director was initially granted options to purchase 18,000 shares of common stock, which will vest 25% on the one-year anniversary of the grant date and the remainder in equal monthly installments over three years and is entitled in each subsequent year to receive

options to purchase 6,000 shares of common stock, which will vest on the one-year anniversary of the grant date.

On July 31, 2024, the Board approved (i) an increase to the annual cash retainer to $55,000 and (ii) an annual $5,000 cash retainer to the Audit Committee chairperson.

All equity awards granted pursuant to Policy are subject to the terms and conditions of the Company’s 2021 Equity Incentive Plan and/or the UK Tax-Advantaged Sub-Plan.

Policies and Practices Related to the Timing of Grants of Certain Equity Awards

Equity grants to new employees and directors may be made at the board of directors meeting following their hiring or appointment.

To extent that we make equity grants to existing employees or directors, we typically have done so at board meetings at which officer bonuses are also determined.

We do not have a practice of granting equity awards annually .

We do not grant equity awards in anticipation of the release of material nonpublic information.

Similarly, we do not time the release of material nonpublic information about the company based on equity award grant dates.

As required by SEC rules, the following table presents information regarding awards issued to our Named Executive Officers in fiscal year 2024 during any period beginning four business days before the filing of a periodic report or current report disclosing material non-public information and ending one business day after the filing or furnishing of such report with the SEC.

Percentage Change in the Closing Market Price of the

Securities Underlying the Award Between the Trading

Day Ending Immediately Prior to the Disclosure of

Material Nonpublic Information and the Trading Day

Exercise Price

Beginning Immediately Following the Disclosure of

of the Award (1)

Material Nonpublic Information

(1) The amounts reported represent the aggregate grant-date fair value of the stock options awarded to the named executive officer, calculated in accordance with Accounting Standards Codification 718.

Such grant-date fair value does not take into account any estimated forfeitures related to service-based vesting conditions.

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

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(1) The amounts shown in this row include securities under the 2021 Plan.

(2) In accordance with the “evergreen” provision in our 2021 Plan, an additional 35,586 shares were automatically made available for issuance on the first day of 2024, which represents 4.0% of the number of shares outstanding on December 31, 2023;

these shares are included in this calculation.

(3) 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 Plan from 125,045 shares to 743,106 shares.

The Board had previously approved the 2021 Plan Amendment, subject to stockholder approval.

(2) In accordance with the “evergreen” provision in our 2021 Plan, an additional 65,000 shares were automatically made available for issuance on the first day of 2025, which represents the maximum number of shares that can be added to the plan as a result of the evergreen provision.

Security Ownership of Certain Beneficial Owners and Management

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Except as indicated in the footnotes below, and subject to applicable community property laws, we believe, based on the information furnished to us, the persons and entities named in the table below have sole voting and investment power with respect to all shares shown as beneficially owned by them.

The percentage of beneficial ownership is based on 1,305,361 shares of our common

stock outstanding as of March 27, 2024.

The percentage of beneficial ownership is based on 3,620,217 shares of our common stock outstanding as of March 31, 2025.

In computing the number of shares beneficially owned by a person or entity and the percentage ownership of that person or entity, we deemed to be outstanding all shares of our common stock as to which such person or entity has the right to acquire within 60 days of March 31, 2025, through the exercise of any option or other right.

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5% Stockholders:

Octopus Investments Limited, 33 Holburn, London ECIN 2HT (1)

Entrepreneurs Fund LP, 2nd Floor, Windward House, La Route de la Liberation, St Helier, Jersey, JE2 3BQ, The Chanel Islands (2)

Orin Hirschman, 6006 Berkeley Ave., Baltimore, MD 21209 (3)

Octopus Investments Limited (1)

Orin Hirschman (2)

The Hewlett Fund, LP (3)

Five Narrow Lane (4)

MYDA Advisors (5)

Laurence Lytton (6)

Executive Officers and Directors:

Ian Jenks (7)

Jonathan Watkins

Barbra Keck (8)

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* Less than 1%

Consists of 211,895 shares of our common stock held by Octopus Titan VCT Plc and 1,707 shares of our common stock held by Octopus Investments Nominees Limited (collectively, the “Octopus Funds”).

Based upon information contained in a Schedule 13D/A filed Octopus Titan VCT Plc and Octopus Investments Nominees Limited (collectively, the “Octopus Funds”) on January 21, 2025 and other information known to the Company Consists of 211,895 shares of our common stock held by Octopus Titan VCT Plc and 1,707 shares of our common stock held by.

Octopus Investments Limited (“Octopus”) is the sole manager of each of the Octopus Funds.

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Octopus disclaims beneficial ownership of the shares of our common stock held by the Octopus Funds except to the extent of its pecuniary interest therein.

Consists of 102,436 shares of our common stock held by Entrepreneurs Fund LP (“Entrepreneurs Fund”).

Entrepreneurs Fund General Partner Limited (the “Entrepreneurs General Partner”) is the general partner of the Entrepreneurs Fund.

By virtue of such relationship, Entrepreneurs General Partner may be deemed to have voting and investment power with respect to the securities held by Entrepreneurs Fund.

Entrepreneurs Fund General Partner disclaims beneficial ownership of the shares of our common stock held by Entrepreneurs Fund except to the extent of its indirect pecuniary interest therein.

The address of Octopus Titan VCT Plc, Octopus Investments Nominees Limited and Octopus Investments Limited is 33 Holburn, London ECIN 2HT.

Based upon information contained in a Schedule 13G/A filed by AIGH Capital Management, LLC (“AIGH CM”) and Mr.

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Hirschman has voting and investment control over the securities indirectly held by AIGH CM and directly by AIGH LP and AIGH LLC.

The address of Mr.

Hirschman, AIGH CM, AIGH LP, WVP and AIGH LLC is 6006 Berkeley Ave., Baltimore, MD 21209.

Based upon information known to the Company.

Excludes, after giving effect to the 9.99% beneficial ownership blockers, shares of common stock issuable upon the conversion of Series A-1 Preferred Stock and the exercise of certain warrants.

The address of the Hewlett Fund LP is 100 Merrick Road, Suite 400W, Rockville Centre, NY 11570.

Based upon information contained in a Schedule 13G filed by Five Narrow Lane LP on February 1, 2024 and other information known to the Company.

Excludes, after giving effect to the 9.99% beneficial ownership blockers, shares of common stock issuable upon the conversion of Series A-1 Preferred Stock and the exercise of certain warrants.

The address of Five Narrow Lane LP is 510 Madison Avenue, Suite 1400, New York, NY 10022.

Based upon information contained in a Schedule 13G filed by MYDA Advisors LLC, MYDA Capital GP, LLC, MYDA Advantage, L.P.

and Jason Lieber on December 27, 2024 and other information known to the Company.

Excludes, after giving effect to the 4.99% beneficial ownership blockers, shares of common stock issuable upon the exercise of certain warrants.

The address of MYDA Advisors LLC, MYDA Capital GP, LLC, MYDA Advantage, L.P.

and Jason Lieber is 1067 Broadway, Suite A, Woodmere, NY 11598.

Based upon information contained in a Schedule 13G filed by Laurence W.

Lytton on December 24, 2024 and other information known to the Company.

Excludes, after giving effect to the 4.99% beneficial ownership blockers, shares of common stock issuable upon the exercise of certain warrants.

The address of Laurence W.

Lytton is 467 Central Park West, New York, NY 10025.

Includes 10,511 shares of our common stock held and options to acquire 104,224 shares of our common stock exercisable within 60 days of March 31, 2025 .

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Includes 5,760 shares of our common stock held and options to acquire 26,469 shares of our common stock exercisable within 60 days of March 31, 2025 .

Includes (i) 5,715 shares of our common stock purchased by Mr.

de Boer’s spouse in our private placement that closed in February 2021, (ii) options to acquire 476 shares of our common stock exercisable within 60 days of March 28, 2024, (iii) 5,715 shares of common stock issuable upon conversion of Series A-2 Preferred Stock held by Mr.

de Boer’s spouse (iv) 5,715 shares of common stock issuable upon exercise of certain warrants held by Mr.

de Boer’s spouse and (v) 100 shares of common stock held by Mr.

Includes (i) 11,430 shares of our common stock held by Mr.

de Boer’s spouse in our private placement that closed in February 2021, (ii) options to acquire 8,948 shares of our common stock exercisable within 60 days

of March 31, 2025, (iii) 5,715 shares of common stock issuable upon exercise of certain warrants held by Mr.

de Boer’s spouse and (iv) 100 shares of common stock held by Mr.

Includes 815 shares of our common stock held and options to acquire 8,666 shares of our common stock exercisable within 60 days of March 31, 2025 .

Includes 100 shares of our common stock held and options to acquire 10,220 shares of our common stock exercisable within 60 days of March 31, 2025.

Includes 100 shares of our common stock held.

Includes 100 shares of our common stock held and options to acquire 8,333 shares of our common stock exercisable within 60 days of March 31, 2025 .

Certain Relationships and Related Transactions, and Director Independence

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● any of our directors, executive officers or beneficial owners of more than 5% of our capital stock, or any immediate family member of, or person sharing the household with, any of these individuals or entities, had or will have a direct or indirect material interest, other than compensation and other arrangements that are described in the section titled “Executive Compensation.”

Consulting Agreement with Sriram Peruvemba

Prior to his appointment as a director, Mr.

Peruvemba served as a consultant to the Company, pursuant to a consultancy agreement entered into on September 13, 2019, by and between the SmartKem Limited and Marketer International (“Marketer”), a company controlled by Mr.

Peruvemba (the “Consulting Agreement”).

During the fiscal years ended December 31, 2022 and 2021, the Company paid Marketer $120,000 and $130,000, respectively.

Consulting Arrangement with Jonathan Watkins

Prior to his appointment as our Chief Operating Officer, Mr.

Watkins served as a consultant to our company pursuant to an oral consulting arrangement.

During the fiscal year ended December 31, 2024, we paid DITEVEN, a company controlled by Mr.

Watkins, $65,501 for his services.

From January 1, 2025 through Mr.

Peruvemba’s appointment to the board of directors on July 13, 2023, the Company paid Marketer $65,000.

In addition, in connection with the services provided pursuant to the Consulting Agreement, on February 23,

Peruvemba was granted options to purchase 66,029 shares of the Company’s common stock with an exercise price of $2.00 per share.

The options vested immediately upon grant and expire on the 10th anniversary of the date of grant.

On July 12, 2023, prior to Mr.

Peruvemba’s appointment to the Board, the Consulting Agreement was terminated.

Registration Rights Agreement

In connection with the transactions contemplated by that certain Share Exchange Agreement with SmartKem Limited, whereby all of the equity interests in SmartKem Limited, except certain “deferred shares” which had no economic or voting rights and which were purchased by us for an aggregate purchase price of $49.00, were exchanged for shares of our common stock and SmartKem Limited became our wholly owned subsidiary (the “Exchange”).

Following the closing of the Exchange, on February 23, 2021, we sold, in a private placement (the “Offering”) 290,343 shares of our common stock and pre- funded warrants to purchase up to 61,945 shares of our common stock for aggregate gross proceeds of $24.6 million pursuant to a private placement offering of our common stock (or pre-funded warrants in lieu thereof) at a purchase price of $70.00 per share or $69.65 per pre-funded warrant, as applicable.

Pursuant to the offering, we offered to certain purchasers whose purchase of shares of our common stock in the offering would otherwise have resulted in the purchaser, together with its affiliates and certain related parties, beneficially owning more than 4.99% (or, at the election of the purchaser, 9.99%) of our outstanding common stock immediately following the closing of the offering, the opportunity to purchase, if any such purchaser so chose, pre-funded warrants in lieu of shares of our common stock that would otherwise have resulted in such purchaser’s beneficial ownership exceeding 4.99% (or, at the election of the purchaser, 9.99%) of our outstanding common stock, at a purchase price of $69.65 per pre-funded warrant.

Each pre-funded warrant is exercisable for one share of our common stock at an exercise price of $0.35 per share.

In connection with the Exchange and the Offering, we entered into a registration rights agreement (the “Registration Rights Agreement”), pursuant to which we agreed to file, no later than 60 calendar days from the closing of the Offering a registration statement covering, among other things, (i) the shares of our common stock issued in the Offering (including shares of our common stock issuable upon the exercise of the pre-funded warrants sold in the Offering);

(ii) the shares of our common stock issuable upon exercise of the warrants issued to the placement agent in the Offering;

(iii) the shares of our common stock issued or issuable as a result of the Exchange;

(iv) 71,429 shares of our common stock held by the stockholders of Parasol prior to the Exchange;

and (v) 1,429 shares of our common stock issued to certain advisors in connection with the Exchange and the Offering ((i)-(v) collectively, the “Registrable Shares”).

We must use commercially reasonable efforts to keep such registration statement effective for the earlier of (i) five years from the date it is declared effective by the SEC, (ii) the date on which all Registrable Shares have been transferred other than to certain enumerated permitted assignees under the Registration Rights Agreement, or (iii) the date on which no Registrable Securities are outstanding.

All of our directors, except Mr.

DenBaars, Mr.

Peruvemba and Ms.

Denis, executive officers, except Ms.

Keck and holders of more than 5% of our capital stock are parties to the Registration Rights Agreement.

Octopus Share Purchase

In connection with the Offering, we entered into an agreement with Octopus Titan VCT plc and certain related parties (the “Octopus Investors”), a holder of more than 5% of our common stock, pursuant to which the Octopus Investors agreed to purchase $2.0 million of our common stock on the same economic terms as the shares of common stock sold in the Offering subject to the satisfaction of certain U.K related tax requirements (the “Octopus Share Purchase”).

The Octopus Share Purchase was conditioned on, among other things, the requirement that our gross assets must be less than £15.0 million at the time of the purchase and less than £16.0 million after giving effect to the Octopus Share Purchase.

On January 27, 2022, we entered into a subscription agreement (the “Subscription Agreement”) with the Octopus Investors effecting the Octopus Share Purchase.

Pursuant to the Subscription Agreement, we issued the Octopus Investors an aggregate of 28,572 shares of common stock (the “Octopus Shares”), at a purchase price of $70.00 per share.

On January 27, 2022, we also entered into a registration rights agreement with the Octopus Investors, pursuant to which we agreed, subject to customary exceptions, to file, no later than fifteen (15) calendar days after we filed our Annual Report on Form 10-K for the fiscal year ended December 31, 2022, a registration statement with the SEC covering the Octopus Shares.

We must use commercially reasonable efforts to keep such registration statement

effective for the earlier of (i) five years from the date it is declared effective by the SEC, (ii) the date on which all Octopus Shares have been transferred other than to certain enumerated permitted assignees under the Octopus Registration Rights Agreement, or (iii) the date on which no Octopus Shares are.

Watkins’ appointment as our Chief Operating Officer on March 10, 2025 we paid DITEVEN $67,364.

June 2023 PIPE and Conversion Agreement

On June 14, 2023, we 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 proceeds of $12.2 million (the “June 2023 PIPE”).

On June 14, 2023, we and certain investors entered into a securities purchase agreement (the “Purchase Agreement”) pursuant to which we 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 proceeds of $12.2 million (the “June 2023 PIPE”).

On June 22, 2023 (the “Second Closing Date”), in a second closing of the June 2023 PIPE, we sold an aggregate of (i) 1,870.36596 Series A-1 Preferred Stock, (ii) 100 shares of Series A-2 Preferred Stock, and (iii) Class A Warrants to purchase up to an aggregate of 225,190 shares of common stock pursuant to the Purchase Agreement for aggregate gross proceeds of $2.0 million.

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The Warrants expire five years from the issuance date.

In connection with the June 2023 PIPE, we entered into a Registration Rights Agreement (the “2023 Registration Rights Agreement”) pursuant to which we agreed to register for resale (i) the Conversion Shares, (ii) the Class A Warrant Shares, (iii) any additional shares of Common Stock issued and issuable in connection with any anti-dilution provisions in the Preferred Stock or the Class A Warrants, (iv) any shares of Common Stock issued in lieu of cash dividends on the Series A-1 Preferred Stock and (v) any securities issued or then issuable upon any stock split, dividend or other distribution, recapitalization or similar event with respect to the foregoing (together, the “ 2023 Registrable Securities”).

provisions in the Preferred Stock or the Class A Warrants, (iv) any shares of common stock issued in lieu of cash dividends on the Series A-1 Preferred Stock and (v) any securities issued or then issuable upon any stock split, dividend or other distribution, recapitalization or similar event with respect to the foregoing (together, the “ 2023 Registrable Securities”).

Under the terms of the 2023 Registration Rights Agreement, the Company is required to file a registration statement with the SEC covering the resale of the Conversion Shares and the Series A Warrant Shares on or before the 45-day anniversary of the earlier of (x) the Second Closing Date and (y) the Offering Termination Date and to use its commercially reasonable efforts to cause such registration statement to declared effective by the SEC by the 135-day anniversary of the of the earlier of (x) the Second Closing Date and (y) the Offering Termination Date and to keep such registration statement continuously effective until the date that all 2023 Registrable Securities covered by such registration statement (a) have been sold, thereunder or pursuant to Rule 144, or (b) may be sold without volume or manner-of-sale restrictions pursuant to Rule 144 and without the requirement for the Company to be in compliance with the current public information requirement under Rule 144.

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Pursuant to the Consent Agreement, each holder of Series A-1 Preferred Stock 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, except as provided below for the Exchanging Holders (as defined below).

Pursuant to the Consent Agreement, in the event the conversion of all of the Series A-1 Preferred Stock held by a Holder would have resulted in such Holder acquiring shares of Common Stock in excess of its Beneficial Ownership Limitation (as defined in the Purchase Agreement) (an “Exchanging Holder”), such Exchanging Holder agreed to (i) convert its shares of Series A-1 Preferred Stock subject to its Conversion Commitment into shares of Common Stock up to its Beneficial Ownership Limitation, and (ii) exchange all of its remaining shares of Series A-1 Preferred Stock subject to its Conversion Commitment for 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”).

Pursuant to the Consent Agreement, in the event the conversion of all of the Series A-1 Preferred Stock held by a Holder would have resulted in such Holder acquiring shares of common stock in excess of its Beneficial Ownership Limitation (as defined in the Purchase Agreement) (an “Exchanging Holder”), such Exchanging Holder agreed to (i) convert its shares of Series A-1 Preferred Stock subject to its Conversion Commitment into shares of common stock up to its Beneficial Ownership Limitation, and (ii) exchange all of its remaining shares of Series A-1 Preferred Stock subject to its Conversion Commitment for 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.

The Series C Warrants may be exercised for cash or on a cashless basis at the election of the Exchanging Holder.

The Class C Warrants may be exercised for cash or on a cashless basis at the election of the Exchanging Holder.

The Class C Warrants may not be exercised to the extent that the Exchanging Holder, together with its affiliates, would beneficially own more than 4.99% (or, at the election of the Exchanging Holder, 9.99%) of common stock immediately after exercise, except that upon at least 61 days’ prior notice from the Exchanging Holder to the Company, the holder may increase the beneficial ownership limitation to up to 9.99% of the number of shares of common stock outstanding immediately after giving effect to the exercise.

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In connection with the Consent Agreement, on January 26, 2024, we and the Holders entered into a Registration Rights Agreement (the “2024 Registration Rights Agreement”) pursuant to which the Company agreed to register for resale (i) the shares of common stock issuable upon exercise of the Class B Warrants and Class C Warrants (ii) any additional shares of common stock issued and issuable in connection with any anti-dilution provisions in the Class B Warrants and the Class C Warrants, and (iii) any securities issued or then issuable upon any stock split, dividend or other distribution, recapitalization or similar event with respect to the foregoing (together, the “2024 Registrable Securities”).

Under the terms of the 2024 Registration Rights Agreement, the Company is required to file a registration statement with the SEC covering the resale of the 2024 Registrable Securities on or before the earlier of (x) the 45th day following the filing by the Company of its Annual Report on Form 10-K for the year ended December 31, 2023 and (y) April 11, 2024, to use its commercially reasonable efforts to cause such registration statement to declared effective by the SEC by the 60-day anniversary of the filing date (or the 75-day anniversary of the filing date in the case of a “full review” by the SEC), and to keep such registration statement continuously effective until the date that all 2024 Registrable Securities covered by such registration statement (a) have been sold, thereunder or pursuant to Rule 144, or (b) may be sold without volume or manner-of-sale restrictions pursuant to Rule 144 and without the requirement for the Company to be in compliance with the current public information requirement under Rule 144.

requirement for the Company to be in compliance with the current public information requirement under Rule 144.

The Company will be obligated to pay certain liquidated damages to the Holders if the Company fails to file such registration statement when required, fails to cause such registration statement to be declared effective by the SEC when required, or fails to maintain the effectiveness of such registration statement pursuant to the terms of the 2024 Registration Rights Agreement.

The 2024 Registration Rights Agreement also provides the Holders with “piggy-back” registration rights in certain circumstances if there is not an effective registration statement covering all of the Registerable Securities.

Orin Hirschman and his affiliates, The Hewlett Fund, LP and Five Narrow Lane, all of whom are beneficial holders of more than 5% of our capital stock, participated in the June 2023 PIPE Orin Hirschman and his affiliates purchased 5,029 shares of Series A-1 Preferred Stock, Series A Warrants to purchase 574,744 shares of Common Stock and Series B Warrants to purchase 596,800 shares of Common Stock in the June 2023 PIPE for $5.0 million.

Orin Hirschman and his affiliates, The Hewlett Fund, LP and Five Narrow Lane, all of whom are beneficial holders of more than 5% of our capital stock, participated in the June 2023 PIPE.

Orin Hirschman and his affiliates purchased 5,029 shares of Series A-1 Preferred Stock, Series A Warrants to purchase 574,744 shares of common stock and Series B Warrants to purchase 596,800 shares of common stock in the June 2023 PIPE for $5.0 million.

The Hewlett Fund purchased 2,500 shares of Series A-1 Preferred Stock, Series A Warrants to purchase 285,715 shares of common stock and Series B Warrants to purchase 160,000 shares of common stock in the June 2023 PIPE for $2.5 million.

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Orin Hirschman and his affiliates, The Hewlett Fund, LP and Five Narrow Lane were also parties to the Consent Agreement and the 2024 Registration Rights Agreement.

In connection with the Consent Agreement, we issued to Orin Hirschman and his affiliates Series C Warrants to purchase 469,201 shares of Common Stock and The Hewlett Fund Series C Warrants to purchase 257,143 shares of Common Stock.

In connection with the Consent Agreement, we issued to Orin Hirschman and his affiliates Class C Warrants to purchase 469,201 shares of common stock and The Hewlett Fund Class C Warrants to purchase 257,143 shares of common stock.

2024 Offering and Related Transactions

On December 17, 2024, we entered into a Consent and Amendment Agreement (the “2024 Consent Agreement”) with certain holders of securities issued in the June 2023 PIPE pursuant to which, among other things, such holders agreed to (i) amend certain of the terms of the Purchase Agreement and (ii) amend and restate certain of the provisions of the Series A-1 Preferred Stock, effective immediately prior to the closing of a “Qualified Offering” (as defined in the 2024 Consent Agreement) (the “Effective Time”).

Orin Hirschman and his affiliates, and Five Narrow Lane, all of whom are beneficial holders of more than 5% of our capital stock, are parties to the 2024 Consent Agreement.

In connection with the transactions contemplated by the 2024 Consent Agreement , we entered into a General Release (the “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 us and certain of our 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.

On December 18, 2024, we entered into a securities purchase agreement (the “RD Purchase Agreement”) with certain institutional investors (each, an “RD Purchaser” and, collectively, the “RD Purchasers”), pursuant to which we agreed to issue and sell to the RD Purchasers:

(i) in a registered direct public offering (the “Public Offering”) 1,449,997 shares of common stock;

and (ii) in a concurrent private placement (the “RD Purchaser Private Placement” and, together with the Public Offering, the “RD Purchaser Offering”) 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 with the RD Purchaser Offering, we entered into a securities purchase agreement (the “PIPE Purchase Agreement”) with certain institutional investors (each, a “PIPE Investor” and, collectively, the “PIPE Investors”), pursuant to which we agreed to issue and sell to the PIPE Investors in a private placement (the “Private Placement” and together with the RD Purchase Offering, the “2024 Offering’)):

(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.

The 2024 Offering constituted a Qualified Offering under the 2024 Consent Agreement .

The Pre-funded Warrants were exercisable immediately and 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.

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 expire on December 31, 2025.

In connection with the 2024 Consent Agreement, the Release and the 2024 Offering, we entered into a registration rights agreement (the “2024 Registration Rights Agreement”) with the RD Purchasers, the PIPE Investors, the Consenting Holders, the Hewlett Fund LP and Craig-Hallum Capital Group LLC pursuant to which we agreed to file one or more registration statements on Form S-1 covering the resale or other disposition of:

(i) shares of common stock purchased in the Private Placement;

(ii) shares of common stock issuable upon the exercise of the warrants issued and sold in the 2024 Offering;

(iii) the additional shares of common stock that became issuable upon the conversion of the Series A-1 Preferred Stock as a result of the terms of the Second Amended and Restated Certificate of Designation for the Series A-1 Preferred Stock (including shares of common stock issuable upon the exercise of Pre-funded Warrants that may become issuable upon the conversion of the Series A-1 Preferred Stock);

(iv) shares of common stock issuable upon the exercise of Class C Warrants issued to the Hewlett Fund LP pursuant to the Release and (v) shares of common stock issuable upon the exercise of the Placement Agent Warrants issued to Craig-Hallum Capital Group LLC in connection with the 2024 Offering (collectively, the “Registrable Securities”).

In the Registration Rights Agreement, we have, among other things, agreed to:

(i) file an initial registration statement covering the Registrable Securities no later than the earlier of (A) April 25, 2025 and (B) the 10th day after the filing of this Annual Report on Form 10-K for the year ended December 31, 2024;

(ii) use our best efforts to cause any registration statement to be declared effective by the SEC as promptly as possible (the date on which the initial registration statement is declared effective by the SEC, the “Effective Date”);

and (iii) use our best efforts to keep any such registration statement continuously effective until the date that all of the Registrable Securities covered by such registration statement (X) have been sold thereunder or pursuant to Rule 144, or (Y) may be sold without volume or manner-of-sale restrictions under Rule 144 and without the requirement that we be in compliance with the current public information requirement under Rule 144, subject to certain black-out rights.

In the event that we fail to timely file a registration statement or comply with certain covenants in the 2024 Registration Rights Agreement, we will become subject to liquidated damages calculated as provided in the 2024 Registration Rights Agreement.

Orin Hirschman and his affiliates, The Hewlett Fund, LP, Five Narrow Lane, Lytton-Kambara Foundation and MYDA Advisors LLC all of whom are beneficial holders of more than 5% of our capital stock, participated in the 2024 Offering.

Orin Hirschman and his affiliates purchased 169,784 shares of common stock, Pre-funded Warrants to purchase 730,216 shares of common stock and Class D Warrants to purchase 900,000 shares of common stock in the Private Placement.

The Hewlett Fund, LP purchased (i) 200,000 shares and Class D Warrants to purchase 200,000 shares of common stock in the RD Purchaser Offering and (ii) Pre-funded Warrants to purchase 116,666 shares of common stock and Class D Warrants to purchase 116,666 shares of common stock in the Private Placement.

Five Narrow Lane purchased 166,666 shares and Class D Warrants to purchase 166,666 shares of common stock in the RD Purchaser Offering.

Lytton-Kambara Foundation purchased (i) 333,333 shares and Class D Warrants to purchase 333,333 shares of common stock in the RD Purchaser Offering and (ii) Pre-funded Warrants to purchase 83,333 shares of common stock and Class D Warrants to purchase 83,333 shares of common stock in the Private Placement.

MYDA Advisors LLC purchased 333,333 shares and Class D Warrants to purchase 333,333 shares of common stock in the RD Purchaser Offering.

Orin Hirschman and his affiliates, The Hewlett Fund, LP, Five Narrow Lane, Lytton-Kambara Foundation and MYDA Advisors LLC are parties to the 2024 Registration Rights Agreement.

Policies and Procedures for Related Party Transactions

Our board of directors has adopted a policy that our executive officers, directors, nominees for election as a director, beneficial owners of more than 5% of any class of our common stock, any members of the immediate family of any of the foregoing persons and any firms, corporations or other entities in which any of the foregoing persons is employed or is a partner or principal or in a similar position or in which such person has a 5% or greater beneficial ownership interest (collectively “related parties”), are not permitted to enter into a transaction with us without the prior consent of our board of directors acting through the Audit Committee or, in certain circumstances, the chairman of the Audit Committee.

employed or is a partner or principal or in a similar position or in which such person has a 5% or greater beneficial ownership interest (collectively “related parties”), are not permitted to enter into a transaction with us without the prior consent of our board of directors acting through the Audit Committee or, in certain circumstances, the chairman of the Audit Committee.

Any request for us to enter into a transaction with a related party, in which the amount involved exceeds $100,000 and such related party would have a direct or indirect interest must first be presented to our Audit Committee, or in certain circumstances the chairman of our Audit Committee, for review, consideration and approval.

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Jenks and Mr.

Jenks is not an independent director under these rules because he is an executive officers of the Company.

Keck, who resigned from the board of directors in November of 2023, was not an independent director under these rules because she is an executive officers of the Company.

Jenks is not an independent director under these rules because he is an executive officer of the Company.

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Principal Accountant Fees and Services

The following table summarizes the fees paid for professional services rendered by Marcum, LLP and BDO, LLP, our independent registered public accounting firms, for each of the last fiscal years:

The following table summarizes the fees paid for professional services rendered by Marcum, LLP, our independent registered public accounting firm, for each of the last fiscal years:

For the Years End December 31,

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Form of Class C Warrant (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on January 29, 2024)

Form of Pre-funded Warrant (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on December 20, 2024)

Form of Class D Warrant (incorporated by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K filed on December 20, 2024)

2021 Equity Incentive Plan (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on February 24, 2021)

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(incorporated by reference to Exhibit 10.9 to the Company’s Current Report on Form 8-K filed on February 24, 2021)

License of Office Space, dated September 16, 2020, by and between SmartKem Limited and CPI Innovation Services Limited (incorporated by reference to Exhibit 10.10 to the Company’s Current Report on Form 8-K filed on February 24, 2021)

License of Office Space, dated April 21, 2020, by and between SmartKem Limited and CPI Innovation Services Limited (incorporated by reference to Exhibit 10.11 to the Company’s Current Report on Form 8-K filed on February 24, 2021)

Framework Services Agreement, dated February 23, 2021, by and between SmartKem Limited and CPI Innovation Services Limited (incorporated by reference to Exhibit 10.13 to the Company’s Current Report on Form 8-K filed on February 24, 2021)

Facility Agreement, dated January 26, 2021, by and between SmartKem Limited and FRCF 2 Limited (incorporated by reference to Exhibit 10.14 to the Company’s Current Report on Form 8-K filed on February 24, 2021)

Debenture Agreement, dated January 26, 2021, by and between SmartKem Limited and FRCF 2 Limited (incorporated by reference to Exhibit 10.15 to the Company’s Current Report on Form 8-K filed on February 24, 2021)

Form of Director and Officer Indemnification Agreement (incorporated by reference to Exhibit 10.16 to the Company’s Current Report on Form 8-K filed on February 24, 2021)

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Registration Rights Agreement, dated January 27, 2022, by and between the Company and the Purchasers (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on January 27, 2022)

Contract Variation relating to the Framework Services Agreement, dated February 23, 2021, by and between SmartKem Limited and CPI Innovation Services Limited (incorporated by reference to Exhibit 10.21 to the Company’s Current Report on Form 10-K/A filed on August 23, 2022)

Renewal Lease by Reference of Lease of The Whole of the 8th Floor, Hexagon Tower, Manchester, M9 8GP, dated April 12, 2022, between AG Hexagon BV and SmartKem Limited (incorporated by reference to Exhibit 10.3 on the Company’s Quarterly Report on Form 10-Q filed on May 13, 2022)

Service Agreement, dated September 19, 2022, by and between SmartKem Limited and Robert Bahns (incorporated by reference to Exhibit 10.1 on the Company’s Current Report on Form 8-K filed September 19, 2022)

Employment Agreement, dated as of December 14, 2022, by and between the Registrant and Barbra Keck (incorporated by reference to Exhibit 10.25 to the Company’s Annual Report on Form 10-K filed on March 30, 2023)

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Technical Service Agreement, dated July 1, 2023, by and between SmartKem Limited and Industrial Technology Research Institute (incorporated by reference to Exhibit 10.27 to the Company’s Registration Statement on Form S-1 filed on July 24, 2023)

License of Office Space, dated May 31, 2023, by and between SmartKem Limited and CPI Innovation Services Limited (incorporated by reference to Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q filed on August 14, 2023)

Amendment to the 2021 Equity Incentive Plan (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on August 28, 2023)

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Form of Registration Rights Agreement (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on January 29, 2024)

Framework Supply Agreement, dated March 22, 2024, by and between SmartKem Limited and CPI Innovation Services Limited

Framework Supply Agreement, dated March 22, 2024, by and between SmartKem Limited and CPI Innovation Services Limited (incorporated by reference to Exhibit 10.28 to the Company’s Annual Report on Form 10-K filed on March 27, 2024)

Joint Development Agreement, dated July 26, 2024, by and between SmartKem Limited and Shanghai Chip Foundation Semiconductor Technology Co., Ltd.

(incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q filed on November 8, 2024)

Collaboration Agreement, dated November 19, 2024, by and between SmartKem Limited and AUO (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on November 25, 2024)

Collaboration Agreement, dated December 2, 2024, by and between SmartKem Limited and Flexible Integrated Circuits, SL (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on December 5, 2024)

Consent and Amendment Agreement, dated December 17, 2024, by and among SmartKem, Inc.

and the holders party thereto(incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on December 18, 2024)

General Release, dated December 17, 2024, by and between SmartKem, Inc.

and Hewlett Fund LP (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on December 18, 2024)

Placement Agency Agreement, dated December 18, 2024, by and between SmartKem, Inc.

and Craig-Hallum Capital Group LLC (incorporated by reference to Exhibit 1.1 to the Company’s Current Report on Form 8-K filed on December 20, 2024)

Form of Securities Purchase Agreement, dated December 18, 2024, by and among SmartKem, Inc.

and the purchasers party thereto (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on December 20, 2024)

Form of Securities Purchase Agreement, dated December 18, 2024, by and among the Company and the purchasers party thereto (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on December 20, 2024)

Form of Registration Rights Agreement, dated December 18, 2024, by and among the Company and the parties thereto (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed on December 20, 2024)

Employment Agreement, dated as of March 10, 2025, by and between SmartKem Limited and Jonathan Watkins (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on March 10, 2025)

Letter of Variation, dated March 28, 2025, by and between SmartKem Limited and CPI Innovation Services Limited

License of Office Space, dated March 28, 2025, by and between SmartKem Limited and CPI Innovation Services Limited

Insider Trading Policy

List of Subsidiaries (incorporated by reference to Exhibit 21.1 to the Company’s Annual Report on Form 10-K filed on March 30, 2023)

Consent of Marcum LLP, independent register public accounting firm (Marcum LLP, New York, USA, PCAOB ID # 688)

Consent of BDO LLP, independent register public accounting firm (BDO LLP, London, United Kingdom, PCAOB ID # 1295)

Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

4 unchanged sentences

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

Incentive Compensation Repayment (Clawback) Policy

Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document

11 unchanged sentences

# Indicates management contract or compensatory plan.

** Portions of the exhibit, marked by brackets, have been omitted because the omitted information (i) is not material and (ii) would likely cause competitive harm if publicly disclosed.

** Portions of the exhibit, marked by brackets, have been omitted because the omitted information (i) is not material and (ii) is of the type the registrant customarily and actually treats as private or confidential.

The Registrant hereby undertakes to furnish supplementally a copy of any of the omitted schedules and exhibits to the SEC on a confidential basis upon request..

33 unchanged sentences

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 9A. Controls and Procedures