UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
FORM 10-K
WASHINGTON, DC 20549
(Mark One)
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☒ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 2023
OR
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☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO |
Commission File Number: 001-36247
Meta Materials Inc.
(Exact Name of Registrant as Specified in its Charter)
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Nevada | 74-3237581 |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
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60 Highfield Park Drive, Dartmouth, Nova Scotia, Canada | B3A 4R9 |
(Address of principal executive offices) | (Zip Code) |
Registrant’s telephone number, including area code: (902) 482-5729
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class
| Trading Symbol(s)
| Name of each exchange on which registered
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Common Stock, par value $0.001 per share | MMAT | Nasdaq Capital Market |
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒
Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes ☐ No ☒
Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for a such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for a such shorter period that the Registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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Large accelerated filer | ☐ | Accelerated filer | ☐ |
Non-accelerated filer | ☒ | Smaller reporting company | ☒ |
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| Emerging growth company | ☐ |
If an emerging growth company, indicate by a check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
The aggregate market value of the voting and non-voting common equity held by non-affiliates of the Registrant, based on the closing price of the shares of common stock on June 30, 2023, was $103,814,030.
The number of shares of Registrant’s common stock outstanding as of March 20, 2024 is 6,307,684 including the Exchangeable Shares of 368,118, as adjusted for the 1-for-100 reverse stock split on January 29, 2024.
Exchangeable Shares:
The exchangeable shares are shares of the share capital in Metamaterial Exchangeco Inc., a wholly-owned subsidiary of the Registrant (the "Exchangeable Shares"). The exchangeable shares are publicly traded on the Canadian Securities Exchange under the symbol MMAX. These shares are intended to provide substantially the same economic and voting rights as the Registrant’s common stock in which they may be exchanged. The Registrant also has issued and outstanding one share of Series B Special Voting Preferred Stock (the “Series B Special Voting Preferred Stock”). The Series B Special Voting Preferred Stock provides the mechanism for holders of exchangeable shares to be provided instructions to vote with the holders of the common stock. The holder of the Series B Special Voting Preferred Stock is entitled to one vote for each outstanding exchangeable share and generally votes together with the common stock on all matters on which holders of the common stock are entitled to vote. The Series B Special Voting Preferred Stock is subject to a voting trust arrangement. The trustee which holds the Series B Special Voting Preferred Stock is required to cast a number of votes equal to the number of then-outstanding exchangeable shares, but will only cast a number of votes equal to the number of exchangeable shares as to which it has received voting instructions from the owners of record of those exchangeable shares, other than the Registrant or its subsidiaries, respectively, on the record date, and will cast the votes in accordance with such instructions so received.
DOCUMENTS INCORPORATED BY REFERENCE
The information called for by Part III of this Form 10-K will be included in the definitive proxy statement to be filed by the Registrant in connection with the 2024 Annual Meeting of Stockholders (the "Proxy Statement") with the Securities and Exchange Commission not later than 120 days after the year ended December 31, 2023, provided that if such Proxy Statement is not filed within such period, the information called for by Part III of this Form 10-K will be provided in an amendment to this Form 10-K, which will be filed within such 120 day period.
Table of Contents
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K (this “Annual Report”) contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements contained in this Annual Report other than statements of historical fact, including statements regarding our future results of operations and financial position, its business strategy and plans, and its objectives for future operations, are forward-looking statements. The words "believe," "may," "will," "estimate," "continue," "anticipate," "intend," “potential," “expect," and similar expressions are intended to identify forward-looking statements. We have based these forward-looking statements largely on our current expectations and projections about future events and trends that we believe may affect our financial condition, results of operations, business strategy, short-term and long-term business operations and objectives, and financial needs. Examples of forward-looking statements include, among others, statements regarding:
•the development, improvement and performance of our products and technologies;
•timing of future product launches;
•applications for our products and technologies;
•addressable market opportunities;
•our joint ventures and partnerships;
•our expectations relating to the development, implementation or effectiveness of our cybersecurity program;
•our expectations relating to the payment of future dividends;
•estimates of future costs and expenses, including with respect to research and development and the Realignment and Consolidation Plan (as defined below);
•our ability to create value for our customers;
•our revenues, future profitability, liquidity position or capital requirements;
•future financing transactions or offerings; and
•the effect of our recent management reorganization.
These forward-looking statements are subject to a number of risks, uncertainties and assumptions that are difficult to predict and many of which are outside our control. Forward-looking statements are not guarantees of future performance, and our actual results of operations, financial condition and liquidity and development of the industry in which we operate may differ materially from those made in or suggested by the forward-looking statements in this Annual Report. Therefore, you should not rely on any of these forward-looking statements. The risks and uncertainties that could cause actual results to differ materially from estimated or projected results include, without limitation, the factors described in Part I, Item 1A, "Risk Factors" in this Annual Report and, from time to time, in our other filings we make with the Securities and Exchange Commission ("SEC"). Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for us to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. Any forward-looking statement made by us in this Annual Report is based only on information currently available to us and speaks only as of the date on which it is made. Except as required by law, we undertake no obligation to publicly update any forward-looking statement, whether written or oral, that may be made from time to time, whether as a result of new information, future developments or otherwise.
PART I
Item 1. Business.
BUSINESS OVERVIEW
Meta Materials Inc. (also referred to herein as the “Company”, “META®”, “META” “we”, “us”, or “our”) is an advanced materials and nanotechnology company. We are developing materials that we believe can improve the performance and efficiency of many current products as well as allow new products to be developed that cannot otherwise be developed without such materials as noted in the examples below. We develop new products and technologies using innovative sustainable science. We have 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. META® technology platforms enable global brands to develop new products to improve performance for customers in aerospace and defense, consumer electronics, 5G communications, batteries, authentication, automotive and clean energy. For example, our QUANTUM™ stripe anti-counterfeiting security features for currency display full color, motion, and 3-D depth from an ultrathin, single layer of aluminum, without using any inks or dyes. Our NANOWEB® EMI shielding can block harmful microwaves while admitting more than 95% of visible light, enabling a crystal-clear window on a microwave oven door. We currently have over 462 active patent documents, of which 346 patents have issued. Our patent portfolio is comprised of 124 patent families, of which 73 include at least one issued patent.
Our principal executive office is located at 60 Highfield Park Drive, Suite 102, Dartmouth, Nova Scotia, Canada.
META in the last decade has developed and acquired a portfolio of intellectual property. Our proprietary platform technology includes holography, lithography, electro-optics, wide-area motion imagery, nano-optics, battery materials, and medical wireless sensing. In 2021, we acquired the assets and IP which comprise our ARfusion® platform technology for smart, augmented reality (AR) prescription eyewear, and we added nano-optic security products with the acquisition of Nanotech Security Corp ("Nanotech"). In 2022, we acquired nanoporous ceramic battery separator technology and PLASMAfusion® high-speed vacuum coating capabilities. 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.
On June 6, 2023, our board of directors approved a revised operating plan (the "Realignment and Consolidation Plan") pursuant to which we have begun, but not yet completed, a process for increased focus on key applications with the greatest near-term revenue potential, and of realignment of our resources and structure for reduced operating expenses. Our focus applications include authentication, wide area motion imagery, battery materials, and transparent conductive films. As part of this plan, we are exploring alternatives for certain of our technologies including Holography, Wireless Sensing, and Radio Wave Imaging. These alternatives may include divesting, entering into a joint venture and/or curtailing our investments in these technologies.
Corporate Information
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. (“Callco”), entered into an arrangement agreement with Metamaterial Inc. (“MMI”), to acquire all of the outstanding common stock of MMI by way of a statutory plan of arrangement (the “Arrangement”). On June 25, 2021, we implemented a reverse stock split. On June 28, 2021, following the satisfaction of the 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, we began trading on the Nasdaq Capital Market under the symbol “MMAT” while MMI common stock was delisted from the Canadian Securities Exchange (“CSE”) and at the same time, Metamaterial Exchangeco Inc., a wholly-owned subsidiary of META, started trading under the symbol “MMAX” on the CSE. Certain previous stockholders 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. See Note 1, Corporate Information, in the notes to the Consolidated Financial Statements in Part II, Item 8 of this Annual Report for more information.
On January 26, 2024, we filed a Certificate of Change (the “Certificate of Change”) with the Nevada Secretary of State to effect a reverse stock split of our common stock at a rate of 1-for-100 (the “Reverse Stock Split”), which became effective as of January 29, 2024 (the "Effective Time"). The Reverse Stock Split was approved by the board in accordance with Nevada law. The Reverse Stock Split did not have any impact on the par value of our common stock. Unless otherwise indicated, all issued and outstanding shares of common stock and all outstanding securities entitling their holders to purchase shares of our common stock or acquire shares of our common stock, including stock options, restricted stock units, and warrants, per share data, share prices and exercise prices, as required by the terms of those securities, were adjusted retroactively to reflect the Reverse Stock Split. See Note 1, Corporate Information, in the notes to the Consolidated Financial Statements in Part II, Item 8 of this Annual Report for more information.
What is a Metamaterial?
Over the past 20 years, techniques for producing nanostructures have matured, resulting in a wide range of groundbreaking solutions that can control light, heat, and electromagnetic waves at very small scales. Some of the areas of advancement that have contributed to these techniques are photonic crystals, nanolithography, plasmonic phenomena, and nanoparticle manipulation. From these advances, a new branch of material science has emerged – metamaterials. Metamaterials are composite structures, consisting of conventional materials such as metals and plastics, which are engineered by scientists to exhibit new or enhanced properties relating to reflection, refraction, diffraction, filtering, conductance, and other properties that have the potential for multiple commercial applications.
A metamaterial typically consists of a multitude of structured unit nano-cells that are comprised of multiple individual elements. These are referred to as meta-atoms. The individual elements are usually arranged in periodic patterns that, together, can manipulate light, heat, or electromagnetic waves. Development strategies for metamaterials and functional surfaces focus on structures that produce unusual and exotic electromagnetic properties by manipulating light and other forms of energy in ways that have never been naturally possible. They gain their properties not as much from their composition as from their exactingly designed structures. The precise shape, geometry, size, orientation, and arrangement of these nanostructures affect the light and other electromagnetic waves to create material properties that are not easily achievable with conventional materials.
Authentication: Nano-optic structures and color-shifting foils
During 2021 we acquired Nanotech, which specializes in designing, originating, recombining, and mass-producing nanotechnology-based films with applications for a wide variety of products and markets. META’s authentication business develops and produces nano-optic structures and color-shifting foils used in authentication and brand protection applications including banknotes, secure government documents, and commercial branding. Our nano-optic security technology platforms and products include:
•QUANTUM™ stripe, the world’s first fully animated nano-optic banknote security product, delivers an unparalleled combination of movement, 3D stereoscopic depth, and multicolor effects in an ultrathin form factor, providing next-generation security and an engaging authentication experience. Limitless in design, the QUANTUM™ stripe is readily integrated into banknotes with industry-standard processes and equipment, providing an intuitive experience that is both easy to authenticate and difficult to replicate.
•NANO™ protect security labels deliver a new brand protection solution through nano-optics. A unique combination of nano and micro-structures enables animated movement with always-on, structural colors. A sophisticated blend of the most advanced authentication optics in the market today, combined with security feature design expertise, enables a security feature with unique visual effects that is nearly impossible to replicate with other technologies. Manufactured without inks, pigments, or dyes, these labels are one of the most environmentally friendly solutions.
•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 our customers’ unique requirements. LiveOptik™ delivers multi-color, 3D depth, movement and image switches for secure brand protection stripes, threads and labels that are nearly impossible to replicate.
•LumaChrome™ optical thin film security features are manufactured using precision engineered nanometer-thick layers of metals and ceramics to form filters designed to uniquely manipulate visible and non-visible light. This unique manipulation of light properties is used to create specialized security features in the form of threads, stripes, and patches that are applied to banknotes and other secure documents. By using sophisticated electron beam and sputtered deposition methods, META precisely controls the construction and inherent properties to provide custom color-shifting solutions. An individual looking at these threads, stripes and patches sees an obvious color shift (e.g. green to magenta) when the document or banknote is tilted or rotated.
VLEPSIS® wide area motion imagery (WAMI)
The VLEPSIS® platform, expected to be the world’s first commercially available multi-gigapixel WAMI system, provides large area video coverage of tens to a hundred square kilometers, with sufficient resolution to discern vehicles and people-sized objects. Onboard computer hardware and software allow for 50+ simultaneous live video streams throughout the observational area with AI-based multi-object tracking and DVR-like analytical capability. State-of-the-art optical sensors and processors coupled with AI-enabled software at the sensor edge support automation for independent and simultaneous users. Weighing less than 20 kilograms, the sensor system payload is small, light, and sufficiently low-powered to be deployed on helicopters, fixed-wing aircraft, and Group 3 UAS platforms.
VLEPSIS systems address multi-billion-dollar defense and commercial markets: intelligence, surveillance, and reconnaissance (ISR), and optical persistent surveillance. This airborne WAMI system supports multiple traditional security applications such as large-area surveillance, border monitoring, port security, and search and rescue. Moreover, the small size and relatively low price point will allow penetration of data-oriented commercial markets and applications like smart city sensing, autonomous traffic management, and novel consumer uses.
Holography technology
Our holographic techniques use two or more intersecting laser beams to directly write an interference pattern inside the volume of a light-sensitive photopolymer material in order to produce highly selective optical filters and complex holographic optical elements (HOEs). For some product lines that require large surface areas, this is combined with a proprietary scanning technique, where the laser beams are scanned, optically or mechanically, to directly write holographic gratings over large surface areas with high degree of accuracy. Our tunable laser sources allow us to write holographic gratings efficiently and with great flexibility while avoiding compromises on the optical function.
META has products in development that utilize its proprietary holography technology including HOEs operating at multiple wavelengths in the visible and near-infrared spectrum. HOEs are a core component in the displays of certain augmented reality smart glasses products, as well as (in their larger version) in Heads-Up Displays (“HUDs”), in automobiles and aircraft. META complements its holographic recording techniques with proprietary design software, and integration capabilities to offer device-ready holographic components for these applications. The holoOPTIX® family of flexible and rigid-substrate holographic notch filters is commercially available.
Additionally, our ARfusion® technology (acquired in 2021 from Swiss company Interglass Technology) combines precision cast lens fabrication tools with functional metamaterials and volume holograms, to provide AR wearable developers with a platform for seamlessly integrating smart technologies into thin lightweight prescription glasses. To achieve widespread commercial adoption and ultimately become as ubiquitous as smartphones, AR glasses must be comfortable, affordable, natural-looking, and easy to use. A successful solution needs to achieve the delivery of high-quality images in a fashionable, compact form factor that does not compromise on ophthalmic function or add excess weight. This means that the smart technologies (displays, filters, active dimming) are ideally embedded within a rugged, cast prescription lens. Our in-house developed design software is tuned to the ARfusion® process and together with our holography technology and cast-lens fabrication tools enables the conversion of customer HOE designs into semi-finished ophthalmic lenses with embedded RGB and near-IR HOEs under one roof.
In a traditional cast plastic lens, up to 80% of the original lens blank material is wasted as the prescription is ground into the blank. With the same amount of material, ARfusion® can produce several optimized semi-finished lenses. In a standard thermal process, curing of semi-finished lens blanks for up to 50 hours requires much more energy and process time compared to the UV-curable materials and associated processes used by ARfusion®.
Lithography technology
Metamaterial Technologies USA Inc. ("MTI US"), our wholly-owned subsidiary in the United States, spearheads our operations in the specialized field of lithography. This versatile technology, while traditionally pivotal in the production of integrated circuits, serves as the backbone of our broader applications, including the creation of advanced materials like transparent conductive films. Lithography involves using a light-sensitive polymer, exposed, and developed to craft three-dimensional relief images on various substrates. Moving beyond conventional silicon wafer processing – traditionally limited to 12 inches in diameter – we leverage META’s proprietary design and manufacturing techniques to explore the full potential of our technology across diverse applications.
Key product family: NANOWEB® Transparent Conductive Film
NANOWEB® transparent conductive film is our cutting-edge, leading product in lithography technology . It features a finely patterned conductive metal mesh, invisible to the naked eye, and is applicable on any transparent glass or plastic surface. With its exceptional transparency, high conductivity, and minimal haze, NANOWEB® represents a significant advancement in the transparent conductive film industry.
We are progressing four applications of NANOWEB®films from the development stage towards preproduction:
•Transparent Heating Solutions: NANOWEB® films are optimized for transparent heating applications to de-ice and de-fog, currently advancing toward the preproduction phase.
•Transparent EMI Shielding: NANOWEB® films are utilized to provide transparent electromagnetic interference (EMI) shielding.
•Transparent Antennas: NANOWEB® films enable the seamless integration of antennas into automotive windshields and rooftops.
•Mobile Phone Signal Enhancement: NANOWEB® reflector films are aimed at improving 5G connectivity.
To scale the production of NANOWEB® films, we developed our proprietary Rolling Mask Lithography (RML®) technique, which combines the best features of photolithography, soft lithography, and roll-to-plate/roll-to-roll printing technologies. In September 2023, we embarked on a strategic collaboration with Panasonic Industry, a wholly-owned subsidiary of Panasonic Holdings Corporation. This partnership concentrates on delivering next-generation transparent conductive materials by combining META’s patented NANOWEB® designs with Panasonic Industry's proprietary process technology. The joint effort aims to enhance the production volume of
NANOWEB® films and accelerate the growth of the transparent conductive film market, offering new applications for the automotive and consumer electronics industries.
The master patterns designed for our production processes contribute to an ever-growing library of patterns, enriching our intellectual property portfolio and underscoring our commitment to innovation in lithography technology. As we transition several NANOWEB® applications into the preproduction phase, our focus remains on expanding the possibilities of lithography into new and exciting domains.
Wireless sensing and radio wave imaging technology
Our Wireless Sensing platform uses multiwavelength sensing technology, i.e. optical and radio frequency (RF) transmitters and receivers to collect and measure a variety of biological information enabling non-invasive and safe medical diagnostics. The platform requires the ability to cancel reflections (anti-reflection) from the skin to reduce the natural impedance the skin provides to such signals and increase the Signal-to-Noise Ratio (“SNR”) of certain diagnostic instruments used in conjunction with the platform. This reflection-cancelling requirement is satisfied using 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.
During 2023, we developed a new prototype for the glucoWISE® non-invasive glucose monitoring technology that was tested in pre-clinical human studies. The prototype combines infrared and RF sensors, along with anti-reflection metamaterial film, to boost accuracy. The prototype implements state-of-the-art robustness software and hardware features to ensure glucose sensing repeatability and stability over time.
We recently consolidated the operations of the medical business unit. There is substantial technology in the medical diagnostics devices space for which the company is seeking interested parties who are active in this space who would be interested to explore the technology and possibly further develop it (particularly non-invasive glucose monitoring, MRI imaging, and stroke & breast cancer screening).
Battery materials
We acquired the assets and IP of Optodot Corporation, a developer of advanced materials technologies in June 2022, and we began focusing on developing and licensing ceramic separator technology for lithium-ion batteries. The separator is a critical component for battery performance and safety. Ceramic coated plastic separators (CCS) are widely used today. They are prone to failure at high temperatures, leading to battery fires thus aggravating a tenuous safety profile as energy density and battery size increase. Our next-generation NPORE® separator is the world’s first flexible, free-standing ceramic nanoporous membrane separator for lithium-ion batteries. NPORE® separators eliminate the use of plastic substrate, provide superior functionality and outstanding heat resistance for current and next generation lithium-ion batteries. NPORE® all-ceramic separators (CSP) offer increased safety and performance by eliminating the plastic layer entirely, and exhibit less than 1% heat shrinkage at temperatures up to 200 degrees C. Our third generation electrode coated separators (ECS) combine what are presently two discrete functions in lithium-ion batteries and offer a simpler, faster, lower-cost assembly process compatible with current and future battery chemistries (silicon anode, lithium metal, and solid state).
The global market for lithium-ion battery separators was estimated at $5.1 billion in 2021 and is projected to reach $9.0 billion in 2025 (Source: Yano Research Institute Ltd.). Separator shipments were about 5.5 billion square meters in 2021 and are projected to reach 15.9 billion square meters in 2025 (Source: SNE Research). About 15 million square meters are required per GWh of battery capacity.
Additionally, electric vehicle (EV) consumers desire increased range and fast charging to get back on the road quickly. Storing more energy relative to weight and volume and accepting higher charge rates increase the requirements for material performance, stability, and safety. Wider EV adoption will require improved material utilization along the supply chain for critical materials such as copper.
In April 2022, we acquired UK-based Plasma App Ltd., developer of a proprietary, high-speed, pulsed plasma deposition technology. With the combination of these acquired technologies, we plan to develop new battery materials and manufacturing techniques to address all these challenges. PLASMAfusion® high-speed vacuum coating technology has been used to produce prototype NCORE™ thin polymer-metal composite copper current collectors, significantly reducing weight, with a fuse-like feature for increased safety. Lighter batteries increase energy density and vehicle range. Lower copper content makes battery production and recycling more sustainable.
High-speed coating
PLASMAfusion®is a first-of-its-kind, patented manufacturing platform technology developed by our Oxford, UK-based Plasma App Ltd, a wholly owned subsidiary which was acquired during 2022. PLASMAfusion® enables high speed coating of any solid material on any substrate. It uniquely enables doping, multilayering, or mixing of materials in vacuum with controlled stoichiometry distribution within the deposited film at low substrate temperature.
We expect to apply PLASMAfusion® initially to the production of NCORETM polymer metal composite current collectors for lithium-ion batteries. Later, we may apply it to the metallization step in our roll-to-roll production process for NANOWEB® films. This is expected to significantly accelerate line speed and increase annual capacity. Large-scale and efficient metallization is a critical step for volume production of NANOWEB® films and many other high-volume potential applications such as lithium-ion battery components.
Large-scale metallization is expected to leverage capital in equipment investment and substantially reduce cost per square meter of output. META intends to continue to industrialize and scale up PLASMAfusion®deposition and additionally, PLASMAfusion® technology will be available for licensing and co-development for strategic partners.
PLASMAfusion® deposition creates unprecedented new high-performance nanocomposites in real time by using multiple, time-sequenced targets. We believe this is a unique process enabler, likely to facilitate META’s entry into multiple high-growth markets. High energy beam deposition of materials, at low temperature, without solvents and other toxic chemicals, promises highly sustainable, breakthrough performance. Compared to traditional coating technologies, we estimate PLASMAfusion® deposition is approximately 60x more energy efficient compared to Plasma Laser Deposition (PLD) and 8x more efficient compared to Magnetron Sputtering to produce each 100nm of coating on each square cm area of the substrate, while also offering higher adhesion, deposition rates, and overall coating uniformity.
PLASMAfusion® deposition enables design of surfaces and a path to industrial surface manufacturing for a variety of applications including batteries, semiconductors and metamaterials, printed circuit boards and protective optical coatings.
Customers
Our customers are original equipment manufacturer (“OEM”) providers in multiple industries including aerospace, automotive, consumer electronics, communications, energy, banknote and brand security, surveillance, and medical devices. We organize our development and support efforts around these different vertical markets to better position us to effectively penetrate these markets and to develop products specific to the needs of these OEM customers.
Marketing and Sales
We operate under a Business-to-Business model. Our marketing and sales functions are organized to support and grow this operating model. We utilize a combination of field-based and in-house selling resources to promote and sell our standard off-the-shelf products and a vertical market-focused Business Development group to develop and support long-term customer relationships in the vertical market of interest. Our marketing efforts are focused on technical education of our customer base regarding our products, support of a presence at trade shows and industry events and routine production of collateral materials to support our sales and business development efforts throughout the year.
Manufacturing
We employ a hybrid model for manufacturing our high-performance functional materials and nanocomposites.
We provide research-scale production of our products in-house to our customers in the lithography and holography business areas. We have current capacity in our Thurso facility to produce 7.5 million square meters per year of our banknote security and brand security product at commercial scale and we are expanding this capacity. In certain instances where volume warrants, we will make available on a license basis, our equipment and proprietary processes to our customers or to third-party contractors to produce our products for their needs.
We are constantly improving and investing in our manufacturing capabilities and the associated quality control and resource planning infrastructure. We hold ISO9001 certification for our Thurso facility.
Research and Development
We operate in a rapidly evolving industry subject to significant technological change and new product introductions and enhancements. We believe that our continued commitment to research and development is a critical element of our ability to introduce new and enhanced products and technologies. In 2023, we invested 37% of our operating expenses, excluding non-cash impairment losses on goodwill and long-term assets, stock-based compensation expenses and depreciation and amortization expenses, in our research and development efforts and these activities are integral to maintaining and enhancing our competitive position. We also increasingly seek to deploy our resources to solve fundamental challenges that are both common to, and provide competitive advantage across, our high-performance functional materials and nanocomposites.
We believe that our success depends in part on our ability to achieve the following in a cost-effective and timely manner:
•Enable our OEM customers to integrate our functional films into their products.
•Develop new technologies that meet the changing needs of the vertical markets we have chosen to pursue.
•Improve our existing technologies to enable growth into new application areas; and expand our intellectual property portfolio.
Intellectual Property
During 2022, we significantly expanded our patent and trademark portfolios in a wide range of applications including holography, lithography, wireless sensing technology, nano-optic structures as well as battery safety, battery separator technology, and high-speed coating capabilities. We added more than 10 patent documents from the Plasma App acquisition, and 101 patent documents from the Optodot acquisition. In 2023, as part of the strategic restructuring, new patent filings were coupled with prioritizing selected high-value, revenue-generating IP. We currently have over 462 active patent documents, of which 346 patents have been issued. Our patent portfolio is comprised of 124 patent families, of which 73 include at least one issued patent. We believe that our combination of patents, trademarks, and trade secrets provides us with an important competitive advantage, marketing benefits, and licensing revenue opportunities.
Regulation
We are subject to significant regulation by local, state, federal and international laws in all jurisdictions in which we operate. Compliance with these requirements can be costly and time-consuming. We believe that our operations, products, services, and actions substantially comply with applicable regulations in all jurisdictions. However, the risk of non-compliance cannot be eliminated and therefore there is no assurance that future costs related to these regulations will not be incurred. There is also the possibility that regulations will be retroactively applied, interpreted, or applied differently to our operations, products, services, and actions which will require significant time and resources.
Additionally, we must comply with complex foreign and U.S. laws and regulations, such as the U.S. Foreign Corrupt Practices Act, the U.K. Bribery Act, and other local laws prohibiting corrupt payments to governmental officials, anti-competition regulations and sanctions imposed by the U.S. Office of Foreign Assets Control, and other similar laws and regulations. Violations of these laws and regulations could result in fines and penalties, criminal sanctions, restrictions on our business conduct, and on our ability to offer our products in one or more countries, and could also materially affect our brand, our ability to attract and retain employees, our international operations, our business, and our operating results. As we continue to expand our business into multiple international markets, our success will depend, in large part, on our ability to anticipate and effectively manage these and other risks associated with our international operations. Any of these risks could harm our international operations and negatively impact our sales, adversely affecting our business, results of operations, financial condition, and growth prospects.
Human Capital Resources
As of February 28, 2024, we had 103 employees. Approximately 90% of our employees are located in Canada and the United States. Of the total workforce, 59 employees are involved in research and development; 13 employees are involved in operations, manufacturing, service and quality assurance; and 31 employees are involved in sales and marketing, information technology, general management and other administrative functions.
Available Information
Our Annual Report, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports and proxy and information statements are accessible free of charge on our website at www.metamaterial.com as soon as reasonably practicable after we electronically file such material with, or furnish them to, the SEC. The SEC also maintains an internet site that contains reports, proxy and information statements and other information regarding our filings at www.sec.gov. The reference to our company website does not constitute incorporation by reference of the information contained at the site.
Business Combinations
Plasma App Ltd acquisition
On April 1, 2022, we completed the purchase of 100% of the issued and outstanding shares of Plasma App Ltd. ("PAL"). PAL is the developer of PLASMAfusion® deposition, a proprietary manufacturing platform technology, which enables high-speed coating of any solid material on any type of substrate. PAL’s team is located at the Rutherford Appleton Laboratories in Oxford, UK.
We issued an aggregate of 96,774 shares of our common stock to PAL's stockholders at closing, representing a number of shares of common stock equal to $18,000,000 divided by $186.00 (the volume weighted average price for the ten trading days ending on March 31, 2022), with an additional deferral of common stock equal to $2,000,000 divided by $186.00 to be issued subject to satisfaction of certain claims and warranties.
Optodot acquisition
We completed an asset purchase agreement with Optodot Corporation (“Optodot”) on June 22, 2022. Optodot, based in Devens, Massachusetts, USA, is a developer of advanced materials technologies for the battery and other industries.
The consideration transferred included the following: A cash payment of $3.5 million as well as unrestricted common stock equal to $37.5 million divided by our common stock's daily volume weighted average trading price per share on the Nasdaq Capital Market for a period of twenty trading days ending on June 21, 2022 and restricted common stock, subject to milestones as set forth in the Purchase Agreement, equal to $7.5 million divided by the daily volume weighted average trading price per share of our common stock on the Nasdaq Capital Market for the consecutive period of twenty trading days ending on June 21, 2022.
Item 1A. Risk Factors.
The following factors could materially affect our business, financial condition or results of operations and should be carefully considered in evaluating us and our business, in addition to other information presented elsewhere in this report.
SUMMARY OF RISK FACTORS
Below is a summary of the principal factors that could materially harm our business, operating results and/or financial condition, impair our future prospects or cause the price of our common stock to decline. This summary does not address all of the risks that we face. Additional discussion of the risks summarized in this risk factor summary, and other risks that we face, can be found below after the summary of risk factors and should be carefully considered, together with other information in this Annual Report and our other filings with the SEC before making an investment decision regarding our common stock.
Risks Related to the Realignment and Consolidation Plan
•Uncertainty in realizing the expected benefits from or successfully completing the Realignment and Consolidation Plan, which may require a substantial portion of the time and attention of our management, may affect our ability to mitigate going concern risk and have an adverse effect on our business and results of operations.
•We may undergo changes in organizational culture and employee morale, transformations in customer and partner relationships, and potential operational disturbances as a result of our Realignment and Consolidation Plan, each of which could adversely affect our overall business performance and stakeholder satisfaction levels.
•A potential divestiture of certain applications under the Realignment and Consolidation Plan may require a recalibration of our business model, potentially affecting our market positioning and competitiveness. We may also face challenges in realizing an adequate return on prior investments.
Risks Related to Our Business
•Continuous operational losses and negative cash flows raise doubts about our ability to continue as a going concern.
•Limited operational history makes it difficult to predict our future operating results.
•We will require additional capital to support business growth, and this capital might not be available on acceptable terms.
•We do not have sufficient authorized shares of common stock available for issuance, which limits our ability to secure financing which may cause us to be unable to continue operations.
•Possible future needs for funding through debt financing may necessitate a significant amount of cash, and there may not be sufficient cash flow from our business to repay our debts.
•Our agreement to share 50% of Vlepsis business profits with Vlepsis employees may extend the time needed to recoup our investment and potentially reduce the rate of return.
•Our operating results fluctuate significantly because of a number of factors, many of which are beyond our control.
•We currently rely on revenue from development services and most of our products are in the development stage. Any delay in the development or introduction of our new products could adversely affect our business.
•We may be unable to develop new products, applications, and end markets for our products.
•Our research and marketing development activities and investments may not result in profitable, commercially viable or successfully produced and marketed products.
•Because our products typically have lengthy sales cycles, we may experience substantial delays between incurring expenses related to research and development and the generation of revenues.
•We may experience delays in providing sufficient products for future testing of our products due to supply chain limitations.
•Fluctuations in the mix of products sold may adversely affect our financial results.
•Variations in the amount of time it takes for us to sell our systems may cause fluctuations in our operating results, which could cause our stock price to decline.
•Material weaknesses or significant deficiencies in our internal controls could materially and adversely affect our business, results of operations and financial condition.
•Impairment of our goodwill or other intangible assets could materially and adversely affect our business and operating results.
•Our revenues and financial stability are dependent on securing and maintaining OEM customers and system integrators and achieving design wins in an evolving market.
•Our revenues may be concentrated in a few customers, and if we lose any of these customers, or these customers do not pay us, our revenues could be materially adversely affected.
•The markets in which we participate are intensely competitive.
•If we are unable to make acquisitions, or successfully integrate them into our business, our business could be adversely affected.
•Semiconductors for inclusion in consumer products have shorter product life cycles.
•We may not be able to increase production capacity to meet the present and future demand for our products.
•Our gross margin is dependent on a number of factors, such as our revenue and products mix, raw material prices, level of capacity utilization, and manufacturing efficiency.
•We rely on our distributors and sales representatives to sell some of our products.
•Costs related to product defects and errata may harm our results of operations and business.
•We order materials and commence production in advance of anticipated customer demand. Therefore, revenue shortfalls may also result in inventory write-downs.
•Our international operations expose us to material risks.
•Business interruptions may damage our facilities or those of our suppliers.
•We are exposed to risks that our employees, consultants, or other commercial partners and business associates may engage in misconduct or other improper activities, including non-compliance with regulatory standards and requirements.
•Compliance with environmental laws and regulations could be expensive, and failure to comply with these laws and regulations could subject us to significant liability.
•The risk of loss of our intellectual property, trade secrets or other sensitive business or customer confidential information or disruption of operations due to cyberattacks or data breaches could negatively impact our financial results.
•Cybersecurity breaches and information technology failures could harm our business by increasing our costs.
•Changes in laws or regulations relating to privacy, information security and data protection, or any actual or perceived failure by us to comply with such laws and regulations or any other obligations, could adversely affect our business.
•Changes in laws, regulations or guidelines relating to our business plan and activities could adversely affect our business.
•Our agreements with various national governments and suppliers to such governments subject us to unique risks.
•We are subject to the Foreign Corrupt Practices Act and similar anti-bribery and anti-corruption laws, as well as governmental export and import controls, all of which could subject us to liability or impair our ability to compete in international markets.
•Our insurance coverage strategy and programs may not be adequate to cover all risks and resulting liabilities to which we may be subjected.
•Tax risks across various jurisdictions and new tax laws or liabilities could significantly impact our business.
Risks Related to Intellectual Property
•If we fail to protect our intellectual property rights and our confidential information, our business could be adversely affected.
•Our intellectual property revenues are uncertain and unpredictable in timing and amount.
•We may become involved in material legal proceedings in the future to enforce or protect our intellectual property rights.
•Our technologies may infringe on the intellectual property rights of others, which could lead to costly disputes or disruptions.
Risks Related to Industry Adoption of Our Products
•We cannot provide assurance that markets will accept our various products at the expected market penetration rates.
•Slower than forecasted market acceptance of Lithography-related products, partially in the automotive market, may have a material adverse effect on our financial position.
•If products incorporating our technologies are used in defective products, we may be subject to product liability or other claims.
•We participate in markets that are subject to rapid technological change and require significant research and development expenses to develop and maintain products that can achieve market acceptance.
Risks Related to Facilities and Human Resources
•We may incur claims relating to our use, manufacture, handling, storage or disposal of hazardous materials.
•Our failure to comply with export control, environmental and climate-related laws and regulations, or the inability to timely obtain requisite approvals necessary for the conduct of our business, such as fab land and construction approvals, could harm our business and operational results or subject us to potentially significant legal liability.
•We are highly dependent on the continued service and availability of key management personnel, and failure to successfully execute personnel transitions and succession planning could harm our Company.
•Our future success depends on our ability to attract and retain highly qualified personnel.
•We face the risk that our stockholders do not approve the equity compensation plans designed for our employees.
•Our results of operations could be adversely affected by labor shortages, turnover, labor cost increases and inflation.
Risks Related to Legal Matters
•We are, and may in the future become, subject to various legal proceedings and claims that arise in or outside the ordinary course of business and which could adversely affect our business.
•We and former executive officers have received “Wells Notices” from the SEC staff recommending that the SEC bring enforcement actions against us and the former executive officers which could have a material adverse effect on our business.
Risks Related to Our Common Stock
•Future sales and issuances of our common stock or rights to purchase common stock could result in additional dilution of the percentage ownership of our stockholders and cause our stock price to fall.
•Our failure to satisfy certain Nasdaq listing requirements may result in our common stock being delisted from the Nasdaq Capital Market, which could eliminate the trading market for our common stock.
•Subject to various spending levels approved by our board of directors, our management will have broad discretion in the use of the net proceeds from our capital raises and may not use them effectively.
•The market price of our common stock has been and may continue to be volatile.
•We may issue preferred stock whose terms could adversely affect the voting power or value of our common stock.
•Anti-takeover provisions in our articles of incorporation and bylaws and provisions in Nevada law might discourage, delay, or prevent a change of control of us or changes in our management and, therefore, depress the trading price of our securities.
Risks Related to the Realignment and Consolidation Plan
There is no assurance that we will be able to realize the expected benefits from or complete the Realignment and Consolidation Plan, which may affect our ability to mitigate going concern risk.
Our ability to continue as a going concern is dependent upon our ability to implement the Realignment and Consolidation Plan and to generate sufficient liquidity from the plan to meet our obligations and operating needs. As these plans and actions are complex, unforeseen factors could result in expected savings and benefits being delayed or not realized to the full extent planned (if at all), and our operations and business may be disrupted, which likely would adversely affect our financial condition, operating results and cash flow. These factors, together with our recurring losses from operations and accumulated deficit, create substantial doubt about our ability to continue as a going concern. See Note 24 in the notes to the Consolidated Financial Statements in Part II, Item 8 of this Annual Report for more information on the Realignment and Consolidation Plan and the risks related thereto.
The Realignment and Consolidation Plan may require a substantial portion of the time and attention of our management, which may have an adverse effect on our business and results of operations, and we may face increased levels of employee attrition.
Our management has spent, and continues to be required to spend, a significant amount of time and effort focusing on the Realignment and Consolidation Plan. This diversion of attention may have an adverse effect on the conduct of our business, and, as a result, on our financial condition and results of operations, particularly if the Realignment and Consolidation Plan is protracted. During the pendency of the Realignment and Consolidation Plan, our employees may face considerable distraction and uncertainty and we may experience increased levels of employee attrition. A loss of key personnel or material erosion of employee morale could have a materially adverse effect on our ability to meet customer expectations, thereby adversely affecting our business and results of operations. The failure to retain or attract members of our management team and other key personnel could impair our ability to execute our strategy and implement operational initiatives, thereby having a material adverse effect on our financial condition and results of operations. Likewise, we could experience losses of customers who may be concerned about our ongoing long-term viability.
We may undergo changes in organizational culture and employee morale, transformations in customer and partner relationships, and potential operational disturbances as a result of our Realignment and Consolidation Plan, each of which could adversely affect our overall business performance and stakeholder satisfaction levels.
The Realignment and Consolidation Plan may adversely affect our organizational culture and employee morale. Restructuring often brings about changes in roles, responsibilities, and team dynamics, which may affect employee satisfaction and productivity. If these transformations are not navigated with meticulous care and strategic foresight, this could lead to a decline in team cohesion, loss of valuable employees, and a decrease in overall productivity and performance.
In addition, the Realignment and Consolidation Plan may adversely affect our customer and partner relationships. It could lead to changes in customer-facing teams, communication, and service levels, potentially affecting customer satisfaction and retention.
Furthermore, we may face operational disruption during the implementation of the Realignment and Consolidation Plan. It involves changes in workflows and processes, which could disrupt day-to-day operations. This could affect the timely delivery of products or services, impact customer satisfaction, and adversely affect our financial position or results of operations.
A potential divestiture of certain assets under the Realignment and Consolidation Plan may require a recalibration of our business model, potentially affecting our market positioning and competitiveness. We may also face challenges in realizing an adequate return.
If we elect to divest certain technology assets of our business pursuant to the Realignment and Consolidation Plan, such divestiture could compel a reevaluation and modification of our existing business model. This would demand a comprehensive reassessment of our operational methodologies and market engagement strategies to maintain a resilient and competitive posture within the industry. The potential divestiture could markedly recalibrate our market position, influencing external perceptions pertaining to our products and services among consumers and industry counterparts. A failure to adeptly navigate and adapt to these consequential modifications may
compromise our capacity to flourish and sustain relevance in a perpetually evolving market environment. In addition, the process of divesting assets carries an inherent risk of market fluctuations and economic uncertainties that undermine the value we expect to realize.
Risks Related to Our Business
We expect to continue to incur losses from operations and negative cash flows, which raise substantial doubt about our ability to continue as a going concern.
We anticipate incurring additional losses until such time, if ever, we can achieve profitability. Substantial additional financing will be needed to fund our development, marketing and sales activities and generally to commercialize our technology. These factors raise substantial doubt about our ability to continue as a going concern.
We will seek to obtain additional capital through the issuance of debt or equity financing or other arrangements to fund operations; however, there can be no assurance we will be able to raise needed capital under acceptable terms, or at all. The sale of additional equity may dilute existing stockholders and newly issued shares may contain senior rights and preferences compared to currently outstanding shares of common stock. Issued debt securities may contain covenants and limit our ability to pay dividends or make other distributions to stockholders. If we are unable to obtain such additional financing, future operations would need to be scaled back or discontinued. Due to the uncertainty in our ability to raise capital, we believe that there is substantial doubt as to our ability to continue as a going concern.
We have a limited operating history, which can make it difficult for investors to evaluate our operations and prospects and may increase the risks associated with investing in us.
We have incurred recurring consolidated net losses since our inception and expect our operating costs to continue to increase in future periods as we expend substantial financial and other resources on, among other things, business and headcount expansion in operations, sales and marketing, research and development, and administration as a public company. These expenditures may not result in additional revenues or the growth of our business. If we fail to grow revenues or to achieve profitability while our operating costs increase, our business, financial condition, results of operations and growth prospects will be materially, adversely affected.
We are expected to be subject to many of the risks common to early-stage enterprises for the foreseeable future, including challenges related to laws, regulations, licensing, integrating and retaining qualified employees; making effective use of limited resources; achieving market acceptance of existing and future products; competing against companies with greater financial and technical resources; acquiring and retaining customers; and developing new solutions; and challenges relating to identified material weaknesses in internal control.
We have a history of net losses, and we expect to continue to incur losses for the foreseeable future. If we ever achieve profitability, we may not be able to sustain it.
We have incurred losses from operations since our inception and expect to continue to incur losses from operations for the foreseeable future. We have incurred net losses of $398.2 million, including $282.2 million of goodwill impairment and $65.6 million of non-cash impairment loss on long-term assets, and $79.1 million for the twelve months ended December 31, 2023 and 2022, respectively. As a result of these losses, as of December 31, 2023, we had an accumulated deficit of $609.0 million. Despite the reduction in our general and administrative, sales and marketing, research and development expenses due to the implementation of the Realignment and Consolidation Plan, our net losses may fluctuate significantly from period to period. We will need to generate significant additional revenue in order to achieve and sustain profitability. Even if we achieve profitability, we cannot be sure that we will remain profitable for any substantial period of time.
We will need additional financing to execute our business plan and fund operations, which additional financing may not be available on reasonable terms or at all.
We will need to raise additional capital to expand the commercialization of our products, fund our operations and further our research and development activities. We will pursue sources of additional capital through various financing transactions or arrangements, including the sale/leaseback of certain properties, joint venturing of projects, debt financing, equity financing, or other means. We may not be successful in identifying suitable financing transactions in the time period required or at all, and we may not obtain the capital we require by other means.
In addition, any additional capital raised through the sale of equity may dilute the ownership percentage of our stockholders. Raising any such capital could also result in a decrease in the fair market value of our equity securities because our assets would be owned by a larger pool of outstanding equity. The terms of securities we issue in future capital transactions may be more favorable to our new investors, and may include preferences, superior voting rights and the issuance of other derivative securities, and issuance of incentive awards under equity employee incentive plans, which may have a further dilutive effect. As of March 20, 2024, our closing stock price is $1.97, with a market capitalization of $13.2 million. This situation notably constrains our ability to attractively raise funds through equity. The low share price and market cap may limit our appeal to investors and restrict our capacity to raise significant capital through the sale of equity without substantial dilution to our existing stockholders.
Further, we may incur substantial costs in pursuing future capital financing, including investment banking fees, legal fees, accounting fees, securities law compliance fees, printing and distribution expenses and other costs. We may also be required to recognize non-cash expenses in connection with certain securities we may issue, which may adversely impact our financial condition.
We do not have sufficient authorized shares of common stock available for issuance, which limits our ability to secure financing which may cause us to be unable to continue operations.
Since inception, our cash requirements have been met primarily from the proceeds derived from the sale of our securities. As of the date of this report, we have issued substantially all of our unreserved authorized shares of common stock. We are scheduled to hold a Special Meeting of Stockholders on April 15, 2024, to seek stockholder approval for an increase in our authorized shares of common stock. If the stockholders do not approve such proposal at the Special Meeting, we will not have sufficient shares of common stock authorized available and unreserved, which would adversely impact our ability to pursue opportunities in which shares of our common stock could be issued that our board may determine would otherwise be in the best interest of the Company and our stockholders, including financing and strategic transaction opportunities. Failure to obtain financing through the issuance of our securities, including our common stock, may cause us to be unable to continue our operations or execute our business plans.
We may need to raise funds through debt financing in the future, which may require a significant amount of cash to pay interest or repay principal, and we may not have sufficient cash flow from our business to pay our indebtedness.
We may choose to raise additional funds in debt financing if it is available to us on terms we believe reasonable to increase our working capital, strengthen our financial position or to make acquisitions. Our ability to refinance any future indebtedness will depend on the capital markets and our financial condition at such time. We may not be able to engage in any of these activities or engage in these activities on desirable terms, which could result in a default on our debt obligations. In addition, any of our future debt agreements may contain restrictive covenants that may prohibit us from adopting any of these alternatives. Our failure to comply with these covenants could result in an event of default which, if not cured or waived, could result in the acceleration of our debt. Our ability to make scheduled payments of principal of future debt, to pay interest on or to refinance our indebtedness, depends on our future performance, which is subject to economic, financial, competitive, and other factors beyond our control. Our business may not generate cash flow from operations in the future sufficient to service our debt and make necessary capital expenditures. If we are unable to generate such cash flow, we may be required to adopt one or more alternatives, such as selling assets, restructuring debt, or obtaining additional debt financing or equity capital on terms that may be onerous or highly dilutive.
In addition, future indebtedness, combined with our other financial obligations and contractual commitments, could have other important consequences. For example, it could:
•make us more vulnerable to adverse changes in general U.S. and worldwide economic, industry, and competitive conditions and adverse changes in government regulation;
•limit our flexibility in planning for, or reacting to, changes in our business and industry;
•place us at a disadvantage compared to our competitors who have less debt; and
•limit our ability to borrow additional amounts to fund acquisitions, for working capital, and for other general corporate purposes.
Any of these factors could harm our business, results of operations, and financial condition. In addition, if we incur additional indebtedness, the risks related to our business and its ability to service or repay its indebtedness would increase.
When we hired the employees involved with our Vlepsis business, we agreed to share 50% of the profits, if any, from our Vlepsis business with the Vlepsis employees, thus our investment in the Vlepsis business will take longer to recoup. This may materially impact our profits from the Vlepsis business and impact the rate of return on our investment in the Vlepsis business.
When we hired the Vlepsis team in March 2022, we adopted the Vlepsis Business Profit Sharing Plan whereby at March 29th from 2023 to 2029, we are to calculate the profits from the Vlepsis business and then share 50% of such profits, if any, with certain of the Vlepsis employees. We have not yet had any profits from this business, but if we ever do, then this obligation to share such profits will impact our return on investment in VLEPSIS® technology and require more time to recoup our expenses and show a return. This may materially impact our ability to show an overall profit for the Company or delay overall profitability of the Company, and your investment in the Company may be impacted.
Our operating results fluctuate significantly because of a number of factors, many of which are beyond our control.
Given the nature of the markets in which we participate, as well as macroeconomic uncertainties, we cannot reliably predict future revenues and profitability and unexpected changes may cause us to adjust our operations. Large portions of our costs are fixed, due in part to our significant sales, research and development and manufacturing costs. Thus, small declines in revenues could seriously negatively affect our operating results in any given quarter. Our operating results may fluctuate significantly from quarter-to-quarter and year-to-year. Some of the factors that may affect our quarterly and annual results are:
•changes in business and economic conditions, including a downturn in demand or decrease in the rate of growth in demand, whether in the global economy, a regional economy or the industries we address;
•changes in market conditions, potentially including changes in the credit markets, currency exchange rates, expectations for inflation or energy prices;
•the reduction, rescheduling or cancellation of orders by customers;
•fluctuations in timing and amount of customer orders;
•loss of key customers or employees;
•the availability of production capacity, whether internally or from external suppliers;
•competitive pressures on selling prices;
•strategic actions taken by our competitors;
•market acceptance of our products and the products of our customers;
•fluctuations in our manufacturing yields and significant yield losses;
•difficulties in forecasting demand for our products and the planning and managing of inventory levels;
•the availability of raw materials, supplies and manufacturing services from third parties;
•the amount and timing of investments in research and development;
•damage awards or injunctions as the result of litigation;
•changes in our product distribution channels and the timeliness of receipt of distributor resale information; and
•the impact of vacation schedules and holidays, largely during the second and third quarters of our fiscal year.
As a result of these factors, many of which are difficult to control or predict, we may experience materially adverse fluctuations in our future operating results on a quarterly or annual basis. Changes in demand for our products and in our customers’ needs could have a variety of negative effects on our competitive position and our financial results, and, in certain cases, may reduce our revenues, increase our costs, lower our gross margin percentage or require us to recognize impairments of our assets.
We currently rely on revenue from development services and most of our products are in the development stage. Any delay in the development or introduction of our new products could adversely affect our business, financial condition, results of operations, and cash flows.
Most of our revenues are currently derived from development activities. While we strive to develop innovative products available for commercial use, we have not yet achieved mass commercial production or generated substantial revenues from product sales. The success of our future products remains uncertain, and there is no guarantee that we will be able to bring any products to market that are accepted by our customers. As a result, our financial performance and ability to sustain operations may be materially impacted.
We may be unable to develop new products, applications, and end markets for our products.
Our future success will depend in part on our ability to generate sales of our products as well as generate development revenue. Current and potential customers may have substantial investment in, and know-how related to our technologies. Customers may be reluctant to change from incumbent suppliers or cease using their own solutions, or our products may miss the design and procurement cycles of our customers. Many target markets have historically been slow to adopt new technologies. These markets often require long testing and qualification periods or lengthy government approval processes before admitting new suppliers or adopting new technologies. The introduction of new products and product enhancements will require that we effectively transfer production processes from research and development to manufacturing and coordinate efforts with those suppliers to achieve increased production volume rapidly. If we are unable to implement this strategy to develop new applications and end markets for products or develop new products, the business, financial condition, results of operations and growth prospects could be materially adversely affected. In addition, any newly developed or enhanced products may not achieve market acceptance or may be rendered obsolete or less competitive by the introduction of new products by other companies.
For example, we are currently developing VLEPSIS® technology, a ground-breaking, multiple-gigapixel, turnkey wide area motion imagery system, which tracks and monitors hundreds of objects/locations simultaneously, in stunning detail and resolution. It is set to launch in fiscal 2024. If we are unable to deliver products that meet our customers’ expectations, our business, financial condition, results of operations, and cash flows will be adversely affected.
Our research and marketing development activities and investments may not result in profitable, commercially viable or successfully produced and marketed products.
Although we, ourselves and through our investments, are committed to researching and developing new markets and products and improving existing products, there can be no assurances that such research and market development activities will prove profitable or that the resulting markets and/or products, if any, will be commercially viable or successfully produced and marketed. A failure in the demand for products to materialize as a result of competition, technological change or other factors could have a material adverse effect on the business, results of operations and financial condition of the companies in which we have or will invest in, and consequently, on us.
Because our products typically have lengthy sales cycles, we may experience substantial delays between incurring expenses related to research and development and the generation of revenues.
The time from initiation of design to volume production of new products often takes 18 months or longer. We first work with customers to achieve a design win, which may take 12 months or longer. Our customers then complete the design, testing and evaluation process and begin to ramp up production, a period that may last an additional nine months or longer. As a result, a significant period of time may elapse between our research and development efforts and our realization of revenues, if any, from volume purchasing of our products by our customers.
We may experience delays in providing sufficient product for future testing of our products due to ongoing supply chain limitations.
Our contract manufacturing organizations may experience an inability to manufacture and produce sufficient quantities of our products as we progress through our regulatory testing and/or approval. Should this happen, we may not be able to provide sufficient quantities of our products, which could delay our ability to bring products to market. Such a delay would cause us to use more capital than currently planned, which may have a material adverse effect on our projected timing of product launches and financials.
Fluctuations in the mix of products sold may adversely affect our financial results.
Changes in the mix of types of products sold may have a substantial impact on our revenues and gross profit margins. In addition, more recently introduced products tend to have higher associated costs because of initial overall development costs and higher start-up costs. Fluctuations in the mix and types of our products may also affect the extent to which we are able to recover our fixed costs and investments that are associated with a particular product or wafer foundry, and, as a result, can negatively impact our financial results.
Variations in the amount of time it takes for us to sell our systems may cause fluctuations in our operating results, which could cause our stock price to decline.
Variations in the length of our sales cycles could cause our revenues and cash flows, and consequently, our business, financial condition, operating results and cash flows, to fluctuate widely from period to period. This variation could cause our stock price to decline. Our customers generally take a long time to evaluate our systems and many people are involved in the evaluation process. We expend significant resources educating and providing information to our prospective customers regarding the uses and benefits of our systems. The length of time it takes for us to make a sale depends upon many factors including, but not limited to:
•the efforts of our sales force premarketing clearance, approval, or certification;
•the complexity of the customer’s fabrication processes;
•the internal technical capabilities and sophistication of the customer; and
•the customer’s budgetary constraints.
Material weaknesses or significant deficiencies in our internal controls could materially and adversely affect our business, results of operations and financial condition.
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 effected by our management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external purposes in accordance with U.S. generally accepted accounting principles. As previously disclosed, our management, under the supervision and with the participation of our Chief Executive Officer, conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2022, and, based on this evaluation, concluded that internal control over financial reporting was not effective as of December 31, 2022, due to material weaknesses in internal control over financial reporting. As of December 31, 2023, such material weaknesses had not yet been fully remediated.
Remediation efforts place a significant burden on our management and add increased pressure on our financial reporting resources and processes (see “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 9A of this Annual Report for more information regarding such remediation efforts). If we are unable to successfully remediate these material
weaknesses in a timely manner, or if any additional material weaknesses in our internal control over disclosure or financial reporting are identified, the accuracy of our financial reporting and our ability to timely file with the SEC may be adversely impacted. In addition, if our remedial efforts are insufficient, or if additional material weaknesses or significant deficiencies in our internal controls occur in the future, we could be required to restate our financial statements, which could materially and adversely affect our business, results of operations and financial condition, restrict our ability to access the capital markets, require us to expend significant resources to correct the material weaknesses or deficiencies, subject us to regulatory investigations and penalties, harm our reputation, and cause a decline in investor confidence or otherwise cause a decline in our stock price.
If we are unable to maintain effective disclosure controls and procedures, our business, financial position and results of operations could be adversely affected.
We are subject to the periodic reporting requirements of the Exchange Act. We designed our disclosure controls and procedures to reasonably assure that information we must disclose in reports we file or submit under the Exchange Act is accumulated and communicated to management, and recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC. Our management has concluded that a material weakness in our internal control over financial reporting exists at December 31, 2022. Management has further concluded that this material weakness resulted in our disclosure controls and procedures not being effective as of December 31, 2022. We concluded that such material weakness had not been fully remediated as of December 31, 2023. Please see Item 4 of Part I, Controls and Procedures, for more information about the material weakness that we identified.
Impairment of our goodwill, other intangible assets and other long-term assets could materially and adversely affect our business and operating results.
During the three months ended June 30, 2023, we determined that a triggering event occurred as a result of a sustained decline in our market capitalization; therefore, we performed an interim impairment test for our reporting unit. As a result of the interim impairment testing, we recognized goodwill impairment charges of $282.2 million in the three months ended June 30, 2023. Following our impairment analysis of other intangible assets and long-term assets for the fourth quarter ended December 31, 2023, we identified indicators of impairment for certain asset groups. Consequently, we recognized an impairment loss of $65.6 million on long-term assets based on the results of this impairment testing.
Adverse events or changes in circumstances may affect the estimated undiscounted future operating cash flows expected to be derived from our intangible assets and other long-term assets; therefore, we may be required to recognize additional impairment charges. Any impairment charges could have a material adverse effect on our operating results and net asset value in the quarter in which we recognize the impairment charge. We cannot provide assurances that we will not in the future be required to recognize impairment charges. Please see Item 7 of Part II, Management’s Discussion and Analysis of Financial Condition and Results of Operation – Goodwill, of this Annual Report, Note 9, Intangible Assets and Goodwill, and Note 24, Realignment and Consolidation Plan, in the notes to the Consolidated Financial Statements in Part II, Item 8 of this Annual Report for more information.
Our revenues and financial stability are highly dependent on securing and maintaining OEM customers and system integrators and achieving design wins in an evolving market.
Our revenues depend on our ability to maintain and secure new OEM customers and system integrators, crucial for incorporating our products into their systems. The successful integration and sales of these systems are essential for our financial outcomes. Challenges such as limited marketing resources, reluctance in research and development investment by these partners, and the development of competitive products by our OEM customers and others could adversely affect demand for our products, impacting our revenues and financial performance. Additionally, our financial success is intertwined with our products being designed into our customers’ products at the design stage. The commercial success of these designs, the possibility of customers manufacturing these designs in significant quantities, and the risk of our products being replaced in future redesigns or by competitors’ components underscore the precarious nature of our revenue streams. The dynamic nature of product development and design competitions presents further uncertainties, with new generations of customer products not necessarily resulting in design wins for us, which could lead to reduced revenues and profitability. The combined effect of these factors underscores the critical importance of our relationship with OEM customers and system integrators in securing design wins and achieving commercial success, which are pivotal for our sustained revenue growth and financial stability.
Our revenues may be concentrated in a few customers, and if we lose any of these customers, or if these customers do not pay us, our revenues could be materially adversely affected.
We rely on a few customers for a significant portion of our revenues. For the year ended December 31, 2023, revenue from two customers, each of which individually represented more than 10% of the total revenue, accounted for $6.8 million or 85.1% of total revenue.
We currently derive a significant portion of our revenue from contract services with a G10 central bank. Although we are developing a new security feature under a framework contract with this customer, there can be no assurance that this project will be successful, or that it will result in long-term production revenue for this security feature.
The markets in which we participate are intensely competitive.
Many of our target markets are intensely competitive. Our ability to compete successfully in our target markets depends on the following factors:
•proper new product definition;
•product quality, reliability and performance;
•timely delivery of products;
•technical support and service;
•design and introduction of new products;
•anticipating evolving customer and market needs;
•market acceptance of our products and those of our customers; and
•breadth of product line.
In addition, our competitors or customers may offer new products based on new technologies, industry standards, and end-user or customer requirements, including products that have the potential to replace our products or provide lower-cost or higher-performance alternatives to our products. The introduction of new products by our competitors or customers could render our existing and future products obsolete or unmarketable.
If we are unable to make acquisitions, or successfully integrate them into our business, our results of operations and financial condition could be adversely affected.
We have completed a number of acquisitions during our operating history. We have spent and may continue to spend significant resources identifying and pursuing future acquisition opportunities. Acquisitions involve numerous risks including:
•difficulties in integrating the operations, technologies and products of the acquired companies;
•the diversion of management’s attention from other business concerns;
•the potential loss of key employees of the acquired companies;
•disruption of our ongoing business;
•the potential strain on our financial and managerial controls and reporting systems and procedures;
•unanticipated expenses and potential delays related to integration of an acquired business;
•the risk that we will be unable to develop or exploit acquired technologies;
•the challenges in achieving strategic objectives, cost savings and other benefits from acquisitions;
•the risk that our markets do not evolve as anticipated and that the technologies acquired do not prove to be those needed to be successful in those markets;
•the risks of entering new markets in which we have limited experience;
•difficulties in expanding our information technology systems or integrating disparate information technology systems to accommodate the acquired businesses;
•the challenges inherent in managing an increased number of employees and facilities and the need to implement appropriate policies, benefits and compliance programs;
•customer dissatisfaction or performance problems with an acquired company’s products or personnel or with altered sales terms or a changed distribution channel;
•adverse effects on our relationships with suppliers;
•the reduction in financial stability associated with the incurrence of debt or the use of a substantial portion of our available cash;
•the costs associated with acquisitions, including amortization expenses related to intangible assets, and the integration of acquired operations;
•assumption of known or unknown liabilities or other unanticipated events or circumstances; and
•failure or fraud in pre-acquisition due diligence.
We cannot assure that we will be able to successfully acquire other businesses or product lines or integrate them into our operations without substantial expense, delay in implementation or other operational or financial problems. Failure to achieve the anticipated benefits of any prior and future acquisitions or to successfully integrate the operations of the acquired companies could have a material and adverse effect on our business, financial condition, and results of operations. Any future acquisitions could also result in potentially dilutive issuance of equity securities, acquisition or divestiture-related write-offs or the assumption of debt and contingent liabilities.
As a result of an acquisition, our financial results may differ from the investment community’s expectations in a given quarter. Further, if one or more of the foregoing risks materialize or market conditions or other factors lead us to change our strategic direction, we may not realize the expected value from such transactions. If we do not realize the expected benefits or synergies of such transactions, our consolidated financial position, results of operations, cash flows or stock price could be negatively impacted.
Semiconductors included as components in consumer products have shorter product life cycles than other types of products sold by our customers.
We believe that semiconductor components are subject to shorter product life cycles, because of technological change, consumer preferences, trendiness and other factors, than other types of products sold by our customers. Shorter product life cycles result in more frequent design competitions for the inclusion of semiconductors in next-generation consumer products, which may not result in design wins for us. Shorter product life cycles may lead to more frequent circumstances where sales of our existing products are reduced or ended.
We may not be able to increase production capacity to meet the present and future demand for our products.
The semiconductor industry has been characterized by periodic limitations on production capacity. These limitations may result in longer lead times for product delivery than desired by many of our customers. If we are unable to increase our production capacity to meet future demand, some of our customers may seek other sources of supply, our future growth may be limited, or our results of operations may be adversely affected.
Our gross margin is dependent on a number of factors, including our level of capacity utilization.
Semiconductor manufacturing requires significant capital investment, leading to high fixed costs, including depreciation expense. We are limited in our ability to reduce fixed costs quickly in response to any shortfall in revenues. If we are unable to utilize our manufacturing, assembly and testing facilities at a high level, the fixed costs associated with these facilities will not be fully absorbed, resulting in lower gross margins. Increased competition and other factors may lead to price erosion, lower revenues and lower gross margins for us in the future.
Our success depends on our ability to manufacture our products efficiently.
We manufacture our products in facilities that are owned and operated by us, as well as in external wafer foundries and subcontract assembly facilities. For various reasons, such as contamination in the manufacturing environment, defects in the masks used in the facilities and manufacturing equipment failures, we could experience a decrease in manufacturing yields. Additionally, if we increase our manufacturing output, the additional demands placed on existing equipment and personnel, or the addition of new equipment or personnel may lead to a decrease in manufacturing yields. As a result, we may not be able to cost-effectively expand our production capacity in a timely manner.
Increasing raw material prices could impact our profitability.
From time to time, we have experienced price increases for many raw materials. If we are unable to pass price increases for raw materials onto our customers, our gross margins and profitability could be adversely affected.
We rely on our distributors and sales representatives to sell some of our products.
Our distributors and sales representatives could reduce or discontinue sales of our products. They may not devote the resources necessary to sell our products in the volumes and within the time frames that we expect. In addition, we depend upon the continued viability and financial resources of these distributors and sales representatives, some of which are small organizations with limited working capital. These distributors and sales representatives, in turn, depend substantially on general economic conditions and conditions within the semiconductor industry. We believe that our success will continue to depend upon these distributors and sales representatives. Foreign distributors are typically granted longer payment terms, resulting in higher accounts receivable balances for a given level of sales than domestic distributors. Our risk of loss from the financial insolvency of distributors is, therefore, disproportionally weighted to foreign distributors. If any significant distributor or sales representative experiences financial difficulties, or otherwise becomes unable or unwilling to promote and sell our products, our business could be harmed.
Costs related to product defects and errata may harm our results of operations and business.
Costs associated with unexpected product defects and errata (deviations from published specifications) due to, for example, unanticipated problems in our manufacturing processes, include the costs of:
•writing off the value of inventory of defective products;
•disposing of defective products;
•recalling defective products that have been shipped to customers;
•providing product replacements for, or modifications to, defective products; and/or
•defending against litigation related to defective products.
These costs could be substantial and may, therefore, increase our expenses and lower our gross margin. In addition, our reputation with our customers or users of our products could be damaged as a result of such product defects and errata, and the demand for our products could be reduced. These factors could harm our financial results and the prospects for our business.
We order materials and commence production in advance of anticipated customer demand. Therefore, revenue shortfalls may also result in inventory write-downs.
We typically plan our production and inventory levels based on our expectations for customer demand. Actual customer demand, however, can be highly unpredictable and can fluctuate significantly. In response to anticipated long lead times to obtain inventory and materials, we order materials and production in advance of customer demand. This advance ordering and production may result in excess inventory levels or unanticipated inventory write-downs if expected orders fail to materialize.
Our international operations expose us to material risks.
For the years ended December 31, 2023 and 2022, we maintain significant business operations outside of the United States, especially in Canada. Some of the risks inherent in doing business internationally are:
•foreign currency fluctuations, particularly in the Canadian Dollar;
•challenges in collecting accounts receivable;
•changes in the laws, regulations or policies of the countries in which we manufacture or sell our products;
•trade restrictions, tariffs, customs, sanctions, embargoes and other barriers to importing/exporting materials and products in a cost-effective and timely manner, or changes in applicable tariffs or customs rules;
•cultural and language differences;
•limited infrastructure in emerging markets;
•labor and union disputes;
•terrorist attack or war; and
•economic or political instability.
Our financial performance is dependent on economic stability and credit availability in international markets. Actions by governments to address deficits or sovereign or bank debt issues, particularly in Europe, could adversely affect gross domestic product or currency exchange rates in countries where we operate, which in turn could adversely affect our financial results. If our customers or suppliers are unable to obtain the credit necessary to fund their operations, we could experience increased bad debts, reduced product orders and interruptions in supplier deliveries leading to delays or stoppages in our production. Alternatively, governmental actions in China or other emerging markets to address economic problems, such as inflation, asset or other “bubbles” or the transfer of capital out of the country, could also adversely affect gross domestic product or the growth thereof and result in reduced product orders or increased bad debt expense for us. In addition, the laws and courts of certain foreign countries may not protect our products or intellectual property
rights to the same extent as do U.S. laws and courts. Therefore, the risk of piracy of our technology and products may be greater when we manufacture or sell our products in certain foreign countries.
Business interruptions may damage our facilities or those of our suppliers.
Our operations and those of our suppliers are vulnerable to interruption by fire, earthquake, flood and other natural disasters, as well as power loss, telecommunications failure and other events beyond our control. We do not have a detailed disaster recovery plan and our backup power sources have only a limited amount of time for the support of critical systems. Some of our facilities are located near major earthquake fault lines and have experienced earthquakes in the past. If a natural disaster occurs, our ability to conduct our operations could be seriously impaired, which could harm our business, financial condition and results of operations and cash flows. We cannot be sure that the insurance we maintain against general business interruptions will be adequate to cover all our losses.
We are exposed to risks that our employees, consultants, or other commercial partners and business associates may engage in misconduct or other improper activities, including non-compliance with regulatory standards and requirements.
We are exposed to the risk that our employees, consultants, and other commercial partners and business associates may engage in fraudulent or illegal activity. Misconduct by these parties could include intentional, reckless, or negligent conduct or other unauthorized activities that violate various regulations (both domestic and foreign), including those laws requiring the reporting of true, complete, and accurate information to such regulators, manufacturing standards, healthcare fraud and abuse laws, and regulations in the United States and internationally or laws that require the true, complete, and accurate reporting of financial information or data. In particular, sales, marketing, and business arrangements are subject to extensive laws and regulations intended to prevent fraud, misconduct, kickbacks, self-dealing, and other abusive practices. These laws and regulations may restrict or prohibit a wide range of pricing, discounting, marketing and promotion, sales commission, customer incentive programs, and other business arrangements. It is not always possible to identify and deter misconduct by our employees, consultants, and other third parties, and the precautions we take to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses or in protecting us from governmental investigations or other actions or lawsuits stemming from a failure to comply with these laws or regulations. If any such actions are instituted against us and we are not successful in defending ourselves or asserting our rights, those actions could result in the imposition of significant fines or other sanctions, including the imposition of civil, criminal, and administrative penalties, damages, monetary fines, possible exclusion from participation in Medicare, Medicaid, and other federal healthcare programs, contractual damages, reputational harm, diminished profits and future earnings, and curtailment of operations, any of which could adversely affect our business, financial condition and results of operations. Whether or not we are successful in defending against such actions or investigations, we could incur substantial costs, including legal fees and reputational harm, and divert the attention of management in defending ourselves against any of these claims or investigations.
Compliance with environmental laws and regulations could be expensive, and failure to comply with these laws and regulations could subject us to significant liability.
Our research and development and manufacturing operations involve the use of some hazardous substances and are subject to a variety of federal, state, local, and foreign environmental laws and regulations relating to the storage, use, discharge, disposal, remediation of, and human exposure to, hazardous substances and the sale, labeling, collection, recycling, treatment, and disposal of products containing hazardous substances. Liability under environmental laws and regulations can be joint and several and without regard to fault or negligence. Compliance with environmental laws and regulations may be expensive and noncompliance could result in substantial liabilities, fines and penalties, personal injury and third-party property damage claims and substantial investigation and remediation costs. Environmental laws and regulations could become more stringent over time, imposing greater compliance costs, and increasing risks and penalties associated with violations. We cannot assure you that violations of these laws and regulations will not occur in the future or have not occurred in the past as a result of human error, accidents, equipment failure or other causes. The expense associated with environmental regulation and remediation could harm our financial condition and operating results.
The risk of loss of our intellectual property, trade secrets or other sensitive business or customer confidential information or disruption of operations due to cyberattacks or data breaches could negatively impact our financial results.
Cyberattacks or data breaches could compromise confidential, business-critical information, cause disruptions in our operations, expose us to potential litigation, or harm our reputation. We have important assets, including intellectual property, trade secrets, and other sensitive, business-critical and/or confidential information which may be vulnerable to such incidents. While we are in the process of implementing a cybersecurity program that is continually reviewed, maintained, and upgraded, no assurance can be made that we are invulnerable to cyberattacks and data breaches which, if significant, could negatively impact our business and financial results.
Cybersecurity breaches and information technology failures could harm our business by increasing our costs and negatively impacting our business operations.
We rely extensively on information technology systems, including internet sites, computer software, data hosting facilities and other hardware and platforms, some of which are hosted by third parties, to assist in conducting our business. Our information technology systems, as well as those of third parties we use in our business operations, may be vulnerable to a variety of evolving cybersecurity risks, such as those involving unauthorized access or control, malicious software, data privacy breaches by employees or others with
authorized access, cyber or phishing-attacks, ransomware and other security issues. Moreover, cybersecurity threat actors, whether internal or external, are becoming more sophisticated and coordinated in their attempts to access companies’ information technology systems and data, including the information technology systems of cloud providers and other third parties with whom we conduct our business.
The costs to us to eliminate or alleviate cyber or other security problems, bugs, viruses, worms, malicious software programs and security vulnerabilities could be significant, and our efforts to address these problems may not be successful and could result in interruptions, delays, cessation of service and loss of existing or potential customers that may impede our sales, manufacturing, distribution or other critical functions.
We manage and store proprietary information and sensitive or confidential data relating to our business and the businesses of third parties. Breaches of our security measures or the accidental loss, inadvertent disclosure or unapproved dissemination of proprietary information or sensitive or confidential data about us or our partners or customers, including the potential loss or disclosure of such information or data as a result of fraud, trickery or other forms of deception, could expose us, our partners and customers to a risk of loss or misuse of this information; result in regulatory investigations, fines, litigation and potential liability for us; damage our brand and reputation; or otherwise harm our business. In addition, the cost and operational consequences of implementing further data protection measures could be significant. Delayed sales, lower margins or lost customers resulting from these disruptions could adversely affect our financial results, stock price and reputation.
Changes in laws or regulations relating to privacy, information security and data protection, or any actual or perceived failure by us to comply with such laws and regulations or any other obligations, could adversely affect our business.
Personal privacy, information security and data protection are significant issues worldwide. The regulatory framework governing the collection, use, and other processing of personal data and other information is rapidly evolving. The United States federal and various state and foreign governments have adopted or proposed requirements regarding the collection, distribution, use, security and storage of personally identifiable information and other data relating to individuals, and federal and state consumer protection laws are being applied to enforce regulations related to the online collection, use and dissemination of data.
The costs of compliance with and other burdens imposed by laws, regulations, standards and other actual or asserted obligations relating to privacy, data protection and information security may be substantial, and they may require us to modify our data processing practices and policies. Any actual or alleged noncompliance with any of these laws, regulations, standards, and other actual or asserted obligations may lead to claims and proceedings by governmental actors and private parties, and significant fines, penalties or liabilities.
Changes in laws, regulations or guidelines relating to our business plan and activities could adversely affect our business.
Our current and proposed operations are subject to a variety of laws, regulations and guidelines relating to production, the conduct of operations, transportation, storage, health and safety and the protection of the environment. These laws and regulations are broad in scope and subject to evolving interpretations, which could require us to incur substantial costs associated with compliance or alter certain aspects of our business plan. In addition, violations of these laws, or allegations of such violations, could disrupt certain aspects of our business plan and result in a material adverse effect on certain aspects of our planned operations.
As an example, we launched a new product, metaAIR® in March 2019 to provide laser glare protection to pilots in the airline industry. Currently, metaAIR® is not subject to any Federal Aviation Administration regulations. However, metaAIR® has yet to receive FDA approval/clearance and could become subject to evolving regulation by governmental authorities as the metaAIR® market evolves further.
Our agreements with various national governments and suppliers to such governments subject us to unique risks.
We must comply with, and are affected by, laws and regulations relating to the award, administration, and performance of various national government contracts. Awards received from such governments may be canceled or lose funding. Such government contracting parties may require us to increase or decrease production of certain products sold to such governments due to changes in strategy, priorities or other reasons, which could impact production of other products or sales to other customers to meet the requirements of such governments. In addition, such governments routinely retain rights to intellectual property developed in connection with government contracts. Such governments could exercise these rights in certain circumstances in the future, which could have the effect of decreasing the benefit we are able to realize commercially from such intellectual property.
National government agencies routinely audit and investigate government contractors and can decrease or withhold certain payments when they deem systems subject to their review to be inadequate. Additionally, any costs found to be misclassified may be subject to repayment. If an audit or investigation uncovers improper or illegal activities, we may be subject to civil or criminal penalties and administrative sanctions, including reductions of the value of contracts, contract modifications or terminations, forfeiture of profits, suspension of payments, penalties, fines and suspension, or prohibition from doing business with such governments. In addition, we could suffer serious reputational harm if allegations of impropriety were made against it. Any such imposition of penalties, or the loss of such government contracts, could materially adversely affect our business, financial condition, results of operations and growth prospects.
We are subject to the Foreign Corrupt Practices Act and similar anti-bribery and anti-corruption laws, as well as governmental export and import controls, all of which could subject us to liability or impair our ability to compete in international markets.
Our business activities may be subject to the U.S. Foreign Corrupt Practices Act (the "FCPA"), and similar anti-bribery or anti-corruption laws, regulations or rules of other countries in which we operate. These laws generally prohibit companies and their employees and third-party business partners, representatives and agents from engaging in corruption and bribery, including offering, promising, giving or authorizing the provision of anything of value, either directly or indirectly, to a government official or commercial party in order to influence official action, direct business to any person, gain any improper advantage, or obtain or retain business. The FCPA also requires public companies to make and keep books and records that accurately and fairly reflect the transactions of the corporation and to devise and maintain an adequate system of internal accounting controls. Our business is heavily regulated and therefore involves significant interaction with government officials, including potentially officials of non-U.S. governments.
In addition to our own employees, we may in the future leverage third parties to conduct our business abroad, such as obtaining government licenses and approvals. We and our third-party business partners, representatives and agents may have direct or indirect interactions with officials and employees of government agencies, state-owned or affiliated entities and we may be held liable for the corrupt or other illegal activities of our employees, our third-party business partners, representatives and agents, even if we do not explicitly authorize such activities. There is no certainty that our employees or the employees of our third-party business partners, representatives and agents will comply with all applicable laws and regulations, particularly given the high level of complexity of these laws. Violations of these laws and regulations could result in whistleblower complaints, adverse media coverage, investigations, loss of export privileges, debarment from U.S. government contracts, substantial diversion of management’s attention, significant legal fees and fines, severe criminal or civil sanctions against us, our officers, or our employees, disgorgement and other sanctions and remedial measures, and prohibitions on the conduct of our business. Any such violations could include prohibitions on our ability to offer our products in one or more countries and could materially damage our reputation, our brand, our international expansion efforts, our ability to attract and retain employees, and our business, prospects, operating results, financial condition and stock price.
The U.S. and various foreign governments have imposed controls, export license requirements and restrictions on the import or export of certain products, technologies, and software. We must export our products in compliance with U.S. export controls and we may not always be successful in obtaining necessary export licenses. Our failure to obtain the required import or export approval for our products or limitations on our ability to export or sell our products imposed by these laws may harm our international and domestic revenues. Noncompliance with these laws could have negative consequences, including government investigations, penalties and reputational harm.
Changes in our products or changes in export, import and economic sanctions laws and regulations may delay our introduction of new products in international markets, prevent our customers from deploying our products internationally or, in some cases, prevent the export or import of our products to or from certain countries altogether. In addition to the tariffs imposed by the U.S. Government on certain items imported from China, it is possible that additional sanctions or restrictions may be imposed by the United States on items imported into the United States from China. Similarly, in addition to the tariffs imposed by China on certain items imported from the United States, it is possible that additional sanctions or restrictions may be imposed by China on items imported into China from the United States. Any such measures could further adversely affect our ability to sell our products to existing or potential customers and harm our ability to compete internationally and grow our business. In addition, generally, tariffs may materially increase the cost of our raw materials and finished goods, may negatively impact our margins as we may not be able to pass on the additional cost through increasing the prices of our products, and may cause the contraction of certain industries, including the Industrial market. Any change in export or import regulations or legislation, shift or change in enforcement, or change in the countries, persons or technologies targeted by these regulations, could result in decreased use of our products by, or in our decreased ability to export or sell our products to, existing or potential customers with international operations. In such an event, our business, financial condition, results of operations and growth prospects could be materially adversely affected.
Our insurance coverage strategy and programs may not be adequate to cover all risks and resulting liabilities to which we may be subjected.
We will require insurance coverage for numerous risks related to our business, including our current and future litigations. Although our management believes that the events and amounts of liability covered by our insurance policies are reasonable, taking into account the risks relevant to our business, and the fact that agreements with users contain limitations of liability, there can be no assurance that such coverage will be available or sufficient to cover claims to which we may become subject. If insurance coverage is unavailable or insufficient to cover any such claims, our financial resources, results of operations and prospects could be adversely affected. For example, in connection to the aforementioned SEC investigation, we have submitted a settlement offer to the SEC that we will pay a civil money penalty in an amount of $1.0 million in four (4) installments over the period of one (1) year. However, we cannot predict whether or when the Proposed SEC Settlement will be approved, and a possible monetary penalty may exceed the insured limit which will adversely affect our financial condition and cash flows.
We are subject to taxation-related risks in multiple jurisdictions, and the adoption and interpretation of new tax legislation, tax regulations, tax rulings, or exposure to additional tax liabilities could materially affect our business, financial condition and results of operations.
We are a U.S. parented multinational group subject to income and other taxes in Canada, the United States, the United Kingdom, and other jurisdictions in which we do business. As a result, our provision for (benefit from) income taxes is derived from a combination of applicable tax rates in the various jurisdictions in which we operate. Significant judgment is required in determining our global provision for (benefit from) income taxes, value added and other similar taxes, deferred tax assets or liabilities and in evaluating our tax positions on a worldwide basis. It is possible that our tax positions may be challenged by tax authorities, which may have a significant impact on our global provision for (benefit from) income taxes. If such a challenge were to be resolved in a manner adverse to us, it could have a material adverse effect on our business, financial condition and results of operations.
Recent or future changes to United States, Canadian, United Kingdom and other non-U.S. tax laws could impact the tax treatment of our earnings. For example, the Inflation Reduction Act of 2022, enacted on August 16, 2022, imposes a one-percent non-deductible excise tax on repurchases of stock that are made by U.S. publicly traded corporations on or after January 1, 2023. In addition, as of January 1, 2022, the Tax Cuts and Jobs Act of 2017 requires research and experimental expenditures attributable to research conducted within the United States to be capitalized and amortized ratably over a five-year period. Any such expenditures attributable to research conducted outside the United States must be capitalized and amortized over a 15-year period. We generally conduct our international operations through wholly owned subsidiaries and report our taxable income in various jurisdictions worldwide based upon our business operations in those jurisdictions. The intercompany relationships between our legal entities are subject to complex transfer pricing regulations administered by taxing authorities in various jurisdictions. Although we believe we are compliant with applicable transfer pricing and other tax laws in the United States, Canada, the United Kingdom and other relevant countries, due to changes in such laws and rules, we may have to modify our international structure in the future, which will incur costs and may adversely affect our business, financial condition and results of operations.
If U.S., Canadian, United Kingdom or other non-U.S. tax laws change further, if our current or future structures and arrangements are challenged by a taxing authority, or if we are unable to appropriately adapt the manner in which we operate our business, we may have to undertake further costly modifications to our international structure, which may cause our tax liabilities to increase and adversely affect our business, financial condition and results of operations.
Our ability to use our deferred tax assets to offset future taxable income is subject to certain limitations, which may have a material impact on our business, financial condition or results of operations.
As of December 31, 2023, a valuation allowance has been recorded against our deferred tax assets that are more likely than not to be realized in the U.S. federal and state tax jurisdictions. We assess the available positive and negative evidence to estimate if sufficient future taxable income will be generated to utilize the existing deferred tax assets. Certain of our deferred tax assets may expire unutilized or underutilized, which could prevent us from offsetting future taxable income. We continue to assess the realizability of our deferred tax assets in the future. Future adjustments in our valuation allowance may be required, which may have a material impact on our quarterly and annual operating results.
Risks Related to Intellectual Property
If we fail to protect and enforce our intellectual property rights and our confidential information, our business could be adversely affected.
We rely on a combination of nondisclosure agreements and other contractual provisions and patent, trade secret and copyright laws to protect our technologies, products, product development and manufacturing activities from unauthorized use by third parties. Our patents do not cover all of our technologies, systems, products and product components and our competitors or others may design around our patented technologies. We cannot guarantee that these mechanisms will adequately protect our technology and intellectual property, nor can we guarantee that a court will enforce our intellectual property rights.
In addition, the laws and enforcement regimes of certain countries do not protect our technology and intellectual property to the same extent as do the laws and enforcement regimes of the U.S. In certain jurisdictions, we may be unable to protect our technology and intellectual property adequately against unauthorized use, which could adversely affect our business.
Our intellectual property revenues are uncertain and unpredictable in timing and amount.
We are unable to discern a pattern in or otherwise predict the amount of any payments for the sale or licensing of intellectual property that we may receive. Consequently, we are unable to plan on the timing of intellectual property revenues and our results of operations may be adversely affected by a reduction in future estimated intellectual property revenues.
We may become involved in material legal proceedings in the future to enforce or protect our intellectual property rights, which could harm our business.
From time to time, we may identify products that we believe infringe on our patents and may have to initiate litigation to enforce our patent rights against those products. Litigation stemming from such disputes could harm our ability to gain new customers, who may postpone licensing decisions pending the outcome of the litigation or who may, as a result of such litigation, choose not to adopt our technologies. Such litigation may also harm our business relationships with existing customers, who may, because of such litigation, cease making royalty or other payments to us or challenge the validity and enforceability of our patents or the scope of our related agreements.
In addition, the costs associated with legal proceedings are typically high, relatively unpredictable and not completely within our control. These costs may be materially higher than expected, which could adversely impair our working capital, affect our operating results and lead to volatility in the price of our common stock. Whether or not determined in our favor or ultimately settled, litigation would divert managerial, technical, legal and financial resources from our business operations. Furthermore, an adverse decision in any of these legal actions could result in a loss of our proprietary rights, subject us to significant liabilities, require us to seek licenses from others, limit the value of our technology or otherwise negatively impact the price of our common stock, business and financial position, results of operations and cash flows.
Even if we prevail in a legal action, significant contingencies may exist to the settlement and final resolution, including the scope of the liability of each party, our ability to enforce judgments against the parties, the ability and willingness of the parties to make any payments owed or agreed upon, and the dismissal of the legal action by the relevant court, none of which are completely within our control. Parties that may have financial obligations to us could be insolvent or decide to alter their business activities or corporate structure, which could affect our ability to collect royalties from such parties.
Our technologies may infringe on the intellectual property rights of others, which could lead to costly disputes or disruptions.
Various business segments in which we operate are characterized by frequent allegations of intellectual property infringement. Any allegation of infringement could be time consuming and expensive to defend or resolve, result in substantial diversion of management resources, cause suspension of operations or force us to enter into royalty, license, or other agreements rather than dispute the merits of such allegation. Furthermore, third parties making such claims may be able to obtain injunctive or other equitable relief that could block our ability to further develop or commercialize some or all of our technologies, and the ability of our customers to develop or commercialize their products incorporating our technologies, in the U.S. and abroad. If patent holders or other holders of intellectual property initiate legal proceedings, we may be forced into protracted and costly litigation. We may not be successful in defending such litigation and may not be able to procure any required royalty or license agreements on acceptable terms or at all.
Risk Related to Industry Adoption of Our Products
We cannot provide assurance that markets will accept our various products at the expected market penetration rates, which may adversely affect our business operations and financial position.
We launched our first product, a laser glare protection eyewear named metaAIR®, in March 2019, with a primary focus on the aviation market. We co-developed this product with Airbus through a strategic partnership. Airbus further extended its support by introducing us to Satair, an Airbus-owned company, which became the global distribution partner for metaAIR® to the aviation market. Since 2016, Airbus and Satair have invested a total of $2,000,000 for the product development and exclusive distribution rights to metaAIR®.
Nevertheless, there can be no assurance that the aviation market will accept the metaAIR® product at the expected market penetration rates and a slower than forecasted market acceptance may have a material adverse effect on the demand for our Holography laser glare protection related products and our financial position.
Slower than forecasted market acceptance of Lithography related products, partially in the automotive market, may have a material adverse effect on our financial position.
Our NANOWEB® applications have not yet reached the required manufacturing scale to enable us to address the volume demands of a number of our target vertical markets. We currently have only our first pilot scale, 300mm wide, roll-to-roll line, and we will need to add additional capacity and wider substrates to support our target applications. Broader sales and production are expected to be launched in two to three years’ time after successful completion of automotive and other vertical market product qualifications and product introductions. We believe that the automotive market is a strategic high growth opportunity; however, despite our close collaboration with automotive partners, there can be no assurance that the automotive market will accept the NANOWEB® product at the expected market penetration rates and a slower than forecasted market acceptance may have a material adverse effect on Lithography de-icing/de-fogging, transparent antenna and other related products and our financial position.
If products incorporating our technologies are used in defective products, we may be subject to product liability or other claims.
If our technology is used in defective or malfunctioning products, we could be sued for damages, especially if the defect or malfunction causes physical harm to people. While we will endeavor to carry product liability insurance, contractually limit our liability and obtain
indemnities from our customers, there can be no assurance that we will be able to obtain insurance at satisfactory rates or in adequate amounts or that any insurance and customer indemnities will be adequate to defend against or satisfy any claims made against us. The costs associated with legal proceedings are typically high, relatively unpredictable and not completely within our control. Even if we consider any such claim to be without merit, significant contingencies may exist, similar to those summarized in the above risk factor concerning intellectual property litigation, which could lead us to settle the claim rather than incur the cost of defense and the possibility of an adverse judgment. Product liability claims in the future, regardless of their ultimate outcome, could have a material adverse effect on our business, financial condition and reputation, and on our ability to attract and retain customers.
We participate in markets that are subject to rapid technological change and require significant research and development expenses to develop and maintain products that can achieve market acceptance.
The markets for our products are characterized by:
•changing customer needs;
•frequent new product introductions and enhancements;
•increased integration with other functions; and
We operate in a rapidly evolving industry subject to significant technological change and new product introductions and enhancements. Our future performance depends in part on the successful development, introduction and market acceptance of new and enhanced products that anticipate and address these changes and current and potential customer requirements. To the extent customers defer or cancel orders for existing products due to a slowdown in demand or in the expectation of a new product release, or if there is any delay in development or introduction of our new products or enhancements of our products, our business and financial conditions, results of operations, and growth prospects would be materially adversely affected. We also may not be able to develop the underlying core technologies necessary to create new products and enhancements, or to license these technologies from third parties.
Risks Related to Facilities and Human Resources
We may incur claims relating to our use, manufacture, handling, storage or disposal of hazardous materials.
Our research and development and manufacturing processes require the transportation, storage and use of hazardous materials, including chemicals, and may result in the generation of hazardous waste. National and local laws and regulations in many of the jurisdictions in which we operate impose substantial potential liability for the improper use, manufacture, handling, storage, transportation and disposal of hazardous materials as well as for land contamination, and, in some cases, this liability may continue over long periods of time. Despite our compliance efforts, we cannot eliminate the risk of industrial accidents that may lead to discharges or releases of hazardous materials and any resultant injury, property damage or environmental contamination from these materials. For example, real properties that we owned or used in the past or that we own or use now or in the future may contain detected or undetected contamination resulting from our operations at those sites or the activities of prior owners or occupants. We may suffer from expenses, claims or liability which may fall outside of or exceed our insurance coverage.
Furthermore, changes to current environmental laws and regulations may impose further compliance requirements on us that may impair our research, development and production efforts as well as our other business activities. New and evolving regulatory requirements include producer responsibility frameworks and regulations related to addressing climate change or other emerging environmental areas. Increased environment, health and safety laws, regulations and enforcement could result in substantial costs and liabilities to us and could subject our use, manufacture, handling, storage, transportation, and disposal of hazardous materials to additional constraints. Consequently, compliance with these laws could result in capital expenditures as well as other costs and liabilities, thereby adversely affecting business, financial position and results of operations.
Our failure to comply with applicable laws and regulations material to our operations, such as export control, environmental and climate related laws and regulations, or the inability to timely obtain requisite approvals necessary for the conduct of our business, such as fab land and construction approvals, could harm our business and operational results or subject us to potential significant legal liability.
Because we engage in manufacturing activities in multiple jurisdictions and conduct business with our customers located worldwide, such activities are subject to a myriad of governmental regulations. Our failure to comply with any such laws or regulations, as amended from time to time, and our failure to comply with any information and document sharing requests from the relevant authorities in a timely manner could result in:
•Significant penalties and legal liabilities, such as the denial of import or export permits or third-party private lawsuits, criminal or administrative proceedings;
•The temporary or permanent suspension of production of the affected products;
•The temporary or permanent inability to procure or use certain production critical chemicals or materials;
•Unfavorable alterations in our manufacturing, assembly and test processes;
•Challenges from our customers that place us at a significant competitive disadvantage, such as loss of actual or potential sales contracts in case we are unable to satisfy the applicable legal standard or customer requirement;
•Restrictions on our operations or sales;
•Loss of tax benefits, including termination of current tax incentives, disqualification of tax credit applications and repayment of the tax benefits that we are not entitled to; and
•Damages to our goodwill and reputation.
Complying with applicable laws and regulations, such as environmental and climate related laws and regulations, could also require us, among other things, to do the following: (a) purchase, use or install remedial equipment; (b) implement remedial programs such as climate change mitigation programs; (c) modify our product designs and manufacturing processes, or incur other significant expenses such as obtaining renewable energy sources, renewable energy certificates or carbon credits, substitute raw materials or chemicals that may cost more or be less available for our operations.
Our inability to timely obtain approvals necessary for the conduct of our business could impair our operational and financial results. For example, if we are unable to timely obtain environmental related approvals needed to undertake the development and construction of a new fab or expansion project, then such inability may delay, limit, or increase the cost of our expansion plans that could also in turn adversely affect our business and operational results. In light of increased public interest in environmental issues, our operations and expansion plans may be adversely affected or delayed responding to public concern and social environmental pressures even if we comply with all applicable laws and regulations.
We are highly dependent on the continued service and availability of key management personnel, and failure to successfully execute succession planning could harm our Company.
Our success depends upon our ability to retain highly skilled technical, managerial, marketing and finance personnel, and, to a significant extent, upon the efforts and abilities of our senior management. The resignation or departure of key personnel could adversely affect our business, financial condition, and operations. These individuals play crucial roles in our strategic decision-making, day-to-day operations and financial management. Their departure may lead to uncertainties, loss of expertise, and potential disruptions in our business continuity. Additionally, attracting and retaining qualified replacements for such key positions may be challenging, and any delays or difficulties in finding suitable successors could further impact our operations. If we lose the services of or fail to recruit key management personnel, we may not be able to successfully implement our business strategy and our business could be harmed.
We have experienced significant changes in our senior management during 2023. In addition, we executed a significant management reorganization in 2023 that we believe will support the future growth of the Company. These or other changes in key management could create uncertainty among our employees, suppliers and other business partners and are resulting in changes to the strategic direction of our business, any of which could have a material adverse effect on us. If our management team is not successful in executing our strategy, our operating results and prospects for future growth may be adversely impacted. Failure to effectively identify, develop and retain other key personnel, recruit high-quality candidates and ensure smooth management and personnel transitions could also disrupt our business and adversely affect our results.
Our future success depends on our ability to attract and retain highly qualified personnel.
Our ability to successfully manage and grow the business and to develop new products depends, in large part, on our ability to recruit and retain qualified employees, particularly highly skilled technical, sales, service, management, and key staff personnel. Competition for qualified resources is intense and other companies may have greater resources available to provide substantial inducements and to offer more competitive compensation packages. If we are not successful in attracting and retaining highly qualified personnel, it could have a material adverse effect on our business, financial condition, and results of operations.
We face the risk that our stockholders do not approve an increase in the aggregate number of shares that may be subject to awards under the 2021 Equity Incentive Plan (the "additional Pool").
Equity compensation is vital for our ability to attract, motivate, and retain highly skilled personnel in a competitive market. These plans serve not only as a key element of our compensation strategy but also help in aligning the interests of our employees with those of our stockholders by providing them with a stake in the Company's success. As of February 29, 2024, we have less than 150,000 shares available to be issued to our employees and service providers under the 2021 Equity Incentive Plan.
If our stockholders do not approve the additional Pool, we may not be able to offer competitive compensation packages. This limitation could significantly hinder our capability to attract and retain essential talent, which is crucial for our innovation, operational efficiency,
and growth. Equity participation is often viewed as a critical aspect of compensation by potential employees and leaders. Without the option to offer such incentives, we may struggle to recruit and keep qualified individuals in key positions. This challenge could negatively influence our competitive standing, operational performance, and prospects for growth.
Our results of operations could be adversely affected by labor shortages, turnover, labor cost increases and inflation.
A number of factors may adversely affect the labor force available to us in one or more of our geographies, including high employment levels, increasing market wages and other compensation costs, federal unemployment subsidies, and other government regulations, which include laws and regulations related to workers’ health and safety, wage and hour practices and immigration. These factors can also impact the cost of labor. Increased turnover rates within our employee base can lead to decreased efficiency and increased costs, such as increased overtime to meet demand and increased wage rates to attract and retain employees. An overall labor shortage or lack of skilled labor, increased turnover or labor inflation could have a material adverse effect on results of operations.
Certain directors and officers may be subject to conflicts of interest.
Certain of our directors and officers may be involved in other business ventures through their direct and indirect participation in corporations, partnerships, joint ventures, etc. that may become potential competitors of the technologies, products and services we intend to provide. Situations may arise in connection with potential acquisitions or opportunities where the other interests of these directors' and officers' conflict with or diverge from our interests. In accordance with applicable corporate law, directors who have a material interest in or who are a party to a material contract or a proposed material contract with us are required, subject to certain exceptions, to disclose that interest and generally abstain from voting on any resolution to approve the contract. In addition, the directors and officers are required to act honestly and in good faith with a view to our best interests. However, in conflict-of-interest situations, our directors and officers may owe the same duty to another company and will need to balance their competing interests with their duties to us. Circumstances (including with respect to future corporate opportunities) may arise that may be resolved in a manner that is unfavorable to us.
Risks Related to Legal Matters
We are, and may in the future become, subject to various legal proceedings and claims that arise in or outside the ordinary course of business and which could adversely affect our business.
We are, and may in the future become, subject to various legal proceedings and claims that arise in or outside the ordinary course of business. We cannot predict the outcome of these proceedings or provide an estimate of potential damage, if any. We believe that the claims in the securities class actions are without merit and intend to defend against them vigorously. Regardless, failure by us to obtain a favorable resolution of the claims set forth in the complaints could require us to pay damage awards or otherwise enter into settlement arrangements for which our insurance coverage may be insufficient. Any such damage awards or settlement arrangements in current or future litigation could have a material adverse effect on our business, operating results or financial condition. Even if plaintiffs’ claims are not successful, defending against class action litigation is expensive and could divert management’s attention and resources, all of which could have a material adverse effect on our financial condition and operations, operating results and financial condition and negatively affect the price of our common stock. In addition, such lawsuits may make it more difficult for us to finance our operations in the future. See Note 27, Commitments and Contingencies, in the notes to the Consolidated Financial Statements in Part II, Item 8 of this Annual Report for more information regarding our legal proceedings.
We and a former CEO of Torchlight and our former CEO (the “CEOs”) have received “Wells Notices” from the SEC staff recommending that the SEC bring enforcement actions against us and the CEOs which could have a material adverse effect on our business, financial condition and results of operations, prospects, and/or our stock price.
In September 2021, we received a subpoena from the SEC, Division of Enforcement, in a matter captioned In the Matter of Torchlight Energy Resources, Inc. The subpoena requested that we produce certain documents and information related to, among other things, the merger involving Torchlight Energy Resources, Inc. and Metamaterial Inc. (the “Investigation”). On July 20, 2023, the enforcement staff of the SEC provided us, our former Chief Executive Officer, John Brda, and our then current Chief Executive Officer, George Palikaras, with “Wells Notices” relating to the Investigation. The Wells Notices each state that the SEC staff has made a preliminary determination to recommend that the SEC file a civil enforcement action against the recipients alleging violations of certain provisions of the U.S. federal securities laws. Specifically, the Wells Notice received by the Company states that the proposed action would allege violations of Section 17(a) of the Securities Act; Sections 10(b), 13(a), 13(b)(2)(A), 13(b)(2)(B) and 14(a) of the Exchange Act of 1934 and Rules 10b-5 and 14a-9 thereunder; and Regulation FD.
Although a Wells Notice is neither a formal charge of wrongdoing nor a final determination that the recipient has violated any law, it is a formal notice that the SEC intends to bring an enforcement action against the recipient. If the SEC were to authorize an action against us and/or any of the individuals named above, it could seek an injunction against future violations of provisions of the federal securities laws, the imposition of civil monetary penalties, and other equitable relief within the SEC’s authority. The SEC could also seek an order barring the individuals from serving as an officer or director of a public company. In addition, the SEC could seek disgorgement of an amount from us that may exceed our ability to pay.
We have made an offer of settlement to the Staff of the SEC’s Division of Enforcement (the “Proposed SEC Settlement”) to resolve the matter. The Proposed SEC Settlement is subject to approval by the SEC Commissioners. We cannot predict whether or when the Proposed SEC Settlement will be approved. If the Commissioners approve the Proposed SEC Settlement, the Commission will enter a cease-and-desist order (the “Order”) in connection with certain antifraud, reporting, books and records, and internal accounting control provisions of the securities laws. Under the terms of the Proposed SEC Settlement, we would neither admit nor deny the findings in the Order. If approved, in connection with the Proposed SEC Settlement, we will pay a civil money penalty in an amount of $1.0 million in four (4) installments over the period of one (1) year pursuant to an agreed upon payment plan. We recorded the $1.0 million in Accruals and other payables in the audited Consolidated Balance Sheet as of December 31, 2023.
We are exposed to various risks related to the regulatory environment.
We are subject to various risks related to: (1) new, different, inconsistent or even conflicting laws, rules and regulations that may be enacted by legislative bodies and/or regulatory agencies in the countries in which we operate; (2) disagreements or disputes between national or regional regulatory agencies; and (3) the interpretation and application of laws, rules and regulations. If we are found by a court or regulatory agency not to be in compliance with applicable laws, rules or regulations, our business, financial condition and results of operations could be materially and adversely affected.
The scope, determination, and impact of claims, lawsuits, government and regulatory investigations, enforcement actions, disputes, and proceedings to which we are subject cannot be predicted with certainty, and may result in:
•substantial payments to satisfy judgments, fines, or penalties;
•substantial outside counsel, advisor, and consultant fees and costs;
•substantial administrative costs, including arbitration fees;
•additional compliance and licensure requirements;
•loss or non-renewal of existing licenses or authorizations, or prohibition from or delays in obtaining additional licenses or authorizations, required for our business;
•loss of productivity and high demands on employee time;
•criminal sanctions or consent decrees;
•termination of certain employees, including members of our executive team;
•barring of certain employees from participating in our business in whole or in part;
•orders that restrict our business or prevent us from offering certain products or services;
•changes to our business model and practices;
•delays to planned transactions, product launches or improvements; and
•damage to our brand and reputation.
We may be affected by environmental laws and regulations.
We are subject to a variety of laws, rules and regulations related to the use, storage, handling, discharge and disposal of certain chemicals and gases used in our manufacturing process. Any of those regulations could require us to acquire expensive equipment or to incur substantial other expenses to comply with them. If we incur substantial additional expenses, product costs could significantly increase. Failure to comply with present or future environmental laws, rules and regulations could result in fines, suspension of production or cessation of operations.
Risks Related to Our Common Stock
Future sales and issuances of a substantial number of shares of our common stock or rights to purchase common stock by our stockholders in the public market could result in additional dilution of the percentage ownership of our stockholders and cause our stock price to fall.
If our stockholders sell, or indicate an intention to sell, substantial amounts of our common stock in the public market, the trading price of our common stock could decline.
We have and may continue to issue equity, convertible securities or other securities to investors in public and private offerings. In addition, we currently have effective resale shelf registration statements which enable the selling stockholders thereunder to sell shares in the public market pursuant thereto.
We also have outstanding as of December 31, 2023, 1,974,280 warrants to purchase 1,974,280 shares of our common stock at a weighted average exercise price of $23.66 per share. These warrants include 828,070 warrants issued in the April 2023 registered direct offering with an exercise price of $37.50 per share which is subsequently reduced to $7.60 per share based on the down round provision in the case of a Share Combination Event or a Dilutive Issuance as described in more detail in Note 11, Capital Stock, in the notes to the Consolidated Financial Statements in Part II, Item 8 of this Annual Report. The down round provision of the warrants issued in April 2023 allows the warrants holder to obtain our common stock with a lower price, which may cause significant dilution to existing stockholders, and otherwise have a material adverse effect on us. The warrants outstanding as of December 31, 2023 also include 750,000 warrants issued in the December 2023 registered direct offering with an exercise price of $9.50 per share. 1,195,020 warrants are eligible for exercise as of December 31, 2023. Further, we issued warrants to purchase up to an aggregate of 850,000 shares of Common Stock in a registered direct offering in February 2024 (the “February 2024 Offering”) which is exercisable at a price of $3.91 per share any time on or after the date of the issuance of the warrants.
On September 11, 2023, we entered into a purchase agreement with Lincoln Park, which provides that, upon the terms and subject to the conditions and limitations set forth therein, we will have the right, but not the obligation, to sell to Lincoln Park up to $50 million of our common stock over a term of 30 months, subject to shares being available for issuance under our articles of incorporation, which currently are not available. Any sale of shares to Lincoln Park pursuant to the terms of the purchase agreement will have a dilutive effect on the existing stockholders, including the voting power and economic rights of the existing stockholders.
Further, additional capital will be needed in the future to continue our planned operations, including commercialization efforts, expanded research and development activities and costs associated with operating a public company. To raise capital, contingent upon receiving stockholder approval for an increase in authorized shares, we may sell common stock, convertible securities or other equity securities in one or more transactions at prices and in a manner, we determine from time to time. If we sell common stock, convertible securities or other equity securities, investors may be materially diluted by subsequent sales. Such sales may also result in material dilution to our existing stockholders, and new investors could gain rights, preferences and privileges senior to the holders of our common stock. Additional issuances and sales of our common stock, including shares of our common stock available for issuance to our employees, directors and consultants, or a perception that such shares will be sold in the public market, could result in additional dilution and the trading price of our common stock could decline.
If we fail to continue to meet the listing standards of Nasdaq, our common stock may be delisted, which could have a material adverse effect on the liquidity of our common stock.
Our common stock is listed on The Nasdaq Capital Market, and in order to maintain that listing, we must satisfy applicable Nasdaq continued listing requirements. The inability to comply with applicable listing requirements or standards of The Nasdaq Stock Market LLC (“Nasdaq”) could result in the delisting of our common stock, which could have a material adverse effect on our financial condition and could cause the value of our common stock to decline. Delisting of our common stock could also adversely affect our ability to raise additional financing, could significantly affect the ability of our investors to trade our securities and could negatively affect the value and liquidity of our common stock. Delisting could also have other negative results, including the potential loss of confidence by employees and fewer business development opportunities.
On March 20, 2023, we received a notification letter from Nasdaq notifying us that, because the closing bid price for our common stock was below $1.00 per share for 30 consecutive trading days, we were not in compliance with the minimum bid price requirement for continued listing on The Nasdaq Capital Market, as set forth in Nasdaq Listing Rule 5550(a)(2) (the “Minimum Bid Price Requirement”). In accordance with Nasdaq Listing Rule 5810(c)(3)(A), we were provided 180 calendar days, or until September 18, 2023, to regain compliance with the Minimum Bid Price Requirement. On September 19, 2023, Nasdaq further notified the Company we were eligible for an additional 180 calendar day period, or until March 18, 2024, to regain compliance.
Further, on November 27, 2023, we received a notification letter from Nasdaq notifying us that our Common Stock had a closing bid price of $0.10 or less for ten consecutive trading days and that, consistent with Nasdaq Listing Rule 5810(c)(3)(A)(iii), the staff of Nasdaq had determined to delist the Common Stock from The Nasdaq Capital Market, subject to the request of a hearing. On November 28, 2023, we timely submitted a request for a hearing before the Nasdaq Hearings Panel to appeal the delisting determination, which was granted by the Nasdaq Hearings Panel and a hearing was originally scheduled to occur on March 21, 2024 (subsequently changed to February 22, 2024).
On February 12, 2024, we received a letter from Nasdaq notifying us that we had regained compliance with the Minimum Bid Price Requirement, and consequently, the previously scheduled hearing was cancelled by the Nasdaq Hearings Panel. We are currently in full compliance with Nasdaq listing requirements.
Additionally, we may be unable to meet other applicable Nasdaq listing requirements, including maintaining minimum levels of market value of our common stock in which case, our common stock could be delisted. As noted above, if our common stock were to be delisted, the liquidity of our common stock would be adversely affected, and the market price of our common stock could decrease. There is no assurance we will maintain compliance with Nasdaq listing requirements in the future.
Subject to various spending levels approved by our board of directors, our management will have broad discretion in the use of the net proceeds from our capital raises and may not use them effectively.
Our management will have broad discretion in the application of the net proceeds from our capital raises, and our stockholders will not have the opportunity as part of their investment decision to assess whether the net proceeds from our capital raises are being used appropriately. Because of the number and variability of factors that will determine our use of the net proceeds from our capital raises, their ultimate use may vary substantially from their currently intended use. You may not agree with our decisions, and our use of the proceeds from our capital raises may not yield any return to stockholders. Our failure to apply the net proceeds of our capital raises effectively could compromise our ability to pursue our growth strategy and we might not be able to yield a significant return, if any, on our investment of those net proceeds. Stockholders will not have the opportunity to influence our decisions on how to use our net proceeds from our capital raises. Pending their use, we may invest the net proceeds from our capital raises in interest and non-interest-bearing cash accounts, short-term, investment-grade, interest-bearing instruments and U.S. government securities. These temporary investments are not likely to yield a significant return.
An active, liquid and orderly trading market may not be sustained for our common stock, and, as a result, it may be difficult for you to sell your shares of our common stock.
The trading market for our common stock on the Nasdaq Capital Market may not be sustained. If the market for our common stock is not sustained, it may be difficult for you to sell your shares of common stock at an attractive price or at all. We cannot predict the prices at which our common stock will trade. It is possible that in one or more future periods our results of operations may not meet the expectations of public market analysts and investors, and, as a result of these and other factors, the price of our common stock may fall.
If equities or industry analysts do not publish research or reports about our company, or if they issue adverse or misleading opinions regarding us or our stock, our stock price and trading volume could decline.
The trading market for our common stock will rely in part on the research and reports that industry or financial analysts publish about us or our business. If no or few analysts commence coverage of us or if such coverage is not maintained, the market price for our stock may be adversely affected. Our stock price also may decline if any analyst who covers us issues an adverse or erroneous opinion regarding us, our business model, our intellectual property or our stock performance, or if our operating results fail to meet analysts’ expectations. If one or more analysts cease coverage of us or fail to regularly publish reports on us, we could lose visibility in the financial markets, which could cause our stock price or trading volume to decline and possibly adversely affect our ability to engage in future financing.
The market price of our common stock has been and may continue to be volatile, and the value of your investment could decline significantly.
The trading price of our common stock has been and is likely to continue to be volatile. The trading price of our common stock since June 28, 2021 (the date of completion of the Arrangement) up to December 31, 2023, has ranged from a high of $997.00 to a low of $2.64 (as adjusted for the January 2024 Reverse Stock Split). Factors that have caused, and could continue to cause, fluctuations in the trading price of our common stock include, but are not limited to, the following:
•sales of our common stock, or securities exercisable for or convertible into our common stock, or the perception that such sales or conversions could occur in the future;
•the impact of public health crises, such as the COVID-19 pandemic, including on macroeconomic conditions and our business, results of operations and financial condition;
•price and volume fluctuations in the overall stock market from time to time;
•changes in operating performance, stock market valuations and volatility in the market prices of other industry peers;
•actual or anticipated quarterly variations in our results of operations or those of our competitors;
•actual or anticipated changes in our growth rate relative to our competitors;
•announcements by us or our competitors of acquisitions, new products, significant contracts, commercial relationships or capital commitments;
•manufacturing, labor or supply interruptions;
•developments with respect to intellectual property rights;
•developments with respect to litigation;
•our ability to develop and market new and enhanced products on a timely basis;
•commencement of, or our involvement in, litigation;
•major changes in our board of directors or key management;
•changes in governmental regulations or in the status of our regulatory approvals;
•actual or perceived privacy, data protection or cybersecurity breaches or incidents;
•the trading volume of our common stock;
•failure of financial analysts to maintain coverage of us, changes in financial estimates by any analysts who follow us, or our failure to meet these estimates or the expectations of investors;
•fluctuations in the values of companies perceived by investors to be comparable to and peers of us;
•the financial projections we may provide to the public, any changes in these projections or our failure to meet these projections; and
•general economic conditions and slow or negative growth of related markets.
The stock market in general, and market prices for the securities of similar companies in particular, have from time to time experienced volatility that often has been unrelated to the operating performance of the underlying companies. These broad market and industry fluctuations may adversely affect the market price of our common stock, regardless of our operating performance, which might make it more difficult for us to sell equity securities in the future at a time and at a price that we deem appropriate. In several recent situations when the market price of a stock has been volatile, holders of that stock have instituted securities class action litigation. If any of our stockholders were to bring a lawsuit against us, the defense and disposition of the lawsuit could be costly and divert the time and attention of our management and materially adversely affect our results of operations. We currently have ongoing lawsuits. See Part 1, Item 3, "Legal Proceedings" in this Annual Report and Note 27, Commitments and Contingencies, in the notes to the Consolidated Financial Statements in Part II, Item 8 of this Annual Report for more information regarding these lawsuits and the SEC’s investigation.
We may issue preferred stock whose terms could adversely affect the voting power or value of our common stock.
Our board of directors is authorized, without further stockholder action, and subject to Nasdaq rules, to issue preferred stock in one or more series and to designate the dividend rate, voting rights and other rights, preferences and restrictions of each such series. The terms of one or more classes or series of preferred stock could adversely impact the voting power or value of our common stock. Also, we might grant holders of preferred stock the right to elect some number of our directors in all events or on the happening of specified events or the right to veto specified transactions. Similarly, the repurchase or redemption rights or liquidation preferences we might assign to holders of preferred stock could affect the residual value of our common stock.
Anti-takeover provisions in our articles of incorporation and bylaws, as amended, as well as provisions in Nevada law, might discourage, delay, or prevent a change of control of us or changes in our management and, therefore, depress the trading price of our securities.
Our articles of incorporation and bylaws, as amended, as well as provisions in Nevada law, contain provisions that could have the effect of rendering more difficult or discouraging an acquisition deemed undesirable by our board. Our corporate governance documents include provisions:
•authorizing blank check preferred stock, which could be issued with voting, liquidation, dividend and other rights superior to our common stock;
•limiting the liability of, and providing indemnification to, our directors, including provisions that require us to advance payment for defending pending or threatened claims;
•limiting the ability of our stockholders to call and bring business before special meetings and to take action by written consent in lieu of a meeting;
•controlling the procedures for the conduct and scheduling of board and stockholder meetings;
•limiting the determination of the number of directors on our board and the filling of vacancies or newly created seats on the board to our board then in office; and
•providing that directors may be removed by stockholders at any time.
These provisions, alone or together, could delay hostile takeovers and changes in control or changes in our management.
As a Nevada corporation, we are also subject to provisions of Nevada corporate law, including Section 78.411, et seq. of the Nevada Revised Statutes, which, among other things, prohibits a publicly-held Nevada corporation from engaging in a business combination with an interested stockholder, generally a person which together with its affiliates owns, or within the last two years has owned, 10% of our voting stock, for a period of three years after the date of the transaction in which the person became an interested stockholder, unless the business combination is approved in a prescribed manner, and, unless otherwise provided in our articles of incorporation or
by-laws, restricts the ability of an acquiring person to obtain a controlling interest of 20% or more of our voting shares. Our articles of incorporation and by-laws, as amended, do not contain any provision which would currently keep the change of control restrictions of Section 78.378 from applying to it.
The existence of the foregoing provisions and anti-takeover measures could limit the price that investors might be willing to pay in the future for shares of our common stock. They could also deter potential acquirers of us, thereby reducing the likelihood that our stockholders could receive a premium for their common stock in an acquisition.
We are a smaller reporting company. We cannot be certain whether the reduced disclosure requirements applicable to smaller reporting companies will make our common stock less attractive to investors or otherwise limit our ability to raise additional funds.
As of December 31, 2023, we are a “smaller reporting company” under applicable U.S. securities regulations. A smaller reporting company is a company that, as of the last business day of its most recently completed second fiscal quarter, has (i) an aggregate market value of the company’s voting stock held by non-affiliates, or public float, of less than $250 million or (ii) less than $100 million in revenue and less than $700 million in public float. In addition, as a smaller reporting company, we are able to provide simplified executive compensation disclosures in our filings and have certain other reduced disclosure obligations in our SEC filings, including, among other things, only being required to provide two years of audited financial statements in annual reports. Reduced disclosure in our SEC filings due to our status as a smaller reporting company may make it harder for investors to analyze our results of operations and financial prospects.
We have not paid cash dividends in the past and have no immediate plans to pay cash dividends.
Our current plan is to reinvest earnings, if any, to cover operating costs and otherwise remain competitive. We do not plan to pay any cash dividends with respect to our securities in the foreseeable future. We cannot assure you that we would, at any time, generate sufficient surplus cash that would be available for distribution to the holders of our common stock as a dividend. Therefore, you should not expect to receive cash dividends on our common stock.
General Risk Factors
We are exposed to fluctuations in currency exchange rates.
A majority of our revenues are denominated in U.S. dollars which are recognized in the entity located outside of the United States whereas most of cost of revenue and operating expenses incurred in our foreign subsidiaries are denominated in foreign currencies, resulting in a considerable exposure to the volatility of foreign currency exchange rates. Recent events in the global financial markets have been coupled with increased volatility in the currency markets. Fluctuations in the exchange rate between the U.S. dollar, the Canadian dollar and the British Pound may have a material adverse effect on our business, financial condition, and operating results. We may, in the future, establish a program to hedge a portion of our foreign currency exposure with the objective of minimizing the impact of adverse foreign currency exchange movements. With appropriate risk management and oversight this may be able to offset future risk, however a hedging strategy will result in additional operating costs.
Uncertain global macroeconomic conditions could adversely affect our results of operations and financial condition.
Uncertain global macroeconomic conditions that affect the economy and the economic outlook of the United States, Canada, Europe, UK and other parts of the world could adversely affect our customers and vendors, which could adversely affect our results of operations and financial condition. These uncertainties, including, among other things, sovereign and foreign bank debt levels, the inability of national or international political institutions to effectively resolve economic or budgetary crises or issues, trade disputes or changes in trading rules and tariffs between nations, consumer confidence, unemployment levels, interest rates, availability of capital, fuel and energy costs, tax rates, and the threat or outbreak of terrorism or public unrest, could adversely impact our customers and vendors, which could adversely affect us. Recessionary conditions and depressed levels of consumer and commercial spending may cause customers to reduce, modify, delay or cancel plans to purchase our products and may cause vendors to reduce their output or change their terms of sales. We generally sell products to customers with credit payment terms. If customers’ cash flow or operating or financial performance deteriorates, or if they are unable to make scheduled payments or obtain credit, they may not be able to pay, or may delay payment to us. Likewise, for similar reasons vendors may restrict credit or impose different payment terms. Any inability of current or potential customers to pay us for our products or any demands by vendors for different payment terms may adversely affect our results of operations and financial condition.
Operating as a public company requires us to incur substantial costs and requires substantial management attention.
As a public company, we incur substantial legal, accounting and other expenses that we did not incur as a private company. For example, we are subject to the reporting requirements of the Exchange Act, the applicable requirements of the Sarbanes-Oxley Act, the Dodd-Frank Wall Street Reform and Consumer Protection Act, the rules and regulations of the SEC and the listing standards of the Nasdaq Stock Market. For example, the Exchange Act requires, among other things, that we file annual, quarterly and current reports with respect to our business, financial condition and results of operations. We are also required to maintain effective disclosure controls and procedures and internal control over financial reporting. Compliance with these rules and regulations has increased and will continue to
increase our legal and financial compliance costs and increase demand on our systems. In addition, as a public company, we may be subject to stockholder activism, which can lead to additional substantial costs, distract management and impact the manner in which we operate our business in ways we cannot currently anticipate. As a result of disclosure of information in filings required of a public company, our business and financial condition will become more visible, which may result in threatened or actual litigation, including by competitors.
Our results of operations could vary as a result of the methods, estimates, and judgments that we use in applying our accounting policies.
The methods, estimates, and judgments that we use in applying our accounting policies have a significant impact on our results of operations (see “Critical Accounting Policies and Estimates” in Part II, Item 7 of this Annual Report). Such methods, estimates and judgments are, by their nature, subject to substantial risks, uncertainties and assumptions, and factors may arise over time that lead us to change our methods, estimates and judgments. Changes in those methods, estimates and judgments could significantly affect our results of operations.
We have ongoing environmental costs, which could have a material adverse effect on our financial position or results of operations.
Certain of our operations and assets are subject to extensive environmental, health and safety regulations, including laws and regulations related to waste disposal and remediation of contaminated sites. The nature of our operations and products, including the raw materials we handle, exposes us to the risk of liabilities, obligations or claims under these laws and regulations due to the production, storage, use, transportation and sale of materials that can adversely impact the environment or cause personal injury, including, in the case of chemicals, unintentional releases into the environment. Environmental laws may have a significant effect on the costs of use, transportation and storage of raw materials and finished products, as well as the costs of storage, transportation and disposal of wastes.
The ultimate costs and timing of environmental liabilities are difficult to predict. Liabilities under environmental laws relating to contaminated sites can be imposed retroactively and on a joint and several basis. One liable party could be held responsible for all costs at a site, regardless of fault, percentage of contribution to the site or the legality of the original disposal. We could incur significant costs, including clean-up costs, natural resource damages, civil or criminal fines and sanctions and third-party lawsuits claiming, for example, personal injury and/or property damage, as a result of past or future violations of, or liabilities under, environmental or other laws.
In addition, future events, such as changes to or more rigorous enforcement of environmental laws, could require us to make additional expenditures, modify or curtail our operations and/or install additional pollution control equipment. It is possible that regulatory agencies may enact new or more stringent clean-up standards for chemicals of concern, including chlorinated organic products that we manufacture. This could lead to expenditures for environmental remediation in the future that are additional to existing estimates.
Scrutiny of our environmental, social and governance responsibilities and practices may result in additional costs, liability risks, and may adversely impact our reputation, our ability to attract and retain a skilled workforce and willingness of customers and suppliers to do business with us.
Certain investor advocacy groups, institutional investors, proxy advisory services, stockholders, government, regulators, employees, customers and other stakeholders remain focused on environmental, social and governance (“ESG”) practices of companies. Additionally, public interest and legislative pressure related to public companies’ ESG practices continues. If our ESG practices fail to meet regulatory requirements or investor or other stakeholders' evolving expectations and standards for responsible business practices in numerous areas, including climate change and greenhouse gas emissions, environmental stewardship, support for communities where we operate, human and civil rights, director and employee diversity, human capital management, employee health and safety practices, product quality and safety, data security, supply chain management, regulatory compliance, corporate governance and transparency and employing ESG strategies within business operations, our brand, reputation and employee retention may be negatively impacted and customers and suppliers may be unwilling to do business with us. As we work to align our ESG practices with industry standards, we will be dealing with uncertainties and risks resulting from the forward-looking nature of many ESG issues, In addition, we will continue to expand our disclosures in these areas and doing so may result in additional costs and require additional resources to monitor, report, and comply with our various ESG practices. If we fail to adopt ESG standards or practices as quickly as stakeholders desire, report on our ESG efforts or practices accurately, or satisfy the expectations of stakeholders, our reputation, business, financial performance and growth may be adversely impacted.
None.
Item 1C. Cybersecurity.
Risk Management and Strategy
Our information security program is still in its early developmental stages and an ongoing process. As a smaller organization, we are actively refining our information security program to more effectively address cybersecurity risks and threats. Our primary objective is
to improve our ability to effectively identify, protect against, detect, and respond to potential cyber threats across all aspects of our operations.
To strengthen the defenses of our information systems, we have already implemented foundational controls that secure our customers’ and employees’ data and data relating to our intellectual property, We are also currently developing and deploying other various security tools and measures. These include internal reporting mechanisms and frameworks, monitoring systems, and certain third-party programs and solutions, including penetration testing with third-party security firms.
Furthermore, we are in the initial stages of developing our policies and processes for managing third-party risks. While we expect our partners to maintain appropriate security measures, we are actively working with our partners to improve alignment of their security protocols with our expectations and policies. We plan to introduce a risk assessment process to continuously monitor and remain vigilant against potential vulnerabilities. In preparation, we have completed the first draft of our IT risk management framework. This sets the stage for adopting a widely accepted risk quantification model, which will be done in alignment with our business readiness. The model will help us to prioritize cybersecurity risks and guide the development of our security controls.
As of the date of this Annual Report, we are not aware of any risks from cybersecurity threats, including as a result of any previous cybersecurity incidents, that have materially affected or are reasonably likely to materially affect the Company, including its business strategy, results of operations, or financial condition.
Governance
Overseeing our cybersecurity efforts and guiding our security initiatives is our Chief Information Officer, who brings over 25 years of experience in leadership roles managing cybersecurity and large-scale IT environments across both private and public sectors. Additionally, our team members involved in the security program are acquiring the necessary skills and knowledge to address emerging cybersecurity challenges.
Item 2. Properties.
Our principal executive office is located at 60 Highfield Park Drive, Suite 102, Dartmouth, Nova Scotia, Canada.
Our principal facilities include the following:
| | | | | | | | |
Location | Lease expiration | | | Approximate size
(sqft) | | Primary functions |
Highfield Park, Dartmouth, Nova Scotia | August 31, 2031 | | | | 68,000 | | Administration, Research and Development, and Production |
Pleasanton, California | September 30, 2026 | | | | 19,506 | | Research and Development |
London, United Kingdom | October 19, 2027 | | | | 742 | | Research and Development |
London, United Kingdom | December 12, 2024 | | (1 | ) | | 2,500 | | Research and Development |
Burnaby, British Columbia | April 30, 2025 | | | | 7,860 | | Administration and Research and Development |
Thurso, Quebec | Owned | | | | 105,000 | | Production and Research and Development |
Maroussi, Athens | October 31, 2031 | | | | 15,457 | | Research and Development |
Oxford, United Kingdom | June 30, 2023 | | | | 1,065 | | Research and Development |
Columbia, Maryland | June 30, 2034 | | | | 11,642 | | Research and Development and Production |
Billerica, Massachusetts | March 31, 2028 | | | | 12,655 | | Research and Development and Production |
(1) The lease was terminated without penalty on January 12, 2024.
Item 3. Legal Proceedings.
See Note 27, Commitments and Contingencies, Legal Matters, in the notes to the Consolidated Financial Statements in Part II, Item 8 of this Annual Report.
Item 4. Mine Safety Disclosures.
Not Applicable.
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Market Information for Common Stock
Our common stock is quoted on the Nasdaq under the symbol, “MMAT”. As of December 31, 2023, we had outstanding common shares of 5,659,438 which includes 368,118 Exchangeable Shares held by certain stockholders in Canada and which are traded on the Canadian Securities Exchange ("CSE") under the symbol "MMAX", and that are exchangeable for shares of MMAT on a 1-for-1 basis.
The Exchangeable Shares were listed in connection with the completion of the Torchlight RTO where former holders of Metamaterial Inc.’s common shares (that were previously traded on the CSE) were entitled to receive 1.845 of our common shares for each previously held common share of Metamaterial Inc. or in Exchangeable Shares of a wholly-owned subsidiary of META that reflect the same exchange ratio on issuance.
Holders of Record
As of March 8, 2024, there were 181 holders of record of the Company's common stock listed on Nasdaq. The majority of our common stock is held by brokers and other institutions on behalf of stockholders; accordingly, we are unable to estimate the total number of beneficial owners of our common stock.
Holders of our common stock are entitled to one vote for each share held of record on all matters submitted to a vote of stockholders.
Holders of our common stock have no preemptive rights and no right to convert their common stock into any other securities. There are no redemption or sinking fund provisions applicable to the common stock.
Dividend Policy
We have never declared or paid any cash dividends on our capital stock. We currently intend to retain any future earnings and do not expect to pay any dividends in the foreseeable future. Any future determination to declare cash dividends will be made at the discretion of our board, subject to applicable laws, and will depend on a number of factors, including our financial condition, results of operations, capital requirements, contractual restrictions, general business conditions, and other factors that our board may deem relevant.
Issuer Purchases of Equity Securities
None.
Recent Sales of Unregistered Securities
There were no unregistered securities issued by us during the fiscal year 2023 not previously reported on a Form 8-K or Form 10-Q.
Item 6. [Reserved]
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with its Consolidated Financial Statements and related notes, each included elsewhere in this Annual Report. This discussion contains forward-looking statements based upon current plans, expectations and beliefs that involve risks and uncertainties. Our actual results and the timing of certain events could differ materially from those anticipated in or implied by these forward-looking statements as a result of several factors, including those discussed in the section titled “Risk Factors” included under Part I, Item 1A and elsewhere in this Annual Report. See “Cautionary Note Regarding Forward-Looking Statements” in this Annual Report.
This Annual Report contains references to our trademarks and to trademarks belonging to other entities. Solely for convenience, trademarks and trade names referred to in this Annual Report, 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 for 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.
OVERVIEW
Meta Materials Inc. is an advanced materials and nanotechnology company. We are developing materials that we believe can improve the performance and efficiency of many current products as well as allow new products to be developed that cannot otherwise be developed without such materials. We enable our potential customers across a range of industries - consumer electronics, 5G communications, healthcare, aerospace, automotive, and clean energy - to deliver improved products to their customers. Our principal executive office is located at 60 Highfield Park Drive, Suite 102, Dartmouth, Nova Scotia, Canada.
During the year ended December 31, 2023, we have begun to implement a plan aimed at reducing our operating expenses and focusing on key applications which represent the greatest near-term revenue potential. We are focusing on NCORE™ and NPORE® which provide a solution for safer, lighter, and more sustainable batteries, expansion of our production capacity in our banknote and brand security lines, the commercial launch of QUANTUM™ stripe product, development of NANOWEB® transparent conductive film, and our VLEPSIS® multi-gigapixel, wide area motion imagery system. For more information regarding our business, see Part I, Item I, Business, of this Annual Report.
Recent Developments
Reverse stock split
On January 29, 2024, we effected a reverse stock split of our common stock at a rate of 1-for-100. The Reverse Stock Split was approved by the board in accordance with Nevada law. The Reverse Stock Split did not have any impact on the par value of our common stock. Unless otherwise indicated, all issued and outstanding shares of common stock and all outstanding securities entitling their holders to purchase shares of our common stock or acquire shares of our common stock, including stock options, restricted stock units, and warrants, per share data, share prices and exercise prices, as required by the terms of those securities, were adjusted retroactively to reflect the Reverse Stock Split.
SEC investigation
In September 2021, we received a subpoena from the SEC in a matter captioned In the Matter of Torchlight Energy Resources, Inc. On July 20, 2023, the enforcement staff of the SEC provided us and our former officers with Wells Notices relating to the investigation. The Wells Notices state that the SEC staff has made a preliminary determination to recommend that the SEC file a civil enforcement action against the recipients alleging violations of certain provisions of the U.S. federal securities laws.
In response, we proposed a settlement, subject to SEC Commissioners' approval, which includes a $1.0 million penalty to be paid in installments over a year. This settlement does not involve admitting or denying the allegations. See Risk Factors in this Annual Report concerning SEC Investigation and Note 26, Commitments and Contingencies, Legal Matters, in the notes to the Consolidated Financial Statements in Part II, Item 8 of this Annual Report for further information.
Nasdaq minimum bid price compliance
On March 20, 2023, we were notified by Nasdaq of our failure to meet the minimum bid price criterion due to our common stock's closing bid price falling below $1.00 for 30 consecutive trading days. We were initially granted a 180-day compliance window, which was subsequently extended for another 180 days until March 18, 2024. Further, on November 27, 2023, a notification from Nasdaq indicated an intention to delist the Company's common stock due to its closing bid price being $0.10 or less for ten consecutive trading days. We promptly appealed this determination, leading to a hearing schedule revision by the Nasdaq Hearings Panel. On February 12, 2024, following our implementation of the 1-for-100 Reverse Stock Split, we were informed of our regained compliance with the
Minimum Bid Price Requirement, eliminating the need for a hearing and affirming our status in compliance with Nasdaq listing standards. See Risk Factors in this Annual Report concerning Nasdaq listing standard compliance.
April 2023 offering
On April 14, 2023, we entered into an underwriting agreement with Ladenburg Thalmann & Co. Inc. and A.G.P/ Alliance Global Partners, or the underwriters, relating to our public offering of (i) 833,334 shares of our common stock, par value $0.001 and (ii) warrants to purchase up to an aggregate of 833,334 shares of our common stock. The combined price to the public in the offering for each share of common stock and accompanying warrant was $30.00. After deducting underwriting discounts and commissions and the offering expenses payable by us, the net proceeds were $22.1 million. Each warrant was immediately exercisable at a price of $37.50 per share, and subject to a down round provision that requires the exercise price to be adjusted if we sell shares of common stock below the current exercise price. See Note 11, Capital Stock, in the notes to the Consolidated Financial Statements in Part II, Item 8 of this Annual Report for further information.
Termination of ATM agreement
As previously reported, we entered into a sales agreement (the "ATM Agreement") with Ladenburg Thalmann & Co. Inc. ("Ladenburg") on February 10, 2023. The ATM Agreement was related to the offering of up to $100,000,000 of our common stock under the ATM Program. By written notice dated September 5, 2023, Ladenburg terminated its participation as Sales Agent under the ATM Agreement, and accordingly the ATM Agreement was terminated.
LPC purchase agreement
On September 11, 2023, we entered into a Purchase Agreement with Lincoln Park which allows us to sell up to $50,000,000 of our common stock to Lincoln Park over 30 months until March 2026 ("LPC Purchase Agreement"). We have the right, but not the obligation, to require Lincoln Park to purchase our common stock, with the number of shares and the timing of these transactions being at our discretion, in accordance with the agreement's terms, provided that the closing sale price per-share of our common stock is above $10.00.
For consideration for entering into the LPC Purchase Agreement, and being obligated to fund up to $50,000,000, we agreed to pay $500,000 to Lincoln Park as an initial commitment fee and we are obligated to pay an additional commitment fee of $500,000 to Lincoln Park as further described in the LPC Purchase Agreement.
During the year ended December 31, 2023, we sold a total of 105,000 shares of our common stock under the LPC Purchase Agreement at a weighted average price of $18.69 per share, generating proceeds of $2.0 million. We recorded $1.1 million of issuance costs as a reduction to equity as of December 31, 2023. As of the date of this Annual Report, the price of our common stock does not satisfy the minimum price condition stipulated in the LPC Purchase Agreement, precluding us from issuing and selling additional shares under the LPC Purchase agreement. See Note 11, Capital Stock, in the notes to the Consolidated Financial Statements in Part II, Item 8 of this Annual Report for further information.
December 2023 offering
On December 6, 2023, we completed a registered direct offering with certain institutional and accredited investors ("December 2023 Offering"). Under this offering, we issued and sold 750,000 shares of our common stock alongside warrants to purchase up to an additional 750,000 shares of common stock. The shares and accompanying warrants were sold at a combined price of $8.00. The offering closed on December 6, 2023, with net proceeds of $5.4 million after deducting placement agent fees and other offering expenses.
Furthermore, in connection with the December 2023 Offering, on December 4, 2023, we entered into amendments (the "June 2022 Warrant Amendment") of certain warrants issued on June 28, 2022 (the "June 2022 Warrant"), representing an aggregate of 259,259 shares of common stock. Pursuant to the June 2022 Warrants Amendment (i) the exercise price per share was reduced to $9.50, (ii) the Initial Exercise Date (as defined in the June 2022 Warrants) was amended to be (a) immediately with respect to an aggregate of 230,000 Warrant Shares (as defined in the June 2022 Warrants) underlying the June 2022 Warrants, and (b) six months after the amendment with respect to an aggregate of 29,259 Warrant Shares underlying the June 2022 Warrants, and (iii) the Termination Date (as defined in the June 2022 Warrants) was amended to be (a) the five-year anniversary after the amendment, with respect to an aggregate of 230,000 Warrant Shares underlying the June 2022 Warrants, and (b) the five-year anniversary of the Initial Exercise Date, as amended, with respect to an aggregate of 29,259 Warrant Shares underlying the June 2022 Warrants. For further information regarding December 2023 Offering, see Note 11, Capital Stock, in the notes to the Consolidated Financial Statements in Part II, Item 8 of this Annual Report.
Sale of Next Bridge Notes Receivable
On August 7, 2023, a Loan Sale Agreement was entered with Gregory McCabe, under which we sold all rights and interests in the loans from Next Bridge Hydrocarbons Inc. ("Next Bridge" and "Next Bridge Notes Receivable", respectively), which was previously a wholly-owned subsidiary of META, for $6.0 million in cash. Concurrently, we entered into a Stock Purchase Agreement ("SPA") in which Mr. McCabe agreed to buy $6.0 million of our common stock beginning on September 1, 2023, in monthly amounts of $250,000 for the first
six months and in monthly amounts of $500,000 for the next nine months thereafter, at a price per share equal to 120% of the 5-day Volume-Weighted Average Price ("VWAP") on the trading day preceding the date of each such purchase.
On January 21, 2024, we entered into a settlement agreement (the "Release Agreement") with Mr. McCabe, pursuant to which we and Mr. McCabe agreed to terminate the SPA. See Note 28, Subsequent Event, and Note 5, Notes Receivable, in the notes to the Consolidated Financial Statements in Part II, Item 8 of this Annual Report for further details.
February 2024 offering
On February 21, 2024, we completed a registered direct offering with an institutional investor of (i) 600,000 shares of our common stock, (ii) pre-funded warrants to purchase up to 250,000 shares of common stock (the “Pre-Funded Warrants”), and (iii) warrants to purchase up to an aggregate of 850,000 shares of common stock (the “February 2024 Warrants”). Each share of common stock and Pre-Funded Warrant was offered and sold together with an accompanying February 2024 Warrant at a combined price of $4.04 per share of common stock or $4.039 per Pre-Funded Warrant, as applicable.
In connection with the February 2024 Offering, we received net proceeds of approximately $3.0 million, after deducting placement agent fees and estimated offering expenses payable by us.
On February 19, 2024, in connection with, and as a condition to, the February 2024 Offering, we executed a letter agreement (the "Letter Agreement") with the institutional investor participating in the February 2024 Offering. Under this agreement, we consented to modify certain terms of the June 2022 Warrants and the December 2023 Warrants (defined in Note 11, Capital Stock, in the notes to the Consolidated Financial Statements in Part II, Item 8 of this Annual Report) held by the investor. See Note 28, Subsequent Event, in the notes to the Consolidated Financial Statements in Part II, Item 8 of this Annual Report for further details.
Board of directors and other management changes
During the year ended December 31, 2023, we experienced a number of changes in both board membership and senior management positions which have been disclosed in Form 8-Ks.
Realignment and Consolidation Plan
On June 6, 2023, our board of directors approved the Realignment and Consolidation Plan pursuant to which we have begun, but not yet completed, the process of realigning our corporate structure aimed at reducing our operating expenses and focusing on key applications which represent the greatest near-term revenue potential. These applications include authentication, wide area motion imagery, battery materials, and transparent conductive films. This strategic initiative is designed to adapt to changing market conditions, enhance efficiency, and reduce our cash burn rate. As part of this plan, we are exploring alternatives for certain of our technologies including Holography Technology and Wireless Sensing and Radio Wave Imaging Technology. These alternatives may include a divestiture, entering into a joint venture and/or curtailing our investment in these technologies.
The primary objectives of the Realignment and Consolidation Plan are as follows:
•Cost Reduction: We evaluate all areas of our operations to identify cost-saving opportunities without compromising the quality of our products and services.
•Process Optimization: We review and enhance our internal processes, workflows, and systems to increase operational efficiency and eliminate redundancies.
•Resource Allocation: We realign our resources to focus on core business activities and high-priority projects, allowing us to better allocate our time, talent, and capital.
In order to accomplish the above objectives, we have begun to undertake the following key measures as part of the Realignment and Consolidation Plan:
•Workforce Optimization: We have assessed our current workforce structure and are currently in the process of making necessary adjustments to ensure the right talent is in the right positions. This involves reassignments, redeployments or selective workforce reductions in areas where deemed necessary.
•Departmental Reorganization: We have reviewed the structure of our departments and functions, seeking opportunities for consolidation and realignment to eliminate duplication and improve cross-functional collaboration.
•Operational Efficiency Enhancements: We are in the process of implementing measures to enhance productivity and operational efficiency, such as process reengineering, automation, and technology upgrades where appropriate.
•Cost Containment Strategies: We will closely scrutinize all non-essential expenditures and implement cost containment strategies, including supplier contract terminations or renegotiation, resource optimization and expense reduction initiatives across various areas of our business.
Total restructuring expenses of $3.9 million, which included employee termination costs and severance benefits and contract termination costs, were recorded during the year ended December 31, 2023. Prior to implementing the Realignment and Consolidation Plan, our average monthly cash burn rate was $5.7 million. By the end of the fiscal year on December 31, 2023, after enforcing strict payment controls, this rate was reduced to $2.3 million, representing a decrease of approximately 60%. It is important to note that we expect our monthly expenditures to increase to the range of $3.5 million to $4.0 million as we return to a regular payment schedule as well as upon obtaining financing sufficient to sustain this activity, and may potentially exceed this range when we intensify investments in our core business operations to drive growth.
During the fourth quarter ending December 31, 2023, we identified indicators of impairment associated with certain technology asset groups. This identification was based on our ongoing evaluation of asset utility and alignment with strategic investment priorities, consideration for current year performance relative to expectations, in particular for the period subsequent to the Realignment and Consolidation Plan, as well as our updated assessment of the future cash flow generation from these asset groups. As a result of this assessment, all asset groups were subject to impairment testing other than the asset group related to Authentication technology. Additionally, lease-related assets intended for subletting were classified as single asset groups because the offices were vacated for subleasing as of December 31, 2023. In aggregate, we recognized a non-cash charge of $65.5 million to write down the identified asset groups to estimated fair value. The impairment of these assets does not signify management’s departure from our core technologies or management’s devaluation of the inherent innovations provided by the recent acquisitions. Instead, it reflects a strategic and financial analysis aimed at navigating a challenging economic environment, to facilitate the sustainable growth of our company. This impairment should be understood as part of a broader strategy to align our resource allocation with the most promising opportunities for value creation, in response to competitive pressures and our current financial priorities.
Known Trends and Uncertainties
Impact from the Realignment and Consolidation Plan
With the implementation of the Realignment and Consolidation Plan, we anticipate achieving substantial cost savings and a lower cash burn rate that will positively support our sustainable growth. However, we recorded total restructuring costs of $3.9 million during fiscal 2023, excluding non-recurring, non-cash charges such as impairment of long-term assets, which will reduce any benefits from the implementation of the Realignment and Consolidation Plan.
Capital reallocation and core business expansion
In line with our strategic refocusing, we are shifting capital toward the core-business units that are expected to contribute to near-term cash flow, while simultaneously scaling back investments in non-core areas. This reallocation underscores our commitment to optimizing resource distribution, prioritizing the expansion and advancement of infrastructure integral to our core market offerings, which we believe are positioned to support our liquidity profile. This includes new facilities in Maryland for Electro-Optics and Infra-Red development and in Massachusetts for the Battery Materials development. These activities require capital investments and increased overhead for leased facilities in future. Further, R&D expense related to our core business is expected to increase as a result of expanding operations of our core business. The timing of new customer programs and revenues associated with these expansions is uncertain and we may require additional financing to support the related cash consumption.
Inflation
Inflation in North America, with respect to labor costs and transportation costs in particular, could elevate our costs of hiring new team members and cause increases in our labor costs for existing team members. In addition, rising transportation costs are likely to increase our costs for shipping our products and the costs associated with our material purchases.
Vehicle electrification
The transition from internal combustion engine, or ICE, vehicles to electric vehicles, or EVs, may be accelerated by recent disruptions in global oil supply, reduced investment in new domestic oil exploration, and increased government support for domestic EV production, battery and battery materials supply chain, and EV charging infrastructure. This may increase the opportunity for META to scale up battery materials production, acquire new battery component customers, and obtain government funding for capital projects. It could also accelerate demand for certain of our NANOWEB® products targeting EVs.
Expanding focus and emphasis on information technology
With the rapid growth of our global business, our data protection and cyber security needs have become a significant element of our business. Failure on our part to invest in the tools, equipment and personnel required to adequately manage these elements could result in regulatory issues, claims by customers and potential financial liabilities. Further, customer prospects identifying such failures could decide to delay or abandon orders from us.
NANOWEB® capacity
Our NANOWEB® products have not yet reached the required manufacturing scale to enable us to address the volume demands of a number of our target vertical markets. We must either design, develop and procure additional internal capacity to produce NANOWEB® films in higher volume and larger formats or identify outsourced suppliers capable of producing our designs. During the year ended December 31, 2023, we have engaged in a strategic partnership with Panasonic Industry to enhance the production volume of NANOWEB® films and accelerate the growth of the transparent conductive film market, offering new applications for the automotive and consumer electronics industries.
Foreign currency fluctuation risk
As we continue to expand our business globally, we presently have currency exposure arising from both sales and purchases denominated in foreign currencies. We currently do not utilize derivative financial instruments, forward contracts, or any other financial instruments designed to hedge against potential fluctuations in foreign currency exchange rates. Fluctuations in the value of currencies, such as Canadian Dollar, British Pound and Euro against the US Dollar could adversely impact our revenue and operating and labor costs. In addition, items included in the financial statements of the Company and its subsidiaries are measured using the currency of the primary economic environment in which the entity operates (the “functional currency”) while our reporting currency is the US Dollar. As such, our financial results and positions are exposed to changes in exchange rates between the US Dollar and the Canadian Dollar, the British Pound, and the Euro. For the year ended December 31, 2023, approximately 48.1% of operating expenses, excluding goodwill impairment and impairment on long-term assets, were recorded in our entities whose functional currency is other than the US Dollar and approximately 42.1% of cash and cash equivalents, 100% of property, plant, and equipment, net, 40.7% of trade payables and 16.6% of accrual and other payables were recorded in such entities whose functional currency is other than the US Dollar as of December 31, 2023.
RESULTS OF OPERATIONS
We have incurred recurring losses to date, and we anticipate incurring additional losses until such time, if ever, we can achieve profitability. Substantial additional financing will be needed to fund our development, marketing and sales activities and generally to commercialize our technology, and we expect to raise additional capital through various financing transactions or arrangements, including sale/leaseback of certain properties, joint venturing of projects, debt financing, equity financing, or other means. These factors raise substantial doubt about our ability to continue as a going concern. Our financial statements have been prepared assuming that we will continue as a going concern and, accordingly, do not include adjustments relating to the recoverability and realization of assets and classification of liabilities that might be necessary should we be unable to continue in operation.
Revenue and Gross Profit
Our revenue is generated from product sales as well as development revenue. We recognize revenue when we satisfy performance obligations under the terms of our contracts, and control of our products is transferred to our customers in an amount that reflects the consideration we expect to receive from our customers in exchange for those products or services.
Product sales
Product sales include products, components, and samples sold to our customers. Revenue from the sale of prototypes and finished products is recognized at the point in time when control of the asset is transferred to the customer, generally on delivery of goods. We consider whether there are other obligations in the contract that are separate performance obligations to which a portion of the transaction price needs to be allocated. In determining the transaction price for the sale of prototypes, we consider the effects of variable consideration, the existence of significant financial components, non-cash consideration and consideration payable to the customer (if any).
Development revenue
Development Revenue consists of revenues from contract services and research services, including non-recurring engineering services. Revenue from development activities is recognized over time, using an output method to measure progress towards complete satisfaction of the research activities and whether associated performance obligations identified within each contract have been satisfied.
Licensing revenue
Our licensing revenue is currently derived from per-unit royalty agreements. We record per unit royalty revenue in the same period in which the licensee’s underlying production occurs based on the usage or production reports obtained from the licensees. When such reports are not available during a given quarter within the time frame that allows us to adequately review the reports and include the actual amounts in the quarterly results for such quarter, we accrue the related revenue based on estimates of the licensees’ underlying production or usage.
Cost of sales
Cost of sales consists of direct material used in production, depreciation expenses of machinery and equipment used in production, salaries and benefits relating to the production staff, and other overhead costs allocated to production.
| | | | | | | | | | | | | | | | |
| | Year ended December 31, | |
| | 2023 | | | 2022 | | | Change | |
| | $ | | | $ | | | $ | | | % | |
Product sales | | $ | 117,354 | | | $ | 1,211,746 | | | $ | (1,094,392 | ) | | | -90 | % |
Development revenue | | | 7,223,141 | | | | 8,650,545 | | | | (1,427,404 | ) | | | -17 | % |
Licensing revenue | | | 625,151 | | | | 337,876 | | | | 287,275 | | | | 85 | % |
Total Revenue | | | 7,965,646 | | | | 10,200,167 | | | | (2,234,521 | ) | | | -22 | % |
Cost of sales (exclusive of items shown separately below) | | | 2,900,290 | | | | 2,426,488 | | | | 473,802 | | | | 20 | % |
Depreciation and amortization included in cost of sales | | | 39,329 | | | | 65,234 | | | | (25,905 | ) | | | -40 | % |
Stock-based compensation included in cost of sales | | | 334,645 | | | | 544,468 | | | | (209,823 | ) | | | -39 | % |
Gross profit | | $ | 4,691,382 | | | $ | 7,163,977 | | | $ | (2,472,595 | ) | | | -35 | % |
Gross profit percentage | | | 59 | % | | | 70 | % | | | -11 | % | | | |
Product sales
The decrease in product sales of $1.1 million for the year ended December 31, 2023, as compared to the same period of 2022, was primarily due to a decrease in sales orders related to our nanoimprint-lithography revenue - banknotes applications. Sales orders in 2022 were higher than historical volumes, particularly for our LumaChrome product line.
Development revenue
The decrease in development revenue for the year ended December 31, 2023 of $1.4 million, compared to the year ended December 31, 2022, was mainly due to our nanoimprint-lithography revenue - banknotes applications during 2023. A decrease of approximately $2.9 million in nanoimprint-lithography revenue - banknote applications in fiscal 2023 was partially offset by $1.1 million in revenue recognized from a joint development agreement (the "JDA") with a global battery maker and a $0.4 million increase in other customers. We derive a significant portion of our revenue from contract services with a confidential G10 central bank. In 2021, we acquired Nanotech which had a development contract for up to $41.5 million over a period of up to five years. As of December 31, 2023, we have received $22.7 million of purchase orders under the development contract. These contract services incorporate both nano-optic and optical thin film technologies and are focused on developing authentication features for future banknotes. The timing of the recognition of our development revenues is highly dependent on milestones reached within this contract.
Licensing revenue
The increase in licensing revenue for the year ended December 31, 2023, of $0.3 million, compared to the year ended December 31, 2022, was mainly due to a $0.2 million increase in licensing revenue from certain customers related to Nanotech and a $0.1 million increase in licensing revenue from our battery technologies.
Cost of sales
The increase in cost of sales for the year ended December 31, 2023, of $0.5 million, compared to the year ended December 31, 2022, was mainly due to additional direct labor costs associated with the JDA with a global battery maker which was slightly offset by a reduction in overhead allocations related to our nanoimprint-lithography revenue - banknotes applications.
Gross profit
The decrease in gross profit for the year ended December 31, 2023, of $2.5 million, compared to the year ended December 31, 2022, was mainly due to our decreased revenue from product sales and contract services with a confidential G10 central bank during 2023.
Depreciation & amortization expense in Cost of sales
For the year ended December 31, 2023, as compared to the same period of 2022, depreciation and amortization expense decreased by an insignificant amount.
Stock-based compensation expense in Cost of sales
For the year ended December 31, 2023, as compared to the same period of 2022, stock-based compensation expense decreased by $0.2 million. The decrease was mainly due to less equity-based awards granted during 2023 and a significant increase in forfeitures of equity-based awards in fiscal 2023 as a result of the Realignment and Consolidation Plan.
Operating Expenses
| | | | | | | | | | | | | | | | |
| | Year ended December 31, | |
| | 2023 | | | 2022 | | | Change | |
| | $ | | | $ | | | $ | | | % | |
Sales & marketing | | $ | 4,346,226 | | | $ | 5,679,113 | | | $ | (1,332,887 | ) | | | -23 | % |
General & administrative | | | 25,151,098 | | | | 45,413,948 | | | | (20,262,850 | ) | | | -45 | % |
Research & development | | | 19,206,128 | | | | 16,508,417 | | | | 2,697,711 | | | | 16 | % |
Depreciation & amortization expense | | | 13,483,380 | | | | 9,207,453 | | | | 4,275,927 | | | | 46 | % |
Stock-based compensation expense | | | (298,528 | ) | | | 13,619,729 | | | | (13,918,257 | ) | | | -102 | % |
Restructuring expense | | | 3,883,706 | | | | — | | | | 3,883,706 | | | * | |
Impairment of long-lived assets | | | 65,580,140 | | | | — | | | | 65,580,140 | | | * | |
Goodwill impairment | | | 282,173,053 | | | | — | | | | 282,173,053 | | | * | |
Total operating expenses | | $ | 413,525,203 | | | $ | 90,428,660 | | | $ | 323,096,543 | | | | 357 | % |
* Not meaningful. | | | | | | | | | | | | |
Sales & marketing
The decrease in sales & marketing expenses for the year ended December 31, 2023, of $1.3 million, compared to the year ended December 31, 2022, was mainly due to a $0.9 million decrease in bonus expense due to reversal of bonus accrual from 2022. The remaining decrease of $0.4 million was due to decreases in advertising and promotion costs including a reduction in trade show expenses.
General & administrative
The decrease in general & administrative expenses for the year ended December 31, 2023 of $20.3 million, compared to the year ended December 31, 2022, was primarily due to a $14.4 million decrease in professional fees due to decreased legal costs associated with the SEC investigation, the related lawsuits, and acquisition costs, a $3.5 million decrease in salaries and benefits due to a decreased headcount as a result of the Realignment and Consolidation Plan, a $2.1 million decrease in bonus expense due to a reversal of bonus accrual in 2023, a $1.0 million decrease in rent and utilities and travel related expenses, and a $0.4 million decrease in IT related expenses, partially offset by a $0.6 million increase in inventory write-off charges, a $0.3 million increase in directors fees, and a $0.2 million increase in insurance premiums.
Research & development
The increase in research & development expenses for the year ended December 31, 2023 of $2.7 million, compared to the year ended December 31, 2022, was primarily due to a $2.7 million increase in salaries and benefits due to increased headcount as a result of expansion in facilities and laboratories in late 2022 through early 2023, the acquisitions of PAL and Optodot in Q2 2022, a $1.1 million increase in rent and utilities due to lease expansion in different R&D facilities in the USA and UK, a $0.1 million increase in IP related expenses, and a $0.7 million increase in R&D materials, partially offset by a $1.2 million decrease in bonus expense due to a reversal of bonus accrual in 2023, a $0.5 million decrease in travel and other costs, and a $0.1 million decrease in consulting expense.
Depreciation & amortization expense in Operating expenses
For the year ended December 31, 2023, as compared to the same period of 2022, depreciation and amortization expenses increased by $2.9 million and $1.3 million, respectively. The increase in depreciation was mainly due to the completion of leasehold improvements at Highfield resulting in the onset of depreciation of the asset in Q1 2023. The increase in amortization was primarily due to intangible assets acquired in Q2 2022 as part of the PAL and Optodot acquisitions.
Stock-based compensation expense in Operating expenses
For the year ended December 31, 2023, as compared to the same period of 2022, stock-based compensation expenses decreased by $13.9 million. The decrease was mainly due to less equity-based awards granted during the year ended December 31, 2023 compared to 2022, and a significant increase in forfeitures of equity-based awards in fiscal 2023 as a result of the Realignment and Consolidation Plan.
Restructuring expense
For the year ended December 31, 2023, we recorded $3.9 million of restructuring expenses in relation to the Realignment and Consolidation Plan. There were no such expenses during the year ended December 31, 2022.
Impairment of long-lived assets
For the year ended December 31, 2023, we recognized non-cash impairment charges totaling $65.6 million. These charges are related to the impairment of $26.5 million of property, plant and equipment, $6.9 million of ROU assets and $32.2 million related to patents acquired through the PAL and Optodot acquisitions. The impairment was based on our ongoing evaluation of asset utility and alignment with strategic investment priorities, consideration for current year performance relative to expectations, in particular for the period subsequent to the Realignment and Consolidation Plan, as well as our updated assessment of the future cash flow generation from these asset groups. See Note 24 in the notes to the Consolidated Financial Statements in Part II, Item 8 of this Annual Report for more information.
Goodwill impairment
For the year ended December 31, 2023, we recorded $282.2 million of goodwill impairment as a result of a sustained decline in our market capitalization. Based on a quantitative interim goodwill impairment test performed at June 30, 2023, we concluded that the carrying value of the reporting unit was higher than its estimated fair value, which was determined using the market valuation method.
This resulted in the impairment of the entire carrying value of goodwill as of June 30, 2023. There was no goodwill impairment recognized during the year ended December 31, 2022.
Other Income (Expense), net
| | | | | | | | | | | | | | | | |
| | Year ended December 31, | |
| | 2023 | | | 2022 | | | Change | |
| | $ | | | $ | | | $ | | | % | |
Interest expense, net | | $ | (378,657 | ) | | $ | (174,234 | ) | | $ | (204,423 | ) | | | 117 | % |
Realized gain (loss) on foreign exchange, net | | | (368,522 | ) | | | 35,791 | | | | (404,313 | ) | | | -1130 | % |
Unrealized gain (loss) on foreign exchange, net | | | 1,992,445 | | | | (2,090,238 | ) | | | 4,082,683 | | | | -195 | % |
Gain on deconsolidation of wholly-owned subsidiary | | | — | | | | 3,990,737 | | | | (3,990,737 | ) | | | -100 | % |
Gain on sale of Next Bridge Notes Receivable | | | 6,750,195 | | | | — | | | | 6,750,195 | | | * | |
Other expenses, net | | | (737,391 | ) | | | (3,433,757 | ) | | | 2,696,366 | | | | -79 | % |
Total other income (expense), net | | $ | 7,258,070 | | | $ | (1,671,701 | ) | | $ | 8,929,771 | | | | -534 | % |
* Not meaningful. | | | | | | | | | | | | |
Interest expense, net
The increase in net interest expense for the year ended December 31, 2023, of $0.2 million, compared to the year ended December 31, 2022, was primarily due to a $0.2 million increase in non-cash interest expense and bank charges.
Realized gain (loss) on foreign exchange, net
The shift from the realized gain on foreign exchange, net for the year ended December 31, 2022 to the realized loss on foreign exchange, net for the year ended December 31, 2023, was primarily due to transfers from a Canadian Dollar account to a US Dollar account within the Canadian financial institution for the purpose of paying suppliers in USD. This shift to using the Canadian financial institution's USD account was a temporary measure following the closure of Silicon Valley Bank, until we opened new accounts with a US bank in August 2023.
Unrealized gain (loss) on foreign exchange, net
The change in net gain on foreign exchange of $4.1 million for the year ended December 31, 2023, compared to the year ended December 31, 2022, was primarily driven by revaluations of intercompany balances in different currencies, mainly as a result of the devaluation of the Canadian dollar against the US dollar during 2022. In contrast, the Canadian dollar was relatively stable in 2023.
Gain on deconsolidation of wholly-owned subsidiary
A gain of $4.0 million for the year ended December 31, 2022 was recognized as a result of the deconsolidation of Next Bridge on December 14, 2022. The gain was comprised of the recognition of a note receivable at estimated fair value from Next Bridge for $2.2
million and a $1.8 million gain resulting from the derecognition of Next Bridge working capital (or a decrease in our consolidated net liabilities) on December 14, 2022.
Gain on sale of Next Bridge Notes Receivable
For the year ended December 31, 2023, the $6.8 million gain on sale of notes receivable was a result of the sale of the Next Bridge Notes Receivable, see Note 5, Notes Receivable, in the notes to the Consolidated Financial Statements in Part II, Item 8 of this Annual Report for further information.
Other expenses, net
The decrease in other expenses of $2.7 million for the year ended December 31, 2023, as compared to the year ended December 31, 2022, was primarily due to a reduction of $3.9 million in costs incurred in relation to certain drilling activity we carried out at our oil and gas ("O&G") properties, a $0.4 million increase in government assistance, and $0.3 million of interest income from the Next Bridge Notes Receivable, partially offset by a $0.8 million increase in credit loss expense related to the Next Bridge Notes Receivable and a $0.8 million increase in fair value loss on funding obligation.
Income Tax Recovery
| | | | | | | | | | | | | | | | |
| | Year ended December 31, | |
| | 2023 | | | 2022 | | | Change | |
| | $ | | | $ | | | $ | | | % | |
Income tax recovery | | $ | 3,344,213 | | | $ | 5,834,160 | | | $ | (2,489,947 | ) | | | -43 | % |
The decrease in our income tax recovery for the year ended December 31, 2023 of $2.5 million, as compared to the year ended December 31, 2022, was driven by a decrease in net loss before tax excluding goodwill impairment and impairment loss on long term assets.
We have provided a valuation allowance for various jurisdictions as a result of our historical net losses. We continue to assess our future taxable income by jurisdiction based on our recent historical operating results, the expected timing of reversal of temporary differences, various tax planning strategies that we may be able to implement, the impact of potential operating changes on our business and our forecast results from operations in future periods based on available information at the end of each reporting period.
To the extent that we are able to reach the conclusion that deferred tax assets are realizable based on any combination of the above factors in a single, or multiple, taxing jurisdictions, a reversal of the related portion of our existing valuation allowances may occur.
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 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 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 plan for and generate revenue from current and prospective customers, our 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 December 31, 2023, we had cash and cash equivalents of $10.3 million including $0.6 million in restricted cash compared to $11.8 million in cash, cash equivalents on December 31, 2022, including $1.7 million in restricted cash.
During the year ended December 31, 2023, our principal sources of liquidity included $8.0 million of revenue, $11.9 million of net proceeds obtained through the issuance of common stock under the ATM Program, $22.1 million of net proceeds obtained from the equity offering in April 2023, $5.6 million of net proceeds obtained from the equity offering in December 2023, $6.1 million in relation to the sale of Next Bridge Notes Receivable, $1.0 million related to the collection from Next Bridge Notes Receivable, $2.0 million from the sale of common stock through the LPC Purchase Agreement, $0.8 million of proceeds from the exercise of stock options and $0.4 million in relation to the SPA with Mr. McCabe. See Note 11, Capital Stock, in the notes to the Consolidated Financial Statements in Part II, Item 8 of this Annual Report for further information. Subsequent to December 31, 2023, we entered into the Release Agreement with Mr. McCabe pursuant to which we and Mr. McCabe agreed to terminate the SPA. Upon the settlement, we received $0.7 million.
During the year ended December 31, 2022, our principal sources of liquidity included $46.3 million of net proceeds obtained through the issuance of common stock and warrants, proceeds from a below-market capital government loan of $1.1 million and revenue of approximately $10.2 million.
During the year ended December 31, 2023, our primary uses of liquidity included $23.7 million in salaries, $12.6 million mainly in legal, consulting, investor relations, auditing and accounting fees, $8.4 million in capital expenditures, $4.5 million in rent and utilities,
$4.3 million in R&D material and patent fees, $3.9 million in restructuring cost, $3.5 million in travel, advertising, trade show cost and dues and subscriptions, and $2.7 million in insurance.
During the year ended December 31, 2022, our primary uses of liquidity included $26.5 million in salaries, $25.1 million mainly in legal, consulting, investor relations, auditing and accounting fees, $19.6 million in capital expenditures, $4.6 million in acquisitions cost, $4.0 million in rent and utilities, $3.5 million in R&D material and patent fees, $3.1 million in travel, advertising, travel show cost and dues and subscriptions, and $2.5 million in insurance.
During the year ended December 31, 2023, our board of directors approved the Realignment and Consolidation Plan pursuant to which we have begun, but not yet completed, the process of realigning our corporate structure with the goal of reducing our operating expenses and focusing on key applications which represent the greatest near-term revenue potential. Restructuring expenses, not factoring in non-cash losses arising from the impairment of goodwill and long-term assets, are expected to be approximately $4.1 million. The Realignment and Consolidation Plan reduced our operating expenses by $15.0 million in fiscal 2023, excluding the non-cash losses from impairment of goodwill and long-term assets, during the year ended December 31, 2023 compared to the year ended December 31, 2022. Prior to implementing the Realignment and Consolidation Plan, our average monthly cash burn rate was $5.7 million. By the end of the fiscal year on December 31, 2023, after enforcing strict payment controls, this rate was reduced to $2.3 million, representing a decrease of approximately 60%. It is important to note that we expect our monthly expenditures to increase to the range of $3.5 million to $4.0 million as we return to a regular payment schedule, as well as upon obtaining financing sufficient to sustain this activity, and may potentially exceed this range when we intensify investments in our core business operations to drive growth. We may incur additional expenses not currently contemplated due to events associated with the Realignment and Consolidation Plan. The remaining charges that we expect to incur in connection with the Realignment and Consolidation Plan are estimates subject to a number of assumptions, and actual results may differ materially.
We will require additional funding to continue as a going concern and are dependent on raising capital to expand the commercialization of our products, fund our operations and further our research and development activities and ultimately attain profitable operations. Future capital requirements may vary materially from period to period and will depend on many factors, including the timing and extent of spending on research and development efforts and the ongoing investments to support the growth of our business.
June 2022 Registered Direct Offering
In June 2022, we completed a registered direct offering to certain institutional investors of 370,370 shares of our common stock at a purchase price of $135.00 per share and warrants to purchase 370,370 shares at an exercise price of $175.00 per share. This resulted in gross proceeds from the offering of $50.0 million and net proceeds of $46.3 million.
Shelf Registration
On November 9, 2022, we filed a “universal” shelf registration statement File No. (333-268282) on Form S-3 allowing us to issue certain securities with an aggregate offering price not to exceed $250 million. This registration statement was declared effective by the SEC on November 18, 2022.
At-the-Market Equity Offering Program
During the twelve months ended December 31, 2023, we sold a total of 269,665 shares of our common stock under our at-the-market offering program at a weighted average price of $46.00 per share, generating gross proceeds of $12.3 million and net proceeds of $11.9 million after offering expenses.
April 2023 Offering
On April 18, 2023, we completed a public offering of (i) 833,334 shares of our common stock and (ii) warrants to purchase up to an aggregate of 833,334 shares of our common stock. The combined price to the public in the offering for each share of common stock and accompanying warrant was $30.00. After deducting underwriting discounts and commissions and the offering expenses payable by us, the net proceeds were $22.1 million.
LPC Purchase Agreement
On September 11, 2023, we entered into the LPC Purchase Agreement with Lincoln Park which allows us to sell up to $50.0 million of our common stock to Lincoln Park over 30 months until March 2026. We have the right, but not the obligation, to require Lincoln Park to purchase our common stock, with the number of shares and the timing of these transactions being at our discretion, in accordance with the agreement's terms, provided that the closing sale price per-share of our common stock is above $10.00.
For consideration for entering into the LPC Purchase Agreement, and being obligated to fund up to $50.0 million, we agreed to pay $0.5 million to Lincoln Park as an initial commitment fee for its commitment to purchase shares of common stock under the LPC Purchase Agreement, and as of December 31, 2023, we were obligated to pay an additional $0.5 million to Lincoln Park as further described in the LPC Purchase Agreement.
During the year ended December 31, 2023, we sold a total of 105,000 shares of our common stock under the LPC Purchase Agreement at a weighted average price of $18.69 per share, generating proceeds of $2.0 million. We recorded $1.1 million of issuance costs as a reduction to equity as of December 31, 2023. As of the date of this Annual Report, we are unable to sell our Common Stock under the LPC Purchase Agreement because the closing price -share of our Common Stock is below $10.00.
December 2023 Offering
On December 6, 2023, we completed a registered direct offering to certain institutional and accredited investors. Under this offering, we issued and sold 750,000 shares of our common stock alongside warrants to purchase up to an additional 750,000 shares of common stock. The offering provided us with net proceeds of $5.4 million after deducting placement agent fees and other offering expenses.
February 2024 Offering
On February 21, 2024, we completed a registered direct offering, which included (i) 600,000 shares of common stock, (ii) Pre-funded Warrants for up to 250,000 shares of common stock, and (iii) warrants to purchase up to a total of 850,000 shares of common stock, Through this offering, we secured net proceeds of approximately $3.0 million, after accounting for placement agent fees and other estimated expenses associated with the offering.
Going Concern
In accordance with Accounting Standards Codification ("ASC") 205-40, Going Concern, we evaluated whether there are conditions and events, considered in the aggregate, that raise substantial doubt about our ability to continue as a going concern within one year after the date that the Consolidated Financial Statements included in this Annual Report are issued. This evaluation initially does not take into consideration the potential mitigating effect of our plans that have not been fully implemented as of the date the financial statements are issued. When substantial doubt exists under this methodology, we evaluate whether the mitigating effect of our plans sufficiently alleviates substantial doubt about our ability to continue as a going concern. The mitigating effect of our plans, however, is only considered if both (1) it is probable that the plans will be effectively implemented within one year after the date that the financial statements are issued, and (2) it is probable that the plans, when implemented, will mitigate the relevant conditions or events that raise substantial doubt about our ability to continue as a going concern within one year after the date that the consolidated financial statements are issued. In performing our analysis, we excluded certain elements of our operating plan that cannot be considered probable. Under ASC 205-40, the receipt of potential funding from future partnerships, equity or debt issuances, potential achievement of milestones from customer agreements and reductions in workforce cannot be considered probable at this time because these plans are not entirely within our control and/or have not been approved by our board of directors as of the date of issuance of the Consolidated Financial Statements.
Our expectation to generate operating losses and negative operating cash flows in the future and the need for additional funding to support our planned operations raise substantial doubt regarding our ability to continue as a going concern. Our plans to alleviate the conditions that raise substantial doubt include reduced spending, and the pursuit of additional capital. We have concluded the likelihood that our plan to successfully obtain sufficient funding from one or more of these sources, or adequately reduce expenditures, while possible, is less than probable. Accordingly, we have concluded that substantial doubt exists about our ability to continue as a going concern for a period of at least 12 months from the date of issuance of the Consolidated Financial Statements. See Note 2, Going Concern, in the notes to the Consolidated Financial Statements in Part II, Item 8 of this Annual Report.
The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the ordinary course of business. The financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might result from the outcome of the uncertainties described above.
The following table summarizes META’s cash flows for the periods presented:
| | | | | | | | |
| | Year ended December 31, | |
| | 2023 | | | 2022 | |
Net cash used in operating activities | | $ | (42,218,910 | ) | | $ | (62,244,794 | ) |
Net cash used in investing activities | | | (1,031,517 | ) | | | (19,472,250 | ) |
Net cash provided by financing activities | | | 41,595,305 | | | | 46,367,013 | |
Net decrease in cash, cash equivalents and restricted cash | | $ | (1,655,122 | ) | | $ | (35,350,031 | ) |
Net Cash Used in Operating Activities
During the year ended December 31, 2023, net cash used in operating activities of $42.2 million was primarily driven by a net loss of $398.2 million for the period, and non-cash adjustments of $354.2 million mainly due to goodwill impairment of $282.2 million, impairment of long-lived assets of $65.6 million, depreciation and amortization expense of $13.5 million, non-cash lease expense of $2.0 million, credit loss expense of $1.8 million, non-cash finance expense of $0.8 million, partially offset by deferred income tax of
$3.3 million, unrealized foreign currency exchange gain of $1.7 million, and non-cash interest income of $1.0 million. In addition, cash used was reduced by $1.8 million change in working capital primarily due to a $2.5 million increase of prepaid and other current assets, and $1.2 million of restructuring costs accrual, partially offset by a decrease in operating lease liabilities of $1.5 million, and a decrease in inventory of $0.4 million, along with other changes in working capital.
During the year ended December 31, 2022, net cash used in operating activities of $62.2 million was primarily driven by a net loss of $79.1 million for the period, and non-cash adjustments of $17.2 million mainly due to depreciation and amortization of $9.3 million, stock-based compensation of $13.9 million, unrealized foreign exchange loss of $2.1 million, and non-cash lease expense of $1.6 million, partially offset by $4.0 million gain on deconsolidation of Next Bridge, and $5.8 million deferred income tax recovery, along with other less material line items. In addition, there was $0.4 million cash used by working capital primarily due to a $5.4 million increase of trade and other payables, partially offset by decrease in prepaid and other current assets $4.8 million, along with other changes in working capital.
Net Cash Used in Investing Activities
During the year ended December 31, 2023, net cash used in investing activities of $1.0 million was primarily driven by purchases of property, plant and equipment of $8.4 million, partially offset by $6.1 million in proceeds from sale of Next Bridge Notes Receivable and $1.0 million in proceeds from collection of Next Bridge Notes Receivable.
During the year ended December 31, 2022, net cash used in investing activities of $19.5 million was primarily driven by $19.6 million of capital expenditure associated with the construction of the Highfield Park Facility in Canada as well as the equipment purchases for our facility in Pleasanton, California, United States and $3.5 million cash consideration for the Optodot acquisition, partially offset by proceeds from short-term investments of $2.8 million and proceeds from a below-market capital government loan of $1.1 million.
Net Cash Provided by Financing Activities
During the year ended December 31, 2023, net cash provided by financing activities of $41.6 million was primarily driven by a total of $41.3 million in proceeds, net of the issuance costs, from the issuance of common stock and warrants in the registered direct offerings and $0.8 million in proceeds from stock option and warrants exercises, partially offset by $0.5 million from repayment of long-term debt.
During the year ended December 31, 2022, net cash provided by financing activities of $46.4 million was primarily driven by the cash obtained through the proceeds from the issuance of common stock and warrants through the Securities Purchase Agreements with institutional investors for the purchase and sale in a registered direct offering and $0.6 million proceeds from stock option and warrants exercises, partially offset by $0.6 million loan repayments.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The preparation of financial statements in conformity with U.S. GAAP requires us to make estimates, judgments and assumptions that affect the amounts reported in the Consolidated Financial Statements. These estimates, judgments and assumptions are evaluated on an ongoing basis. We base our estimates on historical experience and on various other assumptions that we believe are reasonable at that time, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ materially from those estimates. The accounting policies that reflect our more significant estimates, judgments and assumptions and which we believe are the most critical to aid in fully understanding and evaluating our reported financial results include the following:
Going Concern
The accompanying Consolidated Financial Statements have been prepared on a going concern basis of accounting, which contemplates continuity of operations, realization of assets and liabilities and commitments in the normal course of business. The accompanying Consolidated Financial Statements do not reflect any adjustments that might result if we are unable to continue as a going concern. In connection with the preparation of the Consolidated Financial Statements for the years ended December 31, 2023 and 2022, we conducted an evaluation as to whether there were conditions and events, considered in the aggregate, which raised substantial doubt as to our ability to continue as a going concern within one year after the date of the issuance of such financial statements, and concluded that substantial doubt existed as to our ability to continue as a going concern as further discussed in Note 2 in the notes to the Consolidated Financial Statements in Part II, Item 8 of this Annual Report.
Under ASC 205-40, the receipt of potential funding from future partnerships, equity or debt issuances, potential achievement of milestones from customer agreements and reductions in workforce cannot be considered probable at this time because these plans are not entirely within our control and/or have not been approved by our board of directors as of the date of issuance of the Consolidated Financial Statements.
Our expectation to generate operating losses and negative operating cash flows in the future and the need for additional funding to support our planned operations, raise substantial doubt regarding our ability to continue as a going concern. Our plans to alleviate the
conditions that raise substantial doubt include reduced spending, and the pursuit of additional capital. We have concluded the likelihood that our plan to successfully obtain sufficient funding from one or more of these sources, or adequately reduce expenditures, while possible, is less than probable.
Goodwill
We have one operating segment in accordance with ASC 280 Segment Reporting. We have similarly determined that we have one reporting unit, to which all goodwill is assigned, in accordance with ASC 350 Intangibles – Goodwill and Other.
Goodwill represents the excess of the purchase price in a business combination over the fair value of net tangible and intangible assets acquired. Goodwill is tested for impairment annually as of December 31 or more frequently on a reporting unit basis when events or changes in circumstances indicate that impairment may have occurred. As defined in the authoritative guidance, a reporting unit is an operating segment, or one level below an operating segment. Historically, we conducted our business in a single operating segment and reporting unit.
We first perform a qualitative assessment to test the reporting unit's goodwill for impairment. Based on the qualitative assessment, if it is determined that the fair value of our reporting unit is more likely than not (i.e. a likelihood of more than 50 percent) to be less than its carrying amount, the quantitative assessment of the impairment test is performed. In the quantitative assessment, we compare the fair value of our reporting unit to its carrying value. If the fair value of the reporting unit exceeds its carrying value, goodwill is not considered impaired and we are not required to perform further testing. If the carrying value of the net assets of the reporting unit exceeds its fair value, then an impairment loss equal to the difference, but not exceeding the total carrying value of goodwill allocated to the reporting unit, would be recorded.
As a result of the continued and sustained decline in the price of our common shares in the year ended December 31, 2023, we determined there to be an indicator of impairment for our one reporting unit to which goodwill is assigned. As a result, we performed a quantitative interim goodwill impairment assessment as of June 30, 2023. We concluded that the carrying value of the reporting unit was higher than its estimated fair value, and we recognized a goodwill impairment loss totaling $282.2 million, which represented the entirety of goodwill.
The estimated fair value of the reporting unit was determined using the market valuation method, which is consistent with the methodology we used in the annual impairment test conducted at December 31, 2022. The most significant assumption used in applying this method was our share price.
Revenue Recognition
Our revenue is generated from product sales and licensing revenue as well as development revenue. We recognize revenue when it satisfies performance obligations under the terms of its contracts, and control of our products is transferred to our customers in an amount that reflects the consideration we expect to receive from our customers in exchange for those products or services.
Revenue from the sale of prototypes and finished products is recognized at the point in time when control of the asset is transferred to the customer, generally on delivery of goods. We consider whether there are other obligations in the contract that are separate performance obligations to which a portion of the transaction price needs to be allocated. In determining the transaction price for the sale of prototypes, we consider the effects of variable consideration, the existence of significant financial components, non-cash consideration and consideration payable to the customer (if any).
Revenue from development activities is recognized over time, using an output method to measure progress towards complete satisfaction of the research activities and whether associated performance obligations identified within each contract have been satisfied.
Our licensing revenue is currently derived from per-unit royalty agreements. We record per unit royalty revenue in the same period in which the licensee’s underlying production occurs based on the usage or production reports obtained from the licensees. When such reports are not available during a given quarter within the time frame that allows us to adequately review the reports and include the actual amounts in the quarterly results for such quarter, we accrue the related revenue based on estimates of the licensees’ underlying production or usage. We develop such estimates based on a combination of available data including, but not limited to, customer forecasts, a lookback at historical royalty reporting for each of its customers, and industry information available for the licensed products.
Acquired Intangibles
In accordance with ASC 805 Business Combinations, we allocate the purchase price of acquired companies to the tangible and intangible assets acquired and the liabilities assumed based on their estimated fair values. Such valuations may require management to make significant estimates and assumptions, especially with respect to intangible assets. Acquired intangible assets consist of acquired technology and customer relationships. In valuing acquired intangible assets, we make assumptions and estimates based in part on projected financial information, which makes assumptions and estimates inherently uncertain, particularly for early-stage technology companies. The significant estimates and assumptions used by us in the determination of the fair value of acquired intangible technology
assets include the revenue growth rate and the discount rate. The significant estimates and assumptions used by us in the determination of the fair value of acquired customer contract intangible assets include the revenue growth rate and the discount rate.
As a result of the judgments that need to be made, we obtain the assistance of independent valuation firms. We complete these assessments as soon as practical after the closing dates. Any excess of the purchase price over the estimated fair values of the identifiable net assets acquired is recorded as goodwill.
Although we believe the assumptions and estimates of fair value we have made in the past have been reasonable and appropriate, they are based in part on historical experience and information obtained from the management of the acquired companies and are inherently uncertain and subject to refinement. Unanticipated events and circumstances may occur that may affect the accuracy or validity of such assumptions, estimates or actual results. As a result, during the measurement period, which may be up to one year from the acquisition date, we record adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill, if the changes are related to conditions that existed at the time of the acquisition. Upon the conclusion of the measurement period or final determination of the values of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments, based on events that occurred subsequent to the acquisition date, are recorded in our Consolidated Statements of Operations and Comprehensive loss.
Business Combinations
We allocate the fair value of purchase consideration to the tangible assets acquired, liabilities assumed, and intangible assets acquired based on their estimated fair values. The excess of the fair value of purchase consideration over the fair values of these identifiable assets and liabilities is recorded as goodwill to reporting units based on the expected benefit from the business combination. Allocation of purchase consideration to identifiable assets and liabilities affects the amortization expense, as acquired finite-lived intangible assets are amortized over the useful life, whereas any indefinite-lived intangible assets, including goodwill, are not amortized. During the measurement period, which is not to exceed one year from the acquisition date, we record adjustments to the assets acquired and liabilities assumed, with the corresponding offset to goodwill. Upon the conclusion of the measurement period, any subsequent adjustments are recorded to earnings. Acquisition-related expenses are recognized separately from business combinations and are expensed as incurred.
Valuation of Long-lived Assets
For long-lived tangible and intangible assets, including property and equipment, right-of-use (“ROU”) assets, and definite-lived intangible assets, we assess the potential impairment periodically or whenever events or changes in circumstances indicate the carrying value may not be recoverable from the estimated undiscounted expected future cash flows expected to result from their use and eventual disposition. In cases where the estimated undiscounted expected future cash flows are less than net book value, an impairment loss is recognized equal to the amount by which the net book value exceeds the estimated fair value of assets. We perform our assessment of potential qualitative impairment indicators of long-lived assets, including property and equipment, ROU assets outside of exited markets, and definite-lived intangible assets when specific events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable.
Estimating future cash flows requires significant judgment, and our projections may vary from the cash flows eventually realized. Future events and unanticipated changes to assumptions could result in an impairment in the future. Although the impairment is a non-cash expense, it could materially affect our future financial results and financial condition. See Note 16, Fair Value Measurements, in the notes to the Consolidated Financial Statements in Part II, Item 8 of this Annual Report for further details.
Stock-based Compensation
We recognize stock-based compensation expense for only those shares underlying stock options and restricted stock units that we expect to vest on a straight-line basis over the requisite service period of the award. We estimate the fair value of stock options using a Black-Scholes option-pricing model, which requires the input of highly subjective assumptions, including the option's expected term and stock price volatility. In addition, judgment is also required in estimating the number of stock-based awards that are expected to be forfeited. Forfeiture rates are estimated based on historical experience and the current downsizing plan under the Realignment and Consolidation initiative, at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. The assumptions used in calculating the fair value of share-based payment awards represent management's best estimates, but these estimates involve inherent uncertainties and the application of management's judgment. As a result, if factors change and we use different assumptions, our stock-based compensation expense could be materially different in the future.
Commitments and Contractual Obligations
For a description of our commitments and contractual obligations, please see Note 23, Leases, as well as Note 27, Commitments and Contingencies, in the notes to the Consolidated Financial Statements in Part II, Item 8 of this Annual Report.
Off-balance Sheet Arrangements
Off-balance sheet firm commitments relating to an outstanding letter of credit amounted to approximately $0.5 million as of December 31, 2023, which is secured by restricted cash. Please see Note 27, Commitments and Contingencies, in the notes to the Consolidated Financial Statements in Part II, Item 8 of this Annual Report. We do not maintain any other off-balance sheet arrangements.
Recent Accounting Pronouncements
For a description of recent accounting pronouncements, including the expected dates of adoption and estimated effects, if any, on our Consolidated Financial Statements, please see Note 3, Significant Accounting Policies, in the notes to the Consolidated Financial Statements in Part II, Item 8 of this Annual Report.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
This item is not required for a smaller reporting company.
Item 8. Financial Statements and Supplementary Data.
Report of Independent Registered Public Accounting Firm
To the Stockholders and Board of Directors
Meta Materials Inc.:
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Meta Materials Inc. and subsidiaries (the Company) as of December 31, 2023 and 2022, the related consolidated statements of operations and comprehensive loss, changes in stockholders’ equity, and cash flow for each of the years in the two-year period ended December 31, 2023 and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the years in the two year period ended December 31, 2023, in conformity with U.S. generally accepted accounting principles.
Going Concern
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the consolidated financial statements, the Company has suffered recurring losses and negative cash flows from operations and requires additional financing to fund its operations that raise substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 2. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Impairment of Long-lived Assets
As discussed in Note 3 to the consolidated financial statements, long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of a long-lived asset may not be recoverable. For the purpose of assessing impairment, long-lived assets are grouped at the lowest levels for which there are identifiable cash flows that are largely independent of the cash flows from other long-lived assets or groups of long-lived assets (asset groups). As discussed in Note 8 to the consolidated financial statements, the Company identified indicators of impairment in certain asset groups and the carrying amounts of these asset groups exceeded their fair values, leading to an impairment loss of $65.6 million. As discussed in Note 16 to the consolidated financial statements, the fair value of each asset group was calculated utilizing an income approach. The income approach uses a discounted cash flow model that requires various observable and non-observable inputs, the most significant of which is estimated income.
We identified the evaluation of the impairment of long-lived assets as a critical audit matter. Subjective auditor judgment was required to evaluate the methodology used by the Company to determine the fair values of the asset groups with indicators of impairment. Specifically, evaluating whether the methodology used reflected a market participant’s determination of the asset groups’ highest and best use required involvement of valuation professionals with specialized skills and knowledge. There was a high degree of auditor subjectivity in applying our audit procedures and in evaluating the results relating to the Company’s significant assumptions, specifically estimated income.
The following are the primary procedures we performed to address this critical audit matter. We compared the Company’s historical forecasts to actual results to assess the Company’s ability to accurately forecast. We compared the estimated income to historical results for each asset group. We evaluated the Company’s assumptions for estimated income by comparing to available agreements, communications with customers, and industry information. We involved valuation professionals with specialized skills and knowledge, who (1) assisted in evaluating the methodology selected to determine the fair values of the asset groups and (2) compared the Company’s fair value determinations to available market information and market transactions relevant to each asset group.
/s/ KPMG LLP
Chartered Professional Accountants, Licensed Public Accountants
We have served as the Company’s auditor since 2020.
Vaughan, Canada
March 28, 2024
META MATERIALS INC.
CONSOLIDATED BALANCE SHEETS
| | | | | | | | |
| | As of December 31, | |
| | 2023 | | | 2022 | |
Assets | | | | | | |
Current assets: | | | | | | |
Cash and cash equivalents | | $ | 9,723,690 | | | $ | 10,090,858 | |
Restricted cash | | | 578,406 | | | | 1,720,613 | |
Accounts receivables | | | 942,793 | | | | 902,718 | |
Subscription receivables | | | 881,100 | | | | — | |
Notes receivable, net of allowance for credit loss | | | — | | | | 2,211,900 | |
Inventory | | | 168,747 | | | | 468,027 | |
Prepaid expenses and other current assets | | | 5,071,363 | | | | 7,202,099 | |
Due from related parties | | | 29,906 | | | | 8,461 | |
Total current assets | | | 17,396,005 | | | | 22,604,676 | |
Intangible assets, net | | | 18,030,301 | | | | 56,313,317 | |
Property, plant and equipment, net | | | 18,601,614 | | | | 42,674,699 | |
Operating lease ROU assets | | | 1,200,417 | | | | 5,576,824 | |
Goodwill | | | — | | | | 281,748,466 | |
Total assets | | $ | 55,228,337 | | | $ | 408,917,982 | |
Liabilities and stockholders’ equity | | | | | | |
Current liabilities: | | | | | | |
Trade payables | | $ | 10,270,386 | | | $ | 6,941,498 | |
Accruals and other payables | | | 7,249,291 | | | | 9,752,713 | |
Restructuring costs accrual | | | 1,182,112 | | | | — | |
Current portion of long-term debt | | | 801,628 | | | | 483,226 | |
Current portion of deferred revenues | | | 1,054,557 | | | | 730,501 | |
Current portion of deferred government assistance | | | 590,954 | | | | 799,490 | |
Current portion of funding obligation | | | 982,912 | | | | — | |
Current portion of operating lease liabilities | | | 1,452,863 | | | | 967,126 | |
Total current liabilities | | | 23,584,703 | | | | 19,674,554 | |
Deferred revenues | | | 419,035 | | | | 479,808 | |
Deferred government assistance | | | 391,148 | | | | 319,017 | |
Deferred tax liabilities | | | — | | | | 3,253,985 | |
Long-term operating lease liabilities | | | 5,973,657 | | | | 3,375,031 | |
Long-term funding obligation | | | — | | | | 180,705 | |
Long-term debt | | | 2,922,989 | | | | 3,070,729 | |
Total liabilities | | | 33,291,532 | | | | 30,353,829 | |
Commitments and contingencies (Note 27) | | | | | | |
Stockholders’ equity | | | | | | |
Common stock - $0.001 par value; 10,000,000 shares authorized, 5,659,438 shares issued and outstanding at December 31, 2023, and $0.001 par value; 10,000,000 shares authorized, 3,622,479 shares issued and outstanding at December 31, 2022 | | | 543,046 | | | | 340,425 | |
Additional paid-in capital | | | 635,860,437 | | | | 590,962,866 | |
Accumulated other comprehensive loss | | | (5,455,145 | ) | | | (5,242,810 | ) |
Accumulated deficit | | | (609,011,533 | ) | | | (207,496,328 | ) |
Total stockholders’ equity | | | 21,936,805 | | | | 378,564,153 | |
Total liabilities and stockholders’ equity | | $ | 55,228,337 | | | $ | 408,917,982 | |
The accompanying notes are an integral part of these Consolidated Financial Statements.
META MATERIALS INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
| | | | | | | | |
| | Year ended December 31, | |
| | 2023 | | | 2022 | |
Revenue: | | | | | | |
Product sales | | $ | 117,354 | | | $ | 1,211,746 | |
Development revenue | | | 7,223,141 | | | | 8,650,545 | |
Licensing revenue | | | 625,151 | | | | 337,876 | |
Total revenue | | | 7,965,646 | | | | 10,200,167 | |
Cost of sales (exclusive of items shown separately below) | | | 2,900,290 | | | | 2,426,488 | |
Depreciation and amortization expense included in cost of sales | | | 39,329 | | | | 65,234 | |
Stock-based compensation expense included in cost of sales | | | 334,645 | | | | 544,468 | |
Gross profit | | | 4,691,382 | | | | 7,163,977 | |
Operating expenses: | | | | | | |
Sales & marketing | | | 4,346,226 | | | | 5,679,113 | |
General & administrative | | | 25,151,098 | | | | 45,413,948 | |
Research & development | | | 19,206,128 | | | | 16,508,417 | |
Depreciation & amortization expenses | | | 13,483,380 | | | | 9,207,453 | |
Stock-based compensation (recovery) expense | | | (298,528 | ) | | | 13,619,729 | |
Restructuring expense | | | 3,883,706 | | | | — | |
Impairment of long-lived assets | | | 65,580,140 | | | | — | |
Goodwill impairment | | | 282,173,053 | | | | — | |
Total operating expenses | | | 413,525,203 | | | | 90,428,660 | |
Loss from operations | | | (408,833,821 | ) | | | (83,264,683 | ) |
Interest expense, net | | | (378,657 | ) | | | (174,234 | ) |
Realized gain (loss) on foreign exchange, net | | | (368,522 | ) | | | 35,791 | |
Unrealized gain (loss) on foreign exchange, net | | | 1,992,445 | | | | (2,090,238 | ) |
Gain on deconsolidation of wholly-owned subsidiary | | | — | | | | 3,990,737 | |
Gain on sale of Next Bridge Notes Receivable | | | 6,750,195 | | | | — | |
Other expenses, net | | | (737,391 | ) | | | (3,433,757 | ) |
Total other income (expense), net | | | 7,258,070 | | | | (1,671,701 | ) |
Loss before income taxes | | | (401,575,751 | ) | | | (84,936,384 | ) |
Income tax recovery | | | 3,344,213 | | | | 5,834,160 | |
Net loss | | $ | (398,231,538 | ) | | $ | (79,102,224 | ) |
Other comprehensive loss, net of tax | | | | | | |
Unrealized foreign currency translation loss | | | (212,335 | ) | | | (4,945,874 | ) |
Total other comprehensive loss | | | (212,335 | ) | | | (4,945,874 | ) |
Comprehensive loss | | $ | (398,443,873 | ) | | $ | (84,048,098 | ) |
Basic and diluted loss per share | | $ | (69.67 | ) | | $ | (24.09 | ) |
Weighted average number of shares outstanding - basic and diluted | | | 5,763,446 | | | | 3,283,505 | |
The accompanying notes are an integral part of these Consolidated Financial Statements.
META MATERIALS INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | Accumulated | | | | | | | |
| | | | | | | Additional | | | Other | | | | | | Total | |
| Common Stock | | | Paid-in | | | Comprehensive | | | Accumulated | | | Stockholders’ | |
| Shares (1) | | | Amount | | | Capital | | | Income (loss) | | | Deficit | | | Equity | |
Balance, January 1, 2022 | | 2,845,733 | | | $ | 262,751 | | | $ | 463,136,404 | �� | | $ | (296,936 | ) | | $ | (128,394,104 | ) | | $ | 334,708,115 | |
Net loss | | — | | | | — | | | | — | | | | — | | | | (79,102,224 | ) | | | (79,102,224 | ) |
Other comprehensive loss | | — | | | | — | | | | — | | | | (4,945,874 | ) | | | — | | | | (4,945,874 | ) |
Issuance of common stock and warrants | | 370,370 | | | | 37,037 | | | | 49,962,963 | | | | — | | | | — | | | | 50,000,000 | |
Stock issuance costs | | — | | | | — | | | | (3,680,666 | ) | | | — | | | | — | | | | (3,680,666 | ) |
Exercise of stock options | | 16,885 | | | | 1,688 | | | | 447,023 | | | | — | | | | — | | | | 448,711 | |
Exercise of warrants | | 16,237 | | | | 1,624 | | | | 167,950 | | | | — | | | | — | | | | 169,574 | |
Settlement of restricted stock units | | 6,585 | | | | 659 | | | | (18,686 | ) | | | — | | | | — | | | | (18,027 | ) |
Issuance of stock in connection with acquisitions | | 364,437 | | | | 36,444 | | | | 67,086,069 | | | | — | | | | — | | | | 67,122,513 | |
Stock-based compensation | | 2,231 | | | | 222 | | | | 13,861,809 | | | | — | | | | — | | | | 13,862,031 | |
Balance, December 31, 2022 | | 3,622,478 | | | $ | 340,425 | | | $ | 590,962,866 | | | $ | (5,242,810 | ) | | $ | (207,496,328 | ) | | $ | 378,564,153 | |
Net loss | | — | | | | — | | | | — | | | | — | | | | (398,231,538 | ) | | | (398,231,538 | ) |
Other comprehensive loss | | — | | | | — | | | | — | | | | (212,335 | ) | | | — | | | | (212,335 | ) |
Issuance of common stock and warrants | | 1,987,263 | | | | 197,652 | | | | 45,457,812 | | | | — | | | | — | | | | 45,655,464 | |
Stock issuance costs | | — | | | | — | | | | (5,923,425 | ) | | | — | | | | — | | | | (5,923,425 | ) |
Exercise of stock options | | 26,351 | | | | 2,635 | | | | 708,860 | | | | — | | | | — | | | | 711,495 | |
Exercise of warrants | | 5,263 | | | | 526 | | | | 91,070 | | | | — | | | | — | | | | 91,596 | |
Settlement of restricted stock units | | 18,083 | | | | 1,808 | | | | (1,808 | ) | | | — | | | | — | | | | — | |
Stock-based compensation | | — | | | | — | | | | 375,662 | | | | — | | | | — | | | | 375,662 | |
Fair value adjustment of June 2022 Warrants | | — | | | | — | | | | 905,733 | | | | — | | | | — | | | | 905,733 | |
Deemed dividends for down round provision in warrants | | — | | | | — | | | | 3,283,667 | | | | — | | | | (3,283,667 | ) | | | — | |
Balance, December 31, 2023 | | 5,659,438 | | | $ | 543,046 | | | $ | 635,860,437 | | | $ | (5,455,145 | ) | | $ | (609,011,533 | ) | | $ | 21,936,805 | |
(1) In accordance with SAB Topic 4.C, all number of shares have been adjusted retroactively to reflect the Reverse Stock Split on January 29, 2024.
The accompanying notes are an integral part of these Consolidated Financial Statements.
META MATERIALS INC.
CONSOLIDATED STATEMENTS OF CASH FLOW
| | | | | | | | |
| | Year ended December 31, | |
| | 2023 | | | 2022 | |
Cash flows from operating activities: | | | | | | |
Net loss | | $ | (398,231,538 | ) | | $ | (79,102,224 | ) |
Adjustments to reconcile net loss to net cash used in operating activities: | | | | | | |
Non-cash finance expense (income) | | | 822,159 | | | | (135,524 | ) |
Non-cash interest expense | | | 385,170 | | | | 403,317 | |
Non-cash interest income | | | (1,001,662 | ) | | | — | |
Non-cash lease expense | | | 2,032,867 | | | | 1,608,992 | |
Non-cash goodwill impairment | | | 282,173,053 | | | | — | |
Deferred income tax | | | (3,344,213 | ) | | | (5,834,160 | ) |
Depreciation and amortization expense | | | 13,522,756 | | | | 9,272,074 | |
Inventory write off | | | 698,223 | | | | 108,004 | |
Credit loss expense | | | 1,799,977 | | | | — | |
Impairment of long-lived assets | | | 65,580,140 | | | | — | |
Unrealized foreign currency exchange (gain) loss | | | (1,733,024 | ) | | | 2,050,029 | |
Gain on deconsolidation of wholly-owned subsidiary | | | — | | | | (3,990,737 | ) |
Change in deferred revenue | | | 239,749 | | | | (129,679 | ) |
Non-cash government assistance | | | (233,467 | ) | | | (3,047 | ) |
Gain on sale of property, plant and equipment | | | — | | | | (783 | ) |
Gain on sale of Next Bridge Notes Receivable | | | (6,750,195 | ) | | | — | |
Stock-based compensation and other non-cash personnel expense (recovery) | | | (186,401 | ) | | | 13,184,396 | |
Non-cash consulting expense | | | 222,516 | | | | 677,638 | |
Changes in operating assets and liabilities | | | 1,784,980 | | | | (353,090 | ) |
Net cash used in operating activities | | | (42,218,910 | ) | | | (62,244,794 | ) |
Cash flows from investing activities: | | | | | | |
Purchases of property, plant and equipment | | | (8,371,090 | ) | | | (19,587,511 | ) |
Proceeds from sale of property, plant and equipment | | | — | | | | 39,140 | |
Proceeds from short-term investments | | | — | | | | 2,811,152 | |
Proceeds from below-market capital government loan | | | 256,240 | | | | 1,071,862 | |
Proceeds from collection of Next Bridge Notes Receivable | | | 1,000,000 | | | | — | |
Acquisition of business, net of cash acquired | | | — | | | | (3,486,906 | ) |
Proceeds from sale of Next Bridge Notes Receivable | | | 6,083,333 | | | | — | |
Loan advance pursuant to deconsolidation | | | — | | | | (319,987 | ) |
Net cash used in investing activities | | | (1,031,517 | ) | | | (19,472,250 | ) |
Cash flows from financing activities: | | | | | | |
Proceeds from the issuance of common stock and warrants | | | 45,655,464 | | | | 50,000,000 | |
Stock issuance costs paid on the issuance of common stock and warrants | | | (4,340,783 | ) | | | (3,680,666 | ) |
Repayments of long-term debt | | | (522,467 | ) | | | (552,579 | ) |
Proceeds from stock option and warrants exercises | | | 803,091 | | | | 618,285 | |
Repurchases of common stock for income tax withheld upon settlement of restricted stock units | | | — | | | | (18,027 | ) |
Net cash provided by financing activities | | | 41,595,305 | | | | 46,367,013 | |
Net decrease in cash, cash equivalents and restricted cash | | | (1,655,122 | ) | | | (35,350,031 | ) |
Cash, cash equivalents and restricted cash at beginning of the year | | | 11,811,471 | | | | 47,434,472 | |
Effects of exchange rate changes on cash, cash equivalents and restricted cash | | | 145,747 | | | | (272,970 | ) |
Cash, cash equivalents and restricted cash at end of the year | | $ | 10,302,096 | | | $ | 11,811,471 | |
Supplemental cash flow information | | | | | | |
Accrued purchases of property, equipment and patents | | $ | 959,093 | | | $ | 2,270,887 | |
Right-of-use assets obtained in exchange for lease liabilities | | $ | 1,434,186 | | | $ | 288,499 | |
Common stock issuance costs in accrued liabilities or accounts payable | | $ | 676,909 | | | $ | — | |
Deemed dividends on warrants upon trigger of downround feature | | $ | 3,283,667 | | | $ | — | |
Non-cash issuance costs as a result of amendment of June 2022 warrants | | $ | 905,733 | | | $ | — | |
The accompanying notes are an integral part of these Consolidated Financial Statements.
META MATERIALS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Corporate Information
Meta Materials Inc. (also referred to herein as the “Company”, “META®”, “META”, “we”, “us”, or “our”) is an advanced materials and nanotechnology company. We are developing materials that we believe can improve the performance and efficiency of many current products as well as allow new products to be developed that cannot otherwise be developed without such materials. We believe we are positioned for growth, by pioneering a new category of intelligent surfaces, which will allow us to become a metamaterials industry leader. We enable our potential customers across a range of industries - consumer electronics, 5G communications, healthcare, aerospace, automotive, and clean energy - to deliver improved products to their customers. For example, our nano-optic metamaterial technology is being used to develop anti-counterfeiting security features for a Central Bank customer and for currencies and authentication for global brands. We currently have over 462 active patent documents, of which 346 patents have issued.
Our principal executive office is located at 60 Highfield Park Drive, Suite 102, Dartmouth, Nova Scotia, Canada.
On December 14, 2020, we (formerly known as Torchlight) and our subsidiaries, Metamaterial Exchangeco Inc. (Canco) and 2798831 Ontario Inc. (Callco), entered into the arrangement agreement with Metamaterial Inc., an Ontario corporation headquartered in Nova Scotia, Canada (MMI), to acquire all of the outstanding common stock of MMI by way of a statutory plan of the Arrangement under the Business Corporations Act (Ontario), on and subject to the terms and conditions of the arrangement agreement (the “Torchlight RTO”). On June 25, 2021, we implemented a reverse stock split. On June 28, 2021, following the satisfaction of the 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, we began trading on the Nasdaq Capital Market under the symbol “MMAT” while MMI common stock was delisted from the Canadian Securities Exchange 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 stockholders 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.
On December 14, 2022, we distributed all of the 1,654,722 outstanding shares of common stock of Next Bridge, incorporated in Nevada on August 31, 2021, as OilCo. Holdings, Inc., as a wholly owned subsidiary of META, (and changed its name to Next Bridge Hydrocarbons, Inc. pursuant to its Amended and Restated Articles of Incorporation filed on June 30, 2022), on a pro rata basis to holders of our Series A Non-Voting Preferred Stock. Immediately after the distribution, Next Bridge became an independent company, and as a result, we have deconsolidated the financial results of Next Bridge from our consolidated financial results from December 14, 2022 onwards. See Note 5 for additional information on this transaction.
On January 26, 2024, we filed a Certificate of Change with the Nevada Secretary of State to effect a reverse stock split of our common stock at a rate of 1-for-100, which became effective as of January 29, 2024. The Reverse Stock Split was approved by the board in accordance with Nevada law. The Reverse Stock Split did not have any impact on the par value of common stock. Staff Accounting Bulletin ("SAB") Topic 4.C, requires the retrospective presentation of the reverse split in the financial statements if a reverse split occurs after the date of the latest reported balance sheet but before the release of the financial statements or the effective date of the registration statement, whichever is later. Accordingly, unless otherwise indicated, all issued and outstanding shares of common stock and all outstanding securities entitling their holders to purchase shares of our common stock or acquire shares of our common stock, including stock options, restricted stock units, and warrants per share data, share prices and exercise prices, as required by the terms of those securities, have been adjusted retroactively to reflect the Reverse Stock Split.
The following table provides details on how the Reverse Stock Split affects our outstanding common stock and the calculation of Earnings Per Share:
| | | | | | | | | | | | | | | | |
| | As of December 31, | |
| | 2023 | | | 2022 | |
| | Post-Reverse Stock Split | | | Pre-Reverse Stock Split | | | Post-Reverse Stock Split | | | Pre-Reverse Stock Split | |
Number of shares issues and outstanding | | | 5,659,438 | | | | 565,943,792 | | | | 3,622,479 | | | | 362,247,867 | |
Weighted average number of shares outstanding
- basic and diluted | | | 5,763,446 | | | | 576,344,554 | | | | 3,283,505 | | | | 328,350,452 | |
| | Year ended December 31, | |
| | 2023 | | | 2022 | |
| | Post-Reverse Stock Split | | | Pre-Reverse Stock Split | | | Post-Reverse Stock Split | | | Pre-Reverse Stock Split | |
Basic and diluted loss per share | | $ | (69.67 | ) | | $ | (0.70 | ) | | $ | (24.09 | ) | | $ | (0.24 | ) |
2. Going Concern
At each reporting period, we evaluate whether there are conditions or events that raise substantial doubt about our ability to continue as a going concern within one year after the date that the financial statements are issued. Our evaluation entails analyzing prospective operating budgets and forecasts for expectations of our cash needs and comparing those needs to the current cash and cash equivalent balances. We are required to make certain additional disclosures if we conclude substantial doubt about our ability to continue as a going concern exists and it is not alleviated by our plans or when our plans alleviate substantial doubt about our ability to continue as a going concern.
In accordance with Accounting Standards Codification, or ASC, 205-40, Going Concern, we evaluated whether there are conditions and events, considered in the aggregate, that raise substantial doubt about our ability to continue as a going concern within one year after the date that these Consolidated Financial Statements are issued. This evaluation initially does not take into consideration the potential mitigating effect of management’s plans that have not been fully implemented as of the date the financial statements are issued. When substantial doubt exists under this methodology, management evaluates whether the mitigating effect of our plans sufficiently alleviates substantial doubt about our ability to continue as a going concern. The mitigating effect of management’s plans, however, is only considered if both (1) it is probable that the plans will be effectively implemented within one year after the date that the Consolidated Financial Statements are issued, and (2) it is probable that the plans, when implemented, will mitigate the relevant conditions or events that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the date that these Consolidated Financial Statements are issued. In performing its analysis, management excluded certain elements of its operating plan that cannot be considered probable.
We have incurred net losses of $398.2 million and $79.1 million for the years ended December 31, 2023 and 2022, respectively, and have an accumulated deficit of $609.0 million as of December 31, 2023. As of December 31, 2023, we had a working capital deficit of $6.2 million (2022 – positive working capital of $2.9 million). In addition, we have incurred negative cash flows from operating activities of $42.2 million and $62.2 million for the years ended December 31, 2023 and 2022, respectively. Additionally, we are scheduled to hold a Special Meeting of Stockholders on April 15, 2024 to seek stockholder approval for an increase in the number of common stock authorized and available for issuance. If the stockholders do not approve this proposal at the Special Meeting, we will not have a sufficient number of common stock authorized, available and unreserved for issuance, which would prevent us from issuing any additional common stock for equity financing purposes. Our expectation of incurring operating losses and negative operating cash flows in the future, the need for additional funding to support our planned operations, and the risk that we may not receive approval to increase the number of common stock authorized and available for issuance raise substantial doubt regarding our ability to continue as a going concern for a period of one year after the date that these Consolidated Financial Statements are issued.
Management's plans to alleviate the events and conditions that raise substantial doubt include reduced spending, the pursuit of additional financing, and other measures to increase cash inflows. On June 6, 2023, our board of directors approved the Realignment and Consolidation Plan pursuant to which we have begun, but not yet completed, a process for increased focus on key applications with the greatest near-term revenue potential, and of realignment of our resources and structure for reduced operating expenses. There is no certainty that the Company will be successful in executing against the Realignment and Consolidation Plan, or whether the execution of any of the alternatives therein, individually or collectively, will be sufficient to alleviate the substantial doubt related to the Company continuing to operate as a going concern. See Note 24 for further details regarding the Realignment and Consolidation Plan.
Management has concluded the likelihood that our plan to successfully obtain sufficient funding, or adequately reduce expenditures, while possible, is less than probable because these plans are not entirely within our control. If we are unsuccessful in implementing the plan outlined above, we will be required to assess alternative forms of action, such as filing a voluntary petition for relief under Chapter 11 of the United States Bankruptcy Code, which may allow us to operate while restructuring the business and debts under court supervision, with the aim of emerging as a financially healthier entity. Accordingly, we have concluded that substantial doubt exists about our ability to continue as a going concern for a period of at least twelve months from the date of issuance of these Consolidated Financial Statements.
The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the ordinary course of business. The financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might result from the outcome of the uncertainties described above. These adjustments may be material.
3. Significant Accounting Policies
Basis of Presentation
These Consolidated Financial Statements and related notes are presented in accordance with accounting principles generally accepted in the United States of America (“US GAAP”). Our fiscal year-end is December 31. The Consolidated Financial Statements include the
accounts of Meta Materials Inc. and its wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated on consolidation.
On January 26, 2024, we filed a Certificate of Change with the Nevada Secretary of State to effect a reverse stock split of our common stock at a rate of 1-for-100, which became effective as of January 29, 2024. The Reverse Stock Split was approved by the board in accordance with Nevada law. The Reverse Stock Split did not have any impact on the par value of common stock. Unless otherwise indicated, all issued and outstanding shares of common stock and all outstanding securities entitling their holders to purchase shares of our common stock or acquire shares of our common stock, including stock options, restricted stock units, and warrants per share data, share prices and exercise prices, as required by the terms of those securities, have been adjusted retroactively to reflect the Reverse Stock Split (subject to adjustment for fractional shares).
Reclassification – Certain prior year amounts have been reclassified in the accompanying Consolidated Financial Statements to conform to the current period presentation:
•Licensing revenue is reported in a separate line under Revenue in the accompanying Consolidated Statements of Operations and Comprehensive Loss. Previously, Licensing revenue was reported as part of Development revenue. Amounts related to Licensing revenue for the year ended December 31, 2022 have been separately presented throughout this Annual Report to reflect this reclassification of Licensing revenue to conform to the current period presentation. There are no changes in total Revenue and Gross profit.
•Depreciation and amortization expenses and stock-based compensation expense are reported in a separate line under Cost of sales and operating expenses in the accompanying Consolidated Statements of Operations and Comprehensive Loss. Previously, those expenses were reported as a same line item under Cost of sales, Sales & marketing, General & administrative and Research & development. Amounts related to depreciation and amortization expenses and stock-based compensation expense for the year ended December 31, 2022 have been separately presented throughout this Annual Report to reflect this reclassification of depreciation and amortization expenses and stock-based compensation expense to conform to the current period presentation. There are no changes in total Cost of sales, Gross profit and Operating expenses.
•Realized gain (loss) on foreign exchange, net and Unrealized gain (loss) on foreign exchange, net are reported in a separate line under Other income (expense), net in the accompanying Consolidated Statements of Operations and Comprehensive Loss. Previously, those expenses were reported as a single line, Gain (loss) on foreign exchange, net, under Other income (expense), net in the Consolidated Statements of Operations and Comprehensive Loss. Amounts related to depreciation and amortization expenses and stock-based compensation expense for the year ended December 31, 2022 have been separately presented throughout this Annual Report to reflect this reclassification of Realized gain (loss) on foreign exchange, net and Unrealized gain (loss) on foreign exchange to conform to the current period presentation. There are no changes in total Other income (expense), net.
•Trade payables and Accruals and other payables are reported in a separate line in the accompanying Consolidated Balance Sheets. Previously, those items were reported as a single line, Trade and other payables, in the Consolidated Balance Sheets. Amounts related to Trade payables and Accruals and other payables as of the year ended December 31, 2022 have been separately presented to reflect this reclassification of Trade payables and Accruals and other payables to conform to the current period presentation. There are no changes in Total assets.
Functional currency – Items included in the Consolidated Financial Statements of each of META and its subsidiaries are measured using the currency of the primary economic environment in which the entity operates (the "functional currency").
Reporting currency – The reporting currency of META is in US Dollars. The Consolidated Financial Statements, and the financial information contained herein, are reported in US dollars, except share amounts or as otherwise stated, as we believe this results in more relevant and reliable information for its financial statement users.
•transactions and balances – Foreign currency transactions are recorded into the functional currency using the exchange rates prevailing at the dates of the associated transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the measurement at period end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognized in the statement of operations.
•translation – The results and financial position of all subsidiaries that have a functional currency different from the presentation currency are translated into the presentation currency as follows:
•Company’s assets and liabilities are translated at the closing rate at the date of the balance sheet;
•Company’s income and expenses are translated at average exchange rates;
•Company’s resulting exchange differences are recognized in other comprehensive income, a separate component of equity.
Use of estimates – The preparation of these Consolidated Financial Statements in conformity with US GAAP requires management to make estimates and certain assumptions that affect the amounts reported in these Consolidated Financial Statements and accompanying notes. Actual results could differ from these estimates. Significant items subject to such estimates and assumptions include the valuation of goodwill, long-term assets, the valuation of net assets acquired via business combinations, and the preparation of the Consolidated Financial Statements on a going concern basis.
Cash and cash equivalents – We consider all highly liquid investments with an original maturity of three months or less when purchased to be cash equivalents.
Inventory – Inventory is measured at the lower of cost and net realizable value. Cost is determined using the first-in, first-out method (FIFO) for all inventory. Inventory consumed during research and development activities is recorded as a research and development expense.
Notes receivable
– Notes receivable consisted of an amount due from Next Bridge, which was previously a wholly-owned subsidiary of META, until the completion of the spin-off transaction on December 14, 2022. The note was partially secured by a combination of META’s common shares and an interest in the Orogrande Project Property. The notes receivable has been recognized at its fair value as part of the deconsolidation of Next Bridge from our consolidated financial results. At subsequent reporting periods, the note had been measured net of any credit losses in accordance with ASC 326 Financial Instruments – Credit Losses. It was derecognized upon sale during 2023. See Note 5 for further details.
Long-lived assets – Long-lived assets, such as property, plant and equipment, and intangible assets subject to amortization, are reviewed for impairment in accordance with ASC 360 Property, Plant, and Equipment, whenever events or changes in circumstances indicate that the carrying amount of a long-lived asset may not be recoverable. For the purpose of assessing impairment, long-lived assets are grouped at the lowest levels for which there are identifiable cash flows that are largely independent of the cash flows from other long-lived assets or groups of long-lived assets (asset groups). If circumstances require a long-lived asset or asset group to be tested for possible impairment, we first compare undiscounted cash flows expected to be generated by that asset or asset group to its carrying amount. If the carrying amount of the long-lived asset or asset group is not recoverable on an undiscounted cash flow basis, an impairment is recognized to the extent that the carrying amount exceeds its fair value. Fair value is determined through various valuation techniques including discounted cash flow models, quoted market values and third-party independent appraisals, as considered necessary.
During the fiscal year 2023, we recognized an impairment loss of $65.6 million as a result of our Realignment and Consolidation Plan. See Note 16, Fair Value Measurements, and Note 24, Realignment and Consolidation Plan, for further information.
Goodwill – Goodwill represents the excess of the purchase price in a business combination over the fair value of net tangible and intangible assets acquired. The carrying amount of goodwill is periodically reviewed for impairment (at a minimum annually) and whenever events or changes in circumstances indicate that the carrying value of this asset may not be recoverable.
We first perform a qualitative assessment to test the reporting unit’s goodwill for impairment. Based on the qualitative assessment, if it is determined that the fair value of our reporting unit is more likely than not (i.e., a likelihood of more than 50 percent) to be less than its carrying amount, the quantitative assessment of the impairment test is performed. In the quantitative assessment, we compare the fair value of our reporting unit to its carrying value. If the fair value of the reporting unit exceeds its carrying value, goodwill is not considered impaired and we are not required to perform further testing. If the carrying value of the net assets of the reporting unit exceeds its fair value, then an impairment loss equal to the difference, but not exceeding the total carrying value of goodwill allocated to the reporting unit, would be recorded. During the fiscal year 2023, we recognized a goodwill impairment loss totaling $282.2 million, representing the entirety of the goodwill. See Note 9 for further details.
Acquired intangibles – In accordance with ASC 805 Business Combinations, we allocate the purchase price of acquired companies to the tangible and intangible assets acquired and the liabilities assumed based on their estimated fair values. Such valuations may require management to make significant estimates and assumptions, especially with respect to intangible assets. Acquired intangible assets consist of acquired technology and customer relationships. In valuing acquired intangible assets, we make assumptions and estimates based in part on projected financial information, which makes assumptions and estimates inherently uncertain, particularly for early-stage technology companies. The significant estimates and assumptions used by us in the determination of the fair value of acquired intangible technology assets include the revenue growth rate and the discount rate. The significant estimates and assumptions used by us in the determination of the fair value of acquired customer contract intangible assets include the revenue growth rate and the discount rate.
As a result of the judgments that need to be made, we obtain the assistance of independent valuation firms. We complete these assessments as soon as practical after the closing dates. Any excess of the purchase price over the estimated fair values of the identifiable net assets acquired is recorded as goodwill.
Business combinations – We allocate the fair value of purchase consideration to the tangible assets acquired, liabilities assumed and intangible assets acquired based on their estimated fair values. The excess of the fair value of purchase consideration over the fair values
of these identifiable assets and liabilities is recorded as goodwill to reporting units based on the expected benefit from the business combination. Allocation of purchase consideration to identifiable assets and liabilities affects the amortization expense, as acquired finite-lived intangible assets are amortized over the useful life, whereas any indefinite-lived intangible assets, including goodwill, are not amortized. During the measurement period, which is not to exceed one year from the acquisition date, we record adjustments to the assets acquired and liabilities assumed, with the corresponding offset to goodwill. Upon the conclusion of the measurement period, any subsequent adjustments are recorded to earnings. Acquisition-related expenses are recognized separately from business combinations and are expensed as incurred.
Leases – We are a lessee in several non-cancellable operating leases for buildings. We account for leases in accordance with ASC 842 Leases. We determine if an arrangement is or contains a lease at contract inception. We recognize a ROU asset and a lease liability at the lease commencement date.
For operating leases, the lease liability is initially and subsequently measured at the present value of the unpaid lease payments at the lease commencement date. Lease expense for lease payments is recognized on a straight-line basis over the lease term. For finance leases, the lease liability is initially measured in the same manner and date as for operating leases and is subsequently measured at amortized cost using the effective-interest rate method.
The ROU asset is initially measured at cost, which comprises the initial amount of the lease liability adjusted for lease payments made at or before the lease commencement date, plus any initial direct costs incurred less any lease incentives received. The ROU asset is subsequently measured throughout the lease term at the carrying amount of the lease liability, plus initial direct costs, plus (minus) any prepaid (accrued) lease payments, less the unamortized balance of lease incentives received.
We assess ROU assets for impairment in accordance with ASC 360 Property, Plant, and Equipment. An ROU asset is considered for impairment testing whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. Indicators of impairment include, but are not limited to, a significant decrease in the market value of the asset, a significant change in the extent or manner in which the asset is being used, and significant adverse changes in legal factors or in the business climate that could affect the value of the asset. See Long-lived assets paragraph above for further details.
We do not record leases on our Consolidated Balance Sheets with a term of one year or less. We elected a package of transition practical expedients, which included not reassessing whether any expired or existing contracts are or contain leases, not reassessing the lease classification of expired or existing leases, and not reassessing initial direct costs for existing leases. We also elected a practical expedient to not separate lease and non-lease components.
Government grants and assistance – Government grants are recognized at their fair value in the period when there is reasonable assurance that the conditions attaching to the grant will be met and that the grant will be received. Grants are recognized as income over the periods necessary to match them with the related costs that they are intended to compensate. When the grant relates to an asset, it is recognized as income over the useful life of the depreciable asset by way of government assistance.
We also receive interest-free repayable loans from the Atlantic Canada Opportunities Agency (“ACOA”) and the Economic Development Agency of Canada for the Regions of Quebec ("EDC"), government agencies. The benefit of the loan at a below-market rate of interest is treated as a government grant, measured as the difference between proceeds received and the fair value of the loan based on prevailing market interest rates. The fair value of the components, being the loan and the government grant, must be calculated initially in order to allocate the proceeds to the components. The valuation is complex, as there is no active trading market for these items and is based on unobservable inputs.
Revenue recognition – Our revenue is generated from product sales, development revenue and licensing revenue. We recognize revenue when it satisfies performance obligations under the terms of its contracts, and control of its products is transferred to its customers in an amount that reflects the consideration we expect to receive from its customers in exchange for those products or services.
Revenue from the sale of prototypes and finished products is recognized at the point in time when control of the asset is transferred to the customer, generally on delivery of goods. We consider whether there are other obligations in the contract that are separate performance obligations to which a portion of the transaction price needs to be allocated. In determining the transaction price for the sale of prototypes, we consider the effects of variable consideration, the existence of significant financial components, non-cash consideration and consideration payable to the customer (if any).
Revenue from development activities is recognized over time, using an output method to measure progress towards complete satisfaction of the research activities and associated performance obligations identified within each contract have been satisfied.
Our licensing revenue is currently derived from per-unit royalty agreements. We record per unit royalty revenue in the same period in which the licensee’s underlying production occurs based on the usage or production reports obtained from the licensees. When such reports are not available during a given quarter within the time frame that allows us to adequately review the reports and include the actual amounts in its quarterly results for such quarter, we accrue the related revenue based on estimates of the licensees’ underlying production or usage. We develop such estimates based on a combination of available data including, but not limited to, customer forecasts, a lookback at historical royalty reporting for each of its customers, and industry information available for the licensed products.
Deferred revenue – Consist of fees invoiced or paid by our customers for which the associated performance obligations have not been satisfied and revenue has not been recognized based on our revenue recognition criteria described above.
Deferred revenue is reported in a net position on an individual contract basis at the end of each reporting period and is classified as current in the consolidated balance sheet when the revenue recognition associated with the related customer payments and invoicing is expected to occur within one year of the balance sheet date and as long-term when the revenue recognition associated with the related customer payments and invoicing is expected to occur more than one year from the balance sheet date.
Fair value measurements – We use valuation approaches that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible. We determine fair value based on assumptions that market participants would use in pricing an asset or liability in the principal or most advantageous market. When considering market participant assumptions in fair value measurements, the following fair value hierarchy distinguishes between observable and unobservable inputs, which are categorized in one of the following levels:
•Level 1 inputs: Unadjusted quoted prices in active markets for identical assets or liabilities accessible to the reporting entity at the measurement date.
•Level 2 inputs: Other than quoted prices included in Level 1 inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the asset or liability.
•Level 3 inputs: Unobservable inputs for the asset or liability used to measure fair value to the extent that observable inputs are not available, thereby allowing for situations in which there is little, if any, market activity for the asset or liability at measurement date.
Research and development – Research and development activities are expensed as incurred.
Basic and diluted earnings (loss) per share – Basic earnings (loss) per common share is computed by dividing net income (loss) available to common stockholders by the weighted average number of common shares outstanding during the period. Diluted earnings (loss) per common share gives effect to all dilutive potential common stock outstanding during the period including stock options, deferred stock units (“DSUs”), Restricted Share Units ("RSUs"), and warrants which are calculated using the treasury stock method, and convertible debt instruments using the if-converted method. Diluted earnings (loss) per common share excludes all dilutive potential shares if their effect is anti-dilutive.
Stock-based compensation – We recognize compensation expense for equity awards based on the grant date fair value of the award. We recognize stock-based compensation expense for awards granted to employees that have a graded vesting schedule based on a service condition only on a straight-line basis over the requisite service period for each separately vesting portion of the award as if the award was, in substance, multiple awards (the “graded-vesting attribution method”), based on the estimated grant date fair value for each separately vesting tranche.
For stock-based awards granted to consultants and non-employees, compensation expense is recognized using the graded-vesting attribution method over the period during which services are rendered by such consultants and non-employees until completed.
The measurement date for each tranche of employee awards is the date of grant, and stock-based compensation costs are recognized as expense over the employees’ requisite service period, which is the vesting period.
We estimate the grant date fair value of options and warrants using the Black-Scholes option pricing model and estimate the number of forfeitures expected to occur. See Note 12 for our assumptions used in connection with option grants made during the periods covered by these Consolidated Financial Statements.
Warrants – We account for the issuance of common stock purchase warrants issued in connection with the equity offerings in accordance with the provisions of ASC 815, Derivatives and Hedging. We classify as equity any contracts that (i) require physical settlement or net-share settlement or (ii) gives us a choice of net-cash settlement or settlement in its own shares (physical settlement or net-share settlement). We classify as assets or liabilities any contracts that (i) require net-cash settlement (including a requirement to net-cash settle the contract if an event occurs and if that event is outside our control) or (ii) gives the counterparty a choice of net-cash settlement or settlement in shares (physical settlement or net-share settlement).
The warrants issued on April 18, 2023 contain certain anti-dilution adjustments if we issue shares of its common stock at a lower price per share than the applicable exercise price of the underlying warrant. If any such dilutive issuance occurs prior to the exercise of such warrant, the exercise price is adjusted downward to a price equal to the common stock issuance. The difference in fair value of the effect of the down round feature is reflected in our Consolidated Financial Statements as a deemed dividend and as a reduction to income available to common stockholders in the basic earnings per share calculation.
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 we 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 our tax positions and determined there were no uncertain tax positions requiring recognition in the Consolidated Financial Statements. Company tax returns remain subject to Federal, Provincial and State tax examinations. Generally, the applicable statutes of limitation are three to four years from their respective filings.
Recently Adopted Accounting Pronouncements
ASU 2021-08
In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, which clarifies that an acquirer of a business should recognize and measure contract assets and contract liabilities in a business combination in accordance with ASC Topic 606, Revenue from Contracts with Customers. We adopted the guidance on January 1, 2023, and its adoption did not have a material effect on our Consolidated Financial Statements and related disclosures.
Accounting Pronouncements Not Yet Adopted
ASU 2023-07
In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which requires public entities to disclose information about their reportable segments’ significant expenses and other segment items on an interim and annual basis. Public entities with a single reportable segment are required to apply the disclosure requirements in ASU 2023-07, as well as all existing segment disclosures and reconciliation requirements in ASC 280 on an interim and annual basis. ASU 2023-07 is effective for fiscal years beginning after December 15, 2023, and for interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. The Company is currently evaluating the impact of adopting ASU 2023-07.
ASU 2023-09
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which requires public entities, on an annual basis, to provide disclosure of specific categories in the rate reconciliation, as well as disclosure of income taxes paid disaggregated by jurisdiction. ASU 2023-09 is effective for fiscal years beginning after December 15, 2024, with early adoption permitted. We do not anticipate the adoption of this standard will have a material effect on our Consolidated Financial Statements and related disclosures.
4. Acquisitions
Plasma App Acquisition
On April 1, 2022, we completed the purchase of 100% of the issued and outstanding shares of PAL. PAL is the developer of PLASMAfusion®, a proprietary manufacturing platform technology, which enables high speed coating of any solid material on any type of substrate. PAL’s team is located at the Rutherford Appleton Laboratories in Oxford, UK.
At closing, we issued to PAL's stockholders an aggregate of 96,774 shares of our common stock, representing a number of shares of common stock equal to $18,000,000 divided by $186.00 (the volume weighted average price for the ten trading days ending on March 31, 2022) with an additional deferral of common stock equal to $2,000,000 divided by $186.00, which was issued on October 1, 2023 (10,753 shares of our common stock). The acquisition was accounted for as a business combination in accordance with ASC 805.
The following table presents the final allocation of consideration paid for the PAL acquisition and fair value of the assets and liabilities acquired:
| | | |
| Amount
(USD) | |
Fair value of common stock issued (1) | $ | 15,290,320 | |
Fair value of deferred consideration (2) | | 1,698,926 | |
| $ | 16,989,246 | |
Net assets of PAL: | | |
Cash and cash equivalents | $ | 13,822 | |
Other assets | | 36,104 | |
Intangibles | | 12,600,000 | |
Deferred tax liability | | (3,150,000 | ) |
Goodwill | | 7,489,320 | |
| $ | 16,989,246 | |
(1) The fair value of the common stock issued or to be issued was determined by multiplying 96,774 shares, calculated as per the purchase agreement, by the closing share price on April 1, 2022 of $160.00. We recognized $9,677 in common stock and $152,806 in additional paid in capital in the Consolidated Statements of Changes in Stockholders' Equity.
(2) The fair value of the deferred consideration on acquisition date was determined by multiplying 10,753 shares, calculated as per the purchase agreement, by the closing share price on April 1, 2022 of $160.00. We recognized the full amount in additional paid in capital in the Consolidated Statements of Changes in Stockholders' Equity.
Acquired intangible assets totaling $12.6 million relate to a developed technology intangible asset. The significant estimates and assumptions used in the determination of the fair value of the acquired developed technology intangible asset includes the revenue growth rate and the discount rate. The goodwill resulting from the transaction is attributable to assembled workforce, synergies, technical know-how and expertise. The fair value of acquired assets and liabilities was measured as at the acquisition date based on a valuation report provided by a third-party valuation expert.
During the year ended December 31, 2023, we wrote off the entire amount of goodwill. See Note 9, Intangible Assets and Goodwill. Additionally, in line with our continuous evaluation of asset utility and alignment with strategic investment priorities as outlined in our Realignment and Consolidation Plan, we have recorded a non-cash impairment loss of $10.0 million relating to the assets acquired as part of the PAL Acquisition. See Note 24, Realignment and Consolidation Plan, for further detail.
We have finalized the purchase price allocation to the individual assets acquired and liabilities assumed using the acquisition method. There were no further changes to the purchase price allocation, as disclosed in the audited Consolidated Financial Statements and notes for the year ended December 31, 2022.
Unaudited pro forma results of operations for the year ended December 31, 2022 are included below as if the Plasma acquisition occurred on January 1, 2022. This summary of the unaudited pro forma results of operations is not necessarily indicative of what our results of operations would have been had PAL been acquired at the beginning of 2022, nor does it purport to represent results of operations for any future periods.
| | | | | | | | | | | | |
| | Year ended | |
| | December 31, 2022 | |
| | META | | | PAL | | | Total | |
Revenue | | $ | 10,200,167 | | | $ | — | | | $ | 10,200,167 | |
Loss from operations | | | (81,818,759 | ) | | | (567,475 | ) | | | (82,386,234 | ) |
Net loss | | | (78,147,504 | ) | | | (76,271 | ) | | | (78,223,775 | ) |
| | | | | | | | | |
Add back: acquisition cost | | | 264,883 | | | | 16,663 | | | | 281,546 | |
Deduct: additional depreciation and amortization | | | — | | | | (1,178,859 | ) | | | (1,178,859 | ) |
Adjusted net loss | | $ | (77,882,621 | ) | | $ | (1,238,467 | ) | | $ | (79,121,088 | ) |
Acquisition cost includes legal, accounting, and other professional fees related to the Plasma acquisition.
Optodot Acquisition
On June 22, 2022, we completed an asset purchase agreement with Optodot, a developer of advanced materials technologies, to acquire certain assets related to patents and intellectual property for the battery and other industries.
Consideration transferred consisted of the following:
•Cash payment of $3.5 million
•Unrestricted common stock equal to $37.5 million divided by the daily volume weighted average trading price per share of our common stock on the Nasdaq Capital Market for the consecutive period of twenty trading days ending on June 21, 2022.
•Restricted common stock equal to $7.5 million divided by the daily volume weighted average trading price per share of our Common Stock on the Nasdaq Capital Market for the consecutive period of twenty trading days ending on June 21, 2022. The restricted stock is subject to certain vesting milestones as set forth in the Purchase Agreement and outlined below.
The acquisition was accounted for as a business combination in accordance with ASC 805. The transaction was structured as a tax-free re-organization pursuant to Internal Revenue Code Section 368(a)(1)(c). Accordingly, the tax basis of net assets acquired retain their carryover tax basis and holding period.
The following table presents the final allocation of consideration paid for the Optodot acquisition and fair value of the assets and liabilities acquired:
| | | | |
| | Amount | |
Fair value of unrestricted common stock issued or to be issued (1) | | $ | 41,791,115 | |
Fair value of restricted common stock issued (2) | | | 8,342,152 | |
Cash consideration | | | 3,500,000 | |
Total consideration | | $ | 53,633,267 | |
| | | |
Net assets of Optodot: | | | |
Intangibles | | | 23,300,000 | |
Deferred tax liability | | | (4,893,000 | ) |
Goodwill | | | 35,226,267 | |
| | $ | 53,633,267 | |
(1) The fair value of the unrestricted common stock issued or to be issued was determined by multiplying 223,482 shares, calculated as per the purchase agreement, by the closing share price on June 22, 2022 of $187.00. We have issued 223,052 shares on the closing date of June 22, 2022 and 430 shares are yet to be issued. As of December 31, 2023, we recognized $22,305 in common stock and $41,768,810 in additional paid in capital in the Consolidated Statements of Changes in Stockholders' Equity.
(2) The fair value of the restricted common stock issued was determined by multiplying 44,610 shares, calculated as per the purchase agreement, by the closing share price on June 22, 2022 of $187.00. The restricted common stock is subject to vesting as follows:
a) Two thirds or 29,740 shares shall be subject to the limitations on transfer until the earlier of (A) META's achievement of at least $5,000,000 in revenue, from any third-party source, to the extent resulting from the sale or license of Optodot IP during the year ended June 22, 2023 and (B) June 22, 2023;
b) One third or 14,870 shares shall be subject to the limitations on transfer until the earlier of (A) META's achievement of at least $10,000,000 in revenue, from any third-party source, to the extent resulting from the sale or license of Optodot IP during the year ended June 22, 2024 and (B) June 22, 2024;
We applied the requirements of ASU 2022-03 in measuring the share consideration transferred.
Deferred consideration
Based on the terms of the agreement outlined above and our consideration of ASC 805, we had classified the deferred consideration in the Consolidated Statement of Changes in Stockholders’ Equity since the restricted shares have been already issued and the restriction will be removed at the end of the period specified.
Acquired intangible assets totaling $23.3 million relate to a developed technology intangible asset. The significant estimates and assumptions used in the determination of the fair value of the acquired developed technology intangible asset includes the revenue growth rate and the discount rate. The goodwill resulting from the transaction is attributable to assembled workforce, synergies, technical know-how and expertise. The fair value of acquired assets and liabilities has been measured as at the acquisition date based on a valuation report provided by a third-party valuation expert.
During the fiscal year ended December 31, 2023, we wrote off the entire amount of goodwill. See Note 9, Intangible Assets and Goodwill. Additionally, in line with our continuous evaluation of asset utility and alignment with strategic investment priorities as outlined in our Realignment and Consolidation Plan, we have recorded a non-cash impairment loss of $20.9 million relating to the long-lived assets acquired as part of the Optodot Acquisition. See Note 24, Realignment and Consolidation Plan, for further detail.
We have finalized the purchase price allocation to the individual assets acquired and liabilities assumed using the acquisition method. There were no further changes to the purchase price allocation, as disclosed in the audited Consolidated Financial Statements and notes for the year ended December 31, 2022.
Unaudited pro forma results of operations for the year ended 2022 are included below as if the Optodot acquisition occurred on January 1, 2022. This summary of the unaudited pro forma results of operations is not necessarily indicative of what our results of operations would have been had Optodot been acquired at the beginning of 2022, nor does it purport to represent results of operations for any future periods.
| | | | | | | | | | | | |
| | Year ended | |
| | December 31, 2022 | |
| | META | | | Optodot | | | Total | |
Revenue | | $ | 10,120,865 | | | $ | 121,174 | | | $ | 10,242,039 | |
Loss from operations | | | (80,158,252 | ) | | | (2,816,441 | ) | | | (82,974,693 | ) |
Net loss | | | (76,075,095 | ) | | | (2,731,989 | ) | | | (78,807,084 | ) |
| | | | | | | | | |
Add back: acquisition cost | | | 700,404 | | | | 97,712 | | | | 798,116 | |
Deduct: additional depreciation and amortization | | | — | | | | (2,330,000 | ) | | | (2,330,000 | ) |
Adjusted net loss | | $ | (75,374,691 | ) | | $ | (4,964,277 | ) | | $ | (80,338,968 | ) |
Acquisition cost includes legal, accounting, and other professional fees related to the Optodot acquisition.
5. Notes Receivable
During 2021 and 2022, META loaned money to Next Bridge Hydrocarbons Inc., which was previously a wholly-owned subsidiary of META until the completion of the spin-off transaction on December 14, 2022, pursuant to a secured promissory note with principal amount of $15.0 million, or the 2021 Note, and unsecured note receivable for principal amount of $5.0 million, or the 2022 Note. The 2021 Note was partially secured by a combination of shares of META’s common stock and an interest in the Orogrande Project Property. As of December 14, 2022, the principal including accrued interest of those notes receivable amounted to $24.2 million. We assessed the fair value of the notes receivable on the deconsolidation date in accordance with ASC 820, Fair Value Measurement, and recorded a note receivable for $2.2 million, representing fair value of the Next Bridge Notes Receivable as of December 31, 2022, and recognized an impairment loss of $21.9 million subsequent to the deconsolidation of Next Bridge from our consolidated financial results.
On March 31, 2023, in exchange for a prepayment of $1.0 million of the currently outstanding principal of the aforementioned loans, we agreed with Next Bridge on the following: (a) extended the maturity date of the Next Bridge Notes Receivable from March 31, 2023 to October 3, 2023, and (b) increased the total amount of commitments and loans made by us to Next Bridge under the Loan Agreement by $2.6 million to reflect the costs incurred in effecting the deconsolidation of Next Bridge.
On August 7, 2023, we entered into a Loan Sale Agreement with Gregory McCabe ("Purchaser"), under which we sold and assigned to Purchaser all of our rights, title, interests, and obligations in and to the aforementioned loans owed by Next Bridge (“Assigned Loan Interests”) in exchange for cash consideration of $6.0 million and subsequently entered into a Stock Purchase Agreement (SPA) for $6.0 million of shares of our common stock. Assigned Loan Interests represented $24.0 million of the outstanding balance of the Next Bridge Notes Receivable as of the closing date of August 7, 2023. Pursuant to the SPA, Mr. McCabe agreed to purchase an aggregate of $6.0 million of shares of our common stock beginning on September 1, 2023, in monthly amounts of $250,000 for the first six months and in monthly amounts of $500,000 for the next nine months thereafter, at a price per share equal to 120% of the 5-day VWAP on the trading day preceding the date of each such purchase.
In accordance with ASC 326, Financial Instruments – Credit losses, we elected a practical expedient to account for the Next Bridge Notes Receivable as collateral-dependent assets, whereby estimated credit losses are based on the fair value of the collateral. As of August 7, 2023, the carrying value of the Next Bridge Notes Receivable was $0.4 million, net of a credit loss allowance of $1.8 million. In addition, we recognized $6.8 million gain from the sale of Next Bridge Notes Receivable during the year ended December 31, 2023.
We concluded the premium Mr. McCabe pays for future stock purchases is deemed to be part of the consideration paid by Mr. McCabe in exchange for Next Bridge Notes Receivable. A financial asset has been recorded for $0.9 million in accounts and other receivables and long-term subscription receivables, representing the fair value of the premium we will receive on the share purchases made by Mr. McCabe pursuant to the SPA.
On January 21, 2024, we entered into the Release Agreement with Mr. McCabe, pursuant to which we and Mr. McCabe agreed to terminate the SPA. See Note 28, Subsequent Event, for further information.
6. Inventory
Inventory consisted of photosensitive materials, lenses, laser protection film and finished eyewear, and was comprised of the following:
| | | | | | | | |
| | As of December 31, | |
| | 2023 | | | 2022 | |
Raw materials | | $ | 558,837 | | | $ | 490,077 | |
Supplies | | | 10,747 | | | | 11,345 | |
Work in process | | | 45,912 | | | | 51,589 | |
Finished goods | | | 43,922 | | | | 42,058 | |
Inventory provision | | | (490,671 | ) | | | (127,042 | ) |
Total inventory | | $ | 168,747 | | | $ | 468,027 | |
During the year ended December 31, 2023, we recognized $0.3 million (2022 - $0.8 million) of inventory in cost of sales in the Consolidated Statements of Operations and Comprehensive Loss.
During the year ended December 31, 2023 and 2022, we recorded write-downs related to inventory in costs of goods sold of $0.7 million and $0.1 million, respectively, related to inventory deemed to be obsolete.
7. Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets consisted of the following:
| | | | | | | | |
| | As of December 31, | |
| | 2023 | | | 2022 | |
Prepaid expenses | | $ | 1,476,981 | | | $ | 2,835,660 | |
Receivable for insurance proceeds (Note 27) | | | 3,100,000 | | | | — | |
Other current assets | | | 332,794 | | | | 365,583 | |
Taxes receivable | | | 161,588 | | | | 4,000,856 | |
Total prepaid expenses and other current assets | | $ | 5,071,363 | | | $ | 7,202,099 | |
8. Property, Plant and Equipment, net
Property, plant and equipment, net consisted of the following:
| | | | | | | | | | |
| | | | As of December 31, | |
| | Useful life | | | | | | |
| | (years) | | 2023 | | | 2022 | |
Land | | N/A | | $ | 449,872 | | | $ | 439,309 | |
Building | | 25 | | | 5,184,826 | | | | 5,063,091 | |
Computer equipment | | 3-5 | | | 1,583,617 | | | | 775,736 | |
Computer software | | 1 | | | 815,777 | | | | 606,729 | |
Manufacturing equipment | | 2-5 | | | 23,979,024 | | | | 22,701,761 | |
Office furniture | | 5-7 | | | 914,265 | | | | 660,549 | |
Leasehold improvements | | 5-10 | | | 22,794,726 | | | | 2,172,134 | |
Enterprise Resource Planning software | | 5 | | | 202,400 | | | | 197,648 | |
Assets under construction | | N/A | | | 6,377,090 | | | | 20,337,338 | |
| | | | | 62,301,597 | | | | 52,954,295 | |
Accumulated depreciation and impairment | | | | | (43,699,983 | ) | | | (10,279,596 | ) |
| | | | $ | 18,601,614 | | | $ | 42,674,699 | |
During the fourth quarter ended December 31, 2023, we identified indicators of impairment in certain asset groups. This identification was based on our ongoing evaluation of asset utility and alignment with strategic investment priorities, as well as our assessment of the future cash flow generation from these asset groups.
The evaluation concluded that the carrying amounts of these asset groups exceeded their fair values, leading to an impairment loss of $65.6 million, which included a $26.5 million impairment loss of Property, plant and equipment, net, reported under impairment of long-lived assets in our Consolidated Statements of Operations and Comprehensive Loss for the year ended December 31, 2023. See Note 16, Fair Value Measurement, and Note 24, Realignment and Consolidation Plan, for further information. Impairment loss was $0.1 million for the year ended December 31, 2022.
The fair value of impaired asset groups was determined based on the present values of expected future cash flows using discount rates believed to be consistent with those used by principal market participants (the "Discounted Cash Flow Method"), which is classified within Level 3 of the fair value hierarchy. See Note 16, Fair Value Measurements, for further details.
Depreciation expense was $6.5 million and $3.6 million for the year ended December 31, 2023 and 2022, respectively.
9. Intangible Assets and Goodwill
Intangibles
Intangibles consisted of the following:
| | | | | | | | | | |
| | | | As of December 31, | |
| | Useful life | | | | | | |
| | (years) | | 2023 | | | 2022 | |
Patents | | 5-10 | | $ | 43,025,376 | | | $ | 42,111,143 | |
Trademarks | | | | | 126,839 | | | | 124,845 | |
Developed technology | | 20 | | | 14,312,717 | | | | 13,976,668 | |
Customer contract | | 5 | | | 9,829,123 | | | | 9,598,348 | |
| | | | | 67,294,055 | | | | 65,811,004 | |
Accumulated amortization and impairment | | | | | (49,263,754 | ) | | | (9,497,687 | ) |
| | | | $ | 18,030,301 | | | $ | 56,313,317 | |
During the year ended December 31, 2022, we recognized patent additions of $12.6 million in acquired patents as part of the PAL acquisition and $23.3 million in acquired patents as part of the Optodot acquisition. See Note 4, Acquisitions, for details. During the year ended December 31, 2023, we recognized $32.2 million impairment of patent-related intangible assets which mainly consisted of the patents and trademarks acquired as part of the PAL acquisition and the Optodot acquisition. See Note 24, Realignment and Consolidation Plan, for further information. The fair value of impaired asset groups was determined based on the "Discounted Cash Flow Method, which is classified within Level 3 of the fair value hierarchy. See Note 16, Fair Value Measurements, for further details.
Amortization expense was $7.0 million and $5.7 million for the years ended December 31, 2023 and 2022, respectively.
Developed technology and customer contract represent the acquired intangibles as part of the Nanotech acquisition in late 2021.
Goodwill
Goodwill consisted of the following:
| | | | |
Goodwill at December 31, 2021 | | $ | 240,376,634 | |
Additions from business combination | | | 42,343,552 | |
Purchase price Allocation adjustments | | | 1,446,639 | |
Effect of foreign exchange on goodwill | | | (2,418,359 | ) |
Goodwill at December 31, 2022 | | $ | 281,748,466 | |
Effect of foreign exchange on goodwill | | | 424,587 | |
Impairment | | | (282,173,053 | ) |
Goodwill at December 31, 2023 | | $ | — | |
Goodwill is tested for impairment annually as of December 31 or more frequently on a reporting unit basis when events or changes in circumstances indicate that impairment may have occurred. As defined in the authoritative guidance, a reporting unit is an operating segment, or one level below an operating segment. Historically, we conducted our business in a single operating segment and reporting unit.
As a result of the continued and sustained decline in the price of our common shares in the three months ended December 31, 2023, we determined there to be an indicator of impairment for our one reporting unit to which goodwill is assigned. As a result, we performed a quantitative interim goodwill impairment assessment as of June 30, 2023. We concluded that the carrying value of the reporting unit was higher than its estimated fair value, and we recognized a goodwill impairment loss totaling $282.2 million, which represented the entirety of the goodwill.
The estimated fair value of the reporting unit was determined using the market valuation method, which is consistent with the methodology we used in the annual impairment test conducted at December 31, 2022. The most significant assumption used in applying this method was our share price.
10. Long-term Debt
| | | | | | | | |
| | As of December 31, | |
| | 2023 | | | 2022 | |
ACOA Business Development Program (“BDP”) 2012 interest-free loan with a maximum contribution of CA$500,000, repayable in monthly repayments commencing October 1, 2015, of CA$5,952 until June 1, 2023. Loan repayments were temporarily paused effective April 1, 2020, until January 1, 2021, as a result of the COVID-19 outbreak. As of December 31, 2023, the amount of principle drawn down on the loan, net of repayments is nil (2022 - CA$35,714.29). | | $ | — | | | $ | 25,880 | |
ACOA Atlantic Innovation Fund ("AIF") 2015 interest-free loan(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 Nil when gross revenues are less than CA$1,000,000, 5% when gross revenues are less than CA$10,000,000 and greater than CA$1,000,000, and CA$500,000 plus 1% of gross revenues when gross revenues are greater than CA$10,000,000. As of December 31, 2023, the amount of principal drawn down on the loan, net of repayments, is CA$2,481,823 (December 31, 2022 - CA$2,661,293). | | | 1,486,966 | | | | 1,449,493 | |
ACOA BDP 2018 interest-free loan(1),(3) with a maximum contribution of CA$3,000,000, repayable in monthly repayments commencing June 1, 2021, of CA$31,250 until May 1, 2029. As of December 31, 2023, the amount of principal drawn down on the loan, net of repayments, is CA$2,031,250 (December 31, 2022 - CA$2,406,250). | | | 1,047,122 | | | | 1,136,556 | |
ACOA PBS 2019 interest-free loan(1)with a maximum contribution of CA$100,000, repayable in monthly repayments commencing June 1, 2021, of CA$1,400 until May 1, 2027. As of December 31, 2023, the amount of principal drawn down on the loan, net of repayments, is CA$56,944 (December 31, 2022 - CA$73,611). | | | 29,936 | | | | 34,750 | |
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 of December 31, 2023, the principal amount drawn down on the loan is CA$291,000 (December 31, 2022 - CA$390,000). | | | 151,070 | | | | 159,642 | |
EDC 2022 interest-free loan(4) with a maximum contribution of CA$2,000,000 (CA$1,000,000 for building renovations and CA$1,000,000 for acquisition of equipment for Nanotech). Repayable in 60 monthly installments of CA$30,000, with the first repayment due in January 2026. As of December 31, 2023, the principal amount drawn down on the loan is CA$1,800,000 (December 31, 2022 - CA$1,454,167). | | | 1,009,523 | | | | 747,634 | |
| | | 3,724,617 | | | | 3,553,955 | |
Less: current portion | | | 801,628 | | | | 483,226 | |
| | $ | 2,922,989 | | | $ | 3,070,729 | |
(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 that was recorded as deferred government assistance, which is being amortized over the useful life of the associated equipment.
(4) The EDC 2022 loan was used to finance building renovations and equipment purchase resulting in CA$542,047 of deferred government assistance as of December 31, 2023, which is being amortized over the useful life of the associated building and equipment.
11. Capital Stock
Common Stock
Authorized: 10,000,000 common shares, $0.001 par value.
During the year ended December 31, 2023, 5,263 warrants were exercised to purchase an equal number of common shares.
During the year ended December 31, 2023, 26,351 stock options were exercised to purchase an equal number of common shares. In addition, 18,083 restricted stock units ("RSUs") have vested and settled into an equal number of common shares.
During the year ended December 31, 2023, we issued 18,517 shares under the SPA with Mr. McCabe (Note 5). Subsequent to year-end, the shares were cancelled as part of a Release Agreement entered into with Mr. McCabe (Note 28).
During the year ended December 31, 2023, we issued 10,753 shares of deferred common stock as consideration in relation to the PAL acquisition (Note 4).
During the year ended December 31, 2022, 19,886 warrants were exercised to purchase 16,237 common shares where most warrant holders elected cashless exercise and consequently, the difference of 3,649 shares was withheld to cover the exercise cost.
During the year ended December 31, 2022, 16,885 stock options were exercised to purchase an equal number of common shares. In addition, 6,739 restricted stock units ("RSUs") have vested and settled into 6,585 common shares. The difference of 154 RSUs was withheld to cover the tax obligation from certain employees.
During the year ended December 31, 2022, we issued 96,774 shares of common stock as consideration in relation to the PAL acquisition and 267,663 shares as consideration in relation to the Optodot acquisition (Note 4).
During the year ended December 31, 2022, we issued 2,231 common shares at $187.00 as a compensation to a service provider in relation to the Optodot acquisition.
On November 9, 2022, we filed a registration statement (File No. 333-268282) on form S-3 allowing us to issue securities with aggregate offering price not to exceed $250 million. This registration statement was declared effective by the SEC on November 18, 2022.
On January 29, 2024, we effected a reverse split of our common stock at a ratio of 1-for-100. The Reverse Stock Split did not have any impact on the par value of common stock. In accordance with SAB Topic 4.C, which requires the retrospective presentation of the reverse split in the financial statements if a reverse split occurs after the date of the latest reported balance sheet but before the release of the financial statements or the effective date of the registration statement, whichever is later, all issued and outstanding shares of common stock and all outstanding securities entitling their holders to purchase shares of our common stock or acquire shares of our common stock, including stock options, restricted stock units, and warrants per share data, share prices and exercise prices, as required by the terms of those securities, have been adjusted retroactively to reflect the Reverse Stock Split.
At-the-Market Equity Offering Program
On February 10, 2023, we entered into the ATM Agreement, which was amended on June 20, 2023, with an investment bank to conduct an "at-the-market" equity offering program, or the ATM, pursuant to which we would issue and sell, shares of our common stock, par value $0.001 per share, up to an aggregate of $100.0 million of shares of common stock from time to time.
Under the ATM Agreement, we set the parameters for the sale of ATM Shares, including the number of ATM Shares to be issued, the time period during which sales are requested to be made, limitations on the number of ATM Shares that may be sold in any one trading day and any minimum price below which sales may not be made. Sales of the ATM Shares, if any, under the ATM Agreement may be made in transactions that are deemed to be “at-the-market offerings” as defined in Rule 415 under the Securities Act of 1933, as amended, or the Securities Act.
During the year ended December 31, 2023, we sold a total of 269,665 shares of our common stock under the ATM at a weighted average price of $46.00 per share, generating gross proceeds of $12.3 million and net proceeds of $11.9 million after offering expenses.
On September 5, 2023, the Sales Agent terminated their participation as Sales Agent under the Sales Agreement, and accordingly, the Sales Agreement was terminated.
LPC Purchase Agreement
On September 11, 2023, we entered into the LPC Purchase Agreement with Lincoln Park which allows us to sell up to $50.0 million of our common stock to Lincoln Park over 30 months until March 2026. We have the right, but not the obligation, to require Lincoln Park to purchase our common stock, with the number of shares and the timing of these transactions being at our discretion, in accordance with the agreement's terms, provided that the closing sale price per-share of our common stock is above $10.00.
The purchase price for shares sold under this agreement is set at 97% of the lower of: (i) the lowest sale price on the purchase date and (ii) the arithmetic average of the three lowest closing sale prices for our common stock in the ten business days preceding the purchase date.
The LPC Purchase Agreement includes an Exchange Cap provision which establishes that the aggregate number of shares sold to Lincoln Park should not exceed 954,975 shares, that is 19.99% of our outstanding common stock immediately prior to the execution of the Purchase Agreement, unless (i) stockholder approval is obtained to issue shares above the Exchange Cap or (ii) the average price of all applicable sales of our common stock to Lincoln Park under the LPC Purchase Agreement equals or exceeds $21.34 (the “Minimum Price”).
The LPC Purchase Agreement may be terminated by us at any time, at our sole discretion, without any cost or penalty, by giving one business day notice to Lincoln Park to terminate the LPC Purchase Agreement. For consideration for entering into the LPC Purchase Agreement, and being obligated to fund up to $50.0 million, we agreed to pay $0.5 million to Lincoln Park as an initial commitment fee for its commitment to purchase shares of common stock under the LPC Purchase Agreement, and we were obligated to pay an additional $0.5 million to Lincoln Park as further described in the LPC Purchase Agreement.
During the year ended December 31, 2023, we sold a total of 105,000 shares of our common stock under the LPC Purchase Agreement at a weighted average price of $18.69 per share, generating proceeds of $2.0 million. We recorded $1.1 million of issuance costs as a reduction to equity as of December 31, 2023.
Registered direct offerings
February 2024 Offering
On February 21, 2024, we completed a registered direct offering with an institutional investor of (i) 600,000 shares of our common stock, (ii) Pre-funded Warrants to purchase up to 250,000 shares of common stock, and (iii) February 2024 Warrants to purchase up to an aggregate of 850,000 shares of common stock. Each share of common stock and Pre-Funded Warrant was offered and sold together with an accompanying February 2024 Warrant at a combined price of $4.04 per share of common stock or $4.039 per Pre-Funded Warrant, as applicable. In connection with the February 2024 Offering, we received net proceeds of approximately $3.0 million, after deducting placement agent fees and estimated offering expenses payable by us. See Note 28, Subsequent Events, for further information.
December 2023 Offering
On December 4, 2023, we entered into a securities purchase agreement with certain institutional and accredited investors in a registered direct offering. Under this offering, we issued and sold 750,000 shares of our common stock, each with a par value of $0.001, alongside warrants to purchase up to an additional 750,000 shares of common stock ("December 2023 Warrants"). The shares and accompanying warrants were sold at a combined price of $8.00, with each warrant exercisable at $9.50 per share six months post-issuance and expiring five years after the initial exercise date. The offering closed on December 6, 2023, with net proceeds of $5.4 million after deducting a fee of 6.5% for the Placement Agent and other offering expenses.
The gross proceeds of $6.0 million were allocated between common stock and accompanying warrants based on their relative fair values. The fair value of common stock was calculated based on the closing share price on the Issuance Date of $6.25. The fair value of the warrants was estimated using the Black-Scholes option pricing model. Accordingly, we have allocated $3.6 million as the fair value of common stock and $2.4 million as the fair value of warrants.
We have evaluated the December 2023 Warrants as either equity-classified or liability-classified instruments based on an assessment of the warrants’ specific terms and applicable authoritative guidance in ASC 480, Distinguishing Liabilities from Equity, and ASC 815, Derivatives and Hedging. We have concluded that the warrants are considered indexed to our common shares and as such they have been classified as equity.
Furthermore, in connection with the offering, on December 4, 2023, we entered into amendments of the June 2022 Warrant, representing an aggregate of 259,259 shares of common stock. Pursuant to the June 2022 Warrants Amendment (i) the exercise price per share was reduced to $9.50, (ii) the Initial Exercise Date (as defined in the June 2022 Warrants) was amended to be (a) immediately with respect to an aggregate of 230,000 Warrant Shares (as defined in the June 2022 Warrants) underlying the June 2022 Warrants, and (b) six months after the amendment with respect to an aggregate of 29,259 Warrant Shares underlying the June 2022 Warrants, and (iii) the Termination Date (as defined in the June 2022 Warrants) was amended to be (a) the five-year anniversary after the amendment, with respect to an aggregate of 230,000 Warrant Shares underlying the June 2022 Warrants, and (b) the five-year anniversary of the Initial Exercise Date, as amended, with respect to an aggregate of 29,259 Warrant Shares underlying the June 2022 Warrants.
Based on ASC 815-40, which provides guidance as to how an issuer should account for a modification of the terms or conditions of a freestanding equity-classified written call option (i.e., warrant) that remains equity-classified after modification, we measured the effect of the June 2022 Warrant Amendment as the excess of the fair value of the amended June 2022 Warrant over the fair value of the June 2022 Warrant immediately before the June 2022 Warrant Amendment and recognized the excess as an equity issuance cost of December 2023 Offering. Accordingly, we recognized non-cash issuance cost of $0.9 million.
April 2023 Offering
On April 14, 2023, we entered into the Underwriting Agreement with the underwriters relating to our public offering of (i) 833,334 shares of our common stock, par value $0.001 and (ii) warrants to purchase up to an aggregate of 833,334 shares of our common stock. The shares of common stock and warrants were sold together as a fixed combination, consisting of one share of common stock and a warrant to purchase one share of common stock, but were immediately separable and were issued separately in the offering. Each warrant is immediately exercisable to purchase one share of common stock at a price of $37.50 per share, or Exercise Price, subject to certain adjustments in the case of a Share Combination Event or a Dilutive Issuance as described below, and expires five years from the date of issuance. The combined price to the public in the offering for each share of common stock and accompanying warrant was $30.00. After deducting underwriting discounts and commissions and the offering expenses payable by us, the net proceeds were $22.1 million.
The gross proceeds of $25.0 million were allocated between common stock and accompanying warrants based on their relative fair values. The fair value of common stock was calculated based on the closing share price on the Issuance Date of $22.00. The fair value of the warrants was estimated using the Black-Scholes option pricing model. Accordingly, we have allocated $15.7 million as the fair value of common stock and $9.3 million as the fair value of warrants.
The warrants contain a down round provision that requires the exercise price to be adjusted if we sell shares of common stock below the current exercise price. See further information under Warrants section in this Note 11.
We have evaluated the warrants as either equity-classified or liability-classified instruments based on an assessment of the warrants’ specific terms and applicable authoritative guidance in ASC 480, Distinguishing Liabilities from Equity, and ASC 815, Derivatives and Hedging. We have concluded that the warrants are considered indexed to our common shares and as such they have been classified as equity.
June 2022 Offering
On June 24, 2022, we entered into a securities purchase agreement as amended and restated on June 27, 2022, with certain institutional investors (the "June 2022 SPA"), for the purchase and sale in a registered direct offering of 370,370 shares of our common stock at a purchase price of $135.00 per share and warrants to purchase 370,370 shares at an exercise price of $175.00 per share. This resulted in gross proceeds from the offering of $50.0 million and net proceeds of $46.3 million.
The gross proceeds were allocated between common stock and accompanying warrants based on their relative fair values. The fair value of common stock was calculated based on the closing share price on June 27, 2022 of $115.00. The fair value of the warrants was estimated using the Black-Scholes option pricing model. Accordingly, we have allocated $27.9 million as the fair value of common stock and $18.5 million as the fair value of warrants.
The warrants became exercisable six months after the date of issuance, expire five and a half years from the date of issuance and have an exercise price of $175.00 per share of common stock. We have evaluated the warrants as either equity-classified or liability-classified instruments based on an assessment of the warrants’ specific terms and applicable authoritative guidance in ASC 480, Distinguishing Liabilities from Equity, and ASC 815, Derivatives and Hedging. We have concluded that the warrants are considered indexed to our common shares and as such they have been classified as equity.
Warrants
The following table summarizes the changes in warrants of the Company:
| | | | | | | | | | | | | | | | |
| | Year ended December 31, | |
| | 2023 | | | 2022 | |
| | Number of | | | | | | Number of | | | | |
| | warrants | | | Amount | | | warrants | | | Amount | |
Balance, beginning of year | | | 399,209 | | | $ | 25,319,193 | | | | 52,788 | | | $ | 6,959,800 | |
Issued | | | 1,583,334 | | | | 11,683,359 | | | | 373,370 | | | | 18,714,297 | |
Exercised | | | (5,263 | ) | | | (62,264 | ) | | | (19,886 | ) | | | (253,741 | ) |
Expired | | | (3,000 | ) | | | (1,859,821 | ) | | | (7,063 | ) | | | (101,163 | ) |
Change in fair value due to repricing of April 2023 and June 2022 warrants | | | — | | | | 4,189,400 | | | | — | | | | — | |
Balance, end of year | | | 1,974,280 | | | $ | 39,269,867 | | | | 399,209 | | | $ | 25,319,193 | |
The 833,334 of April 2023 Warrants contain a down round provision that requires the exercise price to be adjusted if we sell shares of common stock below the current exercise price. When a down round provision is triggered, a financial impact due to the difference between the fair value of the April 2023 warrants post-adjustment and their air value immediately prior to the adjustment is recognized as deemed dividends in our Consolidated Financial Statements during the year ended December 31, 2023.
▪On June 27, 2023, the stock sales under ATM Program triggered a down round provision for 833,334 warrants issued under the April 2023 Warrants, in which the exercise price of these warrants was adjusted to $17.40 per share, resulting in recording a deemed dividend of approximately $2.0 million.
▪On November 7, 2023, the stock sales under LPC Purchase Agreement triggered a down round provision for 828,070 warrants issued under the April 2023 Warrants, in which the exercise price of these warrants was adjusted to $9.70 per share, resulting in recording a deemed dividend of approximately $1.0 million.
▪On December 6, 2023, the stock issuance under December 2023 Offerings triggered a down round provision for 828,070 warrants issued under the April 2023 Warrants, in which the exercise price of these warrants was adjusted to $7.60 per share, resulting in recording a deemed dividend of approximately $0.2 million.
The 750,000 of December 2023 Warrants do not include a down round provision. However, pursuant to a Letter Agreement related to the February 2024 Registered Direct Offering, we agreed to adjust the exercise price for 25,000 of these warrants. This adjustment will set the exercise price to the common stock's Minimum Price as of June 6, 2024. For additional details, refer to Note 28, Subsequent Events.
In addition, the exercise price of an aggregate of 259,259 of the June 2022 Warrants was reduced to $9.50 under June 2022 Warrant Amendment. In accordance with ASC 815-40, the effect of a modification was measured as the excess of the fair value of the modified
warrants over the fair value of that warrants immediately before it was modified and recorded as non-cash issuance cost of $0.9 million which was recorded as a reduction to Additional paid-in capital of stockholders' equity on the Consolidated Balance Sheet as of December 31, 2023.
During the year ended December 31, 2022, we granted 3,000 five-year warrants to purchase common stock to external consultants as stock-based compensation. The warrants have an exercise price of $118.00 per share, based on the closing price of our common stock on May 10, 2022.
On June 27, 2022, we issued 370,370 warrants which are exercisable six months after the date of issuance, expire five and a half years from the date of issuance and have an exercise price of $175.00 per share of common stock as part of the registered direct offering. Of which, 259,259 June 2022 Warrants had been amended as part of the December 2023 Offerings, in which the exercise price per share was reduced to $9.50. Further, June 2022 Warrants representing an aggregate of 74,074 share of common stock are subject to the Letter Agreement entered into in connection with the February 2024 RDO Offering, in which we agreed to reduce the exercise price per share of the amended June 2022 Warrants to be the Minimum Price of the common stock on June 6, 2024. See Note 28, Subsequent Events, for further information.
The fair value of warrants and broker warrants that were issued and estimated using the Black-Scholes option pricing model have the following inputs and assumptions:
| | | | | | | | |
| | Year ended December 31, | |
| | 2023 | | | 2022 | |
Weighted average grant date fair value | | $ | 12.00 | | | $ | 53.00 | |
Weighted average expected volatility | | 85% | | | 89% | |
Weighted average risk-free interest rate | | 4.11% | | | 3.18% | |
Weighted average dividend yield | | 0.00% | | | 0.00% | |
Weighted average term of warrants | | 4.8 years | | | 5.0 years | |
12. Stock-based Payments
On December 3, 2021, the stockholders of the Company approved the 2021 Equity Incentive Plan to utilize the 35,000 shares reserved and unissued under the Torchlight 2015 Stock Option and Grant Plan and the 64,457 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 349,457 shares.
The 2021 Equity Incentive Plan allows the grants of non-statutory stock options, restricted stock, RSUs, stock appreciation rights, performance units and performance shares to employees, directors, and consultants.
DSU Plan
Each unit is convertible at the option of the holder into one common share of the Company.
On March 28, 2013, we implemented a Deferred Stock Unit ("DSU") Plan for our directors, employees and officers. Each unit is convertible at the option of the holder into one common share of the Company. Eligible individuals are entitled to receive all DSUs (including dividends and other adjustments) no later than December 1st of the first calendar year commencing after the time of termination of their services.
The following table summarizes the change in DSUs of the Company:
| | | | | | | | |
| | Number of
DSUs (#) | | | Weighted
Average
grant date fair value | |
Outstanding, December 31, 2021 | | | 36,470 | | | $ | 21.82 | |
Granted | | | 2,632 | | | $ | 171.00 | |
Outstanding, December 31, 2022 | | | 39,102 | | | $ | 31.86 | |
Granted | | | 11,155 | | | $ | 15.55 | |
Outstanding, December 31, 2023 | | | 50,257 | | | $ | 29.57 | |
For the year ended December 31, 2023, we recorded $0.1 million of stock-based compensation expense. As of December 31, 2023, there was $0.1 million unrecognized compensation cost related to unvested DSUs.
RSU Plan
Each RSU unit is convertible at the option of the holder into one common share of the Company upon meeting the vesting conditions.
Total stock-based compensation expense related to RSUs included in the Consolidated Statements of Operations and Comprehensive Loss was as follows:
| | | | | | | | |
| | Year ended December 31, | |
| | 2023 | | | 2022 | |
Cost of sales | | $ | 334,645 | | | $ | 544,468 | |
Selling & marketing | | | (35,411 | ) | | | 376,449 | |
General & administrative | | | (236,857 | ) | | | 1,631,995 | |
Research & development | | | (57,612 | ) | | | 2,101,035 | |
| | $ | 4,765 | | | $ | 4,653,947 | |
As of December 31, 2023 and 2022, the unrecognized compensation cost related to unvested RSUs was $2.1 million and $5.7 million, respectively. This cost will be recognized over the next four years.
The following table summarizes the change in outstanding RSUs:
| | | | | | | | |
| | Number of
RSUs # | | | Weighted
Average
grant date fair value | |
Outstanding, December 31, 2021 | | | 3,000 | | | $ | 642.67 | |
Granted | | | 72,073 | | | $ | 145.44 | |
Forfeited | | | (3,264 | ) | | $ | 159.84 | |
Vested and settled | | | (6,739 | ) | | $ | 115.11 | |
Outstanding, December 31, 2022 | | | 65,070 | | | $ | 171.00 | |
Granted | | | 170,925 | | | $ | 18.05 | |
Forfeited | | | (127,187 | ) | | $ | 238.92 | |
Vested and settled | | | (18,083 | ) | | $ | 43.85 | |
Outstanding, December 31, 2023 | | | 90,725 | | | $ | 49.16 | |
| | | | | | |
Vested but not yet settled, December 31, 2023 | | | 2,230 | | | $ | 7.77 | |
Employee Stock Option Plan
Each stock option is convertible at the option of the holder into one common share of the Company.
Total stock-based compensation expense included in the Consolidated Statements of Operations and Comprehensive Loss was as follows:
| | | | | | | | |
| | Year ended December 31, | |
| | 2023 | | | 2022 | |
Sales & marketing | | $ | 6,022 | | | $ | 195,041 | |
General & administrative | | | (221,099 | ) | | | 5,930,518 | |
Research & development | | | 133,777 | | | | 2,490,979 | |
| | $ | (81,300 | ) | | $ | 8,616,538 | |
As of December 31, 2023 and 2022, the unrecognized compensation cost related to unvested stock options was $0.9 million and $4.1 million, respectively. This cost will be recognized over the next four years.
The following table summarizes the change in outstanding stock options of the Company:
| | | | | | | | | | | | | | | | |
| | | | | Average | | | Average | | | | |
| | | | | exercise | | | exercise | | | | |
| | | | | price per | | | remaining | | | Aggregate | |
| | Number of
options # 1 | | | stock
option | | | contractual
term
(years) | | | intrinsic
value | |
Outstanding, December 31, 2021 | | | 214,046 | | | $ | 46.00 | | | 7.34 | | | $ | 56,924,556 | |
Granted | | | 143,190 | | | $ | 140.74 | | | | | | | |
Exercised | | | (16,885 | ) | | $ | 27.00 | | | | | | | |
Forfeited | | | (4,401 | ) | | $ | 102.37 | | | | | | | |
Outstanding, December 31, 2022 | | | 335,950 | | | $ | 80.00 | | | 9.31 | | | $ | 17,611,251 | |
Granted | | | 62,961 | | | $ | 15.58 | | | | | | | |
Exercised | | | (26,351 | ) | | $ | 27.00 | | | | | | | |
Forfeited | | | (183,020 | ) | | $ | 84.75 | | | | | | | |
Outstanding, December 31, 2023 | | | 189,540 | | | $ | 62.23 | | | | 4.68 | | | $ | — | |
| | | | | | | | | | | | |
Exercisable, December 31, 2023 | | | 121,356 | | | $ | 69.97 | | | | 3.67 | | | $ | — | |
Below is a summary of the outstanding options as of December 31, 2023 and December 31, 2022:
| | | | | | | | | | | | | | | | |
| | As of December 31, | |
| | 2023 | | | 2022 | |
Range of exercise price | | Number outstanding
# | | | Number exercisable
# | | | Number outstanding
# | | | Number exercisable
# | |
$12.00 - $27.00 | | | 124,383 | | | | 75,457 | | | | 181,286 | | | | 155,493 | |
$89.00 - $100.00 | | | 14,918 | | | | 11,793 | | | | 29,847 | | | | 18,224 | |
$117.00 - $126.00 | | | 15,029 | | | | 8,446 | | | | 27,827 | | | | 9,321 | |
$131.00 - $158.00 | | | 24,460 | | | | 16,286 | | | | 67,299 | | | | 30,547 | |
$197.00 - 200.00 | | | 10,750 | | | | 9,374 | | | | 29,691 | | | | 29,691 | |
| | | 189,540 | | | | 121,356 | | | | 335,950 | | | | 243,276 | |
The fair value of options granted was estimated at the grant date using the following weighted-average assumptions:
| | | | | | | | |
| | Year ended December 31, | |
| | 2023 | | | 2022 | |
Weighted average grant date fair value | | $ | 14.00 | | | $ | 81.00 | |
Weighted average expected volatility | | 87% | | | 81% | |
Weighted average risk-free interest rate | | 4.16% | | | 2.56% | |
Weighted average expected life of the options | | 5.07 years | | | 4.19 years | |
Where possible, we use the simplified method to estimate the expected term of employee stock options. We do not have adequate historical exercise data to provide a reasonable basis for estimating the expected term for the current share options granted. The simplified method assumes that employees will exercise share options evenly between the period when the share options are vested and ending on the date when the options would expire.
The expected volatility reflects the assumption that the historical volatility over a period similar to the life of the options is indicative of future trends, which may not necessarily be the actual outcome.
13. Income Taxes
Losses before income taxes were as follows:
| | | | | | | | |
| | Year ended December 31, | |
| | 2023 | | | 2022 | |
United States | | $ | (305,558,883 | ) | | $ | (58,490,568 | ) |
Foreign | | | (96,016,868 | ) | | | (26,445,816 | ) |
Loss before income taxes | | $ | (401,575,751 | ) | | $ | (84,936,384 | ) |
Significant components of the income tax provisions were as follows:
| | | | | | | | |
| | Year ended December 31, | |
| | 2023 | | | 2022 | |
Current tax expense: | | | | | | |
United States | | $ | 1,737 | | | $ | 1,256 | |
Foreign | | | — | | | | — | |
Current tax expense | | | 1,737 | | | | 1,256 | |
Deferred tax benefit: | | | | | | |
United States | | | — | | | | (4,893,000 | ) |
Foreign | | | (3,345,950 | ) | | | (942,416 | ) |
Deferred tax benefit | | | (3,345,950 | ) | | | (5,835,416 | ) |
Income tax recovery | | $ | (3,344,213 | ) | | $ | (5,834,160 | ) |
We have determined the deferred tax position in accordance with ASC Topic 740, Income Taxes, resulting in recognition of deferred tax liabilities for future reversing of taxable temporary differences primarily for intangible assets. During the year ended December 31, 2022, we recorded a deferred tax liability of $4.9 million from the Optodot acquisition, which was recognized as a reduction to our valuation allowance resulting in a net tax benefit of $4.9 million for the year ended December 31, 2022.
The income tax provision differs from the amount computed by applying the federal income tax rate of 21% for 2023 (2022 - 21%) to the loss before income taxes as a result of the following differences:
| | | | | | | | |
| | Year ended December 31, | |
| | 2023 | | | 2022 | |
Tax computed at federal statutory rate (21%) | | $ | (84,364,447 | ) | | $ | (17,836,641 | ) |
State income taxes, net of federal benefit | | | (1,735,944 | ) | | | (1,428,381 | ) |
Capital loss | | | (910,340 | ) | | | (7,192,458 | ) |
Goodwill impairment | | | 59,242,764 | | | | — | |
Other permanent items | | | 1,697,269 | | | | (3,750,116 | ) |
Foreign currency and other | | | — | | | | 185,860 | |
Research and development credit | | | (508,993 | ) | | | (319,137 | ) |
Foreign rate differential | | | (5,405,405 | ) | | | (1,484,069 | ) |
Provision to return | | | (11,394 | ) | | | 1,595,074 | |
Deferred true-ups | | | 1,674,700 | | | | 1,525,095 | |
Change in valuation allowance | | | 26,977,577 | | | | 22,870,613 | |
Income tax recovery | | $ | (3,344,213 | ) | | $ | (5,834,160 | ) |
Effective tax rate | | 0.83% | | | 6.87% | |
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities were as follows:
| | | | | | | | |
| | As of December 31, | |
| | 2023 | | | 2022 | |
Deferred tax assets | | | | | | |
Non-capital losses | | $ | 39,878,943 | | | $ | 30,527,370 | |
Capital loss carryforward | | | 7,564,389 | | | | 7,228,389 | |
Stock-based compensation | | | 5,346,259 | | | | 5,718,562 | |
Allowance for doubtful accounts | | | — | | | | 4,609,247 | |
Research and development tax credits | | | 5,031,651 | | | | 2,824,760 | |
Research and development expense capitalization | | | 3,888,782 | | | | 2,198,314 | |
Reserves and other accruals | | | 1,955,147 | | | | 1,144,703 | |
Operating lease right-of-use assets | | | 1,607,756 | | | | 808,717 | |
Property plant and Equipment | | | 7,063,161 | | | | — | |
Intangible assets | | | 89,934 | | | | 72,895 | |
Other assets | | | 173,453 | | | | 37,426 | |
Total gross deferred tax assets | | | 72,599,475 | | | | 55,170,383 | |
Less: valuation allowance | | | (68,666,432 | ) | | | (41,688,855 | ) |
| | | 3,933,043 | | | | 13,481,528 | |
Deferred tax liabilities | | | | | | |
Intangible assets | | | (3,658,773 | ) | | | (12,355,386 | ) |
Property, plant and equipment | | | — | | | | (2,791,147 | ) |
Long-term operating lease liabilities | | | (134,855 | ) | | | (1,234,015 | ) |
Long-term debt | | | (139,415 | ) | | | (189,260 | ) |
Funding obligation | | | — | | | | (112,974 | ) |
Other liabilities | | | — | | | | (52,731 | ) |
| | | (3,933,043 | ) | | | (16,735,513 | ) |
Net deferred tax liability | | $ | — | | | $ | (3,253,985 | ) |
At December 31, 2023, we have a net operating loss carryforwards (“NOLs”) of approximately $143.9 million (2022: $111.4 million) that can be used to offset future taxable income, and such NOLs, as well as timing differences from certain financial instruments, result in a gross deferred tax asset of approximately $72.6 million (2022: $55.2 million). These NOLs begin to expire in 2028.
In evaluating its valuation allowance, we consider all available positive and negative evidence, including projected future taxable income and recent financial performance. Due to uncertainty with respect to the ultimate realizability of these deferred tax assets, we have recorded a valuation allowance of approximately $68.7 million (2022: $41.7 million).
14. Net Loss Per Share
The following table sets forth the calculation of basic and diluted net loss per share during the periods presented:
| | | | | | | | |
| | Year ended December 31, | |
| | 2023 | | | 2022 | |
Numerator: | | | | | | |
Net loss | | $ | (398,231,538 | ) | | $ | (79,102,224 | ) |
Deemed dividends for down round provision in warrants | | | (3,283,667 | ) | | | — | |
| | $ | (401,515,205 | ) | | $ | (79,102,224 | ) |
Denominator: | | | | | | |
Weighted-average shares, basic | | | 5,763,446 | | | | 3,283,505 | |
Weighted-average shares, diluted | | | 5,763,446 | | | | 3,283,505 | |
Net loss per share | | | | | | |
Basic | | $ | (69.67 | ) | | $ | (24.09 | ) |
Diluted | | $ | (69.67 | ) | | $ | (24.09 | ) |
The following potentially dilutive shares were not included in the calculation of diluted shares above as the effect would have been anti-dilutive:
| | | | | | | | |
| | As of December 31, | |
| | 2023 | | | 2022 | |
Options | | | 189,540 | | | | 335,950 | |
Warrants | | | 1,974,280 | | | | 399,209 | |
RSUs | | | 90,725 | | | | 65,070 | |
DSUs | | | 50,257 | | | | 39,102 | |
| | | 2,304,802 | | | | 839,331 | |
15. Additional Cash Flow Information
The net changes in operating assets and liabilities consisted of the following:
| | | | | | | | |
| | As of December 31, | |
| | 2023 | | | 2022 | |
Grants receivable | | $ | (3,689 | ) | | $ | 172,765 | |
Inventory | | | (372,601 | ) | | | (319,116 | ) |
Accounts and other receivables | | | (29,357 | ) | | | 287,320 | |
Prepaid expenses and other current assets | | | 2,530,367 | | | | (4,799,174 | ) |
Trade payables, accruals and other accruals | | | 22,428 | | | | 5,410,515 | |
Restructuring costs accrual | | | 1,181,781 | | | | — | |
Due from related party | | | (21,666 | ) | | | (108,102 | ) |
Operating lease Right-of-use Asset | | | — | | | | (231 | ) |
Operating lease liabilities | | | (1,522,283 | ) | | | (997,067 | ) |
| | $ | 1,784,980 | | | $ | (353,090 | ) |
16. Fair Value Measurements
We use a fair value hierarchy, based on the relative objectivity of inputs used to measure fair value, with Level 1 representing inputs with the highest level of objectivity and Level 3 representing the lowest level of objectivity.
The fair values of cash and cash equivalents, restricted cash, short-term investments, grants and accounts receivable, due from related parties and trade and other payables approximate their carrying values due to the short-term nature of these instruments. The current portion of long-term debt has been included in the below table.
The fair value of our notes receivable from Next Bridge as of December 31, 2022 was classified at Level 3 in the fair value hierarchy. See Note 5 for further details.
The fair values of 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 were not carried at fair value are as follows:
| | | | | | | | | | | | | | | | |
| | 2023 | | | 2022 | |
Financial liability | | Carrying value | | | Fair value | | | Carrying value | | | Fair value | |
Funding obligation | | $ | 982,912 | | | $ | 982,912 | | | $ | 180,705 | | | $ | 85,411 | |
Operating lease liabilities | | $ | 7,426,520 | | | $ | 9,782,069 | | | $ | 4,342,157 | | | $ | 5,666,940 | |
Long-term debt | | $ | 3,724,617 | | | $ | 3,970,061 | | | $ | 3,553,955 | | | $ | 2,663,460 | |
Nonrecurring Fair Value Measurements
In addition to assets and liabilities that are recorded at fair value on a recurring basis, we record assets and liabilities at fair value on a nonrecurring basis as required by ASC 820. For the year ended December 31, 2023, the carrying value of certain asset groups was remeasured to fair value on a nonrecurring basis as a result of our impairment assessment. The fair value of each asset group was calculated utilizing an income approach. The income approach uses a discounted cash flow model that requires various observable and non-observable inputs, the most significant of which is estimated income. We also considered measures of fair value using the market approach; however, limited observable market transactions or market information was available. As such, the income approach was used to maximize the use of relevant observable inputs and minimize the use of unobservable inputs. The resulting estimate of fair value for each asset group using the income approach and the above Level 3 estimates was less than the corresponding carrying value for each
asset group, which resulted in an aggregate pre-tax impairment charge of $65.6 million. See Note 24, Realignment and Consolidation Plan, for further information. There were no other assets measured at fair value on a nonrecurring basis as of, or for the year ended, December 31, 2023 and 2022.
17. Revenue
We have one operating segment based on how management internally evaluates separate financial information, business activities and management responsibility.
Revenues were disaggregated as follows:
| | | | | | | | |
| | Year ended December 31, | |
| | 2023 | | | 2022 | |
Product sales | | $ | 117,354 | | | $ | 1,211,746 | |
Licensing revenue | | | 625,151 | | | | 337,876 | |
Contract revenue(1) | | | 5,743,233 | | | | 8,471,243 | |
Other development revenue | | | 1,479,908 | | | | 179,302 | |
Development revenue | | | 7,223,141 | | | | 8,650,545 | |
| | $ | 7,965,646 | | | $ | 10,200,167 | |
(1) A portion of contract revenue represents previously recorded deferred revenue that was recognized as revenue after satisfaction of performance obligations either through passage of time or after completion of specific performance milestones. Refer to Note 18 for outstanding contracts.
Customer Concentration
A significant amount of our revenue is derived from contracts with major customers as explained below.
We currently derive a significant portion of our revenue from development services with a G10 central bank. These development services incorporate both nano-optic and optical thin film technologies and are focused on developing authentication features for future banknotes. In 2021, we acquired a development contract for up to $41.5 million over a period of up to five years. In August 2023 and September 2023, we were awarded $2.1 million and $6.2 million purchase orders, respectively, under this contract. Including those new purchase orders, we have received a total of $22.7 million in purchase orders under the development contract as of December 31, 2023.
In addition, during the year ended December 31, 2023, we entered into a joint development agreement, or the JDA, with a global battery maker under which we provide research and development services in exchange for total consideration of $1.5 million. The contractual term of the JDA is 12-months ("Performance Period"). Because our research and development work, which is a single performance obligation, will be provided evenly throughout the Performance Period, we recognize revenue from the JDA based on a straight-line basis, as a time-based method, in accordance with ASC 606, Revenue Recognition. During the year ended December 31, 2023, we recognized $1.1 million from the JDA.
For the year ended December 31, 2023, revenue from those two customers, each representing more than 10% of the total revenue, accounted for $5.7 million, or 71.0 %, and $1.1 million, or 14.1%, of total revenues, respectively.
For the year ended December 31, 2022 revenue from the G10 central bank accounted for $8.6 million, or 84%, of total revenue.
18. Deferred Revenue
The company records deferred revenue when cash payments are received or due in advance of its performance obligations offset by the revenue recognized in the period. Revenues of $0.2 million and $0.1 million were recognized during the years ended December 31, 2023 and December 31, 2022, respectively, which amounts were included in the deferred revenue balances of $1.2 million and $1.4 million as of December 31, 2022 and December 31, 2021, respectively.
Deferred revenue as of December 31, 2023 and 2022 consisted of the following:
| | | | | | | | |
| | As of December 31, | |
| | 2023 | | | 2022 | |
Holography-exclusive rights(1) | | $ | 491,344 | | | $ | 575,770 | |
Holography-advance against PO(2) | | | 470,588 | | | | 459,539 | |
Nanoweb -advance payment | | | 110,700 | | | | 175,000 | |
Deferred revenue (JDA with the global battery maker)(3) | | | 375,000 | | | | — | |
Authentication - deferred revenue | | | 25,960 | | | | — | |
| | | 1,473,592 | | | | 1,210,309 | |
Less: current portion | | | (1,054,557 | ) | | | (730,501 | ) |
| | $ | 419,035 | | | $ | 479,808 | |
| |
(1) | On September 18, 2018, we signed an exclusive distribution agreement with Satair A/S for a term of 10 years. According to this agreement, the Company grants Satair A/S the exclusive right to sell, market, and distribute eyewear and visor products incorporating metamaterial-based laser protection technology that are developed or manufactured by the Company for use in aviation, military, and defense. On September 13, 2018, we received a fee of $1.0 million for the exclusive distribution rights granted under this agreement and the payment was recognized as deferred revenue on the consolidated balance sheets. It will be accounted as development revenue over a period of 8 years and no repayment of the $1.0 million is required if the contract termination is after the 8th anniversary of the effective date. During the year ended December 31, 2023, we have recognized $84,426 (2022: $99,629) as development revenue related to this agreement. |
(2) | On July 20, 2018, we received a purchase order for MetaVisor (eyewear/eye protection) from Satair A/S for $2.0 million. On November 7, 2018, we received a partial advance payment of $0.5 million against this purchase order. We have set up a guarantee/standby letter of credit with Royal Bank of Canada ("RBC"). 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. As of December 31, 2023, no amount has been drawn from the letter of credit with RBC. Refer to Note 27 for information regarding the letter of credit. |
(3) | In March 2023, we entered into the JDA with the global battery maker under which we provide research and development services in exchange for total consideration of $1.5 million. The consideration is recognized over the 12 months of the performance period. The remaining balance of $0.4 million is expected to be recognize in fiscal year 2024. |
19. Deferred Government Assistance
Deferred Government Assistance
| | | | | | | | |
| | As of December 31, | |
| | 2023 | | | 2022 | |
SDTC(1) | | $ | 572,267 | | | $ | 799,490 | |
Deferred government assistance(2) | | | 409,835 | | | | 319,017 | |
| | | 982,102 | | | | 1,118,507 | |
Less: current portion | | | (590,954 | ) | | | (799,490 | ) |
| | $ | 391,148 | | | $ | 319,017 | |
| |
(1) | On May 15, 2018, we entered into an agreement with the Canada Foundation for Sustainable Development Technology a (“SDTC”) for $4.2 million. The contribution provides funding for eligible costs incurred relating to the further development and demonstration of technology related to solar cells in connection with the project entitled “Enabling solar flight a testing ground for lightweight and efficient solar panels”. On March 30, 2021, we have received an additional 5% contribution from SDTC of $0.2 million. During the year ended December 31, 2023, we have recognized $0.1 million (2022: $Nil) as government assistance in the Consolidated Statements of Operations and Comprehensive Loss. |
(2) | On November 10, 2022, we entered into an agreement with the EDC for $1.5 million. The contribution provides funding for eligible costs incurred relating to improvement of the Thurso facilities and the acquisition of digital production equipment. On December 20, 2022, we have received approximately $1.1 million of the total contribution and as of December 31, 2023 we have recognized $0.4 million in deferred government assistance. During the year ended December 31, 2023, we have recognized $Nil (2022: $Nil) as government assistance in the Consolidated Statements of Operations and Comprehensive Loss. |
Government Assistance Recognized in the Consolidated Statements of Operations and Comprehensive Loss
| | | | | | | | |
| | Year ended December 31, | |
| | 2023 | | | 2022 | |
SR&ED | | $ | 434,517 | | | $ | — | |
SDTC | | | 85,915 | | | | — | |
Payroll subsidies | | | 62,324 | | | | 77,075 | |
Amortization of deferred government assistance | | | — | | | | 3,047 | |
R&D tax credit | | | — | | | | 138,410 | |
| | $ | 582,756 | | | $ | 218,532 | |
20. Interest Expense, net
| | | | | | | | |
| | Year ended December 31, | |
| | 2023 | | | 2022 | |
Non-cash interest accretion | | $ | (372,000 | ) | | $ | (403,317 | ) |
Interest & bank charges | | | (55,756 | ) | | | 133,518 | |
Interest income | | | 49,099 | | | | 95,565 | |
| | $ | (378,657 | ) | | $ | (174,234 | ) |
21. Other Expenses, net
| | | | | | | | |
| | Year ended December 31, | |
| | 2023 | | | 2022 | |
O&G assets maintenance cost (1) | | $ | — | | | $ | (3,859,851 | ) |
Credit loss expense | | | (1,799,977 | ) | | | — | |
Interest income from Next Bridge | | | 966,827 | | | | — | |
Government assistance (Note 19) | | | 582,756 | | | | 218,532 | |
Other income | | | 335,163 | | | | 72,038 | |
Fair value gain (loss) on long-term debt | | | (53,711 | ) | | | 56,185 | |
Fair value gain (loss) on funding obligation (Note 22) | | | (768,449 | ) | | | 79,339 | |
| | $ | (737,391 | ) | | $ | (3,433,757 | ) |
| |
(1) | We incurred costs in relation to certain drilling activity carried out at our Oil and Gas properties, to remain in compliance with all aspects of our lease obligations and to satisfy the Continuous Drilling Clause ("CDC") with University Lands. Subsequent to December 14, 2022, these oil and gas assets, and the associated lease obligations, are no longer owned by us, as they formed part of the net assets deconsolidated as part of the Next Bridge spin-off (see Note 5). |
22. Funding Obligation
In June 2019, we entered into a statement of work (“SOW”) with a third party for the purchase of manufacturing equipment. The SOW was initiated based on the Industrial and Regional Benefits general investment funding between the third party and the Government of Canada. We received the funds in two tranches after achieving two milestones as per the SOW, totaling CA$1.3 million. The funds are repayable based on 10% of revenue from the sale of holographic film that is produced using the related manufacturing equipment paid for under this funding obligation.
| | | | | | | | |
| | As of December 31, | |
| | 2023 | | | 2022 | |
Outstanding obligation(1) | | $ | 982,912 | | | $ | 959,835 | |
Fair value of interest-free component | | | — | | | | (852,573 | ) |
Principal adjusted for interest-free component | | | 982,912 | | | | 107,262 | |
Accumulated non-cash interest accretion | | | — | | | | 73,443 | |
Carrying amount | | | 982,912 | | | | 180,705 | |
Less current portion | | | (982,912 | ) | | | — | |
| | $ | — | | | $ | 180,705 | |
| |
(1) | The amounts received under the agreement have been recorded at fair value by applying the effective interest rate method on the dates the funding was received, using an estimated market interest rate of 15%. During the year ended December 31, 2022, we elected to bring the market interest rate to current rates and increased it to 19.17%. Following management discussions, the revenue |
| |
| generation ability from the manufacturing equipment bought under the funding obligation was reduced, resulting in a longer repayment period. For the year ended December 31, 2022, the combination of these two changes prompted us to recognize a gain of $0.1 million in the Consolidated Statements of Operations and Comprehensive Loss. |
| During the year ended December 31, 2023, after assessing a lack of projected revenue, we determined that the funding obligation’s carrying value equals its fair value because it is now repayable upon demand, resulting in recording non-cash adjustment to funding obligation of $0.8 million. The funding obligation has also been reclassified to current liabilities within the Consolidated Balance Sheet as of December 31, 2023. |
23. Leases
We lease certain properties under non-cancelable operating leases in USA, Canada, United Kingdom, and Greece for production, research and development and administration for varying periods through June 2034. While under the Company's lease agreements the Company has options to extend its certain leases, the Company has not included renewal option in determining the lease term for calculating its lease liabilities, as there options are not reasonably certain of being exercised.
During the years ended December 31, 2023, we commenced the following leases:
Billerica Office Lease
On October 1, 2022, we entered into an operating lease agreement for the space of approximately 12,655 square feet on the 2nd Floor of a commercial building located in Billerica, Massachusetts, USA, in two separate sections: 8,097 Rentable Square Footage (the "Phase 1 lease") and 4,558 Rentable Square Footage (the "Phase 2 lease"). The lease term is five years and six months for the Phase 1 lease commencing from July 1, 2023, the delivery date of the Phase 1 lease, on which the space became ready for use (the "lease commencement date"), with an option to renew the lease for an additional five years. The lease term for the Phase 2 lease depends on the delivery of the Phase 2 lease, commencing on the delivery date of Phase 2 lease, on which the space will be made readily available, and ending in December 2028, with an option to renew the lease for an additional five years. Since the lease commencement date, the Phase 1 lease requires monthly lease payments of approximately $19,543 over the entire lease term, subject to 3% annual upward adjustment, and additional monthly lease payments, total of 0.1 million over five years for lease improvements made by a landlord. The lease expense is recognized on a straight-line basis over the lease term of five years and six months. The Phase 2 lease is anticipated to commence in fiscal 2025. We recognized $1.1 million of lease liability and ROU asset for the Phase 1 lease, as of the lease commencement date.
Columbia Office Lease
In September 2022, we entered into an operating lease agreement for the space of approximately 11,642 square feet for an office in a building located in Columbia, Maryland, USA for 11 years from the commencement date of June 23, 2023, with an option to renew the lease for an additional 5 years (the "Columbia office lease"). There are step-up lease payments for each 12-month period from lease commencement, with the first 12 months fully abated. The agreement also provides the one-time option to terminate the lease effective as of the last date of the 73rd month of the lease term. We did not include the effects of exercising those options in the lease term to calculate lease liability because we concluded it is not reasonably certain that we will exercise the options. As of the lease commencement date of June 23, 2023, we recorded $2.2 million of lease liability and $2.2 million of ROU assets associated with the Columbia office lease. The lease expense is recognized on a straight-line basis over the lease term of 11 years.
Total operating lease expense included in the Consolidated Statements of Operations and Comprehensive Loss is as follows:
| | | | | | | | |
| | Year ended December 31, | |
| | 2023 | | | 2022 | |
Operating lease expense | | $ | 2,248,287 | | | $ | 2,057,157 | |
Short term lease expense | | | 311,107 | | | | 584,645 | |
Variable and other lease expense | | | 533,621 | | | | 263,500 | |
Total | | $ | 3,093,015 | | | $ | 2,905,302 | |
We elected the practical expedient 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 Consolidated Statements of Operations and Comprehensive Loss.
ROU assets are reviewed for impairment when indicators of impairment are present in accordance with the impairment guidance in ASC 360, Property, Plant, and Equipment. During the year ended December 31, 2023, under the Realignment and Consolidation Plan focusing on optimizing operational efficiencies, we strategically realigned our investment toward core business units expected to enhance near-term cash flows. This strategic realignment resulted in the identification of impairment indicators for asset groups in certain office locations. See Note 24, Realignment and Consolidation Plan, for further information.
The evaluation concluded that the carrying amounts of these asset groups exceeded their fair values, leading to an impairment loss on ROU assets of $6.9 million, which is included in Impairment of long-lived assets in our Consolidated Statements of Operations and Comprehensive Loss for the year ended December 31, 2023. We recognized no impairment of ROU assets for the year ended December 31, 2022.
The fair value of impaired asset groups was determined based on the Discounted Cash Flow Method, which is classified within Level 3 of the fair value hierarchy. See Note 16, Fair Value Measurements, for further details.
Future minimum payments under non-cancelable operating lease obligations were as follows as of December 31, 2023:
| | | | |
2024 | | $ | 1,969,721 | |
2025 | | | 1,732,924 | |
2026 | | | 1,590,697 | |
2027 | | | 1,172,341 | |
2028 | | | 1,180,761 | |
Thereafter | | | 3,834,677 | |
Total minimum lease payments | | | 11,481,121 | |
Less: interest | | | (4,054,601 | ) |
Present value of net minimum lease payments | | | 7,426,520 | |
Less: current portion of lease liabilities | | | (1,452,863 | ) |
Total long-term lease liabilities | | $ | 5,973,657 | |
Supplemental balance sheet information related to leases is as follows:
| | | | |
| | Year ended December 31, |
| | 2023 | | 2022 |
Weighted Average Remaining Lease Term | | 5 years | | 5 years |
Weighted Average Discount Rate | | 12.84 % | | 17.17 % |
24. Realignment and Consolidation Plan
On June 6, 2023, our board of directors approved the Realignment and Consolidation Plan pursuant to which we have begun, but not yet completed, a process for increased focus on key applications with the greatest near-term revenue potential, and of realignment our resources and structure for reduced operating expenses. This strategic initiative is designed to adapt to changing market conditions, accelerate revenue, enhance efficiency, and reduce our cash burn rate.
During the year ended December 31, 2023, we recognized $3.9 million of restructuring expense in relation to the plan, which consisted of severance payments for actual and expected terminations under the Realignment and Consolidation Plan. We accrue costs in connection with ongoing restructuring actions. These accruals include estimates primarily related to employee headcount, local statutory benefits, and other employee termination costs. We calculate severance obligations based on standard practices or the contractual obligations if applicable. As of December 31, 2023, we recorded $1.2 million provisions for severance payments and contract termination costs when probable and estimable since we committed to the Realignment and Consolidation Plan. These accruals have been reviewed on a quarterly basis and changes to restructuring actions are appropriately recognized when identified. We also have one-time benefit arrangements with certain employees, which has been recorded in accordance with ASC 420 where a one-time termination benefit is accrued when the terms of the benefit arrangement is communicated to the affected employees and may be spread over a future service period through the termination date.
Cash payments in the year ended December 31, 2023 were $2.7 million. The costs related to restructuring activities have been recorded in the restructuring expense on the Consolidated Statement of Operations and Comprehensive Loss.
During the fourth quarter ending December 31, 2023, we identified indicators of impairment associated with certain technology asset groups. This identification was based on our ongoing evaluation of asset utility and alignment with strategic investment priorities, consideration for current year performance relative to expectations, in particular for the period subsequent to the Realignment and Consolidation Plan, as well as our updated assessment of the future cash flow generation from these asset groups. As a result of this assessment, all asset groups were subject to impairment testing other than the asset group related to Authentication technology. Additionally, lease-related assets intended for subletting were classified as single asset groups because the offices were vacated for subleasing as of December 31, 2023. Consequently, we recorded a non-cash impairment loss of $65.6 million, which consisted of the following:
•a $32.2 million impairment of Intangible assets, which was mainly related to patents and trademarks we acquired as part of the PAL acquisition and the Optodot acquisition;
•a $26.5 million impairment of Property, plant and equipment, which was related to Holography and Wireless Sensing and Radio Wave Imaging technology asset groups, as well as core-business asset groups other than the Authentication technology asset group. It includes $17.7 million impairment of leasehold improvements related to the office located in Dartmouth, Nova Scotia; and
•a $6.1 million impairment of ROU assets of the offices and facilities related to the Holography and Wireless Sensing and Radio Wave Imaging technology asset groups, as well as core-business asset groups other than the Authentication technology asset group, which are located in Dartmouth, Nova Scotia, Pleasanton, California, Columbia, Maryland, Billerica, Boston, and Oxford, United Kingdom.
•a $0.8 million impairment of ROU assets and the related assets of the offices and facilities subject to a sublease or lease assignment arrangement, which are located in Pleasanton, California, Burnaby, British Columbia, and Athens, Greece.
25. Segment and Geographic Information
We have a single operating segment and reportable segment. Our Chief Executive Officer and former Chief Financial Officer were identified as the chief operating decision makers as of December 31, 2023. Our chief operating decision makers review financial information presented as one operating segment for the purpose of making decisions, allocating resources and assessing financial performance.
Our net revenues by major geographic area (based on destination) were as follows:
| | | | | | | | |
| | Year ended December 31, | |
Revenue by geography | | 2023 | | | 2022 | |
United States | | | | | | |
Product sales | | $ | 48,245 | | | $ | 415,578 | |
Development revenue | | | 7,072,202 | | | | 8,631,248 | |
Licensing revenue | | | 250,649 | | | | 158,931 | |
Canada | | | | | | |
Product sales | | | 24,204 | | | | 246,249 | |
Development revenue | | | — | | | | — | |
Licensing revenue | | | 112,110 | | | | 45,881 | |
Other Countries | | | | | | |
Product sales | | | 44,905 | | | | 549,919 | |
Development revenue | | | 150,939 | | | | 19,297 | |
Licensing revenue | | | 262,392 | | | | 133,064 | |
Total revenue | | $ | 7,965,646 | | | $ | 10,200,167 | |
Property, plant and equipment, net per geographic region were as follows:
| | | | | | | | |
| | Year ended December 31, | |
Property, plant and equipment, net | | 2023 | | | 2022 | |
United States | | $ | — | | | $ | 6,238,328 | |
Canada | | | 18,333,413 | | | | 35,596,217 | |
Other countries | | | 268,201 | | | | 840,154 | |
Total property, plant and equipment, net | | $ | 18,601,614 | | | $ | 42,674,699 | |
| | | | | | |
26. Related Party Transactions
As of December 31, 2023, and December 31, 2022, receivables due from a related party (Lamda Guard Technologies Ltd) and certain of its owners were $29,906 and $8,461, respectively.
27. Commitments and Contingencies
Legal Matters
Securities class action
On January 3, 2022, a putative securities class action lawsuit was filed in the U.S. District Court for the Eastern District of New York captioned Maltagliati v. Meta Materials Inc., et al., No. 1:21-cv-07203, against us, our then current Chief Executive Officer, our then current 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, or the Exchange Act, arising primarily from a short-seller report and statements related to our business combination with Torchlight. The complaints seek unspecified compensatory damages and reasonable costs and expenses, including attorneys’ fees. On July 15, 2022, the Court consolidated these actions under the caption In re Meta Materials Inc. Securities Litigation, No. 1:21-cv-07203, appointed lead plaintiffs and approved the lead plaintiffs’ selection of lead counsel. Lead plaintiffs filed a consolidated complaint on August 29, 2022. We moved to dismiss that complaint on October 13, 2022. The Court granted our motion to dismiss on September 29, 2023 and entered judgment on the defendants' behalf on October 3, 2023. On October 27, 2023, the lead plaintiffs filed a motion to vacate judgment and for leave to amend the pleadings. On October 27, 2023, the lead plaintiffs filed a motion to vacate judgment and for leave to amend the pleadings. This motion attached a proposed amended consolidated complaint which, among other things, shortened the class period to December 14, 2021, removed the Securities Act claims, removed the former Chief Financial Officer as a defendant, and removed certain alleged misrepresentations. We filed an opposition to the motion to vacate judgment and for leave to amend on November 13, 2023 and lead plaintiffs filed a reply on November 27, 2023.
On December 20, 2023, we reached an agreement to settle this securities class and the Nevada Shareholder Action (described below) on a class-wide basis for a combined $3.0 million, of which at least $2.85 million will be paid by our insurers (“Proposed Class Actions Settlement”). On January 19, 2024, the parties executed a formal Stipulation of Settlement and the plaintiffs filed a motion for preliminary approval of the Proposed Class Actions Settlement. The settlement is still subject to final approval of the court; however on February 6, 2024, the court granted preliminary approval of the Proposed Class Actions Settlement. As of December 31, 2023, we recognized the legal settlement payment of $3.0 million in Accruals and other payables in the Consolidated Balance Sheet. In addition, we recognized the corresponding receivable for insurance proceeds which was included in Prepaid expenses and other current assets of the Consolidated Balance Sheet as of December 31, 2023.
Shareholder derivative action
On January 14, 2022, a shareholder derivative action was filed in the U.S. District Court for the Eastern 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 our behalf, 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 our favor, certain corporate governance related actions, and an award of costs and expenses to the derivative plaintiff, including attorneys’ fees. On March 9, 2022, the Court entered a stipulated order staying this action until there is a ruling on a motion to dismiss in the securities class action.
Nevada shareholder action
On September 21, 2023, a putative shareholder class action was filed in the Eighth Judicial District Court Clark County, Nevada captioned Denton v. Palikaras, et al., No. A-23-878134-C. The complaint names us as defendants along with certain of our former officers and certain former Torchlight officers and directors. The complaint alleges claims for breach of fiduciary duty and aiding and abetting breach of fiduciary duty, arising from our business combination with Torchlight. The complaint seeks, among other things, unspecified damages, interest, and an award of costs and fees to plaintiffs, including attorneys’ fees. On December 20, 2023, we reached an agreement to settle the Nevada Shareholder Action and the security class action described above on a class-wide basis for a combined $3.0 million, of which at least $2.85 million will be paid by our insurers. On January 19, 2024, the parties executed a formal Stipulation of Settlement and the plaintiffs filed a motion for preliminary approval of the Proposed Class Actions Settlement. The settlement is still subject to final approval of the court, however on February 6, 2024, the court granted preliminary approval of the Proposed Class Actions Settlement.
Westpark capital group
On July 25, 2022, Westpark Capital Group, LLC ("Westpark") filed a complaint in Los Angeles County Superior Court against us for breach of contract, alleging that it is owed a $0.5 million commission as a placement agent with respect to our June 2022 direct offering. On August 31, 2022, we filed an answer to the complaint. We dispute that WestPark Capital Group placed the investor in the direct offering and is owed a commission. We recorded a liability of $0.3 million related to the claim from Westpark in Accruals and other payables in the Consolidated Balance Sheet as of December 31, 2023 based on our best estimate of the outflow required to settle the claim.
SEC investigation
In September 2021, we received a subpoena from the Securities and Exchange Commission, Division of Enforcement, in a matter captioned In the Matter of Torchlight Energy Resources, Inc. The subpoena requested that we produce certain documents and information related to, among other things, the merger involving Torchlight.
On July 20, 2023, the enforcement staff of the SEC provided us, Torchlight's former Chief Executive Officer, John Brda, and our former Chief Executive Officer, George Palikaras, with Wells Notices relating to the SEC investigation (the "Wells Notice"). The Wells Notices each state that the SEC staff has made a preliminary determination to recommend that the SEC file a civil enforcement action against the recipients alleging violations of certain provisions of the U.S. federal securities laws. Specifically, the Wells Notice received by us states that the proposed action would allege violations of Section 17(a) of the Securities Act; Sections 10(b), 13(a), 13(b)(2)(A), 13(b)(2)(B) and 14(a) of the Exchange Act of 1934 and Rules 10b-5 and 14a-9 thereunder; and Regulation FD.
A Wells Notice is neither a formal charge of wrongdoing nor a final determination that the recipient has violated any law. It allows the recipients the opportunity to address the issues raised by the enforcement staff before a decision is made by the SEC on whether to authorize any enforcement action. If the SEC were to authorize an action against us and/or any of the individuals, it could seek an injunction against future violations of provisions of the federal securities laws, the imposition of civil monetary penalties, and other equitable relief within the SEC’s authority. The SEC could also seek an order barring the individuals from serving as an officer or director of a public company. In addition, the SEC could seek disgorgement of an amount that may exceed our ability to pay.
We have made an offer of settlement to the Staff of the SEC’s Division of Enforcement to resolve the matter. The Proposed SEC Settlement is subject to approval by the SEC Commissioners. We cannot predict whether or when the Proposed SEC Settlement will be approved. If the Commissioners approve the Proposed SEC Settlement, the Commission will enter a cease- and-desist order (the “Order”) in connection with certain antifraud, reporting, books and records, and internal accounting control provisions of the securities laws. Under the terms of the Proposed SEC Settlement, we would neither admit nor deny the findings in the Order. If approved, in connection with the Proposed SEC Settlement, we will pay a civil money penalty in an amount of $1.0 million in four (4) installments over the period of one (1) year pursuant to an agreed upon payment plan. We recorded the $1.0 million in Accruals and other payables in the Consolidated Balance Sheet as of December 31, 2023.
Claim for breach of contract
On February 8, 2024, M.R.S. Construction Limited (“MRS”) filed a notice of action in the Supreme Court of Nova Scotia against Metamaterial Technologies Canada Inc., our subsidiary, for breach of contract, alleging that it is owed $1.0 million in fees. The case is currently pending. The $1.0 million has been recorded in Trade payables in the Consolidated Balance Sheet as of December 31, 2023.
Contractual Commitments and Purchase Obligations
We are party to various contractual obligations. Some of these obligations are reflected in our financial statements, such as liabilities from debt obligations and commitment in relation to Realignment and Consolidated Plan, while other obligations, such as purchase obligations, are not reflected on our Consolidated Balance Sheets.
The following table and discussion summarizes our contractual cash obligations other than the lease payment obligations shown in the Note 23, Leases, as of December 31, 2023, for each of the periods presented:
| | | | | | | | | | | |
| Long-term debt | | | Other contractual commitment | | | Total | |
2024 | $ | 1,050,216 | | | $ | 1,181,067 | | | $ | 2,231,283 | |
2025 | | 1,024,281 | | | | 118,851 | | | | 1,143,132 | |
2026 | | 1,182,354 | | | | 29,713 | | | | 1,212,067 | |
2027 | | 560,974 | | | | — | | | | 560,974 | |
2028 | | 555,706 | | | | — | | | | 555,706 | |
Thereafter | | 662,519 | | | | — | | | | 662,519 | |
| $ | 5,036,050 | | | $ | 1,329,631 | | | $ | 6,365,681 | |
Other contractual commitments are legally enforceable agreements to purchase goods or services that have fixed or minimum quantities and fixed or minimum variable price provisions. Amounts in the schedule above approximate the timing of the underlying obligations. Included are the following:
a)In September 2022, we entered into a supply agreement with an American paint and coatings company to purchase at least 20,000 pounds of raw materials (the "Minimum Purchase Obligation") in the three years from September 29, 2022. The total contract price for the minimum purchase obligation is $1.1 million. As of December 31, 2023, we have $0.7 million in non-cancelable orders, with $0.4 million of this amount recorded under Accruals and other payables in the Consolidated Balance Sheet.
b)On September 30, 2022, we entered into an amended supply agreement with a German manufacturer who supplies holographic raw materials for the three years from November 1, 2020. As of December 31, 2023, we have a non-cancelable order of $0.3 million.
Other commitments not included in the contractual cash obligations table above
a)During 2018, we arranged a guarantee/standby letter of credit with RBC in favor of Satair A/S for $0.5 million 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 is secured by restricted cash.
b)On January 15, 2021, Nanotech purchased six patents for $0.1 million and 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% to 6% on other revenues derived from these patents for a period of five years. There were no royalties during the year ended December 31, 2023 (2022 - $Nil).
c)In March 2022, we adopted the Vlepsis Business Profit Sharing Plan whereby at the end of each year, we will calculate the profits from the Vlepsis business, if any, with certain of the Vlepsis employees. Annually, on the 29th of March for each year between 2023 and 2029, we will measure and allocate a bonus pool equivalent to fifty percent (50%) of the net profits of Vlepsis. These profits are defined as the total revenue generated from the full spectrum of Vlepsis' technological and service operations, including, but not limited to, sales, maintenance, customer support, system customization, intellectual property licensing, franchising, and leasing plus revenues from contracted backlog sales of Vlepsis Business technologies and services, less all pertinent direct costs such as overhead, salaries, and service provision costs by the Company. We have not yet had any profits from this business, but if we ever do, then this obligation to share such profits will impact our return on investment in VLEPSIS® technology and require more time to recoup our expenses and show a return.
28. Subsequent Events
Release Agreement with Mr. McCabe
On January 21, 2024, we entered into the Release Agreement with Mr. McCabe pursuant to which we and Mr. McCabe agreed to terminate the SPA. Under the terms of the Release Agreement, Mr. McCabe was relieved of any obligation to make additional stock purchases under the SPA The terms of the Release Agreement require (i) a payment of $700,000 by Mr. McCabe to us, (ii) assignment to us of all stock purchases made by Mr. McCabe under the SPA and (iii) an additional payment of $700,000 by Mr. McCabe to us if our common stock achieves a certain target value within two years of the effective date of the Release Agreement. We received $700,000 in January 2024 and the shares were reassigned to META and subsequently cancelled.
Reverse Stock Split
On January 26, 2024, we filed a Certificate of Change with the Nevada Secretary of State to effect the previously announced one-for-one hundred reverse split of the Company’s issued and outstanding common stock, and the Reverse Stock Split became effective in accordance with the terms of the Certificate of Amendment at 12:01 a.m. Pacific Time on January 29, 2024. The Reverse Stock Split was approved by the board in accordance with Nevada law.
At the Effective Time, every one hundred shares of common stock issued and outstanding were automatically combined into one share of common stock, without any change in the par value per share. The exercise prices and the number of shares issuable upon exercise of outstanding stock options, equity awards and warrants, and the number of shares available for future issuance under the equity incentive plans have been adjusted in accordance with their respective terms. The Reverse Stock Split affected all stockholders uniformly and will not alter any stockholder’s percentage interest in our common stock. We did not issue any fractional shares in connection with the Reverse Stock Split. Instead, fractional shares were rounded up to the next largest whole number. The Reverse Stock Split did not modify the relative rights or preferences of the common stock. The new CUSIP number for the common stock following the Reverse Stock Split is 59134N302.
February 2024 Offering
On February 19, 2024, we entered into a securities purchase agreement with an institutional investor, providing for the issuance and sale by us, in a registered direct offering, of (i) 600,000 shares of our common stock, par value $0.001, (ii) pre-funded warrants to purchase up to 250,000 shares of Common Stock, and (iii) warrants to purchase up to an aggregate of 850,000 shares of Common Stock. Each share of Common Stock and Pre-Funded Warrant was offered and sold together with an accompanying Warrant at a combined price of $4.04 per share of Common Stock or $4.039 per Pre-Funded Warrant, as applicable. Each Pre-Funded Warrant and Warrant is exercisable at any time on or after the date of issuance to purchase one share of Common Stock at a price of either $0.001 per share, in
the case of the Pre-Funded Warrants, or $3.91 per share, in the case of the Warrants. The Pre-Funded Warrants expire when they are exercised in full, and the Warrants expire five years from the date of issuance.
The February 2024 Offering closed on February 21, 2024. We received net proceeds of approximately $3.0 million from the Offering, after deducting placement agent fees and estimated offering expenses payable by us.
On February 19, 2024, in connection with, and as a condition to, the February 2024 Offering, we entered into the Letter Agreement with the institutional investor in the February 2024 RDO Offering, pursuant to which we agreed to amend certain of the amended June 2022 Warrants and the December 2023 Warrants held by the investor. The Letter Agreement applies to (i) June 2022 Warrants representing an aggregate of 74,074 shares of Common Stock and (ii) December 2023 Warrants representing an aggregate of 25,000 shares of Common Stock, in each case, after giving effect to the 1-for-100 reverse stock split the Company effected on January 29, 2024.
Pursuant to the Letter Agreement, the exercise price per share of the amended June 2022 Warrants and December 2023 Warrants will automatically be reduced (if and only if such new exercise price on the repricing date is lower than the exercise price of the June 2022 Warrants and the December 2023 Warrants then in effect) to be the Minimum Price (as defined in Nasdaq Listing Rule 5635(d)) of the Common Stock on June 6, 2024.
Claim for breach of contract
On February 8, 2024, MRS filed a notice of action in the Supreme Court of Nova Scotia against Metamaterial Technologies Canada Inc., our subsidiary, for breach of contract, alleging that it is owed $1.0 million in fees. See Note 27, Commitments and Contingencies, for further information.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
None.
Item 9A. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
Management, with the participation of the Chief Executive Officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of December 31, 2023. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate, to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
Based on the evaluation of our disclosure controls and procedures as of December 31, 2023, our Chief Executive Officer concluded that, as of such date, our disclosure controls and procedures were not effective due to a material weakness in our internal control over financial reporting as described below.
However, giving full consideration to the remaining material weakness, we have concluded that the Consolidated Financial Statements included in the Annual Report 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 Rules 13a-15(f) and 15d-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 effected by our management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external purposes in accordance with U.S. generally accepted accounting principles.
Our management, under the supervision and with the participation of our Chief Executive Officer, conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2022, using the criteria set forth in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
Based on the results of this evaluation, our management concluded that internal control over financial reporting was not effective as of December 31, 2023, due to the existence of a material weakness listed below. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements may not be prevented or detected on a timely basis.
Management has determined that a material weakness in internal control over financial reporting existed at December 31, 2023 due to the existence of the following identified deficiency:
•A lack of sufficient accounting personnel and turnover of senior management, which contributed to a lack of segregation of duties in the financial reporting process.
This material weakness resulted in misstatements, some of which were corrected prior to the release of our Consolidated Financial Statements as of and for the year ended December 31, 2023. This material weakness creates a reasonable possibility that a material misstatement to the Consolidated Financial Statements will not be prevented or detected on a timely basis.
Plan for Remediation of Previously Identified Material Weakness in Internal Control over Financial Reporting
Management has been and is continuing to evaluate and strengthen our internal controls over financial reporting to ensure that management can routinely prepare our financial statements under US 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, and remediate the material weakness described above, however the current remediation plan includes:
•Document the roles and responsibilities of each position within the finance department to understand the gaps and overlaps in duties.
•Implement a retention strategy to reduce turnover rates, including implementing compensation evaluation process and providing professional development opportunities to employees.
•Establishing and documenting an accounting policies and procedures manual which clarifies the principles or rules that are used to determine decisions and actions, and the courses of action that must be followed to implement a policy consistently.
•Creating reporting tools such as a monthly reporting package which enables us to communicate financial information effectively and efficiently between parent and subsidiaries and ensures application of consistent accounting treatment across the different locations.
•Implementing a whistleblower reporting system, engaging with a third party service to facilitate anonymous and confidential disclosure. It is designed to address potential fraud, ethical issues, and other concerns, including but not limited to, conflicts of interest, sexual harassment, violation of company policy, safety concerns, misconduct, and unfair labor practices. The reporting service was fully implemented in January of 2024.
As of December 31, 2023, management determined that the enhancements to the controls noted above have not been in place for a sufficient period of time.
Changes in Internal Controls
During the year ended December 31, 2023, we have implemented the following remediation steps:
•Hired qualified individuals in accounting and finance, including those experienced in technical accounting and transactional accounting, allowing for proper segregation of duties and reporting structure.
•Hired a finance manager to perform detailed reviews to detect errors in a timely manner.
•Updated and formalized processes and procedures through the creation of multiple process documents including full-cycle flowcharts and a company-wide authorization matrix, which outlines limits of authority for key transactions and commitments. The formalization and documentation of these processes was done with the input of our third-party consultants, with whom we have performed walkthroughs and whom we continue to involve in the implementation of policies and procedures in new acquisitions.
•In order to improve our recordkeeping, our Chief Legal Officer or outside legal counsel attends board meetings and takes minutes (rather than other members of management taking the minutes.)
Except for the remediation efforts related to the material weakness described above, 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 year ended December 31, 2023 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Limitations on Effectiveness of Internal Controls
Management, including our Chief Executive Officer, does not expect that disclosure controls or internal controls 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 its stated goals under all potential future conditions. Over time, control may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of these inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected. Individual persons may perform multiple tasks which normally would be allocated to separate persons and therefore extra diligence must be exercised during the period these tasks are combined.
Item 9B. Other Information.
None.
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections.
None.
Part III
Item 10. Directors, Executive Officers, and Corporate Governance.
The information required by this Item will be provided in an amendment to this Annual Report in accordance with General Instruction G (3) to Form 10-K.
Item 11. Executive Compensation.
The information required by this Item will be provided in an amendment to this Annual Report in accordance with General Instruction G (3) to Form 10-K.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
The information required by this Item will be provided in an amendment to this Annual Report in accordance with General Instruction G (3) to Form 10-K.
Item 13. Certain Relationships and Related Transactions, and Director Independence.
The information required by this Item will be provided in an amendment to this Annual Report in accordance with General Instruction G (3) to Form 10-K.
Item 14. Principal Accounting Fees and Services.
The information required by this Item will be provided in an amendment to this Annual Report in accordance with General Instruction G (3) to Form 10-K.
PART IV
Item 15. Exhibits, Financial Statement Schedules.
Exhibit Index
| | | | | | | | | | |
|
|
|
| Incorporated by Reference |
Exhibit Number |
| Exhibit Description |
| Form |
| Exhibit Number | | Filing Date |
| Filed Herewith |
2.3.0 | | Distribution Agreement Between Meta Materials Inc. and Next Bridge Hydrocarbons Inc. dated September 2, 2022 | | 10-K/A | | 2.3.0 | | 24-Mar-23 | | |
2.4.0 | | Meta Materials Inc. - Next Bridge Hydrocarbons Inc. - Tax Matters Agreement, dated September 2, 2022 | | 10-K/A | | 2.4.0 | | 24-Mar-23 | | |
2.5.0 | | Meta Materials Inc. - Next Bridge Loan Agreement, dated September 2, 2022 | | 10-K/A | | 2.5.0 | | 24-Mar-23 | | |
2.6.0 | | Meta Materials Inc. & Oilco Holdings Inc - 8% Promissory Note Secure - $15 mil loan dated October 1, 2021 | | 10-K/A | | 2.6.0 | | 24-Mar-23 | | |
2.7.0 | | Stock Pledge Agreement between Gregory McCabe & Meta Materials Inc. dated September 30, 2021 | | 10-K/A | | 2.7.0 | | 24-Mar-23 | | |
2.8.0 | | Stock Purchase Agreement for the Sale and Purchase of the Entire Issued Share Capital of Plasma App Ltd., dated as of March 31, 2022, by and between Dmitry Yarmolich and Dzianis Yarmolich, on the one hand, and Meta Materials, Inc, on the other hand | | 10-Q/A | | 10.5 | | 1-June-22 | | |
2.9.0 | | Asset Purchase Agreement, dated as of June 16, 2022, by and between Meta Materials Inc., Optodot Corporation, and SCP Management LLC, as Securityholders’ Representative | | 8-K | | 10.1 | | 17-June-22 | | |
2.10.0 | | Stock Purchase Agreement, dated March 31, 2022, by and between Meta Materials Inc., on the one hand, and Dmitry Yarmolich and Dzianis Yarmolich, on the other hand | | 10-Q/A | | 10.5 | | 31-Mar-22 | | |
3.1.0 |
| Articles of Incorporation |
| 10-K |
| 3.1 | | 18-Mar-19 |
|
|
3.1.1 |
| Certificate of Amendment to Articles of Incorporation dated December 10, 2014 |
| 10-Q |
| 3.2 | | 15-May-15 |
|
|
3.1.2 | | Certificate of Amendment to Articles of Incorporation dated September 15, 2015 | | 10-Q | | 3.3 | | 12-Nov-15 | | |
3.1.3 | | Certificate of Amendment to Articles of Incorporation dated August 18, 2017. | | 10-Q | | 3.4 | | 9-Nov-18 | | |
3.1.4 | | Amendment to the Articles of Incorporation of Torchlight Energy Resources, Inc., dated June 14, 2021 | | 8-K | | 3.1 | | 16-Jun-21 | | |
3.1.5 | | Certificate of Amendment related to the Reverse Stock Split and Name Change, filed June 25, 2021 | | 8-K | | 3.1 | | 29-Jun-21 | | |
3.1.6 | | Certificate of Change related to Reverse Stock Split, filed on January 26, 2024 | | 8-K | | 3.2 | | 29-Jan-24 | | |
3.2.0 | | Certificate of Designation of Preferences, Rights and Limitations of Series B Special Voting Preferred Stock, dated June 14, 2021 | | 8-K | | 3.3 | | 16-Jun-21 | | |
3.3.0 | | Certificate of Withdrawal of Certificate of Designation of Preference, Rights, and Limitations of Series A Non-Voting Preferred Stock | | 8-K | | 3.3.2 | | 15-Dec-22 | | |
3.4.0 | | Certificate of Designated of Series C Preferred stock, filed on January 26,2024. | | 8-K | | 3.3 | | 29-Jan-24 | | |
3.5.0 | | Amended and Restated Bylaws | | 8-K | | 3.1 | | 26-Oct-16 | | |
3.5.1 | | First Amendment to Amended and Restated Bylaws of Meta Materials Inc. | | 8-K | | 3.1 | | 20-Oct-23 | | |
4.1.0 |
| Form of Investor Warrant |
| 10-K |
| 4.1 | | 2-Mar-22 |
|
|
4.2.0 |
| Form of Broker Warrant |
| 10-K |
| 4.2 | | 2-Mar-22 |
|
|
4.3.0 |
| Form of Common Stock Purchase Warrant (issued in June 2022) |
| 8-K |
| 4.1 | | 27-June-22 |
|
|
| | | | | | | | | | |
4.4.0 | | Certificate of Incorporation of 2798832 Ontario Inc., dated December 9, 2020 | | 10-K/A | | 4.5.0 | | 24-Mar-23 | | |
4.4.1 | | Articles of Amendment of 2798832 Ontario Inc, dated February 3, 2021 | | 10-K/A | | 4.5.1 | | 24-Mar-23 | | |
4.4.2 | | Articles of Amendment of Metamaterial Exchangeco Inc., dated June 25, 2021 | | 10-K/A | | 4.5.2 | | 24-Mar-23 | | |
4.5 |
| Description of Securities |
| |
| | | |
| X |
4.6.0 | | Form of Warrant (issued in April 2023) | | 8-K | | 4.1 | | 14-Apr-23 | | |
4.7.0 | | Form of Warrant (issued in December 2023) | | 8-K | | 4.1 | | 6-Dec-23 | | |
4.8.0 | | Form of Amendment to Common Stock Purchase Warrant | | 8-K | | 4.2 | | 6-Dec-23 | | |
4.9.0 | | Form of Pre-Funded Warrant (issued in February 2024) | | 8-K | | 4.1 | | 21-Feb-24 | | |
4.10.0 | | Form of Warrant (issued in February 2024) | | 8-K | | 4.2 | | 21-Feb-24 | | |
4.11.0 | | Form of Letter Agreement (entered in February 2024) | | 8-K | | 4.3 | | 21-Feb-24 | | |
9.1.0 | | Voting and Exchange Trust Agreement by and among the Company and Metamaterial Exchangeco Inc. and AST Trust Company (Canada) | | 10-K/A | | 9.1.0 | | 24-Mar-23 | | |
10.1.0 |
| Highfield Park, Dartmouth, NS - Lease 20200828 - Original Document |
| 10-K |
| 10.1.1 | | 2-Mar-22 |
|
|
10.1.1 |
| Highfield Park, Dartmouth, NS - Lease 20210603 - Amendment June 1, 2021 |
| 10-K |
| 10.111 | | 2-Mar-22 |
|
|
10.2.0 | | QMB Innovation Centre, London-Lease 20221022-Modification&Expansion | | 10-K/A | | 10.5.0 | | 24-Mar-23 | | |
10.3.0 | | Burnaby-Vancouver-BC-Lease-20220601-Modification | | 10-K/A | | 10.6.0 | | 24-Mar-23 | | |
10.4.0+ |
| Employment Agreement with Kenneth Rice, dated December 11, 2020 |
| 10-K |
| 10.21 | | 2-Mar-22 |
|
|
10.4.1+ | | Separation Agreement with Ken Rice, dated as of May 3, 2023 | | 10-Q | | 10.8 | | 9-Aug-23 | | |
10.5.0+ |
| Employment Agreement with Jonathan Waldern dated December 16, 2020 |
| 10-K |
| 10.22 | | 2-Mar-22 |
|
|
10.5.1+ | | Separation Agreement with Jonathan Waldern, dated as of June 14, 2023 | | 10-Q | | 10.9 | | 9-Aug-23 | | |
10.5.2+ | | End of Employment Letter with Jonathan Waldern, dated as of April 25, 2023 | | 10-Q | | 10.10 | | 9-Aug-23 | | |
10.6.0+ |
| Form of Meta Materials Inc. Indemnification Agreement |
| 10-K |
| 10.1 | | 2-Mar-22 |
|
|
10.7.0+ |
| Form of Stock Option Agreement |
| 10-Q/A |
| 10.3 | | 1-June-22 |
|
|
10.8.0+ |
| Form of Restricted Stock Unit Agreement |
| 10-Q/A |
| 10.4 | | 1-June-22 |
|
|
10.9.0+ |
| Amended and Restated Stock Option Plan |
| S-8 |
| 10.1 | | 26-Aug-21 |
|
|
10.10.0+ |
| 2021 Equity Incentive Plan |
| S-8 |
| 4.1 | | 22-Mar-22 |
|
|
10.11.0+ | | Outside Director Compensation Plan | | 10-K/A | | 10.15.0 | | 24-Mar-23 | | |
10.12 | | First Amendment to Meta Materials Inc. - Next Bridge Loan Agreement , dated as of December 21, 2022 | | 8-K | | 2.1 | | 4-Apr-23 | | |
10.13 | | Second Amendment to Meta Materials Inc. - Next Bridge Loan Agreement, dated as of March 31, 2023 | | 8-K | | 2.2 | | 4-Apr-23 | | |
10.14 | | First Amendment to Meta Materials Inc. & Oilco Holdings Inc - 8% Promissory Note, dated September 2, 2022 | | 8-K | | 2.3 | | 4-Apr-23 | | |
10.15 | | Second Amendment to Meta Materials Inc. & Oilco Holdings Inc – 8% Promissory Note, dated as of March 31, 2023 | | 8-K | | 2.4 | | 4-Apr-23 | | |
10.16 | | Purchase Agreement by and between Meta Materials Inc. and Lincoln Park Capital Fund, LLC, dated September 11, 2023 | | 8-K | | 10.1 | | 11-Sep-23 | | |
10.17 | | Registration Rights Agreement between Meta Materials Inc. and Lincoln Park Capital Fund, LLC, dated September 11, 2023 | | 8-K | | 10.2 | | 11-Sep-23 | | |
10.18 | | Purchase Agreement by and between Meta Materials Inc. and Gregory McCabe, dated September 8, 2023 | | 8-K | | 10.1 | | 12-Sep-23 | | |
10.19 | | Registration Rights Agreement between Meta Materials Inc. and Gregory McCabe, dated September 8, 2023 | | 8-K | | 10.2 | | 12-Sep-23 | | |
10.20+ | | Employment Agreement with Uzi Sasson, effective November 5, 2023. | | 8-K | | 10.1 | | 8-Nov-23 | | |
+ Indicates management contract or compensatory plan.
Item 16. Form 10-K Summary
None.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.
| | | |
| | Meta Materials Inc. |
| | | |
Dated: March 28, 2024 |
| By: | /s/ Uzi Sasson
|
|
|
| Uzi Sasson |
|
|
| President and Chief Executive Officer |
|
|
| (Principal Executive Officer and Principal Financial Officer ) |
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Uzi Sasson and Dan Eaton and each of them, as his or her true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign any and all amendments to this Annual Report on Form 10-K, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming that all said attorneys-in-fact and agents, or any of them or their or his or her substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual Report on Form 10-K has been signed by the following persons on behalf of the Registrant and in the capacities and on the dates indicated:
| | | | |
Signature | | Title | | Date |
| | | | |
/s/ Uzi Sasson | | President and Chief Executive Officer | | 28-Mar-24 |
Uzi Sasson | | (Principal Executive Officer and | | |
| | Principal Financial Officer) | | |
| | | | |
/s/ John Harding | | Chair of the Board | | 28-Mar-24 |
John Harding | | | | |
| | | | |
/s/ Allison Christilaw | | Director | | 28-Mar-24 |
Allison Christilaw | | | | |
| | | | |
/s/ Steen Karsbo | | Director | | 28-Mar-24 |
Steen Karsbo | | | | |
| | | | |
/s/ Vyomesh Joshi | | Director | | 28-Mar-24 |
Vyomesh Joshi | | | | |
| | | | |
/s/ Ken Hannah | | Director | | 28-Mar-24 |
Ken Hannah | | | | |
| | | | |
/s/ Philippe Morali | | Director | | 28-Mar-24 |
Philippe Morali | | | | |
