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 June 30, 2023 or ☐ 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: 000-56181 SmartKem, Inc. (Exact name of registrant as specified in its charter) | --- | --- | --- | --- | |------- ...

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, 2023 or ☐ 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: 000-56181 SmartKem, Inc. (Exact name of registrant as specified in its charter) | --- | --- | --- | --- | |------ ...

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) ☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2022 or ☐ 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: 000-56181 SmartKem, Inc. (Exact name of registrant as specified in its charter) Delaware 85-1083654 (State or other ju ...

Revenue and Expenses - Revenue for the three months ended September 30, 2022, was $26 thousand, a 100% increase compared to none in the same period of 2021[137]. - Cost of revenue for the same period was also $26 thousand, reflecting a 100% increase from none in the prior year[138]. - Other operating income decreased by $170 thousand, or 38%, to $277 thousand in Q3 2022, primarily due to lower research and development tax credits[139]. - Total operating expenses for Q3 2022 were $2.738 million, a slight increase of $14 thousand, or 1%, compared to $2.724 million in Q3 2021[140]. - Research and development expenses were $1.346 million, representing 49% of total operating expenses, a decrease of $10 thousand from the previous year[141]. - Selling, general and administrative expenses remained at $1.392 million, accounting for 51% of total operating expenses, with a 2% increase compared to the prior year[142]. - Loss from operations for Q3 2022 was $2.461 million, an increase of $184 thousand, or 8%, from a loss of $2.277 million in Q3 2021[135]. - For the three months ended September 30, 2022, the net loss was $3.95 million, an increase of 48% compared to a net loss of $2.66 million in the same period of 2021[143]. - Non-operating expenses increased by $1.1 million, or 288%, to $1.5 million for the three months ended September 30, 2022, primarily due to higher losses on foreign currency transactions[143]. - Revenue for the nine months ended September 30, 2022, was $60 thousand, compared to none in the same period of 2021, resulting from sales of OTFT backplanes and TRUFLEX® materials[146]. - Total operating expenses decreased by $6.6 million, or 45%, to $8.15 million for the nine months ended September 30, 2022, compared to $14.75 million for the same period in 2021[150]. - Research and development expenses decreased by $2.6 million to $4.15 million for the nine months ended September 30, 2022, representing 51% of total operating expenses[151]. - Selling, general and administrative expenses decreased by $2.7 million to $4.00 million for the nine months ended September 30, 2022, representing 49% of total operating expenses[152]. Cash Flow and Financing - Net cash used in operating activities was $6.83 million for the nine months ended September 30, 2022, a decrease of 6% compared to $7.30 million for the same period in 2021[162]. - As of September 30, 2022, cash and cash equivalents were $6.3 million, down from $12.2 million as of December 31, 2021[156]. - Net cash provided by financing activities was $1.83 million for the nine months ended September 30, 2022, a decrease of 92% compared to $22.2 million in the same period of 2021[164]. - The company anticipates requiring additional capital funding to continue operations and research and development activities beyond April 2023[157]. - As of September 30, 2022, the company had $6.3 million in cash after incurring $6.8 million in net cash used in operations for the nine-month period[169]. - The company raised net proceeds of $1.8 million through the sale of common stock during the nine months ended September 30, 2022[169]. - The total operating lease liabilities for the years 2022 to 2025 amount to $518,000, with $66,000 due in 2022 and $218,000 in 2023[166]. - The company has total purchase obligations of $770,000, with $227,000 due in 2022 and $486,000 in 2023[166]. - The company expects to require additional capital funding to continue operations and research and development activities after April 2023[170]. - There is no assurance that financing will be available by April 2023 or on acceptable terms, which may impact future operations[171]. - The company is exploring financing options through equity offerings, debt financings, and strategic alliances to meet capital needs[172]. - If unable to secure additional financing, the company may have to delay or reduce research and development programs[173]. Company Outlook and Operations - The accumulated deficit as of September 30, 2022, was $85.5 million, with substantial losses attributed to research and development and administrative costs[124]. - The company has an extensive intellectual property portfolio with approximately 120 issued patents, supporting its competitive position in the market[122]. - The company is focused on developing organic thin-film transistor technology for applications in displays and sensors, which is expected to drive future growth[125]. - The financial statements are prepared on a going concern basis, indicating the company anticipates continuing operations despite uncertainties[174]. - The company has elected to use the extended transition period under the JOBS Act for compliance with new accounting standards[176].

Revenue and Income - For the three months ended June 30, 2022, revenue was $4 thousand, a 100% increase compared to none in the same period of 2021[138]. - Revenue for the six months ended June 30, 2022 was $34 thousand, compared to none in the same period of 2021, resulting from sales of TRUFLEX® materials[148]. - Other operating income increased by $38 thousand, or 15%, to $294 thousand for the three months ended June 30, 2022, primarily due to higher research and development tax credits[139]. Expenses - The cost of revenue for the same period was $2 thousand, also a 100% increase from none in the prior year[138]. - Total operating expenses were $2.7 million for the three months ended June 30, 2022, consistent with the equivalent period of 2021[140]. - Research and development expenses remained at $1.3 million, representing 50% of total operating expenses for both periods[141]. - Selling, general and administrative expenses also remained at $1.4 million, accounting for 50% of total operating expenses for both periods[142]. - Total operating expenses decreased by $6.6 million, or 55%, to $5.4 million for the six months ended June 30, 2022, compared to $12.0 million for the same period in 2021[150]. - Research and development expenses decreased by $2.6 million to $2.8 million for the six months ended June 30, 2022, primarily due to a decrease in stock compensation expense[151]. - Selling, general and administrative expenses decreased by $2.7 million to $2.6 million for the six months ended June 30, 2022, mainly due to a decrease in stock compensation expense[152]. Losses and Deficits - The loss before income taxes was $3.7 million for the three months ended June 30, 2022, compared to $2.4 million for the same period in 2021[124]. - For the three months ended June 30, 2022, the net loss was $3.7 million, an increase of $1.3 million or 54% compared to a net loss of $2.4 million for the same period in 2021[146]. - The accumulated deficit as of June 30, 2022, was $81.5 million, primarily due to research and development and general administrative costs[124]. - The company has experienced recurring losses since inception and expects to incur additional losses in the future related to research and development activities[171]. Cash Flow and Financing - Cash and cash equivalents as of June 30, 2022 were $7.8 million, down from $12.2 million as of December 31, 2021[159]. - Net cash used in operating activities was $5.6 million for the six months ended June 30, 2022, a decrease of $0.4 million, or 6%, compared to the same period in 2021[164]. - Net cash provided by financing activities was $1.8 million for the six months ended June 30, 2022, a decrease of $20.4 million, or 92%, compared to $22.2 million in the same period of 2021[167]. - The company believes existing cash will be sufficient to fund operations through April 2023, but additional capital will be required thereafter[160]. - In the six months ended June 30, 2022, the company raised net proceeds of $1.8 million through the sale of common stock[172]. - As of June 30, 2022, the company had $7.8 million in cash after funding net cash used in operations of $5.6 million for the six-month period, with $2.4 million used in operations for the three months ended June 30, 2022[172]. - The company is assessing options for financing working capital requirements through equity offerings, debt financings, collaborations, and strategic alliances[176]. - If unable to obtain additional financing, the company may have to delay, reduce, or eliminate research and development programs and product portfolio expansion[177]. Accounting and Financial Reporting - The financial statements are prepared on a going concern basis, indicating the expectation of realizing assets and satisfying liabilities in the normal course of business[171]. - There were no material changes to critical accounting policies or estimates during the three and six months ended June 30, 2022[170]. - The company has elected to use the extended transition period under the JOBS Act for complying with new or revised accounting standards[179]. - Foreign exchange did not have a significant impact on reported USD amounts for the three and six-month periods ended June 30, 2022[178]. Intellectual Property and Development - The company has an extensive intellectual property portfolio with approximately 120 issued patents[122]. - A joint development agreement was established with Nanosys Inc. to work on low-cost solution printed micro-LED and quantum dot materials for advanced displays[126].

Revenue and Profit - Revenue for the three months ended March 31, 2022, was $30 thousand, a 100% increase compared to none in the same period of 2021[130] - Cost of revenue for the same period was $23 thousand, also a 100% increase from none in the prior year[130] - Gross profit for the three months ended March 31, 2022, was $7 thousand, marking a 100% increase from none in the same period of 2021[130] Operating Expenses - Total operating expenses decreased by $6.6 million, or 71%, to $2.7 million for the three months ended March 31, 2022, compared to $9.3 million in 2021[132] - Research and development expenses decreased by $2.6 million to $1.5 million for the quarter, representing 54% of total operating expenses[133] - Selling, general and administrative expenses decreased by $2.7 million to $1.2 million for the quarter, representing 46% of total operating expenses[134] - Other operating income was $284 thousand in the three months ended March 31, 2022, a decrease of $149 thousand, or 34%, from $433 thousand in the same period of 2021[131] Net Loss and Deficit - For the three months ended March 31, 2022, the net loss was $2.8 million, a decrease of $6.6 million, or 71%, compared to a net loss of $9.4 million for the same period in 2021[137] - The accumulated deficit as of March 31, 2022, was $77.8 million, primarily due to research and development expenses and general administrative costs[118] Cash Flow and Financing - Cash and cash equivalents as of March 31, 2022, were $10.6 million, down from $12.2 million as of December 31, 2021[138] - Net cash used in operating activities was $3.6 million for the three months ended March 31, 2022, compared to $3.7 million for the same period in 2021, a decrease of $172 thousand, or 5%[143] - Net cash provided by financing activities was $1.8 million for the three months ended March 31, 2022, a decrease of $20.4 million, or 92%, compared to $22.2 million in the first quarter of 2021[145] - The company raised net proceeds of $1.8 million through the sale of common stock in the three months ended March 31, 2022[150] - The company expects existing cash will be sufficient to fund operations through April 2023, but additional capital will be required thereafter[139] - The company is assessing options for financing working capital requirements through equity offerings, debt financings, and strategic alliances[141] Non-Operating Expenses - Non-operating expenses decreased by $135 thousand, or 28%, to $354 thousand for the three months ended March 31, 2022, compared to $489 thousand for the same period in 2021[136] - The company incurred transaction costs of $1.3 million associated with the Exchange during the three-month period ended March 31, 2021[135] Future Outlook - The company has experienced recurring losses since inception and expects to incur additional losses in the future related to research and development activities[149] - The company entered into a joint development agreement with Nanosys Inc. in February 2022 to develop low-cost solution printed micro-LED and quantum dot materials[120] - The company has an extensive intellectual property portfolio, including approximately 120 issued patents[116]

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) ☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2021 or ☐ 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: 000-56181 SmartKem, Inc. (Exact name of registrant as specified in its charter) Delaware 85-1083654 (State or other ju ...

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 September 30, 2021 or ☐ 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: 000-56181 SmartKem, Inc. (Exact name of registrant as specified in its charter) Delaware 85-1083654 (State or ...

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 June 30, 2021 or ☐ 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: 000-56181 SmartKem, Inc. (Exact name of registrant as specified in its charter) Delaware 85-1083654 (State or othe ...

Financial Performance - For the three months ended March 31, 2021, the company reported a loss before income taxes of $9.4 million, compared to a loss of $20.0 million for the same period in 2020, indicating a 53% improvement in losses year-over-year[143]. - Company reported no revenue for the three months ended March 31, 2021, a 100% decrease compared to $20.8 million in the same period of 2020[169]. - The net loss was $9.4 million for the three months ended March 31, 2021, a decrease of $10.6 million compared to a net loss of $20.0 million for the same period in 2020[180]. - Other operating income increased by $241 thousand, or 125%, to $433 thousand for the three months ended March 31, 2021, compared to $192 thousand for the same period in 2020[170]. - Total operating expenses increased by $7.7 million, or 468%, to $9.3 million for the three months ended March 31, 2021, compared to $1.6 million for the same period in 2020[171]. Research and Development - As of March 31, 2021, the company's accumulated deficit stood at $67.3 million, reflecting ongoing investments in research and development[143]. - The company expects to continue incurring significant expenses and operating losses in the foreseeable future, driven by increased research and development activities and operational growth[144]. - Research and development expenses rose by $2.9 million, or 261%, to $4.0 million for the three months ended March 31, 2021, representing 43% of total operating expenses[172]. - The competitive landscape is intense, with the company investing in research and development to enhance product performance and reduce costs[153]. - SmartKem has experienced recurring losses since inception and expects to incur additional losses in the future related to research and development activities[196]. Financial Position and Cash Flow - Cash and cash equivalents as of March 31, 2021, were $19.2 million, with a net cash provided by financing activities of $22.2 million during the same period[182][185]. - Company expects cash and net proceeds from the Offering to support operations through the first half of 2023, but will need additional funds for operational needs and business development[186]. - As of March 31, 2021, SmartKem raised net proceeds of $22.2 million and had $19.2 million in cash after funding net cash used in operations of $3.7 million for the three-month period[197]. Operational Insights - The company’s revenue currently consists solely of sales from demonstration products, indicating a focus on product development and market entry[158]. - The company anticipates that its cost of goods sold will increase proportionately with revenue, while fixed product costs are expected to remain flat or increase moderately[159]. - The company’s growth potential is significantly tied to the adoption of OTFT materials in display and sensor markets, which may fluctuate based on market cycles and competitive dynamics[152]. Governance and Compliance - The company is currently addressing material weaknesses in internal controls over financial reporting, including recruiting additional finance personnel and implementing access restrictions[200]. - SmartKem's financial statements are prepared on a going concern basis, indicating sufficient liquidity to meet obligations for at least the next 12 months[198]. - SmartKem's disclosure controls and procedures were deemed not effective as of the end of the reporting period[206]. - The company has agreed to certain covenants under the Facility Agreement, restricting additional indebtedness and asset disposals[190]. - SmartKem has elected to use the extended transition period under the JOBS Act for compliance with new accounting standards[202]. Intellectual Property - The company emphasizes the importance of intellectual property protection, with a strong patent portfolio and no known litigation threats, although such issues could arise[157]. Financing Activities - Following the Share Exchange Agreement with SmartKem Limited, the company raised approximately $24.6 million through a private placement offering, selling 10,162,000 shares of common stock and pre-funded warrants[151]. - SmartKem entered into a secured term loan facility of $738,000 with a monthly interest rate of 1.25%[190]. - A Change of Control event occurred, leading to the repayment of amounts outstanding under the Facility Agreement before the ten business day period ended[191]. - The company has no off-balance sheet financing arrangements or relationships with unconsolidated entities[192]. Currency Transactions - Loss on foreign currency transactions was $470 thousand for the three months ended March 31, 2021, compared to $2 thousand for the same period in 2020, an increase of $468 thousand[175].