What changed in this filing

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Item 1. Financial Statements

2026-08-14 compared with 2026-05-20 · 256 added, 99 removed, 430 unchanged (45% of the section changed)

7 unchanged sentences

Research and development tax credit receivable

Note receivables

Prepaid expenses and other current assets

13 unchanged sentences

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

Preferred stock, par value $ 0.0001 per share, 10,000,000 shares authorized, 26,411.5 and 0 shares issued and outstanding, at June 30, 2026 and December 31, 2025, respectively

Common stock, par value $ 0.0001 per share, 5,000,000,000 shares authorized, 25,682,643 and 6,839,689 shares issued and outstanding, at June 30, 2026 and December 31, 2025, respectively

Additional paid-in capital

7 unchanged sentences

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

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

Cost of revenue

3 unchanged sentences

General and administrative

Loss / (gain) on foreign currency transactions

Gain on foreign currency transactions

Total operating expenses

1 unchanged sentence

Non-operating (expense) / income

(Loss) / gain on foreign currency transactions

Gain / (loss) on foreign currency transactions

Loss on the write-off of bad debts

Gain on deconsolidation of investment of subsidiary

Change in fair value of derivative liabilities

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

Loss on settlement debt

Change in fair value of convertible notes receivable

Expense for commitment shares issued upon signing the equity line of credit (ELOC)

Originations fees

Loss on settlement of debt

Transaction costs related to debt financing

2 unchanged sentences

Loss before income taxes

Income tax refund

Income tax (expense) / refund

Common share data:

28 unchanged sentences

Balance at March 31, 2026

Stock-based compensation expense

Fair value of warrants issued related to broker fees

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

Exercise of warrants into common stock

Issuance of common stock pursuant to equity line of credit (ELOC)

Foreign currency translation adjustment

Balance at June 30, 2026

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

SMARTKEM, INC.

Condensed Consolidated Statements of Stockholders’ Equity / (Deficit)

(in thousands, except share data)

Preferred Stock

10 unchanged sentences

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

Foreign currency translation adjustment

Balance at June 30, 2025

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

2 unchanged sentences

(in thousands)

Three Months Ended March 31,

Six Months Ended June 30,

Cash flow from operating activities:

4 unchanged sentences

Loss / (gain) on foreign currency transactions

Loss on investment of subsidiary

Loss on write-off of bad debts

Expense for commitment shares issued upon signing the equity line of credit (ELOC)

Change in fair value of derivative liabilities

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

Change in fair value of convertible notes receivable

Debt discount amortization

8 unchanged sentences

Net cash used in operating activities

Cash flows from investing activities:

Payment for convertible notes receivable

Deconsolidation of subsidiary

Net cash used by investing activities

Cash flow from financing activities:

12 unchanged sentences

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

Proceeds received for exercise of common stock warrants

Proceeds received related to equity line of credit (ELOC)

Net cash provided by financing activities

4 unchanged sentences

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

Right-of-use asset and lease liability additions

Initial classification of fair value of derivative liability

4 unchanged sentences

SmartKem, Inc.

Notes to the Unaudited Condensed Consolidated Financial Statements

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.

3 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.

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.

On June 12, 2026, SmartKem Limited (subsidiary of SmartKem, Inc) entered Creditors' Voluntary Liquidation and was deconsolidated following the appointment of an administrator.

As a result, SmartKem Limited's assets, liabilities, operations, and results are no longer included in the Company's consolidated financial statements beginning June 12, 2026.

Upon liquidation and deconsolidation, the development and manufacturing of our custom electronic materials was taken over by SmartKem, Inc.

The design and develop our materials continue to take place at our research and development facility in Manchester, UK by a team of people hired from the subsidiary.

We operate with an international footprint, providing materials development, prototyping and technical support to customers and collaborators globally.

Our advanced TRUFLEX® materials integrate into existing manufacturing processes, supporting efficient, scalable production and high-performance outcomes across a broad range of electronic applications.

We combine materials science expertise with practical engineering to deliver tailored solutions for partners seeking to innovate in electronics.

During the first six months of 2026, SmartKem was involved in a number of financing transactions.

These included the transfer of our patent portfolio to a third party.

2 unchanged sentences

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.

SmartKem, Inc.is referred to herein as “SmartKem”, “we”, “us”, “our”, or the “Company”, as the context requires and unless otherwise noted.

Risk and Uncertainties

4 unchanged sentences

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.

The Company has incurred continuing losses including net losses of $ 22.6 million for the six months ended June 30, 2026.

The Company’s cash as of June 30, 2026 was $ 3.7 million with net cash used in operating activities of $ 3.4 million for the six months ended June 30, 2026.

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

The Company expects that its cash and cash equivalents of $ 3.7 million as of June 30, 2026 will not be sufficient to fund its operating expenses 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.

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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.

The condensed consolidated financial statements as of June 30, 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).

The unaudited interim condensed consolidated financial statements of the Company as of June 30, 2026 and December 31, 2025 and for the three and six months ended June 30, 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.

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Notes to the Unaudited Condensed Consolidated Financial Statements

March 31, 2026 and 2025;

June 30, 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.

7 unchanged sentences

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.

Deconsolidation of Subsidiary

The Company consolidates entities in which it has a controlling financial interest in accordance with ASC 810, Consolidation.

When the Company ceases to have a controlling financial interest in a subsidiary, including as a result of the voluntary liquidation or dissolution of a subsidiary, the Company deconsolidates the subsidiary as of the date control is lost.

The Company recognizes a gain or loss on deconsolidation based on the difference between the carrying amount of the subsidiary's net assets, including amounts attributable to noncontrolling interests, and the fair value of any consideration received and any retained interest in the former subsidiary.

Any retained interest is initially measured at fair value on the date control is lost and subsequently accounted for in accordance with applicable U.S.

The results of operations and cash flows of the subsidiary are included in the Company's consolidated financial statements through the date of deconsolidation.

Notes Receivable

The Company accounts for its notes receivable in accordance with ASC 825, Financial Instruments , and ASC 820, Fair Value Measurement .

Upon initial recognition of certain notes receivable, the Company may elect the fair value option, which permits eligible financial assets to be measured at fair value with changes in fair value recognized in earnings each reporting period.

The fair value option election is irrevocable and is made on an instrument-by-instrument basis upon the initial recognition of the financial asset.

The Company elected the fair value option for its convertible promissory notes receivable issued by Ferrox Critical Minerals Ltd.

Management believes that accounting for the notes receivable at fair value provides more relevant information regarding the economic characteristics of the instruments, including the impact of the embedded conversion features and changes in the underlying value of the investee.

The notes receivable are initially recorded at fair value and subsequently remeasured at fair value at each reporting date.

Changes in fair value are recognized within other income (expense), net, in the condensed consolidated statements of operations.

The Company does not separately recognize interest income, amortization of discounts or premiums, or an allowance for expected credit losses related to financial instruments for which the fair value option has been elected, as such considerations are incorporated into the fair value measurement.

SMARTKEM, INC.

Notes to the Unaudited Condensed Consolidated Financial Statements

Fair Value of Financial Instruments

6 unchanged sentences

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.

Fair value measurements discussed herein are based upon certain market assumptions and pertinent information available to management as of and during the period ended June 30, 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.

The fair value of the notes receivable is determined using valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs.

Because the notes are not traded in active markets and contain significant unobservable assumptions, including estimates of enterprise value, expected transaction outcomes, timing assumptions, probabilities of conversion or repayment, and appropriate discount rates, the notes receivable are classified as Level 3 assets within the fair value hierarchy established by ASC 820.

Management evaluates the valuation methodologies and significant assumptions used in measuring fair value at each reporting date and updates those assumptions as necessary to reflect current facts and circumstances.

Issuance Costs

1 unchanged sentence

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.

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 a reduction in equity.

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

2 unchanged sentences

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.

For the period ended June 30, 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.

SMARTKEM, INC.

Notes to the Unaudited Condensed Consolidated Financial Statements

allocate resources and in assessing performance.

The Company views its operations and manages its business as one operating segment:

25 unchanged sentences

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.

2 unchanged sentences

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

DECONSOLIDATION OF SUBSIDIARY

On June 12, 2026, SmartKem Limited, a corporation organized under English law and the Company’s wholly owned subsidiary, was placed into creditors Voluntary Liquidation.

SmartKem Limited is under the control of an administrator which oversees the liquidation process.

The Company assessed the inherent uncertainties associated with the outcome of the voluntary creditors liquidation process and the anticipated duration thereof, and concluded that it was appropriate to deconsolidate SmartKem, Limited effective on the date the administrator was appointed.

SMARTKEM, INC.

Notes to the Unaudited Condensed Consolidated Financial Statements

SmartKem, Ltd.

developed and manufactured custom electronic materials designed to enable the next generation of electronics.

The advanced TRUFLEX® materials integrated into existing manufacturing processes, supporting efficient, scalable production and high-performance outcomes across a broad range of electronic applications.

It combined materials science expertise with practical engineering to deliver tailored solutions for partners seeking to innovate in electronics.

All development and manufacturing activities have been transferred to SmartKem, Inc and continue to be done in the Manchester, UK facility by a team of employees hired from SmartKem, Ltd.

The Company did not receive any consideration in the deconsolidation of SmartKem Limited.

The following table presents the assets and liabilities of SmartKem Limited:

Current assets

Cash and cash equivalents

Accounts receivable

Research and development tax credit receivable

Prepaid expenses and other current assets

Total current assets

Property, plant and equipment, net

Right-of-use assets, net

Other assets, non-current

Total deconsolidated assets

Current liabilities

Accounts payable and accrued expenses

Lease liabilities, current

Deferred revenue

Total current liabilities

Lease liabilities, non-current

Total deconsolidated liabilities

Deconsolidated net liabilities

Net liabilities of SmartKem Limited excludes $ 45.6 million of net intercompany trade and notes payables to SmartKem, Inc.

as of June 12, 2026.

Upon deconsolidation, these intercompany balances were reestablished as third-party balances by SmartKem, Inc.

and management assessed their collectability.

Based on the facts and circumstances existing at June 12, 2026, management determined the receivables due from SmartKem Limited were not collectible and recorded a bad debt expense of approximately $ 45.6 million, which is included in non-operating expense for the three and six months ended June 30, 2026

The Company recognized a gain on deconsolidation of investment of SmartKem Limited of approximately $ 43.3 million, which is included in non-operating expense for the three and six months ended June 30, 2026.

The gain included approximately $ 0.1 million of cumulative foreign currency translation losses reclassified from accumulated other comprehensive income.

The Company did not receive any consideration in the deconsolidation and retained no ownership interest in SmartKem Limited following the deconsolidation.

SMARTKEM, INC.

Notes to the Unaudited Condensed Consolidated Financial Statements

NOTES RECEIVABLE

During the six months ended June 30, 2026, the Company entered into a series of convertible promissory note agreements with Ferrox Critical Minerals Ltd.

As of June 30, 2026, the aggregate principal balance of the notes was approximately $ 6.5 million.

The notes bear interest at the contractual rates specified in the respective agreements and can be converted, all or in part into ordinary shares of Ferrox at any time.

The Company elected the fair value option under ASC 825, Financial Instruments, for the Ferrox notes receivable upon initial recognition.

The Company believes the fair value option election provides financial statement users with more relevant information regarding the economic characteristics of the notes, including the impact of the embedded conversion features and the relationship between the debt instruments and the underlying equity value of Ferrox.

As a result of this election, the notes receivable are reported at fair value at each reporting date, with changes in fair value recognized in earnings within other income (expense), net.

As of June 30, 2026, the fair value of the Ferrox notes receivable was $ 6.2 million.

Because the notes receivable are carried at fair value pursuant to ASC 825, the Company does not recognize an allowance for expected credit losses under ASC 326 for these instruments.

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

The Convertible Promissory Note shall accrue interest at a rate of 5.0 % per annum and will mature on October 30, 2026.

The Convertible Promissory Note is convertible at the option of the company into ordinary shares of Ferrox at a valuation equal to the lower of the then- fair market value of Ferrox or $ 80 million.

Pursuant to the terms of the Convertible Promissory Note, the Company was paid an originate fee of $ 0.2 million.

On June 9, 2026, the Company entered into a Note Purchase and Assignment Agreement with SRX Global, Inc., a Delaware corporation, pursuant to which the company purchased a Convertible Promissory Note issued by Ferrox, dated March 12, 2026, in the original principal amount of $ 1.5 million.

The Convertible Promissory Note shall accrue interest at a rate of 10 % per annum and will mature on October 30,2026.

The Convertible Promissory Note is convertible at the option of the company into ordinary shares of Ferrox at a valuation equal to the lower of the then- fair market value of Ferrox or $ 80 million.

On June 22, 2026, the Company funded an additional bridge loan to Ferrox in the original principal amount of $ 2.5 million, which loan was evidenced by an additional Convertible Promissory Note issued by Ferrox to the Company.

The Convertible Promissory Note shall accrue interest at a rate of 5.0 % per annum and will mature on December 31, 2026.

The Convertible Promissory Note is convertible at the option of the company into ordinary shares of Ferrox at a valuation equal to the lower of the then- fair market value of Ferrox or $ 80 million.

Pursuant to the terms of the Note, the Company was paid an originate fee of $ 0.2 million.

Each of these Convertible Promissory Notes contained a restrictive covenant prohibiting Ferrox from taking material corporate actions including, without limitation, redeeming any of its outstanding equity securities, repaying indebtedness, paying cash dividends and disposing of all or substantially all of its assets.

Additionally, the Convertible Promissory Notes grant the company the right of first refusal during the term of each of the notes and for a period of 24 months thereafter, with respect to any Fundamental Transaction (as defined therein) by Ferrox.

SMARTKEM, INC.

Notes to the Unaudited Condensed Consolidated Financial Statements

PREPAID EXPENSES AND OTHER CURRENT ASSETS

Prepaid expenses and other current assets consist of the following:

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Property, plant and equipment, net

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.

Depreciation expense was $ 65.3 thousand and $ 113.0 thousand for the six months ended June 30, 2026 and 2025, respectively and is classified as research and development expense.

ACCOUNTS PAYABLE AND ACCRUED EXPENSES

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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.

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 Company’s former subsidiary, SmartKem Limited had operating leases consisting of office space, lab space and equipment with remaining lease terms of 1 to 3 years .

As of June 12, 2026, all lease agreements are under the management and control of the administrator.

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,

Three Months Ended June 30,

Six Months Ended June 30,

(in thousands)

3 unchanged sentences

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

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

(in thousands)

2 unchanged sentences

Total lease cost

As a result of the deconsolidation of SmartKem Limited, the Company does no t have any Right of use lease assets or lease liabilities as of June 30, 2026.

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:

7 unchanged sentences

Total lease liabilities

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:

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

Weighted average discount rate – operating leases

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

(in thousands)

Total undiscounted lease payments

Less imputed interest

Total net lease liabilities

NOTES PAYABLE

Notes payable consist of the following:

March 31, 2026

June 30, 2026

December 31, 2025

3 unchanged sentences

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

SMARTKEM, INC.

Notes to the Unaudited Condensed Consolidated Financial Statements

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

6 unchanged sentences

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.

2 unchanged sentences

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:

The table below presents activity within Level 3 of the fair value hierarchy, our liabilities carried at fair value for the period ended June 30, 2026:

(in thousands)

4 unchanged sentences

Reclass from liability to equity

Balance at March 31, 2026

Balance at June 30, 2026

The $ 4.9 million related to the fair value of the derivative is included in the exchange of the notes payable for Series A-1 Preferred Stock.

3 unchanged sentences

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

SMARTKEM, INC.

Notes to the Unaudited Condensed Consolidated Financial Statements

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

3 unchanged sentences

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:

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

Expected term (years)

2 unchanged sentences

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.

11 unchanged sentences

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.

The table below presents activity within Level 3 of the fair value hierarchy, our notes receivable carried at fair value for the period ended June 30, 2026:

Convertible Note

(in thousands)

Balance at January 1,2026

Initial recognition of notes receivable

Change in fair value recognized in earnings

Balance at June 30, 2026

The fair value of the notes receivable is determined using valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs.

Quoted Prices

Significant Other

Notes Receivable:

Ferrox notes receivable

SMARTKEM, INC.

Notes to the Unaudited Condensed Consolidated Financial Statements

The fair value of the Ferrox notes receivable was estimated using a probability-weighted expected return methodology that considered multiple potential outcome scenarios, including repayment at maturity, conversion into equity securities, and the anticipated business combination transaction between the Company and Ferrox.

Significant unobservable inputs included estimates of Ferrox enterprise value, expected transaction outcomes, discount rates, timing assumptions, and probabilities assigned to each scenario.

Changes in any of these significant unobservable inputs could result in a materially different fair value measurement in future periods.

CONTINGENCIES

11 unchanged sentences

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.

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 or with alternate conversion options 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.

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.

SMARTKEM, INC.

Notes to the Unaudited Condensed Consolidated Financial Statements

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.

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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).

On June 22, 2026, at an Additional Closing pursuant to the Preferred Stock Purchase Agreement, the Company issued and sold, and certain Buyers purchased, in a private placement:

5,000 shares of the Series A Preferred Stock and warrants to purchase up to 10,753,615 shares of Common Stock at an initial exercise price of $ 0.5812 per share, subject to adjustment (the “2026 Warrants”) for aggregate proceeds of approximately $ 4.0 million.

As of June 30, 2026, there were 26,411.5 shares of Series A-1 Preferred Stock outstanding, including the Commitment Shares (discussion further below).

Voting Rights

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Market Information

The Company’s common stock has been trading on the Nasdaq Stock Market LLC under the symbol “SMTK” since May 31, 2024.

The Company’s common stock trades on the Nasdaq Stock Market LLC under the symbol “SMTK”.

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

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.

4 unchanged sentences

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.

An expense of $ 11.9 million was recorded for the commitment shares issued upon signing the ELOC.

During the six months ended June 30, 2026, the Company sold 4,130,000 shares of Common Stock for gross proceeds of approximately $ 1.6 million under the ELOC Purchase Agreement.

Common Stock Warrants

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$ 0.35 - $ 70.00

Warrants outstanding at March 31, 2026

Warrants outstanding at June 30, 2026

$ 0.35 - $ 8.75

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.

During the quarter ended June 30, 2026, 13,610 common stock warrants were issued at an exercise price of $ 0.625 , 108,174 common stock warrants were issued at an exercise price of $ 0.7265 and 10,753,615 common stock warrants were issued at an exercise price of $ 0.5812 .

During the quarter ended June 30, 2026, 106,430 common stock warrants were exercised at a price of $ 0.35 .

SMARTKEM, INC.

Notes to the Unaudited Condensed Consolidated Financial Statements

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

1 unchanged sentence

( 2,174,179 )

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.

Pre-funded warrants outstanding at June 30, 2026

During the quarter ended June 30, 2026, 243,302 prefunded warrants were exercised at a price of $ 0.0001 .

SHARE-BASED COMPENSATION

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

At the 2026 Annual Meeting, the Company’s stockholders approved an amendment (the “2026 Plan Amendment”) to the Company’s 2021 Plan, increasing the number of the shares of common stock reserved for issuance under the 2021 Plan to 2,144,622 shares.

The Company’s Board of Directors had previously approved the 2026 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.

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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:

SMARTKEM, INC.

Notes to the Unaudited Condensed Consolidated Financial Statements

The following table reflects share activity under the share option plans for the six months ended June 30, 2026:

Fair Value at

1 unchanged sentence

Options outstanding at January 1, 2026

Options outstanding at March 31, 2026

Options exercisable at March 31, 2026

Options outstanding at June 30, 2026

Options exercisable at June 30, 2026

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

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

(in thousands)

1 unchanged sentence

General and administration

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.

Total compensation cost related to non-vested stock option awards not yet recognized as of June 30, 2026 was $ 1.0 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 March 31, 2026 and 2025 because their effects would be anti-dilutive:

The following potentially dilutive securities were excluded from the computation of earnings per share as of June 30, 2026 and 2025 because their effects would be anti-dilutive:

Common stock warrants

1 unchanged sentence

Stock options

SMARTKEM, INC.

Notes to the Unaudited Condensed Consolidated Financial Statements

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.

Until the deconsolidation of SmartKem Limited, the Company operated a defined contribution pension scheme for its UK employees.

The assets of the scheme were 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,

Three Months Ended June 30,

Six Months Ended June 30,

(in thousands)

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Semiconductor materials.

Our revenue is mostly generated from R&D grants and R&D tax credits.

Until the deconsolidation of SmartKem Limited, our revenue was 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.

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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 March 31,

Three Months Ended June 30,

Six Months Ended June 30,

Cost of revenue

10 unchanged sentences

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.

Series A Convertible Preferred Stock

On July 16, 2026, at an Additional Closing pursuant to the Preferred Stock Purchase Agreement, the Company issued and sold, and certain Buyers purchased, in a private placement:

1,250 shares of the Series A Preferred Stock and 2,688,404 2026 Warrants to purchase shares of Common Stock for aggregate gross proceeds of approximately $ 1.0 million.

SMARTKEM, INC.

Notes to the Unaudited Condensed Consolidated Financial Statements

On July 24, 2026, at an Additional Closing pursuant to the Preferred Stock Purchase Agreement, the Company issued and sold, and certain Buyers purchased, in a private placement:

2,500 shares of the Series A Preferred Stock and 5,377,025 2026 Warrants to purchase shares of Common Stock for aggregate gross proceeds of approximately $ 2.0 million.

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 .

On July 27, 2026, the Company funded an additional bridge loan to Ferrox in the original principal amount of $ 4.5 million, which loan was evidenced by a Convertible Promissory Note issued by Ferrox to the Company.

The Convertible Promissory Note shall accrue interest at a rate of 5.0 % per annum and will mature on January 31, 2027.

Pursuant to the terms of the Note, the Company was paid an originate fee of $ 0.4 million.

Business Combination with Ferrox Critical Minerals

On August 3, 2026, the Company entered into a Business Combination Agreement (the “Business Combination Agreement”), as unanimously approved by the Board, by and among the Company, SMTK Merger Sub Inc., a company incorporated under the laws of the British Virgin Islands and a wholly-owned subsidiary of the Company (“Merger Sub”), and Ferrox.

Upon the terms and subject to the conditions set forth in the Business Combination Agreement, the Company shall acquire Ferrox in an all-stock transaction, for an aggregate purchase price of approximately $ 125 million (the “Business Combination”).

The completion of the Business Combination is subject to customary closing conditions, including (i) approval of the Business Combination by the Company’s stockholders and Ferrox’s shareholders, (ii) filing and mailing of a definitive proxy statement with the Securities and Exchange Commission (the “SEC”), (iii) the shares of the Company’s common stock to be issued pursuant to the Business Combination Agreement having been approved for listing on The Nasdaq Stock Market LLC (“Nasdaq”), (iv) the filing with the SEC of a registration statement on Form S-4 (the “Registration Statement”), in connection with the registration under the Securities Act of 1933, as amended (“Securities Act”) of the Company’s common shares to be issued in the Business Combination, (v) subject to specified materiality standards, the accuracy of the representations and warranties of the parties thereto (the “Transaction Parties”);

and (vi) the performance by the Transaction Parties in all material respects with all obligations required to be performed under the Business Combination Agreement at or prior to the date (the “Closing Date”) of the closing of the transactions contemplated by the Business Combination Agreement (the “Closing”).

In connection with the Business Combination, on or before the Closing, the Company is expected to enter into Lock-Up Agreements, in form and substance reasonably satisfactory to the Company and Ferrox, with each of the executive officers, directors and five percent (5%) stockholders of the post-Closing combined company, each to be effective as of the Closing for 120 days following the Closing.

The execution of the Lock-Up Agreements is also a condition to the Transaction Parties’ obligations to consummate the Business Combination.

The Business Combination Agreement contains customary representations and warranties of the Transaction Parties.

The Business Combination Agreement also contains customary covenants and agreements, including covenants and agreements relating to (i) the conduct of the Company’s business and Ferrox’s business between the date of the signing of the Business Combination Agreement and the Closing, (ii) the efforts of the Transaction Parties to cause the Business Combination to be completed, including obtaining all approvals, consents, registrations, authorizations and other confirmations from any third party necessary, proper or advisable to consummate the transactions contemplated by the Business Combination Agreement, and (iii) covenants by each of the Company and Ferrox not to solicit any Acquisition Proposal (as such term is defined in the Business Combination Agreement) from third parties.

The Business Combination Agreement may be terminated prior to the Closing by:

(a) by mutual written consent of each of the Transaction Parties;

(b) by either the Company or Ferrox, after the March 31, 2027 (the “End Date”), if the Business Combination has not been consummated (subject to certain conditions);

(c) by either the Company or Ferrox if a governmental body has issued a non-appealable final order, decree or ruling or taken any other action, in each case having the effect of permanently restraining, enjoining or otherwise prohibiting the Business Combination;

(d) by Ferrox upon the Company’s breach of the Business Combination Agreement which is not timely cured;

(e) by the Company upon Ferrox’s breach of the Business Combination Agreement

SMARTKEM, INC.

Notes to the Unaudited Condensed Consolidated Financial Statements

which is not timely cured;

(f) by the Company, if there will have occurred any Ferrox Material Adverse Effect (as such term is defined in the Business Combination Agreement) (subject to certain conditions);

(g) by Ferrox, if there will have occurred any SMTK Material Adverse Effect (as such term is defined in the Business Combination Agreement) (subject to certain conditions);

or (h) subject to certain conditions, by either the Company or Ferrox, if one of them should receive an unsolicited Superior Proposal (as such term is defined in the Business Combination Agreement).

If the Business Combination Agreement is terminated by a Transaction Party in connection with such Transaction Party’s receipt of an unsolicited Superior Proposal, the terminating Transaction Party shall, subject to certain conditions, be required to make a Termination Payment to the other Transaction Party in the amount of $ 3 million.

Equity Line of Credit

Since June 30, 2026, the Company has issued 2,581,090 shares of its Common Stock pursuant to the ELOC Purchase Agreement for gross proceeds of approximately $ 0.4 million.

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