SEC Form 10-Q filed by Meta Materials Inc.

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended March 31, 2024

OR

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

For the transition period from to

Commission File Number: 001-36247

Meta Materials Inc.

(Exact Name of Registrant as Specified in its Charter)

 

Nevada	74-3237581
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
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:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.001 per share	MMAT	Nasdaq Capital Market

 

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

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

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

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☒	Smaller reporting company	☒
		Emerging growth company	☐

 

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

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

As of May 10, 2024, the registrant had 6,695,536 shares of common stock, $0.001 par value per share, outstanding, including the Exchangeable Shares of 368,118.

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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.

 

 

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TABLE OF CONTENTS

FORWARD-LOOKING STATEMENTS	3
PART I—FINANCIAL INFORMATION	5
Item 1. Financial Statements	5
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	24
Item 3. Quantitative and Qualitative Disclosures About Market Risk	31
Item 4. Controls and Procedures	31
PART II—OTHER INFORMATION	33
Item 1. Legal Proceedings	33
Item 1A. Risk Factors	33
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	33
Item 3. Defaults Upon Senior Securities	33
Item 4. Mine Safety Disclosures	34
Item 5. Other Information	34
Item 6. Exhibits	35
SIGNATURES	36

 

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FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q ("Quarterly Report") contains forward-looking statements within the meaning of the federal securities laws, which statements involve substantial risks and uncertainties. Forward-looking statements generally relate to future events or our future financial or operating performance. In some cases, you can identify forward-looking statements because they contain words such as “may,” “will,” “should,” “expect,” “plan,” “anticipate,” “could,” “intend,” “target,” “project,” “contemplate,” “believe,” “estimate,” “predict,” “potential” or “continue” or the negative of these words or other similar terms or expressions that concern our expectations, strategy, plans or intentions. Forward-looking statements contained in this Quarterly Report include statements about:

We caution you that the foregoing list may not contain all of the forward-looking statements made in this Quarterly Report.

You should not rely upon forward-looking statements as predictions of future events. We have based these forward-looking statements contained in this Quarterly Report largely on our current expectations and projections about future events and trends that we believe may affect our business, financial condition, results of operations, business strategy, short-term and long-term business operations and objectives and financial needs. These forward-looking statements are subject to a number of risks, uncertainties and assumptions, including those described in Part I, Item 1A, "Risk Factors" of our Annual Report on Form 10-K for the year ended December 31, 2023 (the “Annual Report”), this Quarterly Report, and 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. In light of these risks, uncertainties and assumptions, the future events and trends discussed in this Quarterly Report may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements.

The forward-looking statements made in this Quarterly Report relate only to events as of the date on which the statements are made. We undertake no obligation to update any forward-looking statements made in this Quarterly Report to reflect events or circumstances after the date of this Quarterly Report or to reflect new information or the occurrence of unanticipated events, except as required by law. We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements and you should not place

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undue reliance on our forward-looking statements. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures or investments we may make.

In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this Quarterly Report, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and investors are cautioned not to unduly rely upon these statements.

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PART I—FINANCIAL INFORMATION

Item 1. Financial Statements

META MATERIALS INC.

CONDENSED CONSOLIDATED INTERIM BALANCE SHEETS (UNAUDITED)

 

		As of March 31,				As of December 31,
		2024				2023
Assets
Current assets:
Cash and cash equivalents		$	6,395,929			$	9,723,690
Restricted cash			564,576				578,406
Accounts receivables			2,048,426				942,793
Subscription receivables			—				881,100
Inventory			123,877				168,747
Prepaid expenses and other current assets			1,587,492				5,071,363
Due from related parties			—				29,906
Total current assets			10,720,300				17,396,005
Intangible assets, net			16,936,346				18,030,301
Property, plant and equipment, net			17,848,873				18,601,614
Operating lease right-of-use ("ROU") assets			855,641				1,200,417
Total assets		$	46,361,160			$	55,228,337
Liabilities and stockholders’ equity
Current liabilities:
Trade payables		$	9,696,923			$	10,270,386
Accruals and other payables			3,841,799				7,249,291
Restructuring costs accrual			1,008,924				1,182,112
Current portion of long-term debt			545,215				801,628
Current portion of deferred revenues			665,955				1,054,557
Current portion of deferred government assistance			566,647				590,954
Current portion of funding obligation			959,410				982,912
Current portion of operating lease liabilities			1,296,404				1,452,863
Total current liabilities			18,581,277				23,584,703
Deferred revenues			384,876				419,035
Deferred government assistance			428,861				391,148
Long-term operating lease liabilities			5,671,681				5,973,657
Long-term debt			2,959,082				2,922,989
Total liabilities			28,025,777				33,291,532
Commitments and contingencies (Note 19)
Stockholders’ equity
Common stock - $0.001 par value; 10,000,000 shares authorized, 6,694,635 shares issued and outstanding at March 31, 2024, and $0.001 par value; 10,000,000 shares authorized, 5,659,438 shares issued and outstanding at December 31, 2023			6,694				543,046
Treasury stock, at cost, 18,536 shares at March 31, 2024 and 0 shares at December 31, 2023			(123,859	)			—
Additional paid-in capital			639,618,677				635,860,437
Accumulated other comprehensive loss			(4,646,182	)			(5,455,145	)
Accumulated deficit			(616,519,947	)			(609,011,533	)
Total stockholders’ equity			18,335,383				21,936,805
Total liabilities and stockholders’ equity		$	46,361,160			$	55,228,337

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

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META MATERIALS INC.

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

		Three months ended March 31,
		2024				2023
Revenue:
Product sales		$	85,169			$	58,699
Development revenue			3,141,759				1,257,479
Licensing revenue			45,329				96,081
Total revenue			3,272,257				1,412,259
Cost of sales (exclusive of items shown separately below)			778,266				587,028
Depreciation and amortization expense included in cost of sales			3,673				10,047
Stock-based compensation expense (recovery) included in cost of sales			(48,417	)			143,905
Gross profit			2,538,735				671,279
Operating expenses:
Sales & marketing			332,964				2,307,353
General & administrative			3,926,643				6,769,437
Research & development			2,660,995				5,060,756
Depreciation & amortization expenses			991,625				3,234,495
Stock-based compensation expense			310,825				1,858,440
Restructuring expense			266,035				—
Total operating expenses			8,489,087				19,230,481
Loss from operations			(5,950,352	)			(18,559,202	)
Interest expense, net			(108,766	)			(112,998	)
Realized gain (loss) on foreign exchange, net			62,445				(40,689	)
Unrealized gain (loss) on foreign exchange, net			(1,513,055	)			325,600
Other income (expense), net			1,314				(578,120	)
Total other expense, net			(1,558,062	)			(406,207	)
Loss before income taxes			(7,508,414	)			(18,965,409	)
Income tax recovery			—				296,731
Net loss		$	(7,508,414	)		$	(18,668,678	)
Other comprehensive loss, net of tax
Unrealized foreign currency translation gain			808,963				322,787
Total other comprehensive income			808,963				322,787
Comprehensive loss		$	(6,699,451	)		$	(18,345,891	)
Basic and diluted loss per share		$	(1.21	)		$	(5.06	)
Weighted average number of shares outstanding - basic and diluted			6,180,363				3,688,793

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

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META MATERIALS INC.

CONDENSED CONSOLIDATED INTERIM STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (UNAUDITED)

 

																					Accumulated
																	Additional				Other								Total
	Common Stock								Treasury								Paid-in				Comprehensive				Accumulated				Stockholders’
	Shares (1)				Amount				Shares (1)				Amount				Capital				Income (loss)				Deficit				Equity
Balance, January 1, 2024		5,659,438			$	543,046				—			$	—			$	635,860,437			$	(5,455,145	)		$	(609,011,533	)		$	21,936,805
Reverse stock split fractional shares adjustment		177,686				(537,210	)			—				—				537,210				—				—				—
Net loss		—				—				—				—				—				—				(7,508,414	)			(7,508,414	)
Other comprehensive income		—				—				—				—				—				808,963				—				808,963
Issuance of common stock and warrants		600,000				600				—				—				3,433,150				—				—				3,433,750
Stock issuance costs		—				—				—				—				(659,851	)			—				—				(659,851	)
Exercise of warrants		250,000				250				—				—				—				—				—				250
Settlement of restricted stock units		7,511				8				(19	)			(164	)			(8	)			—				—				(164	)
Stock-based compensation		—				—				—				—				262,408				—				—				262,408
Fair value adjustments of June 2022 Warrants and December 2023 Warrants		—				—				—				—				185,331				—				—				185,331
18,517 shares originally purchased by Mr. McCabe which were reassigned to META upon termination of SPA		—				—				(18,517	)			(123,695	)			—				—				—				(123,695	)
Balance, March 31, 2024		6,694,635			$	6,694				(18,536	)		$	(123,859	)		$	639,618,677			$	(4,646,182	)		$	(616,519,947	)		$	18,335,383
Balance, January 1, 2023		3,622,479			$	340,425				—			$	—			$	590,962,866			$	(5,242,810	)		$	(207,496,328	)		$	378,564,153
Net loss		—				—				—				—				—				—				(18,668,678	)			(18,668,678	)
Other comprehensive income		—				—				—				—				—				322,787				—				322,787
Issuance of common stock		175,740				17,574				—				—				10,459,495				—				—				10,477,069
Stock issuance costs		—				—				—				—				(438,785	)			—				—				(438,785	)
Exercise of stock options		26,342				2,634				—				—				708,612				—				—				711,246
Settlement of restricted stock units		12,888				1,289				—				—				(1,289	)			—				—				—
Stock-based compensation		—				—				—				—				2,002,340				—				—				2,002,340
Balance, March 31, 2023		3,837,449			$	361,922				—			$	—			$	603,693,239			$	(4,920,023	)		$	(226,165,006	)		$	372,970,132

(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 condensed consolidated interim financial statements.

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META MATERIALS INC.

CONDENSED CONSOLIDATED INTERIM STATEMENTS OF CASH FLOWS (UNAUDITED)

 

		Three months ended March 31,
		2024				2023
Cash flows from operating activities:
Net loss		$	(7,508,414	)		$	(18,668,678	)
Adjustments to reconcile net loss to net cash used in operating activities:
Non-cash interest expense			119,985				137,657
Non-cash interest income			—				(391,111	)
Non-cash lease expense			303,336				401,528
Deferred income tax			—				(296,731	)
Depreciation and amortization expense			995,298				3,244,511
Credit loss expense			—				981,861
Unrealized foreign currency exchange (gain) loss			1,520,386				(221,535	)
Change in deferred revenue			(399,220	)			(4,580	)
Stock-based compensation and other non-cash personnel expense			262,408				2,002,343
Others			57,406				18,843
Changes in operating assets and liabilities			(1,273,949	)			(2,724,270	)
Net cash used in operating activities			(5,922,764	)			(15,520,162	)
Cash flows from investing activities:
Purchases of property, plant and equipment			(115,995	)			(1,693,768	)
Proceeds from below-market capital government loan			148,091				256,240
Proceeds from collection of Next Bridge Notes Receivable			—				1,000,000
Net cash provided by (used in) investing activities			32,096				(437,528	)
Cash flows from financing activities:
Proceeds from the issuance of common stock and warrants			3,433,750				10,477,069
Stock issuance costs paid on the issuance of common stock and warrants			(418,372	)			(438,785	)
Repayments of long-term debt			(362,760	)			(85,457	)
Proceeds from stock option and warrants exercises			250				711,246
Repurchases of common stock for income tax withheld upon settlement of restricted stock units			(164	)			—
Net cash provided by financing activities			2,652,704				10,664,073
Net decrease in cash, cash equivalents and restricted cash			(3,237,964	)			(5,293,617	)
Cash, cash equivalents and restricted cash at beginning of the year			10,302,096				11,811,471
Effects of exchange rate changes on cash, cash equivalents and restricted cash			(103,627	)			23,769
Cash, cash equivalents and restricted cash at end of the period		$	6,960,505			$	6,541,623
Supplemental cash flow information
Accrued purchases of property, equipment and patents		$	16,689			$	1,998,469
ROU assets derecognized from termination of operating lease obligations		$	250,878			$	—
Common stock issuance costs in accrued liabilities or accounts payable		$	56,150			$	—
Non-cash issuance costs as a result of amendment of June 2022 Warrants and December 2023 Warrants		$	185,331			$	—
18,517 shares originally purchased by Mr. McCabe which were reassigned to META upon termination of SPA		$	123,695			$	—

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

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META MATERIALS INC.

NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS (Unaudited)

5. Notes Receivable

 

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7. Prepaid Expenses and Other Current Assets

 

8. Property, Plant and Equipment, net

9. Intangible Assets and Goodwill

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with our condensed consolidated interim financial statements and related notes thereto included in Part I, Item I (Financial Statements) of this Quarterly Report. For additional information regarding our financial condition and results of operations, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in Part II, Item 7 in our Annual Report, as well as our consolidated financial statements and related notes thereto included in Part II, Item 8 of the Annual Report. As discussed in the section titled “Forward-Looking Statements,” the following discussion contains forward-looking statements that involve risks and uncertainties. Factors that could cause or contribute to such differences include those identified below and those discussed in Part I, Item 1A (Risk Factors) in our Annual Report, and Part II, Item 1A (Risk Factors) and other parts of this Quarterly Report. Our historical results are not necessarily indicative of the results that may be expected for any period in the future.

OVERVIEW

Meta Materials Inc. (also referred to herein as the “Company”, “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 455 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.

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. 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.

Overall, our revenue had an increasing trend throughout the year ended December 31, 2023 and continued to increase through March 31, 2024. Especially, our revenue in the first quarter ended March 31, 2024 increased by $0.9 million, or 40.9%, compared to the fourth quarter ended December 31, 2023, and increased by $1.9 million, or 131.7%, compared to the first quarter ended March 31, 2023.

As a result of our effort to reduce our operating expenses as part of Realignment and Consolidation Plan, our operating expenses during the first quarter ended March 31, 2024 decreased by $73.4 million, or 89.4%, compared to the fourth quarter ended December 31, 2023. The decrease was mainly due to a $65.6 million impairment of long-term assets recorded in the fourth quarter ended December 31, 2023, a $2.5 million decrease in General and administrative expense, a $2.5 million decrease in Depreciation and amortization expenses, a $1.4 million decrease in Restructuring expenses and a $1.3 million decrease in Research and development expenses.

Recent Developments

Workforce reduction

On May 2, 2024, our board of directors approved a reduction in our workforce by approximately 80% of our employees (the “Workforce Reduction”) in order to preserve cash resources. The Workforce Reduction is expected to be completed over the next few weeks.

We continue to evaluate all available strategic alternatives including, but not limited to, the divestiture of assets, additional financing security and/or the sale of the Company. There can be no assurance regarding the outcome of this process. Without an influx of cash to support operations, we face financial hardship that may result in shuttering facilities and/or bankruptcy proceedings.

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 of directors 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

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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 Note 19, Commitments and Contingencies, Legal Matters, in the notes to the unaudited condensed consolidated interim financial statements in this Quarterly 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 the Annual Report filed with the SEC on March 28, 2024 concerning Nasdaq listing standard compliance.

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., 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 the Release Agreement with Mr. McCabe, pursuant to which we and Mr. McCabe agreed to terminate the SPA. See Note 5, Notes Receivable, in the notes to the unaudited condensed consolidated interim financial statements of this Quarterly 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 unaudited condensed consolidated interim financial statements of this Quarterly Report) held by the investor. See Note 11, Capital Stock, in the notes to the unaudited condensed consolidated interim financial statements of this Quarterly Report for further details.

Known Trends and Uncertainties:

Capital reallocation and core business expansion

In line with our strategic refocusing, we have been 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 the future. Further, R&D expense related to our core business is expected to increase as a result of

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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 three months ended March 31, 2024, almost all of our consolidated revenue and 48.1% of operating expenses were recorded in our entities which functional currency is other than US Dollar and approximately 52.9% of Cash and Cash equivalent, 100% of Property and Equipment, and 32.4% of Accounts Payable and Accruals were recorded in such entities which functional currency is other than US Dollar.

Basis of Presentation

The following discussion highlights our results of operations and the principal factors that have affected our financial condition as well as our liquidity and capital resources for the periods described and provides information that management believes is relevant for an assessment and understanding of the condensed consolidated interim balance sheet and statements of operation and comprehensive loss presented herein. The following discussion and analysis are based on our condensed consolidated interim financial statements contained in this Quarterly Report, which we have prepared in accordance with U.S. GAAP. You should read the discussion and analysis together with such condensed consolidated interim financial statements and the related notes thereto.

Critical Accounting Estimates

Our condensed consolidated interim financial statements and the related notes thereto are prepared in accordance with U.S. GAAP. The preparation of condensed consolidated interim financial statements also requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, costs and expenses and related disclosures. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results could differ significantly from our estimates. To the extent that there are differences between our estimates and actual results, our future financial statement presentation, financial condition, results of operations and cash flows will be affected.

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There have been no material changes to our critical accounting estimates as described in our Annual Report on Form 10-K for the year ended December 31, 2023, which was filed with the SEC on March 28, 2024.

Recent Accounting Pronouncements

For a description of recent accounting pronouncements, including the expected dates of adoption and estimated effects, if any, on our condensed consolidated interim financial statements, please see Note 2, Significant accounting policies, in the Notes to the condensed consolidated interim financial statements of this Quarterly Report.

RESULT OF OPERATIONS

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.

		Three months ended March 31,
		2024				2023				Change
		$				$				$				%
Product sales		$	85,169			$	58,699			$	26,470				45	%
Development revenue			3,141,759				1,257,479				1,884,280				150	%
Licensing revenue			45,329				96,081				(50,752	)			-53	%
Total Revenue			3,272,257				1,412,259				1,859,998				132	%
Cost of sales (exclusive of items shown separately below)			778,266				587,028				191,238				33	%
Depreciation and amortization included in cost of sales			3,673				10,047				(6,374	)			-63	%
Stock-based compensation included in cost of sales			(48,417	)			143,905				(192,322	)			-134	%
Gross profit		$	2,538,735			$	671,279			$	1,867,456				278	%
Gross profit percentage			78	%			48	%			30	%

Product Sales

Product sales for the three months ended March 31, 2024 is consistent with the same period of 2023.

Development Revenue

The increase in development revenue for the three months ended March 31, 2024 of $1.9 million is mainly due to the increase in our Lithography revenue. 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. These contract services incorporate both nano-optic and optical thin film technologies and are focused on developing authentication features for future banknotes.

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Licensing revenue

The slight decrease in licensing revenue for the three months ended March 31,2024, compared to same period of 2023, was mainly due to a decrease in licensing revenue from a certain customer related to Nanotech.

Cost of sales

Cost of sales for the three months ended March 31, 2024 increased mainly due to an increase in material consumption.

Gross profit

The increase in gross profit for the three months ended March 31, 2024 of $1.9 million, compared to the same period of 2023, was mainly due to our increased revenue from contract services with a confidential G10 central bank during 2024.

Depreciation & amortization expense in Cost of sales

For the three months ended March 31, 2024, as compared to the same period of 2023, depreciation and amortization expense decreased by an insignificant amount.

Stock-based compensation expense in Cost of sales

For the three months ended March 31, 2024, as compared to the same period of 2023, stock-based compensation expense decreased by $0.2 million. The decrease was mainly due to a significant increase in forfeitures of equity-based awards in fiscal 2023 as a result of the Realignment and Consolidation Plan, and an increase in voluntary terminations.

Operating Expenses

		Three months ended March 31,
		2024				2023				Change
		$				$				$				%
Sales & marketing		$	332,964			$	2,307,353			$	(1,974,389	)			-86	%
General & administrative			3,926,643				6,769,437				(2,842,794	)			-42	%
Research & development			2,660,995				5,060,756				(2,399,761	)			-47	%
Depreciation & amortization expense			991,625				3,234,495				(2,242,870	)			-69	%
Stock-based compensation expense			310,825				1,858,440				(1,547,615	)			-83	%
Restructuring expense			266,035				—				266,035			*
Total operating expenses		$	8,489,087			$	19,230,481			$	(10,741,394	)			-56	%
* Not meaningful.

Sales & marketing

The decrease in selling & marketing expenses of $2.0 million for the three months ended March 31, 2024, as compared to the same period of 2023, is mainly due to a $1.0 million decrease in salaries and benefits due to decrease in headcount in the latter part of 2023 as a result of the Realignment and Consolidation Plan, a $0.4 million decrease in advertising and promotion costs including trade show and travel expenses, and a decrease of $0.6 million in consulting fees.

General & administrative

The decrease in general & administrative expenses of $2.8 million for the three months ended March 31, 2024, as compared to the same period of 2023, is mainly due to a $2.0 million decrease in salaries and benefits due to decrease in headcount in the latter part of 2023 as a result of the Realignment and Consolidation Plan, a $0.7 million reduction travel and other costs, a $0.2 million reduction in IT & software costs, a $0.2 million decrease in stock exchange fee, a $0.1 million reduction in insurance cost, and partially offset by a $0.4 million increase in professional cost.

Research & development

The decrease research & development expenses of $2.4 million for the three months ended March 31, 2024, as compared to the same period of 2023, is mainly due to a $1.3 million decrease in salaries and benefits due to decrease in headcount in the latter part of 2023 as a result of the Realignment and Consolidation Plan, a $0.9 million decrease in R&D materials and patent fees, and a $0.1 million decrease in travel, subscription and other expenses.

Depreciation & amortization expense in Operating expenses

For the three months ended March 31, 2024, as compared to the same period of 2023, depreciation amortization expense reduced by $2.2 million. The decrease in the three months ended March 31, 2024, compared to the same period ended March 31, 2023, was primarily due to an impairment of long-lived assets recorded in the fourth quarter ended December 31, 2023.

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Stock-based compensation expense in Operating expenses

For the three months ended March 31, 2024, as compared to the same period of 2023, stock-based compensation expenses decreased by $1.5 million, mainly due to a significant increase in forfeitures of equity-based awards in fiscal 2023 and the first quarter ended March 31, 2024 as a result of the Realignment and Consolidation Plan and an increase in voluntary terminations.

Restructuring expense

For the three months ended March 31, 2024, we recorded $0.3 million of restructuring expenses in relation to the 2023 Realignment and Consolidation Plan. There were no such expenses during the same period of 2023.

Other Expenses, net

		Three months ended March 31,
		2024				2023				Change
		$				$				$				%
Interest expense, net		$	(108,766	)		$	(112,998	)		$	4,232				-4	%
Realized gain (loss) on foreign exchange, net			62,445				(40,689	)			103,134				-253	%
Unrealized gain (loss) on foreign exchange, net			(1,513,055	)			325,600				(1,838,655	)			-565	%
Other income (expenses), net			1,314				(578,120	)			579,434				-100	%
Total other expense, net		$	(1,558,062	)		$	(406,207	)		$	(1,151,855	)			284	%

Interest expense, net

The net interest expense for the quarter ending March 31, 2024, was largely comparable to that of the same period in 2023.

Realized gain (loss) on foreign exchange, net

For the three months ended March 31, 2024 as compared to the same period of 2023, the increase in net realized gain on foreign exchange was primarily driven by transaction gains in intercompany transfer to Canadian subsidiaries. Canadian dollar depreciated against the US dollar during the first quarter ended March 31, 2024.

Unrealized gain (loss) on foreign exchange, net

The shift from the net unrealized gain on foreign exchange in the three months ended March 31, 2023 to the net unrealized foreign exchange loss in the three months ended March 31, 2024 was primarily attributable to the revaluation of intercompany balances whereas unrealized loss was increased primarily due to the Canadian dollar's depreciation against the US dollar.

Other income (expense), net

The shift from the other expense, net, for the three months ended March 31, 2023 to the other income, net, for the three months ended March 31, 2024, was primarily due to a net expense of $0.6 million related to the notes receivable from Next Bridge. During the three months ended March 31, 2023, we recorded a $1.0 million of credit loss provision expense for the notes receivable from Next Bridge in accordance with ASC 326. This was partially offset by a $0.4 million in interest income accrued on the Next Bridge notes receivable. We sold the Next Bridge notes receivable in August 2023.

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 generate revenue from current and prospective customers, general and administrative requirements and the availability of equity or debt capital and government funding. As these variables change, we currently will be required to issue equity or obtain debt financing.

On March 31, 2024, we had cash and cash equivalents of approximately $7.0 million including $0.6 million in restricted cash compared to $10.3 million in cash and cash equivalents at December 31, 2023, including $0.6 million in restricted cash.

During the three months ended March 31, 2024, our principal sources of liquidity included a $3.3 million of revenue, $3.0 million of net proceeds obtained through the issuance of common stock and warrants under the February 2024 Offering, and $0.7 million receipt from Mr. McCabe in relation to the Release Agreement with Mr. McCabe.

Our primary uses of liquidity included $3.9 million in salaries, $2.3 million in professional fees and stock exchange fees, $1.3 million changes in working capital, $0.7 million in rent and utilities, $0.4 million in insurance, $0.3 million in restructuring expenses, $0.2 million in R&D materials and patents fees, $0.1 million in travel, advertisement and other costs and $0.1 million in capital expenditures.

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.

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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.

On May 2, 2024, our board of directors approved a reduction in our workforce by approximately 80% of our employees in order to preserve cash resources.

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.

Going Concern

In accordance with 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 condensed consolidated interim financial statements included in this Quarterly Report 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 condensed consolidated interim 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 condensed consolidated interim 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 condensed consolidated interim financial statements are issued. In performing its 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 condensed consolidated interim 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 condensed consolidated interim financial statements. See Note 3, Going Concern, in the Notes to the condensed consolidated interim financial statements of this Quarterly Report for further information.

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 our cash flows for the periods presented:

		Three months ended March 31,
		2024				2023
Net cash used in operating activities		$	(5,922,764	)		$	(15,520,162	)
Net cash provided by (used in) investing activities			32,096				(437,528	)
Net cash provided by financing activities			2,652,704				10,664,073
Net decrease in cash, cash equivalents and restricted cash		$	(3,237,964	)		$	(5,293,617	)

Net cash used in operating activities

During the three months ended March 31, 2024, net cash used in operating activities of $5.9 million was primarily driven by a net loss of $7.5 million for the period, and non-cash adjustments of $2.9 million mainly due to unrealized foreign currency exchange loss of $1.5 million, depreciation and amortization of $1.0 million, non-cash lease expense of $0.3 million, stock-based compensation of $0.3 million, which was partially offset by a $0.4 million decrease related to a change in deferred revenue. In addition, there was $1.3 million cash used by working capital primarily due to a $3.6 million decrease in trade payables, accruals and other accruals, a $0.4 million decrease in restructuring costs accrual, a $0.4 million decrease in accounts receivables and other receivables, a $0.4 million decrease in operating lease liabilities, which was partially offset by a $3.5 million increase related to prepaid expenses and other current assets.

During the three months ended March 31, 2023, net cash used in operating activities of $15.5 million was primarily driven by a net loss of $18.7 million for the period, and non-cash adjustments of $5.9 million mainly due to depreciation and amortization of $3.2 million, stock-based compensation of $2.0 million, and credit loss expenses of $1.0 million. In addition, there was $2.7 million cash used by

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working capital primarily due to a $1.7 million decrease in trade payables, accruals and other accruals as well as a $0.8 million increase in prepaid expenses and other current assets.

Net cash provided by (used in) investing activities

During the three months ending March 31, 2024, we experienced an immaterial net cash inflow from investing activities. This was primarily due to a $0.1 million disbursement from an interest-free loan from EDC, substantially offset by $0.1 million in capital expenditures related to the construction of the Highfield Park Facility in Nova Scotia, Canada.

During the three months ended March 31, 2023, net cash used in investing activities of $0.4 million was primarily driven by $1.7 million of capital expenditure associated with the construction of the Highfield Park Facility in Nova Scotia, Canada as well as the Thurso facility expansion in Quebec, offset by $1.0 million proceeds from collection of notes receivable and $0.3 million proceeds from government loan.

Net cash provided by financing activities

During the three months ended March 31, 2024, net cash provided by financing activities of $2.7 million was primarily driven by the $3.0 million net proceeds obtained through the issuance of common stock and warrants in the February 2024 Offering, partially offset by a repayment of $0.4 million in interest-free government loans.

During the three months ended March 31, 2023, net cash provided by financing activities of $10.7 million was primarily driven by the $10.0 million net proceeds obtained through the issuance of common stock under the At-the-Market Equity Offering Program in addition to $0.7 million proceeds from stock options exercise.

Commitments and contractual obligations

For a description of our commitments and contractual obligations, please see Note 19, Commitments and contingencies, in the Notes to the condensed consolidated interim financial statements of this Quarterly 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 19, Commitments and Contingencies, in the notes to the unaudited condensed consolidated interim financial statements of this Quarterly Report. We do not maintain any other off-balance sheet arrangements.

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

This item is not required for a smaller reporting company.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our periodic reports filed with the SEC is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow for timely decisions regarding required disclosure.

Our management, with the participation of our principal executive officer and principal financial 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 March 31, 2024.

Although management believes there has been significant improvement in the design and implementation of our internal controls over financial reporting during the first three months of 2024, we still consider there to be a material weakness in our internal control over financial reporting that has not yet been remediated as previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2023. Accordingly, our management, with the participation of our principal executive officer and principal financial officer, concluded that our disclosure controls and procedures were not effective as of March 31, 2024.

Nevertheless, giving full consideration to the material weakness and the progress made in addressing them since December 31, 2023, we have concluded that the condensed consolidated interim financial statements included in this Quarterly 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. GAAP.

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Remediation of Previously Reported Material Weakness

Management has implemented a number of measures to address the material weakness disclosed in the Form 10-K for the year ended December 31, 2023. These measures aim to further enhance our internal controls over financial reporting to ensure that management can routinely prepare our financial statements under U.S. GAAP and remain in compliance with the SEC reporting requirements.

To remediate the weakness described above, we have performed the following:

To remediate the weakness described above, we are in process of implementing the following:

Changes in Internal Controls

Except for the remediation activities described above, there were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the three months ended March 31, 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Limitations on Effectiveness of Internal Controls

Our management, including our principal executive officer and principal financial officer, does not expect that disclosure controls or internal controls, when effective, will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. In addition, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple errors or mistake.

Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by management’s override of the control. The design of any systems of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving our stated goals under all potential future conditions. Over time, control may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of these inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected. Individual persons may perform multiple tasks which normally would be allocated to separate persons and therefore extra diligence must be exercised during the period these tasks are combined.

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PART II—OTHER INFORMATION

Item 1. Legal Proceedings

From time to time, we are subject to threats of litigation or actual litigation in the ordinary course of business, some of which may be material. Other than as disclosed in Note 19, Commitments and contingencies, in the notes to the condensed consolidated interim financial statements of this Quarterly Report, we are not currently a party to any pending legal proceedings that, if determined adversely to us, would, in our opinion, have a material effect on our financial position, results of operations, or cash flows or that would not be covered by our existing liability insurance. The results of any litigation cannot be predicted with certainty, and regardless of the outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources and other factors.

Item 1A. Risk Factors

There have been no material changes from the risk factors previously disclosed under the heading "Risk Factors" in the Company's Annual Report on Form 10-K for the year ended December 31, 2023, except the following:

Our ability to secure financing is limited by insufficient authorized shares of common stock, potentially impacting our ongoing operations.

Since inception, our cash requirements have been met primarily through the proceeds from the sale of our securities. As of the date of this Quarterly Report, we have issued substantially all of our unreserved authorized shares of common stock. Our stockholders did not approve the proposal to increase the number of authorized shares at the Special Meeting of Stockholders held on April 15, 2024. As of the date of this Quarterly Report, we have not scheduled another special meeting of stockholders. Currently, we do not have enough authorized and unreserved shares of common stock available, which could adversely impact our ability to pursue opportunities that may involve issuing shares. This limitation could affect the board's ability to make decisions that would be in the best interests of the Company and our shareholders, including securing financing and strategic transactions. 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 encounter operational disruptions due to delays or failures in paying our suppliers.

Our business operations depend significantly on the timely supply of essential services and materials from our key suppliers. A shortage of cash flow or insufficient liquidity could impair our ability to make timely payments to these suppliers. If we are unable to maintain satisfactory relationships with our suppliers due to non-payment or delayed payment, they may alter their terms of sales to us, require advance payments, or discontinue their supplies, any of which could disrupt our operations. Such disruptions could lead to delays in production and delivery of our products, impacting our revenue and harming our business reputation and adversely affect our financial position or results of operations.

We continue to evaluate strategic alternatives due to our cash runway and there can be no assurance that any strategic alternative will be successful.

As of March 31, 2024, we had cash and cash equivalents of approximately $7.0 million. Management has determined that there is substantial doubt about the Company's ability to continue as a going concern. We have not yet generated significant revenue from operations and do not anticipate that we will generate sufficient revenue from operations in the near term to sustain our operations and therefore we will need to raise capital to sustain our operations. In connection therewith, on May 2, 2024, our board of directors approved a reduction in our workforce by approximately 80% of our employees in order to preserve cash resources.

We continue to evaluate all available strategic alternatives including, but not limited to, the divestiture of assets, additional financing security and/or the sale of the Company. There can be no assurance regarding the outcome of this process. Without an influx of cash to support operations, we face:

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3. Defaults Upon Senior Securities

None.

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Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

During the three months ended March 31, 2024, no director or officer of the Company adopted, modified or terminated a "Rule 10b5-1 trading arrangement" or "non-Rule 10b5-1 trading arrangement" as each term is defined in Item 408 of Regulation S-K.

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Item 6. Exhibits

Furnish the exhibits required by Item 601 of Regulation S-K (§ 229.601 of this chapter).

				Incorporated by Reference
Exhibit Number		Exhibit Description		Form		Exhibit Number		Filing Date		Filed Herewith
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 Pre-Funded Warrant (issued in February 2024)		8-K		4.1		21-Feb-24
4.2.0		Form of Warrant (issued in February 2024)		8-K		4.2		21-Feb-24
4.3.0		Form of Letter Agreement (entered in February 2024)		8-K		4.3		21-Feb-24
10.1.0		Form of Securities Purchase Agreement		8-K		10.1		21-Feb-24
31.1		Certification Pursuant to Rules 13a-14(a) and 15d-14(a) as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002								X
32.1		Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.								X
101.INS		Inline XBRL Instance Document–the instance document does not appear in the Interactive Data File as its XBRL tags are embedded within the Inline XBRL document								X
101.SCH		Inline XBRL Taxonomy Extension Schema With Embedded Linkbase Documents								X
104		Cover page formatted as Inline XBRL and contained in Exhibit 101								X

 

+	Indicates management contract or compensatory plan.

 

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SIGNATURES

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

		Meta Materials Inc.
Dated: May 13, 2024		By:	/s/ Uzi Sasson
			Uzi Sasson
			President and Chief Executive Officer
			(Principal Executive Officer and Principal Financial Officer)

 

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