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What changed in SmartKem, Inc.'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of SmartKem, Inc.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+264 added−257 removedSource: 10-K (2024-03-27) vs 10-K (2023-03-30)

Top changes in SmartKem, Inc.'s 2023 10-K

264 paragraphs added · 257 removed · 165 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

73 edited+41 added−18 removed53 unchanged
Biggest changeAs products become more sophisticated and smart technology is implemented in wider use cases, we expect that manufacturers will seek technology solutions, such as our TRUFLEX® technology that enable them to implement the product designs that consumers will demand. ​ In addition, we believe that our OTFTs are suitable for applications where a relatively low number of transistors are required over a wide area such as sensors or distributed logic circuits. ​ 9 Table of Contents Commercialization Strategy ​ A large sector 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.
Biggest changeAs products become more sophisticated and smart technology is implemented in wider use cases, we expect that manufacturers will seek technology solutions, such as our TRUFLEX® technology that enable them to implement the product designs that consumers will demand. ​ In addition, 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.
Integrated circuits are present in almost all electronic devices today and there is a constant drive to embed 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.
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.
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). We believe our novel dielectrics should enable manufacturers to offer higher bandwidth and faster speed with lower power consumption.
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). We believe our novel dielectric polymer should enable manufacturers to offer higher bandwidth and faster speed with lower power consumption.
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. ​ Corporate History ​ We were originally incorporated as Parasol Investments Corporation in the State of Delaware in May 2020.
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. ​ Corporate History ​ We were originally incorporated as Parasol Investments Corporation (“Parasol”) in the State of Delaware in May 2020.
The device should also achieve its transition from off to on over as small a range of gate voltages as possible since this can reduce energy consumption and hence is desirable in battery powered devices. ​ ● Threshold voltage (Vth) - gate-source voltage at which the magnitude of the drain current reaches a specified low value (e.g., 10˄-9A). ​ ● Threshold voltage (Vth) stability – The ability of device to maintain a defined threshold or turn on voltage following a period of electrical stress (either at room temperature or elevated temperature).
The device should also achieve its transition from off to on over as small a range of gate voltages as possible since this can reduce energy consumption and hence is desirable in battery powered devices. ​ ● Threshold voltage (“Vth”) – gate-source voltage at which the magnitude of the drain current reaches a specified low value (e.g., 10˄-9A). ​ ● Threshold voltage stability – The ability of device to maintain a defined threshold or turn on voltage following a period of electrical stress (either at room temperature or elevated temperature).
We might also engage in pilot-scale level manufacturing of 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 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.
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.
Growth in the display market is driven primarily by increasing demand for consumer electronics, including smart phones, automotive products, e-readers and flat panel displays.
Growth in the display market is driven primarily by increasing demand for consumer electronics, including smart phones, automotive products, wearables, e-readers and flat panel displays.
As a result, our OTFT process can be integrated into existing manufacturing lines using standard industrial techniques without the need for large capital investment.
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.
Our materials are organic and hence can withstand the 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.
Our materials are organic and polymer-like and hence can withstand the 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.
It operates seven national facilities in the Northeast of England and Scotland and provides industry relevant expertise and assets to its customers. ​ We have entered into a framework services agreement with CPI Innovation Services Limited (“CPIIS”), the management 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.
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.
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. ​ ​ 16 Table of Contents ​
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. ​ ​ 18 Table of Contents ​
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. ​ ​ 13 Table of Contents Manufacturing and Supply ​ We obtain strategic intermediates and final products from multiple sources who produce our active semiconductor materials to our specifications.
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.
This adds to the overall cost of production of a bendable or foldable device. ​ Our ability to employ TRUFLEX® materials at temperatures as low as 80°C enables manufacturers to use low-cost plastic substrates and the organic nature of our materials allows the transistors to be truly flexible.
This adds to the overall cost of production of a bendable or foldable device. ​ Our ability to employ TRUFLEX® materials at temperatures as low as 80°C enables manufacturers to use low-cost plastic substrates and the polymeric nature of our materials allows the transistors to be truly flexible.
Our telephone number is +44 (0)161 721 1514. ​ Additional Information ​ We maintain a website at www.smartkem.com.
Our telephone number is +44 161 721 1514. ​ Additional Information ​ We maintain a website at www.smartkem.com.
We believe that robust and lightweight display screens which are capable of being bent or folded would enable manufacturers of mobile devices to create products more tailored to customer demand and that our TRUFLEX® OFTFs are uniquely suited for this application.
We believe that robust and lightweight display screens which are capable of being bent or folded would enable manufacturers of mobile devices to create products more tailored to customer demand and that our TRUFLEX® OTFTs are uniquely suited for this application.
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 also may be subject to government regulation during their use in the country of device manufacture and from regulations covering the materials in the finished device.
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. ​ ​ ​ ​ 16 Table of Contents Government Regulation ​ In addition to customer specific requirements for safety health and the environment, our formulated materials also may be subject to government regulation during their use in the country of device manufacture and from regulations covering the materials in the finished device.
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 Gen1- Gen2.5 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.
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.
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-bases devices is necessary, such as the use of aluminum frames to support torsional rigidity.
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.
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.
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 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.
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 10 Table of Contents digital device simulation and layout of circuit designs.
We have 18 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 usage of equipment for immediate use, subject to availability.
We have 14 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.
Our formulated products contain no materials that are restricted in the U.K. and no permissions or exemptions are required. ​ 15 Table of Contents Our OGI material is fluorinated and spun from a fluorosolvent listed under regulation (EC) No 428/2009 of 5 May 2009 under section 1C006d.
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.
We believe that TRUFLEX® materials can be used to provide active-matrix transistor arrays that can address all of these new product categories using low-cost, flexible substrates.
We believe that TRUFLEX® materials can be used to provide active-matrix transistor arrays that can address these new product categories using low-cost, flexible substrates.
Thin plastic sheets are also conformable, allowing electronics to be curved around irregular surfaces. ​ 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.
Thin plastic sheets are also conformable, allowing electronics to be formed around irregular surfaces, for example, curved pillars in buildings. ​ 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.
Our portfolio of available organic semiconductors has been extended as a result of these efforts to include newly synthesized small molecules. Our chemistry team, led by our Chief Scientist, has in-depth knowledge of structure-property relationships for organic materials.
Our portfolio of available organic semiconductors was extended as a result of these efforts to include newly synthesized small OSC molecules. Our chemistry team, led by our Chief Scientist, has in-depth knowledge of structure-property relationships for organic materials.
Our OTFTs have on/off ratios in the order of 10˄7 and have even demonstrated 10˄9 on/off ratio in large W/L devices. ​ ● Turn on voltage (Vto) – the gate voltage at which the TFT starts to increase its current output. Values close to zero volts are considered desirable for low power consumption products.
Our OTFTs have on/off ratios in the order of 10˄7 and have even demonstrated 10˄9 on/off ratios in devices having large W/L. ​ ● Turn on voltage (“Vto”) – the gate voltage at which the TFT starts to increase its current output. Values close to zero volts are considered desirable for low power consumption products.
We believe our proprietary technology, which combines a polycrystalline molecule with a matched semiconducting polymer, provides higher mobility 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.
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.
Some of the critical parameters for performance of an OTFT device include: ​ ● Charge mobility – the ability of the material to conduct charge under an electric field. The higher the charge mobility number the greater the current that can be driven through the device for a given size.
Some of the critical parameters for performance of an OTFT device include: ​ 12 Table of Contents ● Charge mobility – the ability of the material to conduct charge under an electric field. The higher the charge mobility number the greater the current that can be driven through the device for a given size.
We have an extensive IP portfolio including 125 granted patents across 19 patent families, and 40 codified trade secrets. ​ Our Technology ​ The invention and development of FET devices has enabled the rapid expansion of the electronics industry, particularly with the advent of the planar process essential for integrated circuitry.
We have an extensive IP portfolio including 125 granted patents across 19 patent families, 15 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.
These are supplied with 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.
These are supplied with 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.
Our CEO and management team are also actively engaged in developing customer and partner relationships. We believe that our initial customers will be located in Taiwan, Japan and the Peoples Republic of China but we are also directly working with OEMs located in North America, Europe and Asia who have the ability to require their suppliers to use our materials.
Our CEO and management team are also actively engaged in developing customer and partner relationships. We believe 11 Table of Contents that our initial customers will be located in Taiwan, Japan and China but we are also directly working with OEMs located in North America, Europe and Asia who have the ability to require their suppliers to use our materials.
Dielectric and passivation interlayer 11 Table of Contents materials are also critical to enabling the OTFT device current to be maximized while ensuring stability during extended operation under voltage or current bias stress.
Dielectric and passivation interlayer materials are also critical to enabling the OTFT device current to be maximized while ensuring stability during extended operation under voltage or current bias stress.
Plastics can also be processed in very thin sheets (tens of microns) which saves space that can be used for increased battery capacity. Thin plastic substrates also enable the device to conform very easily to non-planar 7 Table of Contents surfaces such as the human body which makes them well suited for wearable sensor and display devices.
Plastics can also be processed in very thin sheets (tens of microns) which saves space within the final product that can be used instead 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 sensor and display devices.
Bias voltage shifts of ​ More recently, in response to requests from potential customers, our chemistry team has focused on the development of a range of specialized polymer interlayers. Some of these materials are intended for use in the display industry as redistribution layers and as pixel definition layers.
Bias voltage shifts of ​ During 2023, in response to requests from potential customers, our chemistry team has focused on the development of a range of specialized dielectric polymer interlayers. Some of these materials are intended for use in the display industry as redistribution layers, interlayer dielectrics and as pixel definition layers.
We believe that display manufacturers continue to seek product differentiation as a part of their marketing strategies. ​ Our TRUFLEX® materials enable customers to make backlight units that are both flexible and can drive high currents stably.
We believe that display manufacturers continue to seek product differentiation as a part of their marketing strategies. ​ Our TRUFLEX® materials enable customers to make backlight units and direct emissive displays that are both flexible and can drive stable currents.
We supply our products as a set of stable liquid inks, with each ink forming a separate layer of the device. Each of the inks forming these layers has been carefully designed to result in the device performance and electrical stability required by the customer. We supply the ink set with a detailed POR for making the desired device.
We supply our products as a set of stable liquid inks, with each ink forming a separate layer 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.
In addition, we have developed all the other layers that are necessary to form the complete transistor stack. ​ Plastic substrates, such as PET, PEN, TAC and COC have relatively low Tg in the range of 100°C to 200°C.
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.
Interlayer inks are also being provided to potential customers for evaluation across a range of applications. ​ Once new materials have been characterized, our materials process development team customizes the formulations and process parameters to allow integration into the device process at CPI.
Interlayer inks are also being provided to potential customers for evaluation across a wide range of advanced electronics packaging applications. ​ 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.
Through arrangements with the United Kingdom’s CPI, we have access to a 2.5 generation (370mm x 470mm) 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.
Through our agreement 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.
We expect that we would receive compensation for those services.
We expect that we will receive compensation for those services.
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, 2022, we had 50 full-time employees and five part-time employees of which 48 are based in the United Kingdom. 24 of our employees hold advanced degrees, including 13 Ph.Ds.
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. ​ ​ ​ ​ ​ ​ 17 Table of Contents Employees ​ As of December 31, 2023, we had 29 full-time employees and two part-time employees of which 26 are based in the United Kingdom. 21 of our employees hold advanced degrees, including 7 Ph.Ds.
Because plastic materials melt at high temperatures, TFTs are manufactured on special glass that can withstand such high temperatures and are used to produce 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) onto a wide range of low-cost plastic substrates, as well as traditional substrate materials.
Because most polymer substrates melt 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.
We use product prototyping services to demonstrate applications enabled by OTFT to prospective customers. This allows potential customers seeking to evaluate physical samples of our materials prior to committing to purchase. ​ In early 2023, we announced the creation of the first monolithic micro-LED display using OTFTs.
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 purchase. ​ During 2023, we announced the successful creation of the first monolithic micro-LED display using OTFTs, which was the result of our collaboration with Prof.
Our TRUFLEX® materials fall into two main categories, “active” organic 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 the organic semiconductor inks.
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 the organic semiconductor inks. We validate active components internally before use.
For critical equipment that other CPI customers may seek to use, we may book up to two weeks in advance to guarantee availability. CPIL has agreed to use its reasonable commercial endeavors to supply the requested services. ​ The latest agreement with CPIIS became effective upon the Closing and has a fixed term of three years.
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 latest agreement with CPIIS has a fixed term and will be completed at the end of March 2024.
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 reshape the world of electronics with our proprietary organic semiconductor platform that we believe has the potential to affect the form and function of the next generation of low-cost displays and sensors.
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 reshape the world of electronics with our disruptive organic thin-film transistors (“OTFTs”) that we believe have the potential to drive the next generation of displays.
In 2023, we obtained exclusive rights to a UCSB patent family related to Micro-LEDs. ​ 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.
We have three employees supporting this work in Taiwan in addition to support from SmartKem staff in the UK. ​ 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.
After the initial evaluation, the prospective customer may request a prototype of a specific design as a proof-of-concept. We fabricate prototypes using the Gen 2.5 foundry access we have through our arrangement with CPI.
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 arrangement with CPI. In 2023 we also commissioned ITRI to establish our OTFT process on their Gen 2.5 line in Taiwan to undertake prototype development in Taiwan.
Initial work may also be done to plan scale up routes for the materials in anticipation of the need to supply to customers. ​ The generation of fabrication processes and the integration of new materials is carried out at CPI under the direction of our Chief Technology Officer.
Our dielectric inks are currently being evaluated by six 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.
We believe these potential customers 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. ​ Other potential customers may not have access to display manufacturing lines and will seek a complete solution for their needs, including production capability.
We believe these potential customers 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. ​ We have a direct sales force consisting of three employees located in Taiwan, and sales representation in China.
We also lease office space at CPI’s facility in Sedgefield, England. 14 Table of Contents ​ 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.
In addition, we have not experienced scheduling delays in obtaining access to CPI’s foundry equipment. ​ 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.
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 OSC materials use a polycrystalline small molecule with high mobility, together with a low molecular weight semiconducting polymer, to control the morphology, phase segregation and uniformity of the semiconducting layer and a solvent to deliver inks that are used to make devices with mobilities in excess of 4 cm2/Vs.
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.
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.
At this time, our circuit layout work is done by hand by skilled engineers. ​ 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.
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 micro-LEDs after the backplane is fabricated. Using our process, we have demonstrated active matrix backplanes driving micro-LEDs using OTFT at high 12 Table of Contents brightness (>100,000 nits).
As a result, current practice is to attach the micro-LEDs after the backplane is fabricated. Using our process, we have demonstrated active-matrix backplanes driving micro-LEDs using 13 Table of Contents 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.
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 micro-LED devices. We believe this process is feasible due to the low temperature processing of OTFT.
Through this work, we believe we have developed a novel method for integration of OTFT backplanes and micro-LED 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.
In silicon IC design, EDA tools are used to predict the behavior of circuits made using foundry services.
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.
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.
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.
Additionally, in partnership with The Industrial Technology Research Institute of Taiwan, we successfully demonstrated the direct patterning of one of our interlayer dielectric materials using digital lithography technology (DLT). ​ We do not have the ability to produce our flexible transistors at commercial scale and intend to seek relationships with existing foundries that are capable of producing our products at commercial scale to provide us with the ability to meet full production orders for customers that do not have their own facilities.
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 do not have the in-house capability to produce our flexible transistors at commercial scale and intend to seek relationships with existing foundries to provide us with the ability to meet full production orders for customers that do not have their own facilities.
The toolsets at this site provide a rapid feedback loop between our chemistry R&D and industry relevant device performance data sets.
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.
Under this agreement the two parties will work together on a new generation of low-cost solution printed micro-LED and quantum dot materials for advanced displays. ​ Research and Development ​ To-date, we have focused our resources on the development of improved performance organic semiconductors which have high charge mobility, excellent uniformity, device stability and robustly satisfy the TFT performance specifications defined by potential customers.
Accordingly, we will have a significant risk that we will incur those expenses without ever making a sale. ​ Research and Development ​ Prior to 2023, we focused our technical resources on the development of improved performance organic semiconductors which have high charge mobility, enable excellent layer uniformity, device stability and robustly satisfy the TFT performance specifications defined by potential customers.
This allows designers to simulate the behavior of prototype circuits and check their functionality ahead of the fabrication, therefore saving time and money. ​ 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.
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.
We believe that by simplifying the process of connecting transistors to LEDs, there is the potential to accelerate the commercialization of micro-LED displays. Consumer electronics companies are actively developing micro-LED displays since they promise higher brightness, lower power consumption and longer lifetime.
Consumer electronics companies are actively developing micro-LED displays because such displays promise higher brightness, lower power consumption and longer lifetime.
Pandemic restrictions have now been mostly lifted in these territories, allowing business travel to recommence. ​ Our marketing efforts include attendance at significant industry tradeshows at which we demonstrate the capabilities of our TRUFLEX® technology and responding to requests for proposals and other inquiries from potential customers.
We intend to seek third-party distribution or sale-agent agreements with potential partners where we believe such agreements are justified by the potential market opportunity. ​ Our marketing efforts include attendance at significant industry tradeshows at which we demonstrate the capabilities of our TRUFLEX® technology and responding to requests for proposals and other inquiries from potential customers.
The agreement may be terminated by either party in the event of a breach by the other party.
On March 22, 2024 we executed a new Framework Agreement with CPIIS for a twelve-month term commencing on April 1, 2024. The agreement may be terminated by either party in the event of a breach by the other party.
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. ​ In October 2021, we entered into a joint development agreement with RiTdisplay, a Taiwan based developer of displays.
During that period, we will be required to incur significant expenses without any assurance that a customer order will be obtained.
Under this agreement the two parties are collaborating on the production of a full color demonstration AMOLED display. ​ In February 2022, we entered into a joint development agreement with Nanosys Inc., a leader in developing and delivering quantum dot and micro-LED technology.
We also lease office space at CPI’s facility in Sedgefield, England. ​ 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 addition to supplying our OTFT stack materials as a package, prospective customers are evaluating the use of our range interlayer materials as single layers in new and existing chip and display products, such as redistribution layers, pixel definition layers, permanent resists and organic dielectric layers due to the favorable processability, patternability and other properties of our materials when compared with existing materials. ​ Products have been scaled up for formulated ink supply to customers in packages sizes ranging from 100mL to several liters.
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.
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. ​ In February 2023, we joined the collaborative Hi-Accμracy project that brings together eleven of the most innovative and forward-thinking companies in the industry in a bid to establish the next generation of OLAEs – including OTFT and EL-QD-LED based displays.
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. ​ 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.
This team establishes the BKMs for each material and generates an understanding of the parameters that can influence the performance.
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.
However, we may be impacted in the future as we seek to expand our operations and enter into foundry arrangements with third-party manufacturers. ​ CPI Agreement ​ We perform prototyping with our own employees using foundry equipment made available to us by CPI.
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.
The small size of micro-LED’s and tight pixel pitches makes it challenging to ensure each micro-LED aligns perfectly with the corresponding pixel driver on the backplane. Additionally, hybridization processes can introduce a thermal mismatch between the front and backplane materials causing micro-LEDs to crack or fail from the mechanical stress and can produce a non-uniform bond between the two layers.
The small size of micro-LED’s and tight pixel pitches makes it challenging to ensure each micro-LED aligns perfectly with the corresponding pixel driver on the backplane. Electrical connection of the micro-LEDs on top of the display backplane requires the use of eutectic bonds through a metal junction containing at least one low melting point metal.
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.
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.
Our sales team is supported by engineers and product specialists located at our headquarters in the U.K. We intend to seek third-party distribution or sale-agent agreements with potential partners where we believe such agreements are justified by the potential market opportunity. ​ Our sales and marketing efforts were adversely impacted by the effects of the COVID-19 pandemic.
Our sales team is supported by engineers and product specialists located at our headquarters in the U.K.
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Our patented TRUFLEX® inks are solution deposited at a low temperature, on low-cost substrates to make OTFT circuits. Our organic semiconductor platform can be used in a number of display technologies including miniLEDs, microLED and AMOLED displays that can drive televisions, laptops AR and VR headsets, smartwatches and smartphones.
Added
Our patented TRUFLEX® semiconductor and dielectric inks, or electronic polymers, are used to make a new type of transistor that we believe have the capability to revolutionize the display industry. Our inks enable low temperature printing processes that are compatible with existing manufacturing infrastructure to deliver low-cost displays that outperform existing technologies.
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We have a research and development facility in Manchester, UK, and manufacture product protypes for prospective customers using our semiconductor manufacturing processes housed at the Centre for Process Innovation (CPI) at Sedgefield, UK.
Added
Our electronic polymer platform can be used in a range of display technologies including microLED, miniLED and AMOLED displays for next generation televisions, laptops, augmented reality (“AR”) and virtual reality (“VR”) headsets, smartwatches and smartphones. ​ We design and develop our materials at our research and development facility in Manchester, UK.
Removed
Our role will include developing an OTFT back-plane upon which a QD-LED front-plane will be printed. The resulting 300ppi RGB display will showcase the performance of our range of TRUFLEX® materials when used in conjunction with micron scale additive patterning processes and low temperature processing conditions.
Added
We manufacture prototypes for prospective customers at the Centre for Process Innovation (“CPI”) in Sedgefield, UK. We also operate a field application office in Taiwan. 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.
Removed
As part of the Hi-Accµracy project, printing of our OSC inks is being trialed using high resolution and high efficiency Reverse Offset Printing and Electrostatic Jetting as a route to future large area manufacture of flexible OLAE structures such as OTFTs and EL-QD-LED displays. ​ Products and Services ​ We have internally developed all the materials necessary to fabricate high-performance OTFT devices except for the contact metals and substrates on which those materials are deposited.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeThese 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 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. ​ The potential impact of “Brexit” could have a material adverse effect on our business. ​ The U.K.’s membership of the European Union ceased on January 1, 2021.
Biggest changeThese 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 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. ​ 27 Table of Contents 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.
These provisions: ● establish a classified board of directors so that not all members of our board are elected at one time; ● provide that directors may only be removed “for cause”; ● authorize the issuance of “blank check” preferred stock that our board of directors could issue from time to time to increase the number of outstanding shares and discourage a takeover attempt; ● eliminate the ability of our stockholders to call special meetings of stockholders; ● prohibit stockholder action by written consent, which has the effect of requiring all stockholder actions to be taken at a meeting of stockholders; ● provide that the board of directors is expressly authorized to make, alter, or repeal our bylaws; ● establish advance notice requirements for nominations for election to our board of directors or for proposing matters that can be acted upon by stockholders at stockholder meetings; and ● require supermajority approvals to remove the protective provisions in our certificate of incorporation and bylaws listed above or to amend our bylaws. ​ Such provisions could impede any merger, consolidation, takeover or other business combination involving the Company or discourage a potential acquirer from making a tender offer or otherwise attempting to obtain control of the Company. ​ 33 Table of Contents Our amended and restated certificate of incorporation designates the Court of Chancery of the State of Delaware as the sole and exclusive forum for certain types of actions and proceedings that may be initiated by our stockholders, which could limit the ability of our stockholders to obtain a favorable judicial forum for disputes with us or our directors, officers or other employees. ​ Our amended and restated certificate of incorporation requires that, unless we consent in writing to the selection of an alternative forum: ● any derivative action or proceeding brought on our behalf; ● any action asserting a claim of breach of any fiduciary duty owed by any current or former director, officer, other employee, or stockholder of ours to our company or our stockholders; ● any action asserting a claim arising pursuant to any provision of the Delaware General Corporate Law (the “DGCL”), our certificate of incorporation or bylaws or as to which the DGCL confers jurisdiction on the Court of Chancery of the State of Delaware; or ● any action asserting a claim governed by the internal affairs doctrine; ​ the Court of Chancery of the State of Delaware will, to the fullest extent permitted by law, be the exclusive forum or if the Court of Chancery of the State of Delaware does not have subject matter jurisdiction thereof, the federal district court of the State of Delaware. ​ Furthermore, Section 22 of the Securities Act creates concurrent jurisdiction for federal and state courts over all such Securities Act actions.
These provisions: ● establish a classified board of directors so that not all members of our board are elected at one time; ● provide that directors may only be removed “for cause”; ● authorize the issuance of “blank check” preferred stock that our board of directors could issue from time to time to increase the number of outstanding shares and discourage a takeover attempt; ● eliminate the ability of our stockholders to call special meetings of stockholders; ● prohibit stockholder action by written consent, which has the effect of requiring all stockholder actions to be taken at a meeting of stockholders; ● provide that the board of directors is expressly authorized to make, alter, or repeal our bylaws; ● establish advance notice requirements for nominations for election to our board of directors or for proposing matters that can be acted upon by stockholders at stockholder meetings; and ● require supermajority approvals to remove the protective provisions in our certificate of incorporation and bylaws listed above or to amend our bylaws. ​ Such provisions could impede any merger, consolidation, takeover or other business combination involving the Company or discourage a potential acquirer from making a tender offer or otherwise attempting to obtain control of the Company. ​ 37 Table of Contents Our amended and restated certificate of incorporation designates the Court of Chancery of the State of Delaware as the sole and exclusive forum for certain types of actions and proceedings that may be initiated by our stockholders, which could limit the ability of our stockholders to obtain a favorable judicial forum for disputes with us or our directors, officers or other employees. ​ Our amended and restated certificate of incorporation requires that, unless we consent in writing to the selection of an alternative forum: ● any derivative action or proceeding brought on our behalf; ● any action asserting a claim of breach of any fiduciary duty owed by any current or former director, officer, other employee, or stockholder of ours to our company or our stockholders; ● any action asserting a claim arising pursuant to any provision of the Delaware General Corporate Law (the “DGCL”), our certificate of incorporation or bylaws or as to which the DGCL confers jurisdiction on the Court of Chancery of the State of Delaware; or ● any action asserting a claim governed by the internal affairs doctrine; ​ The Court of Chancery of the State of Delaware will, to the fullest extent permitted by law, be the exclusive forum or if the Court of Chancery of the State of Delaware does not have subject matter jurisdiction thereof, the federal district court of the State of Delaware. ​ Furthermore, Section 22 of the Securities Act creates concurrent jurisdiction for federal and state courts over all such Securities Act actions.
The perception that we may not be able to continue as a going concern may cause others to choose not to deal with us due to concerns about our ability to meet our contractual obligations. ​ ​ ​ 18 Table of Contents 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: ● our ability to attract existing customers, including due to our perceived or actual financial condition; ● the budgeting cycles and purchasing practices of customers; ● the timing and length of our sales cycles, including the ability of our customers to design-in successfully with our technology; ● changes in customer requirements or market needs, including market acceptance of our technology; ● the timing and impact of new product introductions by us or our competitors or any other change in the competitive landscape of the semiconductor industry, including consolidation among our customers or competitors; ● deferral of orders from customers in anticipation of new products or product enhancements announced by us or our competitors; ● our ability to execute our growth strategy and operating plans; ● our ability to successfully expand our business domestically and internationally; ● 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; ● insolvency or credit difficulties confronting our customers, affecting their ability to purchase or pay for our products, or confronting our key suppliers, which could disrupt our supply chain; ● the cost and potential outcomes of potential future litigation; ● general economic conditions; and ● the amount and timing of operating costs and capital expenditures related to the expansion of our business. ​ Any of the above factors, individually or in the aggregate, may result in significant fluctuations in our quarterly operating results.
The perception that we may not be able to continue as a going concern may cause others to choose not to deal with us due to concerns about our ability to meet our contractual obligations. ​ 20 Table of Contents 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: ● our ability to attract existing customers, including due to our perceived or actual financial condition; ● the budgeting cycles and purchasing practices of customers; ● the timing and length of our sales cycles, including the ability of our customers to design-in successfully with our technology; ● changes in customer requirements or market needs, including market acceptance of our technology; ● the timing and impact of new product introductions by us or our competitors or any other change in the competitive landscape of the semiconductor industry, including consolidation among our customers or competitors; ● deferral of orders from customers in anticipation of new products or product enhancements announced by us or our competitors; ● our ability to execute our growth strategy and operating plans; ● our ability to successfully expand our business domestically and internationally; ● 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; ● insolvency or credit difficulties confronting our customers, affecting their ability to purchase or pay for our products, or confronting our key suppliers, which could disrupt our supply chain; ● the cost and potential outcomes of potential future litigation; ● general economic conditions; and ● the amount and timing of operating costs and capital expenditures related to the expansion of our business. ​ Any of the above factors, individually or in the aggregate, may result in significant fluctuations in our quarterly operating results.
The loss of one or more key employees or our inability to attract and retain qualified personnel could harm our business. ● Any failure by us to protect our proprietary technologies or maintain the right to use certain technologies may negatively affect our ability to compete. ● We incur significant costs as a result of operating as a public company. ● If we fail to maintain effective internal controls, we may not be able to report financial results accurately or on a timely basis, or to detect fraud, which could have a material adverse effect on our business or share price. ● An active trading market for our common stock may not develop or be sustained, which may make it difficult for investors to sell shares of our common stock and may make it difficult for us to raise capital. ● We do not anticipate paying dividends on our common stock, and investors may lose the entire amount of their investment. ​ 17 Table of Contents 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.
The loss of one or more key employees or our inability to attract and retain qualified personnel could harm our business. ● Any failure by us to protect our proprietary technologies or maintain the right to use certain technologies may negatively affect our ability to compete. ● We incur significant costs as a result of operating as a public company. ● If we fail to maintain effective internal controls, we may not be able to report financial results accurately or on a timely basis, or to detect fraud, which could have a material adverse effect on our business or share price. ● An active trading market for our common stock may not develop or be sustained, which may make it difficult for investors to sell shares of our common stock and may make it difficult for us to raise capital. ● We do not anticipate paying dividends on our common stock, and investors may lose the entire amount of their investment. ​ 19 Table of Contents 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.
Our results of operations may be adversely affected if our assumptions change or if actual circumstances differ from those in our assumptions, which could cause our results of operations to fall below the expectations of investors, resulting in a decline in the market price of our common stock. 29 Table of Contents ​ Changes in accounting rules and regulations, or interpretations thereof, could result in unfavorable accounting charges or require us to change our compensation policies. ​ Accounting methods and policies for companies such as ours, including policies governing revenue recognition, leases, research and development and related expenses, and accounting for stock-based compensation, are subject to review, interpretation and guidance from our auditors and relevant accounting authorities, including the SEC.
Our results of operations may be adversely affected if our assumptions change or if actual circumstances differ from those in our assumptions, which could cause our results of operations to fall below the expectations of investors, resulting in a decline in the market price of our common stock. ​ 33 Table of Contents Changes in accounting rules and regulations, or interpretations thereof, could result in unfavorable accounting charges or require us to change our compensation policies. ​ Accounting methods and policies for companies such as ours, including policies governing revenue recognition, leases, research and development and related expenses, and accounting for stock-based compensation, are subject to review, interpretation and guidance from our auditors and relevant accounting authorities, including the SEC.
However, similar to emerging growth companies, smaller reporting companies are able to provide simplified executive compensation disclosures in their filings; are exempt from the provisions of Section 404(b) of the Sarbanes-Oxley Act requiring that 30 Table of Contents independent registered public accounting firms provide an attestation report on the effectiveness of internal control over financial reporting; and have certain other decreased disclosure obligations in their SEC filings, including, among other things, only being required to provide two years of audited financial statements in annual reports and in a registration statement under the Exchange Act on Form 10.
However, similar to emerging growth companies, smaller reporting companies are able to provide simplified executive compensation disclosures in their filings; are exempt from the provisions of Section 404(b) of the Sarbanes-Oxley Act requiring that independent registered public accounting firms provide an attestation report on the effectiveness of internal control 34 Table of Contents over financial reporting; and have certain other decreased disclosure obligations in their SEC filings, including, among other things, only being required to provide two years of audited financial statements in annual reports and in a registration statement under the Exchange Act on Form 10.
The failure to receive research coverage or support in the market for shares of our common stock will have an adverse effect on our ability to develop a liquid market for our common stock, which will negatively impact the trading price of our common stock. ​ 32 Table of Contents In the event we obtain securities or industry analyst coverage, if any of the analysts who cover us issue an adverse or misleading opinion regarding us, or if our operating results fail to meet the expectations of analysts, our stock price would likely decline.
The failure to receive research coverage or support in the market for shares of our common stock will have an adverse effect on our ability to develop a liquid market for our common stock, which will negatively impact the trading price of our common stock. ​ In the event we obtain securities or industry analyst coverage, if any of the analysts who cover us issue an adverse or misleading opinion regarding us, or if our operating results fail to meet the expectations of analysts, our stock price 36 Table of Contents would likely decline.
In addition, investment banks may be less likely to agree to underwrite secondary offerings on our behalf than they might if we became a public reporting company by means of an underwritten initial public offering, because they may be less familiar with our company as a result of more limited coverage by analysts and 34 Table of Contents the media, and because we became public at an early stage in our development.
In addition, investment banks may be less likely to agree to underwrite secondary offerings on our behalf than they might if we became a public reporting company by means of an underwritten initial public offering, because they may be less familiar with our company as a result of more limited coverage by analysts and the media, and because we became public at an early 38 Table of Contents stage in our development.
Further, if our products are not in compliance with prevailing industry standards, such non-compliance could materially and adversely affect our financial condition, cash flows and results of operations. 19 Table of Contents ​ We compete 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.
Further, if our products are not in compliance with prevailing industry standards, such non-compliance could materially and adversely affect our financial condition, cash flows and results of operations. ​ 21 Table of Contents We compete 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 loss of access to the CPI facility, or our inability to enter into agreements with third-party fabricators could have a material adverse effect on our business development. ● 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 rely on our management team and other key employees and will need additional personnel to grow our business.
The loss of access to the CPI and/or the ITRI facilities, or our inability to enter into agreements with third-party fabricators could have a material adverse effect on our business development. ● 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 rely on our management team and other key employees and will need additional personnel to grow our business.
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. ​ 26 Table of Contents 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.
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.
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. ​ We expect that our sales cycles will be long and unpredictable, and our sales efforts will require considerable time and expense.
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 23 Table of Contents 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. ​ We expect that our sales cycles will be long and unpredictable, and our sales efforts will require considerable time and expense.
The loss of access to the CPI 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 fabrication facility and rely on CPI for access to its facility for fabrication of prototypes and demonstration products.
The loss of access to the CPI facility and/or the ITRI facilities, 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 fabrication facility and rely on CPI and ITRI for access to its facility for fabrication of prototypes and demonstration products.
Because of the penny stock rules, there may be less trading activity in penny stocks in any market that develops for our common stock in the future and stockholders are likely to have difficulty selling their shares of our common stock. ​ 31 Table of Contents We do not anticipate paying dividends on our common stock, and investors may lose the entire amount of their investment. ​ Cash dividends have never been declared or paid on our common stock, and we do not anticipate such a declaration or payment for the foreseeable future.
Because of the penny stock rules, there may be less trading activity in penny stocks in any market that develops for our common stock in the future and stockholders are likely to have difficulty selling their shares of our common stock. ​ We do not anticipate paying dividends on our common stock, and investors may lose the entire amount of their investment. ​ Cash dividends have never been declared or paid on our common stock, and we do not anticipate such a declaration or payment for the foreseeable future.
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. ​ 20 Table of Contents We rely on CPI for access to fabrication and expect to enter into arrangements with third-party fabricators to produce our products at commercial scale.
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. ​ 22 Table of Contents We rely on CPI and ITRI for access to fabrication and expect to enter into arrangements with third-party fabricators to produce our products at commercial scale.
Although we believe this provision will benefit us by providing increased consistency in the application of Delaware law in the types of lawsuits to which it applies, the provision may have the effect of discouraging lawsuits against our directors and officers. ​ Because we became a reporting company under the Exchange Act by means other than a traditional underwritten initial public offering, we may not be able to attract the attention of research analysts at major brokerage firms. ​ Because we did not become a reporting company by conducting an underwritten initial public offering of our common stock, and because we will not be listed on a national securities exchange, security analysts of brokerage firms may not provide coverage of our company.
Although we believe this provision will benefit us by providing increased consistency in the application of Delaware law in the types of lawsuits to which it applies, the provision may have the effect of discouraging lawsuits against our directors and officers. ​ Because we became a reporting company under the Exchange Act by means other than a traditional underwritten initial public offering, we may not be able to attract the attention of research analysts at major brokerage firms. ​ Because we did not become a reporting company by conducting an underwritten initial public offering of our common stock, security analysts of brokerage firms may not provide coverage of our company.
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.
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. ​ 24 Table of Contents If we fail to effectively manage our growth, our business, financial condition and results of operations would be harmed.
Among other things, we are required to: ● maintain and evaluate a system of internal controls over financial reporting in compliance with the requirements of Section 404(a) of the Sarbanes-Oxley Act and the related rules and regulations of the SEC and the Public Company Accounting Oversight Board; ● maintain policies relating to disclosure controls and procedures; ● prepare and distribute periodic reports in compliance with our obligations under federal securities laws; ● institute a more comprehensive compliance function, including with respect to corporate governance; and ● involve, to a greater degree, our outside legal counsel, and accountants in the above activities. ​ The costs of preparing and filing annual and quarterly reports, proxy statements and other information with the SEC and furnishing audited reports to stockholders is expensive and compliance with these rules and regulations involves a material increase in regulatory, legal and accounting expenses and the attention of our board of directors and management.
Among other things, we are required to: ● maintain and evaluate a system of internal controls over financial reporting in compliance with the requirements of Section 404(a) of the Sarbanes-Oxley Act and the related rules and regulations of the Securities and Exchange Commission (the “SEC”) and the Public Company Accounting Oversight Board; ● maintain policies relating to disclosure controls and procedures; ● prepare and distribute periodic reports in compliance with our obligations under federal securities laws; ● institute a more comprehensive compliance function, including with respect to corporate governance; and ● involve, to a greater degree, our outside legal counsel, and accountants in the above activities. ​ The costs of preparing and filing annual and quarterly reports, proxy statements and other information with the SEC and furnishing audited reports to stockholders is expensive and compliance with these rules and regulations involves a material increase in regulatory, legal and accounting expenses and the attention of our board of directors and 30 Table of Contents management.
If one or more of these analysts cease coverage of us or fail to publish reports on us regularly, we could lose visibility in the financial markets, which in turn could cause our stock price or trading volume to decline. ​ Our principal stockholders and management have substantial control over us and could delay or prevent a change in corporate control. ​ Our executive officers and directors, together with holders of 5% or more of our outstanding common stock and their respective affiliates, beneficially own 65.3% of our common stock.
If one or more of these analysts cease coverage of us or fail to publish reports on us regularly, we could lose visibility in the financial markets, which in turn could cause our stock price or trading volume to decline. ​ Our principal stockholders and management have substantial control over us and could delay or prevent a change in corporate control. ​ Our executive officers and directors, together with holders of 5% or more of our outstanding common stock and their respective affiliates, beneficially own 58.4% of our common stock.
Steps we take to protect our proprietary information may not be adequate to prevent theft of our technology. We may not be able to prevent our competitors from independently developing technologies and products that are similar to or better than ours. ​ Vigorous protection and pursuit of intellectual property rights or positions characterize the semiconductor industry.
Steps we take to protect our proprietary 29 Table of Contents information may not be adequate to prevent theft of our technology. We may not be able to prevent our competitors from independently developing technologies and products that are similar to or better than ours. ​ Vigorous protection and pursuit of intellectual property rights or positions characterize the semiconductor industry.
Any future determination about the payment of dividends will be made at the discretion of our board of directors and will depend upon our earnings, if any, capital requirements, operating and financial conditions, contractual restrictions, including any loan or debt financing agreements, and on such other factors as our board of directors deems relevant.
Any future determination about the payment of dividends will be made at the 35 Table of Contents discretion of our board of directors and will depend upon our earnings, if any, capital requirements, operating and financial conditions, contractual restrictions, including any loan or debt financing agreements, and on such other factors as our board of directors deems relevant.
The global spread of COVID-19 and the efforts to control it have disrupted, and reduced the efficiency of, normal business activities in much of the world. The pandemic has resulted in authorities around the world implementing numerous unprecedented measures such as travel restrictions, quarantines, shelter in place orders, factory and office shutdowns and vaccine mandates.
The global spread of COVID-19 and the efforts to control disrupted, and reduced the efficiency of, normal business activities in much of the world. The pandemic resulted in authorities around the world implementing numerous unprecedented measures such as travel restrictions, quarantines, shelter in place orders, factory and office shutdowns and vaccine mandates.
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.
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 28 Table of Contents costs, increased costs for security measures, loss of revenue, damage to our reputation and potential liability.
Therefore, our business, financial condition and results of operations may be affected by changes in governmental and economic policies in Taiwan, social instability, and diplomatic and social developments in or affecting Taiwan due to its international political status, including current tensions with China.
Therefore, our business, financial condition and results of operations may be affected by changes in governmental and economic policies in Taiwan, social instability, and diplomatic and social developments in or 26 Table of Contents affecting Taiwan due to its international political status, including current tensions with China.
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 21 Table of Contents decline.
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.
In such cases, we may incur monetary losses due to the cost of defense, settlement or damage award and non-monetary 27 Table of Contents losses as a result of diverting valuable internal resources to litigation support.
In such cases, we may incur monetary losses due to the cost of defense, settlement or damage award and non-monetary losses as a result of diverting valuable internal resources to litigation support.
If we lost access to CPI’s fabrication facility, it would materially and adversely affect our ability to manufacture prototypes and demonstrate products for potential customers. The loss of access may also significantly impede our ability to engage in product development and process improvement activities.
If we lost access to CPI’s fabrication facility and/or ITRI’s fabrication facility, it could materially and adversely affect our ability to manufacture prototypes and demonstrate products for potential customers. The loss of access may also significantly impede our ability to engage in product development and process improvement activities.
Certain of our partners are located in Taiwan, and we expect many of our customers will be located in Taiwan.
Certain of our partners are located in Taiwan, including ITRI, and we expect many of our customers will be located in Taiwan.
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, 2022, we had an accumulated deficit of $86.6 million.
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, 2023, we had an accumulated deficit of $95.1 million.
Should we fail to satisfy the initial listing standards of the national exchanges, or our common stock is otherwise rejected for listing, the trading price of our common stock could suffer, the trading market for our common stock may be less liquid and our common stock price may be subject to increased volatility. ​ The designation of our common stock as a “penny stock” would limit the liquidity of our common stock. ​ Our common stock may be deemed a “penny stock” (as that term is defined under Rule 3a51-1 of the Exchange Act) in any market that may develop in the future.
Should we fail to satisfy the initial listing standards of the national exchanges, or our common stock is otherwise rejected for listing, the trading price of our common stock could suffer, the trading market for our common stock may be less liquid and our common stock price may be subject to increased volatility. ​ The designation of our common stock as a “penny stock” limits the liquidity of our common stock. ​ Our common stock is deemed a “penny stock” (as that term is defined under Rule 3a51-1 of the Exchange Act).
For the years ended December 31, 2022 and December 31, 2021 our total comprehensive loss was $10.6 million and $17.0 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.
For the years ended December 31, 2023 and December 31, 2022 our total comprehensive loss was $9.6 million and $10.6 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.
There can be no assurance, however, that such financing will be available by the end of May 2023, if at all, or on acceptable terms and conditions.
There can be no assurance, however, that such financing will be available by the end of April 2025, if at all, or on acceptable terms and conditions.
We believe the global supply chain challenges and their adverse impact on our business will persist and the degree to which the pandemic ultimately impacts our business and results of operations will depend on future developments beyond our control. 23 Table of Contents We are subject to a number of risks associated with international sales and operations. ​ We have small teams that are engaged in marketing, selling and supporting our products internationally.
We believe the global supply chain challenges and their adverse impact on our business will persist and 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 a number of risks associated with international sales and operations. ​ We have small teams that are engaged in marketing, selling and supporting our products internationally.
We will require additional capital to support our business and objectives. ● 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. ● 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. ● We compete 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. ● 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 rely on the CPI for access to fabrication and expect to enter into arrangements with third-party fabricators to produce our products at commercial scale.
If we cannot achieve or maintain profitability, stockholders could lose all or part of their investment. ● 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. ● 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. ● We compete 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. ● 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 rely on the CPI and ITRI for access to fabrication and expect to enter into arrangements with third-party fabricators to produce our products at commercial scale.
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. ​ The ongoing COVID-19 pandemic and a supply shortage experienced by the semiconductor industry have disrupted and will likely continue to disrupt normal business activity and may have an adverse effect on our results of operations.
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. ​ The COVID-19 pandemic and a supply shortage experienced by the semiconductor industry disrupted normal business activity and similar events may have an adverse effect on our results of operations.
While the ultimate outcome of investigations, inquiries, information requests and legal proceedings is difficult 25 Table of Contents 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.
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.
In addition, the listing requirements of any national securities exchange or other exchange and other applicable securities rules and regulations impose various requirements on public companies. Our management and other personnel are required to devote a substantial amount of time to these compliance initiatives.
In addition, the Nasdaq Stock Market (“Nasdaq”) listing requirements and other applicable securities rules and regulations impose various requirements on public companies. Our management and other personnel are required to devote a substantial amount of time to these compliance initiatives.
Decreased disclosures in our SEC filings due to our status as a smaller reporting company may make it harder for investors to analyze our results of our operations and financial prospects. ​ An active trading market for our common stock may not develop or be sustained, which may make it difficult for investors to sell shares of our common stock and may make it difficult for us to raise capital. ​ Although our common stock is quoted on the OTCQB marketplace, trading in our common stock has been sporadic and an active market for our common stock has not yet developed.
Decreased disclosures in our SEC filings due to our status as a smaller reporting company may make it harder for investors to analyze our results of our operations and financial prospects. ​ An active trading market for our common stock may not develop or be sustained, which may make it difficult for investors to sell shares of our common stock and may make it difficult for us to raise capital. ​ An active trading market for our common stock may not develop or be sustained.
The lack of an active market for our common stock may make it difficult for investors to sell shares of our common stock and may make it difficult for us to raise capital. ​ We may never be able to satisfy the listing requirements for our common stock to be listed on a national securities exchange, which may cause the trading of our common stock to suffer, cause the trading market for our common stock to be less liquid and subject our common stock price to increased volatility. ​ We may not ever be able to satisfy the listing requirements for our common stock to be listed on a national securities exchange, which is often a more widely traded and liquid market.
We may never be able to satisfy the listing requirements for our common stock to be listed on a national securities exchange, which may cause the trading of our common stock to suffer, cause the trading market for our common stock to be less liquid and subject our common stock price to increased volatility. ​ We may not ever be able to satisfy the listing requirements for our common stock to be listed on a national securities exchange, which is often a more widely traded and liquid market.
In addition, because we did not become a reporting company by conducting an underwritten initial public offering of our common stock, and because we are not currently listed on a national securities exchange, security analysts of brokerage firms may not provide coverage of our company.
We do not currently have and may never obtain research coverage by securities and industry analysts. In addition, because we did not become a reporting company by conducting an underwritten initial public offering of our common stock, security analysts of brokerage firms may not provide coverage of our company.
Our business and operations have been disrupted and higher costs have been incurred 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.
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.
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.
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. ​ We believe that our existing cash will be sufficient to fund our operations through the end of April 2025 and that we will require additional capital to continue our operations and research and development activity thereafter.
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. ​ 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.
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.
Furthermore, if we are unable to satisfy our obligations as a public company, we could be subject to fines, sanctions and other regulatory action and potentially civil litigation. ​ If we fail to maintain effective internal controls, we may not be able to report financial results accurately or on a timely basis, or to detect fraud, which could have a material adverse effect on our business or share price.
If we fail to maintain effective internal controls, we may not be able to report financial results accurately or on a timely basis, or to detect fraud, which could have a material adverse effect on our business or share price.
These issues have led to an increase in lead-times of the production of semiconductor chips and components. ​ In 2022 we experienced, and expect to continue to experience, 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.
At the same time, and to some extent relatedly, the global silicon semiconductor industry is experiencing 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. ​ 25 Table of Contents In 2023 we experienced, and expect to continue to experience, 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.
Our management evaluated the effectiveness of our disclosure controls and procedures as defined in Rule 13a-15 and 15d-15(e) under the Exchange Act, as of December 31, 2022. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were effective at a reasonable assurance level as of December 31, 2022.
Based on this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were effective at a reasonable assurance level as of December 31, 2023.
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. ​ The COVID-19 global pandemic and resulting adverse economic conditions have already adversely impacted our business and could have a more material adverse impact on our business, financial condition, and results of operations . 22 Table of Contents The COVID-19 global pandemic has had and could continue to have an adverse impact on the business operations of our company and our employees, joint development partners, prospective customers, suppliers and the overall economy.
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. ​ The COVID-19 global pandemic and resulting adverse economic conditions adversely impacted our business.
A material weakness is defined as a deficiency, or combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of annual or interim financial statements will not be prevented or detected and corrected on a timely basis. ​ In August 2022, we determined that we made an error in the presentation and accounting of our consolidated statement of cash flows in our annual and interim consolidated financial statements during 2021 and 2022.
A material weakness is defined as a deficiency, or combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of annual or interim financial statements will not be prevented or detected and corrected on a timely basis. ​ In connection with our preparation of our financial statements for the second quarter of 2023, a material weakness in our internal control over financial reporting was identified relating to the complex financial reporting and accounting associated with the June 2023 PIPE (as defined below), a non-cash item.
There can be no certainty regarding the impacts stemming from the conflict, including the imposition of additional sanctions, embargoes, asset freezes or other economic or military measures resulting from the invasion.
There can be no certainty regarding the impacts stemming from the conflict, including the imposition of additional sanctions, embargoes, asset freezes or other economic or military measures resulting from the invasion. The impact of these developments, and additional events that may occur as a result could adversely affect our business, supply chain, suppliers and customers and potential customers.
No assurance can be given that an active trading market for our common stock will develop or be sustained.
No assurance can be given that an active trading market for our common stock will develop or be sustained. The lack of an active market for our common stock may make it difficult for investors to sell shares of our common stock and may make it difficult for us to raise capital.
We will require additional capital to support our business and objectives. ​ We have incurred recurring losses since inception and, as of December 31, 2022, had an accumulated deficit of $86.6 million.
If this were to occur, our stockholders could lose all or part of their investment. ​ We have recorded recurring losses from operations and will likely require additional capital to support our business and objectives. ​ We have incurred recurring losses since inception and, as of December 31, 2023, had an accumulated deficit of $95.1 million.
Any of these risks, taken singularly or in the aggregate could have an adverse effect on our business, financial condition, and results of operations. ​ 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.
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.
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 have become more prevalent across industries and may occur on our systems.
Any of the above factors, or other cascading effects of the COVID-19 pandemic that are not currently foreseeable, could materially increase our costs, severely negatively impact business development and commercialization, net income, and other results of operations, and impact our liquidity position.
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.
These factors could also make it more difficult for us to attract and retain qualified executives and members of our board of directors.
These factors could also make it more difficult for us to attract and retain qualified executives and members of our board of directors. Furthermore, if we are unable to satisfy our obligations as a public company, we could be subject to fines, sanctions and other regulatory action and potentially civil litigation.
Failure to maintain effective internal control over financial reporting also could potentially subject us to sanctions or investigations by the SEC or other regulatory authorities or stockholder lawsuits, which could require additional financial and management resources. ​ ​ If our estimates or judgments relating to our critical accounting policies are based on assumptions that change or prove to be incorrect, our results of operations could fall below the expectations of investors, resulting in a decline in the market price of our common stock. ​ The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the amounts reported in our financial statements.
The restrictions on our ability to incur debt or grant liens on our assets may prevent us from acquiring equipment or other assets using purchase price financing or leasing even if the acquisition of such equipment or other assets is in the best interests of our stockholders. ​ The terms and restrictions summarized above may have a material adverse effect on our business, financial condition and results of operations. ​ If our estimates or judgments relating to our critical accounting policies are based on assumptions that change or prove to be incorrect, our results of operations could fall below the expectations of investors, resulting in a decline in the market price of our common stock. ​ The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“US GAAP”) requires management to make estimates and assumptions that affect the amounts reported in our financial statements.
We adopted remote working measures in an effort to mitigate the spread and impact of COVID-19. The COVID-19 global pandemic also resulted in severe disruptions and volatility in the global economy and financial markets, which may result in an extended economic slowdown or a global recession that could adversely impact our business.
Future pandemics and similar events could also materially and adversely affect our business, financial condition and results of operations. The COVID-19 global pandemic also resulted in severe disruptions and volatility in the global economy and financial markets.
Removed
If we cannot achieve or maintain profitability, 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.
Added
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.
Removed
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.
Added
We do not have the ability to produce our flexible transistors at commercial scale.
Removed
As a result, our independent registered public accounting firm included an explanatory paragraph in its report on our consolidated financial statements as of and for the year ended December 31, 2022. Future reports on our consolidated financial statements may include an explanatory paragraph with respect to our ability to continue as a going concern.
Added
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.
Removed
The consolidated financial statements do not include any adjustments that might be necessary should we be unable to continue as a going concern. ​ We believe that our existing cash will be sufficient to fund our operations through the end of May 2023 and that we will require additional capital to continue our operations and research and development activity thereafter.
Added
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.
Removed
Additionally, a recurrence in volatility due to a resurgence in the COVID-19 global pandemic could impact our future access to capital and credit markets. We are continuing to monitor the impact of COVID-19, including the emerging variants of the disease, and related risks, including risks related to efforts to mitigate the disease’s spread.
Added
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.
Removed
The fluidity of the situation, however, precludes any prediction as to its ultimate impact on us. The emergence of new variants of the coronavirus or of other illnesses may adversely impact our future operations, business development activities and our access to capital markets.
Added
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.
Removed
COVID-19 measures have impacted, and will likely continue to impact, our operations and those of our customers, contract manufacturers, suppliers and logistics providers. At the same time, and to some extent relatedly, the global silicon semiconductor industry is experiencing a shortage in supply and difficulties in ability to meet customer demand.
Added
Future pandemics or similar events could also have a material adverse impact on our business, financial condition, and results of operations .
Removed
In particular, the recent government-mandated COVID-19 containment measures in China have impacted supply shipments and created ongoing risk and uncertainty.
Added
COVID-19 measures adversely impacted our operations and those of our customers, contract manufacturers, suppliers and logistics providers.
Removed
The impact of these developments, and additional events that may occur as a result could adversely affect our business, 24 Table of Contents supply chain, suppliers and customers and potential customers.
Added
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.
Removed
There are significant uncertainties in relation to what the impact will be on the fiscal, monetary and regulatory landscape in the U.K., including among other things, the U.K.’s tax system, the conduct of cross-border business and export and import tariffs.
Added
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.
Removed
There is also uncertainty in relation to how, when and to what extent these developments will impact on the economy in the U.K., the future growth of its various industries, on levels of investor activity and confidence, on market performance and on exchange rates.
Added
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.
Removed
While we did not experience any significant adverse impacts on our business in 2022 as a result of the U.K.’s exit from the European Union, it is not possible to predict fully the future effects of this transition.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeIn addition, we lease two offices at CPI pursuant to leases which expire in 2023 and two offices at NetPark, Sedgefield pursuant to leases which expire in 2024. We also maintain access to additional office space on a temporary or as-needed basis.
Biggest changeIn addition, we lease two offices at CPI pursuant to leases which expire in 2024 and two offices at NetPark, Sedgefield pursuant to leases which expire in March 2024. On March 22, 2024 we executed a new Framework Agreement with CPIIS for a twelve-month term commencing on April 1, 2024.
We believe that our facilities are suitable to meet our current needs and that suitable space will be available on acceptable terms as may be required to support the expected growth in our business. ​ ​
We also maintain access to additional office space on a temporary or as-needed basis. We believe that our facilities are suitable to meet our current needs and that suitable space will be available on acceptable terms as may be required to support the expected growth in our business. ​

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeRegardless of outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources and other factors. ​ ​ Item 4. Mine Safety Disclosures Not Applicable. ​ 35 Table of Contents ​ PART II ​
Biggest changeRegardless of outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources and other factors. Item 4. Mine Safety Disclosures Not Applicable. ​ 39 Table of Contents ​ PART II ​

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeIn addition, we may enter into agreements in the future that could contain restrictions on payments of cash dividends. We expect to use future earnings, if any, to fund business growth. ​ Recent Sales of Unregistered Securities ​ On November 29, 2022, the Company issued 35,714 shares of common stock at a value of $0.70 per share to a consultant.
Biggest changeIn addition, we may enter into agreements in the future that could contain restrictions on payments of cash dividends. We expect to use future earnings, if any, to fund business growth. ​ Item 6. [Reserved] ​ ​
Market For Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases Of Equity Securities ​ Market Information ​ Our common stock is traded on the OTC Market Group’s OTCQB® Market (“OTCQB”) under the ticker symbol “SMTK”. ​ Holders of Record As of March 24, 2023, there were 27,034,996 shares of our common stock outstanding which were held by 102 stockholders of record as reported by our transfer agent.
Market For Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases Of Equity Securities ​ Market Information ​ Our common stock is traded on the OTC Market Group’s OTCQB® Market (“OTCQB”) under the ticker symbol “SMTK.” ​ Holders of Record As of March 27, 2024, there were 1,355,361 shares of our common stock outstanding which were held by 210 stockholders of record as reported by our transfer agent.
Removed
Such issuance was exempt from registration under 4(a)(2) of the Securities Act and Regulation D promulgated thereunder. ​ ​ Item 6. [Reserved] ​ ​

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

29 edited+25 added−53 removed13 unchanged
Biggest changeResearch and development expense, which represents 53% and 47% of our total operating expenses for the twelve months ended December 31, 2022 and 2021, respectively, decreased by $2.4 million to $5.8 million for the period, primarily due to a $2.7 million decrease in stock compensation expense, a $0.6 million reduction from the effect of exchange rate movement compared to the prior year, partially offset by a $0.9 million increase in expenses incurred in further developing core materials and in fabricating demonstrator devices to promote our technology to prospective customers and partners.
Biggest changeResearch and development expense, which represents 51.3% and 53.4% of our total operating expenses for the twelve months ended December 31, 2023 and 2022, respectively, decreased by $0.2 million to $5.6 million for the year ended December 31, 2023, compared to $5.8 million for the same period of 2022.
Key Factors Affecting Our Performance There are a number of industry factors that affect our business which include, among others: Overall Demand for Products and Applications using Organic thin film transistors Our potential for growth depends significantly on the adoption of organic thin film transistor (OTFT) materials in the display and sensor markets and our ability to capture a significant share of any market that does develop.
Key Factors Affecting Our Performance There are a number of industry factors that affect our business which include, among others: Overall Demand for Products and Applications using Organic thin film transistors Our potential for growth depends significantly on the adoption of OTFT materials in the display and sensor markets and our ability to capture a significant share of any market that does develop.
Intellectual Property Issues We rely on patented and non-patented proprietary information relating to product development, manufacturing capabilities and other core competencies of our business. Protection of intellectual property is critical. Therefore, steps 37 Table of Contents such as additional patent applications, confidentiality, and non-disclosure agreements, as well as other security measures are important.
Intellectual Property Issues We rely on patented and non-patented proprietary information relating to product development, manufacturing capabilities and other core competencies of our business. Protection of intellectual property is critical. Therefore, steps such as additional patent applications, confidentiality, and non-disclosure agreements, as well as other security measures are important.
Contractual Payment Obligations 42 Table of Contents Our principal commitments primarily consist of obligations under leases for office space and purchase commitments in the normal course of business for research & development facilities and services, communications infrastructure, and administrative services.
Contractual Payment Obligations ​ Our principal commitments primarily consist of obligations under leases for office space and purchase commitments in the normal course of business for research & development facilities and services, communications infrastructure, and administrative services.
We expect general and administrative expenses to increase in absolute dollars in future periods due to additional legal, accounting, insurance, investor relations and other costs associated with being a public company, as well as other costs associated with growing our business. Non-Operating Income (Expense) Financial Income/(Expense), Net aggregates the following amounts: Interest Expense.
We expect general and administrative expenses to increase in absolute dollars in future periods due to additional legal, accounting, insurance, investor relations and other costs associated with being a public company, as well as other costs associated with growing our business. Non-Operating Income (Expense) ​ Non-operating income/expense aggregates the following amounts: Foreign Currency Translation.
As of December 31, 2022, our accumulated deficit was $86.6 million. Substantially all our operating losses have resulted from expenses incurred in connection with research and development activities and from general and administrative costs associated with our operations.
As of December 31, 2023, our accumulated deficit was $95.1 million. Substantially all our operating losses have resulted from expenses incurred in connection with research and development activities and from general and administrative costs associated with our operations.
Our future viability is dependent on our ability to raise additional capital to satisfy our operational needs and to fund our sales and marketing efforts, research and development expenditures, and business development activities.
Our future viability is dependent on our ability to raise additional capital to fund our operations. We will need to obtain additional funds to satisfy our operational needs and to fund our sales and marketing efforts, research and development expenditures, and business development activities.
Until such time, if ever, as we can generate sufficient cash through revenue, management’s plans are to finance our working capital requirements through a combination of equity offerings, debt financings, collaborations, strategic alliances and marketing, distribution or licensing arrangements.
Until such time, if ever, as we can generate sufficient cash through revenue, management’s plans are to finance our working capital requirements through a combination of equity offerings, debt financings, collaborations, strategic alliances and marketing, distribution or licensing arrangements. If we raise additional funds by issuing equity securities, our existing security holders will likely experience dilution.
The decrease resulted primarily from a decrease in our net loss of $5.6 million, partially offset by a decrease of non-cash expense of $4.6 million and a net decrease in operating assets and liabilities of $0.3 million.
The decrease resulted primarily from a decrease in our net loss of $3.0 million, partially offset by an increase of non-cash activities of $3.3 million and a net increase in operating assets and liabilities of $1.3 million.
Investing Activities Net cash used in investing activities was $79 thousand for the year ended December 31, 2021, compared to $0.3 million for the year ended December 31, 2021, a decrease of $0.2 million. The decrease resulted from a reduced level of investment in laboratory and capital equipment purchases in 2022 after investment in these in previous years.
Cash Flow from Investing Activities Net cash used in investing activities was $18.0 thousand for the year ended December 31, 2023, compared to $79.0 thousand for the year ended December 31, 2022, a decrease of $61.0 thousand. The decrease resulted from a reduced level of investment in laboratory and capital equipment purchases in 2023.
The loss before income taxes was $11.5 million for the year ended December 31, 2022, a decrease of $5.7 million, compared to a loss before income taxes of $17.1 million for the year ended December 31, 2021.
The loss before income taxes was $8.5 million for the year ended December 31, 2023, a decrease of $3.0 million, compared to a loss before income taxes of $11.5 million for the year ended December 31, 2022.
Selling, general and administrative expense, which represents 47% and 46% of our total operating expenses for the twelve months ended December 31, 2022 and 2021, respectively decreased by $3.0 million to $5.1 million for the period.
Selling, general and administrative expense, which represents 47.9% and 46.6% of our total operating expenses for the twelve months ended December 31, 2023 and 2022, respectively, increased by $0.1 million to $5.2 million for year ended December 31, 2023 as compared to $5.1 million for the same period in 2022.
Risk Factors” in this Report for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statement. 36 Table of Contents Overview We are seeking to reshape the world of electronics with our proprietary organic semiconductor platform that we believe has the potential to affect the form and function of the next generation of low-cost displays and sensors.
Risk Factors” in this Report for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statement. ​ 40 Table of Contents Overview We are seeking to reshape the world of electronics with our disruptive organic thin-film transistors (“OTFTs”) that we believe have the potential to drive the next generation of displays.
While we believe we have a strong patent portfolio and there is no actual or, to our knowledge, threatened litigation against us for patent-related matters, litigation or threatened litigation is a common method to effectively enforce or protect intellectual property rights. Such action may be initiated by or against us and would require significant management time and expenses.
While we believe we have a strong patent portfolio and there is no actual or, to our knowledge, 41 Table of Contents threatened litigation against us for patent-related matters, litigation or threatened litigation is a common method to effectively enforce or protect intellectual property rights.
This provision allows an emerging growth company to either early adopt or delay the adoption of some accounting standards until those standards would otherwise apply to private companies.
The JOBS Act provides that an emerging growth company can take advantage of an extended transition period for complying with new or revised accounting standards. This provision allows an emerging growth company to either early adopt or delay the adoption of some accounting standards until those standards would otherwise apply to private companies.
Selling, general and administrative expenses consist primarily of allocated compensation and related costs for personnel, including share-based compensation, employee benefits and travel. In addition, general and administrative expenses include third-party consulting, legal, audit, accounting services, allocations of overhead costs, such as rent, facilities and information technology.
In addition, general and administrative expenses include third-party consulting, legal, audit, accounting services, allocations of overhead costs, such as rent, facilities and information technology.
Prior to February 2022, the Company’s common stock was not traded on an over the counter or national securities exchange and consequently the Company developed estimates for the inputs to the option-pricing model. ​ ​ The assumptions used in determining the fair value of stock-based awards represent our best estimates, but the estimates involve inherent uncertainties and the application of our judgment.
Prior to February 2022, the Company’s common stock was not traded on an over the counter or national securities exchange and consequently the Company developed estimates for the inputs to the option-pricing model. Warrant Liability The valuation of the warrant liability was determined using an option pricing model.
Research and development expenses consist primarily of compensation and related costs for personnel, including share-based compensation and employee benefits as well as costs associated with design, fabrication and testing of OTFT devices. In addition, research and development expenses include depreciation expenses related to our fixed assets. We expense research and development expenses as incurred.
The income associated with these items is recognized in the period which the research and development expenses occurred. Operating Expenses Research and Development. Research and development expenses consist primarily of compensation and related costs for personnel, including share-based compensation and employee benefits as well as costs associated with design, fabrication and testing of OTFT devices.
As we continue to invest in developing our technology for new products, we expect research and development expenses to remain flat or moderately increase in absolute dollars but to decline as a percentage of revenue. We do not believe that it is possible at this time to accurately project total program-specific expenses through commercialization.
In addition, research and development expenses include depreciation expenses related to our fixed assets. We expense research and development expenses as incurred. As we continue to invest in developing our technology for new products, we expect research and development expenses to remain flat or moderately increase in absolute dollars but to decline as a percentage of revenue.
Components of Results of Operations Revenue Our revenue currently consists of revenue from the sale of TRUFLEX® inks and demonstration products. Cost of Revenues.
Such action may be initiated by or against us and would require significant management time and expenses. Components of Results of Operations Revenue Revenue. Our revenue consists of revenue from the sale of TRUFLEX® inks and demonstration products. Cost of Revenues.
For more information regarding our accounting policies, see Note 2, Summary of Significant Accounting Policies and Recent Accounting Pronouncements, in our Notes to Consolidated Financial Statements in this Annual Report on Form 10-K.
We expect to fund these commitments from our cash balances and working capital. 44 Table of Contents Recently Issued Accounting Pronouncements For recently issued accounting announcements, see “Recently Issued Accounting Pronouncements” in Note 2, Significant Accounting Policies and Recent Accounting Pronouncements, in the Notes to our Consolidated Financial Statements included in this Annual Report on Form 10-K.
If we raise additional funds by issuing equity securities, our existing security holders will likely experience dilution. If we borrow money, the incurrence of indebtedness would result in increased debt service obligations and could require us to agree to operating and financial covenants that could restrict our operations.
If we borrow money, the incurrence of indebtedness would result in increased debt service obligations and could require us to agree to operating and financial covenants that could restrict our operations. If we enter into a collaboration, strategic alliance or other similar arrangement, we may be forced to give up valuable rights.
There are numerous factors associated with the successful commercialization of our technology, many of which cannot be determined with accuracy at this time based on our stage of development. Additionally, future commercial and other factors beyond our control will impact our development programs and plans. Selling, General and Administrative.
We do not believe that it is possible at this time to accurately project total program-specific expenses through commercialization. There are numerous factors associated with the successful commercialization of our technology, many of which cannot be determined with accuracy at this time based on our stage of development.
We estimate the fair value of each stock option award using the Black-Scholes option-pricing model, which uses as inputs the fair value of our common stock and assumptions we make for the volatility of our common stock, the expected term of our stock-based awards, the risk-free interest rate for a period that approximates the expected term of our stock-based awards, and our expected dividend yield.
Share-Based Compensation The Company determines the fair value of certain share-based awards using the Black-Scholes option-pricing model which uses both historical and current market data to estimate the fair value. This method incorporates various assumptions such as the risk-free interest rate, expected volatility, expected dividend yield, and expected life of the options.
The decrease in loss was attributable to lower stock compensation expense, the absence of transaction costs in 2022, partially offset by increases in loss on foreign currency transactions and lower operating expenses as described in the preceding paragraphs. ​ Liquidity and Capital Resources Our future results are subject to substantial risks and uncertainties.
The decrease in the 2023 period was attributable increases in gains on foreign currency transactions and lower operating expenses as described in the preceding paragraphs. Liquidity and Capital Resources As of December 31, 2023, our cash and cash equivalents were $8.8 million compared with $4.2 million as of December 31, 2022.
In the future, we expect to continue to incur capital expenditures to support our research and development activities and wider business operations. Financing Activities Net cash flows provided by financing activities was $1.8 million for the year ended December 31, 2022, compared to $22.2 million for the year ended December 31, 2021, a decrease of $20.4 million.
Cash Flow from Financing Activities Net cash flows provided by financing activities was $12.7 million for the year ended December 31, 2023, compared to $1.8 million for the year ended December 31, 2022, an increase of $10.9 million.
These estimates are developed based on historical experience and various other assumptions that we believe to be reasonable under the circumstances. Actual results could differ significantly from the estimates made by management.
To the extent that there are material differences between these estimates and actual results, our financial condition or results of operations would be affected. We base our estimates on our own historical experience and other assumptions that we believe are reasonable after taking account of our circumstances and expectations for the future based on available information.
Critical Accounting Policies and Estimates Our consolidated financial statements and the related notes thereto included in this Report are prepared in accordance with US GAAP. The preparation of consolidated financial statements also requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, costs and expenses, and related disclosures.
Critical Accounting Estimates We prepare our consolidated financial statements in accordance with U.S. generally accepted accounting principles, which require our management to make estimates that affect the reported amounts of assets, liabilities and disclosures of contingent assets and liabilities at the balance sheet dates, as well as the reported amounts of revenues and expenses during the reporting periods.
During the first half of 2022, we consummated a private placement of our common stock resulting in net proceeds of $1.8 million. In connection with the Exchange in February 2021, we consummated a private placement resulting in net cash of $22.2 million in the first half of 2021.
In June 2023, we completed a private placement of our preferred stock and warrants resulting in net proceeds of $12.4 million with an additional $1.8 million related to the issuance of warrants. We incurred $1.5 million in issuance costs in connection with this private placement.
Removed
Our patented TRUFLEX® inks are solution deposited at a low temperature, on low-cost substrates to make OTFT circuits. Our organic semiconductor platform can be used in a number of applications including mini- and micro-LED displays, AMOLED displays, AR and VR headsets, fingerprint sensors and integrated logic circuits.
Added
Our patented TRUFLEX® semiconductor and dielectric inks, or electronic polymers, are used to make a new type of transistor that we believe have the capability to potentially revolutionize the display industry. Our inks enable low temperature printing processes that are compatible with existing manufacturing infrastructure to deliver low-cost displays that outperform existing technologies.
Removed
We have a research and development facility in Manchester, UK, and manufacture product protypes for prospective customers using our semiconductor manufacturing processes housed at the Centre for Process Innovation (CPI) at Sedgefield, UK. We have an extensive IP portfolio including over 125 issued patents across 19 patent families.
Added
Our electronic polymer platform can be used in a range of display technologies including microLED, miniLED and AMOLED displays for next generation televisions, laptops, augmented reality (“AR”) and virtual reality (“VR”) headsets, smartwatches and smartphones. Our loss before income taxes was $8.5 million and $11.5 million for the year ended December 31, 2023, and 2022, respectively.
Removed
Since our inception in 2009, we have devoted substantial amounts of our resources to the research and development of materials and production processes for the manufacture of organic thin film transistors and the enhancement of our intellectual property. Our loss before income taxes was $11.5 million and $17.1 million for the year ended December 31, 2022, and 2021, respectively.
Added
Additionally, future commercial and other factors beyond our control will impact our development programs and plans. Selling, General and Administrative. Selling, general and administrative expenses consist primarily of allocated compensation and related costs for personnel, including share-based compensation, employee benefits and travel.
Removed
The income associated with these items is recognized in the period which the research and development expenses occurred. Additionally, during the year ended December 31, 2021, the Company received government grants under the United Kingdom’s Coronavirus Job Retention Scheme. Operating Expenses Research and Development.
Added
Foreign currency translation reflects adjustments made due to currency fluctuations. Transaction Costs. Costs for equity contracts that are classified as a liability. Fair Value of Warrant Liability. The fair value of equity contracts that are classified as a liability. 42 Table of Contents Interest Income. Interest income is interest on our cash deposits. Income Tax Expense.
Removed
We entered into a term loan facility agreement in 2021 and incurred interest charges on the amount drawn down. The facility was repaid in full and there were no balances outstanding at December 31, 2022, and 2021. Interest Income. Interest income is interest on our cash deposits. 38 Table of Contents Income Tax Expense.
Added
Income tax expense consists primarily of income taxes in jurisdictions in which we conduct business.
Removed
Income tax expense consists primarily of income taxes in jurisdictions in which we conduct business. We incurred income tax expense of $24 thousand in 2022 and zero in 2021. Foreign Currency Translation. Foreign currency translation reflects adjustments made due to currency fluctuations. Results of Operations ​ The following tables set forth our results of operations for the periods presented.
Added
Results of Operations ​ Twelve months ended December 31, 2023 compared with the twelve months ended December 31, 2022 Revenue and Cost of Revenue ​ Our revenue and cost of revenue reflects sales of TRUFLEX® inks and demonstration products and the direct costs associated with those sales.
Removed
The information in the tables below should be read in conjunction with our consolidated financial statements and related notes included in Part II, Item 8 of this Form 10-K.
Added
Revenues were $27.0 thousand for the year ended December 31, 2023, compared to $40.0 thousand for the same period of 2022. Cost of revenue was $23.0 thousand for the twelve months ended December 31, 2023, compared to $33.0 thousand for the same period of 2022.
Removed
The period-to-period comparisons of financial results in the tables below are not necessarily indicative of future results. ​ Comparison of Loss from Operations for the years ended December 31, 2022 and 2021 Our results of operations for the years ended December 31, 2022 and 2021 are as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ ​ Increase (Decrease) US$000 ​ 2022 ​ 2021 ​ Amount Percentage Revenue $ 40 ​ $ 18 $ 22 122 % Cost of revenue ​ 33 ​ 8 ​ 25 313 % Gross profit ​ 7 ​ 10 ​ (3) (30) % Other operating income ​ 1,172 ​ 1,285 ​ (113) (9) % ​ ​ ​ ​ ​ ​ ​ Research and development expenses ​ 5,802 ​ 8,199 ​ (2,397) (29) % Selling, general and administrative expenses ​ 5,071 ​ 8,069 ​ (2,998) (37) % Transaction expenses ​ — ​ 1,329 ​ (1,329) (100) % Total operating expenses ​ 10,873 ​ 17,597 ​ (6,724) (38) % Loss from operations $ (9,694) ​ $ (16,302) $ 6,608 (41) % ​ ​ Revenue and Cost of Revenue ​ Our revenue currently consists of revenue from the sale of TRUFLEX® inks and demonstration products.
Added
The decrease is mainly the results of less unit sales in 2023 compared to 2022, reflecting the largely one-off nature of these sales, consistent with our current stage of commercialization. Other Operating Income ​ Other operating income was $0.8 million and $1.2 million for the years ended December 31, 2023 and 2022, respectively.
Removed
The year-over-year change in revenue and gross profit reflects the largely one-off nature of these sales, consistent with our current stage of commercialization.
Added
The primary sources of the other operating income in these periods were a research grant and research and development tax credits.
Removed
Other Operating Income ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ Increase (Decrease) ​ ​ % of total ​ % of total US$000 2022 2021 Amount Percentage ​ ​ 2022 ​ 2021 Research & development tax credit ​ $ 1,168 ​ $ 1,095 ​ $ 73 ​ 7 % ​ 100% ​ 85% Research & development grants ​ ​ — ​ ​ 181 ​ ​ (181) ​ (100) % ​ 0% ​ 14% Sale of fixed assets ​ ​ 4 ​ ​ — ​ ​ 4 ​ 100 % ​ 0% ​ 0% Other grants ​ — ​ 9 ​ (9) ​ (100) % ​ 0% ​ 1% Total other operating income ​ $ 1,172 ​ $ 1,285 ​ $ (113) ​ (9) % ​ 100% ​ 100% ​ Our Other Operating Income includes government grants received for qualifying research and development projects, and research and development tax credits related to the United Kingdom’s Research and Development tax relief for small and medium-sized enterprises, which is a government tax incentive designed to reward innovative companies for investing in research and development.
Added
The decrease is mostly attributable to a reduction in the allowable research and development expenses and a lowering of the tax credit rate to be applied to the allowable expenses of which both went into effect in 2023. ​ Operating Expenses ​ Operating expenses decreased by $0.1 million to $10.8 million for the year ended December 31, 2023, compared to $10.9 million for the comparable period of 2022.
Removed
The increase in R&D Tax Credit reflects higher eligible expenditure in 2022 39 Table of Contents compared to 2021. In 2021, R&D grant funding was secured for the “SmartLight” project that successfully demonstrated OTFT mini-LED backlights for displays with improved light uniformity and lower defects.
Added
The decrease is mainly due to lower personnel costs related to reductions in force effected in December 2022 and September 2023 and lower technical research and development costs, including consulting, testing and lab supplies.
Removed
Operating Expenses ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ Increase (Decrease) ​ ​ % of total ​ % of total US$000 2022 2021 Amount Percentage ​ ​ 2022 ​ 2021 Research and development ​ $ 5,802 ​ $ 8,199 ​ $ (2,397) ​ (29) % ​ 53% ​ 47% Selling, general and administrative ​ ​ 5,071 ​ ​ 8,069 ​ ​ (2,998) ​ (37) % ​ 47% ​ 46% Transaction expenses ​ — ​ 1,329 ​ (1,329) ​ (100) % ​ 0% ​ 7% Total operating expenses ​ $ 10,873 ​ $ 17,597 ​ $ (6,724) ​ (38) % ​ 100% ​ 100% ​ Operating expenses decreased by $6.7 million, or 38%, to $10.9 million for the year ended December 31, 2022, compared to $17.6 million for the comparable period of 2021.
Added
There was an increase in personnel costs due to severance costs and the accrual of bonus payments in 2023. This was offset by a reduction in investor relations cost and other professional service fees.
Removed
This decrease was mainly due to a $2.9 million decrease in stock compensation expense, a $0.3 million reduction from the effect of exchange rate movements compared to the prior period, partially offset by $0.2 million additional expense from the additional insurance and professional services expenses of operating as a public company and from increased marketing and related expenses promoting our products.
Added
Non-Operating Income/(Expenses) and Net Loss ​ The increase of $3.0 million in gain on foreign currency transactions was due to fluctuations in U.S. dollar/U.K. pound value arising from transactions denominated in foreign currencies and the translation of foreign currency denominated balances on intra-group loans.
Removed
Transaction costs of $1.3 million associated with the Share Exchange Agreement with SmartKem Limited, pursuant to which all of the equity interests in SmartKem Limited, except certain “deferred shares” which had no economic or voting rights and which were purchased by us for an aggregate purchase price of $1.40, were exchanged for shares of our common stock and SmartKem Limited became our wholly owned subsidiary (the “Exchange”) were incurred in the year ended December 31, 2021.
Added
Issuance costs of $0.2 million allocated to the warrant liability were expensed in full during the year ended December 31, 2023. The majority of costs were legal, placement and consulting fees specifically related to the private placement transaction.
Removed
The Exchange was consummated during the first quarter of 2021 and no significant additional Exchange-related expenses were recorded thereafter. We expect to continue to incur significant expenses and operating losses for the foreseeable future.
Added
There were no similar gains or losses recorded during the prior year. 43 Table of Contents A gain of $0.5 million related to the valuation of the warrant liability was recorded during the year ended December 31, 2023. There were no similar gains or losses recorded during the prior year.
Removed
We expect our expenses will increase in connection with our ongoing activities as we: ● continue to develop our core material, EDA tools and foundry services; ● add sales and field applications personnel and incur related expenses to support operational growth; ● increase activity directly related to promoting our products to increase revenues; and ● add financial accounting and management systems to position us for growth. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 40 Table of Contents Non-Operating (Expenses)/Income and Net Loss ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ ​ (Increase) Decrease US$000 ​ ​ 2022 ​ 2021 ​ Amount Percentage Loss from operations ​ $ (9,694) ​ $ (16,302) ​ $ 6,608 ​ (41) % Non-operating (expense)/income ​ ​ ​ ​ Loss on foreign currency transactions ​ (1,782) ​ (808) ​ (974) 121 % Interest expense ​ ​ — ​ ​ (19) ​ ​ 19 ​ (100) % Interest income ​ ​ 5 ​ ​ 3 ​ ​ 2 ​ 67 % Total non-operating expense ​ (1,777) ​ (824) ​ (953) 116 % Loss before income taxes ​ (11,471) ​ (17,126) ​ 5,655 (33) % Income tax expense ​ (24) ​ — ​ (24) — ​ Net loss ​ $ (11,495) ​ $ (17,126) ​ $ 5,631 ​ (33) % ​ The increase in loss on foreign currency transactions was due to fluctuations in U.S. dollar/U.K. pound value arising from transactions denominated in foreign currencies and the translation of foreign currency denominated balances on intra-group loans that were first advanced in 2021.
Added
We believe this will be sufficient to fund our operating expenses and capital expenditure requirements through the end of April 2025. It is possible this period could be shortened if there are any significant increases in planned spending or development programs or more rapid progress of development programs than anticipated.
Removed
We have operated at a loss for our entire history and anticipate that losses will continue over the coming year. To date, we have funded our liquidity and capital requirements primarily with proceeds from the private sale of our equity and debt securities and borrowing against our research and development credits.
Added
There can be no assurance however that such financing will be available in sufficient amounts, when and if needed, on acceptable terms or at all.
Removed
We will need to obtain additional funds to satisfy our operational needs and to fund our sales and marketing efforts, research and development expenditures, and business development activities.
Added
The precise amount and timing of the funding needs cannot be determined accurately at this time, and will depend on a number of factors, including the market demand for the Company’s products and services, the quality of product development efforts, management of working capital, and continuation of normal payment terms and conditions for purchase of services.
Removed
Our future liquidity and working capital requirements will depend on many factors including our ability to generate revenue from product sales, the timing and extent of spending to support our sales and marketing, product development and research and development efforts, our entry into one or more material agreements containing significant performance obligations and our needs for working capital to support our business operations.
Added
If the Company is unable to substantially increase revenues, reduce expenditures, or otherwise generate cash flows for operations, then the Company will need to raise additional funding.
Removed
Until such time, if ever, as we can generate sufficient cash through revenue, we expect to finance our working capital requirements through a combination of equity offerings, debt financings, collaborations, strategic alliances and marketing, distribution, or licensing arrangements.
Added
Cash Flow from Operating Activities Net cash used in operating activities was $8.0 million for the year ended December 31, 2023, compared to $9.0 million for the year ended December 31, 2022, a decrease of $1.0 million.
Removed
We may be unable to raise additional funds or enter into such other agreements or arrangements when needed on favorable terms, or at all. As of December 31, 2022, our cash and cash equivalents were $4.2 million compared with $12.2 million as of December 31, 2021.
Added
We evaluate these estimates on an ongoing basis.
Removed
We believe that our cash and cash equivalents will be sufficient to support our expected liquidity and working capital requirements through the end of May 2023.
Added
We consider an accounting estimate to be critical if: (i) the accounting estimate requires us to make assumptions about matters that were highly uncertain at the time the accounting estimate was made, and (ii) changes in the estimate that are reasonably likely to occur from period to period or use of different estimates that we reasonably could have used in the current period, would have a material impact on our financial condition or results of operations.
Removed
However, in the event that we enter into contracts involving significant sales of our products, development agreements, license agreements, collaborations, acquisitions or other material transactions, we may require additional working capital to support our increased obligations.
Added
Management has discussed the development and selection of these critical accounting estimates with the Audit Committee of our Board of Directors. In addition, there are other items within our financial statements that require estimation but are not deemed critical as defined above. Changes in estimates used in these and other items could have a material impact on our financial statements.
Removed
To date, we have not recorded significant revenues related to product sales and therefore do not have any present need to fund inventory or accounts receivable. Our consolidated financial statements as of December 31, 2022 have been prepared under the assumption that we will continue as a going concern for the next twelve months.
Added
This model uses inputs such as the underlying price of the shares issued at the measurement date, expected volatility, risk free interest rate and expected life of the instrument. Since our common stock was not publicly traded until February 2022 there has been insufficient volatility data available.
Removed
We expect to incur significant expenses and operating losses for the foreseeable future. These factors raise substantial doubt about our ability to continue as a going concern. Because our business does not generate positive cash flow from operating activities, we will need to obtain substantial additional capital in order to support our development efforts and fully commercialize our technology.
Added
Accordingly, we have used an expected volatility based on historical common stock volatility of our peers. In addition, we used the probability of uplisting as an input in the model to determine the fair value of the warrant liability. JOBS Act Accounting Election We are an emerging growth company, as defined in the JOBS Act.
Removed
We believe we 41 Table of Contents will be able to raise additional capital in the event it is in our best interest to do so. Management’s plans are to finance the working capital requirements through a combination of equity offerings, debt financings, collaborations, strategic alliances and marketing, distribution or licensing arrangements.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeItem 7A. Quantitative and Qualitative Disclosures About Market Risk. ​ We are a smaller reporting company as defined in Rule 12b-2 of the Exchange Act; therefore, pursuant to Item 301(c) of Regulation S-K, we are not required to provide the information required by this Item. ​
Biggest changeItem 7A. Quantitative and Qualitative Disclosures About Market Risk. ​ We are a smaller reporting company as defined in Rule 12b-2 of the Exchange Act; therefore, pursuant to Item 301(c) of Regulation S-K, we are not required to provide the information required by this Item. 45 Table of Contents

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