SMX (Security Matters) Public Ltd Co current report, Q2 FY2024

Full document

SMX (Security Matters) Public Limited Company — Form 6-K Summary

Reporting period: April 2024; filed April 22, 2024. The filing reports financing and securities transactions entered into on or around April 19, 2024.

Business Context and Transaction Overview

SMX entered into a Stock Purchase Agreement (SPA) with Generating Alpha Ltd. (Alpha), under which Alpha committed to purchase up to $30.0 million of SMX ordinary shares from time to time, subject to the SPA’s conditions. The SPA was a condition to SMX’s previously announced April 11, 2024 note and warrant transaction with Alpha.

SMX also entered into a Registration Rights Agreement covering registration for resale of the ordinary shares issuable under the SPA.

Key Financial and Capital Markets Terms

  • Maximum commitment: Up to $30.0 million of ordinary shares over the life of the SPA.
  • Put limits: Each put must be at least $20,000 and generally cannot exceed $500,000 in any consecutive 30-day period, subject to a stated volume threshold.
  • Purchase price: A discount to the lowest daily trading price during a five-trading-day valuation period. The discount varies based on the market price, ranging from 5% when the market price is above $1.00 to 50% when it is below $0.20.
  • Company control: SMX controls the timing and amount of share sales, and may consider market conditions, trading price, and its funding needs.
  • Ownership limitation: Alpha is not required to purchase shares if the transaction would cause it to beneficially own more than 4.99% of SMX’s ordinary shares.
  • Commitment fee: SMX will issue Alpha 2,725,621 ordinary shares, representing a 1.5% commitment fee. These shares are subject to a three-month lock-up.
  • Use of proceeds: Expected proceeds are intended for working capital and general corporate purposes. If SMX owes indebtedness to Alpha, 50% of proceeds must be applied to that indebtedness.
  • Term: The SPA terminates on the earlier of the first day of the month following its 36-month anniversary or Alpha’s purchase of $30.0 million of shares under the SPA.

Material Changes Versus the Prior Period

  • SMX replaced its $25.0 million Standby Equity Purchase Agreement with YA II PN, Ltd., dated February 23, 2023, as amended and supplemented; that agreement was terminated on or around April 19, 2024.
  • SMX added a new equity financing facility with Alpha, which could result in substantial issuance of ordinary shares and dilution depending on the timing and price of future puts.
  • The commitment shares will be issued in a private placement under Section 4(a)(2) of the Securities Act and are not registered under the Securities Act or applicable state securities laws.

Outlook, Risks, and Unusual Items

  • Net proceeds are not determinable because they depend on the frequency and prices of future share sales.
  • The facility may provide working-capital liquidity, but sales at discounts to market prices could pressure the trading price and cause significant dilution.
  • Alpha’s purchase obligations are subject to customary conditions, registration of the shares for resale, and the 4.99% beneficial ownership limit.
  • The SPA restricts SMX’s ability to enter into certain variable-rate transactions.
  • SMX may terminate the SPA without cost or penalty with five trading days’ notice, provided there are no outstanding put notices and all amounts owed to Alpha and its affiliates have been paid.
  • The filing does not provide revenue, profit, cash flow, margin, debt balance, or liquidity figures for the reporting period.

Important Facts for Investors to Verify

  1. Whether the shares underlying the SPA were registered for resale and when registration became effective.
  2. The number and price of ordinary shares issued in any subsequent puts, including cumulative proceeds received.
  3. The effect of the 2,725,621 commitment shares and future issuances on total shares outstanding and dilution.
  4. Any indebtedness owed to Alpha or its affiliates and the portion of proceeds applied to repayment.
  5. The full SPA and Registration Rights Agreement, including variable-rate transaction restrictions, indemnification provisions, and termination conditions.