SMTK · Read the filing

SmartKem, Inc._December 31, 2024

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

☒ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES

EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2024

☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES

EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 000-42115

SmartKem, Inc.

(Exact name of registrant as specified in its charter)

(State or other jurisdiction of (I.R.S. Employer

incorporation or organization) Identification Number)

Manchester Technology Centre, Hexagon Tower.

Delaunays Road, Blackley

Manchester, M9 8GQU.K.

(Address of Principal Executive Offices)

Registrant’s telephone number +44 161721 1514

Securities registered pursuant to Section 12(b) of the Act:

Title of each class Trading Symbol(s) Name of exchange on which registered

Common Stock, par value $0.0001 per share SMTK The Nasdaq Stock Market LLC

Securities registered pursuant to Section 12(g) of the Act: None.

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐No☒

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐No⌧

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☐ Accelerated filer ☐

Non-accelerated filer ☒ Smaller reporting company ☒

Emerging growth company ☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐

If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐

Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

The aggregate market value of the common stock held by non-affiliates of the registrant, based on the closing sale price on The Nasdaq Capital Market of $5.735 per share, was $9,705,409 as of June 30, 2024.

As of March 26, 2025 there were 3,620,217 shares of the registrant’s common stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

None.

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SmartKem, Inc.

Form 10-K for the Fiscal Year Ended December 31, 2024

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Page

Glossary of Terms and Abbreviations 3

Cautionary Note On Forward-Looking Statements 5

PART I 7

Item 1. Business 7

Item 1A. Risk Factors 21

Item 1B. Unresolved Staff Comments 40

Item 1C. Cybersecurity 40

Item 2. Properties 41

Item 3. Legal Proceedings 41

Item 4. Mine Safety Disclosures 41

PART II 42

Item 6. [Reserved] 42

Item 7A. Quantitative and Qualitative Disclosures about Market Risk 47

Item 8. Financial Statements and Supplementary Data 48

Item 9A. Controls and Procedures 79

Item 9B. Other Information 80

Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections 80

PART III 81

Item 10. Directors, Executive Officers, and Corporate Governance 81

Item 11. Executive Compensation 86

Item 14. Principal Accountant Fees and Services 97

PART IV 98

Item 15. Exhibits and Financial Statement Schedules 98

Signatures 103

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Glossary of Terms and Abbreviations

The following is a glossary of technical terms used in this Annual Report on Form 10-K (this “Report”):

10˄6 – 1,000,000 (the symbol before the number 6 indicates “raised to the power”)

AMOLED – Active Matrix OLED

AR – Augmented Reality

a-Si – Amorphous silicon (TFT)

BKM – Best-Known Method

BL – Base Layer

°C – Degrees Celsius

CoA – Certificate of Analysis

CAD – Computer Aided Design

COC – Cyclic Olefin Copolymer

CPI – Centre for Process Innovation

DLT – Digital Lithography Technology

EDA – Electronic Design Automation

EL-QD-LED – Electroluminescent Quantum Dot Light Emitting Diode

FET – Field-Effect Transistor

IC – Integrated Circuit

IGZO – Indium gallium zinc oxide TFT

IV – Current-Voltage

LTPS – Low-Temperature Polysilicon TFT (Note: Low-Temperature is relative to silicon wafer processing temperatures >300°C, however not low temperature relative to the glass transition temperature of many plastics (<150°C)

OEM – Original Equipment Manufacturer

OGI – Organic Gate Insulator

OLED – Organic Light Emitting Diode

OSC – Organic Semiconductor

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OTFT – Organic Thin-Film Transistor

PCB – Printed Circuit Board

PDK – Process Design Kit

PEN – PolyEthylene Naphthalate

PET – PolyEthylene Terephthalate

POR – Process of Record

PV – PassiVation layer

SAM – Self-Assembled Monolayer

SRL – Sputter Resistant Layer

TAC – Cellulose TriACetate

Tg – Glass transition temperature

TFT – Thin-Film Transistor

VR – Virtual Reality

Vth – Threshold Voltage

Vto – Turn-on Voltage

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CAUTIONARY NOTE ON FORWARD-LOOKING STATEMENTS

This Annual Report on Form 10-K, including the sections entitled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” contains express or implied forward-looking statements that are based on our management’s belief and assumptions and on information currently available to our management. Although we believe that the expectations reflected in forward-looking statements are reasonable, such statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by forward-looking statements. All statements other than statements of historical fact contained in this Report are forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as “may,” “could,” “will,” “would,” “should,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “intend,” “predict,” “seek,” “contemplate,” “project,” “continue,” “potential,” “ongoing” or the negative of these terms or other comparable terminology.

These forward-looking statements include, but are not limited to, statements about:

● the timing and success of our and our customers’ product releases;

● our ability to develop new products and technologies;

● our ability to meet management goals;

● the strength and marketability of our intellectual property portfolio;

● our exposure to risks related to international operations;

● our dependence on third-party fabrication facilities;

Securities Exchange Act of 1934, as amended (the “Exchange Act”), and an “emerging growth company” under the Jumpstart Our Business Startups Act (the “JOBS Act”) in future periods;

● our future financial performance;

● the competitive landscape of our industry;

These statements relate to future events or our future operational or financial performance, and involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by these forward-looking statements. Factors that may cause actual results to differ materially from current expectations include, among other things, those listed under “Risk Factors” and elsewhere in this Report.

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Any forward-looking statement in this Report reflects our current view with respect to future events and is subject to these and other risks, uncertainties and assumptions relating to our business, results of operations, industry and future growth. Given these uncertainties, you should not place undue reliance on these forward-looking statements. No forward-looking statement is a guarantee of future performance. You should read this Report and the documents that we reference in this Report and have filed with the Securities and Exchange Commission, or the SEC as exhibits hereto completely and with the understanding that our actual future results may be materially different from any future results expressed or implied by these forward-looking statements. Except as required by law, we assume no obligation to update or revise these forward-looking statements for any reason, even if new information becomes available in the future.

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PART I

Item 1. Business

Unless otherwise stated or the context otherwise indicates, references to “SmartKem” the “Company,” “we,” “our,” “us,” or similar terms refer to SmartKem, Inc. and its subsidiaries.

Overview

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.

We design and develop our materials at our research and development facility in Manchester, UK and provide prototyping services at the Centre for Process Innovation (“CPI”) in Sedgefield, UK. We also operate a field application office in Hsinchu, Taiwan, close to our collaboration partner, The Industrial Technology Research Institute of Taiwan (“ITRI”). With our collaboration partners, we are developing a commercial-scale production process and EDA tools for our materials to demonstrate the commercial viability of manufacturing a new generation of displays using our materials. We have an extensive IP portfolio including 138 granted patents across 17 patent families, 16 pending patents and 40 codified trade secrets.

Our Technology

The invention and development of OTFT devices has enabled the rapid expansion of the electronics industry, particularly with the advent of the planar process essential for integrated circuitry. This is due to the ability to create compact circuits with an ever-increasing capability, lower cost per logic function, and a higher frequency of operation. Integrated circuits are present in almost all electronic devices today and there is a constant drive to embed more smart features into a greater number of applications.

TFTs are a type of FET that can be processed on large area flat surfaces to make display screen backplanes, digital/analog electronics, and sensor arrays for a wide range of consumer and industrial applications. The manufacturing of silicon-based electronics either in wafer or thin-film form, such as a-Si on glass, requires a high temperature process (approximately 300°C). Because most polymer substrates melt or degrade at these high temperatures, TFTs are mainly manufactured on special glass that can withstand such high temperatures resulting in the production of mainly rigid products.

Our OTFT technology comprises predominantly organic materials (such as polymers and organic small molecules) that can be solution coated at low temperature (as low as 80°C) using existing manufacturing infrastructure onto a wide range of low-cost plastic substrates, as well as onto traditional substrate materials. The similarity in the coefficient of thermal expansion between the substrate and our TRUFLEX® materials permits production of robust, bendable/flexible and lightweight devices. Our OTFT performance, as measured by charge mobility, exceeds a-Si performance by a factor of four, which we believe offers product designers a significant extension of capability, by enabling them to transform flat, bulky objects into lightweight, robust, and flexible products that we expect will appeal to consumers. Our device stability under positive and negative thermal bias stress testing (60°C for 1 hour at +/-30V) achieves <2V change in threshold voltage even without device encapsulation. The current driving ability of the short channel OTFT devices has been shown to be able to drive mini and MicroLED displays at >100,000 nits making the technology attractive for use in emissive display applications. Our recent demonstration of monolithic integration (OTFT backplane processed on top of GaN mini/microLED arrays) proved the viability of using a monolithic manufacturing process that is more efficient than existing manufacturing techniques.

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Our OSC materials combine a high mobility polycrystalline small molecule with a low molecular weight semiconducting polymer. The polymer controls the morphology, phase segregation and uniformity of the semiconducting layer and a solvent is included to deliver inks that are used to fabricate devices with mobilities of approximately 4 cm2/Vs. In addition, we have developed all the other interlayer polymers that are necessary to form the complete transistor stack.

Polymeric plastic substrates, such as PET, PEN, TAC and COC have relatively low glass transition temperatures (Tg) in the range of 100°C to 200°C. Using these plastics at temperatures above this level causes significant distortion and, in some instances, may even result in melting or thermal breakdown of the polymer. Our OTFTs can be processed at temperatures as low as 80°C, enabling the use of polymer substrates that are optically clear, flexible and less expensive than glass or temperature resistant polymers. In addition, short duration processing at low temperature results in significant energy savings. Also, plastics do not have the same risk of shattering as glass and therefore less strengthening around the edge of large area plastic-based devices is necessary, such as the use of aluminum frames to support torsional rigidity in glass substrates. Plastics can also be processed in very thin sheets (tens of microns) which saves space within the final product, allowing for increased battery capacity. Thin plastic substrates also enable the device to conform very easily to non-planar surfaces such as the human body which makes them well suited for wearable sensors and display devices. Thin plastic sheets are also conformable, allowing electronics to be formed around irregular surfaces, for example, curved pillars in buildings.

Our unique materials set comprising BL, SAM, OSC, OGI, SRL and PV inks can be deposited using standard coating techniques such as spin-coating which is widely used for the lithography processes used in TFT manufacturing. As a result, our OTFT process is intended to be integrated into existing manufacturing lines using standard industrial techniques without the need for additional large capital investment. Furthermore, the solubility of our inks enables customers to digitally print the features of the OTFT device, which we believe may be attractive to potential customers seeking to lower manufacturing costs.

Advantages of Our TRUFLEX® Technology

The most widespread display backplane technology currently in use is a-Si which is principally used in the manufacture of LCDs. More recent developments in inorganic semiconductors include the use of the metal oxide IGZO for backplanes for large area OLED TVs and LTPS for high resolution cellphones. Inorganic TFTs are fabricated using high temperatures for the plasma-enhanced chemical vapor deposition (PECVD) SiNx (often exceeding 300°C). They therefore require high-cost, temperature resistant polymers (e.g., polyimide) substrates, especially if they are to be used to manufacture plastic-based screens. All inorganic TFTs can be subject to damage on bending and require additional product engineering for protection during bending to prevent failure of the display. This adds to the overall cost of production of a bendable or foldable device.

We believe that our ability to employ TRUFLEX® materials at temperatures as low as 80°C will enable manufacturers to use low-cost plastic substrates and the polymeric nature of our materials will allow the transistors to be truly flexible. We believe that robust and lightweight display screens, which are capable of being curved, flexed or folded to tight bend radii, would enable manufacturers of mobile devices to create products more tailored to customer demand and that our TRUFLEX® OTFTs are well suited for this application. Our materials are organic and polymer-like and hence can withstand the mechanical strains experienced in severe bending such as a fold of a display. In addition, the substrate does not require the degree of protection from the edges as glass displays do, which can eliminate the weight and cost associated with aluminum frames. Low temperature processing enables a wider range of plastic substrates to be used, allowing properties such as optical clarity to be optimized.

Our low-temperature OTFTs also permit them to be poured on top of other display elements, such as a MicroLED array, since the low process temperature would not damage the emissive components. We believe this ability to pattern the backplane on top of other components could lead to alternative display or sensor design configurations with advantages such as higher aperture ratio. We also believe that our ability to build the backplane in-situ over the MicroLED array (the ‘chip-first’ approach) — which would eliminate the critical front and backplane hybridization step — has the potential to increase the yield of the display fabrication process while also reducing manufacturing cost. The small size of MicroLEDs (normally under 100 microns and evolving down to <20 microns) and tight pixel

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pitches make it challenging to ensure each MicroLED aligns perfectly with the corresponding pixel driver on the backplane. Electrical connection of the MicroLEDs on top of the display backplane requires the use of eutectic

bonds through a metal junction containing at least one low melting point metal. Deposition and patterning of the low melting point metal for the bumping process typically uses thermal evaporation and lift-off processes, which are not typically used in display backplane fabs, therefore creating uncertainty over the scale up of this approach. Our chip-first integration route makes use of high precision and well-established photolithography processing and/or dry etching to form vias through one of our dielectric layers and then a metal contact is deposited through the via to connect to the MicroLED pads. The metallization process uses sputtering, photolithography and wet etching, all of these are scalable techniques used in current display manufacturing.

The difficulty of manufacturing MicroLEDs with existing technology has led to delays in the rollout of the MicroLED displays. For example, in March 2024, Apple Inc. reported that it had cancelled its project to develop MicroLED displays in-house for wearable devices, including the Apple Watch. Because a number of development projects were delayed, scaled back or postponed in the wake of Apple’s action, media reports speculated that Apple’s setback might affect continued development of MicroLED technology. However, development of MicroLED technology has continued at a rapid pace with Samsung Electronics Co., Ltd.’s (“Samsung”) “The Wall” being a prominent example of a commercially available MicroLED display, while Sony Group Corporation (“Sony”) also produces MicroLED video walls and cinema screens. Additional global display manufacturers who continue to pioneer MicroLED display technology include LG Corporation (“LG”), AUO Corporation (“AUO”) and BOE Technology Group Co., Ltd. and it is widely acknowledged that next generation displays will inevitably migrate to MicroLED technology due to its higher brightness and resolution.

Products and Services

We have developed in-house the materials necessary to fabricate high-performance OTFT devices, other than the

contact metals and substrates on which those materials are deposited. We supply our products as a set of stable liquid inks, with each ink forming separate layers of the device. Each of the inks forming these layers has been carefully designed to result in the device performance and electrical stability specified by the customer. We supply the ink set with a detailed process of record (“POR”) for making the desired device. In addition to supplying our OTFT stack materials as a package, prospective customers also evaluate the use of our range of interlayer materials as single layers in new and existing chip and display products (in so-called advanced semiconductor packaging). The interlayer materials are being tested as redistribution layers, pixel definition layers, permanent resists and organic dielectric layers due to their favorable processability, patternability, planarity and other properties of our materials when compared with existing materials. During 2023, we began developing a range of customized dielectric inks for customers’ advanced electronics packaging applications.

Products have been scaled up for formulated ink supply to customers in package sizes ranging from 100ml to several liters, all supplied from our Manchester facility. These are supplied with a certificate of analysis (CoA) and POR, alongside device and design consultancy to ensure successful technology transfer.

We intend to offer foundry services to customers who wish to have electronic circuits manufactured for them, with the choice of two facilities, depending on the application size and quantity. Through our current agreement, expiring on March 31, 2025, with the United Kingdom’s CPI, we have access to a 300mm x 300mm foundry that we use for creating prototypes for evaluation by potential customers. In 2022, we began process characterization using a maskless aligner at CPI to reduce the time from CAD layout to prototype for new designs. Additionally, in partnership with ITRI, we have successfully demonstrated the direct patterning of one of our interlayer dielectric materials using digital lithography technology (“DLT”). In 2023, we entered into a transfer technology agreement with ITRI pursuant to which ITRI is developing Gen 2.5 scale (370mm x 470mm) commercial manufacturing processes for a range of our OTFT materials. The goal of our agreement with ITRI is to develop robust commercial scale manufacturing processes that will enable potential customers to develop prototypes on ITRI’s Gen2.5 line using our OTFT technology before transferring the manufacturing process to their own lines or to a third-party foundry, including ITRI. We believe that the successful development of commercial manufacturing processes and their validation on ITRI’s equipment will help to accelerate the adoption of our materials technology and process concepts by display manufacturers. During 2024, we continued to develop the process of establishing the

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fabrication of our OTFT-based devices, including by conducting the set-up of the recipes for the individual device layers.

We do not have the in-house capability to produce our flexible transistors at commercial scale and intend to partner with existing foundries to provide us with the ability to meet full production orders for customers that do not have their own facilities. We use product prototyping services to demonstrate applications enabled by OTFT to prospective customers. This allows potential customers to evaluate physical samples of our materials prior to committing to final design and long-term supply agreements.

During 2023, we announced the successful creation of the first monolithic MicroLED display using OTFTs, which was the result of our collaboration with Prof. Xiaojun Guo’s group at Shanghai Jiao Tong University, China. This breakthrough was published in November 2023 in the peer-reviewed journal, Nature Communications. In 2024 we showed the first flexible samples of MicroLEDs using our chip-first approach at the International Meeting on Information Display (IMID). We believe that this new method of processing our thin-film transistor backplane on top of Gallium Nitride LEDs has the potential to accelerate the commercialization of MicroLED displays by demonstrating the ability to efficiently manufacture MicroLED displays by simplifying the process of connecting transistors to LEDs. Consumer electronics companies are actively developing MicroLED displays because such displays promise higher brightness, lower power consumption and longer lifetime than current display technology. The existing manufacturing processes for creating MicroLED displays use physical transfer of LEDs from the wafer upon which they are manufactured to the TFT display backplane, where they must be laser welded to the contact pad of the transistor to make an electrical connection. Because millions of tiny LEDs need to be transferred from one place to another and welded into place, error rates from misplacement reduce the efficiency of these processes leading to significant and costly rework and low yields.

Our low temperature process makes it possible for OTFT transistors to be processed directly on top of the MicroLEDs. This “chip first” approach eliminates the mass transfer and laser welding process, and the fabrication of OTFTs can use existing low-cost manufacturing tools currently used for LCD backplane manufacturing. We believe that the improvements available through the adoption of our process will be particularly important for portable powered displays such as smartwatches and AR/VR displays which cannot readily accommodate large, heavy batteries.

Market Opportunity

The main market for our technology is in the display industry. According to Omdia, the global display market size is forecast to exceed 200 million square meters of area in 2025, with over 75% of this in the TV and public display segments. The overall global display market was estimated at around $150 billion in 2024. Advances in display technology focus on improving image quality and power consumption and the development of new form factors, such as flexible/foldable or curved displays.

MicroLED technology is a focus of leading OEMs because it offers higher brightness, better energy efficiency and longer lifespans compared to traditional displays. MicroLED Technology is being targeted at a range of applications including premium TV, commercial signage and automotive applications. Markets and Markets Research Pvt. Ltd. projects that the MicroLED market will grow from $592 million in 2021 to over $21 billion by 2027—a 81.5% compound annual growth rate (CAGR). According to a research report from Grand View Research, Inc., 34% of MicroLED revenue in 2023 came from the 3,000 to 5,000 pixel per inch segment (smartphones, smartwatches and VR devices) while the greater than 5,000 pixel per inch segment is expected to grow at a 79% CAGR from 2024 to 2030, driven by rising demand for high-resolution displays in AR/VR headsets like Apple’s Vision Pro and the Meta Quest Pro. The Business Research Private Ltd. reported that it expects the smartwatch market to grow from $91.01 billion in 2024 to $106 billion in 2025, a 17% CAGR. In addition, Maximize Market Research PVT. Ltd. has reported that the automotive display market was valued at 8.4 billion in 2023, and that total automotive display revenue is expected to grow at a CAGR of 18.26 % from 2024 to 2030, reaching nearly $27.2 billion by 2030. We believe that our technology can offer single or complete materials sets and novel process and architecture solutions (e.g., chip-first for OTFT backplanes) for most display segments.

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Our proprietary TRUFLEX® organic materials set enable customers to make backlight units and direct emissive displays that are both flexible and capable of driving stable currents, combined with the benefits of low temperature processing. Recently, several manufacturers have launched TVs with mini-LED backlight units, and a number of companies are developing a new generation of direct emission MicroLED displays (including Samsung, with ‘The Wall’ offering unparalleled brightness and visual clarity, Sony, LG and AUO), flexible OLED displays, and transparent OLED displays. These new formats are supported by a variety of different backplanes using tiled versions of existing technologies or PCB backplanes. We believe that our TRUFLEX® materials can be used to provide active-matrix transistor arrays that can address these new product categories using low-cost, flexible substrates.

Our customized inks can be made with low viscosity, low processing temperatures and without the use of hazardous solvents. In addition, our organic inks offer low film stress and shrinkage/warpage versus many established materials.

We believe there are other markets in which our materials may offer advantages. For example, we believe that our OTFTs are suitable for applications where a relatively low number of transistors are required over a wide area such as chemical/biological sensors or distributed logic circuits. We believe the growth in Internet of Things (IoT) devices also offer opportunities for low cost, mass manufacturable, printable logic devices, as can be made possible by our technology platform. We believe that our strategy of targeting low cost of prototyping and an ability to rapidly transition from design to device will help drive the development of these technologies with our customers.

Commercialization Strategy

Our commercialization strategy rests on three pillars: continuous improvement of our polymer materials, development of EDA tools, and development of robust commercial manufacturing processes.

We intend to seek to work with leading display makers, end users and chip packaging players to undertake joint validation programs and support, through a structured technology transfer process and the development of a scalable manufacturing capability with our partners. In the case of advanced semiconductor packaging dielectrics, we intend to seek to partner with equipment companies – who have well-established channels to the outsourced semiconductor assembly and test (OSAT) customers in Asia - formulating ink specific to the workstation design (e.g., for inkjet printing). Initial volumes of inks will come from our Manchester materials technology center and later we expect to establish one or more accredited materials manufacturing plants that will supply our client base.

Continued Development of Our Materials

We design and develop our materials at our research and development facility in Manchester, UK, where we respond to customer inquiries and anticipate market trends. In response to requests from potential customers, our chemistry team has focused on the development of a range of specialized dielectric polymer interlayers. Additional specialty dielectric polymer formulations are being designed for use in advanced mobile communications operating at frequencies in excess of 5GigaHz (5G applications and beyond). Interlayer inks are also being provided to potential customers for evaluation across a wide range of advanced electronics packaging applications. We believe that our knowledge base and experience in the design and characterization of OTFTs gives us the ability to respond rapidly to customer preferences and emerging market trends.

Development of EDA Tools

We have developed an initial PDK for our process that is designed to be used by third parties in EDA software to allow them to design digital logic devices. The PDK contains information such as design rules that are specific to our process equipment, and it will also incorporate models of OTFTs made using our materials set. This will be used for digital device simulation and layout of circuit designs. We continue to characterize the electrical performance of our materials and to use that data to improve the correlation between simulations produced using those tools and actual devices. As part of this development, we expect to populate a library of reference designs for common gates used in digital electronic circuits to further simplify third party design processes. At this time, our circuit layout work is done by hand by skilled engineers.

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Once we have identified a specific application requirement, we expect to proceed with development work through an understanding of the product specifications and engineering work to calculate the size and capabilities of pixel TFTs and storage capacitors. For digital logic applications, the situation is more complex, and circuits cannot be designed without access to supporting simulation, design, and layout software. In silicon IC design, EDA tools are used to predict the behavior of circuits made using foundry services. This allows designers to simulate the behavior of prototype circuits and check their functionality ahead of the fabrication, therefore saving time and money.

We believe that the development of proprietary EDA tools that permit customers to efficiently design circuits using our processes and materials is an important requirement for our commercial success. We have entered into a four-year collaboration with Flexible Integrated Circuits S.L. (FlexiIC) with the aim of configuring open-source or low-cost paid for EDA tools for our OTFTs.

Development of Robust Commercial Manufacturing Processes

Our BL, SAM, OSC, OGI, SRL and PV inks can be deposited using standard coating techniques such as spin-coating or slot-die coating which are widely used for the lithography processes used in TFT manufacturing. As a result, our OTFT process can be integrated into existing manufacturing lines using standard industrial techniques without the need for additional large capital investment. Furthermore, the solubility of our inks would permit customers to digitally print the features of the OTFT device, which we believe may be attractive to potential customers seeking to lower manufacturing costs.

While we can provide prototype foundry services for potential customers through our access to CPI and ITRI we do not have the capability to provide commercial-scale foundry services. We believe that many customers will produce circuits using our OTFT materials either directly or through their existing third-party foundry arrangements, including ITRI. Accordingly, we believe the development of robust commercial manufacturing processes that use existing foundry equipment and that can be easily transferred to commercial foundries is an important part of our commercialization strategy.

Through our relationship with ITRI, we have successfully demonstrated the direct patterning of one of our interlayer dielectric materials using DLT, a common commercial manufacturing technology. In 2023, we entered into a transfer technology agreement with ITRI pursuant to which ITRI is developing Gen 2.5 scale (370mm x 470mm) commercial manufacturing processes for a range of our OTFT materials. The goal of our agreement with ITRI is to develop robust commercial scale manufacturing processes that will enable potential customers to develop prototypes on ITRI’s Gen2.5 line using our OTFT technology before transferring the manufacturing process to their own lines or to a third-party foundry, including ITRI. We believe that the successful development of commercial manufacturing processes will help to accelerate the adoption of our technology by display manufacturers in Taiwan and other areas of Asia.

2025 Management Goals

Our management has established a number of 2025 operational goals for our company in furtherance of our efforts to commercialize our products:

● Enter into a joint development agreement for a “chip-first” MicroLED display;

● Produce a demonstration of a MicroLED display using our OFT technology.

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These goals are primarily aspirational in nature and may be subject to modification, alteration or elimination as a result of a number of factors, such as changes in market trends, access to capital, changes in potential customer preferences, performance by our collaboration partners, and technological developments, many of which are out of our control. There can be no assurance that we will achieve the goals described above or that our achievement of those goals will result in the successful commercialization of our products. Accordingly, investors are cautioned not to place undue reliance on these goals in making an investment decision about our company. For additional information, see “Cautionary Note on Forward-Looking Statements” and “Risk Factors” elsewhere in this report.

Sales and Marketing

The majority of our target customers are large consumer electronics companies based in Asia (Taiwan, South Korea, Japan and China) that already own or have access to display backplane manufacturing lines and engage in large scale production of display products for TV or mobile/tablet markets using a-Si process lines. Many of these target companies are already seeking to develop MicroLED technology. We believe that these customers are seeking to create novel, higher added value electronics products that cannot be manufactured using a-Si glass backplanes. We believe display manufacturers will be attracted to our TRUFLEX® technology which would enable them to create novel, plastic-based products with improved robustness, higher flexibility and lighter weight using their existing production lines. The same region is also a source of new inquiries for evaluation of use of our unique dielectrics in the advanced chip packaging sector.

We have a direct sales force consisting of two employees located in Taiwan, assisted by two technology transfer engineers, and sales representation in China. Our technical specialists and senior management team also play an active role in promotional events and engage with strategic partners in Asia. We believe that our initial customers will be located in Taiwan, South Korea, Japan and China but we are also directly working with OEMs located in North America, Europe and elsewhere in Asia who have the ability to require their suppliers to use our materials. Our sales team is supported for new program delivery by engineers and product specialists located the materials technology center in Manchester, our ITRI production validation facility in Taiwan and our prototyping and development site in Sedgefield. We anticipate building up our sales and marketing resources through a mixture of new in-house and specialist agencies.

Our marketing efforts include attendance at significant industry trade shows (including in 2024: the IMID, the International Conference on Flexible and Printed Electronics (ICFPE), the PlayNitride MicroLED Technology Forum, SEMICON Taiwan and MicroLED Connect) at which we demonstrate the capabilities of our TRUFLEX® technology and respond to requests for proposals and other inquiries from potential customers. We publish technical papers that explain our products and technology to inform and engage with potential customers. We have also entered into several joint development agreements to demonstrate the capabilities of our materials and to show the feasibility of utilizing our products in specific applications. In addition, we make presentations at trade events to showcase our technology and familiarize potential customers with the value we believe our technology adds to various applications. We also publish press releases and other announcements relating to our technical capabilities or achievements and include product information and related technical materials on our website.

We expect that the time between the identification of a potential customer and the receipt of a purchase order or agreement for the sale of our products will be relatively long. In certain instances, a potential customer may contact us seeking a generic sample of our materials for evaluation. In other instances, a customer may come to us with specific performance specifications and inquire about our ability to provide products meeting their specifications after which we provide samples of materials or specific data for evaluation. After the initial evaluation, the prospective customer may request a prototype of a specific design as proof-of-concept. We fabricate prototypes using the foundry access we have through our existing arrangements with CPI in the UK (for smaller sizes) and ITRI in Taiwan (for Gen 2.5). A significant proportion of all work done during this phase of our sales cycle would be done at our expense, with customers making a contribution in some cases.

Assuming successful prototyping is completed, we expect that we would negotiate and enter into a development agreement with an interested customer under which we would, in collaboration with the potential customer, engage

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in further engineering and design work. We expect that we will receive compensation for those services. We could also engage in a pilot-scale level of manufacturing for the products developed for the customer as part of that process.

After the satisfactory completion of development work and any related pilot project, an interested customer would then enter into a sales agreement with us under which we would either agree to manufacture products to the customer’s specifications from time to time as requested by the customer, including potential minimum quantity requirements, or we would agree to license our process to the customer for a fee based on a royalty of sales and enter into a supply agreement for our proprietary inks, utilizing a process developed by ITRI and owned and qualified by us, formulated into inks either in our own facilities or by third-party formulators and shipped directly to customers.

We expect that the sales cycle described above will take approximately 12-24 months. During that period, we will be required to incur significant expenses without any assurance that a customer order will be obtained. Accordingly, we will have a significant risk that we will incur those expenses without ever making a sale.

Research and Development

Our research and development efforts have focused on ensuring that we have a broad, future-proofed portfolio of best-in-class organic semiconductor materials that are patent protected. Some critical OTFT device parameters include:

Since 2023, our chemistry team has switched its focus from the development of organic semiconductors to the development of a range of specialized photoimageable dielectric polymers. Some of these dielectric materials are intended for use in the display industry as redistribution layers, passivation layers, MicroLED interlayers and as pixel definition layers. In response to requests from potential customers, we have also directed our efforts to the development of customized dielectric materials to be used in the field of Advanced Electronics packaging. Some of the technical challenges facing the development of these dielectrics include tuning interfacial adhesion between a broad range of different interlayers including polymer-to-polymer, polymer-to- metal and polymer-to-silicon interfaces. Another important aspect of the development of novel dielectric inks for advanced packaging applications

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is the need for them to be capable of being deposited using a range of coating /printing techniques, including use in additive printing such as industrial ink jet printing.

Once new dielectric materials have been characterized, our materials development team customizes the formulations and process parameters to allow integration into the fabrication processes at CPI. This team establishes the BKMs for each material and generates an understanding of the parameters that can influence the performance. Customers frequently request detailed materials data packages for our customized dielectric materials which once approved by them should enable them to quickly process our polymer inks at their in-house facilities. At any given time, our dielectric inks are under evaluation by a number of potential end users. Initial work is also being done to scale up routes and identify potential supply chains for our materials in anticipation of customer needs.

The generation of fabrication processes and the integration of new materials is carried out at CPI under the direction of our Chief Technology Officer. The toolsets at this site provide a rapid feedback loop between our chemistry R&D and industry relevant device performance data sets. Additionally, the equipment sets can be used to generate demonstrator OTFT backplane devices on plastic, OTFT driven displays, sensors or circuits and a wide range of other device prototypes. Technology transfer to customers’ pilot lines can also be supported by this team and they can help to diagnose and rectify process problems. Process engineers also travel to customers’ sites to assist technology transfer alongside our field application engineering team in Taiwan. Through this work, we believe we have developed a novel method for integration of OTFT backplanes and MicroLED devices. We believe this process is feasible due to the low temperature processing of OTFT. We believe that the use of higher temperature materials, such as a-Si, LTPS and IGZO, would damage the LED devices. As a result, current practice is to attach the MicroLEDs after the backplane is fabricated. Using our process, we have demonstrated active-matrix backplanes driving MicroLEDs using OTFT at high brightness (>100,000 nits). We have sought patent protection for our processes. In addition, the Company has successfully integrated OTFT and OLED (AMOLED) in a 200ppi display. We are working to integrate our process into the ITRI facility in Taiwan at Gen 2.5 scale, which should permit commercial-scale processing compared with CPI at a lower defectivity. The ITRI line running our OTFT process is located close to a number of our current and potential future customers and is expected to simplify the process of transferring the technology into manufacturing.

CPI Agreement

We perform prototyping with our own employees using foundry equipment made available to us by CPI. We use the CPI facility to produce test samples for internal evaluation and for the supply of demonstrators to potential customers and for general market development. CPI is funded through a combination of U.K. government grants, collaborative research and development projects funded by the private and public sector and contracts funded by businesses. CPI provides services to companies engaged in translating ideas and inventions into commercially successful products and processes. It operates seven national facilities in the Northeast of England and Scotland and provides relevant industry expertise and assets to its customers.

We have entered into a framework services agreement with CPI Innovation Services Limited (“CPIIS”), the commercial trading company for CPI, pursuant to which we purchase services consisting primarily of access to CPI process equipment required for fabrication as well as access to CPI staff with specific skills, to the extent required, at specified costs, including a minimum annual spending requirement. We have 11 employees at the CPI facility who operate or support operations and OTFT developments using the CPI equipment on our behalf. Pursuant to the terms of this agreement, we utilize an online booking system to book equipment for immediate use, subject to availability. For critical equipment that other CPI customers may seek to use, we may book up to two weeks in advance to guarantee availability. CPIIS has agreed to use its reasonable commercial endeavors to supply the requested services.

The current agreement with CPIIS expires on March 31, 2025 but has been extended until May 31, 2025 as described in the next paragraph. The agreement may be terminated by either party in the event of a breach by the other party. We also lease space at CPI’s facility in Sedgefield, England.

CPIIS is in the process of reviewing the operation of the clean room facility used by Smartkem and is seeking to reduce the facility’s operating costs by, among other things, consolidating its clean rooms and seeking to pass more of its operating costs to users including us. On March 28, 2025, we entered into an agreement with CPIIS pursuant to

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which the term of the current CPIIS agreement was extended until May 31, 2025. We intend to use the extension period to complete negotiations with CPIIS regarding a longer-term agreement. Under the terms of the extension, we have agreed to an increase in our share of the costs of the CPI facility and to increased minimum usage obligations during the extension period. We expect that any longer-term agreement with CPIIS will require us to bear additional costs. If we are unable to reach a new agreement with CPIIS on terms that are satisfactory to us, we intend to find an alternative facility. We believe that there are adequate alternative sites available at which we could conduct our prototyping operations. In the event that we decide to move our prototyping operation to an alternative facility, we believe that the move would take between two and nine months, depending on equipment availability and any required facility modifications, during which time we would incur additional costs to prepare the new facility and install any necessary equipment. In such event, we intend to schedule our prototyping activities to minimize any disruption to those operations and would use ITRI’s prototyping line as an interim facility for such work.

Collaboration Agreements

In October 2021, we entered into a joint development agreement with RiTdisplay, a Taiwan based developer of displays. Under this agreement the two parties are collaborating on the production of a full color demonstration AMOLED display. In 2023, we entered into a technology transfer agreement with RiTdisplay commencing a joint project to develop the world’s first commercially ready active-matrix OLED display using OTFT technology. If successful, we believe the project with RiTdisplay will result in the development of the world’s first commercially ready active-matrix OLED display using OTFT technology. In 2025, we entered into a memorandum of understanding with RiTdisplay for the extension of our existing technology transfer agreement which, when finalized, will include the integration of our OTFT process on to RiTdisplay’s Gen 2.5 Pilot Line which will enable us to provide product prototyping of the world's first commercially ready AMOLED display using OTFT technology on a commercial Gen2.5 OTFT product manufacturing line at RiTdisplay’s existing state-of-the-art facility in Hsinchu, Taiwan. The memorandum of understanding is non-binding and there can be no assurance as to whether or when a definitive agreement will be executed by the parties or as to the ultimate terms of any such agreement.

In 2022, we entered into a joint development agreement with a Taiwan-based company for the development of a new generation of miniLEDs signage. This collaboration is expected to lead to the development of a roll-to-roll process for the manufacture of large format LED displays.

In 2023, we entered into a joint development agreement with a company in Taiwan for the development of a microLED-based display using our OTFT backplane.

In July 2023, we entered into a three-year technical services agreement with ITRI. Pursuant to this technical services agreement, ITRI is developing Gen 2.5 scale (370mm x 470mm) commercial manufacturing processes for a range of our OTFT materials. The goal of our agreement with ITRI is to develop robust commercial scale manufacturing processes that will enable potential customers to develop prototypes on ITRI’s Gen2.5 line using our OTFT technology before transferring the manufacturing process to their own lines or to a third-party foundry, including ITRI. We believe that the successful development of commercial manufacturing processes will help to accelerate the adoption of our technology by display manufacturers in Taiwan and other areas of Asia. We have two employees supporting this work in Taiwan in addition to support from our staff in the UK.

In February 2024, we entered into a joint development agreement with Tianma Microelectronics, Co, Ltd. to integrate our organic thin-film transistor technology with Tianma’s oxide transistors to develop OTFT-based microarray biochips.

Also in February 2024, we entered into a collaboration agreement with FlexiIC to develop low-cost, rapid turnaround custom circuits using organic transistor technology. A few months later we signed a multi-year agreement with FlexiIC to develop a new generation of CMOS for smart sensors.

In March 2024, we entered into a technology collaboration agreement with ITRI to enable product prototyping on ITRI's Gen 2.5 equipment using our technology.

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In September 2024, we entered into a joint development agreement with Chip Foundation to co-develop a new generation of MicroLED backlight technology for Liquid Crystal Displays.

In November 2024, we partnered with AUO to develop a new generation of rollable, transparent MicroLED displays using our technology.

Intellectual Property

Our commercial success depends in part on our ability to obtain and maintain intellectual property protection for our active organic semiconductors, formulated OSC and passive dielectric interlayer inks, processes and know-how that collectively comprise our TRUFLEX® technology, to operate without infringing the proprietary rights of third parties, and to prevent others from infringing our proprietary rights. Over the past 11 years, we have been building and are continuing to build the intellectual property portfolio relating to our TRUFLEX® technology. Our policy is to seek to protect our proprietary position by, among other methods, filing U.S. and certain foreign patent applications related to our proprietary technology, inventions and improvements that are important to the development and implementation of our business. We also rely on trade secrets, know-how, and technological innovation to develop and maintain our proprietary position. We cannot be certain that patents will be granted with respect to any of our pending patent applications or with respect to any patent applications filed by us in the future, nor can we be sure that any of our existing patents or any patents that may be granted to us in the future will be commercially useful in protecting our technology.

Our strategy for the protection of our proprietary technology is to file international (Patent Cooperation Treaty) patent applications and pursue these in national jurisdictions that represent significant market opportunities. However, we assess on a case-by-case basis whether it is strategically more favorable to maintain trade secret protection for our inventions and “know-how” rather than pursue patent protection the latter of which documents will ultimately be in the public domain. Generally, patents have a term of twenty years from the earliest priority date, assuming that all maintenance fees are paid, no portion of the patent has been terminally disclaimed, and the patent has not been invalidated. In certain jurisdictions, and in certain circumstances, patent terms can be extended or reduced.

We believe that we are a technology leader in the design, development, and production of active and passive electronic materials for use in organic electronic applications. Excluding licensed-in IP, our patent portfolio comprises 17 patent families with 138 granted patents, 16 pending patents and 40 codified trade secrets. Our patents cover the active organic semiconductor materials, passive interlayer formulations, and deposition processes comprising our TRUFLEX® technology. We also have numerous patent claims and pending patent applications covering a variety of electronic devices including a novel dual gate application that enables enhanced Vto control and recent applications include MicroLED devices and improved processes. Because our patent portfolio covers all material aspects of our TRUFLEX® technology, we believe we have strong protection for our technology and a competitive advantage over potential competitors who may seek to duplicate our ability to create flexible transistors.

We also rely on trade-secret protection for our confidential and proprietary information, and we typically use non-disclosure agreements when commencing a relationship with a potential customer or partner. We have an internal program to document our trade secrets for each major area of our technology and operations. We cannot be sure that we can meaningfully protect our trade secrets on a continuing basis. Others may independently develop substantially equivalent confidential and proprietary information or otherwise gain access to our trade secrets. The TRUFLEX® trademark is granted and registered to the Company in its 10 commercially interesting jurisdictions including USA, China, Korea, Taiwan, Japan, and Europe.

We own substantive rights to the chemistry, process, and stack design rules necessary to implement our technology in all jurisdictions of commercial interest.

Manufacturing and Supply

We obtain strategic intermediates and final products from multiple sources who produce our active semiconductor materials to our specifications. Our TRUFLEX® materials fall into two main categories, “active” organic

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semiconductor materials and “passive” interlayer materials. Our active materials generally require high levels of process and product control, and therefore these are synthesized from start to end by us or a third party that has met certain certification requirements and then formulated by us into organic semiconductor inks. We validate active components internally before use. Our passive interlayers inks use a range of commercially available intermediates, formulated to our specifications to meet differing end-use performance parameters depending on the intended use. Our active and passive inks are proprietary to us.

We synthesize the active materials either internally or using third-party suppliers that meet specific certification requirements. The raw materials used to produce the formulated passive interlayers are purchased from multiple suppliers and tested and validated internally before use. The passive and active interlayer inks are presently manufactured internally in our formulation facility located in Manchester in the U.K. We are also evaluating a base layer material manufactured on a larger scale by a third-party contractor. Initial results have been promising, and we are continuing our testing and evaluation.

We use our U.K.-based formulation activity to enable customers to validate our materials on their Gen 1- Gen 2.5 pilot lines. Our TRUFLEX® inks typically comprise between 1.2% up to 25% by weight of solids with the remainder being made up by electronic grade solvents. For commercial supply quantities, to avoid the shipping costs associated with large quantities of locally available solvents, we expect to supply fully formulated ink to customers from a formulation facility located close to the customer’s manufacturing facility. We may also outsource the ink manufacture to an accredited third-party local formulator subject to our final QC testing of the formulated inks.

We have not experienced any supply shortages with respect to the materials used to formulate our proprietary inks.

Competition

We believe that competition in our targeted markets is based on a variety of factors, including capability, functionality, performance, reliability, ease of use and ability to supply in sufficient quantities. We believe we can, or will be able to, compete effectively based on these factors.

a-Si technology is an inorganic process widely used in the manufacture of backplanes for LCDs. More recent developments in inorganic semiconductors include use of the metal oxide IGZO for backplanes for large area OLED TVs and LTPS for high resolution cell phones. All these inorganic processes are operated at high temperatures and therefore require high-cost substrates, especially if they are to be processed on plastic. We believe that integration of TFTs with temperature sensitive devices will be made easier with our OTFT inks due to their lower temperature requirements. In addition, we believe all inorganic TFT based active-matrix technologies face challenges in bending compared with organic TFTs resulting in higher manufacturing costs.

A number of competitors have engaged in the development of organic inks. However, these competitors either opt to use polymeric semiconductors (BASF SE, Merck KGaA and Sumitomo Chemical Co., Ltd.) that process well but have a lower mobility than the polycrystalline organic materials in our TRUFLEX® materials, or polycrystalline semiconductors that have high mobility but relatively poor uniformity when processed. We believe our proprietary technology, which combines a polycrystalline molecule with a matched semiconducting polymer, provides higher mobility, particularly at short channel lengths and better processability over these technologies.

Many of our potential competitors could have substantial competitive advantages such as greater name recognition, longer operating histories, broader and deeper product portfolios, larger customer bases, substantially greater financial and other resources, and larger scale manufacturing operations. However, we believe our products have the potential to compete with many of our competitors’ offerings through product performance, product reliability and satisfaction of customer qualifications and standards.

Government Regulation

In addition to customer specific requirements for safety health and the environment, our formulated materials may also be subject to government regulation during their use in the country of device manufacture and from regulations

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covering the materials in the finished device. These could include the toxicity (potential for Carcinogenicity, Mutagenicity, and Teratogenicity) and restrictions from the environmental protection agencies in the countries of manufacture.

All new chemicals we obtain are evaluated at the time of order and a Control of Substances Hazardous to Health (“COSHH”) assessment is performed prior to commencement of any practical work with these materials. The COSHH assessment considers chemical hazards associated with the material, its physical properties, the scale of the planned work and the nature of that work e.g., temperature and containment. This process provides the first opportunity to screen out any materials that may be prohibited by the ultimate customer. Any use of material in Health and Safety Executive COSHH hazard category E, all but gram scale uses of non-volatile material in hazard category D and use of material in hazard category C in quantities of more than 1kg would trigger a management review. While it is possible that management authorization may be given to conduct research using materials in categories D & E, their use in a potentially formulated product would be discouraged and an alternative sought at an early stage. Materials are also screened against lists of banned and restricted materials provided by display manufacturers. Any material present on the display manufacturers banned list would not be used in formulated product.

We work with a third-party service provider to create safety data sheets for our formulated products that are shipped to customers and other end users. Our formulated products contain no materials that are restricted in the U.K. and no permissions or exemptions are required.

Our OGI material is fluorinated and spun from a fluorosolvent listed under regulation (EC) No 428/2009 of 5 May 2009 under section 1C006d. Export of formulations may require a Standard individual export license to be applied for and end use declaration made by the customer. These can be obtained through the U.K.’s SPIRE system.

To the extent our products are or become subject to U.K. export controls and regulations, these regulations may limit the export of our products and technology, and provision of our services outside of the U.K., or may require export authorizations, including by license, a license exception, or other appropriate government authorizations and conditions, including annual or semi-annual reporting. Export control and economic sanctions laws may also include prohibitions on the sale or supply of certain of our products to embargoed or sanctioned countries, regions, governments, persons, and entities. In addition, various countries regulate the importation of certain products through import permitting and licensing requirements and have enacted laws that could limit our ability to distribute our products. The exportation, re-exportation, and importation of our products and technology and the provision of services, including by our partners, must comply with these laws or else we may be adversely affected, through reputational harm, government investigations, penalties, and a denial or curtailment of our ability to export our products and technology. Complying with export control and sanctions laws may be time-consuming and may result in the delay or loss of sales opportunities. Although we take precautions to prevent our products and technology from being provided in violation of such laws, our products and technology may have previously been, and could in the future be, provided inadvertently in violation of such laws, despite the precautions we take. If we are found to be in violation of U.K. sanctions or export control laws, it could result in substantial fines and penalties for us and for the individuals working for us. Export or import laws or sanctions policies are subject to rapid change and have been the subject of recent U.K. and non-U.K. government actions. Changes in export or import laws or sanctions policies may adversely impact our operations, delay the introduction and sale of our products in international markets, or, in some cases, prevent the export or import of our products and technology to certain countries, regions, governments, persons, or entities altogether, which could adversely affect our business, financial condition and results of operations.

Employees

As of December 31, 2024, we had 27 full-time employees and two part-time employees of which 23 are based in the United Kingdom. We believe that our scientists and technical experts are significant assets of our business, and we value and support hiring exceptional talent to further develop our TRUFLEX® technology and drive our business growth.

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Corporate History

We were originally incorporated as Parasol Investments Corporation (“Parasol”) in the State of Delaware in May 2020. Prior to the acquisition of SmartKem Limited in February 2021, we were a “shell” company registered under the Exchange Act, with no specific business plan or purpose. In accordance with “reverse merger” accounting treatment, our historical financial statements at period ends, and for periods ended, prior to our acquisition of SmartKem Limited were replaced with the historic financial statements of SmartKem Limited in our SEC filings made after the acquisition.

Our principal executive offices are located at Manchester Technology Centre, Hexagon Tower, Delaunays Road, Blackley Manchester, M9 8GQ U.K. Our telephone number is +44 161 721 1514.

Additional Information

We maintain a website at www.smartkem.com. On our website, investors can obtain, free of charge, a copy of our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, other reports and any amendments thereto filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after we file such material electronically with, or furnish it to, the SEC. None of the information posted on our website is incorporated by reference into this Report. The SEC also maintains a website at http://www.sec.gov that contains reports, proxy and information statements and other information regarding us and other companies that file materials with the SEC electronically.

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Item 1A. Risk Factors

An investment in our securities is highly speculative and involves a high degree of risk. We face a variety of risks that may affect our operations or financial results and many of those risks are driven by factors that we cannot control or predict. You should carefully consider the risks described below together with all of the other information in this Report, including our consolidated financial statements and the related notes and the information described in the section entitled “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and in our other filings with the SEC. If any of the risks described below occur, our business, financial condition, results of operations and prospects could be materially adversely affected. In that case, the market price of our common stock would likely decline, and investors could lose all or a part of their investment. Only those investors who can bear the risk of loss of their entire investment should consider an investment in our securities. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also impair our operations.

Summary of Risk Factors

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

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

We have a history of losses, anticipate continued operating losses in the future, and may not be able to achieve or maintain profitability. If we cannot achieve or maintain profitability, stockholders could lose all or part of their investment.

Since our inception, we have generated substantial net losses as we have devoted our resources to the development of our technology, and our business model has not been proven. As of December 31, 2024, we had an accumulated deficit of $114.6 million. For the years ended December 31, 2024 and December 31, 2023 our total comprehensive loss was $9.9 million and $9.6 million, respectively. We expect our operating losses to continue for the foreseeable future as we continue to invest in our infrastructure and research and development of our technologies. These efforts may be more costly than we expect, and we may not be able to generate revenue to offset our increased operating expenses. If we are unable to generate substantial revenue, we may never become profitable or be able to maintain any future profitability. If this were to occur, our stockholders could lose all or part of their investment.

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

We have incurred recurring losses since inception and, as of December 31, 2024, had an accumulated deficit of $114.6 million. 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, and it is possible we will never achieve profitability.

These efforts may be more costly than we expect, and we may not be able to generate revenue to offset our increased operating expenses. We expect our cash and cash equivalents of $7.1 million as of December 31, 2024 to be insufficient to meet our operating expenses and capital expenditure requirements for at least 12 months from the filing of this Form 10-K. Our forecast of the period of time through which our current financial resources will be adequate to support our operations and the costs to support our general and administrative and research and development activities are forward-looking statements and involve risks and uncertainties. Our consolidated financial statements do not include any adjustments to the amounts and classification of assets and liabilities that may be necessary should we be unable to continue as a going concern. Our ability to continue as a going concern is dependent on our ability to raise additional working capital through public or private equity or debt financings or other sources, which may include collaborations with third parties. There can be no assurance, however, that such financing will be available, on acceptable terms and conditions, or at all. The precise amount and timing of the funding needs cannot be determined accurately at this time, and will depend on a number of factors, including our ability to generate significant revenue, the market demand for our products, the quality of product development efforts including potential joint collaborations, management of working capital, and the continuation of normal payment terms and conditions for purchase of services.

Until such time, if ever, as we can generate substantial product revenue, we expect to finance our working capital requirements through a combination of equity offerings, debt financings, collaborations, strategic alliances and marketing, distribution or licensing arrangements. To the extent that we raise additional capital through the sale of equity or convertible debt securities, your ownership interest will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect your rights as a common stockholder. Debt financing and preferred equity financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making acquisitions or capital expenditures or declaring dividends. If we raise additional funds through collaborations, strategic alliances or marketing, distribution or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or products, or grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds through equity or debt financings or other arrangements when needed, we may be required to delay, limit, reduce or terminate commercialization, our research and product development, or grant rights to develop and market our products that we would otherwise prefer to develop and market ourselves, it may also impact our ability to continue as a going concern. The perception that we may not be able to continue as a going

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

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

Our results of operations have varied from period to period, and we expect that our quarterly results of operations will continue to vary as a result of a number of factors, many of which are outside of our control and may be difficult to predict, including:

● the budgeting cycles and purchasing practices of customers;

● our ability to execute our growth strategy and operating plans;

● our ability to successfully compete with other companies in our market;

● changes in our pricing policies or those of our competitors;

● any disruption in, or termination of, our relationship with channel partners;

● the cost and potential outcomes of potential future litigation;

● general economic conditions; and

Any of the above factors, individually or in the aggregate, may result in significant fluctuations in our quarterly operating results. As a result of this variability, our historical results of operations should not be relied upon as an indication of future performance. Moreover, this variability and unpredictability could result in our failure to follow through on our operating plans or meet the expectations of investors for any period. If we fail to follow through on our operating plans or meet such expectations for these or other reasons, the market price of our common stock could fall substantially.

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

Rapidly changing technologies and industry standards, along with frequent new product introductions, characterize the industries of many of our customers and potential customers. Our financial performance depends, in part, on our ability to design, develop, manufacture, assemble, test, market and support new products and enhancements on a timely and cost-effective basis.

We have not sold our products at commercial scale. Our principal focus has been on research and development activities to improve our technology and make our product offerings more attractive to potential customers. These projects are subject to various risks and uncertainties we are not able to control, including changes in customer demand or industry standards and the introduction of new or superior technologies by others. Moreover, any failure by us in the future to develop new technologies or timely reaction to changes in existing technologies could materially delay our development of new products, which could result in product obsolescence, decreased revenues and a loss of our market share to our competitors. In addition, products or technologies developed by others may render our products or technologies obsolete or non-competitive. Further, if our products are not in compliance with prevailing industry

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

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

A significant share of our growth is dependent on the adoption by display manufacturers of MicroLED technology. To date, MicroLED technology has not achieved widespread adoption because of the complexity and high cost of manufacturing MicroLED displays using existing materials, device architecture and processes. Given the high cost of manufacturing (resulting in approximately $100,000 sales price for a large high-definition display screen), it is unlikely that MicroLED technology will be adopted for use in consumer products unless significant efficiencies and fundamental process changes in the manufacturing of MicroLED displays occur. For example, in 2024 Apple Inc. abandoned a project to manufacture its own MicroLED displays for its Apple Watch products. While we believe our technology, including its use in chip-first architectures, has the potential to make manufacturing of MicroLED displays more efficient and cheaper, our technology has not been utilized commercially and there can be no assurance that our technology will reduce the cost and improve the efficiency of manufacturing MicroLEDs to the point where display manufacturers can profitably price MicroLED displays for mass market consumption. In addition, even if our technology achieves its goals, there may be technical delays in implementing our technology that could affect the willingness of display manufacturers to manufacture MicroLEDs at commercial scale or could affect the timing and extent of such manufacturing.

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

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

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

The markets in which we participate are highly competitive. We expect competition to intensify in the future as existing competitors and new market entrants introduce new products into our markets. This competition could result in increased pricing pressure, reduced profit margins, increased sales and marketing expenses, and the loss of market share, any of which could seriously harm our business, financial condition, and results of operations. Additionally, our competitors may develop technology that would make ours non-competitive or obsolete. If we do not keep pace with product and technology advances and otherwise keep our product offerings competitive, there could be a material and adverse effect on our competitive position, revenue and prospects for growth. Many of our existing competitors, have, and some of our potential competitors could have, substantial competitive advantages such as:

● larger sales and marketing budgets and resources;

● broader and deeper product lines;

● greater customer support resources;

● greater resources to make acquisitions;

● lower labor and research and development costs;

● substantially greater financial and other resources; and

● larger scale manufacturing operations.

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

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product performance or features. As a result, even if the features of our products are superior, customers may not purchase our products. In addition, innovative start-up companies, and larger companies that are making significant investments in research and development, may invent similar or superior products and technologies that compete with our products. Our current and potential competitors may also establish cooperative relationships among themselves or with third parties that may further enhance their resources. If we are unable to compete successfully, or if competing successfully requires us to take costly actions in response to the actions of our competitors, our business, financial condition, and results of operations could be adversely affected.

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

We do not currently have a fully staffed sales organization. We intend to commercialize our products with a direct sales force. To achieve this, we will be required to build a direct sales organization. We also will have to build our marketing, sales, managerial and other non-technical capabilities or make arrangements with third parties for distribution and to perform certain of these other services, and we may not be successful in doing so. Building an internal sales organization is time-consuming and expensive and will significantly increase our compensation expense. We may be unable to secure contracts with distributors on favorable terms or at all. We have no prior experience in the marketing, sale and distribution of our products and there are significant risks involved in building and managing a sales organization, including our ability to hire, retain and motivate qualified individuals, generate sufficient sales leads, provide adequate training to sales and marketing personnel, and effectively oversee a geographically dispersed sales and marketing team. If we are unable to build an effective sales organization and/or if we are unable to secure relationships with third-party distributors, we will not be able to successfully commercialize our products, our future product revenue will suffer, and we would incur significant additional losses.

We rely on access to third-party facilities for prototyping and commercial process development and expect to enter into arrangements with third parties to fabricate our products at commercial scale. The loss of access to a third-party facility, or our inability to enter into agreements with third-party fabricators could have a material adverse effect on our business development.

We do not have our own prototyping or fabrication facilities, and we rely on CPI for access to its facility for fabrication of prototypes and demonstration products. We also rely on access to ITRI’s facilities for the development of commercial processes for the future commercial manufacturing of our products. The current agreement with CPIIS expires on March 31, 2025, but has been extended as described below. CPIIS is in the process of reviewing the operation of the clean room facility used by Smartkem and is seeking to reduce the facility’s operating costs by, among other things, consolidating its clean rooms and seeking to pass more of its operating costs to users including us. On March 28, 2025, we entered into an agreement with CPIIS pursuant to which the term of the current CPIIS agreement was extended until May 31, 2025. We intend to use the extension period to complete negotiations with CPIIS regarding a longer-term agreement. Under the terms of the extension, we have agreed to an increase in our share of the costs of the CPI facility and to increased minimum usage obligations during the extension period. We expect that any longer-term agreement with CPIIS will require us to bear additional costs. If we are unable to reach a new agreement with CPIIS on terms that are satisfactory to us, we intend to find an alternative facility. We believe that there are adequate alternative sites available at which we could conduct our prototyping operations. In the event that we decide to move our prototyping operation to an alternative facility, we believe that the move would take between two and nine months, depending on equipment availability and any required facility modifications, during which time we would incur additional costs to prepare the new facility and install any necessary equipment. In such event, we intend to schedule our prototyping activities to minimize any disruption to those operations and would use ITRI’s prototyping line as an interim facility for such work.

If we are unable to obtain access to another prototyping facility on similar terms to our arrangements with CPI, our business would be materially and adversely affected. We have approximately 11 employees located at CPI. Even if we are able to locate a suitable replacement facility on acceptable terms, we cannot assure investors that the key employees at CPI would accept positions at a new facility, particularly if it is located remotely from the CPI facility. Even if we locate a suitable replacement facility, it is possible that our ability to engage in product development,

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

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

We expect to enter into arrangements with third-party fabricators to produce products for customer demonstration and for commercial product sale, other than for our formulated materials. The third-party fabricators are often located in Asia but could also be in the United States. No assurance can be given that we will be able to negotiate agreements with third-party fabricators on terms that are acceptable to us. Third-party fabricators may not have the ability to provide us with access to adequate capacity for our needs and our customers’ needs. We will also have less control over delivery schedules and overall support compared to competitors who have commercial fabrication operations. If the fabricators we use are unable or unwilling to manufacture our products in our required volumes, or at specified times, we may have to identify and qualify acceptable additional or alternative fabricators. This qualification process could typically take three to six months, and we may not find sufficient capacity in a timely manner or at an acceptable cost to satisfy our production requirements. Some companies that supply products to our customers are similarly dependent on a limited number of suppliers. These other companies’ products may represent important components of the displays into which our products are designed. If these companies are unable to produce the volumes demanded by our customers, our customers may be forced to slow down or halt production on the equipment for which our products are designed, which could materially impact our order levels and our results of operations.

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

We do not have the ability to produce our flexible transistors at commercial scale. We have engaged ITRI, a third-party foundry service in Taiwan, to assist us in developing a commercial manufacturing process for our products with the ultimate goal of enabling one or more third parties to manufacture our products at commercial scale for customers that do not have their own facilities. While we believe that display products utilizing our proprietary OTFTs can be made using existing commercial processes, we expect that transferring our technology and manufacturing know-how to a third-party manufacturer will be a time-intensive and costly process. We may also be required to adapt our manufacturing processes to enable our display products to be made at commercial scale. Any contract manufacturer will be required to manufacture products to our customers’ specifications. We may be required to expend significant management and financial resources to enable contract manufacturers to meet those specifications. In addition, any contract manufacturer may not be able to manufacture products meeting the required specifications at the cost, in the volume or on the schedule that we expect. As a result, we may be subject to unanticipated costs and delays that could have a material adverse effect on our business, financial condition and results of operations

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

We expect to rely on third-party fabricators to manufacture products containing our proprietary inks for certain of our future customers. Our reliance on these third-party fabricators reduces our control over the manufacturing process and exposes us to risks, including reduced control over quality assurance, product costs, product supply and timing. Any manufacturing disruption by these third-party fabricators could severely impair our ability to fulfill orders. Our reliance on third-party fabricators also creates the potential for infringement or misappropriation of our intellectual property. If we are unable to manage our relationships with third-party fabricators effectively, or if our third-party fabricators experience delays or disruptions for any reason, increased manufacturing lead-times, capacity constraints or quality control problems in their fabrication operations, or if they otherwise fail to meet our future requirements for timely delivery, our ability to ship products to our customers would be severely impaired, and our business and results of operations would be seriously harmed.

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We expect that our sales cycles will be long and unpredictable, and our sales efforts will require considerable time and expense. As a result, our revenue is difficult to predict and may vary substantially from period to period, which may cause our results of operations to fluctuate significantly.

Our results of operations may fluctuate, in part, because of the resource intensive nature of our sales efforts, the length and variability of our expected sales cycle and the short-term difficulty in adjusting our operating expenses. We provide reference designs and prototypes intended to demonstrate our ability to satisfy customer requirements and we expect that we will be required to continue to do so before receiving sales orders, which will result in a relatively long sales cycle. Because we expect that the length of time required to close a sale will vary substantially from customer to customer and each customer has its own requirements, it is difficult to predict exactly when, or even if, we will make a sale with a potential customer after significant work has been put in to create a model or prototype. As a result, we expect that individual sales will, in some cases, occur in quarters subsequent to or in advance of those we anticipated, or will not occur at all, which makes it difficult for us to forecast our revenue accurately in any quarter. Because a substantial portion of our expenses are relatively fixed in the short term, our results of operations will suffer if our revenue falls below expectations in a particular quarter, which could cause the market price of our common stock to decline. Additionally, to the extent our competitors develop products that our prospective customers view as equivalent or superior to ours, the average duration of our sales cycles may increase, and our sales efforts may be less successful.

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

Our principal executive offices and primary operating facilities are situated in England and Asia, and most of our major suppliers, which are wafer foundries and assembly houses, are located in areas that have been subject to severe earthquakes and are susceptible to other disasters such as tropical storms, typhoons or tsunamis. In the event of a disaster, such as an earthquake and tsunami in Japan, we or one or more of our major suppliers may be temporarily unable to continue operations and may suffer significant property damage. Any interruption in our ability, or that of our major suppliers, to continue operations could delay the development and shipment of our products and have a substantial negative impact on our financial results. As part of our risk management policy, we maintain insurance coverage at levels that we believe are appropriate for our business. However, in the event of an accident or incident at these facilities, we cannot assure you that the amounts or coverage of insurance will be sufficient to satisfy any damages and losses.

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

Certain of our partners, including ITRI, are located in Taiwan. In addition, we expect that many of our potential customers will be located in Taiwan. From time to time, Taiwan has been impacted by significant seismic activity in the area, including earthquakes and related aftershocks, and it is expected that similar events will happen in the future. Because of the relatively small size of Taiwan and the proximity of our partners and future customers to each other, earthquakes, tsunamis, fires, floods, other natural disasters, epidemics such as the COVID-19 outbreak, political unrest or war, including as a result of current tensions with China, labor strikes or work stoppages could simultaneously affect our partners’ production capability, our ability to supply our customers, and our customers’ ability to produce products incorporating our technology. As a result, we may be subject to unanticipated costs and delays that could have a material adverse effect on our business, financial condition and results of operations.

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We rely on our management team and other key employees and will need additional personnel to grow our business. The loss of one or more key employees or our inability to attract and retain qualified personnel could harm our business.

Our future success is substantially dependent on our ability to attract, retain and motivate the members of our management team and other key employees throughout our organization. The loss of one or more members of our management team or other key employees could materially impact our sales or our research and development programs and materially harm our business, financial condition, results of operations and prospects. We do not maintain key person life insurance policies on any of our management team members or key employees. Competition for highly skilled personnel is intense. We may not be successful in attracting or retaining qualified personnel to fulfill our current or future needs. Our competitors may be successful in recruiting and hiring members of our management team or other key employees, and it may be difficult for us to find suitable replacements on a timely basis, on competitive terms, or at all.

If we fail to effectively manage our growth, our business, financial condition and results of operations would be harmed.

We are a development stage company and are subject to the strains of ongoing development and growth, which has placed significant demands on our management and our operational and financial infrastructure. To manage any growth effectively, we must continue to improve our operational, financial and management systems and controls by, among other things:

● appropriately documenting and testing our IT systems and business processes.

These and other improvements in our systems and controls will require significant capital expenditures and the allocation of valuable management and employee resources. If we fail to implement these improvements effectively, our ability to manage growth and ensure ongoing operation of key business systems would be impaired, and our business, financial condition and results of operations would be harmed.

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

The occurrence of pandemics, epidemics, or widespread outbreaks of infectious diseases, as well as the imposition of related public health measures and travel and business restrictions or other actions that may be taken by governmental authorities in an effort to contain such pandemics, epidemics or outbreaks, have had, and could in the future have, a material adverse effect on our business. For example, the COVID-19 global pandemic adversely impacted us by disrupting our operations and increasing our costs as a result of, among other things, measures to address the health and safety of our employees, government work from home directives, quarantines, worker absenteeism as a result of illness, social distancing and travel restrictions that prevented face to face meetings with joint development partners, prospects and suppliers. Future pandemics and similar events could materially increase our costs, severely negatively impact business development and commercialization, net income, and other results of operations, and impact our liquidity position. The duration of any such impacts cannot be predicted, and such impacts may also have the effect of heightening many of the other material risks we face.

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Disruptions in global supply chains have impacted, and may in the future, impact, our business, results of operations and financial condition.

An interruption within our supply chain may increase costs or otherwise impact our business, results of operations and financial condition. For example, the COVID-19 pandemic adversely impacted our operations and those of our customers, contract manufacturers, suppliers and logistics providers. At the same time, the global silicon semiconductor industry experienced a shortage in supply and difficulties in ability to meet customer demand and led to an increase in lead-times of the production of semiconductor chips and components. From 2020 - 2023, we experienced disruption to parts of our semiconductor supply chain, including procuring necessary components and inputs, such as wafers and substrates, in a timely fashion, with suppliers increasing lead times or placing products on allocation and raising prices. We also incurred higher costs to secure available inventory or had extended our purchase commitments or placed non-cancellable orders with suppliers, which introduced inventory risk if our forecasts and assumptions were inaccurate. The degree to which the future pandemics and similar events ultimately impact our business and results of operations will depend on future developments beyond our control.

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

We have operations in the United Kingdom and Asia and expect that most of our sales revenue will result from sales to customers in Asia. A number of risks inherent in international operations could have a material adverse effect on our results of operations, including:

● difficulties in staffing and managing multinational operations;

● limitations on our ability to enforce legal rights and remedies;

● restrictions on the repatriation of funds;

● tariff regulations;

● the risk of government-financed competition;

In addition, we have small teams that are engaged in marketing, selling and supporting our products internationally. As a result, we must hire and train experienced personnel to staff and manage our foreign operations. To the extent that we experience difficulties in recruiting, training, managing and retaining international employees, particularly managers and other members of our international sales team, we may experience difficulties in sales productivity in, or market penetration of, foreign markets. We may enter into strategic distributor and reseller relationships with companies in certain international markets where we do not have a local presence. If we are not able to maintain successful strategic distributor and reseller relationships with our international channel partners or recruit additional channel partners, our future success in these international markets could be limited.

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We are subject to economic, political and other risks that could have a materially adverse effect on our business, financial condition and results of operations.

Our operations and our financial results, including our ability to execute our business strategy, can be adversely affected by changes in global economic conditions as well as the potential impacts of geopolitical uncertainties and international conflicts.

We have operations in the United Kingdom and Asia and certain of our partners, including ITRI, are located in Taiwan. In addition, we expect that many of our potential customers will be located in Taiwan. As a result, the escalation of tensions between Taiwan and China could lead to embargoes, blockades, trade sanctions, military invasion and other risks that could significantly affect political or economic conditions in Taiwan. Any of these events could significantly disrupt our business operations and those of our partners and prospective customers, which would have a material adverse effect our business. Moreover, other conflicts around the world, including the Ukraine-Russia war and the conflict in the Middle East could escalate and expand, which in turn could negatively impact the global economy and financial markets. It is not possible to predict the broader consequences of these conflicts, which could include further sanctions, embargoes, regional instability, geopolitical shifts and adverse effects on macroeconomic conditions, the availability and cost of materials, supplies, labor, currency exchange rates and financial markets, all of which could negatively impact our business, financial condition and results of operations.

In addition, recently there has been a significant increase in the imposition of tariffs and other trade restrictions around the world. In many cases, the imposition of tariffs or other trade restrictions have resulted in retaliatory actions by governments in the affected countries. Uncertainty surrounding the length, severity, scope and timing of these trade actions may disrupt trade throughout the world which could result in the inability or unwillingness of customers to purchase our products. The escalation or broadening of these trade actions could also significantly increase our costs or make it more difficult for us to sell our products, which could materially and adversely affect our business.

Failure to comply with anti-bribery, anti-corruption and anti-money laundering laws as well as export control laws, import and customs laws, trade and economic sanctions laws and other laws governing our operations could subject us to penalties and other adverse consequences.

We are subject to anti-bribery, anti-corruption and anti-money laundering laws and regulations including the U.K. Bribery Act 2010 (“Bribery Act”), the U.S. Foreign Corrupt Practices Act (“FCPA”) and other anti-corruption, anti-bribery, and anti-money laundering laws in the jurisdictions in which we do business from time to time, both domestic and abroad. These laws generally prohibit us and our employees from improperly influencing government officials or commercial parties in order to obtain or retain business, direct business to any person or gain any improper advantage. The Bribery Act, FCPA and similar applicable anti-bribery and anti-corruption laws also prohibit our third-party business partners, representatives and agents from engaging in corruption and bribery. We and our third-party business partners, representatives and agents may have direct or indirect interactions with officials and employees of government agencies or state-owned or affiliated entities. We may be held liable for the corrupt or other illegal activities of these third-party business partners and intermediaries, our employees, representatives, contractors, channel partners and agents, even if we do not explicitly authorize such activities. These laws also require that we keep accurate books and records and maintain internal controls and compliance procedures designed to prevent any such actions.

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

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

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

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

We must comply with federal, state, local and foreign governmental regulations related to the use, storage, discharge and disposal of materials used in our products and manufacturing processes. Our failure to comply with such regulations could result in significant fines, suspension of production, cessation of operations or future liabilities. Such regulations could also require us in the future to incur significant expenses to comply with such regulations. Our use of potentially hazardous materials could also restrict our ability to manufacture or sell our products to certain countries, require us to modify our logistics, or require us to incur other significant costs and expenses. For example, in February 2023 the Member States Committee of the European Chemicals Agency, or the ECHA, published a report and supporting annexes related to a proposal to ban the manufacturing, placing on the market, and use of per-and polyfluoroalkyl substances (“PFAS”) in the European Union. In this regulatory process, more than 10,000 substances, including chemicals we use, are being considered for potential broad regulatory action. We submitted evidence in September 2023 supporting requests to be exempt from the ban for specific uses of PFAS, both in materials formulations and packaging materials for chemicals. If the PFAS ban in the EU is ultimately enacted, and our derogation requests are not granted, we will not be able to manufacture and sell our products in the EU as they are currently manufactured, and our business would be adversely affected. In addition, any exemptions may be limited in time, and in such case, we would eventually be required to eliminate the use of PFAS in our products, which may make it more expensive for us to manufacture, sell and ship our products. Environmental laws and regulations continue to expand with a focus on reducing or eliminating hazardous substances in electronic products and it may be difficult for us to timely comply with any future environmental laws applicable to us. In addition, we may have to write off inventory if we hold unsaleable inventory as a result of changes to regulations. These requirements may increase our own costs, as well as those passed on to us by our supply chain

Our business may be affected by litigation and government investigations.

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

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

Security incidents have become more prevalent across industries and may occur on our systems. Security incidents may be caused by, or result in but are not limited to, security breaches, computer malware or malicious software, computer hacking, unauthorized access to confidential information, denial of service attacks, security system control failures in our own systems or from vendors we use, email phishing, software vulnerabilities, social engineering, sabotage and drive-by downloads. Such security incidents, whether intentional or otherwise, may result from actions of hackers, criminals, nation states, vendors, employees or customers.

We rely on our internal technology systems for development, marketing, operational, support and sales activities. A disruption or failure of these systems or in those of our external service providers, in the event of a major storm, earthquake, fire, telecommunications failure, cyber-attack, terrorist attack or other catastrophic event could cause system interruptions, reputational harm, delays in our product development and loss of critical data and could materially and adversely affect our ability to operate our business.

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We may experience disruptions, data loss, outages and other performance problems on our systems due to service attacks, unauthorized access or other security related incidents. Any security breach or loss of system control caused by hacking, which involves efforts to gain unauthorized access to information or systems, or to cause intentional malfunctions or loss, modification or corruption of data, software, hardware or other computer equipment and the inadvertent transmission of computer malware could harm our business.

In addition, our software stores and transmits customers’ confidential business information in our facilities and on our equipment, networks, corporate systems and in the cloud. Security incidents could expose us to litigation, remediation costs, increased costs for security measures, loss of revenue, damage to our reputation and potential liability. Our customer data and corporate systems and security measures may be compromised due to the actions of outside parties, employee error, malfeasance, capacity constraints, a combination of these or otherwise and, as a result, an unauthorized party may obtain access to our data or our customers’ data. Outside parties may attempt to fraudulently induce our employees to disclose sensitive information in order to gain access to our customers’ data or our information. We must continuously examine and modify our security controls and business policies to address new threats, the use of new devices and technologies, and these efforts may be costly or distracting.

Because the techniques used to obtain unauthorized access, disable or degrade service, or sabotage systems change frequently or may be designed to remain dormant until a predetermined event and often are not recognized until launched against a target, we may be unable to anticipate these techniques or implement sufficient control measures to defend against these techniques. Though it is difficult to determine what harm may directly result from any specific incident or breach, any failure to maintain confidentiality, availability, integrity, performance and reliability of our systems and infrastructure may harm our reputation and our ability to retain existing customers and attract new customers. If an actual or perceived security incident occurs, the market perception of the effectiveness of our security controls could be harmed, our brand and reputation could be damaged, we could lose customers, and we could suffer financial exposure due to such events or in connection with remediation efforts, investigation costs, regulatory fines and changed security control, system architecture and system protection measures.

Risks Related to our Intellectual Property

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

To compete effectively, we must protect our intellectual property. We rely on a combination of patents, trademarks, copyrights, trade secret laws, confidentiality procedures and licensing arrangements to protect our intellectual property rights. We hold numerous patents and have a number of pending patent applications. However, our portfolio of patents evolves as new patents are issued and older patents expire, and the expiration of patents could have a negative effect on our ability to prevent competitors from duplicating certain or all of our products.

We might not succeed in obtaining patents from any of our pending applications. Even if we are awarded patents, they may not provide any meaningful protection or commercial advantage to us, as they may not be of sufficient scope or strength or may not be issued in all countries where our products can be sold. In addition, our competitors may be able to design around our patents.

There can be no assurance that an issued patent will remain valid and enforceable in a court of law through the entire patent term. Should the validity of a patent be challenged, the legal process associated with defending the patent can be costly and time consuming. Issued patents can be subject to oppositions, interferences and other third-party challenges that can result in the revocation of the patent or limit patent claims such that patent coverage lacks sufficient breadth to protect subject matter that is commercially relevant. Competitors may be able to circumvent our patents. In cases where market ramp of our products may encounter delays it is possible that some patents or licensed patents covering the product has expired or will be in force for only a short period of time following such market ramp. We cannot predict with any certainty if any third-party patent rights, or other proprietary rights, will be deemed infringed by the use of our technology. Nor can we predict with certainty which, if any, of these rights will or may be asserted against us by third parties.

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SMTK US Equity

SMTK · 10-K · period ended 2024-12-31

Item 1. Business

Item 1A. Risk Factors

SMTK US Equity☆

SMTK · 10-K · period ended 2024-12-31

Item 1. Business

Item 1A. Risk Factors

SMTK US Equity