Exhibit 99.1 PRESS RELEASE Smartkem Reports Second Quarter 2024 Financial Results Manchester, England – Monday, August 12, 2024 – Smartkem (Nasdaq: SMTK), a company that has the potential to power the next generation of displays using its disruptive organic thin-film transistors (OTFTs), today provides a business update and reports financial results for the three and six months ended June 30, 2024. Recent Business Highlights During Q1 and Q2 2024, Smartkem: · Announced that it had uplisted to The Nasdaq Sto ...

Part I [Business](index=8&type=section&id=Item%201.%20Business) SmartKem is a development-stage company focused on its proprietary TRUFLEX® organic thin-film transistor (OTFT) technology for low-temperature manufacturing of flexible displays - The company's core technology is its patented TRUFLEX® organic thin-film transistors (OTFTs), which are electronic polymers designed to enable low-temperature (as low as **80°C**) manufacturing of flexible, low-cost displays[11](index=11&type=chunk)[15](index=15&type=chunk) - A key technological breakthrough is the monolithic integration of OTFT backplanes directly on top of GaN mini/microLED arrays, simplifying manufacturing by eliminating complex mass transfer and laser welding steps, potentially increasing yield and efficiency[15](index=15&type=chunk)[28](index=28&type=chunk)[30](index=30&type=chunk) - The commercialization strategy is based on three pillars: 1) Continuous development of polymer materials, 2) Development of Electronic Design Automation (EDA) tools for circuit design, and 3) Development of robust commercial manufacturing processes with partners like ITRI in Taiwan[34](index=34&type=chunk) - The company has an extensive intellectual property portfolio, including **125 granted patents** across **19 patent families**, **15 pending patents**, and **40 codified trade secrets**, covering materials, formulations, and processes[12](index=12&type=chunk)[71](index=71&type=chunk) - SmartKem has entered into several key joint development and technology transfer agreements with partners including RiTdisplay, ITRI, and Tianma Microelectronics to develop and commercialize its technology for AMOLED displays, miniLEDs, and microarray biochips[64](index=64&type=chunk)[65](index=65&type=chunk)[66](index=66&type=chunk) - The company anticipates a long and resource-intensive sales cycle of approximately **12-24 months**, from initial customer evaluation to a potential sales agreement, requiring significant upfront expense without assurance of a final order[48](index=48&type=chunk) [Risk Factors](index=32&type=section&id=Item%201A.%20Risk%20Factors) The company faces substantial risks, highlighted by a history of significant financial losses and the need for future capital to sustain operations - The company has a history of substantial net losses, with an accumulated deficit of **$95.1 million** as of December 31, 2023, and anticipates continued operating losses, requiring additional capital to fund operations beyond April 2025[98](index=98&type=chunk)[100](index=100&type=chunk)[101](index=101&type=chunk) - SmartKem relies on third-party facilities, specifically the Centre for Process Innovation (CPI) and the Industrial Technology Research Institute (ITRI), for prototype fabrication and process development, and will depend on other third-party fabricators for commercial-scale manufacturing, where loss of access could materially harm business development[115](index=115&type=chunk)[116](index=116&type=chunk) - The terms of the June 2023 private placement (PIPE) impose significant restrictions on operations, including limits on cash use from operating activities and constraints on future capital raises, which may hinder the company's ability to pursue business opportunities or obtain financing on favorable terms[174](index=174&type=chunk)[175](index=175&type=chunk)[177](index=177&type=chunk) - The company's common stock is designated as a "penny stock," which subjects it to regulations that can limit liquidity, make it difficult for brokers to recommend, and may result in less trading activity[199](index=199&type=chunk) - A material weakness in internal control over financial reporting was identified in Q2 2023 related to the accounting for the June 2023 PIPE financing, and although management has implemented remediation measures, failure to maintain effective controls could harm financial reporting and investor confidence[171](index=171&type=chunk)[172](index=172&type=chunk) - The company faces political and operational risks from conducting business in Taiwan, where key partners like ITRI are located, due to the tense relationship between Taiwan and China[139](index=139&type=chunk)[140](index=140&type=chunk) [Unresolved Staff Comments](index=72&type=section&id=Item%201B.%20Unresolved%20Staff%20Comments) The company reports that there are no unresolved staff comments - Not Applicable[224](index=224&type=chunk) [Cybersecurity](index=72&type=section&id=Item%201C.%20Cybersecurity) The company has implemented policies and processes to manage cybersecurity risks, including engaging a third-party consultant for threat monitoring and response - The company utilizes a third-party consultant for its cybersecurity risk management framework, which includes monitoring, detection, and response to threats[226](index=226&type=chunk) - As of December 31, 2023, the company has not identified any cybersecurity incidents that would materially impact its business or financial statements[227](index=227&type=chunk) [Properties](index=72&type=section&id=Item%202.%20Properties) SmartKem's headquarters, including R&D and corporate offices, are in a 10,000 sq. ft. leased space in Manchester, England - The company's main facilities are leased, including its headquarters in Manchester, UK, an office in Taiwan, and fabrication and office space at the CPI facility in Sedgefield, UK[228](index=228&type=chunk) - A new twelve-month Framework Agreement with CPI Innovation Services Limited (CPIIS) was executed on March 22, 2024, commencing April 1, 2024, ensuring continued access to fabrication facilities[228](index=228&type=chunk) [Legal Proceedings](index=72&type=section&id=Item%203.%20Legal%20Proceedings) The company is not currently a party to any legal proceedings that management believes would have a material adverse effect on its business - The company is not currently involved in any material litigation[229](index=229&type=chunk) [Mine Safety Disclosures](index=72&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company - Not Applicable[230](index=230&type=chunk) Part II [Market For Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases Of Equity Securities](index=74&type=section&id=Item%205.%20Market%20For%20Registrant%27s%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20Of%20Equity%20Securities) The company's common stock is traded on the OTCQB Market under the ticker symbol 'SMTK' - Common stock trades on the OTCQB Market under the ticker **'SMTK'**[231](index=231&type=chunk) - As of March 27, 2024, there were **1,355,361 shares** of common stock outstanding[231](index=231&type=chunk) - The company has never paid cash dividends and does not plan to in the foreseeable future[232](index=232&type=chunk) [Reserved]](index=74&type=section&id=Item%206.%20%5BReserved%5D) This item is reserved [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=74&type=section&id=Item%207.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) For the fiscal year 2023, SmartKem's net loss decreased to **$8.5 million** from **$11.5 million** in 2022, primarily due to a significant gain on foreign currency transactions and slightly lower operating expenses Results of Operations (in thousands) | Metric | FY 2023 | FY 2022 | Change | | :--- | :--- | :--- | :--- | | Revenue | $27 | $40 | ($13) | | Total Operating Expenses | $10,831 | $10,873 | ($42) | | Loss from Operations | ($9,991) | ($9,694) | ($297) | | Net Loss | ($8,499) | ($11,495) | $2,996 | | Basic and Diluted Net Loss per Share | ($6.32) | ($13.88) | $7.56 | Cash Flow Summary (in thousands) | Cash Flow Activity | FY 2023 | FY 2022 | | :--- | :--- | :--- | | Net cash used in operating activities | ($8,037) | ($9,049) | | Net cash used by investing activities | ($18) | ($79) | | Net cash provided by financing activities | $12,691 | $1,830 | - The company's cash and cash equivalents increased to **$8.8 million** as of December 31, 2023, from **$4.2 million** in 2022, which management believes is sufficient to fund operations through the end of April 2025[260](index=260&type=chunk) - Net cash from financing activities was **$12.7 million** in 2023, primarily from a private placement of preferred stock and warrants in June 2023 which yielded net proceeds of **$12.4 million**[263](index=263&type=chunk) - The decrease in net loss for 2023 was largely driven by a **$1.2 million** gain on foreign currency transactions, compared to a **$1.8 million** loss in 2022, and a **$0.5 million** gain on the valuation of warrant liability[257](index=257&type=chunk)[259](index=259&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=83&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) As a smaller reporting company, SmartKem is not required to provide the information for this item - The company is exempt from this disclosure requirement as it qualifies as a smaller reporting company[270](index=270&type=chunk) [Financial Statements and Supplementary Data](index=84&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) This section contains the company's audited consolidated financial statements for the fiscal years ended December 31, 2023, and 2022, including reports from independent auditors and comprehensive notes Consolidated Balance Sheet Data (in thousands) | Metric | Dec 31, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | Total Current Assets | $10,525 | $6,442 | | Total Assets | $11,272 | $7,525 | | Total Current Liabilities | $1,768 | $1,403 | | Total Liabilities | $3,159 | $1,642 | | Total Stockholders' Equity | $8,113 | $5,883 | Consolidated Statement of Operations Data (in thousands) | Metric | FY 2023 | FY 2022 | | :--- | :--- | :--- | | Revenue | $27 | $40 | | Loss from Operations | ($9,991) | ($9,694) | | Net Loss | ($8,499) | ($11,495) | | Total Comprehensive Loss | ($9,594) | ($10,615) | - The company effected a **1-for-35 reverse stock split** on September 21, 2023, with all share and per-share amounts in the financial statements retroactively adjusted[304](index=304&type=chunk)[373](index=373&type=chunk) - In June 2023, the company raised **$14.2 million** in gross proceeds (**$12.7 million** net) through a private placement of preferred stock and warrants, which alleviated the going concern uncertainty noted in the 2022 financial statements[306](index=306&type=chunk) - The company recognized a warrant liability of **$1.4 million** as of December 31, 2023, related to warrants issued in the June 2023 PIPE financing, which are accounted for as derivatives and re-measured to fair value each period[284](index=284&type=chunk)[402](index=402&type=chunk) [Changes In And Disagreements With Accountants On Accounting And Financial Disclosure](index=144&type=section&id=Item%209.%20Changes%20in%20and%20Disagreements%20with%20Accountants%20on%20Accounting%20and%20Financial%20Disclosure) The company reports no disagreements with its accountants on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure - None[447](index=447&type=chunk) [Controls and Procedures](index=144&type=section&id=Item%209A.%20Controls%20and%20Procedures) Management concluded that the company's disclosure controls and procedures were effective as of December 31, 2023, with a previously identified material weakness remediated by year-end - Management concluded that disclosure controls and procedures were effective as of December 31, 2023[450](index=450&type=chunk) - A material weakness in internal control over financial reporting, identified in Q2 2023 concerning the accounting for the June 2023 PIPE, was remediated by the end of the fiscal year[452](index=452&type=chunk) - The company's management concluded that internal control over financial reporting was effective as of December 31, 2023[451](index=451&type=chunk) [Other Information](index=146&type=section&id=Item%209B.%20Other%20Information.) The company reports that none of its directors or officers adopted, modified, or terminated a Rule 10b5-1 trading arrangement or a non-Rule 10b5-1 trading arrangement during the fourth quarter of 2023 - None[456](index=456&type=chunk) [Disclosure Regarding Foreign Jurisdictions that Prevent Inspections](index=146&type=section&id=Item%209C.%20Disclosure%20Regarding%20Foreign%20Jurisdictions%20that%20Prevent%20Inspections.) This item is not applicable to the company - Not Applicable[456](index=456&type=chunk) Part III [Directors, Executive Officers and Corporate Governance](index=147&type=section&id=Item%2010.%20Directors%2C%20Executive%20Officers%20and%20Corporate%20Governance) The company's leadership includes Chairman and CEO Ian Jenks, CFO Barbra C. Keck, Chief Scientist Dr. Beverley Brown, and CTO Dr. Simon Ogier Executive Officers and Directors (as of March 27, 2024) | Name | Position | | :--- | :--- | | Ian Jenks | Chairman of the Board, Chief Executive Officer and President | | Barbra C. Keck | Chief Financial Officer | | Beverley Brown, Ph.D. | Chief Scientist | | Simon Ogier, Ph.D. | Chief Technology Officer | | Klaas de Boer | Director | | Steven DenBaars, Ph.D. | Director | | Melisa Denis | Director | | Sriram Peruvemba | Director | - The Board of Directors is divided into three staggered classes, with directors serving three-year terms, a structure that may delay or prevent changes in management or control[473](index=473&type=chunk)[476](index=476&type=chunk) - The Board has determined that directors Klaas de Boer, Steven DenBaars, and Melisa Denis are independent, while CEO Ian Jenks and director Sriram Peruvemba are not considered independent[472](index=472&type=chunk)[534](index=534&type=chunk) - The company has adopted a code of business conduct and ethics, available on its website[470](index=470&type=chunk) [Executive Compensation](index=154&type=section&id=Item%2011.%20Executive%20Compensation) For fiscal year 2023, CEO Ian Jenks received total compensation of **$409,450**, including a base salary of **$342,333** and a bonus of **$50,000** Summary Compensation Table (2023) | Officer Name and Principle Position | Salary ($) | Bonus ($) | All Other Compensation ($) | Total ($) | | :--- | :--- | :--- | :--- | :--- | | Ian Jenks, CEO | 342,333 | 50,000 | 17,117 | 409,450 | | Barbra Keck, CFO | 314,773 | 37,500 | 19,800 | 372,073 | | Beverly Brown, Chief Scientist | 200,093 | - | - | 200,093 | - In September 2023, CEO Ian Jenks' annual base salary was increased to **$400,000** and his target bonus was increased to **50%** of his base salary[489](index=489&type=chunk) - In September 2023, the compensation committee approved one-time bonuses of **$100,000** for CEO Ian Jenks and **$75,000** for CFO Barbra Keck, with **50%** paid upfront and **50%** payable upon a national exchange uplisting[492](index=492&type=chunk) - The non-employee director compensation policy provides an annual cash retainer of **$36,000** and initial and annual stock option grants[497](index=497&type=chunk) [Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](index=161&type=section&id=Item%2012.%20Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management%20and%20Related%20Stockholder%20Matters) As of March 27, 2024, the company's executive officers and directors as a group beneficially owned **58.4%** of the common stock Security Ownership of 5% Stockholders (as of March 27, 2024) | Name of Beneficial Owner | Percentage Beneficially Owned (%) | | :--- | :--- | | Octopus Investments Limited | 15.8% | | Entrepreneurs Fund LP | 7.6% | | Orin Hirschman (and affiliates) | 9.9% | | The Hewlett Fund, LP | 9.9% | | Five Narrow Lane | 9.9% | - All executive officers and directors as a group beneficially own **58.4%** of the company's common stock as of March 27, 2024[210](index=210&type=chunk) - The 2021 Equity Incentive Plan was amended to increase the share reserve to **743,106 shares**, with **70,411 outstanding options** and **676,565 shares** available for future issuance as of December 31, 2023[502](index=502&type=chunk) [Certain Relationships and Related Transactions, and Director Independence](index=165&type=section&id=Item%2013.%20Certain%20Relationships%20and%20Related%20Transactions%2C%20and%20Director%20Independence) The company discloses several related party transactions, notably a consulting agreement with director Sriram Peruvemba's firm, which terminated upon his board appointment in July 2023 - Prior to his appointment to the board, director Sriram Peruvemba provided consulting services to the company through his firm, Marketer International Inc., with the agreement terminated in July 2023[516](index=516&type=chunk)[518](index=518&type=chunk) - Major shareholders, including affiliates of Orin Hirschman, The Hewlett Fund, LP, and Five Narrow Lane, participated in the June 2023 PIPE financing and the subsequent January 2024 Consent, Conversion and Amendment Agreement[524](index=524&type=chunk)[531](index=531&type=chunk)[532](index=532&type=chunk) - The company has multiple registration rights agreements in place with directors, executive officers, and holders of more than **5%** of its capital stock, stemming from the February 2021 reverse merger, the January 2022 Octopus Share Purchase, the June 2023 PIPE, and the January 2024 Consent Agreement[519](index=519&type=chunk)[521](index=521&type=chunk)[526](index=526&type=chunk)[530](index=530&type=chunk) - The board has adopted a policy requiring Audit Committee approval for related party transactions exceeding **$100,000**[533](index=533&type=chunk) [Principal Accountant Fees and Services](index=173&type=section&id=Item%2014.%20Principal%20Accountant%20Fees%20and%20Services) The company paid its independent registered public accounting firms a total of **$336,000** in 2023 and **$368,000** in 2022 Principal Accountant Fees (in thousands) | Fee Category | 2023 | 2022 | | :--- | :--- | :--- | | Audit fees | $336 | $368 | | Audit-related fees | $0 | $0 | | Tax fees | $0 | $0 | | All other fees | $0 | $0 | | **Total** | **$336** | **$368** | - The Audit Committee has established a policy for pre-approving all audit and permissible non-audit services provided by the independent auditor[537](index=537&type=chunk) Part IV [Exhibits and Financial Statement Schedules](index=175&type=section&id=Item%2015.%20Exhibits%20and%20Financial%20Statement%20Schedules) This section lists the financial statements, financial statement schedules, and exhibits filed as part of the Annual Report on Form 10-K - This section provides an index of all exhibits filed with the Form 10-K, including the Share Exchange Agreement, corporate governance documents, material contracts such as employment and financing agreements, and required certifications[540](index=540&type=chunk)[542](index=542&type=chunk) [Form 10-K Summary](index=180&type=section&id=Item%2016.%20Form%2010-K%20Summary) The company reports that there is no Form 10-K summary - None[546](index=546&type=chunk)

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, 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. | --- | --- | |----------------------------------------------------------------|---- ...

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-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 ...

Part I [Item 1. Financial Statements](index=3&type=section&id=Item%201.%20Financial%20Statements) This section presents SmartKem, Inc.'s unaudited condensed consolidated financial statements for the quarter ended September 30, 2021, highlighting a net loss despite increased cash and equity from a reverse recapitalization Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | September 30, 2021 | December 31, 2020 | | :--- | :--- | :--- | | Cash and cash equivalents | $14,719 | $764 | | Total current assets | $16,577 | $2,023 | | Total assets | $17,558 | $2,949 | | Total current liabilities | $1,448 | $1,078 | | Total liabilities | $1,464 | $1,098 | | Total Stockholders' equity | $16,094 | $1,851 | Condensed Consolidated Statements of Operations Highlights (in thousands) | Metric | Three Months Ended Sep 30, 2021 | Three Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :--- | :--- | :--- | :--- | :--- | | Revenue | $0 | $50 | $0 | $71 | | Total operating expenses | $2,724 | $1,394 | $14,749 | $4,274 | | Net loss | $(2,662) | $(622) | $(14,429) | $(21,700) | | Basic & diluted net loss per share | $(0.10) | $(0.05) | $(0.59) | $(1.73) | Condensed Consolidated Statements of Cash Flows Highlights (in thousands) | Cash Flow Activity | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :--- | :--- | :--- | | Net cash used in operating activities | $(8,100) | $(2,593) | | Net cash used by investing activities | $(282) | $(90) | | Net cash provided by financing activities | $22,204 | $4,592 | | Net change in cash | $13,822 | $1,909 | - On February 23, 2021, the company completed a reverse recapitalization with Parasol Investments Corporation, with SmartKem Limited being the accounting acquirer, resulting in SmartKem Limited becoming a wholly-owned subsidiary of the public entity, now named SmartKem, Inc[21](index=21&type=chunk)[22](index=22&type=chunk)[24](index=24&type=chunk) - The company has incurred substantial losses and negative cash flows since inception, with a net loss of **$14.4 million** for the nine months ended September 30, 2021, and an accumulated deficit of **$72.4 million**, though management believes its cash of **$14.7 million** is sufficient to fund operations for at least the next twelve months[30](index=30&type=chunk)[31](index=31&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=40&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses the company's financial performance, emphasizing the impact of the February 2021 reverse recapitalization and private placement, increased operating expenses, and identified material weaknesses in internal controls - Following a reverse acquisition on February 23, 2021, the company sold **10,162,000 shares** and **2,168,000 pre-funded warrants** in a private placement, generating gross proceeds of approximately **$24.6 million**[155](index=155&type=chunk) Comparison of Operations for the Nine Months Ended September 30 (in thousands) | Metric | 2021 | 2020 | Change (%) | | :--- | :--- | :--- | :--- | | Revenue | $0 | $71 | (100)% | | Research and development | $6,725 | $3,213 | 109% | | Selling, general and administrative | $6,695 | $1,061 | 531% | | Loss before income taxes | $(14,429) | $(21,700) | (34)% | - The increase in operating expenses for the nine months ended Sep 30, 2021, was primarily due to stock-based compensation, increased R&D on core materials, and additional legal, accounting, and insurance expenses associated with operating as a public company[186](index=186&type=chunk)[189](index=189&type=chunk) - As of September 30, 2021, the company had **$14.7 million** in cash and cash equivalents, which management expects will be sufficient to fund operations through the first quarter of 2023[198](index=198&type=chunk)[202](index=202&type=chunk) - Management identified material weaknesses in internal controls related to segregation of duties and ineffective review and supervision of accounting functions, with remediation efforts underway[215](index=215&type=chunk)[216](index=216&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=60&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) This section is not applicable to the company's operations - This section is not applicable for the company[219](index=219&type=chunk) [Item 4. Controls and Procedures](index=62&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were ineffective as of September 30, 2021, due to identified material weaknesses, with remediation efforts underway - Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were not effective as of September 30, 2021[222](index=222&type=chunk) - Material weaknesses were identified related to (i) segregation of duties risks within the IT infrastructure and (ii) ineffective design or operation of policies for the review, supervision, and monitoring of accounting and reporting functions[223](index=223&type=chunk) - The company is in the process of remediating these weaknesses by recruiting additional finance personnel, restricting system access, and designing new policies and procedures[224](index=224&type=chunk) Part II [Item 1. Legal Proceedings](index=63&type=section&id=Item%201.%20Legal%20Proceedings) The company reports no legal proceedings to disclose for the period - None[229](index=229&type=chunk) [Item 1A. Risk Factors](index=63&type=section&id=Item%201A.%20Risk%20Factors) This section outlines significant business, financial, and stock-related risks, including historical losses, reliance on third-party fabrication, intense competition, and challenges related to public company status and internal controls - The company has a history of substantial net losses, with an accumulated deficit of **$72.4 million** as of September 30, 2021, and anticipates continued operating expenses, raising doubts about its ability to achieve or maintain profitability[230](index=230&type=chunk) - The company relies on the Centre for Process Innovation (CPI) for fabricating prototypes and demonstration products and will depend on other third-party fabricators for commercial scale production, creating risks related to access, capacity, and quality control[248](index=248&type=chunk) - Material weaknesses in internal financial reporting controls have been identified, related to segregation of duties and inadequate review procedures, which could impact the reliability of financial reports[290](index=290&type=chunk) - The company's common stock is not listed on a national exchange, and an active trading market may not develop, potentially leading to its designation as a 'penny stock,' which could limit liquidity and deter brokers[302](index=302&type=chunk)[306](index=306&type=chunk) - A significant concentration of ownership exists, with executive officers, directors, and 5% stockholders beneficially owning **65.7%** of the common stock, allowing them to substantially influence corporate matters[316](index=316&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=94&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company disclosed one unregistered sale of equity securities during the quarter, involving 60,000 common shares issued to a consultant on August 13, 2021 - On August 13, 2021, the Company issued **60,000 shares** of common stock valued at **$2.00 per share** to a consultant, which was exempt from registration under Section 4(a)(2) of the Securities Act of 1933[331](index=331&type=chunk) [Item 3. Defaults Upon Senior Securities](index=96&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) The company reports no defaults upon senior securities during the period - None[334](index=334&type=chunk) [Item 4. Mine Safety Disclosures](index=96&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This section is not applicable to the company's operations - Not Applicable[335](index=335&type=chunk) [Item 5. Other Information](index=96&type=section&id=Item%205.%20Other%20Information) The company reports no other information to disclose for the period - None[336](index=336&type=chunk) [Item 6. Exhibits](index=96&type=section&id=Item%206.%20Exhibits) This section provides an index of exhibits filed with the Form 10-Q, including corporate governance documents, officer certifications, and interactive data files - The Exhibit Index lists all documents filed with the report, including CEO and CFO certifications under Sections 302 and 906 of the Sarbanes-Oxley Act, and Inline XBRL documents[340](index=340&type=chunk)