What changed in this filing

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Item 2. Management’s Discussion and Analysis

2026-05-20 compared with 2025-11-13 · 44 added, 81 removed, 75 unchanged (63% of the section changed)

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● our ability to meet management goals;

● our ability to regain and maintain compliance with the continued listing requirements of The Nasdaq Stock Market LLC (“Nasdaq”);

● 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

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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, LCD and AMOLED, as well as in applications in advanced computer and AI chip packaging, sensors, and logic .

We design and develop our materials at our research and development facility in Manchester, UK and provide prototyping services at the Centre for Process Innovation (“CPI”) in Sedgefield, UK.

We also operate a field application office in Hsinchu, Taiwan, close to our collaboration partner, The Industrial Technology Research Institute of Taiwan (“ITRI”).

With our collaboration partners, we are developing a commercial-scale production process and Electronic Design Automation (EDA) tools for our materials to demonstrate the commercial viability of manufacturing a new generation of displays using our materials.

We have an extensive IP portfolio including 140 granted patents across 17 patent families, 14 pending patents and 40 codified trade secrets .

Since our inception in 2009, we have devoted substantial resources to the research and development of materials and production processes for the manufacture of organic thin film transistors and the enhancement of our intellectual property.

Our loss before income taxes was $8.5 million and $7.6 million for the nine months ended September 30, 2025 and 2024.

As of September 30, 2025, our accumulated deficit was $123.1 million.

Substantially all our operating losses have resulted from expenses incurred in connection with research and development activities and from general and administrative costs associated with our operations.

As a result of our need for additional capital, we have significantly curtailed our operations and delayed payments to our vendors as a part of our plan to conserve cash.

Consequently, our accounts payable have increased significantly since September 30, 2025.

We will require significant additional capital in order to pay vendors and to resume normal operations.

Results of Operations for the three and nine months ended September 30, 2025

Three months ended September 30, 2025 compared with three months ended September 30, 2024

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 $81.0 thousand and cost of revenue of $5.0 thousand in the three months ended September 30, 2025, compared to no revenue or cost of revenue for the same period of 2024.

Both revenue and related cost of revenue for the three months ended September 30, 2025 are a result of sales of OTFT backplanes and TRUFLEX® materials for customer assessment and development purposes.

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.

Other operating income

Other operating income was $0.2 million in the three months ended September 30, 2025, compared to $0.3 million in the same period of 2024.

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 $3.4 million for the three months ended September 30, 2025, compared to $3.1 million for the three months ended September 30, 2024, an increase of $0.3 million, or 10.3%.

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 $2.1 million for the three months ended September 30, 2025, compared to $1.5 million for the same period of 2024, an increase of $0.6 million, or 36.7%.

This increase primarily resulted from a $0.7 million increase in costs in the third quarter of 2025 pursuant to the terms of the extension of the CPI Framework agreement.

As noted above, we expect those increased costs to continue in future periods.

The increase in research and development expenses also resulted in part from higher personnel expenses.

The research and development expenses represent 59.7% and 48.1% of the total operating expenses for the three months ended September 30, 2025 and 2024, respectively.

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 $1.3 million for the three months ended September 30, 2025, compared to $1.6 million for the same period of 2024, a decrease of $0.3 million, or 15.7%.

These expenses represent 38.6% and 50.5% of our total operating expenses for the three months ended September 30, 2025 and 2024, respectively.

This decrease primarily resulted from a decrease in professional service fees principally related to investor relations support and consulting agreements, including $34 thousand in non-cash expenses.

As a result of the stock issuances described under Note 14.

Subsequent Events – Stock Issuances, we expect that our investor relations expenses will increase significantly in the fourth quarter of 2025.

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 $0.7 million for the three months ended September 30, 2025, with no comparable expense for the same period of 2024, for an increase of $0.7 million.

The increase 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 1.3434 as of September 30, 2025 compared to 1.3724 as of June 30, 2025 resulted in a foreign exchange loss.

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.

Nine months ended September 30, 2025 compared with nine months ended September 30, 2024

Revenue and Cost of revenue

We had revenue of $136.0 thousand and $40.0 thousand and cost of revenue of $34.0 thousand and $32.0 thousand in the nine months ended September 30, 2025 and 2024, respectively.

Both revenue and related cost of

revenue for the nine months ended September 30, 2025 and 2024 resulted from sales of OTFT backplanes and TRUFLEX® materials for customer assessment and development purposes.

Other operating income

Other operating income was $0.7 million in the nine months ended September 30, 2025, compared to $0.7 million in the same period of 2024.

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 $11.5 million for the nine months ended September 30, 2025 compared to $8.8 million for the nine months ended September 30, 2024, an increase of $2.7 million, or 30.9%.

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 provide dielectric solutions for packaging applications.

The expenses consist primarily of payroll, technical facilities overheads, and development consumables costs.

Research and development expenses were $6.0 million for the nine months ended September 30, 2025, compared to $3.9 million for the same period of 2024, an increase of $ 2.1 million, or 51.8% .

This increase primarily resulted from a $1.7 million increase in costs in the second and third quarters of 2025 pursuant to the terms of the extension of the CPI Framework agreement.

As noted above, we expect those increased costs to continue in future periods.

The increase in research and development expenses also resulted in part from higher personnel expenses.

The research and development expenses represent 51.9% and 44.8% of the total operating expenses for the nine months ended September 30, 2025 and 2024, 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 $5.7 million for the nine months ended September 30, 2025, compared to $4.8 million for the same period of 2024, an increase of $0.9 million, or 19.1%.

These expenses represent 49.5% and 54.4% of our total operating expenses for the nine months ended September 30, 2025 and 2024, respectively.

This increase primarily resulted from an increase in professional service fees principally related to investor relations support and consulting agreements, including $0.4 million in non-cash expenses.

As a result of the stock issuances described under Note 14.

Subsequent Events – Stock Issuances, we expect that our investor relations expenses will increase significantly in the fourth quarter of 2025.

Non-Operating income/(expense)

Non-operating income was $2.2 million for the nine months ended September 30, 2025, compared to non-operating income of $0.4 million for the same period of 2024, an increase of $1.8 million, or 418.9%.

$2.5 million of the increase is primarily due to a gain on foreign currency.

The increase is primarily due to a gain on foreign currency related to the revaluation of the intercompany loans and related interest.

The change in the foreign exchange spot rate of 1.3434 as of September 30, 2025 compared to 1.2567 as of December 31, 2024 resulted in a foreign exchange gain.

The offset of this gain is recorded in other comprehensive income.

Such gain was offset by a loss of $0.7 million in the nine months ended September 30, 2024 related to changes in certain of our warrants that occurred as a result of the listing of our common stock on the Nasdaq Capital Market on May 31, 2024.

Those warrants were accounted for as an equity instrument beginning on that date and as a result there was no similar gain or loss in the same period of 2025.

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 September 30, 2025, our cash and cash equivalents were $0.9 million compared with $7.1 million as of December 31, 2024.

We believe our cash balance at September 30, 2025 will not be sufficient to fund our operations through December 31, 2025 and that we will require additional capital funding to continue our operations and research development activity.

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.

As described under Note 14.

Subsequent Events --Senior Secured Loan, on October 31, 2025, we obtained $1,000,000 of bridge financing in exchange for the issuance of $1,100,000 principal amount of its Senior

Secured Notes due April 30, 2026 (the “Senior Secured Notes”) and five-year warrants to purchase up to 400,000 shares of common stock at an exercise price of $2.75 per share.

There can be no assurance that we will be able to raise sufficient funds to repay the Senior Secured Notes which are secured by substantially all of our company and its subsidiaries.

As a result of our need for additional capital, we have significantly curtailed our operations and delayed payments to our vendors as a part of our plan to conserve cash.

Consequently, our accounts payable have increased significantly since September 30, 2025.

We will require significant additional capital in order to pay vendors and to resume normal operations.

Our expected cash payments over the next twelve months include (a) $4.9 million to satisfy accounts payable and accrued expenses and (b) $0.3 million to satisfy the lease liabilities.

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.

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We will need to obtain additional funds to satisfy our operational needs and to fund our sales and marketing efforts, research and development expenditures, and business development activities.

Until such time, if ever, as we can generate sufficient cash through revenue, management’s plans are to finance our working capital requirements through a combination of equity offerings, debt financings, collaborations, strategic alliances and marketing, distribution or licensing arrangements.

Until such time, if ever, as we can generate sufficient cash through revenue, management’s plans are to finance our

working capital requirements through a combination of equity offerings, 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.

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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.

Net cash used in operating activities was $6.3 million for the nine months ended September 30, 2025, compared to $7.0 million for the nine months ended September 30, 2024, a decrease of $0.7 million.

The decrease resulted primarily from an increase in our comprehensive net loss, offset in part by a significant increase in accounts payable.

Net cash used in investing activities was $0.1 million for the nine months ended September 30, 2025.

During the nine months ended September 30, 2025, we had no cash flows financing activities .

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

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Critical Accounting Estimates

We prepare our consolidated financial statements in accordance with U.S.

generally accepted accounting principles (“GAAP”), which require our management to make estimates that affect the reported amounts of assets, liabilities and disclosures of contingent assets and liabilities at the balance sheet dates, as well as the reported amounts of revenues and expenses during the reporting periods.

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.

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(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.

Management has discussed the development and selection of these critical accounting estimates with the Audit Committee of our Board of Directors.

In addition, there are other items within our financial statements that require estimation but are not deemed critical as defined above.

Changes in estimates used in these and other items could have a material impact on our financial statements.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis