SmartKem, Inc. 10-K

Item 8. Financial Statements and Supplementary Data ​ ​ ​ ​ ​ SmartKem, Inc. ​ ​ Index to Consolidated Financial Statements ​ ​ ​ Page ​ Report of Independent Registered Public Accounting Firm (Marcum LLP, New York, USA, PCAOB ID # 688 ) 39 ​ ​ ​ ​ Report of Independent Registered Public Accounting Firm (CBIZ CPAs L.P., New York, USA. PCAOB ID # 199 ) 40 ​ ​ ​ ​ Consolidated Balance Sheets as of December 31, 2025, and 2024 41 ​ ​ ​ ​ Consolidated Statements of Operations and Comprehensive Loss for the years ended December 31, 2025, and 2024 42 ​ ​ ​ ​ Consolidated Statements of Stockholders' Equity for the years ended December 31, 2025, and 2024 43 ​ ​ ​ ​ Consolidated Statements of Cash Flows for the years ended December 31, 2025, and 202 4 44 ​ ​ ​ ​ Notes to the Consolidated Financial Statements 45 ​ ​ ​ 38 Table of Contents Report of Independent Registered Public Accounting Firm ​ ​ To the Stockholders and Board of Directors of SmartKem, Inc. ​ Opinion on the Financial Statements ​ We have audited the accompanying consolidated balance sheet of SmartKem, Inc. and Subsidiaries (the “Company”) as of December 31, 2024, the related consolidated statements of operations and comprehensive loss, stockholders’ equity, and cash flows for the year ended December 31, 2024, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2024, and the results of its operations and its cash flows for the year ended December 31, 2024, in conformity with accounting principles generally accepted in the United States of America. ​ Explanatory Paragraph – Going Concern ​ The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As more fully described in Note 2, the Company has incurred recurring losses and needs to raise additional funds to meet its obligations and sustain its operations. These conditions raise substantial doubt about the Company's ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. ​ Basis for Opinion ​ These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. ​ We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. ​ Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion. ​ /s/ Marcum LLP ​ Marcum LLP ​ We served as the Company’s auditor from 2023 to 2025 ​ New York, NY March 31, 2025 39 Table of Contents Report of Independent Registered Public Accounting Firm ​ ​ To the Stockholders and Board of Directors of SmartKem, Inc. ​ Opinion on the Financial Statements ​ We have audited the accompanying consolidated balance sheet of SmartKem, Inc. and Subsidiaries (the “Company”) as of December 31, 2025, the related consolidated statements of operations and comprehensive loss, stockholders’ (deficit) equity, and cash flows for the year ended December 31, 2025, and the related notes (collectively referred to as the “financial statements”). In our opinion, based on our audit, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2025, and the results of its operations and its cash flows for the year ended December 31, 2025, in conformity with accounting principles generally accepted in the United States of America. ​ Explanatory Paragraph – Going Concern ​ The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As more fully described in Note 2, the Company has a significant working capital deficiency, has incurred significant losses, and needs to raise additional funds to meet its obligations and sustain its operations. These conditions raise substantial doubt about the Company's ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 2. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. ​ Basis for Opinion ​ These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. ​ We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. ​ Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion. ​ Critical Audit Matters ​ Critical audit matters are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. We determined that there are no critical audit matters. ​ /s/ CBIZ CPAS P.C. ​ CBIZ CPAs P.C. ​ We have served as the Company’s auditor since 2023 (such date takes into account the acquisition of the attest business of Marcum LLP by CBIZ CPAs P.C. effective November 1, 2024). ​ New York, NY April 7, 2026 ​ ​ 40 Table of Contents SMARTKEM, INC. AND SUBSIDIARIES Consolidated Balance Sheets (in thousands, except number of shares and per share data) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, ​ December 31, ​ ​ 2025 ​ 2024 Assets ​ ​ ​ ​ ​ Current assets ​ ​ ​ ​ ​ ​ Cash and cash equivalents ​ $ 374 ​ $ 7,141 Accounts receivable ​ 3 ​ — Research and development tax credit receivable ​ 549 ​ 519 Prepaid expenses and other current assets ​ 575 ​ 849 Total current assets ​ 1,501 ​ 8,509 Property, plant and equipment, net ​ 180 ​ 269 Right-of-use assets, net ​ 607 ​ 120 Other assets, non-current ​ — ​ 6 Total assets ​ $ 2,288 ​ $ 8,904 ​ ​ ​ ​ ​ ​ ​ Liabilities and stockholders’ (deficit) / equity ​ ​ ​ ​ Current liabilities ​ ​ ​ ​ ​ ​ Accounts payable and accrued expenses ​ $ 4,603 ​ $ 1,791 Lease liabilities, current ​ 271 ​ 47 Notes payable, net ​ ​ 928 ​ — Deferred revenue ​ ​ 108 ​ ​ 450 Total current liabilities ​ 5,910 ​ 2,288 Lease liabilities, non-current ​ 312 ​ 25 Total liabilities ​ 6,222 ​ 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 December 31, 2025 and December 31, 2024, respectively ​ — ​ — Common stock, par value $ 0.0001 per share, 300,000,000 shares authorized, 6,839,689 and 3,590,217 shares issued and outstanding, at December 31, 2025 and December 31, 2024, respectively ​ 1 ​ — Additional paid-in capital ​ 124,772 ​ 122,316 Accumulated other comprehensive loss ​ ( 3,578 ) ​ ( 1,105 ) Accumulated deficit ​ ( 125,129 ) ​ ( 114,620 ) Total stockholders' (deficit) / equity ​ ( 3,934 ) ​ 6,591 Total liabilities and stockholders’ (deficit) / equity ​ $ 2,288 ​ $ 8,904 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ The accompanying notes are an integral part of these consolidated financial statements. ​ 41 Table of Contents ​ SMARTKEM, INC. AND SUBSIDIARIES Consolidated Statements of Operations and Comprehensive Loss (in thousands, except number of shares and per share data) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ ​ ​ ​ ​ 2025 ​ ​ ​ 2024 Revenue ​ $ 697 ​ $ 82 ​ Cost of revenue ​ 272 ​ 32 ​ Gross profit ​ 425 ​ 50 ​ ​ ​ ​ ​ ​ ​ ​ ​ Other operating income ​ 951 ​ 1,017 ​ ​ ​ ​ ​ ​ ​ ​ ​ Operating expenses ​ ​ ​ ​ ​ Research and development ​ 7,017 ​ 5,111 ​ General and administrative ​ 7,371 ​ 6,342 ​ (Gain) / loss on foreign currency transactions ​ ( 177 ) ​ 78 ​ Total operating expenses ​ 14,211 ​ 11,531 ​ ​ ​ ​ ​ ​ ​ ​ ​ Loss from operations ​ ( 12,835 ) ​ ( 10,464 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ Non-operating income / (expense) ​ ​ ​ ​ ​ Gain / (loss) on foreign currency transactions ​ ​ 2,375 ​ ( 544 ) ​ Change in fair value of the warrant liability ​ ​ — ​ 672 ​ Interest, net ​ ( 73 ) ​ 7 ​ Total non-operating income / (expense) ​ 2,302 ​ 135 ​ ​ ​ ​ ​ ​ ​ ​ ​ Loss before income taxes ​ ​ ( 10,533 ) ​ ​ ( 10,329 ) ​ Income tax refund / (expense) ​ 24 ​ ( 1 ) ​ Net loss ​ $ ( 10,509 ) ​ $ ( 10,330 ) ​ Preferred stock deemed dividends ​ ​ — ​ ​ ( 9,224 ) ​ Net loss attributed to common stockholders ​ $ ( 10,509 ) ​ $ ( 19,554 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ Common share data: ​ ​ ​ ​ ​ ​ ​ Basic net loss per common share ​ $ ( 1.29 ) ​ $ ( 3.17 ) ​ Weighted average shares outstanding - basic ​ ​ 8,156,638 ​ ​ 3,260,127 ​ Diluted net loss per common share ​ $ ( 1.29 ) ​ $ ( 6.00 ) ​ Weighted average shares outstanding - diluted ​ ​ 8,156,638 ​ ​ 3,260,127 ​ Dividends per common share ​ $ — ​ $ ( 2.83 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net loss ​ $ ( 10,509 ) ​ $ ( 10,330 ) ​ Other comprehensive loss: ​ ​ ​ ​ ​ Foreign currency translation ​ ( 2,473 ) ​ 473 ​ Total comprehensive loss ​ $ ( 12,982 ) ​ $ ( 9,857 ) ​ ​ ​ ​ ​ The accompanying notes are an integral part of these consolidated financial statements. ​ 42 Table of Contents SMARTKEM, INC. AND SUBSIDIARIES Consolidated Statements of Stockholders’ Equity (in thousands, except share data) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Accumulated ​ ​ ​ ​ ​ ​ ​ Preferred Stock ​ Common stock ​ Additional ​ 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, 2025 856 ​ $ — ​ 3,590,217 ​ $ — ​ $ 122,316 ​ $ ( 1,105 ) ​ $ ( 114,620 ) ​ $ 6,591 Stock-based compensation expense — ​ — ​ — ​ — ​ 1,040 ​ — ​ — ​ 1,040 Issuance of common stock to vendor — ​ — ​ 490,000 ​ ​ — ​ ​ 1,258 ​ ​ — ​ ​ — ​ 1,258 Conversion of Preferred stock into common stock ( 856 ) ​ ​ — ​ 690,788 ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — Exercise of warrants into common stock — ​ ​ — ​ 2,068,684 ​ ​ 1 ​ ​ ( 1 ) ​ ​ — ​ ​ — ​ ​ — Fair value of warrants issued related to note payable — ​ ​ — ​ — ​ ​ — ​ ​ 159 ​ ​ — ​ ​ — ​ ​ 159 Foreign currency translation adjustment — ​ — ​ — ​ ​ — ​ ​ — ​ ​ ( 2,473 ) ​ ​ — ​ ( 2,473 ) Net loss — ​ — ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ ( 10,509 ) ​ ( 10,509 ) Balance at December 31, 2025 — ​ $ — ​ 6,839,689 ​ $ 1 ​ $ 124,772 ​ $ ( 3,578 ) ​ $ ( 125,129 ) ​ $ ( 3,934 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Accumulated ​ ​ ​ ​ ​ ​ ​ Preferred Stock ​ Common stock ​ Additional ​ 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 — ​ — ​ — ​ — ​ 829 ​ — ​ — ​ 829 Issuance of stock awards — ​ — ​ 3,400 ​ ​ — ​ ​ 21 ​ ​ — ​ ​ — ​ 21 Issuance of common stock to vendor — ​ — ​ 130,000 ​ ​ — ​ ​ 253 ​ ​ — ​ ​ — ​ 253 Exchange of Preferred stock into common stock warrants ( 6,356 ) ​ — ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — Deemed dividend on extinguishment of Preferred stock — ​ ​ — ​ — ​ ​ — ​ ​ 7,094 ​ ​ — ​ ​ ( 7,094 ) ​ ​ — Cashless exercise of warrants into common stock — ​ — ​ 388 ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — Fair value of warrants reclassified from liability to equity — ​ — ​ — ​ ​ — ​ ​ 700 ​ ​ — ​ ​ — ​ ​ 700 Issuance of common stock and warrants, net of issuance costs — ​ ​ — ​ 1,619,781 ​ ​ — ​ ​ 6,508 ​ ​ — ​ ​ — ​ ​ 6,508 Deemed dividend on general release and amendment of Preferred stock — ​ ​ — ​ — ​ ​ — ​ ​ 2,130 ​ ​ — ​ ​ ( 2,130 ) ​ ​ — Conversion of preferred stock into common stock ( 6,553 ) ​ ​ — ​ 749,016 ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — Exercise of warrants into common stock — ​ ​ — ​ 197,964 ​ ​ — ​ ​ 24 ​ ​ — ​ ​ — ​ ​ 24 Foreign currency translation adjustment — ​ — ​ — ​ ​ — ​ ​ — ​ ​ 473 ​ ​ — ​ 473 Net loss — ​ — ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ ( 10,330 ) ​ ( 10,330 ) Balance at December 31, 2024 856 ​ $ — ​ 3,590,217 ​ $ — ​ $ 122,316 ​ $ ( 1,105 ) ​ $ ( 114,620 ) ​ $ 6,591 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ The accompanying notes are an integral part of these consolidated financial statements. ​ ​ 43 Table of Contents SMARTKEM, INC. AND SUBSIDIARIES Consolidated Statements of Cash Flows (in thousands) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ ​ ​ ​ 2025 ​ ​ ​ 2024 Cash flow from operating activities: ​ ​ ​ ​ Net loss ​ $ ( 10,509 ) ​ $ ( 10,330 ) Adjustments to reconcile net loss to net cash used in operating activities: ​ ​ ​ ​ Depreciation ​ 212 ​ 258 Stock-based compensation expense ​ ​ 1,040 ​ 850 Issuance of common stock to vendor ​ ​ 1,258 ​ 253 Right-of-use asset amortization ​ 205 ​ 268 (Loss) / gain on foreign currency transactions ​ ​ ( 2,552 ) ​ 647 Change in fair value of the warrant liability ​ ​ — ​ ( 672 ) Debt discount amortization ​ ​ 87 ​ — Change in operating assets and liabilities: ​ ​ ​ ​ Accounts receivable ​ ( 3 ) ​ 269 Research and development tax credit receivable ​ ( 29 ) ​ 84 Prepaid expenses and other assets ​ 268 ​ ( 33 ) Accounts payable and accrued expenses ​ 2,811 ​ 504 Lease liabilities ​ ​ ( 182 ) ​ ( 281 ) Other current liabilities ​ ( 342 ) ​ 87 Net cash used in operating activities ​ ( 7,736 ) ​ ( 8,096 ) ​ ​ ​ ​ ​ ​ ​ Cash flows from investing activities: ​ ​ ​ ​ Purchases of property, plant and equipment ​ ( 123 ) ​ ​ ( 75 ) Net cash used by investing activities ​ ( 123 ) ​ ( 75 ) ​ ​ ​ ​ ​ ​ ​ Cash flow from financing activities: ​ ​ ​ ​ Proceeds from the issuance of common stock and warrants in private placement ​ — ​ 3,300 Proceeds from the issuance of common stock and warrants in public placement ​ ​ — ​ 4,350 Payment of issuance costs ​ ​ — ​ ( 1,142 ) Proceeds from the issuance of debt ​ 1,000 ​ — Proceeds from the exercise of warrants ​ ​ — ​ 24 Net cash provided by financing activities ​ 1,000 ​ 6,532 ​ ​ ​ ​ ​ ​ ​ Effect of exchange rate changes on cash ​ 92 ​ ( 56 ) ​ ​ ​ ​ ​ ​ ​ Net change in cash ​ ( 6,767 ) ​ ( 1,695 ) ​ ​ ​ ​ ​ ​ ​ Cash, beginning of period ​ 7,141 ​ 8,836 Cash, end of period ​ $ 374 ​ $ 7,141 ​ ​ ​ ​ ​ ​ ​ Supplemental disclosure of cash and non-cash investing and financing activities ​ ​ ​ ​ Right-of-use asset and lease liability additions ​ $ 708 ​ $ 82 ​ ​ ​ ​ ​ The accompanying notes are an integral part of these consolidated financial statements. ​ 44 Table of Contents SMARTKEM, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements ​ 1. ORGANIZATION & BUSINESS Organization & Reverse Recapitalization 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 (the “Deferred Shares”) 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 We are seeking to change the world of electronics with a new class of transistor developed using our proprietary advanced semiconductor materials that we believe has the potential to revolutionize the display industry. Our TRUFLEX® semiconductor polymers enable low-temperature printing processes that are compatible with existing manufacturing infrastructure to deliver low-cost, high-performance displays. Our semiconductor platform can be used in a range of display technologies, including MicroLED, liquid crystal display (“LCD”), and AMOLED, as well as in applications in advanced computer and artificial intelligence chip packaging, sensors, and logic. ​ We design and develop our materials at our research and development facility in Manchester, UK, and provide prototyping services at the Centre for Process Innovation in Sedgefield, UK. We also operate a field application office in Hsinchu, Taiwan, in close proximity to our collaboration partner, The Industrial Technology Research Institute of Taiwan. Together with our collaboration partners, we are developing a commercial-scale production process and Electronic Design Automation ("EDA") tools for our materials to demonstrate the commercial viability of manufacturing a new generation of displays using our materials. ​ During the first quarter of 2026, Smartkem was involved in a number of financing transaction. These included the transfer of our patent portfolio to a third party. The company still owns its process and formulation intellectual property as codified in 40 trade secrets. As previously disclosed the company is continuing to conduct a review of its strategy. In particular it is evaluating its display prototyping activities, its materials formulation activities and the possibility of adding new materials to its portfolio. ​ The consolidated entity presented is referred to herein as “SmartKem”, “we”, “us”, “our”, or the “Company”, as the context requires and unless otherwise noted. ​ Certain 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 growth 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. 45 Table of Contents SMARTKEM, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements ​ 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND GOING CONCERN: Basis for Presentation These consolidated financial statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission and accounting principles generally accepted in the United States of America (“US GAAP”) as defined by the Financial Accounting Standards Board (FASB) within the FASB Accounting Standards Codification (“ASC”) and are presented in thousands, except number of shares and per share data. Going Concern As of December 31, 2025, we have incurred recurring losses including net losses of $ 10.5 million and $ 10.3 million for the years ended December 31, 2025, and 2024, respectively. Our working capital deficit is $ 4.4 million as of December 31, 2025. We anticipate 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 $ 0.4 million as of December 31, 2025, will not be sufficient to fund its operating expenses and capital expenditure requirements for the 12 months from the issuance of these financial statements and that the Company will require additional capital funding to continue its operations and research development activity thereafter. It is possible this period could be shortened if there are any significant increases in spending or more rapid progress of development programs than anticipated. Our future viability is dependent on our ability to raise additional capital to fund our operations. We will need to obtain additional funds to satisfy our operational needs and to fund our sales and marketing efforts, research and development expenditures, and business development activities. Until such time, if ever, as we can generate sufficient cash through revenue, management’s plans are to finance our working capital requirements through a combination of equity offerings, debt financings, collaborations, strategic alliances and marketing, distribution or licensing arrangements. If we raise additional funds by issuing equity securities, our existing security holders will likely experience dilution. If we borrow money, the incurrence of indebtedness would result in increased debt service obligations and could require us to agree to operating and financial covenants that could restrict our operations. If we enter into a collaboration, strategic alliance or other similar arrangement, we may be forced to give up valuable rights. There can be no assurance however that such financing will be available in sufficient amounts, when and if needed, on acceptable terms or at all. 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. If the Company is unable to substantially increase revenues, reduce expenditures, or otherwise generate cash flows for operations, then the Company will need to raise additional funding. 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 consolidated financial statements as of December 31, 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 Basis of Consolidation The consolidated financial statements include the accounts of SmartKem, Inc. and its wholly-owned subsidiary, SmartKem Limited. The Company does not have any non-consolidated subsidiaries. All intercompany balances and transactions have been eliminated on consolidation, including unrealized gains and losses on transactions between the companies. 46 Table of Contents SMARTKEM, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements ​ Comprehensive loss Comprehensive loss of all periods presented is comprised primarily of net loss and foreign currency translation adjustments. Management’s Use of Estimates The preparation of consolidated financial statements in conformity with US 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 relates to the fair value of stock-based compensation expense and for the valuation allowance of deferred taxes. 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. Cash and Cash Equivalents The Company considers all highly liquid investments purchased with original maturities of 90 days or less at acquisition to be cash equivalents. As of December 31, 2025 and 2024, the Company did no t have any cash equivalents. Accounts Receivable Accounts receivable are stated at the amount the Company expects to collect and do not bear interest. The Company considers the following factors when determining the collectability of specific customer accounts: customer creditworthiness, past transaction history with the customer, current economic industry trends, and changes in customer payment terms. These receivables have historically been paid timely. Due to the nature of the accounts receivable balance, the Company believes there is no significant risk of non-collection. If the financial condition of the Company’s customers were to deteriorate, adversely affecting their ability to make payments, allowances for credit losses would be required. There was no allowance for credit losses recorded as of December 31, 2025 and 2024. Concentrations of Credit Risk Financial instruments that potentially subject the Company to significant concentration of credit risk consist primarily of cash and cash equivalents and accounts receivable. Periodically, the Company maintains deposits in financial institutions in excess of government insured limits. Property, Plant and Equipment Property, plant and equipment is stated at cost, less accumulated depreciation. Maintenance and repairs are expensed when incurred. Additions and improvements that extend the economic useful life of the asset are capitalized and depreciated over the remaining useful lives of the assets. The cost and accumulated depreciation of assets sold or retired are removed from the respective accounts, and any resulting gain or loss is reflected in current earnings. Depreciation and amortization are provided using the accelerated declining balance method in amounts considered to be sufficient to amortize the cost of the assets to operations over their estimated useful lives. Property, plant and equipment is depreciated over an estimated useful life of approximately 4 years . 47 Table of Contents SMARTKEM, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements ​ Impairment of Long-Lived Assets Management continually evaluates whether events or changes in circumstances might indicate that the remaining estimated useful life of long-lived assets may warrant revision, or that the remaining balance may not be recoverable. When factors indicate that long-lived assets should be evaluated for possible impairment, the Company uses an estimate of the related undiscounted cash flows in measuring whether the long-lived asset should be written down to fair value. Measurement of the amount of impairment would be based on generally accepted valuation methodologies, as deemed appropriate. If the carrying amount is greater than the undiscounted cash flows, the carrying amount of the asset is reduced to the asset’s fair value. An impairment loss is recognized immediately as an operating expense in the consolidated statements of operations. As of December 31, 2025, and 2024, Company’s management believed that no impairment of the Company’s long-lived assets was required. Non-retirement Post-employment Benefits ​ The company records employee severance benefits as non-retirement post-employment benefits that are accounted for under the guidance of ASC 712-10 Compensation - Nonretirement Postemployment Benefits . A liability is accrued when it becomes probable that a payment will be made, and the amount is estimable. In most cases, a payment is not deemed probable until the employer makes the decision to terminate the employee. All severance payments identified were paid and expensed in the period incurred. ​ Leases ​ Operating lease assets are included within operating lease right-of-use assets, and the corresponding operating lease obligation on the consolidated balance sheets as of December 31, 2025 and 2024. The Company has elected not to present short-term leases as these leases have a lease term of 12 months or less at lease inception and do not contain purchase options or renewal terms that the Company is reasonably certain to exercise. All other lease assets and lease liabilities are recognized based on the present value of lease payments over the lease term at commencement date. Because most of the Company’s leases do not provide an implicit rate of return, the Company used an incremental borrowing rate based on inception date of the lease agreement in determining the present value of lease payments. ​ Revenue The Company applies the provisions of ASC 606, Revenue from Contracts with Customers . The Company recognizes revenue under the core principle to depict the transfer of control to the Company’s customers in an amount reflecting the consideration the Company expects to be entitled to. In order to achieve that core principle, the Company applies the following five step approach: (1) identify the contract with a customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the contact and (5) recognize revenue when a performance obligation is satisfied. The Company’s current contracts with customers do not contain significant estimates or judgments. A portion of the Company’s revenue contains a single performance obligation that is recognized upon fulfilment of the sales order. The company also recognized a portion of revenue related to the certain agreements over time based on output method. The Company received cancellation notification from two customers in fourth quarter 2025 and recognized remaining contract liability. In 2025, the Company recorded $ 147 thousand related to the sale of the of materials to various customers which was recognized at the point of the sale. The Company also recorded $ 550 thousand related to the recognition of income over the project term related to two project agreements that had been cancelled in 2025. In 2024, the Company recorded $ 40 thousand related to the sale of the of materials to various customers which was recognized at the point of the sale. The Company also recorded $ 42 thousand related to the recognition of income over the project term related to a project agreements that had been completed in 2024. 48 Table of Contents SMARTKEM, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements ​ Customer A and B comprised of 60% and 19% of revenue for the year ended December 31, 2025. No customers comprised over 10% of revenue for the year ended December 31, 2024. The Company derives its revenues primarily from sales of TRUFLEX® inks and of demonstrator units to customers evaluating organic semiconductor technology. The transaction price is stated in each customer agreement and is allocated to a single performance obligation. Revenue is recognized upon shipment of each TRULFEX® ink or demonstrator, at a point in time. The Company does not have any significant financing components as payment is received at or shortly after the point of sale. Costs incurred to obtain a contract will be expensed as incurred when the amortization period is less than a year. Contract Liability ​ The Company has recognized contract liabilities, primarily related to advance payments received from collaboration agreements for services to be performed in future periods. These contract liabilities are expected to be recognized as revenue within the next 12 month. The Company’s balance on January 1, 2024 was $ 360 thousand. During 2024, the Company added $ 128 thousand related to new advanced deposits collected, offset by a release of $ 42 thousand for the recognition of revenue related to the completion of the performance obligation contracts and foreign currency translations of $ 4 thousand. The Company’s balance as of December 31, 2024 was $ 450 thousand. During 2025, the Company added $ 3 thousand related to new advanced deposits collected, offset by a release of $ 391 thousand for the recognition of revenue related to the completion of the performance obligation contracts and foreign currency translations of $ 46 thousand. The Company’s balance as of December 31, 2025 was $ 108 thousand. ​ Research and Development Expenses The Company expenses research and development costs as incurred. Research and development costs include salaries, employee benefit costs, direct project costs, supplies and other related costs. Advance payments for goods and services that will be used in future research and development activities are expensed when the activity has been performed or when the goods have been received. Patent and Licensing Costs Patent and licensing costs are expensed as incurred because their realization is uncertain. These costs are classified as research and development expenses in the accompanying consolidated statements of operations and comprehensive loss. Other Operating Income The Company’s other operating income includes government grants received for qualifying research and development projects, and research and development tax credits related to the United Kingdom’s Research and Development tax relief for small and medium-sized enterprises, which is a government tax incentive designed to reward innovative companies for investing in research and development. Such incentives are recorded as other income when it is probable the amounts are collectible and can be reasonably estimated. The Company has applied the guidance of IAS 20, Accounting for Government Grants and Disclosure of Government Assistance to account for grants and recognition of the other operating income related to the grant. The government grant is recognized only when there is reasonable assurance that a) the Company will comply with any conditions attached to the grant and, (b) the grant will be received. The grant is recognized as income over the period necessary to match the related costs, for which the grant is intended to compensated, on a systematic basis. A grant receivable as compensation for costs already incurred or for immediate financial support, with no future related costs, is recognized as other operating income in the period in which it is receivable. 49 Table of Contents SMARTKEM, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements ​ For the year ended December 31, 2025 and 2024, the Company recorded grant income and research & development tax credits of $ 1.0 million for both years, which are recorded as other operating income in the accompanying consolidated statements of operations. As of December 31, 2025 and 2024, the Company had receivables related to research & development tax credits for payments not yet received of $ 0.5 million for both years. Share-based compensation All share-based payments, including grants of stock options, are measured based on the fair value of the share-based awards at the grant date and recognized over their respective vesting periods. Outstanding options generally expire 10 years after the grant date. The Company has issued options that vest based on service requirements and issued options that vest based on performance requirements. Options become exercisable when service requirements are met. In the case of performance-based options, options become exercisable when there is a liquidity event, such as a change in control, sale, or admission (listing as a public company or initial public offering (“IPO”)), and the employee, or consultant, must be providing services to the Company at the time of the event. Due to the Exchange, all options outstanding immediately prior to the event with a performance obligation requirement became vested and exercisable.. The estimated fair value of stock options at the grant date is determined using the Black-Scholes pricing model. The Black-Scholes option pricing model requires inputs such as the fair value of common stock on date of grant, expected term using a simplified method, expected volatility, dividend yield, and risk-free interest rate. The assumptions used in calculating the fair value of stock-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, stock-based compensation expense could be materially different for future awards. The Company records forfeitures when they occur. Functional Currency and Operations The Company’s functional currency is USD. The functional currency of the Company’s foreign operation is the respective local currency. Assets and liabilities of foreign operations denominated in local currencies are translated at the spot rate in effect at the applicable reporting date. The consolidated statements of operations and comprehensive loss are translated at the weighted average rate of exchange during the applicable period. The resulting unrealized gain/loss is recognized as foreign currency translation as a component of other comprehensive income. Income Taxes Valuation allowance of deferred tax assets Income taxes are recorded in accordance with ASC 740, Income Taxes , which provides for deferred taxes using an asset and liability approach. The Company recognizes deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the consolidated financial statements or tax returns. Deferred tax assets and liabilities are determined based on the difference between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Valuation allowances are provided, if based upon the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. We considered the positive and negative evidence bearing upon its ability to realize the deferred tax assets. In addition to the Company’s history of cumulative losses, the Company cannot be certain that future taxable income will be sufficient to realize its deferred tax assets. Accordingly, a full valuation allowance has been provided against its net deferred tax assets at both December 31, 2025 and 2024. Should the Company change its determination, based on the evidence available as to the amount of its deferred tax assets that can be realized, the valuation allowance will be adjusted with a corresponding impact to the provision for income taxes in the period in which such determination is made and which may be material. 50 Table of Contents SMARTKEM, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements ​ As of December 31, 2025, and 2024, there were no material uncertain tax positions. Contingent Liabilities A provision for contingent liabilities is recorded when it is both probable that a liability has been incurred, and the amount of the loss can be reasonably estimated. With respect to legal matters, provisions are reviewed and adjusted to reflect the impact of negotiations, estimated settlements, legal rulings, advice of legal counsel and other information and events pertaining to a particular matter. From time to time, the Company may be party to certain litigation and disputes arising in the normal course of business. As of December 31, 2025, the Company is not a party to any litigation or disputes. ​ 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. 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. ​ ​ 51 Table of Contents SMARTKEM, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements ​ The following potentially dilutive securities were excluded from the computation of earnings per share as of December 31, 2025 and 2024 because their effects would be anti-dilutive: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, ​ ​ ​ ​ ​ 2025 ​ 2024 Common stock warrants ​ ​ ​ 2,300,328 ​ ​ 4,450,324 Assumed conversion of preferred stock ​ ​ ​ — ​ ​ 1,973,200 Stock options ​ ​ ​ 1,643,122 ​ ​ 619,910 Total ​ ​ ​ 3,943,450 ​ ​ 7,043,434 ​ ​ ​ ​ ​ ​ ​ ​ ​ Recently Issued Accounting Pronouncement 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. ​ In July 2025, the FASB issued ASU 2025-05, Financial Instruments - Credit Losses, which provides a practical expedient for estimating expected credit losses for current accounts receivable and current contract assets that arise from transactions accounted for under Topic 606, Revenue from Contracts with Customers. ASU 2025-05 is effective for annual periods beginning after December 15, 2025 and interim periods within those annual reporting periods and should be applied prospectively, with early adoption permitted. The Company is assessing the impact of adopting this standard. ​ In December 2025, the FASB issued ASU 2025-12, Codification Improvements, which clarifies various topics in the Accounting Standards Codification to improve consistency and address technical corrections. Key improvements include clarifying the calculation of diluted earnings per share (EPS) when a loss from continuing operations exists. The amendments in this update are effective for the Company beginning January 1, 2027, with early adoption permitted. The Company is assessing the impact of adopting this standard. ​ In December 2025, the FASB issued ASU 2025-11, Interim Reporting (Topic 270): Narrow Scope Improvements. This update clarifies the applicability of interim reporting guidance and the form and content of interim financial statements. It also establishes a disclosure principle requiring an entity to disclose material events and changes occurring since the end of the last annual reporting period. ASU 2025-11 is effective for the Company for interim periods within annual reporting periods beginning after December 15, 2027, with early adoption permitted. The Company is assessing the impact of adopting this standard. ​ In December 2025, the FASB issued ASU 2025-10, Government Grants (Topic 832): Accounting for Government Grants Received by Business Entities. This update establishes authoritative guidance for the recognition, measurement, presentation, and disclosure of government grants received by business entities. ASU 2025-10 is effective for the Company for interim periods within annual reporting periods beginning after December 15, 2028, with early adoption permitted. The Company is assessing the impact of adopting this standard. ​ The Organization for Economic Co-operation and Development (“OECD”) reached an agreement among various countries to implement a minimum 15% tax rate on certain multinational enterprises, commonly referred to as Pillar Two. Many countries continue to announce changes in their tax laws and regulations based on Pillar Two Proposals. We are continuing to evaluate the impact of these proposed and enacted legislative changes as new guidance becomes 52 Table of Contents SMARTKEM, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements ​ available. Given the numerous proposed changes in law and uncertainty regarding such proposed changes, the impact cannot be determined at this time. ​ Recently Adopted accounting Pronouncements ​ In December 2023, the FASB issued ASU 2023-09, Improvements to Income Tax Disclosures which applies to all entities subject to income taxes. The standard requires disaggregated information about a reporting entity’s effective tax rate reconciliation as well as information on income taxes paid. The standard is intended to provide more detailed income tax disclosures. For public business entities (PBEs), the new requirements will be effective for annual periods beginning after December 15, 2024. The Company adopted ASU 2023-09 on a prospective basis for the year ended December 31, 2025. ​ 3. PREPAID EXPENSES AND OTHER CURRENT ASSETS: Prepaid expenses and other current assets consist of the following: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, ​ December 31, (in thousands) ​ ​ ​ 2025 ​ 2024 Advances and retainers ​ $ 54 ​ $ — Prepaid insurance ​ ​ 152 ​ ​ 194 Deferred research & development costs ​ ​ — ​ ​ 138 Research grant receivable ​ ​ 88 ​ ​ 62 Prepaid facility costs ​ ​ 68 ​ ​ 67 Prepaid software licenses ​ ​ 52 ​ ​ 66 VAT receivable ​ ​ — ​ ​ 319 Tax Receivable ​ ​ 117 ​ ​ — Other receivable and other prepaid expenses ​ ​ 44 ​ ​ 3 Total prepaid expenses and other current assets ​ $ 575 ​ $ 849 ​ ​ ​ ​ ​ ​ ​ ​ 4. PROPERTY, PLANT AND EQUIPMENT: Property, plant and equipment consist of the following: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, ​ December 31, (in thousands) ​ ​ ​ 2025 ​ 2024 Plant and equipment ​ $ 1,786 ​ $ 1,562 Furniture and fixtures ​ 114 ​ 106 Computer hardware and software ​ 106 ​ 98 ​ ​ 2,006 ​ 1,766 Less: Accumulated depreciation ​ ( 1,826 ) ​ ( 1,497 ) Property, plant and equipment, net ​ $ 180 ​ $ 269 ​ ​ ​ ​ ​ ​ ​ ​ Depreciation expense was $ 0.2 million and $ 0.3 million for the year ended December 31, 2025 and 2024, respectively, and is classified as research and development expense. ​ 53 Table of Contents SMARTKEM, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements ​ 5. ACCOUNTS PAYABLE AND ACCRUED EXPENSES: Accounts payable and accrued expenses consist of the following: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, ​ December 31, (in thousands) ​ ​ ​ 2025 ​ 2024 Accounts payable - trade ​ $ 4,435 ​ $ 843 Payroll liabilities ​ 39 ​ 397 Accrued expenses – other ​ 129 ​ 158 VAT payable ​ ​ — ​ ​ 287 Accrued expenses – audit & accounting fees ​ — ​ 106 Total accounts payable and accrued expenses ​ $ 4,603 ​ $ 1,791 ​ ​ ​ ​ ​ ​ ​ ​ ​ 6. LEASES: The Company has operating leases consisting of office space, lab space, and equipment with remaining lease terms of less than 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: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, (in thousands) ​ ​ ​ 2025 ​ ​ ​ 2024 Operating lease cost ​ $ 297 ​ $ 293 Short-term lease cost ​ 40 ​ ​ 29 Total lease cost ​ $ 337 ​ $ 322 ​ ​ ​ ​ ​ ​ ​ ​ The total lease cost is included in the consolidated statements of operations as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, (in thousands) ​ ​ ​ 2025 ​ ​ ​ 2024 Research and development ​ $ 328 ​ $ 293 General and administrative ​ 9 ​ 29 Total lease cost ​ $ 337 ​ $ 322 ​ ​ ​ ​ ​ ​ ​ 54 Table of Contents SMARTKEM, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements ​ ​ Right of use lease assets and lease liabilities for our operating leases were recorded in the consolidated balance sheets as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, ​ December 31, (in thousands) ​ ​ ​ 2025 ​ ​ ​ 2024 Assets ​ ​ ​ ​ ​ Right of use assets - Operating Leases ​ $ 607 ​ $ 120 Total lease assets ​ $ 607 ​ $ 120 ​ ​ ​ ​ ​ ​ ​ Liabilities ​ ​ ​ ​ Current liabilities: ​ ​ ​ ​ Lease liability, current - Operating Leases ​ $ 271 ​ $ 47 Noncurrent liabilities: ​ ​ ​ ​ Lease liability, non-current - Operating Leases ​ 312 ​ 25 Total lease liabilities ​ $ 583 ​ $ 72 ​ ​ ​ ​ ​ ​ ​ ​ The Company had no right of use lease assets or lease liabilities classified financing leases as of December 31, 2025 and 2024. ​ 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: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ ​ ​ ​ 2025 ​ ​ ​ 2024 Weighted average remaining lease term (in years) – operating leases ​ ​ 2.27 ​ ​ 1.47 Weighted average discount rate – operating leases ​ 10.64 % ​ 10.31 % ​ ​ ​ ​ ​ ​ ​ ​ Undiscounted operating lease liabilities as of December 31, 2025, by year and in the aggregate, having non-cancelable lease terms in excess of one year were as follows: ​ ​ ​ ​ ​ ​ ​ December 31, (in thousands) ​ 2025 2026 ​ $ 323 2027 ​ ​ 310 2028 ​ ​ 23 Total undiscounted lease payments ​ ​ 656 Less imputed interest ​ ​ ( 73 ) Total net lease liabilities ​ $ 583 ​ ​ ​ ​ ​ ​ ​ ​ 7. NOTES PAYABLE: Notes payable consist of the following: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2025 (in thousands) ​ ​ ​ Gross ​ Discount ​ Net Notes Payable, Current ​ $ 1,100 ​ $ ( 172 ) ​ $ 928 Total Notes Payable ​ $ 1,100 ​ $ ( 172 ) ​ $ 928 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 55 Table of Contents SMARTKEM, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements ​ 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 “Note 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 Notes 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 Note Warrants have an exercise price of $ 2.75 per share. The Note Warrants are exercisable upon issuance and will expire five (5) years from the date of issuance. The Note 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 Note Warrants, then the Note 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 Note Warrants. ​ A holder of the Note Warrants will not have the right to exercise any portion of its Note 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 Note Warrants will have the right to receive the Black Scholes Value of its Notes Warrants calculated pursuant to a formula set forth in the Note 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. ​ As of March 18, 2026 the Notes are no longer outstanding. Please see Note 15 for additional information. ​ 8. COMMITMENTS AND 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 consolidated financial statements. ​ 56 Table of Contents SMARTKEM, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements ​ 9. STOCKHOLDERS’ EQUITY: Preferred Stock The board of directors has the authority, without further action by the stockholders, to issue up to 10,000,000 shares of preferred stock in one or more series and to fix the rights, preferences, privileges and restrictions thereof. These rights, preferences, and privileges could include dividend rights, conversion rights, voting rights, redemption rights, liquidation preferences, sinking fund terms, and the number of shares constituting any series or the designation of such series, any or all of which may be greater than the rights of common 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 December 31, 2025, there were no shares of Series A-1 Preferred Stock outstanding. Common Stock ​ Voting Rights ​ Each holder of common stock is entitled to one vote for each share on all matters submitted to a vote of the stockholders, including the election of directors. The Company’s amended and restated certificate of incorporation and the Company’s amended and restated bylaws do not provide for cumulative voting rights. The holders of one-third of the stock issued and outstanding and entitled to vote, present in person or represented by proxy, shall constitute a quorum for the transaction of business at all meetings of the stockholders. Dividends The Company has never paid any cash dividends to shareholders and does not anticipate paying any cash dividends to shareholders in the foreseeable future. Any future determination to pay cash dividends will be at the discretion of our board of directors and will be dependent upon financial condition, results of operations, capital requirements and such other factors as the board of directors deems relevant. Market Information ​ The Company’s common stock has been trading on the Nasdaq Stock Market LLC under the symbol “SMTK” since May 31, 2024. ​ Common Stock Issued to Vendors for Services During the twelve months ended December 31, 2025, 490,000 shares of our common stock were issued to a vendor in consideration for services provided. 57 Table of Contents SMARTKEM, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements ​ 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 400,000 ​ ​ ​ ​ ​ 2.75 ​ Exercised ( 160 ) ​ ​ ​ ​ 0.35 ​ Expired ( 2,549,996 ) ​ ​ ​ ​ 3.00 ​ Warrants outstanding at December 31, 2025 3,021,274 ​ ​ $ 0.35 - $ 70.00 ​ $ 6.28 2.81 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ During the year ended December 31, 2025, 160 Class B Warrants were exercised at an exercise price of $ 0.35 . ​ During the year ended December 31, 2025, 400,000 Note Warrants were issued at an exercise price of $ 2.75 . ​ On December 31, 2025, 2,549,996 Class D Warrants expired. ​ The company accounted for Note Warrants issued by first considering the criteria under ASC 480 for liability classification, then evaluating the indexation requirements and the scope exception in ASC 815-10 and finally assessing additional equity considerations under ASC 815-40-25 to determine if the warrants should be classified as equity. The Company determined that the Note Warrants associated the Notes qualified for equity classification. ​ Since the Note Warrants are deemed to be classified as equity, the proceeds received are allocated between the Notes and the Note Warrants using the relative fair value method. The fair value of the Note Warrants is calculated using a Black-Scholes calculation using the following inputs: ​ ​ ​ ​ ​ ​ ​ October 31, ​ ​ 2025 Expected term (years) ​ 2.5 Risk-free interest rate ​ 3.60 % Expected volatility ​ 50 % Expected dividend yield ​ 0 % ​ ​ ​ ​ ​ 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 ( 2,068,663 ) ​ 0.0001 Expired — ​ — Pre-funded warrants outstanding at December 31, 2025 1,532,251 ​ $ 0.0097 ​ ​ ​ ​ ​ ​ ​ The Company’s pre-funded warrants have no expiration date and may be exercised at any time until all of the pre-funded warrants are exercised in full. ​ 58 Table of Contents SMARTKEM, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements ​ During the year ended December 31, 2025, 1,282,412 Class C Warrants were issued at an exercise price of $ 0.0001 . ​ During the year ended December 31, 2025, 2,068,663 prefunded warrants were exercised at an exercise price of $ 0.0001 . ​ 10. 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. 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 (the “Board”) 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. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 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 % ​ The Company estimates its expected volatility by using a combination of historical share price volatilities of similar companies within our industry. The risk-free interest rate assumption is based on observed interest rates for the appropriate term of the Company’s options on a grant date. The contractual term is 10 years , and the expected option term is lower. 59 Table of Contents SMARTKEM, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements ​ The following table reflects share activity under the share option plans for the year ended December 31, 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 ​ — ​ ​ — ​ ​ ​ ​ ​ ​ ​ ​ Forfeited ( 8,002 ) 10.48 ​ ​ ​ ​ Expired — — ​ ​ ​ ​ Options outstanding at December 31, 2025 1,643,122 $ 5.90 8.95 $ 3.12 ​ ​ Options exercisable at December 31, 2025 ​ 803,977 ​ $ 8.44 ​ 8.72 ​ ​ ​ ​ $ 7.19 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ The weighted average grant-date fair value of the stock options granted during the years ended December 31, 2025 and 2024 was approximately $ 1.07 and $ 3.35 per share, respectively. The aggregate intrinsic value of options is calculated as the difference between the exercise price of the options and the fair value of our common stock at the end of the year for those options that had exercise prices lower than the fair value of our common stock. Stock-based compensation, including stock options is included in the consolidated statements of operations as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, (in thousands) ​ ​ 2025 ​ ​ ​ 2024 Research and development ​ ​ $ 291 ​ $ 268 General and administration ​ ​ 749 ​ 582 Total ​ ​ $ 1,040 ​ $ 850 ​ ​ ​ ​ ​ ​ ​ ​ ​ As of December 31, 2025, there was $ 1.8 million of compensation cost related to non-vested stock option awards not yet recognized that 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. 11. INCOME TAXES: United States and foreign profit/(loss) from operations before income taxes was as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, ​ ​ ​ ​ 2025 ​ ​ ​ 2024 United States ​ ​ ( 2,291 ) ​ ​ ( 1,294 ) Foreign ​ ​ ( 8,242 ) ​ ​ ( 9,035 ) Loss before income taxes ​ $ ( 10,533 ) ​ $ ( 10,329 ) ​ ​ ​ ​ ​ ​ ​ 60 Table of Contents SMARTKEM, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements ​ ​ The Company adopted ASU 2023-09 "Income Taxes (Topic 740): Improvements To Income Tax Disclosures" on a prospective basis beginning with the year ended December 31, 2025. The following table presents required disclosure pursuant to ASU 2023-09 and reconciles the U.S. federal statutory tax amount and rate to our actual global effective amount and rate for the year ended December 31, 2025: ​ ​ ​ ​ ​ ​ ​ ​ ​ For the year ended December 31, 2025 (in thousands) ​ Amount ​ Percentage U.S. federal statutory tax rate ​ $ ( 2,212 ) ​ 21.0 % State and local income taxes, net of federal income tax effect (1) ​ ​ 1 ​ 0.0 % Foreign tax effects ​ ​ ​ ​ ​ United Kingdom ​ ​ ​ ​ ​ Statutory tax rate difference between United Kingdom and the United States ​ ​ ( 326 ) ​ 3.1 % Changes in valuation allowances ​ ​ 1,362 ​ ( 12.9 )% Nondeductible research expense ​ ​ 723 ​ ( 6.9 )% Other ​ ​ ( 54 ) ​ 0.5 % Effect of changes in tax laws or rates enacted in the current period ​ ​ — ​ 0.0 % Effect of cross-border tax laws ​ ​ — ​ 0.0 % Tax credits ​ ​ — ​ 0.0 % Changes in valuation allowances ​ ​ 364 ​ ( 3.5 )% Nontaxable or nondeductible items ​ ​ ​ ​ ​ Stock compensation ​ ​ 109 ​ ( 1.0 )% Other ​ ​ 1 ​ 0.0% Changes in unrecognized tax benefits ​ ​ — ​ 0.0 % Other adjustments ​ ​ 7 ​ ( 0.1 )% Provision for income taxes and effective tax rate ​ $ ( 24 ) ​ 0.2 % ​ ​ ​ ​ ​ ​ ​ ​ (1) During the year ended December 31, 2025, state taxes in California made up the majority of tax effects in this category. ​ The following table presents the required disclosures prior to the adoption of ASU 2023-09 and reconciles the U.S. federal statutory income tax rate to the actual global effective income tax rate for the year ended December 31, 2024: ​ ​ ​ ​ ​ ​ ​ ​ For the year ended December 31, (in thousands) ​ ​ 2024 Taxes at domestic rate ​ ​ 21.0 % State and local income taxes ​ ​ 0.0 % Non-US statutory rates ​ ​ 3.5 % Permanent items ​ ​ - 2.4 % Nondeductible Research Expense ​ ​ - 6.1 % Change in valuation allowance ​ ​ - 17.2 % Warrant revaluation ​ ​ 1.4 % Prior year true-up ​ ​ 0.2 % Effective tax rate ​ ​ 0.4 % ​ ​ ​ ​ ​ 61 Table of Contents SMARTKEM, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements ​ The components of income tax provision/(benefit) are as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, ​ ​ ​ ​ 2025 ​ ​ ​ 2024 Current ​ ​ ​ ​ Federal ​ $ — ​ $ — State ​ ​ 1 ​ ​ 1 Foreign ​ ​ ( 25 ) ​ ​ — Total Current ​ $ ( 24 ) ​ $ 1 ​ ​ ​ ​ ​ ​ ​ Deferred ​ ​ ​ ​ ​ ​ Federal ​ ​ — ​ ​ — State ​ ​ — ​ ​ — Foreign ​ — ​ ​ — Total Deferred ​ ​ — ​ ​ — Total ​ $ ( 24 ) ​ $ 1 ​ ​ ​ ​ ​ ​ ​ ​ Deferred income taxes reflect the net tax effects of temporary differences between the carrying value of assets and liabilities for financial reporting purposes and amounts used for income tax purposes. The temporary differences that give rise to deferred tax assets and liabilities are as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, ​ ​ ​ ​ 2025 ​ ​ ​ 2024 Deferred tax assets/(liabilities): ​ ​ ​ ​ ​ Net operating loss carryforwards ​ $ 14,817 ​ $ 12,356 Stock Compensation ​ 378 ​ 263 Property plant and equipment ​ ( 45 ) ​ ( 67 ) Other ​ 49 ​ 79 ​ ​ 15,199 ​ 12,631 Valuation allowance ​ ( 15,199 ) ​ ( 12,631 ) Deferred tax assets, net of allowance ​ $ — ​ $ — ​ ​ ​ ​ ​ ​ ​ ​ The Company recorded a full valuation allowance against its net deferred tax assets as of December 31, 2025, and 2024. The Company considered the positive and negative evidence bearing upon its ability to realize the deferred tax assets. In addition to the Company’s history of cumulative losses, the Company cannot be certain that future taxable income will be sufficient to realize its deferred tax assets. Accordingly, a full valuation allowance has been provided against its net deferred tax assets. When the Company changes its determination as to the amount of its deferred tax assets that can be realized, the valuation allowance is adjusted with a corresponding impact to the provision for income taxes in the period in which such determination is made. As of December 31, 2025, and 2024, the Company had United Kingdom net operating loss carry-forwards of approximately $ 51.8 million and $ 43.3 million, respectively. The United Kingdom net operating loss carry-forwards were generated in the tax years from 2009 to 2025 with an unlimited carry-forward period. As of December 31, 2025, and 2024, the Company had United States federal net operating loss carry-forwards of approximately $ 8.3 million and $ 6.4 million, respectively. The United States federal net operating loss carry-forwards were generated in the tax years from 2020 to 2025 with an unlimited carry-forward period. As of December 31, 2025, and 2024, the Company had U.S. state net operating loss carry-forwards of approximately $ 1.8 million and $ 1.8 million, respectively. The U.S. state net operating loss carry-forwards were generated in the tax years from 2021 to 2025 expiring at various dates through 2045. The Company has no uncertain tax positions, or penalties and interest accrued, that if recognized would reduce net operating loss carry-forwards or affect tax expense. 62 Table of Contents SMARTKEM, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements ​ The Company files tax returns as prescribed by the tax laws in the Unites States and United Kingdom in which they operate. In the normal course of business, the Company is subject to examination by the federal jurisdiction based on the statute of limitations. As of December 31, 2025, open years related to the United States and United Kingdom are 2021 to 2024. The Company has no open tax audits with any taxing authority as of December 31, 2025. As of December 31, 2025 and December 31, 2024, the Company had no accrued interest and penalties related to uncertain tax positions and no amounts have been recognized in the Company’s statements of operations. The Company adopted ASU 2023-09 on a prospective basis for the year ended December 31, 2025 and has included the following table as a result of adoption, which presents income taxes paid (net of refunds received) for the year ended December 31, 2025: ​ ​ ​ ​ ​ ​ ​ ​ For the year ended December 31, (in thousands) ​ ​ 2025 U.S. Federal ​ $ — State: ​ ​ ​ California ​ ​ 1 Other states ​ ​ ( 0 ) State subtotal ​ ​ 1 ​ ​ ​ ​ Foreign: ​ ​ ​ United Kingdom ​ ​ ( 25 ) Foreign subtotal ​ ​ ( 25 ) ​ ​ ​ ​ Total cash paid for income taxes (net of refunds) ​ $ ( 24 ) ​ ​ ​ ​ ​ The Company had $ 1 thousand of income taxes paid for the year ended December 31, 2024, prior to the adoption of ASU 2023-09. 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. As of December 31, 2025, the Company completed its analysis and determined that no material adjustments resulted from the new legislation. 12. DEFINED CONTRIBUTION PENSION: The Company operates a defined contribution pension scheme. 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. Pension cost is included in the consolidated statements of operations as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, (in thousands) ​ ​ ​ 2025 ​ ​ ​ 2024 Research and development ​ $ 156 ​ $ 64 General and administration ​ 65 ​ 55 Total ​ $ 221 ​ $ 119 ​ ​ ​ ​ ​ ​ ​ ​ As of December 31, 2025, there was $ 6 thousand owed to the pension scheme that is recorded under accounts payable and accrued expenses on the consolidated balances sheets. As of December 31, 2024, there was $ 16 thousand owed to the pension scheme. ​ ​ 63 Table of Contents SMARTKEM, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements ​ 13. RELATED PARTY TRANSACTIONS: The were no related party transaction during the year ended December 31, 2025. 14. SEGMENT REPORTING: We manage our business activities on a consolidated basis and operate as a single operating segment. Our income 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 income, as reported on our Consolidated Statements of Comprehensive Income, in evaluating performance of the 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 segment, and therefore, such information is not presented. The following table provides the net losses of the segment: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ ​ 2025 ​ ​ ​ 2024 Revenue ​ $ 697 ​ $ 82 Cost of revenue ​ ​ 272 ​ ​ 32 Gross profit ​ ​ 425 ​ ​ 50 Other operating income ​ ​ 951 ​ ​ 1,017 Operating expenses ​ ​ ​ ​ ​ ​ Research and development ​ ​ 7,017 ​ ​ 5,111 General and administrative ​ ​ 7,371 ​ ​ 6,342 (Gain)/loss on foreign currency transactions ​ ​ ( 177 ) ​ ​ 78 Total operating expenses ​ ​ 14,211 ​ ​ 11,531 Loss from operations ​ ​ ( 12,835 ) ​ ​ ( 10,464 ) Total non-operating income/(expense) ​ ​ 2,302 ​ ​ 135 Loss before income taxes ​ ​ ( 10,533 ) ​ ​ ( 10,329 ) Income tax refund ​ ​ 24 ​ ​ ( 1 ) Net loss ​ $ ( 10,509 ) ​ $ ( 10,330 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ 15. SUBSEQUENT EVENTS: 2021 Plan Under the evergreen adjustment provisions of the 2021 Plan, on January 1, 2026, the number of shares of the Company’s common stock available for issuance under the 2021 Plan was increased by 273,588 . After giving effect to the increase, the total number of shares of common stock that may be issued under the 2021 Plan is 1,916,714 . Warrant Exercises Since December 31, 2025 1,930,524 shares of the Company’s common stock were issued upon the exercise of 1,930,977 Pre-Funded Warrants and Class C Warrants. January 2026 Registered Direct Offering On January 30, 2026, the Company entered into a securities purchase agreement (the “January 2026 RDO Purchase Agreement”) with an institutional investor, pursuant to which the Company agreed to sell to such investor 677,129 shares (the “Shares”) of the Company’s common stock, par value $ 0.0001 per share (the “Common Stock”) at a 64 Table of Contents SMARTKEM, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements ​ purchase price of $ 0.50 per share and 683,871 pre-funded warrants (the “January 2026 Pre-Funded Warrant”) to purchase 683,871 shares of Common Stock at a purchase price of $ 0.4999 per January 2026 Pre-Funded Warrant and an exercise price of $ 0.0001 per share (the “January 2026 Offering”). The Shares were offered by the Company pursuant to its shelf registration statement on Form S-3 (File No. 333-281608), which was declared effective by the Securities and Exchange Commission on August 22, 2024 and a related base prospectus and prospectus supplement thereunder. The gross proceeds from the January 2026 Offering were $ 680,500 , prior to deducting offering expenses payable by the Company. The Company intends to use the net proceeds from the Offering for working capital and general corporate purposes. Debt Conversion Agreement On February 5, 2026, the Company entered into a debt conversion agreement (the “Debt Conversion Agreement”) with SmartKem Limited, a wholly owned subsidiary of the Company, and a creditor (the “Creditor”), pursuant to which the Company agreed to issue to the Creditor (i) 385,130 shares of Common Stock, at an ascribed price of $ 2.75 per share and (ii) pre-funded warrants (the “February 2026 Pre-Funded Warrant”) to purchase 348,260 shares of Common Stock in satisfaction of approximately $ 2,016,821 owed to the Creditor by SmartKem Limited. The February 2026 Pre-Funded Warrants are immediately exercisable at an exercise price of $ 0.0001 per share and may be exercised at any time until the February 2026 Pre-Funded Warrants are exercised in full. Nasdaq Listing Deficiencies On February 12, 2026, the Listing Qualifications Department of Nasdaq notified the Company that, based upon the Company’s continued non-compliance with the Equity Rule, the Staff had determined to delist the Company’s securities from Nasdaq unless the Company timely requests a hearing before the Nasdaq Hearings Panel (the “Panel”). The Company timely requested a hearing, which stayed the delisting and suspension of the Company’s securities pending the decision of the Hearings Panel. There can be no assurance that the Company will be able to evidence compliance with the Equity Rule or other applicable requirements for continued listing on The Nasdaq Capital Market prior to the hearing or that the Panel will grant the Company a further extension period in accordance with the Nasdaq Listing Rules. On March 5, 2026, the Company received an additional letter (the “Bid Price Deficiency Letter”) from the Listing Qualifications Department of Nasdaq indicating that the Company is not in compliance with the minimum bid price requirement set forth in Nasdaq Listing Rule 5550(a)(2) (the “Minimum Bid Price Rule”) for continued listing on the Nasdaq Capital Market. Based on the closing bid price of the Company’s common stock between January 21, 2026, and March 4, 2026, the Company no longer meets the minimum bid price requirement. The Bid Price Deficiency Letter has no immediate effect on the listing or trading of the Company’s common stock on the Nasdaq Capital Market. Senior Secured Note Financing On March 18, 2026, the Company entered into a Securities Purchase Agreement (the "March 2026 Purchase Agreement") with certain accredited investors (each the “Note Buyer”, collectively the "Note Buyers"), pursuant to which the Company agreed to issue and sell to the Note Buyers senior secured promissory notes (the "March 2026 Notes") in the aggregate original principal amount of $ 3,750,000 for an aggregate purchase price of $ 2,625,000 , reflecting an original issue discount of approximately 30 %. The March 2026 Notes do not bear interest unless an Event of Default has occurred, in which case interest accrues at a rate of 14 % per annum. The March 2026 Notes mature on the six-month anniversary of the original issuance date, subject to extension at the option of each Note Buyer in the event that an Event of Default has occurred. In addition, if the Company or any of its subsidiaries consummates a subsequent placement of securities, each Note Buyer may elect to exchange all or any portion of the then outstanding principal amount of its March 2026 Note into the securities being issued in such subsequent placement, with the aggregate amount of such securities valued at 120 % of the exchanged principal amount. 65 Table of Contents SMARTKEM, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements ​ In connection with the March 2026 Purchase Agreement, the Company and its subsidiaries entered into a Security and Pledge Agreement (the "March 2026 Security Agreement," and together with the March 2026 Purchase Agreement, the March 2026 Notes, and the March 2026 Guaranties (as defined below), the "March 2026 Transaction Documents") in favor of the collateral agent (the "Collateral Agent") for the benefit of the Note Buyers. Pursuant to the March 2026 Security Agreement, the Grantors granted to the Collateral Agent a first priority perfected security interest in all existing and future assets of the Company and its direct and indirect subsidiaries, including a pledge of all of the capital stock of each subsidiary, as security for the Company's obligations under the March 2026 Transaction Documents. In connection with the March 2026 Security Agreement, the Company and its subsidiaries also entered into an Intellectual Property Security Agreement (the "IP Security Agreement"), pursuant to which the Grantors granted to the Collateral Agent a continuing security interest in certain of their intellectual property, as additional collateral security for the obligations under the March 2026 Transaction Documents. In addition, each subsidiary of the Company executed and delivered Guaranties (the "Guaranties") in favor of the Collateral Agent, for the benefit of the Buyers, pursuant to which each such subsidiary unconditionally and irrevocably guaranteed the payment and performance of all of the Company's obligations under the March 2026 Purchase Agreement, the March 2026 Notes, and the other March 2026 Transaction Documents. As discussed below, on March 30, 2026 all Note Buyers elected to exchange all of the then outstanding principal into securities issued in a private placement of preferred stock and warrants. Notes Payable On March 18, 2026, the Company entered into Settlement Agreements and Releases (collectively, the "Settlement Agreements") with the Purchasers of the Notes issued by the Company on October 31, 2025, pursuant to a Securities Purchase Agreement dated June 14, 2023 (as amended, the "Prior Purchase Agreement"). The Settlement Agreements were entered into to resolve certain claims alleged by the Purchasers against the Company in connection with the Notes, which claims the Company denied. Pursuant to the Settlement Agreements, the Company agreed to (i) repay each Purchaser the outstanding principal amount of its respective Note in full within two ( 2 ) business days following the effective date of the Settlement Agreements, and (ii) pay to the Holders an aggregate cash settlement payment of $ 300,000 by wire transfer of immediately available funds. In addition, pursuant to the Settlement Agreements, the Company agreed to assign, transfer, and convey to SmartKem IP LLC, a Delaware limited liability company, certain of the Company's right, title, and interest in and to certain patents and patent applications, together with all continuations, continuations-in-part, divisionals, reissues, reexaminations, extensions, foreign counterparts, and all rights to sue for past, present, and future infringement thereof. In furtherance thereof, the Company and its subsidiary, SmartKem Ltd, a corporation organized under English law (the "Assignor"), entered into an Intellectual Property Assignment Agreement (the "IP Assignment Agreement") with SmartKem IP LLC (the "Assignee"), pursuant to which the Assignor irrevocably conveyed, transferred, and assigned to the Assignee certain of the Assignor's right, title, and interest in and to certain patents, patent applications, and related intellectual property rights, together with all royalties, fees, income, and proceeds related thereto, and all claims and causes of action with respect thereto. In connection with the Settlement Agreements, the Company and the Holders entered into Waiver and Termination Agreements (the "Waiver and Termination Agreements") with respect to the Prior Purchase Agreement. Pursuant to the Waiver and Termination Agreements, the Holders agreed to (i) waive compliance with the Lower Priced Issuance provision set forth in Section 4.12(c) of the Prior Purchase Agreement with respect to the sale of securities pursuant to the Prior Purchase Agreement, (ii) amend Section 4.12(c) of the Prior Purchase Agreement to reset the price threshold thereunder to the lowest price per share at which securities are sold in the contemplated registered direct and private placement offering by the Company, and (iii) subject to the Company's payment of the settlement payment and completion of the patent assignment contemplated by the Settlement Agreements, terminate the Variable Rate Transaction provision set forth in Section 4.12(b) of the Prior Purchase Agreement. 66 Table of Contents SMARTKEM, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements ​ March 2026 Registered Direct Offering On March 20, 2026, the Company entered into a securities purchase agreement (the “March 2026 RDO Purchase Agreement”) with certain institutional investors, pursuant to which the Company agreed to sell to such investors 11,365,350 Shares of the Company’s Common Stock at a purchase price of $ 0.2303 per share (the “March 2026 Offering”). The Shares were offered by the Company pursuant to its shelf registration statement on Form S-3 (File No. 333-281608), which was declared effective by the Securities and Exchange Commission on August 22, 2024 and a related base prospectus and prospectus supplement thereunder. The gross proceeds from the March 2026 Offering were $ 2,617,440 , prior to deducting offering expenses payable by the Company. The Company intends to use the net proceeds from the Offering for working capital and general corporate purposes. Preferred Stock Offering and Warrants On March 30, 2026, the Company entered into a securities purchase agreement (the “Preferred Stock Purchase Agreement” with certain institutional investors (collectively, the "Buyers"), including certain Note Buyers pursuant to which the Company agreed to issue and sell to the Buyers in a private placement (the “Private Placement”) (i) 11,411.5 shares of the Company's newly designated Series A Convertible Preferred Stock, par value $ 0.0001 per share, with a stated value of $ 1,000 per share, convertible into shares of Common Stock at an initial conversion price of $ 0.5812 per share, subject to adjustment as set forth in the certificate of designations and (ii) warrants to purchase up to 23,251,960 shares of Common Stock at an initial exercise price of $ 0.5812 per share, subject to adjustment. The purchase price under the Preferred Stock Purchase Agreement was satisfied in cash and by exchange of $ 2,625,000 March 2026 Notes. The gross proceeds from the Private Placement were $ 4,629,200 , prior to deducting offering expenses payable by the Company. The Company intends to use the net proceeds from the Offering for working capital and general corporate purposes. ​ Equity Line of Credit ​ On March 30, 2026, the Company entered into a common stock purchase agreement (the "ELOC Purchase Agreement") with an equity line investor (the “ELOC Investor”), pursuant to which the Company has the right, but not the obligation, to sell to the ELOC Investor, and the ELOC Investor is obligated to purchase, up to the lesser of (a) $ 500,000,000 and (b) 19.99 % of the Company's outstanding shares of Common Stock as of the date of the ELOC Purchase Agreement, which number of shares shall be reduced, on a share-for-share basis, by the number of shares of Common Stock issued or issuable pursuant to any transaction or series of transactions that may be aggregated with the transactions contemplated by the ELOC Purchase Agreement under applicable rules of the Trading Market (as defined under the ELOC Purchase Agreement), (unless stockholder approval is obtained or applicable sales qualify as "at market" under applicable rules of The Nasdaq Stock Market LLC), from time to time during the period commencing on the effective date of a registration statement registering the resale of shares issuable under the ELOC Purchase Agreement and ending upon termination of the ELOC Purchase Agreement. Sales of Common Stock to the Investor under the ELOC Purchase Agreement, if any, will be made by the Company at its sole discretion from time to time by delivering purchase notices to the Investor (each, a "VWAP Purchase"). The purchase price per share for each VWAP Purchase will be equal to 90 % of the lesser of (i) the lowest sale price of the Common Stock on the applicable purchase date and (ii) the volume weighted average price of the Common Stock during the applicable purchase period. The ELOC Investor's aggregate committed obligation under any single VWAP Purchase shall not exceed $ 5,000,000 . The ELOC Purchase Agreement prohibits the Company from issuing shares to the ELOC Investor to the extent such shares, when aggregated with all other shares of Common Stock then beneficially owned by the Investor and its affiliates, would cause the ELOC Investor's beneficial ownership to exceed 4.99 % of the outstanding shares of Common Stock. ​ ​ 67 Table of Contents ​ ITEM 9. Changes In And Disagreements With Accountants On Accounting And Financial Disclosure ​ None. ​