SmartKem, Inc 10-Q for FY2021 Q1

SmartKem, Inc. (SMTK)

10-Q 2021-05-17 For: 2021-03-31

Added on April 12, 2026

About this 10-Q

SmartKem, Inc filed this 10-Q on May 17, 2021, covering the quarter ended March 31, 2021 (FY2021 Q1).

Headline figures

Quarter ended March 31, 2021, as reported in this filing, compared with the same period a year earlier where the filing states it.

Net loss: $9.37M; compared with a net loss of $20.02M a year earlier

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Delaware		85-1083654
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification Number)


Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☒	Smaller reporting company	☒
		Emerging growth company	☒


		Page

Part I	Financial Information

Item 1.	Financial Statements	3

	Condensed Consolidated Balance Sheets as of March 31, 2021 and December 31, 2020	3

	Condensed Consolidated Statements of Operations and Comprehensive Loss for the three months ended March 31, 2021 and 2020	4

	Condensed Consolidated Statements of Stockholders’ Equity for the three months ended March 31, 2021 and 2020	5

	Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2021 and 2020	6

	Notes to the Unaudited Condensed Consolidated Financial Statements	7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	27

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	36

Item 4.	Controls and Procedures	37

Part II	Other Information

Item 1.	Legal Proceedings	38

Item 1A.	Risk Factors	38

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	54

Item 3.	Defaults Upon Senior Securities	55

Item 4.	Mine Safety Disclosures	55

Item 5.	Other Information	55

Item 6.	Exhibits	55



Exhibit Index		56

Signatures		59



	March 31,		December 31,
	2021		2020
ASSETS

Current assets:
Cash and cash equivalents	$	19,234,010	$	763,814
Accounts receivable		—		18,385
Research and development tax credit receivable		1,238,049		981,568
Prepaid expenses and other current assets		1,224,637		259,046
Total current assets		21,696,696		2,022,813
Property, plant equipment, net of accumulated depreciation of $964,223 and $908,238		640,713		682,325
Right-of-use assets, net		194,513		236,123
Other assets		9,014		8,408
Total assets	$	22,540,936	$	2,949,669

LIABILITIES AND STOCKHOLDERS' EQUITY

Accounts payable and accrued expenses	$	1,527,533	$	860,633
Current lease liabilities		185,374		217,313
Total current liabilities		1,712,907		1,077,946
Non-current lease liabilities		3,561		20,475
Total liabilities		1,716,468		1,098,421

Stockholders’ Equity:
Common stock, par value $0.0001 per share, 300,000,000 shares authorized, 25,437,000 and 13,627,887 shares issued and outstanding, at March 31, 2021 and December 31, 2020, respectively*		2,544		1,363
Additional paid-in capital		89,596,715		61,275,841
Accumulated other comprehensive loss		(1,462,361)		(1,479,841)
Accumulated deficit		(67,312,430)		(57,946,115)
Total Stockholders’ equity		20,824,468		1,851,248

Total Liabilities and Stockholders’ Equity	$	22,540,936	$	2,949,669


	Three Months Ended March 31,
	2021		2020
Revenue	$	—	$	20,770
Cost of revenue		—		12,348
Gross profit		—		8,422

Other operating income		432,523		191,877

Operating Expenses:
Research and development		4,013,344		1,111,653
Selling, general and administrative		3,982,825		526,111
Transaction expenses		1,314,039		—
Total operating expenses		9,310,208		1,637,764

Loss from operations		(8,877,685)		(1,437,465)

Non-operating Income (Expense)
Loss on foreign currency transactions		(470,083)		(1,566)
Interest expense		(18,697)		(6,834,772)
Interest income		150		2,024
Change in fair value of derivative asset		—		(6,282,381)
Loss on conversion of convertible notes payable		—		(5,469,825)
Total non-operating expense		(488,630)		(18,586,520)

Loss before income taxes		(9,366,315)		(20,023,985)
Income tax expense		—		—
Net loss	$	(9,366,315)	$	(20,023,985)

Net loss	$	(9,366,315)	$	(20,023,985)
Other comprehensive loss:
Foreign currency translation		17,480		(539,487)
Total comprehensive loss	$	(9,348,835)	$	(20,563,472)

Basic & dilutive net loss per common share	$	(0.51)	$	(1.94)

Basic & dilutive weighted average shares outstanding		18,351,532		10,598,236



						Accumulated
	Common stock			Additional		Other
				Paid-in		Comprehensive		Accumulated		Stockholders’
	Shares	Amount		Capital		Loss		Deficit		Equity (Deficit)
Balance at January 1, 2020	2,183,885	$	218	$	30,925,922	$	(1,195,628)	$	(34,812,947)	$	(5,082,435)
Issuance of common stock	2,368,047		237		4,278,693		—		—		4,278,930
Conversion of notes and interest	8,895,125		890		25,757,768		—		—		25,758,658
Foreign currency translation adjustment	—		—		—		(539,487)		—		(539,487)
Net loss	—		—		—		—		(20,023,985)		(20,023,985)
Balance at March 31, 2020	13,447,057	$	1,345	$	60,962,383	$	(1,735,115)	$	(54,836,932)	$	4,391,681


Balance at January 1, 2021	13,627,887	$	1,363	$	61,275,841	$	(1,479,841)	$	(57,946,115)	$	1,851,248
Issuance of common shares due to exercise of stock-options	1,404,813		141		19,402		—		—		19,543
Stock-based compensation expense	-		—		6,019,517		—		—		6,019,517
Repurchase of common stock	(2,307,700)		(231)		230		—		—		(1)
Effect of reverse capitalization	2,500,000		250		(250)		—		—		—
Issuance of common shares to vendor	50,000		5		98,995		—		—		99,000
Issuance of common stock and warrants in private placement	10,162,000		1,016		24,637,304		—		—		24,638,320
Issuance costs related to common stock and warrants in private placement	-		—		(2,454,324)		—		—		(2,454,324)
Foreign currency translation adjustment	-		—		—		17,480		—		17,480
Net loss	-		—		—		—		(9,366,315)		(9,366,315)
Balance at March 31, 2021	25,437,000	$	2,544	$	89,596,715	$	(1,462,361)	$	(67,312,430)	$	20,824,468


	March 31,
	2021
Weighted average remaining lease term (in years) – operating leases	1.10
Weighted average discount rate – operating leases	6.30	%


	As of
	March 31,
	2021
2021	$	207,973
2022		21,937
2023		—
2024		—
2025		—
Thereafter		—
Total undiscounted lease payments		229,910
Less imputed interest		(40,975)
Total net lease liabilities	$	188,935


				Weighted-
				Average
		Weighted-		Remaining
		Average		Contractual
	Number of	Exercise		Term
	Shares	Price		(Years)
Warrants outstanding at January 1,2021	—	$	—	—
Exercised	—		—	—
Forfeited or Expired	—		—	—
Granted	985,533		2.00	5.00
Warrants outstanding at March 31, 2021	985,533	$	2.00	4.90


		Three Months Ended
		March 31, 2021
Expected term (years)		5 years
Risk-free interest rate		0.60%
Expected volatility		54%
Expected dividend yield		0%


	For the Three Months Ended March 31,
	2021		2020
Research and development	$	2,907,492	$	—
Selling, general and administrative		3,112,025		—
Total	$	6,019,517	$	—


	Three Months Ended March 31,		Increase (Decrease)
US$000	2021	2020	Amount	Percentage
Revenue	—	20.8	(20.8)	(100)	%
Cost of revenue	—	12.3	(12.3)	(100)	%
Gross Profit	—	8.4	(8.4)	(100)	%
Other Operating Income	432.5	191.9	240.6	125	%
Operating Expenses
Research and development	4,013.3	1,111.7	2,901.6	261	%
Selling, general and administrative	3,982.8	526.1	3,456.7	657	%
Transaction expenses	1,314.0	—	1,314.0	—	%
Total operating expenses	9,310.2	1,637.8	7,672.4	468	%
Loss from operations	(8,877.7)	(1,437.5)	(7,440.2)	518	%
Non-Operating Income (Expense)
Loss on foreign currency transactions	(470.1)	(1.6)	(468.5)	29,281	%
Interest expense	(18.7)	(6,834.8)	6,816.1	(100)	%
Interest income	0.2	2.0	(1.8)	(90)	%
Change in fair value of derivative asset	—	(6,282.4)	6,282.4	(100)	%
Loss on conversion of convertible notes payable	—	(5,469.8)	5,469.8	(100)	%
Total non-operating expense	(488.6)	(18,586.5)	18,097.9	(97)	%
Loss before income taxes	(9,366.3)	(20,024.0)	10,657.7	(53)	%
Income tax expense	—	—	—	—
Foreign Currency Translation	17.5	(539.5)	557.0	(103)	%
Total comprehensive loss	(9,348.8)	(20,563.5)	11,214.7	(55)	%


Exhibit No.	Description

2.1 #	Share Exchange Agreement, dated as of February 23, 2021, among the Registrant, SmartKem Limited and the shareholders of SmartKem Limited (incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K filed on February 24, 2021)

3.1	Amended and Restated Certificate of Incorporation of the Registrant (incorporated by reference to Exhibit 3.3 to the Company’s Current Report on Form 8-K filed on February 24, 2021)

3.2	Amended and Restated Bylaws of the Registrant, as currently in effect (incorporated by reference to Exhibit 3.4 to the Company’s Current Report on Form 8-K filed on February 24, 2021)

4.1 *	Form of Registration Rights Agreement (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on February 24, 2021)

4.2	Form of Pre-Funded Warrant (incorporated by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K filed on February 24, 2021)

4.3	Form of Placement Agent Warrant (incorporated by reference to Exhibit 4.3 to the Company’s Current Report on Form 8-K filed on February 24, 2021)

10.1 *	Engagement Letter, dated December 15, 2020, by and between GP Nurmenkari Inc. and SmartKem Limited (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on February 24, 2021)

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

10.3 #	U.K. Tax Advantaged Sub-Plan (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed on February 24, 2021)

10.4	Form of Lock-Up Agreement (incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K filed on February 24, 2021)

10.5 *	Form of Subscription Agreement (incorporated by reference to Exhibit 10.5 to the Company’s Current Report on Form 8-K filed on February 24, 2021)

10.6#	Employment Agreement, dated as of February 23, 2021, by and between the Registrant and Ian Jenks (incorporated by reference to Exhibit 10.6 to the Company’s Current Report on Form 8-K filed on February 24, 2021)

10.7#	Employment Agreement, dated as of February 23, 2021, by and between SmartKem Limited and Robert Bahns (incorporated by reference to Exhibit 10.7 to the Company’s Current Report on Form 8-K filed on February 24, 2021)

10.8#	Employment Agreement, dated as of February 23, 2021, by and between SmartKem Limited and Simon Ogier (incorporated by reference to Exhibit 10.8 to the Company’s Current Report on Form 8-K filed on February 24, 2021)

10.9#	Consultancy Agreement, dated as of February 23, 2021, by and between SmartKem Limited and B Brown Consultants Ltd. (incorporated by reference to Exhibit 10.9 to the Company’s Current Report on Form 8-K filed on February 24, 2021)


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

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

10.12 **	Lease of The Whole of the 8th Floor, Hexagon Tower, Manchester, M9 8GP, dated April 16, 2019, between AG Hexagon BV and SmartKem Limited. (incorporated by reference to Exhibit 10.12 to the Company’s Current Report on Form 8-K filed on February 24, 2021)

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

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

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

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

10.17	Form of Pre-Exchange Indemnity Agreement (incorporated by reference to Exhibit 10.17 to the Company’s Current Report on Form 8-K filed on February 24, 2021)

10.18	Letter Agreement, dated as of February 23, 2021, among the Registrant and Octopus Titan VCT plc and certain related parties (incorporated by reference to Exhibit 10.18 to the Company’s Current Report on Form 8-K filed on February 24, 2021)

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

31.2†	Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

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

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

101.INS†	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†	XBRL Taxonomy Extension Schema Document

101.CAL†	XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF†	XBRL Taxonomy Extension Definition Linkbase Document

101.LAB†	XBRL Taxonomy Extension Label Linkbase Document

101.PRE†	XBRL Taxonomy Extension Presentation Linkbase Document
104†	Cover Page Interactive Data File (formatted in Inline XBRL and contained in Exhibit 101)


	March 31,		December 31,
	2021		2020
Plant and equipment	$	1,328,278	$	1,316,381
Furniture and fixtures		250,023		247,785
Computer hardware and software		26,635		26,397
		1,604,936		1,590,563
Less: Accumulated depreciation		(964,223)		(908,238)
Property, plant and equipment, net	$	640,713	$	682,325


	March 31,		December 31,
	2021		2020
Accounts payable	$	374,391	$	226,850
Accrued expenses – transaction costs		204,907		—
Accrued expenses – lab refurbishments		133,552		132,356
Accrued expenses – technical fees		55,844		44,755
Accrued expenses – variable rent & utilities		13,673		67,165
Accrued expenses – audit & accounting fees		219,280		250,437
Accrued expenses – other		34,221		5,879
Credit card liabilities		9,522		6,308
Payroll liabilities		482,143		126,883
Total accounts payable and accrued expenses	$	1,527,533	$	860,633


	March 31,
	2021		2020
Operating lease cost	$	47,071	$	44,175
Short-term lease cost		13,336		10,522
Variable lease cost		22,621		42,811
Total lease cost	$	83,028	$	97,508

	SMARTKEM, INC.

	By:	/s/ Ian Jenks
	Name:	Ian Jenks
	Title:	President, Chief Executive Officer
		(Principal Executive Officer)

	By:	/s/ Robert Bahns
	Name:	Robert Bahns
	Title:	Executive Vice President, Chief Financial Officer
		(Principal Financial Officer)