SEC Form 10-Q filed by SmartKem Inc.

SEC Form 10-Q filed by SmartKem Inc.

Recent Analyst Ratings for
$SMTK

$SMTK
SEC Filings

Chat with this insight

Amendment: SEC Form SCHEDULE 13G/A filed by SmartKem Inc.

SmartKem Inc. filed SEC Form 8-K: Results of Operations and Financial Condition, Financial Statements and Exhibits

5/13/25 4:05:34 PM ET

$SMTK

Semiconductors

Technology

Get the next $SMTK alert in real time by email

SmartKem, Inc._March 31, 2025

Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2025

☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 001-42115

SmartKem, Inc.

(Exact name of registrant as specified in its charter)

Delaware		85-1083654
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification Number)

Manchester Technology Centre, Hexagon Tower.

Delaunays Road, Blackley

Manchester, M9 8GQ U.K.

(Address of Principal Executive Offices)

011-44-161-721-1514

(Registrant’s telephone number)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of exchange on which registered
Common Stock, par value $0.0001 per share	SMTK	The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☒	Smaller reporting company	☒
		Emerging growth company	☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of May 12, 2025, there were 4,431,165 of the registrant’s shares of common stock outstanding.

Table of Contents

TABLE OF CONTENTS


		Page

Part I	Financial Information	3

Item 1.	Financial Statements	3
	Unaudited Condensed Consolidated Balance Sheets as of March 31, 2025 and December 31, 2024	3
	Unaudited Condensed Consolidated Statements of Operations and Comprehensive Loss for the three months ended March 31, 2025 and 2024	4
	Unaudited Condensed Consolidated Statements of Stockholders’ Equity for the three months ended March 31, 2025 and 2024	5
	Unaudited Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2025 and 2024	6
	Notes to the Unaudited Interim Condensed Consolidated Financial Statements	7-18

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	19
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	22
Item 4.	Controls and Procedures	23

Part II	Other Information	24

Item 1.	Legal Proceedings	24
Item 1A.	Risk Factors	24
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	24
Item 3.	Defaults Upon Senior Securities	24
Item 4.	Mine Safety Disclosures	24
Item 5.	Other Information	24
Item 6.	Exhibits	24

Exhibit Index		25
Signatures		26

Table of Contents

Item 1. Financial Statements

SMARTKEM, INC.

Condensed Consolidated Balance Sheets

(Unaudited)

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



	March 31,		December 31,
	2025		2024
Assets
Current assets
Cash and cash equivalents	$	3,881	$	7,141
Research and development tax credit receivable		664		519
Prepaid expenses and other current assets		1,091		849
Total current assets		5,636		8,509
Property, plant and equipment, net		220		269
Right-of-use assets, net		54		120
Other assets, non-current		—		6
Total assets	$	5,910	$	8,904

Liabilities and stockholders’ equity
Current liabilities
Accounts payable and accrued expenses	$	1,439	$	1,791
Lease liabilities, current		24		47
Other current liabilities		639		450
Total current liabilities		2,102		2,288
Lease liabilities, non-current		21		25
Total liabilities		2,123		2,313

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		—		—
Additional paid-in capital		122,651		122,316
Accumulated other comprehensive loss		(2,110)		(1,105)
Accumulated deficit		(116,754)		(114,620)
Total stockholders' equity		3,787		6,591
Total liabilities and stockholders’ equity	$	5,910	$	8,904

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

Table of Contents

SMARTKEM, INC.

Condensed Consolidated Statements of Operations and Comprehensive Loss

(Unaudited)

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


	Three Months Ended March 31,
	2025		2024
Revenue	$	23	$	—
Cost of revenue		1		—
Gross profit		22		—

Other operating income		251		202

Operating expenses
Research and development		1,497		1,276
General and administrative		2,009		1,362
(Gain)/loss on foreign currency transactions		(95)		13
Total operating expenses		3,411		2,651

Loss from operations		(3,138)		(2,449)

Non-operating income/(expense)
Gain/(loss) on foreign currency transactions		969		(6)
Change in fair value of the warrant liability		—		753
Interest income/(expense)		10		6
Total non-operating income/(expense)		979		753

Loss before income taxes		(2,159)		(1,696)
Income tax refund		25		—
Net loss	$	(2,134)	$	(1,696)
Preferred stock deemed dividends		—		(7,094)
Net loss attributed to common stockholders	$	(2,134)	$	(8,790)

Weighted average shares outstanding - basic and diluted		6,649,603		2,735,375

Basic and diluted net loss per common share attributed to common stockholders	$	(0.32)	$	(3.21)

Net loss	$	(2,134)	$	(1,696)
Other comprehensive loss:
Foreign currency translation		(1,005)		(18)
Total comprehensive loss	$	(3,139)	$	(1,714)

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

Table of Contents

SMARTKEM, INC.

Condensed Consolidated Statements of Stockholders’ Equity

(Unaudited)

(in thousands, except share data)


	Preferred Stock			Common stock			Additional		Accumulated other				Total
	$0.0001 par value			$0.0001 par value			paid-in		comprehensive		Accumulated		Stockholders'
	Shares	Amount		Shares	Amount		capital		income / (loss)		deficit		equity
Balance at January 1, 2025	856	$	—	3,590,217	$	—	$	122,316	$	(1,105)	$	(114,620)	$	6,591
Stock-based compensation expense	—		—	—		—		250		—		—		250
Issuance of common stock to vendor	—		—	30,000		—		85		—		—		85
Foreign currency translation adjustment	—		—	—		—		—		(1,005)		—		(1,005)
Net loss	—		—	—		—		—		—		(2,134)		(2,134)
Balance at March 31, 2025	856	$	—	3,620,217	$	—	$	122,651	$	(2,110)	$	(116,754)	$	3,787


	Preferred Stock			Common stock			Additional		Accumulated other				Total
	$0.0001 par value			$0.0001 par value			paid-in		comprehensive		Accumulated		Stockholders'
	Shares	Amount		Shares	Amount		capital		income / (loss)		deficit		equity
Balance at January 1, 2024	13,765	$	—	889,668	$	—	$	104,757	$	(1,578)	$	(95,066)	$	8,113
Stock-based compensation expense	—		—	—		—		107		—		—		107
Issuance of stock awards	—		—	3,400		—		21		—		—		21
Issuance of common stock to vendor	—		—	50,000		—		53		—		—		53
Conversion of Preferred stock into common stock	(3,817)		—	436,294		—		—		—		—		—
Exchange of Preferred stock into common stock warrants	(6,356)		—	—		—		—		—		—		—
Deemed dividend on extinguishment of Preferred stock	—		—	—		—		7,069		—		(7,094)		(25)
Cashless exercise of warrants into common stock	—		—	388		—		—		—		—		—
Foreign currency translation adjustment	—		—	—		—		—		(18)		—		(18)
Net loss	—		—	—		—		—		—		(1,696)		(1,696)
Balance at March 31, 2024	3,592	$	—	1,379,750	$	—	$	112,007	$	(1,596)	$	(103,856)	$	6,555

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

Table of Contents

SMARTKEM, INC.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(in thousands)


	Three Months Ended March 31,
	2025		2024
Cash flow from operating activities:
Net loss	$	(2,134)	$	(1,696)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation		56		63
Stock-based compensation expense		250		129
Issuance of common stock to vendor		85		53
Right-of-use asset amortization		68		60
Gain/(loss) on foreign currency transactions		(1,063)		19
Change in fair value of the warrant liability		—		(753)
Change in operating assets and liabilities:
Accounts receivable		—		267
Research and development tax credit receivable		(126)		(202)
Prepaid expenses and other assets		(222)		(264)
Accounts payable and accrued expenses		(393)		822
Lease liabilities		(29)		(69)
Other current liabilities		170		—
Net cash used in operating activities		(3,338)		(1,571)

Effect of exchange rate changes on cash		78		(14)

Net change in cash		(3,260)		(1,585)

Cash, beginning of period		7,141		8,836
Cash, end of period	$	3,881	$	7,251
		—
Supplemental disclosure of cash and non-cash investing and financing activities
Issuance of common shares for consulting services	$	85	$	53

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

Table of Contents

SMARTKEM, INC.

Notes to the Unaudited Condensed Consolidated Financial Statements

GENERAL

Organization

SmartKem, Inc. (“SmartKem” or the “Company”) a Delaware corporation, formerly known as Parasol Investments Corporation (“Parasol”), was formed on May 13, 2020, and is the successor, as discussed below, of SmartKem Limited, which was formed under the Laws of England and Wales. The Company was founded as a “shell” company registered under the Exchange Act, with no specific business plan or purpose until it began operating the business of SmartKem Limited following the closing of the Exchange described below.

On February 23, 2021, Parasol entered into a Securities Exchange Agreement (the “Exchange Agreement”), with SmartKem Limited. Pursuant to the Exchange Agreement all of the equity interests in SmartKem Limited, except certain deferred shares which had no economic or voting rights (the “Deferred Shares”) and which were purchased by Parasol for an aggregate purchase price of $1.40, were exchanged for shares of Parasol common stock, par value $0.0001 per share (“common stock”), and SmartKem Limited became a wholly owned subsidiary of Parasol (the “Exchange”).

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

Business

We are seeking to change the world of electronics with a new class of transistor developed using our proprietary advanced semiconductor materials that we believe has the potential to revolutionize the display industry. Our TRUFLEX® semiconductor polymers enable low temperature printing processes that are compatible with existing manufacturing infrastructure to deliver low-cost, high-performance displays. Our semiconductor platform can be used in a range of display technologies including MicroLED, 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.

Risk and Uncertainties

The Company’s activities are subject to significant risks and uncertainties including the risk of failure to secure additional funding to properly execute the Company’s business plan. The Company is subject to risks that are common to companies in the development stage, including, but not limited to, development by the Company or its competitors of new technological innovations, dependence on key personnel, reliance on third party manufacturers, protection of proprietary technology and compliance with regulatory requirements.

The Company 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

Table of Contents

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. 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. Even if the Company is able to locate a suitable replacement facility on acceptable terms, there is no assurance that the key employees at CPI would accept positions at a new facility, particularly if it is located remotely from the CPI facility. Even if the Company locates a suitable replacement facility, it is possible that the Company’s ability to engage in product development, prototyping of demonstration products and process improvement activities may be significantly delayed as a result of the relocation of those functions.

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 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 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. If the Company raises additional funds by issuing equity securities, the Company’s existing security holders will likely experience dilution. If the Company borrows money, the incurrence of indebtedness would result in increased debt service obligations and could require the Company to agree to operating and financial covenants that could restrict its operations. If the Company enters into a collaboration, strategic alliance or other similar arrangement, it may be forced to give up valuable rights. There can be no assurance however that such financing will be available in sufficient amounts, when and if needed, on acceptable terms or at all. The precise amount and timing of the funding needs cannot be determined accurately at this time, and will depend on a number of factors, including the market demand for the Company’s products and services, the quality of product development efforts, management of working capital, and continuation of normal payment terms and conditions for purchase of services. If the Company is unable to substantially increase revenues, reduce expenditures, or otherwise generate cash flows for operations, then the Company will need to raise additional funding.

There is substantial doubt that the Company will be able to pay its obligations as they fall due, and this substantial doubt is not alleviated by management plans. The condensed consolidated financial statements as of March 31, 2025 have been prepared assuming that the Company will continue as a going concern. Accordingly,

Table of Contents

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.

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

These interim condensed consolidated financial statements are unaudited and were prepared by the Company in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim reporting and with the SEC’s instructions to Form 10-Q and Article 10 of Regulation S-X. They include the accounts of all wholly owned subsidiaries and all significant inter-company accounts and transactions have been eliminated in consolidation. Amounts are presented in thousands, except number of shares and per share data.

The preparation of interim condensed consolidated financial statements requires management to make assumptions and estimates that impact the amounts reported. These interim condensed consolidated financial statements reflect all adjustments, consisting of normal recurring accruals, necessary for a fair presentation of the Company’s results of operations, financial position and cash flows for the interim periods ended 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. It is important to note that the Company’s results of operations and cash flows for interim periods are not necessarily indicative of the results of operations and cash flows to be expected for a full fiscal year or any interim period.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

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

Management’s Use of Estimates

The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, including disclosure of contingent assets and liabilities, at the date of the consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period. The most significant estimates in the Company’s consolidated financial statements relate to the valuation of common stock, fair value of stock options and fair value of warrant liabilities. These estimates and assumptions are based on current facts, historical experience and various other factors believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the recording of expenses that are not readily apparent from other sources. Due to the uncertainty of factors surrounding the estimates or judgments used in the preparation of the consolidated financial statements, actual results may materially vary from these estimates.

Table of Contents

SMARTKEM, INC.

Notes to the Unaudited Condensed Consolidated Financial Statements

Segment Information

Operating segments are defined as components of an enterprise about which separate discrete information is available for evaluation by the chief operating decision-maker, or decision-making group, in deciding how to allocate resources and in assessing performance. The Company views its operations and manages its business as one operating segment: Semiconductor materials.

Recent Accounting Pronouncements

In December 2023, the FASB issued Accounting Standards Update (ASU) No. 2023-09, Income Taxes (Topic 740), Improvements to Income Tax Disclosures which will require companies to make additional income tax disclosures. The pronouncement is effective for annual filings for the year ended December 31, 2025. The Company is still assessing the impact of the adoption of this standard but does not expect it to have a material impact on its results of operations, financial position or cash flows.

On November 2024, the FASB issued Accounting Standards Update (ASU) No. 2024-03, Income Statement (Topic 220): Reporting Comprehensive Income - Expense Disaggregation Disclosures, Disaggregation of Income Statement Expenses, which requires public companies to disclose, in interim and annual reporting periods, additional information about certain expenses in the financial statements. The amendments in this pronouncement will be effective for annual periods beginning after December 15, 2026, and interim reporting periods beginning after December 15, 2027. Early adoption is permitted and is effective on either a prospective basis or retrospective basis. The Company is currently assessing the potential impacts of adoption on its consolidated financial statements and related disclosures.

3. PREPAID EXPENSES AND OTHER CURRENT ASSETS

Prepaid expenses and other current assets consist of the following:


	March 31,		December 31,
(in thousands)	2025		2024
Prepaid insurance	$	361	$	194
Deferred research & development costs		143		138
Research grant receivable		96		62
Prepaid facility costs		15		67
VAT receivable		326		319
Prepaid software licenses		51		66
Other receivable and other prepaid expenses		99		3
Total prepaid expenses and other current assets	$	1,091	$	849

4. PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment consist of the following:


	March 31,		December 31,
(in thousands)	2025		2024
Plant and equipment	$	1,609	$	1,562
Furniture and fixtures		109		106
Computer hardware and software		102		98
		1,820		1,766
Less: Accumulated depreciation		(1,600)		(1,497)
Property, plant and equipment, net	$	220	$	269

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.

Table of Contents

SMARTKEM, INC.

Notes to the Unaudited Condensed Consolidated Financial Statements

5. ACCOUNTS PAYABLE AND ACCRUED EXPENSES

Accounts payable and accrued expenses consist of the following:


	March 31,		December 31,
(in thousands)	2025		2024
Accounts payable - trade	$	738	$	843
Payroll liabilities		175		397
VAT payable		266		287
Accrued expenses – legal fees		106		—
Accrued expenses – audit & accounting fees		56		106
Accrued expenses – other		98		158
Total accounts payable and accrued expenses	$	1,439	$	1,791

6. LEASES

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

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

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


	Three Months Ended March 31,
(in thousands)	2025		2024
Operating lease cost	$	73	$	65
Short-term lease cost		3		6
Total lease cost	$	76	$	71

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


	Three Months Ended March 31,
(in thousands)	2025		2024
Research and development	$	73	$	65
General and administrative		3		6
Total lease cost	$	76	$	71

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


	March 31,		December 31,
(in thousands)	2025		2024
Assets
Right of use assets - Operating Leases	$	54	$	120
Total lease assets	$	54	$	120

Liabilities
Current liabilities:
Lease liability, current - Operating Leases	$	24	$	47
Noncurrent liabilities:
Lease liability, non-current - Operating Leases		21		25
Total lease liabilities	$	45	$	72

Table of Contents

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:

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


	March 31,
	2025
Weighted average remaining lease term (in years) – operating leases		1.8
Weighted average discount rate – operating leases		10.90%

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


	March 31,
(in thousands)	2025
2025	$	22
2026		22
2027		5
Total undiscounted lease payments		49
Less imputed interest		(4)
Total net lease liabilities	$	45

7. COMMITMENTS AND CONTINGENCIES

Legal proceedings

In the normal course of business, the Company may become involved in legal disputes regarding various litigation matters. In the opinion of management, any potential liabilities resulting from such claims would not have a material effect on the interim condensed consolidated financial statements.

8. STOCKHOLDERS’ EQUITY

Preferred Stock

The board of directors has the authority, without further action by the stockholders, to issue up to 10,000,000 shares of preferred stock in one or more series and to fix the rights, preferences, privileges and restrictions thereof. These rights, preferences, and privileges could include dividend rights, conversion rights, voting rights, redemption rights, liquidation preferences, sinking fund terms, and the number of shares constituting any series or the designation of such series, any or all of which may be greater than the rights of common stock.

Series A-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

Table of Contents

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:

Dividends

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.

Liquidation

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.

Conversion

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

Table of Contents

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.

Redemption

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.

Common Stock

Voting Rights

Each holder of common stock is entitled to one vote for each share on all matters submitted to a vote of the stockholders, including the election of directors. The Company’s 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.

Dividends

The Company has never paid any cash dividends to stockholders and do not anticipate paying any cash dividends to stockholders in the foreseeable future. Any future determination to pay cash dividends will be at the discretion of 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.

Table of Contents

SMARTKEM, INC.

Notes to the Unaudited Condensed Consolidated Financial Statements

Common Stock Warrants

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


					Weighted-
					Average
			Weighted-		Remaining
			Average		Contractual
	Number of	Exercise Price	Exercise		Term
	Shares	per Share	Price		(Years)
Warrants outstanding at January 1, 2025	5,171,430	$0.35 - $70.00	$	4.94	2.26
Issued	—			—
Exercised	—			—
Expired	—			—
Warrants outstanding at March 31, 2025	5,171,430	$0.35 - $70.00	$	4.94	2.02

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


		Weighted-
		Average
	Number of	Exercise
	Shares	Price
Pre-funded warrants outstanding at January 1, 2025	2,318,502	$	0.0064
Issued	—		—
Exercised	—		—
Expired	—		—
Pre-funded warrants outstanding at March 31, 2025	2,318,502	$	0.0064

9. SHARE-BASED COMPENSATION

On February 23, 2021, the Company approved the 2021 Equity Incentive Plan (“2021 Plan”), in which a maximum aggregate number of shares of common stock that may be issued under the 2021 Plan is 65,000 shares. Subject to the adjustment provisions of the 2021 Plan, the number of shares of the Company’s common stock available for issuance under the 2021 Plan will also include an annual increase on the first day of each fiscal year beginning with 2022 fiscal year and ending on the Company’s 2031 fiscal year in an amount equal to the least of: 1) 65,000 shares of the Company’s common stock; 2) four percent (4%) of the outstanding shares of the Company’s common stock on the last day of the immediately preceding fiscal year; or 3) such number of shares of the Company’s common stock as the administrator may determine.

At the 2023 Annual Meeting, the Company’s stockholders approved an amendment (the “2021 Plan Amendment”) to the Company’s 2021 Plan, increasing the number of the shares of common stock reserved for issuance under the 2021 Plan from 125,045 shares to 743,106 shares. The Company’s Board of Directors had previously approved the 2021 Plan Amendment, subject to stockholder approval.

Determining the appropriate fair value of share-based awards requires the input of subjective assumptions, including the fair value of the Company’s common stock, and for share options, the expected life of the option, and expected share price volatility. The Company uses the Black-Scholes option pricing model to value its share option awards. The assumptions used in calculating the fair value of share-based awards represent management’s best estimates and involve inherent uncertainties and the application of management’s judgment. As a result, if factors change and management uses different assumptions, the share-based compensation expense could be materially different for future awards.

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

Table of Contents

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:


				Weighted-
				Average
		Weighted-		Remaining	Weighted-		Aggregate
		Average		Contractual	Average		Intrinsic
	Number of	Exercise		Term	Fair Value at		Value
	Shares	Price		(Years)	Grant Date		(in thousands)
Options outstanding at January 1, 2025	619,910	$	12.31	9.06	$	3.54
Granted	—		—
Exercised	—		—
Cancelled/Forfeited	(8,002)		10.48
Expired	—		—
Options outstanding at March 31, 2025	611,908	$	12.33	8.93	$	3.56
Options exercisable at March 31, 2025	303,353	$	16.32	8.70			$	20.75

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


	Three Months Ended March 31,
(in thousands)	2025		2024
Research and development	$	72	$	42
General and administration		178		65
Total	$	250	$	107

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

10. BASIC AND DILUTED LOSS PER SHARE

Basic net loss per share is determined by dividing net loss by the weighted average shares of common stock outstanding during the period, without consideration of potentially dilutive securities, except for those shares that are issuable for little or no cash consideration. Diluted net loss per share is determined by dividing net loss by diluted weighted average shares outstanding. Diluted weighted average shares reflects the dilutive effect, if any, of potentially dilutive common shares, such as stock options and warrants calculated using the treasury stock method. In periods with reported net operating losses, all common stock options and warrants are generally deemed anti-dilutive such that basic net loss per share and diluted net loss per share are equal.

The following potentially dilutive securities were excluded from the computation of earnings per share as of March 31, 2025 and 2024 because their effects would be anti-dilutive:


	March 31,
	2025		2024
Common stock warrants		4,450,324		3,330,186
Assumed conversion of preferred stock		1,973,200		410,587
Stock options		611,908		69,920
Total		7,035,432		3,810,693

Table of Contents

SMARTKEM, INC.

Notes to the Unaudited Condensed Consolidated Financial Statements

11. DEFINED CONTRIBUTION PENSION

The Company operates a defined contribution pension scheme for its UK employees. The assets of the scheme are held separately from those of the Company in an independently administered fund. The pension cost charge represents contributions payable by the Company to the fund. Pension cost is included in the unaudited interim condensed consolidated statements of operations as follows:


	Three Months Ended March 31,
(in thousands)	2025		2024
Research and development	$	21	$	21
General and administration		20		16
Total	$	41	$	37

12. SEGMENT REPORTING

We manage our business activities on a consolidated basis and operate as a single operating segment: Semiconductor materials. Our revenue is mostly generated from R&D grants and R&D tax credits. The accounting policies of the semiconductor materials are the same as those described in Note 2 – Summary of Significant Accounting Policies.

Our CODM is our Chief Executive Officer and President, Ian Jenks. The CODM uses Net 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 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,
	2025		2024
Revenue	$	23	$	-
Cost of revenue		1		-
Gross profit		22		-
Other operating income		251		202
Operating expenses
Research and development		1,497		1,276
General and administrative		2,009		1,362
(Gain)/loss on foreign currency transactions		(95)		13
Total operating expenses		3,411		2,651
Loss from operations		(3,138)		(2,449)
Total non-operating income/(expense)		979		753
Loss before income taxes		(2,159)		(1,696)
Income tax refund		25		-
Net loss	$	(2,134)	$	(1,696)

13. 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. 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.

Table of Contents

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.

Warrant Exercises

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

Table of Contents

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of the financial condition and results of operations of SmartKem, Inc. (“SmartKem” or the “Company”) should be read in conjunction with the unaudited interim condensed consolidated financial statements and notes thereto contained in Item 1 of Part I of this Quarterly Report on Form 10-Q and 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 to provide an understanding of its results of operations, financial condition and cash flows.

All references in this Quarterly Report to “we,” “our,” “us” and the “Company” refer to SmartKem, Inc., and its subsidiaries unless the context indicates otherwise.

DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains certain “forward-looking statements” within the meaning of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995 with respect to our business, financial condition, liquidity, and results of operations. Words such as “anticipates,” “expects,” “intends,” “plans,” “predicts,” “believes,” “seeks,” “estimates,” “could,” “would,” “will,” “may,” “can,” “continue,” “potential,” “should,” and the negative of these terms or other comparable terminology often identify forward-looking statements. Statements in this Quarterly Report on Form 10-Q (this “Report”) that are not historical facts are hereby identified as “forward-looking statements” for the purpose of the safe harbor provided by Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and Section 27A of the Securities Act of 1933, as amended (the “Securities Act”). These forward-looking statements are not guarantees of future performance and are subject to risks and uncertainties that could cause actual results to differ materially from the results contemplated by the forward-looking statements, including the risks discussed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2024 (the “10-K”) in Item 1A under “Risk Factors” and the risks detailed from time to time in our future reports filed with the Securities and Exchange Commission (the “SEC”). These forward-looking statements include, but are not limited to, statements about:

●

the implementation of our business model and strategic plans for our business, technologies and products;

●

the rate and degree of market acceptance of any of our products or organic semiconductor technology in

general, including changes due to the impact of (i) new semiconductor technologies, including MicroLED technology, (ii) the performance of organic semiconductor technology, whether perceived or actual, relative to competing semiconductor materials, and (iii) the performance of our products, whether perceived or actual, compared to competing silicon-based and other products;

●

the timing and success of our, and our customers’, product releases;

●

our ability to develop new products and technologies;

●

our ability to meet management goals;

●

our ability to maintain compliance with the continued listing requirements of The Nasdaq Stock Market LLC (“Nasdaq”);

●

our estimates of our expenses, ongoing losses, future revenue and capital requirements, including

our needs for additional financing;

●

our ability to obtain additional funds for our operations and our intended use of any such funds;

●

our ability to remain eligible on an over-the-counter quotation system;

●

our receipt and timing of any royalties, milestone payments or payments for products, under any current or future collaboration, license or other agreements or arrangements;

●

our ability to obtain and maintain intellectual property protection for our technologies and products and our ability to operate our business without infringing the intellectual property rights of others;

●

the strength and marketability of our intellectual property portfolio;

●

our dependence on current and future collaborators for developing, manufacturing or otherwise bringing our products to market;

●

the ability of our third-party supply and manufacturing partners to meet our current and future business needs;

●

our exposure to risks related to international operations;

●

our dependence on third-party fabrication facilities;

Table of Contents

●

our relationships with our executive officers, directors, and significant stockholders;

●

our expectations regarding our classification as a “smaller reporting company,” as defined under the Exchange Act, and an “emerging growth company” under the Jumpstart Our Business Startups Act (the “JOBS Act”) in future periods;

●

our future financial performance;

●

the competitive landscape of our industry;

●

the impact of government regulation and developments relating to us, our competitors, or our industry; and

●

other risks and uncertainties, including those listed under the caption “Risk Factors” in our 10-K.

These statements relate to future events or our future operational or financial performance, and involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by these forward-looking statements. Factors that may cause actual results to differ materially from current expectations include, among other things, those listed under “Risk Factors” in our 10-K and in this Report and elsewhere in this Report.

Any forward-looking statement in this Report reflects our current view with respect to future events and is subject to these and other risks, uncertainties and assumptions relating to our business, results of operations, industry and future growth. Given these uncertainties, you should not place undue reliance on these forward-looking statements. No forward-looking statement is a guarantee of future performance. You should read this Report and the documents that we reference in this Report and have filed with the SEC as exhibits hereto completely and with the understanding that our actual future results may be materially different from any future results expressed or implied by these forward-looking statements. Except as required by law, we assume no obligation to update or revise these forward-looking statements for any reason, even if new information becomes available in the future.

Company Overview

Since our inception in 2009, we have devoted substantial resources to the research and development of materials and production processes for the manufacture of organic thin film transistors and the enhancement of our intellectual property.

Our loss before income taxes was $2.1 million and $1.7 million for the three months ended March 31, 2025 and 2024. As of March 31, 2025, our accumulated deficit was $116.8 million. Substantially all our operating losses have resulted from expenses incurred in connection with research and development activities and from general and administrative costs associated with our operations.

Table of Contents

Results of Operations for the three months ended March 31, 2025

Three months ended March 31, 2025 compared with three months ended March 31, 2024

Revenue and Cost of revenue

We had revenue of $23.0 thousand and cost of revenue of $1.0 thousand in the three months ended March 31, 2025. We had no revenue or cost of revenue in the same period of 2024. Both revenue and related cost of revenue for the three months ended March 31, 2025 are a result of sales of OTFT backplanes and TRUFLEX® materials for customer assessment and development purposes.

Other operating income

Other operating income was $0.3 million in the three months ended March 31, 2025, compared to $0.2 million in the same period of 2024. The primary source of other operating income is related to a research grant and research and development tax credits.

Operating expenses

Operating expenses were $3.4 million for the three months ended March 31, 2025 compared to $2.7 million for the three months ended March 31, 2024.

Research and development expenses are incurred for the development and process validation for TRUFLEX inks to make OTFT circuits, OTFT based display concepts integrating novel display technology, and provide dielectric solutions for packaging applications. The expenses consist primarily of payroll, technical facilities overheads, and development consumables costs. The research and development expenses represent 43.9% and 48.1% of the total operating expenses for the three months ended March 31, 2025 and 2024, respectively. Research and development expenses increased $0.2 million for the three months ended March 31, 2025 compared to the same period for the prior year. This increase primarily resulted from higher personnel expenses.

General and administrative expenses consist primarily of payroll and professional services such as investor relations, accounting and legal services. These expenses represent 58.9% and 51.4% of our total operating expenses for the three months ended March 31, 2025 and 2024, respectively. Selling, general and administrative expenses increased by $0.6 million for the three months ended March 31, 2025 compared to the same period for the prior year. This increase primarily resulted from an increase in personnel expenses as well as professional service fees primarily related to legal fees and investor relation activities.

Non-Operating income/(expense)

Non-operating income of $0.8 million for the three months ended March 31, 2024 resulted primarily from the revaluation of our warrant liability. Because of changes in certain of our warrants that occurred as a result of the listing of our common stock on the Nasdaq Capital Market on May 31, 2024, those warrants were accounted for as an equity instrument beginning on that date and as a result there was no similar gain or loss in the same period of 2025. We recorded a gain on foreign currency of $1.0 million for the three months ended March 31, 2025, with no similar gain or loss in the same period of 2024.

Liquidity and Capital Resources

As of March 31, 2025, our cash and cash equivalents were $3.9 million compared with $7.1 million as of December 31, 2024. We believe our cash balance at March 31, 2025 will not be sufficient to fund our operating expenses and capital expenditure requirements for the 12 months from the issuance of these financial statements and that we will require additional capital funding to continue our operations and research development activity. It is possible this period could be shortened if there are any significant increases in spending or more rapid progress of development programs than anticipated.

Our expected cash payments over the next twelve months include (a) $1.4 million to satisfy accounts payable and accrued expenses and (b) $24 thousand to satisfy the lease liabilities. Additional expected cash payments beyond the next twelve months include $21 thousand of lease liabilities.

Table of Contents

Our future viability is dependent on our ability to raise additional capital to fund our operations. We will need to obtain additional funds to satisfy our operational needs and to fund our sales and marketing efforts, research and development expenditures, and business development activities. Until such time, if ever, as we can generate sufficient cash through revenue, management’s plans are to finance our working capital requirements through a combination of equity offerings, debt financings, collaborations, strategic alliances and marketing, distribution or licensing arrangements. If we raise additional funds by issuing equity securities, our existing security holders will likely experience dilution. If we borrow money, the incurrence of indebtedness would result in increased debt service obligations and could require us to agree to operating and financial covenants that could restrict our operations. If we enter into a collaboration, strategic alliance or other similar arrangement, we may be forced to give up valuable rights. There can be no assurance however that such financing will be available in sufficient amounts, when and if needed, on acceptable terms or at all. The precise amount and timing of the funding needs cannot be determined accurately at this time, and will depend on a number of factors, including the market demand for our 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 we are unable to substantially increase revenues, reduce expenditures, or otherwise generate cash flows for operations, then we will need to raise additional funding.

Cash Flow

Net cash used in operating activities was $3.3 million for the three months ended March 31, 2025, compared to $1.6 million for the three months ended March 31, 2024, an increase of $1.7 million. The increase is related to the payout of bonuses and payments made related to business development initiatives. During the three months ended March 31, 2025, we had no cash flows from investing or financing activities.

Contractual Payment Obligations

Our principal commitments primarily consist of obligations under leases for office space and purchase commitments in the normal course of business for research and development facilities and services, communications infrastructure, and administrative services. We expect to fund these commitments from our cash balances and working capital.

Critical Accounting Estimates

We prepare our consolidated financial statements in accordance with U.S. generally accepted accounting principles (“GAAP”), which require our management to make estimates that affect the reported amounts of assets, liabilities and disclosures of contingent assets and liabilities at the balance sheet dates, as well as the reported amounts of revenues and expenses during the reporting periods. To the extent that there are material differences between these estimates and actual results, our financial condition or results of operations would be affected. We base our estimates on our own historical experience and other assumptions that we believe are reasonable after taking account of our circumstances and expectations for the future based on available information. We evaluate these estimates on an ongoing basis.

We consider an accounting estimate to be critical if: (i) the accounting estimate requires us to make assumptions about matters that were highly uncertain at the time the accounting estimate was made, and (ii) changes in the estimate that are reasonably likely to occur from period to period or use of different estimates that we reasonably could have used in the current period, would have a material impact on our financial condition or results of operations.

Management has discussed the development and selection of these critical accounting estimates with the Audit Committee of our Board of Directors. In addition, there are other items within our financial statements that require estimation but are not deemed critical as defined above. Changes in estimates used in these and other items could have a material impact on our financial statements.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Not applicable.

Table of Contents

Item 4. Controls and Procedures

Inherent Limitations on Effectiveness of Controls

Our management, including our principal executive officer and principal financial officer, does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent or detect all errors and all fraud. A control system, no matter how well-designed and operated, can provide only reasonable, not absolute, assurance that the control system's objectives will be met. The design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Further, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, have been detected.

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in reports filed or submitted under the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms and that such information is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosures.

Our management, with the participation of its Chief Executive Officer and Chief Financial Officer, performed an evaluation of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) or 15d-15(e) of the Exchange Act). Based upon, and as of the date of, this evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of March 31, 2025.

Changes in Internal Controls over Financial Reporting

There were no other changes in our internal control over financial reporting identified in connection with the evaluation required by Rule 13a-15(d) and 15d-15(d) of the Exchange Act) that occurred during the period covered by this Report that have materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Table of Contents

PART II — OTHER INFORMATION

Item 1. Legal Proceedings

None

Item 1A. Risk Factors

In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in the 10-K, which could materially affect our business, financial condition or future results. The risks described in the 10-K may not be the only risks facing us. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.

There have been no material changes to the risk factors previously disclosed in the 10-K.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

On January 1, 2025, we issued 10,000 shares of common stock to a vendor with a value of $29,000. Such issuance was exempt from registration under 4(a)(2) of the Securities Act and Regulation D promulgated thereunder.

On February 3, 2025, we issued 10,000 shares of common stock to a vendor with a value of $30,200. Such issuance was exempt from registration under 4(a)(2) of the Securities Act and Regulation D promulgated thereunder.

On March 3, 2025, we issued 10,000 shares of common stock to a vendor with a value of $25,900. Such issuance was exempt from registration under 4(a)(2) of the Securities Act and Regulation D promulgated thereunder.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not Applicable.

Item 5. Other Information

None of the Company’s directors and officers adopted, modified, or terminated a Rule 10b5-1 trading arrangement or a non-Rule 10b5-1 trading arrangement during the Company's fiscal quarter ended March 31, 2025 (each as defined in Item 408 of Regulation S-K under the Securities Exchange Act of 1934, as amended).

Item 6. Exhibits

See Exhibit Index.

Table of Contents

EXHIBIT INDEX


Exhibit No.	Description

2.1 *	Share Exchange Agreement, dated as of February 23, 2021, among the Registrant, SmartKem Limited and the shareholders of SmartKem Limited (incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K filed on February 24, 2021)

3.1†	Amended and Restated Certificate of Incorporation of the Registrant, as amended to date

3.2	Amended and Restated Bylaws of the Registrant, as currently in effect (incorporated by reference to Exhibit 3.4 to the Company’s Current Report on Form 8-K filed on February 24, 2021)

10.1#	Employment Agreement, dated as of March 10, 2025, by and between SmartKem Limited and Jonathan Watkins (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on March 10, 2025)

10.2**	Letter of Variation, dated March 28, 2025, by and between SmartKem Limited and CPI Innovation Services Limited (incorporated by reference to Exhibit 10.31 of the Company’s Annual Report on Form 10-K filed on March 31, 2025)

10.3*	License of Office Space, dated March 28, 2025, by and between SmartKem Limited and CPI Innovation Services Limited (incorporated by reference to Exhibit 10.32 of the Company’s Annual Report on Form 10-K filed on March 31, 2025)

31.1†	Certification of Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2†	Certification of Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1††	Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2††	Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101.INS†	Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document

101.SCH†	Inline XBRL Taxonomy Extension Schema Document

101.CAL†	Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF†	Inline XBRL Taxonomy Extension Definition Linkbase Document

101.LAB†	Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE†	Inline XBRL Taxonomy Extension Presentation Linkbase Document

104†	Cover Page Interactive Data File (formatted in Inline XBRL and contained in Exhibit 101)

* Annexes, schedules and/or exhibits have been omitted pursuant to Item 601(a)(5) of Regulation S-K. The Registrant hereby undertakes to furnish supplementally a copy of any of the omitted schedules and exhibits to the SEC on a confidential basis upon request.

** Portions of the exhibit, marked by brackets, have been omitted because the omitted information (i) is not material and (ii) is of the type the registrant customarily and actually treats as private or confidential. The Registrant hereby undertakes to furnish supplementally a copy of any of the omitted schedules and exhibits to the SEC on a confidential basis upon request.

# Indicates management contract or compensatory plan.

† Filed herewith.

†† This certification is not deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, or otherwise subject to the liability of that section. Such certification will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, except to the extent that the registrant specifically incorporates it by reference.

Table of Contents

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, duly authorized.

Date: May 13, 2025

	SMARTKEM, INC.

	By:	/s/ Ian Jenks
	Name:	Ian Jenks
	Title:	Chief Executive Officer and Chairman of the Board
		(Principal Executive Officer)

	By:	/s/ Barbra C. Keck
	Name:	Barbra C. Keck
	Title:	Chief Financial Officer
		(Principal Financial Officer)

Get the next $SMTK alert in real time by email

March 31,

(in thousands)

Operating cash outflows from operating leases