UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM
(Mark One)
☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2021
OR
☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period fromto
Commission File Number:
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 Research Drive Dartmouth, Nova Scotia | B2Y 4M9 | |
(Address of principal executive offices) | (Zip Code) |
Registrant’s telephone number, including area code: (902) (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 |
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 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(§ (§232.405 of this chapter) during the preceding 12 months (or for 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
Large accelerated filer | ☒ | Accelerated filer | ☐ | |||
Non-accelerated filer | ☐ | |||||
Smaller reporting company | ☐ | |||||
Emerging growth company | ☐ |
If an emerging growth company, indicate by 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 is a shell company (as defined in Rule
As of June 30, 2021,May 9, 2022, the registrant had 279,782,854296,614,994 shares of common stock, $0.001 par value per share,
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2
PART I—FINANCIAL INFORMATION
Item 1. Financial Statements
META MATERIALS INC.
CONDENSED CONSOLIDATED INTERIM BALANCE SHEETS (UNAUDITED)
As of June 30, 2021 | As of December 31, 2020 | |||||||
Assets | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 154,634,423 | $ | 1,395,683 | ||||
Restricted C ash | 433,627 | — | ||||||
Grants receivable | 407,523 | 327,868 | ||||||
Accounts receivable | 207,760 | 22,833 | ||||||
Inventory | 368,293 | 463,382 | ||||||
Prepaid expenses and other current assets | 1,604,710 | 514,204 | ||||||
Assets held for sale | 72,797,392 | — | ||||||
Due from related parties | 57,658 | — | ||||||
Total current assets | 230,511,386 | 2,723,970 | ||||||
Intangible assets, net | 4,389,607 | 4,476,614 | ||||||
Property, plant and equipment, net | 5,382,196 | 2,761,171 | ||||||
Operating lease right-of-use | 2,994,424 | 270,581 | ||||||
Goodwill | 217,613,966 | — | ||||||
Total assets | $ | 460,891,579 | $ | 10,232,336 | ||||
Liabilities and stockholders’ equity (deficit) | ||||||||
Current liabilities | ||||||||
Trade and other payables | $ | 5,377,375 | $ | 2,940,452 | ||||
Due to related party | 0 | 245,467 | ||||||
Current portion of long-term debt | 1,349,274 | 290,544 | ||||||
Current portion of deferred revenues | 1,453,556 | 1,239,927 | ||||||
Current portion of deferred government assistance | 866,011 | 779,578 | ||||||
Preferred stock lia bilit y | 77,906,354 | — | ||||||
Current portion of operating lease liabilities | 279,832 | 150,802 | ||||||
Asset retirement obligations | 21,937 | — | ||||||
Unsecured convertible promissory notes | — | 1,203,235 | ||||||
Secured convertible debentures | — | 5,545,470 | ||||||
Total current liabilities | 87,254,339 | 12,395,475 | ||||||
Deferred revenues | 681,625 | 804,143 | ||||||
Deferred government assistance | 76,807 | 146,510 | ||||||
Deferred tax liability | 219,962 | 318,054 | ||||||
Unsecured convertible debentures | — | 1,825,389 | ||||||
Long-term operating lease liabilities | 1,145,049 | 119,779 | ||||||
Funding obligation | 859,828 | 776,884 | ||||||
Long-term debt | 2,739,620 | 2,743,504 | ||||||
Total liabilities | 92,977,230 | 19,129,738 | ||||||
Stockholders’ equity (deficit) | ||||||||
Common stock - $0.001 par value; 1,000,000,000 shares authorized, 279,782,854 shares issued and outstanding at June 30, 2021, and $ NaN par value; unlimited shares authorized, 154,236,692 shares issued and outstanding at December 31, 2020 | 257,966 | 132,347 | ||||||
Additional paid-in capital | 454,259,192 | 29,021,974 | ||||||
Accumulated other comprehensive income (loss) | 133,946 | (654,880 | ) | |||||
Accumulated deficit | (86,736,755 | ) | (37,396,843 | ) | ||||
Total stockholders’ equity (deficit) | 367,914,349 | (8,897,402 | ) | |||||
Total liabilities and stockholders’ equity (deficit) | $ | 460,891,579 | $ | 10,232,336 |
|
| As of |
|
| As of |
| ||
|
| March 31, 2022 |
|
| December 31, 2021 |
| ||
Assets |
|
|
|
|
|
| ||
Current assets: |
|
|
|
|
|
| ||
Cash and cash equivalents |
| $ | 29,749,773 |
|
| $ | 46,645,704 |
|
Restricted cash |
|
| 478,897 |
|
|
| 788,768 |
|
Short-term investments |
|
| — |
|
|
| 2,875,638 |
|
Grants receivable |
|
| 29,150 |
|
|
| 175,780 |
|
Accounts receivable |
|
| 2,514,443 |
|
|
| 1,665,700 |
|
Inventory |
|
| 366,959 |
|
|
| 265,718 |
|
Prepaid expenses and other current assets |
|
| 3,843,663 |
|
|
| 3,451,367 |
|
Assets held for sale |
|
| 72,000,000 |
|
|
| 75,500,000 |
|
Due from related parties |
|
| 10,314 |
|
|
| 10,657 |
|
Total current assets |
|
| 108,993,199 |
|
|
| 131,379,332 |
|
Intangible assets, net |
|
| 28,306,272 |
|
|
| 28,971,824 |
|
Property, plant and equipment, net |
|
| 29,977,784 |
|
|
| 27,018,114 |
|
Operating lease right-of-use assets |
|
| 6,230,735 |
|
|
| 6,278,547 |
|
Goodwill |
|
| 240,769,981 |
|
|
| 240,376,634 |
|
Total assets |
| $ | 414,277,971 |
|
| $ | 434,024,451 |
|
Liabilities and stockholders’ equity |
|
|
|
|
|
| ||
Current liabilities |
|
|
|
|
|
| ||
Trade and other payables |
| $ | 9,944,822 |
|
| $ | 13,335,470 |
|
Current portion of long-term debt |
|
| 363,654 |
|
|
| 491,278 |
|
Current portion of deferred revenues |
|
| 695,160 |
|
|
| 779,732 |
|
Current portion of deferred government assistance |
|
| 858,942 |
|
|
| 846,612 |
|
Preferred stock liability |
|
| 72,000,000 |
|
|
| 75,500,000 |
|
Current portion of operating lease liabilities |
|
| 782,901 |
|
|
| 663,861 |
|
Asset retirement obligations |
|
| 21,937 |
|
|
| 21,937 |
|
Total current liabilities |
|
| 84,667,416 |
|
|
| 91,638,890 |
|
Deferred revenues |
|
| 660,297 |
|
|
| 637,008 |
|
Deferred government assistance |
|
| — |
|
|
| 3,038 |
|
Deferred tax liability |
|
| 329,205 |
|
|
| 324,479 |
|
Long-term operating lease liabilities |
|
| 3,676,258 |
|
|
| 3,706,774 |
|
Funding obligation |
|
| 286,182 |
|
|
| 268,976 |
|
Long-term debt |
|
| 2,920,931 |
|
|
| 2,737,171 |
|
Total liabilities |
|
| 92,540,289 |
|
|
| 99,316,336 |
|
Stockholders’ equity |
|
|
|
|
|
| ||
Common stock - $0.001 par value; 1,000,000,000 shares authorized, 286,927,265 shares issued and outstanding at March 31, 2022, and $0.001 par value; unlimited shares authorized, 284,573,316 shares issued and outstanding at December 31, 2021 |
|
| 265,106 |
|
|
| 262,751 |
|
Additional paid-in capital |
|
| 467,692,775 |
|
|
| 463,136,404 |
|
Accumulated other comprehensive income (loss) |
|
| 608,446 |
|
|
| (296,936 | ) |
Accumulated deficit |
|
| (146,828,645 | ) |
|
| (128,394,104 | ) |
Total stockholders’ equity |
|
| 321,737,682 |
|
|
| 334,708,115 |
|
Total liabilities and stockholders’ equity |
| $ | 414,277,971 |
|
| $ | 434,024,451 |
|
Commitments and contingencies (note 21)
Subsequent events (note 22)
The accompanying notes are an integral part of these condensed consolidated interim financial statements
3
META MATERIALS INC.
CONDENSED CONSOLIDATED INTERIM STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (UNAUDITED)
|
| Three months ended |
| |||||
|
| 2022 |
|
| 2021 |
| ||
Revenue: |
|
|
|
|
|
| ||
Product sales |
| $ | 168,127 |
|
| $ | 22,047 |
|
Development revenue |
|
| 2,806,568 |
|
|
| 574,256 |
|
Total Revenue |
|
| 2,974,695 |
|
|
| 596,303 |
|
Cost of goods sold |
|
| 778,712 |
|
|
| 400 |
|
Gross Profit |
|
| 2,195,983 |
|
|
| 595,903 |
|
Operating Expenses: |
|
|
|
|
|
| ||
Selling & Marketing |
|
| 1,035,986 |
|
|
| 396,594 |
|
General & Administrative |
|
| 14,597,913 |
|
|
| 2,592,885 |
|
Research & Development |
|
| 3,971,139 |
|
|
| 1,779,256 |
|
Total operating expenses |
|
| 19,605,038 |
|
|
| 4,768,735 |
|
Loss from operations |
|
| (17,409,055 | ) |
|
| (4,172,832 | ) |
Interest expense, net |
|
| (164,434 | ) |
|
| (450,908 | ) |
Gain (Loss) on foreign exchange, net |
|
| 148,391 |
|
|
| (166,444 | ) |
Loss on financial instruments, net |
|
| — |
|
|
| (40,004,921 | ) |
Other (loss) income, net |
|
| (1,009,443 | ) |
|
| 591,907 |
|
Total other expense, net |
|
| (1,025,486 | ) |
|
| (40,030,366 | ) |
Loss before income taxes |
|
| (18,434,541 | ) |
|
| (44,203,198 | ) |
Income tax recovery |
|
| — |
|
|
| 44,679 |
|
Net loss |
| $ | (18,434,541 | ) |
| $ | (44,158,519 | ) |
Other Comprehensive Income net of tax |
|
|
|
|
|
| ||
Foreign currency translation gain |
|
| 905,382 |
|
|
| 21,128 |
|
Fair value gain on changes of own credit risk |
|
| — |
|
|
| 671,600 |
|
Total Other Comprehensive Income |
|
| 905,382 |
|
|
| 692,728 |
|
Comprehensive loss |
| $ | (17,529,159 | ) |
| $ | (43,465,791 | ) |
Basic and diluted loss per share (1) |
| $ | (0.06 | ) |
| $ | (0.26 | ) |
Weighted average number of shares outstanding - basic and |
|
| 285,224,469 |
|
|
| 168,864,762 |
|
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||||||
Revenue: | ||||||||||||||||
Product sales | 1,953 | — | 24,000 | 1,922 | ||||||||||||
Development revenue | 622,367 | 210,344 | 1,196,623 | 648,761 | ||||||||||||
Total Revenue | 624,320 | 210,344 | 1,220,623 | 650,683 | ||||||||||||
Cost of goods sold | 706 | 1,336 | 1,106 | 2,160 | ||||||||||||
Gross Profit | 623,614 | 209,008 | 1,219,517 | 648,523 | ||||||||||||
Operating Expenses: | ||||||||||||||||
Selling & Marketing | 298,871 | 153,962 | 695,465 | 324,528 | ||||||||||||
General & Administrative | 3,145,368 | 1,553,118 | 5,738,252 | 3,157,652 | ||||||||||||
Research & Development | 1,633,653 | 960,430 | 3,412,909 | 1,892,601 | ||||||||||||
Total operating expenses | 5,077,892 | 2,667,510 | 9,846,626 | 5,374,781 | ||||||||||||
Other income (expense): | ||||||||||||||||
Interest expense, net | (427,809 | ) | (324,421 | ) | (878,717 | ) | (516,225 | ) | ||||||||
(Loss) Gain on foreign exchange, net | (163,941 | ) | (323,172 | ) | (330,385 | ) | 256,673 | |||||||||
(Loss) Gain on financial instruments, net | (535,170 | ) | 1,042,928 | (40,540,091 | ) | 1,285,765 | ||||||||||
Other income, net | 341,958 | 236,001 | 933,864 | 411,669 | ||||||||||||
Total other income (expenses) | (784,962 | ) | 631,336 | (40,815,329 | ) | 1,437,882 | ||||||||||
Loss before income taxes | (5,239,240 | ) | (1,827,166 | ) | (49,442,438 | ) | (3,288,376 | ) | ||||||||
Income tax recovery | 57,847 | 10,425 | 102,526 | 54,347 | ||||||||||||
Net loss | (5,181,393 | ) | (1,816,741 | ) | (49,339,912 | ) | (3,234,029 | ) | ||||||||
Other Comprehensive Income (Loss) net of tax | ||||||||||||||||
Foreign currency translation gain (loss) | 87,087 | 160,012 | 108,648 | (159,248 | ) | |||||||||||
Fair value gain (loss) on changes of own credit risk | 9,011 | (388,332 | ) | 680,178 | (365,208 | ) | ||||||||||
Total Other Comprehensive Income (Loss) | 96,098 | (228,320 | ) | 788,826 | (524,456 | ) | ||||||||||
Comprehensive loss | (5,085,295 | ) | (2,045,061 | ) | (48,551,086 | ) | (3,758,485 | ) | ||||||||
Basic and diluted loss per share (1) | (0.03 | ) | (0.01 | ) | (0.27 | ) | (0.03 | ) | ||||||||
Weighted average number of shares outstanding - basic and diluted (1) | 197,911,144 | 155,931,625 | 183,485,933 | 120,093,443 |
The accompanying notes are an integral part of these condensed consolidated interim financial statements
4
META MATERIALS INC.
CONDENSED CONSOLIDATED INTERIM STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (UNAUDITED)(1)
|
|
|
|
|
|
|
|
|
|
| Accumulated |
|
|
|
|
|
|
| ||||||
|
|
|
|
|
|
|
| Additional |
|
| Other |
|
|
|
|
| Total |
| ||||||
|
| Common Stock |
|
| Paid-in |
|
| Comprehensive |
|
| Accumulated |
|
| Stockholders’ |
| |||||||||
|
| Shares |
|
| Amount |
|
| Capital |
|
| Income (loss) |
|
| Deficit |
|
| Equity |
| ||||||
Balance, January 1, 2022 |
|
| 284,573,316 |
|
| $ | 262,751 |
|
| $ | 463,136,404 |
|
| $ | (296,936 | ) |
| $ | (128,394,104 | ) |
| $ | 334,708,115 |
|
Net loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (18,434,541 | ) |
|
| (18,434,541 | ) |
Other comprehensive income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 905,382 |
|
|
| — |
|
|
| 905,382 |
|
Exercise of stock options |
|
| 730,249 |
|
|
| 730 |
|
|
| 196,437 |
|
|
| — |
|
|
| — |
|
|
| 197,167 |
|
Exercise of warrants |
|
| 1,623,700 |
|
|
| 1,625 |
|
|
| 167,950 |
|
|
| — |
|
|
| — |
|
|
| 169,575 |
|
Stock-based compensation |
|
| — |
|
| �� | — |
|
|
| 4,191,984 |
|
|
| — |
|
|
| — |
|
|
| 4,191,984 |
|
Balance, March 31, 2022 |
|
| 286,927,265 |
|
| $ | 265,106 |
|
| $ | 467,692,775 |
|
| $ | 608,446 |
|
| $ | (146,828,645 | ) |
| $ | 321,737,682 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Balance, January 1, 2021 |
|
| 154,163,975 |
|
| $ | 132,347 |
|
| $ | 29,022,977 |
|
| $ | (655,884 | ) |
| $ | (37,396,843 | ) |
| $ | (8,897,403 | ) |
Net loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (44,158,519 | ) |
|
| (44,158,519 | ) |
Other comprehensive income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 692,728 |
|
|
| — |
|
|
| 692,728 |
|
Conversion of promissory notes |
|
| 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 |
|
Conversion of unsecured debentures |
|
| 5,105,338 |
|
|
| 5,105 |
|
|
| 5,764,370 |
|
|
| — |
|
|
| — |
|
|
| 5,769,475 |
|
Conversion of long-term debt |
|
| 124,716 |
|
|
| 125 |
|
|
| 221,718 |
|
|
| — |
|
|
| — |
|
|
| 221,843 |
|
Conversion of payable to related party |
|
| 150,522 |
|
|
| 151 |
|
|
| 225,835 |
|
|
| — |
|
|
| — |
|
|
| 225,986 |
|
Exercise of stock options |
|
| 178,720 |
|
|
| 179 |
|
|
| 48,450 |
|
|
| — |
|
|
| — |
|
|
| 48,629 |
|
Exercise of warrants |
|
| 82,097 |
|
|
| 82 |
|
|
| 31,502 |
|
|
| — |
|
|
| — |
|
|
| 31,584 |
|
Exercise of broker warrants |
|
| 61,331 |
|
|
| 61 |
|
|
| 16,194 |
|
|
| — |
|
|
| — |
|
|
| 16,255 |
|
Stock-based compensation |
|
| 286,292 |
|
|
| 286 |
|
|
| 497,489 |
|
|
| — |
|
|
| — |
|
|
| 497,775 |
|
Balance, March 31, 2021 |
|
| 194,700,061 |
|
| $ | 172,883 |
|
| $ | 81,569,135 |
|
| $ | 36,844 |
|
| $ | (81,555,362 | ) |
| $ | 223,500 |
|
Accumulated | ||||||||||||||||||||||||||||||||
Additional | Other | Total | ||||||||||||||||||||||||||||||
Preferred Stock | Common Stock | Paid-in | Comprehensive | Accumulated | Stockholders’ | |||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Capital | Income (loss) | Deficit | Equity | |||||||||||||||||||||||||
Balance, April 1, 2021 | — | — | 194,700,061 | 172,883 | 81,568,131 | 37,848 | (81,555,362 | ) | 223,500 | |||||||||||||||||||||||
Net loss | — | — | — | — | — | — | (5,181,393 | ) | (5,181,393 | ) | ||||||||||||||||||||||
Other comprehensive income | — | — | — | — | — | 96,098 | — | 96,098 | ||||||||||||||||||||||||
Exercise of stock options | — | — | 235,199 | 235 | 64,291 | — | — | 64,526 | ||||||||||||||||||||||||
Exercise of warrants | — | — | 156,709 | 157 | 62,252 | — | — | 62,409 | ||||||||||||||||||||||||
Effect of reverse acquisition | — | — | 82,813,994 | 82,814 | 369,548,188 | — | — | 369,631,002 | ||||||||||||||||||||||||
Shares issued in lieu of operating lease liability | — | — | 1,832,989 | 1,833 | 2,780,135 | — | — | 2,781,968 | ||||||||||||||||||||||||
Stock-based compensation | — | — | 43,902 | 44 | 236,195 | — | — | 236,239 | ||||||||||||||||||||||||
Balance, June 30, 2021 | — | — | 279,782,854 | 257,966 | 454,259,192 | 133,946 | (86,736,755 | ) | 367,914,349 | |||||||||||||||||||||||
Balance, April 1, 2020 | — | — | 154,236,692 | 132,420 | 27,896,288 | (360,015 | ) | (27,202,872 | ) | 465,821 | ||||||||||||||||||||||
Net loss | — | — | — | — | — | — | (1,816,741 | ) | (1,816,741 | ) | ||||||||||||||||||||||
Other comprehensive loss | — | — | — | — | — | (228,320 | ) | — | (228,320 | ) | ||||||||||||||||||||||
Stock-based compensation | — | — | — | — | 365,763 | — | — | 365,763 | ||||||||||||||||||||||||
Balance, June 30, 2020 | — | — | 154,236,692 | 132,420 | 28,262,051 | (588,335 | ) | (29,019,613 | ) | (1,213,477 | ) | |||||||||||||||||||||
Accumulated | ||||||||||||||||||||||||||||||||
Additional | Other | Total | ||||||||||||||||||||||||||||||
Preferred Stock | Common Stock | Paid-in | Comprehensive | Accumulated | Stockholders’ | |||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Capital | Income (loss) | Deficit | Equity | |||||||||||||||||||||||||
Balance, January 1, 2021 | — | — | 154,163,975 | 132,347 | 29,021,974 | (654,880 | ) | (37,396,843 | ) | (8,897,402 | ) | |||||||||||||||||||||
Net loss | — | — | — | — | — | — | (49,339,912 | ) | (49,339,912 | ) | ||||||||||||||||||||||
Other comprehensive incom e | — | — | — | — | — | 788,826 | — | 788,826 | ||||||||||||||||||||||||
Conversion of promissory notes | — | — | 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 | ||||||||||||||||||||||||
Conversion of unsecured debentures | — | — | 5,105,338 | 5,105 | 5,764,370 | — | — | 5,769,475 | ||||||||||||||||||||||||
Conversion of long-term debt | — | — | 124,716 | 125 | 221,718 | — | — | 221,843 | ||||||||||||||||||||||||
Conversion of payable to related party | — | — | 150,522 | 151 | 225,835 | — | — | 225,986 | ||||||||||||||||||||||||
Exercise of stock options | — | — | 413,919 | 414 | 112,741 | — | — | 113,155 | ||||||||||||||||||||||||
Exercise of warrants | — | — | 238,806 | 239 | 93,755 | — | — | 93,994 | ||||||||||||||||||||||||
Exercise of broker warrants | — | — | 61,331 | 61 | 16,194 | — | — | 16,255 | ||||||||||||||||||||||||
Effect of reverse acquisition | — | — | 82,813,994 | 82,814 | 369,548,188 | — | — | 369,631,002 | ||||||||||||||||||||||||
Shares issued in lieu of operating lease liability | — | — | 1,832,989 | 1,833 | 2,780,135 | — | — | 2,781,968 | ||||||||||||||||||||||||
Stock-based compensation | — | — | 330,194 | 330 | 733,682 | — | — | 734,012 | ||||||||||||||||||||||||
Balance, June 30, 2021 | — | — | 279,782,854 | 257,966 | 454,259,192 | 133,946 | (86,736,755 | ) | 367,914,349 | |||||||||||||||||||||||
Balance, January 1, 2020 | 58,153,368 | 58,153 | 53,297,568 | 31,480 | 19,896,611 | (63,879 | ) | (25,785,584 | ) | (5,863,219 | ) | |||||||||||||||||||||
Net loss | — | — | — | — | — | — | (3,234,029 | ) | (3,234,029 | ) | ||||||||||||||||||||||
Other comprehensive loss | — | — | — | — | — | (524,456 | ) | — | (524,456 | ) | ||||||||||||||||||||||
Issuance of common stock, net | — | — | 2,613,321 | 2,613 | 429,795 | — | — | 432,408 | ||||||||||||||||||||||||
Issuance of warrants | — | — | — | — | 149,994 | — | — | 149,994 | ||||||||||||||||||||||||
Issuance of broker warrants | — | — | — | — | 16,144 | — | — | 16,144 | ||||||||||||||||||||||||
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 | 3,089,235 | — | — | 3,110,834 | ||||||||||||||||||||||||
Stock-based compensation | — | — | 298,453 | 300 | 759,100 | — | — | 759,400 | ||||||||||||||||||||||||
Balance, June 30, 2020 | — | — | 154,236,692 | 132,420 | 28,262,051 | (588,335 | ) | (29,019,613 | ) | (1,213,477 | ) |
The accompanying notes are an integral part of these condensed consolidated interim financial statements
5
META MATERIALS INC.
CONDENSED CONSOLIDATED INTERIM STATEMENTS OF CASH FLOWS (UNAUDITED)
Six Months Ended | ||||||||
June 30, 2021 | June 30, 2020 | |||||||
$ | $ | |||||||
Cash flows from operating activities: | ||||||||
Net loss | (49,339,912 | ) | (3,234,029 | ) | ||||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
Non-cash finance income | — | (14,002 | ) | |||||
Non-cash interest expense | 742,174 | 378,485 | ||||||
Non-cash lease expense | 160,437 | — | ||||||
Deferred income tax | (102,526 | ) | (54,347 | ) | ||||
Depreciation and amortization | 1,173,884 | 1,197,123 | ||||||
Unrealized foreign currency exchange loss (gain) | 230,837 | (304,973 | ) | |||||
Loss (gain) on financial instruments, net | 40,540,091 | (1,285,765 | ) | |||||
Change in deferred revenue | 18,302 | (232,986 | ) | |||||
Non-cash government assistance | (472,499 | ) | (182,664 | ) | ||||
Loss on debt s ettlement | 19,253 | — | ||||||
Stock-based compensation | 651,718 | 708,468 | ||||||
Non-cash consulting expense | 12,009 | 43,673 | ||||||
Changes in operating assets and liabilities | 758,381 | (1,480,270 | ) | |||||
Net cash used in operating activities | (5,607,851 | ) | (4,461,287 | ) | ||||
Cash flows from investing activities: | ||||||||
Purchases of intangible assets | (274,579 | ) | (46,977 | ) | ||||
Purchases of property, plant and equipment | (3,040,296 | ) | (538,893 | ) | ||||
Proceeds from reverse takeover | 146,954,733 | 3,072,136 | ||||||
Net cash provided by invest ing activities | 143,639,858 | 2,486,266 | ||||||
Cash flows from financ ing activities: | ||||||||
Proceeds from long-term debt | 1,127,151 | 25,783 | ||||||
Repayments of long-term debt | (53,331 | ) | (190,633 | ) | ||||
Proceeds from government grants | 223,384 | 198,286 | ||||||
Proceeds from unsecured promissory notes | 13,963,386 | — | ||||||
Proceeds from secured convertible debentures | — | 3,630,019 | ||||||
Proceeds from unsecured convertible debentures | — | 693,784 | ||||||
Proceeds from issuance of common stock and warrants, net | — | 598,546 | ||||||
Proceeds from stock option exercises | 113,155 | — | ||||||
Proceeds from warrants exercises | 93,993 | — | ||||||
Proceeds from broker warrants exercises | 16,255 | — | ||||||
Net cash provided by financing activities | 15,483,993 | 4,955,785 | ||||||
Net increase in cash, cash equivalents and restricted cash | 153,516,000 | 2,980,764 | ||||||
Cash, cash equivalents and restricted cash at beginning of the period | 1,395,683 | 407,061 | ||||||
Effects of exchange rate changes on cash, cash equivalents and restricted cash | 156,367 | 3,931 | ||||||
Cash, cash equivalents and restricted cash at end of the period | 155,068,050 | 3,391,756 | ||||||
Supplemental cash flow information | ||||||||
Accrued purchases of property, equipment and patents | 297,345 | 35,724 | ||||||
Right-of-use | 1,730,743 | — | ||||||
Right-of-use | 2,149,381 | — | ||||||
Settlement of | 52,063,432 | — | ||||||
Interest paid on debt | 64,528 | 18,124 |
|
| Three months ended |
| |||||
|
| March 31, 2022 |
|
| March 31, 2021 |
| ||
|
| $ |
|
| $ |
| ||
Cash flows from operating activities: |
|
|
|
|
|
| ||
Net loss |
| $ | (18,434,541 | ) |
| $ | (44,158,519 | ) |
Adjustments to reconcile net loss to net cash used in operating activities: |
|
|
|
|
|
| ||
Non-cash finance income |
|
| (12,920 | ) |
|
| — |
|
Non-cash interest expense |
|
| 126,714 |
|
|
| 358,562 |
|
Non-cash lease expense |
|
| 240,548 |
|
|
| 73,383 |
|
Deferred income tax |
|
| — |
|
|
| (44,679 | ) |
Depreciation and amortization |
|
| 1,672,969 |
|
|
| 590,201 |
|
Unrealized foreign currency exchange (gain) loss |
|
| (140,902 | ) |
|
| 31,339 |
|
Loss on financial instruments, net |
|
| — |
|
|
| 40,004,921 |
|
Change in deferred revenue |
|
| (79,146 | ) |
|
| 565,801 |
|
Non-cash government assistance |
|
| (3,047 | ) |
|
| (348,650 | ) |
Loss on debt settlement |
|
| — |
|
|
| 19,253 |
|
Stock-based compensation |
|
| 3,995,442 |
|
|
| 426,794 |
|
Non-cash consulting expense |
|
| 196,541 |
|
|
| — |
|
Changes in operating assets and liabilities |
|
| (6,306,857 | ) |
|
| 88,119 |
|
Net cash used in operating activities |
|
| (18,745,199 | ) |
|
| (2,393,475 | ) |
Cash flows from investing activities: |
|
|
|
|
|
| ||
Purchases of intangible assets |
|
| — |
|
|
| (128,209 | ) |
Purchases of property, plant and equipment |
|
| (1,746,936 | ) |
|
| (1,477,329 | ) |
Proceeds from short-term investments |
|
| 2,884,999 |
|
|
| — |
|
Net cash provided by (used in) investing activities |
|
| 1,138,063 |
|
|
| (1,605,538 | ) |
Cash flows from financing activities: |
|
|
|
|
|
| ||
Proceeds from long-term debt |
|
| — |
|
|
| 1,096,262 |
|
Repayments of long-term debt |
|
| (91,641 | ) |
|
| (12,098 | ) |
Proceeds from government grants |
|
| — |
|
|
| 223,384 |
|
Proceeds from unsecured promissory notes |
|
| — |
|
|
| 13,963,386 |
|
Proceeds from stock option exercises |
|
| 197,167 |
|
|
| 48,629 |
|
Proceeds from warrants exercises |
|
| 169,575 |
|
|
| 47,839 |
|
Net cash provided by financing activities |
|
| 275,101 |
|
|
| 15,367,402 |
|
Net (decrease) increase in cash, cash equivalents and restricted cash |
|
| (17,332,035 | ) |
|
| 11,368,389 |
|
Cash, cash equivalents and restricted cash at beginning of the period |
|
| 47,434,472 |
|
|
| 1,395,683 |
|
Effects of exchange rate changes on cash, cash equivalents and restricted cash |
|
| 126,233 |
|
|
| 108,578 |
|
Cash, cash equivalents and restricted cash at end of the period |
| $ | 30,228,670 |
|
| $ | 12,872,650 |
|
Supplemental cash flow information |
|
|
|
|
|
| ||
Accrued purchases of property, equipment and patents |
| $ | 1,772,821 |
|
| $ | 127,456 |
|
Right-of-use assets obtained in exchange for lease liabilities |
|
| 146,822 |
|
|
| 1,300,573 |
|
Settlement of liabilities in common stock |
|
| — |
|
|
| 52,063,431 |
|
Interest paid on debt |
|
| — |
|
|
| 64,528 |
|
The accompanying notes are an integral part of these condensed consolidated interim financial statements
6
META MATERIALS INC.
NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS (Unaudited)
1. Corporate information
Meta Materials Inc. (the(also referred to herein as the “Company” or, “META”, “we”, “us”, “our”, or “Resulting Issuer”) is a smart materials and photonics company specializing in metamaterial research and products, nanofabrication, and computational electromagnetics. The Company’sOur registered office is located at 5700 West Plano Pkwy, Plano, Texas 7509385 Swanson Road, Boxborough, Massachusetts 01719 and itsour principal executive office is located at 1 Research Drive, Halifax, Nova Scotia, Canada.
On March 5, 2020, MMI 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 the CPM. In connection with the RTO, CPM changed its name effective March 2, 2020 from Continental Precious Minerals Inc. to Metamaterial Inc. (“MMI” or “Resulting Issuer”). The common stock of CPM were delisted from the TSX Venture Exchange on March 4, 2020 and were posted for trading on the Canadian Securities Exchange (“CSE”) on March 9, 2020 under the symbol “MMAT”.
On June 28, 2021, and pursuant to the completion of the Arrangement Agreement, completion, the Companywe began trading on the NASDAQ under the symbol “MMAT” while MMI common stock werewas 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 stockshares 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
2. Significant accounting policies
Basis of presentation
These unaudited condensed consolidated interim financial statements do not include all of the information and notes required by US GAAP for annual financial statements. Accordingly, these unaudited condensed consolidated interim financial statements should be read in conjunction with the Company’sour audited consolidated financial statements and notes for the yearyears ended December 31, 2021, 2020 and 2019, filed with the Securities and Exchange Commission (“SEC”) on Form 8-K/10-K/A.
Recently Adopted Accounting Pronouncements: We currently have a functional currency different from the presentation currency are translated into the presentation currency as follows:
Recently Issued Accounting Pronouncements: We currently have been eliminated upon consolidation.
3. Acquisitions and net realizable value. Cost is determined using the first-in, first-out method (FIFO) for all inventory. Inventory consumed during researchpreferred stock liability
Torchlight RTO
On June 28, 2021, We and development activities is recorded as a researchour subsidiaries, Canco and development expense.
7
Nanotech acquisition
On October 5, 2021, a wholly-owned subsidiary of the outstandingCompany purchased 100% of the common stock of Nanotech Security Corp. ("Nanotech") at CA$1.25 per share. In addition, the Company aftertransaction price included the settlement of certain Nanotech share exchange; (ii) a majorityawards outstanding immediately prior to the closing of the directorsagreement. The consideration paid to the shareholders under the agreement resulted in a total purchase price of $72.1 million (CA$90.8 million) and the Company are also directors of MMI; and (iii)difference between 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 condensed consolidated interim financial statements are those of MMI prior to June 28, 2021 and exclude the balance sheets, results of operations and comprehensive loss, statements of cash flows and stockholders’ equity of Torchlight prior to June 28, 2021.
Other considerations
As of and for the period ended March 31, 2022, no changes have been made to the provisional purchase price allocations of the pre-existing debt owing from MMI to Torchlight. The impact ofTorchlight RTO and the business combination on the post-acquisition period was not significant.
We believe that information gathered to date provides a reasonable basis for estimating the fair value of assets acquired and liabilities assumed, however the Company iswe are waiting for additional information necessary to finalize these fair values including updated valuations for Oilassessment of any tax assets and natural gas propertiesliabilities and the Preferred stock liability included as part of the consideration.tax position in different jurisdictions. Therefore, the provisional measurements of fair value set forth below are subject to change. The Company expectsWe expect to complete the purchase price allocationallocations as soon as practicable but no later than one year from the acquisition date. The following table summarizes the preliminary allocation of the purchase price to the assets acquired on a relative fair value basis:
4. Related party transactions
As of June 30, 2021March 31, 2022 and December 31, 2020,2021, receivables due from a related party (Lamda Guard Technologies Ltd, or “LGTL”) were $57,658$10,314 and $NaN,$10,657, respectively. On
5. Assets held for sale
As of March 16,31, 2022 and December 31, 2021, MMI convertedassets held for sale represent the acquired oil and natural gas properties from the Torchlight RTO.
Orogrande Project, West Texas
Our outstanding drilling obligation 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.
During the three months ended March 31, 2022, we have incurred an amountadditional $1.1 million in cost to ensure that compliance with the relevant leases was maintained.
The Orogrande Project ownership as of $290,230 owing to LGTL into 81,584 MMI common stock for a price per share of CA$4.51. The conversionprice of CA$4.51 per share represented a 10% premium to the CA$4.10
|
| 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 condensed consolidated interim statementsMidland Basin in West Texas
As part of changes in stockholders’ equity at fair value at the timeour review of conversion and recorded the difference of
8
Total reserve estimates made in the new engineering reserve report were lower than those previously made and used in the valuation for the Hazel Project property as of December 31, 2021. This resulted in $3.5 million decrease in the fair value of the extinguishedpreferred share liability, and a corresponding impairment for the same amount to Assets Held for Sale, such that the fair value of the Hazel Project property as a loss on debt settlement in the condensed consolidated interim statements of operations and comprehensive loss.
6. Inventory
Inventory consists of photosensitive materials, lenses, laser protection film and finished eyewear, and is comprised of the following:
|
| March 31, |
|
| December 31, |
| ||
Raw materials |
| $ | 291,191 |
|
| $ | 196,868 |
|
Supplies |
|
| 17,349 |
|
|
| 8,886 |
|
Work in process |
|
| 40,804 |
|
|
| 30,636 |
|
Finished goods |
|
| 17,615 |
|
|
| 29,328 |
|
Total inventory |
| $ | 366,959 |
|
| $ | 265,718 |
|
June 30, 2021 | December 31, 2020 | |||||||
$ | $ | |||||||
Raw materials | 281,065 | 378,265 | ||||||
Supplies | 14,786 | 14,414 | ||||||
Work in process | 72,442 | 69,381 | ||||||
Finished goods | 0 | 1,322 | ||||||
Total inventory | 368,293 | 463,382 | ||||||
7. Property, plant and equipment, net
Property, plant and equipment consist of the following:
|
| Useful life |
| As of |
| |||||
|
| (years) |
| March 31, |
|
| December 31, |
| ||
Land |
| N/A |
| $ | 476,152 |
|
| $ | 469,317 |
|
Building |
| 25 |
|
| 5,545,952 |
|
|
| 5,509,403 |
|
Computer equipment |
| 3-5 |
|
| 295,481 |
|
|
| 262,320 |
|
Computer software |
| 1 |
|
| 281,667 |
|
|
| 277,717 |
|
Manufacturing equipment |
| 2-5 |
|
| 22,603,569 |
|
|
| 17,762,405 |
|
Office furniture |
| 5-7 |
|
| 584,447 |
|
|
| 525,961 |
|
Enterprise Resource Planning software |
| 5 |
|
| 214,224 |
|
|
| 211,149 |
|
Leasehold Improvements |
| 5 |
|
| 1,346,287 |
|
|
| 236,251 |
|
Assets under construction |
| N/A |
|
| 6,545,468 |
|
|
| 8,872,695 |
|
|
|
|
|
| 37,893,247 |
|
|
| 34,127,218 |
|
Accumulated depreciation and impairment |
|
|
|
| (7,915,463 | ) |
|
| (7,109,104 | ) |
|
|
|
| $ | 29,977,784 |
|
| $ | 27,018,114 |
|
Useful life (years) | June 30, 2021 $ | December 30, 2021 $ | ||||||||||
Computer equipment | 3-5 | 187,131 | 163,856 | |||||||||
Computer software | 1 | 263,549 | 256,554 | |||||||||
Manufacturing equipment | 2-5 | 7,932,152 | 6,645,986 | |||||||||
Office furniture | 5-7 | 108,408 | 99,234 | |||||||||
Enterprise Resource Planning software | 5 | 215,987 | 210,254 | |||||||||
Assets under construction | N/ A | 2,545,012 | 424,393 | |||||||||
11,252,239 | 7,800,277 | |||||||||||
Accumulated depreciation and impairment | (5,870,043 | ) | (5,039,106 | ) | ||||||||
5,382,196 | 2,761,171 | |||||||||||
Depreciation expense was $362,054$754,957 and $393,351$361,773 for the three months ended June 30,March 31, 2022, and March 31, 2021, and 2020, respectively, and $723,827 and $812,046 for the six months ended June 30, 2021 and 2020, respectively.
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’sour corporate bank account and credit card and includes all property, plant and equipment and intangible assets.
9
8. Long-term debt
|
| March 31, |
|
| December 31, |
| ||
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 March 31, 2022, the amount drawn down on the loan, net of repayments, is CA$89,286 (December 31, 2021 - CA$107,143). |
| $ | 68,497 |
|
| $ | 80,390 |
|
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 March 31, 2022, the amount drawn down on the loan is CA$2,924,615 (December 31, 2021 - CA$2,924,615). |
|
| 1,728,368 |
|
|
| 1,666,764 |
|
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 March 31, 2022, the amount drawn down on the loan, net of repayments, is CA$2,687,500 (December 31, 2021 - CA$2,781,250). |
|
| 1,313,195 |
|
|
| 1,319,130 |
|
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 March 31, 2022, the amount drawn down on the loan, net of repayments, is CA$86,111 (December 31, 2021 - CA$90,278). |
|
| 41,466 |
|
|
| 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 March 31, 2022, the amount drawn down on the loan is CA$390,000 (December 31, 2021 - CA$390,000). |
|
| 133,059 |
|
|
| 120,154 |
|
|
|
| 3,284,585 |
|
|
| 3,228,449 |
|
Less: current portion |
|
| 363,654 |
|
|
| 491,278 |
|
|
| $ | 2,920,931 |
|
| $ | 2,737,171 |
|
13
Six months ended June 30, 2021 $ | Year ended December 31, 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 | — | (258,480 | ) | (258,480 | ) | — | (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 | ) | — | (23,656,365 | ) | — | — | — | ||||||||||||||||
Elimination pursuant to Torchlight RTO (note 3) | — | (11,322,637 | ) | (11,322,637 | ) | — | — | — | ||||||||||||||||
Ending balance | 0 | 0 | 0 | 538,020 | 665,215 | 1,203,235 | ||||||||||||||||||
shareholder will provide up to CA$5,500,000 in debt financing (the “Bridge Loan”) to fund MMI’s continued operations while MMI work 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. |
2 The carrying amount of the conversion dateACOA AIF loan is reviewed each reporting period and recognized anon-cashrealized fair value lossadjusted as required to reflect management’s best estimate of $19,163,417future 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 being recorded as deferred government assistance, which is being amortized over the full amountuseful life of $23,656,365 was reclassified intothe associated equipment. We recorded the amortization expense for the three months ended March 31, 2022 of $3,047 (three months ended March 31, 2021—$36,020) as government assistance in the condensed consolidated interim statements of changes in stockholders’ equity.
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 |
Six months ended June 30, 2021 $ | Year ended December 31, 2020 $ | |||||||
Beginning balance | 5,545,470 | 0 | ||||||
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 | 0 | 5,545,470 | ||||||
9. Capital stock
Common stock
Authorized: 1,000,000,000 common stock.MMI remeasured the liability as of the conversion date and recognized a non-cash realized fair value loss ofshares, $16,408,482 and the full amount of $22,118,782 was reclassified into the condensed consolidated interim statements of changes in stockholders’ equity. All security interests held by BDC on assets of MMI were immediately discharged.
Six months ended June 30, 2021 | Year ended December 31, 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 | 54,978 | ||||||
Conversion to common stock | (5,769,475 | ) | — | |||||
Ending balance | — | 1,825,389 | ||||||
June 30, 2021 $ | December 31, 2020 $ | |||||||
ACOA Business Development Program (“BDP”) 2012 interest-free loan 1 COVID-19 outbreak. As at June 30, 2021, the amount drawn down on the loan, net of repayments, is CA$160,715 (2020 - CA$178,571). | 107,965 | 129,384 | ||||||
ACOA Atlantic Innovation Fund (“AIF”) 2015 interest-free loan 1,2 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 June 30, 2021, the amount drawn down on the loan is $CA3,000,000 (2020 - CA$3,000,000). | 1,628,440 | 1,458,954 | ||||||
ACOA BDP 2018 interest-free loan 1,3 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 June 30, 2021, the amount drawn down on the loan, net of repayments, is CA$3,000,000 (2020 - CA$3,000,000). | 1,397,318 | 1,285,307 | ||||||
ACOA BDP 2019 interest-free loan 1 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 June 30, 2021, the amount drawn down on the loan is CA$62,165 (2020 - CA$62,165). | 45,166 | 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 June 30, 2021, the amount drawn down on the loan is CA$390,000 (2020 - $NaN). | 103,163 | 0 | ||||||
Shareholder loan bearing no interest. The loan proceeds are provided as collateral to a letter of credit and are recorded as restricted cash. The loan is repayable upon any reduction of the letter of credit. In the event that the bank draws on the collateral or the collateral has not been returned in full by December 31, 2021, then the outstanding balance of collateral will be considered a demand promissory note with 1% interest charge per month compounded monthly beginning January 1, 2022. | 806,842 | 0 | ||||||
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 stock. | 0 | 130,265 | ||||||
4,088,894 | 3,034,048 | |||||||
Less: current portion | 1,349,274 | 290,544 | ||||||
2,739,620 | 2,743,504 | |||||||
All references to numbers of common stockshares and amounts in the condensed consolidated interim statements of changes in stockholder’s equity and in the notes to the condensed consolidated interim financial statements have been retroactively restated to reflect as if the Torchlight RTO had taken place as of the beginning of the earliest period presented.
During the amountsthree months ended March 31, 2022, 1,988,617 warrants and were exercised to purchase 1,623,700 common shares where most warrant holders elected cashless exercise and consequently, the difference of 364,917 shares was withheld to cover the exercise cost.
10
During the three months ended March 31, 2022, 730,249 stock options were exercised to purchase an equal number of common stock issuedshares.
Warrants
The following table summarizes the changes in warrants of the Company:our warrants:
|
| Three months ended |
| |||||
|
| March 31, |
| |||||
|
| Number of |
|
|
|
| ||
|
| warrants (#) |
|
| Amount |
| ||
Outstanding, December 31, 2021 |
|
| 5,264,959 |
|
| $ | 6,957,974 |
|
Exercised |
|
| (1,988,617 | ) |
|
| (251,915 | ) |
Expired |
|
| (692,462 | ) |
|
| (101,156 | ) |
Outstanding, March 31, 2022 |
|
| 2,583,880 |
|
| $ | 6,604,903 |
|
Six months ended June 30, 2021 | Year ended December 31, 2020 | |||||||||||||||
Number of | Number of | |||||||||||||||
warrants 1 | Amount 1 | warrants 1 | Amount 1 | |||||||||||||
# | $ | # | $ | |||||||||||||
Balance, beginning of period | 3,046,730 | 402,883 | 1,590,866 | 132,299 | ||||||||||||
Issued | — | — | 1,455,864 | 166,916 | ||||||||||||
Adjustment to 2019 warrants | — | — | — | 103,668 | ||||||||||||
Exercised | (238,806 | ) | (35,603 | ) | — | — | ||||||||||
Fair value of deemed issuance to Torchlight | 426,639 | 2,943,370 | — | — | ||||||||||||
Balance, end of period | 3,234,563 | 3,310,650 | 3,046,730 | 402,883 | ||||||||||||
Broker warrants
The following table summarizes the changes in our broker warrantswarrants:
|
| Three months ended |
| |||||
|
| March 31, |
| |||||
|
| Number of |
|
|
|
| ||
|
| warrants (#) |
|
| Amount |
| ||
Outstanding, December 31, 2021 |
|
| 13,887 |
|
| $ | 1,826 |
|
Expired |
|
| (13,887 | ) |
|
| (1,826 | ) |
Outstanding, March 31, 2022 |
|
| — |
|
| $ | — |
|
10. Stock-based payments
On December 3, 2021, our shareholders 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 Company:
Six months ended | Year ended | |||||||||||||||
June 30, 2021 | December 31, 2020 | |||||||||||||||
Number of | Number of | |||||||||||||||
warrants 1 | Amount 1 | warrants 1 | Amount 1 | |||||||||||||
# | $ | # | $ | |||||||||||||
Balance, beginning of period | 97,542 | 16,144 | 0 | 0 | ||||||||||||
Issued | — | — | 97,542 | 16,144 | ||||||||||||
Exercised | (61,331 | ) | (10,892 | ) | — | — | ||||||||||
Balance, end of period | 36,211 | 5,252 | 97,542 | 16,144 | ||||||||||||
The fair value2021 Equity Incentive Plan allows the grants of warrantsnon-statutory stock options, restricted stock, restricted stock units ("RSUs"), stock appreciation rights, performance units and broker warrants issued were estimated using the Black-Scholes option pricing model with the following inputsperformance shares to employees, directors, and assumptions:
Six months ended | Year ended | |||
June 30, 2021 | December 31, 2020 | |||
Risk free interest rate | 0.45% - 0.86% | 0.80% - | ||
Expected volatility | 93% | 134% | ||
Expected dividend yield | 0% | 0% | ||
Expected forfeiture rate | 0% | 0% | ||
Common stock price | 7.96 | 1.70 | ||
Exercise price per common stock | $0.85 - $2.80 | $1.70 - $2.475 | ||
Expected term of warrants | 2.20 | 2 years |
DSU Plan
On March 28, 2013, the Companywe implemented a Deferred Stock Unit (DSU) Plan for itsour 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 stock of the Company.share. Eligible individuals are entitled to receive all DSUs (including dividends and other adjustments) no later than December 11st of the first calendar year commencing after the time of termination of their services.
11
As of March 5, 202031, 2022, there were 3,647,026 outstanding DSUs. There were 0 new DSUs issued, 0 DSUs exercised and pursuant0 DSUs expired during the three months ended March 31, 2022.
RSU Plan
Each unit is convertible at the option of the holder into one common share of our shares upon meeting the vesting conditions.
Total stock-based compensation expense related to RSUs included in the CPM RTO, each MTI DSUcondensed consolidated interim statements of operations was converted into 2.75 MMI DSUs.as follows:
|
| Three months ended |
| |
|
| March 31, |
| |
|
| 2022 |
| |
Cost of sales |
| $ | 50,653 |
|
Selling & marketing |
|
| 15,493 |
|
General & administrative |
|
| 120,165 |
|
Research & development |
|
| 97,211 |
|
|
| $ | 283,522 |
|
The following table summarizes the change in outstanding DSUs of the Company:RSUs:
|
| Number of |
|
| Weighted |
| ||
Outstanding, December 31, 2021 |
|
| 300,000 |
|
| $ | 6.43 |
|
Granted |
|
| 3,832,278 |
|
|
| 1.71 |
|
Outstanding, March 31, 2022 |
|
| 4,132,278 |
|
| $ | 2.05 |
|
X |
|
|
|
|
|
| ||
Vested, March 31, 2022 |
|
| 300,000 |
|
| $ | 6.43 |
|
12
Six months ended June 30, 2021 | Year ended December 31, 2021 | |||||||
# 1 | # 1 | |||||||
Outstanding, beginning of period | 3,455,224 | 3,977,820 | ||||||
Converted into common stock | 0 | (522,596 | ) | |||||
Outstanding, end of period | 3,455,224 | 3,455,224 | ||||||
Issue price | June 30, 2021 | December 31, 2020 | ||||||
Number of units # 1 | Number of units # 1 | |||||||
CA$0.27 | 3,348,675 | 3,348,675 | ||||||
CA$0.51 | 106,549 | 106,549 | ||||||
3,455,224 | 3,455,224 | |||||||
Employee Stock Option Plan
Each stock option is convertible at the option of the holder into one commonstockthe Company.
-1
|
| Three months ended |
| |||||
|
| March 31, |
| |||||
|
| 2022 |
|
| 2021 |
| ||
Selling & marketing |
| $ | 4,393 |
|
| $ | 11,269 |
|
General & administrative |
|
| 3,283,469 |
|
|
| 243,890 |
|
Research & development |
|
| 424,058 |
|
|
| 171,635 |
|
|
| $ | 3,711,920 |
|
| $ | 426,794 |
|
Three months ended | Six months ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||||||
Selling & Marketing | 9,690 | 18,523 | 20,959 | 37,651 | ||||||||||||
General & Administrative | 104,727 | 230,085 | 348,617 | 522,222 | ||||||||||||
Research & Development | 110,507 | 117,156 | 282,142 | 148,595 | ||||||||||||
224,924 | 365,764 | 651,718 | 708,468 | |||||||||||||
The following table summarizes the change in our outstanding stock options of the Company:
|
| Number of |
|
| Weighted |
|
| Weighted |
|
| Aggregate intrinsic |
| ||||
Outstanding, December 31, 2021 |
|
| 21,404,641 |
|
| $ | 0.36 |
|
| $ | 7.34 |
|
| $ | 56,924,556 |
|
Granted |
|
| 6,839,449 |
|
|
| 2.02 |
|
|
|
|
|
|
| ||
Forfeited |
|
| (8,732 | ) |
|
| 0.27 |
|
|
|
|
|
|
| ||
Exercised |
|
| (730,249 | ) |
|
| 0.27 |
|
|
|
|
|
|
| ||
Outstanding, March 31, 2022 |
|
| 27,505,109 |
|
| $ | 0.78 |
|
| $ | 5.34 |
|
| $ | 27,675,251 |
|
X |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Exercisable, March 31, 2022 |
|
| 19,407,982 |
|
| $ | 0.73 |
|
| $ | 7.31 |
|
| $ | 21,320,991 |
|
Weighted Average exercise price per stock option $ | Six months ended June 30, 2021 Number of options # 1 | Weighted Average exercise price per stock option $ | Year ended December 31, 2020 Number of options # 1 | |||||||||
Outstanding, beginning of period | CA$0.33 | 24,477,507 | CA$0.33 | 14,502,303 | ||||||||
Issued to CPM executives and directors pursuant to CPM RTO | — | CA$0.19 | 1,291,500 | |||||||||
Granted | — | CA$0.34 | 13,402,080 | |||||||||
Exercised | CA$0.34 | (413,917 | ) | — | ||||||||
Forfeited | CA$0.34 | (33,825 | ) | CA$0.34 | (2,627,510 | ) | ||||||
Expired | — | CA$0.27 | (2,090,866 | ) | ||||||||
Fair value of deemed issuance to Torchlight | US$1.75 | 1,500,000 | — | |||||||||
Outstanding, end of period | CA$0.44 | 25,529,765 | CA$0.33 | 24,477,507 | ||||||||
Below is a summary of the outstanding options as at June 30, 2021:
Exercise price $ | Number outstanding # 1 | Number exercisable # 1 | ||||||
CA$0.34 | 23,102,653 | 13,562,029 | ||||||
CA$0.15 | 558,112 | 558,113 | ||||||
CA$0.19 | 369,000 | 369,000 | ||||||
US$2.00 | 1,125,000 | 1,125,000 | ||||||
US$1.00 | 375,000 | 375,000 | ||||||
25,529,765 | 15,989,142 | |||||||
|
|
| March 31, |
|
| December 31, |
| |||||||||||
|
|
| 2022 |
|
| 2021 |
| |||||||||||
Exercise price |
|
| Number outstanding |
|
| Number exercisable |
|
| Number outstanding |
|
| Number exercisable |
| |||||
$ | 0.27 |
|
|
| 18,328,548 |
|
|
| 14,034,258 |
|
|
| 19,067,529 |
|
|
| 10,893,918 |
|
| 0.12 |
|
|
| 518,112 |
|
|
| 518,113 |
|
|
| 518,112 |
|
|
| 518,112 |
|
| 0.15 |
|
|
| 369,000 |
|
|
| 369,000 |
|
|
| 369,000 |
|
|
| 369,000 |
|
| 2.00 |
|
|
| 1,075,000 |
|
|
| 1,075,000 |
|
|
| 1,075,000 |
|
|
| 1,125,000 |
|
| 1.00 |
|
|
| 375,000 |
|
|
| 375,000 |
|
|
| 375,000 |
|
|
| 325,000 |
|
| 3.47 |
|
|
| 200,000 |
|
|
| 200,000 |
|
|
| — |
|
|
| — |
|
| 7.96 |
|
|
| 300,000 |
|
|
| 300,000 |
|
|
| — |
|
|
| — |
|
| 1.97 |
|
|
| 1,894,111 |
|
|
| 1,894,111 |
|
|
| — |
|
|
| — |
|
| 1.58 |
|
|
| 4,445,338 |
|
|
| 642,500 |
|
|
| — |
|
|
| — |
|
|
|
|
| 27,505,109 |
|
|
| 19,407,982 |
|
|
| 21,404,641 |
|
|
| 13,231,030 |
|
Exercise price $ | Number outstanding # 1 | Number exercisable # 1 | ||||||
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 | |||||||
the |
The fair value of options granted was estimated at the grant date using the following weighted-average assumptions:
Three months ended | ||||
March 31, | ||||
Grant date fair value | 1.16 | |||
Weighted average expected volatility | 87% | |||
Weighted average risk-free interest rate | 1.78% | |||
Weighted average expected life of the options | 5.43 years |
13
Six months | Year ended | |||||||
ended | December 31, | |||||||
June 30, 2021 | 2020 | |||||||
Dividend yield [%] | — | — | ||||||
Volatility | 84 % | 52%-134 % | ||||||
Risk-free interest rate | 0.73 % | 0.73 % | ||||||
Expected term (in years) | 1 year | 7.48 years |
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.
11. Income taxes
We estimate our annual effective income tax rate in recording itsour quarterly provision for income taxes in the various jurisdictions in which it operates. Statutory tax rate changes and other significant or unusual items are recognized as discrete items in the quarter in which they occur.
Our effective tax rate for the three and six months ended June 30, 2021 and 2020March 31, 2022 differs from the statutory rates due to valuation allowance as well as different domestic and foreign statutory tax rates.
Deferred tax recovery for the three and six months ended June 30,March 31, 2022 was $NaN (three months ended March 31, 2021 and 2020 as follows:- $44,679).
|
| Three months ended |
| |||||
|
| March 31, |
| |||||
|
| 2022 |
|
| 2021 |
| ||
Deferred tax recovery |
| $ | — |
|
| $ | 44,679 |
|
Three months ended | Six months ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||||||
Deferred tax recovery | 57,847 | 10,425 | 102,526 | 54,347 |
We 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.
12. Net loss per share
The following table sets forth the calculation of basic and diluted net loss per share during the periods presented:
|
| Three months ended |
| |||||
|
| March 31, |
| |||||
|
| 2022 |
|
| 2021 |
| ||
Numerator: |
|
|
|
|
|
| ||
Net loss |
| $ | (18,434,541 | ) |
| $ | (44,158,519 | ) |
Denominator: |
|
|
|
|
|
| ||
Weighted-average shares, basic |
|
| 285,224,469 |
|
|
| 168,864,762 |
|
Weighted-average shares, diluted |
|
| 285,224,469 |
|
|
| 168,864,762 |
|
Net loss per share |
|
|
|
|
|
| ||
Basic |
| $ | (0.06 | ) |
| $ | (0.26 | ) |
Diluted |
| $ | (0.06 | ) |
| $ | (0.26 | ) |
Three months ended | Six months ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||||||
Numerator: | ||||||||||||||||
Net loss | (5,181,392 | ) | (1,816,741 | ) | (49,339,912 | ) | (3,234,029 | ) | ||||||||
Denominator: | ||||||||||||||||
Weighted-average shares, basic | 197,911,144 | 155,931,625 | 183,485,933 | 120,093,443 | ||||||||||||
Weighted-average shares, diluted | 197,911,144 | 155,931,625 | 183,485,933 | 120,093,443 | ||||||||||||
Net loss per share | ||||||||||||||||
Basic | (0.03 | ) | (0.01 | ) | (0.27 | ) | (0.03 | ) | ||||||||
Diluted | (0.03 | ) | (0.01 | ) | (0.27 | ) | (0.03 | ) |
The following potentially dilutive shares were not included in the calculation of diluted shares above as the effect would have been anti-dilutive:
|
| Three months ended |
| |||||
|
| March 31, |
| |||||
|
| 2022 |
|
| 2021 1 |
| ||
Options |
| $ | 27,505,109 |
|
| $ | 24,264,957 |
|
Warrants |
|
| 2,583,880 |
|
|
| 3,000,844 |
|
DSUs |
|
| 3,647,026 |
|
|
| 3,455,224 |
|
RSUs |
|
| 4,132,278 |
|
|
| - |
|
|
| $ | 37,868,293 |
|
| $ | 30,721,025 |
|
1All references to numbers in comparative figures have been retroactively restated to reflect the number of stock of the legal parent (accounting acquiree) issuable following the reverse acquisition. The numbers of options, warrants, and DSUs issued pre-Torchlight RTO have been multiplied by 1.845 Torchlight conversion ratio.
14
Three months ended | Six months ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||||||
Convertible debt | — | 7,918,988 | — | 7,918,988 | ||||||||||||
Options | 25,529,765 | 22,905,604 | 25,529,765 | 22,905,604 | ||||||||||||
Warrants | 3,270,774 | 3,144,272 | 3,270,774 | 3,144,272 | ||||||||||||
DSUs | 3,455,224 | 3,455,224 | 3,455,224 | 3,455,224 | ||||||||||||
32,255,763 | 37,424,088 | 32,255,763 | 37,424,088 | |||||||||||||
13. Additional cash flow information
The net changes in
|
| Three months ended |
| |||||
|
| March 31, |
| |||||
|
| 2022 |
|
| 2021 |
| ||
Grants receivable |
| $ | 146,950 |
|
| $ | 30,436 |
|
Inventory |
|
| (96,285 | ) |
|
| 126,939 |
|
Other receivables |
|
| (821,774 | ) |
|
| (66,258 | ) |
Prepaid expenses |
|
| 74,343 |
|
|
| 30,782 |
|
Other current assets |
|
| (417,054 | ) |
|
| (13,208 | ) |
Trade payables |
|
| (5,062,908 | ) |
|
| (11,694 | ) |
Due from (to) related party |
|
| (54,051 | ) |
|
| (8,878 | ) |
Operating lease Right-of-use Asset |
|
| (56 | ) |
|
| - |
|
Operating lease liabilities |
|
| (76,022 | ) |
|
| - |
|
|
| $ | (6,306,857 | ) |
| $ | 88,119 |
|
Six months ended June 30, 2021 | Six months ended June 30, 2020 | |||||||
$ | $ | |||||||
Grants receivable | (74,552 | ) | 95,718 | |||||
Inventory | 104,540 | (146,872 | ) | |||||
Other receivables | (37,092 | ) | 15,148 | |||||
Prepaid expenses | (135,402 | ) | 68,185 | |||||
HST receivable | 5,830 | 108,901 | ||||||
Trade payables | 514,644 | (1,620,827 | ) | |||||
Due from (to) related party | (17,839 | ) | (523 | ) | ||||
Operating lease Right-of-use | 408,201 | — | ||||||
Operating lease liabilities | (9,949 | ) | — | |||||
758,381 | (1,480,270 | ) | ||||||
14. Fair value measurements
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, due from (to) related parties and trade and other payables are classified at level 1 as they 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 value of assets held for sale and preferred stock dividends areis classified at level 3 as they are assessed on provisionalthe fair value of the O&G assets was estimated by obtaining a valuation study performed by Roth Capital Inc. and a subsequent engineering reserve report by Petech.
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 untilfor the company has additional information necessary to finalize those fair values. The company expects to completevalue measurement of the purchase price allocationpreferred stock liability as soon as practicable but no later than one year from the acquisition date (note 3).
The fair values of the funding obligation, operating lease liabilities, and long-term debt arewould 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:
|
| March 31, |
|
| December 31, |
| ||||||||||
Financial liability |
| Carrying value |
|
| Fair value |
|
| Carrying value |
|
| Fair value |
| ||||
Funding obligation |
| $ | 286,182 |
|
| $ | 172,819 |
|
| $ | 268,976 |
|
| $ | 170,338 |
|
Operating lease liabilities |
|
| 4,459,159 |
|
|
| 5,088,149 |
|
|
| 4,370,635 |
|
|
| 6,149,369 |
|
Long-term debt |
|
| 3,284,585 |
|
|
| 2,201,679 |
|
|
| 3,228,449 |
|
|
| 2,303,648 |
|
15
15. Revenue
We have 1 operating segment based on how management internally evaluates separate financial information, business activities and management responsibility.
June 30, 2021 | December 31, 2020 | |||||||||||||||
Carrying value | Fair value | Carrying value | Fair value | |||||||||||||
Financial liability | $ | $ | $ | $ | ||||||||||||
Funding obligation | 859,828 | 625,413 | 776,884 | 571,839 | ||||||||||||
Operating lease liabilities | 1,424,881 | 1,076,063 | 270,581 | 270,641 | ||||||||||||
Long-term debt | 4,088,894 | 3,326,454 | 3,034,048 | 2,734,931 |
Revenue is disaggregated as follows:
|
| Three months ended |
| |||||
|
| March 31, |
| |||||
|
| 2022 |
|
| 2021 |
| ||
Product sales |
| $ | 168,127 |
|
| $ | 22,047 |
|
Contract revenue 1 |
|
| 2,706,568 |
|
|
| 408,920 |
|
Other development revenue |
|
| 100,000 |
|
|
| 165,336 |
|
Development revenue |
|
| 2,806,568 |
|
|
| 574,256 |
|
|
| $ | 2,974,695 |
|
| $ | 596,303 |
|
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.
Customer concentration
A significant amount of our revenue is derived from contracts with major customers. For the three months ended March 31, 2022, revenue from 1 customer accounted for $2,668,144 or 90% of total revenue. Nanotech currently derives a significant portion of its revenue from contract services with a G10 central bank. In 2021, Nanotech entered into 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.
For the three months ended March 31, 2021, we had 1 customer that accounted for $245,229 or 41% of total revenue.
Three months ended | Six months ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||||||
Product sales | 1,953 | — | 24,000 | 1,922 | ||||||||||||
Contract revenue 1 | 545,547 | 152,667 | 954,467 | 306,138 | ||||||||||||
Other development revenue | 76,820 | 57,677 | 242,156 | 342,623 | ||||||||||||
Development revenue | 622,367 | 210,344 | 1,196,623 | 648,761 | ||||||||||||
624,320 | 210,344 | 1,220,623 | 650,683 | |||||||||||||
June 30, 2021 | December 31, 2020 | |||||||
$ | $ | |||||||
Covestro - Cooperation Framework | 373,215 | — | ||||||
Satair A/S-exclusive rights | 786,491 | 815,310 | ||||||
Satair A/S-advance against PO | 502,179 | 488,847 | ||||||
LM Aero-MetaSOLAR commercialization | 379,289 | 646,135 | ||||||
US Deferred Revenue | 75,000 | 75,000 | ||||||
Innovate UK-R&D tax credit | 19,007 | 18,778 | ||||||
2,135,181 | 2,044,070 | |||||||
Less current portion | 1,453,556 | 1,239,927 | ||||||
681,625 | 804,143 | |||||||
16. Loss on financial instruments, net
|
| Three months ended |
| |||||
|
| March 31, |
| |||||
|
| 2022 |
|
| 2021 |
| ||
Loss on unsecured convertible promissory notes – Bridge loan |
| $ | — |
|
| $ | (19,163,417 | ) |
Gain on unsecured convertible promissory notes – Torchlight notes |
|
| — |
|
|
| 191,973 |
|
Loss on secured convertible debentures |
|
| — |
|
|
| (16,957,029 | ) |
Loss on unsecured convertible debentures |
|
| — |
|
|
| (4,076,448 | ) |
|
| $ | — |
|
| $ | (40,004,921 | ) |
Three months ended | Six months ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||||||
Gain on secured convertible promissory notes | — | — | — | 5,235 | ||||||||||||
Loss on unsecured convertible promissory notes – Bridge loan | — | — | (19,163,417 | ) | — | |||||||||||
Gain (Loss) on unsecured convertible promissory notes – Torchlight notes | 535,170 | — | (343,197 | ) | — | |||||||||||
Gain (Loss) on secured convertible debentures | — | 782,723 | (16,957,029 | ) | 782,723 | |||||||||||
Gain (Loss) on unsecured convertible debentures | — | 260,205 | (4,076,448 | ) | 508,277 | |||||||||||
(535,170 | ) | 1,042,928 | (40,540,091 | ) | 1,285,765 | |||||||||||
17. Leases
We entered into a loanthe following lease during the three months ended March 31, 2022:
Burnaby lease expansion
On February 25, 2022, our subsidiary Nanotech entered into an agreement with the lessor in the amount of
16
Total operating lease expense included in the condensed consolidated interim statements of operations and comprehensive loss is as follows:
|
| Three months ended |
| |||||
|
| March 31, |
| |||||
|
| 2022 |
|
| 2021 |
| ||
Operating lease expense |
| $ | 426,428 |
|
| $ | 45,437 |
|
Short term lease expense |
|
| 81,638 |
|
|
| 26,150 |
|
Variable and other lease expense |
|
| 58,817 |
|
|
| 12,710 |
|
Total |
| $ | 566,883 |
|
| $ | 84,297 |
|
We have elected the practical expedient in ASC 842 "Leases" to not capitalize any leases with initial terms of less than twelve months on our balance sheet and include them as short-term lease expense in the condensed consolidated interim statements of operations and comprehensive loss.
Three months ended | Six months ended | |||||||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||||||
Operating lease expense | 175,107 | 68,897 | 318,537 | 138,353 |
Future minimum payments underJune 30, 2021:
Remainder of 2022 |
| $ | 819,471 |
|
2023 |
|
| 1,230,530 |
|
2024 |
|
| 1,235,980 |
|
2025 |
|
| 1,114,417 |
|
2026 |
|
| 961,099 |
|
Thereafter |
|
| 2,987,718 |
|
Total minimum lease payments |
|
| 8,349,215 |
|
Less: interest |
|
| (3,890,056 | ) |
Present value of net minimum lease payments |
|
| 4,459,159 |
|
Less: current portion of lease liabilities |
|
| (782,901 | ) |
Total long-term lease liabilities |
| $ | 3,676,258 |
|
Remainder of 2021 | 186,002 | |||
2022 | 444,258 | |||
2023 | 433,594 | |||
2024 | 360,971 | |||
2025 | 166,774 | |||
Thereafter | 1,208,757 | |||
Total minimum lease payments | 2,800,356 | |||
Less: interest | (1,375,475 | ) | ||
Present value of net minimum lease payments | 1,424,881 | |||
Less: current portion of lease liabilities | (279,832 | ) | ||
Total long-term lease liabilities | 1,145,049 | |||
18. Commitments and contingencies
Legal Matters
On April 30, 2020, our 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 our 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. We have added the manufacturer of one of the tool components that we contend 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 we 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. Our 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, we 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. We are 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.
17
In September 2021, we 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 we produce certain documents and information related to, among other things, the merger involving Torchlight Energy Resources, Inc. and Metamaterial Inc. We are cooperating and intend to continue to cooperate with the SEC’s investigation. We can offer no assurances as to the outcome of this investigation or its potential effect, if any, on us or our results of operation.
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 us, our Chief Executive Officer, our Chief Financial Officer, Torchlight’s former Chairman of the Board of Directors, and Torchlight’s former Chief Executive Officer. 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. The McMillan complaint names the same defendants and asserts the same claims on behalf of the same purported class as the Maltagliati complaint. The complaints, 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 April 11, 2022, the Court held a hearing on motions to consolidate the two actions and to appoint a lead plaintiff or lead plaintiffs, but has not yet ruled on the motions.
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 our current officers and directors, certain former Torchlight officers and directors, and us (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.
Contractual Commitments and Purchase Obligations
18
Remainder of 2022 |
| $ | 976,157 |
|
2023 |
|
| 43,872 |
|
2024 |
|
| 3,115 |
|
|
| $ | 1,023,144 |
|
19. Subsequent events
Subsequent to March 31, 2022, 10,310 stock options were exercised.
On April 5, 2022, Meta Materials Inc. acquired Plasma App Ltd. in a stock for stock transaction valued at
Due to acquire
19
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Management’s Discussion and Analysis (“MD&A”) of the financial condition and results of the operations of Meta Materials Inc. (“META”(also referred to herein as the “Company”, “META”, “we”, “us”, “our”, or the “Company”“Resulting Issuer”) constitutes management’s review of the factors that affected the Company’sour financial and operating performance for the three and six months ended June 30, 2021.March 31, 2022. The condensed consolidated interim financial statements and this Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the consolidated financial statements and notes thereto for the year ended December 31, 20202021 which are contained in Form 8-K/10-K/A filed with the Securities and Exchange Commission or the SEC, on August 12, 2021.May 2, 2022. All financial information is stated in U.S. dollars unless otherwise specified. The Company’sOur condensed consolidated interim financial statements are prepared in accordance with accounting principles generally accepted in the United States, or U.S. GAAP.
Further information about the Companyus and itsour operations can be obtained from the offices of the Company,META, from the Company’sMETA’s website or on EDGAR at www.sec.gov/edgar.shtml.
This MD&A contains certain forward-looking information and forward-looking statements, as defined 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. (collectively(Collectively referred to herein as “forward- looking statements”). These statements relate to future events or the Company’sour future performance. All statements other than statements of historical fact are forward- looking statements. Often, but not always, forward-looking statements can be identified by the use of words such as “plans”, “expects”, “is expected”, “budget”, “scheduled”, “estimates”, “continues”, “forecasts”, “projects”, “predicts”, “intends”, “anticipates” or “believes”, or variations of, or the negatives of, such words and phrases, or statements that certain actions, events or results “may”, “could”, “would”, “should”, “might” or “will” be taken, occur or be achieved. Forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause actual results to differ materially from those anticipated in such forward-looking statements. The forward- lookingforward-looking statements in this MD&A speak only as of the date of this MD&A or as of the date specified in such statements.
Although the Company believeswe believe that the plans, intentions and expectations reflected in this forward-looking information are reasonable, the Companywe cannot be certain that these plans, intentions, or expectations will be achieved. Actual results, performance, or achievements could differ materially from those contemplated, expressed or implied by the forward-looking information contained in this report. Disclosure of important factors that could cause actual results to differ materially from the Company’sour plans, intentions, or expectations are included in this report under the heading Risk Factors.
Forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the Company’sour actual results, performance or achievements to be materially different from any of itsour future results, performance or achievements expressed or implied by forward- lookingforward-looking statements. All forward-looking statements herein are qualified by this cautionary statement. Accordingly, readers should not place undue reliance on forward- looking statements. The Company undertakesWe undertake no obligation to update publicly or otherwise revise any forward- lookingforward-looking statements whether as a result of new information or future events or otherwise, except as may be required by law. If the Company doeswe do update one or more
This Report on Form 10-Q contains references to our trademarks and to trademarks belonging to other entities. Solely for convenience, trademarks and trade names referred to in this Report on Form 10-Q, including logos, artwork and other visual displays, may appear without the
BUSINESS OVERVIEW
Meta Materials Inc. (the(also referred to herein as the “Company” or, “META”, “we”, “us”, “our”, or “Resulting Issuer”) is a smartdeveloper of high-performance functional materials and photonics company specializing in metamaterial research and products, nanofabrication, and computational electromagnetics. The Company’snanocomposites. Our registered office is located at 5700 West Plano Pkwy, Plano, Texas 7509385 Swanson Road, Boxborough, Massachusetts 01719, and itsour principal executive office is located at 1 Research Drive, Halifax, Nova Scotia, Canada.
20
We have 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
Controlling light, heat, electricity, and heatradio waves have played key roles in technological advancements throughout history. Advances in electrical and electromagnetic technologies, wireless communications, lasers, and computers have all been made possible by challenging ourthe understanding of how light and other types of energy naturally behave, and how it is possible to manipulate them.
Over the past 20 years, techniques for producing nanostructures have matured, resulting in a wide range of ground- breakinggroundbreaking solutions that can control light, heat, and heatelectromagnetic 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, thatwhich are engineered by Company 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 of light to create material properties that are not easily achievable with conventional materials.
We have many product concepts currently in differentvarious stages of development with multiple potential customers in diverse market verticals. The Company’sOur business model is to co-develop innovative products or applications with industry leaders that add value. This approach enables the Companyus to understand market dynamics and ensure the relevance and need for the Company’sour products.
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 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.
Our principal products that employ holography technology are its METAAIRMETAAIRmetaOPTIXTMholoOPTIXTM notch filters. MetaWe co-developed its METAAIRthatIt has been engineered to provide laser glare protection for pilots, military and law enforcement using Meta’sour holography technology. METAAIRMetaWe launched METAAIRMETAAIRMetaWe launched itsour 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 METAAIRmetaOPTIXTMholoOPTIXTM 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. metaOPTIXTMholoOPTIXTM notch filters were commercially launched by the Company in November 2020.
We have additional products in development that utilize itsour proprietary holography technology. Included in the metaOPTIXTMholoOPTIX TM 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.
21
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 RMLTheseWe designed these master patterns are designed by the Company and over the years, they have become part of a growing library of patterns, enriching theour 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 light-sensitive material (a photoresist),photoresist, creating patterned grooves, metal is then evaporated and fills the patterned grooves. The excess metal is then removed by a known post- processpost-process called lift-off. The result is an invisible conductive metal mesh-patterned surface (registered trademark NANOWEB
Our current principal prototype product in lithography technology is itsour transparent conductive film, NANOWEBthe Company’sour wholly owned U.S. subsidiary, whichMetamaterial Technologies USA Inc. ("MTI US"). MTI US can produce meter-long samples of NANOWEB
There are six NANOWEBincluding including:
More details of these products and applications can be found in META’sour EDGAR filings and on META’sour website at www.metamaterial.com.
We have entered into a collaboration agreement with Crossover Solutions Inc. to commercialize 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 structures and color-shifting foils - In October 2021, we acquired 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. Our nano-optic security technology platforms include:
22
Wireless Sensing and Radio Wave Imaging Technology
Our Wireless Sensing isplatform uses infrared and radio frequency (RF) transmitters and receivers to collect and measure a variety of biological information intended to enable non-invasive and safe medical diagnostics. The platform entails 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-Signal-to-Noise Ratio (“SNR”) transmitted through body tissue to enable better medical diagnostics.of certain diagnostic instruments used in conjunction with the platform. This breakthrough wireless sensing technologyreflection-cancelling requirement is madesatisfied using our 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. We are developing a number of medical products that employ this proprietary technology. glucoWISE®, is in development as a completely non-invasive glucose measurement device. It is being developed first as a tabletop medical device product, 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, as a medical imaging application, the Company iswe are developing metaSURFACE™ (also known as RadiWise™radiWISE™) an innovation which allows an improvement in signal to noise ratio of up to 40 times more energy to be transmitted through the human tissue, instead of being reflected. The benefit is increased diagnostic speed and imaging accuracy leading to patient throughput increases for healthcare providers.MRI scans. The metaSURFACE™ device consists of proprietary non-ferrous metallic and dielectric layers that are exactingly designed to interact (resonate) with radio waves allowingincreasing the waves to “see-throughSNR. We are also researching the skin”.
Oil and Gas operations
As part of the wireless sensing technologyArrangement Agreement with Innovate UKTorchlight Energy Resources, Inc. ("Torchlight"), we acquired a group of oil and gas assets ("O&G assets") and had interest in them as follows:
We have classified these assets as assets held for sale pursuant to our 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 us 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. For more information on these assets, see the description in Note 5, “Assets Held for Sale” of the financial statements for the year ended December 31, 2021 and Item 1A, risk Factors in Form 10-K/A filed with the Securities and Exchange Commission on May 2, 2022.
BUSINESS AND OPERATIONAL HIGHLIGHTS
Throughout 2021, our activities were focused on our research and development efforts as well as expansion of our intellectual property estate. As we moved into 2022, new emphasis was, and will continue to be, placed on investments in pilot scale manufacturing of NANOWEB® products and expansion of our production capacity in our banknote and brand security lines. Through the remainder of 2022, we will also place emphasis on more aggressive design, development and clinical testing of our array of medical products. We believe these efforts represent an efficient approach to monetizing our intellectual property assets.
23
Highfield Park forfacility
We leased approximately 53,000 square foot facility commencedin Dartmouth, Nova Scotia, with the lease commencing on January 1st,1, 2021. The facility will host the Company’sour holography and lithography R&D labs and manufacturing operations. The Company has thus far spent a total of $0.55 million on leasehold improvements, of which $0.4 million was spent during the six months ended June 30, 2021. The CompanyWe also amended this lease agreement on June 9, 2021 to expand the leased space by approximately 15,000 square feet, reduce the annual rent for the 10-year term of the lease and obtain from the landlord CA$500,0000.5 million in cash to fund ongoing tenant improvements. In exchange, the landlord received 993,490 shares of MMI common stock at CA$3.40 per share.
Pleasanton facility
During 2021, we signed multiple lease amendments with our lessor in Pleasanton, California to expand the six months ended June 30, 2021, the Company has executed its agreement to acquire specialized lens casting production equipment and intellectual property, including more than 70 patents, from Interglass Technology AG (Switzerland) for $800,000. META will invest and expand its capabilities in design, development, and manufacturing of metaFUSION™ products for smart eyewear.
Thurso facility
As part of the Nanotech acquisition in October 2021, we acquired property, plant, and equipment with an estimated fair value of $25.8 million including a 105,000 square foot facility in Thurso, Quebec. Approximately 35,000 square feet is being satisfied. Four wells must be drilledutilized for existing production capacity, and the remaining 70,000 square feet is available to expand output to facilitate future growth. We are currently developing a facility expansion plan for 2022.
In April 2022, we have been awarded $2.2 million in additional purchase orders under the project in 2021 in order to hold the lease for sale or spinout.
RESULTS OF OPERATIONS
Revenue and Gross Profit
Three months ended June 30, | Six months ended June 30, | |||||||||||||||||||||||||||||||
2021 | 2020 | Change | 2021 | 2020 | Change | |||||||||||||||||||||||||||
$ | $ | $ | % | $ | $ | $ | % | |||||||||||||||||||||||||
Product sales | 1,953 | — | 1,953 | 100 | % | 24,000 | 1,922 | 22,078 | 1149 | % | ||||||||||||||||||||||
Development revenue | 622,367 | 210,344 | 412,023 | 196 | % | 1,196,623 | 648,761 | 547,862 | 84 | % | ||||||||||||||||||||||
Total Revenue | 624,320 | 210,344 | 413,976 | 197 | % | 1,220,623 | 650,683 | 569,940 | 88 | % | ||||||||||||||||||||||
Cost of goods sold | 706 | 1,336 | (630 | ) | -47 | % | 1,106 | 2,160 | (1,054 | ) | -49 | % | ||||||||||||||||||||
Gross Profit | 623,614 | 209,008 | 414,606 | 198 | % | 1,219,517 | 648,523 | 570,994 | 88 | % | ||||||||||||||||||||||
|
| Three months ended March 31, |
| |||||||||||||
|
| 2022 |
|
| 2021 |
|
| Change |
| |||||||
Product sales |
| $ | 168,127 |
|
| $ | 22,047 |
|
| $ | 146,080 |
|
|
| 663 | % |
Development revenue |
|
| 2,806,568 |
|
|
| 574,256 |
|
|
| 2,232,312 |
|
|
| 389 | % |
Total Revenue |
|
| 2,974,695 |
|
|
| 596,303 |
|
|
| 2,378,392 |
|
|
| 399 | % |
Cost of goods sold |
|
| 778,712 |
|
|
| 400 |
|
|
| 778,312 |
|
|
| 194578 | % |
Gross Profit |
| $ | 2,195,983 |
|
| $ | 595,903 |
|
| $ | 1,600,080 |
|
|
| 269 | % |
The increase in product sales is due to the revenue generated primarily from Nanotech amounting to $91,653 and Metamaterial Technologies Canada Inc. and Metamaterial Technologies USA Inc. amounting $15,774, and $60,700, respectively, for the three months ended March 31, 2022. Product sales include products, components, and samples sold to variousmultiple customers. The Company has not generated significant product sales for the three and six months ending June 30, 2021 since most of the company’s products remain under development.
The increase in development revenue for the three months ended June 30, 2021March 31, 2022 of $412,023$2.2 million is due to an increase in contract revenue of $392,880$2,297,648 and increasedecrease in other development revenue of $19,143.$65,336. The increase in contract revenue is primarily due to revenue recognition of $377,637 in Q2 2021generated by Nanotech from contract services subsequent to achieving certain milestonesits acquisition by the Company. Nanotech currently derives a significant portion of the cooperation framework agreementits revenue from contract services with Covestro Deutschland AG.
The increase in development revenue for the six months ended June 30,cost of goods sold in 2022 compared to 2021, of $547,862 is due to an increase in contract revenue of $648,329 partially offset by a decrease in other development revenue of $100,467. The increase in contract revenue is primarily due to the production costs of $727,835 from Nanotech pertaining to contract revenue recognition of $620,846 in Q2 2021 subsequent to achieving certain milestones ofduring the cooperation framework agreement with Covestro Deutschland AG.
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Operating expenses
Three months ended June 30, | Six months ended June 30, | |||||||||||||||||||||||||||||||
2021 | 2020 | Change | 2021 | 2020 | Change | |||||||||||||||||||||||||||
$ | $ | $ | % | $ | $ | $ | % | |||||||||||||||||||||||||
Operating Expenses | ||||||||||||||||||||||||||||||||
Selling & Marketing | 298,871 | 153,962 | 144,909 | 94 | % | 695,465 | 324,528 | 370,937 | 114 | % | ||||||||||||||||||||||
General & Administrative | 3,145,368 | 1,553,118 | 1,592,250 | 103 | % | 5,738,251 | 3,157,652 | 2,580,599 | 82 | % | ||||||||||||||||||||||
Research & Development | 1,633,653 | 960,430 | 673,223 | 70 | % | 3,412,909 | 1,892,601 | 1,520,308 | 80 | % | ||||||||||||||||||||||
Total operating expenses | 5,077,892 | 2,667,510 | 2,410,382 | 90 | % | 9,846,625 | 5,374,781 | 4,471,844 | 83 | % | ||||||||||||||||||||||
|
| Three months ended March 31, |
| |||||||||||||
|
| 2022 |
|
| 2021 |
|
| Change |
| |||||||
Operating Expenses |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Selling & Marketing |
| $ | 1,035,986 |
|
| $ | 396,594 |
|
| $ | 639,392 |
|
|
| 161 | % |
General & Administrative |
|
| 14,597,913 |
|
|
| 2,592,885 |
|
|
| 12,005,028 |
|
|
| 463 | % |
Research & Development |
|
| 3,971,139 |
|
|
| 1,779,256 |
|
|
| 2,191,883 |
|
|
| 123 | % |
Total operating expenses |
| $ | 19,605,038 |
|
| $ | 4,768,735 |
|
| $ | 14,836,303 |
|
|
| 311 | % |
The increase in selling and marketing expenses for the three and six months ended June 30, 2021,March 31, 2022, compared to the same period of 2020,2021, is primarily due to:
The increase in general and administrative expenses for the three and six months ended June 30, 2021,March 31, 2022, compared to the same period of 2020,2021, is primarily due to:
The increase in research and development expenses for the three and six months ended June 30, 2021,March 31, 2022, compared to the same period of 2020,2021, is primarily due to:
Other expense of $6,649 and $133,547 respectively due to issuance of 4.6
|
| Three months ended March 31, |
| |||||||||||||
|
| 2022 |
|
| 2021 |
|
| Change |
| |||||||
Other expense: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Interest expense, net |
| $ | (164,434 | ) |
| $ | (450,908 | ) |
| $ | 286,474 |
|
|
| -64 | % |
Gain (Loss) on foreign exchange, net |
|
| 148,391 |
|
|
| (166,444 | ) |
|
| 314,835 |
|
|
| -189 | % |
Loss on financial instruments, net |
|
| — |
|
|
| (40,004,921 | ) |
|
| 40,004,921 |
|
|
| -100 | % |
Other (loss) income, net |
|
| (1,009,443 | ) |
|
| 591,907 |
|
|
| (1,601,350 | ) |
|
| -271 | % |
Total other expense |
| $ | (1,025,486 | ) |
| $ | (40,030,366 | ) |
| $ | 39,004,880 |
|
|
| -97 | % |
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The $0.3 million stock options (as adjusted for Torchlight RTO) in December 2020 for all employees which increased the quarterly expense in Q1 and Q2 2021.
Three months ended June 30, | Six months ended June 30, | |||||||||||||||||||||||||||||||
2021 | 2020 | Change | 2021 | 2020 | Change | |||||||||||||||||||||||||||
$ | $ | $ | % | $ | $ | $ | % | |||||||||||||||||||||||||
Other income (expense): | ||||||||||||||||||||||||||||||||
Interest expense, net | (427,809 | ) | (324,421 | ) | (103,388 | ) | 32 | % | (878,717 | ) | (516,225 | ) | (362,492 | ) | 70 | % | ||||||||||||||||
(Loss) Gain on foreign exchange, net | (163,941 | ) | (323,172 | ) | 159,231 | -49 | % | (330,385 | ) | 256,673 | (587,058 | ) | -229 | % | ||||||||||||||||||
(Loss) Gain on financial instruments, net | (535,170 | ) | 1,042,928 | (1,578,098 | ) | -151 | % | (40,540,091 | ) | 1,285,765 | (41,825,856 | ) | -3253 | % | ||||||||||||||||||
Other income, net | 341,958 | 236,001 | 105,957 | 45 | % | 933,864 | 411,669 | 522,195 | 127 | % | ||||||||||||||||||||||
Total other income (expense) | (784,962 | ) | 631,336 | (1,416,298 | ) | -224 | % | (40,815,329 | ) | 1,437,882 | (42,253,211 | ) | -2939 | % | ||||||||||||||||||
The change in net loss/gain on foreign exchange for the three and six months ended June 30, 2021,March 31, 2022, compared to the same period of 2020,2021, is primarily driven by fluctuationsrevaluations of intercompany balances in globaldifferent currencies, as a result of COVID-19, especially relating to themainly Canadian dollars and US Dollar in relation to Canadian dollar.
The net loss/gain$40 million loss on financial instruments for the three and six months ended June 30,statements in Q1 2021 compared to the same period of 2020, is primarily due to the remeasurement of convertible financial liabilities of carrying value of $12,003,142 at the conversion dates and recognition of $40,340,460 non-cash realized loss in the statements of operations.operations in Q1 2021. This significant increase in the fair value of the convertible financial liabilities is due to the significant increase of the Company’sour stock price from CA$0.66 as at December 31, 2020 to:
Deferred Tax recovery
Three months ended June 30, | Six months ended June 30, | |||||||||||||||||||||||||||||||
2021 | 2020 | Change | 2021 | 2020 | Change | |||||||||||||||||||||||||||
$ | $ | $ | % | $ | $ | $ | % | |||||||||||||||||||||||||
Income tax recovery | 57,847 | 10,425 | 47,422 | 455 | % | 102,526 | 54,347 | 48,179 | 89 | % |
|
| Three months ended March 31, |
| |||||||||||||
|
| 2022 |
|
| 2021 |
|
| Change |
| |||||||
Income tax recovery |
| $ | - |
|
| $ | 44,679 |
|
| $ | (44,679 | ) |
|
| -100 | % |
We record deferred income tax liabilities only for itssome of our foreign operationoperations in theCanada and United Kingdom. The decrease inThere were no income tax recovery or expense for the three and six months ended June 30, 2021, comparedrecorded in Q1 2022 due to the same periods in 2020 was driven by an increase in accumulated losses as well as changes in foreign exchange rates.
We 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 generate revenue from current and prospective customers, general and administrative requirements of the Company and the availability of equity or debt capital and government funding. As these variables change, itwe may require the Companybe required to issue equity or obtain debt financing.
On March 31, 2022, we had cash and cash equivalents of $155.0$30.2 million including $0.4$0.5 million in restricted cash compared to $1.4 million at
During the three months ended March 31, 2022, our primary uses of liquidity included salaries of $3$5 million, legal and auditprofessional fees of $2.4$5.7 million, consulting feesrent and utilities of $0.8$1 million and, R&D materialsOil and Gas drilling costs of $0.8 million.
We believe that itsour existing cash will be sufficient to meet itsour working capital and capital expenditure needs for the foreseeable future. However, METAas production capacity begins to come online. We may need to raise additional capital to expand the commercialization of itsour products, fund itsour operations and further itsour research and development activities. META’s futureFuture 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 itsour facilities in Halifax and California and the ongoing investments to support the growth of itsour business.
26
The following table summarizes META’sour cash flows for the periods presented;
Six months ended June 30, | ||||||||
2021 | 2020 | |||||||
Net cash used in operating activities | (5,607,851 | ) | (4,461,287 | ) | ||||
Net cash provided by investing activities | 143,639,858 | 2,486,266 | ||||||
Net cash provided by financing activities | 15,483,993 | 4,955,785 | ||||||
Net increase in cash, cash equivalents and restricted cash | 153,516,000 | 2,980,764 | ||||||
|
| Three months ended March 31, |
| |||||
|
| 2022 |
|
| 2021 |
| ||
Net cash used in operating activities |
| $ | (18,745,199 | ) |
| $ | (2,393,475 | ) |
Net cash provided by (used in) investing activities |
|
| 1,138,063 |
|
|
| (1,605,538 | ) |
Net cash provided by financing activities |
|
| 275,101 |
|
|
| 15,367,402 |
|
Net (decrease) increase in cash, cash equivalents and restricted cash |
| $ | (17,332,035 | ) |
| $ | 11,368,389 |
|
Net cash used in operating activities
During the sixthree months ended June 30, 2021,March 31, 2022, net cash used in operating activities of $5.6$18.8 million was primarily driven by $49.3$18.4 million of net loss reported for the period, and non-cash adjustments of $43$6 million mainly due to depreciation and amortization, stock-based compensation, and non-cash consulting expense. In addition, there was $6.3 million cash used by working capital primarily due to a $5.1 million decrease in trade and other payables and $1.3 million increase in accounts receivable and other assets.
During the three months ended March 31, 2021, net cash used in operating activities of $2.4 million was primarily driven by $44.2 million of net loss reported for the period, and non-cash adjustments of $41.7 million related to fair value losses on financial instruments, depreciation and amortization, interest expense and stock-based compensation, and other items.compensation. In addition, there was $0.76 million cash provided by working capital primarily due to $0.5 million increase in accounts payable, $0.4 million cash received for tenant inducement, $0.1 million inventory sold and written off to R&D offset by $0.24 million increase in receivables and prepayments.
Net cash provided by (used in) investing activities
During the sixthree months ended June 30, 2021,March 31, 2022, net cash provided by investing activities of $143.6$1.1 million was primarily driven by cash acquired as a result of the Torchlight acquisition of $147 million, $3proceeds from short-term investments, offset by $1.8 million purchases of property plant and equipment associated with the construction of the Highfield Park Facility in Canada as well as the equipment purchases for META’sour facility in California, United States and $0.27 increase in intangibles as a result of capitalized legal cost of patents as well as patents acquired as part of the interglass assets.
During the sixthree months ended June 30, 2020,March 31, 2021, net cash used in investing activities of $1.6 million was primarily driven by $1.5 million equipment purchases for our facility in California, United States.
Net cash provided by financing activities
During the three months ended March 31, 2022, net cash provided by investingfinancing activities of $2.5$0.3 million was primarily driven by proceeds from CPM acquisition of $3.1 millionoptions and $0.5 million equipment purchases for META’s facility in California, United States.
During the sixthree months ended June 30,March 31, 2021, net cash provided by financing activities of $15.3$15.4 million was primarily driven by $10 million proceeds from issuance of unsecured convertible promissory notes to Torchlight that was eliminated upon consolidation at June 30, 2021, $3.9 million proceeds from issuance of unsecured convertible promissory notes to a shareholder that was subsequently converted into common stock in Q1 2021, $1.1$14 million, proceeds from long-term debt and $0.2of $1.1 million as well as proceeds from options and warrants conversion.
Commitments and contractual obligations
For a description of our commitments and contractual obligations, please see“Note 21—see “Note 18 — Commitments and contingencies” in the Notes to the Condensed Consolidated Interim Financial Statements of this Form 10-Q.
Off-Balance Sheet Arrangements
Off-balance sheet firm commitments relating to outstanding letters of credit amounted to approximately $945,000$0.8 million as of June 30, 2021.March 31, 2022. These letters of credit and bank guarantees are collateralized by $433,627 of$0.5 million in restricted cash. Please see “Note 21—18 – Commitments and contingencies” in the Notes to Condensedthe Consolidated Interim Financial Statements of this Form 10-Q. The CompanyWe 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 our condensed consolidated interim financial statements, please see “Note 2—Significant accounting policies” in the Notes to Condensed Consolidated Interim Financial Statements of this Form 10-Q.
27
Item 3. Quantitative and Qualitative Disclosures About Market Risk
For financial instrument will fluctuate because ofmarket risks related to changes in interest rates and foreign currency exchange rates, reference is made to Item 7A, “Quantitative and Qualitative Disclosures about Market Risk,” contained in Part II of our Annual Report on Form 10-K/A for the year ended December 31, 2021. Our exposure to market interest rates. Interest rate risk is minimized through management’s decision to primarily obtain fixed rate or interest free debt. Funding obligation and long-term debt are at a nil interest rate and the interest on the cash balances is insignificant. As a result, the Company ishas not exposed to material cash flow interest rate risk.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Management, with the participation of ourthe Chief Executive Officer and our Chief Financial Officer, has evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this quarterly report. March 31, 2022.
Based uponon this evaluation, our management including the Chief Executive Officer and Chief Financial Officer have concluded that, due to the material weaknesses in our internal control over financial reporting described below, our disclosure controls and procedures were not effective as of March 31, 2022.
However, giving full consideration to the material weaknesses, and the progress made in addressing them since December 31, 2021, we have concluded that the condensed consolidated interim financial statements included in this Form 10-Q present fairly, in all material respects, our financial position, the results of our operations and our 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
Our management is responsible for establishing and maintaining effective internal control over financial reporting, as such term is defined underin Securities Exchange Act Rules 13a-15(e)Rule 13a‑15(f). Our internal control over financial reporting is a process designed by and 15d- 15(e)under the supervision of our management, including our Chief Executive Officer and Chief Financial Officer, and effected by our 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. Our management, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2021, using the criteria set forth in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, management concluded that internal control over financial reporting was not effective as of December 31, 2021, due to material weaknesses in internal control over financial reporting.
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 our annual or interim financial statements may not be prevented or detected on a timely basis.
Management has determined that it did not maintain effective internal controls over financial reporting due to the existence of the following identified material weaknesses:
28
These material weaknesses resulted in material misstatements, which were effectivecorrected 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 the consolidated financial statements as of and for the year ended December 31, 2021. These material weaknesses create a reasonable possibility that a material misstatement to the consolidated financial statements will not be prevented or detected on a timely basis.
Plan for Remediation of Material Weaknesses
Management is continuing to evaluate and strengthen our internal controls over financial reporting to ensure that management can routinely prepare our financial statements under GAAP, meet the requirements of our independent auditors and remain in compliance with the SEC reporting requirements. These efforts are time consuming and require significant resource investment that we are committed to making.
We are still developing and documenting the full extent of the procedures to implement to remediate the material weaknesses described above, however the current remediation plan includes:
Changes in Internal Control Over Financial Reporting
Except for the remediation activities which remain ongoing to address the material weaknesses described above, there were no changes in our internal control over financial reporting identified(as defined in management’s evaluation pursuant to Rules 13a or 15(d) of13a-15(f) and 15d-15(f) under the Exchange Act thatAct) occurred during the three monthsquarter ended June 30, 2021,March 31, 2022 that havehas materially affected, or areis reasonably likely to materially affect, our internal control over financial reporting.
29
Limitations on the Effectiveness of Internal Control
Management, including the exercise of judgment in designing, implementing, operating,Chief Executive Officer and evaluating the controls and procedures, and the inability to eliminate misconduct completely. Accordingly, in designing and evaluating theChief Financial Officer, does not expect that disclosure controls or internal controls, when effective, will prevent all error and procedures, management recognizes that anyall fraud. A control system, of internal control over financial reporting, including ours, no matter how well designedconceived and operated, can provide only provide reasonable, not absolute, assurance that the objectives of achieving the desired control objectives.system are met. In addition, the design of disclosure controls and proceduresa control system must reflect the fact that there are resource constraints, and that management is required to apply its judgment in evaluating the benefits of possible controls and proceduresmust be considered relative to their costs. Moreover, projectionsBecause of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, 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.
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 evaluationsystems of effectiveness tocontrols is based in part upon certain assumptions about the likelihood of future periods are subject to the riskevents, and there can be no assurance that controlsany design will succeed in achieving our stated goals under all potential future conditions. Over time, control may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. We intendBecause of these inherent limitations in a cost-effective control system, misstatements due to continueerror or fraud may occur and not be detected. Individual persons may perform multiple tasks which normally would be allocated to monitorseparate persons and upgrade our internal controls as necessary or appropriate for our business but cannot assure you that such improvements willtherefore extra diligence must be sufficient to provide us with effective internal control over financial reporting.
30
PART II—OTHER INFORMATION
Item 1. Legal Proceedings
Refer to “Note 18 — Commitments 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.,contingencies” 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 amendmentNotes 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 statuteCondensed Consolidated Interim Financial Statements 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.
Item 1A. Risk Factors
For risk factors could materially affect META’srelated to our business, financial condition or resultsreference is made to Item 1A, "Risk Factors," contained in Part I of operations and should be carefully considered in evaluating the Company and its business, in addition to other information presented elsewhere in this report.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Not applicable.
Item 3. Defaults Upon Senior Securities
None
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
None
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Item 6. Exhibits
Furnish the exhibits required by Item 601 of Regulation S-K (§ 229.601 of this chapter).
Number | ||
Exhibit | Description | |
31.1* | ||
31.2* | ||
32.1* | ||
32.2* | ||
101.INS | ||
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. | ||
101.SCH | ||
Inline XBRL Taxonomy Extension Schema Document | ||
101.CAL | ||
Inline XBRL Taxonomy Extension Calculation Linkbase Document | ||
101.DEF | ||
Inline XBRL Taxonomy Extension Definition Linkbase Document | ||
101.LAB | ||
Inline XBRL Taxonomy Extension Label Linkbase Document | ||
101.PRE | ||
Inline XBRL Taxonomy Extension Presentation Linkbase Document | ||
104 | ||
Cover Page Interactive Data File (embedded within the Inline XBRL document) |
* Filed herewith.
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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: | By: | /s/ George Palikaras | ||||
George Palikaras | ||||||
President and Chief Executive Officer | ||||||
(Principal Executive Officer) | ||||||
Dated: | By: | /s/ | ||||
Ken Rice | ||||||
Chief Financial Officer | ||||||
(Principal Financial and Accounting Officer) |
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