The following discussion and analysis of the Company's financial condition and results of operations should be read in conjunction with its consolidated financial statements and related notes, each included elsewhere in this Annual Report on Form 10-K. This discussion contains forward-looking statements based upon current plans, expectations and beliefs that involve risks and uncertainties. Our actual results and the timing of certain events could differ materially from those anticipated in or implied by these forward-looking statements as a result of several factors, including those discussed in the section titled "Risk Factors" included under Part I, Item 1A and elsewhere in this Annual Report. See "Note about Forward-Looking Statements" in this Annual Report. This Report on Form 10-K contains references to the Company's trademarks and to trademarks belonging to other entities. Solely for convenience, trademarks and trade names referred to in this Report on Form 10-K, including logos, artwork and other visual displays, may appear without the ® or TM symbols, but such references are not intended to indicate, in any way, that the Company will not assert, to the fullest extent under applicable law, the Company's rights or the rights of the applicable licensor to these trademarks and trade names. We do not intend for the Company's use or display of other companies' trade names or trademarks to imply a relationship with, or endorsement or sponsorship of the Company by any other companies.
OVERVIEW
Impact of COVID-19 on the Company's Business
DuringMarch 2020 , the COVID-19 outbreak was declared a pandemic by theWorld Health Organization . This has resulted in governments worldwide enacting emergency measures to combat the spread of the virus. In response, the Company's management implemented a Work-From-Home policy for management and non-engineering employees in all of the Company's locations for various periods through Fiscal 2020 and Fiscal 2021 as was required or deemed prudent by management. Engineering staff continued to work on given tasks and followed strict safety guidelines. As ofNovember 2021 , the majority of the Company's employees had returned to the workplace. Although the Company's supply chain has slowed down, the Company is currently able to maintain inventory of long lead items and is working with its suppliers to optimize future supply orders COVID-19 has impacted the Company's 2020 and 2021 sales of its metaAIR® laser protection eyewear product. Worldwide restrictions on travel are significantly impacting the airline industry and purchasing of metaAIR® eyewear has not been the primary spending focus of airline companies emerging from the financial impacts of COVID-19, however, the Company is pursuing sales in adjacent markets such as consumer, military and law enforcement. The situation is dynamic and the ultimate duration and magnitude of the impact of COVID-19 on the economy and financial effect specific to the Company cannot be quantified or known at this time. BUSINESS AND OPERATIONAL HIGHLIGHTS Throughout 2021, the Company's activities were focused on its research and development efforts as well as expansion of its intellectual property estate. As the Company moves into 2022, new emphasis will be placed on investments in pilot scale manufacturing of NANOWEB® products, expansion of its production capacity in our banknote and brand security lines and more aggressive design, development and clinical testing of its array of medical products. These efforts represent an efficient approach to monetizing the Company's intellectual property assets.
The Company leased approximately 53,000 square foot facility inDartmouth, Nova Scotia , with the lease commencing onJanuary 1, 2021 . The facility will host the Company's holography and lithography R&D labs and manufacturing operations. The Company also amended this lease agreement onJune 9, 2021 to expand the leased space by approximately 15,000 square feet, reduce the annual rent for the 10-year term of the lease and obtain from the landlord CA$0.5 million in cash to fund ongoing tenant improvements. In exchange, the landlord received 993,490 shares of MMI common stock at CA$3.40 per share. As atDecember 31, 2021 , the Company has purchased equipment for approximately$1.5 million as well as spent$3.84 million on construction work. The Company will continue to incur additional construction and equipment costs through 2022. 23 --------------------------------------------------------------------------------
During 2021, the Company signed multiple lease amendments with its lessor inPleasanton, California to expand the leased space of the facility inthe United States to include additional space of 14,379 square feet as well as extend the duration of the leased spaces untilSeptember 30, 2026 . The Company has spent approximately$4.3 million on equipment including its first pilot scale roll-to-roll line which is expected to be ready for low volume production during the second half of fiscal year 2022. The Company has also spent$1 million on leasehold improvementsThurso facility As part of the Nanotech acquisition, the Company acquired property plant and equipment with an estimated fair value of$25.8 million including a 105,000 square foot facility inThurso, Quebec . Approximately 35,000 square feet is being utilized for existing production capacity, and the remaining 70,000 square feet is available to expand output to facilitate future growth. RESULTS OF OPERATIONS Revenue and Gross Profit Year ended December 31, 2021 2020 Change 2019 Change $ $ $ % $ $ % Product sales 407,915 2,905 405,010 13942 % 23,745 (20,840 ) -88 % Development revenue 3,674,602 1,119,278 2,555,324 228 % 878,665 240,613 27 % Total Revenue 4,082,517 1,122,183 2,960,334 264 % 902,410 219,773 24 % Cost of goods sold 675,973 3,254 672,719 20674 % 9,172 (5,918 ) -65 % Gross Profit 3,406,544 1,118,929 2,287,615 204 % 893,238 225,691 25 % Gross Profit percentage 83 % 100 % -17 % 99 % 1 % Product sales include products, components, and samples sold to various customers. During the year endedDecember 31, 2021 , the Company began earning revenue from development samples sold to certain customers. The$0.4 million increase in product sales in 2021 compared to 2020 is due to:
•
•
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Incidental revenue generated by product sales of holoOPTIXTM to different customers
There was minimal change in product sales between 2019 and 2020.
Development revenue is comprised of revenue from contract services and other development revenue. The increase in development revenue of$2.6 million in 2021 compared to 2020 is primarily due to:
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$1.7 million in revenue recognized by Nanotech from contract services subsequent to its acquisition by the Company. Nanotech currently derives a significant portion of its revenue from contract services with a confidential G10 central bank. In 2021, Nanotech entered into a development contract for up to$41.5 million over a period of up to five years. These contract services incorporate both nano-optic and optical thin film technologies and are focused on developing authentication features for future banknotes.
•
•
The increase in development revenue of$0.2 million in 2020, compared to 2019, is Primarily due to revenue recognized from statements of work with different customers. The increase of$0.7 million in cost of sales in 2021, compared to 2020, is primarily due to$0.17 million in cost of sales incurred by Nanotech subsequent to its acquisition by the Company, as well as$0.16 million in cost of sales incurred in generating other product sales. There was minimal decrease in cost of sales in 2020 compared to 2019. 24 --------------------------------------------------------------------------------
Operating expenses Year ended December 31, 2021 2020 Change 2019 Change $ $ $ % $ $ % Operating Expenses Selling & Marketing 2,267,354 1,064,659 1,202,695 113 % 1,125,719 (61,060 ) -5 % General & Administrative 29,699,601 6,707,858 22,991,743 343 % 4,819,737 1,888,121 39 % Research & Development 9,497,427 4,102,791 5,394,636 131 % 3,825,194 277,597 7 % Total operating expenses 41,464,382 11,875,308 29,589,074 249 % 9,770,650 2,104,658 22 %
The increase in selling and marketing expenses in 2021, compared to 2020, is primarily due to:
•
o
o
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$0.2 million increase in trade shows and travel and entertainment due to the market rebound after COVID-19 and reopening of trade shows. The Company participated in global tradeshows including AWE in USA andAsia for augmented reality ("AR") and 5G networks, Photonics West for holoOPTIX and AR, CES for various industries and technologies such as 5G networks, augmented reality, consumer electronics, automotive, and medical applications.
There was a minimal decrease in selling and marketing expenses in 2020 compared to 2019.
The increase in general and administrative expenses in 2021, compared to 2020, is primarily due to:
•
•
o$4.1 million of expenses relating to the management of, and maintenance of the Oil and Gas assets ("O&G assets") acquired via the Torchlight RTO, including$3.1 million paid to consultants in the form of warrants as well as$0.9 million paid in cash. o
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o$2.0 million increase due to incurring an additional$1.1 million in salaries expense for general headcount expansion in 2021 as well as recording accrued bonuses of$0.9 million . o
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o$2.7 million warrants and RSUs issued to non-employee consultants in 2021. The fair value of warrants was calculated based on the Monte Carlo simulation valuation technique. The fair value of RSUs was calculated using the grant date share price. Refer to note 14 in Item 8. "Financial Statements and supplementary data" for more details. o
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$1.6 million increase in rent and utilities due to the new lease for the Company'sHighfield Park facility inNova Scotia, Canada , the expansion of thePleasanton facility inCalifornia , the opening of new administrative locations inBoxborough, Massachusetts andPlano, Texas , and new research and development office inAthens, Greece .
•
•
The increase in general and administrative expenses in 2020, compared to 2019, is primarily due to:
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$1.1 million increase in legal and audit fees for work related to the preparation for the Torchlight RTO and the closing of the CPM RTO,$0.2 million increase in investment banking services, and$0.2 million increase in investor related expenses due to preparation for the acquisition of Torchlight.
•
The increase in research and development expenses in 2021, compared to 2020, is primarily due to:
•
•
•
The increase in research and development expenses in 2020, compared to 2019, is
primarily due to
Other expense Year ended December 31, 2021 2020 Change 2019 Change $ $ $ % $ $ % Other expense: Interest expense, net (1,106,445 ) (1,429,954 ) 323,509
-23 % (1,135,922 ) (294,032 ) 26 % Loss on foreign exchange, net (205,882 ) (264,831 ) 58,949
-22 % (316,261 ) 51,430 -16 % Loss on financial instruments, net (40,540,091 ) (844,993 ) (39,695,098 )
4698 % (280,319 ) (564,674 ) 201 % Other (loss) income, net
(11,939,068 ) 1,491,188 (13,430,256 )
-901 % 2,081,398 (590,210 ) -28 % Total other expense (53,791,486 ) (1,048,590 ) (52,742,896 )
5030 % 348,896 (1,397,486 ) -401 %
The$0.2 million decrease in interest expense in 2021 compared to 2020 was due to the settlement of certain of the Company's convertible promissory notes and debentures, converted into MMI common stock during the year endedDecember 31, 2021 , resulting in less interest expense being incurred. The$0.3 million increase in interest expense in 2020 compared to 2019 was due to a$5 million loan obtained from BDC and issued inApril 2020 as well as issuance of$1 million in unsecured convertible debentures in the first half of fiscal year 2020. The increase in loss on financial instruments in 2021, compared to 2020, was due to the re-measurement of convertible financial liabilities with carrying value of$12.0 million at the conversion dates and a recognition of a$40.2 million non-cash realized loss in the statements of operations and comprehensive loss. The increase in the fair value of convertible financial liabilities was due to the increase in the Company's stock price from CA$0.66 as atDecember 31, 2020 to:
•
CA$3.01 at
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CA$3.01 atFebruary 16, 2021 when the Company converted unsecured convertible debentures of$1.5 million principal and interest at share price of CA$0.70 as per terms of the agreement and;
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CA$3.80 at
26 -------------------------------------------------------------------------------- Each of the above referenced promissory notes and debentures included a conversion feature, exercisable at the option of the debt holder. For accounting purposes, each of these conversion features was an embedded derivative in the note or debenture. The Company elected to account for fluctuations in (a) the value of the liabilities driven by interest rate volatility and the Company's credit risk and (b) the embedded derivatives driven by fluctuations in the Company's common stock share price, using the fair value option. This accounting method calls for the Company to measure the fair value of the convertible financial liabilities at each balance sheet date and to record any non-cash adjustments relating to instrument-specific credit risk in other comprehensive income, and non-cash adjustments relating to other factors in the statements of operations. If, as was the case for the liabilities described above, the debt is converted, the valuations and any adjustments are to be recorded as of the date of such conversion. The fair value option also provides that the total revaluation adjustment, in this case$40.2 million , be recorded in common stock and additional paid in capital along with the$10.2 million principal and interest portion, resulting in an increase to stockholders' equity despite the recording of the$40.2 million loss in the statement of operations. The recorded loss is a non-cash expense. The creditors of the Company exchanged their secured and unsecured debt for common stock of the Company at conversion prices that were established at the time the instruments were created and, at which time, represented a conversion price close to or higher than the then market price of the common stock. Had the Company been permitted to pay off the debts in cash at the time of conversion, fewer shares would have been required to be issued and a lower loss would have been recorded. However, the instruments prevented any pre-payment of the debts by the Company. The conversions had the beneficial effect of significantly reducing the Company's liabilities and eliminating broad-based security interests in all of the Company's assets previously held by the creditors. The$0.6 million increase in loss on financial instruments in 2020 compared to 2019 is primarily due to the re-measurement of convertible financial liabilities with carrying value of$12.0 million at the conversion dates and a recognition of a$0.8 million non-cash realized loss in the statements of operations and comprehensive loss. The$13.0 million decrease in net other income in 2021, compared to 2020, is primarily due to costs incurred in relation to certain drilling activity carried out by the company at its Oil and Gas ("O&G") properties, to remain in compliance with all aspects of the Company's lease obligations and to satisfy the Continuous Drilling Clause ("CDC") with University Lands. The Company was successful in maintaining lease compliance and is moving forward with the planned spin-out of the O&G assets.
The
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•
•
Offset by a
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Deferred Tax recovery Year ended December 31, 2021 2020 Change 2019 Change $ $ $ % $ $ % Income tax recovery 852,063 193,710 658,353 340 % 83,549 110,161 132 %
The Company records deferred income tax liabilities for some of its foreign
subsidiaries in
•
an increase in accumulated losses, as well as changes in foreign exchange rates,
in the Company's foreign subsidiary in
•
an increase in accumulated losses, intangibles amortization and changes in
foreign exchange rates in Nanotech securities, the Company's wholly owned
subsidiary, pursuant to its acquisition on
The increase in income tax recovery in 2020, compared to 2019, was driven by:
•
an increase in accumulated losses, as well as changes in foreign exchange rates,
in the Company's foreign subsidiary in
The Company has not yet been able to establish profitability or other sufficient significant positive evidence, to conclude that its deferred tax assets are more likely than not to be realized. Therefore, the Company continues to maintain a valuation allowance against its deferred tax assets.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity risk is the risk that the Company will not meet its financial obligations as they become due after use of currently available cash. The Company has a planning and budgeting process to monitor operating cash requirements, including amounts projected for capital expenditures, which are adjusted as input variables change. These variables include, but are not limited to, the ability of the Company to generate revenue from current and prospective customers, general and administrative requirements of the Company and the availability of equity or debt capital and government funding. As these variables change, the Company may be required to issue equity or obtain debt financing. AtDecember 31, 2021 , the Company had cash and cash equivalents of$46.6 million including$0.8 million in restricted cash compared to$1.4 million in cash and cash equivalents atDecember 31, 2020 . In addition, and as ofDecember 31, 2021 , the Company holds short-term investments amounting to$2.8 million (December 31, 2020 : $Nil). For the year endedDecember 31, 2021 , the Company's principal sources of liquidity included$147 million of cash obtained through the Torchlight RTO,$14.0 million in cash obtained through convertible debt,$1.8 million in cash obtained through revenue and deferred revenue, and$1.1 million in cash obtained through long-term and short-term interest-free debt. The Company's primary uses of liquidity included the Nanotech acquisition of$66.1 million net of cash acquired, salaries of$10.3 million , legal and audit fees of$6.3 million , professional service fees of$11.0 million and, Oil and Gas drilling costs of$12.5 million . The Company believes that its existing cash will be sufficient to meet its working capital and capital expenditure needs as production capacity begins to come on line. The Company may need to raise additional capital to expand the commercialization of its products, fund its operations and further its research and development activities. Future capital requirements may vary materially from period to period and will depend on many factors, including the timing and extent of spending on research and development efforts, the capital expansion of its facilities inHalifax andCalifornia and the ongoing investments to support the growth of its business. The Company also has the option to raise equity through issuing common stock of up to approximately$112.5 million under an existing At-The-Market equity program where the Company's shares have been registered under the Securities Act of 1933, as amended, pursuant to the Registration Statement on Form S-3 (No. 333-256632) filed by the Company with theSecurities and Exchange Commission (the "SEC") onMay 28, 2021 , and declared effective onJune 14, 2021 (the "Registration Statement"). 28 --------------------------------------------------------------------------------
The following table summarizes META's cash flows for the periods presented:
Year ended December 31, 2021 2020 2019 Net cash used in operating activities (34,764,911 ) (7,929,047 ) (4,360,747 ) Net cash provided by investing activities 65,144,545 2,412,991 (1,195,342 ) Net cash provided by financing activities 15,655,863 6,333,827
5,328,559
Net increase in cash, cash equivalents and restricted cash 46,035,497 817,771
(227,530 )
Net cash used in operating activities
During the year endedDecember 31, 2021 , net cash used in operating activities of$36.2 million was primarily driven by a$91.0 million net loss reported for the year, and non-cash adjustments of$51.7 million mainly due to$40.5 million fair value losses on financial instruments,$8 million stock based compensation and non-cash consulting fees,$3.7 million in depreciation, amortization and impairment, and non-cash interest and accretion of$1.1 million , along with other less material line items. Change in operating assets and liabilities totaled$3.2 million . During the year endedDecember 31, 2020 , net cash used in operating activities of$7.9 million was primarily driven by$11.6 million of net loss reported for the year, and non-cash adjustments of$4.6 million mainly due to$2.3 million in depreciation and amortization,$0.9 in fair value losses on financial instruments,$1.1 million in interest expense and$1.5 million in stock-based compensation. Change in operating assets and liabilities totaled$0.9 million . During the year endedDecember 31, 2019 , net cash used in operating activities of$4.3 million was primarily driven by$8.4 million of net loss reported for the year, and non-cash adjustments of$3.3 million mainly due to$2.3 million in depreciation and amortization,$1.0 million in interest expense and$1.3 million in stock-based compensation net of$0.5 in non-cash finance income and$0.5 non-cash government assistance. Change in operating assets and liabilities totaled$0.8 million .
Net cash provided by investing activities
During the year endedDecember 31, 2021 , net cash provided by investing activities of$66.6 million was primarily driven by cash acquired as a result of the Torchlight RTO of$147 million , offset by$66.1 million in cash paid for the Nanotech acquisition,$2.9 million purchase of short-term investments,$10.4 million in property plant and equipment purchases associated with the construction of the Highfield Park Facility as well as equipment purchases for both theHighfield Park andPleasanton facilities, and a$0.9 million increase in intangibles as a result of capitalized legal cost for certain patents, as well as the acquisition of certain intellectual property assets fromInterglass Technology AG (Switzerland ). During the year endedDecember 31, 2020 , net cash provided by investing activities of$2.4 million was primarily driven by proceeds from the CPM RTO of$3.1 million offset by$0.7 million in equipment purchases and capitalized legal costs to obtain certain patents. During the year endedDecember 31, 2019 , net cash used in investing activities of$1.2 million was driven by equipment purchases and capitalized legal costs to obtain certain patents. 29
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Net cash provided by financing activities
During the year endedDecember 31, 2021 , net cash provided by financing activities of$15.5 million was primarily driven by$10.0 million in proceeds received from the issuance of unsecured convertible promissory notes to Torchlight, subsequently eliminated upon consolidation atDecember 31, 2021 ,$3.9 million in proceeds from the issuance of unsecured convertible promissory notes to an affiliate that was subsequently converted into common stock during the year and$1.4 million in proceeds from options and warrants exercise. During the year endedDecember 31, 2020 , net cash provided by financing activities of$6.3 million was primarily driven by$3.6 million in proceeds received from the issuance of secured convertible debentures toBDC Capital that was subsequently converted into common stock in 2021,$0.7 million in proceeds from issuance of unsecured convertible debentures and$0.6 million in proceeds from the issuance of convertible promissory notes to a shareholder that were subsequently converted into common stock in 2021,$0.6 million in proceeds from common stock and warrants issuances offset by$0.2 million in repayments of long-term debt. During the year endedDecember 31, 2019 , net cash provided by financing activities of$5.3 million was primarily driven by$2.4 million in proceeds received from the issuance of secured convertible promissory notes,$0.6 million in proceeds from issuance of unsecured convertible debentures and$0.8 million in proceeds from a private placement,$0.7 million in proceeds from long-term debt.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The preparation of financial statements in conformity withU.S. GAAP requires the Company to make estimates, judgments and assumptions that affect the amounts reported in the consolidated financial statements. These estimates, judgments and assumptions are evaluated on an ongoing basis. The Company bases its estimates on historical experience and on various other assumptions that it believes are reasonable at that time, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ materially from those estimates. The accounting policies that reflect the Company's more significant estimates, judgments and assumptions and which it believes are the most critical to aid in fully understanding and evaluating our reported financial results include the following: Revenue recognition - The Company's revenue is generated from product sales as well as development revenue. The Company recognizes revenue when it satisfies performance obligations under the terms of its contracts, and control of its products is transferred to its customers in an amount that reflects the consideration the Company expects to receive from its customers in exchange for those products or services. Revenue from the sale of prototypes and finished products is recognized at the point in time when control of the asset is transferred to the customer, generally on delivery of goods. The Company considers whether there are other obligations in the contract that are separate performance obligations to which a portion of the transaction price needs to be allocated. In determining the transaction price for the sale of prototypes, the Company considers the effects of variable consideration, the existence of significant financial components, non-cash consideration and consideration payable to the customer (if any).
Revenue from development activities is recognized over time, using an input method to measure progress towards complete satisfaction of the research activities and associated performance obligations identified within each contract have been satisfied.
Goodwill -Goodwill represents the excess of the purchase price in a business combination over the fair value of net tangible and intangible assets acquired. The carrying amount of goodwill is periodically reviewed for impairment (at a minimum annually) and whenever events or changes in circumstances indicate that the carrying value of this asset may not be recoverable. The Company first performs a qualitative assessment to test the reporting unit's goodwill for impairment. Based on the qualitative assessment, if it is determined that the fair value of our reporting unit is more likely than not (i.e. a likelihood of more than 50 percent) to be less than its carrying amount, the quantitative assessment of the impairment test is performed. In the quantitative assessment, the Company compares the fair value of our reporting unit to its carrying value. If the fair value of the reporting unit exceeds its carrying value, goodwill is not considered impaired and the Company is not required to perform further testing. If the carrying value of the net assets of the reporting unit exceeds its fair value, then an impairment loss equal to the difference, but not exceeding the total carrying value of goodwill allocated to the reporting unit, would be recorded. 30
-------------------------------------------------------------------------------- Acquired intangibles - In accordance with ASC 805 Business Combinations, the Company allocates the purchase price of acquired companies to the tangible and intangible assets acquired and the liabilities assumed based on their estimated fair values. Such valuations may require management to make significant estimates and assumptions, especially with respect to intangible assets. Acquired intangible assets consist of acquired technology and customer relationships. In valuing acquired intangible assets, the Company makes assumptions and estimates based in part on projected financial information, which makes assumptions and estimates inherently uncertain, particularly for early-stage technology companies. The significant estimates and assumptions used by the Company in the determination of the fair value of acquired intangible technology assets include the revenue growth rate, the royalty rate and the discount rate. The significant estimates and assumptions used by the Company in the determination of the fair value of acquired customer contract intangible assets include the revenue growth rate and the discount rate.
As a result of the judgments that need to be made, the Company obtains the assistance of independent valuation firms. The Company completes these assessments as soon as practical after the closing dates. Any excess of the purchase price over the estimated fair values of the identifiable net assets acquired is recorded as goodwill.
Although the Company believes the assumptions and estimates of fair value it has made in the past have been reasonable and appropriate, they are based in part on historical experience and information obtained from the management of the acquired companies and are inherently uncertain and subject to refinement. Unanticipated events and circumstances may occur that may affect the accuracy or validity of such assumptions, estimates or actual results. As a result, during the measurement period, which may be up to one year from the acquisition date, the Company records adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill, if the changes are related to conditions that existed at the time of the acquisition. Upon the conclusion of the measurement period or final determination of the values of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments, based on events that occurred subsequent to the acquisition date, are recorded in our consolidated statements of operations and comprehensive loss. Business combinations - The Company allocates the fair value of purchase consideration to the tangible assets acquired, liabilities assumed, and intangible assets acquired based on their estimated fair values. The excess of the fair value of purchase consideration over the fair values of these identifiable assets and liabilities is recorded as goodwill to reporting units based on the expected benefit from the business combination. Allocation of purchase consideration to identifiable assets and liabilities affects the amortization expense, as acquired finite-lived intangible assets are amortized over the useful life, whereas any indefinite-lived intangible assets, including goodwill, are not amortized. During the measurement period, which is not to exceed one year from the acquisition date, the Company records adjustments to the assets acquired and liabilities assumed, with the corresponding offset to goodwill. Upon the conclusion of the measurement period, any subsequent adjustments are recorded to earnings. Acquisition-related expenses are recognized separately from business combinations and are expensed as incurred. 31
-------------------------------------------------------------------------------- Assets held for sale - The Company determines the fair market value of the oil and gas assets held for sale on a periodic basis using inputs from a third party valuation firm skilled in the valuation of this class of assets. The Company estimated the fair value of the Orogrande property atJune 28, 2021 as the sum of the median of each of a range of fair values of identified drilling locations determined using numerous assumptions including the number of drilling locations, forecasted production volumes per drilling location, fair value per barrel of forecasted production volumes based on comparable transactions or entities with acreage proximal to theOrogrande Project property, and applying a drilling location risk factor (collectively, "drilling location assumptions"); and a range of fair values of the undeveloped land acreage determined using numerous assumptions including the number of undeveloped land acres, fair value per acre for comparable transactions or entities with acreage proximal to theOrogrande Project property, and applying an acreage risk factor (collectively, "undeveloped land assumptions"). The Company estimated the fair value of the Hazel Property atJune 28, 2021 using a discounted cash flow model. The significant estimates and assumptions used by the Company in the determination of the fair value of theHazel Project property at acquisition date included forecasted production volumes, forecasted commodity prices, and the discount rate. The Company estimated the fair value of the O&G assets atDecember 31, 2021 by obtaining a valuation study performed by a third party valuation firm. The estimates involved are consistent with those outlined above for theJune 28, 2021 valuation estimate.
Commitments and contractual obligations
For a description of the Company's commitments and contractual obligations, please see "Note 28 - Commitments and contingencies" as well as "Note 27 - Leases" in the Notes to the Consolidated Financial Statements of this Form 10-K.
Off-balance sheet arrangements
Off-balance sheet firm commitments relating to outstanding letters of credit amounted to approximately$1.1 million as ofDecember 31, 2021 . These letters of credit and bank guarantees are collateralized by$0.8 million in restricted cash. Please see "Note 27 - Commitments and contingencies" in the Notes to the Consolidated Financial Statements of this Form 10-K. The Company does not maintain any other off-balance sheet arrangements.
Recent accounting pronouncements
For a description of recent accounting pronouncements, including the expected dates of adoption and estimated effects, if any, on the Company's Consolidated Financial Statements, please see "Note 2 - Significant accounting policies" in the Notes to the Consolidated Financial Statements of this Form 10-K.
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