META MATERIALS INC. - Annual Report: 2021 (Form 10-K)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-K

(Mark One)

For the fiscal year ended December 31, 2021

OR

Commission File Number: 001-36247

Meta Materials Inc.

(Exact Name of Registrant as Specified in its Charter)

Registrant’s telephone number, including area code: (902) 482-5729

Securities registered pursuant to Section 12(b) of the Act:

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☒ No ☐

Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes ☐ No ☒

Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for 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.

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 has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒

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

The aggregate market value of the voting and non-voting common equity held by non-affiliates of the Registrant, based on the closing price of the shares of common stock on June 30, 2021, was $1,523,026,255.

The number of shares of Registrant’s Common Stock outstanding as of March 1, 2022 is 284,812,797.

Table of Contents

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NOTE ABOUT FORWARD-LOOKING STATEMENTS

This Annual Report on Form 10-K contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements contained in this Annual Report on Form 10-K other than statements of historical fact, including statements regarding the Company's future results of operations and financial position, its business strategy and plans, and its objectives for future operations, are forward-looking statements. The words "believe," "may," "will," "estimate," "continue," "anticipate," "intend," "expect," and similar expressions are intended to identify forward-looking statements. The Company has based these forward-looking statements largely on its current expectations and projections about future events and trends that it believes may affect its 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" in this Annual Report on Form 10-K. Moreover, the Company operates in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for management to predict all risks, nor can they assess the impact of all factors on the Company's 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 the Company may make. In light of these risks, uncertainties and assumptions, the future events and trends discussed in this Annual Report on Form 10-K may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements.

Item 1. Business.

Business Overview

Meta Materials Inc. (the “Company” or “META” or “Resulting Issuer”) is a developer of high-performance functional materials and nanocomposites.

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.

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 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, heat, electricity, and radio waves have played key roles in technological advancements throughout history. Advances in electrical and electromagnetic technologies, wireless communications, lasers, and computers have all been made possible by challenging the understanding of how light and other types of energy naturally behave, and how it is possible to manipulate them.
 

Over the past 20 years, techniques for producing nanostructures have matured, resulting in a wide range of groundbreaking solutions that can control light, heat, and electromagnetic waves at very small scales. Some of the areas of advancement that have contributed to these techniques are photonic crystals, nanolithography, plasmonic phenomena and nanoparticle manipulation. From these advances, a new branch of material science has emerged – metamaterials. Metamaterials are composite structures, consisting of conventional materials such as metals and plastics, which are engineered by scientists to exhibit new or enhanced properties relating to reflection, refraction, diffraction, filtering, conductance and other properties that have the potential for multiple commercial applications.
 

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

The Company has many product concepts currently in various stages of development with multiple potential 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 its products.

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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 glare protection films for law enforcement and holoOPTIXTM notch filters. META co-developed its metaAIR® laser glare protection eyewear product with Airbus S.A.S. It has been engineered to provide laser glare protection for pilots, military and law enforcement using 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 glare eye protection afforded to pilots by metaAIR® glasses while preserving peripheral vision critical to law enforcement duties. HoloOPTIXTM notch filters are optical filters that selectively reject a portion of the spectrum, while transmitting all other wavelengths. They are used in applications where it is necessary to block light from a laser, as in machine vision applications and in confocal or multi-photon microscopy, laser-based fluorescence instrumentation, or other life science applications. HoloOPTIXTM notch filters were commercially launched by the Company in November 2020.

META has additional products in development that utilize its proprietary holography technology. Included in the holoOPTIX TM family of products are holographic optical elements (“HOEs”). HOEs are a core component in the display of augmented reality smart glasses products, as well as (in their larger version) in Heads-Up Displays (“HUDs”), in automobiles and aircraft.

Lithography Technology
 

Lithography is a process commonly used in the fabrication of integrated circuits, in which a light-sensitive polymer (photoresist), is exposed and developed to form 3D relief images on the substrate, typically a silicon wafer of up to 300mm (11.8 inches) in diameter. In order to meet the performance, fabrication-speed, and/or cost criteria required for many potential applications that require large area and low cost nanopatterning, the Company 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 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, Metamaterial Technologies USA Inc. ("MTI US"). MTI US can produce meter-long samples of NANOWEB®, at a small volumes scale, for industry customers/partners. Throughout 2020 and 2021, the Company has been ordering and upgrading its equipment at its California facility to efficiently supply NANOWEB® samples in larger volumes. The Company has recently installed its first roll-to-roll, NANOWEB® pilot scale production line at its Pleasanton, California facility. The line is configured for 300mm-wide rolls of substrate. All the equipment passed factory acceptance tests prior to delivery and installation, and the line is currently being optimized.

 

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There are six NANOWEB®-enabled products and applications that are currently in early stages of development including:

More details of these products and applications can be found in META’s EDGAR filings and on META’s website at www.metamaterial.com.
 

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.

Nano-optic structures and color-shifting foils - the Company recently acquired Nanotech Security Corp. "Nanotech" which specializes in designing, originating, recombining, and mass-producing nanotechnology-based films with application for a wide variety of products and markets. Nanotech develops and produces nano-optic structures and color-shifting foils used in authentication and brand protection applications across a wide range of markets including banknotes, secure government documents, and commercial branding. The Company’s nano-optic security technology platforms include:

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Wireless Sensing and Radio Wave Imaging Technology
 

META’s Wireless Sensing platform uses infrared and radio frequency (RF) transmitters and receivers to collect and measure a variety of biological information enabling non-invasive and safe medical diagnostics. The platform requires the ability to cancel reflections (anti-reflection) from the skin to reduce the natural impedance the skin provides to such signals and increase the Signal-to-Noise Ratio (“SNR”) of certain diagnostic instruments used in conjunction with the platform. This reflection-cancelling requirement is satisfied using META’s proprietary metamaterial films that employ patterned designs, printed on metal-dielectric structures on flexible substrates that act as anti-reflection (impedance-matching) coatings when placed over the human skin in combination with medical diagnostic modalities, such as MRI, ultrasound systems, non-invasive glucometers etc. The Company is developing a number of medical products that employ this proprietary technology. glucoWISETM, is in development as a completely non-invasive glucose measurement device. It is being developed first as a benchtop medical device product, followed by a portable, pocket-size product and ultimately as a wearable. In magnetic resonance imaging (MRI), increasing the SNR by orders of magnitude has been demonstrated to produce much higher resolution images with significant increases in imaging speed resulting in better patient throughput and potentially more accurate diagnoses in imaging clinics. For example, the Company is developing metaSURFACE™ (also known as radiWISE™) an innovation which allows an improvement in signal to noise ratio of up to 40 times for MRI scans. The metaSURFACE™ device consists of proprietary non-ferrous metallic and dielectric layers that are exactingly designed to interact (resonate) with radio waves increasing the SNR.META is also researching the use of its Radio Wave Imaging technology in breast cancer and stroke diagnosis.

The Company is developing wireless sensing and radio wave imaging applications from its London, UK office and its newly established Athens, Greece office.

Oil and Gas operations

As part of the Arrangement Agreement with Torchlight Energy Resources, Inc. ("Torchlight") as mentioned in the following section, the Company acquired a group of oil and gas assets ("O&G assets") and had interest in them as follows:

The Company has classified these assets as assets held for sale pursuant to its commitment to sell or spin out the O&G assets prior to the earlier of (i) December 31, 2021 or (ii) the date which is six months from the closing of the Arrangement, or (iii) such later date as may be agreed between the Company and the individual appointed to serve as the representative of the holders of Series A Preferred Stock (the “Sale Expiration Date”). The Series A Preferred Stock will automatically be cancelled once the entitled dividends have been paid. See the description in Note 5, “Assets Held for Sale” of the financial statements included with this report for information and disclosure regarding these assets. See Item 1A, risk Factors for more information on these assets.

Customers

The Company’s customers are OEM providers in multiple industries including aerospace, automotive, consumer electronics, communications, energy, banknote and brand security, and medical devices. The Company organizes its development and support efforts around these differentiated vertical markets to enable it to effectively penetrate these markets and to develop products specific to the needs of these OEM customers.

Marketing and Sales

The Company operates under a Business-to-Business model. Its marketing and sales functions are organized to support and grow this operating model. The Company utilizes a combination of filed-based and in-house selling resources to promote and sell its more common off-the-shelf products and a vertical market focused Business Development group to develop and support long-term customer relationships in the vertical market of interest. The Company's marketing efforts are focused on technical education of its customer base regarding its products, support of a meaningful presence at trade shows and industry events and routine production of collateral materials to support its sales and business development efforts.

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Manufacturing

The Company employs a hybrid model for manufacturing of our high-performance functional materials and nanocomposites.

The Company provides research scale production of its products in-house to its customers in its lithography and holography business areas. The Company is scaling up pilot scale production of its materials in its Pleasanton facility and Highfield Park facility. The Company has current capacity in its Thurso facility to produce its banknote security and brand security product at commercial scale and it is expanding this capacity. In certain instances where volume warrants, the Company will make available on a license basis, its equipment and proprietary processes to its customers or to third party contractors to product its products for their needs.

The Company is constantly improving and investing in its manufacturing capabilities and the associated quality control and resource planning infrastructure. The Company holds ISO9001 certification for its Highfield Park facility and it is pursuing additional certifications in its Thurso facility.

Research And Development

The Company operates in a rapidly evolving industry subject to significant technological change and new product introductions and enhancements. The Company believes that its continued commitment to research and development is a critical element of ability to introduce new and enhanced products and technologies. The Company has historically invested more than forty percent (40%) of its operating expenses in its research and development efforts and these activities are integral to maintaining and enhancing our competitive position. The Company also increasingly seeks to deploy its resources to solve fundamental challenges that are both common to, and provide competitive advantage across, its high-performance functional materials and nanocomposites.

The Company believes that its success depends in part on its ability to achieve the following in a cost-effective and timely manner:

Intellectual Property

During 2021, the Company has expanded its patents and trademarks portfolio significantly in a wide range of applications including holography, lithography, wireless sensing technology and nano-optic structures. In addition to META's previous portfolio of 126 patents, the Company acquired more than 23 patents from Interglass Technology AG and 98 patents from the Nanotech acquisition The Company believes that its combination of patents and additional IP that is being held confidential by way of multiple trade secrets provides the Company with an important competitive advantage, marketing benefits, and licensing revenue opportunities.

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Regulation

The Company is subject to significant regulation by local, state, federal and international laws in all jurisdictions in which it operates. Compliance with these requirements can be costly and time consuming. The Company believes that its operations, products, services, and actions substantially comply with applicable regulations in all jurisdictions. However, the risk of non-compliance cannot be eliminated and therefore there is no assurance that future costs related to these regulations will not be incurred. There is also the possibility that regulations will be retroactively applied, interpreted, or applied differently to the Company's operations, products, services, and actions which will require significant time and resources.

Human Capital Resources

As of February 28, 2022, the Company had 130 employees. Approximately 90% of its employees are located in Canada and the United States. Of the total workforce, 48 employees are involved in research and development; 28 employees are involved in operations, manufacturing, service and quality assurance; and 54 employees are involved in sales and marketing, finance, information technology, general management and other administrative functions.

Available Information

The Company's Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports are accessible free of charge on its website at www.metamaterial.com as soon as reasonably practicable after he Company electronically files such material with, or furnish it to, the SEC. The SEC also maintains an internet site that contains reports, proxy and information statements and other information regarding the Company's filings at www.sec.gov. The reference to the Company's website does not constitute incorporation by reference of the information contained at the site.

Business Combinations

Torchlight RTO

On December 14, 2020, the Company (formerly known as “Torchlight Energy Resources, Inc.” or “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 Metamaterial Inc. ("MMI"), an Ontario corporation headquartered in Nova Scotia, Canada, to acquire all of the outstanding common stock of MMI 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, the Company 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, the Company began trading on the NASDAQ under the symbol “MMAT” while MMI common stock was delisted from the Canadian Securities Exchange (“CSE”). At the same time, Metamaterial Exchangeco Inc., a wholly owned subsidiary of META, started trading under the symbol “MMAX” on the CSE. Certain previous shareholders of MMI elected to convert their common stock of MMI into exchangeable shares in Metamaterial Exchangeco Inc. These exchangeable shares, which can be converted into common stock of META at the option of the holder, are similar in substance to common shares of META and have been included in the determination of outstanding common shares of META.
 

For accounting purposes MMI, the legal subsidiary, has been treated as the accounting acquirer and the Company, the legal parent, has been treated as the accounting acquiree. The transaction has been accounted for as a reverse acquisition in accordance with ASC 805 Business Combination. Accordingly, these consolidated financial statements are a continuation of MMI consolidated financial statements prior to June 28, 2021 and exclude the balance sheets, statements of operations and comprehensive loss, statement of changes in stockholders’ equity and statements of cash flows of Torchlight prior to June 28, 2021. See note 3 for additional information.

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Nanotech acquisition

On August 5, 2021, the Company announced the signing of a definitive agreement to indirectly acquire Nanotech. On October 5, 2021, a wholly owned subsidiary of META purchased 100% of Nanotech’s common stock at CA$1.25 per share. In addition, the transaction price included the settlement of certain Nanotech share awards outstanding immediately prior to the closing of the agreement, including the repurchase and cancellation of 303,391 Nanotech restricted share units ("RSU") at a purchase price of CA$1.25 per RSU and the settlement of 4,359,000 Nanotech in-the-money stock options at a purchase price equal to CA$1.25 per option, less the exercise price thereof. The consideration payable to securityholders under the arrangement was payable in cash, resulting in a total purchase price of $71.6 million (CA$90.8 million).

Nanotech is incorporated under the laws of British Columbia, Canada. Nanotech’s head office is located at #505 - 3292 Production Way, Burnaby, BC, Canada V5A 4R4. In addition, Nanotech owns and operates a manufacturing facility located in Thurso, Quebec.

Item 1A. Risk Factors.

The following factors could materially affect META’s business, financial condition or results of operations and should be carefully considered in evaluating the Company and its business, in addition to other information presented elsewhere in this report.

Risks That Could Affect the Company’s Financial Condition

Limited Operating History

The Company has a limited operating history, which can make it difficult for investors to evaluate the Company’s operations and prospects and may increase the risks associated with investment in the Company.

The Company has incurred recurring consolidated net losses since its inception and expects its operating costs to continue to increase in future periods as it expends substantial financial and other resources on, among other things, business and headcount expansion in operations, sales and marketing, research and development, and administration as a public company. These expenditures may not result in additional revenues or the growth of the Company's business. If the Company fails to grow revenues or to achieve profitability while its operating costs increase, its business, financial condition, results of operations and growth prospects will be materially, adversely affected.

The Company is expected to be subject to many of the risks common to early-stage enterprises for the foreseeable future, including challenges related to laws, regulations, licensing, integrating and retaining qualified employees; making effective use of limited resources; achieving market acceptance of existing and future products; competing against companies with greater financial and technical resources; acquiring and retaining customers; and developing new solutions; and challenges relating to identified material weaknesses in internal control.

Access to Capital

The Company believes that current working capital will be sufficient to continue its business for at least the next twelve months. Should the Company's costs and expenses prove to be greater than it currently anticipates, or should it change its current business plan in a manner that will increase or accelerate its anticipated costs and expenses, such as through the acquisition of new products, the depletion of its working capital could be accelerated. The Company presently has access to approximately one hundred and twelve million dollars of new funding through its existing At the Market S-3 Shelf Registration (ATM). The Company believes that this funding is sufficient to enable it to fund its current working capital needs well into 2024.

The Company may pursue sources of additional capital through various financing transactions or arrangements, including joint venturing of projects, debt financing, equity financing, or other means. The Company may not be successful in identifying suitable financing transactions in the time period required or at all, and it may not obtain the capital it requires by other means.

The Company's ability to obtain financing, if and when necessary, may be impaired by such factors as the capital markets and its limited operating history.

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Any additional capital raised through the sale of equity may dilute the ownership percentage of the Company's stockholders. Raising any such capital could also result in a decrease in the fair market value of its equity securities because its assets would be owned by a larger pool of outstanding equity. The terms of securities the Company issues in future capital transactions may be more favorable to its new investors, and may include preferences, superior voting rights and the issuance of other derivative securities, and issuances of incentive awards under equity employee incentive plans, which may have a further dilutive effect.

The Company may incur substantial costs in pursuing future capital financing, including investment banking fees, legal fees, accounting fees, securities law compliance fees, printing and distribution expenses and other costs. The Company may also be required to recognize non-cash expenses in connection with certain securities it may issue, which may adversely impact our financial condition.

Currency Fluctuations

The Company’s revenues and expenses are denominated in US dollars, Canadian dollars, EURO, and Great British Pounds, and therefore are exposed to significant currency exchange fluctuations. Recent events in the global financial markets have been coupled with increased volatility in the currency markets. Fluctuations in the exchange rate between the US dollar, the Canadian dollar and the Great British Pounds may have a material adverse effect on the Company’s business, financial condition, and operating results. The Company may, in the future, establish a program to hedge a portion of its foreign currency exposure with the objective of minimizing the impact of adverse foreign currency exchange movements. With appropriate risk management and oversight this may be able to offset future risk, however a hedging strategy will result in additional operating costs.

Costs of Maintaining a Public Listing

As a publicly traded company, there are costs associated with legal, accounting, and other expenses related to regulatory compliance. Securities legislation and the rules and policies of the NASDAQ require listed companies to, among other things, adopt corporate governance and related practices, and to continuously prepare and disclose material information, all of which add to a company’s legal and financial compliance costs. The Company may also elect to devote greater resources than it otherwise would have on communication and other activities typically considered important by publicly traded companies.

Risks That Could Have a Material Adverse Effect on the Company’s Business

Customer Concentration

The Company relies on a few customers for a significant portion of its revenues. For the year ended December 31, 2021, the Company had 3 customers that accounted for $3,307,914 or 81% of total revenue. For the year ended December 31, 2020, the Company had 3 customers that accounted for $807,912 or 72% of total revenue.

The Company currently derives a significant portion of its revenue from contract services between its wholly-owned subsidiary, Nanotech, and a G10 central bank. The Company is developing a new security feature under a framework contract with this customer. There can be no assurance that this project will be successful, or that will result in long-term production revenue for this security feature.

Risk of not developing new products, applications, and end markets for the Company's products

The Company's future success will depend in part on its ability to generate sales of its products as well as generating development revenue. Current and potential customers may have substantial investment in, and know-how related to the Company's technologies. Customers may be reluctant to change from incumbent suppliers or cease using their own solutions, or the Company's products may miss the design and procurement cycles of its customers. Many target markets have historically been slow to adopt new technologies. These markets often require long testing and qualification periods or lengthy government approval processes before admitting new suppliers or adopting new technologies.

Introduction of new products and product enhancements will require that the Company effectively transfer production processes from research and development to manufacturing and coordinate efforts with those suppliers to achieve increased production volume rapidly. If we are unable to implement this strategy to develop new applications and end markets for products or develop new products, the business, financial condition, results of operations and growth prospects could be materially adversely affected. In addition, any newly developed or enhanced products may not achieve market acceptance or may be rendered obsolete or less competitive by the introduction of new products by other companies.

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Research and Market Development

Although the Company, itself and through its investments, is committed to researching and developing new markets and products and improving existing products, there can be no assurances that such research and market development activities will prove profitable or that the resulting markets and/or products, if any, will be commercially viable or successfully produced and marketed. A failure in the demand for products to materialize as a result of competition, technological change or other factors could have a material adverse effect on the business, results of operations and financial condition of the companies in which the Company has or will invest in, and consequently, on the Company.

Raw Material Source

The Company purchases its holographic raw materials from a tier 1 German manufacturer, which is a single source supplier. Disruption in supply from this supplier for any number of factors may cause a material adverse effect on Holography-related products.

Change in Laws, Regulations and Guidelines

The current and proposed operations of the Company are subject to a variety of laws, regulations and guidelines relating to production, the conduct of operations, transportation, storage, health and safety, medical device regulation and the protection of the environment. These laws and regulations are broad in scope and subject to evolving interpretations, which could require the Company to incur substantial costs associated with compliance or alter certain aspects of its business plan. In addition, violations of these laws, or allegations of such violations, could disrupt certain aspects of the Company’s business plan and result in a material adverse effect on certain aspects of its planned operations.

The Company launched a new product metaAIR® in March 2019 to provide laser glare protection to pilots in the airline industry. Currently, metaAIR® is not subject to any Federal Aviation Administration regulations, however, metaAIR® may become subject to evolving regulation by governmental authorities as the metaAIR® market evolves further.

Integrating Past or Future Acquisitions

The Company has completed a number of acquisitions during its operating history. The Company has spent and may continue to spend significant resources identifying and pursuing future acquisition opportunities. Acquisitions involve numerous risks including: (1) difficulties in integrating the operations, technologies and products of the acquired companies; (2) the diversion of management’s attention from other business concerns; and (3) the potential loss of key employees of the acquired companies. Failure to achieve the anticipated benefits of any prior and future acquisitions or to successfully integrate the operations of the acquired companies could have a material and adverse effect on the Company's business, financial condition, and results of operations. Any future acquisitions could also result in potentially dilutive issuance of equity securities, acquisition or divestiture-related write-offs or the assumption of debt and contingent liabilities.

Regulatory Approval

The Company’s wireless sensing technology to enhance MRI and non-invasive glucoWISE® monitoring is under development. The Company has performed many experiments on animals and humans, and will continue to perform additional experiments as needed to continue the development of the related products.

These products have not yet completed clinical trials/regulatory approval processes, and there can be no assurance that trials will be successful, or that approvals will be granted.

Insurance Coverage

The Company will require insurance coverage for a number of risks. Although management of the Company believes that the events and amounts of liability covered by its insurance policies will be reasonable, taking into account the risks relevant to its business, and the fact that agreements with users contain limitations of liability, there can be no assurance that such coverage will be available or sufficient to cover claims to which the Company may become subject. If insurance coverage is unavailable or insufficient to cover any such claims, the Company’s financial resources, results of operations and prospects could be adversely affected.

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Privacy and Data Security Concerns

Personal privacy, information security and data protection are significant issues worldwide. The regulatory framework governing the collection, use, and other processing of personal data and other information is rapidly evolving. The United States federal and various state and foreign governments have adopted or proposed requirements regarding the collection, distribution, use, security and storage of personally identifiable information and other data relating to individuals, and federal and state consumer protection laws are being applied to enforce regulations related to the online collection, use and dissemination of data.

The costs of compliance with and other burdens imposed by laws, regulations, standards and other actual or asserted obligations relating to privacy, data protection and information security may be substantial, and they may require the Company to modify its data processing practices and policies. Any actual or alleged noncompliance with any of these laws, regulations, standards, and other actual or asserted obligations may lead to claims and proceedings by governmental actors and private parties, and significant fines, penalties or liabilities.

Risk of Inability to Protect our Proprietary Technology and Intellectual Property Rights

The Company relies on a variety of intellectual property rights, including patents, trademarks, trade secrets, technical know-how and other unpatented proprietary information to protect the Company's technologies, products, product development and manufacturing activities from unauthorized use by third parties. The Company's patents do not cover all of its technologies, systems, products and product components and its competitors or others may design around its patented technologies. The Company cannot guarantee that it has entered into appropriate agreements with all parties that have had access to its trade secrets, know-how or other proprietary information to adequately protect all such information. The Company also cannot assure shareholders that those agreements will provide meaningful protection for its trade secrets, know-how or other proprietary information in the event of any unauthorized use or disclosure. The Company's trade secrets, know-how or other proprietary information could be obtained by third parties as a result of breaches of its physical or electronic security systems or its suppliers, employees or consultants could assert rights to its intellectual property.

Risk that Industry Targets will not Adopt the Company’s Products

Holography Market-Aviation Industry

The Company launched its first product, a laser glare protection eyewear, named metaAIR®, in March 2019, with a primary focus on the aviation market. The product offers unique performance and benefits over the competition and is the only industry-approved solution to date. The Company has co-developed this product with Airbus through a strategic partnership. Airbus further extended its support by introducing the Company to Satair, an Airbus-owned company, which became the global distribution partner for metaAIR® to the aviation market. Since 2016, Airbus and Satair have invested a total of $2,000,000 for the product development and exclusive distribution rights to metaAIR®. Since the launch of metaAIR® in March 2019, the Company has sold fifty units to its distributor Satair. The Company is currently in the process of increasing its marketing and sales capacity.

Despite the Company’s close collaboration with the Airbus Group, with the impact of COVID-19 there can be no assurance that the aviation market will accept the metaAIR® product at the expected market penetration rates and a slower than forecasted market acceptance may have a material adverse effect on Holography laser glare protection related products and the Company’s financial position. The Company is pursuing ancillary markets outside of the aviation industry for its metaAIR® laser protection eyewear such as in law enforcement and defense.

Lithography Product and Market-Automotive

Lithography related products have not yet reached required manufacturing maturity. The first pilot scale roll-to-roll line is expected to be ready for low volume production during the second half of fiscal year 2022. Broader sales and production are expected to be launched in two to three years’ time after successful completion of automotive product qualification and product introductions. META believes that the automotive market is a strategic high growth opportunity, however despite the Company’s close collaboration with automotive partners, there can be no assurance that the automotive market will accept the NANOWEB® product at the expected market penetration rates and a slower than forecasted market acceptance may have a material adverse effect on Lithography de-icing/de-fogging, transparent antenna and other related products and the Company’s financial position.

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Risks Related to Facilities and Human Resources

New Facility and Permits for Lithography Production

The Company is in the process of moving into a larger facility suitable to host the scale-up of production relating to Holography and Lithography. Lithography is a wet chemistry process which requires specific approvals from the local government to allow use of certain chemicals and their disposal.

Any delay in setting up the facility and receiving permits may impact launch and/or development of related products, and may have a material adverse effect on Lithography and Holography related products and consequently on the Company’s financial position.

At present, the facility is expected to be complete during the second half of fiscal 2022.

Recruiting or Retaining Qualified Personnel.

The Company's ability to successfully manage and grow the business and to develop new products depends, in large part, on its ability to recruit and retain qualified employees, particularly highly skilled technical, sales, service, management, and key staff personnel. Competition for qualified resources is intense and other companies may have greater resources available to provide substantial inducements to offer more competitive compensation packages.

Conflicts of Interest

Certain of the Company’s directors and officers are, and may continue to be, involved in other business ventures through their direct and indirect participation in corporations, partnerships, joint ventures, etc. that may become potential competitors of the technologies, products and services the Company intends to provide. Situations may arise in connection with potential acquisitions or opportunities where the other interests of these directors and officers conflict with or diverge from the Company’s interests. In accordance with applicable corporate law, directors who have a material interest in or who are a party to a material contract or a proposed material contract with the Company are required, subject to certain exceptions, to disclose that interest and generally abstain from voting on any resolution to approve the contract. In addition, the directors and officers are required to act honestly and in good faith with a view to the Company’s best interests. However, in conflict of interest situations, the Company’s directors and officers may owe the same duty to another company and will need to balance their competing interests with their duties to the Company. Circumstances (including with respect to future corporate opportunities) may arise that may be resolved in a manner that is unfavorable to the Company.

Reliance on Management

The success of the Company is dependent upon the ability, expertise, judgment, discretion, and good faith of its senior management team. Any loss of the services of such individuals could have a material adverse effect on the Company’s business, operating results, or financial condition.

Monitoring unauthorized use of the Company's intellectual property is difficult and costly. Unauthorized use of its intellectual property may have already occurred or may occur in the future. The Company's failure to identify unauthorized use or otherwise adequately protect its intellectual property could jeopardize its competitive advantage and materially adversely affect its business. Moreover, any litigation in connection with unauthorized use of its intellectual property could be time consuming, and the Company could be forced to incur significant costs and divert its attention and the efforts of its employees, which could, in turn, result in lower revenues and higher expenses, and it may not be successful in enforcing its intellectual property rights.

Risks Related to Oil and Gas Assets Held for Sale

Series A Preferred Stock Dividends

In connection with the Arrangement, the Company declared a dividend of shares of the Series A Preferred Stock to holders of record of its common stock as of June 24, 2021. The Series A Certificate of Designation entitles the holders of Series A Preferred Stock to receive dividends, or Asset Sale Dividends, comprised of the holder’s pro rata portion of the proceeds from the sale of the O&G Assets in the event that the Company consummates one or more such transaction prior to the Sale Expiration Date. However, the Company may not be able to consummate any such transaction prior to such date on terms that will permit itself to pay such dividends, or at all.

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Holders of Series A Preferred Stock are entitled to receive Asset Sale Dividends from any O&G Asset Sale. Prior to declaring or paying any dividend, the Company will deduct from the gross proceeds of an O&G Asset Sale various costs and expenses described in the Series A Certificate of Designation, which include, among others, (i) costs and expenses the Company incurs in connection with the applicable O&G Asset Sale transaction, (ii) costs the Company incurs following the consummation of the Arrangement with respect to the O&G Assets, (iii) taxes the combined company incurs in connection with the applicable O&G Asset Sale, the payment of dividends to the holders of Series A Preferred Stock, and the O&G Assets, (iv) liabilities the Company incurs in connection with the applicable O&G Asset Sale and (v) amounts paid or payable with respect to outstanding debt, if any. In addition, the Company will also withhold an amount of 10% of the proceeds from each O&G Asset Sale, (“the Holdback Amount”) to cover potential post-closing liabilities and obligations that the combined company may incur in respect of such transaction. If, after the deduction and withholding of these amounts, there are no net proceeds available for distribution to the holders of Series A Preferred Stock, then the Company will not declare or pay a dividend with respect to that transaction unless and until any remaining funds from the Holdback Amount are due to be distributed to the holders of Series A Preferred Stock through a dividend, or the Company receives additional net proceeds from such O&G Asset Sale (for example, as a result of post-closing payments or the release of escrowed funds).

In the event that any O&G Assets have not been sold in an O&G Asset Sale that is consummated prior to the Sale Expiration Date, the Company will, to the extent permitted by applicable law, declare a spin-off dividend to distribute beneficial ownership of the remaining O&G Assets to the holders of Series A Preferred Stock. However, if the combined company cannot effect such spin-off dividend in a manner that is exempt from registration under all applicable securities laws, the combined company will not declare the spin-off dividend and instead will use good faith, commercially reasonable efforts to preserve the value of the remaining O&G Assets or to distribute or provide the value of the remaining O&G Assets to the holders of Series A Preferred Stock, so long as the Company is not required to divert the attention of management or incur material expenses in excess of amount required to be reserved under the Arrangement Agreement. Thus, the Company, ultimately may not be able to deliver the value of any remaining O&G Assets to the holders of Series A Preferred Stock.

Orogrande and Hazel Projects: Risks and Uncertainties.

The Company is in the process of selling or spinning out the O&G Assets. Such dispositions may result in proceeds to Series A preferred shareholders in an amount less than they expect or less than the Company's assessment of the value of the assets. The Company does not know if it will be able to successfully complete such disposition on favorable terms or at all. In addition, the sale of these assets involves risks and uncertainties, including disruption to other parts of its business, potential loss of customers or revenue, exposure to unanticipated liabilities or result in ongoing obligations and liabilities to the Company following any such divestiture.

For example, in connection with a disposition, the Company may enter into transition services agreements or other strategic relationships, which may result in additional expenses. In addition, in connection with a disposition, the Company may be required to make representations about the business and financial affairs of the business or assets. The Company may also be required to indemnify the purchasers to the extent that its representations turn out to be inaccurate or with respect to certain potential liabilities. These indemnification obligations may require the Company to pay money to the purchasers as satisfaction of their indemnity claims. It may also take longer than expected to fully realize the anticipated benefits of this transaction, and those benefits may ultimately be smaller than anticipated or may not be realized at all, which could adversely affect the Company's business and operating results. Any of the foregoing could adversely affect the Company's financial condition and results of operations.

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Oil and Gas Operations Liability or Damages

The oil and natural gas business involves a variety of operating hazards and risks such as well blowouts, pipe failures, casing collapse, explosions, uncontrollable flows of oil, natural gas or well fluids, fires, spills, pollution, releases of toxic gas and other environmental hazards and risks. These hazards and risks could result in substantial losses to the Company from, among other things, injury or loss of life, severe damage to or destruction of property, natural resources and equipment, pollution or other environmental damage, cleanup responsibilities, regulatory investigation and penalties and suspension of operations. In addition, the Company may be liable for environmental damages caused by previous owners of property purchased and leased by itself. In recent years, there has also been increased scrutiny on the environmental risk associated with hydraulic fracturing, such as underground migration and surface spillage or mishandling of fracturing fluids including chemical additives. This technology has evolved and continues to evolve and become more aggressive. The Company believes that new techniques can increase estimated ultimate recovery per well to over 1.0 million barrels of oil equivalent and have increased initial production two or three-fold. The Company believes that recent designs have seen improvement in, among other things, proppant per foot, barrels of water per stage, fracturing stages, and clusters per fracturing stage. As a result, substantial liabilities to third parties or governmental entities may be incurred, the payment of which could reduce or eliminate the funds available for exploration, development or acquisitions or result in the loss of the Company's properties and/or force it to expend substantial monies in connection with litigation or settlements. The Company currently has no insurance to cover such losses and liabilities, and even if insurance is obtained, it may not be adequate to cover any losses or liabilities. The occurrence of a significant event not fully insured or indemnified against could materially and adversely affect the Company's financial condition and operations. In addition, pollution and environmental risks generally are not fully insurable. The occurrence of an event not fully covered by insurance could have a material adverse effect on the Company's financial condition and results of operations.

Estimates of the Volume of Reserves

Estimates of reserves and of future net revenues prepared by different petroleum engineers may vary substantially depending, in part, on the assumptions made and may be subject to adjustment either up or down in the future. The Company's actual amounts of production, revenue, taxes, development expenditures, operating expenses, and quantities of recoverable oil and gas reserves may vary substantially from the estimates. Oil and gas reserve estimates are necessarily inexact and involve matters of subjective engineering judgment. In addition, any estimates of its future net revenues and the present value thereof are based on assumptions derived in part from historical price and cost information, which may not reflect current and future values, and/or other assumptions made by management that only represent our best estimates. If these estimates of quantities, prices and costs prove inaccurate, The Company may be unsuccessful in expanding our oil and gas reserves base with our acquisitions. Additionally, if declines in and instability of oil and gas prices occur, then write downs in the capitalized costs associated with any oil and gas assets it obtains may be required. Because of the nature of the estimates of the Company's reserves and estimates in general, reductions to our estimated proved oil and gas reserves and estimated future net revenues may not be required in the future, and/or that our estimated reserves may not present and/or commercially extractable. If the Company's reserve estimates are incorrect, it may be forced to write down the capitalized costs of our oil and gas properties.

Decommissioning Costs are Unknown and May be Substantial

The Company may become responsible for costs associated with abandoning and reclaiming wells, facilities and pipelines which it uses for production of oil and natural gas reserves. Abandonment and reclamation of these facilities and the costs associated therewith is often referred to as “decommissioning.” The Company accrues a liability for decommissioning costs associated with its wells but have not established any cash reserve account for these potential costs in respect of any of our properties. If decommissioning is required before economic depletion of our properties or if the Company's estimates of the costs of decommissioning exceed the value of the reserves remaining at any particular time to cover such decommissioning costs, the Company may have to draw on funds from other sources to satisfy such costs. The use of other funds to satisfy such decommissioning costs could impair our ability to focus capital investment in other areas of our business.

Challenges to the Properties May Impact the Company's Financial Condition.

Title to oil and gas interests is often not capable of conclusive determination without incurring substantial expense. While the Company has made and intends to make appropriate inquiries into the title of properties and other development rights it has acquired and intends to acquire, title defects may exist. In addition, the Company may be unable to obtain adequate insurance for title defects, on a commercially reasonable basis or at all. If title defects do exist, it is possible that the Company may lose all or a portion of our right, title and interests in and to the properties to which the title defects relate. If the property rights are reduced, the Company's ability to conduct exploration, development and production activities may be impaired. To mitigate title problems, common industry practice is to obtain a title opinion from a qualified oil and gas attorney prior to the drilling operations of a well.

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Continuing Drilling Obligations Under Leases May Not be Met.

The leases for the Orogrande properties include additional drilling requirements for 2022 and 2023. The Company is intending to sell or spin out the leases in 2022 and transfer the ongoing obligations to the new owners of the leases. If such a transfer is not completed in a timely manner in 2022, the Company may be forced to seek an extension from the lessor of the lease drilling obligations or fund the additional activities out of working capital which could adversely impact the Company’s financial condition.

The Company's Ability to Maintain its Rights Under the Leases is Dependent on Numerous Factors Outside of its Control.

The leased assets are held for sale. The Company's ability to attract capital to enable on-going compliance with the lease obligations depends upon numerous factors largely beyond our control. These factors include:

Risks Related to Legal Matters

Litigation

The Company is currently subject to securities class action litigation and may be subject to similar or other litigation in the future, all of which will require significant management time and attention, result in significant legal expenses and may result in unfavorable outcomes, which may have a material adverse effect on the Company's business, operating results and financial condition, and negatively affect the price of its common stock.

The Company is, and may in the future become, subject to various legal proceedings and claims that arise in or outside the ordinary course of business. For example, the Company currently has securities class action complaints pending against itself, its chief executive officer, and its chief financial officer, asserting that they made false or misleading statements. The complaints seek monetary damages, costs and expenses. For more information, see “Item 3. Legal Proceedings” in this Annual Report on Form 10-K and “Note 28 – Commitments and Contingencies” of the Company's consolidated financial statements included elsewhere in this report.

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The Company cannot predict the outcome of these proceedings or provide an estimate of potential damages, if any. The Company believes that the claims in the securities class actions are without merit and intend to defend against them vigorously. Regardless, failure by the Company to obtain a favorable resolution of the claims set forth in the complaints could require it to pay damage awards or otherwise enter into settlement arrangements for which its insurance coverage may be insufficient. Any such damage awards or settlement arrangements in current or future litigation could have a material adverse effect on the Company's business, operating results or financial condition. Even if plaintiffs’ claims are not successful, defending against class action litigation is expensive and could divert management’s attention and resources, all of which could have a material adverse effect on its business, operating results and financial condition and negatively affect the price of its common stock. In addition, such lawsuits may make it more difficult for the Company to finance its operations in the future.

Ongoing Government Investigation by the SEC

In September 2021, the Company received a subpoena from the Securities and Exchange Commission, Division of Enforcement, in a matter captioned In the Matter of Torchlight Energy Resources, Inc. The subpoena requests that the Company produces certain documents and information related to, among other things, the merger involving Torchlight Energy Resources, Inc. and Metamaterial Inc. The Company is cooperating and intends to continue to cooperate with the SEC’s investigation. Investigations of this nature are inherently uncertain and their results cannot be predicted. Regardless of the outcome, the SEC Investigation has had and may continue to have an adverse impact on the Company because of legal costs, diversion of management resources, and other factors. The SEC Investigation could also result in reputational harm to the Company, which, among other things, may limit its ability to obtain new customers and enter into new agreements with its existing customers, or its ability to obtain financing, and have a material adverse effect on its current and future business, financial condition, results of operations and prospects.

Risks Related to Financial Reporting

Material Weakness in Internal Controls over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) and for evaluating and reporting on the effectiveness of our system of internal control. Effective internal controls are necessary for the Company to provide timely, reliable and accurate financial reports, identify and proactively correct any deficiencies, material weaknesses or fraud and meet our reporting obligations. As disclosed in Part II, Item 9A, Management identified material weaknesses during fiscal year 2021. Remediation efforts place a significant burden on management and add increased pressure on its financial reporting resources and processes. If the Company is unable to successfully remediate this material weakness in a timely manner, or if any additional material weaknesses in our internal control over financial reporting are identified, the accuracy of our financial reporting and the Company's ability to timely file with the SEC may be adversely impacted. In addition, if the Company's remedial efforts are insufficient, or if additional material weaknesses or significant deficiencies in its internal controls occur in the future, the Company could be required to restate our financial statements, which could materially and adversely affect its business, results of operations and financial condition, restrict its ability to access the capital markets, require it to expend significant resources to correct the material weaknesses or deficiencies, subject the Company to regulatory investigations and penalties, harm its reputation, cause a decline in investor confidence or otherwise cause a decline in its stock price.

Item 1B. Unresolved Staff Comments.

None.

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Item 2. Properties.

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.

The Company's principal facilities include the following:

The Company also acquired the following properties as part of the Torchlight RTO on June 28, 2021. Comparative figures in Item 2 refer to the financial information of Torchlight as the legal acquirer and not the accounting acquirer. Refer to note 5 in Item 8. "Financial Statements and supplementary data" for more details.

Investments to support oil and gas properties during the years ended December 31, 2021 and 2020 were $14.2 million and $3.4 million respectively.

As of December 31, 2021 and 2020, the Company had no proved reserves. The Hazel and Orogrande Projects consist only of unevaluated properties in progress of development for future production. At December 31, 2021, there are no proved nonproducing reserves related to these properties. The Oklahoma properties are marginal producing wells which are not economic in the context of proved reserve value.

The Company has not included the standardized measure of discounted future net cash flows relating to proved oil and natural gas reserves given there hasn't been any expected future cash inflows.

Reserve Estimation Process, Controls and Technologies

No reserve report has been prepared for 2021 or 2020. The only producing properties owned by the Company are those located in Oklahoma which are marginally producing and are uneconomic for reserve calculation purposes.

Proved Nonproducing Reserves

As of December 31, 2021 and 2020, the Company's proved nonproducing reserves totaled were 0 barrels of oil equivalents (BOE).

At the end of 2021 and 2020, reserves did not include any value for proved undeveloped properties.

The Company made development progress during 2021 to develop proved producing reserves in the Orogrande Project in the Permian Basin in West Texas. The Company incurred cost of $14.2 million in relation to certain drilling activity carried out to remain in compliance with all aspects of the Company's lease obligations and to satisfy the Continuous Drilling Clause ("CDC") with University Lands.

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Production, Price, and Production Cost History

During the year ended December 31, 2020, the Company produced and sold 5,445 barrels of oil net to its interest at an average sale price of $34.48 per bbl. It produced and sold 4,998 MCF of gas net to its interest at an average sales price of $1.13 per MCF. Its average production cost including lease operating expenses and direct production taxes was $30.02 per BOE. Its depreciation, depletion, and amortization expense was $130.68 per BOE. The 2020 production was from properties located in central Oklahoma and in west Texas.

During the year ended December 31, 2021, there was no oil or gas production.

Item 3. Legal Proceedings.

On January 31, 2020, Torchlight Energy Resources, Inc. and its wholly owned subsidiaries Torchlight Energy, Inc. and Torchlight Energy Operating, LLC were served with a lawsuit brought by Goldstone Holding Company, LLC (Goldstone Holding Company, LLC v. Torchlight Energy, Inc., et al., in the 160th Judicial District Court of Dallas County, Texas). On February 24, 2020, Torchlight Energy Resources, Inc., Torchlight Energy, Inc., and Torchlight Energy Operating, LLC timely filed their answer, affirmative defenses, and requests for disclosure. The suit, which sought monetary relief over $1 million, made unspecified allegations of misrepresentations involving a November 2015 participation agreement and a 2016 amendment to the participation agreement. Torchlight denied the allegations and asserted several affirmative defenses including but not limited to, that the suit is barred by the applicable statute of limitations, that the claims had been released, and that the claims were barred because of contractual disclaimers between sophisticated parties. Torchlight also asserted counterclaims for attorney fees. On January 14, 2021, Goldstone Holding Company, LLC dismissed its claims without prejudice, leaving Torchlight’s counterclaims for attorney fees as the only pending claim in the case. On February 26, 2021, Torchlight filed a non-suit without prejudice on its counterclaims for attorney fees, leaving no claims in the case. The court signed a final order disposing of the entire case on March 5, 2021. However, Goldstone Holding Company, LLC asked the court to re-instate its claims, and a hearing was held on April 13, 2021. On June 16, 2021, the court signed an order denying the motion to reinstate Goldstone Holding Company’s, LLC’s claims, and the case is closed.

On April 30, 2020, The Company's wholly owned subsidiary, Hudspeth Oil Corporation, filed suit against Datalog LWT, Inc. d/b/a Cordax Evaluation Technologies. The suit seeks the recovery of approximately $1.4 million in costs incurred as a result of a tool failure during drilling activities on the University Founders A25 #2 well that is located in the Orogrande Field. Working interest owner Wolfbone Investments, LLC, a company owned by the Company's former Chairman Gregory McCabe, is a co-plaintiff in that action. After the suit was filed, Cordax filed a mineral lien in the amount of $104,500 against the Orogrande Field and has sued the operator and counterclaimed against Hudspeth for breach of contract, seeking the same amount as the lien. The Company has added the manufacturer of one of the tool components that the Company contends was a cause of the tool failure. It was later discovered that Datalog LWT, Inc. d/b/a Cordax Evaluation Technologies forfeited its charter to conduct business in the State of Texas by failing to timely pay its franchise taxes, and the Company added members of the board of directors to the case pursuant to the Texas Tax Code. It was recently disclosed that Datalog LWT, Inc. d/b/a Cordax Evaluation Technologies is the subsidiary of a Canadian parent company, Cordax Evaluation Technologies, Inc., who has also been added to the case. The suit, Hudspeth Oil Corporation and Wolfbone Investments, LLC v. Datalog LWT, Inc. d/b/a Cordax Evaluation Technologies, was filed in the 189th Judicial District Court of Harris County, Texas. The Company’s current Chairman of the Board filed a special appearance after being served with citation, alleging that he was a Canadian citizen with no meaningful ties to Texas. After discovery was conducted on this issue, the Company filed a nonsuit without prejudice for this Defendant, dismissing him from the case. The remaining parties are currently engaged in preliminary discovery and are scheduling mediation.

On March 18, 2021, Datalog LWT, Inc. d/b/a Cordax Evaluation Technologies filed a lawsuit in Hudspeth County, Texas seeking to foreclose its mineral lien against the Orogrande Field in the amount of $104,500.01 and recover related attorney’s fees. The foreclosure action, Datalog LWT Inc. d/b/a Cordax Evaluation Technologies v. Torchlight Energy Resources, Inc., was filed in the 205th Judicial District Court of Hudspeth County, Texas. The Company is contesting the lien in good faith and filed a Plea in Abatement on May 10, 2021, seeking a stay in the Hudspeth County lien foreclosure case pending final disposition of the related case currently pending in Harris County, Texas.

In September 2021, the Company received a subpoena from the Securities and Exchange Commission, Division of Enforcement, in a matter captioned In the Matter of Torchlight Energy Resources, Inc. The subpoena requests that the Company produces certain documents and information related to, among other things, the merger involving Torchlight Energy Resources, Inc. and Metamaterial Inc. The Company is cooperating and intends to continue to cooperate with the SEC’s investigation. The Company can offer no assurances as to the outcome of this investigation or its potential effect, if any, on the Company or its results of operation.

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On January 3, 2022, a putative securities class action lawsuit was filed in the U.S. District Court for the Eastern District of New York captioned Maltagliati v. Meta Materials Inc., et al., No. 1:21-cv-07203, against the Company, its Chief Executive Officer, its Chief Financial Officer, Torchlight’s former Chairman of the Board of Directors, and Torchlight’s former Chief Executive Officer. The complaint, purportedly brought on behalf of all purchasers of the Company’s publicly traded securities from September 21, 2020 through and including December 14, 2021, asserts claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (the “Exchange Act”) arising primarily from a short-seller report and statements related to the Company’s business combination with Torchlight. The complaint seeks unspecified compensatory damages and reasonable costs and expenses, including attorneys’ fees.

On January 26, 2022, a similar putative securities class action lawsuit was filed in the U.S. District Court for the Eastern District of New York captioned McMillan v. Meta Materials Inc., et al., No. 1:22-cv-00463. This complaint names the same defendants and asserts the same claims on behalf of the same purported class as the Maltagliati action. The Company believes these actions (collectively, the “Securities Class Action”) have no merit and intends to vigorously defend itself against these allegations.

On January 14, 2022, a shareholder derivative action was filed in the U.S. District Court for the Easter District of New York captioned Hines v. Palikaras, et al., No. 1:22-cv-00248. The complaint names as defendants certain of the Company’s current officers and directors, certain former Torchlight officers and directors, and the Company (as nominal defendant). The complaint, purportedly brought on behalf of the Company, asserts claims under Section 14(a) of the Exchange Act, contribution claims under Sections 10(b) and 21D of the Exchange Act, and various state law claims such as breach of fiduciary duties and unjust enrichment. The complaint seeks, among other things, unspecified compensatory damages in favor of the Company, certain corporate governance related actions, and an award of costs and expenses to the derivative plaintiff, including attorneys’ fees. The Company believes this action has no merit and intends to vigorously defend itself against these allegations.

Item 4. Mine Safety Disclosures.

Not Applicable.

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PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

Market Information for Common Stock

The Company's common stock is quoted on the NASDAQ Stock Market LLC ("NASDAQ") under the symbol, “MMAT”. As of December 31, 2021, the Company had outstanding common shares of 284,573,316 out of which there were 88,274,449 Exchangeable Shares held on the Canadian Securities Exchange ("CSE") under the symbol "MMAX".

The average daily volume of MMAT on NASDAQ from June 28, 2021 through December 31, 2021 was 14,258,758 .

The Exchangeable Shares were listed in connection with the completion of the Torchlight RTO where former holders of Metamaterial Inc.’s common shares (that were previously traded on the CSE) were entitled to receive 1.845 of the Company's common shares for each previously held common share of Metamaterial Inc. or in Exchangeable Shares of a wholly-owned subsidiary of META that reflect the same exchange ratio on issuance.

Holders of Record
 

As of December 31, 2021, there were 87 holders of record of the Company's common stock listed on NASDAQ. Because many shares of MMAT's common stock are held by brokers and other institutions on behalf of stockholders, the Company is unable to estimate the total number of beneficial owners of its common stock.

Holders of the Company's common stock are entitled to one vote for each share held of record on all matters submitted to a vote of stockholders.

Holders of the Company's common stock have no preemptive rights and no right to convert their common stock into any other securities. There are no redemption or sinking fund provisions applicable to the common stock.

Recent Sales of Unregistered Securities

The table below details all unregistered common shares issued by the Company during the fiscal year 2021. These shares are included in the issued and outstanding share count of the Company at December 31, 2021 and are adjusted to reflect the 1:2 reverse stock split of the Company’s common stock effected immediately prior to the closing of the Arrangement agreement. With the exception of the shares issuable to Metamaterial holder in connection with the Arrangement Agreement, all other unregistered shares contained restrictions subjecting them to Rule 144.

All common shares referenced in the below table represents shares issued by Meta Materials Inc., previously Torchlight Energy Resources, Inc. ("Torchlight"), after adjustment of reverse stock split on June 25, 2021.

* Issued under an exemption from registration under Section 3(a)(10)

In addition to the common shares detailed above, in June 2021 the Company issued a total of 164,923,363 Series A Preferred Shares to shareholders of record of Torchlight as of June 24, 2021.

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Stock Performance Graph

This performance graph shall not be deemed "soliciting material" or to be "filed" with the SEC for purposes of Section 18 of the Exchange Act, or otherwise subject to the liabilities under that Section, and shall not be deemed to be incorporated by reference into any filing of Meta Materials Inc., Inc. under the Securities Act of 1933, as amended, or the Exchange Act.

The following graph shows a comparison of the cumulative total return for the Company's common stock, the Russell 2000 (RUT), and the Nasdaq Composite Index (COMP) beginning December 30, 2016, and ending December 31, 2021. The graph assumes that $100 was invested at the market close on beginning December 30, 2016 in the common stock of MMAT, COMP, and RUT. The stock price performance of the following graph is not necessarily indicative of future stock price performance.

Item 6. [Reserved]

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion and analysis of the Company's financial condition and results of operations should be read in conjunction with its consolidated financial statements and related notes, each included elsewhere in this Annual Report on Form 10-K. This discussion contains forward-looking statements based upon current plans, expectations and beliefs that involve risks and uncertainties. Our actual results and the timing of certain events could differ materially from those anticipated in or implied by these forward-looking statements as a result of several factors, including those discussed in the section titled “Risk Factors” included under Part I, Item 1A and elsewhere in this Annual Report. See “Note about Forward-Looking Statements” in this Annual Report.

This Report on Form 10-K contains references to the Company's trademarks and to trademarks belonging to other entities. Solely for convenience, trademarks and trade names referred to in this Report on Form 10-K, 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 the Company will not assert, to the fullest extent under applicable law, the Company's rights or the rights of the applicable licensor to these trademarks and trade names. We do not intend for the Company's use or display of other companies’ trade names or trademarks to imply a relationship with, or endorsement or sponsorship of the Company by any other companies.

OVERVIEW

Meta Materials Inc. (the “Company” or “META” or “Resulting Issuer”) is a developer of high-performance functional materials and nanocomposites 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.

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 various periods through Fiscal 2020 and Fiscal 2021 as was required or deemed prudent by management. Engineering staff continued to work on given tasks and followed strict safety guidelines. As of November 2021, the majority of the Company’s employees had 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 HIGHLIGHTS

Throughout 2021, the Company’s activities were focused on its research and development efforts as well as expansion of its intellectual property estate. As the Company moves into 2022, new emphasis will be placed on investments in pilot scale manufacturing of NANOWEB® products, expansion of its production capacity in our banknote and brand security lines and more aggressive design, development and clinical testing of its array of medical products. These efforts represent an efficient approach to monetizing the Company's intellectual property assets.

Highfield Park facility

The Company leased approximately 53,000 square foot facility in Dartmouth, Nova Scotia, with the lease commencing on January 1, 2021. The facility will host the Company’s holography and lithography R&D labs and manufacturing operations. 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$0.5 million in cash to fund ongoing tenant improvements. In exchange, the landlord received 993,490 shares of MMI common stock at CA$3.40 per share. As at December 31, 2021, the Company has purchased equipment for approximately $1.5 million as well as spent $3.84 million on construction work. The Company will continue to incur additional construction and equipment costs through 2022.

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Pleasanton facility

During 2021, the Company signed multiple lease amendments with its lessor in Pleasanton, California to expand the leased space of the facility in the United States to include additional space of 14,379 square feet as well as extend the duration of the leased spaces until September 30, 2026. The Company has spent approximately $4.3 million on equipment including its first pilot scale roll-to-roll line which is expected to be ready for low volume production during the second half of fiscal year 2022. The Company has also spent $1 million on leasehold improvements

Thurso facility

As part of the Nanotech acquisition, the Company acquired property plant and equipment with an estimated fair value of $25.8 million including a 105,000 square foot facility in Thurso, Quebec. Approximately 35,000 square feet is being utilized for existing production capacity, and the remaining 70,000 square feet is available to expand output to facilitate future growth.

RESULTS OF OPERATIONS

Revenue and Gross Profit

Product sales include products, components, and samples sold to various customers. During the year ended December 31, 2021, the Company began earning revenue from development samples sold to certain customers. The $0.4 million increase in product sales in 2021 compared to 2020 is due to:

There was minimal change in product sales between 2019 and 2020.

Development revenue is comprised of revenue from contract services and other development revenue. The increase in development revenue of $2.6 million in 2021 compared to 2020 is primarily due to:

The increase in development revenue of $0.2 million in 2020, compared to 2019, is Primarily due to revenue recognized from statements of work with different customers.

The increase of $0.7 million in cost of sales in 2021, compared to 2020, is primarily due to $0.17 million in cost of sales incurred by Nanotech subsequent to its acquisition by the Company, as well as $0.16 million in cost of sales incurred in generating other product sales. There was minimal decrease in cost of sales in 2020 compared to 2019.

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Operating expenses

The increase in selling and marketing expenses in 2021, compared to 2020, is primarily due to:

There was a minimal decrease in selling and marketing expenses in 2020 compared to 2019.

The increase in general and administrative expenses in 2021, compared to 2020, is primarily due to:

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The increase in general and administrative expenses in 2020, compared to 2019, is primarily due to:

The increase in research and development expenses in 2021, compared to 2020, is primarily due to:

The increase in research and development expenses in 2020, compared to 2019, is primarily due to $0.3 million increase in consulting expenses.

Other expense

The $0.2 million decrease in interest expense in 2021 compared to 2020 was due to the settlement of certain of the Company's convertible promissory notes and debentures, converted into MMI common stock during the year ended December 31, 2021, resulting in less interest expense being incurred.

The $0.3 million increase in interest expense in 2020 compared to 2019 was due to a $5 million loan obtained from BDC and issued in April 2020 as well as issuance of $1 million in unsecured convertible debentures in the first half of fiscal year 2020.

The increase in loss on financial instruments in 2021, compared to 2020, was due to the re-measurement of convertible financial liabilities with carrying value of $12.0 million at the conversion dates and a recognition of a $40.2 million non-cash realized loss in the statements of operations and comprehensive loss. The increase in the fair value of convertible financial liabilities was due to the increase in the Company’s stock price from CA$0.66 as at December 31, 2020 to:

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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 was 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 the 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 non-cash adjustments relating to instrument-specific credit risk in other comprehensive income, and non-cash adjustments relating to other factors in the statements of operations. If, as was the case for 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 $40.2 million, be recorded in common stock and additional paid in capital along with the $10.2 million principal and interest portion, resulting in an increase to stockholders' equity despite the recording of the $40.2 million loss in the statement of operations.

The recorded loss is a non-cash expense. 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 shares 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 $0.6 million increase in loss on financial instruments in 2020 compared to 2019 is primarily due to the re-measurement of convertible financial liabilities with carrying value of $12.0 million at the conversion dates and a recognition of a $0.8 million non-cash realized loss in the statements of operations and comprehensive loss.

The $13.0 million decrease in net other income in 2021, compared to 2020, is primarily due to costs incurred in relation to certain drilling activity carried out by the company at its Oil and Gas ("O&G") properties, to remain in compliance with all aspects of the Company's lease obligations and to satisfy the Continuous Drilling Clause ("CDC") with University Lands. The Company was successful in maintaining lease compliance and is moving forward with the planned spin-out of the O&G assets.

The $0.6 million decrease in other income in 2020 compared to 2019 was primarily due to the following:

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Deferred Tax recovery

The Company records deferred income tax liabilities for some of its foreign subsidiaries in Canada and United Kingdom. The increase in income tax recovery in 2021, compared to 2020, was driven by:

The increase in income tax recovery in 2020, compared to 2019, was driven by:

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 December 31, 2021, the Company had cash and cash equivalents of $46.6 million including $0.8 million in restricted cash compared to $1.4 million in cash and cash equivalents at December 31, 2020. In addition, and as of December 31, 2021, the Company holds short-term investments amounting to $2.8 million (December 31, 2020: $Nil).

For the year ended December 31, 2021, the Company’s principal sources of liquidity included $147 million of cash obtained through the Torchlight RTO, $14.0 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 the Nanotech acquisition of $66.1 million net of cash acquired, salaries of $10.3 million, legal and audit fees of $6.3 million, professional service fees of $11.0 million and, Oil and Gas drilling costs of $12.5 million.

The Company believes that its existing cash will be sufficient to meet its working capital and capital expenditure needs as production capacity begins to come on line. The Company may need to raise additional capital to expand the commercialization of its products, fund its operations and further its research and development activities. Future capital requirements may vary materially from period to period and will depend on many factors, including the timing and extent of 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 Company also has the option to raise equity through issuing common stock of up to approximately $112.5 million under an existing At-The-Market equity program where the Company's shares have been registered under the Securities Act of 1933, as amended, pursuant to the Registration Statement on Form S-3 (No. 333-256632) filed by the Company with the Securities and Exchange Commission (the “SEC”) on May 28, 2021, and declared effective on June 14, 2021 (the “Registration Statement”).

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The following table summarizes META’s cash flows for the periods presented:

Net cash used in operating activities

During the year ended December 31, 2021, net cash used in operating activities of $36.2 million was primarily driven by a $91.0 million net loss reported for the year, and non-cash adjustments of $51.7 million mainly due to $40.5 million fair value losses on financial instruments, $8 million stock based compensation and non-cash consulting fees, $3.7 million in depreciation, amortization and impairment, and non-cash interest and accretion of $1.1 million, along with other less material line items. Change in operating assets and liabilities totaled $3.2 million.

During the year ended December 31, 2020, net cash used in operating activities of $7.9 million was primarily driven by $11.6 million of net loss reported for the year, and non-cash adjustments of $4.6 million mainly due to $2.3 million in depreciation and amortization, $0.9 in fair value losses on financial instruments, $1.1 million in interest expense and $1.5 million in stock-based compensation. Change in operating assets and liabilities totaled $0.9 million.

During the year ended December 31, 2019, net cash used in operating activities of $4.3 million was primarily driven by $8.4 million of net loss reported for the year, and non-cash adjustments of $3.3 million mainly due to $2.3 million in depreciation and amortization, $1.0 million in interest expense and $1.3 million in stock-based compensation net of $0.5 in non-cash finance income and $0.5 non-cash government assistance. Change in operating assets and liabilities totaled $0.8 million.

Net cash provided by investing activities

During the year ended December 31, 2021, net cash provided by investing activities of $66.6 million was primarily driven by cash acquired as a result of the Torchlight RTO of $147 million, offset by $66.1 million in cash paid for the Nanotech acquisition, $2.9 million purchase of short-term investments, $10.4 million in property plant and equipment purchases associated with the construction of the Highfield Park Facility as well as equipment purchases for both the Highfield Park and Pleasanton facilities, and a $0.9 million increase in intangibles as a result of capitalized legal cost for certain patents, as well as the acquisition of certain intellectual property assets from Interglass Technology AG (Switzerland).

During the year ended December 31, 2020, net cash provided by investing activities of $2.4 million was primarily driven by proceeds from the CPM RTO of $3.1 million offset by $0.7 million in equipment purchases and capitalized legal costs to obtain certain patents.

During the year ended December 31, 2019, net cash used in investing activities of $1.2 million was driven by equipment purchases and capitalized legal costs to obtain certain patents.

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Net cash provided by financing activities

During the year ended December 31, 2021, net cash provided by financing activities of $15.5 million was primarily driven by $10.0 million in proceeds received from the issuance of unsecured convertible promissory notes to Torchlight, subsequently eliminated upon consolidation at December 31, 2021, $3.9 million in proceeds from the issuance of unsecured convertible promissory notes to an affiliate that was subsequently converted into common stock during the year and $1.4 million in proceeds from options and warrants exercise.

During the year ended December 31, 2020, net cash provided by financing activities of $6.3 million was primarily driven by $3.6 million in proceeds received from the issuance of secured convertible debentures to BDC Capital that was subsequently converted into common stock in 2021, $0.7 million in proceeds from issuance of unsecured convertible debentures and $0.6 million in proceeds from the issuance of convertible promissory notes to a shareholder that were subsequently converted into common stock in 2021, $0.6 million in proceeds from common stock and warrants issuances offset by $0.2 million in repayments of long-term debt.

During the year ended December 31, 2019, net cash provided by financing activities of $5.3 million was primarily driven by $2.4 million in proceeds received from the issuance of secured convertible promissory notes, $0.6 million in proceeds from issuance of unsecured convertible debentures and $0.8 million in proceeds from a private placement, $0.7 million in proceeds from long-term debt.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The preparation of financial statements in conformity with U.S. GAAP requires the Company to make estimates, judgments and assumptions that affect the amounts reported in the consolidated financial statements. These estimates, judgments and assumptions are evaluated on an ongoing basis. The Company bases its estimates on historical experience and on various other assumptions that it believes are reasonable at that time, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ materially from those estimates. The accounting policies that reflect the Company's more significant estimates, judgments and assumptions and which it believes are the most critical to aid in fully understanding and evaluating our reported financial results include the following:

Revenue recognition – The Company’s revenue is generated from product sales as well as development revenue. The Company recognizes revenue when it satisfies performance obligations under the terms of its contracts, and control of its products is transferred to its customers in an amount that reflects the consideration the Company expects to receive from its customers in exchange for those products or services.

Revenue from the sale of prototypes and finished products is recognized at the point in time when control of the asset is transferred to the customer, generally on delivery of goods. The Company considers 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, the Company considers the effects of variable consideration, the existence of significant financial components, non-cash consideration and consideration payable to the customer (if any).

Revenue from development activities is recognized over time, using an input method to measure progress towards complete satisfaction of the research activities and associated performance obligations identified within each contract have been satisfied.

Goodwill - Goodwill represents the excess of the purchase price in a business combination over the fair value of net tangible and

intangible assets acquired. The carrying amount of goodwill is periodically reviewed for impairment (at a minimum annually)

and whenever events or changes in circumstances indicate that the carrying value of this asset may not be recoverable.

The Company first performs a qualitative assessment to test the reporting unit's goodwill for impairment. Based on the qualitative

assessment, if it is determined that the fair value of our reporting unit is more likely than not (i.e. a likelihood of more than 50

percent) to be less than its carrying amount, the quantitative assessment of the impairment test is performed. In the quantitative assessment, the Company compares the fair value of our reporting unit to its carrying value. If the fair value of the reporting unit exceeds its carrying value, goodwill is not considered impaired and the Company is not required to perform further testing. If the carrying value of the net assets of the reporting unit exceeds its fair value, then an impairment loss equal to the difference, but not exceeding the total carrying value of goodwill allocated to the reporting unit, would be recorded.

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Acquired intangibles - In accordance with ASC 805 Business Combinations, the Company allocates the purchase price of acquired companies to the tangible and intangible assets acquired and the liabilities assumed based on their estimated fair values. Such valuations may require management to make significant estimates and assumptions, especially with respect to intangible assets. Acquired intangible assets consist of acquired technology and customer relationships. In valuing acquired intangible assets, the Company makes assumptions and estimates based in part on projected financial information, which makes assumptions and estimates inherently uncertain, particularly for early-stage technology companies. The significant estimates and assumptions used by the Company in the determination of the fair value of acquired intangible technology assets include the revenue growth rate, the royalty rate and the discount rate. The significant estimates and assumptions used by the Company in the determination of the fair value of acquired customer contract intangible assets include the revenue growth rate and the discount rate.

As a result of the judgments that need to be made, the Company obtains the assistance of independent valuation firms. The Company completes these assessments as soon as practical after the closing dates. Any excess of the purchase price over the estimated fair values of the identifiable net assets acquired is recorded as goodwill.

Although the Company believes the assumptions and estimates of fair value it has made in the past have been reasonable and appropriate, they are based in part on historical experience and information obtained from the management of the acquired companies and are inherently uncertain and subject to refinement. Unanticipated events and circumstances may occur that may affect the accuracy or validity of such assumptions, estimates or actual results. As a result, during the measurement period, which may be up to one year from the acquisition date, the Company records adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill, if the changes are related to conditions that existed at the time of the acquisition. Upon the conclusion of the measurement period or final determination of the values of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments, based on events that occurred subsequent to the acquisition date, are recorded in our consolidated statements of operations and comprehensive loss.

Business combinations - The Company allocates the fair value of purchase consideration to the tangible assets acquired, liabilities assumed, and intangible assets acquired based on their estimated fair values. The excess of the fair value of purchase consideration over the fair values of these identifiable assets and liabilities is recorded as goodwill to reporting units based on the expected benefit from the business combination. Allocation of purchase consideration to identifiable assets and liabilities affects the amortization expense, as acquired finite-lived intangible assets are amortized over the useful life, whereas any indefinite-lived intangible assets, including goodwill, are not amortized. During the measurement period, which is not to exceed one year from the acquisition date, the Company records adjustments to the assets acquired and liabilities assumed, with the corresponding offset to goodwill. Upon the conclusion of the measurement period, any subsequent adjustments are recorded to earnings. Acquisition-related expenses are recognized separately from business combinations and are expensed as incurred.

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Assets held for sale – The Company determines the fair market value of the oil and gas assets held for sale on a periodic basis using inputs from a third party valuation firm skilled in the valuation of this class of assets. The Company estimated the fair value of the Orogrande property at June 28, 2021 as the sum of the median of each of a range of fair values of identified drilling locations determined using numerous assumptions including the number of drilling locations, forecasted production volumes per drilling location, fair value per barrel of forecasted production volumes based on comparable transactions or entities with acreage proximal to the Orogrande Project property, and applying a drilling location risk factor (collectively, “drilling location assumptions”); and a range of fair values of the undeveloped land acreage determined using numerous assumptions including the number of undeveloped land acres, fair value per acre for comparable transactions or entities with acreage proximal to the Orogrande Project property, and applying an acreage risk factor (collectively, “undeveloped land assumptions”). The Company estimated the fair value of the Hazel Property at June 28, 2021 using a discounted cash flow model. The significant estimates and assumptions used by the Company in the determination of the fair value of the Hazel Project property at acquisition date included forecasted production volumes, forecasted commodity prices, and the discount rate. The Company estimated the fair value of the O&G assets at December 31, 2021 by obtaining a valuation study performed by a third party valuation firm. The estimates involved are consistent with those outlined above for the June 28, 2021 valuation estimate.

Commitments and contractual obligations

For a description of the Company’s commitments and contractual obligations, please see “Note 28 – Commitments and contingencies” as well as “Note 27 – Leases” in the Notes to the Consolidated Financial Statements of this Form 10-K.

Off-balance sheet arrangements

Off-balance sheet firm commitments relating to outstanding letters of credit amounted to approximately $1.1 million as of December 31, 2021. These letters of credit and bank guarantees are collateralized by $0.8 million in restricted cash. Please see “Note 27 – Commitments and contingencies” in the Notes to the Consolidated Financial Statements of this Form 10-K. 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 the Company’s Consolidated Financial Statements, please see “Note 2 – Significant accounting policies” in the Notes to the Consolidated Financial Statements of this Form 10-K.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk.

Interest rate risk

Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. Interest rate risk is minimized through management’s decision to primarily obtain fixed rate or interest-free debt. The Company’s funding obligation and long-term debt have been obtained at a nil interest rate and the interest on the cash balances is insignificant. As a result, the Company is not exposed to material cash flow interest rate risk.

Foreign currency risk

Foreign currency risk is the risk to earnings or capital arising from changes in foreign exchange rates. The Company has transactional currency exposures that arise from loans and receivables as well as purchases in currencies other than their functional currency such as Canadian Dollars, Euros and Great Britain Pounds. Current exposure is not material at this time, as exchange rate impacts occur with a reasonable timeline of the decision to make the expenditure. As a result, the Company does not enter into derivatives to hedge the exposure.

In the future, a hedging strategy may be enacted if long term contracts or operational cash flows create a requirement.

Item 8. Financial Statements and Supplementary Data.

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Report of Independent Registered Public Accounting Firm

To the Stockholders and Board of Directors

Meta Materials Inc.:

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of Meta Materials Inc. and subsidiaries (the Company) as of December 31, 2021 and 2020, the related consolidated statements of operations and comprehensive loss, changes in stockholders’ equity, and cash flows for each of the years in the three‑year period ended December 31, 2021, and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the years in the three‑year period ended December 31, 2021, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated March 1, 2022 expressed an adverse opinion on the effectiveness of the Company’s internal control over financial reporting.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Acquisition date fair value of a developed nanotechnology intangible asset in the acquisition of Nanotech Security Corp.

As discussed in Note 3 to the consolidated financial statements, on October 5, 2021, the Company acquired Nanotech Security Corp. for $72.1 million. The acquisition was accounted for as a business combination. The Company measured the assets acquired and liabilities assumed at fair value, which resulted in the recognition of a developed nanotechnology intangible asset of $14.8 million. As discussed in Note 2 to the consolidated financial statements, the significant estimates and assumptions used by the Company in the determination of the fair value of acquired intangible technology assets include the revenue growth rate, the royalty rate, and the discount rate.

We identified the evaluation of the acquisition date fair value of the developed nanotechnology intangible asset in the acquisition of Nanotech Security Corp. as a critical audit matter. Specifically, the assessment of the revenue growth rate, royalty rate, and discount rate assumptions used in estimating the acquisition date fair value involved a high degree of subjective auditor judgment. In addition, the estimated fair value was sensitive to possible changes to the above estimates and assumptions.

The following are the primary procedures we performed to address this critical audit matter. We evaluated the revenue growth rate by comparing to historical results for the acquired entity and publicly available market data. We involved valuation professionals with specialized skills and knowledge, who assisted in:

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Fair value of the Orogrande Project property and preferred stock liability

As discussed in Note 3 to the consolidated financial statements, the Company completed a reverse acquisition of Torchlight Energy Resources, Inc. on June 28, 2021. The assets acquired included certain oil and natural gas properties with a fair value of $72.6 million, of which $71.1 million of the fair value related to the Orogrande Project property. The liabilities assumed included a preferred stock liability with a fair value of $72.6 million entitling the preferred stock owners to the net proceeds of the sale or spinout of the oil and natural gas properties. As a result, the fair value measurement of the oil and natural gas properties, including the Orogrande Project property, also forms the basis for the fair value measurement of the preferred stock liability as of June 28, 2021 and as of December 31, 2021. The Company engaged an independent valuation firm to assist in the determination of the fair value of the Orogrande Project property as of June 28, 2021 and December 31, 2021. The estimated fair value of the Orogrande Project property was calculated as the sum of the median of each of:

We identified the evaluation of the acquisition-date and year-end fair value of the Orogrande Project property as a critical audit matter. A high degree of subjective auditor judgment was required to evaluate the drilling location and undeveloped land assumptions used to calculate the fair value of the Orogrande Project property. Minor changes to these assumptions could have had a significant effect on the estimate of fair value of the Orogrande Project property. Additionally, the audit effort associated with this estimate required specialized skills and knowledge.

The following are the primary procedures we performed to address this critical audit matter. We evaluated the competence, capabilities and objectivity of the independent valuation firm engaged by the Company. We involved valuation professionals with specialized skills and knowledge, who assisted in:

/s/ KPMG LLP

Chartered Professional Accountants, Licensed Public Accountants

We have served as the Company’s auditor since 2019.

Vaughan, Canada

March 1, 2022

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Report of Independent Registered Public Accounting Firm

To the Stockholders and Board of Directors
Meta Materials Inc.:

Opinion on Internal Control Over Financial Reporting

We have audited Meta Material Inc.’s (the Company) internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. In our opinion, because of the effect of the material weaknesses, described below, on the achievement of the objectives of the control criteria, the Company has not maintained effective internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2021 and 2020, the related consolidated statements of operations and comprehensive loss, changes in stockholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2021, and the related notes (collectively, the consolidated financial statements), and our report dated March 1, 2022 expressed an unqualified opinion on those consolidated financial statements.

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis. Material weaknesses related to the following have been identified and included in management’s assessment:

The material weaknesses were considered in determining the nature, timing, and extent of audit tests applied in our audit of the 2021 consolidated financial statements, and this report does not affect our report on those consolidated financial statements.

The Company acquired Nanotech Security Corp. during the year ended December 31, 2021, and management excluded Nanotech Security Corp. from its assessment of the effectiveness of the Company’s internal control over financial reporting as of December 31, 2021, Nanotech Security Corp.’s internal control over financial reporting associated with 17% of total assets and 45% of total revenues included in the consolidated financial statements of the Company as of and for the year ended December 31, 2021. Our audit of internal control over financial reporting of the Company also excluded an evaluation of the internal control over financial reporting of Nanotech Security Corp.

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Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Form 10-K Item 9A under the header “Management’s Report on Internal Control over Financial Reporting”. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control Over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ KPMG LLP

Chartered Professional Accountants, Licensed Public Accountants

Vaughan, Canada

March 1, 2022

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PART I—FINANCIAL INFORMATION

Item 1. Financial Statements

META MATERIALS INC.

CONSOLIDATED BALANCE SHEETS

Commitments and contingencies (note 28)

Subsequent events (note 29)

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

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META MATERIALS INC.

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(2) Retroactively restated for the year ended December 31, 2021 and 2020 for the Torchlight reverse acquisition (“Torchlight RTO”) and CPM reverse recapitalization (“CPM RTO”)

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

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META MATERIALS INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY