What the Meta Materials Earnings Report Tells Investors

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Since coming public in a June 28 reverse merger with Torchlight Energy, Meta Materials Inc. (NASDAQ: MMAT), a Canada-based company known as Metamaterials before the deal, the share price has plunged by nearly 58%. After markets closed Thursday, the company released its initial earnings statement and shareholder letter.

Meta reported second-quarter revenue of $624.32 million, of which $622.37 million was identified as development revenue. Product sales amounted to $1.95 million. In the shareholder letter, founder and CEO George Palikaras said the company expects development programs “to account for the majority of our revenue over the next 12 months.”

The net loss per share in the June quarter was $0.03, based on 197.9 million weighted average shares. In the prior quarter, the company reported a net loss per share of $0.01 on 155.9 million shares. For the first six months of the year, Meta lost $49.34 million, of which $40.54 million was down to a one-time, noncash net loss on financial instruments.

Meta closed the second quarter with cash and equivalents totaling $154.63 million and long-term debt of $2.74 million. The company also reported long-term lease liabilities of $1.15 million.

For investors, the most interesting part of the report might have been the line captioned Assets Held for Sale. Meta reported $72.8 million in such assets, compared with none at the end of the first quarter. Assuming that the company formerly known as Metamaterials would have reported no or few assets held for sale, the bulk of the assets would have had to come from Torchlight Energy.

At the end of 2020, Torchlight reported total production for the year of 5,445 barrels of oil and 5 million cubic feet of natural gas. Total oil and gas sales last year amounted to $193,379.

The total value of the company’s oil and gas properties at the end of 2020 was $30.86 million. Torchlight reported no proved reserves as of December 31. The company had sold its last reserves in November. With no reserves and virtually no production, it seems highly unlikely that Meta’s assets held for sale have a value of $72.8 million.

Holders of Torchlight’s Series A preferred shares have been promised a special dividend when the oil and gas assets are sold. The preferred shares were issued on a one-for-one basis to Torchlight shareholders of record on June 24. In Meta’s shareholder letter, Palikaras said the company had hired a consultant “to help determine the best path to maximize value” for the holders of the preferred shares.

Many investors are counting on a windfall, based on short covering. Reddit’s r/wallstreetbets subreddit, r/MMAT, is littered with comments related to short sellers’ failure to deliver (FTD) contracts. FTDs are nearly always due to a trader’s failure to make good on a naked short contract. As many as 148 million FTD shares of Meta are said to be outstanding.

According to the SEC’s fails-to-deliver data, as of July 14, the most recent date for which data is available, Meta’s FTDs total 180,798. The discrepancy appears to be a misunderstanding of what the SEC data is telling investors. Some WallStreetBets commenters appear to be adding all the FTDs over the entire 11-year life of Torchlight Energy to get the higher total.

Here’s what the data means, according to the SEC:

Fails to deliver on a given day are a cumulative number of all fails outstanding until that day, plus new fails that occur that day, less fails that settle that day. The figure is not a daily amount of fails, but a combined figure that includes both new fails on the reporting day as well as existing fails. In other words, these numbers reflect aggregate fails as of a specific point in time, and may have little or no relationship to yesterday’s aggregate fails.

Early Friday, Meta stock traded down more than 1%, at $3.32 in a 52-week range of $0.42 to $21.76. About 3.8 million of an average daily trading volume of about 23.7 million shares had already traded.

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