Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Management’s Discussion and Analysis (“MD&A”) of the financial condition and results of the operations of Meta Materials Inc. (“META” or the “Company”) constitutes management’s review of the factors that affected the Company’s financial and operating performance for the three and nine months ended September 30, 2021. The condensed consolidated interim financial statements and this Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the consolidated financial statements and notes thereto for the year ended December 31, 2020 which are contained in Form 8-K/A filed with the Securities and Exchange Commission, or the SEC, on August 12, 2021. All financial information is stated in U.S. dollars unless otherwise specified. The Company’s condensed consolidated interim financial statements are prepared in accordance with accounting principles generally accepted in the United States, or U.S. GAAP.
Further information about the Company and its operations can be obtained from the offices of the Company, from the Company’s website or on EDGAR at www.sec.gov/edgar.shtml.
This MD&A contains certain forward-looking information and forward-looking statements, as defined within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. (collectively referred to herein as “forward- looking statements”). These statements relate to future events or the Company’s future performance. All statements other than statements of historical fact are forward- looking statements. Often, but not always, forward-looking statements can be identified by the use of words such as “plans”, “expects”, “is expected”, “budget”, “scheduled”, “estimates”, “continues”, “forecasts”, “projects”, “predicts”, “intends”, “anticipates” or “believes”, or variations of, or the negatives of, such words and phrases, or statements that certain actions, events or results “may”, “could”, “would”, “should”, “might” or “will” be taken, occur or be achieved. Forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause actual results to differ materially from those anticipated in such forward-looking statements. The forward looking statements in this MD&A speak only as of the date of this MD&A or as of the date specified in such statements.
This information includes, but is not limited to, comments regarding:
the Company’s business strategy;
the Company’s strategy for protecting its intellectual property;
the Company’s ability to obtain necessary funding on favorable terms or at all;
the Company’s plan and ability to secure revenues;
the risk of competitors entering the market;
the Company’s ability to hire and retain skilled staff;
the ability to obtain financing to fund future expenditures and capital requirements;
the Company’s plans with respect to its new facility; and
the impact of adoption of new accounting standards.
Although the Company believes that the plans, intentions and expectations reflected in this forward-looking information are reasonable, the Company cannot be certain that these plans, intentions, or expectations will be achieved. Actual results, performance, or achievements could differ materially from those contemplated, expressed or implied by the forward-looking information contained in this report. Disclosure of important factors that could cause actual results to differ materially from the Company’s plans, intentions, or expectations are included in this report under the heading Risk Factors.
29
Forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the Company’s actual results, performance or achievements to be materially different from any of its future results, performance or achievements expressed or implied by forward- looking statements. All forward-looking statements herein are qualified by this cautionary statement. Accordingly, readers should not place undue reliance on forward- looking statements. The Company undertakes no obligation to update publicly or otherwise revise any forward looking statements whether as a result of new information or future events or otherwise, except as may be required by law. If the Company does update one or more forward-looking statements, no inference should be drawn that it will make additional updates with respect to those or other forward-looking statements, unless required by law.
This Report on Form 10-Q contains references to our trademarks and to trademarks belonging to other entities. Solely for convenience, trademarks and trade names referred to in this Report on Form 10-Q, including logos, artwork and other visual displays, may appear without the ® or TM symbols, but such references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights or the rights of the applicable licensor to these trademarks and trade names. We do not intend our use or display of other companies’ trade names or trademarks to imply a relationship with, or endorsement or sponsorship of us by, any other companies.
OVERVIEW
Meta Materials Inc. (the “Company” or “META” or “Resulting Issuer”) is a smart materials and photonics company specializing in metamaterial research and products, nanofabrication, and computational electromagnetics. The Company’s registered office is located at 85 Swanson Road, Boxborough, Massachusetts 01719 and its principal executive office is located at 1 Research Drive, Halifax, Nova Scotia, Canada.
Business combinations
On December 14, 2020, Torchlight Energy Resources, Inc. (“Torchlight”) and its subsidiaries, Metamaterial Exchangeco Inc. (formerly named 2798832 Ontario Inc., “Canco”) and 2798831 Ontario Inc. (“Callco”), entered into an Arrangement Agreement (the “Arrangement Agreement”) with MMI to acquire all of its outstanding common stock by way of a statutory plan of arrangement (the “Arrangement”) under the Business Corporations Act (Ontario), on and subject to the terms and conditions of the Arrangement Agreement (the “Torchlight RTO”). On June 25, 2021, Torchlight implemented a reverse stock split, changed its name from “Torchlight Energy Resources, Inc.” to “Meta Materials Inc.” and changed its trading symbol from “TRCH” to “MMAT”. On June 28, 2021, following the satisfaction of the closing conditions set forth in the Arrangement Agreement, the Arrangement was completed.
On June 28, 2021, and pursuant to the completion of the Arrangement Agreement completion, the Company began trading on the NASDAQ under the symbol “MMAT” while MMI common stock were 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.
For accounting purposes, the legal subsidiary, MMI, has been treated as the accounting acquirer and the Company, the legal parent, has been treated as the accounting acquiree. The transaction has been accounted for as a reverse acquisition as per ASC 805. Accordingly, the information disclosed in the financial statements as well as the MD&A is a continuation of MMI’s financial statements and MD&A.
Prior to the Torchlight RTO, on March 5, 2020, Metamaterial Inc. (formerly known as Continental Precious Minerals Inc., “CPM”) and Metamaterial Technologies Inc. (“MTI”) completed a business combination by way of a three-cornered amalgamation pursuant to which MTI amalgamated with Continental Precious Minerals Subco Inc. (“CPM Subco”), a wholly owned subsidiary of CPM to become “Metacontinental Inc.” (the “RTO”). The RTO was completed pursuant to the terms and conditions of an amalgamation agreement dated August 16, 2019, between CPM, MTI and CPM Subco, as amended March 4, 2020. Following completion of the RTO, Metacontinental Inc. carried on the business of the former MTI, as a wholly-owned subsidiary of CPM and changed its name effective February 3, 2021 to “Metamaterial Technologies Canada Inc.”. In connection with the RTO, CPM changed its name effective March 2, 2020, from Continental Precious Minerals Inc. to Metamaterial Inc.. The common stock of CPM were delisted from the TSX Venture Exchange on March 4, 2020 and were posted for trading on the Canadian Securities Exchange (“CSE”) on March 9, 2020 under the symbol “MMAT”. For accounting purposes, the legal subsidiary, MTI, has been treated as the accounting acquirer and CPM, the legal parent, has been treated as the accounting acquiree. The transaction has been accounted for as a reverse recapitalization.
30
On August 5, 2021, the Company announced the signing of a definitive agreement to indirectly acquire Nanotech Security Corp. (“Nanotech”). Subject to the terms and conditions of the definitive agreement, a wholly-owned subsidiary of META will purchase 100% of Nanotech’s common stock at CA$1.25 per share. In addition, Nanotech will repurchase restricted share units (“RSU”) to acquire 538,516 shares of Nanotech common stock at a purchase price of CA$1.25 per RSU and in-the-money options to acquire 4,579,000 shares of Nanotech common stock at a purchase price equal to CA$1.25 per option less the exercise price thereof. The consideration payable to securityholders under the arrangement will be payable in cash resulting in an estimated total purchase price of CA$90.8 million. The Company has completed the acquisition of Nanotech Security Corp. (“NTS”) on October 5, 2021..
Impact of COVID-19 on the Company’s Business
During March 2020, the COVID-19 outbreak was declared a pandemic by the World Health Organization. This has resulted in governments worldwide enacting emergency measures to combat the spread of the virus. In response, the Company’s management implemented a Work-From-Home policy for management and non-engineering employees in all of the Company’s locations for the remaining period of the year. Engineering staff continued to work on given tasks and follow strict safety guidelines. As of November 2021, the majority of the Company’s employees have returned to the workplace. Although the Company’s supply chain has slowed down, the Company is currently able to maintain inventory of long lead items and is working with its suppliers to optimize future supply orders
COVID-19 has impacted the Company’s 2020 and 2021 sales of its METAAIR® laser protection eyewear product. Worldwide restrictions on travel are significantly impacting the airline industry and purchasing of METAAIR® eyewear has not been the primary spending focus of airline companies emerging from the financial impacts of COVID-19, however, the Company is pursuing sales in adjacent markets such as consumer, military and law enforcement. The situation is dynamic and the ultimate duration and magnitude of the impact of COVID-19 on the economy and financial effect specific to the Company cannot be quantified or known at this time.
BUSINESS AND OPERATIONAL OVERVIEW
The Company has generated a portfolio of intellectual property and is now moving toward commercializing products at a performance and price point combination that has the potential to be disruptive in multiple market verticals. The Company’s platform technology includes holography, lithography, and medical wireless sensing. The underlying approach that powers all of the Company’s platform technologies comprises advanced materials, metamaterials and functional surfaces. These materials include structures that are patterned in ways that manipulate light, heat, and electromagnetic waves in unusual ways. The Company’s advanced structural design technologies and scalable manufacturing methods provide a path to broad commercial opportunities in aerospace and defense, automotive, energy, healthcare, consumer electronics, and data transmission.
Controlling light, electricity and heat have played key roles in technological advancements throughout history. Advances in electrical and electromagnetic technologies, wireless communications, lasers, and computers have all been made possible by challenging our understanding of how light and other types of energy naturally behave, and how it is possible to manipulate them.
Over the past 20 years, techniques for producing nanostructures have matured, resulting in a wide range of ground breaking solutions that can control light and heat 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, that are engineered by Company scientists to exhibit new or enhanced properties relating to reflection, refraction, diffraction, filtering, conductance and other properties that have the potential for multiple commercial applications.
A metamaterial typically consists of a multitude of structured unit nano-cells that are comprised of multiple individual elements. These are referred to as meta-atoms. The individual elements are usually arranged in periodic patterns that, together, can manipulate light, heat, or electromagnetic waves. Development strategies for metamaterials and functional surfaces focus on structures that produce unusual and exotic electromagnetic properties by manipulating light 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 electromagnetic waves of light to create material properties that are not easily achievable with conventional materials.
The Company’s platform technology (holography, lithography, and medical wireless sensing) is being used to develop potentially transformative and innovative products for: aerospace and defense, automotive, energy, healthcare, consumer electronics, and data transmission. The Company has many product concepts currently in different stages of development with multiple customers in diverse market verticals. The Company’s business model is to co-develop innovative products or applications with industry leaders that add value. This approach enables the Company to understand market dynamics and ensure the relevance and need for the Company’s products.
31
Holography Technology
Holography is a technique where collimated visible wavelength lasers are used to directly write an interference pattern inside the volume of light-sensitive material (photopolymer) in order to produce highly transparent optical filters and holographic optical elements. For some product lines that require large surface areas, this is combined with a proprietary scanning technique, where the lasers, optically or mechanically, directly write nano-patterns to cover large surface areas with nanometer accuracy.
META’s principal products that employ holography technology are its METAAIR® laser glare protection eyewear, METAAIR® laser protection films for law enforcement and METAOPTIXTM notch filters. META co-developed its METAAIR® laser glare protection eyewear product with Airbus S.A.S. that has been engineered to provide laser glare protection for pilots, military and law enforcement using META’s holography technology. METAAIR® is a holographic optical filter developed using nano-patterned designs that block and deflect specific colors or wavelengths of light. META launched METAAIR® with strategic and exclusive distribution partner, Satair, a wholly owned Airbus company and started producing and selling METAAIR® in April 2019. The scale-up and specification for the raw photopolymer material used to produce the eyewear was successfully finalized in late 2019 and commercialized in 2020. META launched its laser glare protection films for law enforcement use in late 2020. These films are designed to be applied to face shields and helmet visors providing the wearer with the same type of laser eye protection afforded to pilots by METAAIR® glasses while preserving peripheral vision critical to law enforcement duties. METAOPTIXTM notch filters are optical filters that selectively reject a portion of the spectrum, while transmitting all other wavelengths. They are used in applications where it is necessary to block light from a laser, as in machine vision applications and in confocal or multi-photon microscopy, laser-based fluorescence instrumentation, or other life science applications. METAOPTIXTM notch filters were commercially launched by the Company in November 2020.
META has additional products in development that utilize its proprietary holography technology. Included in the METAOPTIXTM family of products are holographic optical elements (“HOEs”). HOEs are a core component in the display of augmented reality smart glasses products, as well as (in their larger version) in Heads-Up Displays (“HUDs”), in automobiles and aircraft.
Lithography Technology
In order to meet the performance, fabrication-speed, and/or cost criteria required for many potential applications that require large area and low cost nanopatterning, the Company has developed a new nanolithography method called “Rolling Mask” lithography (registered trademark RML®), which combines the best features of photolithography, soft lithography and roll-to-plate/roll-to-roll printing capability technologies. Rolling Mask Lithography utilizes a proprietary UV light exposure method where a master pattern is provided in the form of a cylindrical mask. These master patterns are designed by the Company and over the years they have become part of a growing library of patterns, enriching the intellectual property (“IP”) of the Company. The nanostructured pattern on the mask is then rolled over a flat surface area writing a nano-pattern into the volume of a light-sensitive material (a photoresist), creating patterned grooves, metal is then evaporated and fills the patterned grooves. The excess metal is then removed by a known post- process called lift-off. The result is an invisible conductive metal mesh-patterned surface (registered trademark NANOWEB®) that can be fabricated onto any glass or plastic transparent surface in order to offer high transparency, high conductivity and low haze smart materials.
The Company’s current principal prototype product in lithography technology is its transparent conductive film, NANOWEB®. The lithography division operates out of the Company’s wholly owned U.S. subsidiary, which can produce meter-long samples of NANOWEB®, at a small volumes scale, for industry customers/partners.
There are six NANOWEB®-enabled products and applications that are currently in early stages of development including NANOWEB® for Transparent EMI Shielding, NANOWEB® for Transparent Antennas, NANOWEB® for 5G signal enhancement, NANOWEB® for Touch Screen Sensors, NANOWEB® for Solar cells and NANOWEB® for Transparent Heating to de-ice and de-fog. More details of these products and applications can be found in META’s EDGAR filings and on META’s website at www.metamaterial.com.
Throughout 2020 and 2021, the Company has been ordering and upgrading its equipment at its California facility to efficiently supply NANOWEB® samples in larger volumes. The Company has entered into a collaboration agreement with Crossover Solutions Inc. to commercialize the NANOWEB® enabled products and applications for the automotive industry and with ADI Technologies to help secure contracts with the US Department of Defense.
32
Wireless Sensing Technology
Wireless Sensing is the ability to cancel reflections (anti-reflection) from the skin to increase the Signal-to-Noise- Ratio (“SNR”) transmitted through body tissue to enable better medical diagnostics. This breakthrough wireless sensing technology is made using proprietary 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. For example, as a medical imaging application, the Company is developing metaSURFACE™ (also known as RadiWise™) an innovation which allows up to 40 times more energy to be transmitted through the human tissue, instead of being reflected. The benefit is increased diagnostic speed and imaging accuracy leading to patient throughput increases for healthcare providers. The metaSURFACE™ device consists of proprietary non-ferrous metallic and dielectric layers that are exactingly designed to interact (resonate) with radio waves allowing the waves to “see-through the skin”.
The Company is developing wireless sensing applications from its London, UK office and advancing the wireless sensing technology with Innovate UK grants.
BUSINESS AND OPERATIONAL HIGHLIGHTS
The Company’s lease at Highfield Park for an approximately 53,000 square foot facility, commenced on January 1, 2021. The facility will host the Company’s holography and lithography R&D labs and manufacturing operations. The Company has spent approximately $1.8 million on leasehold improvements, of which $1.6 million was spent during the nine months ended September 30, 2021. The Company also amended this lease agreement on June 9, 2021 to expand the leased space by approximately 15,000 square feet, reduce the annual rent for the 10-year term of the lease and obtain from the landlord CA$500,000 in cash to fund ongoing tenant improvements. In exchange, the landlord received 993,490 MMI common stock at CA$3.40 per share.
In the nine months ended September 30, 2021, the Company purchased equipment for approximately $0.4 million for the Highfield Park facility as well as equipment for approximately $3.2 million for its California facility. The Company has also incurred $1.4 million in costs related to the construction of the Highfield Park facility. The Company will be incurring additional construction and equipment costs over the coming quarters.
In the nine months ended September 30, 2021, the Company has executed its agreement to acquire specialized lens casting production equipment and intellectual property, including more than 35 patents, from Interglass Technology AG (Switzerland) for $800,000. META will invest and expand its capabilities in design, development, and manufacturing of ARfusion™ products for smart eyewear.
Pursuant to the closing of the Torchlight acquisition, the Company has reclassified the Oil and Gas assets as held for sale and has hired a consultant to help determine the best path to maximize value for the Series A Preferred shareholders. Four wells must be drilled in the Orogrande project in 2021 to hold the lease for sale or spinout. Two wells are being drilled on one pad site, and the Company expects to begin drilling a second pair of wells on another site in November. The Company believes that upon completing the drilling of these four wells, the Company will be in compliance with all aspects of its lease obligations, and the CDC (Continuous Drilling Clause) with University Lands on the Orogrande project will be satisfied. The assets remain available for sale in their current condition, and the Company remains in the process of working to sell the assets.
33
RESULTS OF OPERATIONS
Revenue and Gross Profit
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Three months ended September 30,
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Nine months ended September 30,
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2021
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2020
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Change
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2021
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2020
|
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Change
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$
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$
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$
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%
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$
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|
|
$
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$
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%
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Product sales
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297,431
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982
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296,449
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30188
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%
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321,431
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2,904
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318,527
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10969
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%
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Development revenue
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275,181
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197,193
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77,988
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40
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%
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1,471,804
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845,954
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625,850
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74
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%
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Total Revenue
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572,612
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198,175
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374,437
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189
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%
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1,793,235
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848,858
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944,377
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111
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%
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Cost of goods sold
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145,103
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935
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144,168
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15419
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%
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146,209
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3,095
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143,114
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4624
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%
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Gross Profit
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427,509
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197,240
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230,269
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117
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%
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1,647,026
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845,763
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801,263
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|
95
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%
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The increase in product sales for the three months ended September 30, 2021 of $296,449 is due to an increase in revenue from development samples. Product sales include products, components, and samples sold to various customers. Although most of the company’s products remain under development, the Company started achieving revenue from development samples sold in the three months ended September 30, 2021.
The increase in development revenue for the three months ended September 30, 2021 of $77,988 is due to an increase in contract revenue of $117,085 net of reduction in other development revenue of $39,097. The increase in contract revenue is primarily due to revenue recognition of $90,763 in Q3 2021 subsequent to achieving certain milestones of the cooperation framework agreement with Covestro Deutschland AG.
The increase in development revenue for the nine months ended September 30, 2021 of $625,850 is due to an increase in contract revenue of $765,414 net of reduction in other development revenue of $139,564. The increase in contract revenue is primarily due to revenue recognition of $711,609 in YTD 2021 subsequent to achieving certain milestones of the cooperation framework agreement with Covestro Deutschland AG.
Operating expenses
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Three months ended September 30,
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Nine months ended September 30,
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2021
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2020
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Change
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2021
|
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2020
|
|
|
Change
|
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|
|
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|
|
$
|
|
|
$
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|
|
$
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%
|
|
|
$
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|
|
$
|
|
|
$
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%
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|
Operating Expenses
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Selling & Marketing
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427,004
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196,276
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230,728
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118
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%
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1,122,469
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520,804
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601,665
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116
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%
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General & Administrative
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9,776,850
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1,463,255
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8,313,595
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568
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%
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16,217,012
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4,620,907
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11,596,105
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251
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%
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Research & Development
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1,816,547
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1,043,915
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772,632
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74
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%
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5,229,456
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2,936,516
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2,292,940
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78
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%
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Total operating expenses
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12,020,401
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|
|
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2,703,446
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|
9,316,955
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|
345
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%
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22,568,937
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|
|
|
8,078,227
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|
|
|
14,490,710
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179
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%
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The increase in selling and marketing expenses for the three and nine months ended September 30, 2021, compared to the same period of 2020, is primarily due to:
increase in salaries and benefits of $139,901 and $320,572 respectively due to new hires in 2021 as part of the Company’s expansion.
increase in consulting fees of $25,542 and $201,320 respectively for market research and various promotional campaigns as the Company sought to list on the NASDAQ.
increase in trade shows and travel and entertainment for $93,648 and $125,329 respectively due to market rebound after COVID-19 and reopening of trade shows.
34
The increase in general and administrative expenses for the three and nine months ended September 30, 2021, compared to the same period of 2020, is primarily due to:
increase in legal and audit expense of $37,199 and $1,849,453 respectively mainly due to costs associated with the Torchlight RTO and NTS business combination.
increase in consulting fees of $4,597,322 and $4,706,051 respectively primarily due to:
o
warrants issued to consultants with an estimated fair value of $3,129,208 relating to the management and maintenance of the Oil and Gas assets.
o
advisory fees of $1,020,975 relating to the acquisition of Nanotech Security Corp.
increase in salaries and benefits of $1,529,186 and $1,730,462 respectively mainly due to an increase in the management level employees in 2021.
increase in investor related expenses of $479,745 and $1,362,160 respectively mainly due to:
o
warrants issued in Q2 2021 to consultants with an estimated fair value of $701,916 relating to investor relations. The fair value was calculated based on Monte Carlo simulation valuation technique. Refer to note 11 in Item 1. Financial Statements for more details.
o
other expenses for stock market support and investor communication.
increase in rent and utilities of $213,239 and $389,192 respectively due to the new lease for Highfield Park effective January 1, 2021 as well as additional storage area in Halifax.
decrease in stock-based payments expense of $180,869 and $354,475 respectively due to:
o
issuance of stock options in 2020 under the graded vesting attribution method which results in accelerated recognition of compensation cost.
o
change in fair value of certain warrants as a result of changing their maturity date past the CPM RTO in March 2020.
increase in insurance of $753,903 and $766,611 respectively due to new insurance requirements in the US as a result of the NASDAQ listing.
increase in IT & software and dues and subscriptions of $264,728 and $311,730 respectively due to the new subscriptions and software acquired in 2021 to facilitate the expansion of operations.
The increase in research and development expenses for the three and nine months ended September 30, 2021, compared to the same period of 2020, is primarily due to:
increase in salaries and benefits of $785,818 and $1,615,194 respectively due to R&D new hires in 2021 in both Halifax and California locations.
increase in R&D materials of $168,974 and $801,559 respectively mainly due to an inventory consumption of Covestro material of $465,718 in 2021 to be utilized in R&D as well as other R&D material purchases of $335,841 as a result of the R&D department expansion.
35
Other income (expense)
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|
Three months ended September 30,
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|
|
Nine months ended September 30,
|
|
|
|
|
2021
|
|
|
2020
|
|
|
Change
|
|
|
|
|
|
2021
|
|
|
2020
|
|
|
Change
|
|
|
|
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
%
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
%
|
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
|
(215,116
|
)
|
|
|
(376,776
|
)
|
|
|
161,660
|
|
|
|
-43
|
%
|
|
|
(1,093,833
|
)
|
|
|
(893,001
|
)
|
|
|
(200,832
|
)
|
|
|
22
|
%
|
|
(Loss) Gain on foreign exchange, net
|
|
|
(440,157
|
)
|
|
|
(175,514
|
)
|
|
|
(264,643
|
)
|
|
|
151
|
%
|
|
|
(770,542
|
)
|
|
|
81,159
|
|
|
|
(851,701
|
)
|
|
|
-1049
|
%
|
|
(Loss) Gain on financial instruments, net
|
|
|
—
|
|
|
|
(118,455
|
)
|
|
|
118,455
|
|
|
|
-100
|
%
|
|
|
(40,540,091
|
)
|
|
|
1,167,310
|
|
|
|
(41,707,401
|
)
|
|
|
-3573
|
%
|
|
Other income, net
|
|
|
739,260
|
|
|
|
562,443
|
|
|
|
176,817
|
|
|
|
31
|
%
|
|
|
1,673,124
|
|
|
|
974,112
|
|
|
|
699,012
|
|
|
|
72
|
%
|
|
Total other income (expense)
|
|
|
83,987
|
|
|
|
(108,302
|
)
|
|
|
192,289
|
|
|
|
-178
|
%
|
|
|
(40,731,342
|
)
|
|
|
1,329,580
|
|
|
|
(42,060,922
|
)
|
|
|
-3163
|
%
|
The (increase) decrease in net interest expense for the three and nine months ended September 30, 2021, compared to the same period of 2020, is primarily due to:
increase in non-cash interest accretion of $50,108 and $156,885 respectively due to accretion of long-term debt and funding obligation.
decrease in interest expense of $204,443 for the three months ended September 30, 2021 and increase of $54,943 for the nine months ended September 30, 2021 compared to the same periods in 2020 due to interest carrying promissory notes and convertible debts outstanding at December 31, 2020 of $8,574,094 and additional financing obtained during Q1 2021 of $13,963,386. All convertible promissory notes were converted into common stock in Q1 2021 except Torchlight promissory notes which were eliminated June 30, 2021, subsequent to completion of the Torchlight RTO.
The change in net loss/gain on foreign exchange for the three and nine months ended September 30, 2021, compared to the same period of 2020, is primarily driven by revaluations of intercompany balances in different currencies, mainly Canadian dollars and US dollars.
The net loss/gain on financial instruments for the three and nine months ended September 30, 2021, compared to the same period of 2020, is primarily due to the remeasurement of convertible financial liabilities of carrying value of $12,003,142 at the conversion dates and recognition of $40,340,460 non-cash realized loss in the statements of operations. This significant increase in the fair value of the convertible financial liabilities is due to the significant increase of the Company’s stock price from CA$0.66 as at December 31, 2020 to:
CA$3.01 at February 16, 2021 when the Company converted unsecured convertible promissory notes of $4,356,734 principal and interest at share price of CA$0.50 in accordance with the terms of the bridge financing;
CA$3.01 at February 16, 2021 when the Company converted unsecured convertible debentures of $1,527,108 principal and interest at share price of CA$0.70 as per terms of the agreement and;
CA$3.80 at March 3, 2021 when the Company converted secured convertible debentures of $4,252,059 principal and interest at share price of CA$0.70 pursuant to the terms of the agreement with BDC.
Each of the above referenced promissory notes and debentures included a conversion feature, exercisable at the option of the debt holder. For accounting purposes, each of these conversion features is an embedded derivative in the note or debenture. The Company elected to account for fluctuations in (a) the value of the liabilities driven by interest rate volatility and the Company’s credit risk and (b) the embedded derivatives driven by fluctuations in the Company’s common stock share price using a method known as Fair Value option. This accounting method calls for the Company to measure the fair value of the convertible financial liabilities at each balance sheet date and to record any fluctuations in the values that as non-cash adjustments relating to instrument specific credit risk in the other comprehensive income and non-cash adjustments relating to other factors in the statements of operations. If, as in the case of the liabilities described above, the debt is converted, the valuations and any adjustments are to be recorded as of the date of such conversion.
The Fair value option also provides that the total revaluation adjustment, in this case $40,340,460, be recorded in Common Stock thus having no impact on shareholder’s deficit despite the recording of the loss in the profit and loss.
36
The recorded loss is a non-cash expense and had no impact on shareholder’s equity at September 30, 2021. The creditors of the Company exchanged their secured and unsecured debt for common stock of the Company at conversion prices that were established at the time the instruments were created and, at which time, represented a conversion price close to or higher than the then market price of the common stock. Had the Company been permitted to pay off the debts in cash at the time of conversion, fewer stock would have been required to be issued and a lower loss would have been recorded. However, the instruments prevented any pre-payment of the debts by the Company. The conversions had the beneficial effect of significantly reducing the Company’s liabilities and eliminating broad-based security interests in all of the Company’s assets previously held by the creditors.
The increase in net other income for the three and nine months ended September 30, 2021, compared to the same period of 2020, is primarily due to increase in government assistance due to grants received from the Canadian and United Kingdom Government of $173,984 in the three months ended September 30, 2021 and $726,840 in the nine months ended September 30, 2021.
Deferred Tax recovery
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30,
|
|
|
Nine months ended September 30,
|
|
|
|
|
2021
|
|
|
2020
|
|
|
Change
|
|
|
|
|
|
2021
|
|
|
2020
|
|
|
Change
|
|
|
|
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
%
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
%
|
|
|
Income tax recovery
|
|
|
83,657
|
|
|
|
33,304
|
|
|
|
50,353
|
|
|
|
151
|
%
|
|
|
186,183
|
|
|
|
87,651
|
|
|
|
98,532
|
|
|
|
112
|
%
|
The Company records deferred income tax liabilities only for its foreign operation in the United Kingdom. The decrease in income tax expense for the three and nine months ended September 30, 2021, compared to the same periods in 2020 was driven by an increase in accumulated losses as well as changes in foreign exchange rates.
The Company has not yet been able to establish profitability or other sufficient significant positive evidence, to conclude that its deferred tax assets are more likely than not to be realized. Therefore, the Company continues to maintain a valuation allowance against its deferred tax assets.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity risk is the risk that the Company will not meet its financial obligations as they become due after use of currently available cash. The Company has 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, the ability of the Company to generate revenue from current and prospective customers, general and administrative requirements of the Company and the availability of equity or debt capital and government funding. As these variables change, the Company may be required to issue equity or obtain debt financing.
At September 30, 2021, the Company had cash and cash equivalents of $140.8 million including $0.4 million in restricted cash compared to $1.4 million at December 31, 2020.
For the nine months ended September 30, 2021, the Company’s principal sources of liquidity included $147 million of cash obtained through the Torchlight RTO, $14 million in cash obtained through convertible debt, $1.8 million in cash obtained through revenue and deferred revenue, and $1.1 million in cash obtained through long-term and short-term interest-free debt. The Company’s primary uses of liquidity included salaries of $3.7 million, professional and consulting fees of $8.4 million. and R&D materials of $1.1 million.
At September 30, 2021, META had a working capital surplus of $131.6 million compared to a deficit of $9.6 million. at December 31, 2020 which represents an improvement in working capital of $141.2 million. This is primarily due to a $139.8 million increase in cash and restricted cash as a result of the Torchlight acquisition and other debt proceeds, a $2.8 million increase in prepayments mainly due to a $1.8 million increase in advance payments as a result of increased volume of purchases and an approximately $1 million increase in prepaid insurance as a result of additional insurance requirements due to the listing on NASDAQ, a net $4.3 million decrease as a result of the acquisition of Torchlight’s assets held for sale and preferred stock liability, and a $3.6 million increase in accounts payables mainly due to construction of the Highfield Park facility in Canada and an increase in equipment purchases as well as an increase in the payable amount for insurance.
37
META believes that its existing cash will be sufficient to meet its working capital and capital expenditure needs for the foreseeable future, even after giving consideration to the acquisition of Nanotech Security Corp. which closed on October 5, 2021 and resulted in a cash outflow of $72.1 million. However, META may need to raise additional capital to expand the commercialization of its products, fund its operations and further its research and development activities. META’s future capital requirements may vary materially from period to period and will depend on many factors, including the timing and extent of spending on research and development efforts, the capital expansion of its facilities in Halifax and California and the ongoing investments to support the growth of its business.
The following table summarizes META’s cash flows for the periods presented;
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended September 30,
|
|
|
|
|
2021
|
|
|
2020
|
|
|
Net cash used in operating activities
|
|
|
(15,584,000
|
)
|
|
|
(5,903,523
|
)
|
|
Net cash provided by investing activities
|
|
|
140,563,801
|
|
|
|
2,359,769
|
|
|
Net cash provided by financing activities
|
|
|
14,860,325
|
|
|
|
5,458,772
|
|
|
Net increase in cash, cash equivalents and restricted cash
|
|
|
139,840,126
|
|
|
|
1,915,018
|
|
Net cash used in operating activities
During the nine months ended September 30, 2021, net cash used in operating activities of $15.6 million was primarily driven by $61.5 million of net loss reported for the period, and non-cash adjustments of $47.6 million mainly due to fair value losses on financial instruments, depreciation and amortization, interest expense, stock-based compensation, and non-cash consulting expense. In addition, there was $1.8 million cash used by working capital primarily due to a $2.3 million increase in prepaid expenses and other current assets net of $0.4 million decrease in operating lease assets and liabilities.
During the nine months ended September 30, 2020, net cash used in operating activities of $5.9 million was primarily driven by $5.8 million of net loss reported for the period, and non-cash adjustments of $1.5 million related to fair value losses on financial instruments, depreciation and amortization, interest expense and stock-based compensation. In addition, there was $1.5 million cash used in working capital primarily due to a $1.3 million decrease in accounts payable and a $0.2 million increase in grants receivable.
Net cash provided by investing activities
During the nine months ended September 30, 2021, net cash provided by investing activities of $140.6 million was primarily driven by cash acquired as a result of the Torchlight acquisition of $147 million, offset by $5.5 million purchases of property plant and equipment associated with the construction of the Highfield Park Facility in Canada as well as the equipment purchases for META’s facility in California, United States and $0.8 million increase in intangibles as a result of capitalized legal cost of patents as well as patents acquired as part of the Interglass assets.
During the nine months ended September 30, 2020, net cash provided by investing activities of $2.4 million was primarily driven by proceeds from CPM acquisition of $3.1 million offset by $0.7 million equipment purchases for META’s facility in California, United States.
Net cash provided by financing activities
During the nine months ended September 30, 2021, net cash provided by financing activities of $14.9 million was primarily driven by $10 million proceeds from issuance of unsecured convertible promissory notes to Torchlight that was eliminated upon consolidation at September 30, 2021, $3.9 million proceeds from issuance of unsecured convertible promissory notes to a shareholder that was subsequently converted into common stock in Q1 2021, $1.1 million proceeds from long-term debt, and $0.5 million proceeds from options and warrants conversion offset by $0.9 million repayments of long-term debt
During the nine months ended September 30, 2020, net cash provided by financing activities of $5.5 million was primarily driven by $3.6 million proceeds from issuance of secured convertible debentures to BDC Capital that was subsequently converted into common stock in Q1 2021, $0.7 million proceeds from issuance of unsecured convertible debentures and $0.6 million proceeds from issuance of convertible promissory notes to a shareholder that were subsequently converted into common stock in Q1 2021, $0.6 million proceeds from common stock and warrants issuances offset by $0.2 million repayments of long-term debt.
38
Commitments and contractual obligations
For a description of our commitments and contractual obligations, please see “Note 21—Commitments and contingencies” in the Notes to the Condensed Consolidated Interim Financial Statements of this Form 10-Q.
Off-Balance Sheet Arrangements
Off-balance sheet firm commitments relating to outstanding letters of credit amounted to approximately $653,812 as of September 30, 2021. These letters of credit and bank guarantees are collateralized by $421,817 of restricted cash. Please see “Note 21—Commitments and contingencies” in the Notes to Condensed Consolidated Interim Financial Statements of this Form 10-Q. The Company does not maintain any other off-balance sheet arrangements.
Recent Accounting Pronouncements
For a description of recent accounting pronouncements, including the expected dates of adoption and estimated effects, if any, on our condensed consolidated interim financial statements, please see “Note 2—Significant accounting policies” in the Notes to Condensed Consolidated Interim Financial Statements of this Form 10-Q.
39