SmartKem, Inc. 10-Q

Item 1. Financial Statements SMARTKEM, INC. Condensed Consolidated Balance Sheets (Unaudited) (in thousands, except number of shares and per share data) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ March 31, ​ December 31, ​ ​ 2026 ​ 2025 Assets ​ ​ ​ ​ ​ Current assets ​ ​ ​ ​ ​ ​ Cash and cash equivalents ​ $ 7,566 ​ $ 374 Accounts receivable ​ 3 ​ 3 Research and development tax credit receivable ​ 536 ​ 549 Prepaid expenses and other current assets ​ 696 ​ 575 Total current assets ​ 8,801 ​ 1,501 Property, plant and equipment, net ​ 141 ​ 180 Right-of-use assets, net ​ 535 ​ 607 Total assets ​ $ 9,477 ​ $ 2,288 ​ ​ ​ ​ ​ ​ ​ Liabilities and stockholders’ (deficit) / equity ​ ​ ​ ​ Current liabilities ​ ​ ​ ​ ​ ​ Accounts payable and accrued expenses ​ $ 3,357 ​ $ 4,603 Lease liabilities, current ​ 277 ​ 271 Notes payable, net ​ ​ 101 ​ 928 Deferred revenue ​ ​ 106 ​ ​ 108 Total current liabilities ​ 3,841 ​ 5,910 Lease liabilities, non-current ​ 230 ​ 312 Total liabilities ​ 4,071 ​ 6,222 ​ ​ ​ ​ ​ ​ ​ Contingencies (Note 9) ​ — ​ — ​ ​ ​ ​ ​ ​ ​ 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 ​ 2 ​ 1 Additional paid-in capital ​ 152,570 ​ 124,772 Accumulated other comprehensive loss ​ ( 2,668 ) ​ ( 3,578 ) Accumulated deficit ​ ( 144,498 ) ​ ( 125,129 ) Total stockholders' equity / (deficit) ​ 5,406 ​ ( 3,934 ) Total liabilities and stockholders’ equity / (deficit) ​ $ 9,477 ​ $ 2,288 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements. ​ 3 Table of Contents ​ SMARTKEM, INC. Condensed Consolidated Statements of Operations and Comprehensive Loss (Unaudited) (in thousands, except number of shares and per share data) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended March 31, ​ ​ ​ ​ 2026 ​ ​ ​ 2025 Revenue ​ $ 20 ​ $ 23 Cost of revenue ​ 4 ​ 1 Gross profit ​ 16 ​ 22 ​ ​ ​ ​ ​ ​ ​ Other operating income ​ 34 ​ ​ 251 ​ ​ ​ ​ ​ ​ ​ Operating expenses ​ ​ ​ ​ Research and development ​ 913 ​ ​ 1,497 General and administrative ​ 1,664 ​ ​ 2,009 Loss / (gain) on foreign currency transactions ​ 46 ​ ​ ( 95 ) Total operating expenses ​ 2,623 ​ 3,411 ​ ​ ​ ​ ​ ​ ​ Loss from operations ​ ( 2,573 ) ​ ( 3,138 ) ​ ​ ​ ​ ​ ​ ​ Non-operating (expense) / income ​ ​ ​ ​ (Loss) / gain on foreign currency transactions ​ ​ ( 810 ) ​ ​ 969 Change in fair value of derivative liabilities ​ ​ ( 3,391 ) ​ ​ — Loss on the execution of equity line of credit (ELOC) ​ ​ ( 11,874 ) ​ ​ — Loss on settlement debt ​ ​ ( 371 ) ​ ​ — Transaction costs related to debt financing ​ ​ ( 67 ) ​ ​ — Interest, net ​ ( 283 ) ​ ​ 10 Total non-operating (expense) / income ​ ( 16,796 ) ​ 979 ​ ​ ​ ​ ​ ​ ​ Loss before income taxes ​ ​ ( 19,369 ) ​ ​ ( 2,159 ) Income tax refund ​ ​ — ​ ​ 25 Net loss ​ $ ( 19,369 ) ​ $ ( 2,134 ) ​ ​ ​ ​ ​ ​ ​ Common share data: ​ ​ ​ ​ ​ ​ Basic and diluted net loss per common share ​ $ ( 1.34 ) ​ $ ( 0.32 ) Weighted average shares outstanding - basic and diluted ​ ​ 14,436,282 ​ ​ 6,649,603 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net loss ​ $ ( 19,369 ) ​ $ ( 2,134 ) Other comprehensive loss: ​ ​ ​ ​ Foreign currency translation ​ 910 ​ ​ ( 1,005 ) Total comprehensive loss ​ $ ( 18,459 ) ​ $ ( 3,139 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements. ​ ​ 4 Table of Contents SMARTKEM, INC. Condensed Consolidated Statements of Stockholders’ Equity / (Deficit) (Unaudited) (in thousands, except share data) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Preferred Stock ​ Common stock ​ Additional ​ Accumulated other ​ ​ ​ ​ Total ​ ​ $0.0001 par value ​ $0.0001 par value ​ paid-in ​ comprehensive ​ Accumulated ​ stockholders' ​ ​ Shares ​ ​ ​ Amount ​ Shares ​ ​ ​ Amount ​ ​ ​ capital ​ ​ ​ income / (loss) ​ ​ ​ deficit ​ ​ ​ equity / (deficit) Balance at January 1, 2026 ​ — ​ $ — ​ 6,839,689 ​ $ 1 ​ $ 124,772 ​ $ ( 3,578 ) ​ $ ( 125,129 ) ​ $ ( 3,934 ) Stock-based compensation expense ​ — ​ — ​ — ​ — ​ 255 ​ — ​ — ​ 255 Exercise of stock options into common stock ​ — ​ — ​ 5,089 ​ — ​ — ​ — ​ — ​ — Cashless exercise of warrants into common stock ​ — ​ — ​ 1,930,524 ​ — ​ — ​ — ​ — ​ — Common stock issued for settlement of debt ​ — ​ — ​ 385,130 ​ — ​ 342 ​ — ​ — ​ 342 Issuance of common stock and warrants, net of issuance costs ​ — ​ — ​ 677,129 ​ — ​ 555 ​ — ​ — ​ 555 Issuance of common stock, net of issuance costs ​ — ​ — ​ 11,365,350 ​ 1 ​ 2,464 ​ — ​ — ​ 2,465 Issuance of Series A-1 Preferred Stock and warrants, net of issuance costs ​ 5,786.5 ​ — ​ — ​ — ​ 4,446 ​ — ​ — ​ 4,446 Exchange of notes payable for Series A-1 Preferred Stock ​ 5,625.0 ​ ​ — ​ — ​ — ​ 7,862 ​ — ​ — ​ 7,862 Issuance of Series A-1 Preferred Stock for equity line of credit (ELOC) ​ 10,000.0 ​ — ​ — ​ — ​ 11,874 ​ — ​ — ​ 11,874 Foreign currency translation adjustment ​ — ​ — ​ — ​ — ​ — ​ 910 ​ — ​ 910 Net loss ​ — ​ — ​ — ​ — ​ — ​ — ​ ( 19,369 ) ​ ( 19,369 ) Balance at March 31, 2026 ​ 21,411.5 ​ $ — ​ 21,202,911 ​ $ 2 ​ $ 152,570 ​ $ ( 2,668 ) ​ $ ( 144,498 ) ​ $ 5,406 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Preferred Stock ​ Common stock ​ Additional ​ Accumulated other ​ ​ ​ ​ Total ​ ​ $0.0001 par value ​ $0.0001 par value ​ paid-in ​ comprehensive ​ Accumulated ​ stockholders' ​ ​ Shares ​ ​ ​ Amount ​ Shares ​ ​ ​ Amount ​ ​ ​ capital ​ ​ ​ income / (loss) ​ ​ ​ deficit ​ ​ ​ equity Balance at January 1, 2025 ​ 856 ​ $ — ​ 3,590,217 ​ $ — ​ $ 122,316 ​ $ ( 1,105 ) ​ $ ( 114,620 ) ​ $ 6,591 Stock-based compensation expense ​ — ​ — ​ — ​ — ​ 250 ​ — ​ — ​ 250 Issuance of common stock to vendor ​ — ​ — ​ 30,000 ​ — ​ 85 ​ — ​ — ​ 85 Foreign currency translation adjustment ​ — ​ — ​ — ​ — ​ — ​ ( 1,005 ) ​ — ​ ( 1,005 ) Net loss ​ — ​ — ​ — ​ — ​ — ​ — ​ ( 2,134 ) ​ ( 2,134 ) Balance at March 31, 2025 ​ 856 ​ $ — ​ 3,620,217 ​ $ — ​ $ 122,651 ​ $ ( 2,110 ) ​ $ ( 116,754 ) ​ $ 3,787 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements. ​ 5 Table of Contents SMARTKEM, INC. Condensed Consolidated Statements of Cash Flows (Unaudited) (in thousands) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended March 31, ​ ​ ​ ​ 2026 ​ ​ ​ 2025 Cash flow from operating activities: ​ ​ ​ ​ Net loss ​ $ ( 19,369 ) ​ $ ( 2,134 ) Adjustments to reconcile net loss to net cash used in operating activities: ​ ​ ​ ​ Depreciation ​ ​ 36 ​ ​ 56 Stock-based compensation expense ​ ​ 255 ​ ​ 250 Issuance of common stock to vendor ​ ​ — ​ ​ 85 Right-of-use asset amortization ​ ​ 72 ​ ​ 68 Loss / (gain) on foreign currency transactions ​ ​ 856 ​ ​ ( 1,063 ) Change in fair value of derivative liabilities ​ ​ 3,391 ​ ​ — Loss on the execution of equity line of credit (ELOC) ​ ​ 11,874 ​ ​ — Debt discount amortization ​ ​ 283 ​ ​ — Loss on the extinguishment of debt ​ ​ 371 ​ ​ — Transactions costs allocable to notes payable and equity line of credit (ELOC) ​ ​ 67 ​ ​ — Change in operating assets and liabilities: ​ ​ ​ ​ ​ ​ Research and development tax credit receivable ​ ​ 11 ​ ​ ( 126 ) Prepaid expenses and other assets ​ ​ ( 122 ) ​ ​ ( 222 ) Accounts payable and accrued expenses ​ ​ 780 ​ ​ ( 393 ) Lease liabilities ​ ​ ( 75 ) ​ ​ ( 29 ) Other current liabilities ​ ​ ( 2 ) ​ ​ 170 Net cash used in operating activities ​ ( 1,572 ) ​ ( 3,338 ) ​ ​ ​ ​ ​ ​ ​ Cash flow from financing activities: ​ ​ ​ ​ Gross proceeds received related to Common Stock and Warrants Purchase Agreement ​ ​ 681 ​ ​ — Payments for financing expense related to Common Stock and Warrants Purchase Agreement ​ ​ ( 126 ) ​ ​ — Payment for legal expenses related to extinguishment of debt ​ ​ ( 10 ) ​ ​ — Gross proceeds received related to note payable ​ ​ 2,625 ​ ​ — Payment for legal expense related to notes payable ​ ​ ( 50 ) ​ ​ — Principal payment for the settlement of note payable ​ ​ ( 1,100 ) ​ ​ — Payment for a release of claims related to notes payable ​ ​ ( 300 ) ​ ​ — Gross proceeds received related to Common Stock Purchase Agreement ​ ​ 2,617 ​ ​ — Payment for financing expense related to Common Stock Purchase Agreement ​ ​ ( 152 ) ​ ​ — Gross proceeds received related to Preferred Stock and Warrants Purchase Agreement ​ ​ 4,630 ​ ​ — Payment for financing expense related to Preferred Stock and Warrants Purchase Agreement ​ ​ ( 184 ) ​ ​ — Payment for financing expense related to equity line of credit (ELOC) ​ ​ ( 17 ) ​ ​ — Principal payment on the financing of the director and officer insurance policy ​ ​ ( 11 ) ​ ​ — Net cash provided by financing activities ​ 8,603 ​ — ​ ​ ​ ​ ​ ​ ​ Effect of exchange rate changes on cash ​ ​ 161 ​ 78 ​ ​ ​ ​ ​ ​ ​ Net change in cash ​ 7,192 ​ ( 3,260 ) ​ ​ ​ ​ ​ ​ ​ Cash, beginning of period ​ ​ 374 ​ ​ 7,141 Cash, end of period ​ $ 7,566 ​ $ 3,881 ​ ​ ​ ​ ​ ​ ​ Supplemental disclosure of cash and non-cash investing and financing activities ​ ​ ​ ​ Initial classification of fair value of derivative liability ​ ​ 1,460 ​ ​ — Debt discount related to notes payable ​ ​ 1,125 ​ ​ — Conversion of debt to preferred stock and warrants ​ ​ 7,862 ​ ​ — Financing of directors’ and officers' liability insurance with debt ​ ​ 112 ​ ​ — ​ ​ ​ ​ ​ ​ ​ The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements. ​ 6 Table of Contents SMARTKEM, INC. Notes to the Unaudited Condensed Consolidated Financial Statements ​ 1. GENERAL Organization SmartKem, Inc. (“SmartKem” or the “Company”) a Delaware corporation, formerly known as Parasol Investments Corporation (“Parasol”), was formed on May 13, 2020, and is the successor, as discussed below, of SmartKem Limited, which was formed under the Laws of England and Wales. The Company was founded as a “shell” company registered under the Exchange Act, with no specific business plan or purpose until it began operating the business of SmartKem Limited following the closing of the Exchange described below. On February 23, 2021, Parasol entered into a Securities Exchange Agreement (the “Exchange Agreement”), with SmartKem Limited. Pursuant to the Exchange Agreement all of the equity interests in SmartKem Limited, except certain deferred shares which had no economic or voting rights, and which were purchased by Parasol for an aggregate purchase price of $ 1.40 , were exchanged for shares of Parasol common stock, par value $ 0.0001 per share (“common stock”), and SmartKem Limited became a wholly owned subsidiary of Parasol (the “Exchange”). ​ As a result of the Exchange, Parasol legally acquired the business of SmartKem Limited, and continues as the existing business operations of SmartKem Limited as a public reporting company under the name SmartKem, Inc. ​ Business 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 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. 7 Table of Contents SMARTKEM, INC. Notes to the Unaudited Condensed Consolidated Financial Statements ​ Going Concern 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 $ 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. 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. If the Company borrows money, the incurrence of indebtedness would result in increased debt service obligations and could require the Company to agree to operating and financial covenants that could restrict its operations. If the Company enters into a collaboration, strategic alliance or other similar arrangement, it may be forced to give up valuable rights. There can be no assurance, however, that such financing will be available in sufficient amounts, when and if needed, on acceptable terms or at all. The precise amount and timing of the funding needs cannot be determined accurately at this time, and will depend on a number of factors, including the market demand for the Company’s products and services, the quality of product development efforts, management of working capital, and continuation of normal payment terms and conditions for purchase of services. 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 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. Basis of Presentation 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. These interim condensed consolidated financial statements are unaudited and were prepared by the Company in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim reporting and with the SEC’s instructions to Form 10-Q and Article 10 of Regulation S-X. They include the accounts of all wholly owned subsidiaries and all significant inter-company accounts and transactions have been eliminated in consolidation. Amounts are presented in thousands, except number of shares and per share data. The preparation of interim condensed consolidated financial statements requires management to make assumptions and estimates that impact the amounts reported. These interim condensed consolidated financial statements reflect all adjustments, consisting of normal recurring accruals, necessary for a fair presentation of the Company’s results of operations, financial position and cash flows for the interim periods ended 8 Table of Contents 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. It is important to note that the Company’s results of operations and cash flows for interim periods are not necessarily indicative of the results of operations and cash flows to be expected for a full fiscal year or any interim period. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Other than the policies listed below, there have been no material changes to the Company’s significant accounting policies as set forth in Note 3 Summary of Significant Accounting Policies to the consolidated financial statements included in the Company’s Annual Report. 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 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: ​ Level 1: Quoted prices in active markets for identical assets or liabilities. ​ Level 2: Inputs other than Level 1 prices for similar assets or liabilities that are directly or indirectly observable in the marketplace. ​ Level 3: 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 9 Table of Contents 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 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. Recent Accounting Pronouncements 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 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. ​ 10 Table of Contents 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. ​ 3. PREPAID EXPENSES AND OTHER CURRENT ASSETS Prepaid expenses and other current assets consist of the following: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ March 31, ​ December 31, (in thousands) ​ ​ ​ 2026 ​ 2025 Advances and retainers ​ $ 53 ​ $ 54 Prepaid insurance ​ ​ 207 ​ ​ 152 Research grant receivable ​ ​ 65 ​ ​ 88 Prepaid facility costs ​ ​ 221 ​ ​ 68 Prepaid software licenses ​ ​ 40 ​ ​ 52 Tax Receivable ​ ​ 106 ​ ​ 117 Other receivable and other prepaid expenses ​ ​ 4 ​ ​ 44 Total prepaid expenses and other current assets ​ $ 696 ​ $ 575 ​ ​ ​ ​ ​ ​ ​ ​ 4. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment consist of the following: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ March 31, ​ December 31, (in thousands) ​ ​ ​ 2026 ​ 2025 Plant and equipment ​ $ 1,750 ​ $ 1,786 Furniture and fixtures ​ 112 ​ 114 Computer hardware and software ​ 104 ​ 106 ​ ​ 1,966 ​ 2,006 Less: Accumulated depreciation ​ ( 1,825 ) ​ ( 1,826 ) Property, plant and equipment, net ​ $ 141 ​ $ 180 ​ ​ ​ ​ ​ ​ ​ ​ 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. 5. ACCOUNTS PAYABLE AND ACCRUED EXPENSES Accounts payable and accrued expenses consist of the following: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ March 31, ​ December 31, (in thousands) ​ ​ ​ 2026 ​ 2025 Accounts payable - trade ​ $ 3,033 ​ $ 4,435 Payroll liabilities ​ 183 ​ 39 Accrued expenses ​ 141 ​ 129 Total accounts payable and accrued expenses ​ $ 3,357 ​ $ 4,603 ​ ​ ​ ​ ​ ​ ​ ​ 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. ​ ​ 11 Table of Contents SMARTKEM, INC. Notes to the Unaudited Condensed Consolidated Financial Statements ​ 6. LEASES The Company has operating leases consisting of office space, lab space and equipment with remaining lease terms of 1 to 3 years , subject to certain renewal options as applicable. The Company evaluates the nature of each lease at the inception of an arrangement to determine whether it is an operating or financing lease and recognizes the right of use asset and lease liability based on the present value of future minimum lease payments over the expected lease term. The Company’s leases do not generally contain an implicit interest rate and therefore the Company uses the incremental borrowing rate it would expect to pay to borrow on a similar collateralized basis over a similar term in order to determine the present value of its lease payments. 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 March 31, (in thousands) ​ ​ ​ 2026 ​ ​ ​ 2025 Operating lease cost ​ $ 72 ​ $ 73 Short-term lease cost ​ 1 ​ 3 Total lease cost ​ $ 73 ​ $ 76 ​ ​ ​ ​ ​ ​ ​ ​ The total lease cost is included in the unaudited condensed consolidated statements of operations as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended March 31, (in thousands) ​ 2026 ​ ​ ​ 2025 Research and development ​ $ 72 ​ $ 73 General and administrative ​ 1 ​ 3 Total lease cost ​ $ 73 ​ $ 76 ​ ​ ​ ​ ​ ​ ​ ​ 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: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ March 31, ​ December 31, (in thousands) ​ ​ ​ 2026 ​ ​ ​ 2025 Assets ​ ​ ​ ​ ​ Right of use assets - Operating Leases ​ $ 535 ​ $ 607 Total lease assets ​ $ 535 ​ $ 607 ​ ​ ​ ​ ​ ​ ​ Liabilities ​ ​ ​ ​ Current liabilities: ​ ​ ​ ​ Lease liability, current - Operating Leases ​ $ 277 ​ $ 271 Noncurrent liabilities: ​ ​ ​ ​ Lease liability, non-current - Operating Leases ​ 230 ​ 312 Total lease liabilities ​ $ 507 ​ $ 583 ​ ​ ​ ​ ​ ​ ​ ​ 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. 12 Table of Contents 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: ​ ​ ​ ​ ​ ​ ​ March 31, ​ ​ 2026 Weighted average remaining lease term (in years) – operating leases ​ ​ 2.0 Weighted average discount rate – operating leases ​ ​ 10.63 % ​ Remaining maturities of the Company’s operating leases, excluding short-term leases, are as follows: ​ ​ ​ ​ ​ ​ ​ March 31, (in thousands) ​ 2026 2026 ​ $ 237 2027 ​ ​ 304 2028 ​ ​ 22 Total undiscounted lease payments ​ ​ 563 Less imputed interest ​ ​ ( 56 ) Total net lease liabilities ​ $ 507 ​ ​ ​ ​ ​ ​ 7. NOTES PAYABLE ​ Notes payable consist of the following: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ March 31, 2026 ​ December 31, 2025 (in thousands) ​ ​ ​ Gross ​ Discount ​ Net ​ Gross ​ Discount ​ Net Notes Payable, Current ​ $ 101 ​ $ — ​ $ 101 ​ $ 1,100 ​ $ ( 172 ) ​ $ 928 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 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 13 Table of Contents 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. ​ 8. 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 ​ ​ ( 1,460 ) Total change in the liability included in earnings ​ ( 3,391 ) Reclass from liability to equity ​ ​ 4,851 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: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ March 30 ​ March 18 ​ ​ 2026 ​ 2026 Expected term (years) ​ 3.00 ​ ​ 0.50 Risk-free interest rate ​ 3.78 % ​ ​ 3.67 % Expected volatility ​ 50.0 % ​ ​ 50.0 % Expected dividend yield ​ 0.0 % ​ ​ 0.0 % ​ ​ ​ ​ ​ ​ ​ ​ The fair value of the preferred stock and equity line of credit (ELOC) was determined by using an option pricing model assuming the following: ​ ​ ​ ​ ​ ​ ​ March 30 ​ ​ 2026 Expected term (years) ​ 10.00 Risk-free interest rate ​ 4.26 % Expected volatility ​ 50.0 % Expected dividend yield ​ 0.0 % ​ ​ ​ ​ ​ 14 Table of Contents 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. ​ 9. CONTINGENCIES Legal proceedings In the normal course of business, the Company may become involved in legal disputes regarding various litigation matters. In the opinion of management, any potential liabilities resulting from such claims would not have a material effect on the interim condensed consolidated financial statements. 10. 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. ​ 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. ​ Conversion ​ 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 ​ 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. 15 Table of Contents SMARTKEM, INC. Notes to the Unaudited Condensed Consolidated Financial Statements ​ ​ Ranking ​ 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. ​ Liquidation ​ 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). ​ 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, constitutes a quorum for the transaction of business at all meetings of the stockholders. ​ Dividends ​ 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 16 Table of Contents 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 ​ 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, 2026 3,021,274 ​ ​ $ 0.35 - $ 70.00 ​ $ 6.28 2.81 Issued 24,542,982 ​ ​ ​ ​ ​ 0.58 ​ Exercised — ​ ​ ​ ​ — ​ Expired ( 28,161 ) ​ ​ ​ ​ 70.00 ​ Warrants outstanding at March 31, 2026 27,536,095 ​ ​ $ 0.35 - $ 8.75 ​ $ 1.14 2.96 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 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: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Weighted- ​ ​ ​ ​ Average ​ ​ Number of ​ Exercise ​ ​ Shares ​ Price Pre-funded warrants outstanding at January 1, 2026 1,532,251 ​ $ 0.0097 Issued 1,032,131 ​ 0.0001 Exercised ( 1,930,877 ) ​ 0.0001 Expired — ​ — Pre-funded warrants outstanding at March 31, 2026 633,505 ​ $ 0.0232 ​ ​ ​ ​ ​ ​ ​ 17 Table of Contents 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. ​ ​ ​ 11. SHARE-BASED COMPENSATION On February 23, 2021, the Company approved the 2021 Equity Incentive Plan (the “2021 Plan”), in which a maximum aggregate number of shares of common stock that may be issued under the 2021 Plan is 65,000 shares. Subject to the adjustment provisions of the 2021 Plan, the number of shares of the Company’s common stock available for issuance under the 2021 Plan will also include an annual increase on the first day of each fiscal year beginning with 2022 fiscal year and ending on the Company’s 2031 fiscal year in an amount equal to the least of: 1) 65,000 shares of the Company’s common stock; 2) four percent ( 4 %) of the outstanding shares of the Company’s common stock on the last day of the immediately preceding fiscal year; or 3) such number of shares of the Company’s common stock as the administrator may determine. At the 2023 Annual Meeting, the Company’s stockholders approved an amendment (the “2023 Plan Amendment”) to the Company’s 2021 Plan, increasing the number of the shares of common stock reserved for issuance under the 2021 Plan from 125,045 shares to 743,106 shares. The Company’s Board of Directors had previously approved the 2023 Plan Amendment, subject to stockholder approval. At the 2025 Annual Meeting, the Company’s stockholders approved an amendment (the “2025 Plan Amendment”) to the Company’s 2021 Plan, (i) increasing the number of the shares of common stock, reserved for issuance thereunder from 843,692 shares to 1,643,692 shares, and (ii) setting the “evergreen” share amount to 4 % of the outstanding shares of common stock. The Company’s Board of Directors had previously approved the 2025 Plan Amendment, subject to stockholder approval. Determining the appropriate fair value of share-based awards requires the input of subjective assumptions, including the fair value of the Company’s common stock, and for share options, the expected life of the option, and expected share price volatility. The Company uses the Black-Scholes option pricing model to value its share option awards. The assumptions used in calculating the fair value of share-based awards represent management’s best estimates and involve inherent uncertainties and the application of management’s judgment. As a result, if factors change and management uses different assumptions, the share-based compensation expense could be materially different for future awards. The following table reflects share activity under the share option plans for the three months ended March 31, 2026: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 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, 2026 1,643,122 $ 5.90 8.95 $ 3.12 ​ ​ Granted — ​ ​ — ​ ​ ​ ​ Exercised ​ ( 5,089 ) ​ ​ 0.04 ​ ​ ​ ​ ​ ​ ​ ​ Forfeited ( 36,524 ) 4.76 ​ ​ ​ ​ Expired — — ​ ​ ​ ​ Options outstanding at March 31, 2026 1,601,509 $ 5.95 8.55 $ 2.92 ​ ​ Options exercisable at March 31, 2026 ​ 898,017 ​ $ 8.06 ​ 8.19 ​ ​ ​ ​ $ 0.36 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Stock-based compensation is included in the unaudited interim condensed consolidated statements of operations as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended March 31, ​ (in thousands) ​ 2026 ​ ​ ​ 2025 ​ Research and development ​ $ 57 ​ $ 72 ​ General and administration ​ 198 ​ 178 ​ Total ​ $ 255 ​ $ 250 ​ 18 Table of Contents 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. 12. BASIC AND DILUTED LOSS PER SHARE Basic net loss per share is determined by dividing net loss by the weighted average shares of common stock outstanding during the period, without consideration of potentially dilutive securities, except for those shares that are issuable for little or no cash consideration. Diluted net loss per share is determined by dividing net loss by diluted weighted average shares outstanding. Diluted weighted average shares reflects the dilutive effect, if any, of potentially dilutive common shares, such as stock options and warrants calculated using the treasury stock method. In periods with reported net operating losses, all common stock options and warrants are generally deemed anti-dilutive such that basic net loss per share and diluted net loss per share are equal. The following potentially dilutive securities were excluded from the computation of earnings per share as of March 31, 2026 and 2025 because their effects would be anti-dilutive: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ March 31, ​ ​ ​ ​ 2026 ​ 2025 Common stock warrants ​ ​ 26,843,310 ​ ​ 4,450,324 Assumed conversion of preferred stock ​ ​ 36,840,168 ​ ​ 1,973,200 Stock options ​ ​ 1,601,509 ​ ​ 611,908 Total ​ ​ 65,284,987 ​ ​ 7,035,432 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 13. DEFINED CONTRIBUTION PENSION The Company operates a defined contribution pension scheme for its UK employees. The assets of the scheme are held separately from those of the Company in an independently administered fund. The pension cost charge 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 March 31, (in thousands) ​ 2026 ​ ​ ​ 2025 Research and development ​ $ 20 ​ $ 21 General and administration ​ 22 ​ 20 Total ​ $ 42 ​ $ 41 ​ ​ ​ ​ ​ ​ ​ ​ 14. SEGMENT REPORTING ​ We manage our business activities on a consolidated basis and operate as a single operating segment: Semiconductor materials. Our revenue is mostly generated from R&D grants and R&D tax credits. The accounting policies of the semiconductor materials are the same as those described in Note 2 – Summary of Significant Accounting Policies. Our CODM is our Chief Executive Officer and President, Ian Jenks. The CODM uses net loss, as reported on our Consolidated Statements of Comprehensive Income, in evaluating performance of the Semiconductor materials segment and determining how to allocate resources of the Company as a whole and making decisions on perspective joint development and collaboration agreements. The CODM does not review assets in evaluating the results of the Semiconductor materials segment, and therefore, such information is not presented. ​ 19 Table of Contents 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 March 31, ​ ​ 2026 ​ ​ ​ 2025 Revenue ​ $ 20 ​ $ 23 Cost of revenue ​ ​ 4 ​ ​ 1 Gross profit ​ ​ 16 ​ ​ 22 Other operating income ​ ​ 34 ​ ​ 251 Operating expenses ​ ​ ​ ​ ​ ​ Research and development ​ ​ 913 ​ ​ 1,497 General and administrative ​ ​ 1,664 ​ ​ 2,009 Loss / (gain) on foreign currency transactions ​ ​ 46 ​ ​ ( 95 ) Total operating expenses ​ ​ 2,623 ​ ​ 3,411 Loss from operations ​ ​ ( 2,573 ) ​ ​ ( 3,138 ) Total non-operating (expense) / income ​ ​ ( 16,796 ) ​ ​ 979 Loss before income taxes ​ ​ ( 19,369 ) ​ ​ ( 2,159 ) Income tax refund ​ ​ — ​ ​ 25 Net loss ​ $ ( 19,369 ) ​ $ ( 2,134 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 15. SUBSEQUENT EVENTS ​ Warrant Exercises ​ 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 . ​ ​ 20 Table of Contents