F-1: SMX Faces Going Concern Doubts Amid Rising Losses

SMX (Security Matters) Public Limited Company reported increased net losses and negative cash flows, raising substantial doubt about its ability to continue as a going concern, despite ongoing capital raises and strategic collaborations.

Summary

• SMX reported a net loss of $24,621 thousand for the six months ended June 30, 2025, a 126% increase from $10,886 thousand in the same period of 2024.
• General and administrative expenses surged by 157% to $18,656 thousand, primarily due to $12,580 thousand in share-based compensation.
• Selling and marketing expenses increased by 333% to $1,380 thousand, driven by $748 thousand in share-based compensation and higher wages.
• Amortization expenses of $2,075 thousand were recognized for the first time in the six months ended June 30, 2025, as intangible assets matured to commercial stage.
• Cash and cash equivalents stood at $750 thousand as of June 30, 2025, down from $2,343 thousand at December 31, 2024.
• The company continues to incur significant losses and negative cash flows from operations, leading to a 'going concern' explanatory paragraph in its financial statements.
• Multiple reverse stock splits have been effected (1:22 in Aug 2023, 1:75 in Jul 2024, 1:28.5 in Jan 2025, 1:4.1 in Jun 2025, 1:7 in Aug 2025) to maintain Nasdaq listing compliance.
• SMX is engaged in an arbitration process with R&I Trading over a terminated $5 million supply chain management contract, with R&I Trading demanding full restitution.
• The company has secured new funding through convertible promissory notes, including an August RBW Agreement for up to $15,000,000 principal amount and a May 2025 RBW transaction for $5,500 thousand in cash proceeds.
• Strategic collaborations were announced with BT-SYSTEMS GmbH for recycling solutions, A*STAR for a national plastic circularity platform, and Bio-Packaging Pte Ltd. for molecular marking in packaging.
• The 2022 Incentive Equity Plan has been repeatedly amended to increase authorized Ordinary Shares, with significant grants of restricted stock units and stock options to management and employees.
• Total liabilities as of June 30, 2025, were $22,618 thousand, with accumulated losses reaching $105,664 thousand.

Sentiment

Score: 2

Explanation: The company faces severe financial distress, evidenced by significantly increased net losses, negative cash flows, and a 'going concern' warning. While strategic collaborations and technology development show promise, the heavy reliance on dilutive financing, multiple reverse stock splits, and ongoing legal disputes create substantial uncertainty and risk for investors.

Positives

• Strategic collaborations with BT-SYSTEMS GmbH, A*STAR, and Bio-Packaging Pte Ltd. aim to advance circular economy solutions and expand market reach.
• Development of a Plastic Cycle Token is planned for late 2025, positioning the company in the ethical digital credit platform market for recyclable plastics.
• Successful proof-of-concept for ethical sourcing and authentication of silver in cooperation with Sunshine Minting Inc., marking 2.2 tons of silver with 100% success rates.
• Successful trial of marking natural rubber from tree to tire, demonstrating 100% verification for origin authentication and full traceability.
• Integration of markers in NFC and RFID chips, and the ability of marker coating to withstand 150 degrees Celsius, opening potential for wearable technology and active wear.
• The company holds over 100 patent applications worldwide, with 19 patents already issued, protecting its core technology.

Negatives

• Net loss for the six months ended June 30, 2025, increased by 126% to $24,621 thousand, compared to $10,886 thousand in the prior year period.
• General and administrative expenses increased by 157% to $18,656 thousand, largely due to $12,580 thousand in share-based compensation.
• Selling and marketing expenses rose by 333% to $1,380 thousand, primarily due to increased share-based compensation and wages.
• The company has incurred accumulated losses of approximately $106 million as of June 30, 2025, and continues to generate negative cash flows from operations.
• A 'going concern' explanatory paragraph in the financial statements indicates substantial doubt about the company's ability to continue operating without additional financing.
• Multiple reverse stock splits (1:22, 1:75, 1:28.5, 1:4.1, 1:7) have significantly reduced the number of outstanding shares, indicating severe downward pressure on stock price and potential liquidity issues.
• The company has substantial existing payables and other liabilities totaling approximately $14,451 thousand, plus an additional $7,740 thousand due to various lenders and investors.
• The Abri Advisors loan entered a nonpayment event on June 30, 2025, leading to a revalued liability of $2,115 thousand and accruing interest at 5% per month.
• Significant dilution to existing shareholders has occurred and is expected to continue due to frequent issuances of ordinary shares upon conversion of convertible notes and warrants, and grants under equity plans.
• The company has elected to rely on home country corporate governance practices, bypassing shareholder approval for certain equity issuances and amendments to incentive plans, which can lead to further dilution.

Risks

• Substantial doubt about the ability to continue as a going concern due to recurring losses and negative cash flows.
• Significant accounts payable and other current liabilities, with insufficient cash flow to meet obligations.
• Volatile trading price of securities and risk of delisting from Nasdaq due to failure to meet listing standards.
• Limited operating history makes it difficult to predict future performance and assess business prospects.
• Failure to effectively manage growth, integrate new employees, and expand operational infrastructure could adversely affect business.
• Potential termination of the Isorad License Agreement, which is the cornerstone of technological developments, could harm business.
• Inability to effectively penetrate the full value chain manufacturing ecosystem, leading to slower growth and challenges in value capture.
• Adverse effects from pandemics, public health crises, or geopolitical conflicts (e.g., Russian-Ukrainian dispute) on business operations and growth.
• Inability to successfully identify and integrate acquisitions, leading to unanticipated liabilities and disruption.
• Intense competition in the track and trace and anti-counterfeit industry, potentially leading to price reductions, reduced margins, or loss of revenue.
• Dependence on retaining current employees and attracting qualified personnel, which may be challenging in a competitive market.
• Inability to anticipate or adapt to consumer preferences and market trends, affecting future revenues and performance.
• Challenges in adapting markers to specific customer or field needs, potentially increasing costs and time to market.
• Future need to raise additional funds through equity, debt, or convertible debt financings, which may be unavailable on acceptable terms or cause substantial dilution.
• Legal proceedings, investigations, or claims (e.g., R&I Trading arbitration) may be costly, time-consuming, and damage reputation.
• Risk of markers contaminating raw materials or including hazardous materials, leading to product liability claims and reputational damage.
• Dangers associated with X-ray readers if tampered with or not used according to safety rules, potentially leading to legal actions.
• Inability to procure adequate insurance or insufficient coverage for potential losses.
• Ineffectiveness of risk management policies and procedures in identifying or mitigating risk exposure.
• Inability to obtain, maintain, protect, or enforce intellectual property rights, or claims of infringement by third parties.
• Changes in laws, regulations, and standards related to privacy, cybersecurity, and data protection could increase operational costs.
• Political, economic, and military conditions in Israel, where a large concentration of staff and R&D facilities are located, could adversely affect business.
• U.S. federal income tax consequences for U.S. holders of 10% or more of equity interests under controlled foreign corporation (CFC) rules.
• Risk of being classified as a passive foreign investment company (PFIC), resulting in adverse U.S. federal income tax consequences for U.S. investors.
• Potential challenge by the IRS to the company's status as a non-U.S. corporation for U.S. federal income tax purposes.
• Unanticipated changes in effective tax rates or adverse outcomes from tax return examinations.
• Future changes in U.S. and foreign tax laws could adversely affect the company.
• Irish taxes may apply to dividends or transfers of the company's securities.
• Provisions in the company's constitution and Irish law could make an acquisition more difficult or limit shareholder actions.
• Numerous reverse stock splits have decreased and may continue to decrease the liquidity and price of Ordinary Shares.
• No intention to pay dividends for the foreseeable future.
• Significant costs and management time devoted to U.S. reporting requirements.
• Management's limited experience in operating a U.S. public company.
• Volatility in the stock price of Ordinary Shares.
• Issuance of additional Ordinary Shares or other equity securities without shareholder approval, leading to dilution.
• Reduced disclosure requirements as an emerging growth company may make Ordinary Shares less attractive to investors.
• Less publicly available information as a foreign private issuer.
• Loss of foreign private issuer status could result in significant additional costs and expenses, including GAAP reporting requirements.
• Sale of currently-restricted Ordinary Shares by stockholders could cause the share price to fall.

Future Outlook

The company anticipates continued net losses and negative cash flows in the foreseeable future as it focuses on product development and expanding corporate infrastructure. Future capital requirements will depend on commercial scaling, R&D costs, intellectual property protection, marketing efforts, and general administrative expenses. The company expects to rely on capital raising and shareholder financial support until it generates significant recurring revenues and profit. There is no assurance that additional funding will be available on acceptable terms or at all, which could compromise business objectives and growth.

Management Comments

• We envision ourselves as the next generation solution provider of brand protection, authentication and track and trace technology for the anti-counterfeit market.
• 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 are generating negative cash flow and requiring constant and immediate cash injections to continue to operate.
• We are currently negotiating with certain of our debt holders and others we owe money to, to extend the term of their notes or other payment obligations and/or to convert some or all of such liabilities into our ordinary shares.
• We expect to be able to obtain additional sources of debt and equity financing. However, such opportunities remain uncertain and are predicated upon events and circumstances which are outside the Company's control.

Industry Context

The company operates in the growing anti-counterfeit, track-and-trace, and circular economy markets. Its technology aligns with increasing consumer and regulatory pressure for ESG compliance, sustainable sourcing, and reduced carbon emissions. The focus on molecular marking and blockchain-backed digital passports positions it within the advanced segment of supply chain integrity solutions. Collaborations with research agencies like A*STAR and industry players like BT-SYSTEMS and Bio-Packaging indicate an effort to establish industry standards and capture market share in plastics, rubber, and other materials, leveraging the global shift towards sustainability and verifiable product provenance.

Comparison to Industry Standards

• The company's technology, utilizing invisible molecular markers and blockchain, aims to create a new market standard for circular economy solutions, brand authentication, and supply chain integrity, differentiating itself from traditional track and trace methods.
• The planned Plastic Cycle Token is engineered to supersede traditional carbon credits, potentially offering a new paradigm in Impact ESG investment, though specific comparable companies or projects for this token are not detailed.
• The successful marking of 2.2 tons of silver with 100% success rates in cooperation with Sunshine Minting Inc. demonstrates a high level of technical achievement in precious metals authentication, but direct comparisons to competitors' project results are not provided.
• The successful marking of 21 tons of natural rubber from tree to tire with 100% verification highlights a robust solution for ethical sourcing, but specific industry benchmarks for this scale of traceability are not explicitly stated.

Corporate Governance

Legal Proceedings

• The company is engaged in an arbitration process with R&I Trading of New York regarding a $5 million contract for supply chain management to a NATO member state. R&I Trading issued a termination notice and demands full restitution of amounts paid, while the company alleges unlawful termination and seeks relief for breach of contract and loss of opportunities.
• Statements of claim were filed on January 6, 2025, and a mutual procedural arrangement was approved on March 7, 2025. Statements of defense were filed on May 11, 2025, and replies on June 26, 2025. An arbitration hearing was scheduled for July 21, 2025, and general affidavits of disclosure were exchanged on July 31, 2025. The outcome is currently unpredictable.

Related Party Transactions

• **trueGold Consortium Pty Ltd.**: Security Matters PTY granted trueGold an exclusive, worldwide, perpetual license for its technology in the gold industry. SMX's CEO, Haggai Alon, provides CEO services to trueGold, and Zeren Browne provides General Manager services. In October 2023, Security Matters PTY's holding in trueGold increased to 51.9% by waiving AUD475,000 of indebtedness, making it a majority owner. In July 2024, ownership increased to 52.9% in connection with the PMB LOI.
• **Bridge Loans**: Between August 2022 and January 2023, Security Matters PTY entered into bridge loan agreements totaling $3,860,000 with eleven lenders, including Doron Afik and Jessica Wasserstrom. These loans had a maturity of up to two years and bore 10% annual interest. Portions of these loans and associated redeemable warrants were converted into Ordinary Shares in March and December 2023, and additional shares were issued in 2024.
• **Jessica L. Wasserstrom, LLC**: Engaged by Lionheart Equities, LLC (an affiliate of Lionheart's Sponsor) as corporate general counsel. The company paid Wasserstrom approximately $300,000 in cash, Ordinary Shares, and warrants for legal services to Lionheart through March 2023. As of December 31, 2024, $100,000 remains unpaid.
• **Ophir Sternberg (Chairman)**: Entered into a Chairman Agreement, receiving restricted stock units representing 3% of issued and outstanding Ordinary Shares, subject to time-based vesting. He receives no cash compensation for board service.
• **Faquiry Diaz Cala (Independent Contractor)**: Entered into an Independent Contractor Agreement for three years, receiving $84,000 annually and restricted stock units representing 1% of issued and outstanding Ordinary Shares, subject to time-based vesting.
• **Kibbutz Ketura and Kibbutz Degania A**: In 2015, SMX Israel received a $512,558 loan from these entities (associated with Amir Bader). The loan was fully repaid in August 2022. The company also agreed to bonus payments capped at ILS 3 million (approx. $965,000) per lender upon an exit or major liquidity event. In September 2023, $657,000 of indebtedness was converted into 16,978 Ordinary Shares for Kamea (an entity associated with these kibbutzim).
• **Affiliated Companies (Proof of Concept Projects)**: Affiliated companies paid $1,154,000 in 2024 and $858,000 in 2023 for reimbursement of Proof of Concept projects.

Stakeholder Impact

• **Shareholders**: Face significant dilution from frequent issuances of Ordinary Shares for debt conversion and equity compensation. The numerous reverse stock splits have reduced liquidity and may continue to depress share price. No dividends are expected in the foreseeable future. Reliance on home country governance practices may limit shareholder protections.
• **Employees, Executive Officers, and Directors**: Benefit from substantial grants of restricted stock units and stock options under the 2022 Incentive Equity Plan, which has been repeatedly expanded. However, the company's 'going concern' status poses job security risks.
• **Lenders/Investors**: Convertible note holders and other lenders are subject to conversion terms that can lead to significant equity stakes. Some debt has been restructured or converted to equity, but the company's financial instability (e.g., Abri loan default) indicates high risk for creditors.
• **Customers/Partners**: Strategic collaborations (A*STAR, BT-SYSTEMS, Bio-Packaging) offer potential for innovative solutions and market expansion. However, the R&I Trading arbitration highlights risks of contract disputes and potential service disruptions.
• **Suppliers**: May face payment delays or disputes, as indicated by the company's significant accounts payable and the R&I Trading arbitration.

Next Steps

• Continue commercial scaling and initial deployment of technology.
• Progress research and development activities, including adapting marker and scanning technology to different materials and industrial environments.
• Increase market penetration efforts in the U.S. and Asia Pacific markets, including recruitment of sales and marketing personnel.
• Engage with additional suppliers and service providers to improve product development and supply chain.
• Increase participation in professional expos, conventions, and exhibitions.
• Establish partnerships and collaborations with strategic customers and entities in relevant technology segments.
• Finalize the amendment to treasury investment guidelines to allow for potential acquisition of Bitcoin and/or other cryptocurrency assets.
• Launch Phase 1 of the national plastic circularity platform with A*STAR, targeting semi-industrial integration in Q1 2026 and a full-scale commercial showcase in Q2 2027.
• Continue arbitration process with R&I Trading regarding the terminated $5 million contract.
• Negotiate with Abri Advisors to postpone remaining payments due on the defaulted loan.

Key Dates

Recommendation

The company's financial health is in severe distress, marked by a 126% increase in net losses, persistent negative cash flows, and an explicit 'going concern' warning from its auditors. The strategy of frequent, highly dilutive equity issuances and multiple reverse stock splits to maintain Nasdaq listing and fund operations is unsustainable and has significantly eroded shareholder value. The substantial outstanding liabilities, coupled with a recent loan default and ongoing arbitration, underscore profound liquidity challenges. While strategic collaborations offer long-term potential, the immediate financial instability and the high risk of further dilution or even delisting make this a highly speculative and precarious investment. A seasoned investor would recognize the severe downside risk and recommend divesting.

Keywords

Circular Economy, Brand Protection, Anti-Counterfeit, Track and Trace, Supply Chain Integrity, ESG, Molecular Marking, Blockchain, Recycling Technology, Sustainability, Convertible Notes, Reverse Stock Split, Nasdaq Listing, SEC Filing, F-1 Registration