UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)

Quarterly report under SectionQUARTERLY REPORT PURSUANT TO SECTION 13 orOR 15(d) of the Securities Exchange Act ofOF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarter Ended September 30, 2017

quarterly period ended March 31, 2022

OR

Transition report under SectionTRANSITION REPORT PURSUANT TO SECTION 13 orOR 15(d) of the Securities Exchange Act ofOF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _______ to _______.

Commission file number:File Number: 001-36247

TORCHLIGHT ENERGY RESOURCES, INC.

Meta Materials Inc.

(Exact Name of registrantRegistrant as Specified in its charter)

Charter)

Nevada74-3237581

Nevada

74-3237581

(State or Other Jurisdictionother jurisdiction of Incorporation

incorporation or Organization)organization)

(I.R.S. Employer

Identification No.)

1 Research Drive

Dartmouth, Nova Scotia

B2Y 4M9

(Address of principal executive offices)

(Zip Code)

5700 West Plano Pkwy, Suite 3600
Plano, Texas 75093

Registrant’s telephone number, including area code: (Address902) 482-5729

Securities registered pursuant to Section 12(b) of Principal Executive Offices)

(214) 432-8002

(Registrant's Telephone Number, Including Area Code)
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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes☒Yes No ☐

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

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

If an emerging growth company, indicate by 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 12b-2 of the Exchange Act). Yes ☐ No

As of November 14, 2017, there were 60,211,935 May 9, 2022, the registrant had 296,614,994shares of the registrant’s common stock, outstanding (the only class$0.001 par value per share, outstanding.


Table of voting common stock).


FORM 10-Q
TABLE OF CONTENTS
Contents

Note About Forward-Looking Statements3

PART I—FINANCIAL INFORMATION

3

PART I

FINANCIAL INFORMATION4

Item 1. Financial Statements

3

Item 1.

Consolidated Financial Statements4

Consolidated Balance Sheets (Unaudited)4
Consolidated Statements of Operations (Unaudited)5
Consolidated Statements of Cash Flows (Unaudited)6
Notes to Consolidated Financial Statements (Unaudited)7

Item 2.

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

16

20

INTRODUCTION

20

FORWARD-LOOKING STATEMENTS

20

OVERVIEW

20

BUSINESS AND OPERATIONAL OVERVIEW

20

Holography Technology

21

Lithography Technology

22

Wireless Sensing Technology

23

RESULTS OF OPERATIONS

24

LIQUIDITY AND CAPITAL RESOURCES

26

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

22

28

Item 4.

Controls and Procedures

22

28

PART II

II—OTHER INFORMATION

22

31

Item 1.

Legal Proceedings

22

31

Item 1A. Risk Factors

31

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

22

31

Item 6.3. Defaults Upon Senior Securities

Exhibits22

31

Item 4. Mine Safety Disclosures

Signatures

31

23

Item 5. Other Information

31

Item 6. Exhibits

32

SIGNATURES

33


NOTE ABOUT FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements include, among other things, statements regarding plans, objectives, goals, strategies, future events or performance and underlying assumptions and other statements, which are other than statements of historical facts. Forward-looking statements may appear throughout this report, including without limitation, Item

2 “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Forward-looking statements generally can be identified by words such as “anticipates,” “believes,” “estimates,” “expects,” “intends,” “plans,” “predicts,” “projects,” “will be,” “will continue,” “will likely result,” and similar expressions. These forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties, which could cause our actual results to differ materially from those reflected in the forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in this report and in our Annual Report on Form 10-K for the year ended December 31, 2016 and in particular, the risks discussed in our Form 10-K under the caption “Risk Factors” in Item 1A therein, and those discussed in other documents we file with the Securities and Exchange Commission (“SEC”). Important factors that in our view could cause material adverse effects on our financial condition and results of operations include, but are not limited to, risks associated with the company's ability to obtain additional capital in the future to fund planned expansion, the demand for oil and natural gas, general economic factors, competition in the industry and other factors that may cause actual results to be materially different from those described herein as anticipated, believed, estimated or expected. We undertake no obligation to revise or publicly release the results of any revision to any forward-looking statements, except as required by law. Given these risks and uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements.

As used herein, the “Company,” ”Torchlight,” “we,” “our,” and similar terms include Torchlight Energy Resources, Inc. and its subsidiaries, unless the context indicates otherwise.


PART I I—FINANCIAL INFORMATION

ITEM

Item 1. FINANCIAL STATEMENTS

TORCHLIGHT ENERGY RESOURCES, INC.
 
 
 
 
 
 
CONSOLIDATED BALANCE SHEETS (Unaudited)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
September 30,
 
 
December 31,
 
 
 
2017
 
 
2016
 
 
ASSETS      
 
Current assets:
 
 
 
 
 
 
Cash
 $385,935 
 $1,769,499 
Accounts receivable
  609,258 
  603,446 
Production revenue receivable
  7,514 
  7,325 
Prepayments - development costs
  - 
  583,347 
Prepaid expenses
  52,142 
  26,829 
Total current assets
  1,054,849 
  2,990,446 
 
    
    
Oil and gas properties, net
  21,181,020 
  9,392,288 
Office equipment, net
  20,565 
  29,848 
Other assets
  6,362 
  21,066 
 
    
    
TOTAL ASSETS
 $22,262,796 
 $12,433,648 
 
    
    
 
    
    
 
LIABILITIES AND STOCKHOLDERS' EQUITY     
 
Current liabilities:
    
    
Accounts payable
 $3,434,877 
 $422,684 
Funds received pending settlement
  520,400 
  520,400 
Accrued payroll
  650,176 
  565,176 
Related party payables
  45,000 
  237,044 
Convertible promissory notes, (Series B) net of discount of
    
    
   $91,379 at December 31, 2016
  - 
  3,478,121 
Due to working interest owners
  54,320 
  54,320 
Accrued interest payable
  147,821 
  6,049 
Total current liabilities
  4,852,594 
  5,283,794 
 
    
    
Unsecured promissory notes, net of discount and financing costs of $880,679
    
    
  at September 30, 2017
  7,183,618 
  - 
Asset retirement obligation
  8,788 
  7,051 
 
    
    
Total liabilities
  12,045,000 
  5,290,845 
 
    
    
Commitments and contingencies
  - 
  - 
 
    
    
Stockholders’ equity:
    
    
Preferred stock, par value $.001, 10,000,000 shares authorized;
    
    
    -0- issued and outstanding at September 30, 2017 and December 31, 2016
  - 
  - 
Common stock, par value $0.001 per share; 150,000,000 shares authorized;
  60,216 
  55,100 
 60,211,935 issued and outstanding at September 30, 2017
    
    
 55,096,503 issued and outstanding at December 31, 2016
    
    
Additional paid-in capital
  95,871,849 
  89,675,488 
Accumulated deficit
  (85,714,269)
  (82,587,785)
Total stockholders' equity
  10,217,796 
  7,142,803 
 
    
    
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
 $22,262,796 
 $12,433,648 
Financial Statements

META MATERIALS INC.

CONDENSED CONSOLIDATED INTERIM BALANCE SHEETS (UNAUDITED)

 

 

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 18)

Subsequent events (note 19)

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

3


META MATERIALS INC.

CONDENSED CONSOLIDATED INTERIM STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (UNAUDITED)

 

 

Three months ended
March 31,

 

 

 

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
   diluted
(1)

 

 

285,224,469

 

 

 

168,864,762

 

(1)
Retroactively restated for the three months ended March 31, 2021 for the Torchlight RTO (“Reverse Acquisition”) as described in Note 3

TORCHLIGHT ENERGY RESOURCES, INC.            
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)          
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months
 
 
Three Months
 
 
Nine Months
 
 
Nine Months
 
 
 
Ended
 
 
Ended
 
 
Ended
 
 
Ended
 
 
 
September 30, 2017
 
 
September 30, 2016
 
 
September 30, 2017
 
 
September 30, 2016
 
Revenue
 
 
 
 
 
 
 
 
 
 
 
 
Oil and gas sales
 $18,296 
 $34,284 
 $44,548 
 $337,798 
 
    
    
    
    
Cost of revenue
  (16,499)
  (49,908)
  (32,632)
  (295,208)
 
    
    
    
    
Gross profit
  1,797 
  (15,624)
  11,916 
  42,590 
 
    
    
    
    
Operating expenses:
    
    
    
    
General and administrative expense
  866,131 
  787,228 
  2,808,576 
  5,534,933 
Depreciation, depletion and amortization
  21,980 
  18,005 
  72,415 
  740,059 
Impairment expense
  - 
  - 
  - 
  57,912 
Loss on sale
  - 
  - 
  - 
  146,138 
     Total operating expenses
  888,111 
  805,233 
  2,880,991 
  6,479,042 
 
    
    
    
    
Other (income) expense
    
    
    
    
Other income
  - 
  (30)
  - 
  (30)
Interest income
  (145)
  - 
  (439)
  - 
Interest and accretion expense
  129,302 
  54,662 
  257,849 
  224,520 
     Total other (income) expense
  129,157 
  54,632 
  257,410 
  224,490 
 
    
    
    
    
Loss before taxes
  (1,015,471)
  (875,489)
  (3,126,485)
  (6,660,942)
 
    
    
    
    
Provision for income taxes
  - 
  - 
  - 
  - 
 
    
    
    
    
Net loss
 $(1,015,471)
 $(875,489)
 $(3,126,485)
 $(6,660,942)
 
    
    
    
    
Loss per share:
    
    
    
    
Basic and Diluted
 $(0.02)
 $(0.02)
 $(0.08)
 $(0.17)
Weighted average shares outstanding:
    
    
    
    
Basic and Diluted
  60,208,946 
  48,158,456 
  38,775,843 
  40,228,810 

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

 

(1)
Retroactively restated from the earliest period presented for the Torchlight RTO (“Reverse acquisition”) as described in Note 3

TORCHLIGHT ENERGY RESOURCES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOW (Unaudited)      
 
 
Nine Months
 
 
Nine Months
 
 
 
Ended
 
 
Ended
 
 
 
September 30, 2017
 
 
September 30, 2016
 
Cash Flows From Operating Activities
 
 
 
 
 
 
Net loss
 $(3,126,485)
 $(6,660,942)
Adjustments to reconcile net loss to net cash from operations:
    
    
Stock based compensation
  1,039,679 
  3,410,731 
Accrued interest payable in stock
  94,795 
  - 
Accretion of promissory note discounts
  158,486 
  142,867 
Depreciation, depletion and amortization
  72,415 
  740,059 
Impairment expense
  - 
  57,912 
Loss on sale of assets
  - 
  146,138 
Change in:
    
    
Accounts and note receivable
  (5,813)
  86,649 
Production revenue receivable
  (189)
  194,104 
Prepayment of development costs
  583,347 
  (1,000,000)
Prepaid expenses
  (25,313)
  38,776 
Other assets
  11,999 
  53,721 
Accounts payable and accrued liabilities
  89,571 
  (290,229)
Due to working interest owners
  - 
  (36,519)
Funds received pending settlement
  - 
  520,400 
Interest payable
  54,867 
  (176,933)
Net cash from operating activities
  (1,052,641)
  (2,773,266)
 
    
    
 
    
    
Cash Flows From Investing Activities
    
    
Investment in oil and gas properties
  (5,189,642)
  (1,677,980)
Proceeds from sale of leases
  - 
  1,572,000 
Net cash from investing activities
  (5,189,642)
  (105,980)
 
    
    
 
    
    
Cash Flows From Financing Activities
    
    
Proceeds from sale of preferred stock
  - 
  1,000,000 
Preferred dividends paid in cash
  - 
  (320,724)
Proceeds from warrant exercise
  29,250 
  1,486,942 
Proceeds from promissory notes
  7,338,969 
  518,527 
Repayment of promissory notes
  (2,509,500)
  (613,629)
Net cash from financing activities
  4,858,719 
  2,071,116 
 
    
    
Net change in cash
  (1,383,564)
  (808,130)
Cash - beginning of period
  1,769,499 
  1,026,600 
 
    
    
Cash - end of period
 $385,935 
 $218,470 
 
    
    
 
    
    
Supplemental disclosure of cash flow information: (Non Cash Items)
    
    
Common stock issued for services
 $579,754 
 $587,473 
Common stock issued for lease interests
 $373,431 
 $1,816,096 
Accounts payable increase- investment in oil and gas properties
 $3,057,621 
 $- 
Common stock issued in warrant exercise
 $29,250 
 $1,557,004 
Common stock issued in conversion of preferred stock
 $- 
 $13,399,991 
Common stock issued in conversion of promissory note
 $1,007,890 
 $- 
Mineral interests received in warrant exercise
 $3,229,431 
 $- 
Warrants issued in connection with promissory notes
 $- 
 $80,750 
Warrants issued for mineral interests
 $- 
 $1,630,761 
 
    
    
Cash paid for interest
 $576,190 
 $536,410 

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


statements

5


META MATERIALS INC.

CONDENSED CONSOLIDATED INTERIM STATEMENTS OF CASH FLOWS (UNAUDITED)

 

 

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)

(Unaudited)

1. NATURE OF BUSINESS

TorchlightCorporate information

Meta Materials Inc. (also referred to herein as the “Company”, “META”, “we”, “us”, “our”, or “Resulting Issuer”) is a smart materials and photonics company specializing in metamaterial research and products, nanofabrication, and computational electromagnetics. Our registered office is located at 85 Swanson Road, Boxborough, Massachusetts 01719 and our principal executive office is located at 1 Research Drive, Halifax, Nova Scotia, Canada.

On December 14, 2020, we (formerly known as “Torchlight Energy Resources, Inc.” or “Torchlight”) and our subsidiaries, Metamaterial Exchangeco Inc. (formerly named 2798832 Ontario Inc., “Canco”) and 2798831 Ontario Inc. (“Company”Callco”), entered into an Arrangement Agreement (the “Arrangement Agreement”) was incorporatedwith Metamaterial Inc., an Ontario corporation headquartered in October 2007Nova Scotia, Canada (“MMI”), to acquire all of the outstanding common stock of MMI by way of a statutory plan of arrangement (the “Arrangement”) under the lawsBusiness Corporations Act (Ontario), on and subject to the terms and conditions of the StateArrangement Agreement (the “Torchlight RTO”). On June 25, 2021, we implemented a reverse stock split. On June 28, 2021, following the satisfaction of Nevadathe closing conditions set forth in the Arrangement Agreement, the Arrangement was completed, and we changed our name from “Torchlight Energy Resources, Inc.” to “Meta Materials Inc.” and changed our trading symbol from “TRCH” to “MMAT”.

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

For accounting purposes, the legal subsidiary, MMI, has been treated as Pole Perfect Studios, Inc. (“PPS”). From its incorporation to November 2010,the accounting acquirer and the Company, was primarily engaged in business start-up activities.

On November 23, 2010, we entered into and closed a Share Exchange Agreement (the “Exchange Agreement”) between the major shareholders of PPS andlegal parent, has been treated as the shareholders of Torchlight Energy, Inc. (“TEI”). As a result of the transactions effected by the Exchange Agreement, at closing TEI became our wholly-owned subsidiary, and the business of TEI became our sole business. TEI was incorporated under the laws of the State of Nevada in June, 2010. We are engaged in the acquisition, exploitation and/or development of oil and natural gas properties in the United States. We operate our business through our subsidiaries Torchlight Energy Inc., Torchlight Energy Operating, LLC, Hudspeth Oil Corporation, and Torchlight Hazel, LLC.
2. GOING CONCERN
At September 30, 2017, the Company had not yet achieved profitable operations. We had a net loss of $3,126,485accounting acquiree. The transaction has been accounted for the nine months ended September 30, 2017 and had accumulated losses of $85,714,269 since our inception. The Company had a working capital deficit as of September 30, 2017 of $3,797,745. We expect to incur further losses in the development of our business. These conditions raise substantial doubt about the Company’s ability to continue as a going concern.
The Company’s ability to continue asreverse acquisition in accordance with ASC 805 Business Combinations. Accordingly, these condensed consolidated interim financial statements are a going concern is dependent on its ability to generate future profitable operations and/or to obtain the necessary financing to meet its projected development costs and repay its liabilities arising from normal business operations when they come due. Management’s plan to address the Company’s ability to continue as a going concern includes: (1) obtaining debt or equity funding from private placement or institutional sources; (2) obtain loans from financial institutions, where possible, or (3) participating in joint venture transactions with third parties. Although management believes that it will be able to obtain the necessary funding to allow the Company to remain a going concern through the methods discussed above, there can be no assurances that such methods will prove successful.
Thesecontinuation of MMI consolidated financial statements have been prepared assuming thatprior to June 28, 2021 and exclude the Company will continue as a going concernbalance sheets, statements of operations and therefore, thecomprehensive loss, statement of changes in stockholders’ equity and statements of cash flows of Torchlight prior to June 28, 2021. See note 3 for additional information.

2. Significant accounting policies

Basis of presentation— These unaudited condensed consolidated interim financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amount and classifications of liabilities that may result from the outcome of this uncertainty.

3. SIGNIFICANT ACCOUNTING POLICIES
The Company maintains its accounts on the accrual method of accountingrelated notes are presented in accordance with accounting principles generally accepted in the United States of America. Accounting principles followed and the methods of applying those principles, which materially affect the determination of financial position, results of operations and cash flows are summarized below:
Basis of presentationAmerica (“US GAAP”). Our fiscal year-end is December 31. The accompanyingcondensed consolidated interim financial statements are unauditedinclude the accounts of Meta Materials Inc. and its wholly-owned subsidiaries. All significant intercompany balances and transactions have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) regardingeliminated on consolidation.

These unaudited condensed consolidated interim financial reporting. Certain disclosures have been condensed or omitted from these financial statements. Accordingly, theystatements do not include all of the information and notes required by accounting principles generally accepted in the United States of America (“GAAP”)US GAAP for completeannual financial statements. Accordingly, these unaudited condensed consolidated interim financial statements and should be read in conjunction with our audited consolidated financial statements and notes for the years ended December 31, 2021, 2020 and 2019, filed with the Securities and Exchange Commission (“SEC”) on Form 10-K/A.

Recently Adopted Accounting Pronouncements: We currently have no material recently adopted accounting pronouncements.

Recently Issued Accounting Pronouncements: We currently have no material recent accounting pronouncements yet to be adopted.

3. Acquisitions and preferred stock liability

Torchlight RTO

On June 28, 2021, We and our subsidiaries, Canco and Callco, completed an arrangement agreement where we acquired all of the outstanding common stock of MMI and the former shareholders of MMI acquired approximately 70% of our Common Stock. Accordingly, the former shareholders of MMI, as a group, retained control of the Company, and while the Company was the legal acquirer of MMI, MMI was deemed to be the acquirer for accounting purposes. Pursuant to ASC 805 Business Combinations, the transaction was accounted for as a reverse acquisition. Consideration transferred was measured to be $358 million and the difference between the consideration transferred and fair value of net assets resulted in the recognition of goodwill of $213 million.

7


Nanotech acquisition

On October 5, 2021, a wholly-owned subsidiary of the Company purchased 100% of the common stock of Nanotech Security Corp. ("Nanotech") at CA$1.25 per share. In addition, the transaction price included the settlement of certain Nanotech share awards outstanding immediately prior to the closing of the agreement. 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 difference between the consideration paid and fair value of net assets resulted in the recognition of goodwill of $27 million.

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 Torchlight RTO and the Nanotech acquisition, as disclosed in the audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the yearyears ended December 31, 2016. The financial statements are presented on a consolidated basis2021 and include all of the accounts of Torchlight Energy Resources Inc. and its wholly owned subsidiaries, Torchlight Energy, Inc., Torchlight Energy Operating, LLC, Hudspeth Oil Corporation, and Torchlight Hazel, LLC. All intercompany transactions have been eliminated2020 contained in consolidation. Certain reclassifications have been made to the prior year’s consolidated financial statements and related footnotes to conform them to the current year presentation. In the opinion of the Company’s management, the accompanying unaudited condensed consolidated financial statements include all adjustments, consisting of normal recurring adjustments, necessary to fairly present the financial position as of, and the results of operations for, all periods presented. In preparing the accompanying condensed consolidated financial statements, management has made certain estimates and assumptions that affect reported amounts in the condensed consolidated financial statements and disclosures of contingencies. Actual results may differ from those estimates. The results for interim periods are not necessarily indicative of annual results.

Risks and uncertainties– The Company’s operations are subject to significant risks and uncertainties, including financial, operational, technological, and other risks associatedform 10K/A filed with operating an emerging business, including the potential risk of business failure.
Concentration of risks– At times the Company’s cash balances are in excess of amounts guaranteed by the Federal Deposit Insurance Corporation. The Company’s cash is placed with a highly rated financial institution, and the Company regularly monitors the credit worthiness of the financial institutions with which it does business.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
3. SIGNIFICANT ACCOUNTING POLICIES- continued

Fair value of financial instruments– Financial instruments consist of cash, receivables, payables and promissory notes, if any. The estimated fair values of cash, receivables, and payables approximate the carrying amount due to the relatively short maturity of these instruments. The carrying amounts of any convertible promissory notes approximate their fair value giving affect for the term of the note and the effective interest rates.
For assets and liabilities that require re-measurement to fair value the Company categorizes them in a three-level fair value hierarchy as follows:
·Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities.
·Level 2 inputs are quoted prices for similar assets and liabilities in active markets or inputs that are observable for the asset or liability, either directly or indirectly through market corroboration.
·Level 3 inputs are unobservable inputs based on management’s own assumptions used to measure assets and liabilities at fair value.
A financial asset or liability’s classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement.
Accounts receivable– Accounts receivable consist of uncollateralized oil and natural gas revenues due under normal trade terms, as well as amounts due from working interest owners of oil and gas properties for their share of expenses paid on their behalf by the Company. Management reviews receivables periodically and reduces the carrying amount by a valuation allowance that reflects management’s best estimate of the amount that may not be collectible. As of September 30, 2017 and December 31, 2016, no valuation allowance was considered necessary.
Oil and gas properties– The Company uses the full cost method of accounting for exploration and development activities as defined by the Securities and Exchange Commission (“SEC”). Under this methodon May 2, 2022.

We believe that information gathered to date provides a reasonable basis for estimating the fair value of accounting,assets acquired and liabilities assumed, however we are waiting for additional information necessary to finalize these fair values including assessment of any tax assets and liabilities and tax position in different jurisdictions. Therefore, the costsprovisional measurements of unsuccessful, as well as successful, exploration and development activities are capitalized as properties and equipment. This includes any internal costs that are directly related to property acquisition, exploration and development activities but does not include any costs related to production, general corporate overhead or similar activities. Gain or loss on the sale or other disposition of oil and gas properties is not recognized, unless the gain or loss would significantly alter the relationship between capitalized costs and proved reserves.

Oil and gas properties include costs that are excluded from costs being depleted or amortized. Oil and natural gas property costs excluded represent investments in unevaluated properties and include non-producing leasehold, geological, and geophysical costs associated with leasehold or drilling interests and exploration drilling costs. The Company allocates a portion of its acquisition costs to unevaluated properties based on relative value. Costs are transferred to the full cost pool as the properties are evaluated over the life of the reservoir. Unevaluated properties are reviewed for impairment at least quarterly and are determined through an evaluation considering, among other factors, seismic data, requirements to relinquish acreage, drilling results, remaining time in the commitment period, remaining capital plan, and political, economic, and market conditions.
Gains and losses on the sale of oil and gas properties are not generally reflected in income unless the gain or loss would significantly alter the relationship between capitalized costs and proved reserves. Sales of less than 100% of the Company’s interest in the oil and gas property are treated as a reduction of the capital cost of the field, with no gain or loss recognized, as long as doing so does not significantly affect the unit-of-production depletion rate. Costs of retired equipment, net of salvagefair value are usually chargedsubject to accumulated depreciation.change. We expect to complete the purchase price allocations as soon as practicable but no later than one year from the acquisition dates.

4. Related party transactions

As of March 31, 2022 and December 31, 2021, receivables due from a related party (Lamda Guard Technologies Ltd, or “LGTL”) were $10,314 and $10,657, respectively.

Capitalized interest –The Company capitalizes interest on unevaluated properties during

5. Assets held for sale

As of March 31, 2022 and December 31, 2021, assets held for sale represent the periods in which they are excluded from costs being depleted or amortized. During nine months ended September 30, 2017 and 2016, the Company capitalized $703,740 and $106,388, respectively, of interest on unevaluated properties.

Depreciation, depletion, and amortization– The depreciable base foracquired oil and natural gas properties from the Torchlight RTO.

Orogrande Project, West Texas

Our outstanding drilling obligation includes the sum of all capitalized costs net of accumulated depreciation, depletion,5 wells in 2022 and amortization (“DD&A”), estimated future development costs and asset retirement costs not included in oil and natural gas properties, less costs excluded from amortization.2023. All drilling obligations through December 31, 2021 have been met. The depreciable base of oil and natural gas properties is amortized on a unit-of-production method.

Ceiling test– Future production volumes from oil and gas propertiesdrilling obligations are a significant factor in determining the full cost ceiling limitation of capitalized costs. Under the full cost method of accounting, the Company is required to periodically perform a “ceiling test” that determines a limit on the book value of oil and gas properties. If the net capitalized cost of proved oil and gas properties, net of related deferred income taxes, plus the cost of unproved oil and gas properties, exceeds the present value of estimated future net cash flows discounted at 10 percent, net of related tax affects, plus the cost of unproved oil and gas properties, the excess is charged to expense and reflected as additional accumulated DD&A. The ceiling test calculation uses a commodity price assumption which is based on the unweighted arithmetic average of the price on the first day of each month for each month within the prior 12 month period and excludes future cash outflows related to estimated abandonment costs.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
3. SIGNIFICANT ACCOUNTING POLICIES- continued
The determination of oil and gas reserves is a subjective process, and the accuracy of any reserve estimate depends on the quality of available data and the application of engineering and geological interpretation and judgment. Estimates of economically recoverable reserves and future net cash flows depend on a number of variable factors and assumptions that are difficult to predictminimum yearly requirements and may vary considerably from actual results. In particular, reserve estimates for wells with limited or no production history are less reliable than those based on actual production. Subsequent re-evaluation of reserves and cost estimates related to future development of proved oil and gas reserves could result in significant revisions to proved reserves. Other issues, such as changes in regulatory requirements, technological advances, and other factors which are difficult to predict could also affect estimates of proved reserves in the future.
Asset retirement obligations–The fair value of a liability for an asset’s retirement obligation (“ARO”)be exceeded if acceleration is recognized in the period in which it is incurred if a reasonable estimate of fair value can be made, with the corresponding charge capitalized as part of the carrying amount of the related long-lived asset. The liability is accreted to its then-present value each subsequent period, and the capitalized cost is depleted over the useful life of the related asset. Abandonment costs incurred are recorded as a reduction of the ARO liability.
Inherent in the fair value calculation of an ARO are numerous assumptions and judgments including the ultimate settlement amounts, inflation factors, credit adjusted discount rates, timing of settlement, and changes in the legal, regulatory, environmental, and political environments. To the extent future revisions to these assumptions impact the fair value of the existing ARO liability, a corresponding adjustment is made to the oil and gas property balance. Settlements greater than or less than amounts accrued as ARO are recorded as a gain or loss upon settlement.
Income taxes-Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is established to reduce deferred tax assets if it is more likely than not that the related tax benefits will not be realized.
Authoritative guidance for uncertainty in income taxes requires that the Company recognize the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an examination. Management has reviewed the Company’s tax positions and determined there were no uncertain tax positions requiring recognition in the consolidated financial statements. Company tax returns remain subject to Federal and State tax examinations. Generally, the applicable statutes of limitation are three to four years from their respective filings.
Estimated interest and penalties related to potential underpayment on any unrecognized tax benefits are classified as a component of tax expense in the statement of operation. The Company has not recorded any interest or penalties associated with unrecognized tax benefits for any periods covered by these financial statements.
Share-based compensation– Compensation cost for equity awards is based on the fair value of the equity instrument on the date of grant and is recognized over the period during which an employee is required to provide service in exchange for the award. Compensation cost for liability awards is based on the fair value of the vested award at the end of each period.
The Company also issues equity awards to non-employees. The fair value of these option awards is estimated when the award recipient completes the contracted professional services. The Company recognizes expense for the estimated total value of the awards during the period from their issuance until performance completion, at which time the estimated expense is adjusted to the final value of the award as measured at performance completion.
The Company values warrant and option awards using the Black-Scholes option pricing model.
Revenue recognition– The Company recognizes oil and gas revenues when production is sold at a fixed or determinable price, persuasive evidence of an arrangement exists, delivery has occurred and title has transferred, and collectability is reasonably assured.
Basic and diluted earnings (loss) per shareBasic earnings (loss) per common share is computed by dividing net income (loss) available to common shareholders by the weighted average number of common shares outstanding during the period. Diluted earnings (loss) per common share is computed in the same way as basic earnings (loss) per common share except that the denominator is increased to include the number of additional common shares that would be outstanding if all potential common shares had been issued and if the additional common shares were dilutive. The calculation of diluted earnings per share excludes 21,361,231 shares issuable upon the exercise of outstanding warrants and options because their effect would be anti-dilutive.
Environmental laws and regulations– The Company is subject to extensive federal, state, and local environmental laws and regulations. Environmental expenditures are expensed or capitalized depending on their future economic benefit. The Company believes that it is in compliance with existing laws and regulations.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
3. SIGNIFICANT ACCOUNTING POLICIES- continued
Recent accounting pronouncements– In May 2014, the FASB issued ASU 2014-09,Revenue From Contracts With Customersthat introduces a new five-step revenue recognition model in which an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This ASU also requires disclosures sufficient to enable users to understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers, including qualitative and quantitative disclosures about contracts with customers, significant judgments and changes in judgments, and assets recognized from the costs to obtain or fulfill a contract. This standard is effective for fiscal years beginning after December 15, 2017, including interim periods within that reporting period. The Company expects to adopt this standard on January 1, 2018 and intends to elect the modified retrospective method of adoption. The new standard is not expected to have a material impact on the financial statements but will require expanded disclosure of revenues.
In February 2016 the FASB, issued ASU, 2016-02,Leases. The ASU requires companies to recognize on the balance sheet the assets and liabilities for the rights and obligations created by leased assets. ASU 2016-02 will be effective for the Company in the first quarter of 2019, with early adoption permitted. The Company is currently evaluating the impact that the adoption of ASU 2016-02 will have on the Company’s consolidated financial statements and related disclosures.
Other recently issued or adopted accounting pronouncements are not expected to have, or did not have, a material impact on the Company’s financial position or results from operations.

Subsequent events –The Company evaluated subsequent events through November 14, 2017, the date of issuance of the financial statements. Subsequent events are disclosed in Note 11.
4. OIL & GAS PROPERTIES
The following table presents the capitalized costs for oil & gas properties of the Company as of September 30, 2017 and December 31, 2016:
 
 
2017
 
 
2016
 
 
 
 
 
 
 
 
Evaluated costs subject to amortization
 $2,721,503 
 $1,470,939 
Unevaluated costs
  23,980,225 
  13,376,742 
Total capitalized costs
  26,701,728 
  14,847,681 
Less accumulated depreciation, depletion and amortization
  (5,520,708)
  (5,455,393)
Total oil and gas properties
 $21,181,020 
 $9,392,288 
Unevaluated costs as of September 30, 2017 include cumulative costs on developing projects including the Orogrande and Hazel Projects in West Texas and adjusted costs of nonproducing leases in Oklahoma.
On January 30, 2017, we and our wholly-owned subsidiary, Torchlight Acquisition Corporation, a Texas corporation (“TAC”), entered into and closed an Agreement and Plan of Reorganization and Plan of Merger with Line Drive Energy, LLC, a Texas limited liability company (“Line Drive”), under which agreements TAC merged with and into Line Drive and the separate existence of TAC ceased, with Line Drive being the surviving organization and becoming our wholly-owned subsidiary. Line Drive, which was wholly-owned by Gregory McCabe, our Chairman, owned certain assets and securities, including approximately 40.66% of 12,000 gross acres in the Hazel Project and 521,739 warrants to purchase our common stock (which warrants had been assigned by Mr. McCabe to Line Drive). Under the merger transaction, our shares of common stock of TAC converted into a membership interest of Line Drive, the membership interest in Line Drive held by Mr. McCabe immediately prior to the transaction ceased to exist, and we issued Mr. McCabe 3,301,739 restricted shares of common stock as consideration therefor. Immediately after closing, the 521,739 warrants held by Line Drive were cancelled, which warrants had an exercise price of $1.40 per share and an expiration date of June 9, 2020. A Certificate of Merger for the merger transaction was filed with the Secretary of State of Texas on January 31, 2017. Subsequent to the closing the name of Line Drive Energy, LLC was changed to Torchlight Hazel, LLC.
Also on January 30, 2017, our wholly-owned subsidiary, Torchlight Energy, Inc., a Nevada corporation (“TEI”), entered into and closed a Purchase and Sale Agreement with Wolfbone Investments, LLC, a Texas limited liability company (“Wolfbone”) which is wholly-owned by Gregory McCabe. Under the agreement, TEI acquired certain of Wolfbone’s Hazel Project assets, including its interest in the Flying B Ranch #1 well and the 40 acre unit surrounding the well, for consideration of $415,000, and additionally, Wolfbone caused to be cancelled a total of 2,780,000 warrants to purchase our common stock, including 1,500,000 warrants held by McCabe Petroleum Corporation, an entity owned by Mr. McCabe, and 1,280,000 warrants held by Green Hill Minerals, an entity owned by Mr. McCabe’s son, which warrant cancellations were effected through certain Warrant Cancellation Agreements. The 1,500,000 warrants held by McCabe Petroleum Corporation had an exercise price of $1.00 per share and an expiration date of April 4, 2021. The warrants held by Green Hill Minerals included 100,000 warrants with an exercise price of $1.73 and an expiration date of September 30, 2018 and 1,180,000 warrants with an exercise price of $0.70 and an expiration date of February 15, 2020.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
4. OIL & GAS PROPERTIES- continued
Since Mr. McCabe held the controlling interest in both Line Drive and Wolfbone Investments, LLC, the transactions were combined for accounting purposes. The working interest in the Hazel Project was the only asset held by Line Drive. The warrant cancellation was treated in the aggregate as an exercise of the warrants with the transfer of the working interests as the consideration. The Company recorded the transactions as an increase in its investment in the Hazel project working interests of $3,644,431 which is equal to the exercise price of the warrants plus the cash paid to Wolfbone.
Upon the closing of the above transactions, the Company’s working interest in the Hazel project increased by 40.66% to a total ownership of 74%.
Effective June 1, 2017, the Company acquired an additional 6% working interest from unrelated working interest owners in exchange for 268,656 shares of common stock valued at $373,430, increasing its interest in the Hazel project to 80%.
5. RELATED PARTY PAYABLES
As of September 30, 2017, related party payables consisted of accrued and unpaid compensation to one of our executive officers totaling $45,000.
During the three months ended September 30, 2017, the Company issued a total of 25,000 shares of common stock in payment of amounts due to a director for serving on the Litigation Committee of the Board of Directors. All of the shares are presently unvested and are subject to vesting at specified future events. The value of the award has been fully recognized in expense according to its terms.
During the three months ended June 30, 2017, the Company issued 58,026 stock options in payment of accounts payable to two directors for 2016 director fees.
During the three months ended June 30, 2017, the Company issued a total of 237,001 shares of common stock in payment of amounts due to a director for 2016 director fees and compensation for serving on the Litigation Committee of the Board of Directors. All of the shares are presently unvested and are subject to vesting at specified future events. The value of the award has been fully recognized in expense according to its terms.
6. COMMITMENTS AND CONTINGENCIES
Legal Proceeding
Torchlight Energy Resources, Inc. and its subsidiary Torchlight Energy, Inc. has pending in the 429th judicial district court in Collin County, Texas a lawsuit against Husky Ventures, Inc., Charles V. Long, Silverstar of Nevada, Inc., Gastar Exploration Inc., J. Russell Porter, Michael A. Gerlich, and Jerry R. Schuyler that was originally filed in May 2016 (previous defendants April Glidewell, Maximus Exploration, LLC, Atwood Acquisitions,LLC and John M. Selser, Sr have been non-suited without prejudice to re-filing the claims). In the lawsuit, we allege, among other things, that the defendants acted improperly in connection with multiple transactions, and that the defendants misrepresented and omitted material information to us with respect to these transactions. The lawsuit seeks damages arising from 15 different causes of action, including without limitation, violations of the Texas Securities Act, fraud, negligent misrepresentation, breach of fiduciary duty, breach of contract, unjust enrichment and tortious interference. The lawsuit also seeks a complete accounting as to how our investment funds were used, including all transfers between and among the defendants. We are seeking the full amount of our damages on $20,000,000 invested. At this time we believe our damages to be in excess of $1,000,000, but the precise amount will be determined in the litigation.  The case is currently set for trial on February 28, 2018.
On April 13, 2017, Husky Ventures, Inc. filed in the above lawsuit a counterclaim against Torchlight Energy Resources, Inc. and its subsidiary Torchlight Energy, Inc., and a third-party petition against John Brda, the Chief Executive Officer of Torchlight Energy Resources, Inc., and Willard McAndrew III, a former officer of Torchlight Energy Resources, Inc. (“Husky Counterclaim”). The Husky Counterclaim asserts breach of contract against Torchlight Energy Resources, Inc. and its subsidiary Torchlight Energy, Inc. and asserts a claim for tortious interference with Husky’s contractual relationship with Torchlight and a claim for conspiracy to tortiously interfere with unspecified Husky business and contractual relationships against Torchlight Energy Resources, Inc. and its subsidiary Torchlight Energy, Inc., John Brda and Willard McAndrew III. We believe the Husky Counterclaim is without merit and intend to vigorously defend against it.
On May 22, 2017, the Court granted Gastar Exploration, Inc., J. Russell Porter, Michael A. Gerlich, and Jerry R. Schuyler’s (“Gastar Defendants”) motion for summary judgment dismissing all of Torchlight’s claims against the Gastar Defendants with prejudice. The only claim remaining related to the Gastar Defendants is a counterclaim against Torchlight by Gastar Exploration, Inc. for Torchlight’s alleged breach of a release that Gastar Exploration, Inc. claims occurred because Torchlight filed this lawsuit against the Gastar Defendants. Torchlight alleges in its lawsuit that this release is unenforceable against all the Defendants including but not limited to Gastar Defendants.”
Operating Leases
The Company has a non-cancelable lease for its office premises that expires on November 30, 2019 and which requires the payment of base lease amounts and executory costs such as taxes, maintenance and insurance. Rental expense for the lease was $57,469 for the nine months ended September 30, 2017 and $60,586 for the nine months ended September 30, 2016.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
6. COMMITMENTS AND CONTINGENCIES- continued
Approximate future minimum rental commitments under the office premises lease are:
Year Ending December 31,
 
Rent
 
 
 
 
 
Remainder of 2017
 $23,430 
2018
  93,720 
2019
  93,720 
To 2019 Expiration
  85,910 
Total
 $296,780 
Environmental matters
We are subject to contingencies as a result of environmental laws and regulations. Present and future environmental laws and regulations applicable to our operations could require substantial capital expenditures or could adversely affect our operations in other ways that cannot be predicted at this time. As of September 30, 2017 and December 31, 2016, no amounts have been recorded because no specific liability has been identified that is reasonably probable of requiring us to fund any future material amounts.
7. STOCKHOLDERS’ EQUITY
desired.

During the three months ended March 31, 20172022, we have incurred an additional $1.1 million in cost to ensure that compliance with the Company issued 41,322relevant leases was maintained.

The Orogrande Project ownership as of March 31, 2022 is detailed as follows:

 

 

Revenue Interest

 

 

Working Interest

 

University Lands - Mineral Owner

 

 

20.00

%

 

n/a

 

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

 

 

4.50

%

 

n/a

 

ORRI - Unrelated Party

 

 

0.50

%

 

n/a

 

Hudspeth Oil Corporation, a subsidiary of Meta Materials Inc.

 

 

49.88

%

 

 

66.50

%

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

 

 

18.75

%

 

 

25.00

%

Conversion by Note Holders in March, 2020

 

 

4.50

%

 

 

6.00

%

Unrelated Party

 

 

1.88

%

 

 

2.50

%

 

 

 

100.00

%

 

 

100.00

%

Hazel Project in the Midland Basin in West Texas

As part of our review of the fair value of the Hazel Project property as at March 31, 2022, we obtained a new engineering reserve report prepared by PeTech Enterprises, Inc. ("PeTech"), a third-party Reserve Engineer. The calculations were prepared using standard geological and engineering methods generally accepted by the petroleum industry and in accordance with SEC financial accounting and reporting standards.

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 preferred 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 of March 31, 2022 is $NaN.

6. Inventory

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

 

 

March 31,
2022

 

 

December 31,
2021

 

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

 

7. Property, plant and equipment, net

Property, plant and equipment consist of the following:

 

 

Useful life

 

As of

 

 

 

(years)

 

March 31,
2022

 

 

December 31,
2021

 

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

 

Depreciation expense was $754,957 and $361,773 for the three months ended March 31, 2022, and March 31, 2021, 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 our corporate bank account and credit card and includes all property, plant and equipment and intangible assets.

9


8. Long-term debt

 

 

March 31,
2022

 

 

December 31,
2021

 

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

 

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

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

3 A portion of the ACOA BDP 2018 loan was used to finance the acquisition and construction of manufacturing equipment resulting in $425,872 was being recorded as deferred government assistance, which is being amortized over the useful life of the 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 operations and comprehensive loss. As of March 31, 2022, the portion recorded as deferred government assistance is amortized in full.

9. Capital stock

Common stock

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

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 a reductionif the Torchlight RTO had taken place as of the beginning of the earliest period presented.

The numbers of common shares issued pre-Torchlight RTO have been multiplied by the 1.845 Torchlight conversion ratio.
The amounts of common shares issued pre-Torchlight RTO were calculated by multiplying the number of shares by 0.001 and the 1.845 Torchlight conversion ratio and the difference were recognized in compensation payable to an officer, with total value of $50,000.additional paid in capital.

During the three months ended March 31, 20172022, 1,988,617 warrants and were exercised to purchase 1,623,700 common shares where most warrant holders elected cashless exercise and consequently, the Company issued 3,301,739difference of 364,917 shares of common stock in connection withwas withheld to cover the Line Drive merger transaction in which the Company acquired oil and gas lease related costs valued at $3,229,431.

exercise cost.

10


During the three months ended March 31, 2017, the Company issued 200,000 warrants for services which resulted in $24,908 of recognized expense.

Effective June 1, 2017 we issued 268,656 shares2022, 730,249 stock options were exercised to purchase an equal number of common shares.

Warrants

The following table summarizes the changes in our warrants:

 

 

Three months ended

 

 

 

March 31,
2022

 

 

 

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

 

Broker warrants

The following table summarizes the changes in our broker warrants:

 

 

Three months ended

 

 

 

March 31,
2022

 

 

 

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 2021 Equity Incentive Plan at 34,945,745 shares.

The 2021 Equity Incentive Plan allows the grants of non-statutory stock valued at $373,430 to certain working interest owners in exchange for an aggregate 6% working interest in the Hazel Project.

During the three months ended June 30, 2017 the Company issued 1,007,890 shares of commonoptions, restricted stock, in connection with the conversion of a previously outstanding 12% Series B Unsecured Convertible Promissory Note.
During the three months ended June 30, 2017 the Company issued 441,575 shares of commonrestricted stock for services including 237,001units ("RSUs"), stock appreciation rights, performance units and performance shares to employees, directors, and consultants.

DSU Plan

On March 28, 2013, we implemented a director whichDeferred Stock Unit (DSU) Plan for our directors, employees and officers. Directors, employees and officers are subject togranted DSUs with immediate vesting as a form of compensation. Each unit is convertible at specified future events. The valuethe option of the director award has been fully recognized in expense accordingholder into one common share. Eligible individuals are entitled to its terms.

During the three months ended June 30, 2017 the Company issued 29,250 sharesreceive all DSUs (including dividends and other adjustments) no later than December 1st of common stock in warrant exercises.
During the three months ended June 30, 2017, the Company recognized $42,312 of expense related to 200,000 warrants issued for services in the first quarter, 2017.
Duringcalendar year commencing after the three months ended September 30, 2017 the Companytime of termination of their services.

11


As of March 31, 2022, there were 3,647,026 outstanding DSUs. There were 0 new DSUs issued, 25,000 shares of common stock for services to a director which are subject to vesting at specified future events. The value of the director award has been fully recognized in expense according to its terms.

During the three months ended September 30, 2017, the Company recognized $37,959 of expense related to 200,000 warrants issued for services in the first quarter, 2017.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
7. STOCKHOLDERS’ EQUITY- continued
A summary of warrants outstanding as of September 30, 2017 by exercise price0 DSUs exercised and year of expiration is presented below:
 
Exercise
 
 
Expiration Date in    
 
 
 
 
 
Price
 
 
2017
 
 
2018
 
 
2019
 
 
2020
 
 
2021
 
 
Total
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 $0.50 
  - 
  528,099 
  - 
  - 
  - 
  528,099 
 $0.70 
  - 
  - 
  - 
  420,000 
  - 
  420,000 
 $0.77 
  - 
  - 
  100,000 
  - 
  - 
  100,000 
 $1.00 
  150,000 
  - 
  25,116 
  - 
  - 
  175,116 
 $1.03 
  - 
  - 
  - 
  - 
  120,000 
  120,000 
 $1.08 
  - 
  - 
  37,500 
  - 
  - 
  37,500 
 $1.40 
  - 
  - 
  - 
  1,121,736 
    
  1,121,736 
 $1.64 
  - 
  - 
  - 
  - 
  200,000 
  200,000 
 $1.73 
  - 
  100,000 
  - 
  - 
  - 
  100,000 
 $1.80 
  - 
  - 
  - 
  1,250,000 
  - 
  1,250,000 
 $2.00 
  126,000 
  1,906,249 
  - 
  - 
  - 
  2,032,249 
 $2.03 
  - 
  2,000,000 
  - 
  - 
  - 
  2,000,000 
 $2.09 
  - 
  2,800,000 
  - 
  - 
  - 
  2,800,000 
 $2.23 
  - 
  - 
  - 
  832,512 
    
  832,512 
 $2.29 
  - 
  120,000 
  - 
  - 
  - 
  120,000 
 $2.50 
  - 
  - 
  35,211 
  - 
  - 
  35,211 
 $2.82 
  - 
  38,174 
  - 
  - 
  - 
  38,174 
 $3.50 
  - 
  - 
  15,000 
  - 
  - 
  15,000 
 $4.50 
  - 
  - 
  700,000 
  - 
  - 
  700,000 
 $5.00 
  75,000 
  - 
  - 
  - 
  - 
  75,000 
 $6.00 
  - 
  523,123 
  22,580 
  - 
  - 
  545,703 
 $7.00 
  - 
  - 
  700,000 
  - 
  - 
  700,000 
    
  351,000 
  8,015,645 
  1,635,407 
  3,624,248 
  320,000 
  13,946,300 
During0 DSUs expired during the three months ended March 31, 2017,2022.

RSU Plan

Each unit is convertible at the Company recognized $287,250option of the holder into one common share of our shares upon meeting the vesting conditions.

Total stock-based compensation expense related to previously issuedRSUs included in the condensed consolidated interim statements of operations was 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 RSUs:

 

 

Number of
RSUs (#)

 

 

Weighted
Average
grant date fair value

 

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


Employee Stock Option Plan

Each stock option is convertible at the option of the holder into one common share upon payment of exercise price.

Total stock-based compensation expense related to stock options included in the condensed consolidated interim statements of operations was as follows:

 

 

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

 

The following table summarizes the change in our outstanding stock options:

 

 

Number of
Options (#)

 

 

Weighted
Average
exercise
price per
stock
option

 

 

Weighted
Average
exercise
remaining
contractual
term
(years)

 

 

Aggregate intrinsic
value

 

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

 

Below is a summary of the outstanding options as of March 31, 2022 and December 31, 2021:

 

 

 

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

 

The fair value of options granted was estimated at the grant date using the following weighted-average assumptions:

Three months ended

March 31,
2022

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


Where possible, we use the simplified method to estimate the expected term of employee stock options.

During We do not have adequate historical exercise data to provide a reasonable basis for estimating the three months ended June 30, 2017,expected term for the Company recognized $287,250 of expense related to previously issued employee stockcurrent share options granted. The simplified method assumes that employees will exercise share options evenly between the period when the share options are vested and issued 58,026ending on the date when the options in payment ofwould expire.

The expected volatility reflects the assumption that the historical volatility over a $54,544 account payable to directors for 2016 director fees.

During the three months ended September 30, 2017, the Company issued 800,000 stock options to four directors for director fees. The Company recognized $247,500 of expense relatedperiod similar to the issuances. The options are exercisable at $1.10 for five years. One halflife of the awards immediately vested andoptions is indicative of future trends, which may not necessarily be the remaining half is subject to future vesting over one year.actual outcome.

A summary of stock options outstanding as of September 30, 2017 by exercise price and year of expiration is presented below:
 
 Exercise
 
 
Expiration Date in     
 
 
 
 
 
 Price
 
 
2017
 
 
2018
 
 
2019
 
 
2020
 
 
2021
 
 
2022
 
 
Total
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 $0.97 
  - 
  - 
  - 
  - 
  259,742 
  - 
  259,742 
 $1.10 
  - 
  - 
  - 
  - 
  - 
  800,000 
  800,000 
 $1.57 
  - 
  - 
  - 
  5,997,163 
  - 
  - 
  5,997,163 
 $1.63 
  - 
  - 
  - 
  - 
  58,026 
  - 
  58,026 
 $1.79 
  - 
  - 
  - 
  300,000 
  - 
  - 
  300,000 
    
  - 
  - 
  - 
  6,297,163 
  317,768 
  800,000 
  7,414,931 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
7. STOCKHOLDERS’ EQUITY- continued
At September 30, 2017 the Company had reserved 21,361,231 shares for future exercise of warrants and options.
Warrants and options issued were valued using the Black Scholes Option Pricing Model. The assumptions used in calculating the fair value of the warrants and options issued were as follows:
2017
Risk-free interest rate1.47% - 1.94%
Expected volatility of common stock106% - 122%
Dividend yield0.00%
Discount due to lack of marketability20%
Expected life of option/warrant2.75 years - 5 years
2016
Risk-free interest rate0.78%-1.47%
Expected volatility of common stock101% - 189%
Dividend yield0.00%
Discount due to lack of marketability20-30%
Expected life of option/warrant3 years - 5 years
8. INCOME TAXES
The Company estimates its

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. The Company recorded no income

Our effective tax expenserate for the ninethree months ended September 30, 2017 becauseMarch 31, 2022 differs from the Company expectsstatutory rates due to incur avaluation allowance as well as different domestic and foreign statutory tax loss in the current year. Similarly, no incomerates.

Deferred tax expense was recognizedrecovery for the ninethree months ended September 30, 2016 for this same reason.March 31, 2022 was $NaN (three months ended March 31, 2021 - $44,679).

 

 

Three months ended

 

 

 

March 31,

 

 

 

2022

 

 

2021

 

Deferred tax recovery

 

$

 

 

$

44,679

 

The Company had a net

We have not yet been able to establish profitability or other sufficient significant positive evidence, to conclude that our deferred tax asset relatedassets are more likely than not to federal net operating loss carryforwards of $53,297,588 and $51,028,330 at September 30, 2017 and December 31, 2016, respectively. The federal net operating loss carryforward will beginbe realized. Therefore, we continue to expire in 2032. Realization of the deferred tax asset is dependent, in part, on generating sufficient taxable income prior to expiration of the loss carryforwards. The Company has placedmaintain a 100% valuation allowance against the netour deferred tax asset because future realizationassets.

12. Net loss per share

The following table sets forth the calculation of these assets isbasic 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

)

The following potentially dilutive shares were not assured.

9. PROMISSORY NOTES
On April 10, 2017, we sold to investorsincluded in a private transaction two 12% unsecured promissory notes with a totalthe calculation of $8,000,000 in principal amount. Interest only is due and payable ondiluted shares above as the notes each month at the rate of 12% per annum, with a balloon payment of the outstanding principal due and payable at maturity on April 10, 2020. The holders of the notes will also receive annual payments of common stock at the rate of 2.5% of principal amount outstanding, based on a volume-weighted average price. Both notes were sold at an original issue discount of 94.25% and accordingly, we received total proceeds of $7,540,000 from the investors. We are using the proceeds for working capital and general corporate purposes, which includes, without limitation, drilling capital, lease acquisition capital and repayment of prior debt.
These 12% promissory notes allow for early redemption, provided that if we redeem before April 10, 2018, we must pay the holders all unpaid interest and common stock payments on the portion of the notes redeemed thateffect would have been earned through April 10, 2018.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 notes also contain certain covenants under which wenumbers of options, warrants, and DSUs issued pre-Torchlight RTO have agreed that, except for financing arrangementsbeen multiplied by 1.845 Torchlight conversion ratio.

14


13. Additional cash flow information

The net changes in non-cash working capital balances related to operations consist of the following:

 

 

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

 

14. Fair value measurements

We use a fair value hierarchy, based on the relative objectivity of inputs used to measure fair value, with established commercial banking or financial institutionsLevel 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 related parties and trade and other debts and liabilities incurredpayables 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 normal coursebelow table.

The fair value of assets held for sale is classified at level 3 as the 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 for the fair value measurement of the preferred stock liability as of March 31, 2022.

The fair values of the funding obligation, operating lease liabilities, and long-term debt would be classified at Level 3 in the fair value hierarchy, as each instrument is estimated based on unobservable inputs including discounted cash flows using the market rate, which is subject to similar risks and maturities with comparable financial instruments as at the reporting date.

Carrying values and fair values of financial instruments that are not carried at fair value are as follows:

 

 

March 31,
2022

 

 

December 31,
2021

 

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.

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 will not issue any other noteshad 1 customer that accounted for $245,229 or debt offerings which have41% of total revenue.

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

)

17. Leases

We entered into the following lease during the three months ended March 31, 2022:

Burnaby lease expansion

On February 25, 2022, our subsidiary Nanotech entered into an agreement to amend its Burnaby lease ("expansion"), to expand the premises by an additional 1,994 square feet, commencing on June 1, 2022, for a maturity dateperiod of two years and eleven months. The agreement provides the tenant with early access to the premises at least three months prior to the paymentcommencement date to conduct leasehold improvements. We obtained access to the premises on March 25, 2022 and consequently recognized a right-of-use asset and liability for the expansion as of March 31, 2022, of $146,822.

16


Total operating lease expense included in fullthe 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.

Future minimum payments under non-cancelable operating lease obligations were as follows as of March 31, 2022:

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

 

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 12% notes, unless consented to by the holders.

The effective interest rate is 16.15%.
On April 24, 2017tool components that we used $2,509,500contend was a cause of the proceeds from this financingtool failure. It was later discovered that Datalog LWT, Inc. d/b/a Cordax Evaluation Technologies forfeited its charter to redeemconduct business in the State of Texas by failing to timely pay its franchise taxes, and repay a portionwe added members of the outstanding 12% Series B Convertible Unsecured Promissory Notes. Separately, $1,000,000board 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 principalBoard 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 Series B Notes plus accrued interest was converted into 1,007,890 shares205th Judicial District Court of common stockHudspeth County, Texas. We are contesting the lien in good faith and $60,000 was rolled intofiled a Plea in Abatement on May 10, 2021, seeking a stay in the new debt financing.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
10. ASSET RETIREMENT OBLIGATIONS
The following is a reconciliationHudspeth County lien foreclosure case pending final disposition of the asset retirement obligation liability throughrelated case currently pending in Harris County, Texas.

17


In September 30, 2017:

Asset retirement obligation – December 31, 2015
$29,083
Accretion Expense
41
Removal of ARO for wells sold
(22,073)
Asset retirement obligation – December 31, 2016
$7,051
Accretion Expense
41
Asset retirement obligation – March 31, 2017
$7,092
Accretion Expense
41
Asset retirement obligation – June 30, 2017
$7,133
Estimated liabilities recorded
1,614
Accretion Expense
41
Asset retirement obligation – September 30, 2017
$8,788
11. SUBSEQUENT EVENTS

On November 14, 2017,2021, we received a subpoena from the Securities and our newly formed wholly-owned subsidiary, Torchlight Wolfbone Properties, Inc.,Exchange Commission, Division of Enforcement, in a Texas corporation (“TWP”), entered into an Agreement and Plan of Reorganization and Plan of Merger with McCabe Petroleum Corporation, a Texas corporation (“MPC”), and Warwink Properties, LLC, a Texas limited liability company (“Warwink Properties”), under which agreements TWP is to merge with and into Warwink Properties andmatter captioned In the separate existence of TWP is to cease, with Warwink Properties becoming the surviving organization and our wholly-owned subsidiary. Warwink Properties is wholly owned by MPC which is wholly owned by Gregory McCabe, our Chairman. Warwink Properties owns certain assets, including approximately 10.71875% Working Interest in 640 acres in Winkler County, TX. At closing of the merger transaction, our shares of common stock of TWP will convert into a membership interest of Warwink Properties, the membership interest in Warwink Properties held by MPC will cease to exist, and we will issue MPC 2,500,000 restricted shares of common stock as consideration. Closing of the merger transaction is subject to certain conditions, including without limitation MPC fully closing its transaction with MECO IV, LLC (“MECO”) for the purchase and sale of certain assets as contemplated by the Purchase and Sale Agreement dated November 9, 2017 (the “MECO PSA”), of which we are not a party. The MECO PSA, which is scheduled to close on or before November 29, 2017, also provides that MPC and Warwink Properties are to receive a 21.4375% (10.71875% each) carried (through the tanks) working interest in the first well drilled on the Winkler County leases.
Also on November 14, 2017, our wholly-owned subsidiary, Torchlight Energy, Inc., a Nevada corporation (“TEI”), entered into a Purchase Agreement with MPC, under which TEI is to acquire beneficial ownership of certain of MPC’s assets, including acreage and wellbores located in Ward County, Texas (the “Ward County Assets”). As consideration under the Purchase Agreement, at closing TEI is to issue to MPC an unsecured promissory note in the principal amount of $3,250,000, payable in monthly installments of interest only beginning on January 1, 2018 at the rate of 5% per annum, with the entire principal amount together with all accrued interest due and payable on December 31, 2020. In connection with TEI’s acquisition of beneficial ownership in the Ward County Assets, MPC will sell those same assets, on behalf of TEI, to MECO at closing of the MECO PSA, and accordingly, TEI will receive by assignment $3,250,000 in cash (which amount is subject to certain pre and post-closing adjustments). Additionally, at closing of the Purchase Agreement, MPC is to pay TEI a performance fee of $2,781,500 cash as compensation for marketing and selling certain Winkler County assets of MPC as a package to MECO. Closing of the Purchase Agreement is subject to closing of the MECO PSA.
Prior to entering into the above transactions, our Board of Directors formed a special committee composed of independent directors to analyze and negotiate the transactions on behalfMatter of Torchlight Energy Resources, Inc. The subpoena requests that we produce certain documents and determine whetherinformation related to, among other things, the transactionsmerger involving Torchlight Energy Resources, Inc. and Metamaterial Inc. We are faircooperating and intend to continue to cooperate with the SEC’s investigation. We can offer no assurances as to the company. Inoutcome of this role,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 special committee engagedU.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 investment bank which rendered a fairness opinion on November 13, 2017 deeming that the transactions were fairaward of costs and expenses to the company, fromderivative plaintiff, including attorneys’ fees. On March 9, 2022, the Court entered a financial pointstipulated order staying this action until there is a ruling on a motion to dismiss in the Securities Class Action.

Contractual Commitments and Purchase Obligations

a)
On January 29, 2021, we arranged an irrevocable standby letter of view,credit with regard to the total consideration to be received by the companyToronto Dominion Bank (“TD”) in favor of Covestro Deutschland AG (“Covestro”) for EUR 600,000 in relation to Cooperation Framework Agreement (“CFA”). In the total considerationevent we fail to meet the performance milestones under the CFA, Covestro shall draw from the letter of credit with TD. The letter of credit was secured by restricted cash of CA$1,000,000 under a cash use agreement which has been recorded as long-term debt in the consolidated balance sheets. We have assessed the performance milestones against ASC 606 and recognized the full contract amount as development revenue in the year ended December 31, 2021. As of March 31, 2022, Covestro has issued certificates of reduction totaling EUR 325,000 and the letter of credit had an outstanding amount of EUR 275,000.
b)
During 2020, we signed a three-year supply deal with Covestro Deutschland AG, which provides early access to new photo-sensitive holographic film materials, the building block of MMI’s holographic product. This agreement will not only allow early access to Covestro’s R&D library of photopolymer films but will also accelerate MMI’s product development and speed of innovation. Target markets include photonics/optical filters and holographic optical elements, diffusers, laser eye protection, optical combiners, and AR (augmented reality) applications. The agreement is valid till October 31, 2023.
c)
During 2018, we arranged a guarantee/standby letter of credit with RBC in favor of Satair A/S for $500,000 in relation to an advance payment received. In the event we fail to deliver the product as per the contract or refuse to accept the return of the product as per the buyback clause of the contract or fails to repay the advance payment in accordance with the conditions of the agreement signed with Satair on September 18, 2018, Satair shall draw from the letter of credit with RBC. Borrowings from the letter of credit with RBC are repayable on demand. The letter of credit from RBC is secured by a performance security guarantee cover issued by Export Development of Canada. Further, this guarantee/standby letter of credit expires on October 5, 2021. As at March 31, 2022, 0 amount has been drawn from the letter of credit with RBC.
d)
On December 8, 2016, we entered into a cooperation agreement with a large aircraft manufacturer to co-develop laser protection filters for space and aeronautical civil and military applications, METAAIR, and support the setup of manufacturing facilities for product certification and development. The cooperation agreement includes financial support provided to us in the form of non-recurring engineering costs of up to $4,000,000 to be providedreleased upon agreement of technical milestones in exchange for a royalty fee due by us on gross profit after sales and distribution costs. The total royalty fee to be paid may be adjusted based on the company.timing of our sales and the amount ultimately paid to us by large aircraft manufacturer to support the development.
e)
Certain nano-optic products are subject to a 3% sales royalty in favor of Simon Fraser University ("SFU") where certain elements of the nano-optic technology originated. Royalties were $NaN during the three months ended March 31, 2022 (2021 - $296). In 2014,

18


our wholly owned subsidiary, Nanotech, prepaid royalties that would offset against future royalties owed as part of the transfer of the intellectual property from SFU, of which $197,016 remains prepaid as at March 31, 2022 (December 31, 2021 - $197, 016).
f)
Product revenue associated with 6 patents acquired by Nanotech is subject to royalties. We agreed to share 10% of any revenues related to the patents received from a specific customer for a period of two years and ongoing royalties of 3% and 6% on other revenues derived from the patents for a period of five years. There were 0 royalties during the three months ended March 31, 2022 (March 31, 2021 - $NaN).
g)
As at March 31, 2022, we had ongoing commitments for maintenance contracts and asset purchases as follows:

 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 $20 million. Plasma App Ltd. is the developer of PLASMAfusion™, a first of its kind, proprietary manufacturing platform technology, which enables high speed coating of any solid material on any type of substrate. Plasma App Ltd.’s team is located at the Rutherford Appleton Laboratories in Oxford, UK.

Due to the timing of when the transaction closed, there remains insufficient information available to management to be able to complete the initial accounting for the business combination, and as such, the provisional purchase price allocation has not been disclosed.

19


ITEM

Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview
We are engaged in the acquisition, exploration, exploitation, and/or developmentManagement’s Discussion and Analysis of oilFinancial Condition and natural gas properties in the United States. We operate our business through our subsidiaries Torchlight Energy Inc., Torchlight Energy Operating, LLC, Hudspeth Oil Corporation,Results of Operations

Management’s Discussion and Torchlight Hazel, LLC.

The core strategyAnalysis (“MD&A”) of the Company is pursuing the ongoing development of its assets in the Permian basin consisting of the Orogrande and the Hazel Projects. These West Texas properties demonstrate significant potential and future production capabilities based upon the analysis of scientific data already gathered in the day by day development activity. Therefore, the Board has determined to focus its efforts and capital on these two projects to maximize shareholder value for the long run.
The following discussion of our financial condition and results of the operations of Meta Materials Inc. (also referred to herein as the “Company”, “META”, “we”, “us”, “our”, or “Resulting Issuer”) constitutes management’s review of the factors that affected our financial and operating performance for the three months ended 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 our unauditedthe consolidated financial statements included herewith and our audited financial statements included with our Form 10-Knotes thereto for the year ended December 31, 2016. 2021 which are contained in Form 10-K/A filed with the Securities and Exchange Commission on May 2, 2022. All financial information is stated in U.S. dollars unless otherwise specified. Our 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 us and our operations can be obtained from the offices of META, from the META’s website or on EDGAR at www.sec.gov/edgar.shtml.

This discussionMD&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 referred to herein as “forward- looking statements”). These statements relate to future events or our 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-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 we believe that the plans, intentions and expectations reflected in this forward-looking information are reasonable, we 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 our 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 our actual results, performance or achievements to be materially different from any of our future results, performance or achievements expressed or implied by forward-looking statements. All forward-looking statements herein are qualified by this cautionary statement. Accordingly, readers should not place undue reliance on forward- looking statements. We undertake no obligation to update publicly or otherwise revise any forward-looking statements whether as a result of new information or future events or otherwise, except as may be construedrequired by law. If we do update one or more forward-looking statements, no inference should be drawn that it will make additional updates with respect to those or other forward-looking statements, unless required by law.

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 ® or TM symbols, but such references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights or the rights of the applicable licensor to these trademarks and trade names. We do not intend our use or display of other companies’ trade names or trademarks to imply a relationship with, or endorsement or sponsorship of us by, any other companies.

BUSINESS OVERVIEW

Meta Materials Inc. (also referred to herein as the “Company”, “META”, “we”, “us”, “our”, or “Resulting Issuer”) is a developer of high-performance functional materials and nanocomposites. Our registered office is located at 85 Swanson Road, Boxborough, Massachusetts 01719, and our principal executive office is located at 1 Research Drive, Halifax, Nova Scotia, Canada.

20


We have generated a portfolio of intellectual property and is now moving toward commercializing products at a performance and price point combination that has the results discussed herein will necessarily continuepotential to be disruptive in multiple market verticals. Our platform technology includes holography, lithography, and medical wireless sensing. The underlying approach that powers our platform technologies comprises advanced materials, metamaterials and functional surfaces. These materials include structures that are patterned in ways that manipulate light, heat, and electromagnetic waves in unusual ways. Our advanced structural design technologies and scalable manufacturing methods provide a path to broad commercial opportunities in aerospace and defense, automotive, energy, healthcare, consumer electronics, and data transmission.

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

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

We have many product concepts currently in various stages of development with multiple potential customers in diverse market verticals. Our business model is to co-develop innovative products or applications with industry leaders that add value. This approach enables us to understand market dynamics and ensure the relevance and need for our 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 our metaAIR® laser glare protection eyewear, metaAIR® laser glare protection films for law enforcement and holoOPTIXTM notch filters. We co-developed our metaAIR® laser glare protection eyewear product with Airbus S.A.S. It has been engineered to provide laser glare protection for pilots, military and law enforcement using our holography technology. metaAIR® is a holographic optical filter developed using nano-patterned designs that block and deflect specific colors or wavelengths of light. We launched metaAIR® with strategic and exclusive distribution partner, Satair, a wholly owned Airbus company and started producing and selling metaAIR® in April 2019. The scale-up and specification for the raw photopolymer material used to produce the eyewear was successfully finalized in late 2019 and commercialized in 2020. We launched our laser glare protection films for law enforcement use in late 2020. These films are designed to be applied to face shields and helmet visors providing the wearer with the same type of laser glare eye protection afforded to pilots by metaAIR® glasses while preserving peripheral vision critical to law enforcement duties. holoOPTIXTM 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. holoOPTIXTM notch filters were commercially launched in November 2020.

We have additional products in development that utilize our proprietary holography technology. Included in the holoOPTIX 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, we have developed a new nanolithography method called “Rolling Mask” lithography (registered trademark RML®), which combines the best features of photolithography, soft lithography and roll-to-plate/roll-to-roll printing capability technologies. Rolling Mask Lithography utilizes a proprietary UV light exposure method where a master pattern is provided in the form of a cylindrical mask. We designed these master patterns and over the years, they have become part of a growing library of patterns, enriching our intellectual property (“IP”). The nanostructured pattern on the mask is then rolled over a flat surface area writing a nano-pattern into the future,volume of a photoresist, creating patterned grooves, metal is then evaporated and fills the patterned grooves. The excess metal is then removed by a known post-process called lift-off. The result is an invisible conductive metal mesh-patterned surface (registered trademark NANOWEB®) that can be fabricated onto any glass or plastic transparent surface in order to offer high transparency, high conductivity and low haze smart materials.

Our current principal prototype product in lithography technology is our transparent conductive film, NANOWEB®. The lithography division operates out of our wholly owned U.S. subsidiary, Metamaterial Technologies USA Inc. ("MTI US"). MTI US can produce meter-long samples of NANOWEB®, at a small volumes scale, for industry customers/partners. Throughout 2020 and 2021, We have been ordering and upgrading our equipment at our California facility to efficiently supply NANOWEB® samples in larger volumes. In late 2021, we installed our first roll-to-roll, NANOWEB® pilot scale production line at our Pleasanton, California facility. The line is configured for 300mm-wide rolls of substrate. All the equipment passed factory acceptance tests prior to delivery and installation, and the line is currently being optimized.



There are six NANOWEB®-enabled products and applications that any conclusion reached herein will necessarilyare currently in early stages of development including:

NANOWEB® for Transparent EMI Shielding
NANOWEB® for Transparent Antennas
NANOWEB® for 5G signal enhancement
NANOWEB® for Touch Screen Sensors
NANOWEB® for Solar cells
NANOWEB® for Transparent Heating to de-ice and de-fog

More details of these products and applications can be indicativefound in our EDGAR filings and on our 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 actual operating resultsDefense.

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:

KolourOptik®, a patented visual technology that is exclusive to the government and banknote market and combines sub-wavelength nanostructures and microstructures to create modern overt security features with a unique and customizable optical effect. KolourOptik® pure plasmonic color pixels produce full color, 3D depth, and movement used in security stripes and threads that are nearly impossible to replicate.
LiveOptik™, a patented visual technology that utilizes innovative nano-optics one tenth the size of traditional holographic structures to create next generation overt security features customized to Nanotech’s customers’ unique requirements. LiveOptikdelivers multi-color, 3D depth, movement and image switches for secure brand protection stripes, threads and labels that are nearly impossible to replicate.
LumaChrome™ optical thin film security features are manufactured using precision engineered nanometer thick layers of metals and ceramics to form filters designed to uniquely manipulate visible and non-visible light. This unique manipulation of light properties is used to create specialized security features in the future. Such discussion represents onlyform of threads, stripes, and patches that are applied to banknotes and other secure documents. By using sophisticated electron beam and sputtered deposition methods, Nanotech

22


precisely controls the best present assessmentconstruction and inherent properties to provide custom color-shifting solutions. An individual looking at these threads, stripes and patches sees an obvious color shift (e.g. green to magenta) when the document or bank note is tilted or rotated


Wireless Sensing and Radio Wave Imaging Technology

Our Wireless Sensing platform 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 Ratio (“SNR”) of certain diagnostic instruments used in conjunction with the platform. This reflection-cancelling requirement is satisfied 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, we are developing metaSURFACE™ (also known as radiWISE™) an innovation which allows an improvement in signal to noise ratio of up to 40 times for MRI scans. The metaSURFACE™ device consists of proprietary non-ferrous metallic and dielectric layers that are exactingly designed to interact (resonate) with radio waves increasing the SNR. We are also researching the use of our management.

Current Projects
Radio Wave Imaging technology in breast cancer and stroke diagnosis.

We are developing wireless sensing and radio wave imaging applications from our London, UK office and our newly established Athens, Greece office.

Oil and Gas operations

As part of September 30, 2017 the Company had interests in threeArrangement Agreement with Torchlight Energy Resources, Inc. ("Torchlight"), we acquired a group of oil and gas projects: assets ("O&G assets") and had interest in them as follows:

the Orogrande Project in Hudspeth County, Texas
the Hazel Project in Sterling, Tom Green, and Irion Counties, Texas and
the Hunton wells in partnership with Husky VenturesKodiak in Central Oklahoma.Oklahoma
Orogrande Project, West Texas
On August 7, 2014, we entered into a Purchase Agreement with Hudspeth Oil Corporation (“Hudspeth”), McCabe Petroleum Corporation (“MPC”), and Greg McCabe. Mr. McCabe was

We have classified these assets as assets held for sale pursuant to our commitment to sell or spin out the sole owner of both Hudspeth and MPC. Under the terms and conditions of the Purchase Agreement, at closing, we purchased 100% of the capital stock of Hudspeth which holds certain oil and gasO&G assets including a 100% working interest in 172,000 mostly contiguous acres in the Orogrande Basin in West Texas. This acreage is in the primary term under five-year leases that carry additional five-year extension provisions. As consideration, at closing we issued 868,750 shares of our common stock to Mr. McCabe and paid a total of $100,000 in geologic origination fees to third parties. Additionally, Mr. McCabe has, at his option, a 10% working interest back-in after payout and a reversionary interest if drilling obligations are not met, all under the terms and conditions of a participation and development agreement. All drilling obligations through September 30, 2017 have been met.

On September 23, 2015, our subsidiary, Hudspeth Oil Corporation (“HOC”), entered into a Farmout Agreement by and between HOC, Pandora Energy, LP (“Pandora”), Founders Oil & Gas, LLC (“Founders”), McCabe Petroleum Corporation and Greg McCabe (McCabe Petroleum Corporation and Greg McCabe are partiesprior to the Farmout Agreement for limited purposes) forearlier of (i) December 31, 2021 or (ii) the entire Orogrande Project in Hudspeth County, Texas. The Farmout Agreement provides for Founders to earndate which is six months from HOC and Pandora (collectively, the “Farmor”) an undivided 50% of the leasehold interest in the Orogrande Project by Founder’s spending a minimum of $45 million on actual drilling operations on the Orogrande Project in the following two years.
Under a joint operating agreement (on A.A.P.L. Form 610 – 1989 Model Form Operating Agreement with COPAS 2005 Accounting Procedures) (“JOA”) also entered into on September 23, 2015, Founders is designated as operator of the leases.
The Rich A-11 well that was drilled by Torchlight in second quarter, 2015 was evaluated and numerous scientific tests were performed to provide key data for the field development thesis. Future utility of this well may be conversion to a salt water disposal well in the course of further development of the Orogrande acreage.
The second test well, the University Founders B-19 #1, was spudded on April 24, 2016 and drilled in second quarter, 2016. The well successfully pumped down completion fluid in the third quarter of 2016 and indications of hydrocarbons were seen at the surface on this second Orogrande Project test well. Future utility of this well may be conversion to a salt water disposal well in the course of further development of the Orogrande acreage.
On March 22, 2017, the Company, along with Founders, their operating partner, signed a Drilling and Development Unit (DDU) Agreement with University Lands on its Orogrande Basin Project. The agreement has an effective date of January 1, 2017 and required a payment from both Torchlight and Founders of $335,323 as part of the extension fee. Torchlight's portion of the fee was paid by Founders in April 2017 and will be deducted from the required spud fee payable to Torchlight at commencement of the next well drilled.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS- continued
The DDU agreement allows for all 192 existing leases covering the 133,000 net acres leased from University Lands to be combined into one lease for development purposes. The time to drill on the unit is extended through April of 2023 on the first extension. The agreement also grants exclusive right to continue through April of 2028 if compliance with the agreement is met and extension fee associated with the additional time paid. The Company's drilling obligations begin with one well in the first year, and increase to five wells per year by year 2023. The drilling obligation set is a minimum requirement and may be exceeded if acceleration is desired. The DDU agreement replaces all prior agreements and will govern future drilling obligations on the lease.
Torchlight Energy and Founders have elected to move forward on planning the next phase of drilling in the Orogrande Project. The project operator planned to permit two new wells in 2017. The new wells would be drilled vertically for test purposes and would have sufficient casing size to support lateral entry into any pay zone(s) encountered once the well is tested vertically. Torchlight and the project operator would then run a battery of tests on each well to gain information for future development of the field. The scheduled spud date for the next well is  no later than December 1, 2017.
Hazel Project in the Midland Basin in West Texas
Effective April 1, 2016, Torchlight Energy Inc. acquired from McCabe Petroleum Corporation, a 66.66% working interest in approximately 12,000 acres in the Midland Basin in exchange for 1,500,000 warrants to purchase our common stock with an exercise price of $1.00 for five years and a back-in after payout of a 25% working interest to the seller.
Initial development of the first well on the property, the Flying B Ranch #1, began July 10, 2016 and development continued through September 30, 2016. This well was is classified as a test well in the development pursuit of the Hazel Project. It is anticipated that this wellbore will be utilized as a salt water disposal well in support of future development.
In October, 2016, the holders of the Company's Series C Preferred shares (which were issued in July, 2016) elected to convert into a 33.33% Working Interest in the Company's Hazel Project, reducing Torchlight's ownership from 66.66% to a 33.33% Working Interest.
On December 27, 2016, drilling activities commenced on its next Midland Basin, Hazel Project well, the Flying B Ranch #2. The well is a vertical test similar to the Company's first Hazel Project well, the Flying B Ranch #1. Recompletion in an alternative geological formation for this well was performed during the three months ended September 30, 2017 however the results were uneconomic for continuing production. It is anticipated that this wellbore will be utilized as a salt water disposal well in support of future development.
Following the closing of the new debt financing in April, 2017, the Company commenced planning to drill a horizontal well in the Project in June, 2017 in compliance with the continuous drilling obligation. The well, the Flying B Ranch #3, was spudded on June 10, 2017. At theArrangement, or (iii) such later date of this filing the Flying B Ranch #3 has been drilled, cased, stimulated and is midstream in recovery of frack fluid and hydrocarbons. The well continues to clean up and we expect to have sufficient information in order to publish a 24 hour initial production rate within the fourth quarter.
Acquisition of Additional Interests in Hazel Project
On January 30, 2017, we and our wholly-owned subsidiary, Torchlight Acquisition Corporation, a Texas corporation (“TAC”), entered into and closed an Agreement and Plan of Reorganization and Plan of Merger with Line Drive Energy, LLC, a Texas limited liability company (“Line Drive”), under which agreements TAC merged with and into Line Driveas may be agreed between us and the separate existenceindividual appointed to serve as the representative of TAC ceased, with Line Drive being the surviving organization and becoming our wholly-owned subsidiary. Line Drive, which was wholly-owned by Gregory McCabe, our Chairman, owned certainholders 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, and securities, including approximately 40.66%see the description in Note 5, “Assets Held for Sale” of 12,000 gross acres in the Hazel Project and 521,739 warrants to purchase our common stock (which warrants had been assigned by Mr. McCabe to Line Drive). Under the merger transaction, our shares of common stock of TAC converted into a membership interest of Line Drive, the membership interest in Line Drive held by Mr. McCabe immediately prior to the transaction ceased to exist, and we issued Mr. McCabe 3,301,739 restricted shares of common stock as consideration therefor. Immediately after closing, the 521,739 warrants held by Line Drive were cancelled, which warrants had an exercise price of $1.40 per share and an expiration date of June 9, 2020. A Certificate of Mergerfinancial statements for the merger transaction wasyear ended December 31, 2021 and Item 1A, risk Factors in Form 10-K/A filed with the SecretarySecurities 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 Stateour intellectual property estate. As we moved into 2022, new emphasis was, and will continue to be, placed on investments in pilot scale manufacturing of TexasNANOWEB® 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 facility

We leased approximately 53,000 square foot facility in Dartmouth, Nova Scotia, with the lease commencing on January 31, 2017. Subsequent1, 2021. The facility will host our holography and lithography R&D labs and manufacturing operations. We 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$0.5 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. During Q1 2022, we purchased equipment for approximately $0.4 million as well as spent $1.76 million on construction work. We will continue to incur additional construction and equipment costs through the remainder of 2022.


Pleasanton facility

During 2021, we signed multiple lease amendments with our lessor in Pleasanton, California to expand the leased space of the facility in the United States to include additional space of 14,379 square feet as well as extend the duration of the leased spaces until September 30, 2026. We have spent approximately $0.3 million on additional equipment for our first pilot scale roll-to-roll line which is expected to be ready for low volume production during the second half of fiscal year 2022. We have also spent $0.2 million on leasehold improvements.

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 utilized 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 development contract between our wholly owned subsidiary, Nanotech, and a confidential central bank client.

RESULTS OF OPERATIONS

Revenue and Gross Profit

 

 

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 closing the name of Line Drive Energy, LLC was changedrevenue generated primarily from Nanotech amounting to Torchlight Hazel, LLC.

Also on January 30, 2017, our wholly-owned subsidiary, Torchlight Energy, Inc., a Nevada corporation (“TEI”), entered into$91,653 and closed a Purchase and Sale Agreement with Wolfbone Investments, LLC, a Texas limited liability company (“Wolfbone”) which is wholly-owned by Gregory McCabe. Under the agreement, TEI acquired certain of Wolfbone’s Hazel Project assets, including its interest in the Flying B Ranch #1 well and the 40 acre unit surrounding the well, for consideration of $415,000, and additionally, Wolfbone caused to be cancelled a total of 2,780,000 warrants to purchase our common stock, including 1,500,000 warrants held by McCabe Petroleum Corporation, an entity owned by Mr. McCabe, and 1,280,000 warrants held by Green Hill Minerals, an entity owned by Mr. McCabe’s son, which warrant cancellations were effected through certain Warrant Cancellation Agreements. The 1,500,000 warrants held by McCabe Petroleum Corporation had an exercise price of $1.00 per share and an expiration date of April 4, 2021. The warrants held by Green Hill Minerals included 100,000 warrants with an exercise price of $1.73 and an expiration date of September 30, 2018 and 1,180,000 warrants with an exercise price of $0.70 and an expiration date of February 15, 2020.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS- continued
Since Mr. McCabe held the controlling interest in both Line Drive and Wolfbone Investments, LLC, the transactions were combined for accounting purposes. The working interest in the Hazel Project was the only asset held by Line Drive. The warrant cancellation was treated in the aggregate as an exercise of the warrants with the transfer of the working interests as the consideration. The Company recorded the transactions as an increase in its investment in the Hazel project working interests of $3,644,431 which is equal to the exercise price of the warrants plus the cash paid to Wolfbone.
Upon the closing of the transactions, the Company’s working interest in the Hazel project increased by 40.66% to a total ownership of 74%.
Effective June 1, 2017, the Company acquired an additional 6% working interest from unrelated working interest owners in exchange for 268,656 shares of common stock valued at $373,430, increasing its working interest in the Hazel project to 80%.
Hunton Play, Central Oklahoma
As of September 30, 2017, we were actively producing from one well in the Viking AMI, and one well in Prairie Grove. The Company also holds undeveloped acreage in the Rosedale and Thunderbird AMI’s.
Legal Proceeding
As previously disclosed, in May, 2016, Torchlight Energy Resources,Metamaterial Technologies Canada Inc. and its subsidiary Torchlight Energy,Metamaterial Technologies USA Inc. filed a lawsuit in the 429th judicial district court in Collin County, Texas against Husky Ventures, Inc., Charles V. Long, April Glidewell, Silverstar of Nevada, Inc., Maximus Exploration, LLC, Atwood Acquisitions, LLC, Gastar Exploration Inc., J. Russell Porter, Michael A. Gerlich, Jerry R. Schuyler,amounting $15,774, and John M. Selser, Sr. Reference is made to the subsection titled “Legal Proceeding” under Note 6, “Commitments and Contingencies” of the Notes to Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q, which is incorporated herein by reference.
Viking AMI
In the fourth quarter of 2013 we entered into an Area of Mutual Interest (AMI) with Husky Ventures, the Viking Prospect. We acquired a 25% interest in 3,945 acres and subsequently acquired an additional 5% in May, 2014. We had an interest in 8,800 total acres as of September 30, 2017. (Net undeveloped acres = 2,600) Husky drilled the first two wells in the AMI in second quarter, 2014. Our net cumulative investment through September 30, 2017 in undeveloped acres in the Viking AMI was $1,387,928. In addition the company has incurred $133,468 as its share of costs related to the early stages of the construction of a gas pipeline which was to serve the Viking AMI.
Prairie Grove – Judy Well
In February of 2014, we acquired a 10% Working Interest in a well in the Prairie Grove AMI from a non-consenting third party who elected not to participate in the well.
Rosedale AMI
In January of 2014 we contracted for a 25% Working Interest in approximately 5,000 acres in the Rosedale AMI consisting of eight townships in South Central Oklahoma. We subsequently acquired an additional 5% in May, 2014. The Company had an interest in 11,600 total acres as of September 30, 2017 (Net undeveloped acres = 3,500). Our cumulative investment through September 30, 2017 in the Rosedale AMI was $2,833,829.
Thunderbird AMI
In July of 2014, we contracted for a 25% Working Interest in the Thunderbird AMI. The total acres in which the Company had an interest at September 30, 2017 totals 4,300 acres (Net undeveloped acres = 1,100) Our cumulative investment through September 30, 2017 in the Thunderbird AMI was $949,530.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS- continued
Historical Results for the nine months ended September 30, 2017 and 2016:
Revenues and Cost of Revenues
For the nine months ended September 30, 2017, we had production revenue of $44,548 compared to $337,798 for the nine months ended September 30, 2016. Refer to the table of production and revenue included below for quarterly changes in revenue. Our cost of revenue, consisting of lease operating expenses and production taxes, was $32,632, and $295,208 for the nine months ended September 30, 2017 and 2016, respectively.
Property
 
Quarter
 
 
Oil Production {BBLS}
 
 
Gas Production {MCF}
 
 
 Oil Revenue
 
 
 Gas Revenue
 
 
 Total Revenue
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Marcelina (TX)
  Q1 - 2016 
  3,000 
  0 
 $92,546 
 $- 
 $92,546 
Oklahoma
  Q1 - 2016 
  2,026 
  21,148 
  54,289 
  38,624 
  92,913 
Kansas
  Q1 - 2016 
  312 
  0 
  8,854 
  - 
  8,854 
Total Q1-2016
    
  5,338 
  21,148 
 $155,689 
 $38,624 
 $194,313 
 
    
    
    
    
    
    
Marcelina (TX)
  Q2 - 2016 
  917 
  0 
 $38,812 
 $- 
 $38,812 
Oklahoma
  Q2 - 2016 
  675 
  9,689 
  30,411 
  11,142 
  41,553 
Kansas
  Q2 - 2016 
  731 
  0 
  24,855 
  - 
  24,855 
Total Q2-2016
    
  2,323 
  9,689 
 $94,078 
 $11,142 
 $105,220 
 
    
    
    
    
    
    
Marcelina (TX)
  Q3 - 2016 
  464 
  0 
 $20,189 
 $- 
 $20,189 
Oklahoma
  Q3 - 2016 
  180 
  2,830 
  7,925 
  6,170 
  14,095 
Kansas
  Q3 - 2016 
  0 
  0 
  - 
  - 
  - 
Total Q3-2016
    
  644 
  2,830 
 $28,114 
 $6,170 
 $34,284 
 
    
    
    
    
    
    
Marcelina (TX)
  Q4 - 2016 
  0 
  0 
 $- 
 $- 
 $- 
Oklahoma
  Q4 - 2016 
  184 
  2,845 
  8,024 
  8,569 
  16,593 
Kansas
  Q4 - 2016 
  0 
  0 
  - 
  - 
  - 
Total Q4-2016
    
  184 
  2,845 
 $8,024 
 $8,569 
 $16,593 
 
    
    
    
    
    
    
Oklahoma
  Q1 - 2017 
  101 
  2,303 
 $5,346 
 $7,604 
 $12,950 
Hazel (TX)
  Q1 - 2017 
  0 
  0 
  - 
  - 
  - 
Total Q1-2017
    
  101 
  2,303 
 $5,346 
 $7,604 
 $12,950 
 
    
    
    
    
    
    
Oklahoma
  Q2 - 2017 
  140 
  2,332 
  6,594 
  6,709 
  13,303 
Hazel (TX)
  Q2 - 2017 
  0 
  0 
  - 
  - 
  - 
Total Q2-2017
    
  140 
  2,332 
 $6,594 
 $6,709 
 $13,303 
 
    
    
    
    
    
    
Oklahoma
  Q3 - 2017 
  132 
  2,041 
  5,733 
  3,727 
  9,460 
Hazel (TX)
  Q3 - 2017 
  204 
  0 
  8,836 
  - 
  8,836 
Total Q3-2017
    
  336 
  2,041 
 $14,569 
 $3,727 
 $18,296 
We recorded depreciation, depletion, and amortization expense of $72,415 for the nine months ended September 30, 2017 compared to $740,059 for the nine months ended September 30, 2016.
The decline in revenue, cost of revenue and depreciation, depletion, and amortization expense is attributable to the divestiture of oil and gas producing properties beginning in the fourth quarter, 2015 and continuing through December 31, 2016.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS- continued
General and Administrative Expenses
Our general and administrative expenses for the nine months ended September 30, 2017 and 2016 were $2,808,576 and $5,534,933,$60,700, respectively, a decrease of $2,726,357. Our general and administrative expenses consisted of consulting and compensation expense, substantially all of which was non-cash or deferred, accounting and administrative costs, professional consulting fees, and other general corporate expenses. The change in general and administrative expenses for the nine months ended September 30, 2017 compared to 2016 is detailed as follows:
Increase(decrease) in non cash stock and warrant compensation
$(2,371,052)
Increase(decrease) in consulting expense
$(25,547)
Increase(decrease) in professional fees
$(71,387)
Increase(decrease) in investor relations
$19,148
Increase(decrease) in travel expense
$(11,135)
Increase(decrease) in salaries and compensation
$(350,184)
Increase(decrease) in legal fees
$22,953
Increase(decrease) in insurance
$(12,877)
Increase(decrease) in general corporate expenses
$21,116
Increase(decrease) in audit fees
$52,608
Total (Decrease) in General and Administrative Expenses
$(2,726,357)

Historical Results for the three months ended September 30, 2017March 31, 2022. Product sales include products, components, and 2016:
Revenues and Cost of Revenues
For the three months ended September 30, 2017, we had productionsamples sold to multiple customers.

The increase in development revenue of $18,296 compared to $34,284 for the three months ended September 30, 2016. ReferMarch 31, 2022 of $2.2 million is due to an increase in contract revenue of $2,297,648 and decrease in other development revenue of $65,336. The increase in contract revenue is primarily due to revenue generated by Nanotech from contract services subsequent to its acquisition by the Company. Nanotech currently derives a significant portion of its revenue from contract services with a confidential 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.

The increase in cost of goods sold in 2022 compared to 2021, is primarily due to the tableproduction costs of production$727,835 from Nanotech pertaining to contract revenue during the period.

24


Operating expenses

 

 

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 revenue included above for quarterly changes in revenue. Our cost of revenue, consisting of lease operating expenses and production taxes, was $16,499 and $49,908 for the three months ended September 30, 2017 and 2016, respectively.

We recorded depreciation, depletion, and amortization expense of $21,980 for the three months ended September 30, 2017 compared to $18,005 for the three months ended September 30, 2016.
The decline in revenue, cost of revenue and depreciation, depletion, and amortization expense is attributable to the divestiture of oil and gas producing properties beginning in the fourth quarter, 2015 and continuing through December 31, 2016.
General and Administrative Expenses
Our general and administrativemarketing expenses for the three months ended September 30, 2017March 31, 2022, compared to the same period of 2021, is primarily due to:

$0.3 million increase in salaries and 2016 were $866,131benefits due to new hires in the latter part 2021 along with the Torchlight and $787,228, respectively, anNanotech acquisitions.
$0.3 million increase of $78,903. Our general and administrative expenses consisted of consulting and compensation expense, substantially all of which was non-cash or deferred, accounting and administrative costs, professional consultingin conference fees and other general corporate expenses. travel expenses relating to the participation in trade shows and conferences in Q1 2022.

The changeincrease in general and administrative expenses for the three months ended September 30, 2017March 31, 2022, compared to 2016the same period of 2021, is detailedprimarily due to:

$4.2 million increase in professional fees mainly due to legal costs associated with the pending SEC investigation, ongoing lawsuits as follows:well as other consulting fees.
$3.2 million increase in share-based compensation mainly in relation to the quarterly vesting cost of RSUs and stock options granted during Q1 2022.
Increase(decrease) in non cash stock and warrant compensation
$126,919
$1.8 million increase in salaries and benefits associated with the increase in our head count through all locations including as a result of 1) Our continuous growth and talent acquisition 2) the acquisition of Nanotech in Q4 2021 3) Contractors hired to manage the O&G assets in the latter part of 2021.
Increase(decrease) in consulting expense
$132,546
Increase(decrease) in professional fees
$(36,774)
Increase(decrease) in investor relations
$18,278
Increase(decrease) in travel expense
$8,509
Increase(decrease) in salaries and compensation
$(102,623)
Increase(decrease) in legal fees
$(113,560)
Increase(decrease) in insurance
$(6,516)
Increase(decrease) in general corporate expenses
$39,504
Increase(decrease) in audit fees
$12,620
Total Increase in General and Administrative Expenses
$78,903
$1.1 million increase in depreciation and amortization expenses mainly due to acquired intangible assets in Q4 2021 as part of the Nanotech acquisition as well as the increase in depreciation expense due to acquired equipment in different facilities in 2021.

$0.6 million increase in insurance expense due to the new insurance requirements in the US resulting from our NASDAQ listing.
$0.5 million increase in rent and utilities due to the lease expansion of our Highfield Park facility in Nova Scotia, Canada and the Pleasanton facility in California, new operational facilities from Nanotech, and the opening of administrative locations in Boxborough, Massachusetts and Plano, Texas.

The increase in research and development expenses for the three months ended March 31, 2022, compared to the same period of 2021, is primarily due to:

$1.1 million increase in salaries and benefits primarily due to the expansion of headcount through Nanotech acquisition.
ITEM 2. MANAGEMENT'S DISCUSSION
$0.4 million increase in share-based compensation mainly in relation to the quarterly vesting cost of RSUs and stock options granted during Q1 2022.
$0.3 increase in rent and utilities primarily due to leases acquired during 2021 and 2022 in Canada, USA and Greece.

Other expense

 

 

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

%

25


The $0.3 million decrease in net interest expense for the three months ended March 31, 2022, compared to the same period of 2021, is primarily due to reduced interest accretions in Q1 2022 due to all of the convertible debt instruments being converted to common stock in Q1 2021, except Torchlight promissory notes which were eliminated June 30, 2021, subsequent to completion of the Torchlight RTO.

The change in net loss/gain on foreign exchange for the three months ended March 31, 2022, compared to the same period of 2021, is primarily driven by revaluations of intercompany balances in different currencies, mainly Canadian dollars and US dollars.

The $40 million loss on financial statements in Q1 2021 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 in Q1 2021. This significant increase in the fair value of the convertible financial liabilities is due to the significant increase of our stock price from CA$0.66 as at December 31, 2020 to:

CA$3.01 on February 16, 2021 when we converted unsecured convertible promissory notes of $4,356,734 principal and interest at share price of CA$0.50 in accordance with the terms of the bridge financing;
CA$3.01 on February 16, 2021 when we converted unsecured convertible debentures of $1,527,108 principal and interest at share price of CA$0.70 as per terms of the agreement and;
CA$3.80 on March 3, 2021 when we converted secured convertible debentures of $4,252,059 principal and interest at share price of CA$0.70 pursuant to the terms of the agreement with BDC.

Deferred Tax recovery

 

 

Three months ended March 31,

 

 

 

2022

 

 

2021

 

 

Change

 

Income tax recovery

 

$

-

 

 

$

44,679

 

 

$

(44,679

)

 

 

-100

%

We record deferred income tax liabilities for some of our foreign operations in Canada and United Kingdom. There were no income tax recovery or expense recorded in Q1 2022 due to the valuation allowance.

We have not yet been able to establish profitability or other sufficient significant positive evidence, to conclude that our deferred tax assets are more likely than not to be realized. Therefore, we continue to maintain a valuation allowance against our deferred tax assets.

LIQUIDITY AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS- continued

CAPITAL RESOURCES

Liquidity risk is the risk that we will not meet our financial obligations as they become due after use of currently available cash. We have a planning and Capital Resources

At September 30, 2017,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, our ability to generate revenue from current and prospective customers, general and administrative requirements and the availability of equity or debt capital and government funding. As these variables change, we may be required to issue equity or obtain debt financing.

On March 31, 2022, we had cash and cash equivalents of $30.2 million including $0.5 million in restricted cash compared to $47.4 million in cash and cash equivalents at December 31, 2021.

During the three months ended March 31, 2022, our primary uses of liquidity included salaries of $5 million, professional fees of $5.7 million, rent and utilities of $1 million and, Oil and Gas drilling costs of $1.1 million as well as settling trade and other payables of $5.1 million.

We believe that our existing cash will be sufficient to meet our working capital (deficit)and capital expenditure needs as production capacity begins to come online. We may need to raise additional capital to expand the commercialization of $(3,797,745)our products, fund our operations and total assetsfurther our research and development activities. Future capital requirements may vary materially from period to period and will depend on many factors, including the timing and extent of $22,262,796. Stockholders’spending on research and development efforts, the capital expansion of our facilities in Halifax and California and the ongoing investments to support the growth of our business.

We also have the option to raise equity was $10,217,796.


Cash flow provided (used in)through issuing common stock of up to approximately $112.5 million under an existing At-The-Market equity program where our shares have been registered under the Securities Act of 1933, as amended, pursuant to the Registration Statement on Form S-3 (No. 333-256632) filed with the Securities and Exchange Commission (the “SEC”) on May 28, 2021, and declared effective on June 14, 2021 (the “Registration Statement”).

26


The following table summarizes our cash flows for the periods presented:

 

 

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 three months ended March 31, 2022, net cash used in operating activities of $18.8 million was primarily driven by $18.4 million of net loss reported for the nineperiod, and non-cash adjustments of $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 September 30, 2017March 31, 2021, net cash used in operating activities of $2.4 million was $(1,052,641) compared to $(2,773,266)primarily driven by $44.2 million of net loss reported for the nine months ended September 30, 2016, an increaseperiod, and non-cash adjustments of $1,720,625. Cash flow$41.7 million related to fair value losses on financial instruments, depreciation and amortization, interest expense and stock-based compensation. In addition, there was $0.1 million cash used in working capital.

Net cash provided by (used in) operatinginvesting activities for

During the ninethree months ended September 30, 2017 can beMarch 31, 2022, net cash provided by investing activities of $1.1 million was primarily attributed to net lossdriven by proceeds from operationsshort-term investments, offset by $1.8 million purchases of $3,126,485. Cash flow (used in) operating activitiesproperty plant and equipment associated with the construction of the Highfield Park Facility in Canada as well as the equipment purchases for our facility in California, United States.

During the ninethree months ended September 30, 2016 can be primarily attributed toMarch 31, 2021, net loss from operations of $6,660,942. Reference the Consolidated Statements of Cash Flow for additional detail of the components that comprise the net use of cash in operations. We expect to continue to use cash flow in operating activities until such time as we achieve sufficient commercial oil and gas production to cover all of our cash costs.

Cash flow used in investing activities of $1.6 million was primarily driven by $1.5 million equipment purchases for the nine months ended September 30, 2017 was $5,189,642 compared to $105,980 for the nine months ended September 30, 2016. Cash flow usedour facility in investing activities consists primarily of investment in oil and gas properties in Texas during the nine months ended September 30, 2017. Investment in oil and gas properties during the nine months ended September 30, 2016 was $1,677,980 which was partially offset by the proceeds from sale of leases in 2016 of $1,572,000.
Cash flowCalifornia, United States.

Net cash provided by financing activities for

During the ninethree months ended September 30, 2017 was $4,858,719 as compared to $2,071,116 for the nine months ended September 30, 2016. Cash flowMarch 31, 2022, net cash provided by financing activities consistsof $0.3 million was primarily ofdriven by proceeds from promissory notesoptions and warrant exercises. We expect to continue to havewarrants conversion.

During the three months ended March 31, 2021, net cash flow provided by financing activities of $15.4 million was primarily driven by proceeds from unsecured promissory notes of $14 million, proceeds from long-term debt of $1.1 million as we seek new roundswell as proceeds from government grants of financing$0.2 million.

Commitments and continuecontractual obligations

For a description of our commitments and contractual obligations, please see “Note 18 — Commitments and contingencies” in the Notes to develop our oilthe 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 $0.8 million as of March 31, 2022. These letters of credit and gas investments.

We will require additional debt or equity financingbank guarantees are collateralized by $0.5 million in restricted cash. Please see “Note 18 – Commitments and contingencies” in the Notes to meet our plans and needs. We face obstacles in continuing to attract new financing due to industry conditions and our history and current recordthe Consolidated Financial Statements of net losses and working capital deficits. Despite our efforts, we can provide no assurance that we will be able to obtain the financing required to meet our stated objectives or even to continue as a going concern.
this Form 10-Q. We do not expect to pay cash dividendsmaintain 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 common stockcondensed consolidated interim financial statements, please see “Note 2—Significant accounting policies” in the foreseeable future.

Commitments and Contingencies
Operating Leases
The Company has a non-cancelable lease for its office premises that expires on November 30, 2019 and which requires the paymentNotes to Condensed Consolidated Interim Financial Statements of base lease amounts and executory costs such as taxes, maintenance and insurance. Rental expense for the lease was $57,469 for the nine months ended September 30, 2017 and $60,586 for the nine months ended September 30, 2016.
Approximate future minimum rental commitments under the office premises lease are:
Year Ending December 31,
 
Rent
 
 
 
 
 
Remainder of 2017
 $23,430 
2018
 $93,720 
2019
 $93,720 
To 2019 Expiration
 $85,910 
Total
 $296,780 
Environmental matters
We are subject to contingencies as a result of environmental laws and regulations. Present and future environmental laws and regulations applicable to our operations could require substantial capital expenditures or could adversely affect our operations in other ways that cannot be predicted at this time. As of September 30, 2017 and December 31, 2016, no amounts have been recorded because no specific liability has been identified that is reasonably probable of requiring us to fund any future material amounts.

Form 10-Q.

27


ITEM

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not Applicable.
Quantitative and Qualitative Disclosures About Market Risk

For financial market 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 risk has not changed materially since December 31, 2021.

ITEM

Item 4. CONTROLS AND PROCEDURES 

Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Under the supervision and

Management, with the participation of our management, including ourthe Chief Executive Officer (principal executive officer) and Chief Financial Officer, (principal financial officer), wehas evaluated the effectiveness of the design and operation of our disclosure controls and procedures as(as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act,Act) as of September 30, 2017. March 31, 2022.

Based on 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 in Securities Exchange Act Rule 13a‑15(f). Our internal control over financial reporting is a process designed by and under the supervision of our management, including our Chief Executive Officer and Chief Financial Officer, concluded thatand effected by our disclosure controlsmanagement and procedures were effectiveother personnel, to ensure thatprovide reasonable assurance regarding the information required to be disclosed by usreliability of financial reporting and the preparation of consolidated financial statements for external purposes in the reports we submitaccordance with U.S. generally accepted accounting principles. Our management, under the Exchange Act is recorded, processed, summarizedsupervision and reported withinwith the time periods specified in the applicable rules and forms and that such information was accumulated and communicated toparticipation 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:

An ineffective control environment resulting from a lack of the required number of trained financial reporting, accounting, information technology (IT) and operational personnel with the appropriate skills and knowledge and with assigned responsibility and accountability related to the design, implementation, and operation of internal control over financial reporting.
The insufficient number of personnel described above contributed to an ineffective risk assessment process necessary to identify all relevant risks of material misstatement and to evaluate the implications of relevant risks on our internal control over financial reporting.
An ineffective information and communication process resulting from: (i) insufficient communication of internal control information, including objectives and responsibilities, such as delegation of authority; and (ii) ineffective general IT controls and ineffective controls over information from a service organization, resulting in insufficient controls to ensure the relevance, timeliness and quality of information used in control activities.

28


As a consequence of the above, we had ineffective control activities related to the design, implementation and operation of process level and financial statement close controls which had a pervasive impact on our internal control over financial reporting.
An ineffective monitoring process resulting from the evaluation and communication of internal control deficiencies, including monitoring corrective actions, not being performed in a mannertimely manner.

These material weaknesses resulted in material misstatements, which were corrected prior to the release of the consolidated financial statements as of and for the year ended December 31, 2021, and also in immaterial misstatements, some of which were corrected prior to the release of the consolidated financial statements as of and for the year ended December 31, 2021. These material weaknesses create a reasonable possibility that alloweda material misstatement to the consolidated financial statements will not be prevented or detected on a timely basis.

Plan for timely decisions regarding disclosure.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:

Training the newly hired ERP specialist and Supply Chain and Procurement Director.
Training the newly hired Chief Information Officer.
Identifying and hiring additional key positions necessary to support our initiatives related to internal controls over financial reporting, including but not limited to Technical Accounting and, Transactional Accounting.
Hiring consultants to assist with process improvements and control remediation efforts in targeted accounting, IT and operations processes.
Continuing on-going testing of policies and procedures implemented in late 2021 to assess their effectiveness.
Formalizing our entity-wide risk assessment process and documenting internal ownership of risk monitoring and mitigation efforts, with improved risk monitoring activities and regular reporting to those charged with governance at an appropriate frequency.
Implementing a newly established delegation of authority matrix to enforce desired limits of authority for key transactions, events, and commitments, and communicating these limits of authority to relevant personnel throughout the Company.

Changes in Internal Control over Financial Reporting

ThereControls.

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 (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the quarter ended September 30, 2017March 31, 2022 that has materially affected, or areis reasonably likely to materially affect, our internal control over financial reporting.

29


Limitations on Effectiveness of Internal Controls

Management, including the Chief Executive Officer and Chief Financial Officer, does not expect that disclosure controls or internal controls, when effective, will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. In addition, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, 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 systems of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving our stated goals under all potential future conditions. Over time, control may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of these inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected. Individual persons may perform multiple tasks which normally would be allocated to separate persons and therefore extra diligence must be exercised during the period these tasks are combined.

30


PART II II—OTHER INFORMATION

ITEM
For a description of our material pending legal proceedings, please referLegal Proceedings

Refer to the subsection titled “Legal Proceeding” under Note 6, “Commitments“Note 18 — Commitments and Contingencies,” ofcontingencies” in the Notes to the Condensed Consolidated Interim Financial Statements includedof this Form 10-Q.

Item 1A. Risk Factors

For risk factors related to our business, reference is made to Item 1A, "Risk Factors," contained in Part I Item 1 of this Quarterlyour Annual Report on Form 10-Q, which is incorporated herein by reference.

10-K/A for the year ended December 31, 2021. There have been no material changes to the risk factors disclosed in our Annual Report on Form 10-K/A for the year ended December 31, 2021.

ITEM

Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

During the three months ended September 30, 2017, we issued a totalUnregistered Sales of 25,000 sharesEquity Securities and Use of common stock in payment of amounts due to a director for serving on the Litigation Committee of the Board of Directors. All of the shares are presently unvested and are subject to vesting at specified future events.
All of the above sales of securities were sold under the exemption from registration provided by Section 4(a)(2) of theProceeds

Not applicable.

Item 3. Defaults Upon Senior Securities Act of 1933 and the rules and regulations promulgated thereunder. The issuances of securities did not involve a “public offering” based upon the following factors: (i) the issuances of securities were isolated private transactions; (ii) a limited number of securities were issued to a limited number of purchasers; (iii) there were no public solicitations; (iv) the investment intent of the purchasers; and (v) the restriction on transferability of the securities issued.


None

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None

31


ITEM

Item 6. EXHIBITS


ITEM 6. EXHIBITS- continued

31.2*

32.1*

32.2*

Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of 18 U.S.C. 63.the Sarbanes-Oxley Act of 2002.

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 DefinitionsDefinition 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)

* Incorporated by reference from our previous filings with the SEC

Filed herewith.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this reportReport to be signed on its behalf by the undersigned, thereunto duly authorized.

Torchlight Energy Resources, Inc.

Meta Materials Inc.

Date: November 14, 2017

/s/ John A. Brda

Dated: May 10, 2022

By: John A. Brda

/s/ George Palikaras

George Palikaras

President and Chief Executive Officer

Date: November 14, 2017

/s/ Roger Wurtele

(Principal Executive Officer)

By: Roger Wurtele

Dated: May 10, 2022

By:

/s/ Kenneth Rice

Ken Rice

Chief Financial Officer and Chief Operating Officer

(Principal Financial and Accounting OfficerOfficer)

24

33