SmartKem, Inc. 10-Q

Item 1. Financial Statements SMARTKEM, INC. Condensed Consolidated Balance Sheets (Unaudited) (in thousands, except number of shares and per share data) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ September 30, ​ December 31, ​ ​ 2025 ​ 2024 Assets ​ ​ ​ Current assets ​ ​ ​ ​ ​ ​ Cash and cash equivalents ​ $ 881 ​ $ 7,141 Research and development tax credit receivable ​ 404 ​ 519 Prepaid expenses and other current assets ​ 1,079 ​ 849 Total current assets ​ 2,364 ​ 8,509 Property, plant and equipment, net ​ 221 ​ 269 Right-of-use assets, net ​ 663 ​ 120 Other assets, non-current ​ — ​ 6 Total assets ​ $ 3,248 ​ $ 8,904 ​ ​ ​ ​ ​ ​ ​ Liabilities and stockholders’ (deficit) / equity ​ ​ Current liabilities ​ ​ ​ ​ ​ ​ Accounts payable and accrued expenses ​ $ 4,890 ​ $ 1,791 Lease liabilities, current ​ 274 ​ 47 Other current liabilities ​ ​ 660 ​ ​ 450 Total current liabilities ​ 5,824 ​ 2,288 Lease liabilities, non-current ​ 376 ​ 25 Total liabilities ​ 6,200 ​ 2,313 ​ ​ ​ ​ ​ ​ ​ Contingencies (Note 7) ​ — ​ — ​ ​ ​ ​ ​ ​ ​ Stockholders’ (deficit) / equity: ​ ​ 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 ​ 1 ​ — Additional paid-in capital ​ 123,495 ​ 122,316 Accumulated other comprehensive loss ​ ( 3,374 ) ​ ( 1,105 ) Accumulated deficit ​ ( 123,074 ) ​ ( 114,620 ) Total stockholders' (deficit) / equity ​ ( 2,952 ) ​ 6,591 Total liabilities and stockholders’ (deficit) / equity ​ $ 3,248 ​ $ 8,904 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements. ​ 3 Table of Contents ​ SMARTKEM, INC. Condensed Consolidated Statements of Operations and Comprehensive Loss (Unaudited) (in thousands, except number of shares and per share data) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended September 30, ​ Nine Months Ended September 30, ​ 2025 2024 2025 2024 Revenue ​ $ 81 ​ $ — ​ $ 136 ​ $ 40 Cost of revenue ​ 5 ​ — ​ 34 ​ 32 Gross profit ​ 76 ​ — ​ 102 ​ 8 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Other operating income ​ 181 ​ ​ 287 ​ 711 ​ 725 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Operating expenses ​ ​ ​ ​ Research and development ​ 2,056 ​ ​ 1,504 ​ 5,979 ​ 3,938 General and administrative ​ 1,331 ​ ​ 1,578 ​ 5,700 ​ 4,784 (Gain) / loss on foreign currency transactions ​ 59 ​ ​ 43 ​ ( 167 ) ​ 75 Total operating expenses ​ 3,446 ​ 3,125 ​ 11,512 ​ 8,797 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Loss from operations ​ ( 3,189 ) ​ ( 2,838 ) ​ ( 10,699 ) ​ ( 8,064 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Non-operating income / (expense) ​ ​ ​ ​ Gain / (loss) on foreign currency transactions ​ ​ ( 732 ) ​ ​ — ​ ​ 2,207 ​ ​ ( 249 ) Change in fair value of the warrant liability ​ ​ — ​ ​ — ​ ​ — ​ ​ 672 Interest income / (expense) ​ 1 ​ ​ ( 4 ) ​ 14 ​ 5 Total non-operating income / (expense) ​ ( 731 ) ​ ( 4 ) ​ 2,221 ​ 428 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Loss before income taxes ​ ​ ( 3,920 ) ​ ​ ( 2,842 ) ​ ​ ( 8,478 ) ​ ​ ( 7,636 ) Income tax refund / (expense) ​ ​ — ​ ​ — ​ 24 ​ ( 1 ) Net loss ​ $ ( 3,920 ) ​ $ ( 2,842 ) ​ $ ( 8,454 ) ​ $ ( 7,637 ) Preferred stock deemed dividends ​ ​ — ​ ​ — ​ ​ — ​ ​ ( 7,094 ) Net loss attributed to common stockholders ​ $ ( 3,920 ) ​ $ ( 2,842 ) ​ $ ( 8,454 ) ​ $ ( 14,731 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Weighted average shares outstanding - basic and diluted ​ ​ 8,782,766 ​ ​ 3,308,975 ​ ​ 7,842,215 ​ ​ 3,068,110 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Common share data: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Basic net loss per common share ​ $ ( 0.45 ) ​ $ ( 0.86 ) ​ $ ( 1.08 ) ​ $ ( 2.49 ) Diluted net loss per common share ​ ​ ( 0.45 ) ​ ​ ( 0.86 ) ​ ​ ( 1.08 ) ​ ​ ( 4.80 ) Dividend per common share ​ ​ — ​ ​ — ​ ​ — ​ ​ ( 2.31 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net loss ​ $ ( 3,920 ) ​ $ ( 2,842 ) ​ $ ( 8,454 ) ​ $ ( 7,637 ) Other comprehensive loss: ​ ​ ​ ​ Foreign currency translation ​ 800 ​ ​ 125 ​ ( 2,269 ) ​ 281 Total comprehensive loss ​ $ ( 3,120 ) ​ $ ( 2,717 ) ​ $ ( 10,723 ) ​ $ ( 7,356 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements. ​ ​ 4 Table of Contents SMARTKEM, INC. Condensed Consolidated Statements of Stockholders’ (Deficit) / Equity (Unaudited) (in thousands, except share data) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Preferred Stock ​ Common stock ​ Additional ​ Accumulated other ​ ​ ​ ​ Total ​ ​ $0.0001 par value ​ $0.0001 par value ​ paid-in ​ comprehensive ​ Accumulated ​ stockholders' ​ ​ Shares Amount ​ Shares Amount capital income / (loss) deficit (deficit) / equity Balance at January 1, 2025 ​ 856 ​ $ — ​ 3,590,217 ​ $ — ​ $ 122,316 ​ $ ( 1,105 ) ​ $ ( 114,620 ) ​ $ 6,591 Stock-based compensation expense ​ — ​ — ​ — ​ — ​ 250 ​ — ​ — ​ 250 Issuance of common stock to vendor ​ — ​ — ​ 30,000 ​ — ​ 85 ​ — ​ — ​ 85 Foreign currency translation adjustment ​ — ​ — ​ — ​ — ​ — ​ ( 1,005 ) ​ — ​ ( 1,005 ) Net loss ​ — ​ — ​ — ​ — ​ — ​ — ​ ( 2,134 ) ​ ( 2,134 ) Balance at March 31, 2025 ​ 856 ​ $ — ​ 3,620,217 ​ $ — ​ $ 122,651 ​ $ ( 2,110 ) ​ $ ( 116,754 ) ​ $ 3,787 Stock-based compensation expense ​ — ​ — ​ — ​ — ​ 260 ​ — ​ — ​ 260 Issuance of common stock to vendor ​ — ​ — ​ 130,000 ​ — ​ 290 ​ — ​ — ​ 290 Conversion of Preferred stock into common stock ​ ( 856 ) ​ — ​ 690,788 ​ — ​ — ​ — ​ — ​ — Exercise of warrants into common stock ​ — ​ — ​ 160 ​ — ​ — ​ — ​ — ​ — Foreign currency translation adjustment ​ — ​ — ​ — ​ — ​ — ​ ( 2,064 ) ​ — ​ ( 2,064 ) Net loss ​ — ​ — ​ — ​ — ​ — ​ — ​ ( 2,400 ) ​ ( 2,400 ) Balance at June 30, 2025 ​ — ​ $ — ​ 4,441,165 ​ $ — ​ $ 123,201 ​ $ ( 4,174 ) ​ $ ( 119,154 ) ​ $ ( 127 ) Stock-based compensation expense ​ — ​ — ​ — ​ — ​ 261 ​ — ​ — ​ 261 Issuance of common stock to vendor ​ — ​ — ​ 30,000 ​ — ​ 34 ​ — ​ — ​ 34 Exercise of warrants into common stock ​ — ​ — ​ 1,133,878 ​ 1 ​ ( 1 ) ​ — ​ — ​ — Foreign currency translation adjustment ​ — ​ — ​ — ​ — ​ — ​ 800 ​ — ​ 800 Net loss ​ — ​ — ​ — ​ — ​ — ​ — ​ ( 3,920 ) ​ ( 3,920 ) Balance at September 30, 2025 ​ — ​ $ — ​ 5,605,043 ​ $ 1 ​ $ 123,495 ​ $ ( 3,374 ) ​ $ ( 123,074 ) ​ $ ( 2,952 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 5 Table of Contents SMARTKEM, INC. Condensed Consolidated Statements of Stockholders’ (Deficit) / Equity (continued) (Unaudited) (in thousands, except share data) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Preferred Stock ​ Common stock ​ Additional ​ Accumulated other ​ ​ ​ ​ Total ​ ​ $0.0001 par value ​ $0.0001 par value ​ paid-in ​ comprehensive ​ Accumulated ​ stockholders' ​ ​ Shares Amount ​ Shares Amount capital income / (loss) deficit equity Balance at January 1, 2024 ​ 13,765 ​ $ — ​ 889,668 ​ $ — ​ $ 104,757 ​ $ ( 1,578 ) ​ $ ( 95,066 ) ​ $ 8,113 Stock-based compensation expense ​ — ​ — ​ — ​ — ​ 107 ​ — ​ — ​ 107 Issuance of stock awards ​ — ​ — ​ 3,400 ​ — ​ 21 ​ — ​ — ​ 21 Issuance of common stock to vendor ​ — ​ — ​ 50,000 ​ — ​ 53 ​ — ​ — ​ 53 Conversion of Preferred stock into common stock ​ ( 3,817 ) ​ — ​ 436,294 ​ — ​ — ​ — ​ — ​ — Exchange of Preferred stock into common stock warrants ​ ( 6,356 ) ​ — ​ — ​ — ​ — ​ — ​ — ​ — Deemed dividend on extinguishment of Preferred stock ​ — ​ — ​ — ​ — ​ 7,069 ​ — ​ ( 7,094 ) ​ ( 25 ) Cashless exercise of warrants into common stock ​ — ​ — ​ 388 ​ — ​ — ​ — ​ — ​ — Foreign currency translation adjustment ​ — ​ — ​ — ​ — ​ — ​ ( 18 ) ​ — ​ ( 18 ) Net loss ​ — ​ — ​ — ​ — ​ — ​ — ​ ( 1,696 ) ​ ( 1,696 ) Balance at March 31, 2024 ​ 3,592 ​ $ — ​ 1,379,750 ​ $ — ​ $ 112,007 ​ $ ( 1,596 ) ​ $ ( 103,856 ) ​ $ 6,555 Stock-based compensation expense ​ — ​ — ​ — ​ — ​ 207 ​ — ​ — ​ 207 Issuance of common stock to vendor ​ — ​ — ​ 50,000 ​ — ​ 48 ​ — ​ — ​ 48 Conversion of Preferred stock into common stock ​ ( 2,486 ) ​ — ​ 284,150 ​ — ​ — ​ — ​ — ​ — Exercise of warrants into common stock ​ — ​ — ​ 8,000 ​ — ​ 3 ​ — ​ — ​ 3 Fair value of warrants reclassified from liability to equity ​ — ​ — ​ — ​ — ​ 700 ​ — ​ — ​ 700 Foreign currency translation adjustment ​ — ​ — ​ — ​ — ​ — ​ 174 ​ — ​ 174 Net loss ​ — ​ — ​ — ​ — ​ — ​ — ​ ( 3,099 ) ​ ( 3,099 ) Balance at June 30, 2024 ​ 1,106 ​ $ — ​ 1,721,900 ​ $ — ​ $ 112,965 ​ $ ( 1,422 ) ​ $ ( 106,955 ) ​ $ 4,588 Stock-based compensation expense ​ — ​ — ​ — ​ — ​ 257 ​ — ​ — ​ 257 Issuance of common stock to vendor ​ — ​ — ​ 30,000 ​ — ​ 152 ​ — ​ — ​ 152 Conversion of Preferred stock into common stock ​ ( 250 ) ​ — ​ 28,572 ​ — ​ — ​ — ​ — ​ — Foreign currency translation adjustment ​ — ​ — ​ — ​ — ​ — ​ 125 ​ — ​ 125 Net loss ​ — ​ — ​ — ​ — ​ — ​ — ​ ( 2,842 ) ​ ( 2,842 ) Balance at September 30, 2024 ​ 856 ​ $ — ​ 1,780,472 ​ $ — ​ $ 113,374 ​ $ ( 1,297 ) ​ $ ( 109,797 ) ​ $ 2,280 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements. ​ 6 Table of Contents SMARTKEM, INC. Condensed Consolidated Statements of Cash Flows (Unaudited) (in thousands) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Nine Months Ended September 30, ​ 2025 2024 Cash flow from operating activities: ​ ​ Net loss ​ $ ( 8,454 ) ​ $ ( 7,637 ) Adjustments to reconcile net loss to net cash used in operating activities: ​ ​ ​ Depreciation ​ ​ 171 ​ ​ 194 Stock-based compensation expense ​ ​ 769 ​ ​ 592 Issuance of common stock to vendor ​ ​ 409 ​ ​ 253 Right-of-use asset amortization ​ ​ 182 ​ ​ 201 (Loss) / gain on foreign currency transactions ​ ​ ( 2,374 ) ​ ​ 283 Change in fair value of the warrant liability ​ ​ — ​ ​ ( 672 ) Change in operating assets and liabilities: ​ ​ ​ ​ ​ ​ Accounts receivable ​ ​ — ​ ​ 269 Research and development tax credit receivable ​ ​ 148 ​ ​ ( 499 ) Prepaid expenses and other assets ​ ​ ( 186 ) ​ ​ 43 Other non-current assets ​ ​ — ​ ​ 1 Accounts payable and accrued expenses ​ ​ 2,984 ​ ​ 149 Lease liabilities ​ ​ ( 145 ) ​ ​ ( 166 ) Other current liabilities ​ ​ 175 ​ ​ ( 20 ) Net cash used in operating activities ​ ( 6,321 ) ​ ( 7,009 ) ​ ​ ​ ​ ​ ​ ​ Cash flows from investing activities: ​ ​ Purchases of property, plant and equipment ​ ​ ( 105 ) ​ ​ ( 75 ) Net cash used by investing activities ​ ( 105 ) ​ ( 75 ) ​ ​ ​ ​ ​ ​ ​ Cash flow from financing activities: ​ ​ Proceeds from the exercise of warrants ​ ​ — ​ ​ 3 Net cash provided by financing activities ​ — ​ 3 ​ ​ ​ ​ ​ ​ ​ Effect of exchange rate changes on cash ​ ​ 166 ​ 28 ​ ​ ​ ​ ​ ​ ​ Net change in cash ​ ( 6,260 ) ​ ( 7,053 ) ​ ​ ​ ​ ​ ​ ​ Cash, beginning of period ​ ​ 7,141 ​ ​ 8,836 Cash, end of period ​ $ 881 ​ $ 1,783 ​ ​ ​ ​ ​ ​ ​ Supplemental disclosure of cash and non-cash investing and financing activities ​ ​ Issuance of common shares for consulting services ​ $ 409 ​ $ 253 Right-of-use asset and lease liability additions ​ $ 706 ​ $ 82 ​ ​ ​ ​ ​ ​ ​ The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements. ​ 7 Table of Contents SMARTKEM, INC. Notes to the Unaudited Condensed Consolidated Financial Statements ​ 1. GENERAL Organization SmartKem, Inc. (“SmartKem” or the “Company”) a Delaware corporation, formerly known as Parasol Investments Corporation (“Parasol”), was formed on May 13, 2020, and is the successor, as discussed below, of SmartKem Limited, which was formed under the Laws of England and Wales. The Company was founded as a “shell” company registered under the Exchange Act, with no specific business plan or purpose until it began operating the business of SmartKem Limited following the closing of the Exchange described below. On February 23, 2021, Parasol entered into a Securities Exchange Agreement (the “Exchange Agreement”), with SmartKem Limited. Pursuant to the Exchange Agreement all of the equity interests in SmartKem Limited, except certain deferred shares which had no economic or voting rights and which were purchased by Parasol for an aggregate purchase price of $ 1.40 , were exchanged for shares of Parasol common stock, par value $ 0.0001 per share (“common stock”), and SmartKem Limited became a wholly owned subsidiary of Parasol (the “Exchange”). ​ 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. ​ Business 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 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 . ​ Risk and Uncertainties The Company’s activities are subject to significant risks and uncertainties including the risk of failure to secure additional funding to properly execute the Company’s business plan. 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 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 8 Table of Contents SMARTKEM, INC. Notes to the Unaudited Condensed Consolidated Financial Statements ​ 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. Even if the Company is able to locate a suitable replacement facility on acceptable terms, there is no assurance that the key employees at CPI would accept positions at a new facility, particularly if it is located remotely from the CPI facility. 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. 9 Table of Contents 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 $ 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 $ 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 or licensing arrangements. If the Company raises additional funds by issuing equity securities, the Company’s existing security holders will likely experience dilution. If the Company borrows money, the incurrence of indebtedness would result in increased debt service obligations and could require the Company to agree to operating and financial covenants that could restrict its operations. If the Company enters into a collaboration, strategic alliance or other similar arrangement, it 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. 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 the Company’s 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. 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 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. 10 Table of Contents 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 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. These interim condensed consolidated financial statements are unaudited and were prepared by the Company in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim reporting and with the SEC’s instructions to Form 10-Q and Article 10 of Regulation S-X. They include the accounts of all wholly owned subsidiaries and all significant inter-company accounts and transactions have been eliminated in consolidation. Amounts are presented in thousands, except number of shares and per share data. 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 September 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. It is important to note that the Company’s results of operations and cash flows for interim periods are not necessarily indicative of the results of operations and cash flows to be expected for a full fiscal year or any interim period. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Other than the policies listed below, there have been no material changes to the Company’s significant accounting policies as set forth in Note 3 Summary of Significant Accounting Policies to the consolidated financial statements included in the Company’s Annual Report. The Company records, when necessary, deemed dividends for: (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. Management’s Use of Estimates The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, including disclosure of contingent assets and liabilities, at the date of the consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period. The most significant estimates in the Company’s consolidated financial statements relate to the valuation of common stock, fair value of stock options and fair value of warrant liabilities. These estimates and assumptions are based on current facts, historical experience and various other factors believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the recording of expenses that are not readily apparent from other sources. Due to the uncertainty of factors surrounding the estimates or judgments used in the preparation of the consolidated financial statements, actual results may materially vary from these estimates. ​ Segment Information Operating segments are defined as components of an enterprise about which separate discrete information is available for evaluation by the chief operating decision-maker, or decision-making group, in deciding how to allocate resources and in assessing performance. The Company views its operations and manages its business as one operating segment: Semiconductor materials. 11 Table of Contents SMARTKEM, INC. Notes to the Unaudited Condensed Consolidated Financial Statements ​ Recent Accounting Pronouncements In December 2023, the FASB issued Accounting Standards Update (ASU) No. 2023-09, Income Taxes (Topic 740), Improvements to Income Tax Disclosures which will require companies to make additional income tax disclosures. The pronouncement is effective for annual filings for the year ended December 31, 2025. The Company is still assessing the impact of the adoption of this standard but does not expect it to have a material impact on its results of operations, financial position or cash flows. ​ On November 2024, the FASB issued Accounting Standards Update (ASU) No. 2024-03, Income Statement (Topic 220): Reporting Comprehensive Income - Expense Disaggregation Disclosures, Disaggregation of Income Statement Expenses, which requires public companies to disclose, in interim and annual reporting periods, additional information about certain expenses in the financial statements. The amendments in this pronouncement will be effective for annual periods beginning after December 15, 2026, and interim reporting periods beginning after December 15, 2027. Early adoption is permitted and is effective on either a prospective basis or retrospective basis. The Company is currently assessing the potential impacts of adoption on its consolidated financial statements and related disclosures. ​ 3. PREPAID EXPENSES AND OTHER CURRENT ASSETS Prepaid expenses and other current assets consist of the following: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ September 30, ​ December 31, (in thousands) 2025 ​ 2024 Prepaid insurance ​ $ 234 ​ $ 194 Deferred research & development costs ​ ​ 148 ​ ​ 138 Research grant receivable ​ ​ 55 ​ ​ 62 Prepaid facility costs ​ ​ 148 ​ ​ 67 VAT receivable ​ ​ 55 ​ ​ 319 Prepaid software licenses ​ ​ 81 ​ ​ 66 Advances and retainers ​ ​ 335 ​ ​ — Other receivable and other prepaid expenses ​ ​ 23 ​ ​ 3 Total prepaid expenses and other current assets ​ $ 1,079 ​ $ 849 ​ ​ ​ ​ ​ ​ ​ ​ 4. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment consist of the following: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ September 30, ​ December 31, (in thousands) 2025 ​ 2024 Plant and equipment ​ $ 1,777 ​ $ 1,562 Furniture and fixtures ​ 113 ​ 106 Computer hardware and software ​ 106 ​ 98 ​ ​ 1,996 ​ 1,766 Less: Accumulated depreciation ​ ( 1,775 ) ​ ( 1,497 ) Property, plant and equipment, net ​ $ 221 ​ $ 269 ​ ​ ​ ​ ​ ​ ​ ​ 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. 12 Table of Contents SMARTKEM, INC. Notes to the Unaudited Condensed Consolidated Financial Statements ​ 5. ACCOUNTS PAYABLE AND ACCRUED EXPENSES Accounts payable and accrued expenses consist of the following: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ September 30, ​ December 31, (in thousands) 2025 ​ 2024 Accounts payable - trade ​ $ 4,031 ​ $ 843 Payroll liabilities ​ 417 ​ 397 VAT payable ​ ​ — ​ ​ 287 Accrued expenses – audit & accounting fees ​ — ​ 106 Accrued expenses – technical service fees ​ ​ 314 ​ ​ — Accrued expenses – other ​ 128 ​ 158 Total accounts payable and accrued expenses ​ $ 4,890 ​ $ 1,791 ​ ​ ​ ​ ​ ​ ​ ​ 6. LEASES The Company has operating leases consisting of office space, lab space and equipment with remaining lease terms of 1 to 3 years , subject to certain renewal options as applicable. 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 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 September 30, ​ Nine Months Ended September 30, (in thousands) 2025 2024 2025 2024 Operating lease cost ​ $ 83 ​ $ 58 ​ $ 224 ​ $ 193 Short-term lease cost ​ 13 ​ 5 ​ 25 ​ 11 Total lease cost ​ $ 96 ​ $ 63 ​ $ 249 ​ $ 204 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ The total lease cost is included in the unaudited condensed consolidated statements of operations as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended September 30, ​ Nine Months Ended September 30, (in thousands) ​ 2025 2024 2025 2024 Research and development ​ $ 95 ​ $ 58 ​ $ 243 ​ $ 193 General and administrative ​ 1 ​ 5 ​ 6 ​ 11 Total lease cost ​ $ 96 ​ $ 63 ​ $ 249 ​ $ 204 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 13 Table of Contents 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, ​ December 31, (in thousands) 2025 2024 Assets ​ ​ ​ Right of use assets - Operating Leases ​ $ 663 ​ $ 120 Total lease assets ​ $ 663 ​ $ 120 ​ ​ ​ ​ ​ ​ ​ Liabilities ​ ​ Current liabilities: ​ ​ Lease liability, current - Operating Leases ​ $ 274 ​ $ 47 Noncurrent liabilities: ​ ​ ​ Lease liability, non-current - Operating Leases ​ 376 ​ 25 Total lease liabilities ​ $ 650 ​ $ 72 ​ ​ ​ ​ ​ ​ ​ ​ 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) ​ 2025 2024 Operating cash outflows from operating leases ​ $ 145 ​ $ 166 Supplemental non-cash amounts of operating lease liabilities arising from obtaining right of use assets ​ $ 706 ​ $ 82 ​ ​ ​ ​ ​ ​ ​ ​ 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, ​ ​ 2025 Weighted average remaining lease term (in years) – operating leases ​ ​ 2.5 Weighted average discount rate – operating leases ​ ​ 10.64 % ​ Remaining maturities of the Company’s operating leases, excluding short-term leases, are as follows: ​ ​ ​ ​ ​ ​ ​ September 30, (in thousands) ​ 2025 2025 ​ $ 80 2026 ​ ​ 328 2027 ​ ​ 309 2028 ​ ​ 23 Total undiscounted lease payments ​ ​ 740 Less imputed interest ​ ​ ( 90 ) Total net lease liabilities ​ $ 650 ​ ​ ​ ​ ​ ​ 7. CONTINGENCIES Legal proceedings In the normal course of business, the Company may become involved in legal disputes regarding various litigation matters. 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. 14 Table of Contents SMARTKEM, INC. Notes to the Unaudited Condensed Consolidated Financial Statements ​ 8. STOCKHOLDERS’ EQUITY Preferred Stock Pursuant to the terms of the Series A-1 Certificate of Designation, on May 7, 2025, the remaining 856 outstanding shares of Series A-1 Preferred Stock automatically converted into an aggregate of 690,788 shares of common stock and pre-funded Class C Warrants to purchase 1,282,412 shares of common stock. 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 September 30, 2025, there were no shares of Series A-1 Preferred Stock outstanding. ​ Common Stock Common Stock Issued to Vendors for Services 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 ​ A summary of the Company’s warrants to purchase common stock activity is as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Weighted- ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Average ​ ​ ​ ​ ​ ​ ​ Weighted- ​ Remaining ​ ​ ​ ​ ​ ​ ​ Average ​ Contractual ​ ​ Number of ​ ​ Exercise Price ​ Exercise ​ Term ​ ​ Shares ​ ​ per Share ​ Price ​ (Years) Warrants outstanding at January 1, 2025 5,171,430 ​ ​ $ 0.35 - $ 70.00 ​ $ 4.94 2.26 Issued — ​ ​ ​ ​ ​ — Exercised ( 160 ) ​ ​ ​ ​ 0.35 Expired — ​ ​ ​ ​ — Warrants outstanding at September 30, 2025 5,171,270 ​ ​ $ 0.35 - $ 70.00 ​ $ 4.94 1.52 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 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: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Weighted- ​ ​ ​ ​ Average ​ ​ Number of ​ Exercise ​ ​ Shares ​ Price Pre-funded warrants outstanding at January 1, 2025 2,318,502 ​ $ 0.0064 Issued 1,282,412 ​ 0.0001 Exercised ( 1,133,977 ) ​ 0.0001 Expired — ​ — Pre-funded warrants outstanding at September 30, 2025 2,466,937 ​ $ 0.0060 ​ ​ ​ ​ ​ ​ ​ 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 . ​ ​ ​ 15 Table of Contents SMARTKEM, INC. Notes to the Unaudited Condensed Consolidated Financial Statements ​ 9. SHARE-BASED COMPENSATION 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: 1) 65,000 shares of the Company’s common stock; 2) four percent ( 4 %) of the outstanding shares of the Company’s common stock on the last day of the immediately preceding fiscal year; or 3) such number of shares of the Company’s common stock as the administrator may determine. At the 2023 Annual Meeting, the Company’s stockholders approved an amendment (the “2023 Plan Amendment”) to the Company’s 2021 Plan, increasing the number of the shares of common stock reserved for issuance under the 2021 Plan from 125,045 shares to 743,106 shares. The Company’s Board of Directors had previously approved the 2023 Plan Amendment, subject to stockholder approval. At the 2025 Annual Meeting, the Company’s stockholders approved an amendment (the “2025 Plan Amendment”) to the Company’s 2021 Plan, (i) increasing the number of the shares of common stock, reserved for issuance thereunder from 843,692 shares to 1,643,692 shares, and (ii) setting the “evergreen” share amount to 4 % of the outstanding shares of common stock. The Company’s Board of Directors had previously approved the 2025 Plan Amendment, subject to stockholder approval. 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. The Company uses the Black-Scholes option pricing model to value its share option awards. The assumptions used in calculating the fair value of share-based awards represent management’s best estimates and involve inherent uncertainties and the application of management’s judgment. 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 nine months ended September 30, 2025 and 2024, were valued using the Black-Scholes option-pricing model with the following assumptions: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ September 3, ​ ​ April 15, ​ ​ June 14, ​ ​ ​ 2025 ​ ​ 2025 ​ ​ 2024 Expected term (years) ​ 5.75 ​ ​ 5.75 ​ ​ 5.73 Risk-free interest rate ​ 3.78 % ​ ​ 4.04 % ​ ​ 4.21 % Expected volatility ​ 50 % ​ ​ 50 % ​ ​ 50 % Expected dividend yield ​ 0 % ​ ​ 0 % ​ ​ 0 % ​ 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. 16 Table of Contents 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: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Weighted- ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Average ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Weighted- ​ Remaining ​ Weighted- ​ Aggregate ​ ​ ​ ​ Average ​ Contractual ​ Average ​ Intrinsic ​ ​ Number of ​ Exercise ​ Term ​ Fair Value at ​ Value ​ ​ Shares ​ Price ​ (Years) ​ Grant Date ​ (in thousands) Options outstanding at January 1, 2025 619,910 $ 12.31 9.06 $ 3.54 ​ ​ Granted 1,031,214 ​ ​ 2.09 ​ ​ Exercised ​ — ​ ​ — ​ ​ ​ ​ ​ ​ ​ ​ Cancelled/Forfeited ( 8,002 ) 10.48 ​ ​ ​ Expired — — ​ ​ Options outstanding at September 30, 2025 1,643,122 $ 5.90 9.21 $ 3.12 ​ ​ Options exercisable at September 30, 2025 ​ 704,847 ​ $ 8.98 ​ 8.92 ​ ​ ​ ​ $ 53.20 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Stock-based compensation is included in the unaudited interim condensed consolidated statements of operations as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended September 30, ​ Nine Months Ended September 30, (in thousands) ​ 2025 2024 2025 2024 Research and development ​ $ 72 ​ $ 79 ​ $ 219 ​ $ 175 General and administration ​ 188 ​ 178 ​ 550 ​ 396 Total ​ $ 260 ​ $ 257 ​ $ 769 ​ $ 571 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 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. 10. BASIC AND DILUTED LOSS PER SHARE Basic net loss per share is determined by dividing net loss by the weighted average shares of common stock outstanding during the period, without consideration of potentially dilutive securities, except for those shares that are issuable for little or no cash consideration. Diluted net loss per share is determined by dividing net loss by diluted weighted average shares outstanding. Diluted weighted average shares reflects the dilutive effect, if any, of potentially dilutive common shares, such as stock options and warrants calculated using the treasury stock method. 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 September 30, 2025 and 2024 because their effects would be anti-dilutive: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ September 30, ​ 2025 ​ 2024 Common stock warrants ​ ​ 4,450,324 ​ ​ 1,772,829 Assumed conversion of preferred stock ​ ​ — ​ ​ 97,866 Stock options ​ ​ 1,643,122 ​ ​ 632,546 Total ​ ​ 6,093,446 ​ ​ 2,503,241 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 11. DEFINED CONTRIBUTION PENSION The Company operates a defined contribution pension scheme for its UK employees. The assets of the scheme are held separately from those of the Company in an independently administered fund. The pension cost charge 17 Table of Contents 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 September 30, ​ Nine Months Ended September 30, (in thousands) ​ 2025 2024 2025 2024 Research and development ​ $ 49 ​ $ 23 ​ $ 107 ​ $ 64 General and administration ​ 15 ​ 19 ​ 53 ​ 55 Total ​ $ 64 ​ $ 42 ​ $ 160 ​ $ 119 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 12. INCOME TAXES ​ On July 4, 2025, the One Big Beautiful Bill Act was enacted, introducing significant changes to U.S. federal tax law, including modifications to corporate tax rates, deductions, and tax credit provisions. The Company is currently evaluating the provisions of the new law and assessing the potential impacts on its consolidated financial statements. ​ 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. ​ 13. SEGMENT REPORTING ​ We manage our business activities on a consolidated basis and operate as a single operating segment: Semiconductor materials. Our revenue is mostly generated from R&D grants and R&D tax credits. The accounting policies of the semiconductor materials are the same as those described in Note 2 – Summary of Significant Accounting Policies. 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 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 September 30, ​ Nine Months Ended September 30, ​ ​ 2025 2024 ​ 2025 2024 Revenue ​ $ 81 ​ $ — ​ $ 136 ​ $ 40 Cost of revenue ​ ​ 5 ​ ​ — ​ ​ 34 ​ ​ 32 Gross profit ​ ​ 76 ​ ​ — ​ ​ 102 ​ ​ 8 Other operating income ​ ​ 181 ​ ​ 287 ​ ​ 711 ​ ​ 725 Operating expenses ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Research and development ​ ​ 2,056 ​ ​ 1,504 ​ ​ 5,979 ​ ​ 3,938 General and administrative ​ ​ 1,331 ​ ​ 1,578 ​ ​ 5,700 ​ ​ 4,784 (Gain)/loss on foreign currency transactions ​ ​ 59 ​ ​ 43 ​ ​ ( 167 ) ​ ​ 75 Total operating expenses ​ ​ 3,446 ​ ​ 3,125 ​ ​ 11,512 ​ ​ 8,797 Loss from operations ​ ​ ( 3,189 ) ​ ​ ( 2,838 ) ​ ​ ( 10,699 ) ​ ​ ( 8,064 ) Total non-operating income/(expense) ​ ​ ( 731 ) ​ ​ ( 4 ) ​ ​ 2,221 ​ ​ 428 Loss before income taxes ​ ​ ( 3,920 ) ​ ​ ( 2,842 ) ​ ​ ( 8,478 ) ​ ​ ( 7,636 ) Income tax refund ​ ​ — ​ ​ — ​ ​ 24 ​ ​ ( 1 ) Net loss ​ $ ( 3,920 ) ​ $ ( 2,842 ) ​ $ ( 8,454 ) ​ $ ( 7,637 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 18 Table of Contents SMARTKEM, INC. Notes to the Unaudited Condensed Consolidated Financial Statements ​ ​ 14. SUBSEQUENT EVENTS ​ Warrant Exercises ​ 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. 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 SEC. ​ 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. 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. ​ 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 19 Table of Contents 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. ​ ​ 20 Table of Contents