Financial Performance - For the three months ended March 31, 2021, the company reported a loss before income taxes of $9.4 million, compared to a loss of $20.0 million for the same period in 2020, indicating a 53% improvement in losses year-over-year[143]. - Company reported no revenue for the three months ended March 31, 2021, a 100% decrease compared to $20.8 million in the same period of 2020[169]. - The net loss was $9.4 million for the three months ended March 31, 2021, a decrease of $10.6 million compared to a net loss of $20.0 million for the same period in 2020[180]. - Other operating income increased by $241 thousand, or 125%, to $433 thousand for the three months ended March 31, 2021, compared to $192 thousand for the same period in 2020[170]. - Total operating expenses increased by $7.7 million, or 468%, to $9.3 million for the three months ended March 31, 2021, compared to $1.6 million for the same period in 2020[171]. Research and Development - As of March 31, 2021, the company's accumulated deficit stood at $67.3 million, reflecting ongoing investments in research and development[143]. - The company expects to continue incurring significant expenses and operating losses in the foreseeable future, driven by increased research and development activities and operational growth[144]. - Research and development expenses rose by $2.9 million, or 261%, to $4.0 million for the three months ended March 31, 2021, representing 43% of total operating expenses[172]. - The competitive landscape is intense, with the company investing in research and development to enhance product performance and reduce costs[153]. - SmartKem has experienced recurring losses since inception and expects to incur additional losses in the future related to research and development activities[196]. Financial Position and Cash Flow - Cash and cash equivalents as of March 31, 2021, were $19.2 million, with a net cash provided by financing activities of $22.2 million during the same period[182][185]. - Company expects cash and net proceeds from the Offering to support operations through the first half of 2023, but will need additional funds for operational needs and business development[186]. - As of March 31, 2021, SmartKem raised net proceeds of $22.2 million and had $19.2 million in cash after funding net cash used in operations of $3.7 million for the three-month period[197]. Operational Insights - The company’s revenue currently consists solely of sales from demonstration products, indicating a focus on product development and market entry[158]. - The company anticipates that its cost of goods sold will increase proportionately with revenue, while fixed product costs are expected to remain flat or increase moderately[159]. - The company’s growth potential is significantly tied to the adoption of OTFT materials in display and sensor markets, which may fluctuate based on market cycles and competitive dynamics[152]. Governance and Compliance - The company is currently addressing material weaknesses in internal controls over financial reporting, including recruiting additional finance personnel and implementing access restrictions[200]. - SmartKem's financial statements are prepared on a going concern basis, indicating sufficient liquidity to meet obligations for at least the next 12 months[198]. - SmartKem's disclosure controls and procedures were deemed not effective as of the end of the reporting period[206]. - The company has agreed to certain covenants under the Facility Agreement, restricting additional indebtedness and asset disposals[190]. - SmartKem has elected to use the extended transition period under the JOBS Act for compliance with new accounting standards[202]. Intellectual Property - The company emphasizes the importance of intellectual property protection, with a strong patent portfolio and no known litigation threats, although such issues could arise[157]. Financing Activities - Following the Share Exchange Agreement with SmartKem Limited, the company raised approximately $24.6 million through a private placement offering, selling 10,162,000 shares of common stock and pre-funded warrants[151]. - SmartKem entered into a secured term loan facility of $738,000 with a monthly interest rate of 1.25%[190]. - A Change of Control event occurred, leading to the repayment of amounts outstanding under the Facility Agreement before the ten business day period ended[191]. - The company has no off-balance sheet financing arrangements or relationships with unconsolidated entities[192]. Currency Transactions - Loss on foreign currency transactions was $470 thousand for the three months ended March 31, 2021, compared to $2 thousand for the same period in 2020, an increase of $468 thousand[175].
SmartKem, Inc.(SMTK) - 2021 Q1 - Quarterly Report