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)

[Part I - Financial Information](index=3&type=section&id=Part%20I%20Financial%20Information) [Financial Statements](index=3&type=section&id=Item%201.%20Financial%20Statements) The company's financials reflect a significant cash increase from a private placement, with zero revenue and a net loss of $11.8 million for H1 2021 [Condensed Consolidated Balance Sheets](index=3&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Total assets and stockholders' equity grew substantially due to a financing event, increasing cash to $16.4 million and equity to $18.6 million Condensed Consolidated Balance Sheet Highlights (Unaudited) | Account | June 30, 2021 | December 31, 2020 | | :--- | :--- | :--- | | **Assets** | | | | Cash and cash equivalents | $16,430,719 | $763,814 | | Total current assets | $19,125,234 | $2,022,813 | | **Total assets** | **$20,081,843** | **$2,949,669** | | **Liabilities & Equity** | | | | Total current liabilities | $1,484,356 | $1,077,946 | | Total liabilities | $1,517,904 | $1,098,421 | | Total Stockholders' equity | $18,563,939 | $1,851,248 | | **Total Liabilities and Stockholders' Equity** | **$20,081,843** | **$2,949,669** | [Condensed Consolidated Statements of Operations and Comprehensive Loss](index=4&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations%20and%20Comprehensive%20Loss) The company reported zero revenue and a reduced net loss of $11.8 million for H1 2021, despite a higher operating loss of $11.3 million Statement of Operations Highlights (Unaudited, in thousands) | Metric | Three Months Ended June 30, 2021 | Three Months Ended June 30, 2020 | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :--- | :--- | :--- | :--- | :--- | | Revenue | $0 | $0 | $0 | $20.8 | | Loss from operations | $(2,460.0) | $(1,055.6) | $(11,337.7) | $(2,493.1) | | Net loss | $(2,400.9) | $(1,054.3) | $(11,767.2) | $(21,078.3) | | Basic & dilutive net loss per share | $(0.09) | $(0.08) | $(0.52) | $(1.80) | [Condensed Consolidated Statements of Stockholders' Equity](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Stockholders'%20Equity) Stockholders' equity rose to $18.56 million, driven by a $24.6 million private placement and $6.0 million in stock-based compensation - In the first half of 2021, the company issued **10,162,000 shares of common stock and warrants** in a private placement, raising **$24.6 million**[13](index=13&type=chunk) - Stock-based compensation expense for the first six months of 2021 amounted to **$6.0 million**[13](index=13&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Net cash increased by $15.6 million, with $22.2 million from financing activities offsetting $6.4 million used in operations Cash Flow Summary (Unaudited, for six months ended June 30) | Cash Flow Activity | 2021 | 2020 | | :--- | :--- | :--- | | Net cash used in operating activities | $(6,440,537) | $(2,835,358) | | Net cash used by investing activities | $(120,568) | $(88,359) | | Net cash provided by financing activities | $22,203,539 | $4,278,930 | | **Net change in cash** | **$15,642,434** | **$1,355,213** | | **Cash, end of period** | **$16,430,719** | **$1,570,039** | [Notes to the Unaudited Condensed Consolidated Financial Statements](index=7&type=section&id=Notes%20to%20the%20Unaudited%20Condensed%20Consolidated%20Financial%20Statements) Notes detail the reverse recapitalization, accounting policies, equity transactions, and confirm sufficient liquidity for the next twelve months - On February 23, 2021, the company completed a **reverse recapitalization** with Parasol Investments Corporation, with SmartKem Limited being the accounting acquirer[17](index=17&type=chunk)[18](index=18&type=chunk)[20](index=20&type=chunk) - Management believes that existing cash of **$16.4 million** as of June 30, 2021, is sufficient to fund operations for at least the next twelve months[28](index=28&type=chunk) - In January 2020, convertible notes with a principal of **$11.8 million** were converted into common shares, resulting in a **$5.5 million loss on conversion** and recognition of **$6.8 million in non-cash interest expense**[90](index=90&type=chunk) - On February 23, 2021, the company issued **985,533 warrants** to a vendor and **2,168,000 pre-funded warrants** to investors in connection with its private placement[109](index=109&type=chunk)[110](index=110&type=chunk) - Subsequent to the quarter end, in August 2021, the company issued an additional **411,150 EMI Options** to employees and directors[129](index=129&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A)](index=41&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) The MD&A explains increased operating expenses from public company costs and expansion, with sufficient liquidity through Q1 2023 [Results of Operations](index=51&type=section&id=Results%20of%20Operations) Operating expenses for H1 2021 surged to $12.0 million, while the net loss narrowed due to the absence of prior-year non-operating charges Comparison of Results for Six Months Ended June 30 (in thousands) | Account | 2021 | 2020 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Revenue | $0 | $20.8 | $(20.8) | (100)% | | Research and development | $5,368.5 | $2,110.6 | $3,257.9 | 154% | | Selling, general and administrative | $5,328.1 | $768.9 | $4,559.2 | 593% | | Transaction expenses | $1,329.3 | $0 | $1,329.3 | N/A | | Total operating expenses | $12,025.9 | $2,879.5 | $9,146.4 | 318% | | Loss before income tax | $(11,767.2) | $(21,078.3) | $9,311.1 | (44)% | - The increase in R&D and SG&A expenses in H1 2021 was primarily due to **stock-based compensation**, development of core materials, expansion of sales teams in the US and Asia, and additional costs of operating as a public company[181](index=181&type=chunk)[182](index=182&type=chunk)[184](index=184&type=chunk) [Liquidity and Capital Resources](index=56&type=section&id=Liquidity%20and%20Capital%20Resources) The company holds $16.4 million in cash from a recent financing, which is expected to fund operations through Q1 2023 - As of June 30, 2021, the company had an **accumulated deficit of $69.7 million** and cash and cash equivalents of **$16.4 million**[191](index=191&type=chunk) - Net cash provided by financing activities was **$22.2 million** for the six months ended June 30, 2021, primarily from the net proceeds of the private placement offering[195](index=195&type=chunk) - Management expects current cash reserves will be sufficient to support operations through the **first quarter of 2023**[196](index=196&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=62&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) The company has determined that this disclosure is not applicable for the reporting period - The company states that quantitative and qualitative disclosures about market risk are **not applicable**[212](index=212&type=chunk) [Controls and Procedures](index=62&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded disclosure controls were ineffective due to material weaknesses in segregation of duties and financial oversight - The CEO and CFO concluded that the company's disclosure controls and procedures were **not effective** as of the end of the period[214](index=214&type=chunk) - **Material weaknesses** were identified related to segregation of duties risks in IT infrastructure and ineffective policies for review and monitoring of accounting functions[215](index=215&type=chunk)[216](index=216&type=chunk) - **Remediation efforts are underway**, including recruiting additional finance personnel, restricting system access, and designing new policies and procedures with external support[217](index=217&type=chunk) [Part II - Other Information](index=65&type=section&id=Part%20II%20Other%20Information) [Legal Proceedings](index=65&type=section&id=Item%201.%20Legal%20Proceedings) The company reports no legal proceedings during the period - The company reports **no legal proceedings**[222](index=222&type=chunk) [Risk Factors](index=65&type=section&id=Item%201A.%20Risk%20Factors) The company faces significant risks from its loss history, competition, IP protection, and material weaknesses in internal controls [Risks Related to Business and Industry](index=65&type=section&id=Risks%20Related%20to%20our%20Business%20and%20the%20Industry%20in%20Which%20We%20Operate) Key risks include a history of losses, lack of commercial products, reliance on a single third-party fabricator, and COVID-19 impacts - The company has a history of losses, with an **accumulated deficit of $69.7 million** as of June 30, 2021, and expects operating expenses to increase[223](index=223&type=chunk) - The company relies on the **Centre for Process Innovation (CPI)** for access to fabrication facilities, and the loss of this access would materially harm its ability to produce prototypes and engage in product development[241](index=241&type=chunk) - The **COVID-19 pandemic** has restricted travel and may continue to significantly affect the company's ability to obtain customers and create a market for its inks, particularly in Asia[250](index=250&type=chunk) [Risks Related to Intellectual Property](index=79&type=section&id=Risks%20Related%20to%20our%20Intellectual%20Property) The company's competitiveness depends on protecting its IP, but it faces risks of patent invalidation and costly litigation - The company relies on a combination of **patents, trademarks, copyrights, and trade secret laws** to protect its intellectual property[265](index=265&type=chunk) - The semiconductor industry is characterized by **frequent and expensive patent litigation**, and the company may be accused of infringing third-party patents or need to defend its own[271](index=271&type=chunk) [Risks Related to Financial Control Environment](index=83&type=section&id=Risks%20Related%20to%20our%20Financial%20Control%20Environment) The company has identified material weaknesses in internal controls and faces increased compliance costs as a new public entity - The company has identified **material weaknesses** in its internal control over financial reporting related to segregation of duties and ineffective review and supervision of accounting functions[283](index=283&type=chunk) - Being a public company **significantly increases legal and financial compliance costs** and administrative burdens[275](index=275&type=chunk) [Risks Related to Our Common Stock](index=87&type=section&id=Risks%20Related%20to%20Our%20Common%20Stock) Stockholder risks include limited liquidity, 'penny stock' classification, and substantial control by principal stockholders - The company's common stock is **not listed on a national securities exchange**, and an active trading market may not develop, which could make it difficult for investors to sell shares[295](index=295&type=chunk) - Executive officers, directors, and 5%+ stockholders beneficially own **52.8% of the common stock**, giving them substantial control over stockholder matters[309](index=309&type=chunk) - The company is an **"emerging growth company"** and has elected to use the extended transition period for new accounting standards, which may make its financial statements not comparable to other public companies[291](index=291&type=chunk)[293](index=293&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=96&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company issued 25,000 shares of common stock to a consultant in a transaction exempt from registration - On May 27, 2021, the Company issued **25,000 shares of common stock** valued at $2.00 per share to a consultant, exempt from registration under Section 4(a)(2) of the Securities Act[324](index=324&type=chunk) [Defaults Upon Senior Securities](index=98&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) The company reports no defaults upon senior securities - None[327](index=327&type=chunk) [Mine Safety Disclosures](index=98&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) The company states that this item is not applicable - Not Applicable[328](index=328&type=chunk) [Other Information](index=98&type=section&id=Item%205.%20Other%20Information) The company reports no other information - None[329](index=329&type=chunk) [Exhibits](index=98&type=section&id=Item%206.%20Exhibits) This section refers to the Exhibit Index for a list of filed documents - Refers to the Exhibit Index for a list of filed exhibits, including certifications and XBRL data[330](index=330&type=chunk)[333](index=333&type=chunk)

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].

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, 2020 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 Parasol Investments Corporation (Exact name of registrant as specified in charter) | Delaware | 85-1083654 | | --- | --- | | ( ...

FORM 10-Q (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 For the quarterly period ended September 30, 2020 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: 000-56036 PARASOL INVESTMENTS CORPORATION (Exact name of registrant as specified in its charter) Delaware 85-10 ...

General Information [Company Overview](index=1&type=section&id=Company%20Overview) Parasol Investments Corporation is a Delaware-incorporated shell company, an emerging growth company formed to acquire a target business - The registrant is a **shell company**, non-accelerated filer, smaller reporting company, and **emerging growth company**[3](index=3&type=chunk)[45](index=45&type=chunk)[46](index=46&type=chunk) - The company was incorporated on **May 13, 2020**, in Delaware, with a fiscal year end of **December 31**[1](index=1&type=chunk)[23](index=23&type=chunk) Common Stock Outstanding | Class | Outstanding at September 30, 2020 | | :--- | :--- | | Common Stock, par value $0.0001 | 5,000,000 | [Special Note Regarding Forward-Looking Statements](index=4&type=section&id=Special%20Note%20Regarding%20Forward-Looking%20Statements) This section advises that the Form 10-Q contains forward-looking statements, subject to risks and uncertainties, with no obligation to update unless legally required - Forward-looking statements are identified by words like 'expects,' 'anticipates,' 'intends,' and relate to future events, performance, and financial results[8](index=8&type=chunk) - Actual results may differ materially from expectations due to certain risks and uncertainties, and readers should not place undue reliance on these statements[9](index=9&type=chunk) - The company does not assume any obligation to update forward-looking statements, except as required by law[10](index=10&type=chunk) PART I - FINANCIAL INFORMATION [Item 1. Financial Statements (Unaudited)](index=5&type=section&id=Item%201.%20Financial%20Statements%20(Unaudited)) This section presents the unaudited condensed financial statements for Parasol Investments Corporation, covering the period from its inception on May 13, 2020, to June 30, 2020 Condensed Balance Sheet Condensed Balance Sheet as of June 30, 2020 | ASSETS | Amount ($) | | :--- | :--- | | Cash | 9,558 | | Total current assets | 9,558 | | Total assets | 9,558 | | **LIABILITIES AND STOCKHOLDERS' DEFICIT** | | | Note payable - stockholder | 10,000 | | Total current liabilities | 10,000 | | Total liabilities | 10,000 | | Common stock | 500 | | Accumulated deficit | (942) | | Total stockholders' deficit | (442) | | Total liabilities and stockholders' deficit | 9,558 | Condensed Statement of Operations Condensed Statement of Operations (May 13, 2020 - June 30, 2020) | Item | Amount ($) | | :--- | :--- | | Revenue | - | | General and administrative expenses | 942 | | Loss from operations | (942) | | Net loss | (942) | | Loss per common share - basic and dilutive | (0.00) | | Weighted average common shares outstanding | 5,000,000 | Condensed Statement of Changes in Stockholders' Deficit Condensed Statement of Changes in Stockholders' Deficit (May 13, 2020 - June 30, 2020) | Item | Common Stock Amount ($) | Accumulated Deficit ($) | Stockholders' Deficit ($) | | :--- | :--- | :--- | :--- | | Balance, May 13, 2020 | - | - | - | | Sale of common shares | 500 | - | 500 | | Net loss | - | (942) | (942) | | Balance, June 30, 2020 | 500 | (942) | (442) | Condensed Statement of Cash Flows Condensed Statement of Cash Flows (May 13, 2020 - June 30, 2020) | Cash Flow Activity | Amount ($) | | :--- | :--- | | Net cash (used in) operating activities | (467) | | Net cash provided by financing activities | 10,025 | | Net increase in cash | 9,558 | | Cash, beginning of period | - | | Cash, end of period | 9,558 | [Notes to Condensed Financial Statements](index=9&type=section&id=Notes%20to%20Condensed%20Financial%20Statements) This section provides details on the company's nature, accounting policies, capital structure, income taxes, related party transactions, and going concern considerations - The Company was incorporated on **May 13, 2020**, in Delaware, with the primary objective to acquire a target company or business[23](index=23&type=chunk)[24](index=24&type=chunk) - The Company has **10,000,000 authorized preferred shares** (none issued) and **50,000,000 authorized common shares**, with **5,000,000 common shares issued for $500** to founders[33](index=33&type=chunk)[34](index=34&type=chunk) - As of June 30, 2020, the Company had a **$10,000 non-interest bearing promissory note payable to a stockholder**, due upon consummation of a business combination[38](index=38&type=chunk) - Management believes there is substantial doubt about the Company's ability to continue as a **going concern** due to incurred losses, negative working capital, and stockholders' deficit, intending to finance operations through additional borrowings from the existing note[39](index=39&type=chunk)[40](index=40&type=chunk) - The **COVID-19 pandemic** could materially and adversely affect the business of any potential target company or the Company's ability to complete a business combination[42](index=42&type=chunk)[43](index=43&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=13&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on the Company's financial condition and results of operations for the period from inception (May 13, 2020) to June 30, 2020 - The Company is a **'blank check' and 'shell company'** formed to acquire or merge with an operating business, with no current business activities providing cash flow[44](index=44&type=chunk)[45](index=45&type=chunk)[50](index=50&type=chunk) - As an **'emerging growth company,'** the Company has elected to use the extended transition period for complying with new or revised accounting standards, which may affect comparability[46](index=46&type=chunk)[47](index=47&type=chunk)[65](index=65&type=chunk) Summary of Cash Flows (May 13, 2020 - June 30, 2020) | Cash Flow Activity | Amount ($) | | :--- | :--- | | Net Cash (Used In) Operating Activities | (467) | | Net Cash Provided by Financing Activities | 10,025 | | Net Change in Cash | 9,558 | - The Company incurred a **net loss of $942** for the period, primarily from legal and professional service fees related to SEC filings and general administrative expenses[62](index=62&type=chunk) - The Company has not entered into any definitive agreement or specific discussions with potential business combination candidates as of the filing date[56](index=56&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=18&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) As a 'smaller reporting company,' Parasol Investments Corporation is not required to provide quantitative and qualitative disclosures about market risk in this report - The Company is exempt from providing market risk disclosures as a **'smaller reporting company'** under Item 10 of Regulation S-K[67](index=67&type=chunk) [Item 4. Controls and Procedures](index=18&type=section&id=Item%204.%20Controls%20and%20Procedures) Management evaluated the effectiveness of the Company's disclosure controls and procedures as of June 30, 2020, concluding they were effective with no material changes in internal control over financial reporting - Disclosure controls and procedures were evaluated and deemed **effective as of June 30, 2020**[69](index=69&type=chunk) - No changes in internal control over financial reporting occurred during the quarter ended June 30, 2020, that materially affected or are reasonably likely to materially affect internal control over financial reporting[70](index=70&type=chunk) - Control systems provide only reasonable, not absolute, assurance due to inherent limitations[71](index=71&type=chunk) PART II - OTHER INFORMATION [Item 1. Legal Proceedings](index=19&type=section&id=Item%201.%20Legal%20Proceedings) The Company reports no material pending legal proceedings to which it is a party, nor any proceedings where directors, officers, affiliates, or significant shareholders have an adverse material interest - There are **no material pending legal proceedings** against the Company[74](index=74&type=chunk) - No directors, officers, affiliates, or significant shareholders have a material interest adverse to the Company in any proceedings[75](index=75&type=chunk) [Item 1A. Risk Factors](index=19&type=section&id=Item%201A.%20Risk%20Factors) As a 'smaller reporting company,' Parasol Investments Corporation is not required to provide specific risk factor disclosures in this quarterly report - The Company is exempt from providing risk factor disclosures as a **'smaller reporting company'** under Item 10 of Regulation S-K[76](index=76&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=19&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%