What changed in this filing

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Item 2. Management’s Discussion and Analysis

2026-08-14 compared with 2026-05-20 · 61 added, 34 removed, 85 unchanged (53% of the section changed)

41 unchanged sentences

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.

On June 12, 2026, SmartKem Limited (subsidiary of SmartKem, Inc) entered Creditors' Voluntary Liquidation and was deconsolidated following the appointment of an administrator.

As a result, SmartKem Limited's assets, liabilities, operations, and results are no longer included in the Company's consolidated financial statements beginning June 12, 2026.

Upon liquidation and deconsolidation, the development and manufacturing of our custom electronic materials was taken over by SmartKem, Inc.

The design and develop our materials continue to take place at our research and development facility in Manchester, UK by a team of people hired from the subsidiary.

We operate with an international footprint, providing materials development, prototyping and technical support to customers and collaborators globally.

Our advanced TRUFLEX® materials integrate into existing manufacturing processes, supporting efficient, scalable production and high-performance outcomes across a broad range of electronic applications.

We combine materials science expertise with practical engineering to deliver tailored solutions for partners seeking to innovate in electronics.

During the first six months of 2026, SmartKem was involved in a number of financing transactions.

These included the transfer of our patent portfolio to a third party.

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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

Results of Operations for the three and six months ended June 30, 2026

Three months ended June 30, 2026 compared with three months ended June 30, 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.

We had no revenue or cost of revenue in the three months ended June 30, 2026, compared to $32 thousand of revenue and $28 thousand of cost of revenue for the same period of 2025.

Both revenue and related cost of revenue are a result of sales of OTFT backplanes and TRUFLEX® materials for customer assessment and development purposes.

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.

We had no other operating income for the three months ended June 30, 2026, compared to $279 thousand in the same period of 2025.

The primary source of other operating income was related to multiple research grants from Innovate UK and research and development tax credits, both of which were held by SmartKem Limited and are no longer available to the Company.

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%.

Operating expenses were $1.4 million for the three months ended June 30, 2026, compared to $4.7 million for the three months ended June 30, 2025, a decrease of $3.3 million, or 69.9%.

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 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.

Research and development expenses were $0.7 million for the three months ended June 30, 2026, compared to $2.4 million for the same period of 2025, a decrease of $1.7 million, or 71.0%.

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 and the deconsolidation of SmartKem Limited in June 2026.

The research and development expenses represent 50.3% and 52.1% of the total operating expenses for the three months ended June 30, 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.

General and administrative expenses were $0.8 million for the three months ended June 30, 2026, compared to $2.4 million for the same period of 2025, a decrease of $1.6 million, or 67.0%.

These expenses represent 55.6% and 50.7% of our total operating expenses for the three months ended June 30, 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.

Non-operating expense was $1.9 million for the three months ended June 30, 2026, compared to non-operating income of $2.0 million for the same period in 2025, for an increase in non-operating expense of $3.8 million.

We recorded a loss of $45.6 million for the write-off of bad debts and a gain of $43.3 million for the investment of SmartKem Limited due to the deconsolidation of the subsidiary.

A decrease of $1.5 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 change in the foreign exchange spot rate of 1.3204 as of June 30, 2026 compared to 1.3724 as of June 30, 2025 resulted in a foreign exchange gain.

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).

Six months ended June 30, 2026 compared with six months ended June 30, 2025

Revenue and Cost of revenue

We had $20 thousand of revenue and $4 thousand of cost of revenue in the six months ended June 30, 2026, compared to $55 thousand of revenue and $29 thousand of cost of revenue for the same period of 2025.

Both revenue and related cost of revenue are a result of sales of OTFT backplanes and TRUFLEX® materials for customer assessment and development purposes.

Other operating income

We had $34 thousand of other operating income for the six months ended June 30, 2026, compared to $530 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, both of which were held by SmartKem Limited and are no longer available to the Company.

Operating expenses

Operating expenses were $4.0 million for the six months ended June 30, 2026, compared to $8.1 million for the six months ended June 30, 2025, a decrease of $4.1 million, or 50.1%.

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

Research and development expenses were $1.6 million for the six months ended June 30, 2026, compared to $3.9 million for the same period of 2025, a decrease of $2.3 million, or 58.8%.

The research and development expenses represent 40.2% and 48.6% of the total operating expenses for the six months ended June 30, 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 $2.4 million for the six months ended June 30, 2026, compared to $4.4 million for the same period of 2025, a decrease of $2.0 million, or 44.1%.

These expenses represent 60.7% and 54.2% of our total operating expenses for the six months ended June 30, 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 $18.7 million for the six months ended June 30, 2026, compared to non-operating income of $3.0 million for the same period in 2025, for an increase in non-operating expense of $21.6 million.

The company recorded a loss of $45.6 million for the write-off of bad debts and a gain of $43.3 million for the investment of SmartKem Limited due to the deconsolidation of the subsidiary.

A decrease of $3.3 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 1.3204 as of June 30, 2026 compared to 1.3724 as of June 30, 2025 resulted in a foreign exchange loss.

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

We recorded costs 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.

As of June 30, 2026, our cash and cash equivalents were $3.7 million compared with $0.4 million as of December 31, 2025.

We believe our cash balance at June 30, 2026 will not be sufficient to fund our operating expenses 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.

Our expected cash payments over the next twelve months include $0.7 million to satisfy accounts payable and accrued expenses.

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

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.

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 discussed 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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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.

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.

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.

Net cash used in operating activities was $3.4 million for the six months ended June 30, 2026, compared to $6.1 million for the six months ended June 30, 2025, a decrease of $2.7 million.

The change resulted primarily from a decrease in accounts payable.

Net cash used in investing activities were $7.4 million for the six months ended June 30, 2026, compared to no cash flow investing activities during the same period in 2025.

The increase of $6.5 million is related to payment for a bridge loan to Ferrox Critical Minerals.

The remaining $0.9 million was related to the deconsolidation of a subsidiary.

Net cash received from financing activities was $13.2 million the six months ended June 30, 2026, compared to no cash flow financing activities during the same period in 2025.

We received net proceeds of $14.7 million from various financing activities related to the sale of the Company’s common stock, preferred stock and warrants.

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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.

Our principal commitments primarily consist of obligations under 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.

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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