UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

FORM 10-K/A

WASHINGTON, DC 20549

FORM 10-K

(Mark One)

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 20212022

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO

 

Commission File Number: 001-36247

Meta Materials Inc.

(Exact Name of Registrant as Specified in its Charter)

 

Nevada

74-3237581

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

1 Research60 Highfield Park Drive,

Dartmouth, Nova Scotia, Canada

B2Y 4M9B3A 4R9

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code: (902) 482-5729

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading

Symbol(s)

Name of each exchange

on which registered

Common Stock, par value $0.001 per share

MMAT

Nasdaq Capital Market

 

 

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes YesNo No

Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes No

Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for a such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No

Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for a such shorter period that the Registrant was required to submit such files). Yes No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

 

If an emerging growth company, indicate by a check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.

If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements.

Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b).

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No

The aggregate market value of the voting and non-voting common equity held by non-affiliates of the Registrant, based on the closing price of the shares of common stock on June 30, 2021,2022, was $1,523,026,255371,634,314.

The number of shares of Registrant’s Common Stock outstanding as of March 1, 202220, 2023 is 284,812,797382,152,643.

 

DOCUMENTS INCORPORATED BY REFERENCE

The information called for by Part III of this Form 10-K will be included in an amendment to this Form 10-K, which will be filed within 120 days after the registrant’s fiscal year ended.

 


EXPLANATORY NOTE

 

Meta Materials Inc. (the “Company”) filed its Form 10-K for the year ended December 31, 2022 (the "2022 Form 10-K") with the Securities and Exchange Commission (the "SEC") on March 23, 2023. The Company is filing this Amendment No. 1 on Form 10-K/A to correct the date of the Section 302 and 906 Certifications furnished in the 2022 Form 10-K as Exhibits 31.1, 31.2, 32.1 and 32.2; the initial Exhibits 31.1, 31.2, 32.1 and 32.2 were dated March 23, 2022, rather than the March 23, 2023 filing date. This Amendment No. 1 also contains minor edits to Exhibits 4.5.2 and 4.6.

Except as expressly set forth herein, this Form 10-K/A does not reflect events occurring after the date of the 2022 Form 10-K filing or modify or update any of the other disclosures contained therein in any way other than as required to reflect the amendments discussed above. Other than the changes in exhibits referred to above, all other information in the 2022 Form 10-K remains unchanged.

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Table of Contents

Page

PART I

Item 1.

Business

35

Item 1A.

Risk Factors

915

Item 1B.

Unresolved Staff Comments

1737

Item 2.

Properties

1838

Item 3.

Legal Proceedings

1938

Item 4.

Mine Safety Disclosures

20

39

PART II

 

Item 5.

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

2140

Item 6.

[Reserved]Reserved

2241

Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

2342

Item 7A.

Quantitative and Qualitative Disclosures About Market Risk

3252

Item 8.

Financial Statements and Supplementary Data

3253

Item 9.

Changes in and Disagreements Withwith Accountants on Accounting and Financial Disclosure

8293

Item 9A.

Controls and Procedures

8293

Item 9B.

Other Information

8495

Item 9C.

Disclosure Regarding Foreign Jurisdictions that Prevent Inspections

84

96

PART III

 

Item 10.

Directors, Executive Officers and Corporate Governance

8496

Item 11.

Executive Compensation

8496

Item 12.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

8496

Item 13.

Certain Relationships and Related Transactions, and Director Independence

8496

Item 14.

Principal Accounting Fees and Services

84

96

PART IV

 

Item 15.

Exhibits, Financial Statement Schedules

8497

Item 16.

Form 10-K Summary

8699

 

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CAUTIONARY NOTE ABOUTREGARDING FORWARD-LOOKING STATEMENTS

 

This Annual Report on Form 10-K contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements contained in this Annual Report on Form 10-K other than statements of historical fact, including statements regarding the Company'sour future results of operations and financial position, its business strategy and plans, and its objectives for future operations, are forward-looking statements. The words "believe," "may," "will," "estimate," "continue," "anticipate," "intend," "expect,“potential," “expect," and similar expressions are intended to identify forward-looking statements. The Company hasWe have based these forward-looking statements largely on itsour current expectations and projections about future events and trends that it believeswe believe may affect itsour financial condition, results of operations, business strategy, short-term and long-term business operations and objectives, and financial needs. These forward-looking statements are subject to a number of risks, uncertainties and assumptions, including those described in Part I, Item 1A, "Risk Factors" in this Annual Report on Form 10-K. Moreover, the Company operateswe operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for managementus to predict all risks, nor can theywe assess the impact of all factors on the Company'sour business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements the Companywe may make. In light of these risks, uncertainties and assumptions, the future events and trends discussed in this Annual Report on Form 10-K may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements.

 

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Item 1. Business.

 

Business Overview

 

Meta Materials Inc. (the(also referred to herein as the “Company” or, “META®”, “META” “we”, “us”, “our”, or “Resulting Issuer”) is a developer of high-performance functional materials and nanocomposites. We are developing materials that we believe can improve the performance and efficiency of many current products as well as allow new products to be developed that cannot otherwise be developed without such materials. We believe META is positioned for growth, by pioneering a new category of intelligent surfaces, which will allow us to become the metamaterials industry leader. We enable our potential customers across a range of industries - consumer electronics, 5G communications, healthcare, aerospace, automotive, and clean energy - to deliver improved products to their customers. For example, our nano-optic metamaterial technology provides anti-counterfeiting security features for Central Bank customers and currencies and authentication for Global brands. We currently have over 500 active patent documents, of which 315 patents have issued.

 

The Company’s registered office is located at 85 Swanson Road, Boxborough, Massachusetts 01719, and itsOur principal executive office is located at 1 Research60 Highfield Park Drive, Halifax,Dartmouth, Nova Scotia, Canada.

 

The CompanyAt META, we create nanostructures on the surfaces that everyone is surrounded by and interacts with - windows, windshields, screens on our devices, even the glasses we wear on our heads – and we believe that the materials we are developing can open up an entirely new world of performance and efficiency.

We specialize in the design and fabrication of metamaterials, a new class of multi-functional surfaces that require less raw material and energy compared to traditional solutions and are able to do things that were previously unachievable.

We help aerospace companies to keep their pilots and passengers safe from laser strikes.
We help defense companies to equip aircraft with lighter weight, more efficient solar technology.
We help cellular communications companies embed nanostructures that turn glass windows into 5G antennas and reflectors to receive, amplify or distribute cellular signals.
We are exploring opportunities with auto industry leaders to de-ice and defog LiDAR, Radar and Camera sensors using a fraction of the energy currently needed without affecting the core sensor function.
We are exploring opportunities with battery OEMs applications to increase the safety and performance of lithium-ion batteries using a fraction of the materials or replacing them with nanocomposites that are several times more stable under heat than conventional materials.

META in the last decade has generateddeveloped and acquired a portfolio of intellectual property, and iswe are now moving toward commercializing products at a performance and price point combination that haswe believe have the potential to be disruptive in multiple market verticals. The Company’sOur platform technology includes holography, lithography, electro-optics, nano-optics, battery materials, and medical wireless sensing. In 2021, we acquired the assets and IP which comprise ARfusion®, our platform technology for smart, augmented reality (AR) prescription eyewear, and we added nano-optic security products with the acquisition of Nanotech Security Corp. In 2022, we acquired nanoporous ceramic battery separator technology and high-speed vacuum coating capabilities. The underlying approach that powers the Company’sour platform technologies comprises advanced materials, metamaterials and functional surfaces. These materials include structures that are patterned in ways that manipulate light, heat, and electromagnetic waves in unusual ways. The Company’sOur advanced structural design technologies and scalable manufacturing methods provide a path to broad commercial opportunities in aerospace and defense, automotive, energy, healthcare, consumer electronics, and data transmission.


 

Controlling light, heat, electricity,Throughout 2022, we focused our resources on the pilot scale manufacturing of our NANOWEB®transparent conductive filmapplications, expansion of our production capacity in our ARfusion® smart lenses for AR eyewear, as well as the banknote and radio wavesbrand security lines, and more aggressive design, development and pre-clinical testing of certain medical products.

We have played key rolesproduct concepts currently in technological advancements throughout history. Advancesvarious stages of development with multiple potential customers in electricaldiverse market verticals. Our business model is to co-develop innovative products or applications with industry leaders that add value. This approach enables us to understand market dynamics and electromagneticensure the relevance and need for our products.

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META’s customerscan benefit from:

1.
Speed of Discovery.
Rapid design: Using artificial intelligence and machine learning to mine our library of nanopatterns allows META to create functional prototypes much faster than traditional chemical synthesis.
Multi-physics modeling:Our analysis tools allow us to build rapid prototypes in software to model how changing one parameter affects the entire system before implementation in physical form, saving millions of dollars in trial and error prototypes as compared to our competitor’s traditional chemical synthesis.
Mass customization:Bringing together our core capabilities—holography, lithography, wireless sensing, battery materials and coating technologies—into a device or system allows us to create a smart material that performs multiple functions.
2.
Manufacturing at Scale.
Large area solutions: Our manufacturing facilities house proprietary production equipment that can produce nanocomposites with dimensions suitable for use in many high-volume applications such as vehicles and energy.
High volume production: Our nanofabrication and coating technologies wireless communications, lasers,allow new materials to be produced at high speed and computers have all been made possible by challenginglarge quantities (e.g. batch wise or roll-to-roll) enabling META to fabricate metamaterial products at higher volume than our competitors with semi-conductor quality.
Quality: The very precise and demanding quality standards of advanced nanofabrication is why META adheres to the understandingISO 9001 Quality Management System (“QMS”) standard.
3.
Breakthrough Performance.
Multi-functional applications:We are a technology platform company that can design and build multi-functional products uniquely combining more than one capability across a customer application – e.g. a head-mounted display (holography) with an electrochromic dimmable surface (lithography) into an ophthalmic grade casted lens (ARfusion).
Breakthrough solutions:Our advanced capabilities in both design and manufacturing of how light and other typesmetamaterials are why some of energy naturally behave, and how itthe world’s best-known companies consider us to co-develop breakthrough solutions.

What is possible to manipulate them.
a Metamaterial?

 

Over the past 20 years, techniques for producing nanostructures have matured, resulting in a wide range of groundbreaking solutions that can control light, heat, and electromagnetic waves at very small scales. Some of the areas of advancement that have contributed to these techniques are photonic crystals, nanolithography, plasmonic phenomena and nanoparticle manipulation. From these advances, a new branch of material science has emerged – metamaterials. Metamaterials are composite structures, consisting of conventional materials such as metals and plastics, which are engineered by scientists to exhibit new or enhanced properties relating to reflection, refraction, diffraction, filtering, conductance and other properties that have the potential for multiple commercial applications.

 

A metamaterial typically consists of a multitude of structured unit nano-cells that are comprised of multiple individual elements. These are referred to as meta-atoms. The individual elements are usually arranged in periodic patterns that, together, can manipulate light, heat, or electromagnetic waves. Development strategies for metamaterials and functional surfaces focus on structures that produce unusual and exotic electromagnetic properties by manipulating light and other forms of energy in ways that have never been naturally possible. They gain their properties not as much from their composition as from their exactingly designed structures. The precise shape, geometry, size, orientation, and arrangement of these nanostructures affect the light and other electromagnetic waves to create material properties that are not easily achievable with conventional materials.

The Company has many product concepts currently in various stages of development with multiple potential customers in diverse market verticals. The Company’s business model is to co-develop innovative products or applications with industry leaders that add value. This approach enables the Company to understand market dynamics and ensure the relevance and need for its products.

3


Controlling light, heat, electricity, and radio waves have played key roles in technological advancements throughout history. Advances in electrical and electromagnetic technologies, semiconductors, wireless communications, lasers, and computers have all been made possible by challenging the understanding of how light and other types of energy naturally behave, and how it is possible to manipulate them.

 

Holography Technology
 

Holography is a technique where collimated visible wavelength lasers are used to directly write an interference pattern inside the volume of light-sensitive material (photopolymer) in order to produce highly transparent optical filters and holographic optical elements. For

6


some product lines that require large surface areas, this is combined with a proprietary scanning technique, where the lasers, optically or mechanically, directly write nano-patterns to cover large surface areas with nanometer accuracy.

META’s principal products that employ holography technology are its metaAIR® laser glare protection eyewear, metaAIR® laser glare protection films for law enforcement and holoOPTIXTM® notch filters. META co-developed its metaAIR® laser glare protection eyewear product with Airbus S.A.S. It has been engineered to provide laser glare protection for pilots, military and law enforcement using META’s holography technology. metaAIR® is a holographic optical filter developed using nano-patterned designs that block and deflect specific colors or wavelengths of light. META launched metaAIR® with strategic and exclusive distribution partner, Satair, a wholly owned Airbus company and started producing and selling metaAIR® in April 2019. The scale-up and specification for the raw photopolymer material used to produce the eyewear was successfully finalized in late 2019 and commercialized in 2020. META launched its laser glare protection films for law enforcement use in late 2020. These films are designed to be applied to face shields and helmet visors providing the wearer with the same type of laser glare eye protection afforded to pilots by metaAIR® glasses while preserving peripheral vision critical to law enforcement duties. HoloOPTIXholoOPTIXTM® notch filters are optical filters that selectively reject a portion of the spectrum, while transmitting all other wavelengths. They are used in applications where it is necessary to block light from a laser, as in machine vision applications and in confocal or multi-photon microscopy, laser-based fluorescence instrumentation, or other life science applications. HoloOPTIXWe commercially launched holoOPTIXTM® notch filters were commercially launched by the Company in November 2020.

META has additional products in development that utilize its proprietary holography technology. Included in the holoOPTIXTM® family of products are holographic optical elements (“HOEs”). HOEs are a core component in the display of augmented reality smart glasses products, as well as (in their larger version) in Heads-Up Displays (“HUDs”), in automobiles and aircraft.

Additionally, our ARfusion® technology combines precision cast lens fabrication tools with functional metamaterials and volume holograms, to provide AR wearable developers with a platform for seamlessly integrating smart technologies into thin lightweight prescription glasses. To achieve widespread commercial adoption and ultimately become as ubiquitous as smartphones, AR glasses must be comfortable, affordable, natural looking, and easy to use. A successful solution needs to achieve high-quality images and a large field of view (FOV) in a fashionable, compact form factor, without adding excess weight. This means that the smart technologies (displays, filters, active dimming) must be embedded within a rugged, cast prescription lens.

Our ARfusion® system was first developed by a Swiss company, Interglass Technology (“Interglass”), which we acquired in February 2021. Interglass designed the automated lens casting system as a more sustainable solution to producing prescription lenses, using a fraction of the material and energy compared to conventional processes. The lenses were directly cast into the final correction using an extensive library of reusable front and back molds. Acrylic monomer injected between the two molds is cured with UV light in seconds. The molds are automatically separated, and the lens substrate is ready in as quick as 1 minute, with no cleaning, polishing or post-production for a simple corrective lens. To accommodate precisely formed and embedded smart AR elements in prescription lenses, ARfusion® produces an optimized, minimal thickness, semi-finished blank lens, ready to be ground to the final curvature on standard ophthalmic processing equipment.

In a traditional cast plastic lens, up to 80% of the original lens blank material is wasted as the prescription is ground into the blank. With the same amount of material, ARfusion® can produce several optimized semi-finished lenses. In a standard thermal process, curing of semi-finished lens blanks for up to 50 hours requires much more energy and process time compared to the UV curable materials and associated processes used by ARfusion®.

Lithography Technology
 

Lithography is a process commonly used in the fabrication of integrated circuits, in which a light-sensitive polymer (photoresist), is exposed and developed to form 3D relief images on the substrate, typically a silicon wafer of up to 300mm (11.8 inches) in diameter. In order to meet the performance, fabrication-speed, and/or cost criteria required for many potential applications that require large area and low cost nanopatterning, the Company haswe have developed a new nanolithography method called “Rolling Mask” lithography (registered trademark RML®), which combines the best features of photolithography, soft lithography and roll-to-plate/roll-to-roll printing capability technologies. Rolling Mask Lithography utilizes a proprietary UV light exposure method where a master pattern is provided in the form of a cylindrical mask. These master patterns are designed by the Companyus and over the years they have become part of a growing library of patterns, enriching the intellectual property (“IP”) of the Company. The nanostructured pattern on the mask is then rolled over a flat surface area writing a nano-pattern into the volume of a photoresist, creating patterned grooves, metal is then evaporated and fills the patterned grooves. The excess metal is then removed by a known post-process called lift-off. The result is an invisible conductive metal mesh-patterned surface (registered trademark NANOWEB®) that is not visible to the unaided eye, and which can be fabricated onto any glass or plastic transparent surface in order to offer high transparency, high conductivity and low haze smart materials.

7



 

The Company’sOur current principal prototype product in lithography technology is its transparent conductive film, NANOWEB®. The lithography division operates out of the Company’sour wholly owned U.S. subsidiary, Metamaterial Technologies USA Inc. ("MTI US"). MTI US can produce meter-long samples of NANOWEB®, at a small volumes scale, for industry customers/partners. Throughout 20202021 and 2021, the Company has2022, we have been ordering and upgrading itsour equipment at itsMTI US's California facility to efficiently supply NANOWEB® samples in larger volumes. The Company has recentlyIn early 2022, we installed itsour first roll-to-roll, NANOWEB®NANOWEB® pilot scale production line at itsour Pleasanton, California facility. The line is configured for 300mm-wide rolls of substrate. All the equipment passed factory acceptance tests prior to deliveryOur roll-to-roll production now matches or exceeds functional performance of wafer-based samples. We have achieved cosmetic uniformity and installation,transparency in our samples and the line is currently being optimized.

they now exceed customer specifications for transmission, haze and sheet resistance.

4


There are six NANOWEB®-enabled products and applications that are currently in early stages of development including:

NANOWEB® for Transparent EMI ShieldingShielding.
NANOWEB® for Transparent AntennasAntennas.
NANOWEB® for 5G signal enhancementSignal Enhancement.
NANOWEB® for Touch Screen SensorsSensors.
NANOWEB® for Solar cellsCells.
NANOWEB® for Transparent Heating to de-ice and de-fogde-fog.

More details of these products and applications can be found in META’s EDGAR filings and on META’s website at www.metamaterial.com.

The Company hasWe have entered into a collaboration agreement with Crossover Solutions Inc. to commercializeassist with commercialization of the NANOWEB® enabled products and applications for the automotive industry and with ADI Technologies to help secure contracts with the US Department of Defense.

Nano-optic structuresStructures and color-shifting foilsColor-shifting Foils

- the Company recentlyDuring 2021 we acquired Nanotech Security Corp. "Nanotech" which specializes in designing, originating, recombining, and mass-producing nanotechnology-based films with application for a wide variety of products and markets. Nanotech develops and produces nano-optic structures and color-shifting foils used in authentication and brand protection applications across a wide range of markets including banknotes, secure government documents, and commercial branding. The Company’sOur nano-optic security technology platforms include:

 

KolourOptik®, a patented visual technology that is exclusive to the government and banknote market and combines sub-wavelength nanostructures and microstructures to create modern overt security features with a unique and customizable optical effect. KolourOptik® pure plasmonic color pixels produce full color, 3D depth, and movement used in security stripes and threads that are nearly impossible to replicate.
LiveOptik™, a patented visual technology that utilizes innovative nano-optics one tenth the size of traditional holographic structures to create next generation overt security features customized to Nanotech’s customers’ unique requirements. LiveOptik delivers multi-color, 3D depth, movement and image switches for secure brand protection stripes, threads and labels that are nearly impossible to replicate.
LumaChrome™ optical thin film security features are manufactured using precision engineered nanometer thick layers of metals and ceramics to form filters designed to uniquely manipulate visible and non-visible light. This unique manipulation of light properties is used to create specialized security features in the form of threads, stripes, and patches that are applied to banknotes and other secure documents. By using sophisticated electron beam and sputtered deposition methods, Nanotech precisely controls the construction and inherent properties to provide custom color-shifting solutions. An individual looking at these threads, stripes and patches sees an obvious color shift (e.g. green to magenta) when the document or bank note is tilted or rotatedrotated.

 

 

58


Wireless Sensing and Radio Wave Imaging Technology
 

META’s Wireless Sensing platform uses infrared and radio frequency (RF) transmitters and receivers to collect and measure a variety of biological information enabling non-invasive and safe medical diagnostics. The platform requires the ability to cancel reflections (anti-reflection) from the skin to reduce the natural impedance the skin provides to such signals and increase the Signal-to-Noise Ratio (“SNR”) of certain diagnostic instruments used in conjunction with the platform. This reflection-cancelling requirement is satisfied using META’s proprietary metamaterial films that employ patterned designs, printed on metal-dielectric structures on flexible substrates that act as anti-reflection (impedance-matching) coatings when placed over the human skin in combination with medical diagnostic modalities, such as MRI, ultrasound systems, non-invasive glucometers etc. The Company is

We are developing a number of medical products that employ this proprietary technology.technology, which are subject to FDA approval prior to marketing as described in more detail below. glucoWISETM®, is in development as a completely non-invasive glucose measurement device. It is being developed first as a benchtop medical device product,tabletop system for use in the home or clinic, followed by a portable, pocket-size product and ultimately as a wearable. In magnetic resonance imaging (MRI), increasing the SNR by orders of magnitude has been demonstrated to produce much higher resolution images with significant increases in imaging speed resulting in better patient throughput and potentially more accurate diagnoses in imaging clinics. For example, the Company iswe began developing metaSURFACE™ (also known as radiWISE™) an innovation which allows an improvement in signal to noise ratioSNR of up to 40 times for MRI scans. The metaSURFACE™ device consists of proprietary non-ferrous metallic and dielectric layers that are exactingly designed to interact (resonate) with radio waves increasing the SNR.METASNR. META is also researching the use of its Radio Wave Imaging technology in breast cancer and stroke diagnosis.

The Company is
We also are developing wireless sensing and radio wave imaging applications from itsour London, UK office and its newly established Athens, Greece office.offices.

During 2022, we developed new prototypes utilizing glucoWISE® technology for new pre-clinical studies and human trials. These prototypes are for a non-invasive glucose monitor that incorporates metamaterial antireflective film as well as dual radio wave and optical sensors which provides for enhanced signal penetration through the skin.

Battery Materials

We acquired the assets and IP of Optodot Corporation, a developer of advanced materials technologies in June 2022, and we began focusing on developing and licensing ceramic separatortechnology for lithium-ion batteries. The separator is a critical component for battery performance and safety. Ceramic coated plastic separators (CCS) are widely used today. They are prone to failure at high temperatures, leading to battery fires thus aggravating a tenuous safety profile as energy density and battery size increase. Our next-generation NPORE®is the world’s first flexible, free-standing ceramic nanoporous membrane separator for lithium-ion batteries. NPORE® separators eliminate the use of plastic substrate, provide superior functionality and outstanding heat resistance for current and next generation lithium-ion batteries. NPORE®all-ceramic separators (CSP) offer increased safety and performance by eliminating the plastic layer entirely, and exhibit less than 1% heat shrinkage at temperatures up to 200 degrees C. Our third generation electrode coated separators (ECS) combine what are presently two discrete functions in Lithium-ion batteries and offer a simpler, faster, lower-cost assembly process compatible with current and future battery chemistries (siliconanode, lithium metal, and solid state).

The global market for Lithium-ion battery separators was estimated at $5.1 billion in 2021 and is projected to reach $9.0 billion in 2025 (Source: Yano Research Institute Ltd.). Separator shipments were about 5.5 billion square meters in 2021 and are projected to reach 15.9 billion square meters in 2025 (Source: SNE Research). About 15 million square meters are required per GWh of battery capacity.

Additionally, electric vehicle (EV) consumers desire increased range and fast charging to get back on the road quickly. Storing more energy relative to weight and volume and accepting higher charge rates increase the requirements for material performance, stability, and safety. Wider EV adoption demands improved material utilization along the supply chain.

In April 2022, we acquired UK-based Plasma App Ltd., developer of a proprietary, high-speed, pulsed plasma deposition technology. With the combination of these acquired technologies, we plan to develop new battery materials and manufacturing techniques to address all these challenges. PLASMAfusion® high-speed vacuum coating technology has been used to produce prototype NCORE™ thin polymer-metal composite copper current collectors, significantly reducing weight, with a fuse-like feature for increased safety. Lighter batteries increase energy density and vehicle range. Lower copper content makes battery production and recycling more sustainable.

High Speed Coating

PLASMAfusion®is a first of its kind, patented manufacturing platform technology developed by our Oxford, UK based Plasma App Ltd, a wholly owned subsidiary which was acquired during 2022.PLASMAfusion®enables high speed coating of any solid material on any substrate. It uniquely enables doping, multilayering, or mixing of materials in vacuum with controlled stoichiometry distribution within the deposited film at low substrate temperature.

We expect to apply PLASMAfusion®to the metallization step in our roll-to-roll production process for NANOWEB® films as well as KolourOptik® security films. This is expected to significantly accelerate line speed and increase annual capacity. Large scale and efficient metallization is a critical step for volume production of NANOWEB® and many other high volume potential applications such

9


as lithium-ion battery components. Large scale metallization is expected to leverage capital equipment investment and substantially reduce cost per square meter of output. META intends to continue to industrialize and scale up PLASMAfusion® including applications for its high volume factory in Thurso, Quebec. Additionally, PLASMAfusion® will be available for licensing and co-development for strategic partners.

PLASMAfusion® creates unprecedented new high-performance nanocomposites in real time by using multiple, time sequenced targets. We believe this is a unique process enabler, likely to facilitate META’s entry into multiple high-growth markets. High energy beam deposition of materials, at low temperature, without solvents and other toxic chemicals, promises highly sustainable, breakthrough performance. Compared to traditional coating technologies, we estimate PLASMAfusion® is approximately 60x more energy efficient compared to Plasma Laser Deposition (PLD) and 8x more efficient compared to Magnetron Sputtering to produce each 100nm of coating on each square cm area of the substrate, while also offering higher adhesion, deposition rates, and overall coating uniformity.

PLASMAfusion® enables design of surfaces and a path to industrial surface manufacturing for a variety of applications including batteries, semiconductors and metamaterials, printed circuit boards and protective optical coatings.

 

OilElectro-Optic and Gas operationsIR

As part of the Arrangement AgreementWe produce high-precision thin film coatings, optics, holographic and lithographic gratings, and optomechanical assemblies for ultraviolet, visible, and infrared applications. For example, we are developing an advanced, electro-optical motion imagery system with Torchlight Energy Resources, Inc. ("Torchlight") as mentionedapplications in the following section, the Company acquired a group of oilaerospace and gas assets ("O&G assets")defense sectors, and had interest in them as follows:

the Orogrande Project in Hudspeth County, Texas
the Hazel Project in Sterling, Tom Green,for potential smart city, disaster recovery, wildlife preservation and Irion Counties, Texas
natural resource monitoring applications.
the Hunton wells in partnership with Kodiak in Central Oklahoma

The Company has classified these assets as assets held for sale pursuant to its commitment to sell or spin out the O&G assets prior to the earlier of (i) December 31, 2021 or (ii) the date which is six months from the closing of the Arrangement, or (iii) such later date as may be agreed between the Company and the individual appointed to serve as the representative of the holders of Series A Preferred Stock (the “Sale Expiration Date”). The Series A Preferred Stock will automatically be cancelled once the entitled dividends have been paid. See the description in Note 5, “Assets Held for Sale” of the financial statements included with this report for information and disclosure regarding these assets. See Item 1A, risk Factors for more information on these assets.

Customers

The Company’sOur customers are OEM providers in multiple industries including aerospace, automotive, consumer electronics, communications, energy, banknote and brand security, and medical devices. The Company organizes itsWe organize our development and support efforts around these differentiateddifferent vertical markets to enable itus to effectively penetrate these markets and to develop products specific to the needs of these OEM customers.

Marketing and Sales

The Company operatesWe operate under a Business-to-Business model. ItsOur marketing and sales functions are organized to support and grow this operating model. The Company utilizesWe utilize a combination of filed-basedfield-based and in-house selling resources to promote and sell its more commonour standard off-the-shelf products and a vertical market focused Business Development group to develop and support long-term customer relationships in the vertical market of interest. The Company'sOur marketing efforts are focused on technical education of itsour customer base regarding itsour products, support of a meaningful presence at trade shows and industry events and routine production of collateral materials to support itsour sales and business development efforts.efforts throughout the year.

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Manufacturing

The Company employsWe employ a hybrid model for manufacturing of our high-performance functional materials and nanocomposites.

The Company providesWe provide research scale production of itsour products in-house to itsour customers in itsthe lithography and holography business areas. The Company isWe are scaling up pilot scale production of its materials in itsour Pleasanton facility and Highfield Park facility. The Company hasfacilities. We have current capacity in itsour Thurso facility to produce its7.5 million square meters per year of our banknote security and brand security product at commercial scale and it iswe are expanding this capacity. In certain instances where volume warrants, the Companywe will make available on a license basis, itsour equipment and proprietary processes to itsour customers or to third party contractors to product itsproduce our products for their needs.

The Company is

We are constantly improving and investing in itsour manufacturing capabilities and the associated quality control and resource planning infrastructure. The Company holdsWe hold ISO9001 certification for itsour Highfield Park facility and it is pursuing additional certifications in itsour Thurso facility.

Research And Development

The Company operates

We operate in a rapidly evolving industry subject to significant technological change and new product introductions and enhancements. The Company believesWe believe that itsour continued commitment to research and development is a critical element of our ability to introduce new and enhanced products and technologies. The Company has historicallyIn 2022 we invested more than fortyapproximately twenty-five percent (40%(25%) of itsour operating expenses in itsour research and development efforts and these activities are integral to maintaining and enhancing our competitive position. The CompanyWe also increasingly seeksseek to deploy itsour resources to solve fundamental challenges that are both common to, and provide competitive advantage across, itsour high-performance functional materials and nanocomposites.

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The Company believesWe believe that itsour success depends in part on itsour ability to achieve the following in a cost-effective and timely manner:

enable itsEnable our OEM customers to integrate itsour functional films into their products;products.
developDevelop new technologies that meet the changing needs of the vertical markets it haswe have chosen to pursue;pursue.
improve itsImprove our existing technologies to enable growth into new application areas; and expand itsour intellectual property portfolioportfolio.

Intellectual Property

During 2021, the Company has2022, we significantly expanded its patentsour patent and trademarks portfolio significantlytrademark portfolios in a wide range of applications including holography, lithography, wireless sensing technology, nano-optic structures as well as battery safety, battery separator technology, and nano-optic structures. In addition to META's previoushigh-speed coating capabilities. We added more than 10 patent documents from the Plasma acquisition, and 101 patent documents from the Optodot acquisition. We currently have over 500 active patent documents, of which 315 patents have issued, compared with 269 active patent documents and 163 issued patents one year ago. Our patent portfolio is comprised of 126 patents, the Company acquired more than 23 patents from Interglass Technology AGpatent families, of which 68 include at least one issued patent. During 2022 we also filed 44 trademark registration applications and 15 trademarks were registered, resulting in a total of 60 registered trademarks and 98 patents from the Nanotech acquisition The Company believespending applications. We believe that itsour combination of patents, trademarks, and additional IP that is being held confidential by way of multiple trade secrets provides the Companyus with an important competitive advantage, marketing benefits, and licensing revenue opportunities.

 

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Regulation

 

The Company isWe are subject to significant regulation by local, state, federal and international laws in all jurisdictions in which it operates.we operate. Compliance with these requirements can be costly and time consuming. The Company believesWe believe that itsour operations, products, services, and actions substantially comply with applicable regulations in all jurisdictions. However, the risk of non-compliance cannot be eliminated and therefore there is no assurance that future costs related to these regulations will not be incurred. There is also the possibility that regulations will be retroactively applied, interpreted, or applied differently to the Company'sour operations, products, services, and actions which will require significant time and resources.

 

The development, testing, manufacturing, marketing, post-market surveillance, distribution, advertising, and labeling of certain medical devices are subject to regulation in the United States by the Center for Devices and Radiological Health of the U.S. Food and Drug Administration (FDA) under the Federal Food, Drug, and Cosmetic Act (FDCA) and comparable state and foreign regulatory agencies. FDA defines a medical device as an instrument, apparatus, implement, machine, contrivance, implant, in vitro reagent, or other similar or related article, including any component part or accessory, which is (i) intended for use in the diagnosis of disease or other conditions, or in the cure, mitigation, treatment, or prevention of disease, in man or other animals, or (ii) intended to affect the structure or any function of the body of man or other animals and which does not achieve any of its primary intended purposes through chemical action within or on the body of man or other animals and which is not dependent upon being metabolized for the achievement of any of its primary intended purposes. Medical devices to be commercially distributed in the United States must receive from the FDA either clearance of a premarket notification, known as 510(k), or premarket approval pursuant to the FDC Act prior to marketing, unless subject to an exemption.

In the U.S., if we market our products for medical purposes, such products would be subject to regulation by the FDA under premarket and post-market control as medical devices, unless an exemption applies, and we would be required to obtain either prior 510(k) clearance or prior premarket approval from the FDA before commercializing the product. Obtaining the requisite regulatory approvals can be expensive and may involve considerable delay. Some countries have regulatory review processes that are substantially longer than U.S. processes. Failure to obtain regulatory approval in a timely manner and meet all of the local regulatory requirements where we plan to market our products could prevent us from marketing products in such countries or subject us to sanctions and fines. Changes to the current regulatory framework, including the imposition of additional or new regulations, could arise at any time during the development or marketing of our products.

FDA classifies medical devices into one of three classes. Devices deemed to pose lower risk to the patient are placed in either class I or II, which, unless an exemption applies, requires the manufacturer to submit a premarket notification requesting FDA clearance for commercial distribution pursuant to Section 510(k) of the FDCA. This process, known as 510(k) clearance, requires that the manufacturer demonstrate that the device is substantially equivalent to a previously cleared and legally marketed 510(k) device or a “pre-amendment” class III device for which premarket approval applications (“PMAs”) have not been required by the FDA. This FDA review process typically takes from four to twelve months, although it can take longer. Most Class I devices are exempted from this 510(k) premarket submission requirement. If no legally marketed predicate can be identified for a new device to enable the use of the 510(k) pathway, the device is automatically classified under the FDCA as Class III, which generally requires premarket approval, or PMA approval. However, the FDA can reclassify or use “de novo classification” for a device that meets the FDCA standards for a Class II device, permitting the device to be marketed without PMA approval. To grant such a reclassification, FDA must determine that the

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FDCA’s general controls alone, or general controls and special controls together, are sufficient to provide a reasonable assurance of the device’s safety and effectiveness. The de novo classification route is generally less burdensome than the PMA approval process. Devices deemed by the FDA to pose the greatest risk, such as life-sustaining, life-supporting, or implantable devices, or those deemed not substantially equivalent to a legally marketed predicate device, are placed in class III. Class III devices typically require PMA approval. To obtain PMA approval, an applicant must demonstrate the reasonable safety and effectiveness of the device based, in part, on data obtained in clinical studies. All clinical studies of investigational medical devices to determine safety and effectiveness must be conducted in accordance with the FDA’s investigational device exemption (“IDE”) regulations, including the requirement for the study sponsor to submit an IDE application to the FDA, unless exempt, which must become effective prior to commencing human clinical studies. PMA reviews generally last between one and two years, although they can take longer. Both the 510(k) and the PMA processes can be expensive and lengthy and may not result in clearance or approval. If we are required to submit our products for premarket review by the FDA, we may be required to delay marketing and commercialization while we obtain premarket clearance or approval from the FDA. There would be no assurance that we could ever obtain such clearance or approval.

All medical devices that are regulated by the FDA are also subject to the quality system regulation. Obtaining the requisite regulatory approvals, including the FDA quality system inspections that are required for PMA approval, can be expensive and may involve considerable delay. The regulatory approval process for such products may be significantly delayed, may be significantly more expensive than anticipated, and may conclude without such products being approved by the FDA. Without timely regulatory approval, we will not be able to launch or successfully commercialize such diagnostic products. Changes to the current regulatory framework, including the imposition of additional or new regulations, could arise at any time during the development or marketing of our products. This may negatively affect our ability to obtain or maintain FDA or comparable regulatory clearance or approval of our products in the future. In addition, regulatory agencies may introduce new requirements that may change the regulatory requirements for us or our customers, or both.

If our products become subject to FDA regulation as medical devices, the regulatory clearance or approval and the maintenance of continued and postmarket regulatory compliance for such products will be expensive, time-consuming, and uncertain both in timing and outcome. Commercialization of such regulated medical devices can increase our exposure under additional laws. For example, medical device companies are subject to additional healthcare regulation and enforcement by the federal government and by authorities in the states and foreign jurisdictions in which they conduct their business and may constrain the financial arrangements and relationships through which we research, as well as sell, market and distribute any medical products for which we obtain marketing authorization. Such laws include, without limitation, state and federal anti-kickback, fraud and abuse, false claims, data privacy and security, and transparency laws and regulations related to payments and other transfers of value made to physicians and other healthcare providers. If our operations are found to be in violation of any of such laws or any other governmental regulations that apply, we may be subject to penalties, including, without limitation, administrative, civil, and criminal penalties, damages, fines, disgorgement, the curtailment or restructuring of operations, integrity oversight and reporting obligations, exclusion from participation in federal and state healthcare programs and imprisonment.

Additionally, we must comply with complex foreign and U.S. laws and regulations, such as the U.S. Foreign Corrupt Practices Act, the U.K. Bribery Act, and other local laws prohibiting corrupt payments to governmental officials, anti-competition regulations and sanctions imposed by the U.S. Office of Foreign Assets Control, and other similar laws and regulations. Violations of these laws and regulations could result in fines and penalties, criminal sanctions, restrictions on our business conduct, and on our ability to offer our products in one or more countries, and could also materially affect our brand, our ability to attract and retain employees, our international operations, our business, and our operating results. As we continue to expand our business into multiple international markets, our success will depend, in large part, on our ability to anticipate and effectively manage these and other risks associated with our international operations. Any of these risks could harm our international operations and negatively impact our sales, adversely affecting our business, results of operations, financial condition, and growth prospects.

Human Capital Resources

 

As of February 28, 2022, the Company2023, we had 130239 employees. Approximately 90%86% of itsour employees are located in Canada and the United States. Of the total workforce, 48114 employees are involved in research and development; 2845 employees are involved in operations, manufacturing, service and quality assurance; and 5480 employees are involved in sales and marketing, finance, information technology, general management and other administrative functions.

Available Information

The Company'sOur Annual ReportsReport on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports and proxy and information statements are accessible free of charge on itsour website at www.metamaterial.com as soon as reasonably practicable after he Companywe electronically filesfile such material with, or furnish itthem to, the SEC. The SEC also maintains an internet site that

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contains reports, proxy and information statements and other information regarding the Company'sour filings at www.sec.gov. The reference to the Company'sour company website does not constitute incorporation by reference of the information contained at the site.

 

Business Combinations

 

Torchlight RTO

 

On December 14, 2020, the Company (formerly known as “Torchlight Energy Resources, Inc.” or “Torchlight”) and its subsidiaries, Metamaterial Exchangeco Inc. (formerly named 2798832 Ontario Inc., “Canco”) and 2798831 Ontario Inc. (“Callco”), entered into an Arrangement Agreement (the “Arrangement Agreement”) with Metamaterial Inc. ("MMI"), an Ontario corporation headquartered in Nova Scotia, Canada, to acquire all of the outstanding common stock of MMI by way of a statutory plan of arrangement (the “Arrangement”) under the Business Corporations Act (Ontario), on and subject to the terms and conditions of the Arrangement Agreement (the “Torchlight RTO”). On June 25, 2021, the Companywe implemented a reverse stock split, changed itsour name from “Torchlight Energy Resources, Inc.” to “Meta Materials Inc.” and changed itsour trading symbol from “TRCH” to “MMAT”. On June 28, 2021, following the satisfaction of the closing conditions set forth in the Arrangement Agreement, the Arrangement was completed.

On June 28, 2021, and pursuant to the completion of the Arrangement Agreement, the Companywe began trading on the NASDAQNasdaq Capital Market under the symbol “MMAT” while MMI common stock was delisted from the Canadian Securities Exchange (“CSE”). At the same time, Metamaterial Exchangeco Inc., a wholly owned subsidiary of META, started trading under the symbol “MMAX” on the CSE. Certain previous shareholders of MMI elected to convert their common stock of MMI into exchangeable shares in Metamaterial Exchangeco Inc. These exchangeable shares, which can be converted into common stock of META at the option of the holder, are similar in substance to common shares of META and have been included in the determination of outstanding common shares of META.

For accounting purposes MMI, the legal subsidiary, has been treated as the accounting acquirer and the Company,we the legal parent, hashave been treated as the accounting acquiree. The transaction has been accounted for as a reverse acquisition in accordance with ASC 805 Business Combination. Accordingly, thesethe consolidated financial statements are a continuation of MMI consolidated financial statements prior to June 28, 2021 and exclude the balance sheets, statements of operations and comprehensive loss, statement of changes in stockholders’ equity and statements of cash flows of Torchlight prior to June 28, 2021. See note 34 of our audited consolidated financial statements for additional information.

 

On December 14, 2022, we distributed all of our 165,472,241 outstanding shares of Common Stock of Next Bridge Hydrocarbons Inc. (“Next Bridge”) to holders of our Series A Non-Voting Preferred Stock on a pro rata basis. Next Bridge was originally incorporated in Nevada on August 31, 2021 as OilCo. Holdings, Inc. (and changed its name to Next Bridge Hydrocarbons, Inc. pursuant to its Amended and Restated Articles of Incorporation filed on June 30, 2022) and was previously our wholly owned subsidiary. Immediately after the distribution, Next Bridge became an independent company, and as a result, we have deconsolidated the financial results of Next Bridge from our consolidated financial results from December 14, 2022 onwards. See note 5 of our audited consolidated financial statements for additional information on this transaction.

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Nanotech acquisition

 

On August 5, 2021, the Companywe announced the signing of a definitive agreement to indirectly acquire Nanotech. On October 5, 2021, a wholly owned subsidiary of META purchased 100% of Nanotech’s common stock at CA$1.25 per share. In addition, the transaction price included the settlement of certain Nanotech share awards outstanding immediately prior to the closing of the agreement, including the repurchase and cancellation of 303,391 Nanotech restricted share units ("RSU") at a purchase price of CA$1.25 per RSU and the settlement of 4,359,000 Nanotech in-the-money stock options at a purchase price equal to CA$1.25 per option, less the exercise price thereof. The consideration payable to securityholders under the arrangement was payable in cash, resulting in a total purchase price of $71.6 million (CA$90.8 million).$72.1 million.

 

Nanotech is incorporated under the laws of British Columbia, Canada. Nanotech’s head office is located at #505 - 3292 Production Way, Burnaby, BC, Canada V5A 4R4. In addition, Nanotech owns and operates a manufacturing facility located in Thurso, Quebec.

 

Plasma App Ltd acquisition

On April 1, 2022, we completed the purchase of 100% of the issued and outstanding shares of Plasma App Ltd. ("PAL"). PAL is the developer of PLASMAfusion®, a proprietary manufacturing platform technology, which enables high speed coating of any solid material on any type of substrate. PAL’s team is located at the Rutherford Appleton Laboratories in Oxford, UK.

We issued an aggregate of 9,677,419 shares of our common stock to PAL's shareholders at closing, representing a number of shares of common stock equal to $18,000,000 divided by $1.86 (the volume weighted average price for the ten trading days ending on March 31, 2022), with an additional deferral of common stock equal to $2,000,000 divided by $1.86 to be issued subject to satisfaction of certain claims and warranties.

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Optodot acquisition

We completed an asset purchase agreement with Optodot Corporation (“Optodot”) on June 22, 2022). Optodot, based in Devens, Massachusetts, USA, is a developer of advanced materials technologies for the battery and other industries.

The consideration transferred included the following: A cash payment of $3,500,000 as well as unrestricted common stock equal to $37,500,000 divided by our common stock's daily volume weighted average trading price per share on the Nasdaq Capital Market for a period of twenty trading days ending on June 21, 2022 and restricted common stock, subject to milestones as set forth in the Purchase Agreement, equal to $7,500,000 divided by the daily volume weighted average trading price per share of our Common Stock on the Nasdaq Capital Market for the consecutive period of twenty trading days ending on June 21, 2022.

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Item 1A. Risk Factors.

 

The following factors could materially affect META’sour business, financial condition or results of operations and should be carefully considered in evaluating the Companyus and itsour business, in addition to other information presented elsewhere in this report.

 

Risks That Could Affect the Company’s Financial ConditionSUMMARY OF RISK FACTORS

Limited Operating History

The Company hasBelow is a summary of the principal factors that could materially harm our business, operating results and/or financial condition, impair our future prospects or cause the price of our common stock to decline. This summary does not address all of the risks that we face. Additional discussion of the risks summarized in this risk factor summary, and other risks that we face, can be found below after the summary of risk factors and should be carefully considered, together with other information in this Annual Report on Form 10-K and our other filings with the Securities and Exchange Commission ("SEC") before making an investment decision regarding our common stock.

We have a limited operating history, which can make it difficult for investors to evaluate the Company’sour operations and prospects and may increase the risks associated with investmentinvesting in us.
We have a history of net losses, and we expect to continue to incur losses for the foreseeable future. If we ever achieve profitability, we may not be able to sustain it.
We expect to continue to incur losses from operations and negative cash flows, which raise substantial doubt about our ability to continue as a going concern.
We will need additional financing to execute our business plan and fund operations, for which additional financing may not be available on reasonable terms or at all.
Our ability to obtain financing, if and when necessary, may be impaired by such factors as the capital markets and our limited operating history.
We may be unable to develop new products, applications, and end markets for our products.
Our research and marketing development activities and investments may not result in profitable, commercially viable or successfully produced and marketed products.
Disruption in supply from our single source supplier of our holographic raw materials may cause a material adverse effect on our Holography-related products.
Impairment of our goodwill or other intangible assets could materially and adversely affect our business, operating results, and financial condition.
We depend on our OEM customers and system integrators to incorporate our products into their systems.
Our revenues may be concentrated in a few customers, and if we lose any of these customers, or these customers do not pay us, our revenues could be materially adversely affected.
Our agreements with various national governments and suppliers to such governments subject us to unique risks.
We are subject to the Foreign Corrupt Practices Act and similar anti-bribery and anti-corruption laws, as well as governmental export and import controls, all of which could subject us to liability or impair our ability to compete in international markets.
We may experience delays in providing sufficient product for future testing of our products due to ongoing supply chain limitations.
Change in laws, regulations or guidelines relating to our business plan and activities could adversely affect our business.
If we are unable to make acquisitions, or successfully integrate them into our business, our results of operations and financial condition could be adversely affected.
The regulatory approval process for our medical products in the Company.United States and other countries around the world is time-consuming and complicated, and we may not obtain the approval required to market a product within the timeline required, or at all. Additionally, we may lose regulatory approval and/or our products may become subject to new and anticipated foreign regulations.

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Development of medical devices and related operations are subject to extensive government regulation and oversight both in the United States and abroad, and our failure to comply with applicable requirements could harm our business.
Healthcare policy changes, including recently enacted legislation reforming the U.S. healthcare system, could harm our business, financial condition, and results of operations.
If coverage and reimbursement from third-party payors for procedures using our medical products, if authorized by a regulatory authority, significantly decline, physicians, hospitals, and other healthcare providers may be reluctant to use our products and our sales may decline.
If we or our contractors fail to comply with healthcare and other governmental regulations, we could face substantial fines and penalties and our business, results of operations and financial condition could be adversely affected.
If we fail to obtain and maintain necessary regulatory clearances, approvals, or certifications for our products, or if clearances, approvals or certifications for future products and indications are delayed or not issued, our commercial operations would be harmed.
We are exposed to risks that our employees, consultants, or other commercial partners and business associates may engage in misconduct or other improper activities, including non-compliance with regulatory standards and requirements.
Compliance with environmental laws and regulations could be expensive, and failure to comply with these laws and regulations could subject us to significant liability.
Our insurance coverage strategy may not be adequate to protect us from all business risks.
The risk of loss of our intellectual property, trade secrets or other sensitive business or customer confidential information or disruption of operations due to cyberattacks or data breaches could negatively impact our financial results.
Cybersecurity breaches and information technology failures could harm our business by increasing our costs and negatively impacting our business operations.
Changes in laws or regulations relating to privacy, information security and data protection, or any actual or perceived failure by us to comply with such laws and regulations or any other obligations, could adversely affect our business.
We are subject to taxation-related risks in multiple jurisdictions, and the adoption and interpretation of new tax legislation, tax regulations, tax rulings, or exposure to additional tax liabilities could materially affect our business, financial condition and results of operations.
Our ability to use our deferred tax assets to offset future taxable income is subject to certain limitations, which may have a material impact on our business, financial condition or results of operations.

The Company has

Risks Related to our Business

We have a limited operating history, which can make it difficult for investors to evaluate our operations and prospects and may increase the risks associated with investing in us.

We have incurred recurring consolidated net losses since itsour inception and expects itsour operating costs to continue to increase in future periods as it expendswe expend substantial financial and other resources on, among other things, business and headcount expansion in operations, sales and marketing, research and development, and administration as a public company. These expenditures may not result in additional revenues or the growth of the Company'sour business. If the Company failswe fail to grow revenues or to achieve profitability while itsour operating costs increase, itsour business, financial condition, results of operations and growth prospects will be materially, adversely affected.

The Company is

We are expected to be subject to many of the risks common to early-stage enterprises for the foreseeable future, including challenges related to laws, regulations, licensing, integrating and retaining qualified employees; making effective use of limited resources; achieving market acceptance of existing and future products; competing against companies with greater financial and technical resources; acquiring and retaining customers; and developing new solutions; and challenges relating to identified material weaknesses in internal control.

Access to Capital

The Company believes that current working capital will be sufficientWe have a history of net losses, and we expect to continue its businessto incur losses for at least the next twelve months. Should the Company's costs and expenses proveforeseeable future. If we ever achieve profitability, we may not be able to be greater than it currently anticipates, or should it change its current business plan in a manner that will increase or accelerate its anticipated costs and expenses, such as through the acquisition of new products, the depletion of its working capital could be accelerated. The Company presently has access to approximately one hundred and twelve million dollars of new funding through its existing At the Market S-3 Shelf Registration (ATM). The Company believes that this funding is sufficient to enable it to fund its current working capital needs well into 2024.sustain it.

 

We have incurred losses from operations since our inception and expect to continue to incur losses from operations for the foreseeable future. We reported net losses of $79.1 million and $91.0 million for the years ended December 31, 2022 and 2021, respectively. As a

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result of these losses, as of December 31, 2022, we had an accumulated deficit of $207.5 million. We expect to continue to incur significant sales and marketing, research and development, regulatory and other expenses as we grow our business. In addition, we expect our general and administrative expenses to increase due to the additional costs associated with being a public company. The Companynet losses that we incur may fluctuate significantly from period to period. We will need to generate significant additional revenue in order to achieve and sustain profitability. Even if we achieve profitability, we cannot be sure that we will remain profitable for any substantial period of time.

We expect to continue to incur losses from operations and negative cash flows, which raise substantial doubt about our ability to continue as a going concern.

We anticipate incurring additional losses until such time, if ever, we can achieve profitability. Substantial additional financing will be needed to fund our development, marketing and sales activities and generally to commercialize our technology. These factors raise substantial doubt about our ability to continue as a going concern.

We will seek to obtain additional capital through the issuance of debt or equity financings or other arrangements to fund operations; however, there can be no assurance we will be able to raise needed capital under acceptable terms, if at all. The sale of additional equity may dilute existing shareholders and newly issued shares may contain senior rights and preferences compared to currently outstanding shares of common stock. Issued debt securities may contain covenants and limit our ability to pay dividends or make other distributions to shareholders. If we are unable to obtain such additional financing, future operations would need to be scaled back or discontinued. Due to the uncertainty in our ability to raise capital, we believe that there is substantial doubt as to our ability to continue as a going concern.

We will need additional financing to execute our business plan and fund operations, which additional financing may not be available on reasonable terms or at all.

We will need to raise additional capital to expand the commercialization of our products, fund our operations and further our research and development activities. We will pursue sources of additional capital through various financing transactions or arrangements, including the sale/leaseback of certain properties, joint venturing of projects, debt financing, equity financing, or other means. The CompanyWe may not be successful in identifying suitable financing transactions in the time period required or at all, and itwe may not obtain the capital it requireswe require by other means.

The Company'sOur ability to obtain financing, if and when necessary, may be impaired by such factors as the capital markets and itsour limited operating history.

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Any additional capital raised through the sale of equity may dilute the ownership percentage of the Company'sour stockholders. Raising any such capital could also result in a decrease in the fair market value of itsour equity securities because itsour assets would be owned by a larger pool of outstanding equity. The terms of securities the Company issueswe issue in future capital transactions may be more favorable to itsour new investors, and may include preferences, superior voting rights and the issuance of other derivative securities, and issuances of incentive awards under equity employee incentive plans, which may have a further dilutive effect.

The CompanyIn addition, we may incur substantial costs in pursuing future capital financing, including investment banking fees, legal fees, accounting fees, securities law compliance fees, printing and distribution expenses and other costs. The CompanyWe may also be required to recognize non-cash expenses in connection with certain securities itwe may issue, which may adversely impact our financial condition.

Currency Fluctuations

If we are unable to maintain effective disclosure controls and procedures, our business, financial position and results of operations could be adversely affected

We are subject to the periodic reporting requirements of the Exchange Act. We designed our disclosure controls and procedures to reasonably assure that information we must disclose in reports we file or submit under the Exchange Act is accumulated and communicated to management, and recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC. We believe that any disclosure controls and procedures or internal controls and procedures, no matter how well-conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Our management has concluded that a material weakness in our internal control over financial reporting exists at December 31, 2022. Management has further concluded that this material weakness resulted in our disclosure controls and procedures not being effective as of December 31, 2022. Please see Item 9A of Part II, Controls and Procedures, for more information about the material weakness that we identified.

 

The Company’s revenues and expenses are denominated in US dollars, Canadian dollars, EURO, and Great British Pounds, and therefore are exposed to significant currency exchange fluctuations. Recent events in the global financial markets have been coupled with increased volatility in the currency markets. Fluctuations in the exchange rate between the US dollar, the Canadian dollar and the Great British Pounds may have a material adverse effect on the Company’s business, financial condition, and operating results. The Company may, in the future, establish a program to hedge a portion of its foreign currency exposure with the objective of minimizing the impact of adverse foreign currency exchange movements. With appropriate risk management and oversight this may be able to offset future risk, however a hedging strategy will result in additional operating costs.17

Costs of Maintaining a Public Listing


 

As a publicly traded company, there are costs associated with legal, accounting, and other expenses relatedWe may be unable to regulatory compliance. Securities legislation and the rules and policies of the NASDAQ require listed companies to, among other things, adopt corporate governance and related practices, and to continuously prepare and disclose material information, all of which add to a company’s legal and financial compliance costs. The Company may also elect to devote greater resources than it otherwise would have on communication and other activities typically considered important by publicly traded companies.

Risks That Could Have a Material Adverse Effect on the Company’s Business

Customer Concentration

The Company relies on a few customers for a significant portion of its revenues. For the year ended December 31, 2021, the Company had 3 customers that accounted for $3,307,914 or 81% of total revenue. For the year ended December 31, 2020, the Company had 3 customers that accounted for $807,912 or 72% of total revenue.

The Company currently derives a significant portion of its revenue from contract services between its wholly-owned subsidiary, Nanotech, and a G10 central bank. The Company is developing a new security feature under a framework contract with this customer. There can be no assurance that this project will be successful, or that will result in long-term production revenue for this security feature.

Risk of not developingdevelop new products, applications, and end markets for the Company's productsour products.

 

The Company'sOur future success will depend in part on itsour ability to generate sales of itsour products as well as generating development revenue. Current and potential customers may have substantial investment in, and know-how related to the Company'sour technologies. Customers may be reluctant to change from incumbent suppliers or cease using their own solutions, or the Company'sour products may miss the design and procurement cycles of itsour customers. Many target markets have historically been slow to adopt new technologies. These markets often require long testing and qualification periods or lengthy government approval processes before admitting new suppliers or adopting new technologies.

 

Introduction of new products and product enhancements will require that the Companywe effectively transfer production processes from research and development to manufacturing and coordinate efforts with those suppliers to achieve increased production volume rapidly. If we are unable to implement this strategy to develop new applications and end markets for products or develop new products, the business, financial condition, results of operations and growth prospects could be materially adversely affected. In addition, any newly developed or enhanced products may not achieve market acceptance or may be rendered obsolete or less competitive by the introduction of new products by other companies.

 

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ResearchOur research and Market Developmentmarketing development activities and investments may not result in profitable, commercially viable or successfully produced and marketed products.

 

Although the Company, itselfwe, ourselves and through itsour investments, isare committed to researching and developing new markets and products and improving existing products, there can be no assurances that such research and market development activities will prove profitable or that the resulting markets and/or products, if any, will be commercially viable or successfully produced and marketed. A failure in the demand for products to materialize as a result of competition, technological change or other factors could have a material adverse effect on the business, results of operations and financial condition of the companies in which the Company haswe have or will invest in, and consequently, on the Company.

Raw Material Sourceus.

 

The Company purchases itsDisruption in supply from our single source supplier of our holographic raw materials may cause a material adverse effect on our Holography-related products.

We purchase our holographic raw materials from a tier 1 German manufacturer, which is a single source supplier. Disruption in supply from this supplier for any number of factors may cause a material adverse effect on our Holography-related products.products, which would negatively impact our financial condition and results of operations.

Change

Impairment of our goodwill or other intangible assets could materially and adversely affect our business, operating results, and financial condition.

Events or changes in Laws, Regulationscircumstances, such as declines in our stock price or market capitalization, could increase the likelihood that we will be required to recognize an impairment charge against our goodwill and/or intangible assets. In particular, these or other adverse events or changes in circumstances may affect the estimated undiscounted future operating cash flows expected to be derived from our goodwill and Guidelinesintangible assets. We have recently experienced substantial declines in our stock price, and continued weakness or further declines in our stock price increase the likelihood that we may be required to recognize impairment charges. Any impairment charges could have a material adverse effect on our operating results and net asset value in the quarter in which we recognize the impairment charge. We cannot provide assurances that we will not in the future be required to recognize impairment charges. Please see Item 7 of Part II, Management’s Discussion and Analysis of Financial Condition and Results of Operation – Goodwill, for more information.

 

For example, a sustained decline in market capitalization below book value is an indicator that goodwill and other intangible assets should be tested for impairment under ASC 350 Intangibles – Goodwill and Other. During the period from January 1, 2022 to December 31, 2022, our stock price ranged between a high of $2.95 and a low of $0.63 and as of December 31, 2022 our market capitalization was $431.1 million and the book value of our goodwill was $281.7 million. While our market capitalization exceeded the book value of our goodwill as of December 31, 2022, as of March 17, 2023, our market capitalization is approximately $191.1 (based on a closing price of $0.50 per share) million and the book value of our goodwill is $281.7 million, and as such we may be required to recognize an impairment loss in the future if the drop in our market capitalization is deemed to be sustained.

We depend on our OEM customers and system integrators to incorporate our products into their systems.

Our revenues depend, in part, on our ability to maintain existing and secure new OEM customers. Our revenues also depend, in part, on the ability of our current and potential OEM customers and system integrators to incorporate our products into their systems, and to sell such systems successfully. Limited marketing resources, reluctance to invest in research and development and other factors affecting these OEM customers and third-party system integrators could have a substantial impact upon demand for our products, and in turn upon our revenues and financial results. If OEM customers or integrators are not able to adapt existing tools or develop new systems to

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take advantage of the features and benefits of our products or if they perceive us to be an actual or potential competitor, then the opportunities to expand our revenues and increase our margins may be severely limited or delayed. In addition, some of our OEM customers are developing their own competitive products. If they are successful, this may reduce our revenues from these customers.

Our revenues may be concentrated in a few customers, and if we lose any of these customers, or these customers do not pay us, our revenues could be materially adversely affected.

We rely on a few customers for a significant portion of our revenues. For the year ended December 31, 2022, revenue from one customer accounted for $8.6 million or 84% of total revenue.

We currently derive a significant portion of our revenue from contract services with a G10 central bank. Although we are developing a new security feature under a framework contract with this customer, there can be no assurance that this project will be successful, or that will result in long-term production revenue for this security feature.

Our agreements with various national governments and suppliers to such governments subject us to unique risks.

We must comply with, and are affected by, laws and regulations relating to the award, administration, and performance of various national government contracts. Awards received from such governments may be cancelled or lose funding. Such government contracting parties may require us to increase or decrease production of certain products sold to such governments due to changes in strategy, priorities or other reasons, which could impact production of other products or sales to other customers to meet the requirements of such governments. In addition, such governments routinely retain rights to intellectual property developed in connection with government contracts. Such governments could exercise these rights in certain circumstances in the future, which could have the effect of decreasing the benefit we are able to realize commercially from such intellectual property.

National government agencies routinely audit and investigate government contractors and can decrease or withhold certain payments when it deems systems subject to its review to be inadequate. Additionally, any costs found to be misclassified may be subject to repayment. If an audit or investigation uncovers improper or illegal activities, we may be subject to civil or criminal penalties and administrative sanctions, including reductions of the value of contracts, contract modifications or terminations, forfeiture of profits, suspension of payments, penalties, fines and suspension, or prohibition from doing business with such governments. In addition, we could suffer serious reputational harm if allegations of impropriety were made against it. Any such imposition of penalties, or the loss of such government contracts, could materially adversely affect our business, financial condition, results of operations and growth prospects

We are subject to the Foreign Corrupt Practices Act and similar anti-bribery and anti-corruption laws, as well as governmental export and import controls, all of which could subject us to liability or impair our ability to compete in international markets.

Our business activities may be subject to the U.S. Foreign Corrupt Practices Act (the FCPA), and similar anti-bribery or anti-corruption laws, regulations or rules of other countries in which we operate. These laws generally prohibit companies and their employees and third-party business partners, representatives and agents from engaging in corruption and bribery, including offering, promising, giving or authorizing the provision of anything of value, either directly or indirectly, to a government official or commercial party in order to influence official action, direct business to any person, gain any improper advantage, or obtain or retain business. The FCPA also requires public companies to make and keep books and records that accurately and fairly reflect the transactions of the corporation and to devise and maintain an adequate system of internal accounting controls. Our business is heavily regulated and therefore involves significant interaction with government officials, including potentially officials of non-U.S. governments.

In addition to our own employees, we may in the future leverage third parties to conduct our business abroad, such as obtaining government licenses and approvals. We and our third-party business partners, representatives and agents may have direct or indirect interactions with officials and employees of government agencies, state-owned or affiliated entities and we may be held liable for the corrupt or other illegal activities of our employees, our third-party business partners, representatives and agents, even if we do not explicitly authorize such activities. There is no certainty that our employees or the employees of our third-party business partners, representatives and agents will comply with all applicable laws and regulations, particularly given the high level of complexity of these laws. Violations of these laws and regulations could result in whistleblower complaints, adverse media coverage, investigations, loss of export privileges, debarment from U.S. government contracts, substantial diversion of management’s attention, significant legal fees and fines, severe criminal or civil sanctions against us, our officers, or our employees, disgorgement and other sanctions and remedial measures, and prohibitions on the conduct of our business. Any such violations could include prohibitions on our ability to offer our products in one or more countries and could materially damage our reputation, our brand, our international expansion efforts, our ability to attract and retain employees, and our business, prospects, operating results, financial condition and stock price.

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The U.S. and various foreign governments have imposed controls, export license requirements and restrictions on the import or export of certain products, technologies, and software. We must export our products in compliance with U.S. export controls and we may not always be successful in obtaining necessary export licenses. Our failure to obtain required import or export approval for our products or limitations on our ability to export or sell our products imposed by these laws may harm our international and domestic revenues. Noncompliance with these laws could have negative consequences, including government investigations, penalties and reputational harm.

Changes in our products or changes in export, import and economic sanctions laws and regulations may delay our introduction of new products in international markets, prevent our customers from deploying our products internationally or, in some cases, prevent the export or import of our products to or from certain countries altogether. In addition to the tariffs imposed by the U.S. Government on certain items imported from China, it is possible that additional sanctions or restrictions may be imposed by the United States on items imported into the United States from China. Similarly, in addition to the tariffs imposed by China on certain items imported from the United States, it is possible that additional sanctions or restrictions may be imposed by China on items imported into China from the United States. Any such measures could further adversely affect our ability to sell our products to existing or potential customers and harm our ability to compete internationally and grow our business. In addition, generally, tariffs may materially increase the cost of our raw materials and finished goods, may negatively impact our margins as we may not be able to pass on the additional cost through increasing the prices of our products, and may cause the contraction of certain industries, including the Industrial market. Any change in export or import regulations or legislation, shift or change in enforcement, or change in the countries, persons or technologies targeted by these regulations, could result in decreased use of our products by, or in our decreased ability to export or sell our products to, existing or potential customers with international operations. In such event, our business, financial condition, results of operations and growth prospects could be materially adversely affected.

We may experience delays in providing sufficient product for future testing of our products due to ongoing supply chain limitations.

Due to current supply chain disruptions, our contract manufacturing organizations may experience an inability to manufacture and produce sufficient quantities of our products as we progress through our regulatory testing and/or approval. Should this happen, we may not be able to provide sufficient quantities of our products which could delay our ability to bring products to market. Such a delay would cause us to use more capital than currently planned which may have a material adverse effect on our projected timing of product launches and financials.

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Change in laws, regulations or guidelines relating to our business plan and activities could adversely affect our business.

Our current and proposed operations of the Company are subject to a variety of laws, regulations and guidelines relating to production, the conduct of operations, transportation, storage, health and safety, medical device regulation and the protection of the environment. These laws and regulations are broad in scope and subject to evolving interpretations, which could require the Companyus to incur substantial costs associated with compliance or alter certain aspects of itsour business plan. In addition, violations of these laws, or allegations of such violations, could disrupt certain aspects of the Company’sour business plan and result in a material adverse effect on certain aspects of itsour planned operations.

 

The CompanyAs an example, we launched a new product metaAIR®metaAIR® in March 2019 to provide laser glare protection to pilots in the airline industry. Currently, metaAIR®metaAIR® is not subject to any Federal Aviation Administration regulations, however, metaAIR® mayregulations. However, metaAIR® has yet to receive FDA approval/clearance and could become subject to evolving regulation by governmental authorities as the metaAIR®metaAIR® market evolves further.

Integrating Past or Future Acquisitions

 

The Company hasIf we are unable to make acquisitions, or successfully integrate them into our business, our results of operations and financial condition could be adversely affected.

We have completed a number of acquisitions during itsour operating history. The Company hasWe have spent and may continue to spend significant resources identifying and pursuing future acquisition opportunities. Acquisitions involve numerous risks including: (1) difficulties in integrating the operations, technologies and products of the acquired companies; (2) the diversion of management’s attention from other business concerns; and (3) the potential loss of key employees of the acquired companies. Failure to achieve the anticipated benefits of any prior and future acquisitions or to successfully integrate the operations of the acquired companies could have a material and adverse effect on the Company'sour business, financial condition, and results of operations. Any future acquisitions could also result in potentially dilutive issuance of equity securities, acquisition or divestiture-related write-offs or the assumption of debt and contingent liabilities.

Regulatory Approval

The regulatory approval process for our medical products in the United States and other countries around the world is time-consuming and complicated, and we may not obtain the approval required to market a product within the timeline required, or at all. Additionally, we may lose regulatory approval and/or our products may become subject to new and unanticipated foreign regulations.

 

The Company’sOur wireless sensing technologytechnologies to enhance MRI and glucoWISE®non-invasive glucoWISE® glucose_monitoring isare under research and development. The Company hasWe have performed many pre-clinical experiments on animals and humans, and will continuewe are preparing to perform additionalclinical experiments as needed to continue the development of the related products.

These products have not yet completedentered the clinical trials/phase, and we have not engaged with any regulatory authorities regarding any medical uses subject to regulatory approval processes, and thereprocesses. We can beprovide no assurance that any clinical trials we commence will be successful, or that approvalswe will be granted.successful in obtaining any regulatory approvals for any medical products we may develop in the future.

Development of medical devices and related operations are subject to extensive government regulation and oversight both in the United States and abroad, and our failure to comply with applicable requirements could harm our business.

Any medical devices that we may develop in the future and related operations are subject to extensive regulation in the United States and elsewhere, including by the FDA and by the FDA’s foreign counterparts. The FDA and foreign regulatory agencies regulate, among other things, with respect to medical devices: design, development, manufacturing, and release; laboratory, preclinical, and clinical testing; labeling, packaging, content, and language of instructions for use and storage; product safety and efficacy claims; establishment, registration, and device listing; marketing, sales, and distribution; pre-market clearances, approvals, and certifications; service operations; record keeping procedures; advertising and promotion; recalls and field safety corrective actions; post-market surveillance, including reporting of deaths or serious injuries and malfunctions that, if they were to recur, could lead to death or serious injury; post-market studies; and product import and export.

The regulations to which we are subject are complex and have tended to become more stringent over time. Regulatory changes could result in restrictions on our ability to carry on or expand our operations, higher than anticipated costs or lower than anticipated sales. The FDA and foreign counterparts enforce these regulatory requirements through, among other means, periodic unannounced inspections and periodic reviews of public marketing and promotion materials. We do not know whether we will be found compliant in connection with any future FDA or foreign counterparts’ inspections or reviews. Failure to comply with applicable regulations could jeopardize our ability to sell our medical devices and result in enforcement actions such as: warning letters; untitled letters; fines; injunctions; civil penalties; termination of distribution; recalls or seizures of products; delays in the introduction of products into the market; total or partial suspension of production; refusal to grant future clearances, approvals, or certifications; withdrawals or suspensions of current approvals or certifications, resulting in prohibitions on sales of our medical devices; and in the most serious cases, criminal penalties.

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Legislative or regulatory reforms in the United States or other countries may make it more difficult and costly for us to obtain regulatory clearances, approvals, or certifications for our products or to manufacture, market, or distribute our products after clearance, approval, or certification is obtained.

From time to time, legislation is drafted and introduced in Congress that could significantly change the statutory provisions governing the regulation of medical devices. In addition, the FDA may change its clearance and approval policies, adopt additional regulations, or revise existing regulations, or take other actions, which may prevent or delay approval or clearance of our future products under development or impact our ability to modify our currently cleared products on a timely basis. The FDA’s and other regulatory authorities’ policies may change, and additional government regulations may be promulgated that could prevent, limit, or delay regulatory clearance or approval of our product candidates. We cannot predict the likelihood, nature, or extent of government regulation that may arise from future legislation or administrative action, either in the United States or abroad. If we are slow or unable to adapt to changes in existing requirements or the adoption of new requirements or policies, or if we are not able to maintain regulatory compliance, we may lose any marketing approval that we may have obtained and we may not achieve or sustain profitability.

Healthcare policy changes, including recently enacted legislation reforming the U.S. healthcare system, could harm our business, financial condition, and results of operations.

In the United States, there have been, and continue to be, a number of legislative initiatives to contain healthcare costs. In March 2010, the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Affordability Reconciliation Act (ACA) was enacted in the United States, which made a number of substantial changes in the way healthcare is financed by both governmental and private insurers. We expect additional state and federal healthcare policies and reform measures to be adopted in the future. Any of these could make it more difficult and costly for us to obtain regulatory clearances or approvals for our products or to manufacture, market, or distribute our products after clearance or approval is obtained. Any such reforms could have a material adverse effect on our industry generally and on our customers. In addition, any healthcare reforms that expand the government’s role in the U.S. healthcare industry may result in decreased sale of our products and lower reimbursement by payors for procedures using our products, any of which could affect demand for our products and/or result in additional pricing pressure, which in turn could impact our ability to successfully commercialize our products and could have an adverse material effect on our business, financial condition, and results of operations. Changes and reforms in the EU and other countries where we may decide to commercialize could have similar effects.

If coverage and reimbursement from third-party payors for procedures using our medical products, if authorized by a regulatory authority, significantly decline, physicians, hospitals, and other healthcare providers may be reluctant to use our products and our sales may decline.

In the United States, healthcare providers who purchase medical products generally rely on third-party payors, including Medicare, Medicaid, and private health insurance plans, to pay for all or a portion of the cost of the medical products that we may commercialize upon regulatory approval or clearance. Any decline in the amount payors are willing to reimburse our medical products, if cleared or approved for commercial use and distribution, may make it difficult for customers to adopt our products and could create additional pricing pressure for us. We may be unable to sell our products on a profitable basis if third-party payors deny coverage or reduce their current levels of reimbursement.

To contain costs of new technologies, governmental healthcare programs and third-party payors are increasingly scrutinizing new and existing treatments by requiring extensive evidence of favorable clinical outcomes. Physicians, hospitals, and other healthcare providers may not purchase our products if they do not receive satisfactory reimbursement from these third-party payors for the cost of using our products. If third-party payors issue non-coverage policies or if our customers are not reimbursed at adequate levels, this could adversely affect sales of our products. Outside of the United States, reimbursement systems vary significantly by country. The marketability of our products may suffer if government and commercial third-party payors fail to provide adequate coverage and reimbursement. Even if favorable coverage and reimbursement status is attained, less favorable coverage policies and reimbursement rates may be implemented in the future.

If we or our contractors fail to comply with healthcare and other governmental regulations, we could face substantial fines and penalties and our business, results of operations and financial condition could be adversely affected.

We are subject to certain federal, state, and foreign fraud and abuse laws, health information privacy and security laws, and transparency laws regarding payments and other transfers of value made to physicians and other healthcare professionals that could subject us to substantial penalties. Additionally, any challenge to, or investigation into, our practices under these laws could cause adverse publicity and be costly to respond to, and thus could harm our business. Our arrangements with physicians, hospitals and medical centers could expose us to broadly applicable fraud and abuse laws and other laws and regulations that may restrict the financial arrangements and relationships through which we may market, sell, and distribute our medical products after we receive the applicable marketing authorization. Our employees, consultants, and commercial partners may engage in misconduct or other improper activities, including

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non-compliance with regulatory standards and requirements. Federal and state healthcare laws and regulations that may affect our ability to conduct business, include, without limitation:

FDA, Department of Justice, and other government authority prohibitions against the advertisement, promotion, and labeling of our products for off-label uses, or uses outside the specific indications approved by the FDA;
the federal Anti-Kickback Statute, which broadly prohibits, among other things, any person from knowingly and willfully offering, soliciting, receiving, or providing remuneration, directly or indirectly, in exchange for or to induce either the referral of an individual for, or the purchase, order, or recommendation of, any good or service for which payment may be made under federal healthcare programs, such as Medicare or Medicaid. A person or entity does not need to have actual knowledge of the statute or specific intent to violate it to have committed a violation;
the federal False Claims Act, which prohibits, among other things, individuals or entities from knowingly presenting, or causing to be presented, false claims, or knowingly using false statements, to obtain payment from the federal government. These laws have been interpreted to apply to arrangements between medical device manufacturers, on the one hand, and prescribers, purchasers, and other healthcare-related professionals on the other. They can apply to manufacturers who provide inaccurate information on coverage, coding, and reimbursement of their products to persons who bill third-party payors. In addition, medical device companies have been prosecuted or faced civil and criminal liability under these laws for a variety of alleged promotional and marketing activities, including violations of the federal Anti-Kickback Statute and engaging in off-label promotion that caused claims to be submitted for non-covered off-label uses. Private individuals can bring False Claims Act “qui tam” actions, on behalf of the government and such individuals, commonly known as “whistleblowers,” may share in amounts paid by the entity to the government in fines or settlement;
HIPAA, which among other things, also created criminal liability for knowingly and willfully falsifying or concealing a material fact or making a materially false statement in connection with the delivery of or payment for healthcare benefits, items or services. Similar to the federal Anti-Kickback Statute, a person or entity does not need to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation;
federal criminal laws that prohibit executing a scheme to defraud any healthcare benefit program or making, or causing to be made, false statements relating to healthcare matters;
the federal Civil Monetary Penalties Law, which prohibits, among other things, offering or transferring remuneration to a federal healthcare beneficiary that a person knows or should know is likely to influence the beneficiary’s decision to order or receive items or services reimbursable by the government from a particular provider or supplier;
the FCPA and other local anti-corruption laws that apply to our international activities;
the federal Physician Payment Sunshine Act (Open Payments) and its implementing regulations, which require applicable manufacturers of covered drugs, devices, biologicals and medical supplies for which payment is available under Medicare, Medicaid or the Children’s Health Insurance CoverageProgram (with certain exceptions) to report annually to the Centers for Medicare & Medicaid Services (CMS) information related to payments or other transfers of value made to physicians (defined to include doctors, dentists, optometrists, podiatrists and chiropractors), non-physician healthcare professionals (such as physician assistants and nurse practitioners, among others) and teaching hospitals, as well as ownership and investment interests held by physicians and their immediate family members;
analogous state law equivalents of each of the above federal laws, such as anti-kickback and false claims laws which may apply to items or services reimbursed by any third-party payor, including commercial insurers or patients; state laws that require medical device companies to comply with the industry’s voluntary compliance guidelines and the applicable compliance guidance promulgated by the federal government or otherwise restrict payments that may be made to healthcare providers and other potential referral sources; state laws that require medical device manufacturers to report information related to payments and other transfers of value to physicians and other healthcare providers or marketing expenditures; consumer protection and unfair competition laws, which broadly regulate marketplace activities and activities that potentially harm customers, state laws, governing the privacy and security of health information in certain circumstances, many of which differ from each other in significant ways and may not have the same effect, thus complicating compliance efforts; and state laws related to insurance fraud in the case of claims involving private insurers.
the scope and enforcement of each of the laws applicable to our business and products are uncertain and subject to rapid change in the current environment of healthcare reform. The U.S. Department of Justice has increased its scrutiny of interactions between manufacturers and healthcare providers, which has led to a number of investigations, prosecutions, convictions, and settlements in the healthcare industry. Responding to a government investigation is time and resource intensive and may cause harm to our business and reputation even if we are able to successfully defend against it. Any action brought against us for violations of these laws or regulations, even successfully defended, could cause us to incur

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significant legal expenses and divert our management’s attention from the operation of our business. We may be subject to private “qui tam” actions brought by individual whistleblowers on behalf of the federal or state governments.

If our operations are found to be in violation of any of the federal, state and foreign laws described above or any other current or future fraud and abuse or other healthcare laws and regulations that apply to us, we may be subject to penalties, including significant criminal, civil, and administrative penalties, damages, fines, imprisonment for individuals, exclusion from participation in government programs, such as Medicare and Medicaid, and we could be required to curtail or cease our operations. Any of the foregoing consequences could seriously harm our business and our financial results.

If we fail to obtain and maintain necessary regulatory clearances, approvals, or certifications for our products, or if clearances, approvals or certifications for future products and indications are delayed or not issued, our commercial operations would be harmed.

Our medical products are subject to extensive regulation by the FDA in the United States and by regulatory agencies in other countries outside of the United States. Government regulations specific to medical devices are wide ranging and govern, among other things:

Product design, development, and manufacture.
Laboratory, preclinical and clinical testing, labeling, packaging, storage, and distribution.
Premarketing clearance, approval, or certification.
Record keeping.
Product marketing, promotion and advertising, sales, and distribution.
Post marketing surveillance, including reporting of deaths or serious injuries and recalls and correction and removals.

Before a new medical device, or a new intended use for an existing product, can be marketed in the United States, a company must first submit and receive 510(k) clearance pursuant to Section 510(k) of the Food, Drug and Cosmetic Act (FDCA), approval of a PMA by the FDA, or grant of a de novo classification request from the FDA, unless an exemption applies.

In the 510(k) clearance process, the FDA must determine that a proposed device is “substantially equivalent” to a device legally on the market, known as a “predicate” device, in order to clear the proposed device for marketing. To be “substantially equivalent,” the proposed device must have the same intended use as the predicate device, and either have the same technological characteristics as the predicate device or have different technological characteristics and not raise different questions of safety or effectiveness than the predicate device. Clinical data is sometimes required to support substantial equivalence. In the PMA approval process, the FDA must determine that a proposed device is safe and effective for its intended use based on extensive data, including technical, pre-clinical, clinical trial, manufacturing, and labeling data. The PMA process is typically required for devices for which the 510(k) process cannot be used and that are deemed to pose the greatest risk, such as life sustaining, life supporting, or implantable devices. In the de novo classification process, a manufacturer whose novel device under the FDCA would otherwise be automatically classified as Class III and require the submission and approval of a PMA prior to marketing is able to request down-classification of the device to Class I or Class II on the basis that the device presents a low or moderate risk. If the FDA grants the de novo classification request, the applicant will receive authorization to market the device. This device type may be used subsequently as a predicate device for future 510(k) submissions. Modifications to products that are approved through a PMA application generally need prior FDA approval of a PMA supplement. Similarly, some modifications made to products cleared through a 510(k) submission may require a new 510(k) clearance, or such modification may put the device into Class III and require PMA approval or the grant of a de novo classification request.

 

The CompanyPMA approval, 510(k) clearance, and de novo classification processes can be expensive, lengthy, and uncertain. Any delay or failure to obtain necessary regulatory approvals, clearances or certifications would have a material adverse effect on our business, financial condition, and results of operations.

The FDA and foreign bodies can delay, limit, or deny clearance, approval, or certification of a device for many reasons, including:

our inability to demonstrate to the satisfaction of the FDA or the applicable regulatory entity or notified body that our products are safe or effective for their intended uses or substantially equivalent to a predicate device;
the disagreement of the FDA or the applicable foreign body with the design, conduct or implementation of our clinical trials or investigations or the analyses or interpretation of data from pre-clinical studies or clinical trials or investigations;
serious and unexpected adverse device effects experienced by participants in our clinical trials or investigations;

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the data from our pre-clinical studies and clinical trials or investigations may be insufficient to support clearance, de novo classification, approval, or certification, where required;
our inability to demonstrate that the clinical and other benefits of the device outweigh the risks;
the applicable regulatory authority or notified body may identify significant deficiencies in our manufacturing processes, facilities, or analytical methods or those of our third-party contract manufacturers;
the potential for approval policies or regulations of the FDA or applicable foreign regulatory bodies to change significantly in a manner rendering our clinical data or regulatory submissions insufficient for clearance, de novo classification, approval, or certification; and
the FDA or foreign regulatory authorities or bodies may audit our clinical trial or investigation data and conclude that the data is not sufficiently reliable to support approval, clearance, or certification.

Upon commercialization of any medical devices for which we receive FDA clearance or approval, we are required to investigate all product complaints we receive, and timely file reports with the FDA, including MDRs that require that we report to regulatory authorities if our products may have caused or contributed to a death or serious injury or malfunctioned in a way that would likely cause or contribute to a death or serious injury if the malfunction were to recur. If these reports are not submitted in a timely manner, regulators may impose sanctions and we may be subject to product liability or regulatory enforcement actions, including warning letters, untitled letters, fines, civil penalties, recalls, seizures, operating restrictions, denial of requests for 510(k) clearance or premarket approval of new products, new intended uses or modifications to existing products, withdrawal of current 510(k) clearances or premarket approvals, and narrowing of approved or cleared product labeling, all of which could harm our business. In addition, the FDA may provide notice of and conduct additional inspections, such as “for cause” inspections, of our business, sites, and facilities as part of its review process. Similar requirements may apply in foreign countries.

If we initiate a correction or removal action for our products to reduce a significant risk to health posed by our products, we would be required to submit a publicly available correction and removal report to the FDA and, in many cases, similar reports to other regulatory agencies. This report could be classified by the FDA as a device recall which could lead to increased scrutiny from the FDA, other international regulatory agencies, and our customers regarding the quality and safety of our products. Furthermore, the submission of these reports could be used by competitors against us and cause physicians to delay or cancel orders, which could harm our reputation.

The FDA and the Federal Trade Commission (FTC) also regulate the advertising, promotion, and labeling of our products to ensure that the claims we make are consistent with our regulatory authorizations, that there is adequate and reasonable scientific data to substantiate the claims, and that our promotional labeling and advertising is neither false nor misleading in any respect. If the FDA or FTC determines that any of our advertising or promotional claims are misleading, not substantiated, or not permissible, we may be subject to enforcement actions, including adverse publicity and/or warning letters, and we may be required to revise our promotional claims and make other corrections or restitutions.

The FDA, state authorities, and foreign counterparts have broad investigation and enforcement powers. Our failure to comply with applicable regulatory requirements could result in enforcement action by the FDA, state agencies, or foreign counterparts, which may include any of the following sanctions:

adverse publicity, warning letters, fines, injunctions, consent decrees, and civil penalties;
repair, replacement, refunds, recalls, termination of distribution, administrative detention, or seizure of our products;
operating restrictions, partial suspension, or total shutdown of production; lawsuit
denial of our requests for marketing authorizations or certifications for new products, new intended uses, or modifications to existing products;
withdrawal of marketing authorizations or certifications that have already been granted; and
criminal prosecution.

If any of these events were to occur, our business and financial condition could be harmed. In addition, the FDA’s and other regulatory authorities’ policies may change and additional government regulations may be enacted that could prevent, limit, or delay regulatory approval of our products. If we are slow or unable to adapt to changes in existing requirements or the adoption of new requirements or policies, or if we are not able to maintain regulatory compliance, we may lose any marketing approval or certification that we may have obtained and we may not achieve or sustain profitability, which would adversely affect our business, financial condition, and results of operations.

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We are exposed to risks that our employees, consultants, or other commercial partners and business associates may engage in misconduct or other improper activities, including non-compliance with regulatory standards and requirements.

We are exposed to the risk that our employees, consultants, and other commercial partners and business associates may engage in fraudulent or illegal activity. Misconduct by these parties could include intentional, reckless, or negligent conduct or other unauthorized activities that violate the regulations of the FDA and other regulators (both domestic and foreign), including those laws requiring the reporting of true, complete, and accurate information to such regulators, manufacturing standards, healthcare fraud and abuse laws, and regulations in the United States and internationally or laws that require the true, complete, and accurate reporting of financial information or data. In particular, sales, marketing, and business arrangements in the healthcare industry, including the sale of medical devices, are subject to extensive laws and regulations intended to prevent fraud, misconduct, kickbacks, self-dealing, and other abusive practices. These laws and regulations may restrict or prohibit a wide range of pricing, discounting, marketing and promotion, sales commission, customer incentive programs, and other business arrangements. It is not always possible to identify and deter misconduct by our employees, consultants, and other third parties, and the precautions we take to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses or in protecting us from governmental investigations or other actions or lawsuits stemming from a failure to comply with these laws or regulations. If any such actions are instituted against us and we are not successful in defending ourselves or asserting our rights, those actions could result in the imposition of significant fines or other sanctions, including the imposition of civil, criminal, and administrative penalties, damages, monetary fines, possible exclusion from participation in Medicare, Medicaid, and other federal healthcare programs, contractual damages, reputational harm, diminished profits and future earnings, and curtailment of operations, any of which could adversely affect our business, financial condition and results of operations. Whether or not we are successful in defending against such actions or investigations, we could incur substantial costs, including legal fees and reputational harm, and divert the attention of management in defending ourselves against any of these claims or investigations.

Compliance with environmental laws and regulations could be expensive, and failure to comply with these laws and regulations could subject us to significant liability.

Our research and development and manufacturing operations involve the use of some hazardous substances and are subject to a variety of federal, state, local, and foreign environmental laws and regulations relating to the storage, use, discharge, disposal, remediation of, and human exposure to, hazardous substances and the sale, labeling, collection, recycling, treatment, and disposal of products containing hazardous substances. Liability under environmental laws and regulations can be joint and several and without regard to fault or negligence. Compliance with environmental laws and regulations may be expensive and noncompliance could result in substantial liabilities, fines and penalties, personal injury and third-party property damage claims and substantial investigation and remediation costs. Environmental laws and regulations could become more stringent over time, imposing greater compliance costs, and increasing risks and penalties associated with violations. We cannot assure you that violations of these laws and regulations will not occur in the future or have not occurred in the past as a result of human error, accidents, equipment failure or other causes. The expense associated with environmental regulation and remediation could harm our financial condition and operating results.

Our insurance coverage strategy may not be adequate to protect us from all business risks.

We will require insurance coverage for a number of risks.numerous risks related to our business. Although our management of the Company believes that the events and amounts of liability covered by itsour insurance policies will be reasonable, taking into account the risks relevant to itsour business, and the fact that agreements with users contain limitations of liability, there can be no assurance that such coverage will be available or sufficient to cover claims to which the Companywe may become subject. If insurance coverage is unavailable or insufficient to cover any such claims, the Company’sour financial resources, results of operations and prospects could be adversely affected.

The risk of loss of our intellectual property, trade secrets or other sensitive business or customer confidential information or disruption of operations due to cyberattacks or data breaches could negatively impact our financial results.

 

11Cyberattacks or data breaches could compromise confidential, business-critical information, cause disruptions in our operations, expose us to potential litigation, or harm our reputation. We have important assets, including intellectual property, trade secrets, and other sensitive, business-critical and/or confidential information which may be vulnerable to such incidents. While we are in the process of implementing a cybersecurity program that is continually reviewed, maintained, and upgraded, no assurance can be made that we are invulnerable to cyberattacks and data breaches which, if significant, could negatively impact our business and financial results.

Cybersecurity breaches and information technology failures could harm our business by increasing our costs and negatively impacting our business operations.

We rely extensively on information technology systems, including internet sites, computer software, data hosting facilities and other hardware and platforms, some of which are hosted by third parties, to assist in conducting our business. Our information technology systems, as well as those of third parties we use in our business operations, may be vulnerable to a variety of evolving cybersecurity

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Privacyrisks, such as those involving unauthorized access or control, malicious software, data privacy breaches by employees or others with authorized access, cyber or phishing-attacks, ransomware and Data Security Concernsother security issues. Moreover, cybersecurity threat actors, whether internal or external, are becoming more sophisticated and coordinated in their attempts to access companies’ information technology systems and data, including the information technology systems of cloud providers and other third parties with whom we conduct our business.

Changes in laws or regulations relating to privacy, information security and data protection, or any actual or perceived failure by us to comply with such laws and regulations or any other obligations, could adversely affect our business.

 

Personal privacy, information security and data protection are significant issues worldwide. The regulatory framework governing the collection, use, and other processing of personal data and other information is rapidly evolving. The United States federal and various state and foreign governments have adopted or proposed requirements regarding the collection, distribution, use, security and storage of personally identifiable information and other data relating to individuals, and federal and state consumer protection laws are being applied to enforce regulations related to the online collection, use and dissemination of data.

The costs of compliance with and other burdens imposed by laws, regulations, standards and other actual or asserted obligations relating to privacy, data protection and information security may be substantial, and they may require the Companyus to modify itsour data processing practices and policies. Any actual or alleged noncompliance with any of these laws, regulations, standards, and other actual or asserted obligations may lead to claims and proceedings by governmental actors and private parties, and significant fines, penalties or liabilities.

Risk

We are subject to taxation-related risks in multiple jurisdictions, and the adoption and interpretation of Inabilitynew tax legislation, tax regulations, tax rulings, or exposure to Protectadditional tax liabilities could materially affect our Proprietary Technologybusiness, financial condition and Intellectual Property Rightsresults of operations.

 

The Company reliesWe are a U.S. parented multinational group subject to income and other taxes in Canada, the United States, the United Kingdom, and other jurisdictions in which we do business. As a result, our provision for (benefit from) income taxes is derived from a combination of applicable tax rates in the various jurisdictions in which we operate. Significant judgment is required in determining our global provision for (benefit from) income taxes, value added and other similar taxes, deferred tax assets or liabilities and in evaluating our tax positions on a varietyworldwide basis. It is possible that our tax positions may be challenged by tax authorities, which may have a significant impact on our global provision for (benefit from) income taxes. If such a challenge were to be resolved in a manner adverse to us, it could have a material adverse effect on our business, financial condition and results of operations.

Recent or future changes to U.S., Canadian, United Kingdom and other non-U.S. tax laws could impact the tax treatment of our earnings. For example, the Inflation Reduction Act of 2022, enacted on August 16, 2022, imposes a one-percent non-deductible excise tax on repurchases of stock that are made by U.S. publicly traded corporations on or after January 1, 2023. In addition, as of January 1, 2022, the Tax Cuts and Jobs Act of 2017 requires research and experimental expenditures attributable to research conducted within the United States to be capitalized and amortized ratably over a five-year period. Any such expenditures attributable to research conducted outside the United States must be capitalized and amortized over a 15-year period. We generally conduct our international operations through wholly owned subsidiaries and report our taxable income in various jurisdictions worldwide based upon our business operations in those jurisdictions. The intercompany relationships between our legal entities are subject to complex transfer pricing regulations administered by taxing authorities in various jurisdictions. Although we believe we are compliant with applicable transfer pricing and other tax laws in the United States, Canada, the United Kingdom and other relevant countries, due to changes in such laws and rules, we may have to modify our international structure in the future, which will incur costs and may adversely affect our business, financial condition and results of operations.

If U.S., Canadian, United Kingdom or other non-U.S. tax laws change further, if our current or future structures and arrangements are challenged by a taxing authority, or if we are unable to appropriately adapt the manner in which we operate our business, we may have to undertake further costly modifications to our international structure, which may cause our tax liabilities to increase and adversely affect our business, financial condition and results of operations.

Our ability to use our deferred tax assets to offset future taxable income is subject to certain limitations, which may have a material impact on our business, financial condition or results of operations.

As of December 31, 2022, a valuation allowance has been recorded against our deferred tax assets that are more likely than not to be realized in the U.S. federal and state tax jurisdictions. We assess the available positive and negative evidence to estimate if sufficient future taxable income will be generated to utilize the existing deferred tax assets. Certain of our deferred tax assets may expire unutilized or underutilized, which could prevent us from offsetting future taxable income. We continue to assess the realizability of our deferred tax assets in the future. Future adjustments in our valuation allowance may be required, which may have a material impact on our quarterly and annual operating results.

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Risks Related to Intellectual Property

If we fail to protect and enforce our intellectual property rights including patents, trademarks, trade secrets, technical know-howand our confidential information, our business could be adversely affected.

We rely on a combination of nondisclosure agreements and other unpatented proprietary informationcontractual provisions and patent, trade secret and copyright laws to protect the Company'sour technologies, products, product development and manufacturing activities from unauthorized use by third parties. The Company'sOur patents do not cover all of itsour technologies, systems, products and product components and itsour competitors or others may design around itsour patented technologies. The CompanyWe cannot guarantee that it has entered into appropriate agreements with all parties that have had access to its trade secrets, know-how or other proprietary information tothese mechanisms will adequately protect all such information. The Company also cannot assure shareholdersour technology and intellectual property, nor can we guarantee that those agreementsa court will provide meaningful protection for its trade secrets, know-how or other proprietary informationenforce our intellectual property rights.

In addition, the laws and enforcement regimes of certain countries do not protect our technology and intellectual property to the same extent as do the laws and enforcement regimes of the U.S. In certain jurisdictions, we may be unable to protect our technology and intellectual property adequately against unauthorized use, which could adversely affect our business.

We may become involved in material legal proceedings in the eventfuture to enforce or protect our intellectual property rights, which could harm our business.

From time to time, we may identify products that we believe infringes on our patents and may have to initiate litigation to enforce our patent rights against those products. Litigation stemming from such disputes could harm our ability to gain new customers, who may postpone licensing decisions pending the outcome of any unauthorized usethe litigation or disclosure. The Company's trade secrets, know-how or other proprietary information could be obtained by third partieswho may, as a result of breachessuch litigation, choose not to adopt our technologies. Such litigation may also harm our business relationships with existing customers, who may, because of its physicalsuch litigation, cease making royalty or electronic security systemsother payments to us or its suppliers, employeeschallenge the validity and enforceability of our patents or consultantsthe scope of our related agreements.

In addition, the costs associated with legal proceedings are typically high, relatively unpredictable and not completely within our control. These costs may be materially higher than expected, which could assertadversely impair our working capital, affect our operating results and lead to volatility in the price of our common stock. Whether or not determined in our favor or ultimately settled, litigation would divert managerial, technical, legal and financial resources from our business operations. Furthermore, an adverse decision in any of these legal actions could result in a loss of our proprietary rights, subject us to itssignificant liabilities, require us to seek licenses from others, limit the value of our technology or otherwise negatively impact the price of our common stock, business and financial position, results of operations and cash flows.

Even if we prevail in a legal action, significant contingencies may exist to the settlement and final resolution, including the scope of the liability of each party, our ability to enforce judgments against the parties, the ability and willingness of the parties to make any payments owed or agreed upon, and the dismissal of the legal action by the relevant court, none of which are completely within our control. Parties that may have financial obligations to us could be insolvent or decide to alter their business activities or corporate structure, which could affect our ability to collect royalties from such parties.

Our technologies may infringe on the intellectual property.property rights of others, which could lead to costly disputes or disruptions.

Various business segments in which we operate are characterized by frequent allegations of intellectual property infringement. Any allegation of infringement could be time consuming and expensive to defend or resolve, result in substantial diversion of management resources, cause suspension of operations or force us to enter into royalty, license, or other agreements rather than dispute the merits of such allegation. Furthermore, third parties making such claims may be able to obtain injunctive or other equitable relief that could block our ability to further develop or commercialize some or all of our technologies, and the ability of our customers to develop or commercialize their products incorporating our technologies, in the U.S. and abroad. If patent holders or other holders of intellectual property initiate legal proceedings, we may be forced into protracted and costly litigation. We may not be successful in defending such litigation and may not be able to procure any required royalty or license agreements on acceptable terms or at all.

 

Risk thatRelated to Industry Targets will not Adopt the Company’sAdoption of our Products

Holography Market-Aviation Industry

The CompanyWe cannot provide assurance that markets will accept our various products at the expected market penetration rates, which may adversely affect our business operations and financial position.

We launched itsour first product, a laser glare protection eyewear named metaAIR®, in March 2019, with a primary focus on the aviation market. The product offers unique performance and benefits over the competition and is the only industry-approved solution to date. The Company hasWe have co-developed this product with Airbus through a strategic partnership. Airbus further extended its support by introducing the Companyus to Satair, an Airbus-owned company, which became the global distribution partner for metaAIR® to the aviation market.

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Since 2016, Airbus and Satair have invested a total of $2,000,000 for the product development and exclusive distribution rights to metaAIR®. Since the launch of metaAIR®

 in March 2019, the Company has sold fifty units to its distributor Satair. The Company is currently in the process of increasing its marketing and sales capacity.

Despite the Company’sour close collaboration with the Airbus Group with the impact of COVID-19and future plans for marketing and sales expansion, there can be no assurance that the aviation market will accept the metaAIR® product at the expected market penetration rates and a slower than forecasted market acceptance may have a material adverse effect on Holography laser glare protection related products and the Company’sour financial position. The Company is pursuing ancillary markets outside of the aviation industry for its metaAIR® laser protection eyewear such as in law enforcement and defense.

Lithography Product and Market-Automotive

Slower than forecasted market acceptance of Lithography related products, partially in the automotive market, may have a material adverse effect on our financial position.

Our NANOWEB® applications have not yet reached the required manufacturing maturity. Thescale to enable us to address the volume demands of a number of our target vertical markets. We currently have only our first pilot scale, 300mm wide, roll-to-roll line, is expectedand we will need to be ready for low volume production during the second half of fiscal year 2022.add additional capacity and wider substrates to support our target applications. Broader sales and production are expected to be launched in two to three years’ time after successful completion of automotive and other vertical market product qualification and product introductions. META believesWe believe that the automotive market is a strategic high growth opportunity however, despite the Company’sour close collaboration with automotive partners, there can be no assurance that the automotive market will accept the NANOWEB®product at the expected market penetration rates and a slower than forecasted market acceptance may have a material adverse effect on Lithography de-icing/de-fogging, transparent antenna and other related products and the Company’sour financial position.

 

If products incorporating our technologies are used in defective products, we may be subject to product liability or other claims.

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If our technology is used in defective or malfunctioning products, we could be sued for damages, especially if the defect or malfunction causes physical harm to people. While we will endeavor to carry product liability insurance, contractually limit our liability and obtain indemnities from our customers, there can be no assurance that we will be able to obtain insurance at satisfactory rates or in adequate amounts or that any insurance and customer indemnities will be adequate to defend against or satisfy any claims made against us. The costs associated with legal proceedings are typically high, relatively unpredictable and not completely within our control. Even if we consider any such claim to be without merit, significant contingencies may exist, similar to those summarized in the above risk factor concerning intellectual property litigation, which could lead us to settle the claim rather than incur the cost of defense and the possibility of an adverse judgment. Product liability claims in the future, regardless of their ultimate outcome, could have a material adverse effect on our business, financial condition and reputation, and on our ability to attract and retain customers.

We participate in markets that are subject to rapid technological change and require significant research and development expenses to develop and maintain products that can achieve market acceptance.

We operate in a rapidly evolving industry subject to significant technological change and new product introductions and enhancements. Our future performance depends in part on the successful development, introduction and market acceptance of new and enhanced products that address these changes and current and potential customer requirements. To the extent customers defer or cancel orders for existing products due to a slowdown in demand or in the expectation of a new product release, or if there is any delay in development or introduction of our new products or enhancements of our products, our business and financial conditions, results of operations, and growth prospects would be materially adversely affected. We also may not be able to develop the underlying core technologies necessary to create new products and enhancements, or to license these technologies from third parties.

Risks Related to Facilities and Human Resources

We have ongoing environmental costs, which could have a material adverse effect on our financial position or results of operations.

Certain of our operations and assets are subject to extensive environmental, health and safety regulations, including laws and regulations related to waste disposal and remediation of contaminated sites. The nature of our operations and products, including the raw materials we handle, exposes us to the risk of liabilities, obligations or claims under these laws and regulations due to the production, storage, use, transportation and sale of materials that can adversely impact the environment or cause personal injury, including, in the case of chemicals, unintentional releases into the environment. Environmental laws may have a significant effect on the costs of use, transportation and storage of raw materials and finished products, as well as the costs of storage, transportation and disposal of wastes.

The ultimate costs and timing of environmental liabilities are difficult to predict. Liabilities under environmental laws relating to contaminated sites can be imposed retroactively and on a joint and several basis. One liable party could be held responsible for all costs at a site, regardless of fault, percentage of contribution to the site or the legality of the original disposal. We could incur significant costs, including clean-up costs, natural resource damages, civil or criminal fines and sanctions and third-party lawsuits claiming, for example, personal injury and/or property damage, as a result of past or future violations of, or liabilities under, environmental or other laws.

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In addition, future events, such as changes to or more rigorous enforcement of environmental laws, could require us to make additional expenditures, modify or curtail our operations and/or install additional pollution control equipment. It is possible that regulatory agencies may enact new or more stringent clean-up standards for chemicals of concern, including chlorinated organic products that we manufacture. This could lead to expenditures for environmental remediation in the future that are additional to existing estimates.

We may incur claims relating to our use, manufacture, handling, storage or disposal of hazardous materials.

Our research and development and manufacturing processes require the transportation, storage and use of hazardous materials, including chemicals, and may result in the generation of hazardous waste. National and local laws and regulations in many of the jurisdictions in which we operate impose substantial potential liability for the improper use, manufacture, handling, storage, transportation and disposal of hazardous materials as well as for land contamination, and, in some cases, this liability may continue over long periods of time. Despite our compliance efforts, we cannot eliminate the risk of industrial accidents that may lead to discharges or releases of hazardous materials and any resultant injury, property damage or environmental contamination from these materials. For example, real properties that we owned or used in the past or that we own or use now or in the future may contain detected or undetected contamination resulting from our operations at those sites or the activities of prior owners or occupants. We may suffer from expenses, claims or liability which may fall outside of or exceed our insurance coverage.

Furthermore, changes to current environmental laws and regulations may impose further compliance requirements on us that may impair our research, development and production efforts as well as our other business activities. New Facility and Permitsevolving regulatory requirements include producer responsibility frameworks and regulations related to addressing climate change or other emerging environmental areas. Increased environment, health and safety laws, regulations and enforcement could result in substantial costs and liabilities to us and could subject our use, manufacture, handling, storage, transportation, and disposal of hazardous materials to additional constraints. Consequently, compliance with these laws could result in capital expenditures as well as other costs and liabilities, thereby adversely affecting business, financial position and results of operations.

Our failure to comply with applicable laws and regulations material to our operations, such as export control, environmental and climate related laws and regulations, or the inability to timely obtain requisite approvals necessary for Lithography Productionthe conduct of our business, such as fab land and construction approvals, could harm our business and operational results or subject us to potential significant legal liability.

Because we engage in manufacturing activities in multiple jurisdictions and conduct business with our customers located worldwide, such activities are subject to a myriad of governmental regulations. Our failure to comply with any such laws or regulations, as amended from time to time, and our failure to comply with any information and document sharing requests from the relevant authorities in a timely manner could result in:

Significant penalties and legal liabilities, such as the denial of import or export permits or third party private lawsuits, criminal or administrative proceedings;
The temporary or permanent suspension of production of the affected products;
The temporary or permanent inability to procure or use certain production critical chemicals or materials;
Unfavorable alterations in our manufacturing, assembly and test processes.;
Challenges from our customers that place us at a significant competitive disadvantage, such as loss of actual or potential sales contracts in case we are unable to satisfy the applicable legal standard or customer requirement.;
Restrictions on our operations or sales;
Loss of tax benefits, including termination of current tax incentives, disqualification of tax credit application and repayment of the tax benefits that we are not entitled;
Damages to our goodwill and reputation

Complying with applicable laws and regulations, such as environmental and climate related laws and regulations, could also require us, among other things, to do the following: (a) purchase, use or install remedial equipment; (b) implement remedial programs such as climate change mitigation programs; (c) modify our product designs and manufacturing processes, or incur other significant expenses such as obtaining renewable energy sources, renewable energy certificates or carbon credits, substitute raw materials or chemicals that may cost more or be less available for our operations.

Our inability to timely obtain approvals necessary for the conduct of our business could impair our operational and financial results. For example, if we are unable to timely obtain environmental related approvals needed to undertake the development and construction of a

The Company is30


new fab or expansion project, then such inability may delay, limit, or increase the cost of our expansion plans that could also in turn adversely affect our business and operational results. In light of increased public interest in environmental issues, our operations and expansion plans may be adversely affected or delayed responding to public concern and social environmental pressures even if we comply with all applicable laws and regulations.

Delays in setting up facilities or receiving required permits could have an adverse effect on our financial position.

We are in the process of moving into a larger facility suitable to host the scale-up of production relating to Holography and Lithography. Lithography is a wet chemistry process which requires specific approvals from the local government approvals to allow use of certain chemicals and their disposal.

Any delay in setting up the facility and receiving permits may impact launch and/or development of related products and may have a material adverse effect on Lithography and Holography related products and consequently on the Company’sour financial position.

At present, the facility is expectedWe are highly dependent on our key personnel, and if we are not successful in attracting and retaining highly qualified personnel, we may not be able to be complete during the second half of fiscal 2022.successfully implement our business strategy.

Recruiting or Retaining Qualified Personnel.

The Company'sOur ability to successfully manage and grow the business and to develop new products depends, in large part, on itsour ability to recruit and retain qualified employees, particularly highly skilled technical, sales, service, management, and key staff personnel. Competition for qualified resources is intense and other companies may have greater resources available to provide substantial inducements and to offer more competitive compensation packages. If we are not successful in attracting and retaining highly qualified personnel, it could have a material adverse effect on our business, financial condition, and results of operations.

Conflicts

Our results of Interestoperations could be adversely affected by labor shortages, turnover, labor cost increases and inflation.

A number of factors may adversely affect the labor force available to us in one or more of our geographies, including high employment levels, increasing market wages and other compensation costs, federal unemployment subsidies, and other government regulations, which include laws and regulations related to workers’ health and safety, wage and hour practices and immigration. These factors can also impact the cost of labor. Increased turnover rates within our employee base can lead to decreased efficiency and increased costs, such as increased overtime to meet demand and increased wage rates to attract and retain employees. An overall labor shortage or lack of skilled labor, increased turnover or labor inflation could have a material adverse effect on results of operations.

Certain directors and officers may be subject to conflicts of interest.

Certain of the Company’sour directors and officers are, and may continue to be involved in other business ventures through their direct and indirect participation in corporations, partnerships, joint ventures, etc. that may become potential competitors of the technologies, products and services the Company intendswe intend to provide. Situations may arise in connection with potential acquisitions or opportunities where the other interests of these directorsdirectors' and officersofficers' conflict with or diverge from the Company’sour interests. In accordance with applicable corporate law, directors who have a material interest in or who are a party to a material contract or a proposed material contract with the Companyus are required, subject to certain exceptions, to disclose that interest and generally abstain from voting on any resolution to approve the contract. In addition, the directors and officers are required to act honestly and in good faith with a view to the Company’sour best interests. However, in conflict of interestconflict-of-interest situations, the Company’sour directors and officers may owe the same duty to another company and will need to balance their competing interests with their duties to the Company.us. Circumstances (including with respect to future corporate opportunities) may arise that may be resolved in a manner that is unfavorable to the Company.us.

Reliance on Management

The success of the Company is dependent upon the ability, expertise, judgment, discretion, and good faith of its senior management team. Any loss of the services of such individuals could have a material adverse effect on the Company’s business, operating results, or financial condition.

Monitoring unauthorized use of the Company's intellectual property is difficult and costly. Unauthorized use of its intellectual property may have already occurred or may occur in the future. The Company's failure to identify unauthorized use or otherwise adequately protect its intellectual property could jeopardize its competitive advantage and materially adversely affect its business. Moreover, any litigation in connection with unauthorized use of its intellectual property could be time consuming, and the Company could be forced to incur significant costs and divert its attention and the efforts of its employees, which could, in turn, result in lower revenues and higher expenses, and it may not be successful in enforcing its intellectual property rights.

Risks Related to Oil and Gas Assets Held for Sale

Series A Preferred Stock Dividends

In connection with the Arrangement, the Company declared a dividend of shares of the Series A Preferred Stock to holders of record of its common stock as of June 24, 2021. The Series A Certificate of Designation entitles the holders of Series A Preferred Stock to receive dividends, or Asset Sale Dividends, comprised of the holder’s pro rata portion of the proceeds from the sale of the O&G Assets in the event that the Company consummates one or more such transaction prior to the Sale Expiration Date. However, the Company may not be able to consummate any such transaction prior to such date on terms that will permit itself to pay such dividends, or at all.

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Holders of Series A Preferred Stock are entitled to receive Asset Sale Dividends from any O&G Asset Sale. Prior to declaring or paying any dividend, the Company will deduct from the gross proceeds of an O&G Asset Sale various costs and expenses described in the Series A Certificate of Designation, which include, among others, (i) costs and expenses the Company incurs in connection with the applicable O&G Asset Sale transaction, (ii) costs the Company incurs following the consummation of the Arrangement with respect to the O&G Assets, (iii) taxes the combined company incurs in connection with the applicable O&G Asset Sale, the payment of dividends to the holders of Series A Preferred Stock, and the O&G Assets, (iv) liabilities the Company incurs in connection with the applicable O&G Asset Sale and (v) amounts paid or payable with respect to outstanding debt, if any. In addition, the Company will also withhold an amount of 10% of the proceeds from each O&G Asset Sale, (“the Holdback Amount”) to cover potential post-closing liabilities and obligations that the combined company may incur in respect of such transaction. If, after the deduction and withholding of these amounts, there are no net proceeds available for distribution to the holders of Series A Preferred Stock, then the Company will not declare or pay a dividend with respect to that transaction unless and until any remaining funds from the Holdback Amount are due to be distributed to the holders of Series A Preferred Stock through a dividend, or the Company receives additional net proceeds from such O&G Asset Sale (for example, as a result of post-closing payments or the release of escrowed funds).

In the event that any O&G Assets have not been sold in an O&G Asset Sale that is consummated prior to the Sale Expiration Date, the Company will, to the extent permitted by applicable law, declare a spin-off dividend to distribute beneficial ownership of the remaining O&G Assets to the holders of Series A Preferred Stock. However, if the combined company cannot effect such spin-off dividend in a manner that is exempt from registration under all applicable securities laws, the combined company will not declare the spin-off dividend and instead will use good faith, commercially reasonable efforts to preserve the value of the remaining O&G Assets or to distribute or provide the value of the remaining O&G Assets to the holders of Series A Preferred Stock, so long as the Company is not required to divert the attention of management or incur material expenses in excess of amount required to be reserved under the Arrangement Agreement. Thus, the Company, ultimately may not be able to deliver the value of any remaining O&G Assets to the holders of Series A Preferred Stock.

Orogrande and Hazel Projects: Risks and Uncertainties.

The Company is in the process of selling or spinning out the O&G Assets. Such dispositions may result in proceeds to Series A preferred shareholders in an amount less than they expect or less than the Company's assessment of the value of the assets. The Company does not know if it will be able to successfully complete such disposition on favorable terms or at all. In addition, the sale of these assets involves risks and uncertainties, including disruption to other parts of its business, potential loss of customers or revenue, exposure to unanticipated liabilities or result in ongoing obligations and liabilities to the Company following any such divestiture.

For example, in connection with a disposition, the Company may enter into transition services agreements or other strategic relationships, which may result in additional expenses. In addition, in connection with a disposition, the Company may be required to make representations about the business and financial affairs of the business or assets. The Company may also be required to indemnify the purchasers to the extent that its representations turn out to be inaccurate or with respect to certain potential liabilities. These indemnification obligations may require the Company to pay money to the purchasers as satisfaction of their indemnity claims. It may also take longer than expected to fully realize the anticipated benefits of this transaction, and those benefits may ultimately be smaller than anticipated or may not be realized at all, which could adversely affect the Company's business and operating results. Any of the foregoing could adversely affect the Company's financial condition and results of operations.

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Oil and Gas Operations Liability or Damages

The oil and natural gas business involves a variety of operating hazards and risks such as well blowouts, pipe failures, casing collapse, explosions, uncontrollable flows of oil, natural gas or well fluids, fires, spills, pollution, releases of toxic gas and other environmental hazards and risks. These hazards and risks could result in substantial losses to the Company from, among other things, injury or loss of life, severe damage to or destruction of property, natural resources and equipment, pollution or other environmental damage, cleanup responsibilities, regulatory investigation and penalties and suspension of operations. In addition, the Company may be liable for environmental damages caused by previous owners of property purchased and leased by itself. In recent years, there has also been increased scrutiny on the environmental risk associated with hydraulic fracturing, such as underground migration and surface spillage or mishandling of fracturing fluids including chemical additives. This technology has evolved and continues to evolve and become more aggressive. The Company believes that new techniques can increase estimated ultimate recovery per well to over 1.0 million barrels of oil equivalent and have increased initial production two or three-fold. The Company believes that recent designs have seen improvement in, among other things, proppant per foot, barrels of water per stage, fracturing stages, and clusters per fracturing stage. As a result, substantial liabilities to third parties or governmental entities may be incurred, the payment of which could reduce or eliminate the funds available for exploration, development or acquisitions or result in the loss of the Company's properties and/or force it to expend substantial monies in connection with litigation or settlements. The Company currently has no insurance to cover such losses and liabilities, and even if insurance is obtained, it may not be adequate to cover any losses or liabilities. The occurrence of a significant event not fully insured or indemnified against could materially and adversely affect the Company's financial condition and operations. In addition, pollution and environmental risks generally are not fully insurable. The occurrence of an event not fully covered by insurance could have a material adverse effect on the Company's financial condition and results of operations.

Estimates of the Volume of Reserves

Estimates of reserves and of future net revenues prepared by different petroleum engineers may vary substantially depending, in part, on the assumptions made and may be subject to adjustment either up or down in the future. The Company's actual amounts of production, revenue, taxes, development expenditures, operating expenses, and quantities of recoverable oil and gas reserves may vary substantially from the estimates. Oil and gas reserve estimates are necessarily inexact and involve matters of subjective engineering judgment. In addition, any estimates of its future net revenues and the present value thereof are based on assumptions derived in part from historical price and cost information, which may not reflect current and future values, and/or other assumptions made by management that only represent our best estimates. If these estimates of quantities, prices and costs prove inaccurate, The Company may be unsuccessful in expanding our oil and gas reserves base with our acquisitions. Additionally, if declines in and instability of oil and gas prices occur, then write downs in the capitalized costs associated with any oil and gas assets it obtains may be required. Because of the nature of the estimates of the Company's reserves and estimates in general, reductions to our estimated proved oil and gas reserves and estimated future net revenues may not be required in the future, and/or that our estimated reserves may not present and/or commercially extractable. If the Company's reserve estimates are incorrect, it may be forced to write down the capitalized costs of our oil and gas properties.

Decommissioning Costs are Unknown and May be Substantial

The Company may become responsible for costs associated with abandoning and reclaiming wells, facilities and pipelines which it uses for production of oil and natural gas reserves. Abandonment and reclamation of these facilities and the costs associated therewith is often referred to as “decommissioning.” The Company accrues a liability for decommissioning costs associated with its wells but have not established any cash reserve account for these potential costs in respect of any of our properties. If decommissioning is required before economic depletion of our properties or if the Company's estimates of the costs of decommissioning exceed the value of the reserves remaining at any particular time to cover such decommissioning costs, the Company may have to draw on funds from other sources to satisfy such costs. The use of other funds to satisfy such decommissioning costs could impair our ability to focus capital investment in other areas of our business.

Challenges to the Properties May Impact the Company's Financial Condition.

Title to oil and gas interests is often not capable of conclusive determination without incurring substantial expense. While the Company has made and intends to make appropriate inquiries into the title of properties and other development rights it has acquired and intends to acquire, title defects may exist. In addition, the Company may be unable to obtain adequate insurance for title defects, on a commercially reasonable basis or at all. If title defects do exist, it is possible that the Company may lose all or a portion of our right, title and interests in and to the properties to which the title defects relate. If the property rights are reduced, the Company's ability to conduct exploration, development and production activities may be impaired. To mitigate title problems, common industry practice is to obtain a title opinion from a qualified oil and gas attorney prior to the drilling operations of a well.

15


Continuing Drilling Obligations Under Leases May Not be Met.

The leases for the Orogrande properties include additional drilling requirements for 2022 and 2023. The Company is intending to sell or spin out the leases in 2022 and transfer the ongoing obligations to the new owners of the leases. If such a transfer is not completed in a timely manner in 2022, the Company may be forced to seek an extension from the lessor of the lease drilling obligations or fund the additional activities out of working capital which could adversely impact the Company’s financial condition.

The Company's Ability to Maintain its Rights Under the Leases is Dependent on Numerous Factors Outside of its Control.

The leased assets are held for sale. The Company's ability to attract capital to enable on-going compliance with the lease obligations depends upon numerous factors largely beyond our control. These factors include:

oil, NGLs and natural gas prices;
global supply and demand for oil, NGLs and natural gas;
the overall state of the financial markets, including investor appetite for debt and equity securities issued by oil and natural gas companies and the effects of economic recessions or depressions;
the ability to secure and maintain financing on acceptable terms;
legislative, environmental and regulatory matters;
oil and natural gas reservoir quality;
the availability of drilling rigs, completions equipment and other facilities and equipment;
the ability to access lands;
the ability to access water for hydraulic fracturing operations;
reliance on vendors, suppliers, contractors and service providers;
shortages of sufficiently skilled labor, or labor disagreements resulting in unplanned work stoppages;
changes to free trade agreements;
inflation and other unexpected cost increases, including with respect to materials and labor;
prevailing interest and foreign exchange rates;
royalty and tax rates;
physical impacts from adverse weather conditions and natural disasters;
transportation and processing interruptions or constraints, including the availability and proximity of pipeline and processing capacity;
technology failures; and accidents

 

Risks Related to Legal Matters

 

Litigation

The Company is currently subject to securities class action litigationWe are, and may be subject to similar or other litigation in the future allbecome, subject to various legal proceedings and claims that arise in or outside the ordinary course of business and which will require significant management time and attention, result in significant legal expenses and may result in unfavorable outcomes, which may have a material adverse effect on the Company's business, operating results and financial condition, and negativelycould adversely affect the price of its common stock.our business.

The Company is,

We are, and may in the future become, subject to various legal proceedings and claims that arise in or outside the ordinary course of business. For example, the Company currently has securities class action complaints pending against itself, its chief executive officer, and its chief financial officer, asserting that they made false or misleading statements. The complaints seek monetary damages, costs and expenses. For more information, see “Item 3. Legal Proceedings” in this Annual Report on Form 10-K and “Note 28 – Commitments and Contingencies” of the Company's consolidated financial statements included elsewhere in this report.

16


The CompanyWe cannot predict the outcome of these proceedings or provide an estimate of potential damages, if any. The Company believesWe believe that the claims in the securities class actions are without merit and intend to defend against them vigorously. Regardless, failure by the Companyus to obtain a favorable resolution of the claims set forth in the complaints could require itus to pay damage awards or otherwise enter into settlement arrangements for which itsour insurance coverage may be insufficient. Any such damage awards or settlement arrangements in current or future litigation could have a material adverse effect on the Company'sour business, operating results or financial condition. Even if plaintiffs’ claims are not successful, defending against class action litigation is expensive and could divert management’s attention and resources, all of which could have a material adverse effect on its business,our financial condition and operations, operating results and financial condition and negatively affect the price of itsour common stock. In addition, such lawsuits may make it more difficult for the Companyus to finance itsour operations in the future. See Part 1, Item 3, "Legal Proceedings" in this Annual Report on Form 10-K for more information regarding our legal proceedings.

31


 

Ongoing Government InvestigationCurrent and future investigations by the SEC have and could continue to have an adverse impact on our business.

In September 2021, the Company received a subpoena from the Securities and Exchange Commission, Division of Enforcement, in a matter captioned 

In the Matter of Torchlight Energy Resources, Inc. The subpoena requests that the Company produces certain documents and information related to, among other things, the merger involving Torchlight Energy Resources, Inc. and Metamaterial Inc. The Company isWe are cooperating and intendsintend to continue to cooperate with the SEC’s investigation.investigation as described elsewhere in this Annual Report on Form 10-K. Investigations of this nature arecan be inherently uncertain and their results and timing cannot be predicted. Regardless of the outcome, the SEC Investigation has hadinvestigations have and maycould continue to have an adverse impact on the Company because ofus by resulting in legal costs, diversion of management resources, and other negative factors. The SEC Investigationinvestigations could also result in reputational harm to the Company,us, which, among other things, may limit itsour ability to obtain new customers and enter into new agreements with itsour existing customers, or itsour ability to obtain financing, and have a material adverse effect on itsour current and future business, financial condition, results of operations and prospects. See Part 1, Item 3, "Legal Proceedings" in this Annual Report on Form 10-K for more information regarding the SEC’s investigation.

 

Risks Related to Financial Reportingour Common Stock

 

Material Weakness in Internal Controls over Financial ReportingYou may experience future dilution as a result of future equity offerings or other equity issuances.

Management

We will have to raise additional capital in the future. To raise additional capital, we may in the future offer additional shares of our common stock or other securities convertible into or exchangeable for our common stock at prices that may be lower than the price you paid per share. In addition, investors purchasing shares or other securities in the future could have rights superior to those of other investors. Any such issuance could result in substantial dilution to investors.

Subject to various spending levels approved by our board of directors, our management will have broad discretion in the use of the net proceeds from our capital raises and may not use them effectively.

Our management will have broad discretion in the application of the net proceeds from our capital raises, and our stockholders will not have the opportunity as part of their investment decision to assess whether the net proceeds from our capital raises are being used appropriately. Because of the number and variability of factors that will determine our use of the net proceeds from our capital raises, their ultimate use may vary substantially from their currently intended use. You may not agree with our decisions, and our use of the proceeds from our capital raises may not yield any return to stockholders. Our failure to apply the net proceeds of our capital raises effectively could compromise our ability to pursue our growth strategy and we might not be able to yield a significant return, if any, on our investment of those net proceeds. Stockholders will not have the opportunity to influence our decisions on how to use our net proceeds from our capital raises. Pending their use, we may invest the net proceeds from our capital raises in interest and non-interest-bearing cash accounts, short-term, investment-grade, interest-bearing instruments and U.S. government securities. These temporary investments are not likely to yield a significant return.

An active, liquid and orderly trading market may not be sustained for our common stock, and, as a result, it may be difficult for you to sell your shares of our common stock.

The trading market for our common stock on the Nasdaq Capital Market may not be sustained. If the market for our common stock is responsiblenot sustained, it may be difficult for establishingyou to sell your shares of common stock at an attractive price or at all. We cannot predict the prices at which our common stock will trade. It is possible that in one or more future periods our results of operations may not meet the expectations of public market analysts and maintaining adequate internal control over financial reporting (as definedinvestors, and, as a result of these and other factors, the price of our common stock may fall.

Our failure to satisfy certain Nasdaq listing requirements may result in our common stock being delisted from the Nasdaq Capital Market, which could eliminate the trading market for our common stock.

On March 20, 2023, we received written notice (“The Bid Price Letter”) from The Nasdaq Stock Market LLC (“Nasdaq”) indicating that we are not in compliance with the $1.00 minimum bid price requirement for continued listing on The Nasdaq Capital Market, as set forth in Nasdaq Listing Rule 13a-15(f)5550(a)(2) (the “Bid Price Rule”). In accordance with Nasdaq Listing Rule 5810(c)(3)(A), we have a period of 180 calendar days, or until September 18, 2023, to regain compliance with the Bid Price Rule. To regain compliance, the closing bid price of our common stock must meet or exceed $1.00 per share for a minimum of ten consecutive business days during this 180-day period. The Bid Price Letter was a notice of deficiency, not delisting, and does not currently affect the listing or trading of shares of our common stock on The Nasdaq Capital Market, which continues to trade under the Exchange Act)symbol “MMAT.” We intend to continue actively monitoring the closing bid price of shares of our common stock and for evaluating and reportingmay, if appropriate, consider implementing available options to regain compliance with the Bid Price Rule.

If we do not regain compliance within the allotted compliance periods, including any extensions that may be granted by Nasdaq, Nasdaq will provide notice that our common stock will be subject to delisting. We would then be entitled to appeal that determination to a Nasdaq hearings panel. If the stock is delisted, we may trade on the effectivenessover-the-counter market, or even in the pink sheets, which would significantly decrease the liquidity of an investment in our common stock. In addition, the stock may be deemed to be penny stock. If

32


our common stock is considered penny stock, we would be subject to rules that impose additional sales practices on broker-dealers who sell our securities. For example, broker-dealers would have to make a special suitability determination for the purchaser and have received the purchaser’s written consent to the transaction prior to sale. Also, a disclosure schedule must be prepared prior to any transaction involving a penny stock and disclosure is required about sales commissions payable to both the broker-dealer and the registered representative and current quotations for the securities. Monthly statements are also required to be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stock. Because of these additional obligations, some brokers may be unwilling to effect transactions in penny stocks. This could have an adverse effect on the liquidity of our systemcommon stock and the ability of internal control. Effective internal controls are necessary forinvestors to sell the Company to provide timely, reliable and accurate financialcommon stock.

If equities or industry analysts do not publish research or reports identify and proactively correct any deficiencies, material weaknesses or fraud and meetabout our reporting obligations. As disclosed in Part II, Item 9A, Management identified material weaknesses during fiscal year 2021. Remediation efforts place a significant burden on management and add increased pressure on its financial reporting resources and processes. If the Company is unable to successfully remediate this material weakness in a timely manner,company, or if any additional material weaknessesthey issue adverse or misleading opinions regarding us or our stock, our stock price and trading volume could decline.

The trading market for our common stock will rely in part on the research and reports that industry or financial analysts publish about us or our internal control over financial reporting are identified,business. If no or few analysts commence coverage of us or if such coverage is not maintained, the accuracy ofmarket price for our financial reporting and the Company's ability to timely file with the SECstock may be adversely impacted. In addition,affected. Our stock price also may decline if the Company's remedial efforts are insufficient,any analyst who covers us issues an adverse or erroneous opinion regarding us, our business model, our intellectual property or our stock performance, or if additional material weaknessesour operating results fail to meet analysts’ expectations. If one or significant deficienciesmore analysts cease coverage of us or fail to regularly publish reports on us, we could lose visibility in its internal controlsthe financial markets, which could cause our stock price or trading volume to decline and possibly adversely affect our ability to engage in future financings.

The market price of our common stock has been and may continue to be volatile, and the value of your investment could decline significantly.

The trading price of our common stock has been and is likely to continue to be volatile. The trading price of our common stock since June 28, 2021 (the date of completion of the Arrangement) up to March 17, 2023, has ranged from a high of $ 7.96 to a low of $0.48. Factors that have caused, and could continue to cause, fluctuations in the trading price of our common stock include, but are not limited to, the following:

sales of our common stock, or securities exercisable for or convertible into our common stock, or the perception that such sales or conversions could occur in the future, future;
the Company could be required to restateimpact of the COVID-19 pandemic and other public health crises, including on macroeconomic conditions and our financial statements, which could materially and adversely affect its business, results of operations and financial condition, restrict itscondition;
price and volume fluctuations in the overall stock market from time to time;
changes in operating performance, stock market valuations and volatility in the market prices of other industry peers;
actual or anticipated quarterly variations in our results of operations or those of our competitors;
actual or anticipated changes in our growth rate relative to our competitors;
announcements by us or our competitors of acquisitions, new products, significant contracts, commercial relationships or capital commitments;
manufacturing, labor or supply interruptions;
developments with respect to intellectual property rights;
developments with respect to litigation;
our ability to accessdevelop and market new and enhanced products on a timely basis;
commencement of, or our involvement in, litigation;
major changes in our board of directors or management;
changes in governmental regulations or in the status of our regulatory approvals;
actual or perceived privacy, data protection or cybersecurity breaches or incidents;
the trading volume of our common stock;
failure of financial analysts to maintain coverage of us, changes in financial estimates by any analysts who follow us, or our failure to meet these estimates or the expectations of investors;
fluctuations in the values of companies perceived by investors to be comparable to and peers of us;

33


the financial projections we may provide to the public, any changes in these projections or our failure to meet these projections; and
general economic conditions and slow or negative growth of related markets.

The stock market in general, and market prices for the securities of similar companies in particular, have from time to time experienced volatility that often has been unrelated to the operating performance of the underlying companies. These broad market and industry fluctuations may adversely affect the market price of our common stock, regardless of our operating performance, which might make it more difficult for us to sell equity securities in the future at a time and at a price that we deem appropriate. In several recent situations when the market price of a stock has been volatile, holders of that stock have instituted securities class action litigation. If any of our stockholders were to bring a lawsuit against us, the defense and disposition of the lawsuit could be costly and divert the time and attention of our management and materially adversely affect our results of operations. We currently have ongoing lawsuits. See Part 1, Item 3, "Legal Proceedings" in this Annual Report on Form 10-K for more information regarding these lawsuits and the SEC’s investigation.

Future sales and issuances of a substantial number of shares of our common stock or rights to purchase common stock by our stockholders in the public market could result in additional dilution of the percentage ownership of our stockholders and cause our stock price to fall.

If our stockholders sell, or indicate an intention to sell, substantial amounts of our common stock in the public market, the trading price of our common stock could decline.

We have and will continue to issue equity, convertible securities or other securities to investors in public and private offerings. In addition, we currently have effective resale shelf registration statements which enable the selling stockholders thereunder to sell shares in the public market pursuant thereto.

We also have outstanding as of December 31, 2022, warrants to purchase 39,920,919 shares of our common stock at a weighted average exercise price of $1.93 per share. These warrants include 37,037,039 warrants issued in the June 2022 registered direct offering with an exercise price of $1.75 per share that are now eligible for exercise, and, if exercised, will have a dilutive effect on the percentage ownership held by holders of our common stock.

Further, additional capital will be needed in the future to continue our planned operations, including commercialization efforts, expanded research and development activities and costs associated with operating a public company. To raise capital, we may sell common stock, convertible securities or other equity securities in one or more transactions at prices and in a manner, we determine from time to time. If we sell common stock, convertible securities or other equity securities, investors may be materially diluted by subsequent sales. Such sales may also result in material dilution to our existing stockholders, and new investors could gain rights, preferences and privileges senior to the holders of our common stock. Additional issuances and sales of our common stock, including shares of our common stock available for issuance to our employees, directors and consultants, or a perception that such shares will be sold in the public market, could result in additional dilution and the trading price of our common stock could decline.

We may issue preferred stock whose terms could adversely affect the voting power or value of our common stock.

Our board of directors is authorized, without further stockholder action, and subject to Nasdaq rules, to issue preferred stock in one or more series and to designate the dividend rate, voting rights and other rights, preferences and restrictions of each such series. The terms of one or more classes or series of preferred stock could adversely impact the voting power or value of our common stock. Also, we might grant holders of preferred stock the right to elect some number of our directors in all events or on the happening of specified events or the right to veto specified transactions. Similarly, the repurchase or redemption rights or liquidation preferences we might assign to holders of preferred stock could affect the residual value of our common stock.

Anti-takeover provisions in our articles of incorporation and bylaws, as amended, as well as provisions in Nevada law, might discourage, delay, or prevent a change of control of us or changes in our management and, therefore, depress the trading price of our securities.

Our articles of incorporation and bylaws, as amended, as well as provisions in Nevada law, contain provisions that could have the effect of rendering more difficult or discouraging an acquisition deemed undesirable by our board. Our corporate governance documents include provisions:

authorizing blank check preferred stock, which could be issued with voting, liquidation, dividend and other rights superior to our common stock;

34


limiting the liability of, and providing indemnification to, our directors, including provisions that require us to advance payment for defending pending or threatened claims;
limiting the ability of our stockholders to call and bring business before special meetings and to take action by written consent in lieu of a meeting;
controlling the procedures for the conduct and scheduling of board and stockholder meetings;
limiting the determination of the number of directors on our board and the filling of vacancies or newly created seats on the board to our Board then in office; and
providing that directors may be removed by stockholders at any time.

These provisions, alone or together, could delay hostile takeovers and changes in control or changes in our management.

As a Nevada corporation, we are also subject to provisions of Nevada corporate law, including Section 78.411, et seq. of the Nevada Revised Statutes, which, among other things, prohibits a publicly-held Nevada corporation from engaging in a business combination with an interested stockholder, generally a person which together with its affiliates owns, or within the last two years has owned, 10% of our voting stock, for a period of three years after the date of the transaction in which the person became an interested stockholder, unless the business combination is approved in a prescribed manner, and, unless otherwise provided in our articles of incorporation or by-laws, restricts the ability of an acquiring person to obtain a controlling interest of 20% or more of our voting shares. Our articles of incorporation and by-laws, as amended, do not contain any provision which would currently keep the change of control restrictions of Section 78.378 from applying to it.

The existence of the foregoing provisions and anti-takeover measures could limit the price that investors might be willing to pay in the future for shares of our common stock. They could also deter potential acquirers of us, thereby reducing the likelihood that our stockholders could receive a premium for their common stock in an acquisition.

We are a smaller reporting company. We cannot be certain whether the reduced disclosure requirements applicable to smaller reporting companies will make our common stock less attractive to investors or otherwise limit our ability to raise additional funds.

As of December 31, 2022, we are a “smaller reporting company” under applicable U.S. securities regulations. A smaller reporting company is a company that, as of the last business day of its most recently completed second fiscal quarter, has (i) an aggregate market value of the company’s voting stock held by non-affiliates, or public float, of less than $250 million or (ii) less than $100 million in revenue and less than $700 million in public float. In addition, a smaller reporting company is able to provide simplified executive compensation disclosures in our filings and has certain other reduced disclosure obligations in our SEC filings, including, among other things, only being required to provide two years of audited financial statements in annual reports. Reduced disclosure in our SEC filings due to our status as a smaller reporting company may make it harder for investors to analyze our results of operations and financial prospects.

We have not paid cash dividends in the past and have no immediate plans to pay dividends.

Our current plan is to reinvest earnings, if any, to cover operating costs and otherwise remain competitive. We do not plan to pay any cash dividends with respect to our securities in the foreseeable future. We cannot assure you that we would, at any time, generate sufficient surplus cash that would be available for distribution to the holders of our common stock as a dividend. Therefore, you should not expect to receive cash dividends on our common stock.

General Risk Factors

We are exposed to fluctuations in currency exchange rates.

Our revenues and expenses are denominated in U.S. dollars, Canadian dollars, EURO, and Great British Pounds, and therefore are exposed to significant currency exchange fluctuations. Recent events in the global financial markets have been coupled with increased volatility in the currency markets. Fluctuations in the exchange rate between the U.S. dollar, the Canadian dollar and the British Pound may have a material adverse effect on our business, financial condition, and operating results. We may, in the future, establish a program to hedge a portion of our foreign currency exposure with the objective of minimizing the impact of adverse foreign currency exchange movements. With appropriate risk management and oversight this may be able to offset future risk, however a hedging strategy will result in additional operating costs.

35


Operating as a public company requires us to incur substantial costs and requires substantial management attention. In addition, certain members of our management team have limited experience managing a public company.

As a public company, we incur substantial legal, accounting and other expenses that we did not incur as a private company. For example, we are subject to the reporting requirements of the Exchange Act, the applicable requirements of the Sarbanes-Oxley Act, the Dodd-Frank Wall Street Reform and Consumer Protection Act, the rules and regulations of the SEC and the listing standards of the Nasdaq Stock Market. For example, the Exchange Act requires, among other things, that we file annual, quarterly and current reports with respect to our business, financial condition and results of operations. We are also required to maintain effective disclosure controls and procedures and internal control over financial reporting. Compliance with these rules and regulations has increased and will continue to increase our legal and financial compliance costs and increase demand on our systems. In addition, as a public company, we may be subject to stockholder activism, which can lead to additional substantial costs, distract management and impact the manner in which we operate our business in ways we cannot currently anticipate. As a result of disclosure of information in filings required of a public company, our business and financial condition will become more visible, which may result in threatened or actual litigation, including by competitors.

Additionally, certain members of our management team have limited experience managing a publicly traded company, interacting with public company investors and complying with the increasingly complex laws pertaining to public companies. Our management team may not successfully or efficiently manage our transition to being a public company subject to significant regulatory oversight and reporting obligations under the federal securities laws and the continuous scrutiny of securities analysts and investors. These obligations and constituents will require itsignificant attention from our senior management and could divert their attention away from the day-to-day management of our business, which could adversely affect our business, financial condition and results of operations.

Increased scrutiny of our environmental, social and governance responsibilities and practices may result in additional costs, liability risks, and may adversely impact our reputation, our ability to expend significantattract and retain a skilled workforce and willingness of customers and suppliers to do business with us.

Investor advocacy groups, institutional investors, proxy advisory services, stockholders, government, regulators, employees, customers and other stakeholders are increasingly focused on environmental, social and governance (“ESG”) practices of companies. Additionally, public interest and legislative pressure related to public companies’ ESG practices continues to grow. If our ESG practices fail to meet regulatory requirements or investor or other stakeholders' evolving expectations and standards for responsible business practices in numerous areas, including climate change and greenhouse gas emissions, environmental stewardship, support for communities where we operate, human and civil rights, director and employee diversity, human capital management, employee health and safety practices, product quality and safety, data security, supply chain management, regulatory compliance corporate governance and transparency and employing ESG strategies within business operations, our brand, reputation and employee retention may be negatively impacted and customers and suppliers may be unwilling to do business with us. As we work to align our ESG practices with industry standards, we will be dealing with uncertainties and risks resulting from the forward-looking nature of many ESG issues, In addition, we will continue to expand our disclosures in these areas and doing so may result in additional costs and require additional resources to correctmonitor, report, and comply with our various ESG practices. If we fail to adopt ESG standards or practices as quickly as stakeholders desire, report on our ESG efforts or practices accurately, or satisfy the material weaknesses or deficiencies, subject the Company to regulatory investigationsexpectations of stakeholders, our reputation, business, financial performance and penalties, harm its reputation, cause a decline in investor confidence or otherwise cause a decline in its stock price.growth may be adversely impacted.

36


Item 1B. Unresolved Staff Comments.

None.

 

1737


Item 2. Properties.

 

The Company’s registered office is located at 85 Swanson Road, Boxborough, Massachusetts 01719, and itsOur principal executive office is located at 1 Research60 Highfield Park Drive, Halifax,Dartmouth, Nova Scotia, Canada.

 

The Company'sOur principal facilities include the following:

Location

Lease expiration

Approximate size
(sqft)

 

Primary functions

 Boxborough, Massachusetts

September 30, 2023

 

4,414

 

 Administration

 Research Drive, Dartmouth, Nova Scotia

month-to-month

8,792

 Administration, Research and Development, and Production

Highfield Park, Dartmouth, Nova Scotia

August 31, 2031

 

68,000

 

 Administration, Research and Development, and Production

 Pleasanton, California

September 30, 2026

 

19,506

 

 Research and Development and Production

 London, United Kingdom

October 19, 20222027

 

742

 

 Research and Development

 Burnaby, British Columbia

April 30, 2025

 

7,860

 

 Administration and Research and Development

 Thurso, Quebec

Owned

 

105,000

 

 Production and Research and Development

 Maroussi, Athens

October 31, 2031

 

15,457

 

 Research and Development

 Steinhausen, SwitzerlandOxford, United Kingdom

June 30, 20222023

 

1,3351,065

 

 Research and Development

 Plano, TexasColumbia, Maryland

July August 31, 20222033

 

3,29911,642

 

 AdministrationResearch and Development and Production

 Billerica, Boston

 March 31, 2028

12,655

 Research and Development and Production

 



The Company also acquired the following properties as part of the Torchlight RTO on June 28, 2021. Comparative figures in Item 2 refer to the financial information of Torchlight as the legal acquirer and not the accounting acquirer. Refer to note 5 in Item 8. "Financial Statements and supplementary data" for more details.

 

Investments to support oil and gas properties during the years ended December 31, 2021 and 2020 were $14.2 million and $3.4 million respectively.

As of December 31, 2021 and 2020, the Company had no proved reserves. The Hazel and Orogrande Projects consist only of unevaluated properties in progress of development for future production. At December 31, 2021, there are no proved nonproducing reserves related to these properties. The Oklahoma properties are marginal producing wells which are not economic in the context of proved reserve value.

The Company has not included the standardized measure of discounted future net cash flows relating to proved oil and natural gas reserves given there hasn't been any expected future cash inflows.

Reserve Estimation Process, Controls and Technologies

No reserve report has been prepared for 2021 or 2020. The only producing properties owned by the Company are those located in Oklahoma which are marginally producing and are uneconomic for reserve calculation purposes.

Proved Nonproducing Reserves

As of December 31, 2021 and 2020, the Company's proved nonproducing reserves totaled were 0 barrels of oil equivalents (BOE).

At the end of 2021 and 2020, reserves did not include any value for proved undeveloped properties.

The Company made development progress during 2021 to develop proved producing reserves in the Orogrande Project in the Permian Basin in West Texas. The Company incurred cost of $14.2 million in relation to certain drilling activity carried out to remain in compliance with all aspects of the Company's lease obligations and to satisfy the Continuous Drilling Clause ("CDC") with University Lands.

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Production, Price, and Production Cost History

During the year ended December 31, 2020, the Company produced and sold 5,445 barrels of oil net to its interest at an average sale price of $34.48 per bbl. It produced and sold 4,998 MCF of gas net to its interest at an average sales price of $1.13 per MCF. Its average production cost including lease operating expenses and direct production taxes was $30.02 per BOE. Its depreciation, depletion, and amortization expense was $130.68 per BOE. The 2020 production was from properties located in central Oklahoma and in west Texas.

During the year ended December 31, 2021, there was no oil or gas production.

 

On January 31, 2020, Torchlight Energy Resources, Inc.In December 2022 we completed the spin-off of our oil and its wholly owned subsidiaries Torchlight Energy, Inc.gas assets and Torchlight Energy Operating, LLC were served with a lawsuit broughtoperations by Goldstone Holding Company, LLC (Goldstone Holding Company, LLC v. Torchlight Energy, Inc., et al., in the 160th Judicial District Courtdistributing shares of Dallas County, Texas). On February 24, 2020, Torchlight Energy Resources, Inc., Torchlight Energy, Inc., and Torchlight Energy Operating, LLC timely filed their answer, affirmative defenses, and requests for disclosure. The suit, which sought monetary relief over $1 million, made unspecified allegationscommon stock of misrepresentations involving a November 2015 participation agreement and a 2016 amendment to the participation agreement. Torchlight denied the allegations and asserted several affirmative defenses including but not limited to, that the suit is barred by the applicable statute of limitations, that the claims had been released, and that the claims were barred because of contractual disclaimers between sophisticated parties. Torchlight also asserted counterclaims for attorney fees. On January 14, 2021, Goldstone Holding Company, LLC dismissed its claims without prejudice, leaving Torchlight’s counterclaims for attorney fees as the only pending claim in the case. On February 26, 2021, Torchlight filed a non-suit without prejudice on its counterclaims for attorney fees, leaving no claims in the case. The court signed a final order disposing of the entire case on March 5, 2021. However, Goldstone Holding Company, LLC asked the court to re-instate its claims, and a hearing was held on April 13, 2021. On June 16, 2021, the court signed an order denying the motion to reinstate Goldstone Holding Company’s, LLC’s claims, and the case is closed.

On April 30, 2020, The Company'sour wholly owned subsidiary, Hudspeth Oil Corporation, filed suit against Datalog LWT, Inc. d/b/a Cordax Evaluation Technologies. The suit seeks the recovery of approximately $1.4 million in costs incurred as a result of a tool failure during drilling activities on the University Founders A25 #2 well that is located in the Orogrande Field. Working interest owner Wolfbone Investments, LLC, a company owned by the Company's former Chairman Gregory McCabe, is a co-plaintiff in that action. After the suit was filed, Cordax filed a mineral lien in the amount of $104,500 against the Orogrande Field and has sued the operator and counterclaimed against Hudspeth for breach of contract, seeking the same amount as the lien. The Company has added the manufacturer of one of the tool components that the Company contends was a cause of the tool failure. It was later discovered that Datalog LWT, Inc. d/b/a Cordax Evaluation Technologies forfeited its charter to conduct business in the State of Texas by failing to timely pay its franchise taxes, and the Company added members of the board of directorsNext Bridge, to the case pursuantholders of our Series A Preferred Stock. All previously disclosed legal proceedings relating to the Texas Tax Code. It was recently disclosed that Datalog LWT, Inc. d/b/a Cordax Evaluation Technologies is the subsidiary of a Canadian parent company, Cordax Evaluation Technologies, Inc., who has also been added to the case. The suit, Hudspeth Oil Corporationour oil and Wolfbone Investments, LLC v. Datalog LWT, Inc. d/b/a Cordax Evaluation Technologies, was filed in the 189th Judicial District Court of Harris County, Texas. The Company’s current Chairman of the Board filed a special appearance after being served with citation, alleging that he was a Canadian citizen withgas assets and related operations were assumed by NBH and no meaningful ties to Texas. After discovery was conducted on this issue, the Company filed a nonsuit without prejudice for this Defendant, dismissing him from the case. The remaining parties are currently engaged in preliminary discovery and are scheduling mediation.longer involve us.

On March 18, 2021, Datalog LWT, Inc. d/b/a Cordax Evaluation Technologies filed a lawsuit in Hudspeth County, Texas seeking to foreclose its mineral lien against the Orogrande Field in the amount of $104,500.01 and recover related attorney’s fees. The foreclosure action, Datalog LWT Inc. d/b/a Cordax Evaluation Technologies v. Torchlight Energy Resources, Inc., was filed in the 205th Judicial District Court of Hudspeth County, Texas. The Company is contesting the lien in good faith and filed a Plea in Abatement on May 10, 2021, seeking a stay in the Hudspeth County lien foreclosure case pending final disposition of the related case currently pending in Harris County, Texas.

SEC Subpoena

In September 2021, the Companywe received a subpoena from the Securities and Exchange Commission, Division of Enforcement, in a matter captioned In the Matter of Torchlight Energy Resources, Inc. The subpoena requests that the Company produceswe produce certain documents and information related to, among other things, the merger involving Torchlight Energy Resources, Inc. and Metamaterial Inc. The Company isWe are cooperating and intendsintend to continue to cooperate with the SEC’s investigation. The CompanyWe can offer no assurances as to the outcome of this investigation or its potential effect, if any, on the Companyus or itsour results of operation.

 

19Securities Class Action


On January 3, 2022, a putative securities class action lawsuit was filed in the U.S. District Court for the Eastern District of New York captioned Maltagliati v. Meta Materials Inc., et al., No. 1:21-cv-07203, against the Company, itsus, our Chief Executive Officer, itsour Chief Financial Officer, Torchlight’s former Chairman of the Board of Directors, and Torchlight’s former Chief Executive Officer. The complaint, purportedly brought on behalf of all purchasers of the Company’s publicly traded securities from September 21, 2020 through and including December 14, 2021, asserts claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (the “Exchange Act”) arising primarily from a short-seller report and statements related to the Company’s business combination with Torchlight. The complaint seeks unspecified compensatory damages and reasonable costs and expenses, including attorneys’ fees.

On January 26, 2022, a similar putative securities class action lawsuit was filed in the U.S. District Court for the Eastern District of New York captioned McMillan v. Meta Materials Inc., et al., No. 1:22-cv-00463. ThisThe McMillan complaint names the same defendants and asserts the same claims on behalf of the same purported class as the Maltagliati action.complaint. The Company believescomplaints, purportedly brought on behalf of all purchasers of our publicly traded securities from September 21, 2020 through and including December 14, 2021, assert claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (the “Exchange Act”) arising primarily from a short-seller report and statements related to our business combination with Torchlight. The complaints seek unspecified compensatory damages and reasonable costs and expenses, including attorneys’ fees. On July 15, 2022, the Court consolidated these actions (collectively,under the “Securities Class Action”) have no meritcaption In re Meta Materials Inc. Securities Litigation, No. 1:21-cv-07203, appointed lead plaintiffs and intendsapproved the lead plaintiffs’ selection of lead counsel. Lead plaintiffs filed a consolidated complaint on August 29, 2022. We moved to vigorously defend itself against these allegations.dismiss that complaint on October 13, 2022. The motion was fully briefed on January 12, 2023. The Court held a hearing on the motion to dismiss on February 27, 2023 and took the motion under submission.

38


Shareholder Derivative Action

On January 14, 2022, a shareholder derivative action was filed in the U.S. District Court for the Easter District of New York captioned Hines v. Palikaras, et al., No. 1:22-cv-00248. The complaint names as defendants certain of the Company’sour current officers and directors, certain former Torchlight officers and directors, and the Companyus (as nominal defendant). The complaint, purportedly brought on behalf of the Company, asserts claims under Section 14(a) of the Exchange Act, contribution claims under Sections 10(b) and 21D of the Exchange Act, and various state law claims such as breach of fiduciary duties and unjust enrichment. The complaint seeks, among other things, unspecified compensatory damages in favor of the Company, certain corporate governance related actions, and an award of costs and expenses to the derivative plaintiff, including attorneys’ fees. The Company believesOn March 9, 2022, the Court entered a stipulated order staying this action has no merituntil there is a ruling on a motion to dismiss in the securities class action.

Westpark Capital Group

On July 25, 2022, WestPark Capital Group, LLC filed a complaint in Los Angeles County Superior Court against us for breach of contract, alleging that it is owed a $450,000 commission as a placement agent with respect to our June 2022 registered direct offering. On August 31, 2022, we filed an answer to the complaint. We dispute that WestPark Capital Group placed the investor in the direct registered offering and intends to vigorously defend itself against these allegations.is owed a commission.

Item 4. Mine Safety Disclosures.

Not Applicable.

2039


PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

 

Market Information for Common Stock

 

The Company'sOur common stock is quoted on the NASDAQ Stock Market LLC ("NASDAQ") under the symbol, “MMAT”. As of December 31, 2021, the Company2022, we had outstanding common shares of 284,573,316 out of362,247,867 which there were 88,274,449includes 79,605,384 Exchangeable Shares held by certain shareholders in Canada and which are traded on the Canadian Securities Exchange ("CSE") under the symbol "MMAX".

The average daily volume, and that are exchangeable for shares of MMAT on NASDAQ from June 28, 2021 through December 31, 2021 was 14,258,758 .a 1-for-1 basis.

 

The Exchangeable Shares were listed in connection with the completion of the Torchlight RTO where former holders of Metamaterial Inc.’s common shares (that were previously traded on the CSE) were entitled to receive 1.845 of the Company'sour common shares for each previously held common share of Metamaterial Inc. or in Exchangeable Shares of a wholly-owned subsidiary of META that reflect the same exchange ratio on issuance.



Holders of Record

As of December 31, 2021,2022, there were 87154 holders of record of the Company's common stock listed on NASDAQ. Because many sharesNASDAQ the majority of MMAT'sour common stock areis held by brokers and other institutions on behalf of stockholders, the Company isaccordingly, we are unable to estimate the total number of beneficial owners of itsour common stock.

 

Holders of the Company'sour common stock are entitled to one vote for each share held of record on all matters submitted to a vote of stockholders.

 

Holders of the Company'sour common stock have no preemptive rights and no right to convert their common stock into any other securities. There are no redemption or sinking fund provisions applicable to the common stock.

 

Dividend Policy

We have never declared or paid any cash dividends on our capital stock. We currently intend to retain any future earnings and do not expect to pay any dividends in the foreseeable future. Any future determination to declare cash dividends will be made at the discretion of our Board, subject to applicable laws, and will depend on a number of factors, including our financial condition, results of operations, capital requirements, contractual restrictions, general business conditions, and other factors that our Board may deem relevant.

Issuer Purchases of Equity Securities

None.

Recent Sales of Unregistered Securities

 

The table below details allThere were no unregistered common sharessecurities issued by the Companyus during the fiscal year 2021. These shares are included in the issued and outstanding share count of the Company at December 31, 2021 and are adjusted to reflect the 1:2 reverse stock split of the Company’s common stock effected immediately prior to the closing of the Arrangement agreement. With the exception of the shares issuable to Metamaterial holder in connection with the Arrangement Agreement, all other unregistered shares contained restrictions subjecting them to Rule 144.

All common shares referenced in the below table represents shares issued by Meta Materials Inc.,2022 not previously Torchlight Energy Resources, Inc. ("Torchlight"), after adjustment of reverse stock splitreported on June 25, 2021.

2021

Exercised Warrants

1,619,547

Principal of converted notes

8,362,899

Payment in Kind

93,165

Service fees paid in stock

285,868

Shares issued to Metamaterial Inc. Shareholders*

196,968,803

Total Unregistered Shares

207,330,282

* Issued under an exemption from registration under Section 3(a)(10)

In addition to the common shares detailed above, in June 2021 the Company issued a total of 164,923,363 Series A Preferred Shares to shareholders of record of Torchlight as of June 24, 2021.Form 8-K or Form 10-Q.

 

 

21

40


Stock Performance Graph

This performance graph shall not be deemed "soliciting material" or to be "filed" with the SEC for purposes of Section 18 of the Exchange Act, or otherwise subject to the liabilities under that Section, and shall not be deemed to be incorporated by reference into any filing of Meta Materials Inc., Inc. under the Securities Act of 1933, as amended, or the Exchange Act.


The following graph shows a comparison of the cumulative total return for the Company's common stock, the Russell 2000 (RUT), and the Nasdaq Composite Index (COMP) beginning December 30, 2016, and ending December 31, 2021. The graph assumes that $100 was invested at the market close on beginning December 30, 2016 in the common stock of MMAT, COMP, and RUT. The stock price performance of the following graph is not necessarily indicative of future stock price performance.

img228943222_0.jpg 


 

Item 6. [Reserved]

 

 

 

2241


Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

 

The following discussion and analysis of the Company'sour financial condition and results of operations should be read in conjunction with its consolidated financial statements and related notes, each included elsewhere in this Annual Report on Form 10-K. This discussion contains forward-looking statements based upon current plans, expectations and beliefs that involve risks and uncertainties. Our actual results and the timing of certain events could differ materially from those anticipated in or implied by these forward-looking statements as a result of several factors, including those discussed in the section titled “Risk Factors” included under Part I, Item 1A and elsewhere in this Annual Report. See “Note about“Cautionary Note Regarding Forward-Looking Statements” in this Annual Report.

This Report on Form 10-K contains references to the Company'sour trademarks and to trademarks belonging to other entities. Solely for convenience, trademarks and trade names referred to in this Report on Form 10-K, including logos, artwork and other visual displays, may appear without the ® or TM symbols, but such references are not intended to indicate, in any way, that the Companywe will not assert, to the fullest extent under applicable law, the Company'sour rights or the rights of the applicable licensor to these trademarks and trade names. We do not intend for the Company'sour use or display of other companies’ trade names or trademarks to imply a relationship with, or endorsement or sponsorship of the Companyus by any other companies.

OVERVIEW

Meta Materials Inc. (the(also referred to herein as the “Company” or, “META”, “we”, “us”, “our”, or “Resulting Issuer”) is a developer of high-performance functional materials and nanocomposites specializing in metamaterial research and products, nanofabrication, and computational electromagnetics. The Company’s registered office is located at 85 Swanson Road, Boxborough, Massachusetts 01719, and itsOur principal executive office is located at 1 Research60 Highfield Park Drive, Halifax,Dartmouth, Nova Scotia, Canada.

Impact of COVID-19 on the Company’s Business

During March 2020, the COVID-19 outbreak was declared a pandemic by the World Health Organization. This has resulted in governments worldwide enacting emergency measures to combat the spread of the virus. In response, the Company’s management implemented a Work-From-Home policy for management and non-engineering employees in all of the Company’s locations for various periods through Fiscal 2020 and Fiscal 2021 as was required or deemed prudent by management. Engineering staff continued to work on given tasks and followed strict safety guidelines. As of November 2021, the majority of the Company’s employees had returned to the workplace. Although the Company’s supply chain has slowed down, the Company is currently able to maintain inventory of long lead items and is working with its suppliers to optimize future supply orders

COVID-19 has impacted the Company’s 2020 and 2021 sales of its metaAIR® laser protection eyewear product. Worldwide restrictions on travel are significantly impacting the airline industry and purchasing of metaAIR® eyewear has not been the primary spending focus of airline companies emerging from the financial impacts of COVID-19, however, the Company is pursuing sales in adjacent markets such as consumer, military and law enforcement. The situation is dynamic and the ultimate duration and magnitude of the impact of COVID-19 on the economy and financial effect specific to the Company cannot be quantified or known at this time.

BUSINESS AND OPERATIONAL HIGHLIGHTS

Throughout 2021, the Company’s activities were focused on its research and development efforts as well as expansion of its intellectual property estate. As the Company moves into 2022, we emphasized new emphasis will be placed on investments in pilot scale manufacturing of our NANOWEB® products,applications, expansion of itsour production capacity in our banknote and brand security lines, and more aggressive design, development and clinical testing of itsour broad array of medical products. These efforts represent an efficient approach to monetizing the Company's intellectual property assets.For more information regarding our business, see Part I, Item I (Business). of this Form 10-K.

As of December 31, 2022, we have substantially completed the construction of our Highfield Park facility

The Company leased approximately 53,000 square foot facilityFacility in Dartmouth, Nova Scotia with the lease commencing on January 1, 2021.and expanding our facility in Thurso, Quebec.

Nasdaq Potential Delisting

On March 20,2023, we received a notice (the “Notice”) from The facility will host the Company’s holography and lithography R&D labs and manufacturing operations. The Company also amended this lease agreement on June 9, 2021 to expand the leased space by approximately 15,000 square feet, reduce the annual rentNasdaq Stock Market LLC (the "Nasdaq Exchange”) informing us that for the 10-year termlast 30 consecutive business days, the bid price of the lease and obtain from the landlord CA$0.5 million in cash to fund ongoing tenant improvements. In exchange, the landlord received 993,490 shares of MMIour common stock had closed below $1.00 per share, which is the minimum required closing bid price for continued listing on the Nasdaq Exchange pursuant to Listing Rule 5450(a)(1). The Notice has no immediate effect on our Nasdaq listing or trading of our common stock. We have 180 calendar days, or until September 18, 2023 (the “Compliance Date”), to regain compliance. To regain compliance, the closing bid price of our common stock must be at CA$3.40least $1.00 per share. As at December 31, 2021,share for a minimum of ten consecutive business days. If we do not regain compliance by the Company has purchased equipmentCompliance Date, we may be eligible for approximately $1.5 million as well as spent $3.84 millionadditional 180 days to regain compliance or if we are otherwise not eligible, we may request a hearing before a Nasdaq Hearings Panel.

Known Trends and Uncertainties

Inflation

A prolonged period of inflation in Europe, for energy costs in particular, could cause shortages or material cost increases for certain key raw materials, for which we depend on construction work. The Company will continueEuropean suppliers. In particular, shortages or cost increases in certain polymers used in our Holography products could result in higher costs for these products that may not be able to incur additional construction and equipment costs through 2022.be passed on to our customers.

 

23Inflation in North America, for labor costs and transportation costs in particular, could elevate our costs of hiring new team members and cause increases in our labor costs for existing team members. In addition, rising transportation costs are likely to increase our costs for shipping our products and the costs associated with our material purchases. Further, inflation could cause increases in the cost of routine borrowing for the purchase of equipment.

42


Pleasanton facility

During 2021,Vehicle Electrification

The transition from internal combustion engine (ICE) vehicles to electric vehicles (EVs) may be accelerated by recent disruptions in global oil supply, reduced investment in new domestic oil exploration, and increased government support for domestic EV production, battery and battery materials supply chain, and EV charging infrastructure. This may increase the Company signed multiple lease amendmentsopportunity for META to scale up battery materials production, acquire new battery component customers, and obtain government funding for capital projects. It could also accelerate demand for certain of our NANOWEB® products targeting EV’s.

Global Chip Shortage

A global shortage of computer chips has triggered significant delays in product launches in the automotive industry. Should these shortages continue, META could experience on-going delays in orders for our NANOWEB® applications from this vertical market since these products are intended to be incorporated into planned new models.

Expanding Operations, Facilities and Staffing

META is expanding capacity and facilities to support a growing range of market opportunities. This includes a new headquarters facility in Dartmouth, Nova Scotia; expanded production capacity in Thurso, Quebec; and new development facilities in Maryland for Electro Optics and IR, and in Massachusetts for the Battery Materials team. These activities require capital investments, increased overhead for leased facilities, and higher operating expenses for personnel additions. The timing of new customer programs and revenues associated with its lessorthese expansions is uncertain and META will require additional financing to support the related cash consumption.

Expanding Focus and Emphasis on Information Technology

With the rapid growth of our global business, our data protection and cyber security needs have become a significant element of our business. Failure on our part to invest in Pleasanton, Californiathe tools, equipment and personnel required to expandadequately manage these elements could result in regulatory issues, claims by customers and potential financial liabilities. Further, customer prospects identifying such failures could decide to delay or abandon orders from us.

NANOWEB® Capacity

Our NANOWEB® products have not yet reached the leased spacerequired manufacturing scale to enable us to address the volume demands of a number of our target vertical markets. We must either design, develop and procure additional internal capacity to produce NANOWEB® in higher volume and larger formats or identify outsourced suppliers capable of producing our designs. Internal capacity expansion may require higher capital expenditures and faces risk of supply chain delays. Outsourced production may increase variable costs and put pressure on gross margins as we scale volumes.

Recent Acquisitions

Plasma App Ltd

On April 1, 2022, we completed the purchase of 100% of the facilityissued and outstanding shares of Plasma App Ltd. ("PAL"). PAL is the developer of PLASMAfusion®, a proprietary manufacturing platform technology, which enables high speed coating of any solid material on any type of substrate. PAL’s team is located at the Rutherford Appleton Laboratories in Oxford, UK.

We issued an aggregate of 9,677,419 shares of our common stock to PAL's shareholders at closing, representing a number of shares of common stock equal to $18,000,000 divided by $1.86 (the volume weighted average price for the United Statesten trading days ending on March 31, 2022), with an additional deferral of common stock equal to include additional space$2,000,000 divided by $1.86 to be issued subject to satisfaction of 14,379 square feetcertain claims and warranties.

Optodot

We completed an asset purchase agreement with Optodot Corporation ("Optodot") on June 22, 2022. Optodot, based in Devens, Massachusetts, USA, is a developer of advanced materials technologies for the battery and other industries.

The consideration transferred included the following: A cash payment of $3,500,000 as well as extendunrestricted common stock equal to $37,500,000 divided by our common stock's daily volume weighted average trading price per share on the durationNasdaq Capital Market for a period of twenty trading days ending on June 21, 2022 and restricted common stock, subject to milestones as set forth in the leased spaces until September 30, 2026. The Company has spent approximately $4.3 million on equipment including its first pilot scale roll-to-roll line which is expected to be ready for low volume production during the second half of fiscal year 2022. The Company has also spent $1 million on leasehold improvementsPurchase

Thurso facility43


As partAgreement, equal to $7,500,000 divided by the daily volume weighted average trading price per share of our Common Stock on the Nanotech acquisition,Nasdaq Capital Market for the Company acquired property plant and equipment with an estimated fair valueconsecutive period of $25.8 million including a 105,000 square foot facility in Thurso, Quebec. Approximately 35,000 square feet is being utilized for existing production capacity, and the remaining 70,000 square feet is available to expand output to facilitate future growth.twenty trading days ending on June 21, 2022.

RESULTS OF OPERATIONS

We have incurred recurring losses to date, and we anticipate incurring additional losses until such time, if ever, we can achieve profitability. Substantial additional financing will be needed to fund our development, marketing and sales activities and generally to commercialize our technology, and we expect to raise additional capital through various financing transactions or arrangements, including sale/leaseback of certain properties, joint venturing of projects, debt financing, equity financing, or other means. These factors raise substantial doubt about our ability to continue as a going concern. Our financial statements have been prepared assuming that we will continue as a going concern and, accordingly, do not include adjustments relating to the recoverability and realization of assets and classification of liabilities that might be necessary should we be unable to continue in operation.

Revenue and Gross Profit

Our revenue is generated from product sales as well as development revenue. We recognize revenue when we satisfy performance obligations under the terms of our contracts, and control of our products is transferred to our customers in an amount that reflects the consideration we expect to receive from our customers in exchange for those products or services.

 

 

Year ended December 31,

 

 

 

2021

 

 

2020

 

 

Change

 

 

 

 

 

2019

 

 

Change

 

 

 

 

 

 

$

 

 

$

 

 

$

 

 

%

 

 

$

 

 

$

 

 

%

 

Product sales

 

 

407,915

 

 

 

2,905

 

 

 

405,010

 

 

 

13942

%

 

 

23,745

 

 

 

(20,840

)

 

 

-88

%

Development revenue

 

 

3,674,602

 

 

 

1,119,278

 

 

 

2,555,324

 

 

 

228

%

 

 

878,665

 

 

 

240,613

 

 

 

27

%

Total Revenue

 

 

4,082,517

 

 

 

1,122,183

 

 

 

2,960,334

 

 

 

264

%

 

 

902,410

 

 

 

219,773

 

 

 

24

%

Cost of goods sold

 

 

675,973

 

 

 

3,254

 

 

 

672,719

 

 

 

20674

%

 

 

9,172

 

 

 

(5,918

)

 

 

-65

%

Gross Profit

 

 

3,406,544

 

 

 

1,118,929

 

 

 

2,287,615

 

 

 

204

%

 

 

893,238

 

 

 

225,691

 

 

 

25

%

Gross Profit percentage

 

 

83

%

 

 

100

%

 

 

-17

%

 

 

 

 

 

99

%

 

 

1

%

 

 

 

Product Sales

Product sales include products, components, and samples sold to variousour customers. DuringRevenue from the sale of prototypes and finished products is recognized at the point in time when control of the asset is transferred to the customer, generally on delivery of goods. We consider whether there are other obligations in the contract that are separate performance obligations to which a portion of the transaction price needs to be allocated. In determining the transaction price for the sale of prototypes, we consider the effects of variable consideration, the existence of significant financial components, non-cash consideration and consideration payable to the customer (if any).

Development Revenue

Development Revenue consists of revenues from contract services and research services, including non-recurring engineering services. Revenue from development activities is recognized over time, using an output method to measure progress towards complete satisfaction of the research activities and whether associated performance obligations identified within each contract have been satisfied.

Cost of Goods Sold

Cost of Goods Sold consists of direct material used in production, depreciation expenses of machinery and equipment used in production, salaries and benefits relating to the production staff, and other overhead costs allocated to production.

 

 

Year ended December 31,

 

 

 

2022

 

 

2021

 

 

Change

 

 

 

 

 

 

$

 

 

$

 

 

$

 

 

%

 

Product sales

 

 

1,211,746

 

 

 

407,915

 

 

 

803,831

 

 

 

197

%

Development revenue

 

 

8,988,421

 

 

 

3,674,602

 

 

 

5,313,819

 

 

 

145

%

Total Revenue

 

 

10,200,167

 

 

 

4,082,517

 

 

 

6,117,650

 

 

 

150

%

Cost of goods sold

 

 

3,036,190

 

 

 

675,973

 

 

 

2,360,217

 

 

 

349

%

Gross Profit

 

 

7,163,977

 

 

 

3,406,544

 

 

 

3,757,433

 

 

 

110

%

Gross Profit percentage

 

 

70

%

 

 

83

%

 

 

-13

%

 

 

 

Product Sales

The increase in product sales of $0.8 million for the year ended December 31, 2022, as compared to the same period of 2021, is primarily due to increase in sales revenue from our nanoimprint-lithography revenue - banknotes applications.

Development Revenue

The increase in development revenue for the year ended December 31, 2022, of $5.3 million compared to the year ended December 31, 2021, is mainly due to our nanoimprint-lithography revenue - banknotes applications during 2022 of $6.8 million, offset by $1.5 million decrease due to the Company began earning revenue fromcompletion of certain development samples sold to certain customers. The $0.4 million increasecontracts in product sales in 2021 compared to 2020 is due to:

$0.3 million in revenue from sale of development samples of NANOWEB®
$0.1 million in Nano-optic product sales in Q4 2021 generated by Nanotech subsequent to its acquisition by the Company
Incidental revenue generated by product sales of holoOPTIXTM to different customers

There was minimal change in product sales between 2019 and 2020.

Development revenue is comprised of revenue from contract services and other development revenue. The increase in development revenue of $2.6 million in 2021 compared to 2020 is primarily due to:

$1.7 million in revenue recognized by Nanotech from contract services subsequent to its acquisition by the Company. Nanotech currently derives2021. We derive a significant portion of itsour revenue from contract

44


services with a confidential G10 central bank. In 2021, we acquired Nanotech entered intowhich had a development contract for up to $41.5 million over a period of up to five years. These contract services incorporate both nano-optic and optical thin film technologies and are focused on developing authentication features for future banknotes.

$1 million in revenue recognized subsequent to achieving performance conditionsCost of the Cooperation Framework Agreement with Covestro Deutschland AG.

$0.2 million decrease in other development revenue with lower research and development revenue generated from customers in 2021 compared to 2020.

Goods Sold

The increase in development revenuecost of $0.2goods sold for the year ended December 31, 2022, of $2.4 million in 2020, compared to 2019,the year ended December 31, 2021, is Primarilymainly due toour production cost associated with the nanoimprint-lithography revenue recognized from statements of work with different customers.- banknotes applications.

Gross Profit

The increase in gross profit for the year ended December 31, 2022, of $0.7$3.8 million in cost of sales in 2021, compared to 2020,the year ended December 31, 2021, is primarilyagain mainly due to $0.17 million in cost of sales incurred by Nanotech subsequent to its acquisition by the Company, as well as $0.16 million in cost of sales incurred in generating other product sales. There was minimal decrease in cost of sales in 2020 compared to 2019.our increased revenue from contract services with a confidential G10 central bank during 2022.

24


Operating expenses

 

 

Year ended December 31,

 

 

Year ended December 31,

 

 

2021

 

 

2020

 

 

Change

 

 

 

 

 

2019

 

 

Change

 

 

 

 

 

2022

 

 

2021

 

 

Change

 

 

 

 

 

$

 

 

$

 

 

$

 

 

%

 

 

$

 

 

$

 

 

%

 

 

$

 

 

$

 

 

$

 

 

%

 

Operating Expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Selling & Marketing

 

2,267,354

 

1,064,659

 

1,202,695

 

113

%

 

1,125,719

 

(61,060

)

 

-5

%

 

 

6,244,883

 

 

 

2,267,354

 

 

 

3,977,529

 

 

 

175

%

General & Administrative

 

29,699,601

 

6,707,858

 

22,991,743

 

343

%

 

4,819,737

 

1,888,121

 

39

%

 

 

61,543,282

 

 

 

29,699,601

 

 

 

31,843,681

 

 

 

107

%

Research & Development

 

 

9,497,427

 

 

 

4,102,791

 

 

 

5,394,636

 

 

131

%

 

 

3,825,194

 

 

 

277,597

 

 

7

%

 

 

22,640,495

 

 

 

9,497,427

 

 

 

13,143,068

 

 

 

138

%

Total operating expenses

 

 

41,464,382

 

 

 

11,875,308

 

 

 

29,589,074

 

 

249

%

 

 

9,770,650

 

 

 

2,104,658

 

 

22

%

 

 

90,428,660

 

 

 

41,464,382

 

 

 

48,964,278

 

 

 

118

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Selling & Marketing

The increase in selling and& marketing expenses in 2021,for the year ended December 31, 2022, of $4.0 million compared to 2020,the year ended December 31, 2021, is primarilymainly due to:

$0.6to a $3.1 million increase in salaries and benefits, including a $0.5 million increase in non-cash equity compensation due to:
o
$0.2 millionto increases in salaries and benefits costs incurred by Nanotech subsequent to its acquisition byheadcount in the Company.
o
$0.4 million increased cost for new hires in 2021 aslatter part of the Company’s expansion2021, and building aearly part of 2022, to acquire talent and grow the sales and marketing team.
$0.2 The remaining increase of $0.9 million increaseis due to increases in consulting fees for market research and various investor relations campaigns as the Company sought to list on the NASDAQ.
$0.2 million increase in trade shows and travel and entertainment due to the market rebound after COVID-19other sales and reopening of trade shows. The Company participated in global tradeshows including AWE in USA and Asia for augmented reality ("AR") and 5G networks, Photonics West for holoOPTIX and AR, CES for various industries and technologies such as 5G networks, augmented reality, consumer electronics, automotive, and medical applications.

marketing costs year over year.

There was a minimal decrease in selling and marketing expenses in 2020 compared to 2019.General & Administrative

The increase in general and& administrative expenses in 2021,for the year ended December 31, 2022 ,of $31.8 million compared to 2020,the year ended December 31, 2021, is primarily due to:

$5.0 million increase in legal and audit expenses, primarily resulting from costs associated with the Torchlight reverse acquisition ("RTO") and Nanotech acquisition, as well as costs associated with listing on the NASDAQ.
$6.2 million increase in consulting expenses primarily due to:
o
$4.1 million of expenses relating to the management of, and maintenance of the Oil and Gas assets ("O&G assets") acquired via the Torchlight RTO, including $3.1 million paid to consultants in the form of warrants as well as $0.9 million paid in cash.
o
$1.2 million in advisory fees relating to the acquisition of Nanotech.
$3.0a $15.1 million increase in salaries and benefits primarily due to:
o
$2.0including a $6.8 million increase in non-cash equity compensation due to incurring an additional $1.11) management and support functions growth to keep pace with our overall growth and acquisitions, 2) the acquisition of Nanotech in Q4 2021, PAL and Optodot in Q2 2022, and 3) Contractors hired in Q3 2021, to manage the disposition of our O&G assets, a $7.9 million increase in professional fees due to the ongoing SEC investigation and lawsuits, acquisition related costs and consulting fees, $5.2 million in salaries expense for general headcount expansiondepreciation and amortization expenses mainly due to acquired intangible assets in Q4 2021, as part of the Nanotech acquisition as well as recording accrued bonuses of $0.9 million.
o
$0.9 millionthe increase in salaries expensesdepreciation expense due to acquired equipment in relation to management of, and maintenance of the O&G assets acquired via the Torchlight RTO.
$3.9different facilities, a $1.5 million increase in investor related expenses due to:
o
$2.7 million warrantsinsurance and RSUs issued to non-employee consultantsstock exchange costs associated with our listing on Nasdaq in 2021. The fair value of warrants was calculated based on the Monte Carlo simulation valuation technique. The fair value of RSUs was calculated using the grant date share price. Refer to note 14 in Item 8. "Financial Statements and supplementary data" for more details.
o
$1.0 million in other expenses in relation to stock market support, investor communication and holding an annual stockholders meeting.

25


$1.6June 2021, a $0.5 million increase in rent and utilities due to the new lease for the Company's Highfield Park facility in Nova Scotia, Canada, the expansion of the Pleasanton facility in California, the opening of new administrativedifferent locations, in Boxborough, Massachusetts and Plano, Texas, and new research and development office in Athens, Greece.
$1.6$1.4 million increase in insurance costs due to the increased insurance requirements in the US resulting from the Company's NASDAQ listing.
$1.7 million increase in depreciation, amortizationtravel, subscription and impairment expense.
other expenses.

Research & Development

The increase in general and administrativeresearch & development expenses in 2020,for the year ended December 31, 2022, of $13.1 million compared to 2019,the year ended December 31, 2021, is primarily due to:to an $8.1

$1.1 million increase in legal and audit fees for work related to the preparation for the Torchlight RTO and the closing of the CPM RTO, $0.2 million increase in investment banking services, and $0.2 million increase in investor related expenses due to preparation for the acquisition of Torchlight.
$0.2 million increase in rent and utilities

The increase in research and development expenses in 2021, compared to 2020, is primarily due to:

$3.1 million increase in salaries and benefits including a $4.1 million increase in non-cash equity compensation due to general headcount expansion.
$1.1increase in our head count through all locations as a result of (i) expansion in facilities and laboratories, and (ii) the acquisition of Nanotech in Q4 2021, PAL and Optodot in Q2 2022, a $2.0 million due toincrease in R&D materials, purchases.
Intellectual Property
$0.6 million increase in IT & software, dues and subscriptions, rent & utilities as well as travel and entertainment expenses.

45


 

The increasemaintenance fees and consulting expense, a $1.3 million in research and development expenses in 2020, compared to 2019, is primarilyrent due to $0.3 lease expansion in different R&D facilities in Canada, USA and Greece, as well as a $1.7million increase in consultingtravel, depreciation, subscription and other expenses.

Other expenseExpenses

 

 

Year ended December 31,

 

 

Year ended December 31,

 

 

2021

 

 

2020

 

 

Change

 

 

 

 

 

2019

 

 

Change

 

 

 

 

 

2022

 

 

2021

 

 

Change

 

 

 

 

 

$

 

 

$

 

 

$

 

 

%

 

 

$

 

 

$

 

 

%

 

 

$

 

 

$

 

 

$

 

 

%

 

Other expense:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other expenses, net:

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense, net

 

(1,106,445

)

 

(1,429,954

)

 

323,509

 

-23

%

 

(1,135,922

)

 

(294,032

)

 

26

%

 

 

(174,234

)

 

 

(1,106,445

)

 

 

932,211

 

 

 

-84

%

Loss on foreign exchange, net

 

(205,882

)

 

(264,831

)

 

58,949

 

-22

%

 

(316,261

)

 

51,430

 

-16

%

 

 

(2,054,447

)

 

 

(205,882

)

 

 

(1,848,565

)

 

 

898

%

Gain on deconsolidation of subsidiaries

 

 

3,990,737

 

 

 

 

 

 

3,990,737

 

 

 

100

%

Loss on financial instruments, net

 

(40,540,091

)

 

(844,993

)

 

(39,695,098

)

 

4698

%

 

(280,319

)

 

(564,674

)

 

201

%

 

 

 

 

 

(40,540,091

)

 

 

40,540,091

 

 

 

-100

%

Other (loss) income, net

 

 

(11,939,068

)

 

 

1,491,188

 

 

 

(13,430,256

)

 

-901

%

 

 

2,081,398

 

 

 

(590,210

)

 

-28

%

Total other expense

 

 

(53,791,486

)

 

 

(1,048,590

)

 

 

(52,742,896

)

 

5030

%

 

 

348,896

 

 

 

(1,397,486

)

 

-401

%

Other expenses, net

 

 

(3,433,757

)

 

 

(11,939,068

)

 

 

8,505,311

 

 

 

-71

%

Total other expense, net

 

 

(1,671,701

)

 

 

(53,791,486

)

 

 

52,119,785

 

 

 

-97

%

Interest Expense, net

The $0.2 million decrease in net interest expense in 2021for the year ended December 31, 2022, of $0.9 million compared to 2020 was due to the settlement of certain of the Company's convertible promissory notes and debentures, converted into MMI common stock during the year ended December 31, 2021, resulting in less interest expense being incurred.

The $0.3 million increase in interest expense in 2020 compared to 2019 wasis primarily due to a $5 million loan obtained from BDCsettlement of the convertible debentures and issued in April 2020 as well as issuance of $1 million in unsecured convertible debenturespromissory notes in the first half of fiscal year 2020.2021.

 

Loss on Foreign Exchange, net

The increasechange in net loss on foreign exchange of $1.8 million for the year ended December 31, 2022 compared to the year ended December 31, 2021, is primarily driven by revaluations of intercompany balances in different currencies, mainly as a result of the devaluation of different currencies against the US dollar during 2022.

Gain on deconsolidation of wholly-owned subsidiary

A gain of $4.0 million for the year ended December 31, 2022 was recognized as a result of the deconsolidation of Next Bridge on December 14, 2022. The gain is comprised of the recognition of a note receivable at estimated fair value from Next Bridge for $2.2 million and a $1.8 million gain resulting from the derecognition of Next Bridge working capital (or a decrease in our consolidated net liabilities) on December 14, 2022. See note 5 to the Consolidated Financial Statements for further details.

Loss on Financial Instruments, net

No loss on financial instruments was recorded for the year ended December 31, 2022, as there were no revaluations of financial instruments during the period. The losses in 2021 compared to 2020, waswere due to the re-measurementnon-cash gains/losses resulting from remeasurement of convertible financial liabilities with carrying value of $12.0 million at the conversion dates and a recognition of a $40.2 million non-cash realized loss in the statements of operations and comprehensive loss. The increase in the fair value of convertible financial liabilities was due to the increase in the Company’s stock price from CA$0.66 as at December 31, 2020 to:

CA$3.01 at February 16, 2021 when the Company converted unsecured convertible promissory notes of $4.4 million principal and interest at a share price of CA$0.50 in accordance with the terms of the bridge financing;
CA$3.01 at February 16, 2021 when the Company converted unsecured convertible debentures of $1.5 million principal and interest at share price of CA$0.70 as per terms of the agreement and;
CA$3.80 at March 3, 2021 when the Company converted secured convertible debentures of $4.3 million principal and interest at share price of CA$0.70 pursuant to the terms of the agreement with Business Development Canada.

26


Each of the above referenced promissory notes and debentures included a conversion feature, exercisable at the option of the debt holder. For accounting purposes, each of these conversion features was an embedded derivative in the note or debenture. The Company elected to account for fluctuations in (a) the value of the liabilities driven by interest rate volatility and the Company’s credit risk and (b) the embedded derivatives driven by fluctuations in the Company’s common stock share price, using the fair value option. This accounting method calls for the Company to measure the fair value of the convertible financial liabilities at each balance sheet date and to record any non-cash adjustments relating to instrument-specific credit risk in other comprehensive income, and non-cash adjustments relating to other factors inor on conversion date using the statements of operations. If, as was the case for the liabilities described above, the debt is converted, the valuations and any adjustments are to be recorded as of the date of such conversion.fair value option.

Other expenses, net

The fair value option also provides thatdecrease in other expenses of $8.5 million for the total revaluation adjustment, in this case $40.2 million, be recorded in common stock and additional paid in capital along with the $10.2 million principal and interest portion, resulting in an increase to stockholders' equity despite the recording of the $40.2 million loss in the statement of operations.

The recorded loss is a non-cash expense. The creditors of the Company exchanged their secured and unsecured debt for common stock of the Company at conversion prices that were established at the time the instruments were created and, at which time, represented a conversion price close to or higher than the then market price of the common stock. Had the Company been permitted to pay off the debts in cash at the time of conversion, fewer shares would have been required to be issued and a lower loss would have been recorded. However, the instruments prevented any pre-payment of the debts by the Company. The conversions had the beneficial effect of significantly reducing the Company’s liabilities and eliminating broad-based security interests in all of the Company’s assets previously held by the creditors.

The $0.6 million increase in loss on financial instruments in 2020year ended December 31, 2022,, as compared to 2019the year ended December 31, 2021, is primarily due to the re-measurementa reduction of convertible financial liabilities with carrying value of $12.0$10.3 million at the conversion dates and a recognition of a $0.8 million non-cash realized loss in the statements of operations and comprehensive loss.

The $13.0 million decrease in net other income in 2021, compared to 2020, is primarily due to costs incurred in relation to certain drilling activity we carried out by the company at its Oil and Gas ("our O&G")&G properties, to remain in compliance with all aspects of the Company'sour lease obligations and to satisfy the Continuous Drilling Clause ("CDC") with University Lands. The Company was successful in maintaining lease compliance and is moving forward with the planned spin-outLands net of the O&G assets.

The $0.6$1.5 million decrease in other income in 2020 compared to 2019 was primarily due to the following:

$0.4 million decrease in recognition of the fair value of the interest free component of the funding obligation.
$0.6 million decrease in recognition of fair value gain on the ACOA loans.
Offset by a $0.4 million increase incash and non-cash government assistance.

grants received.

27


Deferred Tax recovery

 

 

Year ended December 31,

 

 

 

2021

 

 

2020

 

 

Change

 

 

 

 

 

2019

 

 

Change

 

 

 

 

 

 

$

 

 

$

 

 

$

 

 

%

 

 

$

 

 

$

 

 

%

 

Income tax recovery

 

 

852,063

 

 

 

193,710

 

 

 

658,353

 

 

 

340

%

 

 

83,549

 

 

 

110,161

 

 

 

132

%

 

 

Year ended December 31,

 

 

 

2022

 

 

2021

 

 

Change

 

 

 

 

 

 

$

 

 

$

 

 

$

 

 

%

 

Income tax recovery

 

 

5,834,160

 

 

 

852,063

 

 

 

4,982,097

 

 

 

585

%

 

The Company records deferred income tax liabilities for some of its foreign subsidiaries in Canada and United Kingdom. The increase in income tax46


Income Tax recovery in 2021, compared to 2020, was driven by:

an increase in accumulated losses, as well as changes in foreign exchange rates, in the Company's foreign subsidiary in United Kingdom.
an increase in accumulated losses, intangibles amortization and changes in foreign exchange rates in Nanotech securities, the Company's wholly owned subsidiary, pursuant to its acquisition on October 5, 2021.

 

The increase in our income tax recovery in 2020,for the year ended December 31, 2022 of $5.0 million, as compared to 2019,the year ended December 31, 2021, was driven by:

an increasea) utilization of previously fully reserved tax assets in accumulated losses,relation to the Optodot acquisition. We recognized a deferred tax liability as wellof acquisition date of $4.9 million in accordance with ASC Topic 740, and in conjunction, reduced our valuation allowance resulting in a net income tax recovery of $4.9 million.

b) income tax recovery of $0.1 million as a result of purchase price allocation adjustments in relation to the Nanotech and PAL acquisitions and subsequent recovery.

We have provided a valuation allowance for various jurisdictions as a result of our historical net losses. We continue to assess our future taxable income by jurisdiction based on our recent historical operating results, the expected timing of reversal of temporary differences, various tax planning strategies that we may be able to implement, the impact of potential operating changes on our business and our forecast results from operations in foreign exchange rates,future periods based on available information at the end of each reporting period.

To the extent that we are able to reach the conclusion that deferred tax assets are realizable based on any combination of the above factors in a single, or multiple, taxing jurisdictions, a reversal of the Company's foreign subsidiary in United Kingdom.

related portion of our existing valuation allowances may occur.

The Company hasWe have not yet been able to establish profitability or other sufficient significant positive evidence, to conclude that itsour deferred tax assets are more likely than not to be realized. Therefore, the Company continueswe continue to maintain a valuation allowance against itsour deferred tax assets.

LIQUIDITY AND CAPITAL RESOURCES

Liquidity risk is the risk that the Companywe will not meet itsour financial obligations as they become due after use of currently available cash. The Company hasWe have a planning and budgeting process to monitor operating cash requirements, including amounts projected for capital expenditures, which are adjusted as input variables change. These variables include, but are not limited to, theour ability of the Company to plan for and generate revenue from current and prospective customers, our general and administrative requirements of the Company and the availability of equity or debt capital and government funding. As these variables change, the Companywe may be required to issue equity or obtain debt financing.

At

On December 31, 2021, the Company2022, we had cash, and cash equivalents and short-term investments of $46.6$11.8 million including $1.7 million in restricted cash and $Nil in short-term investments compared to $50.3 million in cash, cash equivalents and short-term investments on December 31, 2021, including $0.8 million in restricted cash compared to $1.4and $2.9 million in cash and cash equivalents at December 31, 2020. In addition, and as of December 31, 2021, the Company holds short-term investments amounting to $2.8 million (December 31, 2020: $Nil).investments.

For

During the year ended December 31, 2021, the Company’s2022, our principal sources of liquidity included $147$46.3 million of cashnet proceeds obtained through the Torchlight RTO, $14.0 million in cash obtained through convertible debt, $1.8 million in cash obtained through revenueissuance of common stock and deferred revenue, andwarrants, proceeds from a below-market capital government loan of $1.1 million in cash obtained through long-term and short-term interest-free debt.revenue of approximately $10.2 million.

The Company’s

During the year ended December 31, 2022, our primary uses of liquidity included the Nanotech acquisition of $66.1$26.5 million net of cash acquired,in salaries, of $10.3$25.1 million mainly in legal, consulting, investor relations, auditing and auditaccounting fees, of $6.3$19.6 million professional servicein capital expenditures, $4.6 million in acquisitions cost, $4.0 million in rent and utilities, $3.5 million in R&D material and patent fees, of $11.0$3.1 million in travel, advertising, travel show cost and Oildues and Gas drilling costs of $12.5 million.subscriptions, and $2.5 million in insurance.

The Company believes that its existing cash will be sufficient to meet its working capital and capital expenditure needs as production capacity begins to come on line. The Company may need to raise additional capital to expand the commercialization of its products, fund its operations and further its research and development activities. Future capital requirements may vary materially from period to period and will depend on many factors, including the timing and extent of spending on research and development efforts, the capital expansion of its facilities in Halifax and California and the ongoing investments to support the growth of its business.

The Company also has the option to raise equity through issuing common stock of up to approximately $112.5 million under an existing At-The-Market equity program where the Company's shares have been registered under the Securities Act of 1933, as amended, pursuant to the Registration Statement on Form S-3 (No. 333-256632) filed by the Company with the Securities and Exchange Commission (the “SEC”) on May 28, 2021, and declared effective on June 14, 2021 (the “Registration Statement”).2022 Registered Direct Offering

 

28On June 24, 2022, we entered into a securities purchase agreement, as amended and restated on June 27, 2022, with certain institutional investors (the “SPA”) for the purchase and sale in a registered direct offering of 37,037,039 shares of our common stock at a purchase price of $1.35 per share and warrants to purchase 37,037,039 shares at an exercise price of $1.75 per share. This resulted in gross proceeds from the offering of $50.0 million and net proceeds of $46.3 million.

Shelf Registration

On November 9, 2022, we filed a “universal” shelf registration statement File No. (333-268282) on Form S-3 allowing us to issue certain securities with an aggregate offering price not to exceed $250 million. This registration statement was declared effective by the SEC on November 18, 2022.

On February 10, 2023, we entered into a sales agreement (the "ATM Agreement") with investment banks to establish an “at-the-market” offering program under which we may sell up to an aggregate of $100 million of shares of common stock (the “ATM Shares”) from

47


time to time. The sales agents are entitled to compensation at a fixed commission rate of 3.0% of the gross proceeds of each sale of shares of our common stock.

Under the ATM Agreement, we set the parameters for the sale of ATM Shares, including the number of ATM Shares to be issued, the time period during which sales are requested to be made, limitations on the number of ATM Shares that may be sold in any one trading day and any minimum price below which sales may not be made. Sales of the ATM Shares, if any, under the ATM Agreement may be made in transactions that are deemed to be “at-the-market offerings” as defined in Rule 415 under the Securities Act.

As of March 20, 2023, we have sold an aggregate of 17,573,969 shares of our common stock pursuant to the ATM Agreement for aggregate gross proceeds of approximately $10.5 million.

Going Concern

In accordance with Accounting Standards Codification ("ASC") 205-40, going concern, we evaluated whether there are conditions and events, considered in the aggregate, that raise substantial doubt about our ability to continue as a going concern within one year after the date that the consolidated financial statements included in this Form 10-K are issued. This evaluation initially does not take into consideration the potential mitigating effect of management’s plans that have not been fully implemented as of the date the financial statements are issued. When substantial doubt exists under this methodology, management evaluates whether the mitigating effect of its plans sufficiently alleviates substantial doubt about our ability to continue as a going concern. The mitigating effect of management’s plans, however, is only considered if both (1) it is probable that the plans will be effectively implemented within one year after the date that the financial statements are issued, and (2) it is probable that the plans, when implemented, will mitigate the relevant conditions or events that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the date that the consolidated financial statements are issued. In performing its analysis, management excluded certain elements of its operating plan that cannot be considered probable. Under ASC 205-40, the receipt of potential funding from future partnerships, equity or debt issuances, potential achievement of milestones from customer agreements and reductions in workforce cannot be considered probable at this time because these plans are not entirely within our control and/or have not been approved by our Board of Directors as of the date of issuance of the consolidated financial statements.

Our expectation to generate operating losses and negative operating cash flows in the future and the need for additional funding to support our planned operations, raise substantial doubt regarding our ability to continue as a going concern. Management's plans to alleviate the conditions that raise substantial doubt include reduced spending, and the pursuit of additional capital. Management has concluded the likelihood that its plan to successfully obtain sufficient funding from one or more of these sources, or adequately reduce expenditures, while highly possible, is less than probable. Accordingly, we have concluded that substantial doubt exists about our ability to continue as a going concern for a period of at least 12 months from the date of issuance of the consolidated financial statements.

The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the ordinary course of business. The financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might result from the outcome of the uncertainties described above.

The following table summarizes META’s cash flows for the periods presented:

 

Year ended December 31,

 

 

Year ended December 31,

 

 

2021

 

 

2020

 

 

2019

 

 

2022

 

 

2021

 

Net cash used in operating activities

 

(34,764,911

)

 

(7,929,047

)

 

(4,360,747

)

 

 

(62,244,794

)

 

 

(34,764,911

)

Net cash provided by investing activities

 

65,144,545

 

2,412,991

 

(1,195,342

)

Net cash (used in) provided by investing activities

 

 

(19,472,250

)

 

 

65,144,545

 

Net cash provided by financing activities

 

 

15,655,863

 

 

 

6,333,827

 

 

 

5,328,559

 

 

 

46,367,012

 

 

 

15,655,863

 

Net increase in cash, cash equivalents and restricted cash

 

 

46,035,497

 

 

 

817,771

 

 

 

(227,530

)

Net (decrease) increase in cash, cash equivalents and restricted cash

 

 

(35,350,032

)

 

 

46,035,497

 

 

Net cash used in operating activities

During the year ended December 31, 2022, net cash used in operating activities of $62.2 million was primarily driven by a net loss of $79.1 million for the period, and non-cash adjustments of $17.2 million mainly due to depreciation and amortization of $9.3 million, stock-based compensation of $13.9 million, and unrealized foreign exchange loss of $2.1 million offset by $4.0 million gain on deconsolidation of Next Bridge, and $5.8 million deferred income tax recovery, along with other less material line items. In addition, there was $0.4 million cash used by working capital primarily due to a $5.4 million increase of trade and other payables, offset by decrease in prepaid and other current assets $4.8 million, along with other changes in working capital.

48


During the year ended December 31, 2021, net cash used in operating activities of $36.2$34.8 million was primarily driven by a $91.0 million net loss reported for the year, and non-cash adjustments of $51.7$51.6 million mainly due to $40.5 million in fair value losses on financial instruments, $8$8.1 million stock based compensation and non-cash consulting fees, $3.7 million in depreciation, amortization and impairment, and non-cash interest and accretion of $1.1$0.9 million, along with other less material line items. Change in operating assets and liabilities totaled $3.2 million.$4.7 million primarily due to a $6.9 million increase of trade and other payables.

Net cash (used in) provided by investing activities

During the year ended December 31, 2020,2022, net cash used in operatinginvesting activities of $7.9$19.5 million was primarily driven by $11.6proceeds from short-term investments of $2.8 million and proceeds from below-market capital government loan of $1.1 million offset by $19.6 million of net loss reportedcapital expenditure associated with the construction of the Highfield Park Facility in Canada as well as the equipment purchases for our facility in Pleasanton, California, United States and $3.5 million cash consideration for the year, and non-cash adjustments of $4.6 million mainly due to $2.3 million in depreciation and amortization, $0.9 in fair value losses on financial instruments, $1.1 million in interest expense and $1.5 million in stock-based compensation. Change in operating assets and liabilities totaled $0.9 million.

During the year ended December 31, 2019, net cash used in operating activities of $4.3 million was primarily driven by $8.4 million of net loss reported for the year, and non-cash adjustments of $3.3 million mainly due to $2.3 million in depreciation and amortization, $1.0 million in interest expense and $1.3 million in stock-based compensation net of $0.5 in non-cash finance income and $0.5 non-cash government assistance. Change in operating assets and liabilities totaled $0.8 million.

Net cash provided by investing activitiesOptodot acquisition.

During the year ended December 31, 2021, net cash provided by investing activities of $66.6$65.1 million was primarily driven by cash acquired as a result of the Torchlight RTO of $147$147.0 million, offset by $66.1 million in cash paid for the Nanotech acquisition, $2.9 million purchase of short-term investments, $10.4$11.7 million in property plant and equipment purchases associated with the construction of the Highfield Park Facility as well as equipment purchases for both the Highfield Park and Pleasanton facilities, and a $0.9$1.1 million increase in intangibles as a result of capitalized legal cost for certain patents, as well as the acquisition of certain intellectual property assets from Interglass Technology AG (Switzerland).

During the year ended December 31, 2020, netNet cash provided by investingfinancing activities of $2.4 million was primarily driven by proceeds from the CPM RTO of $3.1 million offset by $0.7 million in equipment purchases and capitalized legal costs to obtain certain patents.

During the year ended December 31, 2019,2022, net cash used in investing activities of $1.2 million was driven by equipment purchases and capitalized legal costs to obtain certain patents.

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Net cash provided by financing activities of $46.4 million was primarily driven by the cash obtained through the proceeds from the issuance of common stock and warrants through the Securities Purchase Agreements with institutional investors for the purchase and sale in a registered direct offering, $0.4 million from stock option exercises net of $0.6 million loan repayments.

During the year ended December 31, 2021, net cash provided by financing activities of $15.5$15.7 million was primarily driven by $10.0 million in proceeds received from the issuance of unsecured convertible promissory notes to Torchlight, subsequently eliminated upon consolidation at December 31, 2021, $3.9$4 million in proceeds from the issuance of unsecured convertible promissory notes to an affiliate that was subsequently converted into common stock during the year and $1.4 million in proceeds from options and warrants exercise.exercise net of $1.1 million loan repayments.

During the year ended December 31, 2020, net cash provided by financing activities of $6.3 million was primarily driven by $3.6 million in proceeds received from the issuance of secured convertible debentures to BDC Capital that was subsequently converted into common stock in 2021, $0.7 million in proceeds from issuance of unsecured convertible debentures and $0.6 million in proceeds from the issuance of convertible promissory notes to a shareholder that were subsequently converted into common stock in 2021, $0.6 million in proceeds from common stock and warrants issuances offset by $0.2 million in repayments of long-term debt.

During the year ended December 31, 2019, net cash provided by financing activities of $5.3 million was primarily driven by $2.4 million in proceeds received from the issuance of secured convertible promissory notes, $0.6 million in proceeds from issuance of unsecured convertible debentures and $0.8 million in proceeds from a private placement, $0.7 million in proceeds from long-term debt.

 

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The preparation of financial statements in conformity with U.S. GAAP requires the Companyus to make estimates, judgments and assumptions that affect the amounts reported in the consolidated financial statements. These estimates, judgments and assumptions are evaluated on an ongoing basis. The Company bases itsWe base our estimates on historical experience and on various other assumptions that it believeswe believe are reasonable at that time, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ materially from those estimates. The accounting policies that reflect the Company'sour more significant estimates, judgments and assumptions and which it believeswe believe are the most critical to aid in fully understanding and evaluating our reported financial results include the following:

 

Revenue recognitionGoing Concern

The Company’s revenue is generated from product salesaccompanying consolidated financial statements have been prepared on a going concern basis of accounting, which contemplates continuity of operations, realization of assets and liabilities and commitments in the normal course of business. The accompanying consolidated financial statements do not reflect any adjustments that might result if we are unable to continue as wella going concern. In connection with the preparation of the consolidated financial statements for the years ended December 31, 2022 and 2021, we conducted an evaluation as development revenue. The Company recognizes revenue when it satisfies performance obligations underto whether there were conditions and events, considered in the termsaggregate, which raised substantial doubt as to our ability to continue as a going concern within one year after the date of its contracts,the issuance of such financial statements, and control of its products is transferredconcluded that substantial doubt existed as to its customersour ability to continue as a going concern as further discussed in an amount that reflectsNote 2 to the consideration the Company expects to receive from its customers in exchange for those products or services.consolidated financial statements.

 

RevenueUnder ASC 205-40, the receipt of potential funding from the salefuture partnerships, equity or debt issuances, potential achievement of prototypesmilestones from customer agreements and finished products is recognizedreductions in workforce cannot be considered probable at the point inthis time whenbecause these plans are not entirely within our control and/or have not been approved by our Board of Directors as of the asset is transferred to the customer, generally on deliverydate of goods. The Company considers whether there are other obligations in the contract that are separate performance obligations to which a portionissuance of the transaction price needs to be allocated. In determining the transaction price for the sale of prototypes, the Company considers the effects of variable consideration, the existence of significantconsolidated financial components, non-cash consideration and consideration payable to the customer (if any).statements.

 

Revenue49


Our expectation to generate operating losses and negative operating cash flows in the future and the need for additional funding to support our planned operations, raise substantial doubt regarding our ability to continue as a going concern. Management's plans to alleviate the conditions that raise substantial doubt include reduced spending, and the pursuit of additional capital. Management has concluded the likelihood that its plan to successfully obtain sufficient funding from development activitiesone or more of these sources, or adequately reduce expenditures, while highly possible, is recognized over time, using an input method to measure progress towards complete satisfaction of the research activities and associated performance obligations identified within each contract have been satisfied.less than probable.

 

Goodwill

We have one operating segment in accordance with ASC 280 Segment Reporting. We have similarly determined that we have one reporting unit, to which all goodwill is assigned, in accordance with ASC 350 Intangibles – Goodwill and Other.

 

- Goodwill represents the excess of the purchase price in a business combination over the fair value of net tangible and

intangible assets acquired. The carrying amount of goodwill is periodically reviewed for impairment (atand at a minimum annually)

annually and whenever events or changes in circumstances indicate that the carrying value of this asset may not be recoverable.

The CompanyWe first performsperform a qualitative assessment to test the reporting unit's goodwill for impairment. Based on the qualitative

assessment, if it is determined that the fair value of our reporting unit is more likely than not (i.e. a likelihood of more than 50

percent) to be less than its carrying amount, the quantitative assessment of the impairment test is performed. In the quantitative assessment, the Company compareswe compare the fair value of our reporting unit to its carrying value. If the fair value of the reporting unit exceeds its carrying value, goodwill is not considered impaired and the Company iswe are not required to perform further testing. If the carrying value of the net assets of the reporting unit exceeds its fair value, then an impairment loss equal to the difference, but not exceeding the total carrying value of goodwill allocated to the reporting unit, would be recorded.

 

For example, a sustained decline in market capitalization below book value is an indicator that goodwill and other intangible assets should be tested for impairment under ASC 350 Intangibles – Goodwill and Other. During the period from January 1, 2022 to December 31, 2022, our stock price ranged between a high of $2.95 and a low of $0.63 and as of December 31, 2022 our market capitalization was $431.1 million and the book value of our goodwill was $281.7 million. While our market capitalization exceeded the book value of our goodwill as of December 31, 2022, as of March 17, 2023, our market capitalization is approximately $191.1 (based on a closing price of $0.50 per share) million and the book value of our goodwill is $281.7 million, and as such we may be required to recognize an impairment loss in the future if the drop in our market capitalization is deemed to be sustained.

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Next Bridge Note Receivable

Notes receivable consists of an amount due from Next Bridge, which was previously a wholly-owned subsidiary of Meta, until the completion of the spin-off transaction on December 14, 2022. One note is partially secured by a combination of Meta’s common shares and an interest in the Orogrande Project Property. The note receivables have been recognized at their fair value, as of December 14, 2022, subsequent to the deconsolidation of Next Bridge from our consolidated financial results.

We have assessed the fair value of the notes receivable on the deconsolidation date in accordance with ASC 820, Fair Value Measurement. In particular, we assessed the likelihood of our ability to receive the aggregate amount of the $24.2million of notes receivable and determined that except for the security interest in our shares held by the Pledgor for the secured loan, the other collateral is not substantive and therefore should not serve as the basis for concluding that that loan is well secured and collateralized; the other loan is unsecured. As a result, we reserved $22 million of the Next Bridge note receivables, resulting in $2.2 million being shown on our balance sheet as of December 31, 2022.

At subsequent reporting periods to December 14, 2022, including December 31, 2022, the note is measured net of any credit losses in accordance with ASC 326 Financial Instruments – Credit Losses. If our judgment regarding these note receivables is incorrect and such notes are repaid in full or in an amount more than we show on our balance sheet, we will record a recovery of these notes upon receiving repayment. See note 5 for further details.

We are currently in negotiations with Next Bridge to extend the maturity date of each Next Bridge note receivable.

Revenue recognition – Our revenue is generated from product sales as well as development revenue. We recognize revenue when it satisfies performance obligations under the terms of its contracts, and control of its products is transferred to its customers in an amount that reflects the consideration we expect to receive from our customers in exchange for those products or services.

Revenue from the sale of prototypes and finished products is recognized at the point in time when control of the asset is transferred to the customer, generally on delivery of goods. We consider whether there are other obligations in the contract that are separate performance obligations to which a portion of the transaction price needs to be allocated. In determining the transaction price for the

50


sale of prototypes, we consider the effects of variable consideration, the existence of significant financial components, non-cash consideration and consideration payable to the customer (if any).

Revenue from development activities is recognized over time, using an output method to measure progress towards complete satisfaction of the research activities and whether associated performance obligations identified within each contract have been satisfied.

Acquired intangibles - In accordance with ASC 805 Business Combinations, the Company allocateswe allocate the purchase price of acquired companies to the tangible and intangible assets acquired and the liabilities assumed based on their estimated fair values. Such valuations may require management to make significant estimates and assumptions, especially with respect to intangible assets. Acquired intangible assets consist of acquired technology and customer relationships. In valuing acquired intangible assets, the Company makeswe make assumptions and estimates based in part on projected financial information, which makes assumptions and estimates inherently uncertain, particularly for early-stage technology companies. The significant estimates and assumptions used by the Companyus in the determination of the fair value of acquired intangible technology assets include the revenue growth rate the royalty rate and the discount rate. The significant estimates and assumptions used by the Companyus in the determination of the fair value of acquired customer contract intangible assets include the revenue growth rate and the discount rate.

As a result of the judgments that need to be made, the Company obtainswe obtain the assistance of independent valuation firms. The Company completesWe complete these assessments as soon as practical after the closing dates. Any excess of the purchase price over the estimated fair values of the identifiable net assets acquired is recorded as goodwill.

Although the Company believeswe believe the assumptions and estimates of fair value it haswe have made in the past have been reasonable and appropriate, they are based in part on historical experience and information obtained from the management of the acquired companies and are inherently uncertain and subject to refinement. Unanticipated events and circumstances may occur that may affect the accuracy or validity of such assumptions, estimates or actual results. As a result, during the measurement period, which may be up to one year from the acquisition date, the Company recordswe record adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill, if the changes are related to conditions that existed at the time of the acquisition. Upon the conclusion of the measurement period or final determination of the values of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments, based on events that occurred subsequent to the acquisition date, are recorded in our consolidated statements of operations and comprehensive loss.

 

Business combinations - The Company allocatesWe allocate the fair value of purchase consideration to the tangible assets acquired, liabilities assumed, and intangible assets acquired based on their estimated fair values. The excess of the fair value of purchase consideration over the fair values of these identifiable assets and liabilities is recorded as goodwill to reporting units based on the expected benefit from the business combination. Allocation of purchase consideration to identifiable assets and liabilities affects the amortization expense, as acquired finite-lived intangible assets are amortized over the useful life, whereas any indefinite-lived intangible assets, including goodwill, are not amortized. During the measurement period, which is not to exceed one year from the acquisition date, the Company recordswe record adjustments to the assets acquired and liabilities assumed, with the corresponding offset to goodwill. Upon the conclusion of the measurement period, any subsequent adjustments are recorded to earnings. Acquisition-related expenses are recognized separately from business combinations and are expensed as incurred.

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Assets held for sale – The Company determines the fair market value of the oil and gas assets held for sale on a periodic basis using inputs from a third party valuation firm skilled in the valuation of this class of assets. The Company estimated the fair value of the Orogrande property at June 28, 2021 as the sum of the median of each of a range of fair values of identified drilling locations determined using numerous assumptions including the number of drilling locations, forecasted production volumes per drilling location, fair value per barrel of forecasted production volumes based on comparable transactions or entities with acreage proximal to the Orogrande Project property, and applying a drilling location risk factor (collectively, “drilling location assumptions”); and a range of fair values of the undeveloped land acreage determined using numerous assumptions including the number of undeveloped land acres, fair value per acre for comparable transactions or entities with acreage proximal to the Orogrande Project property, and applying an acreage risk factor (collectively, “undeveloped land assumptions”). The Company estimated the fair value of the Hazel Property at June 28, 2021 using a discounted cash flow model. The significant estimates and assumptions used by the Company in the determination of the fair value of the Hazel Project property at acquisition date included forecasted production volumes, forecasted commodity prices, and the discount rate. The Company estimated the fair value of the O&G assets at December 31, 2021 by obtaining a valuation study performed by a third party valuation firm. The estimates involved are consistent with those outlined above for the June 28, 2021 valuation estimate.

Commitments and contractual obligations

For a description of the Company’sour commitments and contractual obligations, please see “Note 28“note 25 – Leases” as well as “note 26 – Commitments and contingencies” as well as “Note 27 – Leases” in the Notesnotes to the Consolidated Financial Statements of this Form 10-K.

Off-balance sheet arrangements

Off-balance sheet firm commitments relating to an outstanding lettersletter of credit amounted to approximately $1.1$0.5 million as of December 31, 2021. These letters2022 which is secured by a performance security guarantee cover issued by Export Development of Canada. Further, this guarantee/standby letter of credit and bank guarantees are collateralized by $0.8 million in restricted cash.expires on October 5, 2023. Please see “Note 27“note 26 – Commitments and contingencies” in the Notesnotes to the Consolidated Financial Statements of this Form 10-K. The Company doesWe do not maintain any other off-balance sheet arrangements.

Recent accounting pronouncements

For a description of recent accounting pronouncements, including the expected dates of adoption and estimated effects, if any, on the Company’sour Consolidated Financial Statements, please see “Note“note 2 – Significant accounting policies” in the Notesnotes to the Consolidated Financial Statements of this Form 10-K.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk.

Interest rate riskThis item is not required for a smaller reporting company.

Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. Interest rate risk is minimized through management’s decision to primarily obtain fixed rate or interest-free debt. The Company’s funding obligation and long-term debt have been obtained at a nil interest rate and the interest on the cash balances is insignificant. As a result, the Company is not exposed to material cash flow interest rate risk.

Foreign currency risk52


Foreign currency risk is the risk to earnings or capital arising from changes in foreign exchange rates. The Company has transactional currency exposures that arise from loans and receivables as well as purchases in currencies other than their functional currency such as Canadian Dollars, Euros and Great Britain Pounds. Current exposure is not material at this time, as exchange rate impacts occur with a reasonable timeline of the decision to make the expenditure. As a result, the Company does not enter into derivatives to hedge the exposure.

In the future, a hedging strategy may be enacted if long term contracts or operational cash flows create a requirement.

Item 8. Financial Statements and Supplementary Data.

 

Report of Independent Registered Public Accounting Firm – (KPMG LLP, Vaughan, ON, Canada, Auditor Firm ID:PCAOB ID 85)

3354

Consolidated Balance Sheets

3756

Consolidated Statements of Operations

3857

Consolidated Statements of Stockholders’ Equity

3958

Consolidated Statements of Cash Flows

4059

Notes to Consolidated Financial Statements

4160

 

3253


Report of Independent Registered Public Accounting Firm

 

To the Stockholders and Board of Directors


Meta Materials Inc.:

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of Meta Materials Inc. and subsidiaries (the Company) as of December 31, 20212022 and 2020,2021, the related consolidated statements of operations and comprehensive loss, changes in stockholders’ equity, and cash flows for each of the years in the three‑two‑year period ended December 31, 2021,2022, and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 20212022 and 2020,2021, and the results of its operations and its cash flows for each of the years in the three‑two‑year period ended December 31, 2021,2022, in conformity with U.S. generally accepted accounting principles.

We

Going Concern

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the consolidated financial statements, the Company has suffered recurring losses from operations and requires additional financing to fund its operations, which raise substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also have audited,described in accordance withNote 2. The consolidated financial statements do not include any adjustments that might result from the standardsoutcome of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated March 1, 2022 expressed an adverse opinion on the effectiveness of the Company’s internal control over financial reporting.this uncertainty.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB Public Company Accounting Oversight Board (United States) (PCAOB)and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Acquisition date fair value of a developed nanotechnologytechnology intangible asset in the acquisition of Nanotech Security Corp.Plasma App Ltd.

As discussed in Note 34 to the consolidated financial statements, on October 5, 2021,April 1, 2022, the Company acquired Nanotech Security Corp.completed the purchase of 100% of the issued and outstanding shares of Plasma App Ltd. for $72.1 million.$16,989,246. The acquisition was accounted for as a business combination. The Company measuredallocated the consideration transferred based upon the fair value of the assets acquired and liabilities assumed at fair value, whichon the acquisition date. This resulted in the recognition of a developed nanotechnologytechnology intangible asset of $14.8 million.$12,600,000. As discussed in Note 24 to

54


the consolidated financial statements, the significant estimates and assumptions used by the Company in the determination of the fair value of the acquired developed technology intangible technology assets includeasset includes the revenue growth rate the royalty rate, and the discount rate.

We identified the evaluation of the acquisition date fair value of the developed nanotechnologytechnology intangible asset in the acquisition of Nanotech Security Corp.Plasma App Ltd. as a critical audit matter. Specifically, the assessment of the revenue growth rate, royalty rate and discount rate assumptions used in estimating the acquisition date fair value involved a high degree of subjective auditor judgment. In addition, the estimated fair value was sensitive to possible changes to the above estimates and assumptions.

The following are the primary procedures we performed to address this critical audit matter. We evaluated the revenue growth rate by comparing to historical results for the acquired entity and publicly available market data. We involved valuation professionals with specialized skills and knowledge, who assisted in:

evaluatingEvaluating the Company’s discount rate assumption, by comparingrecalculating it againstusing a discount rate range that was independently developed using publicly available market data for comparable entitiesentities.

33


evaluatingEvaluating the discount rate applied to the developed nanotechnologytechnology intangible asset by comparing it to the weighted average return on assets acquired in the Nanotech Security Corp.Plasma App Ltd. business combination and the internal rate of return of the Nanotech Security Corp.Plasma App Ltd. business combination
evaluating the Company’s royalty rate assumption, by comparing the selected royalty rate to ranges of royalty rates observed in comparable royalty agreements.combination.

Fair

Acquisition date fair value of a developed technology intangible asset in the Orogrande Project property and preferred stock liabilityacquisition of assets of Optodot Corporation

As discussed in Note 34 to the consolidated financial statements, on June 22, 2022, the Company completed an asset purchase agreement with Optodot Corporation to acquire certain assets related to patents and intellectual property for the battery and other industries. The total consideration was $53,633,267. The acquisition was accounted for as a business combination. The Company allocated the consideration transferred based upon the fair value of the assets acquired and liabilities assumed on the acquisition date. This resulted in the recognition of a developed technology intangible asset of $23,300,000. As discussed in Note 4 to the consolidated financial statements, the Company completed a reverse acquisition of Torchlight Energy Resources, Inc. on June 28, 2021. The assets acquired included certain oilsignificant estimates and natural gas properties with a fair value of $72.6 million, of which $71.1 million ofassumptions used by the fair value related to the Orogrande Project property. The liabilities assumed included a preferred stock liability with a fair value of $72.6 million entitling the preferred stock owners to the net proceeds of the sale or spinout of the oil and natural gas properties. As a result, the fair value measurement of the oil and natural gas properties, including the Orogrande Project property, also forms the basis for the fair value measurement of the preferred stock liability as of June 28, 2021 and as of December 31, 2021. The Company engaged an independent valuation firm to assist in the determination of the fair value of the Orogrande Project property as of June 28, 2021acquired developed technology intangible asset includes the revenue growth rate and December 31, 2021. The estimated fair value of the Orogrande Project property was calculated as the sum of the median of each of:discount rate.

a range of fair values of identified drilling locations determined using numerous assumptions including the number of drilling locations, forecasted production volumes per drilling location, fair value per barrel of forecasted production volumes based on comparable transactions or entities with acreage proximal to the Orogrande Project property, and applying a drilling location risk factor (collectively, “drilling location assumptions”); and
a range of fair values of the undeveloped land acreage determined using numerous assumptions including the number of undeveloped land acres, fair value per acre for comparable transactions or entities with acreage proximal to the Orogrande Project property, and applying an acreage risk factor (collectively, “undeveloped land assumptions”).

We identified the evaluation of the acquisition-date and year-endacquisition date fair value of the Orogrande Project propertydeveloped technology intangible asset in the acquisition of assets of Optodot Corporation as a critical audit matter. ASpecifically, the assessment of the revenue growth rate and discount rate assumptions used in estimating the acquisition date fair value involved a high degree of subjective auditor judgment was required to evaluatejudgment. In addition, the drilling location and undeveloped land assumptions used to calculate theestimated fair value of the Orogrande Project property. Minorwas sensitive to possible changes to these assumptions could have had a significant effect on the estimate of fair value of the Orogrande Project property. Additionally, the audit effort associated with this estimate required specialized skillsabove estimates and knowledge.assumptions.

The following are the primary procedures we performed to address this critical audit matter. We evaluated the competence, capabilities and objectivity of the independent valuation firm engagedrevenue growth rate by the Company.comparing to publicly available market data. We involved valuation professionals with specialized skills and knowledge, who assisted in:

evaluating the methodology used by the independent valuation firm to calculate the estimated fair value of the Orogrande Project property, including the determination of the number of drilling locations, forecasted production volumes per drilling location, drilling location risk factors, number of undeveloped land acres, and acreage risk factor
evaluatingEvaluating the Company’s determination of fair value per barrel of forecasted production volumes and fair value per acrediscount rate assumption, by comparing torecalculating it using a discount rate range that was independently developed using publicly available market data for comparable transactions or entities with acreage proximalentities.
Evaluating the discount rate applied to the Orogrande Project property.developed technology intangible asset by comparing it to the weighted average return on assets acquired in the Optodot Corporation business combination and the internal rate of return of the Optodot Corporation business combination.

/s/ KPMG LLP

Chartered Professional Accountants, Licensed Public Accountants

We have served as the Company’s auditor since 2019.

Vaughan, Canada

March 1, 2022

34


Report of Independent Registered Public Accounting Firm

To the Stockholders and Board of Directors
Meta Materials Inc.:

Opinion on Internal Control Over Financial Reporting

We have audited Meta Material Inc.’s (the Company) internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. In our opinion, because of the effect of the material weaknesses, described below, on the achievement of the objectives of the control criteria, the Company has not maintained effective internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2021 and 2020, the related consolidated statements of operations and comprehensive loss, changes in stockholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2021, and the related notes (collectively, the consolidated financial statements), and our report dated March 1, 2022 expressed an unqualified opinion on those consolidated financial statements.

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis. Material weaknesses related to the following have been identified and included in management’s assessment:

An ineffective control environment resulting from a lack of the required number of trained financial reporting, accounting, information technology (IT) and operational personnel with the appropriate skills and knowledge of GAAP and with assigned responsibility and accountability related to the design, implementation, and operation of internal control over financial reporting.
The insufficient number of personnel described above contributed to an ineffective risk assessment process necessary to identify all relevant risks of material misstatement and to evaluate the implications of relevant risks on its internal control over financial reporting.
An ineffective information and communication process resulting from: (i) insufficient communication of internal control information, including objectives and responsibilities, such as delegation of authority; and (ii) ineffective general IT controls and ineffective controls over information from service organizations, resulting in insufficient controls to ensure the relevance, timeliness and quality of information used in control activities.
As a consequence of the above, the Company had ineffective control activities related to the design, implementation and operations of process level and financial statement close controls which had a pervasive impact on the Company's internal control over financial reporting. In addition, process-level automated control activities and manual control activities that are dependent upon information derived from IT systems were also ineffective.
An ineffective monitoring process resulting from the evaluation and communication of internal control deficiencies, including monitoring corrective actions, not being performed in a timely manner.

The material weaknesses were considered in determining the nature, timing, and extent of audit tests applied in our audit of the 2021 consolidated financial statements, and this report does not affect our report on those consolidated financial statements.

The Company acquired Nanotech Security Corp. during the year ended December 31, 2021, and management excluded Nanotech Security Corp. from its assessment of the effectiveness of the Company’s internal control over financial reporting as of December 31, 2021, Nanotech Security Corp.’s internal control over financial reporting associated with 17% of total assets and 45% of total revenues included in the consolidated financial statements of the Company as of and for the year ended December 31, 2021. Our audit of internal control over financial reporting of the Company also excluded an evaluation of the internal control over financial reporting of Nanotech Security Corp.

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Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Form 10-K Item 9A under the header “Management’s Report on Internal Control over Financial Reporting”. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control Over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ KPMG LLP

Chartered Professional Accountants, Licensed Public Accountants

Vaughan, Canada

March 1, 202223, 2023

36

55


PART I—FINANCIAL INFORMATION

Item 1. Financial Statements

META MATERIALS INC.

CONSOLIDATED BALANCE SHEETS

 

 

 

As of December 31,

 

 

 

2021

 

 

2020

 

Assets

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

46,645,704

 

 

$

1,395,683

 

Restricted cash

 

 

788,768

 

 

 

 

Short-term investments

 

 

2,875,638

 

 

 

 

Grants receivable

 

 

175,780

 

 

 

327,868

 

Accounts and other receivables

 

 

1,665,700

 

 

 

22,833

 

Inventory

 

 

265,718

 

 

 

463,382

 

Prepaid expenses and other current assets

 

 

3,451,367

 

 

 

514,203

 

Assets held for sale

 

 

75,500,000

 

 

 

 

Due from related parties

 

 

10,657

 

 

 

 

Total current assets

 

 

131,379,332

 

 

 

2,723,969

 

Intangible assets, net

 

 

28,971,824

 

 

 

4,476,614

 

Property, plant and equipment, net

 

 

27,018,114

 

 

 

2,761,171

 

Operating lease right-of-use assets

 

 

6,278,547

 

 

 

270,581

 

Goodwill

 

 

240,376,634

 

 

 

 

Total assets

 

$

434,024,451

 

 

$

10,232,335

 

Liabilities and stockholders’ equity (deficit)

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

Trade and other payables

 

$

13,335,470

 

 

$

2,940,452

 

Due to related party

 

 

 

 

 

245,467

 

Current portion of long-term debt

 

 

491,278

 

 

 

290,544

 

Current portion of deferred revenues

 

 

779,732

 

 

 

1,239,927

 

Current portion of deferred government assistance

 

 

846,612

 

 

 

779,578

 

Preferred stock liability

 

 

75,500,000

 

 

 

 

Current portion of operating lease liabilities

 

 

663,861

 

 

 

150,802

 

Asset retirement obligations

 

 

21,937

 

 

 

 

Unsecured convertible promissory notes

 

 

 

 

 

1,203,235

 

Secured convertible debentures

 

 

 

 

 

5,545,470

 

Total current liabilities

 

 

91,638,890

 

 

 

12,395,475

 

Deferred revenues

 

 

637,008

 

 

 

804,143

 

Deferred government assistance

 

 

3,038

 

 

 

146,510

 

Deferred tax liability

 

 

324,479

 

 

 

318,054

 

Unsecured convertible debentures

 

 

 

 

 

1,825,389

 

Long-term operating lease liabilities

 

 

3,706,774

 

 

 

119,779

 

Funding obligation

 

 

268,976

 

 

 

776,884

 

Long-term debt

 

 

2,737,171

 

 

 

2,743,504

 

Total liabilities

 

 

99,316,336

 

 

 

19,129,738

 

Stockholders’ equity (deficit)

 

 

 

 

 

 

Common stock - $0.001 par value; 1,000,000,000 shares authorized, 284,573,316 shares issued and outstanding at December 31, 2021, and $Nil par value; unlimited shares authorized, 154,163,975 shares issued and outstanding at December 31, 2020

 

 

262,751

 

 

 

132,347

 

Additional paid-in capital

 

 

463,136,404

 

 

 

29,022,977

 

Accumulated other comprehensive loss

 

 

(296,936

)

 

 

(655,884

)

Accumulated deficit

 

 

(128,394,104

)

 

 

(37,396,843

)

Total stockholders’ equity (deficit)

 

 

334,708,115

 

 

 

(8,897,403

)

Total liabilities and stockholders’ equity

 

$

434,024,451

 

 

$

10,232,335

 

 

 

As of December 31,

 

 

 

2022

 

 

2021

 

Assets

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

10,090,858

 

 

$

46,645,704

 

Restricted cash

 

 

1,720,613

 

 

 

788,768

 

Short-term investments

 

 

 

 

 

2,875,638

 

Grants receivable

 

 

 

 

 

175,780

 

Accounts and other receivables

 

 

902,718

 

 

 

1,665,700

 

Notes receivable

 

 

2,211,900

 

 

 

 

Inventory

 

 

468,027

 

 

 

265,718

 

Prepaid expenses and other current assets

 

 

7,202,099

 

 

 

3,451,367

 

Assets held for sale

 

 

 

 

 

75,500,000

 

Due from related parties

 

 

8,461

 

 

 

10,657

 

Total current assets

 

 

22,604,676

 

 

 

131,379,332

 

Intangible assets, net

 

 

56,313,317

 

 

 

28,971,824

 

Property, plant and equipment, net

 

 

42,674,699

 

 

 

27,018,114

 

Operating lease right-of-use assets

 

 

5,576,824

 

 

 

6,278,547

 

Goodwill

 

 

281,748,466

 

 

 

240,376,634

 

Total assets

 

$

408,917,982

 

 

$

434,024,451

 

Liabilities and stockholders’ equity

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

Trade and other payables

 

$

16,694,211

 

 

$

13,335,470

 

Current portion of long-term debt

 

 

483,226

 

 

 

491,278

 

Current portion of deferred revenues

 

 

730,501

 

 

 

779,732

 

Current portion of deferred government assistance

 

 

799,490

 

 

 

846,612

 

Preferred stock liability

 

 

 

 

 

75,500,000

 

Current portion of operating lease liabilities

 

 

967,126

 

 

 

663,861

 

Asset retirement obligations

 

 

 

 

 

21,937

 

Total current liabilities

 

 

19,674,554

 

 

 

91,638,890

 

Deferred revenues

 

 

479,808

 

 

 

637,008

 

Deferred government assistance

 

 

319,017

 

 

 

3,038

 

Deferred tax liabilities

 

 

3,253,985

 

 

 

324,479

 

Long-term operating lease liabilities

 

 

3,375,031

 

 

 

3,706,774

 

Funding obligation

 

 

180,705

 

 

 

268,976

 

Long-term debt

 

 

3,070,729

 

 

 

2,737,171

 

Total liabilities

 

 

30,353,829

 

 

 

99,316,336

 

Stockholders’ equity

 

 

 

 

 

 

Common stock - $0.001 par value; 1,000,000,000 shares authorized, 362,247,867 shares issued and outstanding at December 31, 2022, and $0.001 par value; 1,000,000,000 shares authorized, 284,573,316 shares issued and outstanding at December 31, 2021

 

 

340,425

 

 

 

262,751

 

Additional paid-in capital

 

 

590,962,866

 

 

 

463,136,404

 

Accumulated other comprehensive loss

 

 

(5,242,810

)

 

 

(296,936

)

Accumulated deficit

 

 

(207,496,328

)

 

 

(128,394,104

)

Total stockholders’ equity

 

 

378,564,153

 

 

 

334,708,115

 

Total liabilities and stockholders’ equity

 

$

408,917,982

 

 

$

434,024,451

 

Commitments and contingencies (note 28)26)

Subsequent events (note 29)27)

The accompanying notes are an integral part of these consolidated financial statements

3756


META MATERIALS INC.

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

 

Year ended December 31,

 

 

Year ended December 31,

 

 

2021

 

 

2020

 

 

2019

 

 

2022

 

 

2021

 

Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Product sales

 

$

407,915

 

$

2,905

 

$

23,745

 

 

$

1,211,746

 

 

$

407,915

 

Development revenue

 

 

3,674,602

 

 

 

1,119,278

 

 

 

878,665

 

 

 

8,988,421

 

 

 

3,674,602

 

Total revenue

 

4,082,517

 

1,122,183

 

902,410

 

 

 

10,200,167

 

 

 

4,082,517

 

Cost of goods sold

 

 

675,973

 

 

 

3,254

 

 

 

9,172

 

 

 

3,036,190

 

 

 

675,973

 

Gross profit

 

 

3,406,544

 

 

 

1,118,929

 

 

 

893,238

 

 

 

7,163,977

 

 

 

3,406,544

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Selling & marketing

 

2,267,354

 

1,064,659

 

1,125,719

 

 

 

6,244,883

 

 

 

2,267,354

 

General & administrative

 

29,699,601

 

6,707,858

 

4,819,737

 

 

 

61,543,282

 

 

 

29,699,601

 

Research & development

 

 

9,497,427

 

 

 

4,102,791

 

 

 

3,825,194

 

 

 

22,640,495

 

 

 

9,497,427

 

Total operating expenses

 

 

41,464,382

 

 

 

11,875,308

 

 

 

9,770,650

 

 

 

90,428,660

 

 

 

41,464,382

 

Loss from operations

 

(38,057,838

)

 

(10,756,379

)

 

(8,877,412

)

 

 

(83,264,683

)

 

 

(38,057,838

)

Interest expense, net

 

(1,106,445

)

 

(1,429,954

)

 

(1,135,922

)

 

 

(174,234

)

 

 

(1,106,445

)

Loss on foreign exchange, net

 

(205,882

)

 

(264,831

)

 

(316,261

)

 

 

(2,054,447

)

 

 

(205,882

)

Gain on deconsolidation of wholly-owned subsidiary

 

 

3,990,737

 

 

 

 

Loss on financial instruments, net

 

(40,540,091

)

 

(844,993

)

 

(280,319

)

 

 

 

 

 

(40,540,091

)

Other (loss) income, net

 

 

(11,939,068

)

 

 

1,491,188

 

 

 

2,081,398

 

Other expenses, net

 

 

(3,433,757

)

 

 

(11,939,068

)

Total other expense, net

 

 

(53,791,486

)

 

 

(1,048,590

)

 

 

348,896

 

 

 

(1,671,701

)

 

 

(53,791,486

)

Loss before income taxes

 

(91,849,324

)

 

(11,804,969

)

 

(8,528,516

)

 

 

(84,936,384

)

 

 

(91,849,324

)

Income tax recovery

 

 

852,063

 

 

 

193,710

 

 

 

83,549

 

 

 

5,834,160

 

 

 

852,063

 

Net loss

 

$

(90,997,261

)

 

$

(11,611,259

)

 

$

(8,444,967

)

 

$

(79,102,224

)

 

$

(90,997,261

)

Other comprehensive income (loss) net of tax

 

 

 

 

 

 

 

 

 

Foreign currency translation (loss) gain

 

(321,230

)

 

88,173

 

81,432

 

Fair value gain (loss) on changes of own credit risk

 

 

680,178

 

 

 

(680,178

)

 

 

 

Total other comprehensive income (loss)

 

 

358,948

 

 

 

(592,005

)

 

 

81,432

 

Other comprehensive (loss) income net of tax

 

 

 

 

 

 

Foreign currency translation loss

 

 

(4,945,874

)

 

 

(321,663

)

Fair value gain on changes of own credit risk

 

 

 

 

 

680,611

 

Total other comprehensive (loss) income

 

 

(4,945,874

)

 

 

358,948

 

Comprehensive loss

 

$

(90,638,313

)

 

$

(12,203,264

)

 

$

81,432

 

 

$

(84,048,098

)

 

$

(90,638,313

)

Basic and diluted loss per share (1)

 

$

(0.39

)

 

$

(0.08

)

 

$

(0.17

)

 

$

(0.24

)

 

$

(0.39

)

Weighted average number of shares outstanding - basic and
diluted
(1)

 

 

232,898,398

 

 

 

137,258,259

 

 

 

50,015,137

 

 

 

328,350,452

 

 

 

232,898,398

 

(2)(1) Retroactively restated for the year ended December 31, 2021 and 2020for the Torchlight reverse acquisition (“Torchlight RTO”) and CPM reverse recapitalization (“CPM RTO”)

The accompanying notes are an integral part of these consolidated financial statements

3857


META MATERIALS INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

Other

 

 

 

 

 

Total

 

 

 

 

 

 

 

Additional

 

 

Other

 

 

 

 

 

Total

 

 

Preferred Stock

 

 

Common Stock

 

 

Paid-in

 

 

Comprehensive

 

 

Accumulated

 

 

Stockholders’

 

Common Stock

 

 

Paid-in

 

 

Comprehensive

 

 

Accumulated

 

 

Stockholders’

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Income (loss)

 

 

Deficit

 

 

Equity

 

Shares

 

 

Amount

 

 

Capital

 

 

Income (loss)

 

 

Deficit

 

 

Equity

 

Balance, December 31, 2018

 

 

58,153,368

 

$

58,153

 

49,339,552

 

$

27,522

 

$

17,270,864

 

$

(145,311

)

 

$

(17,340,617

)

 

$

(129,389

)

Net loss

 

 

 

 

 

 

 

 

(8,444,967

)

 

(8,444,967

)

Other comprehensive income

 

 

 

 

 

 

 

81,432

 

 

81,432

 

Issuance of common stock, net

 

 

 

 

3,027,283

 

3,027

 

636,975

 

 

 

640,002

 

Issuance of warrants

 

 

 

 

 

 

125,877

 

 

 

125,877

 

Conversion of deferred share units

 

 

 

 

776,283

 

776

 

(776

)

 

 

 

 

Beneficial conversion feature on convertible debt

 

 

 

 

 

 

479,061

 

 

 

479,061

 

Other stock-based compensation

 

 

 

 

 

 

 

 

154,450

 

 

 

155

 

 

 

1,385,613

 

 

 

 

 

 

 

 

 

1,385,768

 

Balance, December 31, 2019

 

 

58,153,368

 

$

58,153

 

53,297,568

 

$

31,480

 

$

19,897,614

 

$

(63,879

)

 

$

(25,785,584

)

 

$

(5,862,216

)

Net loss

 

 

 

 

 

 

 

 

(11,611,259

)

 

(11,611,259

)

Other comprehensive income

 

 

 

 

 

 

 

(592,005

)

 

 

(592,005

)

Issuance of common stock, net

 

 

 

 

2,613,321

 

2,613

 

445,939

 

 

 

448,552

 

Issuance of warrants

 

 

 

 

 

 

149,994

 

 

 

149,994

 

Conversion of deferred share units

 

 

 

 

522,596

 

523

 

(523

)

 

 

 

 

Conversion of promissory notes

 

 

 

 

17,752,163

 

17,752

 

3,921,695

 

 

 

3,939,447

 

Conversion of preferred stock

 

 

(58,153,368

)

 

(58,153

)

 

58,153,368

 

58,153

 

 

 

 

 

Effect of reverse recapitalization

 

 

 

 

21,599,223

 

21,599

 

3,192,903

 

 

 

3,214,502

 

Tax withheld on deferred share units

 

 

 

 

(72,717

)

 

(73

)

 

(18,669

)

 

 

 

(18,742

)

Other stock-based compensation

 

 

 

 

 

 

 

 

298,453

 

 

 

300

 

 

 

1,434,024

 

 

 

 

 

 

 

 

 

1,434,324

 

Balance, December 31, 2020

 

 

 

$

 

154,163,975

 

$

132,347

 

$

29,022,977

 

$

(655,884

)

 

$

(37,396,843

)

 

$

(8,897,403

)

Balance, January 1, 2021

 

154,163,975

 

 

$

132,347

 

 

$

29,022,977

 

 

$

(655,884

)

 

$

(37,396,843

)

 

$

(8,897,403

)

Net loss

 

 

 

 

 

 

 

 

(90,997,261

)

 

(90,997,261

)

 

 

 

 

 

 

 

 

 

 

 

 

 

(90,997,261

)

 

 

(90,997,261

)

Other comprehensive income

 

 

 

 

 

 

 

358,948

 

 

358,948

 

 

 

 

 

 

 

 

 

 

 

358,948

 

 

 

 

 

 

358,948

 

Conversion of promissory notes

 

 

 

 

20,391,239

 

20,391

 

23,635,974

 

 

 

23,656,365

 

 

20,391,239

 

 

 

20,391

 

 

 

23,635,974

 

 

 

 

 

 

 

 

 

23,656,365

 

Conversion of secured debentures

 

 

 

 

14,155,831

 

14,156

 

22,104,626

 

 

 

22,118,782

 

 

14,155,831

 

 

 

14,156

 

 

 

22,104,626

 

 

 

 

 

 

 

 

 

22,118,782

 

Conversion of unsecured debentures

 

 

 

 

5,105,338

 

5,105

 

5,764,370

 

 

 

5,769,475

 

 

5,105,338

 

 

 

5,105

 

 

 

5,764,370

 

 

 

 

 

 

 

 

 

5,769,475

 

Conversion of long-term debt

 

 

 

 

124,716

 

125

 

221,718

 

 

 

221,843

 

 

124,716

 

 

 

125

 

 

 

221,718

 

 

 

 

 

 

 

 

 

221,843

 

Conversion of payable to related party

 

 

 

 

150,522

 

151

 

225,835

 

 

 

225,986

 

 

150,522

 

 

 

151

 

 

 

225,835

 

 

 

 

 

 

 

 

 

225,986

 

Exercise of stock options

 

 

 

 

4,786,927

 

4,787

 

1,288,476

 

 

 

1,293,263

 

 

4,786,927

 

 

 

4,787

 

 

 

1,288,476

 

 

 

 

 

 

 

 

 

1,293,263

 

Exercise of warrants

 

 

 

 

361,729

 

362

 

122,108

 

 

 

122,470

 

 

361,729

 

 

 

362

 

 

 

122,108

 

 

 

 

 

 

 

 

 

122,470

 

Exercise of broker warrants

 

 

 

 

82,494

 

83

 

16,173

 

 

 

16,256

 

 

82,494

 

 

 

83

 

 

 

16,173

 

 

 

 

 

 

 

 

 

16,256

 

Effect of reverse acquisition

 

 

 

 

82,813,994

 

82,814

 

369,378,596

 

 

 

369,461,410

 

 

82,813,994

 

 

 

82,814

 

 

 

369,378,596

 

 

 

 

 

 

 

 

 

369,461,410

 

Shares issued in lieu of operating lease liability

 

 

 

 

1,832,989

 

1,833

 

2,780,135

 

 

 

2,781,968

 

 

1,832,989

 

 

 

1,833

 

 

 

2,780,135

 

 

 

 

 

 

 

 

 

2,781,968

 

Other stock-based compensation

 

 

 

 

 

 

 

 

603,562

 

 

 

597

 

 

 

8,575,416

 

 

 

 

 

 

 

 

 

8,576,013

 

Stock-based compensation

 

603,562

 

 

 

597

 

 

 

8,575,416

 

 

 

 

 

 

 

 

 

8,576,013

 

Balance, December 31, 2021

 

 

 

 

$

 

 

 

284,573,316

 

 

$

262,751

 

 

$

463,136,404

 

 

$

(296,936

)

 

$

(128,394,104

)

 

$

334,708,115

 

 

284,573,316

 

 

$

262,751

 

 

$

463,136,404

 

 

$

(296,936

)

 

$

(128,394,104

)

 

$

334,708,115

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

(79,102,224

)

 

 

(79,102,224

)

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

(4,945,874

)

 

 

 

 

 

(4,945,874

)

Issuance of common stock and warrants

 

37,037,039

 

 

 

37,037

 

 

 

49,962,963

 

 

 

 

 

 

 

 

 

50,000,000

 

Stock issuance costs

 

 

 

 

 

 

 

(3,680,666

)

 

 

 

 

 

 

 

 

(3,680,666

)

Exercise of stock options

 

1,688,538

 

 

 

1,688

 

 

 

447,023

 

 

 

 

 

 

 

 

 

448,711

 

Settlement of restricted stock units

 

658,538

 

 

 

659

 

 

 

(18,686

)

 

 

 

 

 

 

 

 

(18,027

)

Exercise of warrants

 

1,623,700

 

 

 

1,624

 

 

 

167,950

 

 

 

 

 

 

 

 

 

169,574

 

Issuance of stock in connection with acquisitions

 

36,443,684

 

 

 

36,444

 

 

 

67,086,069

 

 

 

 

 

 

 

 

 

67,122,513

 

Stock-based compensation

 

223,052

 

 

 

222

 

 

 

13,861,809

 

 

 

 

 

 

 

 

 

13,862,031

 

Balance, December 31, 2022

 

362,247,867

 

 

$

340,425

 

 

$

590,962,866

 

 

$

(5,242,810

)

 

$

(207,496,328

)

 

$

378,564,153

 

 

(2)(1) Retroactively restated from the earliest period presented for the Torchlight reverse acquisition (“Torchlight RTO”) and CPM reverse recapitalization (“CPM RTO”)

The accompanying notes are an integral part of these consolidated financial statements

3958


META MATERIALS INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

 

Year ended December 31,

 

 

Year ended December 31,

 

 

2021

 

 

2020

 

 

2019

 

 

2022

 

 

2021

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

$

(90,997,261

)

 

$

(11,611,259

)

 

$

(8,444,967

)

 

$

(79,102,224

)

 

$

(90,997,261

)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-cash finance (income) expense

 

 

(471,689

)

 

138,927

 

(448,437

)

Non-cash finance income

 

 

(135,524

)

 

 

(471,689

)

Non-cash interest expense

 

 

902,940

 

1,052,776

 

959,838

 

 

 

403,317

 

 

 

902,940

 

Non-cash lease expense

 

 

439,791

 

 

 

 

 

1,608,992

 

 

 

439,791

 

Deferred income tax

 

 

(852,063

)

 

(193,710

)

 

(83,549

)

 

 

(5,834,160

)

 

 

(852,063

)

Depreciation and amortization

 

 

3,491,493

 

2,326,220

 

2,360,043

 

 

 

9,272,074

 

 

 

3,491,493

 

Impairment of assets

 

 

237,013

 

4,018

 

66,765

 

 

 

108,004

 

 

 

237,013

 

Unrealized foreign currency exchange loss

 

 

407,352

 

205,001

 

313,387

 

 

 

2,050,029

 

 

 

407,352

 

Loss on financial instruments, net

 

 

40,540,091

 

844,993

 

280,319

 

 

 

 

 

 

40,540,091

 

Gain on deconsolidation of wholly-owned subsidiary

 

 

(3,990,737

)

 

 

 

Change in deferred revenue

 

 

(679,541

)

 

(551,374

)

 

(627,902

)

 

 

(129,679

)

 

 

(679,541

)

Non-cash government assistance

 

 

(544,932

)

 

(775,800

)

 

(500,051

)

 

 

(3,047

)

 

 

(544,932

)

Gain on sale of assets

 

 

(783

)

 

 

 

Loss on debt settlement

 

 

19,253

 

 

 

 

 

 

 

 

19,253

 

Other income

 

 

 

 

(401,186

)

Stock-based compensation

 

 

1,576,849

 

1,509,684

 

1,292,773

 

 

 

13,184,396

 

 

 

1,576,849

 

Non-cash consulting expense

 

 

6,513,378

 

2,307

 

91,993

 

 

 

677,638

 

 

 

6,513,378

 

Changes in operating assets and liabilities

 

 

4,652,415

 

 

 

(880,830

)

 

 

780,227

 

 

 

(353,090

)

 

 

4,652,415

 

Net cash used in operating activities

 

 

(34,764,911

)

 

 

(7,929,047

)

 

 

(4,360,747

)

 

 

(62,244,794

)

 

 

(34,764,911

)

Cash flows from investing activities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Purchases of intangible assets

 

 

(1,133,894

)

 

(104,132

)

 

(42,332

)

 

 

 

 

 

(1,133,894

)

Purchases of property, plant and equipment

 

 

(11,655,417

)

 

(555,013

)

 

(1,153,010

)

 

 

(19,587,511

)

 

 

(11,655,417

)

Purchase of short-term investments

 

 

(2,889,852

)

 

 

 

Proceeds from sale of property, plant and equipment

 

 

39,140

 

 

 

 

Proceeds from (Purchases of) short-term investments

 

 

2,811,152

 

 

 

(2,889,852

)

Proceeds from below-market capital government loan

 

 

1,071,862

 

 

 

 

Acquisition of business, net of cash acquired

 

 

(66,131,025

)

 

 

 

 

 

(3,486,906

)

 

 

(66,131,025

)

Loan advance pursuant to deconsolidation

 

 

(319,987

)

 

 

 

Proceeds from reverse takeover

 

 

146,954,733

 

 

 

3,072,136

 

 

 

 

 

 

 

 

 

146,954,733

 

Net cash provided by investing activities

 

 

65,144,545

 

 

 

2,412,991

 

 

 

(1,195,342

)

Net cash (used in) provided by investing activities

 

 

(19,472,250

)

 

 

65,144,545

 

Cash flows from financing activities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Proceeds from long-term debt

 

 

1,127,151

 

25,783

 

664,810

 

 

 

 

 

 

1,127,151

 

Proceeds from the issuance of common stock and warrants

 

 

50,000,000

 

 

 

 

Stock issuance costs paid on the issuance of common stock and warrants

 

 

(3,680,666

)

 

 

 

Repayments of long-term debt

 

 

(1,090,047

)

 

(190,633

)

 

(58,201

)

 

 

(552,579

)

 

 

(1,090,047

)

Proceeds from secured promissory notes

 

 

 

 

2,407,118

 

Proceeds from government grants

 

 

223,384

 

198,286

 

 

 

 

 

 

 

223,384

 

Proceeds from unsecured promissory notes

 

 

13,963,386

 

1,378,042

 

 

 

 

 

 

 

13,963,386

 

Proceeds from secured convertible debentures

 

 

 

3,630,019

 

 

Proceeds from unsecured convertible debentures

 

 

 

693,784

 

566,690

 

Proceeds on funding obligation

 

 

 

 

982,263

 

Proceeds from issuance of common stock and warrants, net

 

 

 

598,546

 

765,879

 

Proceeds from stock option exercises

 

 

1,293,263

 

 

 

 

 

448,711

 

 

 

1,293,263

 

Repurchases of common stock for income tax withheld upon settlement of restricted stock units

 

 

(18,027

)

 

 

 

Proceeds from warrant exercises

 

 

138,726

 

 

 

 

 

169,574

 

 

 

138,726

 

Net cash provided by financing activities

 

 

15,655,863

 

 

 

6,333,827

 

 

 

5,328,559

 

 

 

46,367,013

 

 

 

15,655,863

 

Net increase in cash, cash equivalents and restricted cash

 

 

46,035,497

 

817,771

 

(227,530

)

Net (decrease) increase in cash, cash equivalents and restricted cash

 

 

(35,350,031

)

 

 

46,035,497

 

Cash, cash equivalents and restricted cash at beginning of the year

 

 

1,395,683

 

407,061

 

623,532

 

 

 

47,434,472

 

 

 

1,395,683

 

Effects of exchange rate changes on cash, cash equivalents and restricted cash

 

 

3,292

 

 

 

170,851

 

 

 

11,059

 

 

 

(272,970

)

 

 

3,292

 

Cash, cash equivalents and restricted cash at end of the year

 

$

47,434,472

 

 

$

1,395,683

 

 

$

407,061

 

 

$

11,811,471

 

 

$

47,434,472

 

Supplemental cash flow information

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accrued purchases of property, equipment and patents

 

 

1,692,969

 

1,449,197

 

440,751

 

 

 

2,270,887

 

 

 

1,692,969

 

Right-of-use assets obtained in exchange for lease liabilities

 

 

3,590,148

 

309,907

 

109,735

 

 

 

288,499

 

 

 

3,590,148

 

Right-of-use assets and prepaid expenses recognized in exchange for common stock

 

 

2,149,381

 

 

 

 

 

 

 

 

2,149,381

 

Settlement of liabilities in common stock

 

 

51,992,451

 

 

 

 

 

 

 

 

51,992,451

 

Beneficial conversion feature on convertible debt

 

 

 

 

479,061

 

Interest paid on debt

 

 

64,528

 

193,745

 

14,477

 

 

 

 

 

 

64,528

 

 

The accompanying notes are an integral part of these consolidated financial statements

4059


META MATERIALS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Corporate information

Meta Materials Inc. (the(also referred to herein as the “Company” or, “META”, “we”, “us”, “our”, or “Resulting Issuer”) is a developer of high-performance functionalsmart materials and nanocompositesphotonics company specializing in metamaterial research and products, nanofabrication, and computational electromagnetics. The Company’sOur registered office is located at 85 Swanson Road, Boxborough, Massachusetts 01719 and itsour principal executive office is located at 1 Research60 Highfield Park Drive, Halifax,Dartmouth, Nova Scotia, Canada.

On March 5, 2020, Metamaterial Inc. (“MMI” or “Resulting Issuer”). and Metamaterial Technologies Inc. (“MTI”) completed a business combination by way of a three-cornered amalgamation pursuant to which MTI amalgamated with a subsidiary of Continental Precious Minerals Inc. (“CPM”), known as Continental Precious Minerals Subco Inc. (“CPM Subco”), to become “Metacontinental Inc.” (the “CPM RTO”). The CPM RTO was completed pursuant to the terms and conditions of an amalgamation agreement dated August 16, 2019 between CPM, MTI and CPM Subco, as amended March 4, 2020. Following the completion of the RTO, Metacontinental Inc. is carrying on the business of the former MTI, as a wholly-owned subsidiary of CPM. In connection with the RTO, CPM changed its name effective March 2, 2020 from Continental Precious Minerals Inc. to MMI. The common stock of CPM was delisted from the TSX Venture Exchange on March 4, 2020 and was posted for trading on the Canadian Securities Exchange (“CSE”) on March 9, 2020 under the symbol “MMAT”.

For accounting purposes, the legal subsidiary, MTI, has been treated as the accounting acquirer and CPM, the legal parent, has been treated as the accounting acquiree. The transaction has been accounted for as a reverse recapitalization. Accordingly, these consolidated financial statements are a continuation of MTI consolidated financial statements prior to March 5, 2020 and exclude the balance sheets, statements of operations and comprehensive loss, statement of changes in stockholder’s equity and statements of cash flows of CPM prior to March 5, 2020. See note 3 for additional information.

On December 14, 2020, the Companywe (formerly known as “Torchlight Energy Resources, Inc.” or “Torchlight”) and itsour subsidiaries, Metamaterial Exchangeco Inc. (formerly named 2798832 Ontario Inc., “Canco”) and 2798831 Ontario Inc. (“Callco”), entered into an Arrangement Agreement (the “Arrangement Agreement”) with Metamaterial Inc., an Ontario corporation headquartered in Nova Scotia, Canada (“MMI”), to acquire all of the outstanding common stock of MMI by way of a statutory plan of arrangement (the “Arrangement”) under the Business Corporations Act (Ontario), on and subject to the terms and conditions of the Arrangement Agreement (the “Torchlight RTO”). On June 25, 2021, the Companywe implemented a reverse stock split, changed its name from “Torchlight Energy Resources, Inc.” to “Meta Materials Inc.” and changed its trading symbol from “TRCH” to “MMAT”.split. On June 28, 2021, following the satisfaction of the closing conditions set forth in the Arrangement Agreement, the Arrangement was completed.completed, and we changed our name from “Torchlight Energy Resources, Inc.” to “Meta Materials Inc.” and changed our trading symbol from “TRCH” to “MMAT”.

On June 28, 2021, and pursuant to the completion of the Arrangement Agreement, the Companywe began trading on the NASDAQNasdaq Capital Market under the symbol “MMAT” while MMI common stock was delisted from the Canadian Securities Exchange (“CSE”) and at the same time, Metamaterial Exchangeco Inc., a wholly-owned subsidiary of META, started trading under the symbol “MMAX” on the CSE. Certain previous shareholders of MMI elected to convert their common stock of MMI into exchangeable shares in Metamaterial Exchangeco Inc. These exchangeable shares, which can be converted into common stock of META at the option of the holder, are similar in substance to common shares of META and have been included in the determination of outstanding common shares of META.

For accounting purposes, the legal subsidiary, MMI, has been treated as the accounting acquirer and the Company, the legal parent, has been treated as the accounting acquiree. The transaction has been accounted for as a reverse acquisition in accordance with ASC 805 Business Combinations. Accordingly, these consolidated financial statements are a continuation of MMI consolidated financial statements prior to June 28, 2021 and exclude the balance sheets, statements of operations and comprehensive loss, statement of changes in stockholders’ equity and statements of cash flows of Torchlight prior to June 28, 2021. See note 34 for additional information.

On December 14, 2022, we distributed all of the 165,472,241 outstanding shares of Common Stock of Next Bridge Hydrocarbons Inc. (“Next Bridge”), incorporated in Nevada on August 31, 2021, as OilCo. Holdings, Inc., as a wholly owned subsidiary of META, (and changed its name to Next Bridge Hydrocarbons, Inc. pursuant to its Amended and Restated Articles of Incorporation filed on June 30, 2022), on a pro rata basis to holders of our Series A Non-Voting Preferred Stock. Immediately after the distribution, Next Bridge became an independent company, and as a result, we have deconsolidated the financial results of Next Bridge from our consolidated financial results from December 14, 2022 onwards. See note 5 for additional information on this transaction.

60


 

 

412. Going Concern

At each reporting period, we evaluate whether there are conditions or events that raise substantial doubt about our ability to continue as a going concern within one year after the date that the financial statements are issued. Our evaluation entails analyzing prospective operating budgets and forecasts for expectations of our cash needs and comparing those needs to the current cash and cash equivalent balances. We are required to make certain additional disclosures if we conclude substantial doubt exists and it is not alleviated by our plans or when our plans alleviate substantial doubt about our ability to continue as a going concern.

In accordance with Accounting Standards Codification ("ASC") 205-40, going concern, we evaluated whether there are conditions and events, considered in the aggregate, that raise substantial doubt about our ability to continue as a going concern within one year after the date that these consolidated financial statements are issued. This evaluation initially does not take into consideration the potential mitigating effect of management’s plans that have not been fully implemented as of the date the financial statements are issued. When substantial doubt exists under this methodology, management evaluates whether the mitigating effect of its plans sufficiently alleviates substantial doubt about our ability to continue as a going concern. The mitigating effect of management’s plans, however, is only considered if both (1) it is probable that the plans will be effectively implemented within one year after the date that the financial statements are issued, and (2) it is probable that the plans, when implemented, will mitigate the relevant conditions or events that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the date that these consolidated financial statements are issued. In performing its analysis, management excluded certain elements of its operating plan that cannot be considered probable.

We have incurred net losses of $79.1 million and $91.0 million for the years ended December 31, 2022 and 2021, respectively, and have an accumulated deficit of $207.5 million as of December 31, 2022. Our expectation to generate operating losses and negative operating cash flows in the future and the need for additional funding to support our planned operations, raise substantial doubt regarding our ability to continue as a going concern for a period of one year after the date that these consolidated financial statements are issued. Management's plans to alleviate the conditions that raise substantial doubt include reduced spending, and the pursuit of additional capital. Management has concluded the likelihood that its plan to successfully obtain sufficient funding from one or more of these sources, or adequately reduce expenditures, while highly possible, is less than probable because these plans are not entirely within our control and/or have not been approved by our Board of Directors as of the date of these consolidated financial statements.. If we are unsuccessful in obtaining financing, we will be required to assess alternative forms of action. Accordingly, we have concluded that substantial doubt exists about our ability to continue as a going concern for a period of at least 12 months from the date of issuance of these consolidated financial statements.

The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the ordinary course of business. The financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might result from the outcome of the uncertainties described above. These adjustments may be material.

61


2.3. Significant accounting policies

 

Basis of presentation – These consolidated financial statements and related notes are presented in accordance with accounting principles generally accepted in the United States of America (“US GAAP”). The Company’sOur fiscal year-end is December 31. The consolidated financial statements include the accounts of Meta Materials Inc. and its wholly-owned subsidiaries (collectively, the Company).subsidiaries. All significant intercompany balances and transactions have been eliminated inon consolidation.

Functional currency – Items included in the consolidated financial statements of each of the CompanyMETA and its subsidiaries are measured using the currency of the primary economic environment in which the entity operates (the ‘functional currency’).

 

Reporting Currencycurrency – The reporting currency of the CompanyMETA is in US Dollars. The consolidated financial statements, and the financial information contained herein, are reported in US dollars, except share amounts or as otherwise stated, as the Company believeswe believe this results in more relevant and reliable information for its financial statement users.

transactions and balances– Foreign currency transactions are recorded into the functional currency using the exchange rates prevailing at the dates of the associated transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the measurement at period end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognized in the statement of operations.
translation The results and financial position of all subsidiaries that have a functional currency different from the presentation currency are translated into the presentation currency as follows:
Company’s assets and liabilities are translated at the closing rate at the date of the balance sheet;
Company’s income and expenses are translated at average exchange rates;
Company’s resulting exchange differences are recognized in other comprehensive income, a separate component of equity.

 

transactions and balances– Foreign currency transactions are recorded into the functional currency using the exchange rates prevailing at the dates of the associated transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the measurement at period end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognized in the statement of operations.

translation The results and financial position of all subsidiaries that have a functional currency different from the presentation currency are translated into the presentation currency as follows:

Company’s assets and liabilities are translated at the closing rate at the date of the balance sheet;

Company’s income and expenses are translated at average exchange rates;

Company’s resulting exchange differences are recognized in other comprehensive income, a separate component of equity.

Use of estimates The preparation of these consolidated financial statements in conformity with US GAAP requires management to make estimates and certain assumptions that affect the amounts reported in these consolidated financial statements and accompanying notes. Actual results could differ from these estimates. Significant items subject to such estimates and assumptions include the valuation of goodwill, the valuation of net assets acquired via business combinations; the valuation of oil & natural gas properties,combinations, and the valuationpreparation of the consolidated financial instruments measured at fair value.statements on a going concern basis.

 

Cash and cash equivalents The Company considersWe consider all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents.

 

Inventory – Inventory is measured at the lower of cost and net realizable value. Cost is determined using the first-in, first-out method (FIFO) for all inventory. Inventory consumed during research and development activities is recorded as a research and development expense.

 

Notes receivable
- Notes receivable consists of an amount due from Next Bridge, which was previously a wholly-owned subsidiary of Meta, until the completion of the spin-off transaction on December 14, 2022. The note is partially secured by a combination of Meta’s common shares and an interest in the Orogrande Project Property. The note receivable has been recognized at its fair value as part of the deconsolidation of Next Bridge from our consolidated financial results. At subsequent reporting periods, the note will be measured net of any credit losses in accordance with ASC 326 Financial Instruments – Credit Losses. See note 5 for further details. As all amounts on our notes receivable and all accrued interest are due in 2023, we have not recorded an allowance for losses on notes receivable as of December 31, 2022.

Long-lived assets Long-lived assets, such as property, plant and equipment, and intangible assets subject to amortization, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If circumstances require a long-lived asset or asset group be tested for possible impairment, the Companywe first comparescompare undiscounted cash flows expected to be generated by that asset or asset group to its carrying amount. If the carrying amount of the long-lived asset or asset group is not recoverable on an undiscounted cash flow basis, an impairment is recognized to the extent that the carrying amount exceeds its fair value. Fair value is determined through various valuation techniques including discounted cash flow models, quoted market values and third-party independent appraisals, as considered necessary.

 

62


Assets held for sale – Assets held for sale are measured at the lower of their carrying amount or fair value less cost to sell. See Note 3 for further discussionSuch amounts have been derecognized as part of assets held for sale.the deconsolidation of Next Bridge on December 14, 2022.

 

42


Goodwill – Goodwill represents the excess of the purchase price in a business combination over the fair value of net tangible and

intangible assets acquired. The carrying amount of goodwill is periodically reviewed for impairment (at a minimum annually)

and whenever events or changes in circumstances indicate that the carrying value of this asset may not be recoverable.

The CompanyWe first performsperform a qualitative assessment to test the reporting unit’s goodwill for impairment. Based on the qualitative

assessment, if it is determined that the fair value of our reporting unit is more likely than not (i.e., a likelihood of more than 50

percent) to be less than its carrying amount, the quantitative assessment of the impairment test is performed. In the quantitative assessment, the Company compareswe compare the fair value of our reporting unit to its carrying value. If the fair value of the reporting unit exceeds its carrying value, goodwill is not considered impaired and the Company iswe are not required to perform further testing. If the carrying value of the net assets of the reporting unit exceeds its fair value, then an impairment loss equal to the difference, but not exceeding the total carrying value of goodwill allocated to the reporting unit, would be recorded.

 

Acquired intangibles – In accordance with ASC 805 Business Combinations, the Company allocateswe allocate the purchase price of acquired companies to the tangible and intangible assets acquired and the liabilities assumed based on their estimated fair values. Such valuations may require management to make significant estimates and assumptions, especially with respect to intangible assets. Acquired intangible assets consist of acquired technology and customer relationships. In valuing acquired intangible assets, the Company makeswe make assumptions and estimates based in part on projected financial information, which makes assumptions and estimates inherently uncertain, particularly for early-stage technology companies. The significant estimates and assumptions used by the Companyus in the determination of the fair value of acquired intangible technology assets include the revenue growth rate the royalty rate and the discount rate. The significant estimates and assumptions used by the Companyus in the determination of the fair value of acquired customer contract intangible assets include the revenue growth rate and the discount rate.

As a result of the judgments that need to be made, the Company obtainswe obtain the assistance of independent valuation firms. The Company completesWe complete these assessments as soon as practical after the closing dates. Any excess of the purchase price over the estimated fair values of the identifiable net assets acquired is recorded as goodwill.

 

Business combinations - The Company allocatesWe allocate the fair value of purchase consideration to the tangible assets acquired, liabilities assumed and intangible assets acquired based on their estimated fair values. The excess of the fair value of purchase consideration over the fair values of these identifiable assets and liabilities is recorded as goodwill to reporting units based on the expected benefit from the business combination. Allocation of purchase consideration to identifiable assets and liabilities affects the amortization expense, as acquired finite-lived intangible assets are amortized over the useful life, whereas any indefinite-lived intangible assets, including goodwill, are not amortized. During the measurement period, which is not to exceed one year from the acquisition date, the Company recordswe record adjustments to the assets acquired and liabilities assumed, with the corresponding offset to goodwill. Upon the conclusion of the measurement period, any subsequent adjustments are recorded to earnings. Acquisition-related expenses are recognized separately from business combinations and are expensed as incurred.

Leases - The Company isWe are a lessee in several non-cancellable operating leases for buildings. The Company accountsWe account for leases in accordance with ASC 842 Leases. The Company determinesWe determine if an arrangement is or contains a lease at contract inception. The Company recognizesWe recognize a right-of-use (ROU) asset and a lease liability at the lease commencement date.

For operating leases, the lease liability is initially and subsequently measured at the present value of the unpaid lease payments at the lease commencement date. Lease expense for lease payments is recognized on a straight-line basis over the lease term. For finance leases, the lease liability is initially measured in the same manner and date as for operating leases and is subsequently measured at amortized cost using the effective-interest rate method.

The ROU asset is initially measured at cost, which comprises the initial amount of the lease liability adjusted for lease payments made at or before the lease commencement date, plus any initial direct costs incurred less any lease incentives received. The ROU asset is subsequently measured throughout the lease term at the carrying amount of the lease liability, plus initial direct costs, plus (minus) any prepaid (accrued) lease payments, less the unamortized balance of lease incentives received.

We do not record leases on our consolidated balance sheet with a term of one year or less. We elected a package of transition practical expedients, which included not reassessing whether any expired or existing contracts are or contain leases, not reassessing the lease classification of expired or existing leases, and not reassessing initial direct costs for existing leases. We also elected a practical expedient to not separate lease and non-lease components.

63


 

Government grants and assistance Government grants are recognized at their fair value in the period when there is reasonable assurance that the conditions attaching to the grant will be met and that the grant will be received. Grants are recognized as income over the periods necessary to match them with the related costs that they are intended to compensate. When the grant relates to an asset, it is recognized as income over the useful life of the depreciable asset by way of government assistance.

The Company

We also receivesreceive interest-free repayable loans from the Atlantic Canada Opportunities Agency (“ACOA”), a government agency. The benefit of the loan at a below-market rate of interest is treated as a government grant, measured as the difference between proceeds received and the fair value of the loan based on prevailing market interest rates. The fair value of the components, being the loan and the government grant, must be calculated initially in order to allocate the proceeds to the components. The valuation is complex, as there is no active trading market for these items and is based on unobservable inputs.

 

43


Revenue recognitionThe Company’sOur revenue is generated from product sales as well as development revenue. The Company recognizesWe recognize revenue when it satisfies performance obligations under the terms of its contracts, and control of its products is transferred to its customers in an amount that reflects the consideration the Company expectswe expect to receive from its customers in exchange for those products or services.

 

Revenue from the sale of prototypes and finished products is recognized at the point in time when control of the asset is transferred to the customer, generally on delivery of goods. The Company considersWe consider whether there are other obligations in the contract that are separate performance obligations to which a portion of the transaction price needs to be allocated. In determining the transaction price for the sale of prototypes, the Company considerswe consider the effects of variable consideration, the existence of significant financial components, non-cash consideration and consideration payable to the customer (if any).

 

Revenue from development activities is recognized over time, using an inputoutput method to measure progress towards complete satisfaction of the research activities and associated performance obligations identified within each contract have been satisfied.

 

Deferred revenue consistConsist of fees invoiced or paid by the Company’sour customers for which the associated performance obligations have not been satisfied and revenue has not been recognized based on the Company’sour revenue recognition criteria described above.

Deferred revenue is reported in a net position on an individual contract basis at the end of each reporting period and is classified as current in the consolidated balance sheet when the revenue recognition associated with the related customer payments and invoicing is expected to occur within one year of the balance sheet date and as long-term when the revenue recognition associated with the related customer payments and invoicing is expected to occur more than one year from the balance sheet date.

 

Fair value measurements The Company usesWe use valuation approaches that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible. The Company determinesWe determine fair value based on assumptions that market participants would use in pricing an asset or liability in the principal or most advantageous market. When considering market participant assumptions in fair value measurements, the following fair value hierarchy distinguishes between observable and unobservable inputs, which are categorized in one of the following levels:

Level 1 inputs: Unadjusted quoted prices in active markets for identical assets or liabilities accessible to the reporting entity at the measurement date.

Level 1 inputs: Unadjusted quoted prices in active markets for identical assets or liabilities accessible to the reporting entity at the measurement date.

Level 2 inputs: Other than quoted prices included in Level 1 inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the asset or liability.

Level 2 inputs: Other than quoted prices included in Level 1 inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the asset or liability.

Level 3 inputs: Unobservable inputs for the asset or liability used to measure fair value to the extent that observable inputs are not available, thereby allowing for situations in which there is little, if any, market activity for the asset or liability at measurement date.

Level 3 inputs: Unobservable inputs for the asset or liability used to measure fair value to the extent that observable inputs are not available, thereby allowing for situations in which there is little, if any, market activity for the asset or liability at measurement date.

 

Fair value option – Under the Fair Value Option Subsections of ASC Subtopic 825-10, Financial Instruments – Overall, the Company haswe have the irrevocable option to report certain financial assets and financial liabilities at fair value on an instrument-by-instrument basis, with changes in fair value reported in the statement of operations. Any changes in the fair value of liabilities resulting from changes in instrument-specific credit risk are reported in other comprehensive income.

 

Research and development – Research and development activities are expensed as incurred.

 

44


Basic and diluted earnings (loss) per share – Basic earnings (loss) per common share is computed by dividing net income (loss) available to common stockholders by the weighted average number of common stockshares outstanding during the period. Diluted earnings (loss) per common share gives effect to all dilutive potential common stock outstanding during the period including stock options, deferred stock units (“DSUs”), Restricted Share Units ("RSUs"), and warrants which are calculated using the treasury stock method,

64


and convertible debt instruments using the if-converted method. Diluted earnings (loss) per common share excludes all dilutive potential stockshares if their effect is anti-dilutive.

 

Stock based compensation The Company recognizesWe recognize compensation expense for equity awards based on the grant date fair value of the award. The Company recognizesWe recognize stock-based compensation expense for awards granted to employees that have a graded vesting schedule based on a service condition only on a straight-line basis over the requisite service period for each separately vesting portion of the award as if the award was, in substance, multiple awards (the “graded-vesting attribution method”), based on the estimated grant date fair value for each separately vesting tranche. For equity awards with a graded vesting schedule and a combination of service and performance conditions, the Company recognizeswe recognize stock-based compensation expense using a graded-vesting attribution method over the requisite service period when the achievement of a performance-based milestone is probable, based on the relative satisfaction of the performance condition as of the reporting date.

 

For stock-based awards granted to consultants and non-employees, compensation expense is recognized using the graded-vesting attribution method over the period during which services are rendered by such consultants and non-employees until completed.

The measurement date for each tranche of employee awards is the date of grant, and stock-based compensation costs are recognized as expense over the employees’ requisite service period, which is the vesting period.

 

The Company estimatesWe estimate the grant date fair value of awards using the Black-Scholes option pricing model and estimatesestimate the number of forfeitures expected to occur. The CompanyWe may use other pricing models when applicable such as Monte-Carlo simulation. See note 1513 for the Company’sour assumptions used in connection with option grants made during the periods covered by these consolidated financial statements.

 

Income taxes Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is established to reduce deferred tax assets if it is more likely than not that the related tax benefits will not be realized.

 

Authoritative guidance for uncertainty in income taxes requires that the Companywe recognize the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an examination. Management has reviewed the Company’sour tax positions and determined there were no uncertain tax positions requiring recognition in the consolidated financial statements. Company tax returns remain subject to Federal, Provincial and State tax examinations. Generally, the applicable statutes of limitation are three to four years from their respective filings.

 

45


Recently adopted accounting pronouncements

 

ASU 2019-12

Effective January 1, 2021, the Companywe adopted ASU 2019-12 on a prospective basis. The new standard was issued in December 2019 with the intent of simplifying the accounting for income taxes. The accounting update removes certain exceptions to the general principles in Accounting Standards Codification (ASC) Topic 740 Income Taxes and provides simplification by clarifying and amending existing guidance. The adoption of this ASU did not have a material impact on the Company'sour consolidated financial statements.

 

ASU 2020-09

In October 2020, the FASB issued ASU 2020-09, Debt (Topic 470): Amendments to SEC Paragraphs Pursuant to SEC Release No. 33-10762. The amendments in ASU 2020-09 amend rules focused on the provision of material, relevant, and decision-useful information regarding guarantees and other credit enhancements and eliminate prescriptive requirements that have imposed unnecessary burdens and incentivized issuers of securities with guarantees and other credit enhancements to offer and sell those securities on an unregistered basis. The adopted amendments relate to the financial disclosure requirements for guarantors and issuers of guaranteed securities registered or being registered in Rule 3-10 of Regulation S-X, and affiliates whose securities collateralize securities registered or being registered in Rule 3-16 of Regulation S-X. The amendments in ASU 2020-09 are effective for public business entities for annual periods beginning after December 15, 2020. The CompanyWe adopted ASU 2020-09 on January 1, 2021 and its adoption did not have a material effect on the Company'sour consolidated financial statements and related disclosures.

 

65


ASU 2020-10

In October 2020, the FASB issued ASU 2020-10, Codification Improvements, which updated various codification topics by clarifying or improving disclosure requirements to align with the SEC’s regulations. The amendments in ASU 2020-10 are effective for annual periods beginning after December 15, 2020, for public business entities. The CompanyWe adopted ASU 2020-10 on January 1, 2021 and its adoption did not have a material effect on the Company'sour consolidated financial statements and related disclosures.

 

Accounting pronouncements not yet adoptedASU 2021-04

 

ASU 2021-04

In April 2021, the FASB issued ASU 2021-04, Earnings Per Share (Topic 260). This guidance clarifies and reduces diversity in an issuer’s accounting for modifications or exchanges of freestanding equity-classified written call options due to a lack of explicit guidance in the FASB Codification. This guidance is effective for the Company's interim and annual reporting periods beginning after December 15, 2021. The Company is currently evaluating the impact of the new guidanceWe adopted ASU 2021-04 on January 1, 2022 and its adoption did not have a material effect on our consolidated financial statements.

ASU 2021-08

In October 2021, the FASB issued ASU 2021-08, statements and related disclosures.Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, which clarifies that an acquirer of a business should recognize and measure contract assets and contract liabilities in a business combination in accordance with ASC Topic 606, Revenue from Contracts with Customers. This guidance will be effective for the Company's interim and annual reporting periods beginning after December 15, 2022. The Company is currently evaluating the impact of the new guidance on its consolidated financial statements.

 

ASU 2021-10

In November 2021, the FASB issued ASU 2021-10, Government Assistance (Topic 832): Disclosure by Business Entities about Government Assistance, which improves the transparency of government assistance received by most business entities by requiring the disclosure of: (1) the types of government assistance received; (2) the accounting for such assistance; and (3) the effect of the assistance on a business entity's financial statements. This guidance is effective for the Company's interim and annual reporting periods beginning after December 15, 2021. The Company is currently evaluating the impact of the new guidanceWe adopted ASU 2021-10 on January 1, 2022 and its adoption did not have a material effect on our consolidated financial statements.statements and related disclosures.

 

46


3. Acquisitions and preferred stock liabilityASU 2022-03

Torchlight RTO

ArrangementIn June 2022, the FASB issued ASU 2022-03, which amends Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions (“ASU 2022-03”). ASU 202203 clarifies guidance for fair value measurement of an equity security subject to a contractual sale restriction and establishes new disclosure requirements for such equity securities. We elected to early adopt ASU 2022-03 on January 1, 2022, and applied the amendment in measuring consideration transferred in the acquisition of the assets and IP of Optodot Corporation. As a result, we have not applied a discount for lack of marketability associated with the shareholder specific restriction for shares issued as consideration in the Optodot acquisition. See note 4.

Accounting pronouncements not yet adopted

ASU 2021-08

In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, which clarifies that an acquirer of a business should recognize and measure contract assets and contract liabilities in a business combination in accordance with ASC Topic 606, Revenue from Contracts with Customers. This guidance will be effective for our interim and annual reporting periods beginning after December 15, 2022. We do not anticipate the adoption of this standard on January 1, 2023 will have a material effect on our consolidated financial statements and related disclosures.

4. Acquisitions

As discussed in note 1, on 

December 14, 2020Plasma acquisition, Meta Materials Inc. and its subsidiaries, Metamaterial Exchangeco Inc. and 2798831 Ontario Inc. (“Callco”) entered into an Arrangement Agreement with Torchlight Energy Resources, Inc. to acquire all of the outstanding common stock of MMI. On March 12, 2021, MMI’s annual general and special meeting was held and MMI’s securityholders approved the Arrangement and on June 11, 2021, approval was obtained from Torchlight shareholders through a special meeting.

On June 25, 2021April 1, 2022, Torchlight effected a reverse stock split of its Common Stock, at a ratiowe completed the purchase of two100-to-one, changed its name from “Torchlight Energy Resources, Inc.” to “Meta Materials Inc.” and declared a dividend, on a one-for-one basis, of stock of Series A Non-Voting Preferred Stock to holders of record of Company Common Stock as of June 24, 2021.

On June 28, 2021, following the satisfaction% of the closing conditions set forth in the Arrangement Agreement, the Arrangement was completed. The stock of Company Common Stock, previously traded on the NASDAQ under the ticker symbol “TRCH,” commenced trading on the NASDAQ under the ticker symbol “MMAT”.

47


Securities conversion

Pursuant to the completion of the Arrangement, each common share of MMI that was issued and outstanding immediately priorshares of Plasma App Ltd. ("PAL"). PAL is the developer of PLASMAfusion®, a proprietary manufacturing platform technology, which enables high speed coating of any solid material on any type of substrate. PAL’s team is located at the Rutherford Appleton Laboratories in Oxford, UK.

At closing, we issued to June 28, 2021 was converted into the right to receivePAL's shareholders an aggregate of 1.8459,677,419 newly issuedshares of our common stock, representing a number of shares of common stock par valueequal to $0.00118,000,000 per sharedivided by $1.86 (the volume weighted average price for the ten trading days ending on March 31, 2022) with an additional deferral of the Resulting Issuer orcommon stock of Canco, which are exchangeable for shares of the Resulting Issuer at the election of each former MMI stockholder. In addition, all of MMI’s outstanding options, deferred share units and other securities exercisable or exchangeable for, or convertible into, and any other rightsequal to acquire MMI Common Stock were exchanged for securities exercisable or exchangeable for, or convertible into, or other rights to acquire Resulting Issuer Common Stock. Immediately following the completion of the RTO, the former security holders of MMI owned approximately $702,000,000% of the Resulting Issuer Common Stock, accordingly, the former shareholders of MMI, as a group, retained control of the Resulting Issuer, and while Torchlight was the legal acquirer of MMI, MMI was deemed divided by $1.86 to be the acquirer for accounting purposes.

Reverseissued subject to satisfaction of certain claims and warranties. The acquisition

Pursuant to ASC 805 Business Combinations, the transaction was accounted for as a reverse acquisition since: (i) thebusiness combination in accordance with ASC 805.

66


Deferred Consideration

We are obligated to issue to PAL shareholders an aggregate of MMI owned the majority1,075,268 shares of the outstandingour common stock on October 1, 2023, subject to reductions arising from general and specific claims and warranties that might arise of more than $20,000 and less than or equal to $2,000,000. The number of shares were calculated as $2,000,000 divided by $1.86 (the volume weighted average price for the Company afterten trading days ending on March 31, 2022). We have classified the share exchange; (ii) a majority ofdeferred consideration in the directors of the Company are also directors of MMI; and (iii) the previous officers of the Company were replaced with officers designated by MMI. The Company and MMI remain separate legal entities (with the Company as the parent of MMI). These consolidated financial statements are those of MMI prior to June 28, 2021 and exclude the balance sheets, results of operations and comprehensive loss, statement of changes in stockholders'stockholders’ equity and statements of cash flows of Torchlight prior to June 28, 2021.

Measuring the Consideration Transferred

The accounting acquirer issued no cash consideration for the acquiree. Instead, the accounting acquiree issued its 196,968,803 common shares to the owners of the accounting acquirer. However, the acquisition-date fair value of the consideration transferred by the accounting acquirer for its interest in the accounting acquiree is based onsince the number of equity interests the legal subsidiary would have hadshares to issue to give the owners of the legal parent the same percentage equity interestbe issued is contractually specified in the combined entity that results from the reverse acquisition. Accordingly, the consideration transferred of $358,138,773 was basedagreement and is not contingent on the following calculation:

The assumption that MMI would have issued 44,885,634 shares to Torchlight in order for MMI shareholders to own approximately 70% of the outstanding Combined Company Stock at a share price of $7.96, the closing share price of MMI on June 28, 2021 to equal $357,289,644.
Adding the fair value of deemed issuance of Torchlight options and warrants that were outstanding at the time of acquisition.
Deducting the estimated fair value of the previously existing unsecured promissory notes issued by MMI to Torchlight of $11,000,000 plus interest. These notes were effectively settled pursuant to the closing of the Arrangement.

The fair value of the number of equity interests calculated in that way can be used as the fair value of consideration transferred in exchange for the acquiree. The assets and liabilities of the legal acquiree are measured and recognized in the consolidated financial statements at their pre-combination carrying amounts.future event or condition being met.

 

48


Presentation of Consolidated Financial Statements Post Reverse Acquisition

The consolidated financial statements reflect allWe recorded provisional estimated fair values for the assets purchased, liabilities assumed and purchase consideration as of the following:

a)
the assets and liabilitiesdate of the legal subsidiary (the accounting acquirer) recognizedacquisition during the second quarter of 2022, resulting in goodwill of $10.1 million. The determination of fair value required management to make significant estimates and measuredassumptions based on information that was available at their pre-combination carrying amounts
b)
the assets and liabilities of the legal parent (the accounting acquiree) recognized and measured in accordance with ASC 805 Business Combinations
c)
the retained earnings and other equity balances of the legal subsidiary (accounting acquirer) before the business combination
d)
the amount recognized as issued equity interests intime the consolidated financial statements determined by adding the issued equity interest of the legal subsidiary (the accounting acquirer) outstanding immediately before the business combination to the fair value of the legal parent (accounting acquiree). However, the equity structure (that is, the number and type of equity interests issued) reflects the equity structure of the legal parent (the accounting acquiree)

All references to common stock, options, deferred share units, and warrants as well as per share amounts have been retroactively restated to reflect the number of shares of the legal parent (accounting acquiree) issued in the reverse acquisition.were prepared.

Pursuant to the completion

As of Torchlight RTO on June 28, 2021 and as a result of information presented post acquisition, the Company hasDecember 31, 2022, we have made the following changes, based on information as of the acquisition date, to the provisional purchase price allocation previously disclosed in the condensed consolidated interim financial statements for the three and sixnine months ended JuneSeptember 30, 20212022 in Form 10-Q:

decreased the considerationWe have increased intangibles by $169,5925.9 and reclassed the preferred stock liability from the consideration value to the acquired liabilities.million.
decreasedWe have reduced goodwill by $2.7 million.
We recognized a deferred tax liability of $3.2 million.

The following table presents the provisional purchase price allocation as of December 31, 2022:

 

Amount
(USD)

 

Fair value of common stock issued (1)

$

15,290,320

 

Fair value of deferred consideration (2)

 

1,698,926

 

 

$

16,989,246

 

Net assets of PAL:

 

 

Cash and cash equivalents

$

13,822

 

Other assets

 

36,104

 

Intangibles

 

12,600,000

 

Deferred tax liability

 

(3,150,000

)

Goodwill

 

7,489,320

 

 

$

16,989,246

 

(1) The fair value of the common stock issued or to be issued was determined by multiplying 9,677,419 shares, calculated as per the purchase agreement, by the closing share price on April 1, 2022 of $1.60. We recognized $9,677 in common stock and $15,280,645 in additional paid in capital in the consolidated statements of changes in stockholders' equity.

(2) The estimated fair value of the deferred consideration on acquisition date was determined by multiplying 1,075,268 shares, calculated as per the purchase agreement, by the closing share price on April 1, 2022 of $1.60. We recognized the full amount in additional paid in capital in the consolidated statements of changes in stockholders' equity.

Acquired intangible assets totaling $12.6 million relate to a developed technology intangible asset. The significant estimates and assumptions used by the Company in the determination of the fair value of the acquired oil and natural gas ("O&G") assetsdeveloped technology intangible asset includes the revenue growth rate and the preferred stock liability by $discount rate.197,608 and $5,306,354 respectively, to reflect the finalization of a third-party valuation study of the O&G assets as of June 28, 2021.

decreased working capital by $1,034,288 as a result of recording pre-acquisition receivable of $3,404,866, liabilities of $865,650 and reduce cash as of June 28, 2021 by $3,573,504. The pre-acquisition receivable represents shares issued before acquisition date where the cash was received immediately after the acquisition date.
As a result, the Goodwill balance has decreased by $4,244,265.

 

The Company believes that information gatheredgoodwill resulting from the transaction is attributable to date provides a reasonable basis for estimating theassembled workforce, synergies, technical know-how and expertise.

The estimated fair value of assets acquired and liabilities assumed, however the Company is waiting for additional information necessary to finalize these fair values including assessment of any tax assets and liabilities and tax position in different jurisdictions. Therefore,was measured as at the provisional measurements of fair value set forth below areacquisition date based on a valuation report provided by a third-party valuation expert. The preliminary purchase price allocation is subject to change. The Company expectschange as additional information becomes available concerning the tax basis of the assets acquired. Any additional adjustments to complete the purchase price allocation will be made as soon as practicable but no later than one year from the date of acquisition.

Revenue and net losses from the PAL acquisition date.since the acquisition date included in the consolidated statements of operations and comprehensive loss for the year ended December 31, 2022 were $Nil and $1 million respectively.

67


Unaudited pro forma results of operations for the years ended December 31, 2022 and 2021 are included below as if the Plasma acquisition occurred on January 1, 2021. This summary of the unaudited pro forma results of operations is not necessarily indicative of what our results of operations would have been had PAL been acquired at the beginning of 2021, nor does it purport to represent results of operations for any future periods.

 

 

Year ended

 

 

Year ended

 

 

 

December 31, 2022

 

 

December 31, 2021

 

 

 

META excluding PAL

 

 

PAL

 

 

Total

 

 

META

 

 

PAL

 

 

Total

 

Revenue

 

$

10,200,167

 

 

$

 

 

$

10,200,167

 

 

$

4,082,517

 

 

$

 

 

$

4,082,517

 

Loss from operations

 

 

(81,818,759

)

 

 

(567,475

)

 

 

(82,386,234

)

 

 

(38,057,838

)

 

 

(16,822

)

 

 

(38,074,660

)

Net loss

 

 

(78,147,504

)

 

 

(76,271

)

 

 

(78,223,775

)

 

 

(90,997,261

)

 

 

(16,822

)

 

 

(91,014,083

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Add back: acquisition cost

 

 

264,883

 

 

 

16,663

 

 

 

281,546

 

 

 

 

 

 

 

 

 

 

Deduct: additional depreciation and amortization

 

 

 

 

 

(1,178,859

)

 

 

(1,178,859

)

 

 

 

 

 

(1,178,859

)

 

 

(1,178,859

)

Adjusted net loss

 

$

(77,882,621

)

 

$

(1,238,467

)

 

$

(79,121,087

)

 

$

(90,997,261

)

 

$

(1,195,681

)

 

$

(92,192,942

)

Acquisition cost includes legal, accounting, and other professional fees related to the Plasma acquisition.

Optodot acquisition

On June 22, 2022, we completed an asset purchase agreement with Optodot Corporation ("Optodot"), a developer of advanced materials technologies, to acquire certain assets related to patents and intellectual property for the battery and other industries.

Consideration transferred consisted of the following:

Cash payment of $3,500,000.
Unrestricted common stock equal to $37,500,000 divided by the daily volume weighted average trading price per share of our common stock on the Nasdaq Capital Market for the consecutive period of twenty trading days ending on June 21, 2022.
Restricted common stock equal to $7,500,000 divided by the daily volume weighted average trading price per share of our Common Stock on the Nasdaq Capital Market for the consecutive period of twenty trading days ending on June 21, 2022. The restricted stock is subject to certain vesting milestones as set forth in the Purchase Agreement and outlined below.

The acquisition was accounted for as a business combination in accordance with ASC 805. The transaction was structured as a tax-free re-organization pursuant to Internal Revenue Code Section 368(a)(1)(c). Accordingly, the tax basis of net assets acquired retain their carryover tax basis and holding period.

We recorded provisional estimated fair values for the assets purchased, liabilities assumed and purchase consideration as of the date of the acquisition during the second quarter of 2022, resulting in goodwill of $32.2 million. The determination of fair value required management to make significant estimates and assumptions based on information that was available at the time the consolidated financial statements were prepared.

As of December 31, 2022, we have made the following changes, based on information as of the acquisition date, to the provisional purchase price allocation previously disclosed in the condensed consolidated interim financial statements for the three and nine months ended September 30, 2022 in Form 10-Q:

We have increased intangibles by $1.8 million
We have increased goodwill by $3.1 million
We recognized a deferred tax liability of $4.9 million.

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The following table presents the revised purchase price allocation:

 

 

Amount

 

Fair value of unrestricted common stock issued or to be issued (1)

 

$

41,791,115

 

Fair value of restricted common stock issued (2)

 

 

8,342,152

 

Cash consideration

 

 

3,500,000

 

Total consideration

 

$

53,633,267

 

 

 

 

 

Net assets of Optodot:

 

 

 

Intangibles

 

 

23,300,000

 

Deferred tax liability

 

 

(4,893,000

)

Goodwill

 

 

35,226,267

 

 

 

$

53,633,267

 

(1) The fair value of the unrestricted common stock issued or to be issued was determined by multiplying 22,348,190 shares, calculated as per the purchase agreement, by the closing share price on June 22, 2022 of $1.87. We have issued 22,305,221 shares on the closing date of June 22, 2022 and 42,969 shares are yet to be issued. As of December 31, 2022, we recognized $22,305 in common stock and $41,768,810 in additional paid in capital in the consolidated statements of changes in stockholders' equity.

(2) The fair value of the restricted common stock issued was determined by multiplying 4,461,044 shares, calculated as per the purchase agreement, by the closing share price on June 22, 2022 of $1.87. The restricted common stock is subject to vesting as follows:

a) Two thirds or 2,974,029 shares shall be subject to the limitations on transfer until the earlier of (A) META's achievement of at least $5,000,000 in revenue, from any third-party source, to the extent resulting from the sale or license of Optodot IP during the year ended June 22, 2023 and (B) June 22, 2023;

b) One third or 1,487,015 shares shall be subject to the limitations on transfer until the earlier of (A) META's achievement of at least $10,000,000 in revenue, from any third-party source, to the extent resulting from the sale or license of Optodot IP during the year ended June 22, 2024 and (B) June 22, 2024;

We applied the requirements of ASU 2022-03 in measuring the share consideration transferred.

Deferred Consideration

Based on the terms of the agreement outlined above and our consideration of ASC 805, we have classified the deferred consideration in the consolidated statement of changes in stockholders’ equity since the restricted shares have been already issued and the restriction will be removed at the end of the period specified.

Acquired intangible assets totaling $23.3 million relate to a developed technology intangible asset. The significant estimates and assumptions used by the Company in the determination of the fair value of the acquired developed technology intangible asset includes the revenue growth rate and the discount rate.

The goodwill resulting from the transaction is attributable to assembled workforce, synergies, technical know-how and expertise.

The preliminary purchase price allocation is subject to change as additional information becomes available concerning the tax basis of the assets acquired. Any additional adjustments to the purchase price allocation will be made as soon as practicable but no later than one year from the date of acquisition.

The estimated fair value of acquired assets and liabilities has been measured as at the acquisition date based on a valuation report provided by a third-party valuation expert.

Revenue and net losses from the Optodot acquisition since the acquisition date included in the consolidated statements of operations and comprehensive loss for the year ended December 31, 2022 were $0.9 million and $nil respectively.

Unaudited pro forma results of operations for the years ended December 31, 2022 and 2021 are included below as if the Optodot acquisition occurred on January 1, 2021. This summary of the unaudited pro forma results of operations is not necessarily indicative of what our results of operations would have been had Optodot been acquired at the beginning of 2021, nor does it purport to represent results of operations for any future periods.

69


 

 

Year ended

 

 

Year ended

 

 

 

December 31, 2022

 

 

December 31, 2021

 

 

 

META excluding Optodot

 

 

Optodot

 

 

Total

 

 

META

 

 

Optodot

 

 

Total

 

Revenue

 

$

10,120,865

 

 

$

121,174

 

 

$

10,242,038

 

 

$

4,082,517

 

 

$

127,090

 

 

$

4,209,607

 

Loss from operations

 

 

(80,158,252

)

 

 

(2,816,441

)

 

 

(82,974,694

)

 

 

(38,057,838

)

 

 

(3,475,074

)

 

 

(41,532,912

)

Net loss

 

 

(76,075,095

)

 

 

(2,731,989

)

 

 

(78,807,085

)

 

 

(90,997,261

)

 

 

4,652,718

 

 

 

(86,344,543

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Add back: acquisition cost

 

 

700,404

 

 

 

97,712

 

 

 

798,116

 

 

 

 

 

 

 

 

 

 

Deduct: additional depreciation and amortization

 

 

 

 

 

(2,330,000

)

 

 

(2,330,000

)

 

 

 

 

 

(2,330,000

)

 

 

(2,330,000

)

Adjusted net loss

 

$

(75,374,692

)

 

$

(4,964,277

)

 

$

(80,338,969

)

 

$

(90,997,261

)

 

$

2,322,718

 

 

$

(88,674,543

)

Acquisition cost includes legal, accounting, and other professional fees related to the Optodot acquisition.

Torchlight RTO

As discussed in note 1, on June 28, 2021, we completed the acquisition of Torchlight Energy Resources, Inc. June 28, 2021. Pursuant to ASC 805 Business Combinations, the transaction was accounted for as a reverse acquisition. Consideration transferred was measured to be $358 million and the difference between the consideration transferred and fair value of net assets resulted in the recognition of goodwill of $213 million.

During the year ended December 31, 2022, we finalized the purchase price allocation to the individual assets acquired and liabilities assumed using the acquisition method. There were no further changes to the purchase price allocation, as disclosed in the audited consolidated financial statements and notes for the years ended December 31, 2021 and 2020.

The following table summarizes the preliminary allocation of the purchase price to the net assets acquired based on the respective fair value of the acquired assets and liabilities:

Amount

Fair value of deemed issuance of MMI’s stock – Common Stock

$

82,814

Fair value of deemed issuance of MMI’s stock – Additional paid in capital

357,206,830

Fair value of Torchlight’s outstanding warrants – Additional paid in capital

2,773,778

Fair value of Torchlight’s outstanding options – Additional paid in capital

9,397,988

Total Effect on Equity

369,461,410

Effective settlement of notes payable by MMI to Torchlight 1

(11,322,637

)

$

358,138,773

Net assets (liabilities) of Torchlight:

Cash and cash equivalents

$

143,381,229

Other assets

3,906,290

Oil and natural gas properties 2

72,600,000

Preferred stock liability 2

(72,600,000

)

Accounts payable

(2,496,510

)

Other liabilities

(21,937

)

Goodwill 3

213,369,701

$

358,138,773

 

 

Amount

 

Fair value of deemed issuance of MMI’s stock – Common Stock

 

$

82,814

 

Fair value of deemed issuance of MMI’s stock – Additional paid in capital

 

 

357,206,830

 

Fair value of Torchlight’s outstanding warrants – Additional paid in capital

 

 

2,773,778

 

Fair value of Torchlight’s outstanding options – Additional paid in capital

 

 

9,397,988

 

Total Effect on Equity

 

 

369,461,410

 

Effective settlement of notes payable by MMI to Torchlight

 

 

(11,322,637

)

 

 

$

358,138,773

 

Net assets (liabilities) of Torchlight:

 

 

 

Cash and cash equivalents

 

$

143,381,229

 

Other assets

 

 

3,906,290

 

Oil and natural gas properties

 

 

72,600,000

 

Preferred stock liability

 

 

(72,600,000

)

Accounts payable

 

 

(2,496,510

)

Other liabilities

 

 

(21,937

)

Goodwill

 

 

213,369,701

 

 

 

$

358,138,773

 

 

49


1 Notes receivable/payable

Notes receivable or payable represent unsecured promissory notes previously issued by MMI to Torchlight between September 20, 2020 to February 18,As of December 31, 2021, for proceeds of $11,000,000 plus interest. These notes have been eliminated upon acquisition and subsequent consolidation (see note 10 to these consolidated financial statements for further details).

2 Oil and natural gas properties and preferred stock liability

Valuation at acquisition

Acquiredthe acquired oil and natural gas properties include the Orogrande Project property in West Texas and the Hazel Project property in the Midland basin in West Texas. Refer to note 5 for additional details.

The Company engaged an independent valuation firm to assist in the determination of the fair value of the Orogrande Project property and the Hazel Project propertywere classified as of June 28, 2021 and December 31, 2021.

The estimated fair value of the Orogrande Project property was calculated as the sum of the median of each of:

a range of fair values of identified drilling locations determined using numerous assumptions including the number of drilling locations, forecasted production volumes per drilling location, fair value per barrel of forecasted production volumes based on comparable transactions or entities with acreage proximal to the Orogrande Project property, and applying a drilling location risk factor (collectively, “drilling location assumptions”); and
a range of fair values of the undeveloped land acreage determined using numerous assumptions including the number of undeveloped land acres, fair value per acre for comparable transactions or entities with acreage proximal to the Orogrande Project property, and applying an acreage risk factor (collectively, “undeveloped land assumptions”).

The estimated fair value of the Hazel Project property was calculated using a discounted cash flow model. The significant estimates and assumptions used by the Company in the determination of the fair value of the Hazel Project property at acquisition date included forecasted production volumes, forecasted commodity prices, and the discount rate.

The Company valuation concluded an implied enterprise value as of June 28, 2021 to be between $57.7 million and $101.1 million. The Company recorded the fair value of the Orogrande Project property at $71.1 million and the fair value of the Hazel Project property at $1.5 million, totaling a value of $72.6 million.

On June 11, 2021, Torchlight’s stockholders approved an amendment to its Articles of Incorporation to increase the authorized number of shares of Torchlight’s preferred stock, par value $0.001 per share (“Preferred Stock”), from 10,000,000 shares to 200,000,000 shares. In addition, Torchlight’s Board of Directors formally declared the Preferred Dividend and set June 24, 2021 as the Dividend Record Date.

On June 25, 2021, the Company declared a dividend, on a one-for-one basis, of shares of Series A Non-Voting Preferred Stock (the “Series A Preferred Stock”) to holders of record of Torchlight’s common stock as of June 24, 2021. This preferred stock entitles its holders to receive certain dividends based on the net proceeds of the sale of any assets that are used or held for use in the Company’s oil and gas exploration business (the “O&G Assets”), subject to certain holdbacks. Such asset sales must occur prior to the earlier of (i) December 31, 2021 or (ii) the date which is six months from the closing of the Arrangement, or such later date as may be agreed between the Company and the individual appointed to serve as the representative of the holders of Series A Preferred Stock (the “Sale Expiration Date”). The Series A Preferred Stock will automatically be cancelled once the entitled dividends have been paid.

As a result, the fair value measurement of the oil and natural gas properties also forms the basis for the fair value measurement of the preferred stock liability as of June 28, 2021 and as of December 31, 2021. The preferred stock liability is accounted for in accordance with ASC 480 Distinguishing Liabilities from Equity.

50


2021 developments

After the closing of the merger transaction with Torchlight, the Company engaged in a series of activities related to the oil and gas assets to ensure that compliance with the relevant leases was maintained and that the lease rights retained their value in advance of a possible sale or other disposition. The activities over a 4-month period were focused on the obligation to drill four wells on the subject leased property by year-end 2021 to ensure continued compliance with the lease requirements. The activities included assembly of a team of professionals to manage the efforts, permitting, site preparation, drilling equipment rentals, pad preparations at each of the four sites and a variety of site clean-up, data summarization and similar activities. In 2021, the Company invested approximately $14.2 million in these activities to preserve compliance and the value of the assets. These costs were initially capitalized and then assessed at December 31, 2021 to determine if an adjustment was required to the carrying value based on the updated fair value determination. In addition to the drilling activities, the Company organized a new wholly owned subsidiary to enable consolidation of the leases into one company to help facilitate any future sale or other disposition of the assets and provide additional structural alternatives for such sale or disposition.

Valuation at December 31, 2021

The Company continues to actively explore the sale of the assets or spinout, should a sale not occur. The Companysale. We estimated the fair value of the O&G assets by obtaining a valuation study performed by a third party valuation firm. The estimates involved are consistent with those outlined above as part of the acquisition. The valuation concluded an implied enterprise value as of December 31, 2021 to be between $55.1 million and $109.0 million. The CompanyWe recorded the fair value of the Orogrande Project property at $72.0 million and the fair value of the Hazel Project property at $3.5 million, totaling a value of $75.5 million.

There are 164,923,363 outstanding Series A Non-Voting Preferred shares as The deconsolidation of December 31, 2021.

3 Goodwill

Goodwill is attributed toNext Bridge resulted in the difference betweendisposition of the total consideration calculated above and deemed to be transferred by the accounting acquirer (MMI)O&G assets and the total net assetsextinguishment of the accounting acquiree (Torchlight). Based on the market value of META's Stock on June 28, 2021, this resulted in total “consideration” being transferred to Torchlight of approximately $Preferred stock liability. See note 5.358.1 million. Further, the net assets of Torchlight acquired by MMI has been estimated to be approximately $144.8 million. The difference between the $358.1 million of consideration deemed to have been transferred and the $144.8 million of net assets acquired results in goodwill of approximately $213.4 million. Torchlight is delivering a NASDAQ listed legal entity in good standing that will provide the Company with ready access to significant capital sources in the future to fund its growth plans.

The company deemed it necessary to perform an annual test for impairment at December 31, 2021 due to market conditions. As at December 31, 2021 0 impairment was found.

Revenue and losses from the Torchlight RTO since the acquisition date included in the consolidated statements of operations and comprehensive loss for the year ended December 31, 2021 were $NaN and $15.8 million respectively.

Unaudited pro forma results of operations for the years ended December 31, 2021 and 2020 are included below as if the Torchlight RTO occurred on January 1, 2020. This summary of the unaudited pro forma results of operations is not necessarily indicative of what the Company’s results of operations would have been had Torchlight been acquired at the beginning of 2020, nor does it purport to represent results of operations for any future periods.

 

 

Year ended

 

 

Year ended

 

 

 

December 31, 2021

 

 

December 31, 2020

 

 

 

META excluding Torchlight

 

 

Torchlight

 

 

Total

 

 

META

 

 

Torchlight

 

 

Total

 

Revenue

 

$

4,082,517

 

 

$

94,537

 

 

$

4,177,054

 

 

$

1,122,183

 

 

$

193,379

 

 

$

1,315,562

 

Net loss

 

 

(75,181,395

)

 

 

(23,652,112

)

 

 

(98,833,507

)

 

 

(11,611,259

)

 

 

(12,781,896

)

 

 

(24,393,155

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Add back: acquisition cost

 

 

3,220,870

 

 

 

4,103,184

 

 

 

7,324,054

 

 

 

724,129

 

 

 

 

 

 

724,129

 

Adjusted net loss

 

$

(71,960,525

)

 

$

(19,548,928

)

 

$

(91,509,453

)

 

$

(10,887,130

)

 

$

(12,781,896

)

 

$

(23,669,026

)

Acquisition cost includes legal, accounting, and other professional fees related to the Torchlight acquisition.

51


Nanotech acquisition

 

70


On August 5, 2021, the Companywe announced the signing of a definitive agreement to indirectly acquire Nanotech Security Corp. (“Nanotech”). On October 5, 2021, a wholly-owned subsidiary of META purchased 100% of Nanotech’s common stock at CA$1.25 per share. In addition, the transaction price included the settlement of certain Nanotech share awards outstanding immediately prior to the closing of the agreement, including the repurchase and cancellation of 303,391 Nanotech restricted share units ("RSU") at a purchase price of CA$1.25 per RSU and the settlement of 4,359,000 Nanotech in-the-money stock options at a purchase price equal to CA$1.25 per option, less the exercise price thereof. The consideration payable to securityholders under the arrangement was payable in cash, resulting in a total purchase price of $72.1 million (CA$90.8 million).million. The acquisition was accounted for as a business combination in accordance with ASC 805.

 

The Company believes that information gathered to date provides a reasonable basis for estimating the fair value of assets acquired and liabilities assumed, however the Company is waiting for additional information necessary to finalize these fair values including assessment of any tax assets and liabilities and tax position in different jurisdictions. Therefore, the provisional measurements of fair value set forth below are subject to change. The Company expects to completeWe finalized the purchase price allocation as soon as practicable but no later than one year fromaccounting for this acquisition during the acquisition date.

post-acquisition annual measurement period in accordance with ASC 805. The preliminary allocationimpact of consideration paid for the Nanotech acquisition is summarized as follows:

 

 

Amount

 

Consideration paid to acquire Nanotech outstanding common stock

 

$

69,214,652

 

Consideration paid to repurchase Nanotech restricted stock units (RSUs)

 

 

300,610

 

Consideration paid to repurchase Nanotech stock options

 

 

2,612,035

 

 

 

$

72,127,297

 

Net assets (liabilities) of Nanotech:

 

 

 

Cash and cash equivalents

 

$

5,974,254

 

Accounts receivable

 

 

741,783

 

Trade payables

 

 

(1,349,139

)

Prepaid expenses

 

 

271,741

 

Inventory

 

 

126,326

 

Property and equipment

 

 

14,771,456

 

Intangibles

 

 

25,309,847

 

Deferred tax liability

 

 

(859,394

)

Goodwill

 

 

27,140,423

 

 

 

$

72,127,297

 

The preliminary purchase price allocation is subject to change as additional information becomes available concerning the fair value and tax basisfinalization of the assets acquired and liabilities assumed, including certain contracts and obligations. Any additional adjustmentspurchase accounting associated with this acquisition was not material to the purchase price allocation will be made as soon as practicable but no later than one year from the date of acquisition.

The estimated fair value of acquired assets and liabilities has been measured as at the acquisition date based on a valuation report provided by a third-party valuation expert.

Acquired property, plant and equipment acquired totaling $14.8 million is comprised primarily of a production facility in Quebec, Canada with an estimated fair value of $6.0 million, as well as specialized machinery and equipment with an estimated fair value of $8.6 million.

Acquired intangible assets totaling $25.3 million include a developed optical thin film technology intangible asset ($0.2 million), a developed nanotechnology intangible asset ($14.8 million) as well as a customer contract intangible asset for $10.3 million. The significant estimates and assumptions used by the Company in the determination of the fair value of acquired intangible technology assets include the revenue growth rate, the royalty rate and the discount rate. The significant estimates and assumptions used by the Company in the determination of the fair value of the acquired customer contract intangible asset include the revenue growth rate and the discount rate.

The goodwill resulting from the transaction is attributable to different factors including assembled workforce, Nanotech's market potential, specific purchase synergies, technical know-how and expertise, customer service capabilities, geographical presence, and manufacturing capabilities.

52


Revenue and losses from the Nanotech acquisition since the acquisition date included in theaccompanying consolidated financial statements of operations for the year ended December 31, 2021 were $1.8 million and $0.9 million respectively.

Unaudited pro forma results of operations for the years ended December 31, 20212022 and 2020 are included below as if2021.

The following table summarizes the Nanotech acquisition occurred on January 1, 2020. This summaryallocation of the unaudited pro forma resultsrevised purchase price to the net assets acquired based on the respective fair value of operations is not necessarily indicative of what the Company’s results of operations would have been had Nanotech been acquired at the beginning of 2020, nor does it purport to represent results of operations for any future periods.assets and liabilities:

 

 

 

Year ended

 

 

Year ended

 

 

 

December 31, 2021

 

 

December 31, 2020

 

 

 

META excluding Nanotech

 

 

Nanotech

 

 

Total

 

 

META

 

 

Nanotech

 

 

Total

 

Revenue

 

$

2,237,470

 

 

$

7,755,350

 

 

$

9,992,820

 

 

$

1,122,183

 

 

$

5,944,983

 

 

$

7,067,166

 

Net loss

 

 

(90,279,119

)

 

 

(2,942,395

)

 

 

(93,221,514

)

 

 

(11,611,259

)

 

 

(1,040,463

)

 

 

(12,651,722

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Add back: acquisition cost

 

 

1,837,796

 

 

 

1,646,522

 

 

 

3,484,318

 

 

 

 

 

 

 

 

 

 

Deduct: additional depreciation and amortization

 

 

 

 

 

(3,143,659

)

 

 

(3,143,659

)

 

 

 

 

 

(3,844,899

)

 

 

(3,844,899

)

Adjusted net loss

 

$

(88,441,323

)

 

$

(4,439,532

)

 

$

(92,880,855

)

 

$

(11,611,259

)

 

$

(4,885,362

)

 

$

(16,496,621

)

 

 

Amount

 

Consideration paid to acquire Nanotech outstanding common stock

 

$

69,214,652

 

Consideration paid to repurchase Nanotech restricted stock units

 

 

300,610

 

Consideration paid to repurchase Nanotech stock options

 

 

2,612,035

 

 

 

$

72,127,297

 

Net assets (liabilities) of Nanotech:

 

 

 

Cash and cash equivalents

 

$

5,974,254

 

Accounts receivable

 

 

741,783

 

Trade payables

 

 

(1,349,139

)

Prepaid expenses

 

 

271,741

 

Inventory

 

 

126,326

 

Property and equipment

 

 

14,771,456

 

Intangibles

 

 

25,309,847

 

Deferred tax liability

 

 

(1,933,998

)

Goodwill

 

 

28,215,027

 

 

 

$

72,127,297

 

Acquisition cost includes legal, accounting,5. Deconsolidation of Next Bridge subsidiaries and other professional fees related to the Nanotech acquisition. Additional depreciation and amortization is based on the above-mentioned valuation report that was performed as at October 5, 2021.Notes Receivable

 

CPM RTO

As outlined in note 1, on August 16, 2019, MTI entered intoOn December 14, 2022, we distributed all of the issued and outstanding common shares of Next Bridge. Immediately after the distribution, Next Bridge became an Amalgamation Agreement (“Amalgamation Agreement”) with CPM, a Canadianindependent public company listed on the CSE in relation to a Reverse Takeover transaction of CPM by MTI (“CPM RTO”). On October 10, 2019, CPM shareholders approved matters ancillary to the transaction and on November 25, 2019, MTI shareholders approved the CPM RTO. Subject to an amendment to the Amalgamation Agreement dated March 4, 2020, the CPM RTO was completed on March 5, 2020.reporting company.

 

The CPM RTO was completed by the way of three-cornered amalgamation, whereby MTI was amalgamatedAs a result, from December 14, 2022 onwards, Next Bridge is no longer our wholly-owned subsidiary and we have retained no ownership interest in Next Bridge. We have deconsolidated Next Bridge's financial results from our consolidated financial statements in accordance with CPM Subco and holders of stock of MTI received common stock of MMI as consideration. Pursuant to the Amalgamation Agreement, the holders of the common stock of MTI (“MTI Common Stock”) and holders of MTI’s Class A-1 preferred stock of MTI received MMI Common Stock in exchange for their MTI Common Stock at a ratio ofASC 810 2.75Consolidation MMI Common Stock for each MTI Common Share or Class A-1 Preferred share held. Also pursuant to the Amalgamation Agreement, the holders of MTI’s Class A-2 preferred stock received 4.125 Resultant Issuer Common Stock for each Class A-2 preferred share held..

 

Upon completionIn deconsolidating the financial results of Next Bridge from our consolidated financial results, we have recognized a gain on deconsolidation in our consolidated statement of operations and comprehensive loss of $4.0 million during the year ended December 31, 2022, consisting of:

The net impact of derecognizing Next Bridge working capital amounts for $1.8 million (or a decrease in our consolidated net liabilities); and
The recognition, at fair value, of a note receivable from Next Bridge for $2.2 million.

Amounts owing from Next Bridge as of December 31, 2022 include:

a.
An October 2021 secured promissory note (the 2021 Note”) principal amount of $15 million. The 2021 Note bears interest at 8% per annum, and matures March 31, 2023 (the “2021 Note Maturity Date”); provided, however, that if Next Bridge raises $30 million or more in capital through debt or equity or a combination thereof by the 2021 Note Maturity Date, the 2021 Note Maturity Date will be extended to October 3, 2023 and the 2021 Note would be amortized in six equal monthly installments. If an event of default has occurred and is continuing, interest on the 2021 Note may accrue at the default rate of 12% per annum. The outstanding principal of the CPM RTO,2021 Note, together with all accrued interest thereon, becomes due on the 2021 Note Maturity Date. The 2021 Note is secured by a security interest in (i) a Stock Pledge Agreement dated as of MTI’s outstanding options, deferred share units September 30, 2021 between Gregory McCabe (the “Pledgor”)

71


and other securities exercisable or exchangeableus (the “Stock Pledge Agreement”) for or convertible into,1,515,000 shares of our common shares that are owned directly and any other rightsbeneficially by the Pledgor, and (b) pursuant to acquire MTI Common Stock were exchanged for securities exercisable or exchangeable for, or convertible into, or other rights to acquire MMI Common Stock. Immediately following the completiona Deed of Trust, Mortgage, Security Agreement, Fixture Filing, Financing Statement and Assignment of Production dated as of September 30, 2021 made by Wolfbone Investments, LLC (an affiliate of the CPM RTO,Pledgor) for our benefit (the “Security Agreement”), a 25% working interest beneficially owned by the former security holders of MTI owned approximately 86% ofPledgor in the Resulting Issuer Common Stock, on a fully diluted basis; accordingly, the former shareholders of MTI, as a group, retained control of MMI, and while CPM was the legal acquirer of MTI, MTI was deemed to be the acquirer for accounting purposes. As CPM did not meet the definition of a businessOrogrande Project Property as defined in ASC 805—the Security Agreement.
b.
An unsecured note receivable for principal amount of $Business Combinations5, million (the "2022 Note"). The 2022 Note is due and payable on the acquisition is not within2021 Maturity Date unless extended as described below. The 2022 Note bears interest at a fixed rate of 8% per annum if no event of default exists, and at a fixed rate of 12% per annum if an event of default exists. Under the scope2022 Note, if Next Bridge raises $30 million or more in capital through debt or equity or a combination thereof by the 2021 Maturity Date, the maturity date will be extended to October 3, 2023 and the 2022 Note would be paid in six equal monthly installments
c.
Accrued interest on the 2021 Note and 2022 Note totaling $1.6 million as of ASC 805 and was consideredDecember 31, 2022.
d.
Certain costs borne by us in effecting the deconsolidation to which we expect to be a reverse recapitalization.

reimbursed by Next Bridge

 

Reverse recapitalization accounting applies when a non-operating public shell company (CPM) acquires a private operating company (MTI)We estimated and the owners and management of the private operating company have actual or effective voting and operating control of the combined company. A reverse recapitalization is equivalent to the issuance of stock by the private operating company for the net monetary assets of the public shell corporation accompanied by a recapitalization with accounting similar to that resulting from a reverse acquisition, except that no goodwill or other intangible assets are recorded.

Since the transaction was treated as capital transaction in substance, the consideration transferred was assumed to equal the fair value of CPM’s net monetary assets of $3,110,834. Consideration transferred was then allocated between stock and options based onmeasured the fair value of the options deemedamount receivable from Next Bridge to have been issued. Accordingly,be $212,5662.2 has been allocated to optionsmillion as outlined in consolidated Statements of changes in stockholders’ equity with the remainder $2,898,268 allocated to common stock.

53


The carrying value of CPM’s assets and liabilities have been assumed to approximate their fair values, due to their short-term nature. The following table summarizes the monetary assets acquired and liabilities assumed using the March 5, 2020 exchange rate of $1.00 CAD = $0.7454 USD:

 

Amount

 

Cash and cash equivalents

$

3,112,172

 

Marketable securities

 

3,274

 

Accounts receivable

 

20,277

 

Accounts payable and accrued liabilities

 

(24,889

)

 

$

3,110,834

 

TheDecember 14, 2022. In estimating fair value, the key assumption used was our share price as of CPM’s 700,000 options issued has been estimated using the Black-Scholes option pricing model withdate of deconsolidation, since a portion of amounts owing from Next Bridge are secured by the following assumptions:

Amount

Risk free interest rate

0.83% - 0.96%

Expected volatility

117% -134%

Expected dividend yield

0%

Expected forfeiture rate

0%

Fair value of Resulting Issuer Common Share

  CA$0.62

Exercise price of the options

  CA$0.35

Expected term for directors resigning from CPM board

6 months

Expected term for a director continuing as Resulting Issuer director

8 years

Revenue and losses from the CPM RTO since the acquisition date were Nil since acquisition.Stock Pledge Agreement.

4.6. Related party transactions

As of December 31, 20212022, and December 31, 2020,2021, receivables due from a related party (Lamda Guard Technologies Ltd, or “LGTL”) were for a nominal amount and $NaN, respectively. On March 16, 2021, MMI converted an amount of $0.3 million owing to LGTL into 81,584 MMI common stock for a price per share of CA$4.51. The conversion price of CA$4.51 per share represented a 10% premium to the CA$4.10 closing price of MMI stock on the CSE at the close of business on March 12, 2021. MMI has recognized $0.2 million in common stock in the consolidated statements of changes in stockholders’ equity at fair value at the time of conversion and recorded the difference of $0.1 million between the fair value of the common stock and the carrying value of the extinguished liability as a loss on debt settlement in the consolidated statements of operations and comprehensive loss.

As of December 31, 2021, and 2020, related party payables due to LGTL were $Nil8,461 and $0.210,657 million, respectively.

5. Assets held for sale

As of December 31, 2021, assets held for sale represented the acquired oil and natural gas properties from the Torchlight RTO. Refer to note 3 for details of the fair value determination.

Orogrande Project, West Texas

On August 7, 2014, Torchlight entered into a Purchase Agreement with Hudspeth Oil Corporation (“Hudspeth”), McCabe Petroleum Corporation (“MPC”), and Gregory McCabe, Torchlight prior Chairman. Mr. McCabe was the sole owner of both Hudspeth and MPC. Under the terms and conditions of the Purchase Agreement, Torchlight purchased 100% of the capital stock of Hudspeth which held certain oil and gas assets, including a 100% working interest in approximately 172,000 predominately contiguous acres in the Orogrande Basin in West Texas. Mr. McCabe has, at his option, a 10% working interest back-in after payout and a reversionary interest if drilling obligations are not met, all under the terms and conditions of a participation and development agreement among Hudspeth, MPC and Mr. McCabe. Mr. McCabe also holds a 4.5% overriding royalty interest in the Orogrande acreage, which he obtained prior to, and was not a part of the August 2014 transaction.

Effective March 27, 2017, the property became subject to a DDU Agreement which allows for all 192 existing leases covering approximately 134,000 net acres leased from University Lands to be combined into one drilling and development unit for development purposes. The term of the DDU Agreement expires on December 31, 2023, and the time to drill on the drilling and development unit

54


continues through December 2023. The DDU Agreement also grants the right to extend the DDU Agreement through December 2028 if compliance with the DDU Agreement is met and the extension fee associated with the additional time is paid.

On July 25, 2018, Torchlight and Hudspeth entered into a Settlement & Purchase Agreement (the “Settlement Agreement”) with Founders (and Founders Oil & Gas Operating, LLC, former Operator), Wolfbone and MPC (entities controlled by Torchlight prior Chairman), which agreement provided for Founders assigning all of its working interest in the oil and gas leases of the Orogrande Project to Hudspeth and Wolfbone equally. Future well capital spending obligations remained the same 50% contribution from Hudspeth and 50% from Wolfbone until such time as the $40.5 million to be spent on the project.

The Company's outstanding drilling obligations includes 5 wells in 2022 and 2023. All drilling obligations through December 31, 2021 have been met. The drilling obligations are minimum yearly requirements and may be exceeded if acceleration is desired.

The Orogrande Project ownership as of December 31, 2021 is detailed as follows:

 

 

Revenue Interest

 

 

Working Interest

 

University Lands - Mineral Owner

 

 

20.00

%

 

n/a

 

ORRI - Magdalena Royalties, LLC, and entity controlled by Gregory McCabe, Chairman

 

 

4.50

%

 

n/a

 

ORRI - Unrelated Party

 

 

0.50

%

 

n/a

 

Hudspeth Oil Corporation, a subsidiary of Meta Materials Inc.

 

 

49.88

%

 

 

66.50

%

Wolfbone Investments LLC, and entity controlled by Gregory McCabe, Chairman

 

 

18.75

%

 

 

25.00

%

Conversion by Note Holders in March, 2020

 

 

4.50

%

 

 

6.00

%

Unrelated Party

 

 

1.88

%

 

 

2.50

%

 

 

 

100.00

%

 

 

100.00

%

Hazel Project in the Midland Basin in West Texas

Effective April 4, 2016, a wholly owned subsidiary of Torchlight acquired from MPC a 66.66% working interest in approximately 12,000 acres in the Midland Basin. A back-in after payout of a 25% working interest was retained by MPC and another unrelated working interest owner.

In October 2016, the holders of Torchlight's outstanding shares of Series C Preferred Stock (which were issued in July 2016) elected to convert into a total 33.33% working interest in the Hazel Project, reducing Torchlight ownership from 66.66% to a 33.33% working interest.

On January 30, 2017, Torchlight entered into and closed an Agreement and Plan of Reorganization and a Plan of Merger with an entity which was wholly-owned by Mr. McCabe, which resulted in the acquisition of approximately 40.66% working interest in the 12,000 gross acres, 9,600 net acres, in the Hazel Project.

Also, on January 30, 2017, the Company entered into and closed a Purchase and Sale Agreement with Wolfbone. Under the agreement, Torchlight acquired certain of Wolfbone’s Hazel Project assets, including its interest in the Flying B Ranch #1 well and the 40 acre unit surrounding the well.

Upon the closing of the transactions, Torchlight's working interest in the Hazel Project increased by 40.66% to a total ownership of 74%.

Effective June 1, 2017, Torchlight acquired an additional 6% working interest from unrelated working interest owners increasing its working interest in the Hazel project to 80%, and an overall net revenue interest of 74-75%.

The Company has drilled 6 test wells on the Hazel Project to capture and document the scientific base in support of demonstrating the production potential of the property.

Option Agreement with Masterson Hazel Partners, LP

On August 13, 2020, Torchlight's subsidiaries Torchlight Energy, Inc. and Torchlight Hazel, LLC (collectively, “Torchlight”) entered into an option agreement (the “Option Agreement”) with Masterson Hazel Partners, LP (“MHP”) and McCabe Petroleum Corporation. Under the agreement, MHP was obligated to drill and complete, or cause to be drilled and completed, at its sole cost and expense, a new lateral well (the “Well”) on the Hazel Project, sufficient to satisfy Torchlight’s continuous development obligations on the southern half of the prospect no later than September 30, 2020. MHP has satisfied this drilling obligation. MHP paid to Torchlight $1,000 as an option

55


fee at the time of execution of the Option Agreement. MHP is entitled to receive, as its sole recourse for the recoupment of drilling costs, the revenue from production of the Well attributable to Torchlight’s interest until such time as it has recovered its reasonable costs and expenses for drilling, completing, and operating the well.

In exchange for MHP satisfying the above drilling obligations, Torchlight granted to MHP the exclusive right and option to perform operations, at MHP’s sole cost and expense, on the Hazel Project sufficient to satisfy Torchlight’s continuous development obligations on the northern half of the prospect. Because MHP exercised this drilling option and satisfied the continuous development obligations on the northern half of the prospect, under the terms of the Option Agreement (as amended in September 2020) MHP had the option to purchase the entire Hazel Project no later than May 31, 2021 under the terms of a form of Purchase and Sale Agreement included as an exhibit to the Option Agreement, at an aggregate purchase price of $12,690,704 for approximately 9,762 net mineral acres, and not less than 74% net revenue interest (approximately $1,300 per net mineral acre).The option expired unexercised.

Hunton Play, Central Oklahoma

Presently, the Company is producing from one well in the Viking Area of Mutual Interest and one well in Prairie Grove. These assets were not included in the third party valuation given their nominal value.

6.7. Inventory

Inventory consists of photosensitive materials, lenses, laser protection film and finished eyewear, and is comprised of the following:

 

As of December 31,

 

 

As of December 31,

 

 

2021

 

 

2020

 

 

2022

 

 

2021

 

Raw materials

 

$

196,868

 

$

378,265

 

 

$

490,077

 

 

$

196,868

 

Supplies

 

8,886

 

14,414

 

 

 

11,345

 

 

 

8,886

 

Work in process

 

30,636

 

69,380

 

 

 

51,589

 

 

 

30,636

 

Finished goods

 

29,328

 

1,323

 

 

 

42,058

 

 

 

29,328

 

Inventory provision

 

 

(127,042

)

 

 

 

Total inventory

 

$

265,718

 

 

$

463,382

 

 

$

468,027

 

 

$

265,718

 

 

The Company hasWe have a contract with a primary raw material supplier which outlines certain restrictions for use of the associated materials. Raw material inventory as at December 31, 20212022 includes $Nil0.4 (2020million (2021 - $0.3Nil million)) that is restricted.

 

The CompanyWe have expensed $0.2 million of nominal amount of restricted raw materials inventory to research and development expense during the year ended December 31, 2021 (20202022 (2021 - $0.2 million).

 

During the year ended December 31, 2021,2022, the Company recognized $0.70.8 million (2021 - $(2020 - Nominal amount)0.2 million) of inventory in cost of goods sold in the consolidated statements of operations and comprehensive loss.

During the year ended December 31, 2022, the Company recorded write-downs related to inventory in costs of goods sold of $0.1 million, related to inventory deemed to be obsolete in comparison to nil in 2021.

72


 

7.8. Prepaid expenses and other current assets

Prepaid expenses and other current assets consist of the following:

 

 

As of December 31,

 

 

As of December 31,

 

 

2021

 

 

2020

 

 

2022

 

 

2021

 

Prepaid expenses

 

$

1,262,112

 

$

227,425

 

 

$

2,835,660

 

 

$

1,262,112

 

Other current assets

 

683,044

 

134,466

 

 

 

365,583

 

 

 

683,044

 

Taxes receivable

 

1,506,211

 

152,312

 

 

 

4,000,856

 

 

 

1,506,211

 

Total prepaid expenses and other current assets

 

$

3,451,367

 

 

$

514,203

 

 

$

7,202,099

 

 

$

3,451,367

 

 

56


8.9. Property, plant and equipment, net

Property, plant and equipment consist of the following:

 

 

As of December 31,

 

 

As of December 31,

 

 

Useful life

 

2021

 

 

2020

 

 

Useful life

 

2022

 

 

2021

 

 

(years)

 

 

 

 

 

 

 

(years)

 

 

 

 

 

 

Land

 

N/A

 

$

469,317

 

$

 

 

N/A

 

$

439,309

 

 

$

469,317

 

Building

 

25

 

5,509,403

 

 

 

25

 

 

5,063,091

 

 

 

5,509,403

 

Computer equipment

 

3-5

 

262,320

 

163,856

 

 

3-5

 

 

775,736

 

 

 

262,320

 

Computer software

 

1

 

277,717

 

256,554

 

 

1

 

 

606,729

 

 

 

277,717

 

Manufacturing equipment

 

2-10

 

17,762,405

 

6,645,986

 

 

2-5

 

 

22,701,761

 

 

 

17,762,405

 

Office furniture

 

5-7

 

525,961

 

99,234

 

 

5-7

 

 

660,549

 

 

 

525,961

 

Leasehold improvements

 

2-5

 

236,251

 

 

 

2

 

 

2,172,134

 

 

 

236,251

 

Enterprise Resource Planning software

 

5

 

211,149

 

210,254

 

 

5

 

 

197,648

 

 

 

211,149

 

Assets under construction

 

N/A

 

 

8,872,695

 

 

 

424,393

 

 

N/A

 

 

20,337,338

 

 

 

8,872,695

 

 

 

 

34,127,218

 

7,800,277

 

 

 

 

 

52,954,295

 

 

 

34,127,218

 

Accumulated depreciation and impairment

 

 

 

 

(7,109,104

)

 

 

(5,039,106

)

 

 

 

 

(10,279,596

)

 

 

(7,109,104

)

 

 

 

$

27,018,114

 

 

$

2,761,171

 

 

 

 

$

42,674,699

 

 

$

27,018,114

 

 

Depreciation expense was $1.83.6 million and $1.61.8 million for the year ended December 31, 20212022 and 2020,2021, respectively.

 

Impairment expense was $0.30.1 million and $Nil0.3 million for the year ended December 31, 20212022 and 20202021, respectively.

 

Land and building were acquired as part of the Nanotech acquisition.

 

Manufacturing equipment additions include $8.6 million of acquiredroll-to-roll manufacturing equipment as part of the Nanotech acquisition, $1.4 million in purchased equipment for the Highfield Park facility in Nova Scotia, Canada and $1.2 million in equipment purchased for the NANOWEB® pilot scale production line in theat our facility in Pleasanton, California, USA.California.

 

Assets under construction include $5.418.4 million in costs related to ongoing construction work at the Highfield Park and Pleasanton facilities andthe Thurso facility as well as $3.61.9 million of equipment in transit.

 

Property, plant and equipment is pledged as security under a General Security Agreement (a “GSA”) signed in favor of the Royal Bank of Canada (“RBC”) on July 14, 2014, which is related to the Company’s corporate bank account and credit card and includes all property, plant and equipment and intangible assets.

 

73


 

9.10. Intangible Assets and Goodwill

Intangibles

Intangibles consist of the following:

 

 

As of December 31,

 

 

As of December 31,

 

 

Useful life

 

2021

 

 

2020

 

 

Useful life

 

2022

 

 

2021

 

 

(years)

 

 

 

 

 

 

 

(years)

 

 

 

 

 

 

Patents

 

5-10

 

$

7,839,182

 

$

6,954,657

 

 

5-10

 

$

42,111,143

 

 

$

7,839,182

 

Trademarks

 

N/A

 

132,636

 

72,804

 

 

 

 

 

124,845

 

 

 

132,636

 

Developed technology

 

20

 

14,931,377

 

 

 

20

 

 

13,976,668

 

 

 

14,931,377

 

Customer contract

 

5

 

 

10,253,983

 

 

 

 

 

5

 

 

9,598,348

 

 

 

10,253,983

 

 

 

 

33,157,178

 

7,027,461

 

 

 

 

 

65,811,004

 

 

 

33,157,178

 

Accumulated amortization and impairment

 

 

 

 

(4,185,354

)

 

 

(2,550,847

)

 

 

 

 

(9,497,687

)

 

 

(4,185,354

)

 

 

 

$

28,971,824

 

 

$

4,476,614

 

 

 

 

$

56,313,317

 

 

$

28,971,824

 

 

Amortization expense was $1.75.7 million and $0.81.7 million for the years ended December 31, 20212022 and 2020,2021, respectively.

 

Developed technology and customer contract additions represent the acquired intangibles as part of the Nanotech acquisition.acquisition in late 2021.

57


Goodwill

During the year ended December 31, 2021, the Company2022, we recognized patent additions of $213.412.6 million in goodwill fromacquired patents as part of the Torchlight RTOPAL acquisition and $27.123.3 million in goodwill fromacquired patents as part of the NanotechOptodot acquisition. These amounts remain subject to change as the purchase price allocations for the associated business combination accounting remains provisional See Note 4.

Goodwill

Goodwill at December 31, 2021

 

$

240,376,634

 

     Additions from business combination

 

 

42,343,552

 

     Purchase price Allocation adjustments

 

 

1,446,639

 

     Effect of foreign exchange on goodwill

 

 

(2,418,359

)

Goodwill at December 31, 2022

 

$

281,748,466

 

 

The Company performsWe perform the annual impairment test for goodwill at year-end, by comparing the reporting unit’s fair value to its carrying amount, including goodwill, as of December 31, 2021,2022, using the market approach to determine fair value. All goodwill has been allocated to one reporting unit. As the reporting unit’s fair value exceeded its carrying amount, the Companywe determined that goodwill was not impaired. The key assumption used to calculate the recoverable amount of goodwill as of December 31, 20212022 was the Company’sour share price.

10. Unsecured convertible promissory notes74


 

 

Year ended December 31,

 

 

Year ended December 31,

 

 

 

2021

 

 

2020

 

 

 

Bridge loan
(a)

 

 

Torchlight
(b)

 

 

Total

 

 

Bridge loan
(a)

 

 

Torchlight
(b)

 

 

Total

 

Beginning balance

 

$

538,020

 

 

$

665,215

 

 

$

1,203,235

 

 

$

0

 

 

$

0

 

 

$

0

 

Issued

 

 

3,963,386

 

 

 

10,000,000

 

 

 

13,963,386

 

 

 

378,042

 

 

 

1,000,000

 

 

 

1,378,042

 

Interest accrued

 

 

17,804

 

 

 

329,965

 

 

 

347,769

 

 

 

2,698

 

 

 

12,701

 

 

 

15,399

 

Fair value loss (gain)

 

 

19,163,417

 

 

 

333,947

 

 

 

19,497,364

 

 

 

139,609

 

 

 

(354,839

)

 

 

(215,230

)

Unrealized fair value loss (gain) due to own credit risk

 

 

0

 

 

 

(5,554

)

 

 

(5,554

)

 

 

0

 

 

 

14,132

 

 

 

14,132

 

Unrealized foreign currency exchange gain

 

 

0

 

 

 

(258,480

)

 

 

(258,480

)

 

 

0

 

 

 

(23,849

)

 

 

(23,849

)

Foreign currency translation adjustment

 

 

(26,262

)

 

 

257,544

 

 

 

231,282

 

 

 

17,671

 

 

 

17,070

 

 

 

34,741

 

Conversion to common stock

 

 

(23,656,365

)

 

 

0

 

 

 

(23,656,365

)

 

 

0

 

 

 

0

 

 

 

0

 

Elimination pursuant to Torchlight RTO (note 3)

 

 

0

 

 

 

(11,322,637

)

 

 

(11,322,637

)

 

 

0

 

 

 

0

 

 

 

0

 

Ending balance

 

$

0

 

 

$

0

 

 

$

0

 

 

$

538,020

 

 

$

665,215

 

 

$

1,203,235

 

a) In November 2020, MMI entered into a commitment letter (the “Commitment Letter”) with a shareholder, pursuant to which the shareholder will provide up to CA$5,500,000 in11. Long-term debt financing (the “Bridge Loan”) to fund MMI’s continued operations while MMI worked toward completion of the Proposed Transaction with Torchlight. Pursuant to the Commitment Letter, MMI was able to draw up to CA$500,000 monthly beginning in November 2020. The Bridge Loan bore interest at the rate of 8% per annum, payable monthly in arrears. The principal amount and any accrued but unpaid interest was due and payable on the 10th business day after the closing of the Proposed Transaction, or on November 29, 2022, if the Transaction did not close before that date. At the option of the holder, the Bridge Loan, or any portion of the Bridge Loan and accrued but unpaid interest was convertible into MMI Common Stock at a conversion price of CA$0.50 per share, subject to customary adjustments. MMI had the option to repay the Bridge Loan in whole or in part, without penalty, at any time on or after March 28, 2021.

MMI elected to measure the financial instrument at fair value. MMI subsequently remeasured the instrument on December 31, 2020 and recorded fair value loss of $139,609 in the statements of operations. There was no change in instrument specific credit risk.

On February 16, 2021, the total Bridge Loan of $4,361,930 of principal and accrued interest was converted at CA$0.50 per share into 20,391,239 common shares, in accordance with the terms of the bridge financing. MMI has remeasured the instrument as of the conversion date and recognized a non-cash realized fair value loss of $19,163,417 and the full amount of $23,656,365 was reclassified into the consolidated statements of changes in stockholders’ equity.

b) On September 15, 2020, MMI entered into a non-binding Letter of Intent (the “LOI”) with Torchlight pursuant to which Torchlight loaned MMI three unsecured convertible promissory notes totaling $11,000,000. These Unsecured Convertible Promissory Notes bore interest at 8% annually, with principal and interest due and payable on the maturity date. If MMI and Torchlight had not entered into a Definitive Agreement, or the Definitive Agreement were terminated, then the Unsecured Convertible Promissory Notes and all accrued and unpaid interest were convertible at the option of the holder into common stock of the Company at the conversion prices set out

58


below. The Company had the option to repay all or part of the Unsecured Convertible Promissory Notes, plus any accrued and unpaid interest, without penalty on or after 120 days from the note issuance date.

 

 

 

Tranche 1

 

 

Tranche 2

 

 

Tranche 3

 

Face value of notes issued

 

$

500,000

 

 

$

500,000

 

 

$

10,000,000

 

Issuance date

 

September 20, 2020

 

 

December 16, 2020

 

 

February 18, 2021

 

Maturity date

 

September 20, 2022

 

 

December 16, 2022

 

 

February 18, 2022

 

Interest rate

 

8%

 

 

8%

 

 

8%

 

Conversion price

 

CA$0.35

 

 

CA$0.62

 

 

CA$2.80

 

The conversion option was a foreign currency embedded derivative as the note was denominated in USD and the conversion price was in Canadian dollars. MMI elected to measure the financial instrument at fair value. MMI subsequently remeasured the instrument on March 31, 2021, and recorded fair value gain of $197,527, of which $5,554 was a gain recorded in other comprehensive income relating to instrument specific credit risk and $191,973 was a gain recorded in the statements of operations.

59


As part of the closing of the Arrangement, the promissory notes were remeasured at fair value and a fair value loss of $525,920 was recorded in the statements of operations and comprehensive loss. The notes were considered part of the consideration transferred (see note 3) and were eliminated upon acquisition and subsequent consolidation. In addition, the related accumulated fair value losses in OCI of $9,011 were recycled to the statements of operations and comprehensive loss.

11. Secured convertible debentures

 

 

Year ended December 31,

 

 

 

2021

 

 

2020

 

Beginning balance

 

$

5,545,470

 

 

$

 

Issued

 

 

 

 

 

3,630,019

 

Interest accrued

 

 

121,860

 

 

 

508,757

 

Interest paid

 

 

(64,528

)

 

 

(285,154

)

Fair value loss

 

 

16,408,482

 

 

 

511,699

 

Fair value loss—own credit

 

 

 

 

 

865,280

 

Foreign currency translation adjustment

 

 

107,498

 

 

 

314,869

 

Conversion to common stock

 

 

(22,118,782

)

 

 

 

Ending balance

 

$

 

 

$

5,545,470

 

On April 3, 2020, MMI issued CA$5,000,000 in Secured Debentures to BDC Capital Inc.(“BDC”), a wholly owned subsidiary of the Business Development Bank of Canada. The Secured Debentures mature on October 31, 2024, and bear interest at a rate of 10.0% per annum, payable monthly in cash. In addition to the cash interest, the Secured Debentures accrued a non-compounding payment in kind (“PIK”) of 8% per annum. The PIK may be reduced by up to 3% (reduced to as low as 5% per annum) upon meeting certain conditions. BDC may elect to have the PIK paid in cash.

The Secured Debentures and the PIK are convertible in full or in part, at BDC’s option, into MMI common stock at any time prior to their maturity at a conversion price of CA$0.70 (the “Conversion Price”) or MMI may force the conversion of Secured Debentures if MMI’s common stock are trading on the CSE on a volume-weighted average price greater than 100% of the Conversion Price (i.e. greater than CA$1.40) for any 20 consecutive trading days with a minimum daily volume of at least 100,000 Common Stock.

MMI elected to measure the financial instrument at fair value. MMI subsequently remeasured the instrument on December 31, 2020, and recorded a fair value loss of $1,376,979, of which $511,699 was recorded in other comprehensive income relating to instrument specific credit risk and $865,280 was recorded in the statements of operations.

The secured debentures were subject to a covenant clause, whereby MMI was required to maintain a working capital ratio of no less than 3:1. The working capital ratio excluded deferred revenue and deferred government assistance from current liabilities. MMI did not fulfil the ratio as required in the contract and consequently, the secured debentures were reclassified as a current liability as at December 31, 2020.

On March 3, 2021, MMI forced the conversion of the Secured Debentures pursuant to the terms of the agreement with BDC. The total debentures balance of $3,910,954 was converted at CA$0.70 per share into 14,155,831 common shares. MMI remeasured the liability as of the conversion date and recognized a non-cash realized fair value loss of $16,408,482 and the full amount of $22,118,782 was reclassified into the consolidated statements of changes in stockholders’ equity. All security interests held by BDC on assets of MMI were immediately discharged.

In addition, the accumulated losses in OCI of $511,699 were recycled to the statements of operations and comprehensive loss.

60


12. Unsecured convertible debentures

Unsecured convertible debentures (the “Unsecured Debentures”) consist of the following:

 

 

Year ended December 31,

 

 

 

2021

 

 

2020

 

Beginning balance

 

$

1,825,389

 

 

$

585,267

 

Issued

 

 

 

 

 

693,784

 

Interest accrued

 

 

23,660

 

 

 

147,304

 

Fair value loss

 

 

3,914,931

 

 

 

189,708

 

Fair value loss due to own credit risk

 

 

 

 

 

154,347

 

Foreign currency translation adjustment

 

 

5,495

 

 

 

54,979

 

Conversion to common stock

 

 

(5,769,475

)

 

 

 

Ending balance

 

$

 

 

$

1,825,389

 

On December 10, 2019, an agreement was signed to convert an existing CA$250,000 short-term loan into an Unsecured Debenture, and also during December 2019, MMI issued an additional CA$500,000 in Unsecured Debentures to the same investor, under the same terms.

During the year ended December 31, 2020, MMI issued an additional CA$950,000 (US $693,784) in Unsecured Debentures to individuals and companies under the same terms as previous issues.

The Unsecured Debentures bear interest at a fixed rate of 1% per month, compounding monthly and have a maturity date of April 30, 2025. Each Unsecured Debenture is convertible at the option of the holder into MMI common stock at a price of CA$0.70 per share. Following completion of the RTO, MMI may elect to repay the outstanding amounts owing under the Unsecured Debentures in cash or in stock at a conversion price of CA$0.70 upon meeting certain conditions or the holder can convert the Unsecured Debentures at CA$0.70 or the Unsecured Debentures can be converted at maturity at the greater of 80% of the 10 day volume-weighted average price of the Resulting Issuer’s common stock or the closing price on the preceding trading day less the maximum permitted discount by the exchange.

MMI elected to measure the financial instrument at fair value. MMI subsequently remeasured the instrument on December 31, 2020 and recorded a fair value loss of $344,055, of which $154,347 was recorded in other comprehensive income relating to instrument specific credit risk and $189,708 was recorded in the statements of operations.

On February 16, 2021, MMI converted $1,439,103 of principal and accrued interest of Unsecured Debentures at CA$0.70 per share into 5,105,338 common shares in accordance with the terms of their debt instruments. MMI remeasured the liability as of the conversion date and recognized a non-cash realized fair value loss of $3,914,931 and the full amount of $5,769,475 was reclassified into the consolidated statements of changes in stockholders’ equity.

In addition, the accumulated losses in OCI of $154,347 were recycled to the statements of operations.

61


13. Long-term debt

 

 

As of December 31,

 

 

 

2021

 

 

2020

 

'ACOA Business Development Program (“BDP”) 2012 interest-free loan1 with a maximum contribution of CA$500,000, repayable in monthly  repayments commencing October 1, 2015 of CA$5,952 until June 1, 2023. Loan repayments were temporarily paused effective April 1, 2020 until January 1, 2021 as a result of the COVID-19 outbreak. As at December 31, 2021, the amount of principle drawn down on the loan, net of repayments, is CA$107,143 (2020 - CA$178,571).

 

$

80,390

 

 

$

129,384

 

'ACOA Atlantic Innovation Fund (“AIF”) 2015 interest-free loan1,2  with a maximum contribution of CA$3,000,000. Annual repayments, commencing June 1, 2021, are calculated as a percentage of gross revenue for the preceding fiscal year, at NaN when gross revenues are less than CA$1,000,000, 5% when gross revenues are less than CA$10,000,000 and greater than CA$1,000,000, and CA$500,000 plus 1% of gross revenues when gross revenues are greater than CA$10,000,000. As at December 31, 2021, the amount or principle drawn down on the loan, net of repayments, is CA$2,924,615 (2020 - CA$3,000,000).

 

 

1,666,764

 

 

 

1,458,954

 

ACOA BDP 2018 interest-free loan1,3 with a maximum contribution of CA$3,000,000, repayable in monthly repayments commencing June 1, 2021 of CA$31,250 until May 1, 2029. As at December 31, 2021, the amount of principle drawn down on the loan, net of repayments, is CA$2,781,250 (2020 - CA$3,000,000).

 

 

1,319,130

 

 

 

1,285,307

 

ACOA BDP 2019 interest-free loan1 with a maximum contribution of CA$100,000, repayable in monthly repayments commencing June 1, 2021 of CA$1,400 until May 1, 2027. As at December 31, 2021, the amount of principle drawn down on the loan, net of repayments, is CA$90,278 (2020 - CA$62,165).

 

 

42,011

 

 

 

30,138

 

ACOA Regional Relief and Recovery Fund (“RRRF”) 2020 interest-free loan with a maximum contribution of CA$390,000, repayable on monthly repayments commencing April 1, 2023 of CA$11,000 until April 1, 2026. As at December 31, 2021, the amount of principle drawn down on the loan is CA$390,000 (2020 - $NaN).

 

 

120,154

 

 

 

 

CAIXA Capital loan bearing interest at 6-month EURIBOR rate plus 4% interest spread. The loan principal and interest are fully repayable on January 15, 2025. On March 12, 2021, the principal loan balance with outstanding interest totaling $209,506 (EUR 171,080) was converted into MMI common stock at $3.87 per share4. Pursuant to the conversion, CAIXA Capital was issued 67,597 MMI common shares.

 

 

 

 

 

130,265

 

 

 

 

3,228,449

 

 

 

3,034,048

 

Less: current portion

 

 

491,278

 

 

 

290,544

 

 

 

$

2,737,171

 

 

$

2,743,504

 

 

 

As of December 31,

 

 

 

2022

 

 

2021

 

ACOA Business Development Program (“BDP”) 2012 interest-free loan with a maximum contribution of CA$500,000, repayable in monthly repayments commencing October 1, 2015, of CA$5,952 until June 1, 2023. Loan repayments were temporarily paused effective April 1, 2020, until January 1, 2021, as a result of the COVID-19 outbreak. As of December 31, 2022, the amount of principle drawn
   down on the loan, net of repayments is CA$
35,714.29 (2021 - CA$ 107,142.86).

 

$

25,880

 

 

$

80,390

 

ACOA Atlantic Innovation Fund (“AIF”) 2015 interest-free loan with a maximum contribution of CA$ 3,000,000. Annual repayments, commencing June 1, 2021, are calculated as a percentage of gross revenue for the preceding fiscal year, at Nil when gross revenues are less than CA$1,000,000, 5% when gross revenues are less than CA$10,000,000, and greater than CA$1,000,000, and CA$500,000 plus 1% of gross revenues when gross revenues are greater than CA$10,000,000. As of December 31, 2022, the amount or principal drawn down on the loan, net of repayments, is CA$,2661,293 (2021 - CA$ 2,924,615).

 

 

1,449,493

 

 

 

1,666,764

 

ACOA BDP 2018 interest-free loan with a maximum contribution of CA$3,000,000, repayable in monthly repayments commencing June 1, 2021, of CA$31,250 until May 1, 2029. As of December 31, 2022, the amount of principal drawn down on the loan, net of repayments, is CA$2,406,250 (2021 - CA$2,781,250).

 

 

1,136,556

 

 

 

1,319,130

 

ACOA PBS 2019 interest-free loan with a maximum contribution of CA$100,000, repayable in monthly repayments commencing June 1, 2021, of CA$1,400 until May 1, 2027. As of September 30, 2022, the amount of principal drawn down on the loan, net of repayments, is CA$73,611. (2021 - CA$90,278).

 

 

34,750

 

 

 

42,011

 

ACOA Regional Relief and Recovery Fund (“RRRF”) 2020 interest-free loan with a maximum contribution of CA$390,000, repayable on monthly repayments commencing April 1, 2023 of CA$11,000 until April 1, 2026. As at December 31, 2022, the amount of principle drawn down on the loan is CA$390,000 (2020 - CA$390,000).

 

 

159,642

 

 

 

120,154

 

Economic Development Agency of Canada for the Regions of Quebec (EDC) 2022 interest-free loan with a maximum contribution of CA$2,000,000 (CA$1,000,000 for building renovations and CA$1,000,000 for acquisition of equipment for Nanotech). Repayable in 60 monthly installments of CA$ 24,236, with the first repayment due Dec 31, 2025. As of December 31, 2022, the amount of principal drawn down of this funding was CA$1,454,167 with CA$1,012,569, treated as a loan and CA$441,598, treated as Deferred government assistance (See Note 19).

 

 

747,634

 

 

 

 

 

 

 

3,553,955

 

 

 

3,228,449

 

Less: current portion

 

 

483,226

 

 

 

491,278

 

 

 

$

3,070,729

 

 

$

2,737,171

 

1 The Company wasWe were required to maintain a minimum balance of positive equity throughout the term of the loan. However, on November 14, 2019, ACOA waived this requirement for the period ending June 30, 2019 and for each period thereafter until the loan is fully repaid.

 

2 The carrying amount of the ACOA AIF loan is reviewed each reporting period and adjusted as required to reflect management’s best estimate of future cash flows, discounted at the original effective interest rate.

 

3 A portion of the ACOA BDP 2018 loan was used to finance the acquisition and construction of manufacturing equipment resulting in $425,872 was recorded as deferred government assistance, which is being amortized over the useful life of the associated equipment. The CompanyWe recorded the amortization expense of $3,047 and $145,739for the yearyears ended December 31, 2022 and 2021, of $145,739 (year ended December 31, 2020—$136,320)respectively, as government assistance in the consolidated statements of operations and comprehensive loss.

 

4 MMI has recognized the common stock issued in the consolidated statements of changes in stockholders’ equity at fair value at time of conversion to be $221,842 and recorded the difference of $88,763 between the fair value of the common stock and the carrying value of the long-term debt as loss on debt settlement in the consolidated statements of operations and comprehensive loss. 75


 

62


14.12. Capital stock

Common stock

Authorized: 1,000,000,000 common shares, $0.001 par value.

All references to numbers of common shares and amounts in the consolidated statements of changes in stockholder’s equity and in the notes to the consolidated financial statements have been retroactively restated to reflect as if the CPM RTO and the Torchlight RTO had taken place as of the beginning of the earliest period presented.

The numbersnumber of common shares issued pre-CPM RTO have been multiplied by the 2.75 CPM conversion ratio and the 1.845 Torchlight conversion ratio.
The numbers of common shares issued post-CPMpre-Torchlight RTO have been multiplied by the 1.845 Torchlight conversion ratio.
The amounts of common shares issued pre-CPM RTO were calculated by multiplying the number of shares by 0.001, the 2.75 CPM conversion ratio and the 1.845 Torchlight conversion ratio and the difference was recognized in additional paid in capital.
The amounts of common shares issued post-CPMpre-Torchlight RTO were calculated by multiplying the number of shares by 0.001 and the 1.845 Torchlight conversion ratio and the difference were recognized in additional paid in capital.

During the year ended December 31, 2022, 1,988,629 warrants were exercised to purchase 1,623,700 common shares where most warrant holders elected cashless exercise and consequently, the difference of 364,929 shares was withheld to cover the exercise cost.

During the year ended December 31, 2022, 1,688,538 stock options were exercised to purchase an equal number of common shares. In addition, 673,944 restricted stock units ("RSUs") have vested and settled into 658,538 common shares. The difference of 15,406 RSUs were withheld to cover the tax obligation from certain employees.

During the year ended December 31, 2022, we issued 9,677,419 common stock as consideration in relation to the PAL acquisition and 26,766,265 as consideration in relation to the Optodot acquisition (note 4).

During the year ended December 31, 2022, we issued 223,052 common shares at $1.87 as a compensation to a service provider in relation to the Optodot acquisition.

During the year ended December 31, 2021, the Companywe converted unsecured convertible promissory notes of $23,656,365, secured convertible debentures of $22,118,782, and unsecured convertible debentures of $5,769,475 into common stock. The CompanyWe remeasured the financial liabilities at fair value as of respective conversion dates and recognized a non-cash realized loss of $39,486,830. The CompanyWe subsequently reclassified the remeasured liabilities into equity and recognized $39,652 in common stock and $51,504,970 in additional paid in capital. The number of shares issued was calculated as the total outstanding principal and interest of each liability divided by the conversion price stated in each respective instrument’s agreement.

During the year ended December 31, 2021, the Companywe converted long-term debt of $221,843 and due to related party of $225,986 into common stock. The CompanyWe recorded the common stock issued at fair value using the Company’sour share price at the time of conversion. The CompanyWe recognized $276 in common stock and $447,553 in additional paid in capital. The resulting net loss calculated as the difference between the fair value of common stock and the carrying value of the liabilities of $19,330 was recorded in other income in the consolidated statements of operations and comprehensive loss. The number of shares issued was calculated as the total outstanding principal and interest of each liability multiplied by the agreed upon conversion price.

During the year ended December 31, 2021, the Companywe issued 286,292 common shares at CA$0.58 per share as compensation in exchange for a fairness opinion obtained with respect to the Torchlight RTO. The companyWe paid CA $CA$90,000 in cash in 2020 and agreed to settle the remaining CA $CA$90,000 in common stock. The CompanyWe recognized the share-based payment in trade and other payables in 2020 until the shares were issued in 2021.

During the year ended December 31, 2021, and pursuant to the Torchlight RTO, the Companywe recognized $369,631,002 in equity as the fair value of 82,813,994 common shares that were deemed to have been issued to Torchlight as part of the Torchlight RTO (note 3)4).

During the year ended December 31, 2021, the Companywe issued 148,368 common shares as stock-based compensation at $3.37 per share to a service provider. The total amount of $500,000 was recorded as prepaid expenses and is being amortized over the period of service.

During the year ended December 31, 2021, the Companywe issued 125,000 common shares as stock-based compensation at $5.27 per share for a total of $658,750 as partial compensation for a fairness opinion obtained with respect to the Nanotech acquisition. The companyWe paid the remaining $511,406 in cash.

During the year ended December 31, 2020 and pursuant to the CPM RTO, all preferred shares were converted into 58,153,368 common shares.

During the year ended December 31, 2020, the aggregate principal of the Secured Promissory Notes and all interest accrued up until January 28, 2020 were converted into Registered direct offering17,752,163 common shares.

During the year ended December 31, 2020, and pursuant to the CPM RTO, the Company recognized $3,214,502 in equity as the fair value of 21,599,223 common shares that were deemed to have been issued to CPM as part of the CPM RTO.

63


 

At-the-Market Equity Offering Program ("ATM")76

On June 16, 2021, Torchlight Energy Resources, Inc. ("Torchlight”) entered into a Sales Agreement (the “Sales Agreement”) with Roth Capital Partners, LLC (the “Agent”) to conduct an “at-the-market” equity offering program pursuant to which the Company may issue and sell, from time to time at its sole discretion, shares (the "Placement Shares”) of its common stock, par value $0.001 per share, having an aggregate offering price of up to $100,000,000 (the “Shares”), through or to the Agent, as the Company’s sales agent. Subject to the terms and conditions of the Sales Agreement, the Agent will use its commercially reasonable efforts to sell the Shares from time to time, based upon the Company’s instructions. The Company has no obligation to sell any of the Shares, and may, at any time, suspend the sale of the Shares under the Sales Agreement upon proper notice to the other party. The Sales Agreement will terminate upon the issuance and sale of all of the Shares through or to the Agent, unless earlier terminated in accordance with its terms.


 

On June 21, 2021, the Sales Agreement was24, 2022, we entered into a securities purchase agreement, as amended and restated to increaseon June 27, 2022, with certain institutional investors (the “SPA”) for the aggregatepurchase and sale in a registered direct offering of 37,037,039 shares of our common stock at a purchase price to up toof $250,000,0001.35.

The Company has provided the Agent with customary indemnification rights, per share and the Agent will be entitledwarrants to purchase 37,037,039 shares at an aggregate fixed commissionexercise price of $3.01.75% of the per share. This resulted in gross proceeds from Shares sold through the Agent under the Sales Agreement. Salesoffering of the Shares under the Sales Agreement will be made in transactions that are deemed to be “at-the-market offerings” as defined in Rule 415 under the Securities Act$50 million and net proceeds of 1933, as amended, including sales made by means of ordinary brokers’ transactions, including on The NASDAQ Capital Market, at market prices or as otherwise agreed to with the Agent.$46.3 million.

 

The Shares have been registered undergross proceeds were allocated between common stock and accompanying warrants based on their relative fair values. The fair value of common stock was calculated based on the Securities Act of 1933, as amended, pursuant to the Registration Statement on Form S-3 (No. 333-256632) filed by the Company with the Securities and Exchange Commission (the “SEC”) on May 28, 2021, and declared effectiveclosing share price on June 14, 2021 (the “Registration Statement”)27, 2022 of $1.15. The Company has prepared a prospectus supplement dated June 16, 2021fair value of the warrants was estimated using the Black-Scholes option pricing model. Accordingly, we have allocated $27.9 million as the fair value of common stock and a prospectus supplement dated June 21, 2021 specifically relating to$18.5 million as the Placement Shares to the base prospectus included as partfair value of such registration statement.warrants.

 

DuringThe warrants became exercisable six months after the perioddate of issuance, expire five and a half years from June 16, 2021the date of issuance and have an exercise price of $1.75 per share of common stock. We have evaluated the warrants as either equity-classified or liability-classified instruments based on an assessment of the warrants’ specific terms and applicable authoritative guidance in ASC 480, “Distinguishing Liabilities from Equity” and ASC 815, “Derivatives and Hedging”. We have concluded that the warrants are considered indexed to June 25, 2021our common shares and prioras such they have been classified as equity.

On November 9, 2022, we filed a registration statement (File No. 333-268282) on form S-3 allowing us to issue securities with aggregate offering price not to exceed $250 million. This registration statement was declared effective by the Torchlight RTO, Torchlight sold a totalSEC on November 18, 2022.

As of December 31, 2022, 16,185,805no shares of our common stock have been sold under the ATM for aggregate gross proceeds of approximately $137.5 million. There was 0 sale of common stock under the ATM after June 28, 2021.this registration statement.

Warrants

Prior to completion of the CPM RTO on March 5, 2020, every two warrants had the right to purchase 1 MTI common share for CA$2.475 per share.

Pursuant to the completion of the RTO on March 5, 2020, MTI warrants were adjusted such that one warrant has the right to purchase 1 MMI Common Share for CA$0.90 per share.

On June 28, 2021 and pursuant to the completion of Torchlight RTO, each MMI warrant was converted into 1.845 META warrants and the exercise price was updated to be CA$0.49. Also, as part of the Torchlight RTO, Torchlight outstanding warrants of 853,278 underwent a reverse stock split at a ratio of 2:1 resulting in warrants of 430,380 and for an amount being recorded at $2,773,779 in additional paid in capital as part of the consideration transferred.

64


The following table summarizes the changes in warrants of the Company:

 

 

Year ended December 31,

 

 

Year ended December 31,

 

 

 

2021

 

 

2020

 

 

 

Number of

 

 

 

 

 

Number of

 

 

 

 

 

 

warrants 1

 

 

Amount 1

 

 

warrants 1

 

 

Amount 1

 

Balance, beginning of year

 

 

3,046,730

 

 

$

402,883

 

 

 

1,590,866

 

 

$

132,299

 

Issued

 

 

2,153,500

 

 

 

3,831,124

 

 

 

1,455,864

 

 

 

166,916

 

Adjustment to 2019 warrants

 

 

 

 

 

 

 

 

 

 

 

103,668

 

Exercised

 

 

(365,651

)

 

 

(49,812

)

 

 

 

 

 

 

Fair value of deemed issuance to Torchlight

 

 

430,380

 

 

 

2,773,779

 

 

 

 

 

 

 

Balance, end of year

 

 

5,264,959

 

 

$

6,957,974

 

 

 

3,046,730

 

 

$

402,883

 

 

 

Year ended December 31,

 

 

 

2022

 

 

2021

 

 

 

Number of

 

 

 

 

 

Number of

 

 

 

 

 

 

warrants

 

 

Amount

 

 

warrants 1

 

 

Amount 1

 

Balance, beginning of year

 

 

5,278,846

 

 

$

6,959,800

 

 

 

3,144,272

 

 

$

419,027

 

Issued

 

 

37,337,039

 

 

 

18,714,297

 

 

 

2,153,500

 

 

 

3,831,124

 

Exercised

 

 

(1,988,629

)

 

 

(253,741

)

 

 

(449,306

)

 

 

(64,130

)

Expired

 

 

(706,337

)

 

 

(101,163

)

 

 

 

 

 

 

Fair value of deemed issuance to Torchlight

 

 

 

 

 

 

 

 

430,380

 

 

 

2,773,779

 

Balance, end of year

 

 

39,920,919

 

 

$

25,319,193

 

 

 

5,278,846

 

 

$

6,959,800

 

1 All references to numbers of warrants have been retroactively restated to reflect as if Torchlight RTO had taken place as of the beginning of the earliest period presented. The numbers of warrants issued pre-CPM RTO have been divided by 2, multiplied by the 2.75 CPM conversion ratio and the 1.845 Torchlight conversion ratio. There were no warrants issued post CPM RTO except for Torchlight warrants. All references to numbers of broker warrants have been retroactively restated to reflect as if Torchlight RTO had taken place as of the beginning of the earliest period presented. The numbers of broker warrants issued pre-CPM RTO have been multiplied by the .2.75 CPM conversion ratio and the 1.845 Torchlight conversion ratio. There were no broker warrants issued post CPM RTO.

During the year ended December 31, 2021, the Company2022, we granted 2,153,500300,000 five-year warrants (year ended December 31, 2020 - 1,455,864) to purchase common stock to external consultants as stock-based compensation. The warrants have an exercise price of $1.18 per share, based on the closing price of our common stock on May 10, 2022.

On June 27, 2022, we issued 37,037,039 warrants which are exercisable six months after the date of issuance, expire five and a half years from the date of issuance and have an exercise price of $1.75 per share of common stock as part of the registered direct offering.

During the year ended December 31, 2021, we granted 2,153,500five-year warrants to purchase common stock to external consultants as stock-based compensation.

77


 

The fair value of 1,153,500 warrants issued during the year ended December 31, 2021 was estimated to be $3,129,208 using the Black-Scholes option pricing model. The total amount has been recorded in General & Administrative expense in the consolidated statements of operations and comprehensive loss.

 

The fair value of 1,000,000 warrants issued during the year ended December 31, 2021 was estimated to be $701,910 using the Monte Carlo Simulation model. The total amount has been recorded in General & Administrative expense in the consolidated statements of operations and comprehensive loss.

During the year ended December 31, 2021, 365,651 warrants were exercised to purchase 361,729 common shares where a warrant holder elected a cashless exercise and consequently, the difference of 3,922 shares was withheld to cover the exercise cost.

Broker warrants

Prior to completion of the CPM RTO on March 5, 2020, every MTI broker warrant had the right to purchase 1 MTI common share for CA$1.70 per share.

Pursuant to the completion of the RTO on March 5, 2020, each MTI broker warrant was converted into 1.845 MMI warrants, and the exercise price was updated to be CA$0.62.

On June 28, 2021, and pursuant to the completion of the Torchlight RTO, each MMI warrant was converted into 1.845 META warrants and the exercise price was updated to be CA$0.34.

The following table summarizes the changes in broker warrants of the Company:

 

 

Year ended December 31,

 

 

Year ended December 31,

 

 

 

2021

 

 

2020

 

 

 

Number of

 

 

 

 

 

Number of

 

 

 

 

 

 

warrants 1

 

 

Amount 1

 

 

warrants 1

 

 

Amount 1

 

Balance, beginning of year

 

 

97,542

 

 

$

16,144

 

 

 

 

 

$

 

Issued

 

 

 

 

 

 

 

 

97,542

 

 

 

16,144

 

Exercised

 

 

(83,655

)

 

 

(14,318

)

 

 

 

 

 

 

Balance, end of year

 

 

13,887

 

 

$

1,826

 

 

 

97,542

 

 

$

16,144

 

1 All references to numbers of broker warrants have been retroactively restated to reflect the number of stock of the legal parent (accounting acquiree) issuable following the reverse acquisition. The numbers of broker warrants issued pre-CPM RTO have been multiplied by the 2.75 CPM conversion ratio and the 1.845 Torchlight conversion ratio. There were no broker warrants issued post CPM RTO.

65


During the year ended December 31, 2021, 83,655 warrants were exercised to purchase 82,494 common shares where a warrant holder elected a cashless exercise and consequently, the difference of 1,161 shares was withheld to cover the exercise cost.

The fair value of warrants and broker warrants that were issued and estimated using the Black-Scholes option pricing model have the following inputs and assumptions:

 

 

Year ended

 

Year ended

 

 

 

December 31, 2021

 

December 31, 2020

 

Risk free interest rate

 

0.45% - 0.98%

 

0.80% - 1.43%

 

Expected volatility

 

92%

 

134%

 

Expected dividend yield

 

0%

 

0%

 

Expected forfeiture rate

 

0%

 

0%

 

Common stock price

 

5.31

 

 

1.70

 

Exercise price per common stock

 

$0.85 - $4.50

 

$1.70 - $2.475

 

Expected term of warrants

 

2.20 - 5 years

 

2 years

 

 

 

 

Year ended December 31,

 

 

2022

 

2021

Weighted average grant date fair value

 

0.53

 

3.73

Weighted average expected volatility

 

89%

 

91%

Weighted average risk-free interest rate

 

3.18%

 

0.87%

Weighted average dividend yield

 

0.00%

 

0.00%

Weighted average forfeiture rate

 

0.00%

 

0.00%

Weighted average term of warrants

 

5 years

 

4.36 years

The fair value of warrants that were issued and estimated using the Monte Carlo Simulation have the following inputs and assumptions:

 

 

Year ended December 31,

 

December 31,

2021

Risk freeWeighted average risk-free interest rate

0.42%

Weighted average expected volatility

80

80.00%

ExpectedWeighted average term of warrants

5 years

 

15.13. Stock-based payments

On December 3, 2021, the shareholders of the Company approved the 2021 Equity Incentive Plan to utilize the 3,500,000 shares reserved and unissued under the Torchlight 2015 Stock Option and Grant Plan and the 6,445,745 shares reserved and unissued under the MMI 2018 Stock Option and Grant plan to set the number of shares reserved for issuance under the 2021 Equity Incentive Plan at 34,945,745 shares.

The 2021 Equity Incentive Plan allows the grants of non-statutory stock options, restricted stock, restricted stock units ("RSUs"), stock appreciation rights, performance units and performance shares to employees, directors, and consultants.

DSU Plan

Each unit is convertible at the option of the holder into one common share of the Company.

On March 28, 2013, the Companywe implemented a Deferred Stock Unit (DSU) Plan for its directors, employees and officers. Directors, employees and officers are granted DSUs of the Company with immediate vesting as a form of compensation. Each unit is convertible at the option of the holder into one common share of the Company. Eligible individuals are entitled to receive all DSUs (including dividends and other adjustments) no later than December 1st of the first calendar year commencing after the time of termination of their services.

On December 22, 2021, the Company granted 191,802 DSUs to directors of the Company with immediate vesting. The Company recognized an expense of $517,869 in the consolidated statement of operations and comprehensive loss based on grant date fair value of $2.70.

The following table summarizes the change in outstanding DSUs of the Company:

 

 

Year ended December 31,

 

 

 

2021

 

 

2020

 

Outstanding, beginning of year

 

 

3,455,224

 

 

 

3,977,820

 

Issued

 

 

491,802

 

 

 

0

 

Converted into common stock

 

 

0

 

 

 

(522,596

)

Outstanding, end of year

 

 

3,947,026

 

 

 

3,455,224

 

 

66


Information concerning units outstanding is as follows:

 

 

As of December 31,

 

 

 

2021

 

 

2020

 

Issue price

 

Number of units

 

 

Number of units

 

CA$0.27

 

 

3,348,675

 

 

 

3,348,675

 

CA$0.51

 

 

106,549

 

 

 

106,549

 

US$2.70

 

 

491,802

 

 

 

0

 

 

 

 

3,947,026

 

 

 

3,455,224

 

 

 

Number of
DSUs (#)
1

 

 

Weighted
Average
grant date fair value

 

Outstanding, December 31, 2020

 

 

3,455,224

 

 

$

0.08

 

Granted

 

 

191,802

 

 

 

2.70

 

Outstanding, December 31, 2021

 

 

3,647,026

 

 

$

0.22

 

Granted

 

 

263,160

 

 

 

1.71

 

Outstanding, December 31, 2022

 

 

3,910,186

 

 

$

0.32

 

 

1 All references to numbers of DSUs have been retroactively restated to reflect as if the Torchlight RTO had taken place as of the beginning of the earliest period presented. The numbers of DSUs issued pre-CPM RTO have been multiplied by the 2.75 CPM conversion ratio and the 1.845 Torchlight conversion ratio.

78


As of December 31, 2022, there was $Nil unrecognized compensation cost related to unvested DSUs.

RSU Plan

Each RSU unit is convertible at the option of the holder into one common share of the Company upon meeting the vesting conditions.

During the year ended December 31, 2021, the Company granted 300,000Total stock-based compensation expense related to RSUs to a consulting firm with vesting conditions satisfied in 2021. The Company recognized an expense of $1,928,000included in the consolidated statementstatements of operations and comprehensive loss based on weighted average grant date fair value of $was as follows:

6.43

 

 

Year ended December 31,

 

 

 

2022

 

 

2021

 

Cost of sales

 

$

544,468

 

 

$

 

Selling & marketing

 

 

376,449

 

 

 

 

General & administrative

 

 

1,631,995

 

 

 

517,869

 

Research & development

 

 

2,101,035

 

 

 

 

 

 

$

4,653,947

 

 

$

517,869

 

/unit.

As of December 31, 2021, there was $NaN2022, the unrecognized compensation cost related to unvested RSUs.RSUs was $5,723,616 (2021 - $Nil). This cost will be recognized over the next four years.

67

The following table summarizes the change in outstanding RSUs:

 

 

Number of
RSUs #

 

 

Weighted
Average
grant date fair value

 

Outstanding, December 31, 2020

 

 

 

 

$

 

Granted

 

 

300,000

 

 

 

6.43

 

Outstanding, December 31, 2021

 

 

300,000

 

 

$

6.43

 

Granted

 

 

7,207,261

 

 

 

1.45

 

Forfeited

 

 

(326,395

)

 

 

1.60

 

Vested and settled

 

 

(673,944

)

 

 

1.15

 

Outstanding, December 31, 2022

 

 

6,506,922

 

 

$

1.71

 

 

 

 

 

 

 

 

Vested but not yet settled, December 31, 2022

 

 

482,486

 

 

$

4.47

 

79


Employee Stock Option Plan

Each stock option is convertible at the option of the holder into one common share of the Company.

The Company has an Employee Stock Option Plan [the “Plan”] for directors, officers, and employees. Unless otherwise determined by the Board of Directors, 25% of the options shall vest and become exercisable on the first anniversary of the grant date and 75% of the options issuable under the Plan shall vest and become exercisable in equal monthly installments over the three-year period commencing immediately after the first anniversary of the grant date. The option exercise price will not be less than the fair market value of a share on the grant date, as determined by the Board of Directors, taking into account any considerations which it determines to be appropriate at the relevant time. The contractual term of the stock options is 10 years and there are 0 cash settlement alternatives for the employees.

During the year ended December 31, 2020, the Company’s existing MTI options were converted at a ratio of 2.75 MMI options for each MTI option pursuant to the CPM RTO. Also, as part of the CPM RTO, 1,291,500 stock options were issued to executives and directors of CPM. Additionally, and subsequent to the completion of the CPM RTO, the Company granted 13,402,080 options to employees and directors, 898,515 of which vested upon grant date and 12,503,565 of which vest over 1-4 years. Subsequent to the completion of the CPM RTO, 2,589,457 stock options were forfeited as a result of employee departures and 2,090,866 options expired unexercised.

During the year ended December 31, 2021, the Company’s existing MMI options were converted at a ratio of 1.845 META options for each MMI option pursuant to the Torchlight RTO. Also, as part of the Torchlight RTO, Torchlight outstanding options of 3,000,000 underwent a reverse stock split at a ratio of 2:1 resulting in outstanding options of 1,500,000 and an amount of $9,397,988 was recorded in additional paid in capital as part of the consideration transferred.

Total stock-based compensation expense included in the consolidated statements of operations was as follows:

 

 

Year ended December 31,

 

 

 

2021

 

 

2020

 

 

2019

 

Selling & Marketing

 

$

34,735

 

 

$

61,560

 

 

$

154,086

 

General & Administrative

 

 

544,530

 

 

 

1,114,556

 

 

 

940,613

 

Research & Development

 

 

479,715

 

 

 

333,570

 

 

 

198,073

 

 

 

$

1,058,980

 

 

$

1,509,686

 

 

$

1,292,772

 

 

 

Year ended December 31,

 

 

 

2022

 

 

2021

 

Selling & marketing

 

$

195,041

 

 

$

34,735

 

General & administrative

 

 

5,930,518

 

 

 

544,530

 

Research & development

 

 

2,490,979

 

 

 

479,715

 

 

 

$

8,616,538

 

 

$

1,058,980

 

As of December 31, 2022, the unrecognized compensation cost related to unvested stock options was $4,133,287 (2021 - $493,577). This cost will be recognized over the next four years.

 

The following table summarizes the change in outstanding stock options of the Company:

 

 

 

 

Average

 

 

Average

 

 

 

 

 

 

 

Average

 

 

Average

 

 

 

 

 

 

 

exercise

 

 

exercise

 

 

 

 

 

 

 

exercise

 

 

exercise

 

 

 

 

 

 

 

price per

 

 

remaining

 

Aggregate

 

 

 

 

 

price per

 

 

remaining

 

Aggregate

 

 

Number of
options

 

 

stock
option

 

 

contractual
term
(years)

 

intrinsic
value

 

 

Number of
options #
1

 

 

stock
option

 

 

contractual
term
(years)

 

intrinsic
value

 

Outstanding, December 31, 2019

 

14,502,303

 

$

0.33

 

8.38

 

$

104,500

 

Issued to CPM executives and directors pursuant to CPM RTO

 

1,291,500

 

0.19

 

 

 

 

 

Granted

 

13,402,080

 

0.34

 

 

 

 

 

Forfeited

 

(2,627,510

)

 

0.34

 

 

 

 

 

Expired

 

 

(2,090,866

)

 

 

0.27

 

 

 

 

 

 

Outstanding, December 31, 2020

 

24,477,507

 

$

0.33

 

8.36

 

$

688,952

 

 

 

24,477,507

 

 

$

0.33

 

 

8.36

 

$

688,952

 

Exercised

 

(4,486,965

)

 

0.36

 

 

 

 

 

 

 

(4,486,965

)

 

 

0.36

 

 

 

 

 

 

Forfeited

 

(85,901

)

 

0.34

 

 

 

 

 

 

 

(85,901

)

 

 

0.34

 

 

 

 

 

 

Fair value of deemed issuance to Torchlight

 

 

1,500,000

 

 

 

2.22

 

 

 

 

 

 

 

 

1,500,000

 

 

 

2.22

 

 

 

 

 

 

Outstanding, December 31, 2021

 

21,404,641

 

$

0.46

 

7.34

 

$

56,924,556

 

 

 

21,404,641

 

 

$

0.46

 

 

7.34

 

$

56,924,556

 

Granted

 

 

14,318,993

 

 

 

1.41

 

 

 

 

 

 

Exercised

 

 

(1,688,538

)

 

 

0.27

 

 

 

 

 

 

Forfeited

 

 

(440,052

)

 

 

1.02

 

 

 

 

 

 

Outstanding, December 31, 2022

 

 

33,595,044

 

 

$

0.80

 

 

9.31

 

$

17,611,251

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Exercisable, December 31, 2021

 

 

13,231,030

 

 

$

0.54

 

 

6.74

 

$

34,148,435

 

Exercisable, December 31, 2022

 

 

24,327,577

 

 

$

0.71

 

 

8.23

 

$

14,917,424

 

 

68


Below is a summary of the outstanding options as atof December 31, 2022 and December 31, 2021:

 

Exercise price
$

 

Number outstanding

 

 

Number exercisable

 

CA$0.34

 

 

19,067,529

 

 

 

10,893,918

 

CA$0.15

 

 

518,112

 

 

 

518,112

 

CA$0.19

 

 

369,000

 

 

 

369,000

 

US$2.00

 

 

1,075,000

 

 

 

1,125,000

 

US$1.00

 

 

375,000

 

 

 

325,000

 

 

 

 

21,404,641

 

 

 

13,231,030

 

 

 

As of December 31,

 

 

 

2022

 

 

2021

 

Range of exercise price

 

Number outstanding
#

 

 

Number exercisable
#

 

 

Number outstanding
#
1

 

 

Number exercisable
#
1

 

 $0.12 - $0.27

 

 

18,128,657

 

 

 

15,549,318

 

 

 

19,954,641

 

 

 

11,781,030

 

 $0.89 - $1.00

 

 

2,984,668

 

 

 

1,822,394

 

 

 

375,000

 

 

 

325,000

 

 $1.17 - $1.26

 

 

2,782,704

 

 

 

932,082

 

 

 

 

 

 

 

 $1.31 - $1.58

 

 

6,729,904

 

 

 

3,054,672

 

 

 

 

 

 

 

 $1.97 - 2.00

 

 

2,969,111

 

 

 

2,969,111

 

 

 

1,075,000

 

 

 

1,125,000

 

 

 

 

33,595,044

 

 

 

24,327,577

 

 

 

21,404,641

 

 

 

13,231,030

 

 

Below is a summary of the outstanding options as at December 31, 2020:80

Exercise price

 

Number outstanding

 

 

Number exercisable

 

CA$0.34

 

 

23,550,394

 

 

 

9,636,758

 

CA$0.15

 

 

558,113

 

 

 

558,113

 

CA$0.19

 

 

369,000

 

 

 

369,000

 

 

 

 

24,477,507

 

 

 

10,563,871

 


 

1 All references to numbers of stock options have been retroactively restated to reflect as if the Torchlight RTO had taken place as of the beginning of the earliest period presented. The numbers of stock options issued pre-CPM RTO have been multiplied by the 2.75 CPM conversion ratio and the 1.845 Torchlight conversion ratio. The numbers of stock options issued post CPM RTO have been multiplied by the 1.845 Torchlight conversion ratio.

The weighted average remaining contractual life for the stock options outstanding as at December 31, 2021 was 7.65 (December 31, 2020 – 8.36) years. There were 1,500,000 and 13,402,080 stock options granted with a weighted-average grant date fair value of $6.27 and $0.39 per share respectively during the year ended December 31, 2021 and the year ended December 31, 2020.

The fair value of options granted was estimated at the grant date using the following weighted-average assumptions:

 

 

Year ended December 31,

 

 

2021

 

2020

 

2019

Dividend yield [%]

 

 

 

Volatility

 

84%

 

52%-134%

 

84%-130%

Risk-free interest rate

 

0.73%

 

0.73%

 

1.21%

Expected term (in years)

 

1 year

 

7.48 years

 

8.67 years

 

 

Year ended December 31,

 

 

2022

 

2021

Weighted average Grant date fair value

 

0.81

 

6.27

Weighted average expected volatility

 

81%

 

84%

Weighted average risk-free interest rate

 

2.56%

 

0.73%

Weighted average expected life of the options

 

4.19 years

 

1 year

 

Where possible, we use the simplified method to estimate the expected term of employee stock options. We do not have adequate historical exercise data to provide a reasonable basis for estimating the expected term for the current share options granted. The expected life ofsimplified method assumes that employees will exercise share options evenly between the stockperiod when the share options is basedare vested and ending on historical data and current expectations and is not necessarily indicative of exercise patterns that may occur. the date when the options would expire.

The expected volatility reflects the assumption that the historical volatility over a period similar to the life of the options is indicative of future trends, which may not necessarily be the actual outcome.

 

69


16.14. Income taxes

 

Loss before income taxes was as follows:

 

Year ended December 31,

 

 

Year ended December 31,

 

 

2021

 

 

2020

 

 

2019

 

 

2022

 

 

2021

 

Local

 

$

(30,552,839

)

 

$

(1,549,534

)

 

$

(1,278,498

)

 

$

(58,490,568

)

 

$

(30,552,839

)

Foreign

 

 

(61,296,485

)

 

 

(10,255,435

)

 

 

(7,250,018

)

 

 

(26,445,816

)

 

 

(61,296,485

)

Loss before income taxes

 

$

(91,849,324

)

 

$

(11,804,969

)

 

$

(8,528,516

)

 

$

(84,936,384

)

 

$

(91,849,324

)

 

Income tax provision was as follows:

 

 

Year ended December 31,

 

 

Year ended December 31,

 

 

2021

 

 

2020

 

 

2019

 

 

2022

 

 

2021

 

Current tax expense:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Local

 

$

800

 

$

800

 

$

800

 

 

$

1,256

 

 

$

800

 

Foreign

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current tax expense

 

800

 

800

 

800

 

 

 

1,256

 

 

 

800

 

Deferred tax benefit:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Local

 

 

 

 

 

 

(4,893,000

)

 

 

 

Foreign

 

 

(852,863

)

 

 

(194,510

)

 

 

(84,349

)

 

 

(942,416

)

 

 

(852,863

)

Deferred tax benefit

 

 

(852,863

)

 

 

(194,510

)

 

 

(84,349

)

 

 

(5,835,416

)

 

 

(852,863

)

Income tax recovery

 

$

(852,063

)

 

$

(193,710

)

 

$

(83,549

)

 

$

(5,834,160

)

 

$

(852,063

)

We have determined the deferred tax position in accordance with ASC Topic 740, Income Taxes, resulting in recognition of deferred tax liabilities for future reversing of taxable temporary differences primarily for intangible assets. This resulted mainly in a preliminary net deferred tax liability of $4.9 million from the Optodot acquisition, which includes the carryover basis of historical recognized deferred tax assets, liabilities and valuation allowance. The net deferred tax liabilities allowed us to utilize certain previously fully reserved deferred tax assets. Accordingly, we recognized a reduction to our valuation allowance resulting in a net tax benefit of $4.9 million for the year ended December 31, 2022.

 

The income tax provisionprovision differs from the amount computed by applying the federal income tax rate of 21% for 2021 (2020 - 21%) to the loss before income taxes as a result of the following differences:

 

 

 

Year ended December 31,

 

 

 

2021

 

 

2020

 

 

2019

 

Tax computed at federal statutory rate

 

$

(19,288,357

)

 

$

(2,479,044

)

 

$

(1,790,988

)

State income taxes, net of federal benefit

 

 

(1,075,114

)

 

 

(136,979

)

 

 

(113,019

)

Share-based compensation

 

 

2,289,214

 

 

 

317,034

 

 

 

285,287

 

Unrealized loss on FVTPL liabilities

 

 

11,752,697

 

 

 

 

 

 

 

Other permanent items

 

 

(114,799

)

 

 

104,181

 

 

 

145,204

 

Foreign currency and other

 

 

929,664

 

 

 

343,574

 

 

 

159,409

 

Impact of different tax rate in foreign jurisdiction

 

 

(4,889,797

)

 

 

(787,329

)

 

 

(644,394

)

Change in valuation allowance

 

 

9,544,429

 

 

 

2,444,853

 

 

 

1,874,952

 

Income tax recovery

 

$

(852,063

)

 

$

(193,710

)

 

$

(83,549

)

81


 

 

Year ended December 31,

 

 

 

2022

 

 

2021

 

Tax computed at federal statutory rate

 

$

(17,836,641

)

 

$

(19,288,357

)

State income taxes, net of federal benefit

 

 

(1,428,381

)

 

 

(1,075,114

)

Capital loss

 

 

(7,192,458

)

 

 

 

Share-based compensation

 

 

 

 

 

2,289,214

 

Unrealized loss on Fair Value Through Profit and Loss liabilities

 

 

 

 

 

11,752,697

 

Other permanent items

 

 

(3,750,116

)

 

 

(114,799

)

Foreign currency and other

 

 

185,860

 

 

 

929,664

 

Research and development credit

 

 

(319,137

)

 

 

 

Foreign rate differential

 

 

(1,484,069

)

 

 

(4,889,797

)

Provision to return

 

 

1,595,074

 

 

 

 

Deferred true-ups

 

 

1,525,095

 

 

 

 

Change in valuation allowance

 

 

22,870,613

 

 

 

9,544,429

 

Income tax recovery

 

$

(5,834,160

)

 

$

(852,063

)

 

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities are as follows:

 

 

 

As of December 31,

 

 

 

2022

 

 

2021

 

Deferred tax assets

 

 

 

 

 

 

Non-capital losses

 

$

30,527,370

 

 

$

25,110,497

 

Capital loss carryforward

 

 

7,228,389

 

 

 

 

Stock-based compensation

 

 

5,718,562

 

 

 

 

Allowance for doubtful accounts

 

 

4,609,247

 

 

 

 

Research and development tax credits

 

 

2,824,760

 

 

 

1,972,694

 

Research and development expense capitalization

 

 

2,198,314

 

 

 

 

Reserves and other accruals

 

 

1,144,703

 

 

 

 

Operating lease right-of-use assets

 

 

808,717

 

 

 

 

Intangible assets

 

 

72,895

 

 

 

69,964

 

Other assets

 

 

37,426

 

 

 

46,725

 

Total gross deferred tax assets

 

 

55,170,383

 

 

 

27,199,880

 

Less: valuation allowance

 

 

(41,688,855

)

 

 

(18,659,901

)

 

 

 

13,481,528

 

 

 

8,539,979

 

Deferred tax liabilities

 

 

 

 

 

 

Intangible assets

 

 

(12,355,386

)

 

 

(6,276,390

)

Property, plant and equipment

 

 

(2,791,147

)

 

 

(2,226,741

)

Long-term operating lease liabilities

 

 

(1,234,015

)

 

 

 

Long-term debt

 

 

(189,260

)

 

 

(251,646

)

Funding obligation

 

 

(112,974

)

 

 

(109,681

)

Other liabilities

 

 

(52,731

)

 

 

 

 

 

 

(16,735,513

)

 

 

(8,864,458

)

Net deferred tax liability

 

$

(3,253,985

)

 

$

(324,479

)

70


 

 

As of December 31,

 

 

 

2021

 

 

2020

 

Deferred tax assets

 

 

 

 

 

 

Non-capital losses

 

$

25,110,497

 

 

$

10,059,528

 

Intangible assets

 

 

69,964

 

 

 

62,938

 

Other assets

 

 

46,725

 

 

 

42,488

 

Research and development tax credits

 

 

1,972,694

 

 

 

 

Total gross deferred tax assets

 

 

27,199,880

 

 

 

10,164,954

 

Less: valuation allowance

 

 

(18,659,901

)

 

 

(9,115,472

)

 

 

 

8,539,979

 

 

 

1,049,482

 

Deferred tax liabilities

 

 

 

 

 

 

Intangible assets

 

 

(6,276,390

)

 

 

(703,872

)

Property and equipment

 

 

(2,226,741

)

 

 

(281,092

)

Long-term debt

 

 

(251,646

)

 

 

(293,168

)

Funding obligation

 

 

(109,681

)

 

 

(35,404

)

Unsecured convertible promissory notes

 

 

 

 

 

(54,000

)

 

 

 

(8,864,458

)

 

 

(1,367,536

)

Net deferred tax liability

 

$

(324,479

)

 

$

(318,054

)

 

At December 31, 2021, the Company has2022, we have a net operating loss carryforwardscarryforward (“NOLs”) of approximately $91.3111.4 million (2020:(2021: $34.791.3 million) that can be used to offset future taxable income, and such NOLs, as well as timing differences from certain financial instruments, result in a gross deferred tax asset of approximately $27.255.2 million (2020:(2021: $10.227.2 million). These NOLs begin to expire in 2028.

 

In evaluating its valuation allowance, the Company considerswe consider all available positive and negative evidence, including projected future taxable income and recent financial performance. Due to uncertainty with respect to the ultimate realizability of these deferred tax assets, the Company haswe have recorded a valuation allowance of approximately $18.741.7 million (2020:at December 31, 2022, (2021: $9.118.7 million) against itsour deferred tax assets.

82


17.15. Net loss per share

The following table sets forth the calculation of basic and diluted net loss per share during the periods presented:

 

Year ended December 31,

 

 

Year ended December 31,

 

 

2021

 

 

2020

 

 

2019

 

 

2022

 

 

2021

 

Numerator:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

$

(90,997,261

)

 

$

(11,611,259

)

 

$

(8,444,967

)

 

$

(79,102,224

)

 

$

(90,997,261

)

Denominator:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted-average shares, basic

 

232,898,398

 

137,258,259

 

50,015,137

 

 

 

328,350,452

 

 

 

232,898,398

 

Weighted-average shares, diluted

 

232,898,398

 

137,258,259

 

50,015,137

 

 

 

328,350,452

 

 

 

232,898,398

 

Net loss per share

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

(0.39

)

 

(0.08

)

 

(0.17

)

 

 

(0.24

)

 

 

(0.39

)

Diluted

 

(0.39

)

 

(0.08

)

 

(0.17

)

 

 

(0.24

)

 

 

(0.39

)

 

The following potentially dilutive shares were not included in the calculation of diluted shares above as the effect would have been anti-dilutive:

 

 

 

As of December 31,

 

 

 

2021

 

 

2020

 

 

2019

 

Convertible debt

 

 

 

 

 

10,423,477

 

 

 

9,957,387

 

Options

 

 

21,404,641

 

 

 

24,477,507

 

 

 

7,860,328

 

Warrants

 

 

5,278,846

 

 

 

3,144,272

 

 

 

862,258

 

DSUs

 

 

3,947,026

 

 

 

3,947,026

 

 

 

1,872,750

 

 

 

 

30,630,513

 

 

 

41,992,282

 

 

 

20,552,723

 

71


 

 

As of December 31,

 

 

 

2022

 

 

2021

 

Options

 

 

33,595,044

 

 

 

21,404,641

 

Warrants

 

 

39,920,919

 

 

 

5,278,846

 

RSUs

 

 

6,506,922

 

 

 

300,000

 

DSUs

 

 

3,910,186

 

 

 

3,647,026

 

 

 

 

83,933,071

 

 

 

30,630,513

 

 

18.16. Additional cash flow information

The net changes in operating assets and liabilities consist of the following:

 

As of December 31,

 

 

As of December 31,

 

 

2021

 

 

2020

 

 

2019

 

 

2022

 

 

2021

 

Grants receivable

 

$

149,798

 

$

(131,318

)

 

$

16,243

 

 

$

172,765

 

 

$

149,798

 

Inventory

 

325,657

 

(109,986

)

 

(17,495

)

 

 

(319,116

)

 

 

325,657

 

Accounts and other receivables

 

(880,613

)

 

58,891

 

(95,244

)

 

 

287,320

 

 

 

(880,613

)

Prepaid expenses and other current assets

 

(2,100,371

)

 

(27,313

)

 

(124,555

)

 

 

(4,799,174

)

 

 

(2,100,370

)

Trade payables

 

6,906,376

 

(644,120

)

 

998,335

 

 

 

5,410,515

 

 

 

6,906,375

 

Due to related party

 

(78,940

)

 

(26,984

)

 

2,943

 

 

 

(108,102

)

 

 

(78,940

)

Operating lease Right-of-use Asset

 

1,018,691

 

 

 

 

 

(231

)

 

 

1,018,691

 

Operating lease liabilities

 

(688,183

)

 

 

 

 

 

(997,067

)

 

 

(688,183

)

 

$

4,652,415

 

 

$

(880,830

)

 

$

780,227

 

 

$

(353,090

)

 

$

4,652,415

 

83


 

19.17. Fair value measurements

The Company uses

We use a fair value hierarchy, based on the relative objectivity of inputs used to measure fair value, with Level 1 representing inputs with the highest level of objectivity and Level 3 representing the lowest level of objectivity.

The fair values of cash and cash equivalents, restricted cash, short-term investments, grants and accounts receivables,receivable, due from (to) related parties and trade and other payables approximate their carrying values due to the short-term nature of these instruments. The current portion of long-term debt has been included in the below table.

The fair values of convertible promissory notes secured convertible debentures and unsecured convertible debentures are classified at level 3 as they were accounted for under the fair value option election of ASC 825 and the estimated fair value was computed using significant inputs that are not observable in the market.

The fair value of assets held for saleour note receivable from Next Bridge is classified at levelLevel 3 asin the fair value of the O&G assets was estimated by obtaining a valuation study performed by a third party valuation firm. Refer to note 3hierarchy. See Note 5 for the significant estimates and assumptions used by the Company in the determination of the fair value.

The fair value of the preferred stock liability is also classified as level 3 since the fair value measurement of the oil and natural gas properties forms the basis for the fair value measurement of the preferred stock liability as of June 28, 2021 and as of December 31, 2021.further details.

The fair values of the funding obligation, operating lease liabilities, and long-term debt would be classified at Level 3 in the fair value hierarchy, as each instrument is estimated based on unobservable inputs including discounted cash flows using the market rate, which is subject to similar risks and maturities with comparable financial instruments as at the reporting date.

Carrying values and fair values of financial instruments that are not carried at fair value are as follows:

 

 

2021

 

 

2020

 

Financial liability

 

Carrying value

 

 

Fair value

 

 

Carrying value

 

 

Fair value

 

Funding obligation

 

$

268,976

 

 

$

170,338

 

 

$

776,884

 

 

$

571,839

 

Operating lease liabilities

 

 

4,370,635

 

 

 

6,149,369

 

 

 

270,581

 

 

 

270,641

 

Long-term debt

 

 

3,228,449

 

 

 

2,303,648

 

 

 

3,034,048

 

 

 

2,734,931

 

 

72


 

 

2022

 

 

2021

 

Financial liability

 

Carrying value

 

 

Fair value

 

 

Carrying value

 

 

Fair value

 

Funding obligation

 

$

180,705

 

 

$

85,411

 

 

$

268,976

 

 

$

170,338

 

Operating lease liabilities

 

 

4,342,157

 

 

 

5,666,940

 

 

 

4,370,635

 

 

 

6,149,369

 

Long-term debt

 

 

3,553,955

 

 

 

2,663,460

 

 

 

3,228,449

 

 

 

2,303,648

 

 

20.18. Revenue

The Company hasWe have 1one operating segment based on how management internally evaluates separate financial information, business activities and management responsibility.

Revenue is disaggregated as follows:

 

Year ended December 31,

 

 

Year ended December 31,

 

 

2021

 

 

2020

 

 

2019

 

 

2022

 

 

2021

 

Product sales

 

$

407,914

 

 

$

2,905

 

 

$

23,745

 

 

$

1,211,746

 

 

$

407,915

 

Contract revenue [1]

 

3,427,938

 

624,316

 

247,669

 

 

 

8,809,119

 

 

 

3,427,938

 

Other development revenue

 

 

246,665

 

 

 

494,962

 

 

 

630,996

 

 

 

179,302

 

 

 

246,664

 

Development revenue

 

 

3,674,603

 

 

 

1,119,278

 

 

 

878,665

 

 

 

8,988,421

 

 

 

3,674,602

 

 

$

4,082,517

 

 

$

1,122,183

 

 

$

902,410

 

 

$

10,200,167

 

 

$

4,082,517

 

 

1 Contract[1] A portion of contract revenue represents previously recorded deferred revenue that was recognized as revenue after satisfaction of performance obligations either through passage of time or after completion of specific performance milestones. Refer to note 2119 for outstanding contracts.

 

Customer concentration

 

A significant amount of theour revenue is derived from contracts with major customers. For the yearyears ended December 31, 2022 and December 31, 2021, the Company hadrevenue from 3one customers thatcustomer (a G10 central bank) accounted for $3,307,9148.6 million or 8184% of total revenue. For the year ended December 31, 2020, the Company had and $31.8 customers that accounted for $807,912million or 7245% respectively of total revenue.

 

NanotechWe currently derivesderive a significant portion of itsour revenue from contract services with a G10 central bank. In 2021, Nanotech entered intowe were awarded a development contract for up to $41.5 million over a period of up to five years., from this same G10 central bank customer. In 2022, we were awarded a $4.3 million purchase order under this contract. These contract services incorporate both nano-optic and optical thin film technologies and are focused on developing authentication features for future banknotes. During the year ended December 31, 2021, revenue recognized from this development contract represented 45% of the Company's total revenue.

84


 

Cooperation Framework Agreement

During the year ended December 31, 2020, the Company entered into a Cooperation Framework Agreement ("CFA") with Covestro Deutschland AG (“Covestro”) where Covestro is obligated to provide EUR 800,000 (US$987,577) of proceeds to the Company in exchange for a license to the Interglass patents and upon the completion of certain performance milestones. The Company has also entered into an agreement with Canton Zug in Switzerland for the acquisition of specialized lens casting production equipment and intellectual property ("Interglass assets") for US$800,000.

During the year ended December 31, 2021, and pursuant to receiving the required funds from Covestro, the Company acquired and recognized the Interglass assets in property, plant and equipment in the amount of $320,000 and intangibles in the amount of $480,000. The Company identified the performance obligations associated with the agreement as per ASC 606 Revenue Recognition and recognized the full amount of the contract as development revenue in the consolidated statement of operations and comprehensive loss.

73


21.19. Deferred revenue

Deferred revenue consists of the following:

 

 

As of December 31,

 

 

As of December 31,

 

 

2021

 

 

2020

 

 

2022

 

 

2021

 

Satair A/S-exclusive rights [1]

 

717,615

 

815,310

 

 

$

575,770

 

 

$

717,615

 

Satair A/S-advance against PO [2]

 

490,929

 

488,847

 

 

 

459,539

 

 

 

490,929

 

LM Aero-MetaSOLAR commercialization [3]

 

92,698

 

646,135

 

 

 

 

 

 

92,698

 

Breakthrough Starshot Foundation [4]

 

75,000

 

75,000

 

 

 

75,000

 

 

 

75,000

 

Innovate UK-R&D tax credit

 

18,588

 

18,778

 

 

 

 

 

 

18,588

 

Other deferred revenue

 

 

21,910

 

 

 

 

 

 

100,000

 

 

 

21,910

 

 

 

1,416,740

 

 

 

2,044,070

 

 

 

1,210,309

 

 

 

1,416,740

 

Less current portion

 

 

779,732

 

 

 

1,239,927

 

Less: current portion

 

 

(730,501

)

 

 

(779,732

)

 

$

637,008

 

 

$

804,143

 

 

$

479,808

 

 

$

637,008

 

 

[1] On September 18, 2018, the Companywe signed an exclusive distribution agreement with Satair A/S for a term of 10 years. According to this agreement, the Company grants Satair A/S the exclusive right to sell, market, and distribute eyewear and visor products incorporating metamaterial-based laser protection technology that are developed or manufactured by the Company for use in aviation, military, and defense. On September 13, 2018, the Companywe received a fee of $1,000,000 for the exclusive distribution rights granted under this agreement and the payment was recognized as deferred revenue on the consolidated balance sheets. It will be accounted as development revenue over a period of 8 years and 0no repayment of the $1,000,000 is required if the contract termination is after the 8th anniversary of the effective date. During the year ended December 31, 2021, the Company has2022, we have recognized $102,26999,629 (2019:(2021: $98,292102,269) as development revenue related to this agreement.

[2] On July 20, 2018, the Companywe received a purchase order for MetaVisor (eyewear/eye protection) from Satair A/S for $2,000,000. On November 7, 2018, the Companywe received a partial advance payment of $500,000 against this purchase order. The Company hasWe have set up a guarantee/standby letter of credit with RBC. In the event the Company failswe fail to deliver the product as per the contract or refuse to accept the return of the product as per the buyback clause of the contract or fails to repay the advance payment in accordance with the conditions of the agreement signed with Satair on September 18, 2018, Satair shall draw from the letter of credit with RBC. As at December 31, 2021,2022, 0no amount has been drawn from the letter of credit with RBC. Refer to note 2826 for information regarding the letter of credit.

[3] On April 26, 2017, the Companywe received $4,150,000 from Lockheed Martin Aeronautics Corporation (“LM Aero”) in relation to the Offset Project Agreement (“OPA”). The purpose of the OPA was to document the agreement between LM Aero and the Company with respect to the Company’sour planned growth through R&D and commercialization activities using the MetaSOLAR technology as well as the contribution that LM Aero made to the Companyus in return for the Company’sour effective assistance in obtaining credit arising from the project as set forth in the OPA. The Company hasWe have set up an irrevocable standby letter of credit with RBC. In the event the Company failswe fail to meet the obligations under the OPA, LM Aero shall draw from the letter of credit with RBC. The performance obligations for the milestone are satisfied through-out the period. During the year ended December 31, 2021, the Company has2022, we have recognized $562,53193,000 (2020:(2021: $526,109562,531) as development revenue related to this agreement.

[4] On March 1, 2020, the Companywe entered into a research agreement with Breakthrough Starshot Foundation LLC under the project “Lightsail” for $150,000. The CompanyWe received $75,000 on March 6, 2020 which has been recorded as part of deferred revenue.

 

7485


22.20. Deferred government assistance

a) Grants receivable

 

 

As of December 31,

 

 

 

2021

 

 

2020

 

ACOA-PBS [1]

 

$

8,069

 

 

$

11,960

 

Co-Op wage subsidy [2]

 

 

7,318

 

 

 

31,400

 

Canada Emergency Wage Subsidy [3]

 

 

122,940

 

 

 

233,446

 

Innovate UK – Diabet [4]

 

 

13,790

 

 

 

51,062

 

NSBI - Export development program [5]

 

 

23,663

 

 

 

 

 

 

$

175,780

 

 

$

327,868

 

 

 

As of December 31,

 

 

 

2022

 

 

2021

 

ACOA-PBS [1]

 

$

 

 

$

8,069

 

Co-Op wage subsidy [2]

 

 

 

 

 

7,318

 

Canada Emergency Wage Subsidy [3]

 

 

 

 

 

122,940

 

Innovate UK – Diabet [4]

 

 

 

 

 

13,790

 

NSBI - Export development program [5]

 

 

 

 

 

23,663

 

 

 

$

 

 

$

175,780

 

 

[1]

On November 21, 2018, ACOA approved two non-repayable contribution of $37,679 each to the Company under Business Development Program – Productivity and Business skills (“PBS”) for the cost to create product and commercialization strategies.

[2]

During 2021, and 2020, the Companywe applied for and received grants related to co-op students and recent graduates under the Nova Scotia Co-Op Subsidy, Graduate To Opportunity Program ("GTO") and Venture for Canada program ("VFC").

[3]

During 2021, the Companywe received the 2020 outstanding balance of $233,446 as well as recognized $443,494 government assistance from Canada Emergency Wage subsidy ("CEWS") as other income in the consolidated statements of operations and comprehensive loss, of which $321,547 has been received.

[4]

On February 13, 2019, Innovate UK approved a grant to MediWise for the project “Diabet – Innovate wrist device for high accuracy non-invasive blood glucose monitoring”. During 2021, the Company2022, we received $132,288nil (2020:(2021: $139,940132,288) in relation to the grant and in recognized government assistance of $110,125nil (2020:(2021: $130,734110,125) as other income in the consolidated statements of operations and comprehensive loss.

 

[5]

On December 15, 2021, the Companywe applied for NSBI - Export development program and recognized $23,663 as other income in the consolidated statements of operations and comprehensive loss.

b) Deferred government assistance

 

 

As of December 31,

 

 

 

2021

 

 

2020

 

SDTC [1]

 

$

846,612

 

 

$

779,579

 

Deferred government assistance

 

 

3,038

 

 

 

31,400

 

 

 

 

849,650

 

 

 

810,979

 

Less: current portion

 

 

846,612

 

 

 

779,578

 

 

 

$

1,696,262

 

 

$

1,590,557

 

 

 

As of December 31,

 

 

 

2022

 

 

2021

 

SDTC [1]

 

$

799,490

 

 

$

846,612

 

Deferred government assistance [2]

 

 

319,017

 

 

 

3,038

 

 

 

 

1,118,507

 

 

 

849,650

 

Less: current portion

 

 

(799,490

)

 

 

(846,612

)

 

 

$

319,017

 

 

$

3,038

 

 

[1]

On May 15, 2018, the Companywe entered into an agreement with the Canada Foundation for Sustainable Development Technology Canada (“SDTC”) for $4,189,9664.2. million. The contribution provides funding for eligible costs incurred relating to the further development and demonstration of technology related to solar cells in connection with the project entitled “Enabling solar flight a testing ground for lightweight and efficient solar panels”. On March 30, 2021, the Company haswe have received an additional 5% contribution from SDTC of $223,4090.2 (2020: $211,868). The Company hasmillion. During the year ended December 31, 2022, we have recognized $161,990Nil (2020:(2021: $639,5050.2) million) as government assistance in the consolidated statements of operations and comprehensive loss.

[2]

On November 10, 2022, we entered into an agreement with the Economic Development Agency of Canada for the Regions of Quebec (“EDC”) for $1.5 million. The contribution provides funding for eligible costs incurred relating to improvement of the Thurso facilities and the acquisition of digital production equipment. On December 20, 2022, we have received approximately $1.1 million of the total contribution and as of December 31, 2022 we have recognized $0.4 million in deferred government assistance. During the year ended December 31, 2022, we have recognized $Nil (2021: $Nil) as government assistance in the consolidated statements of operations and comprehensive loss.

86


 

7587


c) Government assistance recognized in the consolidated statements of operations and comprehensive loss

 

 

Year ended December 31,

 

 

Year ended December 31,

 

 

2021

 

 

2020

 

 

2019

 

 

2022

 

 

2021

 

SDTC

 

$

161,990

 

$

639,505

 

$

192,574

 

Innovative UK

 

$

 

 

$

161,990

 

Payroll subsidies

 

741,322

 

831,148

 

690,434

 

 

 

77,075

 

 

 

741,322

 

Amortization of deferred government assistance

 

145,739

 

135,654

 

135,125

 

 

 

3,047

 

 

 

145,739

 

R&D tax credit

 

 

138,410

 

 

 

 

Fair value gain on initial recognition of ACOA loans

 

236,021

 

 

172,352

 

 

 

 

 

 

236,021

 

Scientific Research and Experimental Development ("SR&ED")

 

448,894

 

 

 

Other grants

 

 

 

 

 

23,807

 

 

 

41,290

 

SDTC

 

 

 

 

 

448,894

 

 

$

1,733,966

 

 

$

1,630,114

 

 

$

1,231,775

 

 

$

218,532

 

 

$

1,733,966

 

 

21. Interest expense, net

 

 

Year ended December 31,

 

 

 

2022

 

 

2021

 

Non-cash interest accretion

 

$

(403,317

)

 

$

(904,925

)

Interest & bank charges

 

 

133,518

 

 

 

(220,460

)

Interest income

 

 

95,565

 

 

 

18,940

 

 

 

$

(174,234

)

 

$

(1,106,445

)

 

23. Interest expense, net

 

 

Year ended December 31,

 

 

 

2021

 

 

2020

 

 

2019

 

Non-cash interest accretion

 

$

(904,925

)

 

$

(1,052,478

)

 

$

(742,360

)

Interest & bank charges

 

 

(220,460

)

 

 

(394,330

)

 

 

(394,147

)

Interest income

 

 

18,940

 

 

 

16,854

 

 

 

585

 

 

 

$

(1,106,445

)

 

$

(1,429,954

)

 

$

(1,135,922

)

24.22. Loss on financial instruments, net

 

Year ended December 31,

 

 

Year ended December 31,

 

 

2021

 

 

2020

 

 

2019

 

 

2022

 

 

2021

 

Loss on secured convertible promissory notes

 

$

 

$

(5,234

)

 

$

(280,319

)

Loss on unsecured convertible promissory notes – Bridge loan

 

(19,163,417

)

 

(139,610

)

 

 

 

$

 

 

$

(19,163,417

)

(Loss) Gain on unsecured convertible promissory notes – Torchlight notes

 

(343,197

)

 

354,840

 

 

Loss on unsecured convertible promissory notes – Torchlight notes

 

 

 

 

 

(343,197

)

Loss on secured convertible debentures

 

(16,957,029

)

 

(865,280

)

 

 

 

 

 

 

 

(16,957,029

)

Loss on unsecured convertible debentures

 

 

(4,076,448

)

 

 

(189,709

)

 

 

 

 

 

 

 

 

(4,076,448

)

 

$

(40,540,091

)

 

$

(844,993

)

 

$

(280,319

)

 

$

 

 

$

(40,540,091

)

 

The net gain/Noloss on financial instruments for the years ending December 31, 20212022 and December 31, 20202021 represent non-cash gains/losses resulting from remeasurement of the fair value of convertible financial liabilities at each balance sheet date or on conversion date using the fair value option.

 

Each of the above referenced promissory notes and debentures included a conversion feature, exercisable at the option of the debt holder. For accounting purposes, each of these conversion features is an embedded derivative in the note or debenture. The CompanyWe elected to account for fluctuations in (a) the value of the liabilities driven by interest rate volatility and the Company’sour credit risk and (b) the embedded derivatives driven by fluctuations in the Company’s common stock share price using a method known as Fair Value option. This accounting method calls for the Company to measure the fair value of the convertible financial liabilities at each balance sheet date and to record any fluctuations in the values that as non-cash adjustments relating to instrument specific credit risk in the other comprehensive income and non-cash adjustments relating to other factors in the statements of operations. If, as in the case of the liabilities described above, the debt is converted, the valuations and any adjustments are to be recorded as of the date of such conversion.

 

The Fair Value option also provides that the total revaluation adjustment be recorded in Common Stock and additional paid in capital thus having no impact on stockholders' equity despite the recording of the loss in the statement of operations.

7688


25. Other (loss) income, net

23. Other expenses, net

 

 

Year ended December 31,

 

 

 

2021

 

 

2020

 

 

2019

 

 O&G assets maintenance cost [1]

 

$

(14,155,851

)

 

$

 

 

$

 

 Government Assistance (note 22)

 

 

1,733,966

 

 

 

1,630,114

 

 

 

1,231,775

 

 Other income

 

 

8,850

 

 

 

 

 

 

401,186

 

 Fair value gain (loss) on long-term debt

 

 

2,278

 

 

 

(106,635

)

 

 

448,437

 

 Fair value gain (loss) on funding obligation (note 26)

 

 

471,689

 

 

 

(32,291

)

 

 

 

 

 

$

(11,939,068

)

 

$

1,491,188

 

 

$

2,081,398

 

 

 

Year ended December 31,

 

 

 

2022

 

 

2021

 

 O&G assets maintenance cost [1]

 

$

(3,859,851

)

 

$

(14,155,851

)

 Government Assistance (note 20)

 

 

218,532

 

 

 

1,733,966

 

 Other income

 

 

72,038

 

 

 

8,850

 

 Fair value gain on long-term debt

 

 

56,185

 

 

 

2,278

 

 Fair value gain on funding obligation (note 24)

 

 

79,339

 

 

 

471,689

 

 

 

$

(3,433,757

)

 

$

(11,939,068

)

 

[1]

The CompanyWe incurred costs of $14.2 million in relation to certain drilling activity carried out at its Oil and Gas properties, to remain in compliance with all aspects of the Company'sour lease obligations and to satisfy the Continuous Drilling Clause ("CDC") with University Lands.

Subsequent to December 14, 2022, these oil and gas assets, and the associated lease obligations, are no longer owned by us, as they formed part of the net assets deconsolidated as part of the Next Bridge spin-off (see note 5).

 

26.24. Funding obligation

 

As of December 31,

 

 

As of December 31,

 

 

2021

 

 

2020

 

 

2022

 

 

2021

 

Outstanding obligation [1]

 

$

1,025,398

 

$

1,021,050

 

 

$

959,835

 

 

$

1,025,398

 

Fair value of interest-free component [2]

 

 

(855,060

)

 

 

(384,056

)

 

 

(852,573

)

 

 

(855,060

)

Principal adjusted for interest-free component

 

170,338

 

636,994

 

 

 

107,262

 

 

 

170,338

 

Accumulated non-cash interest accretion

 

 

98,638

 

 

 

139,890

 

 

 

73,443

 

 

 

98,638

 

Carrying amount

 

268,976

 

776,884

 

 

 

180,705

 

 

 

268,976

 

Less current portion

 

 

 

 

 

 

 

 

 

 

 

 

 

$

268,976

 

 

$

776,884

 

 

$

180,705

 

 

$

268,976

 

 

[1]

In June 2019, the Companywe entered into a statement of work (“SOW”) with a third party for the purchase of manufacturing equipment. The SOW was initiated based on the Industrial and Regional Benefits general investment funding between the third party and the Government of Canada. The CompanyWe received the funds in 2two tranches after achieving 2two milestones as per the SOW. The funds are repayable, commencing three years from date of receipt, based on 10% of revenue from the sale of holographic film that is produced using the related manufacturing equipment paid for under this funding obligation.

 

In June 2019, the Companywe achieved the first milestone and received CA$325,000 and in October 2019, the Companywe achieved the second milestone and received CA$975,000. The Company hasWe have not sold holographic film related to this SOW to date.

 

[2]

The amounts received under the agreement have been recorded at fair value by applying the effective interest rate method on the dates the funding was received, using an estimated market interest rate of 15%. Accordingly, during the year ended December 31, 2019, the Company recognized $401,186 as other income in the consolidated statements of operations and comprehensive loss. In the year ended 2020, the Company recognized a loss of $32,291 resulting from changes in repayment period of the obligation. The gain was recorded in the consolidated statements of operations and comprehensive loss. During the year ended December 31, 2021, the Companywe elected to bring the market interest rate to current rates and increased it to 19.17%. Following management discussions, the revenue generation ability from the manufacturing equipment bought under the funding obligation was reduced, resulting in a longer repayment period. The combination of these two changes prompted the Companyus to recognize a gain of $471,00479,339 for the year ended December 31, 20212022 (2021, $471,004) in the consolidated statements of operations and comprehensive loss.

 

89


27.25. Leases

The Company entered into the following leases during the years ended December 31, 2021 and 2020 respectively outlined below:

Nova Scotia,We lease properties in USA, Canada,

On January 1, 2013, MMI signed an initial lease with a lessor in Dartmouth, Nova Scotia, commencing in 2013. The most recent amendment was signed on July 1, 2020 for a month to month lease for an 8,792 square foot facility, which currently hosts the Company’s holography and lithography R&D labs and manufacturing operations.

77


On August 31, 2020, MMI signed a ten-year lease with a lessor in Nova Scotia, Canada, commencing January 1, 2021, for an approximately 53,000 square foot facility, which will host the Company’s holography and lithography R&D labs and manufacturing operations. Commencing in September 2021, the Company was to pay monthly basic rent of CA$28,708 and additional rent for its proportionate share of operating costs and property taxes of CA$24,910 per month, subject to periodic adjustments. In conjunction with signing the lease, the Company entered into a loan agreement with the lessor in the amount of CA$500,000 to fund leasehold improvements.

The Company has accounted for the lease as an operating lease and recorded a right-of-use (“ROU”) asset in the amount of $1,021,499. The ROU asset is being amortized over the remaining lease term in an amount equal to the difference between the calculated straight-line expense of the total lease payments less the monthly interest calculated on the remaining lease liability.

On June 9, 2021, MMI signed a lease amendment with the landlord to expand the leased space of the facility by approximately 15,000 square feet, reduce the annual rent for the 10-year term of the lease and obtain from the landlord CA$500,000 in cash to fund ongoing tenant improvements. In exchange, the landlord received 993,490 MMI common shares valued at CA$3.40 per share.

The lease amendment was accounted for as a lease modification. As such, the operating lease liability was remeasured, and the difference was recorded in ROU assets.

California, United States

On June 3, 2021, MMI signed a lease amendment with its lessor in Pleasanton, California to expand the leased space of the facility in the United States to include additional office space of 5,475 square feet, commencing from June 2021. Alongside this lease amendment, the durations of all of the leased spaces were also extended until August 31, 2024. The lease amendment was accounted for as a lease modification. As such, the operating lease liability was remeasured, and the difference was recorded in ROU assets. These amendments required the Company to derecognize the existing right-of-use asset and operating lease liability and recognize a new right-of-use asset and an operating lease liability commencing June 2021.

On September 16, 2021, the Company signed an agreement to extend the lease term of its existing leased premises at Pleasanton, California, from September 1, 2024 to September 30, 2026. In addition, the Company also signed an agreement to lease an additional 8,904 square feet at the same property to have a total leased area at Pleasanton of 19,506 square feet. The new lease commenced on October 1, 2021 and has the same expiry date as above. The lease amendment was accounted for as a lease modification. As such, the operating lease liability was remeasured, and the difference was recorded in ROU assets as of December 31, 2021.

Massachusetts, United States

On September 17, 2021, the Company entered into an lease agreement with Boxer Property Management Corp. to lease a space of 4,414 square feet at 85 Swanson Road, Boxborough, MA with a term of two years commencing October 1, 2021. The Company recognized a ROU asset and an operating lease liability of $132,780 for this lease.

Athens, Greece

On November 1, 2021, the Company entered into a lease agreement with Special Purpose AP10 S.A. Real Estate Company, to lease a space of 1,436 square meters (15,457 square feet) in Athens, Greece, with a term of 10 years commencing oNovember 1, 2021. The Company recognized a ROU asset and an operating lease liability of $1,019,795 (EUR 898,419) as of November 1, 2021. The Company

78


secured a rent-free period of 9 months commencing the date of lease commencement, and also prepaid two months amounting to $35,188 (EURO 31,000).

British Columbia, Canada

As part of the Nanotech acquisition (note 3) the Company acquired Nanotech's lease obligations, including a space of 7,860 square feet in British Columbia, Canada with a remaining lease term of 3 years and 7 months, ending on April 30, 2025. The Company recognized a ROU asset and an operating lease liability of $607,354 for this lease.

London, United Kingdom

In October 2020, the Company renewed its lease agreement to lease a space of 742 square feet in London, United Kingdom, with a term of two years commencing on October 20, 2020. The Company recognized a ROU asset and an operating lease liability of $62,543 (GBP 46,284) at initial recognition.

Steinhausen, Switzerland

The Company entered into a lease agreement with a lessor to lease a space of 1,335 square feet at Steinhausen, Switzerland with a term of one yearGreece for production, research and four months commencing on March 1, 2021. The Company recognized a ROU assetdevelopment and an operating lease liability of $25,009 (CHF 22,815) as of March 1, 2021. The monthly rent was reduced from $1,756 (CHF 1,602) to $ 1,019 (CHF 930) in August 2021 as per the terms of the agreement.administration.

Total operating lease expense included in the consolidated statements of operations and comprehensive loss is as follows:

 

Year ended December 31,

 

 

Year ended December 31,

 

 

2021

 

 

2020

 

 

2019

 

 

2022

 

 

2021

 

Operating lease expense

 

$

546,197

 

$

224,210

 

$

201,242

 

 

$

2,057,157

 

 

$

546,197

 

Short term lease expense

 

229,475

 

104,470

 

126,421

 

 

 

584,645

 

 

 

229,475

 

Variable and other lease expense

 

 

92,862

 

 

 

40,006

 

 

 

31,408

 

 

 

263,500

 

 

 

92,862

 

Total

 

 

868,534

 

 

 

368,686

 

 

 

359,071

 

 

$

2,905,302

 

 

$

868,534

 

 

The CompanyWe completed itsour evaluation of the provisions of ASC 842 "Leases" and elected the practical expedient to not capitalize any leases with initial terms of less than twelve months on itsour balance sheet and include them as short termshort-term lease expense in the consolidated statements of operations.operations and comprehensive loss.

 

Future minimum payments under non-cancelable operating lease obligations were as follows as of December 31, 2021:2022:

2022

 

1,028,314

 

2023

 

1,176,935

 

 

$

1,261,249

 

2024

 

1,180,745

 

 

 

1,263,455

 

2025

 

1,098,049

 

 

 

1,153,305

 

2026

 

 

994,967

 

Thereafter

 

 

3,965,777

 

 

 

2,892,472

 

Total minimum lease payments

 

8,449,820

 

 

 

7,565,448

 

Less: interest

 

 

(4,079,185

)

 

 

(3,223,291

)

Present value of net minimum lease payments

 

4,370,635

 

 

 

4,342,157

 

Less: current portion of lease liabilities

 

 

(663,861

)

 

 

(967,126

)

Total long-term lease liabilities

 

$

3,706,774

 

 

$

3,375,031

 

 

Supplemental balance sheet information related to leases is as follows:

 

 

Year ended December 31,

 

Year ended December 31,

 

2021

 

2020

 

2022

 

2021

Weighted Average Remaining Lease Term

 

5 years

 

2 years

 

5 years

 

5 years

Weighted Average Discount Rate

 

17.85 %

 

15 %

 

17.17 %

 

17.85%

 

79

90


28.26. Commitments and contingencies

 

Legal Matters

On January 31, 2020, Torchlight Energy Resources, Inc. and its wholly owned subsidiaries Torchlight Energy, Inc. and Torchlight Energy Operating, LLC were served with a lawsuit brought by Goldstone Holding Company, LLC (Goldstone Holding Company, LLC v. Torchlight Energy, Inc., et al., in the 160th Judicial District Court of Dallas County, Texas). On February 24, 2020, Torchlight Energy Resources, Inc., Torchlight Energy, Inc., and Torchlight Energy Operating, LLC timely filed their answer, affirmative defenses, and requests for disclosure. The suit, which sought monetary relief over $1 million, made unspecified allegations of misrepresentations involving a November 2015 participation agreement and a 2016 amendment to the participation agreement. Torchlight denied the allegations and asserted several affirmative defenses including but not limited to, that the suit is barred by the applicable statute of limitations, that the claims had been released, and that the claims were barred because of contractual disclaimers between sophisticated note parties. Torchlight also asserted counterclaims for attorney fees. On January 14, 2021, Goldstone Holding Company, LLC dismissed its claims without prejudice, leaving Torchlight’s counterclaims for attorney fees as the only pending claim in the case. On February 26, 2021, Torchlight filed a non-suit without prejudice on its counterclaims for attorney fees, leaving no claims in the case. The court signed a final order disposing of the entire case on March 5, 2021. However, Goldstone Holding Company, LLC asked the court to re-instate its claims, and a hearing was held on April 13, 2021. On June 16, 2021, the court signed an order denying the motion to reinstate Goldstone Holding Company’s, LLC’s claims, and the case is closed.

SEC Subpoena

On April 30, 2020, The Company's wholly owned subsidiary, Hudspeth Oil Corporation, filed suit against Datalog LWT, Inc. d/b/a Cordax Evaluation Technologies. The suit seeks the recovery of approximately $1.4 million in costs incurred as a result of a tool failure during drilling activities on the University Founders A25 #2 well that is located in the Orogrande Field. Working interest owner Wolfbone Investments, LLC, a company owned by the Company's former Chairman Gregory McCabe, is a co-plaintiff in that action. After the suit was filed, Cordax filed a mineral lien in the amount of $104,500 against the Orogrande Field and has sued the operator and counterclaimed against Hudspeth for breach of contract, seeking the same amount as the lien. The Company has added the manufacturer of one of the tool components that the Company contends was a cause of the tool failure. It was later discovered that Datalog LWT, Inc. d/b/a Cote rdax Evaluation Technologies forfeited its charter to conduct business in the State of Texas by failing to timely pay its franchise taxes, and the Company added members of the board of directors to the case pursuant to the Texas Tax Code. It was recently disclosed that Datalog LWT, Inc. d/b/a Cordax Evaluation Technologies is the subsidiary of a Canadian parent company, Cordax Evaluation Technologies, Inc., who has also been added to the case. The suit, Hudspeth Oil Corporation and Wolfbone Investments, LLC v. Datalog LWT, Inc. d/b/a Cordax Evaluation Technologies, was filed in the 189th Judicial District Court of Harris County, Texas. The Company’s current Chairman of the Board filed a special appearance after being served with citation, alleging that he was a Canadian citizen with no meaningful ties to Texas. After discovery was conducted on this issue, the Company filed a nonsuit without prejudice for this Defendant, dismissing him from the case. The remaining parties are currently engaged in preliminary discovery and are scheduling mediation.

On March 18, 2021, Datalog LWT, Inc. d/b/a Cordax Evaluation Technologies filed a lawsuit in Hudspeth County, Texas seeking to foreclose its mineral lien against the Orogrande Field in the amount of $104,500.01 and recover related attorney’s fees. The foreclosure action, Datalog LWT Inc. d/b/a Cordax Evaluation Technologies v. Torchlight Energy Resources, Inc., was filed in the 205th Judicial District Court of Hudspeth County, Texas. The Company is contesting the lien in good faith and filed a Plea in Abatement on May 10, 2021, seeking a stay in the Hudspeth County lien foreclosure case pending final disposition of the related case currently pending in Harris County, Texas.

In September 2021, the Companywe received a subpoena from the Securities and Exchange Commission, Division of Enforcement, in a matter captioned In the Matter of Torchlight Energy Resources, Inc. The subpoena requests that the Company produceswe produce certain documents and information related to, among other things, the merger involving Torchlight Energy Resources, Inc. and Metamaterial Inc. The Company isWe are cooperating and intendsintend to continue to cooperate with the SEC’s investigation. The CompanyWe can offer no assurances as to the outcome of this investigation or its potential effect, if any, on the Companyus or itsour results of operation.

Securities Class Action

On January 3, 2022, a putative securities class action lawsuit was filed in the U.S. District Court for the Eastern District of New York captioned Maltagliati v. Meta Materials Inc., et al., No. 1:21-cv-07203, against the Company, itsus, our Chief Executive Officer, itsour Chief Financial Officer, Torchlight’s former Chairman of the Board of Directors, and Torchlight’s former Chief Executive Officer. The complaint, purportedly brought on behalf of all purchasers of the Company’s publicly traded securities from September 21, 2020 through and including December 14, 2021, asserts claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (the “Exchange Act”) arising primarily from a short-seller report and statements related to the Company’s business combination with Torchlight. The complaint seeks unspecified compensatory damages and reasonable costs and expenses, including attorneys’ fees.

On January 26, 2022, a similar putative securities class action lawsuit was filed in the U.S. District Court for the Eastern District of New York captioned McMillan v. Meta Materials Inc., et al., No. 1:22-cv-00463. ThisThe McMillan complaint names the same defendants and asserts the

80


same claims on behalf of the same purported class as the Maltagliati action.complaint. The Company believescomplaints, purportedly brought on behalf of all purchasers of our publicly traded securities from September 21, 2020 through and including December 14, 2021, assert claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (the “Exchange Act”) arising primarily from a short-seller report and statements related to our business combination with Torchlight. The complaints seek unspecified compensatory damages and reasonable costs and expenses, including attorneys’ fees. On July 15, 2022, the Court consolidated these actions (collectively,under the “Securities Class Action”) have no meritcaption In re Meta Materials Inc. Securities Litigation, No. 1:21-cv-07203, appointed lead plaintiffs and intendsapproved the lead plaintiffs’ selection of lead counsel. Lead plaintiffs filed a consolidated complaint on August 29, 2022. We moved to vigorously defend itself against these allegations.dismiss that complaint on October 13, 2022. The motion was fully briefed on January 12, 2023. The Court held a hearing on the motion to dismiss on February 27, 2023 and took the motion under submission.

Shareholder Derivative Action

On January 14, 2022, a shareholder derivative action was filed in the U.S. District Court for the Easter District of New York captioned Hines v. Palikaras, et al., No. 1:22-cv-00248. The complaint names as defendants certain of the Company’sour current officers and directors, certain former Torchlight officers and directors, and the Companyus (as nominal defendant). The complaint, purportedly brought on behalf of the Company, asserts claims under Section 14(a) of the Exchange Act, contribution claims under Sections 10(b) and 21D of the Exchange Act, and various state law claims such as breach of fiduciary duties and unjust enrichment. The complaint seeks, among other things, unspecified compensatory damages in favor of the Company, certain corporate governance related actions, and an award of costs and expenses to the derivative plaintiff, including attorneys’ fees. On March 9, 2022, the Court entered a stipulated order staying this action until there is a ruling on a motion to dismiss in the securities class action.

 

Westpark Capital Group

On July 25, 2022, WestPark Capital Group, LLC filed a complaint in Los Angeles County Superior Court against us for breach of contract, alleging that it is owed a $450,000 commission as a placement agent with respect to our June 2022 direct offering. On August 31, 2022, we filed an answer to the complaint. We dispute that WestPark Capital Group placed the investor in the direct offering and is owed a commission.

Contractual Commitments and Purchase Obligations

a)
As highlighted in note 20, on January 29, 2021, the Company arranged an irrevocable standby letter of credit with TD in favor of Covestro for EUR 600,000 in relation to the CFA agreement. In the event the Company fails to meet the performance milestones under the CFA, Covestro shall draw from the letter of credit with TD. The letter of credit was secured by restricted cash of CA$1,000,000 under a cash use agreement which has been recorded as long-term debt in the consolidated balance sheets. In July 2021, the Company settled the long term debt and used its own funds as guarantee. Covestro has issued certificates of reduction of $462,563 (ER 300,000) to reduce the letter of credit after completion of certain performance milestones. This will take effect in Fiscal 2022. As at December 31, 2021, the letter of credit has an outstanding amount of EUR 600,000.
b)
During 2018, the Companywe arranged a guarantee/standby letter of credit with RBC in favor of Satair A/S for $500,000 in relation to an advance payment received. In the event the Company failswe fail to deliver the product as per the contract or refuse to accept the return of the product as per the buyback clause of the contract or fails to repay the advance payment in accordance with the conditions of the agreement signed with Satair on September 18, 2018, Satair shall draw from the letter of credit with RBC. Borrowings from the letter of credit with RBC are repayable on demand. The letter of credit from RBC is secured by a performance security guarantee cover issued by Export Development of Canada. Further, this guarantee/standby letter of credit expires on October 5, 20222023. As atof December 31, 2021,2022, 0no amount has been drawn from the letter of credit with RBC.
c)b)
On December 8, 2016, the Companywe entered into a cooperation agreement with a large aircraft manufacturer to co-develop laser protection filters for space and aeronautical civil and military applications, metaAIR®, and support the setup of manufacturing facilities for product certification and development. The cooperation agreement includes financial support provided to the Companyus in the form of

91


non-recurring engineering costs of up to $4,000,0004 million to be released upon agreement of technical milestones in exchange for a royalty fee due by the Companyus on gross profit after sales and distribution costs. The total royalty fee to be paid may be adjusted based on the timing of the Company’sour sales and the amount ultimately paid to the Companyus by this large aircraft manufacturer to support the development.
d)c)
Certain nano-optic products are subject to a 3% sales royalty in favor of Simon Fraser University (“SFU”) where certain elements of the nano-optic technology originated. Royalties were $NaN1,575 during the period since acquisition date untiltwelve months ended December 31, 2021.2022 (2021 - nil). In 2014, the Company's wholly owned subsidiary, Nanotech, prepaid royalties that would offset against future royalties owed as part of the transfer of the intellectual property from SFU, of which $197,016195,441 remains prepaid as at December 31, 2021.2022 (December 31, 2021 - $197,016).
e)d)
Product revenue associated with 6six patents acquired by Nanotech is subject to royalties. The CompanyWe agreed to share 10% of any revenues related to the patents received from a specific customer for a period of two years and ongoing royalties of 3% to 6% on other revenues derived from the patents for a period of five years. There were 0no royalties during the year ended December 31, 2021.2022.
e)
On September 1, 2022, we entered into an operating lease agreement for the space of approximately 11,642 Square Footage for an office in a building located in Columbia, Maryland, USA. This was not recognized as an operating lease in 2022, as we have not yet occupied premises as of December 31, 2022, due to ongoing construction with a lease term of 132 months onwards with an option to renew the lease for an additional 5 years. There are step-up lease payments for each 12-month period from lease commencement, with the first 12 months fully abated.
f)
As atOn October 1, 2022, we entered into an operating lease agreement for the space of approximately 12,655 Square Feet on the 2nd Floor of Building One, in two separate sections: Phase 1: 8,097 Rentable Square Footage; and Phase 2: 4,558 Rentable Square Footage in a commercial building located in Billerica, Massachusetts, USA. This was not recognized as an operating lease in 2022, as we have not yet occupied either premise as of December 31, 2021,2022, due to ongoing renovations. The lease terms are 5 years and 6 months for both spaces commencing from the Company haddelivery date in which each space will be made readily available. Lease payments are to commence from the delivery date for each Phase until the end of the lease term with an option to renew the lease for an additional 5 years. Annual Lease payments will be $18.00 per Square Feet in the Lease Year 1, $18.50 per Square Foot in Lease Year 2, $19.00 per Square Foot in Lease Year 3, $19.50 per Square Foot in Lease Year 4, and $20.00 per Square Feet in Lease Year 5
g)
As of December 31, 2022, we have on-going commitments for leases and maintenance contracts as follow:

 

2022

 

$

292,125

 

2023

 

43,730

 

 

$

267,210

 

2024

 

 

3,105

 

 

 

557,747

 

2025

 

 

569,240

 

2026

 

 

583,795

 

Thereafter

 

 

5,207,113

 

 

$

338,960

 

 

$

7,185,105

 

 

8192


29.27. Subsequent events

On February 10, 2023, we entered into a sales agreement (the "ATM Agreement") with an investment bank with the establishment of an “at-the-market” offering program under which we may sell up to an aggregate of $100.0 million of shares of common stock (the “ATM Shares”) from time to time. The sales agents are entitled to compensation at a fixed commission rate of 3.0% of the gross proceeds of each sale of shares of our common stock.

Under the ATM Agreement, we set the parameters for the sale of ATM Shares, including the number of ATM Shares to be issued, the time period during which sales are requested to be made, limitations on the number of ATM Shares that may be sold in any one trading day and any minimum price below which sales may not be made. Sales of the ATM Shares, if any, under the ATM Agreement may be made in transactions that are deemed to be “at-the-market offerings” as defined in Rule 415 under the Securities Act.

As of March 20, 2023, we have sold an aggregate of 17,573,969 shares of our common stock pursuant to the ATM Agreement for aggregate gross proceeds of approximately $10.5 million.

Subsequent to December 31, 2021,2022, 82,7531,042,000 stock options were exercised, 1,288,789 RSUs have vested and settled and 156,72839,278 warrants were exercised.RSUs have been forfeited.

Item 9. Changes in and Disagreements Withwith Accountants on Accounting and Financial Disclosure.

None.

Item 9A. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

Management, with the participation of the Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company'sour disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of December 31, 2021.2022. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate, to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

Based on thisthe evaluation the Company's management including theof our disclosure controls and procedures as of December 31, 2022, our Chief Executive Officer and Chief Financial Officer have concluded that, due to the material weaknesses in the Company's internal control over financial reporting described below, the Company'sas of such date, our disclosure controls and procedures were not effective due to a material weakness in our internal control over financial reporting as of December 31, 2021.described below.

However, giving full consideration to the remaining material weaknesses, the Company hasweakness, we have concluded that the consolidated financial statements included in the Annual Report on Form 10-K present fairly, in all material respects, the Company’sour financial position, the results of itsour operations and itsour cash flows for each of the periods presented in conformity with U.S. generally accepted accounting principles.

Management’s Report on Internal Control over Financial Reporting

The Company'sOur management is responsible for establishing and maintaining effective internal control over financial reporting, as such term is defined in Securities Exchange Act Rule 13a‑15(f)Rules 13a-15(f) and 15d-15(f). The Company’sOur internal control over financial reporting is a process designed by and under the supervision of the Company'sour management, including the Company'sour Chief Executive Officer and Chief Financial Officer, and effected by the Company’sour management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external purposes in accordance with U.S. generally accepted accounting principles.The Company’s

Our management, under the supervision and with the participation of itsour Chief Executive Officer and Chief Financial Officer, conducted an evaluation of the effectiveness of the Company’sour internal control over financial reporting as of December 31, 2021,2022, using the criteria set forth in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

93


Based on the results of this evaluation, our management concluded that internal control over financial reporting was not effective as of December 31, 2021,2022, due to the existence of a material weaknesses in internal control over financial reporting.

weakness listed below. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’sour annual or interim financial statements may not be prevented or detected on a timely basis.

Management has determined that it did not maintain effectivea material weakness in internal controlscontrol over financial reporting existed at December 31, 2022 due to the existence of the following identified material weaknesses:deficiencies:

An ineffective control environment resulting from aA lack of the required number of trained financial reporting,sufficient accounting information technology (IT) and operational personnel with the appropriate skillsrequisite knowledge of US GAAP and knowledgefinancial reporting requirements of the SEC; and with assigned responsibility and accountability related to the design, implementation, and operation of internal control over financial reporting.
The insufficient numberA lack of personnel described above contributed to an ineffective risk assessment process necessary to identify all relevant riskssufficient segregation of material misstatement and to evaluateduties in the implications of relevant risks on its internal control over financial reporting.
An ineffective information and communication process resulting from: (i) insufficient communication of internal control information, including objectives and responsibilities, such as delegation of authority; and (ii) ineffective general IT controls and ineffective controls over information from a service organization, resulting in insufficient controls to ensure the relevance, timeliness and quality of information used in control activities.
As a consequence of the above, the Company had ineffective control activities related to the design, implementation and operation of process level and financial statement close controls which had a pervasive impact on the Company's internal control over financial reporting.

82


An ineffective monitoring process resulting from the evaluation and communication of internal control deficiencies, including monitoring corrective actions, not being performed in a timely manner.reporting process.

 

TheseThis material weaknessesweakness resulted in material misstatements which werehave been corrected, prior to the release of the consolidated financial statements as of and for the year ended December 31, 2021, and also in immaterial misstatements, some of which were corrected prior to the release of theour consolidated financial statements as of and for the year ended December 31, 2021. These2022. This material weaknesses createweakness creates a reasonable possibility that a material misstatement to the consolidated financial statements will not be prevented or detected on a timely basis.

In accordance with guidance issued by the SEC, companies are permitted to exclude acquisitions from their final assessment of internal control over financial reporting for the first fiscal year in which the acquisition occurred. Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has limited the evaluation of our internal controls over financial reporting to exclude controls, policies and procedures and internal controls over financial reporting of the recently acquired operations of Nanotech Security Corp. (acquired on October 5, 2021). The operations of Nanotech Security Corp. represent approximately 17% of our total assets and 45% of our total revenues for the year ended December 31, 2021.

KPMG LLP, our independent registered public accounting firm, has issued an attestation report on the Company’s internal control over financial reporting, which report expresses an adverse opinion on the effectiveness of internal control over financial reporting.

Plan for Remediation of Material WeaknessesWeakness

Management has been and is continuing to evaluate and strengthen the Company'sour internal controls over financial reporting to ensure that management can routinely prepare our financial statements under US GAAP, meet the requirements of the Company'sour independent auditors and remain in compliance with the SEC reporting requirements. These efforts are time consuming and require significant resource investment that the Company iswe are committed to making.

The Company isWe are still developing and documenting the full extent of the procedures to implement, toand remediate the material weaknessesweakness described above, however the current remediation plan includes:

Training the newly hired ERP specialist and Supply Chain and Procurement Director.
Identifying and hiring additional key positions necessary to support the Company’sour initiatives related to internal controls over financial reporting, including but not limited to Technical Accounting, Transactional Accounting, IT Managementtechnical accounting, transactional accounting, and Analysts.tax accounting.
HiringFormalizing segregation of duties structures in the accounting and IT functions.
Continuing to use the services of specialized consultants to assist with on-going process improvements and control remediation efforts in targeted accounting, IT, and operations processes.

Changes in Internal Controls

During the year ended December 31, 2022, we have implemented the following remediation steps:

Expanded and provided extensive training to the ERP and procurement teams.
Hired thrid-party consultants to assist with process improvements and control remediation efforts in targeted accounting, IT and operations processes.
Continuing on-going testingWe continued to test and improve the design and operating effectiveness of policiesour internal controls, and proceduresdetermine whether remediation plans have been implemented in late 2021 to assess their effectiveness.the deficiency areas.
Formalizing its entity-wide risk assessment process,We invested in hiring additional IT resources including a Chief Infomation Officer with appropriate knowledge and documentingexpertise to effectively implement internal ownership of risk monitoring and mitigation efforts, with improved risk monitoring activities and regular reporting to those charged with governance at an appropriate frequency.
Finalize a delegation of authority matrix to enforce desired limits of authority for key transactions, events, and commitments, and communicating these limits of authority to relevant personnel throughout the Company.controls.

Changes in Internal Controls.

Except for the remediation efforts related to the material weaknessesweakness described above, no changes in the Company'sour internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the quarter ended December 31, 20212022 that has materially affected, or is reasonably likely to materially affect, the Company'sour internal control over financial reporting.

Limitations on Effectiveness of Internal Controls

Management, including the Chief Executive Officer and Chief Financial Officer, does not expect that disclosure controls or internal controls when effective, will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. In addition, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud,

94


if any, within a company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake.

83


Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by management’s override of the control. The design of any systems of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, control may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of these inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected. Individual persons may perform multiple tasks which normally would be allocated to separate persons and therefore extra diligence must be exercised during the period these tasks are combined.

Item 9B. Other Information.

On March 25, 2022, our Board of Directors (the “Board”), acting upon a recommendation from our Compensation Committee, approved payment of a cash bonus for George Palikaras, our Chief Executive Officer, of $385,000 based on 85% achievement of his target bonus for the year ended December 31, 2021.

Effective as of February 28, 2022, theour Board of Directors of the Company voted to promote Kenneth L. Rice to the position of Chief Operating Officer. In this new roleOfficer where Mr. Rice will retainretained his duties as Chief Financial Officer and will assumeas well as assuming management responsibility for Business Development Operations, Manufacturing and Quality Control. In connection with the promotion, the Board approved, effective March 1, 2022, (i) an increase in Mr. Rice annual base salary from $216,000 to $300,000. (ii) an increase in Mr. Rice bonus from 66% to 70%. Mr. Rice was eligible to receive a quarterly bonus up to a target of 70% of his annual base salary where 75% of the bonus to be paid in cash and 25% to be paid in fully vested options.

During 2022, Mr. Rice received $64,350 for his 2021 cash bonus and $106,313 for his 2022 cash bonus. Mr. Rice was also granted 110,252 fully vested options at an exercise price of $1.21 and grant date fair value of $32,934 for his 2021 options bonus and 110,589 fully vested options at a weighted average exercise price of $1.26 and grant date fair value of $39,375 for his 2022 options bonus.

In addition, Mr. Rice was granted 217,711 options and 158,228 RSUs that vest in four equal annual installments as part of our Long-Term Incentive Plan. The grant date fair value of such options and RSUs were valued at a total of $500,000.

During 2022, Jonathan Waldern, our Chief Technology Officer, received $85,500 for his 2021 cash bonus and $150,000 for his 2022 cash bonus. Mr. Waldern was also granted 2,556,714 fully vested options at a weighted average exercise price of $1.87 and grant date fair value of $2,731,805 for his 2021 options bonus and 2,549,207 fully vested options at a weighted average exercise price of $1.22 and a grant date fair value of $731,796 for his 2022 options bonus.

Mr. Waldern's employment agreement, effective as of December 16, 2020, included an annual base salary of US$150,000 which increased to US$250,000 on March 1, 2021. Mr. Waldern was eligible to receive a quarterly bonus up to $50,000 based on his achievement of a balanced scorecard, in the sole discretion of the Company or the Meta Board. In the first two years, Mr. Waldern was also eligible to receive up to 0.25% per quarter of the then outstanding common stock of the Company as fully vested options of the Company.

In addition, Mr. Waldern was granted 174,169 options and 126,582 RSUs that vest in four equal annual installments as part of our Long-Term Incentive Plan. The grant date fair value of such options and RSUs were valued at $400,000.

On December 5, 2022, our Board approved the Company’s New Outside Director Compensation Plan, which took effect January 1, 2023 for all continuing directors and newly elected or appointed directors after the Company’s 2022 Annual Meeting of Stockholders. Under the New Outside Director Compensation Plan, directors who were not employees of the Company are entitled to receive an annual retainer fee of $50,000, plus Non-executive Chairman additional retainer of $35,000 per annum and Chair Retainers for Board committees of $15,000 to $20,000 per annum depending on the specific committee. Outside directors also receive annual equity awards of $100,000 in value payable in Restricted Stock Units along with an initial equity award for newly elected directors of $100,000 in value payable in Restricted Stock Units. Board members are required to achieve 5 times the annual cash retainer amount in owned shares of the Company within 5 years of their joining the board.

This above disclosure is provided in this Part II, Item 9B in lieu of disclosure under Item 5.02(e) of Form 8-K.

95


Form 8-K/Item 3.01

Notice of Delisting or Failure to Satisfy a Continued Listing Rule or Standard; Transfer of Listing.

On March 20, 2023, we received written notice (“The Bid Price Letter”) from The Nasdaq Stock Market LLC (“Nasdaq”) indicating that the Company is not in compliance with the $1.00 minimum bid price requirement for continued listing on The Nasdaq Capital Market, as set forth in Nasdaq Listing Rule 5550(a)(2) (the “Bid Price Rule”). In accordance with Nasdaq Listing Rule 5810(c)(3)(A), the Company has a period of 180 calendar days, or until September 18, 2023, to regain compliance with the Bid Price Rule. To regain compliance, the closing bid price of the Company’s common stock must meet or exceed $1.00 per share for a minimum of ten consecutive business days during this 180-day period. The Bid Price Letter is a notice of deficiency, not delisting, and does not currently affect the listing or trading of shares of our common stock on The Nasdaq Capital Market, which will continue to trade under the symbol “MMAT.”

We intend to actively monitor the closing bid price of shares of our common stock and may, if appropriate, consider implementing available options to regain compliance with the Bid Price Rule. If the Company does not regain compliance within the allotted compliance periods, including any extensions that may be granted by Nasdaq, Nasdaq will provide notice that the Company’s common stock will be subject to delisting. The Company would then be entitled to appeal that determination to a Nasdaq hearings panel.

Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections.

None.

Part III

 

Item 10. Directors, Executive Officers, and Corporate Governance.

The information required by this Item will be provided in an amendment to this Annual Report on Form 10-K in accordance with General Instruction G(3)G (3) to Form 10-K.

Item 11. Executive Compensation.

The information required by this Item will be provided in an amendment to this Annual Report on Form 10-K in accordance with General Instruction G(3)G (3) to Form 10-K.10-K

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

The information required by this Item will be provided in an amendment to this Annual Report on Form 10-K in accordance with General Instruction G(3)G (3) to Form 10-K.10-K

Item 13. Certain Relationships andand Related Transactions, and Director Independence.

The information required by this Item will be provided in an amendment to this Annual Report on Form 10-K in accordance with General Instruction G(3)G (3) to Form 10-K.10-K

Item 14. Principal Accounting Fees and Services.

The information required by this Item will be provided in an amendment to this Annual Report on Form 10-K in accordance with General Instruction G(3)G (3) to Form 10-K.10-K

96


PART IV

Item 15. Exhibits, FinancialFinancial Statement Schedules.

 

Exhibit Index

 

 

 

 

Incorporated by Reference

Exhibit Number

 

Exhibit Description

 

Form

 

Filing Date

 

Filed Herewith

1.1.0

 

UnderwritingAmended and Restated Placement Agency Agreement, dated February 8, 2021, between Torchlight Energy Resources,as of June 27, 2022, by and among Meta Materials Inc. and, Roth Capital Partners, LLC and A.G.P./Alliance Global Partners

 

10k8-K

 

18-Mar-2127-Jun-22

 

1.2.0

 

At Market Issuance Sales Agreement dated as of June 16, 2021,February 10, 2023, by and between Torchlight Energy Resources, Inc.the Company and Roth Capital Partners, LLCthe Agents

 

8k8-K

 

16-Jun-2110-Feb-23

 

1.2.11.1.2

 

Amended and Restated SalesPlacement Agency Agreement, dated as of June 21, 2021, by and between Torchlight Energy Resources, Inc. and Roth Capital Partners, LLC27, 2022

8k.

 

21-Jun-218-K

 

27-June-22

2.1.0

 

Arrangement Agreement between Metamaterial Inc. and Torchlight Energy Resouces,Resources, Inc., dated December 14, 2020

 

8k8-K

 

14-Dec-20

 

2.1.1

 

Amendment to Arrangement Agreement dated February 3, 2021

 

8k8-K

 

3-Feb-21

 

2.1.2

 

Amendment to Arrangement Agreement dated March 11, 2021

 

8k8-K

 

11-Mar-21

 

2.1.3

 

Amendment to Arrangement Agreement dated March 31, 2021

 

8k8-K

 

1-Apr-21

 

2.1.4

 

Amendment to Arrangement Agreement dated April 15, 2021

 

8k8-K

 

15-Apr-21

 

2.1.5

 

Amendment to Arrangement Agreement dated May 2, 2021

 

8k8-K

 

3-May-21

 

2.1.6

 

Amendment to Arrangement Agreement dated June 18, 2021

 

8k8-K

 

21-Jun-21

 

 

84


2.2.0

 

Arrangement Agreement between Meta Materials Inc. and Nanotech Securities, dated August 4, 2021

 

 10-K

 

2-Mar-22

2.3.0

Distribution Agreement Between Meta Materials Inc. and Next Bridge Hydrocarbons Inc. dated September 2,2022

 

X

2.4.0

Meta Materials Inc. - Next Bridge Hydrocarbons Inc. - Tax Matters Agreement, dated September 2, 2022

X

2.5.0

Meta Materials Inc. - Next Bridge Loan Agreement, dated September 2, 2022

X

2.6.0

Meta Materials Inc. & Oilco Holdings Inc - 8% Promissory Note Secure - $15 mil loan dated October 1, 2021

X

2.7.0

Stock Pledge Agreement between Gregory McCabe & Meta Materials Inc. dated September 30, 2021

X

2.8.0

Stock Purchase Agreement for the Sale and Purchase of the Entire Issued Share Capital of Plasma App Ltd., dated as of March 31, 2022, by and between Dmitry Yarmolich and Dzianis Yarmolich, on the one hand, and Meta Materials, Inc, on the other hand

10-Q/A

1-June-22

2.9.0

Asset Purchase Agreement, dated as of June 16, 2022, by and between Meta Materials Inc., Optodot Corporation, and SCP Management LLC, as Securityholders’ Representative

8-K

17-June-22

2.10.0

Stock Purchase Agreement, dated March 31, 2022, by and between Meta Materials Inc., on the one hand, and Dmitry Yarmolich and Dzianis Yarmolich, on the other hand

10-Q/A

31-Mar-22

3.1.0

 

Articles of Incorporation

 

10k10-K

 

18-Mar-19

 

3.1.1

 

Certificate of Amendment to Articles of Incorporation dated December 10, 2014.2014

 

10Q10-Q

 

15-May-15

 

3.1.2

 

Certificate of Amendment to Articles of Incorporation dated September 15, 2015.2015

 

10Q10-Q

 

12-Nov-15

 

3.1.3

 

Certificate of Amendment to Articles of Incorporation dated August 18, 2017.2017.

 

10Q10-Q

 

9-Nov-18

 

3.1.4

 

Amendment to the Articles of Incorporation of Torchlight Energy Resources, Inc., dated June 14, 2021

 

8K8-K

 

16-Jun-21

 

3.1.5

 

Certificate of Amendment related to the Reverse Stock Split and Name Change, filed June 25, 2021

 

8k8-K

 

29-Jun-21

 

97


3.2.0

Amended and Restated Bylaws

8k

26-Oct-16

3.3.0

 

Certificate of Designation of Preferences, Rights and Limitations of Series A Non-VotingB Special Voting Preferred Stock, dated June 14, 2021 as modified by the Certificate of Correction, dated June 15, 2021

 

8k8-K

 

16-Jun-21

 

3.3.13.3.0

Certificate of Withdrawal of Certificate of Designation of Preference, Rights, and Limitations of Series A Non-Voting Preferred Stock

8-K

15-Dec-22

3.4.0

 

Certificate of Designation of Preferences, Rights and Limitations of Series B Special Voting Preferred Stock, dated June 14, 2021

 

8k8-K

 

16-Jun-21

 

3.5.0

Amended and Restated Bylaws

8-K

26-Oct-16

4.1.0

 

Form of Investor Warrant

 

 10-K

 

2-Mar-22

 

X

4.2.0

 

Form of Broker Warrant

 

 10-K

 

2-Mar-22

 

X

4.3.1

ACOA BDP (2015) - Contract 200804 - Original Document

X

4.3.2

ACOA AIF (2015) - Contract 203260 - Original Document

X

4.3.3

ACOA BDP (2018) - Contract 211326 - Original Document

X

4.3.4

ACOA BDP (2019) - Contract 212622 - Original Document

X

4.3.5

ACOA RRRF (2021) - Contract 217574 - Original Document

X

4.64.3.0

 

Form of Common Stock

 10-K

2-Mar-22

4.4.0

Form of Common Stock Purchase Warrant(issued in June 2022)

8-K

27-June-22

4.5.0

Certificate of Incorporation of 2798832 Ontario Inc., dated December 9, 2020

 

 

 

 

 

X

10.1.14.5.1

Articles of Amendment of 2798832 Ontario Inc, dated February 3, 2021

X

4.5.2

Articles of Amendment of Metamaterial Exchangeco Inc., dated June 25, 2021

X

4.6.0

Description of Secruities

X

9.1.0

Voting and Exchange Trust Agreement by and among the Company and Metamaterial Exchangeco Inc. and AST Trust Company (Canada)

X

10.1.0

 

Highfield Park, Dartmouth, NS - Lease 20200828 - Original Document

 

 10-K

 

2-Mar-22

 

X

10.1.1.110.2.0

 

Highfield Park, Dartmouth, NS - Lease 20210603 - Amendment June 1, 2021

 

 10-K

 

2-Mar-22

 

X

10.1.1.210.3.0

 

Highfield Park, Dartmouth, NS - Subscription Agreement

 

 10-K

 

2-Mar-22

 

X

10.2.010.4.0+

 

Employment Agreement with George Palikaras, dated July 1, 2021

 

 10-K

 

2-Mar-22

10.5.0

QMB Innovation Centre, London-Lease 20221022-Modification&Expension

 

X

10.2.110.6.0

Burnaby-Vancouver-BC-Lease-20220601-Modification

X

10.7.0+

 

Employment Agreement with Kenneth Rice, dated December 11, 2020

 

 10-K

 

2-Mar-22

 

X

10.2.210.8.0+

 

Employment Agreement with Jonathan Waldern dated December 16, 2020

 

 10-K

 

2-Mar-22

 

X

10.14.010.09.0

 

Form of Meta Materials Inc. Indemnification Agreement (Incorporated by reference form 8-k filed with the SEC on June 29, 2021)

 

 10-K

 

2-Mar-22

 

X

14.010.10.0

 

CodeForm of ConductStock Option Agreement

10-Q/A

1-June-22

10.11.0

Form of Restricted Stock Unit Agreement

10-Q/A

1-June-22

10.12.0

Form of Amended and Restated Securities Purchase Agreement, dated June 27, 2022

8-K

27-June-22

10.13.0+

Amended and Restated Stock Option Plan

S-8

26-Aug-21

10.14.0+

2021 Equity Incentive Plan

S-8

22-Mar-22

10.15.0

Outside Director Compensation Plan

 

 

 

 

 

X

21.1.0

 

List of Subsidiaries

X

23.0

Consent of Independent Auditors

 

 

 

 

 

X

23.1.0

 

Consent of Independent Registered Public Accounting Firm

 

 

 

X

24.024.1.0

 

Power of Attorney

 

10-K

23-Mar-23

 

 

X

31.1

 

Certification of Principal Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.2002

 

 

 

 

 

X

31.2

 

Certification of Principal Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.2002

 

 

 

 

 

X

85


32.132.1*

 

Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.2002

��

 

 

 

 

X

98


32.232.2*

 

Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.2002

 

 

 

 

 

X

101.SCH

 

Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because XBRL tags are embedded within the Inline XBRL document.

 

 

 

 

 

 X

101.CAL

 

Inline XBRL Taxonomy Extension Calculation Linkbase Document

 

 

 

 

 

 X

101.DEF

 

Inline XBRL Taxonomy Extension Definition Linkbase Document

 

 

 

 

 

 X

101.LAB

 

Inline XBRL Taxonomy Extension Label Linkbase Document

 

 

 

 

 

 X

101.PRE

 

Inline XBRL Taxonomy Extension Presentation Linkbase Document

 

 

 

 

 

 X

104

 

Cover Page Interactive Data File (embedded within the Inline XBRL document)

 

 

 

 

 

X

+ Indicates management contract or compensatory plan.

*The certifications attached as Exhibits 32.1 and 32.2 that accompany this Annual Report on Form 10-K are deemed furnished and not filed with the Securities and Exchange Commission and are not to be incorporated by reference into any filing of Meta Materials Inc. under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date of this Annual Report on Form 10-K, irrespective of any general incorporation language contained in such filing.

 

Item 16. FormForm 10-K Summary

None.

8699


SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

 

Meta Materials Inc.

 

 

 

 

Dated: March 1, 202223, 2023

By:

/s/ George Palikaras

George Palikaras

President, Chief Executive Officer and director

(Principal Executive Officer)

Dated: March 1, 202223, 2023

By:

/s/ Ken Rice

Ken Rice

Chief Financial Officer and Executive Vice PresidentChief Operating Officer

(Principal Financial and Accounting Officer)

 

 

 

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints George Palikaras and Ken Rice and each of them, as his or her true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign any and all amendments to this Annual Report on Form 10-K, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming that all said attorneys-in-fact and agents, or any of them or their or his or her substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual Report on Form 10-K has been signed by the following persons on behalf of the Registrant and in the capacities and on the dates indicated:

87


Signature

 

Title

 

Date

 

 

 

 

 

/s/ Georgios PallifarasGeorge Palikaras

 

President, Chief Executive Officer, and Director

 

1-Mar-2223-Mar-23

GeorgiosGeorge Palikaras

 

(Principal Executive Officer)

 

 

 

 

 

 

 

/s/ KennethKen Rice

 

Chief Financial Officer and Chief Operating Officer

 

1-Mar-2223-Mar-23

KennethKen Rice

 

(Principal Financial Officer and Accounting Officer)

 

 

 

 

 

 

 

/S/ Jonathan Waldern*

 

Chief Technology OfficerChair of the Board

 

1-Mar-2223-Mar-23

Jonathan Waldern

(Principal Technology Officer)

/s/ Ram Ramkumar

Chairman and Director

1-Mar-22

Ram RamkumarJohn Harding

 

 

 

 

 

 

 

 

 

/s/ Maurice Guitton*

 

Director

 

1-Mar-2223-Mar-23

Maurice Guitton

 

 

 

 

 

 

 

 

 

/s/ Allison Christilaw*

 

Director

 

1-Mar-2223-Mar-23

Allison Christilaw

 

 

 

 

 

 

 

 

 

/s/ Steen Karsbo*

 

Director

 

1-Mar-2223-Mar-23

Steen Karsbo

 

 

 

 

 

 

 

 

 

/s/ Eric Leslie*

 

Director

 

1-Mar-2223-Mar-23

Eric Leslie

 

 

 

 

 

 

 

 

 

/s/ Ken Hannah*

 

Director

 

1-Mar-2223-Mar-23

Ken Hannah

 

 

 

 

 

*By: /s/ Ken Rice

88Ken Rice

Attorney-in-fact

100