What changed in this filing

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Item 1. Financial Statements

2025-08-12 compared with 2025-05-13 · 131 added, 118 removed, 298 unchanged (46% of the section changed)

11 unchanged sentences

Other assets, non-current

Liabilities and stockholders’ equity

Liabilities and stockholders’ (deficit) / equity

Current liabilities

5 unchanged sentences

Total liabilities

Commitments and contingencies (Note 7)

Stockholders’ equity:

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

Common stock, par value $ 0.0001 per share, 300,000,000 shares authorized, 3,620,217 and 3,590,217 shares issued and outstanding, at March 31, 2025 and December 31, 2024, respectively

Contingencies (Note 7)

Stockholders’ (deficit) / equity:

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

Common stock, par value $ 0.0001 per share, 300,000,000 shares authorized, 4,441,165 and 3,590,217 shares issued and outstanding, at June 30, 2025 and December 31, 2024, respectively

Additional paid-in capital

1 unchanged sentence

Accumulated deficit

Total stockholders' equity

Total liabilities and stockholders’ equity

Total stockholders' (deficit) / equity

Total liabilities and stockholders’ (deficit) / equity

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

2 unchanged sentences

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

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

Cost of revenue

12 unchanged sentences

Loss before income taxes

Income tax refund

Income tax refund / (expense)

Preferred stock deemed dividends

1 unchanged sentence

Weighted average shares outstanding - basic and diluted

Basic and diluted net loss per common share attributed to common stockholders

Common share data:

Basic net loss per common share

Diluted net loss per common share

Dividend per common share

Other comprehensive loss:

3 unchanged sentences

SMARTKEM, INC.

Condensed Consolidated Statements of Stockholders’ Equity

Condensed Consolidated Statements of Stockholders’ (Deficit) / Equity

(in thousands, except share data)

6 unchanged sentences

income / (loss)

(deficit) / equity

Balance at January 1, 2025

3 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

Preferred Stock

15 unchanged sentences

Balance at March 31, 2024

Stock-based compensation expense

Issuance of common stock to vendor

Conversion of Preferred stock into common stock

Exercise of warrants into common stock

Fair value of warrants reclassified from liability to equity

Foreign currency translation adjustment

Balance at June 30, 2024

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:

3 unchanged sentences

Right-of-use asset amortization

Gain/(loss) on foreign currency transactions

(Loss) / gain on foreign currency transactions

Change in fair value of the warrant liability

3 unchanged sentences

Prepaid expenses and other assets

Other non-current assets

Accounts payable and accrued expenses

2 unchanged sentences

Net cash used in operating activities

Cash flow from financing activities:

Proceeds from the exercise of warrants

Net cash provided by financing activities

Effect of exchange rate changes on cash

4 unchanged sentences

Issuance of common shares for consulting services

Right-of-use asset and lease liability additions

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

5 unchanged sentences

On February 23, 2021, Parasol entered into a Securities Exchange Agreement (the “Exchange Agreement”), with SmartKem Limited.

Pursuant to the Exchange Agreement all of the equity interests in SmartKem Limited, except certain deferred shares which had no economic or voting rights (the “Deferred Shares”) and which were purchased by Parasol for an aggregate purchase price of $ 1.40 , were exchanged for shares of Parasol common stock, par value $ 0.0001 per share (“common stock”), and SmartKem Limited became a wholly owned subsidiary of Parasol (the “Exchange”).

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.

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, miniLED and AMOLED, as well as in applications in advanced chip packaging, sensors, and logic .

We design and develop our materials at our research and development facility in Manchester, UK and provide prototyping services at the Centre for Process Innovation (“CPI”) in Sedgefield, UK.

We also operate a field application office in Hsinchu, Taiwan, close to our collaboration partner, The Industrial Technology Research Institute of Taiwan (“ITRI”).

With our collaboration partners, we are developing a commercial-scale production process and EDA tools for our materials to demonstrate the commercial viability of manufacturing a new generation of displays using our materials.

We have an extensive IP portfolio including 138 granted patents across 17 patent families, 16 pending patents and 40 codified trade secrets .

The Company is seeking to change the world of electronics with a new class of transistor developed using its proprietary advanced semiconductor materials that the Company believes has the potential to revolutionize the display industry.

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

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

The Company designs and develops its materials at its research and development facility in Manchester, UK and provides prototyping services at the Centre for Process Innovation (“CPI”) in Sedgefield, UK.

The Company also operates a field application office in Hsinchu, Taiwan, close to its collaboration partner, The Industrial Technology Research Institute of Taiwan (“ITRI”).

With its collaboration partners, the Company is developing a commercial-scale production process and Electronic Design Automation (EDA) tools for its materials to demonstrate the commercial viability of manufacturing a new generation of displays using the Company’s materials.

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

Risk and Uncertainties

1 unchanged sentence

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

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

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

CPIIS is in the process of reviewing the operation of the clean room facility used by the Company and is seeking to reduce the facility’s operating costs by, among other things, consolidating its clean rooms and seeking to pass more of its operating costs to users including the Company.

On March 28, 2025, the Company entered into an agreement with CPIIS pursuant to which the term of the current CPIIS agreement was extended until May 31, 2025.

The Company intends to use the extension period to complete negotiations with CPIIS regarding a

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

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

SMARTKEM, INC.

Notes to the Unaudited Condensed Consolidated Financial Statements

longer-term agreement.

Under the terms of the extension, the Company has agreed to an increase in its share of the costs of the CPI facility and to increased minimum usage obligations during the extension period.

The Company expects that any longer-term agreement with CPIIS will require the Company to bear additional costs.

If the Company is unable to reach a new agreement with CPIIS on terms that are satisfactory to the Company, the Company intends to find an alternative facility.

The Company believes that there are adequate alternative sites available at which it could conduct its prototyping operations.

CPIIS has been reviewing the operation of the clean room facility used by the Company and has advised the Company that it intends to reduce the facility’s operating costs by, among other things, consolidating its clean rooms and seeking to pass more of its operating costs to users including the Company.

The Company has entered into a number of short-term extensions of the current CPIIS agreement pursuant to which the term of the current CPIIS agreement has been extended to December 31, 2025.

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

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

The Company expects that any longer-term agreement with CPIIS will require the Company to bear additional costs and that such costs will continue to be significantly higher than under the most recent agreement.

The Company and CPIIS have been negotiating the terms of a proposed three-year license agreement under which the Company would consolidate its operations in one clean room at the CPI facility and would pay a portion of the costs of relocating equipment to that clean room.

The Company expects that the license agreement will be terminable by the Company upon not less than six-months’ notice and the payment of certain associated costs.

Although no license agreement has been entered into as of the date of this Report, the Company expects that its costs under the license agreement will be somewhat less than under the most recent extension of the current framework services agreement but will be significantly higher than under the original terms of that agreement.

Upon the execution and delivery of the license agreement, the most recent extension will expire.

Subject to the receipt of adequate capital financing, the Company will continue to explore options to perform its prototyping services.

The Company believes that adequate alternative sites are available for that purpose and is assessing the most effective allocation of capabilities between its UK and Taiwan sites.

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

In such event, the Company intends to schedule its prototyping activities to minimize any disruption to those operations and would use ITRI’s prototyping line as an interim facility for such work.

If the Company is unable to obtain access to another prototyping facility on similar terms to its arrangements with CPI, the Company would be materially and adversely affected.

The Company has approximately 11 employees located at CPI.

2 unchanged sentences

Going Concern

The Company has incurred continuing losses including net losses of $ 2.1 million for the three months ended March 31, 2025.

The Company’s cash as of March 31, 2025 was $ 3.9 million with net cash used in operating activities of $ 3.3 million for the three months ended March 31, 2025.

The Company has incurred continuing losses including net losses of $ 4.5 million for the six months ended June 30, 2025.

The Company’s cash as of June 30, 2025 was $ 1.2 million with net cash used in operating activities of $ 6.1 million for the six months ended June 30, 2025.

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

The Company expects that its cash and cash equivalents of $ 3.9 million as of March 31, 2025 will not be sufficient to fund its operating expenses and capital expenditure requirements for the 12 months from the issuance of these financial statements and that the Company will require additional capital funding to continue its operations and research development activity thereafter.

It is possible this period could be shortened if there are any significant increases in spending or more rapid progress of development programs than anticipated.

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

The Company expects that its cash and cash equivalents of $ 1.2 million as of June 30, 2025 will not be sufficient to fund its operating expenses and capital expenditures for the 12 months from the issuance of these financial statements.

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

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

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

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

SMARTKEM, INC.

Notes to the Unaudited Condensed Consolidated Financial Statements

or licensing arrangements.

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

3 unchanged sentences

The precise amount and timing of the funding needs cannot be determined accurately at this time, and will depend on a number of factors, including the market demand for the Company’s products and services, the quality of product development efforts, management of working capital, and continuation of normal payment terms and conditions for purchase of services.

If the Company is unable to substantially increase revenues, reduce expenditures, or otherwise generate cash flows for operations, then the Company will need to raise additional funding.

There is substantial doubt that the Company will be able to pay its obligations as they fall due, and this substantial doubt is not alleviated by management plans.

The condensed consolidated financial statements as of March 31, 2025 have been prepared assuming that the Company will continue as a going concern.

SMARTKEM, INC.

Notes to the Unaudited Condensed Consolidated Financial Statements

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.

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

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

Basis of Presentation

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

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

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

3 unchanged sentences

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

These interim condensed consolidated financial statements reflect all adjustments, consisting of normal recurring accruals, necessary for a fair presentation of the Company’s results of operations, financial position and cash flows for the interim periods ended March 31, 2025 and 2024;

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

4 unchanged sentences

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

SMARTKEM, INC.

Notes to the Unaudited Condensed Consolidated Financial Statements

Management’s Use of Estimates

3 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.

SMARTKEM, INC.

Notes to the Unaudited Condensed Consolidated Financial Statements

Segment Information

24 unchanged sentences

Total prepaid expenses and other current assets

SMARTKEM, INC.

Notes to the Unaudited Condensed Consolidated Financial Statements

PROPERTY, PLANT AND EQUIPMENT

6 unchanged sentences

Property, plant and equipment, net

Depreciation expense was $ 56.1 thousand and $ 63.2 thousand for the three months ended March 31, 2025 and 2024, respectively and is classified as research and development expense.

SMARTKEM, INC.

Notes to the Unaudited Condensed Consolidated Financial Statements

Depreciation expense was $ 113.1 thousand and $ 124.9 thousand for the six months ended June 30, 2025 and 2024, respectively and is classified as research and development expense.

ACCOUNTS PAYABLE AND ACCRUED EXPENSES

8 unchanged sentences

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

SMARTKEM, INC.

Notes to the Unaudited Condensed Consolidated Financial Statements

to borrow on a similar collateralized basis over a similar term in order to determine the present value of its lease payments.

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

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

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,

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)

11 unchanged sentences

Total lease liabilities

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

SMARTKEM, INC.

Notes to the Unaudited Condensed Consolidated Financial Statements

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

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

1 unchanged sentence

Operating cash outflows from operating leases

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

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:

6 unchanged sentences

Total net lease liabilities

COMMITMENTS AND CONTINGENCIES

CONTINGENCIES

Legal proceedings

3 unchanged sentences

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-1 Preferred Stock

On June 14, 2023, the Company filed a Certificate of Designation of Preferences, Rights and Limitations with the Secretary of State of the State of Delaware designating 18,000 shares out of the authorized but unissued shares of its preferred stock as Series A-1 Preferred Stock with a stated value of $ 1,000 per share

SMARTKEM, INC.

Notes to the Unaudited Condensed Consolidated Financial Statements

(the “Series A-1 Certificate of Designation”).

On January 29, 2024, the Company filed an Amended and Restated Certificate of Designation of Preferences, Rights and Limitation with the Secretary of State of Delaware designating 11,100 shares of Series A-1 Preferred Stock, and on December 20, 2024, the Company filed a Second Amended and Restated Certificate of Designation of Preferences, Rights and Limitation with the Secretary of the State of Delaware designating 11,100 shares of Series A-1 Preferred Stock.

The following is a summary of the principal amended and restated terms of the Series A-1 Preferred Stock as set forth in the Second Amended and Restated Series A-1 Certificate of Designation:

The holders of Series A-1 Preferred Stock will be entitled to dividends, on an as-if converted basis, equal to and in the same form as dividends actually paid on shares of common stock, when and if actually paid.

Voting Rights

The shares of Series A-1 Preferred Stock have no voting rights, except to the extent required by the Delaware General Corporation Law.

As long as any shares of Series A-1 Preferred Stock are outstanding, the Company may not, without the approval of a majority of the then outstanding shares of Series A-1 Preferred Stock which must include AIGH Investment Partners LP and its affiliates (“AIGH”) for so long as AIGH is holding at least $ 1,500,000 in aggregate stated value of Series A-1 Preferred Stock acquired pursuant to the Purchase Agreement (a) alter or change the powers, preferences or rights given to the Series A-1 Preferred Stock, (b) alter or amend the Amended and Restated Certificate of Incorporation (the “Charter”), the Series A-1 Certificate of Designation or the or the bylaws of the Company (the “Bylaws”) in such a manner so as to materially adversely affect any rights given to the Series A-1 Preferred Stock, (c) increase the number of authorized shares of Series A-1 Preferred Stock, (d) issue any Series A-1 Preferred Stock except pursuant to the Purchase Agreement, or (e) enter into any agreement to do any of the foregoing.

Upon any liquidation, dissolution or winding-up of the Company, whether voluntary or involuntary (a “Liquidation”), the then holders of the Series A-1 Preferred Stock are entitled to receive, pari passu with holders of the common stock, out of the assets available for distribution to stockholders of the Company an amount equal to the amount that would otherwise be payable to them if all of the shares of Series A-1 Preferred Stock had converted into shares of common stock immediately prior to such Liquidation.

The Series A-1 Preferred Stock is convertible into common stock at a conversion price of $ 4.34 .

Conversion at the Option of the Holder

From and after the earlier of (i) the date on which the registration statement covering the resale or other disposition of the additional shares of common stock that are issuable as a result of the Second Amended and Restated Certificate of Designation of the Series A-1 Preferred Stock is declared effective by the SEC (the “Effective Date”) and (ii) the six-month anniversary of December 20, 2024, the Series A-1 Preferred Stock is convertible at the then-effective Series A-1 Conversion Price at the option of the holder at any time and from time to time.

Mandatory Conversion

All outstanding shares of Series A-1 Preferred Stock shall automatically be converted into shares of common stock upon the earlier of (i) the Effective Date and (ii) the date and time, or upon the occurrence of an event, specified by vote or written consent of the holders of a majority of the then outstanding shares of the Series A-1 Preferred Stock which must include AIGH for so long as

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

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

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

SMARTKEM, INC.

Notes to the Unaudited Condensed Consolidated Financial Statements

AIGH is holding at least $ 1,500,000 in aggregate Stated Value of Series A-1 Preferred Stock (a “Mandatory Conversion”).

In the case of a Mandatory Conversion, the holders of Series A-1 Preferred Stock shall receive (i) shares of shares in an amount that would not cause such holder to exceed its Beneficial Ownership Limitation (as defined below) (after giving effect to the Mandatory Conversion of shares of Series A-1 Preferred Stock held by the other holders), and (ii) Class C Warrants exercisable for the remaining shares which the holder would otherwise be entitled to receive.

Beneficial Ownership Limitation

The Series A-1 Preferred Stock cannot be converted to common stock if the holder and its affiliates would beneficially own more than 4.99 % (or 9.99 % at the election of the holder) of the outstanding common stock.

However, any holder may increase or decrease such percentage to any other percentage not in excess of 9.99 % upon notice to us, provided that any increase in this limitation will not be effective until 61 days after such notice from the holder to us and such increase or decrease will apply only to the holder providing such notice.

Preemptive Rights

No holders of Series A-1 Preferred Stock will, as holders of Series A-1 Preferred Stock, have any preemptive rights to purchase or subscribe for common stock or any of our other securities.

The shares of Series A-1 Preferred Stock are not redeemable by the Company.

Trading Market

There is no established trading market for any of the Series A-1 Preferred Stock, and we do not expect a market to develop.

We do not intend to apply for a listing for any of the Series A-1 Preferred Stock on any securities exchange or other nationally recognized trading system.

Without an active trading market, the liquidity of the Series A-1 Preferred Stock will be limited.

As of March 31, 2025, there were an aggregate of 856 shares of Series A-1 Preferred Stock outstanding.

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 Charter and the Company’s Bylaws do not provide for cumulative voting rights.

The holders of one-third of the stock issued and outstanding and entitled to vote, present in person or represented by proxy, constitutes a quorum for the transaction of business at all meetings of the stockholders.

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

Any future determination to pay cash dividends will be at the discretion of the 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.

Common Stock Issued to Vendors for Services

During the three months ended March 31, 2025, 30,000 shares of our common stock were issued to a vendor in consideration for services to be provided.

SMARTKEM, INC.

Notes to the Unaudited Condensed Consolidated Financial Statements

During the six months ended June 30, 2025, 160,000 shares of our common stock were issued to a vendor in consideration for services to be provided.

Common Stock Warrants

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$ 0.35 - $ 70.00

Warrants outstanding at March 31, 2025

Warrants outstanding at June 30, 2025

$ 0.35 - $ 70.00

1 unchanged sentence

Pre-funded warrants outstanding at January 1, 2025

Pre-funded warrants outstanding at March 31, 2025

Pre-funded warrants outstanding at June 30, 2025

SHARE-BASED COMPENSATION

6 unchanged sentences

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.

SMARTKEM, INC.

Notes to the Unaudited Condensed Consolidated Financial Statements

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.

2 unchanged sentences

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

The Company did not issue any options during the three months ended March 31, 2025.

SMARTKEM, INC.

Notes to the Unaudited Condensed Consolidated Financial Statements

The following table reflects share activity under the share option plans for the three months ended March 31, 2025:

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

Six Months Ended June 30,

Expected term (years)

Risk-free interest rate

Expected volatility

Expected dividend yield

During the six months ended June 30, 2025, the Company issued options for 710,268 shares of common stock to employees, directors and consultants.

The options vest over a period of three years , have an exercise price of $ 2.51 and expire on the ten-year anniversary of the grant date.

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

Fair Value at

2 unchanged sentences

Cancelled/Forfeited

Options outstanding at March 31, 2025

Options exercisable at March 31, 2025

Options outstanding at June 30, 2025

Options exercisable at June 30, 2025

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

Total compensation cost related to non-vested stock option awards not yet recognized as of March 31, 2025 was $ 1.5 million and will be recognized on a straight-line basis through the end of the vesting periods in June 2027.

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

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

SMARTKEM, INC.

Notes to the Unaudited Condensed Consolidated Financial Statements

BASIC AND DILUTED LOSS PER SHARE

3 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, 2025 and 2024 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, 2025 and 2024 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

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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)

1 unchanged sentence

General and administration

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

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

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

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

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

SEGMENT REPORTING

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Our CODM is our Chief Executive Officer and President, Ian Jenks.

The CODM uses Net income, as reported on our Consolidated Statements of Comprehensive Income, in evaluating performance of the 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 uses net loss, as reported on our Consolidated Statements of Comprehensive Income, in evaluating performance of the Semiconductor

SMARTKEM, INC.

Notes to the Unaudited Condensed Consolidated Financial Statements

materials segment and determining how to allocate resources of the Company as a whole and making decisions on perspective joint development and collaboration agreements.

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

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

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

Cost of revenue

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SUBSEQUENT EVENTS

Preferred Stock Conversion

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

SMARTKEM, INC.

Notes to the Unaudited Condensed Consolidated Financial Statements

Consultant Shares

During the period of April 1, 2025 through May 1, 2025, 120,000 shares of our common stock were issued to a vendor in consideration for services to be provided.

During the period of July 1, 2025 through August 12, 2025, 20,000 shares of our common stock were issued to a vendor in consideration for services to be provided.

Warrant Exercises

On April 9, 2025, 160 shares of our common stock were issued upon the exercise of Class B warrants.

On July 2, 2025, 83,325 shares of our common stock were issued upon the cashless exercise of 83,333 pre-funded warrants.

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