Smartkem, Inc. annual report, FY2020

Business context and reporting period

This filing is for Parasol Investments Corporation, not an operating-company 10-K for Smartkem, Inc. Parasol was incorporated on May 13, 2020 and operated as a blank-check shell seeking a business combination. The fiscal year ended December 31, 2020; financial results cover inception through year-end, not a standalone 2020 fourth quarter.

On February 9, 2021, Parasol disclosed a proposed share exchange with SmartKem Limited, which would make SmartKem a wholly owned subsidiary. The transaction and an associated private placement were not completed or covered by executed agreements as of the filing date.

Financial performance, cash flow and liquidity

MetricMay 13–December 31, 2020
Revenue$0
General and administrative expenses / net loss$21,059
Cash and total assets at year-end$8,441
Current liabilities$29,000: $9,000 accounts payable and accrued expenses; $20,000 shareholder note
Working capital / stockholders’ deficitNegative $20,559
Cash used in operating activities$11,584
Cash provided by financing activities$20,025

No operating margins or meaningful debt-performance measures are provided given the absence of revenue and operating activity. The shareholder note is non-interest-bearing unless an event of default occurs; following default, it becomes due and accrues interest at 18% annually beginning five days after the default date.

Material changes versus the prior comparable period

There is no prior-year comparable period because the company was formed in May 2020. The filing reports no revenues since inception and a $21,059 net loss for the period. No quarterly comparison is provided.

Outlook, risks and unusual items

  • Management planned to continue searching for a business combination and estimated approximately $40,000 in filing-related professional expenses over the next 12 months, excluding transaction costs.
  • The auditor highlighted substantial doubt about the company’s ability to continue as a going concern, citing losses, negative working capital and stockholders’ deficit. The company depended on further financing, including possible advances from its shareholder; those advances were not contractually committed.
  • The proposed SmartKem exchange was subject to an executed agreement, a private-placement financing condition and other conditions; the filing gave no assurance it would close. If completed as then contemplated, SmartKem shareholders were expected to own approximately 84% of Parasol’s shares before the potential private placement.
  • Potential dilution and change of control, limited funds and personnel, competition for targets, management’s affiliations with other blank-check companies and resulting potential conflicts, and COVID-19-related disruption were identified as risks.
  • The company had no public trading market, no employees beyond management, and no active operations. Management reported effective disclosure controls and internal control over financial reporting; the auditor did not provide an internal-control attestation.

Most important facts for investors to verify

  • Whether the proposed SmartKem share exchange and related private placement were ultimately signed and completed, and the final ownership, financing and dilution terms.
  • Availability and terms of additional funding, including shareholder advances, and the company’s ability to meet obligations and continue as a going concern.
  • The final audited financial statements and subsequent filings for SmartKem and the post-transaction company; this filing contains no SmartKem operating results.
  • Potential conflicts of interest involving management’s other blank-check-company affiliations and any related-party financing or transaction arrangements.