F-1: SMX Faces Going Concern Doubt Amidst Mounting Losses

SMX (Security Matters) Public Limited Company reported a net loss of $35.4 million for 2024, accumulating $82 million in losses, raising substantial doubt about its ability to continue as a going concern.

Summary

• SMX (Security Matters) Public Limited Company reported a net loss of $35.4 million for the year ended December 31, 2024, an increase from $20.99 million in 2023.
• The company has accumulated losses of $82 million as of December 31, 2024, and continues to incur operating losses and negative cash flows from operations.
• The auditor's report includes an explanatory paragraph regarding substantial doubt about the company's ability to continue as a going concern.
• SMX's operations are primarily funded through the issuance of shares, warrants, convertible notes, and loans from investors and related parties.
• The company's technology focuses on brand protection, authentication, and track and trace solutions for supply chain integrity and circular economy applications across various industries like plastics, rubber, gold, electronics, and fashion.
• SMX has over 100 patent applications globally, with 20 patent families publicly disclosed, protecting its marking and reading technologies.
• The company is currently engaged in an arbitration process with R&I Trading regarding a terminated $5 million contract for supply chain management services to a NATO member state.
• Multiple reverse stock splits have been effected to meet Nasdaq's minimum bid price requirements, including 1:22 (Aug 2023), 1:75 (July 2024), 1:28.5 (Jan 2025), 1:4.1 (June 2025), and 1:7 (Aug 2025).
• SMX is classified as an emerging growth company and a foreign private issuer, allowing it certain exemptions from U.S. public company disclosure and corporate governance requirements.

Sentiment

Score: 2

Explanation: The company faces severe financial distress, evidenced by substantial accumulated losses, negative cash flow from operations, and an explicit 'going concern' warning from its auditor. While there are ongoing capital raises, they appear to be primarily for liquidity and debt repayment rather than significant growth, and the company acknowledges insufficient cash for the foreseeable future. The termination of a key contract and the failure of another potential transaction add to the negative outlook. Despite innovative technology and strategic partnerships, the lack of substantial revenue and persistent losses indicate a highly precarious financial position.

Positives

• The company possesses innovative technology for brand protection, authentication, and track and trace, applicable across multiple industries.
• SMX has a growing addressable market driven by increasing consumer and regulatory pressure for sustainability and circular economy solutions.
• The company has an experienced development technology team with a track record in the industrial sector and governmental agencies.
• SMX has established collaborative relationships with leading companies, including a joint initiative with Perth Mint for ethical gold supply chain technology and cooperation with Sunshine Minting Inc. for silver authentication.
• Successful proof-of-concept trials have been completed for marking recycled plastics and natural rubber, demonstrating viability for industrial scale adoption and 100% success rates in verification.
• The company plans to launch a plastic cycle token by the end of 2025, aiming to create a reliable, ethical digital credit platform for recyclable plastics credits.
• SMX has successfully integrated its markers in NFC and RFID chips and developed marker coatings that withstand 150 degrees Celsius, opening potential for wearable technology and active wear applications.
• The company has a robust intellectual property portfolio with over 100 patent applications worldwide, indicating strong technological protection.

Negatives

• The company incurred a net loss of $35.4 million for the year ended December 31, 2024, a significant increase from $20.99 million in 2023.
• Accumulated losses reached $82 million as of December 31, 2024.
• The company has not generated substantial revenue from technology sales to date, with a focus on establishing an industry standard and readiness for deployment.
• Operating activities continue to generate negative cash flows, with $11.31 million used in 2024 and $12.48 million in 2023.
• Significant accounts payable and other current liabilities amounted to approximately $13.78 million as of December 31, 2024.
• The company recognized substantial impairment and amortization expenses totaling $11.085 million in 2024, including $6.813 million for goodwill impairment.
• The company's financial statements for 2024 contain an explanatory paragraph regarding substantial doubt about its ability to continue as a going concern.
• The company was noncompliant with Nasdaq Listing Rule 5550(a)(2) (Minimum Bid Price Requirement) on three occasions and Nasdaq Listing Rule 5620(a) (annual general meeting requirement), though compliance was subsequently regained.
• The company's management has limited experience in operating a public company in the United States, which could lead to increased time devoted to regulatory oversight and compliance costs.

Risks

• Substantial doubt exists about the company's ability to continue as a going concern, which may hinder new financing on reasonable terms.
• Significant accounts payable and other current liabilities, coupled with insufficient cash flow from operations, could reduce financial flexibility and increase interest expenses.
• A market for the company's securities may not continue, affecting liquidity and price volatility, and potentially leading to delisting from Nasdaq.
• The company has a relatively limited operating history, making it difficult to predict future performance and manage growth effectively.
• Termination of the Isorad License Agreement could severely harm the company's business, financial condition, and results of operations.
• Failure to effectively penetrate the full value chain manufacturing eco-system due to high tailoring costs, slow sales cycles, or inability to secure funding/personnel could adversely affect growth.
• Pandemics, public health crises, or geopolitical disputes (e.g., Russian-Ukrainian dispute) could disrupt operations, supply chains, and customer commitments.
• Operations in foreign jurisdictions expose the company to risks like economic/political instability, currency fluctuations, and changes in laws affecting foreign ownership or taxation.
• Inability to successfully identify and integrate acquisitions could adversely affect results of operations.
• The industry is highly competitive, and failure to compete effectively could lead to price reductions, reduced margins, or loss of revenue.
• Dependence on retaining current employees and attracting qualified personnel, especially in Israel's high-tech employment atmosphere, poses a risk to continued growth.
• Inability to anticipate or adapt to consumer preferences or commercialize products could adversely affect business and revenues.
• Markers may contaminate or spoil raw materials, or include hazardous materials, leading to product liability claims, reputational damage, and litigation.
• Readers use x-rays and may pose danger if tampered with or misused, potentially leading to legal actions.
• Inability to procure adequate insurance or insufficient coverage could result in unanticipated costs.
• Risk management policies and procedures may not be fully effective in identifying or mitigating risk exposure, including errors and misconduct by personnel.
• Difficulty and cost in obtaining, maintaining, protecting, or enforcing intellectual property rights, or claims of infringement by third parties, could adversely affect the business.
• Changes in laws, regulations, and standards related to privacy, cybersecurity, and data protection could increase operational costs or prevent service provision.
• Conditions in Israel and regional conflicts could adversely affect business operations, and military reserve duty requirements for Israeli staff may cause disruptions.
• Changes in taxation of international business activities or classification as a controlled foreign corporation (CFC) or passive foreign investment company (PFIC) could result in adverse U.S. federal income tax consequences.
• Irish taxes may apply to dividends or transfers of securities, and Irish law provisions could make an acquisition more difficult or limit shareholder actions.
• The company does not intend to pay dividends for the foreseeable future.
• Significant costs and management time are incurred due to U.S. reporting requirements, potentially affecting future operating results.
• Future issuances of debt or equity securities may adversely affect the company, including diluting existing shareholders and depressing stock price.
• Reliance on emerging growth company and foreign private issuer exemptions may make shares less attractive to investors or lead to increased costs if status is lost.
• The sale of currently-restricted Ordinary Shares by stockholders, or the perception of such sales, could cause the share price to fall.

Future Outlook

The company plans to continue investments to support growth, including developing new products and services, enhancing technology, scaling infrastructure, and potentially acquiring complementary businesses. It anticipates needing additional equity, debt, or convertible debt financings to fund operations and growth, as it does not expect to generate significant recurring revenues and profit in the foreseeable future. The company aims to concentrate market penetration efforts in the U.S. and Asia Pacific, increase marketing and sales, participate in professional expos, and establish strategic partnerships. It also expects to continue incurring net losses.

Management Comments

• Our vision is to build confidence in the era of the digital economy, enabling parties to maintain trust in physical assets and processes.
• Our transformative solution aims at building on the principles of The United Nations Sustainability Development Goals, particularly Goal 12: Ensure sustainable consumption and production patterns that can create value for participants in the circular economy.
• We believe our solution is the next generation for sustainability and the circular economy as an increasing number of industries and sectors are committing to using recycled material and realizing the broader strategic vision of net zero carbon emissions.
• We believe the termination of the R&I Trading contract is unlawful and have demanded that R&I Trading honor its obligations under the contract.
• We further believe R&I Trading's claims are without merit and intend to defend any action, if and when commenced, vigorously.
• We have not seen substantial revenue from our technology sales partly because our focus has been on creating a seamless onboarding process for multinational clients, establishing a solid foundation to become an industry standard, and ensuring readiness for a full and rapid deployment as a global commercial service.
• We are working to maintain discipline on expenses over time.
• We expect that our research and development expenses will increase as we continue to develop our products and recruit additional research and development employees.
• We expect to fund the payment of outstanding payables and other liabilities out of ongoing activities and other capital raisings we are pursuing in 2025.
• We anticipate that we will continue to incur net losses into the foreseeable future as we continue our development of our product candidates and expand our corporate infrastructure.

Industry Context

The company operates in the brand protection, authentication, and track and trace technology market, which is increasingly driven by global demand for supply chain integrity, anti-counterfeiting measures, and sustainability/circular economy initiatives. The focus on ESG compliance and the transition to a low-carbon economy are significant growth drivers. The company's strategy to target large international market-maker conglomerates and establish strategic partnerships aligns with the need for industry-wide adoption of new standards in these complex supply chains. The planned plastic cycle token positions the company in the emerging market for recyclable plastics credits, potentially as an alternative to carbon credits, reflecting a broader trend towards digital solutions for environmental impact verification.

Comparison to Industry Standards

• The company's technology, which integrates chemistry, physics, and computer science to embed sub-molecular markers and use x-ray readers with blockchain, offers a unique approach compared to traditional track and trace systems that may rely solely on QR codes or RFID tags, which can be more easily counterfeited or tampered with.
• The ability to identify marker concentration levels to detect dilution and apply markers to solid, liquid, or gaseous materials provides a versatility that may exceed some existing solutions in the market, such which may be limited to specific material types or less granular authentication.
• The company's focus on the circular economy, particularly in plastics and rubber, by enabling advanced sorting and recycled content certification, positions it favorably against competitors who may only offer basic product authentication without addressing end-of-life material traceability and reuse.
• The collaboration with entities like Perth Mint for ethical gold and Sunshine Minting Inc. for silver suggests a move towards establishing industry standards for ethical sourcing, which is a growing demand in the precious metals sector, potentially setting a benchmark for transparency.
• The long sales cycle with large international market-maker conglomerates is typical for disruptive B2B technologies aiming to establish new industry standards, similar to how enterprise software or complex industrial solutions are adopted, but it also implies higher risk and longer time to revenue compared to off-the-shelf solutions.

Corporate Governance

Legal Proceedings

• The company is currently engaged in an arbitration process with R&I Trading of New York. R&I Trading sent a termination notice and demanded arbitration regarding disputed payment amounts under a $5 million contract. The company believes the termination is unlawful and is vigorously defending its position, alleging breach of contract by R&I Trading and seeking relief for expenses and loss of opportunities. Statements of claim were filed on January 6, 2025, and statements of defense on May 11, 2025. An arbitration hearing was scheduled for July 21, 2025.
• The company may be involved in further or additional litigation disputes with third parties (suppliers, customers, employees, former employees, government bodies) in the ordinary course of business, which are inherently unpredictable and can be costly and time-consuming.

Related Party Transactions

• trueGold: Security Matters PTY (a subsidiary) has a shareholders agreement with Perth Mint and trueGold. SMX's CEO, Haggai Alon, provides CEO services to trueGold, and Zeren Browne provides General Manager services. In October 2023, Security Matters PTY increased its holdings in trueGold to 51.9% by waiving AUD475,000 of indebtedness. In July 2024, SMX's ownership in trueGold increased to 52.9% as part of the PMB transaction, where PMB exchanged its trueGold shares for SMX shares.
• Business Combination: The March 7, 2023, business combination involved Lionheart III Corp (an affiliate of Ophir Sternberg, Chairman of the Board) becoming a wholly-owned subsidiary, with Lionheart stockholders receiving SMX Ordinary Shares and warrants.
• Bridge Loans: Between August 2022 and January 2023, Security Matters PTY and the Company borrowed $3.86 million from private investors, including Doron Afik and Jessica Wasserstrom (related parties). Some loans were converted into Ordinary Shares and warrants.
• General Legal Counsel: Jessica L. Wasserstrom, LLC (Wasserstrom), whose principal is Jessica Wasserstrom (Chief Legal Officer of Lionheart Equities, an affiliate of the Chairman), provided legal services to Lionheart. For 2023, the company paid Wasserstrom approximately $300,000 in cash, Ordinary Shares, and warrants. As of December 31, 2024, $100,000 remains unpaid.
• Chairman Agreement: Ophir Sternberg, Chairman of the Board, receives restricted stock units representing 3% of issued and outstanding Ordinary Shares as of the grant date, vesting over three years, with accelerated vesting upon certain terminations.
• Independent Contractor Agreement: Faquiry Diaz Cala, an independent contractor, receives $84,000 annually and restricted stock units representing 1% of issued and outstanding Ordinary Shares, vesting over three years, with accelerated vesting upon certain terminations.
• Borrowings From Related Parties: In 2015, SMX Israel received a loan of ILS 2 million (approx. $513,000) from Kibbutz Ketura and Kibbutz Degania A (an entity associated with Amir Bader, a director). This loan was fully repaid in August 2022. An addendum in August 2022 reduced bonus payments to ILS 2.5 million (approx. $710,000) to be paid upon business combination completion. In September 2023, Kamea Fund (related party) converted $657,000 of indebtedness into Ordinary Shares.
• Proof Of Concept Projects Paid By Affiliated Companies: Affiliated companies paid $1,154,000 in 2024 and $858,000 in 2023 for reimbursement of POC projects.

Stakeholder Impact

• Shareholders: Face significant dilution from ongoing capital raises and reverse stock splits. The 'going concern' warning poses a substantial risk to investment value. Limited protections due to foreign private issuer exemptions from certain Nasdaq corporate governance rules.
• Employees: Subject to Israeli labor laws and potential disruptions from military reserve duty. Share-based compensation plans are in place to attract and retain talent.
• Customers: Benefit from the company's brand protection, authentication, and traceability solutions, aiming to enhance supply chain integrity and ESG compliance. However, slow sales cycles and potential issues with marker contamination or reader safety could impact satisfaction.
• Suppliers: May be affected by the company's financial health and ability to meet payables. The R&I Trading arbitration highlights potential disputes with service providers.
• Creditors: The company has significant outstanding liabilities and relies on capital raises to meet obligations, indicating high credit risk. Debt restructuring and extensions are ongoing.

Next Steps

• Continue efforts to obtain additional sources of debt and equity financing to fund operations and repay outstanding obligations.
• Defend against the arbitration process with R&I Trading regarding the disputed contract termination.
• Continue commercial scaling and initial deployment of technology, along with research and development activities.
• Concentrate market penetration efforts into the U.S. and Asia Pacific markets, including recruitment of sales and marketing personnel.
• Increase participation in professional expos, conventions, and exhibitions.
• Establish partnerships and collaborations with strategic customers and entities in relevant segments.
• Monitor and comply with Nasdaq listing standards to avoid delisting.
• Continue to refine risk management policies and procedures as the business expands.

Key Dates

Keywords

Brand Protection, Supply Chain Integrity, Circular Economy, Anti-Counterfeit, Track and Trace, Sustainability, ESG, Blockchain, Intellectual Property, Convertible Notes, Reverse Stock Split, Going Concern, Nasdaq Listing, SEC Filing, F-1