Meta Materials(MMAT) - 2023 Q2 - Quarterly Report

Financial Performance - Total revenue for the three months ended June 30, 2023, was $2,030,524, a decrease of 39% compared to $3,323,727 in the same period of 2022 [179]. - Product sales dropped to $22,907 for the three months ended June 30, 2023, down 93% from $334,113 in the same period of 2022 [183]. - Development revenue decreased by 33% to $2,007,617 for the three months ended June 30, 2023, compared to $2,989,614 in the same period of 2022 [183]. - Gross profit for the three months ended June 30, 2023, was $1,257,546, a decline of 49% from $2,445,776 in the same period of 2022, resulting in a gross profit percentage of 62% [183]. - Operating expenses for the three months ended June 30, 2023, totaled $295,946,750, an increase of 1240% compared to $22,087,758 in the same period of 2022 [187]. - Research and development expenses increased by 23% to $5,059,614 for the three months ended June 30, 2023, compared to $4,118,781 in the same period of 2022 [187]. - General and administrative expenses decreased by 48% to $5,913,267 for the three months ended June 30, 2023, compared to $11,300,296 in the same period of 2022 [187]. - Total other income (expense), net, for the three months ended June 30, 2023, was $(1,450,761), a decrease of 129% compared to the same period in 2022 [200]. Cash Flow and Financing - Cash and cash equivalents as of June 30, 2023, were $14.5 million, up from $11.8 million at December 31, 2022 [211]. - Net cash used in operating activities for the six months ended June 30, 2023, was $25.9 million, compared to $29.0 million for the same period in 2022 [220]. - The net cash used in investing activities for the same period was $5.2 million, mainly driven by $6.5 million in capital expenditures for the Highfield Park Facility and Thurso facility expansion [223]. - Net cash provided by financing activities was $33.5 million, primarily from $33.0 million in net proceeds from the issuance of common stock under the At-the-Market Equity Offering Program [225]. - For the six months ended June 30, 2023, the net cash used in operating activities was $25.9 million, primarily due to a net loss of $312.3 million and non-cash adjustments of $288.0 million, including a goodwill impairment of $282.2 million [221]. - The net cash used in investing activities for the same period in 2022 was $10.8 million, primarily due to $9.0 million in capital expenditures and $3.5 million for the Optodot acquisition [224]. - The net cash provided by financing activities in 2022 was $46.6 million, driven by proceeds from the issuance of common stock and warrants through Securities Purchase Agreements [226]. Operational Changes and Strategies - The Realignment and Consolidation Plan aims to reduce the average monthly cash burn rate from $5.7 million to between $2.6 million and $3.8 million, representing a reduction of approximately 54% to 33% by the end of 2023 [152]. - Total estimated charges for the Realignment and Consolidation Plan are expected to be $2.6 million, with $1.5 million incurred as of June 30, 2023 [152]. - The company is exploring alternatives for certain technologies, including potential divestitures or joint ventures, as part of its strategic realignment [151]. - The company is preparing for the commercial launch of KolourOptik®Stripe technology and expanding production capacity in banknote and brand security lines [144]. - The company is expanding operations and facilities, including new development facilities in Maryland and Massachusetts, which will require increased capital investments [168]. Impairments and Losses - The company recorded credit losses of $1.7 million for the Next Bridge notes receivable as of June 30, 2023, based on the fair value of collateral [164]. - Goodwill impairment of $282.2 million was recorded for the three and six months ended June 30, 2023, due to a sustained decline in market capitalization [199]. - Income tax recovery increased by 462% to $618,079 for the three months ended June 30, 2023, driven by an increase in accumulated losses reducing net deferred tax liability [207]. Research and Development - Research and development expenses increased in Q2 2023 due to higher costs for materials and subcontracting, partially offset by lower salaries and benefits [146]. - Research and development expenses increased by $0.9 million for the three months ended June 30, 2023, primarily due to a $0.9 million increase in R&D materials and a $0.4 million increase in intellectual property costs [193]. - Depreciation and amortization expenses increased by $1.6 million for the three months ended June 30, 2023, mainly due to intangible assets acquired in Q2 2022 from the PAL and Optodot acquisitions [196]. Market and Currency Risks - Approximately 86.2% of consolidated revenue for the six months ended June 30, 2023, was recorded in entities whose functional currency is not the US Dollar, exposing the company to foreign currency fluctuation risks [174]. - The transition to electric vehicles (EVs) may accelerate demand for the company's NANOWEB® products, with potential government funding for capital projects [171].