What changed in this filing

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Item 1. Financial Statements

2026-05-20 compared with 2025-11-13 · 265 added, 249 removed, 264 unchanged (66% of the section changed)

3 unchanged sentences

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

September 30,

Current assets

Cash and cash equivalents

Accounts receivable

Research and development tax credit receivable

3 unchanged sentences

Right-of-use assets, net

Other assets, non-current

Liabilities and stockholders’ (deficit) / equity

2 unchanged sentences

Lease liabilities, current

Other current liabilities

Notes payable, net

Deferred revenue

Total current liabilities

2 unchanged sentences

Contingencies (Note 9)

Stockholders’ (deficit) / equity:

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

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

Stockholders’ equity / (deficit):

Preferred stock, par value $ 0.0001 per share, 10,000,000 shares authorized, 21,411.5 and 0 shares issued and outstanding, at March 31, 2026 and December 31, 2025, respectively

Common stock, par value $ 0.0001 per share, 300,000,000 shares authorized, 21,202,911 and 6,839,689 shares issued and outstanding, at March 31, 2026 and December 31, 2025, respectively

Additional paid-in capital

1 unchanged sentence

Accumulated deficit

Total stockholders' (deficit) / equity

Total liabilities and stockholders’ (deficit) / equity

Total stockholders' equity / (deficit)

Total liabilities and stockholders’ equity / (deficit)

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

2 unchanged sentences

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

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

Cost of revenue

3 unchanged sentences

General and administrative

(Gain) / loss on foreign currency transactions

Loss / (gain) on foreign currency transactions

Total operating expenses

Loss from operations

Non-operating income / (expense)

Gain / (loss) on foreign currency transactions

Change in fair value of the warrant liability

Interest income / (expense)

Total non-operating income / (expense)

Non-operating (expense) / income

(Loss) / gain on foreign currency transactions

Change in fair value of derivative liabilities

Loss on the execution of equity line of credit (ELOC)

Loss on settlement debt

Transaction costs related to debt financing

Interest, net

Total non-operating (expense) / income

Loss before income taxes

Income tax refund / (expense)

Preferred stock deemed dividends

Net loss attributed to common stockholders

Weighted average shares outstanding - basic and diluted

Income tax refund

Common share data:

Basic net loss per common share

Diluted net loss per common share

Dividend per common share

Basic and diluted net loss per common share

Weighted average shares outstanding - basic and diluted

Other comprehensive loss:

3 unchanged sentences

SMARTKEM, INC.

Condensed Consolidated Statements of Stockholders’ (Deficit) / Equity

Condensed Consolidated Statements of Stockholders’ Equity / (Deficit)

(in thousands, except share data)

6 unchanged sentences

income / (loss)

(deficit) / equity

equity / (deficit)

Balance at January 1, 2026

Stock-based compensation expense

Issuance of common stock to vendor

Exercise of stock options into common stock

Cashless exercise of warrants into common stock

Common stock issued for settlement of debt

Issuance of common stock and warrants, net of issuance costs

Issuance of common stock, net of issuance costs

Issuance of Series A-1 Preferred Stock and warrants, net of issuance costs

Exchange of notes payable for Series A-1 Preferred Stock

Issuance of Series A-1 Preferred Stock for equity line of credit (ELOC)

Foreign currency translation adjustment

Balance at March 31, 2026

Stock-based compensation expense

Issuance of common stock to vendor

Conversion of Preferred stock into common stock

Exercise of warrants into common stock

Foreign currency translation adjustment

Balance at June 30, 2025

Stock-based compensation expense

Issuance of common stock to vendor

Exercise of warrants into common stock

Foreign currency translation adjustment

Balance at September 30, 2025

SMARTKEM, INC.

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

(in thousands, except share data)

Preferred Stock

7 unchanged sentences

Stock-based compensation expense

Issuance of stock awards

Issuance of common stock to vendor

Conversion of Preferred stock into common stock

Exchange of Preferred stock into common stock warrants

Deemed dividend on extinguishment of Preferred stock

Cashless exercise of warrants into common stock

Foreign currency translation adjustment

Balance at March 31, 2025

Stock-based compensation expense

Issuance of common stock to vendor

Conversion of Preferred stock into common stock

Exercise of warrants into common stock

Fair value of warrants reclassified from liability to equity

Foreign currency translation adjustment

Balance at June 30, 2024

Stock-based compensation expense

Issuance of common stock to vendor

Conversion of Preferred stock into common stock

Foreign currency translation adjustment

Balance at September 30, 2024

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

2 unchanged sentences

(in thousands)

Nine Months Ended September 30,

Three Months Ended March 31,

Cash flow from operating activities:

4 unchanged sentences

Loss / (gain) on foreign currency transactions

Change in fair value of the warrant liability

Change in fair value of derivative liabilities

Loss on the execution of equity line of credit (ELOC)

Debt discount amortization

Loss on the extinguishment of debt

Transactions costs allocable to notes payable and equity line of credit (ELOC)

Change in operating assets and liabilities:

Accounts receivable

Research and development tax credit receivable

Prepaid expenses and other assets

Other non-current assets

Accounts payable and accrued expenses

2 unchanged sentences

Net cash used in operating activities

Cash flows from investing activities:

Purchases of property, plant and equipment

Net cash used by investing activities

Cash flow from financing activities:

Proceeds from the exercise of warrants

Gross proceeds received related to Common Stock and Warrants Purchase Agreement

Payments for financing expense related to Common Stock and Warrants Purchase Agreement

Payment for legal expenses related to extinguishment of debt

Gross proceeds received related to note payable

Payment for legal expense related to notes payable

Principal payment for the settlement of note payable

Payment for a release of claims related to notes payable

Gross proceeds received related to Common Stock Purchase Agreement

Payment for financing expense related to Common Stock Purchase Agreement

Gross proceeds received related to Preferred Stock and Warrants Purchase Agreement

Payment for financing expense related to Preferred Stock and Warrants Purchase Agreement

Payment for financing expense related to equity line of credit (ELOC)

Principal payment on the financing of the director and officer insurance policy

Net cash provided by financing activities

4 unchanged sentences

Supplemental disclosure of cash and non-cash investing and financing activities

Issuance of common shares for consulting services

Right-of-use asset and lease liability additions

Initial classification of fair value of derivative liability

Debt discount related to notes payable

Conversion of debt to preferred stock and warrants

Financing of directors’ and officers' liability insurance with debt

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

7 unchanged sentences

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

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

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

The Company’s semiconductor platform can be used in a range of display technologies including MicroLED, LCD and AMOLED, as well as in applications in advanced computer and AI chip packaging, sensors, and logic.

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

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

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.

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 transactions.

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.

Risk and Uncertainties

The Company’s activities are subject to significant risks and uncertainties including the risk of failure to secure additional funding to properly execute the Company’s business plan.

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

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

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

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

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

SMARTKEM, INC.

Notes to the Unaudited Condensed Consolidated Financial Statements

to December 31, 2025.

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

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

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

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

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

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

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

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

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

The Company has approximately 11 employees located at CPI.

Even if the Company is able to locate a suitable replacement facility on acceptable terms, there is no assurance that the key employees at CPI would accept positions at a new facility, particularly if it is located remotely from the CPI facility.

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

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

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

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

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

Jericho Transaction

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

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

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

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

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

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

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

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

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.

SMARTKEM, INC.

Notes to the Unaudited Condensed Consolidated Financial Statements

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

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

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

Going Concern

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

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

The Company has incurred continuing losses including net losses of $ 19.4 million for the three months ended March 31, 2026.

The Company’s cash as of March 31, 2026 was $ 7.6 million with net cash used in operating activities of $ 1.6 million for the three months ended March 31, 2026.

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

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

The Company expects that its cash and cash equivalents of $ 7.6 million as of March 31, 2026 will not be sufficient to fund its operating expenses and capital expenditures for the 12 months from the issuance of these financial statements.

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

As described under Note 14.

Subsequent Events - Senior Secured Loan, on October 31, 2025, the Company obtained $ 1,000,000 of bridge financing in exchange for the issuance of $ 1,100,000 principal amount of its Senior Secured Notes due April 30, 2026 (the “Senior Secured Notes”) and five-year warrants to purchase up to 400,000 shares of common stock at an exercise price of $ 2.75 per share.

There can be no assurance that the Company will be able to raise sufficient funds to repay the Senior Secured Notes which are secured by substantially all of the assets of the Company and its subsidiaries.

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

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

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

The Company’s future viability will continue to be dependent on its ability to raise additional capital to fund its operations.

The Company will need to obtain additional funds to satisfy its operational needs.

Until such time, if ever, as the Company can generate sufficient cash through revenue, management’s plans are to finance the Company’s working capital requirements through a combination of equity offerings, including the issuance of Common Stock pursuant to the ELOC Purchase Agreement (as defined in Note 8), debt financings, collaborations, strategic alliances and marketing, distribution or licensing arrangements.

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

3 unchanged sentences

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

The condensed consolidated financial statements as of March 31, 2026 have been prepared assuming that the Company will continue as a going concern.

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

SMARTKEM, INC.

Notes to the Unaudited Condensed Consolidated Financial Statements

Basis of Presentation

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

The unaudited interim condensed consolidated financial statements of the Company as of March 31, 2026 and December 31, 2025 and for the three months ended March 31, 2026 and 2025 should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2025 (the “Annual Report”), which was filed with the SEC on April 8, 2026 and may also be found on the Company’s website (www.smartkem.com).

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

3 unchanged sentences

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

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

SMARTKEM, INC.

Notes to the Unaudited Condensed Consolidated Financial Statements

March 31, 2026 and 2025;

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

2 unchanged sentences

Other than the policies listed below, there have been no material changes to the Company’s significant accounting policies as set forth in Note 3 Summary of Significant Accounting Policies to the consolidated financial statements included in the Company’s Annual Report.

The Company records, when necessary, deemed dividends for:

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

Management’s Use of Estimates

The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, including disclosure of contingent assets and liabilities, at the date of the consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period.

The most significant estimates in the Company’s consolidated financial statements relate to the valuation of common stock, fair value of stock options and fair value of warrant liabilities.

The most significant estimates in the Company’s consolidated financial statements relate to the valuation of common stock, fair value of stock options and fair value of derivative liabilities.

These estimates and assumptions are based on current facts, historical experience and various other factors believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the recording of expenses that are not readily apparent from other sources.

Due to the uncertainty of factors surrounding the estimates or judgments used in the preparation of the consolidated financial statements, actual results may materially vary from these estimates.

Fair Value of Financial Instruments

ASC 820, Fair Value Measurements , provides guidance on the development and disclosure of fair value measurements.

Under this accounting guidance, fair value is defined as an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or a liability.

The accounting guidance classifies fair value measurements in one of the following three categories for disclosure purposes:

Quoted prices in active markets for identical assets or liabilities.

Inputs other than Level 1 prices for similar assets or liabilities that are directly or indirectly observable in the marketplace.

Unobservable inputs which are supported by little, or no market activity and values determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant judgment or estimation.

Fair value measurements discussed herein are based upon certain market assumptions and pertinent information available to management as of and during the period ended March 31, 2026.

The carrying value of the Company’s cash, accounts receivable, other receivables, and accounts payable approximate fair value because of the short-term maturity of these financial instruments.

Issuance Costs

The Company assessed the issuance cost in connection with the issuance of an equity offering.

ASC 340-10-S99-1 and SEC Staff Accounting Bulletin (“SAB”) Topic 5A, Expenses of Offering, states that specific incremental costs directly attributable to a proposed or actual offering of equity securities may properly be deferred and charged against the gross proceeds of the offering.

Analogizing to that guidance, specific incremental costs directly attributable to the issuance of an equity contract to be classified in equity should generally be recorded as

SMARTKEM, INC.

Notes to the Unaudited Condensed Consolidated Financial Statements

a reduction in equity.

However, issuance costs for equity contracts that are classified as a liability should be expensed immediately.

The issuance costs are allocated to the equity and liability components of the underlying transaction on a basis of the allocated fair value of the gross proceeds in the overall transactions.

Direct and incremental legal and accounting costs associated with the Company’s issuance of common stock, preferred stock and warrants are deferred and classified as a component of other assets on the consolidated balance sheet until completion of the issuance.

Upon completion of the issuance, deferred offering costs are reclassified from other assets to equity in additional paid-in capital and recorded against the net proceeds received in the issuance.

For the period ended March 31, 2026, we recorded $ 539 thousand of offering costs of which $ 489 thousand were recorded in additional paid-in capital and $ 50 thousand were recorded as non-operating expenses.

Segment Information

2 unchanged sentences

Semiconductor materials.

SMARTKEM, INC.

Notes to the Unaudited Condensed Consolidated Financial Statements

Recent Accounting Pronouncements

In December 2023, the FASB issued Accounting Standards Update (ASU) No.

2023-09, Income Taxes (Topic 740), Improvements to Income Tax Disclosures which will require companies to make additional income tax disclosures.

The pronouncement is effective for annual filings for the year ended December 31, 2025.

The Company is still assessing the impact of the adoption of this standard but does not expect it to have a material impact on its results of operations, financial position or cash flows.

On November 2024, the FASB issued Accounting Standards Update (ASU) No.

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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 adoption of this guidance did not have a material impact in the interim condensed consolidated financial statements of the Company.

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.

SMARTKEM, INC.

Notes to the Unaudited Condensed Consolidated Financial Statements

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 available.

Given the numerous proposed changes in law and uncertainty regarding such proposed changes, the impact cannot be determined at this time.

PREPAID EXPENSES AND OTHER CURRENT ASSETS

Prepaid expenses and other current assets consist of the following:

September 30,

(in thousands)

Advances and retainers

Prepaid insurance

Deferred research & development costs

Research grant receivable

Prepaid facility costs

VAT receivable

Prepaid software licenses

Advances and retainers

Tax Receivable

Other receivable and other prepaid expenses

2 unchanged sentences

Property, plant and equipment consist of the following:

September 30,

(in thousands)

4 unchanged sentences

Property, plant and equipment, net

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

SMARTKEM, INC.

Notes to the Unaudited Condensed Consolidated Financial Statements

Depreciation expense was $ 36.1 thousand and $ 56.1 thousand for the three months ended March 31, 2026 and 2025, respectively and is classified as research and development expense.

ACCOUNTS PAYABLE AND ACCRUED EXPENSES

Accounts payable and accrued expenses consist of the following:

September 30,

(in thousands)

1 unchanged sentence

Payroll liabilities

Accrued expenses – audit & accounting fees

Accrued expenses – technical service fees

Accrued expenses – other

Accrued expenses

Total accounts payable and accrued expenses

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 the Company’s common stock, par value $ 0.0001 per share (“Common Stock”), at an ascribed price of $ 2.75 per share and (ii) pre-funded warrants (the “Pre-Funded Warrant”) to purchase 348,260 shares of Common Stock in satisfaction of approximately $ 2 million owed to the Creditor by SmartKem Limited.

SMARTKEM, INC.

Notes to the Unaudited Condensed Consolidated Financial Statements

The Company has operating leases consisting of office space, lab space and equipment with remaining lease terms of 1 to 3 years , subject to certain renewal options as applicable.

1 unchanged sentence

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

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

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

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

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

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

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

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

(in thousands)

3 unchanged sentences

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

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

(in thousands)

2 unchanged sentences

Total lease cost

SMARTKEM, INC.

Notes to the Unaudited Condensed Consolidated Financial Statements

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

September 30,

(in thousands)

6 unchanged sentences

Total lease liabilities

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

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

September 30,

(in thousands)

Operating cash outflows from operating leases

Supplemental non-cash amounts of operating lease liabilities arising from obtaining right of use assets

The Company had no right of use lease assets or lease liabilities classified as financing leases as of March 31, 2026 and December 31, 2025.

SMARTKEM, INC.

Notes to the Unaudited Condensed Consolidated Financial Statements

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

September 30,

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

1 unchanged sentence

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

September 30,

(in thousands)

2 unchanged sentences

Total net lease liabilities

NOTES PAYABLE

Notes payable consist of the following:

March 31, 2026

December 31, 2025

(in thousands)

Notes Payable, Current

Senior Secured Notes Financing

On March 18, 2026, the Company entered into a Securities Purchase Agreement (the "Purchase Agreement") with certain accredited investors (the "Buyers"), pursuant to which the Company agreed to issue and sell to the Buyers senior secured promissory notes (the "Notes") in the aggregate original principal amount of $ 3.75 million for an aggregate purchase price of $ 2.6 million, reflecting an original issue discount of approximately 30 %.

The Notes contained an exchange feature that was determined to be a derivative liability.

Please see Note 8 for additional information.

As of March 31, 2026, the Notes had been exchanged into the March 30, 2026 Preferred Stock and Warrant offering and are no longer outstanding.

Please see Note 10 for additional information.

Settlement and Release Agreements

On March 18, 2026, the Company entered into Settlement Agreements and Releases (collectively, the "Settlement Agreements") with certain holders (collectively, the "Holders") of those certain Senior Secured Notes (the "Prior 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 Holders against the Company in connection with the Prior Notes, which claims the Company denied.

Pursuant to the Settlement Agreements, the Company agreed to (i) repay each Holder the outstanding principal amount of its respective Prior 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

SMARTKEM, INC.

Notes to the Unaudited Condensed Consolidated Financial Statements

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.

The Company also agreed to maintain the employment of a designated patent liaison for a period of six ( 6 ) months following the effective date of the Settlement Agreements to provide the Holders with information, assistance, and support relating to the Assigned IP.

The Settlement Agreements contain mutual releases pursuant to which the Holders released the Company and its affiliates, and the Company released the Holders and their affiliates, from any and all claims arising under the Prior Notes and the Prior Purchase Agreement, other than with respect to the obligations set forth in the Settlement Agreements.

FAIR VALUE MEASUREMENTS:

The table below presents activity within Level 3 of the fair value hierarchy, our liabilities carried at fair value for the quarter ended March 31, 2026:

(in thousands)

Derivative Liability

Balance at January 1,2026

Fair value of the derivative liabilities

Total change in the liability included in earnings

Reclass from liability to equity

Balance at March 31, 2026

The $ 5 million related to the fair value of the derivative is included in the exchange of the notes payable for Series A-1 Preferred Stock.

The valuation of the derivative liability, preferred stock warrants and the preferred stock was determined using option pricing models.

These models use inputs such as the underlying price of the shares issued at the measurement date, expected volatility, risk free interest rate and expected life of the instrument.

Since our common stock was not publicly traded until February 2022 there has been insufficient volatility data available.

Accordingly, we have used an expected volatility based on historical common stock volatility of our peers.

The fair value of the derivative liability and preferred stock warrants was determined by using an option pricing model assuming the following:

Expected term (years)

Risk-free interest rate

Expected volatility

Expected dividend yield

The fair value of the preferred stock and equity line of credit (ELOC) was determined by using an option pricing model assuming the following:

Expected term (years)

Risk-free interest rate

Expected volatility

Expected dividend yield

SMARTKEM, INC.

Notes to the Unaudited Condensed Consolidated Financial Statements

Additionally, the Company had determined that the derivative liability was most appropriately classified within Level 3 of the fair-value hierarchy by evaluating each input for the option pricing models against the fair-value hierarchy criteria and using the lowest level of input as the basis for the fair-value classification as called for in ASC 820.

There are six inputs:

closing price of the Company’s common stock on the day of evaluation;

the exercise price of the warrants;

the remaining term of the warrants;

the volatility of the Company’s stock over that term;

annual rate of dividends;

and the risk-free rate of return.

Of those inputs, the exercise price of the warrants and the remaining term are readily observable in the warrant agreements.

The annual rate of dividends is based on the Company’s historical practice of not granting dividends.

The closing price of SmartKem stock would fall under Level 1 of the fair-value hierarchy as it is a quoted price in an active market (ASC 820-10).

The risk-free rate of return is a Level 2 input as defined in ASC 820-10, while the historical volatility is a Level 3 input as defined in ASC 820.

Since the lowest level input is a Level 3, the Company determined the warrant liability was most appropriately classified within Level 3 of the fair value hierarchy.

CONTINGENCIES

2 unchanged sentences

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

SMARTKEM, INC.

Notes to the Unaudited Condensed Consolidated Financial Statements

STOCKHOLDERS’ EQUITY

Preferred Stock

Pursuant to the terms of the Series A-1 Certificate of Designation, on May 7, 2025, the remaining 856 outstanding shares of Series A-1 Preferred Stock automatically converted into an aggregate of 690,788 shares of common stock and pre-funded Class C Warrants to purchase 1,282,412 shares of common stock.

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

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

Common Stock Issued to Vendors for Services

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

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.

Series A Preferred Stock

On March 30, 2026, the Company filed a Certificate of Designation of Preferences, Rights and Limitations with the Secretary of State of the State of Delaware designating 31,412 shares out of the authorized but unissued shares of its preferred stock as Series A Preferred Stock with a stated value of $ 1,000 per share (the “Series A Certificate of Designation”).

The following is a summary of the principal terms of the Series A Preferred Stock as set forth in the Series A Certificate of Designation:

Voting Rights

Holders of Series A Preferred Stock have no voting power except as required by the Delaware General Corporation Law or as set forth in the Certificate of Designations with respect to certain protective matters requiring the consent of the Required Holders.

Each share of Series A Preferred Stock is convertible at any time at the option of the holder into shares of Common Stock at a conversion rate determined by dividing the conversion amount by the conversion price of $ 0.5812 per share, with alternate conversion options available following stockholder approval (at 90 % of the lowest VWAP during the five preceding trading days) or upon a triggering event (at 80 % of such VWAP, with the conversion amount subject to a required premium of 125 % ), in each case subject to a 4.99 % beneficial ownership limitation (adjustable to 9.99 % upon 61 days ' prior written notice) and a $ 0.045 conversion floor price after shareholder approval.

Dividends are payable when and as declared by the Board of Directors in its sole discretion, in cash, securities or other assets, on the stated value of each share, provided that upon the occurrence and continuance of a triggering event, default dividends accrue at a rate of 15.0 % per annum.

SMARTKEM, INC.

Notes to the Unaudited Condensed Consolidated Financial Statements

The Series A Preferred Stock ranks senior to the Common Stock and all other junior capital stock with respect to dividends, distributions and payments upon the liquidation, dissolution and winding up of the Company.

Upon a liquidation event, holders of Series A Preferred Stock are entitled to receive, before any payment to holders of junior stock, an amount per share equal to the sum of (i) the Black-Scholes value of the outstanding portion of all Warrants held by such holder and (ii) the greater of (A) 125 % of the applicable conversion amount and (B) the amount per share such holder would receive upon conversion immediately prior to such event.

Series A Preferred Stock and Warrants

On March 30, 2026, the Company entered into a securities purchase agreement (the “Preferred Stock Purchase Agreement”) with certain institutional investors, including certain holders of convertible notes (the “March 2026 Notes”) of the Company (collectively, the "Buyers") pursuant to which the Company issued and sold 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 (the “Series A Preferred Stock”) and (ii) warrants to purchase up to 24,542,982 shares of Common Stock at an initial exercise price of $ 0.5812 per share, subject to adjustment (the “2026 Warrants”).

The purchase price under the Preferred Stock Purchase Agreement was satisfied in cash and by exchange of $ 2.6 million March 2026 Notes.

The gross proceeds from the Private Placement were $ 4.6 million prior to deducting offering expenses payable by the Company.

As of March 31, 2026, there were 21,411.5 shares of Series A-1 Preferred Stock outstanding, including the Commitment Shares (as defined below).

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, constitutes a quorum for the transaction of business at all meetings of the stockholders.

The Company has never paid any cash dividends to stockholders and do not anticipate paying any cash dividends to stockholders 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.

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 issued and sold to such investors

SMARTKEM, INC.

Notes to the Unaudited Condensed Consolidated Financial Statements

11,365,350 shares of the Company’s Common Stock at a purchase price of $ 0.2303 per share (the “March 2026 Offering”).

The Company received gross proceeds of $ 2.6 million, before deducting offering expenses payable by the Company.

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 “Investor”), pursuant to which the Company has the right, but not the obligation, to sell to the Investor, and the Investor is obligated to purchase, up to 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 April 8, 2026 (the effective date of the Company’s registration statement on Form S-1 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.

In connection with signing the ELOC Purchase Agreement, the Company issued 10,000 shares of Series A Preferred Stock to the Investor as Commitment Shares.

Common Stock Warrants

3 unchanged sentences

$ 0.35 - $ 70.00

Warrants outstanding at September 30, 2025

Warrants outstanding at March 31, 2026

$ 0.35 - $ 8.75

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

During the quarter ended March 31, 2026, 24,542,982 common stock warrants were issued at an exercise price of $ 0.5812 .

During the quarter ended March 31, 2026, 28,161 warrants expired.

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

1 unchanged sentence

( 1,930,877 )

Pre-funded warrants outstanding at September 30, 2025

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

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

Pre-funded warrants outstanding at March 31, 2026

SMARTKEM, INC.

Notes to the Unaudited Condensed Consolidated Financial Statements

During the quarter ended March 31, 2026, 1,032,131 prefunded warrants were issued at an exercise price of $ 0.0001 .

During the quarter ended March 31, 2026, 1,930,877 prefunded warrants were exercised on a cashless basis resulting in the issuance of 1,930,524 shares of Common Stock.

SHARE-BASED COMPENSATION

12 unchanged sentences

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

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

Expected term (years)

Risk-free interest rate

Expected volatility

Expected dividend yield

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

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

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

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

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

SMARTKEM, INC.

Notes to the Unaudited Condensed Consolidated Financial Statements

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

The following table reflects share activity under the share option plans for the three months ended March 31, 2026:

Fair Value at

1 unchanged sentence

Options outstanding at January 1, 2026

Cancelled/Forfeited

Options outstanding at September 30, 2025

Options exercisable at September 30, 2025

Options outstanding at March 31, 2026

Options exercisable at March 31, 2026

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

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

(in thousands)

1 unchanged sentence

General and administration

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

SMARTKEM, INC.

Notes to the Unaudited Condensed Consolidated Financial Statements

Total compensation cost related to non-vested stock option awards not yet recognized as of March 31, 2026 was $ 1.4 million and will be recognized on a straight-line basis through the end of the vesting periods in September 2028.

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

4 unchanged sentences

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

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

September 30,

The following potentially dilutive securities were excluded from the computation of earnings per share as of March 31, 2026 and 2025 because their effects would be anti-dilutive:

Common stock warrants

4 unchanged sentences

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

The pension cost charge

SMARTKEM, INC.

Notes to the Unaudited Condensed Consolidated Financial Statements

represents contributions payable by the Company to the fund.

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

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

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

(in thousands)

1 unchanged sentence

General and administration

On July 4, 2025, the One Big Beautiful Bill Act was enacted, introducing significant changes to U.S.

federal tax law, including modifications to corporate tax rates, deductions, and tax credit provisions.

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

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

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

SEGMENT REPORTING

6 unchanged sentences

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

SMARTKEM, INC.

Notes to the Unaudited Condensed Consolidated Financial Statements

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

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

Cost of revenue

3 unchanged sentences

General and administrative

(Gain)/loss on foreign currency transactions

Loss / (gain) on foreign currency transactions

Total operating expenses

Loss from operations

Total non-operating income/(expense)

Total non-operating (expense) / income

Loss before income taxes

Income tax refund

SMARTKEM, INC.

Notes to the Unaudited Condensed Consolidated Financial Statements

SUBSEQUENT EVENTS

Warrant Exercises

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

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

Stock Issuances

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

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

Jericho Transaction

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

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

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

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

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

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

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

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

June 2023 Purchase Agreement Amendment

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

SMARTKEM, INC.

Notes to the Unaudited Condensed Consolidated Financial Statements

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

Senior Secured Loan

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Since March 31, 2026, 243,302 shares of the Company’s common stock were issued upon the exercise of 243,302 Class C Warrants .

There are no Class C Warrants outstanding subsequent to these exercises.

Ferrox Critical Minerals Bridge Loan

On April 23, 2026, we funded a bridge loan to Ferrox Critical Minerals, a British Virgin Islands company (“Ferrox”), in the original principal amount of $ 2.3 million, which loan was evidenced by that certain Convertible Promissory Note (the “Note”) issued by Ferrox to the Company.

Per the terms of the Note, interest will accrue at a rate of 5.0 % per annum and matures on October 30, 2026.

We were paid an originate fee of $ 200,000.00 .

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements