Item 1.01 Entry into a Material Definitive Agreement.
As previously disclosed, on June 14, 2023, SmartKem, Inc., a Delaware
corporation (the "Company"), entered into a Securities Purchase Agreement (the
"Purchase Agreement") pursuant to which it sold, in an initial closing of a
private placement, securities of the Company for aggregate gross proceeds of
$12,179,000 (the "Initial Closing" and the date of the Initial Closing, the
"Initial Closing Date").
On June 22, 2023, the Company sold, pursuant to the Purchase Agreement, an
additional (i) 1,870.36596 shares (the "Series A-1 Preferred Shares") of the
Company's Series A-1 Convertible Preferred Stock, stated value $1,000 per share
(the "Series A-1 Preferred Stock"), initially convertible into an aggregate of
7,481,464 shares of the Company's common stock, par value $0.0001 (the "Common
Stock") at a conversion price of $0.25 (subject to adjustment in certain
circumstances), (ii) 100 shares (the "Series A-2 Preferred Shares" and together
with the Series A-1 Preferred Shares, the "Preferred Shares") of the Company's
Series A-2 Convertible Preferred Stock, stated value $1,000 per share ("Series
A-2 Preferred Stock" and together with the Series A-1 Preferred Stock, the
"Preferred Stock"), initially convertible into an aggregate of 400,000 shares of
Common Stock at a conversion price of $0.25 (subject to adjustment in certain
circumstances) (the shares of Common Stock issuable upon conversion of the
Preferred Shares, collectively, the "Conversion Shares"), and (iii) Class A
Warrants (the "Class A Warrants"), to purchase up to an aggregate of 7,881,464
shares of Common Stock (the "Class A Warrant Shares") at an exercise price $0.25
per share (subject to adjustment in certain circumstances) for aggregate gross
proceeds of approximately $1.97 million (the "Second Closing" and the date of
the Second Closing, the "Second Closing Date"). The offering of the Preferred
Stock and the Class A Warrants by the Company pursuant to the Purchase Agreement
is hereinafter referred to as the "Offering."
The Purchase Agreement contains customary representations and warranties and
agreements of the Company and the purchasers party to the Purchase Agreement and
customary indemnification rights and obligations of the parties. The
representations and warranties of each party set forth in the Purchase Agreement
have been made solely for the benefit of the other parties to the Purchase
Agreement, and such representations and warranties should not be relied on by
any other person.
The Special Equities Group, a division of Dawson James Securities, Inc., and
Katalyst Securities LLC acted as the Company's placement agents in connection
with the Offering (the "Placement Agents"). Pursuant to the terms of the amended
and restated engagement letter, as amended, between the Company and the
Placement Agents, on the Second Closing Date, the Company paid the Placement
Agents a fee of approximately $1.1 million, of which approximately $900,000 was
paid in cash. The Placement Agents used the remaining approximately $200,000 to
purchase 199 shares of Series A-1 Preferred Stock and Class A Warrants to
purchase up to 796,000 shares of Common Stock in the Offering. In addition,
pursuant to the engagement letter, on the Second Closing Date, the Company
issued to the Placement Agents or their designees warrants (the "Placement Agent
Warrants") to purchase up 4,464,118 shares of Common Stock. The Placement Agent
Warrants have exercise price of $0.25 per share. The Placement Agent Warrants
will be exercisable beginning on the 180-day anniversary of the Second Closing
Date and will expire five years from the Initial Closing Date. The Company also
agreed to pay the Placement Agents a non-accountable legal expense allowance of
$30,000, $15,000 of which was paid on the Initial Closing Date with the
remaining $15,000 paid on the Second Closing Date.
In connection with the Second Closing, the Company issued Class B Warrants (the
"Consultant Warrants") to purchase up to 300,000 shares of Common Stock (the
"Consultant Warrant Shares") to a consultant in exchange for services to be
provided to the Company.
The Company issued a press release on June 23, 2023 announcing the Second
Closing of the Offering which press release is attached as Exhibits 99.1 hereto.
Item 3.02 Unregistered Sales of Equity Securities
The description of the issuance on the Second Closing Date of the Preferred
Stock, the Warrants, the Placement Agent Warrants and the Consultant Warrants
under Item 1.01 of this Form 8-K is incorporated by reference herein.
The Preferred Shares, the Class A Warrants, Placement Agent Warrants and the
Consultant Warrants are being sold pursuant to an exemption from registration
under the Securities Act of 1933, as amended (the "Securities Act"), available
under Section 4(a)(2) and/or Rule 506(b) of Regulation D promulgated thereunder.
The Conversion Shares, the Class A Warrant Shares, the Placement Agent Warrant
Shares and the Consultant Warrant Shares will be issued pursuant to the same
exemption or pursuant to the exemption provided by Section 3(a)(9) of the
Securities Act.
Item 3.03 Material Modification to Rights of Security Holders.
The description of the terms of the Preferred Stock was previously reported by
the Company under Item 1.01 and Item 5.03 of the Form 8-K filed by the Company
on June 15, 2023 and is hereby incorporated herein by reference.
Item 4.01. Changes in Registrant's Certifying Accountants.
On June 20, 2023, the Company requested and the Audit Committee (the "Audit
Committee") of the Board of Directors of the Company accepted the resignation of
BDO LLP ("BDO"), the Company's independent registered public accounting firm,
effective June 20, 2023. The Audit Committee approved the engagement of Marcum
LLP ("Marcum") as its new independent registered public accounting firm as of
and for the year ended December 31, 2023 to fill the vacancy created by the
resignation of BDO. As described below, the change in independent registered
public accounting firm is not the result of any disagreement with BDO.
BDO's audit reports on the Company's financial statements for the years ended
December 31, 2021 and 2022 did not provide an adverse opinion or disclaimer of
opinion to the Company's financial statements, nor modify its opinion as to
uncertainty, audit scope or accounting principles, except that (i) the reports
contained explanatory paragraphs stating that conditions existed that raised
substantial doubt about the Company's ability to continue as a going concern and
(ii) the report for the year ended December 31, 2021 contained a paragraph
related to the restatement of the 2021 financial statements.
During the fiscal years ended December 31, 2021 and 2022, and the subsequent
interim periods through June 20, 2023, there were: (i) no disagreements within
the meaning of Item 304(a)(1)(iv) of Regulation S-K and the related instructions
between the Company and BDO on any matters of accounting principles or
practices, financial statement disclosure, or auditing scope or procedure which,
if not resolved to BDO's satisfaction, would have caused BDO to make reference
thereto in their reports; and (ii) no "reportable events" within the meaning of
Item 304(a)(1)(v) of Regulation S-K, except (a) the material weakness in
internal controls identified by management in August 2022 related to the design
and implementation of controls to evaluate and monitor the presentation and
compliance with accounting principles generally accepted in the United States of
America related to the cash flow statement and (b) the material weaknesses
identified during the year ended December 31, 2020 and interim reporting periods
during the year ended December 31, 2021 related to (x) segregation of duties
risks in connection with the Company's information technology infrastructure and
(y) the fact that policies and procedures with respect to the review,
supervision and monitoring of the Company's accounting and reporting functions
were either not designed and in place, or not operating effectively.
During the fiscal years ended December 31, 2021 and 2022 and the subsequent
interim periods through June 20, 2023, neither the Company nor anyone on its
behalf has consulted with Marcum regarding: (i) the application of accounting
principles to a specific transaction, either completed or proposed, or the type
of audit opinion that might be rendered on the Company's financial statements,
and neither a written report nor oral advice was provided to the Company that
Marcum concluded was an important factor considered by the Company in reaching a
decision as to any accounting, auditing, or financial reporting issue; (ii) any
matter that was the subject of a disagreement within the meaning of Item
304(a)(1)(iv) of Regulation S-K and the related instructions; or (iii) any
reportable event within the meaning of Item 304(a)(1)(v) of Regulation S-K.
The Company has provided BDO with a copy of the disclosures in this Form 8-K and
has requested that BDO furnish the Company with a letter addressed to the SEC
stating whether it agrees with the statements made herein and if not, stating in
what respects it does not agree. A copy of BDO's letter, dated June 23, 2023 is
filed as Exhibit 16.1 to this Form 8-K.
Item 9.01. Financial Statements and Exhibits.
(d) The following exhibit is furnished with this report:
Exhibit No. Description
16.1 Letter from BDO to the SEC
99.1 Press Release, dated June 23, 2023
104 Cover Page Interactive Data File (embedded within the Inline XBRL document)
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