What changed in this filing

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Item 1. Financial Statements

2025-11-13 compared with 2025-08-12 · 169 added, 85 removed, 344 unchanged (42% of the section changed)

3 unchanged sentences

(in thousands, except number of shares and per share data)

September 30,

Current assets

16 unchanged sentences

Stockholders’ (deficit) / equity:

Preferred stock, par value $ 0.0001 per share, 10,000,000 shares authorized, 0 and 856 shares issued and outstanding, at June 30, 2025 and December 31, 2024, respectively

Common stock, par value $ 0.0001 per share, 300,000,000 shares authorized, 4,441,165 and 3,590,217 shares issued and outstanding, at June 30, 2025 and December 31, 2024, respectively

Preferred stock, par value $ 0.0001 per share, 10,000,000 shares authorized, 0 and 856 shares issued and outstanding, at September 30, 2025 and December 31, 2024, respectively

Common stock, par value $ 0.0001 per share, 300,000,000 shares authorized, 5,605,043 and 3,590,217 shares issued and outstanding, at September 30, 2025 and December 31, 2024, respectively

Additional paid-in capital

7 unchanged sentences

(in thousands, except number of shares and per share data)

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

Cost of revenue

46 unchanged sentences

Balance at June 30, 2025

Stock-based compensation expense

Issuance of common stock to vendor

Exercise of warrants into common stock

Foreign currency translation adjustment

Balance at September 30, 2025

SMARTKEM, INC.

Condensed Consolidated Statements of Stockholders’ (Deficit) / Equity (continued)

(in thousands, except share data)

Preferred Stock

22 unchanged sentences

Balance at June 30, 2024

Stock-based compensation expense

Issuance of common stock to vendor

Conversion of Preferred stock into common stock

Foreign currency translation adjustment

Balance at September 30, 2024

The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements.

2 unchanged sentences

(in thousands)

Six Months Ended June 30,

Nine Months Ended September 30,

Cash flow from operating activities:

14 unchanged sentences

Net cash used in operating activities

Cash flows from investing activities:

Purchases of property, plant and equipment

Net cash used by investing activities

Cash flow from financing activities:

17 unchanged sentences

As a result of the Exchange, Parasol legally acquired the business of SmartKem Limited, and continues as the existing business operations of SmartKem Limited as a public reporting company under the name SmartKem, Inc.

The Company is seeking to change the world of electronics with a new class of transistor developed using its proprietary advanced semiconductor materials that the Company believes has the potential to revolutionize the display industry.

The Company is seeking to change the world of electronics with a new class of transistor developed using its proprietary advanced semiconductor materials.

The Company’s TRUFLEX® semiconductor polymers enable low temperature printing processes that are compatible with existing manufacturing infrastructure to deliver low-cost, high-performance displays.

The Company’s 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.

The Company designs and develops its materials at its research and development facility in Manchester, UK and provides prototyping services at the Centre for Process Innovation (“CPI”) in Sedgefield, UK.

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

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

The Company designs and develops its materials at its research and development facility in Manchester, UK and operates a field application office in Hsinchu, Taiwan, close to its collaboration partner, The Industrial Technology Research Institute of Taiwan (“ITRI”), which provides product prototyping services, with its collaboration partners, the Company is developing a commercial-scale production process and Electronic Design Automation (EDA) tools for its materials to demonstrate the commercial viability of manufacturing a new generation of displays using the Company’s materials.

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

2 unchanged sentences

The Company is subject to risks that are common to companies in the development stage, including, but not limited to, development by the Company or its competitors of new technological innovations, dependence on key personnel, reliance on third party manufacturers, protection of proprietary technology and compliance with regulatory requirements.

The Company has entered into annual framework services agreements with CPI Innovation Services Limited (“CPIIS”), the commercial trading company for CPI, pursuant to which the Company purchases services consisting primarily of access to CPI process equipment required for fabrication as well as access to CPI staff with specific skills, to the extent required, at specified costs, including a minimum annual spending requirement.

The Company has entered into annual framework services agreements with CPI Innovation Services Limited (“CPIIS”), the commercial trading company for the Centre for Product Innovation (“CPI”), pursuant to which the Company purchases services consisting primarily of access to CPI process equipment required for fabrication as well as access to CPI staff with specific skills, to the extent required, at specified costs, including a minimum annual spending requirement.

The Company’s most current agreement with CPIIS expired on March 31, 2025, but has been extended as described below.

In the fourth quarter of 2024, CPIIS advised the Company that it intended to reduce the facility’s operating costs by, among other things, consolidating its clean rooms and seeking to pass more of its operating costs to users including the Company.

Subsequent to March 3, 2025, the Company entered into a number of short-term extensions of its CPIIS agreement pursuant to which the term of the current CPIIS agreement has been extended

SMARTKEM, INC.

Notes to the Unaudited Condensed Consolidated Financial Statements

CPIIS has been reviewing the operation of the clean room facility used by the Company and has advised the Company that it intends to reduce the facility’s operating costs by, among other things, consolidating its clean rooms and seeking to pass more of its operating costs to users including the Company.

The Company has entered into a number of short-term extensions of the current CPIIS agreement pursuant to which the term of the current CPIIS agreement has been extended to December 31, 2025.

Under the terms of the extensions, the Company has agreed to an increase in its share of the costs of the CPI facility during the extension period.

As a result, subsequent to March 31, 2025, the Company’s costs at the CPI facility have increased significantly.

The Company expects that any longer-term agreement with CPIIS will require the Company to bear additional costs and that such costs will continue to be significantly higher than under the most recent agreement.

The Company and CPIIS have been negotiating the terms of a proposed three-year license agreement under which the Company would consolidate its operations in one clean room at the CPI facility and would pay a portion of the costs of relocating equipment to that clean room.

The Company expects that the license agreement will be terminable by the Company upon not less than six-months’ notice and the payment of certain associated costs.

Although no license agreement has been entered into as of the date of this Report, the Company expects that its costs under the license agreement will be somewhat less than under the most recent extension of the current framework services agreement but will be significantly higher than under the original terms of that agreement.

Upon the execution and delivery of the license agreement, the most recent extension will expire.

Subject to the receipt of adequate capital financing, the Company will continue to explore options to perform its prototyping services.

The Company believes that adequate alternative sites are available for that purpose and is assessing the most effective allocation of capabilities between its UK and Taiwan sites.

In the event that the Company decides to move its prototyping operation to an alternative facility, the Company believes that the move would take between two and nine months, depending on equipment availability and any required facility modifications, during which time the Company would incur additional costs to prepare the new facility and install any necessary equipment.

In such event, the Company intends to schedule its prototyping activities to minimize any disruption to those operations and would use ITRI’s prototyping line as an interim facility for such work.

to December 31, 2025.

Under the terms of the extensions, the Company agreed to an increase in its share of the costs of the CPI facility during the extension period.

As a result, subsequent to March 31, 2025, the Company’s costs related to the CPI facility increased significantly.

The Company has not paid CPIIS the amounts due with respect to the CPI facility and is currently disputing the terms of that agreement.

As a result, the Company does not have access to the CPI facilities and has ceased all prototyping operations at CPI.

The Company will continue to explore options to perform its prototyping services.

The Company believes that adequate alternative sites are available for that purpose and is assessing whether to continue prototyping activities on its own or to contract for such services with a third party, potentially in Taiwan.

Subject to the receipt of adequate capital financing, in the event that the Company decides to move its prototyping operation to an alternative facility, the Company believes that the move would take between two and nine months, depending on equipment availability and any required facility modifications, during which time the Company would incur additional costs to prepare the new facility and install any necessary equipment.

In such event, the Company intends to schedule its prototyping activities to minimize any disruption to those operations.

The Company and ITRI have been negotiating terms for a proposed multi-year agreement under which ITRI would upgrade its existing facilities to enable the Company to substantially undertake its product prototyping operations at ITRI’s facility.

The Company has approximately 11 employees located at CPI.

1 unchanged sentence

Even if the Company locates a suitable replacement facility, it is possible that the Company’s ability to engage in product development, prototyping of demonstration products and process improvement activities may be significantly delayed as a result of the relocation of those functions.

In the event that the Company moves its prototyping operations to ITRI’s Taiwan facility, the Company expects that it would terminate the employment of the employees located at CPI.

As a result of the Company’s need for additional capital, the Company has significantly curtailed its operations and delayed payments to its vendors as a part of its plan to conserve cash.

Consequently, the Company’s accounts payable have increased significantly since September 30, 2025.

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

Jericho Transaction

On October 6, 2025, the Company entered into a non-binding letter of intent (the “LOI”) with Jericho Energy Ventures Inc.

(“Jericho”), an energy innovation company, to pursue a potential business combination (the “Proposed Transaction”).

Under the LOI, the Proposed Transaction would be structured as an all-stock business combination, effected through either a share exchange or statutory merger, pursuant to which the Company would be the surviving legal entity and would continue as a publicly listed company on The Nasdaq Stock Market (“Nasdaq”) (such surviving company, the “Combined Company”).

Upon the closing of the Proposed Transaction, Jericho stockholders would own 65 % and Company stockholders prior to the Proposed Transaction would own 35 % of the fully diluted issued and outstanding equity securities of the Combined Company, subject to adjustment in certain circumstances.

Brian Williamson, the current chief executive officer of Jericho, would become the chief executive officer of the Combined Company, and the board of directors of the Combined Company would be reconstituted to include a majority of members designated by Jericho, subject to compliance with applicable requirements of Nasdaq and the Securities and Exchange Commission (the “SEC”).

The LOI is non-binding, and there can be no assurance that the Company and Jericho will ultimately enter into a definitive agreement for the Proposed Transaction, that the Proposed Transaction will be consummated, or as to the timing or ultimate terms of any Proposed Transaction that may occur.

Both the Company and Jericho will need significant additional capital to complete the negotiation of the Proposed Transaction, obtain any required stockholder approvals and ultimately complete the Proposed Transaction.

The closing of the Proposed Transaction would be subject to significant closing conditions, including the negotiation of the definitive agreement, the satisfactory completion of due diligence, required board and stockholder approvals, and approval of continued listing by Nasdaq.

SMARTKEM, INC.

Notes to the Unaudited Condensed Consolidated Financial Statements

In the LOI, the Company and Jericho have agreed to a 60-day exclusivity period to negotiate the terms of a definitive agreement, which exclusivity period is terminable by either party under certain circumstances including, in the case of Jericho, if the Company does not purchase Jericho common shares having a value of at least $ 500,000 on or prior to November 30, 2025.

So long as the LOI is still in effect, upon the earlier of (i) the Company’s chief financial officer’s good faith determination that the Company has regained compliance with Nasdaq’s minimum stockholders’ equity requirement and (ii) the Company’s issuance of securities (including upon exercise of outstanding convertible securities) for aggregate gross proceeds of not less than $ 5,000,000 , the Company will purchase from treasury Jericho common shares in an amount equal to the greater of (a) $ 500,000 and (b) 10 % of the gross proceeds of such issuances, subject to a cap of $ 1,000,000 .

There can be no assurance that the circumstances necessary for the Company to satisfy the requirements for completion of the investment will occur.

Going Concern

The Company has incurred continuing losses including net losses of $ 4.5 million for the six months ended June 30, 2025.

The Company’s cash as of June 30, 2025 was $ 1.2 million with net cash used in operating activities of $ 6.1 million for the six months ended June 30, 2025.

The Company has incurred continuing losses including net losses of $ 8.5 million for the nine months ended September 30, 2025.

The Company’s cash as of September 30, 2025 was $ 0.9 million with net cash used in operating activities of $ 6.3 million for the nine months ended September 30, 2025.

The Company anticipates operating losses to continue for the foreseeable future due to, among other things, costs related to research funding, further development of our technology and products and expenses related to the commercialization of our products.

The Company expects that its cash and cash equivalents of $ 1.2 million as of June 30, 2025 will not be sufficient to fund its operating expenses and capital expenditures for the 12 months from the issuance of these financial statements.

The Company expects that its cash and cash equivalents of $ 0.9 million as of September 30, 2025 will not be sufficient to fund its operating expenses and capital expenditures for the 12 months from the issuance of these financial statements.

In the event that the Company is unable to raise additional capital in the near term, it may have to curtail its operations or seek protection under applicable bankruptcy or insolvency laws.

As described under Note 14.

Subsequent Events - Senior Secured Loan, on October 31, 2025, the Company 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 the Company will be able to raise sufficient funds to repay the Senior Secured Notes which are secured by substantially all of the assets of the Company and its subsidiaries.

Beyond its near term need for capital, the Company’s future viability will continue to be dependent on its ability to raise additional capital to fund its operations.

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

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

SMARTKEM, INC.

Notes to the Unaudited Condensed Consolidated Financial Statements

or licensing arrangements.

If the Company raises additional funds by issuing equity securities, the Company’s existing security holders will likely experience dilution.

4 unchanged sentences

There is substantial doubt that the Company will be able to pay its obligations as they fall due, and this substantial doubt is not alleviated by management plans.

The condensed consolidated financial statements as of June 30, 2025 have been prepared assuming that the Company will continue as a going concern.

The condensed consolidated financial statements as of September 30, 2025 have been prepared assuming that the Company will continue as a going concern.

Accordingly, the consolidated financial statements do not include any adjustments to the amounts and classification of assets and liabilities that may be necessary should the Company be unable to continue as a going concern.

SMARTKEM, INC.

Notes to the Unaudited Condensed Consolidated Financial Statements

Basis of Presentation

The unaudited interim condensed consolidated financial statements of the Company as of June 30, 2025 and December 31, 2024 and for the three and six months ended June 30, 2025 and 2024 should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2024 (the “Annual Report”), which was filed with the Securities and Exchange Commission (the “SEC”) on March 31, 2025 and may also be found on the Company’s website (www.smartkem.com).

The unaudited interim condensed consolidated financial statements of the Company as of September 30, 2025 and December 31, 2024 and for the three and nine months ended September 30, 2025 and 2024 should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2024 (the “Annual Report”), which was filed with the SEC on March 31, 2025 and may also be found on the Company’s website (www.smartkem.com).

In these notes to the interim condensed consolidated financial statements the terms “us,” “we” or “our” refer to the Company and its consolidated subsidiaries.

3 unchanged sentences

The preparation of interim condensed consolidated financial statements requires management to make assumptions and estimates that impact the amounts reported.

These interim condensed consolidated financial statements reflect all adjustments, consisting of normal recurring accruals, necessary for a fair presentation of the Company’s results of operations, financial position and cash flows for the interim periods ended June 30, 2025 and 2024;

however, certain information and footnote disclosures normally included in our audited consolidated financial statements included in our Annual Report have been condensed or omitted as permitted by GAAP.

4 unchanged sentences

(i) the exchange of preferred shares for pre-funded warrants, based on the fair value of the pre-funded warrants in excess of the carrying value of the preferred shares and (ii) the amendment of preferred stock accounted for as an extinguishment, based on the fair value of the preferred stock immediately before and after the amendments.

SMARTKEM, INC.

Notes to the Unaudited Condensed Consolidated Financial Statements

Management’s Use of Estimates

7 unchanged sentences

Semiconductor materials.

SMARTKEM, INC.

Notes to the Unaudited Condensed Consolidated Financial Statements

Recent Accounting Pronouncements

11 unchanged sentences

Prepaid expenses and other current assets consist of the following:

September 30,

(in thousands)

5 unchanged sentences

Prepaid software licenses

Advances and retainers

Other receivable and other prepaid expenses

Total prepaid expenses and other current assets

SMARTKEM, INC.

Notes to the Unaudited Condensed Consolidated Financial Statements

PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment consist of the following:

September 30,

(in thousands)

4 unchanged sentences

Property, plant and equipment, net

Depreciation expense was $ 113.1 thousand and $ 124.9 thousand for the six months ended June 30, 2025 and 2024, respectively and is classified as research and development expense.

Depreciation expense was $ 170.6 thousand and $ 194.4 thousand for the nine months ended September 30, 2025 and 2024, respectively and is classified as research and development expense.

SMARTKEM, INC.

Notes to the Unaudited Condensed Consolidated Financial Statements

ACCOUNTS PAYABLE AND ACCRUED EXPENSES

Accounts payable and accrued expenses consist of the following:

September 30,

(in thousands)

1 unchanged sentence

Payroll liabilities

Accrued expenses – legal fees

Accrued expenses – audit & accounting fees

Accrued expenses – technical service fees

Accrued expenses – other

2 unchanged sentences

The Company evaluates the nature of each lease at the inception of an arrangement to determine whether it is an operating or financing lease and recognizes the right of use asset and lease liability based on the present value of future minimum lease payments over the expected lease term.

The Company’s leases do not generally contain an implicit interest rate and therefore the Company uses the incremental borrowing rate it would expect to pay

SMARTKEM, INC.

Notes to the Unaudited Condensed Consolidated Financial Statements

to borrow on a similar collateralized basis over a similar term in order to determine the present value of its lease payments.

The Company’s leases do not generally contain an implicit interest rate and therefore the Company uses the incremental borrowing rate it would expect to pay to borrow on a similar collateralized basis over a similar term in order to determine the present value of its lease payments.

On May 22, 2025, the Company renewed its lease for research & development, engineering, testing and corporate offices in Manchester, England.

The renewed lease term expires in 2028 with an option for the Company to end the lease in 2027.

On July 14, 2025, the Company entered into a sublease agreement for its office in Taoyuan City, Taiwan.

The lease term expires in 2028 and can be terminated with 60 days ’ notice.

The Company is not the lessor in any lease agreement, and no related party transactions for lease arrangements have occurred.

The table below presents certain information related to the lease costs for the Company’s operating leases for the periods ended:

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

(in thousands)

3 unchanged sentences

The total lease cost is included in the unaudited condensed consolidated statements of operations as follows:

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

(in thousands)

2 unchanged sentences

Total lease cost

SMARTKEM, INC.

Notes to the Unaudited Condensed Consolidated Financial Statements

Right of use lease assets and lease liabilities for the Company’s operating leases were recorded in the unaudited condensed consolidated balance sheet as follows:

September 30,

(in thousands)

6 unchanged sentences

Total lease liabilities

The Company had no right of use lease assets or lease liabilities classified as financing leases as of June 30, 2025 and December 31, 2024.

SMARTKEM, INC.

Notes to the Unaudited Condensed Consolidated Financial Statements

The Company had no right of use lease assets or lease liabilities classified as financing leases as of September 30, 2025 and December 31, 2024.

The table below presents certain information related to the cash flows for the Company’s operating leases for the periods ended:

September 30,

(in thousands)

2 unchanged sentences

The table below presents certain information related to the weighted average remaining lease term and the weighted average discount rate for the Company’s operating leases as of the period ended:

September 30,

Weighted average remaining lease term (in years) – operating leases

1 unchanged sentence

Remaining maturities of the Company’s operating leases, excluding short-term leases, are as follows:

September 30,

(in thousands)

6 unchanged sentences

In the opinion of management, any potential liabilities resulting from such claims would not have a material effect on the interim condensed consolidated financial statements.

SMARTKEM, INC.

Notes to the Unaudited Condensed Consolidated Financial Statements

STOCKHOLDERS’ EQUITY

2 unchanged sentences

The Company filed a Certificate of Elimination with respect to the Series A-1 Certificate of Designation, pursuant to which, effective May 7, 2025, all matters set forth in the Series A-1 Certificate of Designation were eliminated from the Company’s Amended and Restated Certificate of Incorporation.

As of June 30, 2025, there were no shares of Series A-1 Preferred Stock outstanding.

SMARTKEM, INC.

Notes to the Unaudited Condensed Consolidated Financial Statements

As of September 30, 2025, there were no shares of Series A-1 Preferred Stock outstanding.

Common Stock Issued to Vendors for Services

During the six months ended June 30, 2025, 160,000 shares of our common stock were issued to a vendor in consideration for services to be provided.

During the nine months ended September 30, 2025, 190,000 shares of our common stock were issued to a vendor in consideration for services provided.

Common Stock Warrants

3 unchanged sentences

$ 0.35 - $ 70.00

Warrants outstanding at June 30, 2025

Warrants outstanding at September 30, 2025

$ 0.35 - $ 70.00

During the quarter ended June 30, 2025, 160 Class B Warrants were exercised at an exercise price of $ 0.35 .

A summary of the Company’s pre-funded warrants to purchase common stock activity is as follows:

Pre-funded warrants outstanding at January 1, 2025

Pre-funded warrants outstanding at June 30, 2025

( 1,133,977 )

Pre-funded warrants outstanding at September 30, 2025

During the quarter ended June 30, 2025, 1,282,412 Class C Warrants were issued at an exercise price of $ 0.0001 .

During the quarter ended September 30, 2025, 1,133,977 prefunded warrants were exercised at an exercise price of $ 0.0001 .

SMARTKEM, INC.

Notes to the Unaudited Condensed Consolidated Financial Statements

SHARE-BASED COMPENSATION

On February 23, 2021, the Company approved the 2021 Equity Incentive Plan (“2021 Plan”), in which a maximum aggregate number of shares of common stock that may be issued under the 2021 Plan is 65,000 shares.

On February 23, 2021, the Company approved the 2021 Equity Incentive Plan (the “2021 Plan”), in which a maximum aggregate number of shares of common stock that may be issued under the 2021 Plan is 65,000 shares.

Subject to the adjustment provisions of the 2021 Plan, the number of shares of the Company’s common stock available for issuance under the 2021 Plan will also include an annual increase on the first day of each fiscal year beginning with 2022 fiscal year and ending on the Company’s 2031 fiscal year in an amount equal to the least of:

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The Company’s Board of Directors had previously approved the 2025 Plan Amendment, subject to stockholder approval.

SMARTKEM, INC.

Notes to the Unaudited Condensed Consolidated Financial Statements

Determining the appropriate fair value of share-based awards requires the input of subjective assumptions, including the fair value of the Company’s common stock, and for share options, the expected life of the option, and expected share price volatility.

2 unchanged sentences

As a result, if factors change and management uses different assumptions, the share-based compensation expense could be materially different for future awards.

Options granted under the 2021 Plan for six months ended June 30, 2025 and 2024, were valued using the Black-Scholes option-pricing model with the following assumptions:

Six Months Ended June 30,

Options granted under the 2021 Plan for nine months ended September 30, 2025 and 2024, were valued using the Black-Scholes option-pricing model with the following assumptions:

Expected term (years)

2 unchanged sentences

Expected dividend yield

During the six months ended June 30, 2025, the Company issued options for 710,268 shares of common stock to employees, directors and consultants.

The options vest over a period of three years , have an exercise price of $ 2.51 and expire on the ten-year anniversary of the grant date.

The following table reflects share activity under the share option plans for the six months ended June 30, 2025:

During the nine months ended September 30, 2025, the Company issued options for 1,031,214 shares of common stock to employees, directors and consultants.

The options vest over a period of three years and expire on the ten-year anniversary of the grant date.

The options for the 710,268 shares issued on April 15, 2025 have an exercise price of $ 2.51 .

The options for the 320,946 shares issued on September 3, 2025 have an exercise price of $ 1.16 .

The weighted average grant-date fair value of stock options granted during the nine months ended September 30, 2025 and 2024 was $ 1.07 and $ 3.35 , respectively.

SMARTKEM, INC.

Notes to the Unaudited Condensed Consolidated Financial Statements

The following table reflects share activity under the share option plans for the nine months ended September 30, 2025:

Fair Value at

2 unchanged sentences

Cancelled/Forfeited

Options outstanding at June 30, 2025

Options exercisable at June 30, 2025

Options outstanding at September 30, 2025

Options exercisable at September 30, 2025

Stock-based compensation is included in the unaudited interim condensed consolidated statements of operations as follows:

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

(in thousands)

1 unchanged sentence

General and administration

Total compensation cost related to non-vested stock option awards not yet recognized as of June 30, 2025 was $ 2.1 million and will be recognized on a straight-line basis through the end of the vesting periods in June 2028.

Total compensation cost related to non-vested stock option awards not yet recognized as of September 30, 2025 was $ 2.1 million and will be recognized on a straight-line basis through the end of the vesting periods in September 2028.

The amount of future stock option compensation expense could be affected by any future option grants or by any forfeitures.

SMARTKEM, INC.

Notes to the Unaudited Condensed Consolidated Financial Statements

BASIC AND DILUTED LOSS PER SHARE

3 unchanged sentences

In periods with reported net operating losses, all common stock options and warrants are generally deemed anti-dilutive such that basic net loss per share and diluted net loss per share are equal.

The following potentially dilutive securities were excluded from the computation of earnings per share as of June 30, 2025 and 2024 because their effects would be anti-dilutive:

The following potentially dilutive securities were excluded from the computation of earnings per share as of September 30, 2025 and 2024 because their effects would be anti-dilutive:

September 30,

Common stock warrants

4 unchanged sentences

The assets of the scheme are held separately from those of the Company in an independently administered fund.

The pension cost charge represents contributions payable by the Company to the fund.

The pension cost charge

SMARTKEM, INC.

Notes to the Unaudited Condensed Consolidated Financial Statements

represents contributions payable by the Company to the fund.

Pension cost is included in the unaudited interim condensed consolidated statements of operations as follows:

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

(in thousands)

4 unchanged sentences

The Company is currently evaluating the provisions of the new law and assessing the potential impacts on its consolidated financial statements.

As of June 30, 2025, the Company has not completed its analysis and has therefore not recorded any material adjustments related to the new legislation.

As of September 30, 2025, the Company has not completed its analysis and has therefore not recorded any material adjustments related to the new legislation.

The final impact of the tax law may differ from the Company’s current estimates as the assessment is completed and additional guidance, interpretations, or clarifications become available.

5 unchanged sentences

Our CODM is our Chief Executive Officer and President, Ian Jenks.

The CODM uses net loss, as reported on our Consolidated Statements of Comprehensive Income, in evaluating performance of the Semiconductor

SMARTKEM, INC.

Notes to the Unaudited Condensed Consolidated Financial Statements

materials segment and determining how to allocate resources of the Company as a whole and making decisions on perspective joint development and collaboration agreements.

The CODM uses net loss, as reported on our Consolidated Statements of Comprehensive Income, in evaluating performance of the Semiconductor materials segment and determining how to allocate resources of the Company as a whole and making decisions on perspective joint development and collaboration agreements.

The CODM does not review assets in evaluating the results of the Semiconductor materials segment, and therefore, such information is not presented.

The following table provides the net losses of the Semiconductor materials segment:

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

Cost of revenue

9 unchanged sentences

Income tax refund

SMARTKEM, INC.

Notes to the Unaudited Condensed Consolidated Financial Statements

SUBSEQUENT EVENTS

Consultant Shares

During the period of July 1, 2025 through August 12, 2025, 20,000 shares of our common stock were issued to a vendor in consideration for services to be provided.

Warrant Exercises

On July 2, 2025, 83,325 shares of our common stock were issued upon the cashless exercise of 83,333 pre-funded warrants.

On October 10, 2025, 179,924 shares of our common stock were issued upon the exercise of Class C Warrants.

On October 13, 2025, 99,996 shares of our common stock were issued upon the cashless exercise of 100,000 Class C Warrants.

Stock Issuances

On October 7, 2025 we entered into agreements with four consulting firms to provide investor relations related services to the Company, and in consideration for such services, agreed to issue up 750,000 shares (the “Shares”) of common stock of the Company, par value $ 0.0001 per share, subject to certain restrictions.

The Shares will be issued and sold in reliance upon the exemption from the registration requirements of the Securities Act of 1933, as amended, afforded by Section 4(a)(2) of the Securities Act.

Jericho Transaction

On October 6, 2025, we entered into the LOI with Jericho , an energy innovation company, to pursue the Proposed Transaction.

Under the LOI, the Proposed Transaction would be structured as an all-stock business combination, effected through either a share exchange or statutory merger, pursuant to which our company would be the surviving legal entity and would continue as a publicly listed company on Nasdaq (such surviving company, the Combined Company).

Upon the closing of the Proposed Transaction, Jericho stockholders would own 65 % and our stockholders prior to the Proposed Transaction would own 35 % of the fully diluted issued and outstanding equity securities of the Combined Company, subject to adjustment in certain circumstances.

The LOI is non-binding, and there can be no assurance that we and Jericho will ultimately enter into a definitive agreement for the Proposed Transaction, that the Proposed Transaction will be consummated, or as to the timing or ultimate terms of any Proposed Transaction that may occur.

Both we and Jericho will need significant additional capital to complete the negotiation of the Proposed Transaction, obtain any required stockholder approvals and ultimately complete the Proposed Transaction.

In the LOI, we and Jericho have agreed to a 60-day exclusivity period to negotiate the terms of a definitive agreement, which exclusivity period is terminable by either party under certain circumstances including, in the case of Jericho, if we do not purchase Jericho common shares having a value of at least $ 500,000 on or prior to November 30, 2025.

So long as the LOI is still in effect, upon the earlier of (i) our chief financial officer’s good faith determination that we have regained compliance with Nasdaq’s minimum stockholders’ equity requirement and (ii) our issuance of securities (including upon exercise of outstanding convertible securities) for aggregate gross proceeds of not less than $ 5,000,000 , we will purchase from treasury Jericho common shares in an amount equal to the greater of (a) $ 500,000 and (b) 10 % of the gross proceeds of such issuances, subject to a cap of $ 1,000,000 .

There can be no assurance that the circumstances necessary for us to satisfy the requirements for completion of the investment will occur.

June 2023 Purchase Agreement Amendment

On October 13, 2025, we entered into an Amendment Agreement with certain holders (the “Holders”) of securities issued in our June 2023 private placement, pursuant to which the Holders agreed to amend the Purchase Agreement, dated June 14, 2023 (as previously amended, the “June 2023 Purchase Agreement”) to

SMARTKEM, INC.

Notes to the Unaudited Condensed Consolidated Financial Statements

lower the price at which a Lower Price Issuance (as defined in the June 2023 Purchase Agreement) would be deemed to occur from $ 4.00 to $ 2.75 .

Senior Secured Loan

On October 31, 2025, the Company entered into a securities purchase agreement (the “Purchase Agreement”) with certain purchasers (the “Purchasers”), pursuant to which the Company issued and sold to the Purchasers in a private placement:

(i) Senior Secured Notes (the “Notes”) in the aggregate principal amount of $ 1,100,000 and (ii) warrants (the “Warrants”) exercisable for up to an aggregate of 400,000 shares of the Company’s common stock, at an exercise price of $ 2.75 per share for an aggregate purchase price of $ 1,000,000 .

The Notes mature on April 30, 2026 and do not bear interest prior to an event of default.

If an event of default occurs, interest will accrue at an interest rate equal to the lesser of 10 % of the accrued principal amount due and owing under the Note per annum or the maximum rate permitted under applicable law.

The Notes are not convertible into shares of the Company’s common stock.

In connection with the issuance of the Notes, on October 31, 2025, the Company and its subsidiaries entered into a security agreement with The Hewlett Fund LP, as collateral agent (the “Security Agreement”).

Pursuant to the Security Agreement, each of the Company and its subsidiaries granted the collateral agent a security interest in substantially all of their assets for the benefit of the Purchasers.

The Warrants have an exercise price of $ 2.75 per share.

The Warrants are exercisable upon issuance and will expire five (5) years from the date of issuance.

The Warrants are exercisable in whole or in part in cash.

If at the time of exercise more than six months after the issuance date there is no effective registration statement registering, or the prospectus contained therein is not available for the resale or other disposition of the shares of common stock underlying the Warrants, then the Warrants may also be exercised, in whole or in part, at such time by means of a cashless exercise, in which case the holder would receive upon such exercise the net number of shares of common stock determined according to the formula set forth in the Warrant.

A holder of Warrants will not have the right to exercise any portion of its Warrants if the holder, together with its affiliates, would beneficially own in excess of 4.99 % (or, at the election of the holder prior to issuance of the Warrants, 9.99 % ) of the number of shares of the Company’s common stock outstanding immediately after giving effect to such exercise.

A holder may increase or decrease the beneficial ownership limitation up to 9.99 % , provided, however, that any increase in the beneficial ownership limitation shall not be effective until 61 days following notice of such change to us.

In the event of certain fundamental transactions, the holder of the Warrants will have the right to receive the Black Scholes Value of its Warrants calculated pursuant to a formula set forth in the Warrants.

The securities described above were sold to the Purchasers without registration under the Securities Act or state securities laws in reliance on the exemptions provided by Section 4(a)(2) of the Securities Act and/or Regulation D promulgated thereunder and in reliance on similar exemptions under applicable state laws.

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 1. Financial Statements