Meta Materials (MMATQ) Risk Analysis

Since inception, our cash requirements have been met primarily from the proceeds derived from the sale of our securities. As of the date of this report, we have issued substantially all of our unreserved authorized shares of common stock. We are scheduled to hold a Special Meeting of Stockholders on April 15, 2024, to seek stockholder approval for an increase in our authorized shares of common stock. If the stockholders do not approve such proposal at the Special Meeting, we will not have sufficient shares of common stock authorized available and unreserved, which would adversely impact our ability to pursue opportunities in which shares of our common stock could be issued that our board may determine would otherwise be in the best interest of the Company and our stockholders, including financing and strategic transaction opportunities. Failure to obtain financing through the issuance of our securities, including our common stock, may cause us to be unable to continue our operations or execute our business plans.

Equity compensation is vital for our ability to attract, motivate, and retain highly skilled personnel in a competitive market. These plans serve not only as a key element of our compensation strategy but also help in aligning the interests of our employees with those of our stockholders by providing them with a stake in the Company's success. As of February 29, 2024, we have less than 150,000 shares available to be issued to our employees and service providers under the 2021 Equity Incentive Plan. If our stockholders do not approve the additional Pool, we may not be able to offer competitive compensation packages. This limitation could significantly hinder our capability to attract and retain essential talent, which is crucial for our innovation, operational efficiency,and growth. Equity participation is often viewed as a critical aspect of compensation by potential employees and leaders. Without the option to offer such incentives, we may struggle to recruit and keep qualified individuals in key positions. This challenge could negatively influence our competitive standing, operational performance, and prospects for growth.

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

In September 2021, we received a subpoena from the SEC, Division of Enforcement, in a matter captioned In the Matter of Torchlight Energy Resources, Inc. The subpoena requested that we produce certain documents and information related to, among other things, the merger involving Torchlight Energy Resources, Inc. and Metamaterial Inc. (the "Investigation"). On July 20, 2023, the enforcement staff of the SEC provided us, our former Chief Executive Officer, John Brda, and our then current Chief Executive Officer, George Palikaras, with "Wells Notices" relating to the Investigation. The Wells Notices each state that the SEC staff has made a preliminary determination to recommend that the SEC file a civil enforcement action against the recipients alleging violations of certain provisions of the U.S. federal securities laws. Specifically, the Wells Notice received by the Company states that the proposed action would allege violations of Section 17(a) of the Securities Act; Sections 10(b), 13(a), 13(b)(2)(A), 13(b)(2)(B) and 14(a) of the Exchange Act of 1934 and Rules 10b-5 and 14a-9 thereunder; and Regulation FD. Although a Wells Notice is neither a formal charge of wrongdoing nor a final determination that the recipient has violated any law, it is a formal notice that the SEC intends to bring an enforcement action against the recipient. If the SEC were to authorize an action against us and/or any of the individuals named above, it could seek an injunction against future violations of provisions of the federal securities laws, the imposition of civil monetary penalties, and other equitable relief within the SEC's authority. The SEC could also seek an order barring the individuals from serving as an officer or director of a public company. In addition, the SEC could seek disgorgement of an amount from us that may exceed our ability to pay. We have made an offer of settlement to the Staff of the SEC's Division of Enforcement (the "Proposed SEC Settlement") to resolve the matter. The Proposed SEC Settlement is subject to approval by the SEC Commissioners. We cannot predict whether or when the Proposed SEC Settlement will be approved. If the Commissioners approve the Proposed SEC Settlement, the Commission will enter a cease-and-desist order (the "Order") in connection with certain antifraud, reporting, books and records, and internal accounting control provisions of the securities laws. Under the terms of the Proposed SEC Settlement, we would neither admit nor deny the findings in the Order. If approved, in connection with the Proposed SEC Settlement, we will pay a civil money penalty in an amount of $1.0 million in four (4) installments over the period of one (1) year pursuant to an agreed upon payment plan. We recorded the $1.0 million in Accruals and other payables in the audited Consolidated Balance Sheet as of December 31, 2023.

As of December 31, 2023, we are a "smaller reporting company" under applicable U.S. securities regulations. A smaller reporting company is a company that, as of the last business day of its most recently completed second fiscal quarter, has (i) an aggregate market value of the company's voting stock held by non-affiliates, or public float, of less than $250 million or (ii) less than $100 million in revenue and less than $700 million in public float. In addition, as a smaller reporting company, we are able to provide simplified executive compensation disclosures in our filings and have certain other reduced disclosure obligations in our SEC filings, including, among other things, only being required to provide two years of audited financial statements in annual reports. Reduced disclosure in our SEC filings due to our status as a smaller reporting company may make it harder for investors to analyze our results of operations and financial prospects.

Our articles of incorporation and bylaws, as amended, as well as provisions in Nevada law, contain provisions that could have the effect of rendering more difficult or discouraging an acquisition deemed undesirable by our board. Our corporate governance documents include provisions: - authorizing blank check preferred stock, which could be issued with voting, liquidation, dividend and other rights superior to our common stock;- limiting the liability of, and providing indemnification to, our directors, including provisions that require us to advance payment for defending pending or threatened claims;- limiting the ability of our stockholders to call and bring business before special meetings and to take action by written consent in lieu of a meeting;- controlling the procedures for the conduct and scheduling of board and stockholder meetings;- limiting the determination of the number of directors on our board and the filling of vacancies or newly created seats on the board to our board then in office; and - providing that directors may be removed by stockholders at any time. These provisions, alone or together, could delay hostile takeovers and changes in control or changes in our management. As a Nevada corporation, we are also subject to provisions of Nevada corporate law, including Section 78.411, et seq. of the Nevada Revised Statutes, which, among other things, prohibits a publicly-held Nevada corporation from engaging in a business combination with an interested stockholder, generally a person which together with its affiliates owns, or within the last two years has owned, 10% of our voting stock, for a period of three years after the date of the transaction in which the person became an interested stockholder, unless the business combination is approved in a prescribed manner, and, unless otherwise provided in our articles of incorporation or by-laws, restricts the ability of an acquiring person to obtain a controlling interest of 20% or more of our voting shares. Our articles of incorporation and by-laws, as amended, do not contain any provision which would currently keep the change of control restrictions of Section 78.378 from applying to it. The existence of the foregoing provisions and anti-takeover measures could limit the price that investors might be willing to pay in the future for shares of our common stock. They could also deter potential acquirers of us, thereby reducing the likelihood that our stockholders could receive a premium for their common stock in an acquisition.

Our board of directors is authorized, without further stockholder action, and subject to Nasdaq rules, to issue preferred stock in one or more series and to designate the dividend rate, voting rights and other rights, preferences and restrictions of each such series. The terms of one or more classes or series of preferred stock could adversely impact the voting power or value of our common stock. Also, we might grant holders of preferred stock the right to elect some number of our directors in all events or on the happening of specified events or the right to veto specified transactions. Similarly, the repurchase or redemption rights or liquidation preferences we might assign to holders of preferred stock could affect the residual value of our common stock.

The trading price of our common stock has been and is likely to continue to be volatile. The trading price of our common stock since June 28, 2021 (the date of completion of the Arrangement) up to December 31, 2023, has ranged from a high of $997.00 to a low of $2.64 (as adjusted for the January 2024 Reverse Stock Split). Factors that have caused, and could continue to cause, fluctuations in the trading price of our common stock include, but are not limited to, the following: - sales of our common stock, or securities exercisable for or convertible into our common stock, or the perception that such sales or conversions could occur in the future;- the impact of public health crises, such as the COVID-19 pandemic, including on macroeconomic conditions and our business, results of operations and financial condition;- price and volume fluctuations in the overall stock market from time to time;- changes in operating performance, stock market valuations and volatility in the market prices of other industry peers;- actual or anticipated quarterly variations in our results of operations or those of our competitors;- actual or anticipated changes in our growth rate relative to our competitors;- announcements by us or our competitors of acquisitions, new products, significant contracts, commercial relationships or capital commitments;- manufacturing, labor or supply interruptions;- developments with respect to intellectual property rights;- developments with respect to litigation;- our ability to develop and market new and enhanced products on a timely basis;- commencement of, or our involvement in, litigation;- major changes in our board of directors or key management;- changes in governmental regulations or in the status of our regulatory approvals;- actual or perceived privacy, data protection or cybersecurity breaches or incidents;- the trading volume of our common stock;- failure of financial analysts to maintain coverage of us, changes in financial estimates by any analysts who follow us, or our failure to meet these estimates or the expectations of investors;- fluctuations in the values of companies perceived by investors to be comparable to and peers of us;- the financial projections we may provide to the public, any changes in these projections or our failure to meet these projections; and - general economic conditions and slow or negative growth of related markets. The stock market in general, and market prices for the securities of similar companies in particular, have from time to time experienced volatility that often has been unrelated to the operating performance of the underlying companies. These broad market and industry fluctuations may adversely affect the market price of our common stock, regardless of our operating performance, which might make it more difficult for us to sell equity securities in the future at a time and at a price that we deem appropriate. In several recent situations when the market price of a stock has been volatile, holders of that stock have instituted securities class action litigation. If any of our stockholders were to bring a lawsuit against us, the defense and disposition of the lawsuit could be costly and divert the time and attention of our management and materially adversely affect our results of operations. We currently have ongoing lawsuits. See Part 1, Item 3, "Legal Proceedings" in this Annual Report and Note 27, Commitments and Contingencies, in the notes to the Consolidated Financial Statements in Part II, Item 8 of this Annual Report for more information regarding these lawsuits and the SEC's investigation.

The trading market for our common stock will rely in part on the research and reports that industry or financial analysts publish about us or our business. If no or few analysts commence coverage of us or if such coverage is not maintained, the market price for our stock may be adversely affected. Our stock price also may decline if any analyst who covers us issues an adverse or erroneous opinion regarding us, our business model, our intellectual property or our stock performance, or if our operating results fail to meet analysts' expectations. If one or more analysts cease coverage of us or fail to regularly publish reports on us, we could lose visibility in the financial markets, which could cause our stock price or trading volume to decline and possibly adversely affect our ability to engage in future financing.

The trading market for our common stock on the Nasdaq Capital Market may not be sustained. If the market for our common stock is not sustained, it may be difficult for you to sell your shares of common stock at an attractive price or at all. We cannot predict the prices at which our common stock will trade. It is possible that in one or more future periods our results of operations may not meet the expectations of public market analysts and investors, and, as a result of these and other factors, the price of our common stock may fall.

Our common stock is listed on The Nasdaq Capital Market, and in order to maintain that listing, we must satisfy applicable Nasdaq continued listing requirements. The inability to comply with applicable listing requirements or standards of The Nasdaq Stock Market LLC ("Nasdaq") could result in the delisting of our common stock, which could have a material adverse effect on our financial condition and could cause the value of our common stock to decline. Delisting of our common stock could also adversely affect our ability to raise additional financing, could significantly affect the ability of our investors to trade our securities and could negatively affect the value and liquidity of our common stock. Delisting could also have other negative results, including the potential loss of confidence by employees and fewer business development opportunities. On March 20, 2023, we received a notification letter from Nasdaq notifying us that, because the closing bid price for our common stock was below $1.00 per share for 30 consecutive trading days, we were not in compliance with the minimum bid price requirement for continued listing on The Nasdaq Capital Market, as set forth in Nasdaq Listing Rule 5550(a)(2) (the "Minimum Bid Price Requirement"). In accordance with Nasdaq Listing Rule 5810(c)(3)(A), we were provided 180 calendar days, or until September 18, 2023, to regain compliance with the Minimum Bid Price Requirement. On September 19, 2023, Nasdaq further notified the Company we were eligible for an additional 180 calendar day period, or until March 18, 2024, to regain compliance. Further, on November 27, 2023, we received a notification letter from Nasdaq notifying us that our Common Stock had a closing bid price of $0.10 or less for ten consecutive trading days and that, consistent with Nasdaq Listing Rule 5810(c)(3)(A)(iii), the staff of Nasdaq had determined to delist the Common Stock from The Nasdaq Capital Market, subject to the request of a hearing. On November 28, 2023, we timely submitted a request for a hearing before the Nasdaq Hearings Panel to appeal the delisting determination, which was granted by the Nasdaq Hearings Panel and a hearing was originally scheduled to occur on March 21, 2024 (subsequently changed to February 22, 2024). On February 12, 2024, we received a letter from Nasdaq notifying us that we had regained compliance with the Minimum Bid Price Requirement, and consequently, the previously scheduled hearing was cancelled by the Nasdaq Hearings Panel. We are currently in full compliance with Nasdaq listing requirements. Additionally, we may be unable to meet other applicable Nasdaq listing requirements, including maintaining minimum levels of market value of our common stock in which case, our common stock could be delisted. As noted above, if our common stock were to be delisted, the liquidity of our common stock would be adversely affected, and the market price of our common stock could decrease. There is no assurance we will maintain compliance with Nasdaq listing requirements in the future.