Meta Materials (MMAT) Declares Chapter 7 Bankruptcy

On Friday, August 9, 2024, Meta Materials Inc. (MMAT) filed for Chapter 7 bankruptcy. This turn of events was reported only in a Form 8-K filed with the SEC; no press release or announcement on the company website followed. The filing said simply:

Item 1.03. Bankruptcy or Receivership.

 On August 9, 2024, after consideration of all strategic alternatives, Meta Materials, Inc., a Nevada corporation (the “Company”), ceased operations and filed a voluntary petition for relief under the provisions of Chapter 7 of Title 11 of the United States Code, 11 U.S.C. §101 et seq. (the “Bankruptcy Code”) in the United States Bankruptcy Court for the District of Nevada (the “Bankruptcy Court”), Case No. 24-50792 (the “Bankruptcy Filing”). 

As a result of the Bankruptcy Filing, a Chapter 7 trustee will be appointed by the Bankruptcy Court and will administer the Company’s bankruptcy estate, including liquidating the assets of the Company in accordance with the Bankruptcy Code. Once a Chapter 7 trustee is appointed, an initial hearing for creditors will be scheduled, and the Notice of Bankruptcy Case Filing will be sent to known creditors.

Item 5.02. Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers.

On August 7, 2024, the Company terminated all of its remaining employees and executive officers, including Uzi Sasson, its President and Chief Executive Officer, and Dan Eaton, its Chief Legal Officer, with the terminations of Messrs. Sasson and Eaton effective concurrent with the Bankruptcy Filing. Following the Bankruptcy Filing, the Company does not have any executive officers or employees.

Effective concurrent with the Bankruptcy Filing, each of John R. Harding, Allison Christilaw, Steen Karsbo, Kenneth Hannah, Vyomesh Joshi and Philippe Morali tendered their resignations as members of the Board of Directors. Each of the directors resigned due to the Bankruptcy Filing, and such resignations are not the result of any disagreements with the Company regarding the Company’s operations, policies, or practices. The resignation of the Company’s directors effectively eliminates the powers of the Board of Directors, and following the director resignations, the Company does not have directors serving on the Board of Directors.

The Chapter 7 filing has yet to turn up at the U.S. Bankruptcy Court for the District of Nevada, but it will be available soon. A trustee will be appointed, and he or she will handle the liquidation of the company’s assets. 

Meta Materials, Torchlight, and MMTLP

MMAT has been in difficulty for years. Though its headquarters were in Dartmouth, Nova Scotia, Canada, it was incorporated in Nevada. At the office of the Secretary of State, it still shows as an active corporation, but that will soon change. 

Friday’s filing is the end of a story that began in 2011. In its SEC filings, the company describes itself as a developer of “advanced materials and nanotechnology,” creating materials that “we believe can improve the performance and efficiency of many current products as well as allow new products to be developed that cannot otherwise be developed without such materials.” Before and after it became publicly traded in the U.S. on the Nasdaq Stock Exchange, it spent liberally on the acquisition of businesses and patents it believed would make valuable contributions to its intellectual property portfolio.

Originally called Metamaterial Technologies Inc., in 2020, it changed its name to Metamaterial Inc (META), did a reverse triangular merger with Continental Precious Minerals Inc., and began trading on the Canadian Securities Exchange. Ten months later, it signed a definitive agreement for a business combination with Torchlight Energy Resources (TRCH), a Plano, Texas oil and gas exploration company listed on the Nasdaq Stock Market. Torchlight shareholders, including CEO John Brda, would be given a stake in the new company, Meta Materials:

Upon completion of the Transaction, shareholders of Metamaterial are expected to hold an approximate 75% equity interest in the combined company while Torchlight shareholders will retain an approximate 25% equity interest in the combined company, subject to the pre-closing financing described below. 

Torchlight shareholders on the record date will be entitled to receive a preferred stock dividend, payable immediately prior to the closing of the Transaction, that entitles them to their pro rata share of any proceeds resulting from any sale of Torchlight’s oil and gas assets that occurs on the earlier of December 31, 2021 or six months from the closing of the Transaction, and, after such time if such sales are not complete, will be entitled to receive a pro rata equity interest in a spin-off entity that holds Torchlight’s remaining oil and gas assets, subject to certain conditions.

But that wasn’t all: Torchlight would also extend two bridge loans in the amount of $500,000 each in exchange for convertible promissory notes, though “[u]pon closing, these two bridge loans, including the aggregate principal and unpaid interest, are to be included in, and credited against, the $10 million pre-closing financing described above, with such notes to be deemed cancelled and paid in full.”

Torchlight’s management would stay on in an advisory role to see to the winding down of the company and the sale of its oil and gas assets. The new company was to have seven board members. Five of them would be appointed by Metamaterial, one by Metamaterial and Torchlight, and one by Torchlight alone.

In 2021, it closed the transaction with Torchlight and began trading on the Nasdaq on June 28, changing its name to Meta Materials Inc. It was assigned the stock symbol MMAT.

MMTLP entered the picture as the “preferred stock dividend, payable immediately prior to the closing of the Transaction, that entitles them to their pro rata share of any proceeds resulting from any sale of Torchlight’s oil and gas assets” referenced above. It began trading on October 6, 2021, according to FINRA’s Daily List. Shareholders who’d received the dividend were surprised, as they hadn’t expected it to trade; it was meant simply to be a placeholder for the spinoff containing the remaining Torchlight assets. 

Despite its new status as an exchange-listed issuer, MMAT didn’t do well for the rest of 2021. On December 14, activist short seller Kerrisdale Capital published a very critical research report pointing out that the company had a $1 billion market cap for no real reason and backing that up with specifics. Kerrisdale did not, however, address the question of MMTLP’s sudden appearance as a publicly traded security.

MMAT didn’t fare better in 2022 until it suddenly spiked on high volume at the very end of the year:

In July 2022, the TRCH spinoff appeared. On the 15th of the month, Next Bridge Hydrocarbons, Inc. filed an S-1 registration statement with the SEC. The filing was directed to holders of MMAT’s Series A preferred, that is, the MMTLP shares:

This prospectus (“Prospectus”) is being furnished to you as a Series A Preferred stockholder of Meta Materials, Inc. (“Meta”) in connection with the planned distribution (the “Spin-Off” or the “Distribution”) by Meta to its Series A Preferred stockholders of all the shares of common stock, par value $0.0001 per share (the “Common Stock”), of Next Bridge Hydrocarbons, Inc. (the “Company,” “Next Bridge,” “we,” “us” or “our”) held by Meta immediately prior to the Spin-Off. As of immediately prior to the time of the Distribution, Meta holds 165,523,363 shares of Common Stock, which is 100% of the outstanding shares of capital stock of the Company.

Each share of MMTLP would entitle its holder to one share of Next Bridge stock. It is carefully noted, however, that “Meta currently owns all the outstanding shares of Common Stock of the Company [Next Bridge], and we have not sought to have the shares of Common Stock traded on any exchange. Accordingly, there is currently no public market for the Common Stock, and there is no current expectation for a public market to develop for the Common Stock.” Next Bridge would remain a non-publicly-traded company for the foreseeable future. 

The prospectus further specifies that “[y]ou will not be required to make any payment, surrender or exchange your shares of Series A Preferred Stock or take any other action to receive your shares of our Common Stock, although your shares of Series A Preferred Stock will be cancelled as of the Record Date.”

FINRA, as it is supposed to do, filed notice of the corporate action—the exchange of MMTLP for Next Bridge stock—on December 6, 2022. It then slightly altered the accompanying note on December 8 and posted that notice as well. The new note read: “See Daily List of 12/6/2022. Announcement Revised: MMTLP shareholders with settled positions as of 12/12/22 will receive one (1) share of Next Bridge Hydrocarbons, Inc. for every one (1) share of MMTLP held. Purchases of MMTLP executed after 12/8/22 will not receive the distribution. Will not be quoted Ex. Symbol: MMTLP will be deleted effective 12/13/22.” On the next day, December 9, FINRA shut down MMTLP with a U3 trading halt. On December 13, the MMTLP stock was cancelled and replaced with Next Bridge stock, as planned.

All hell broke loose. Furious shareholders quickly became convinced that MMTLP had been victimized by short sellers—probably “naked” shorts, selling without first arranging to borrow the stock in question—and had therefore missed out on the enormous profits (for them) that would have been generated by the short squeeze they were sure would have ensued had FINRA not halted the stock.

As holders of MMTLP continued to protest the actions (and inactions) of the regulators, FINRA produced a response that carefully explained what had happened. Eventually, the company itself, led by director Jack Harding, hired two law firms to investigate. Ironically, in its most recent press release—from May 20, 2024—it claimed that “[t]he Lawyers have now concluded that META has meritorious claims for market manipulation against several parties.” MMAT will not be pursuing those claims now, and it is unclear whether any other entity or individual will. If there are any remaining short positions, they’re in Next Bridge; nothing needs to be done about them unless Next Bridge becomes a public company someday.

The SEC Investigation and Civil Lawsuit

Not long after the reverse triangular merger with Torchlight was completed, the SEC opened an investigation:

In September 2021, we 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 we produce certain documents and information related to, among other things, the merger involving Torchlight Energy Resources, Inc. and Metamaterial Inc. We are cooperating and intend to continue to cooperate with the SEC’s investigation. We can offer no assurances as to the outcome of this investigation or its potential effect, if any, on us or our results of operation.

A further development was announced nearly two years later. On July 20, 2023, the company, former CEO George Palikaras, and John Brda, who had arranged the TRCH merger, received Wells notices from the SEC. Wells notices are sent only when an investigation has been substantially completed by the Enforcement Division and the Division has decided to bring a lawsuit. The Commission will, however, have the last word on that. Meanwhile, the recipients of the notices may present a response, hoping to avoid enforcement action. That is rarely successful, and because the response will disclose information that may eventually be used against the recipient(s), some attorneys recommend that their clients avoid taking that route. 

Nearly six months later, in January 2024, MMAT issued a press release to explain it had made a settlement offer to the SEC in the hope of extracting itself from the lawsuit. The terms proposed were simple:

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, the Company would neither admit nor deny the findings in the Order. If approved, in connection with the Proposed SEC Settlement, the Company will pay a civil money penalty in an amount of $1 million in four (4) installments over the period of one (1) year pursuant to an agreed upon payment plan.

The Commission didn’t make an immediate decision. But on June 25, it issued an Order instituting cease-and-desist proceedings against the company. The litigation notice explaining the action provides an unusually long narrative describing what had happened. The commission found that the company had:

… artificially inflated the value of its common stock by structuring a merger between its predecessor entities (Torchlight Energy Resources and Metamaterial Inc.) to include an unregistered preferred stock dividend that would not be immediately publicly tradeable (the “Preferred Dividend”), specifically designed to cause a “short squeeze.” Respondent privately and selectively disseminated—through paid consultants, private conversations with investors, and via social-media messages—the theory that the Preferred Dividend would cause a short squeeze by forcing short-sellers in Respondent’s stock to cover their positions before Torchlight issued the Preferred Dividend or risk violating their short contracts by having difficulty delivering the Preferred Dividend when the merger closed. But Respondent never disclosed in its public filings its intent to cause a short squeeze, and it waited until the last minute to announce the ATM Offering to capitalize on what Respondent believed would be a short-term price inflation of its stock.

The two companies had deliberately sparked a short squeeze and had profited illegally from their manipulation. The individuals behind the scheme were John Brda, who was Torchlight’s CEO from 2014 until the merger with MMAT, which was finalized on June 28, 2021, and Georgios (“George”) Palikaras, who’d been Meta’s CEO and President from 2011 to 2021. Upon completion of the merger, he became CEO and President of MMAT. He was fired in October 2023 and resigned from the board. Brda also used “consultants” to “introduce” the company and its stock to potential investors. No records were kept of Brda’s monthly payments to them of $3,000 to $5,000.

In a virtual meeting with a group of Italian investors, Palikaras described the plan precisely:

And there is one more element to add here, which is the, let’s call the x-factor. If you notice the Torchlight stock is massively shorted…This deal is set up not to give a [cash] dividend at closing… As a result, there is no physical way for the shorts to cover the stock when the time to close, and we believe …the close, it’s called a short squeeze… (emphasis added).

Less than a month later, someone claiming to have been on the call posted an account of it on social media, and a Reddit user posted a partial recording of Palikaras’s remarks.

The two men discussed the spinoff that would be the home of TRCH’s remaining gas and oil assets and decided it would be called “Next Bridge Hydrocarbons, Inc.” In January 2021, Brda began paying $20,000 a month to individuals who’d form Next Bridge’s initial management team. The assets were talked up as being very valuable. Palikaras said in his call to the Italian investors that the MMTLP dividend would be worth between $1 and $20 a share.  Ultimately, the MMTLP stock was replaced by (untradable) Next Bridge stock. None of the assets that make up Next Bridge have been sold, as was originally intended.

In mid-June 2021, Brda created a graphic to circulate on social media using the hashtag “#TORCHDAY.” The graphic went on to explain that “[Torchlight] is a heavily shorted stock, and due to the fact a preferred share dividend is being granted to stockholders SHORTS HAVE TO COVER which can lead to a short squeeze of the stock.”

This campaign—and there was a good deal more to it—was blatant securities manipulation. The record date for the preferred stock dividend was June 24. Palikaras issued a press release reminding interested parties that they’d better pick up some TRCH by the 22nd, taking into account the two-day settlement. The Order notes that “Torchlight’s stock price immediately reacted, jumping from $3.58 to $5.07. It would reach $10.88 in the days leading up to the June 25 merger close.” Better yet:

The day after Torchlight’s stock price increased dramatically in response to the news of the Record Date announcement, Torchlight executed a sales agreement with an investment bank to conduct the ATM Offering. As a result of the ATM Offering, Torchlight sold 16.2 million shares of common stock between June 18 and June 24, at an average price of $8.50 per share, raising $137.5 million. Over 95% of that volume was sold prior to the “T plus 2” date of June 22, 2021.

 Torchlight’s stock reached its highest price around the “T plus 2 date” of June 22, 2021 just as Torchlight, Brda, and Palikaras predicted. But after closing at $9.92/share on June 21st, and $7.00/share on June 22nd, the stock price fell dramatically. On June 25, 2021, the Preferred Dividend payment date, the stock closed at $4.95/share. The following Monday (June 28th), after Torchlight announced a 2-for-1 reverse stock split and the completion of its merger with Meta I, the company’s new ticker (MMAT) closed at $3.98/share (after accounting for the reverse split, less than half its prior day close).

The SEC also filed a civil lawsuit against John Brda and George Palikaras. The complaint essentially repeats the allegations contained in the order discussed above. The litigation doesn’t go beyond what Brda and Palikaras did between 2020 and mid-2022. But should the agency wish to bring it up to date, that would certainly be possible. Both men continued to push their short squeeze theories, encouraging shareholders’ beliefs that an organic squeeze would occur in MMTLP and that FINRA had robbed them of windfall profits. 

The lawsuit against Brda and Palikaras is moving along. Both have lawyered up, and both have filed motions to remove the case to the Eastern District of Texas, where Torchlight was located and where Next Bridge is located now. 

Chapter 7 Bankruptcy

In the past year, Meta Materials has slowly wound down. Although Next Bridge Hydrocarbons is not a publicly traded company, it’s an SEC filer and is required to submit periodic financial filings. It’s behind with that since its former auditor, BF Borgers, was charged with fraud by the SEC on May 3, 2024. MMAT has used KMPG since 2020, and so was at least not required to find a new auditor quickly. 

But apart from that, Meta’s had no luck at all. This past spring, it abandoned its 68,000-square-foot “customer center” in Dartmouth. In early July, it sold one of its acquisitions, Nanotech Security Corp., to Authentix for US $10 million. It had paid Canadian $90.9 million for it in October 2021. Two subsidiaries declared bankruptcy. MMAT fired 80 percent of its workforce. And to add insult to injury, a resentful George Palikaras briefly took control of the company’s website, AllNovaScotia reported. 

And so, on Friday, August 9, MMAT threw in the towel and declared bankruptcy. That would be unwelcome under any circumstances, but to make bad news worse, it chose Chapter 7 bankruptcy, which is a liquidation. 

When a debtor becomes insolvent, and the bankruptcy proceeding begins, the debtor will either liquidate its assets or reorganize its debts. The liquidation route is governed by Chapter 7 of the Bankruptcy Code. There are alternatives to Chapter 7:

For example, debtors who are engaged in business, including corporations, partnerships, and sole proprietorships, may prefer to remain in business and avoid liquidation. Such debtors should consider filing a petition under chapter 11 of the Bankruptcy Code. Under chapter 11, the debtor may seek an adjustment of debts, either by reducing the debt or by extending the time for repayment, or may seek a more comprehensive reorganization.

MMAT has terminated all its officers instead, and its board of directors has resigned. The company will close its doors.

FINRA, in its explanation of corporate bankruptcy and how it affects shareholders, describes Chapter 7 as the “more nuclear option.”  the company ceases operations, and its assets are put up for sale by a court-appointed trustee. The proceeds are distributed to debtors in the order of the seniority of their debt. “Seniority” does not mean how old the debt may be. It refers to the type of debt. 

The principles of Chapter 7 are simple. A trustee will be appointed, and he or she will sell all of the company’s assets and use the money to pay creditors. He’ll first pay off secured debt, then subordinated debt, then preferred shareholders, and finally, common shareholders. Usually, common shareholders don’t see a penny, and their stock is cancelled.

There are other potential problems for the company or people once associated with the company:

Alter ego claims. A creditor can go after an individual’s personal assets if it can prove that the corporation or LLC was a sham or an alter ego of the shareholder. Establishing this type of claim involves filing a lawsuit to pierce the corporate veil that shields a stakeholder’s private assets from the business’s creditors. A successful suit opens up more assets from which the creditor can collect.

Other fraud claims. Most fraud involves an attempt to hide money from creditors. If proven, an individual would be required to make the harmed party whole (pay the money back) and possibly face criminal penalties.

Personal guarantees. An individual can agree to be responsible for business debts by cosigning or personally guaranteeing a loan or pledging personal assets as collateral—a common practice when a business lacks a profit history or valuable assets.

It’s easy to see how these could come into play with Meta Materials. 

There is no good news for shareholders. Some will accept what’s happened and move on. Others are already developing new conspiracy theories. A poster at X—formerly Twitter—wrote on Friday:

$MMAT who’s buying? lol 2.2M shares trades ADV is 900k. The chart looks like someone trying to buy it all up quietly. I don’t think this story is over. I’ll be interested to see how it unravels, if not all under the table.

https://x.com/West16B/status/1821957026844422348

A few others agreed with him, and in a second message he added:

I think it deeper than another company. If it’s honeywell I believe it’s being done at the direction of a bigger, more powerful entity

https://x.com/West16B/status/1822036093035815226

Also, on the 9th, Palikaras was holding forth at Facebook:

MTCI IS THE HEADQUARTERS OF META in Halifax. It has owned all the ARfusion IP that companies like Apple (who contacted me earlier this year interested in the tech, who I connected to the team for DD before they fired everyone) and other large companies, it owned IP patents developed in house and also acquired from Interglass and Google. estimated over 100 patents gone. All the friendly zero interest debt by ACOA gone. I now know who the appointed receiver is. I will investigate. We may see some nefarious companies like patent trolls or competitors show up to take over these assets offering no value to shareholders. My opinion is that they are selling whatever they can to keep their salaries going… I am interviewing law firms to lead (possibly more that one) class and derivative actions. They cannot hide from shareholders. #RESIGN #MMAT

https://www.facebook.com/groups/1888277714712855/posts/2537147479825872/?_rdr

We wonder who Palikaras thinks should resign. All of the principals of the company have done so. There is no reference to any “MCTI” in MMAT’s recent SEC filings; that appears to be a dead end as well. 

For further information about this securities law blog, please contact Brenda Hamilton, Securities Attorney, at 200 E. Palmetto Park Rd, Suite 103, Boca Raton, Florida, (561) 416-8956, or by email at [email protected]. This securities law blog post is provided as a general informational service to clients and friends of Hamilton & Associates Law Group and should not be construed as and does not constitute legal advice on any specific matter, nor does this message create an attorney-client relationship. Please note that the prior results discussed herein do not guarantee similar outcomes.

Hamilton & Associates | Securities Attorneys
Brenda Hamilton, Securities Attorney
200 E. Palmetto Park Rd., Suite 103
Boca Raton, Florida 33432
Telephone: (561) 416-8956
Facsimile: (561) 416-2855
www.SecuritiesLawyer101.com