Meta Materials Revisited

Editor’s Note: I know what you’re thinking—the holidays are almost here, why am I not doing a year in review or some heartwarming, holiday-themed stories, or raising money for a food bank? Why am I on about that nano-materials company in Dartmouth again? The answer is a) because I have one last issue next week in which to get all seasonal and b) because things are happening with Meta Materials—in fact, something happened yesterday as I was writing my initial story, necessitating this second story—and I just can’t resist writing about them. But I think this will be the end of the wonkiness…for 2022, anyway.

 

I am going to try to update you on the latest developments with Meta Materials, the Dartmouth-based “smart” materials company that made history as Innovacorp’s first ‘unicorn’ investment, that is, the first to go public with a market capitalization in excess of $1 billion, returning a cool $100 million on the corporation’s $3 million investment.

So much has happened since we last talked about Meta Materials, beginning with the dissolution of Innovacorp, which, back in July, saw its CEO fired, its board dissolved and its operations rolled into a new entity called Invest Nova Scotia which reports to the province’s economic development minister.

If you’re worried about its CEO, Malcolm Fraser, don’t be, he hasn’t fallen far from the nest—he’s now a managing partner at Chester-based NPC Ventures, a $50 million venture capital fund that is working to solve virtually all the world’s problems or, failing that, to shepherd its portfolio companies through to successful IPOs at which point NPC can cash out, make a lot of money and leave retail investors holding the bag.

I’m not picking on NPC Ventures, that is literally how venture capital works and it’s precisely the story of Innovacorp’s Meta Materials investment, an investment Fraser continues to boast about in his NPC bio:

During his tenure at Innovacorp, he focused the entire team on supporting companies to successfully commercialize early stage technology into globally competitive businesses. This success was recently recognized as the Canadian Venture Capital Association’s Deal of the Year for Innovacorp’s $101 M gain on its Metamaterials Inc. holdings.

Innovacorp dumped its Meta Materials shares immediately following Meta’s reverse takeover of an oil and gas company called Torchlight Resources (a transaction undertaken to get Meta listed on the Nasdaq). As we’ll discuss in more detail below, Torchlight became a meme stock with an “irrational” share price and Innovacorp sold its shares while their price was close to its all-time high. The retail shareholders holding Meta Materials today have a stock worth much less.

Weirdly, though, many of those retail investors remain enthusiastic about Meta Materials. They are perhaps best exemplified by this particular one, the Bird Lady:

The difference  between Fraser and the Bird Lady, other than the headgear, is that Fraser has had his Meta Materials reward, whereas the Bird Lady is still waiting for hers, and that is the issue I’m going to try to explain this week.

 

O&G

This is a story not of smart materials but of fossil fuels; oil and gas, to be precise.

I’ve discussed Innovacorp’s unicorn investment before, most relevantly to today’s discussion here and here, but to make a long story short, Meta Materials went public by means of a reverse takeover with Torchlight Resources, a Texas-based oil and gas concern that had itself gone public in 2010 by means of a reverse takeover of Nevada-based Pole Perfect Studios, a company incorporated in 2007, according to Bloomberg, “to offer fitness classes it said were ‘centered around a ‘fireman’s pole’ often found in gentleman’s clubs.’”

Torchlight was not a going concern, it was heavily in debt and listed as “inactive” in a Texas State registry for oil and gas companies when it signed a definitive agreement with Meta Materials in December 2020. The agreement stated that Torchlight would pay a special dividend to shareholders immediately prior to the transaction closing. As it turned out, the deadline to complete the merger was extended to allow Torchlight to float a $250 million share offering to take advantage of that previously mentioned “irrational share price.”

The merger closed on June 30 and on June 24, Torchlight paid stockholders a special Series A Preferred Stock dividend on a 1 for 1 basis. The idea initially was to sell the oil and gas assets and pay stockholders a cash dividend but this morphed into spinning the oil and gas assets out into a private, non-tradable, company called Next Bridge Hydrocarbons, which the preferred stockholders would then own.

The Series A Preferred Stock traded over-the-counter (OTC)—meaning via a broker-dealer network rather than on a centralized exchange like the Nasdaq—under the symbol MMTLP.

 

FINRA says ‘Halt’

On December 6, Microcap Daily reported:

Meta Materials Inc (OTCMKTS: MMTLP) has an enormous week ahead as the short squeeze enters its final trading days and the massive estimated 80 to 100 million short position must now cover. The excitement on MMTLP is palpable with numbers like $60 per share or $80 per share at the height of the short squeeze being thrown around and many investors vowing not to sell MMTLP for less than $100 per share.

I would note here that I am quoting Microcap Daily not because it is a particularly reliable source (it’s not, as you’ll see in a moment) but because it was one of the few stock sites reporting on MMTLP.

So, word on the street was that the short sellers were out in force for MMTLP. (In case you’ve forgotten, short sellers pay a fee to borrow stock they think will  tank. They sell the stock then wait for it to drop in value, at which point they buy it back. The difference between the two prices is their profit. If the stock goes up in price instead of down, it’s called a “short squeeze” and it means they lose their shirts.)

On December 7, Meta issued a press release announcing that the Financial Industry Regulatory Authority (FINRA, the “independent non-government organization that writes and enforces the rules governing registered brokers and broker-dealer firms in the United States”) had approved the distribution to shareholders of one share in Next Bridge for every one share of MMTLP  owned as of 12 December 2022. But there was a caveat: anyone who bought their MMTLP shares after 8 December 2022 would not receive Next Bridge shares.

Somehow, many of these retail investors, who seem to live and breathe Meta Materials, missed this last bit. Enthusiasts like the Bird Lady, who is convinced Next Bridge Hydrocarbon’s assets are incredibly valuable, declared their intention to hold onto their shares until the very last moment to punish these short sellers and make the fortune they believe is theirs.

So they got caught out on December 9 when the Financial Industry Regulatory Authority (FINRA),  halted trading in the shares:

The code—U3—means trading has been halted because FINRA has determined:

…that an extraordinary event has occurred or is ongoing that has had a material effect on the market for the OTC Equity Security or has caused or has the potential to cause major disruption to the marketplace and/or significant uncertainty in the settlement or clearance process.

Why this happened depends upon whom you believe. I will summarize the two leading theories below and you can see which you find the more convincing.

 

Theory 1: FINRA is corrupt and is protecting the short sellers.

John Brda, who was the CEO of Torchlight Energy Resources and who serves as an advisor on the disposal of Meta Material’s oil and gas assets, has been loudly endorsing the theory that FINRA halted trade to protect the short sellers who were about to lose a bundle on their MMTLP shares.

Besides appearing on FOX Business to push this theory, he’s been retweeting a steady stream of tweets from retail investors (or as he calls them, the MMTLP “family”) making the same claims.

Brda told FOX the MMTLP shares were meant to be non-tradable and were brought to the over-the-counter market by two market makers (brokers wanting to trade the stock) based on “fraudulent” information. Brda claims he tried to have the trading stopped but was told that FINRA had allowed it so nothing could be done.

On the other hand, George Palikaras hasn’t said boo since his last tweets on December 6 and 7, one of which was a thank you to FINRA for approving the distribution:

THANK YOU @FINRA pic.twitter.com/NSZrP8IS8X

— George Palikaras (@palikaras) December 6, 2022

Palikaras didn’t suggest MMTLP shares were trading based on “fraudulent” information nor has he joined Brda in accusing the regulator of corruption.

 

Theory 2: FINRA is just doing its job.

That December 6 Microcap Daily story I quoted above, the one referencing  the coming short squeeze on MMTLP shares, now includes an undated update that was clearly posted after December 9. I’m going to quote it in full because it makes for rather startling reading coming, as it does, so hard on the heels of the prediction that MMTLP shares were poised to soar as high as $100 a piece: