SmartKem, Inc 10-Q for FY2026 Q1
SmartKem, Inc. (SMTK)
About this 10-Q
SmartKem, Inc filed this 10-Q on May 20, 2026, covering the quarter ended March 31, 2026 (FY2026 Q1).
Headline figures
Quarter ended March 31, 2026, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $20K
- down 13.0% from $23K a year earlier
- Net loss
- $19.37M
- compared with a net loss of $2.13M a year earlier
- Diluted EPS
- -$1.34
- compared with -$0.32 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
EXCHANGE ACT OF 1934
For the quarterly period ended
or
EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number:
(Exact name of registrant as specified in its charter)
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Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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Large accelerated filer | ☐ | Accelerated filer | ☐ |
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| Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
As of May 18, 2026, there were
TABLE OF CONTENTS
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| Unaudited Condensed Consolidated Balance Sheets as of March 31, 2026 and December 31, 2025 | 3 |
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| Notes to the Unaudited Interim Condensed Consolidated Financial Statements | 7-20 |
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Management’s Discussion and Analysis of Financial Condition and Results of Operations | 21 | |
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Item 1. Financial Statements
SMARTKEM, INC.
Condensed Consolidated Balance Sheets
(Unaudited)
(in thousands, except number of shares and per share data)
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| | March 31, | | December 31, | ||
| | 2026 | | 2025 | ||
Assets |
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Current assets | | | | | | |
Cash and cash equivalents | | $ | | | $ | |
Accounts receivable | |
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Research and development tax credit receivable | |
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Prepaid expenses and other current assets | |
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Total current assets | |
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Property, plant and equipment, net | |
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Right-of-use assets, net | |
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Total assets | | $ | | | $ | |
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Liabilities and stockholders’ (deficit) / equity | |
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Current liabilities | | | | | | |
Accounts payable and accrued expenses | | $ | | | $ | |
Lease liabilities, current | |
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Notes payable, net | | | | |
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Deferred revenue | | | | | | |
Total current liabilities | |
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Lease liabilities, non-current | |
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Total liabilities | |
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Contingencies (Note 9) | |
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Stockholders’ equity / (deficit): | |
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Preferred stock, par value $ | |
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Common stock, par value $ | |
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Additional paid-in capital | |
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Accumulated other comprehensive loss | |
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Accumulated deficit | |
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Total stockholders' equity / (deficit) | |
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Total liabilities and stockholders’ equity / (deficit) | | $ | | | $ | |
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The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements.
3
SMARTKEM, INC.
Condensed Consolidated Statements of Operations and Comprehensive Loss
(Unaudited)
(in thousands, except number of shares and per share data)
| | Three Months Ended March 31, | ||||
| | 2026 | | 2025 | ||
Revenue | | $ | | | $ | |
Cost of revenue | |
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Gross profit | |
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Other operating income | |
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Operating expenses | |
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Research and development | |
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General and administrative | |
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Loss / (gain) on foreign currency transactions | |
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Total operating expenses | |
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Loss from operations | |
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Non-operating (expense) / income | |
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(Loss) / gain on foreign currency transactions | | | ( | | | |
Change in fair value of derivative liabilities | | | ( | | | — |
Loss on the execution of equity line of credit (ELOC) | | | ( | | | — |
Loss on settlement debt | | | ( | | | — |
Transaction costs related to debt financing | | | ( | | | — |
Interest, net | |
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Total non-operating (expense) / income | |
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Loss before income taxes | | | ( | | | ( |
Income tax refund | | | — | | | |
Net loss | | $ | ( | | $ | ( |
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Common share data: | | | | | | |
Basic and diluted net loss per common share | | $ | ( | | $ | ( |
Weighted average shares outstanding - basic and diluted | | | | | | |
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Net loss | | $ | ( | | $ | ( |
Other comprehensive loss: | |
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Foreign currency translation | |
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Total comprehensive loss | | $ | ( | | $ | ( |
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The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements.
4
SMARTKEM, INC.
Condensed Consolidated Statements of Stockholders’ Equity / (Deficit)
(Unaudited)
(in thousands, except share data)
| | Preferred Stock | | Common stock | | Additional | | Accumulated other | | | | | Total | |||||||||
| | $0.0001 par value | | $0.0001 par value | | paid-in | | comprehensive | | Accumulated | | stockholders' | ||||||||||
| | Shares | | Amount | | Shares | | Amount | | capital | | income / (loss) | | deficit | | equity / (deficit) | ||||||
Balance at January 1, 2026 | | — | | $ | — | | | | $ | | | $ | | | $ | ( | | $ | ( | | $ | ( |
Stock-based compensation expense | | — | |
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Exercise of stock options into common stock | | — | |
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Cashless exercise of warrants into common stock | | — | |
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Common stock issued for settlement of debt | | — | |
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Issuance of common stock and warrants, net of issuance costs | | — | |
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Issuance of common stock, net of issuance costs | | — | |
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Issuance of Series A-1 Preferred Stock and warrants, net of issuance costs | | | |
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Exchange of notes payable for Series A-1 Preferred Stock | | | | | — | | — | |
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Issuance of Series A-1 Preferred Stock for equity line of credit (ELOC) | | | |
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Foreign currency translation adjustment | | — | |
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Net loss | | — | |
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Balance at March 31, 2026 | | | | $ | — | | | | $ | | | $ | | | $ | ( | | $ | ( | | $ | |
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| | Preferred Stock | | Common stock | | Additional | | Accumulated other | | | | | Total | |||||||||
| | $0.0001 par value | | $0.0001 par value | | paid-in | | comprehensive | | Accumulated | | stockholders' | ||||||||||
| | Shares | | Amount | | Shares | | Amount | | capital | | income / (loss) | | deficit | | equity | ||||||
Balance at January 1, 2025 | | | | $ | — | | | | $ | — | | $ | | | $ | ( | | $ | ( | | $ | |
Stock-based compensation expense | | — | |
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Issuance of common stock to vendor | | — | |
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Foreign currency translation adjustment | | — | |
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Net loss | | — | |
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Balance at March 31, 2025 | | | | $ | — | | | | $ | — | | $ | | | $ | ( | | $ | ( | | $ | |
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The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements.
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SMARTKEM, INC.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(in thousands)
| | Three Months Ended March 31, | ||||
| | 2026 | | 2025 | ||
Cash flow from operating activities: |
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Net loss | | $ | ( | | $ | ( |
Adjustments to reconcile net loss to net cash used in operating activities: | |
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Depreciation | | | | | | |
Stock-based compensation expense | | | | | | |
Issuance of common stock to vendor | | | — | | | |
Right-of-use asset amortization | | | | | | |
Loss / (gain) on foreign currency transactions | | | | | | ( |
Change in fair value of derivative liabilities | | | | | | — |
Loss on the execution of equity line of credit (ELOC) | | | | | | — |
Debt discount amortization | | | | | | — |
Loss on the extinguishment of debt | | | | | | — |
Transactions costs allocable to notes payable and equity line of credit (ELOC) | | | | | | — |
Change in operating assets and liabilities: | | | | | | |
Research and development tax credit receivable | | | | | | ( |
Prepaid expenses and other assets | | | ( | | | ( |
Accounts payable and accrued expenses | | | | | | ( |
Lease liabilities | | | ( | | | ( |
Other current liabilities | | | ( | | | |
Net cash used in operating activities | |
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Cash flow from financing activities: | |
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Gross proceeds received related to Common Stock and Warrants Purchase Agreement | | | | | | — |
Payments for financing expense related to Common Stock and Warrants Purchase Agreement | | | ( | | | — |
Payment for legal expenses related to extinguishment of debt | | | ( | | | — |
Gross proceeds received related to note payable | | | | | | — |
Payment for legal expense related to notes payable | | | ( | | | — |
Principal payment for the settlement of note payable | | | ( | | | — |
Payment for a release of claims related to notes payable | | | ( | | | — |
Gross proceeds received related to Common Stock Purchase Agreement | | | | | | — |
Payment for financing expense related to Common Stock Purchase Agreement | | | ( | | | — |
Gross proceeds received related to Preferred Stock and Warrants Purchase Agreement | | | | | | — |
Payment for financing expense related to Preferred Stock and Warrants Purchase Agreement | | | ( | | | — |
Payment for financing expense related to equity line of credit (ELOC) | | | ( | | | — |
Principal payment on the financing of the director and officer insurance policy | | | ( | | | — |
Net cash provided by financing activities | |
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Effect of exchange rate changes on cash | | | | |
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Net change in cash | |
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Cash, beginning of period | | | | | | |
Cash, end of period | | $ | | | $ | |
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Supplemental disclosure of cash and non-cash investing and financing activities | |
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Initial classification of fair value of derivative liability | | | | | | — |
Debt discount related to notes payable | | | | | | — |
Conversion of debt to preferred stock and warrants | | | | | | — |
Financing of directors’ and officers' liability insurance with debt | | | | | | — |
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The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements.
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1. | GENERAL |
Organization
SmartKem, Inc. (“SmartKem” or the “Company”) a Delaware corporation, formerly known as Parasol Investments Corporation (“Parasol”), was formed on May 13, 2020, and is the successor, as discussed below, of SmartKem Limited, which was formed under the Laws of England and Wales. The Company was founded as a “shell” company registered under the Exchange Act, with no specific business plan or purpose until it began operating the business of SmartKem Limited following the closing of the Exchange described below.
On February 23, 2021, Parasol entered into a Securities Exchange Agreement (the “Exchange Agreement”), with SmartKem Limited. Pursuant to the Exchange Agreement all of the equity interests in SmartKem Limited, except certain deferred shares which had no economic or voting rights, and which were purchased by Parasol for an aggregate purchase price of $
As a result of the Exchange, Parasol legally acquired the business of SmartKem Limited, and continues as the existing business operations of SmartKem Limited as a public reporting company under the name SmartKem, Inc.
Business
We are seeking to change the world of electronics with a new class of transistor developed using our proprietary advanced semiconductor materials that we believe has the potential to revolutionize the display industry. Our TRUFLEX® semiconductor polymers enable low-temperature printing processes that are compatible with existing manufacturing infrastructure to deliver low-cost, high-performance displays. Our semiconductor platform can be used in a range of display technologies, including MicroLED, liquid crystal display (“LCD”), and AMOLED, as well as in applications in advanced computer and artificial intelligence chip packaging, sensors, and logic.
We design and develop our materials at our research and development facility in Manchester, UK. We also operate a field application office in Hsinchu, Taiwan, in close proximity to our collaboration partner, The Industrial Technology Research Institute of Taiwan. Together with our collaboration partners, we are developing a commercial-scale production process and Electronic Design Automation ("EDA") tools for our materials to demonstrate the commercial viability of manufacturing a new generation of displays using our materials.
During the first quarter of 2026, SmartKem was involved in a number of financing transactions. These included the transfer of our patent portfolio to a third party. The company still owns its process and formulation intellectual property as codified in 40 trade secrets. As previously disclosed, the Company is continuing to conduct a review of its strategy. In particular, it is evaluating its display prototyping activities, its materials formulation activities and the possibility of adding new materials to its portfolio.
The consolidated entity presented is referred to herein as “SmartKem”, “we”, “us”, “our”, or the “Company”, as the context requires and unless otherwise noted.
Risk and Uncertainties
The Company’s activities are subject to significant risks and uncertainties including the risk of failure to secure additional funding to properly execute the Company’s business plan. The Company is subject to risks that are common to companies in the growth stage, including, but not limited to, development by the Company or its competitors of new technological innovations, dependence on key personnel, reliance on third party manufacturers, protection of proprietary technology, and compliance with regulatory requirements.
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Going Concern
The Company has incurred continuing losses including net losses of $
The Company expects that its cash and cash equivalents of $
The Company’s future viability will continue to be dependent on its ability to raise additional capital to fund its operations. The Company will need to obtain additional funds to satisfy its operational needs. Until such time, if ever, as the Company can generate sufficient cash through revenue, management’s plans are to finance the Company’s working capital requirements through a combination of equity offerings, including the issuance of Common Stock pursuant to the ELOC Purchase Agreement (as defined in Note 8), debt financings, collaborations, strategic alliances and marketing, distribution or licensing arrangements. If the Company raises additional funds by issuing equity securities, the Company’s existing security holders will likely experience dilution. If the Company borrows money, the incurrence of indebtedness would result in increased debt service obligations and could require the Company to agree to operating and financial covenants that could restrict its operations. If the Company enters into a collaboration, strategic alliance or other similar arrangement, it may be forced to give up valuable rights. 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. 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. If the Company is unable to substantially increase revenues, reduce expenditures, or otherwise generate cash flows for operations, then the Company will need to raise additional funding.
There is substantial doubt that the Company will be able to pay its obligations as they fall due, and this substantial doubt is not alleviated by management plans. The condensed consolidated financial statements as of March 31, 2026 have been prepared assuming that the Company will continue as a going concern. Accordingly, the consolidated financial statements do not include any adjustments to the amounts and classification of assets and liabilities that may be necessary should the Company be unable to continue as a going concern.
Basis of Presentation
The unaudited interim condensed consolidated financial statements of the Company as of March 31, 2026 and December 31, 2025 and for the three months ended March 31, 2026 and 2025 should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2025 (the “Annual Report”), which was filed with the SEC on April 8, 2026 and may also be found on the Company’s website (www.smartkem.com). In these notes to the interim condensed consolidated financial statements the terms “us,” “we” or “our” refer to the Company and its consolidated subsidiaries.
These interim condensed consolidated financial statements are unaudited and were prepared by the Company in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim reporting and with the SEC’s instructions to Form 10-Q and Article 10 of Regulation S-X. They include the accounts of all wholly owned subsidiaries and all significant inter-company accounts and transactions have been eliminated in consolidation. Amounts are presented in thousands, except number of shares and per share data.
The preparation of interim condensed consolidated financial statements requires management to make assumptions and estimates that impact the amounts reported. These interim condensed consolidated financial statements reflect all adjustments, consisting of normal recurring accruals, necessary for a fair presentation of the Company’s results of operations, financial position and cash flows for the interim periods ended
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March 31, 2026 and 2025; however, certain information and footnote disclosures normally included in our audited consolidated financial statements included in our Annual Report have been condensed or omitted as permitted by GAAP. It is important to note that the Company’s results of operations and cash flows for interim periods are not necessarily indicative of the results of operations and cash flows to be expected for a full fiscal year or any interim period.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Other than the policies listed below, there have been no material changes to the Company’s significant accounting policies as set forth in Note 3 Summary of Significant Accounting Policies to the consolidated financial statements included in the Company’s Annual Report.
Management’s Use of Estimates
The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, including disclosure of contingent assets and liabilities, at the date of the consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period. The most significant estimates in the Company’s consolidated financial statements relate to the valuation of common stock, fair value of stock options and fair value of derivative liabilities. These estimates and assumptions are based on current facts, historical experience and various other factors believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the recording of expenses that are not readily apparent from other sources. Due to the uncertainty of factors surrounding the estimates or judgments used in the preparation of the consolidated financial statements, actual results may materially vary from these estimates.
Fair Value of Financial Instruments
ASC 820, Fair Value Measurements, provides guidance on the development and disclosure of fair value measurements. Under this accounting guidance, fair value is defined as an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or a liability.
The accounting guidance classifies fair value measurements in one of the following three categories for disclosure purposes:
Level 1: Quoted prices in active markets for identical assets or liabilities.
Level 2: Inputs other than Level 1 prices for similar assets or liabilities that are directly or indirectly observable in the marketplace.
Level 3: Unobservable inputs which are supported by little, or no market activity and values determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant judgment or estimation.
Fair value measurements discussed herein are based upon certain market assumptions and pertinent information available to management as of and during the period ended March 31, 2026. The carrying value of the Company’s cash, accounts receivable, other receivables, and accounts payable approximate fair value because of the short-term maturity of these financial instruments.
Issuance Costs
The Company assessed the issuance cost in connection with the issuance of an equity offering. ASC 340-10-S99-1 and SEC Staff Accounting Bulletin (“SAB”) Topic 5A, Expenses of Offering, states that specific incremental costs directly attributable to a proposed or actual offering of equity securities may properly be deferred and charged against the gross proceeds of the offering. Analogizing to that guidance, specific incremental costs directly attributable to the issuance of an equity contract to be classified in equity should generally be recorded as
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a reduction in equity. However, issuance costs for equity contracts that are classified as a liability should be expensed immediately. The issuance costs are allocated to the equity and liability components of the underlying transaction on a basis of the allocated fair value of the gross proceeds in the overall transactions.
Direct and incremental legal and accounting costs associated with the Company’s issuance of common stock, preferred stock and warrants are deferred and classified as a component of other assets on the consolidated balance sheet until completion of the issuance. Upon completion of the issuance, deferred offering costs are reclassified from other assets to equity in additional paid-in capital and recorded against the net proceeds received in the issuance. For the period ended March 31, 2026, we recorded $
Segment Information
Operating segments are defined as components of an enterprise about which separate discrete information is available for evaluation by the chief operating decision-maker, or decision-making group, in deciding how to allocate resources and in assessing performance. The Company views its operations and manages its business as
Recent Accounting Pronouncements
On November 2024, the FASB issued Accounting Standards Update (ASU) No. 2024-03, Income Statement (Topic 220): Reporting Comprehensive Income - Expense Disaggregation Disclosures, Disaggregation of Income Statement Expenses, which requires public companies to disclose, in interim and annual reporting periods, additional information about certain expenses in the financial statements. The amendments in this pronouncement will be effective for annual periods beginning after December 15, 2026, and interim reporting periods beginning after December 15, 2027. Early adoption is permitted and is effective on either a prospective basis or retrospective basis. The Company is currently assessing the potential impacts of adoption on its consolidated financial statements and related disclosures.
In July 2025, the FASB issued ASU 2025-05, Financial Instruments - Credit Losses, which provides a practical expedient for estimating expected credit losses for current accounts receivable and current contract assets that arise from transactions accounted for under Topic 606, Revenue from Contracts with Customers. ASU 2025-05 is effective for annual periods beginning after December 15, 2025 and interim periods within those annual reporting periods and should be applied prospectively, with early adoption permitted. The adoption of this guidance did not have a material impact in the interim condensed consolidated financial statements of the Company.
In December 2025, the FASB issued ASU 2025-12, Codification Improvements, which clarifies various topics in the Accounting Standards Codification to improve consistency and address technical corrections. Key improvements include clarifying the calculation of diluted earnings per share (EPS) when a loss from continuing operations exists. The amendments in this update are effective for the Company beginning January 1, 2027, with early adoption permitted. The Company is assessing the impact of adopting this standard.
In December 2025, the FASB issued ASU 2025-11, Interim Reporting (Topic 270): Narrow Scope Improvements. This update clarifies the applicability of interim reporting guidance and the form and content of interim financial statements. It also establishes a disclosure principle requiring an entity to disclose material events and changes occurring since the end of the last annual reporting period. ASU 2025-11 is effective for the Company for interim periods within annual reporting periods beginning after December 15, 2027, with early adoption permitted. The Company is assessing the impact of adopting this standard.
In December 2025, the FASB issued ASU 2025-10, Government Grants (Topic 832): Accounting for Government Grants Received by Business Entities. This update establishes authoritative guidance for the recognition, measurement, presentation, and disclosure of government grants received by business entities. ASU 2025-10 is effective for the Company for interim periods within annual reporting periods beginning after December 15, 2028, with early adoption permitted. The Company is assessing the impact of adopting this standard.
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The Organization for Economic Co-operation and Development (“OECD”) reached an agreement among various countries to implement a minimum 15% tax rate on certain multinational enterprises, commonly referred to as Pillar Two. Many countries continue to announce changes in their tax laws and regulations based on Pillar Two Proposals. We are continuing to evaluate the impact of these proposed and enacted legislative changes as new guidance becomes available. Given the numerous proposed changes in law and uncertainty regarding such proposed changes, the impact cannot be determined at this time.
3. PREPAID EXPENSES AND OTHER CURRENT ASSETS
Prepaid expenses and other current assets consist of the following:
| | March 31, | | December 31, | ||
(in thousands) | | 2026 | | 2025 | ||
Advances and retainers | | $ | | | $ | |
Prepaid insurance | | | | | | |
Research grant receivable | | | | | | |
Prepaid facility costs | | | | | | |
Prepaid software licenses | | | | | | |
Tax Receivable | | | | | | |
Other receivable and other prepaid expenses | | | | | | |
Total prepaid expenses and other current assets | | $ | | | $ | |
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4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following:
| | March 31, | | December 31, | ||
(in thousands) | | 2026 | | 2025 | ||
Plant and equipment | | $ | | | $ | |
Furniture and fixtures | |
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Computer hardware and software | |
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Less: Accumulated depreciation | |
| ( | |
| ( |
Property, plant and equipment, net | | $ | | | $ | |
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Depreciation expense was $
5. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consist of the following:
| | March 31, | | December 31, | ||
(in thousands) | | 2026 | | 2025 | ||
Accounts payable - trade | | $ | | | $ | |
Payroll liabilities | |
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Accrued expenses | |
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| |
Total accounts payable and accrued expenses | | $ | | | $ | |
| | | | | | |
On February 5, 2026, the Company entered into a debt conversion agreement (the “Debt Conversion Agreement”) with SmartKem Limited, a wholly owned subsidiary of the Company, and a creditor (the “Creditor”), pursuant to which the Company agreed to issue to the Creditor (i)
11
6. LEASES
The Company has operating leases consisting of office space, lab space and equipment with remaining lease terms of
The Company evaluates the nature of each lease at the inception of an arrangement to determine whether it is an operating or financing lease and recognizes the right of use asset and lease liability based on the present value of future minimum lease payments over the expected lease term. The Company’s leases do not generally contain an implicit interest rate and therefore the Company uses the incremental borrowing rate it would expect to pay to borrow on a similar collateralized basis over a similar term in order to determine the present value of its lease payments.
The Company is not the lessor in any lease agreement, and no related party transactions for lease arrangements have occurred.
The table below presents certain information related to the lease costs for the Company’s operating leases for the periods ended:
| | Three Months Ended March 31, | ||||
(in thousands) | | 2026 | | 2025 | ||
Operating lease cost | | $ | | | $ | |
Short-term lease cost | |
| | |
| |
Total lease cost | | $ | | | $ | |
| | | | | | |
The total lease cost is included in the unaudited condensed consolidated statements of operations as follows:
| | Three Months Ended March 31, | ||||
(in thousands) | | 2026 | | 2025 | ||
Research and development | | $ | | | $ | |
General and administrative | |
| | |
| |
Total lease cost | | $ | | | $ | |
| | | | | | |
Right of use lease assets and lease liabilities for the Company’s operating leases were recorded in the unaudited condensed consolidated balance sheet as follows:
| | March 31, | | December 31, | ||
(in thousands) | | 2026 | | 2025 | ||
Assets | | | |
| | |
Right of use assets - Operating Leases | | $ | | | $ | |
Total lease assets | | $ | | | $ | |
| | | | | | |
Liabilities | |
| | |
| |
Current liabilities: | |
| | |
| |
Lease liability, current - Operating Leases | | $ | | | $ | |
Noncurrent liabilities: | |
| | |
| |
Lease liability, non-current - Operating Leases | |
| | |
| |
Total lease liabilities | | $ | | | $ | |
| | | | | | |
The Company had
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The table below presents certain information related to the weighted average remaining lease term and the weighted average discount rate for the Company’s operating leases as of the period ended:
| | March 31, | |
| | 2026 | |
Weighted average remaining lease term (in years) – operating leases | | | |
Weighted average discount rate – operating leases | | | |
Remaining maturities of the Company’s operating leases, excluding short-term leases, are as follows:
| | March 31, | |
(in thousands) | | 2026 | |
2026 | | $ | |
2027 | | | |
2028 | | | |
Total undiscounted lease payments | | | |
Less imputed interest | | | ( |
Total net lease liabilities | | $ | |
| | | |
7. NOTES PAYABLE
Notes payable consist of the following:
| | March 31, 2026 | | December 31, 2025 | ||||||||||||||
(in thousands) | | Gross | | Discount | | Net | | Gross | | Discount | | Net | ||||||
Notes Payable, Current | | $ | | | $ | — | | $ | | | $ | | | $ | ( | | $ | |
| | | | | | | | | | | | | | | | | | |
Senior Secured Notes Financing
On March 18, 2026, the Company entered into a Securities Purchase Agreement (the "Purchase Agreement") with certain accredited investors (the "Buyers"), pursuant to which the Company agreed to issue and sell to the Buyers senior secured promissory notes (the "Notes") in the aggregate original principal amount of $
As of March 31, 2026, the Notes had been exchanged into the March 30, 2026 Preferred Stock and Warrant offering and are no longer outstanding. Please see Note 10 for additional information.
Settlement and Release Agreements
On March 18, 2026, the Company entered into Settlement Agreements and Releases (collectively, the "Settlement Agreements") with certain holders (collectively, the "Holders") of those certain Senior Secured Notes (the "Prior Notes") issued by the Company on October 31, 2025, pursuant to a Securities Purchase Agreement dated June 14, 2023 (as amended, the "Prior Purchase Agreement"). The Settlement Agreements were entered into to resolve certain claims alleged by the Holders against the Company in connection with the Prior Notes, which claims the Company denied. Pursuant to the Settlement Agreements, the Company agreed to (i) repay each Holder the outstanding principal amount of its respective Prior Note in full within two (
In addition, pursuant to the Settlement Agreements, the Company agreed to assign, transfer, and convey to SmartKem IP LLC, a Delaware limited liability company, certain of the Company's right, title, and interest in and to certain patents and patent applications, together with all continuations, continuations-in-part, divisionals, reissues, reexaminations, extensions, foreign counterparts, and all rights to sue for past, present, and future
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infringement thereof. In furtherance thereof, the Company and its subsidiary, SmartKem Ltd, a corporation organized under English law (the "Assignor"), entered into an Intellectual Property Assignment Agreement (the "IP Assignment Agreement") with Smartkem IP LLC (the "Assignee"), pursuant to which the Assignor irrevocably conveyed, transferred, and assigned to the Assignee certain of the Assignor's right, title, and interest in and to certain patents, patent applications, and related intellectual property rights, together with all royalties, fees, income, and proceeds related thereto, and all claims and causes of action with respect thereto. The Company also agreed to maintain the employment of a designated patent liaison for a period of six (
The Settlement Agreements contain mutual releases pursuant to which the Holders released the Company and its affiliates, and the Company released the Holders and their affiliates, from any and all claims arising under the Prior Notes and the Prior Purchase Agreement, other than with respect to the obligations set forth in the Settlement Agreements.
8. FAIR VALUE MEASUREMENTS:
The table below presents activity within Level 3 of the fair value hierarchy, our liabilities carried at fair value for the quarter ended March 31, 2026:
(in thousands) | | Derivative Liability | |
Balance at January 1,2026 | | $ | — |
Fair value of the derivative liabilities | | | ( |
Total change in the liability included in earnings | |
| ( |
Reclass from liability to equity | | | |
Balance at March 31, 2026 | | $ | — |
| | | |
The $
The valuation of the derivative liability, preferred stock warrants and the preferred stock was determined using option pricing models. These models use 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. Accordingly, we have used an expected volatility based on historical common stock volatility of our peers.
The fair value of the derivative liability and preferred stock warrants was determined by using an option pricing model assuming the following:
| | March 30 | | March 18 | ||
| | 2026 | | 2026 | ||
Expected term (years) |
| | | | ||
Risk-free interest rate |
| | | | ||
Expected volatility |
| | | | ||
Expected dividend yield |
| | | | ||
| | | | | | |
The fair value of the preferred stock and equity line of credit (ELOC) was determined by using an option pricing model assuming the following:
| | March 30 | |
| | 2026 | |
Expected term (years) |
| | |
Risk-free interest rate |
| | |
Expected volatility |
| | |
Expected dividend yield |
| | |
| | | |
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Additionally, the Company had determined that the derivative liability was most appropriately classified within Level 3 of the fair-value hierarchy by evaluating each input for the option pricing models against the fair-value hierarchy criteria and using the lowest level of input as the basis for the fair-value classification as called for in ASC 820. There are six inputs: closing price of the Company’s common stock on the day of evaluation; the exercise price of the warrants; the remaining term of the warrants; the volatility of the Company’s stock over that term; annual rate of dividends; and the risk-free rate of return. Of those inputs, the exercise price of the warrants and the remaining term are readily observable in the warrant agreements. The annual rate of dividends is based on the Company’s historical practice of not granting dividends. The closing price of SmartKem stock would fall under Level 1 of the fair-value hierarchy as it is a quoted price in an active market (ASC 820-10). The risk-free rate of return is a Level 2 input as defined in ASC 820-10, while the historical volatility is a Level 3 input as defined in ASC 820. Since the lowest level input is a Level 3, the Company determined the warrant liability was most appropriately classified within Level 3 of the fair value hierarchy.
9. CONTINGENCIES
Legal proceedings
In the normal course of business, the Company may become involved in legal disputes regarding various litigation matters. In the opinion of management, any potential liabilities resulting from such claims would not have a material effect on the interim condensed consolidated financial statements.
10. STOCKHOLDERS’ EQUITY
Preferred Stock
The board of directors has the authority, without further action by the stockholders, to issue up to
Series A Preferred Stock
On March 30, 2026, the Company filed a Certificate of Designation of Preferences, Rights and Limitations with the Secretary of State of the State of Delaware designating
Voting Rights
Holders of Series A Preferred Stock have
Conversion
Each share of Series A Preferred Stock is convertible at any time at the option of the holder into shares of Common Stock at a conversion rate determined by dividing the conversion amount by the conversion price of $
Dividends
Dividends are payable when and as declared by the Board of Directors in its sole discretion, in cash, securities or other assets, on the stated value of each share, provided that upon the occurrence and continuance of a triggering event, default dividends accrue at a rate of
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Ranking
The Series A Preferred Stock ranks senior to the Common Stock and all other junior capital stock with respect to dividends, distributions and payments upon the liquidation, dissolution and winding up of the Company.
Liquidation
Upon a liquidation event, holders of Series A Preferred Stock are entitled to receive, before any payment to holders of junior stock, an amount per share equal to the sum of (i) the Black-Scholes value of the outstanding portion of all Warrants held by such holder and (ii) the greater of (A)
Series A Preferred Stock and Warrants
On March 30, 2026, the Company entered into a securities purchase agreement (the “Preferred Stock Purchase Agreement”) with certain institutional investors, including certain holders of convertible notes (the “March 2026 Notes”) of the Company (collectively, the "Buyers") pursuant to which the Company issued and sold to the Buyers in a private placement (the “Private Placement”) (i)
The purchase price under the Preferred Stock Purchase Agreement was satisfied in cash and by exchange of $
As of March 31, 2026, there were
Common Stock
Voting Rights
Each holder of common stock is entitled to
Dividends
The Company has never paid any cash dividends to stockholders and do not anticipate paying any cash dividends to stockholders in the foreseeable future. Any future determination to pay cash dividends will be at the discretion of our board of directors and will be dependent upon financial condition, results of operations, capital requirements and such other factors as the board of directors deems relevant.
Market Information
The Company’s common stock has been trading on the Nasdaq Stock Market LLC under the symbol “SMTK” since May 31, 2024.
March 2026 Registered Direct Offering
On March 20, 2026, the Company entered into a securities purchase agreement (the “March 2026 RDO Purchase Agreement”) with certain institutional investors, pursuant to which the Company issued and sold to such investors
16
The Company received gross proceeds of $
Equity Line of Credit
On March 30, 2026, the Company entered into a Common Stock Purchase Agreement (the "ELOC Purchase Agreement") with an equity line investor (the “Investor”), pursuant to which the Company has the right, but not the obligation, to sell to the Investor, and the Investor is obligated to purchase, up to lesser of (a) $
In connection with signing the ELOC Purchase Agreement, the Company issued
Common Stock Warrants
A summary of the Company’s warrants to purchase common stock activity is as follows:
| | | | | | | | | | Weighted- |
| | | | | | | | | | Average |
| | | | | | | Weighted- | | Remaining | |
| | | | | | | Average | | Contractual | |
| | Number of | | | Exercise Price | | Exercise | | Term | |
| | Shares | | | per Share | | Price | | (Years) | |
Warrants outstanding at January 1, 2026 |
| | | | $ | | $ | |
| |
Issued |
| | | | | | | |
| |
Exercised |
| — | | | | |
| — |
| |
Expired |
| ( | | | | |
| |
| |
Warrants outstanding at March 31, 2026 |
| | | | $ | | $ | |
| |
| | | | | | | | | | |
During the quarter ended March 31, 2026,
A summary of the Company’s pre-funded warrants to purchase common stock activity is as follows:
| | | | Weighted- | |
| | | | Average | |
| | Number of | | Exercise | |
| | Shares | | Price | |
Pre-funded warrants outstanding at January 1, 2026 |
| | | $ | |
Issued |
| | |
| |
Exercised |
| ( | |
| |
Expired |
| — | |
| — |
Pre-funded warrants outstanding at March 31, 2026 |
| | | $ | |
| | | | | |
17
During the quarter ended March 31, 2026,
11. SHARE-BASED COMPENSATION
On February 23, 2021, the Company approved the 2021 Equity Incentive Plan (the “2021 Plan”), in which a maximum aggregate number of shares of common stock that may be issued under the 2021 Plan is
At the 2023 Annual Meeting, the Company’s stockholders approved an amendment (the “2023 Plan Amendment”) to the Company’s 2021 Plan, increasing the number of the shares of common stock reserved for issuance under the 2021 Plan from
At the 2025 Annual Meeting, the Company’s stockholders approved an amendment (the “2025 Plan Amendment”) to the Company’s 2021 Plan, (i) increasing the number of the shares of common stock, reserved for issuance thereunder from
Determining the appropriate fair value of share-based awards requires the input of subjective assumptions, including the fair value of the Company’s common stock, and for share options, the expected life of the option, and expected share price volatility. The Company uses the Black-Scholes option pricing model to value its share option awards. The assumptions used in calculating the fair value of share-based awards represent management’s best estimates and involve inherent uncertainties and the application of management’s judgment. As a result, if factors change and management uses different assumptions, the share-based compensation expense could be materially different for future awards.
The following table reflects share activity under the share option plans for the three months ended March 31, 2026:
| | | | | | | Weighted- | | | | | | |
| | | | | | | Average | | | | | | |
| | | | Weighted- | | Remaining | | Weighted- | | Aggregate | |||
| | | | Average | | Contractual | | Average | | Intrinsic | |||
| | Number of | | Exercise | | Term | | Fair Value at | | Value | |||
| | Shares | | Price | | (Years) | | Grant Date | | (in thousands) | |||
Options outstanding at January 1, 2026 |
| |
| $ | |
|
| $ | |
| | | |
Granted |
| — | | | — |
| |
|
| |
| | |
Exercised | | ( | | | | | | | | | | | |
Forfeited |
| ( |
|
| |
| |
|
| |
| | |
Expired |
| — |
|
| — |
| |
|
| |
| | |
Options outstanding at March 31, 2026 |
| |
| $ | |
|
| $ | |
| | | |
Options exercisable at March 31, 2026 | | | | $ | | | | | | | $ | ||
| | | | | | | | | | | | | |
Stock-based compensation is included in the unaudited interim condensed consolidated statements of operations as follows:
| | Three Months Ended March 31, | | ||||
(in thousands) | | 2026 | | 2025 | | ||
Research and development | | $ | | | $ | | |
General and administration | |
| | |
| | |
Total | | $ | | | $ | | |
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| | | | | | | |
Total compensation cost related to non-vested stock option awards not yet recognized as of March 31, 2026 was $
12. BASIC AND DILUTED LOSS PER SHARE
Basic net loss per share is determined by dividing net loss by the weighted average shares of common stock outstanding during the period, without consideration of potentially dilutive securities, except for those shares that are issuable for little or no cash consideration. Diluted net loss per share is determined by dividing net loss by diluted weighted average shares outstanding. Diluted weighted average shares reflects the dilutive effect, if any, of potentially dilutive common shares, such as stock options and warrants calculated using the treasury stock method. In periods with reported net operating losses, all common stock options and warrants are generally deemed anti-dilutive such that basic net loss per share and diluted net loss per share are equal.
The following potentially dilutive securities were excluded from the computation of earnings per share as of March 31, 2026 and 2025 because their effects would be anti-dilutive:
| | March 31, | ||||
| | 2026 | | 2025 | ||
Common stock warrants | | | | | | |
Assumed conversion of preferred stock | | | | | | |
Stock options | | | | | | |
Total | | | | | | |
| | | | | | |
13. DEFINED CONTRIBUTION PENSION
The Company operates a defined contribution pension scheme for its UK employees. The assets of the scheme are held separately from those of the Company in an independently administered fund. The pension cost charge represents contributions payable by the Company to the fund. Pension cost is included in the unaudited interim condensed consolidated statements of operations as follows:
| | Three Months Ended March 31, | ||||
(in thousands) | | 2026 | | 2025 | ||
Research and development | | $ | | | $ | |
General and administration | |
| | |
| |
Total | | $ | | | $ | |
| | | | | | |
14. SEGMENT REPORTING
We manage our business activities on a consolidated basis and operate as a segment: Semiconductor materials. Our revenue is mostly generated from R&D grants and R&D tax credits. The accounting policies of the semiconductor materials are the same as those described in Note 2 – Summary of Significant Accounting Policies.
Our CODM is our Chief Executive Officer and President, Ian Jenks. The CODM uses net loss, as reported on our Consolidated Statements of Comprehensive Income, in evaluating performance of the Semiconductor materials segment and determining how to allocate resources of the Company as a whole and making decisions on perspective joint development and collaboration agreements. The CODM does not review assets in evaluating the results of the Semiconductor materials segment, and therefore, such information is not presented.
19
The following table provides the net losses of the Semiconductor materials segment:
| | Three Months Ended March 31, | ||||
| | 2026 | | 2025 | ||
Revenue | | $ | | | $ | |
Cost of revenue | | | | | | |
Gross profit | | | | | | |
Other operating income | | | | | | |
Operating expenses | | | | | | |
Research and development | | | | | | |
General and administrative | | | | | | |
Loss / (gain) on foreign currency transactions | | | | | | ( |
Total operating expenses | | | | | | |
Loss from operations | | | ( | | | ( |
Total non-operating (expense) / income | | | ( | | | |
Loss before income taxes | | | ( | | | ( |
Income tax refund | | | — | | | |
Net loss | | $ | ( | | $ | ( |
| | | | | | |
15. SUBSEQUENT EVENTS
Warrant Exercises
Since March 31, 2026,
Ferrox Critical Minerals Bridge Loan
On April 23, 2026, we funded a bridge loan to Ferrox Critical Minerals, a British Virgin Islands company (“Ferrox”), in the original principal amount of $
20
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of the financial condition and results of operations of SmartKem, Inc. (“SmartKem” or the “Company”) should be read in conjunction with the unaudited interim condensed consolidated financial statements and notes thereto contained in Item 1 of Part I of this Quarterly Report on Form 10-Q and the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2025 to provide an understanding of its results of operations, financial condition and cash flows.
All references in this Quarterly Report to “we,” “our,” “us” and the “Company” refer to SmartKem, Inc., and its subsidiaries unless the context indicates otherwise.
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains certain “forward-looking statements” within the meaning of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995 with respect to our business, financial condition, liquidity, and results of operations. Words such as “anticipates,” “expects,” “intends,” “plans,” “predicts,” “believes,” “seeks,” “estimates,” “could,” “would,” “will,” “may,” “can,” “continue,” “potential,” “should,” and the negative of these terms or other comparable terminology often identify forward-looking statements. Statements in this Quarterly Report on Form 10-Q (this “Report”) that are not historical facts are hereby identified as “forward-looking statements” for the purpose of the safe harbor provided by Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and Section 27A of the Securities Act of 1933, as amended (the “Securities Act”). These forward-looking statements are not guarantees of future performance and are subject to risks and uncertainties that could cause actual results to differ materially from the results contemplated by the forward-looking statements, including the risks discussed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2025 (the “10-K”) in Item 1A under “Risk Factors” and the risks detailed from time to time in our future reports filed with the Securities and Exchange Commission (the “SEC”). These forward-looking statements include, but are not limited to, statements about:
| ● | the implementation of our business model and strategic plans for our business, technologies and products; |
| ● | the rate and degree of market acceptance of any of our products or organic semiconductor technology in |
general, including changes due to the impact of (i) new semiconductor technologies, including MicroLED technology, (ii) the performance of organic semiconductor technology, whether perceived or actual, relative to competing semiconductor materials, and (iii) the performance of our products, whether perceived or actual, compared to competing silicon-based and other products;
| ● | the timing and success of our, and our customers’, product releases; |
| ● | our ability to develop new products and technologies; |
| ● | our ability to meet management goals; |
| ● | our ability to maintain compliance with the continued listing requirements of The Nasdaq Stock Market LLC (“Nasdaq”); |
| ● | our estimates of our expenses, ongoing losses, future revenue and capital requirements, including |
our needs for additional financing;
| ● | our ability to obtain additional funds for our operations and our intended use of any such funds; |
| ● | our ability to remain eligible on an over-the-counter quotation system if our common stock is delisted from Nasdaq; |
| ● | our receipt and timing of any royalties, milestone payments or payments for products, under any current or future collaboration, license or other agreements or arrangements; |
| ● | our ability to obtain and maintain intellectual property protection for our technologies and products and our ability to operate our business without infringing the intellectual property rights of others; |
| ● | the strength and marketability of our intellectual property portfolio; |
| ● | our dependence on current and future collaborators for developing, manufacturing or otherwise bringing our products to market; |
| ● | the ability of our third-party supply and manufacturing partners to meet our current and future business needs; |
| ● | our exposure to risks related to international operations; |
| ● | our dependence on third-party fabrication facilities; |
| ● | our relationships with our executive officers, directors, and significant stockholders; |
21
| ● | our expectations regarding our classification as a “smaller reporting company,” as defined under the Exchange Act, and an “emerging growth company” under the Jumpstart Our Business Startups Act (the “JOBS Act”) in future periods; |
| ● | our future financial performance; |
| ● | the competitive landscape of our industry; |
| ● | the impact of government regulation and developments relating to us, our competitors, or our industry; and |
| ● | other risks and uncertainties, including those listed under the caption “Risk Factors” in our 10-K. |
These statements relate to future events or our future operational or financial performance, and involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by these forward-looking statements. Factors that may cause actual results to differ materially from current expectations include, among other things, those listed under “Risk Factors” in our 10-K and in this Report and elsewhere in this Report.
Any forward-looking statement in this Report reflects our current view with respect to future events and is subject to these and other risks, uncertainties and assumptions relating to our business, results of operations, industry and future growth. Given these uncertainties, you should not place undue reliance on these forward-looking statements. No forward-looking statement is a guarantee of future performance. You should read this Report and the documents that we reference in this Report and have filed with the SEC as exhibits hereto completely and with the understanding that our actual future results may be materially different from any future results expressed or implied by these forward-looking statements. Except as required by law, we assume no obligation to update or revise these forward-looking statements for any reason, even if new information becomes available in the future.
Company Overview
We are seeking to change the world of electronics with a new class of transistor developed using our proprietary advanced semiconductor materials that we believe has the potential to revolutionize the display industry. Our TRUFLEX® semiconductor polymers enable low-temperature printing processes that are compatible with existing manufacturing infrastructure to deliver low-cost, high-performance displays. Our semiconductor platform can be used in a range of display technologies, including MicroLED, liquid crystal display (“LCD”), and AMOLED, as well as in applications in advanced computer and artificial intelligence chip packaging, sensors, and logic.
We design and develop our materials at our research and development facility in Manchester, UK. We also operate a field application office in Hsinchu, Taiwan, in close proximity to our collaboration partner, The Industrial Technology Research Institute of Taiwan. Together with our collaboration partners, we are developing a commercial-scale production process and Electronic Design Automation ("EDA") tools for our materials to demonstrate the commercial viability of manufacturing a new generation of displays using our materials.
During the first quarter of 2026, SmartKem was involved in a number of financing transactions. These included the transfer of our patent portfolio to a third party. The Company still owns its process and formulation intellectual property as codified in 40 trade secrets. As previously disclosed, the Company is continuing to conduct a review of its strategy. In particular, it is evaluating its display prototyping activities, its materials formulation activities and the possibility of adding new materials to its portfolio.
Results of Operations for the three months ended March 31, 2026
Three months ended March 31, 2026 compared with three months ended March 31, 2025
Revenue and Cost of revenue
We had revenue of $20 thousand and cost of revenue of $4 thousand in the three months ended March 31, 2026, compared to $23 thousand revenue and $1 thousand cost of revenue for the same period of 2025. Both revenue and related cost of revenue for the three months ended March 31, 2026 are a result of sales of OTFT backplanes and TRUFLEX® materials for customer assessment and development purposes.
22
Other operating income
We had $34 thousand of other operating income for the three months ended March 31, 2026, compared to $251 thousand in the same period of 2025. The primary source of other operating income is related to multiple research grants from Innovate UK and research and development tax credits.
Operating expenses
Operating expenses were $2.6 million for the three months ended March 31, 2026, compared to $3.4 million for the three months ended March 31, 2025, a decrease of $0.8 million, or 23.1%.
Research and development expenses are incurred for the development and process validation for TRUFLEX® inks to make OTFT circuits and OTFT based display concepts integrating novel display technology, and to provide dielectric solutions for packaging applications. The expenses consist primarily of payroll, technical facilities overheads, and development consumables costs. Research and development expenses were $0.9 million for the three months ended March 31, 2026, compared to $1.5 million for the same period of 2025, a decrease of $0.6 million, or 39.0%. This decrease primarily resulted from the termination of the CPI agreement as of December 2025 and less legal costs due to the transfer of the intellectual property and patents. The research and development expenses represent 34.8% and 43.9% of the total operating expenses for the three months ended March 31, 2026 and 2025, respectively.
General and administrative expenses consist primarily of payroll and professional services such as investor relations, accounting and legal services. General and administrative expenses were $1.7 million for the three months ended March 31, 2026, compared to $2.0 million for the same period of 2025, a decrease of $0.3 million, or 17.2%. These expenses represent 63.4% and 58.9% of our total operating expenses for the three months ended March 31, 2026 and 2025, respectively. This decrease primarily resulted from a decrease in professional service fees principally related to corporate consulting agreements, the Delaware franchise taxes and travel related expenses.
Non-Operating income/(expense)
Non-operating expense was $16.8 million for the three months ended March 31, 2026, compared to non-operating income of $1.0 million for the same period in 2025, for a decrease of $17.8 million. A decrease of $1.8 million is primarily due to a loss on foreign currency related to the revaluation of the intercompany loans and related interest. The change in the foreign exchange spot rate of 1.3223 as of March 31, 2026 compared to 1.2944 as of March 31, 2025 resulted in a foreign exchange loss. The offset of this loss is recorded in other comprehensive income. We recorded a loss of $11.9 million related to the execution of an equity line of credit (ELOC). In addition, we recorded a loss of $3.8 million related to the extinguishment of debt. We also recorded $0.3 million related to interest expense associated with the debt discounts.
Liquidity and Capital Resources
As of March 31, 2026, our cash and cash equivalents were $7.6 million compared with $0.4 million as of December 31, 2025. We believe our cash balance at March 31, 2026 will not be sufficient to fund its operating expenses and capital expenditures for the 12 months from the issuance of these financial statements and that we will require additional capital funding to continue our operations and research development activity. In the event that we are unable to raise additional capital in the near term, we may have to curtail our operations or seek protection under applicable bankruptcy or insolvency laws.
Our expected cash payments over the next twelve months include (a) $3.4 million to satisfy accounts payable and accrued expenses, (b) $0.3 million to satisfy the lease liabilities and (c) $0.1 million to satisfy a loan related to the financing of our D&O insurance policy. Additional expected cash payments beyond the next twelve months include $0.2 million of lease liabilities.
Beyond our near term need for capital, 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
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working capital requirements through a combination of equity offerings, including the issuance of Common Stock pursuant to the ELOC Purchase Agreement (as defined in Note 8), 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. 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 can be no assurance however that such financing will be available in sufficient amounts, when and if needed, on acceptable terms or at all. The precise amount and timing of the funding needs cannot be determined accurately at this time, and will depend on a number of factors, including the market demand for our 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.
Cash Flow
Net cash used in operating activities was $1.6 million for the three months ended March 31, 2026, compared to $3.3 million for the three months ended March 31, 2025, a decrease of $1.7 million. The change resulted primarily from an increase in accounts payable.
Net cash received from financing activities was $8.6 million the three months ended March 31, 2026, compared to no cash flow financing activities during the same period in 2025. We received net proceeds of $10.0 million from various financing activities related to the sale of the Company’s common stock, preferred stock and warrants. We used $1.1 million to pay-off notes payable and $0.3 million for the settlement to release claims related to the notes.
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 and development facilities and services, communications infrastructure, and administrative services. We expect to fund these commitments from our cash balances and working capital.
Critical Accounting Estimates
We prepare our condensed consolidated financial statements in accordance with U.S. generally accepted accounting principles (“GAAP”), which require our management to make estimates, judgements and assumptions 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. 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. We evaluate these estimates on an ongoing basis.
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. Critical accounting estimates include the determination of the fair value of derivative liabilities and intellectual property.
The fair value of derivative liabilities, including embedded conversion features, warrant liabilities, contingent settlement provisions, and other complex financial instruments, may require the use of valuation models such as Monte Carlo simulations, lattice models, or modified Black-Scholes methodologies. These valuation models incorporate significant unobservable inputs, including expected volatility, risk-free interest rates, expected term, probability-weighted financing or liquidity events, market yield assumptions, and the likelihood and timing of contractual settlement or conversion events. Changes in these assumptions could result in material adjustments to the recorded fair value of derivative liabilities and related gains or losses recognized in the condensed consolidated statements of operations.
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Management has discussed the development and selection of these critical accounting estimates with the Audit Committee of our Board of Directors. Changes in estimates used in these and other items could have a material impact on our financial statements.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Not applicable.
Item 4. Controls and Procedures
Inherent Limitations on Effectiveness of Controls
Our management, including our principal executive officer and principal financial officer, does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent or detect all errors and all fraud. A control system, no matter how well-designed and operated, can provide only reasonable, not absolute, assurance that the control system's objectives will be met. The design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Further, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, have been detected.
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in reports filed or submitted under the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms and that such information is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosures.
Our management, with the participation of its Chief Executive Officer and Chief Financial Officer, performed an evaluation of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) or 15d-15(e) of the Exchange Act). Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were not effective as of March 31, 2026 because of the material weaknesses in internal control over financial reporting described below.
Material Weakness in Internal Control Over Financial Reporting
In connection with the preparation of the financial statements for the first quarter of 2026 a material weakness in the Company’s internal control over financial reporting was identified relating to the complex financial reporting and accounting associated with the Company’s Equity Line of Credit, a non-cash item. None of the Company’s filed financial statements are impacted. The March 31, 2026 financial statements contained in this Form 10-Q reflect the appropriate accounting for this transaction and no prior financial statements were impacted.
In connection with the preparation of the financial statements for the year ended December 31, 2025, a material weakness in the Company’s internal control over financial reporting was identified relating to the lack of an independent review and assessment of our internal control environment. None of the Company’s filed financial statements are impacted. The March 31, 2026 financial statements contained in this Form 10-Q reflect the appropriate accounting for this transaction and no prior financial statements were impacted.
Remediation
Due to fiscal constraints during the year ended December 31, 2025 the Company was not able to fund an independent assessment of our internal control environment. With the recent financing activities discussed in Note 10, we have been able to reinstitute the independent evaluation of our internal control environment. The evaluation will be ongoing throughout 2026.
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Changes in Internal Controls over Financial Reporting
There were no changes in our internal control over financial reporting identified in connection with the evaluation required by Rule 13a-15(d) and 15d-15(d) of the Exchange Act) that occurred during the period covered by this Report that have materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
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PART II — OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 1A. Risk Factors
In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in the 10-K, which could materially affect our business, financial condition or future results. The risks described in the 10-K may not be the only risks facing us. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.
There have been no material changes to the risk factors previously disclosed in the 10-K.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not Applicable.
Item 5. Other Information
Item 6. Exhibits
See Exhibit Index.
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EXHIBIT INDEX
Exhibit No. | Description |
| |
2.1 * | |
| |
3.1 | |
| |
3.2 | |
| |
3.3 | |
| |
4.1 | |
| |
4.2 | |
| |
4.3 | |
| |
4.4 | |
| |
4.5 | |
| |
10.1# | |
| |
10.2 | |
| |
10.3 | |
| |
10.4 | |
| |
10.5 | |
| |
10.6 | |
| |
10.7 | |
| |
10.8 | |
| |
10.9 | |
| |
10.10 | |
| |
10.11 | |
| |
10.12 | |
| |
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10.13 | |
| |
10.14 | |
| |
31.1† | |
| |
31.2† | |
| |
32.1†† | |
| |
32.2†† | |
| |
101.INS† | Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document |
| |
101.SCH† | Inline XBRL Taxonomy Extension Schema Document |
| |
101.CAL† | Inline XBRL Taxonomy Extension Calculation Linkbase Document |
| |
101.DEF† | Inline XBRL Taxonomy Extension Definition Linkbase Document |
| |
101.LAB† | Inline XBRL Taxonomy Extension Label Linkbase Document |
| |
101.PRE† | Inline XBRL Taxonomy Extension Presentation Linkbase Document |
| |
104† | Cover Page Interactive Data File (formatted in Inline XBRL and contained in Exhibit 101) |
# Indicates management contract or compensatory plan.
† Filed herewith.
†† This certification is not deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, or otherwise subject to the liability of that section. Such certification will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, except to the extent that the registrant specifically incorporates it by reference.
29
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, duly authorized.
Date: May 20, 2026
| SMARTKEM, INC. | |
| | |
| By: | /s/ Ian Jenks |
| Name: | Ian Jenks |
| Title: | Chief Executive Officer and Chairman of the Board |
| | (Principal Executive Officer) |
| | |
| By: | /s/ Barbra C. Keck |
| Name: | Barbra C. Keck |
| Title: | Chief Financial Officer |
| | (Principal Financial Officer) |
30
Exhibit 31.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Ian Jenks, certify that:
| 1. | I have reviewed this quarterly report on Form 10-Q of SmartKem, Inc.; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| (a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| (b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| (c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| (d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| (a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
| (b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: May 20, 2026
| By: | /s/ Ian Jenks |
| Name: | Ian Jenks |
| Title: | Chief Executive Officer |
Exhibit 31.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Barbra C. Keck, certify that:
| 1. | I have reviewed this quarterly report on Form 10-Q of SmartKem, Inc.; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| (a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| (b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| (c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| (d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| (a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
| (b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: May 20, 2026
| By: | /s/ Barbra C. Keck |
| Name: | Barbra C. Keck |
| Title: | Chief Financial Officer |
Exhibit 32.1
Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350,
As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
In connection with this Quarterly Report of SmartKem, Inc. (the “Company”) on Form 10-Q for the quarter ended March 31, 2026 (the “Report”) as filed with the Securities and Exchange Commission on the date hereof, the undersigned, Ian Jenks, Chief Executive Officer of the Company, hereby certifies, to the knowledge of the undersigned, pursuant to 18 U.S.C. Section 1350, that:
| (1) | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
| (2) | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
Date: May 20, 2026
| | |
| By: | /s/ Ian Jenks |
| Name: | Ian Jenks |
| Title: | Chief Executive Officer |
Exhibit 32.2
Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350,
As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
In connection with this Quarterly Report of SmartKem, Inc. (the “Company”) on Form 10-Q for the quarter ended March 31, 2026 (the “Report”) as filed with the Securities and Exchange Commission on the date hereof, the undersigned, Barbra C. Keck, Chief Financial Officer of the Company, hereby certifies, to the knowledge of the undersigned, pursuant to 18 U.S.C. Section 1350, that:
| (1) | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
| (2) | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
Date: May 20, 2026
| | |
| By: | /s/ Barbra C. Keck |
| Name: | Barbra C. Keck |
| Title: | Chief Financial Officer |