SMX (Security Matters) Public Limited Company — Form 6-K Summary
Business context and reporting period
Filed November 3, 2023, this Form 6-K reports unaudited interim results for the six months ended June 30, 2023, with comparable information for the six months ended June 30, 2022. SMX develops marking, measuring, authentication, and track-and-trace technology intended to provide material provenance and support circular-economy and ESG objectives.
The March 7, 2023 business combination with Lionheart III Corp. resulted in SMX becoming a Nasdaq-listed foreign private issuer. Security Matters PTY Ltd. is treated as the accounting acquirer in the reverse acquisition.
Financial performance and key metrics
| U.S. dollars in thousands, except per-share data | Six months ended June 30, 2023 | Six months ended June 30, 2022 |
|---|---|---|
| Revenue | No significant revenue generated | No significant revenue generated |
| Research and development expense | (1,172) | (933) |
| Selling and marketing expense | (228) | (378) |
| General and administrative expense | (13,350) | (1,200) |
| Listing expense | (16,802) | — |
| Operating loss | (31,552) | (2,511) |
| Finance income | 1,143 | 105 |
| Finance expense | (2,496) | (36) |
| Loss before income tax | (33,009) | (2,442) |
| Net loss | (33,009) | (2,442) |
| Basic and diluted loss per share | (39.46) | (3.36) |
Operating loss increased by $29.041 million, primarily because of $16.802 million of listing expense and $7.792 million of business-combination transaction costs included in general and administrative expenses. General and administrative expense increased by $12.150 million, while research and development expense increased 26%. Selling and marketing expense decreased 40%.
Finance income primarily reflected fair-value revaluation of warrants and a convertible note. Finance expense primarily reflected fair-value revaluation of bridge-loan liabilities. No income tax expense was recorded. The company reported estimated tax-loss carryforwards of $56.106 million at June 30, 2023 and did not recognize related deferred tax assets because utilization was not considered probable.
Cash flow, liquidity, and debt
- Cash and cash equivalents were $3.020 million at June 30, 2023, compared with $1.398 million at December 31, 2022.
- Net cash used in operating activities was $7.675 million, compared with $2.862 million in the prior-year period.
- Net cash used in investing activities was $393 thousand, principally for capitalized development costs of $383 thousand.
- Net cash provided by financing activities was $9.703 million, including advance payments for equity, business-combination share proceeds, bundled securities, bridge loans, and a convertible note.
- The company had approximately $12 million of outstanding payables and other liabilities related to business-combination expenses; approximately $8.5 million was deferred through the second quarter of 2024.
- On September 6, 2023, the company raised gross proceeds of approximately $2.5 million through a convertible promissory note and warrants. The note has a $4.290 million principal amount after a 40% original issue discount, bears 12% annual interest, and matures 12 months after its effective date.
- The company has the right, but not the obligation, to sell up to $25 million of ordinary shares to Yorkville under a standby equity purchase agreement. It previously received $3.5 million in pre-advances, of which $1.8 million had been converted into shares or repaid as of the report date.
- Borrowings include bridge loans bearing 10% interest and a $250 thousand convertible loan bearing 15% interest. Certain borrowings are secured by interests in the company’s investment in trueGold Consortium Pty Ltd.
Material changes, outlook, and risks
The business combination materially affected the reported results. The reverse-acquisition accounting generated a $16.802 million listing expense, and the company’s post-combination financial statements include the accounting acquirer’s historical results with the public-company structure and recapitalized equity.
Management states that the company has incurred losses and negative operating cash flows since inception and has not generated significant product revenue. It expects continued net losses while developing products and expanding its corporate infrastructure. Management expects existing cash, the September 2023 financing, potential Yorkville SEPA proceeds, and client receivables to fund operations for the foreseeable future, potentially at a delayed or reduced scope.
The company may require additional capital sooner than expected. Additional financing may be unavailable or available only on unfavorable terms and could dilute shareholders, increase fixed payment obligations, or impose restrictive covenants. If sufficient funding is unavailable, the company may delay, reduce, or discontinue commercialization and product-development activities.
Key operating risks include lengthy sales cycles with large international customers, limited revenue history, uncertain market acceptance, dependence on third-party suppliers and manufacturers, intellectual-property protection, Nasdaq listing compliance, foreign-currency exposure, litigation and regulatory risks, and potential disruption from geopolitical events, including hostilities affecting Israel.
Other contingencies include obligations under the Isorad license, including royalties and potential transaction-related payments; contingent repayment obligations to the Israel Innovation Authority; and lease commitments. The company does not hedge its primary U.S. dollar/Israeli shekel currency exposure.
Investor verification points
- Verify the company’s current cash balance, burn rate, and ability to fund approximately $12 million of business-combination-related liabilities.
- Review the terms, conversion mechanics, dilution potential, and maturity obligations of the September 2023 convertible note and associated warrants.
- Confirm the remaining availability and actual drawdown capacity under the $25 million Yorkville SEPA.
- Assess whether commercial agreements and proof-of-concept projects are converting into recurring revenue; the filing does not provide a clear revenue value.
- Reconcile the substantial listing and transaction expenses with underlying operating costs and future-period comparability.
- Monitor Nasdaq listing compliance, potential equity dilution, debt conversions, and the company’s continuing need for external capital.