SmartKem, Inc. — FY 2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022; comparisons are with FY 2021. This is an annual report, not a standalone fourth-quarter report. SmartKem develops and sells TRUFLEX® organic semiconductor inks and prototype products for flexible electronics; it has not commercialized products at scale.
Financial performance and liquidity
| Metric | FY 2022 | FY 2021 |
|---|---|---|
| Revenue | $40,000 | $18,000 |
| Gross profit (gross margin) | $7,000 (17.5%) | $10,000 (55.6%) |
| Other operating income, mainly R&D tax credits | $1.172 million | $1.285 million |
| Research and development expense | $5.802 million | $8.199 million |
| Selling, general and administrative expense | $5.071 million | $8.069 million |
| Operating loss | $9.694 million | $16.302 million |
| Net loss | $11.495 million | $17.126 million |
| Net loss per share | $0.40 | $0.68 |
| Cash used in operating activities | $9.049 million | $9.728 million |
Cash and cash equivalents were $4.235 million at year-end, down from $12.226 million. Investing activities used $79,000; financing activities provided $1.830 million, including $2.0 million of private-placement proceeds before issuance costs. The company reported $1.642 million in total liabilities, including $445,000 of lease liabilities; no notes payable were outstanding. Year-end total assets were $7.525 million and stockholders’ equity was $5.883 million. Accumulated deficit was $86.567 million.
Changes versus FY 2021
- Revenue rose by $22,000, but remained minimal and largely reflected the one-off nature of ink and demonstration-product sales. Gross profit fell by $3,000 and gross margin declined.
- Operating loss narrowed by $6.608 million. Lower stock-based compensation and the absence of $1.329 million in 2021 transaction expenses contributed to the reduction; R&D and SG&A expenses also decreased.
- Net loss improved by $5.631 million, partly offset by a larger foreign-currency transaction loss: $1.782 million versus $808,000 in 2021.
- Cash declined by $7.991 million. 2022 financing proceeds were substantially below 2021’s $22.204 million.
Outlook, risks and unusual items
- Management expected year-end cash to fund operations only through the end of May 2023 and said additional capital would be required thereafter. The auditor highlighted substantial doubt about the company’s ability to continue as a going concern; management’s plans did not alleviate that doubt. No specific revenue or earnings guidance is provided.
- Management expects continued operating losses and anticipates spending on product development, customer demonstrations, sales and commercialization. The anticipated customer sales cycle is approximately 12–24 months, with no assurance that evaluations or prototypes will lead to orders.
- Commercial-scale manufacturing is not in place. SmartKem relies on CPI for prototyping and expects to need third-party foundry partners for commercial production; capacity, timing, cost and qualification are risks.
- Key risks include the need for additional financing and potential dilution, uncertain market adoption, competition, dependence on collaborators and manufacturers, intellectual-property protection, foreign-exchange exposure, and international trade and political risks. Shares trade on OTCQB; the filing says trading has been sporadic and an active market may not develop.
- In August 2022, the company identified and restated material cash-flow statement errors in 2021 and interim 2022 filings. The 2021 error overstated operating cash used and the exchange-rate effect on cash by $0.8 million each; it did not affect ending cash or the other listed financial statements. Management reported the related control weakness remediated by year-end 2022 and concluded disclosure controls and internal control over financial reporting were effective. The auditor did not attest to internal-control effectiveness.
- Technical and commercial developments include joint development agreements with RiTdisplay and Nanosys. Subsequent to year-end, SmartKem joined the Hi-Accuracy project and announced a monolithic micro-LED display using OTFTs; these are development milestones, not evidence of scaled commercial sales.
Important facts for investors to verify
- Current cash, financing obtained since the filing, actual cash runway, and any subsequent going-concern updates.
- Whether customer evaluations, joint-development work and prototypes have converted into recurring commercial orders or material revenue.
- Progress toward qualified third-party manufacturing, commercial capacity, and the associated costs and commitments.
- Potential dilution from equity financing, outstanding options and warrants, and the share count after year-end.
- Implementation and sustained effectiveness of controls following the cash-flow restatement.