What changed in this filing

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Item 1. Business

2023-03-30 compared with 2022-03-28 · 88 added, 48 removed, 212 unchanged (39% of the section changed)

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and its subsidiaries.

We are a pioneer in the development of materials and processes used to make OTFTs for the manufacture of flexible electronics.

Our TRUFLEX® semiconductor technology deposits organic ink on a substrate at a temperature as low as 80°C, enabling manufacturers to use a range of low-cost flexible plastic substrates using existing industry standard equipment and infrastructure.

Our transistor stacks are flexible, bendable, wearable and lightweight and can be used in a number of different applications, including bendable smart-phone displays, curved automotive displays, e-paper displays, wearables, fingerprint sensors and printed biosensors.

We are seeking to reshape the world of electronics with our proprietary organic semiconductor platform that we believe has the potential to affect the form and function of the next generation of low-cost displays and sensors.

Our patented TRUFLEX® inks are solution deposited at a low temperature, on low-cost substrates to make OTFT circuits.

Our organic semiconductor platform can be used in a number of display technologies including miniLEDs, microLED and AMOLED displays that can drive televisions, laptops AR and VR headsets, smartwatches and smartphones.

We have a research and development facility in Manchester, UK, and manufacture product protypes for prospective customers using our semiconductor manufacturing processes housed at the Centre for Process Innovation (CPI) at Sedgefield, UK.

We have an extensive IP portfolio including 125 granted patents across 19 patent families, and 40 codified trade secrets.

Our Technology

The invention and development of FET devices has enabled the rapid expansion of electronics industry, particularly with the advent of the planar process essential for integrated circuitry.

The invention and development of FET devices has enabled the rapid expansion of the electronics industry, particularly with the advent of the planar process essential for integrated circuitry.

This is due to the ability to create compact circuits with an ever-increasing capability, lower cost per logic function, and a higher frequency of operation.

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The manufacturing of silicon-based electronics either in wafer or thin-film form, such as a-Si on glass, requires a high temperature process (approximately 300°C).

Because plastic materials melt at high temperature, TFTs are manufactured on special glass that can withstand such high temperatures and are used to produce mainly rigid products.

Our OTFT technology comprises predominantly organic materials (such as polymers and organic small molecules) and can be solution coated at low temperature (as low as 80°C) onto a wide range of low-cost plastic substrates.

Because plastic materials melt at high temperatures, TFTs are manufactured on special glass that can withstand such high temperatures and are used to produce mainly rigid products.

Our OTFT technology comprises predominantly organic materials (such as polymers and organic small molecules) that can be solution coated at low temperature (as low as 80°C) onto a wide range of low-cost plastic substrates, as well as traditional substrate materials.

The similarity in stretchability and coefficient of thermal expansion between the substrate and our TRUFLEX® materials permits production of robust, bendable/flexible and lightweight devices.

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Plastics can also be processed in very thin sheets (tens of microns) which saves space that can be used for increased battery capacity.

Thin plastic substrates also enable the device to conform very easily to non-planar surfaces such as the human body which makes them well suited for wearable sensor and display devices.

Thin plastic substrates also enable the device to conform very easily to non-planar

surfaces such as the human body which makes them well suited for wearable sensor and display devices.

Thin plastic sheets are also conformable, allowing electronics to be curved around irregular surfaces.

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Furthermore, the solubility of our inks would permit customers to digitally print the features of the OTFT device, which we believe may be attractive to potential customers seeking to lower manufacturing costs.

In February 2023, we joined the collaborative Hi-Accμracy project that brings together eleven of the most

innovative and forward-thinking companies in the industry in a bid to establish the next generation of OLAEs – including OTFT and EL-QD-LED based displays.

Our role will include developing an OTFT back-plane upon which a QD-LED front-plane will be printed.

The resulting 300ppi RGB display will showcase the performance of our range of

TRUFLEX® materials when used in conjunction with micron scale additive patterning processes and low temperature

processing conditions.

As part of the Hi-Accµracy project, printing of our OSC inks is being trialed using high resolution and high efficiency Reverse Offset Printing and Electrostatic Jetting as a route to future large area manufacture of flexible OLAE structures such as OTFTs and EL-QD-LED displays.

Products and Services

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We supply the ink set with a detailed POR for making the desired device.

In addition to supplying our OTFT stack materials as a package, prospective customers are evaluating the use of our range interlayer materials as single layers in new and existing chip and display products, such as redistribution layers, pixel definition layers, permanent resists and organic dielectric layers due to the favorable processability, patternability and other properties of our materials when compared with existing materials.

Products have been scaled up for formulated ink supply to customers in packages sizes ranging from 100mL to several liters.

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Through arrangements with the United Kingdom’s CPI, we have access to a 2.5 generation (370mm x 470mm) foundry that we use for creating prototypes for evaluation by potential customers.

In 2022, we intend to introduce an option to have devices produced using digital lithography (maskless photolithography), which will reduce the time from CAD layout to prototype for new designs.

In 2022 we began process characterization using a maskless aligner at CPI to reduce the time from CAD layout to prototype for new designs.

Additionally, in partnership with The Industrial Technology Research Institute of Taiwan, we successfully demonstrated the direct patterning of one of our interlayer dielectric materials using digital lithography technology (DLT).

We do not have the ability to produce our flexible transistors at commercial scale and intend to seek relationships with existing foundries that are capable of producing our products at commercial scale to provide us with the ability to meet full production orders for customers that do not have their own facilities.

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This allows potential customers seeking to evaluate physical samples of our materials prior to committing to purchase.

In early 2023, we announced the creation of the first monolithic micro-LED display using OTFTs.

We believe that by simplifying the process of connecting transistors to LEDs, there is the potential to accelerate the commercialization of micro-LED displays.

Consumer electronics companies are actively developing micro-LED displays since they promise higher brightness, lower power consumption and longer lifetime.

We believe this will be particularly important for portable powered displays such as smartwatches and AR/VR displays which cannot readily accommodate large batteries.

Advantages of Our TRUFLEX® Technology

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We believe this ability to pattern the backplane on top of other components could lead to alternative display or sensor design configurations with advantages such as higher aperture ratio.

We also believe that our ability to build the backplane in-situ over the micro-LED array — which would eliminate the critical front and backplane hybridization step — has the potential to increase the yield of the display fabrication process.

The small size of micro-LED’s and tight pixel pitches makes it challenging to ensure each micro-LED aligns perfectly with the corresponding pixel driver on the backplane.

Additionally, hybridization processes can introduce a thermal mismatch between the front and backplane materials causing micro-LEDs to crack or fail from the mechanical stress and can produce a non-uniform bond between the two layers.

We believe our monolithic build process will greatly reduce or eliminate these issues.

Moreover, when micro-LEDs are directly integrated into the backplane using a monolithic process there is no requirement for the supplementary layers and interfaces needed in some production methods to bond the two pieces together — consequently optical losses should be reduced, and overall efficiency of the display should be improved.

Market Opportunity

According to Markets and Markets, the global display market size was valued at $148.4 billion in 2021 and is projected to reach $177.1 billion by 2026, a CAGR of 3.6% during the forecast period.

According to Precedence Research, the global display market size was valued at $168.4 billion in 2022 and is projected to hit around $297.1 billion by 2030, expanding growth at a CAGR of 7.35% from 2022 to 2030.

Growth in the display market is driven primarily by increasing demand for consumer electronics, including smart phones, automotive products, e-readers and flat panel displays.

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Our CEO and management team are also actively engaged in developing customer and partner relationships.

We believe that our initial customers will be located in Taiwan, Japan and the Peoples Republic of China.

We believe that our initial customers will be located in Taiwan, Japan and the Peoples Republic of China but we are also directly working with OEMs located in North America, Europe and Asia who have the ability to require their suppliers to use our materials.

Our sales team is supported by engineers and product specialists located at our headquarters in the U.K.

We intend to seek third-party distribution or sale-agent agreements with potential partners where we believe such agreements are justified by the potential market opportunity.

Our sales and marketing efforts have continued to be adversely impacted by the effects of the COVID-19 pandemic.

During the pandemic, travel to and from Asia and other regions has been significantly restricted.

As a result, we have had to cease virtually all business travel and have sought to increase our presence in affected markets through other means, including engaging sales representation in China.

Our sales and marketing efforts were adversely impacted by the effects of the COVID-19 pandemic.

During the pandemic, travel to and from Asia and other regions was significantly restricted.

As a result, we had to cease virtually all business travel and sought to increase our presence in affected markets through other means, including engaging sales representation in China.

In addition, many of our expected customers are located in Asia, which has imposed severe lock-down restrictions in an effort to combat the pandemic.

Those customers have reported supply shortages and manufacturing delays as a result of the pandemic and the related restrictions, which has had a material adverse impact on the expected markets for our products.

Those customers have reported supply shortages and

manufacturing delays as a result of the pandemic and the related restrictions, which has had a material adverse impact on the expected markets for our products.

In addition, shipping costs have increased significantly as a result of limitations on other modes of transportation.

Pandemic restrictions have now been mostly lifted in these territories, allowing business travel to recommence.

Our marketing efforts include attendance at significant industry tradeshows at which we demonstrate the capabilities of our TRUFLEX® technology and responding to requests for proposals and other inquiries from potential customers.

We publish technical papers that explain our products and technology to inform and engage with potential customers.

We also have entered into a number of joint development agreements to demonstrate the capabilities of our materials and to show the feasibility of utilizing our products in specific applications.

In addition, we make presentations at trade events to showcase our technology and familiarize potential customers with the value we believe our technology adds to various applications.

We also publish press releases and other announcements relating to our technical capabilities or achievements and include product information and related technical materials on our website.

In addition, we market through publications, events, conferences, presentations and technical papers.

We may also utilize electronic or print media advertising.

We expect that the time between the identification of a potential customer and the receipt of a purchase order or agreement for the sale of our products will be relatively long.

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Under this agreement the two parties are collaborating on the production of a full color demonstration AMOLED display.

In February 2022, we entered into joint development agreement with Nanosys Inc., a leader in developing and delivering quantum dot and micro-LED technology.

In February 2022, we entered into a joint development agreement with Nanosys Inc., a leader in developing and delivering quantum dot and micro-LED technology.

Under this agreement the two parties will work together on a new generation of low-cost solution printed micro-LED and quantum dot materials for advanced displays.

Research and Development

We have focused our resources on the creation of high mobility semiconductors which have excellent uniformity, device stability and robustly satisfy the TFT performance specifications defined by customers.

We are constantly seeking to improve the performance of our organic semiconductors and are in the process of evaluating the performance of an extensive series of recently synthesized novel small molecule semiconductors.

Our chemistry team, led by our Chief Scientist, have in-depth knowledge of structure-property relationships for organic materials.

Dielectric and passivation material chemistries are also critical to enabling the OTFT device current to be maximized while ensuring stability during extended operation under voltage or current bias stress.

To-date, we have focused our resources on the development of improved performance organic semiconductors which have high charge mobility, excellent uniformity, device stability and robustly satisfy the TFT performance specifications defined by potential customers.

Our portfolio of available organic semiconductors has been extended as a result of these efforts to include newly synthesized small molecules.

Our chemistry team, led by our Chief Scientist, has in-depth knowledge of structure-property relationships for organic materials.

Dielectric and passivation interlayer

materials are also critical to enabling the OTFT device current to be maximized while ensuring stability during extended operation under voltage or current bias stress.

Some of the critical parameters for performance of an OTFT device include:

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On/off ratios of >10˄6 are typically required for TFTs used in display pixels so that the programmed voltage does not decay during the frame time.

Our OTFTs have on/off ratios in the order of 10˄7.

Our OTFTs have on/off ratios in the order of 10˄7 and have even demonstrated 10˄9 on/off ratio in large W/L devices.

● Turn on voltage (Vto) – the gate voltage at which the TFT starts to increase its current output.

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We are working on integrating this capability into our full five-mask device stack.

Once new materials have been characterized, our materials process development team at Manchester in the U.K.

customizes the formulations and process parameters to allow integration into the device process at CPI.

This team establishes the BKMs for each material and generates understanding of the parameters that can influence the performance.

More recently, in response to requests from potential customers, our chemistry team has focused on the development of a range of specialized polymer interlayers.

Some of these materials are intended for use in the display industry as redistribution layers and as pixel definition layers.

Additional specialty dielectric polymer formulations are being designed for use in advanced mobile communications operating at frequencies in excess of 5GigaHz (5G applications and beyond).

We believe our novel dielectrics should enable manufacturers to offer higher bandwidth and faster speed with lower power consumption.

Interlayer inks are also being provided to potential customers for evaluation across a range of applications.

Once new materials have been characterized, our materials process development team customizes the formulations and process parameters to allow integration into the device process at CPI.

This team establishes the BKMs for each material and generates an understanding of the parameters that can influence the performance.

Initial work may also be done to plan scale up routes for the materials in anticipation of the need to supply to customers.

The generation of fabrication processes and the integration of new materials is done at CPI under the direction of our Chief Technology Officer.

The generation of fabrication processes and the integration of new materials is carried out at CPI under the direction of our Chief Technology Officer.

The toolsets at this site provide a rapid feedback loop between our chemistry R&D and industry relevant device performance data sets.

Additionally, the equipment set can be used to generate demonstrator OTFT backplane devices on plastic, OTFT driven displays, and sensors or circuits.

Technology transfer to customers’ pilot lines can also be supported by this team and they can help to diagnose and rectify process problems.

Additionally, the equipment sets can be used to generate demonstrator OTFT backplane devices on plastic, OTFT driven displays, sensors or circuits and a wide range of other device prototypes Technology transfer to customers’ pilot lines can also be supported by this team and they can help to diagnose and rectify process problems.

Process engineers also travel to customers’ sites to assist technology transfer alongside our field application engineering team in Taiwan.

This capability has been significantly hampered the COVID-19 pandemic.

In December 2021, we became a member of the University of California, Santa Barbara (UCSB) Solid State Lighting and Energy Electronics Centre (SSLEEC) which is conducting innovative research into the development of micro-LED displays.

As a member of the SSLEEC we have the right to obtain access to technologies and intellectual property developed by the Center in fields such as micro-LEDs and displays.

Through this work, we believe we have developed a novel method for integration of OTFT backplanes and micro-LED devices.

We believe this process is feasible due to the low temperature processing of OTFT.

We believe that the use of higher temperature materials, such as a-Si, LTPS and IGZO, would damage the LED devices.

As a result, current practice is to attach the micro-LEDs after the backplane is fabricated.

Using our process, we have demonstrated active matrix backplanes driving micro-LEDs using OTFT at high

brightness (>100,000 nits).

We have sought patent protection for our processes.

In addition, the Company has successfully integrated OTFT and OLED (AMOLED) in a 200ppi display.

We are a member of the University of California, Santa Barbara (UCSB) Solid State Lighting and Energy Electronics Centre (SSLEEC) which is conducting innovative research into the development of micro-LED displays.

As a member of the SSLEEC we have the right to obtain access to technologies and intellectual property developed by the Center in technology fields such as micro-LEDs and displays.

In 2023, we obtained exclusive rights to a UCSB patent family related to Micro-LEDs.

Intellectual Property

Our commercial success depends in part on our ability to obtain and maintain intellectual property protection for our active organic semiconductors, formulated OSC and passive interlayer inks, processes and know-how that collectively comprise our TRUFLEX® technology, to operate without infringing the proprietary rights of third parties, and to prevent others from infringing our proprietary rights.

Our commercial success depends in part on our ability to obtain and maintain intellectual property protection for our active organic semiconductors, formulated OSC and passive dielectric interlayer inks, processes and know-how that collectively comprise our TRUFLEX® technology, to operate without infringing the proprietary rights of third parties, and to prevent others from infringing our proprietary rights.

Over the past 10 years, we have been building and are continuing to build the intellectual property portfolio relating to our TRUFLEX® technology.

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We cannot be certain that patents will be granted with respect to any of our pending patent applications or with respect to any patent applications filed by us in the future, nor can we be sure that any of our existing patents or any patents that may be granted to us in the future will be commercially useful in protecting our technology.

Our strategy for the protection of our proprietary technology is to file international (Patent Cooperation Treaty) patent application and pursue these in national jurisdictions that represent significant market opportunities.

Our strategy for the protection of our proprietary technology is to file international (Patent Cooperation Treaty) patent applications and pursue these in national jurisdictions that represent significant market opportunities.

However, we assess on a case-by-case basis whether it is strategically more favorable to maintain trade secret protection for our inventions and “know-how” rather than pursue patent protection the latter of which documents will ultimately be in the public domain.

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We believe that we are a technology leader in the design, development, and production of active and passive electronic materials for use in organic electronic applications.

Our patent portfolio is distributed across 16 patent families as set forth in the table below and includes 122 issued patents, 15 pending patent applications and more than 30 trade secrets.

Our patents cover the active organic semiconductor materials, active and passive interlayer formulations, and deposition processes comprising our TRUFLEX® technology.

We also have numerous patent claims and pending patent applications covering a variety of electronic devices including a novel dual gate application that enables enhanced Vto control.

Excluding licensed-in IP, our patent portfolio comprises 19 patent families with 125 granted patents, 15 pending patents and 40 codified trade secrets.

Our patents cover the active organic semiconductor materials, passive interlayer formulations, and deposition processes comprising our TRUFLEX® technology.

We also have numerous patent claims and pending patent applications covering a variety of electronic devices including a novel dual gate application that enables enhanced Vto control and recent applications include Micro-LED devices and improved processes.

Because our patent portfolio covers all material aspects of our TRUFLEX® technology, we believe we have strong protection for our technology and a competitive advantage over potential competitors who may seek to duplicate our ability to create flexible transistors.

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The passive and active interlayer inks are presently manufactured internally in our formulation facility located in Manchester in the U.K.

We are also evaluating a base layer material manufactured on a larger scale by a third-party contractor.

Initial results have been promising and we are continuing our testing and evaluation.

We use our U.K.-based formulation activity to enable customers to validate our materials on their Gen1- Gen2.5 pilot lines.

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It operates seven national facilities in the Northeast of England and Scotland and provides industry relevant expertise and assets to its customers.

We have entered into a framework services agreement with the Centre For Process Innovation Limited (“CPIL”), the management company for CPI, pursuant to which we purchase services consisting primarily of access to CPI process equipment required for fabrication as well as access to CPI staff with specific skills, to the extent required, at specified costs, including a minimum annual spending requirement.

We have 16 employees at the CPI facility who operate the CPI equipment on our behalf.

We have entered into a framework services agreement with CPI Innovation Services Limited (“CPIIS”), the management company for CPI, pursuant to which we purchase services consisting primarily of access to CPI process equipment required for fabrication as well as access to CPI staff with specific skills, to the extent required, at specified costs, including a minimum annual spending requirement.

We have 18 employees at the CPI facility who operate or support operations and OTFT developments using the CPI equipment on our behalf.

Pursuant to the terms of this agreement, we utilize an online booking system to book usage of equipment for immediate use, subject to availability.

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CPIL has agreed to use its reasonable commercial endeavors to supply the requested services.

The latest agreement with CPIL became effective upon the Closing and has a fixed term of three years.

The latest agreement with CPIIS became effective upon the Closing and has a fixed term of three years.

The agreement may be terminated by either party in the event of a breach by the other party.

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All these inorganic processes are operated at high temperatures and therefore require high-cost substrates, especially if they are to be processed on plastic.

We believe all of these technologies are subject to failure on bending and have limited, if any, flexibility.

We believe that integration of TFTs with temperature sensitive devices will be made easier with our OTFT inks due to their lower temperature requirements.

In addition, we believe all inorganic TFT based active-matrix technologies face challenges in bending compared with organic TFTs resulting in higher manufacturing costs.

A number of competitors have engaged in the development of organic inks.

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These could include the toxicity (potential for Carcinogenicity, Mutagenicity, and Teratogenicity) and restrictions from the Environmental Protection Agencies in the countries of manufacture.

All new chemicals we obtain are evaluated the time of order and a Control of Substances Hazardous to Health (“COSHH”) assessment is performed prior to commencement of any practical work with these materials.

All new chemicals we obtain are evaluated at the time of order and a Control of Substances Hazardous to Health (“COSHH”) assessment is performed prior to commencement of any practical work with these materials.

The COSHH assessment considers chemical hazards associated with the material, its physical properties, the scale of the planned work and the nature of that work e.g., temperature and containment.

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Any use of material in Health and Safety Executive COSHH hazard category E, all but gram scale uses of non-volatile material in hazard category D and use of material in hazard category C in quantities of more than 1kg would trigger a management review.

While it is possible that management authorization may be given to conduct research using materials in categories D & E, their use in a potential formulated product would be discouraged and an alternative sought at an early stage.

While it is possible that management authorization may be given to conduct research using materials in categories D & E, their use in a potentially formulated product would be discouraged and an alternative sought at an early stage.

Materials are also screened against lists of banned and restricted materials provided by display manufacturers.

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Changes in export or import laws or sanctions policies, may adversely impact our operations, delay the introduction and sale of our products in international markets, or, in some cases, prevent the export or import of our products and technology to certain countries, regions, governments, persons, or entities altogether, which could adversely affect our business, financial condition and results of operations.

As of December 31, 2021, we had 41 full-time employees and 3 part-time employees of which 39 are based in the United Kingdom.

As of December 31, 2022, we had 50 full-time employees and five part-time employees of which 48 are based in the United Kingdom.

24 of our employees hold advanced degrees, including 13 Ph.Ds.

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We were originally incorporated as Parasol Investments Corporation in the State of Delaware in May 2020.

Prior to the acquisition of SmartKem Ltd in February 2021, we were a “shell” company registered under the Exchange Act, with no specific business plan or purpose.

In accordance with “reverse merger” accounting treatment, our historical financial statements at period ends, and for periods ended, prior to our acquisition of SmartKem Limited were replaced with the historic financial statements of SmartKem Ltd in our SEC filings made after the acquisition.

Prior to the acquisition of SmartKem Limited in February 2021, we were a “shell” company registered under the Exchange Act, with no specific business plan or purpose.

Our principal executive offices are located at Manchester Technology Centre, Hexagon Tower, Delaunays Road, Blackley Manchester, M9 8GQ U.K.

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Additional Information

We maintain a website at www.smartkem.com, to which we regularly post copies of our press releases as well as additional information about us.

Our filings with the SEC will be available free of charge through the website as soon as reasonably practicable after being electronically filed with or furnished to the SEC.

Information contained in our website is not a part of, nor incorporated by reference into, this Report or our other filings with the SEC, and should not be relied upon.

We maintain a website at www.smartkem.com.

On our website, investors can obtain, free of charge, a copy of our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, other reports and any amendments thereto filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after we file such material electronically with, or furnish it to, the SEC.

None of the information posted on our website is incorporated by reference into this Report.

The SEC also maintains a website at http://www.sec.gov that contains reports, proxy and information statements and other information regarding us and other companies that file materials with the SEC electronically.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1. Business