Business context and reporting period
Filing identity: This is Sustainable Opportunities Acquisition Corp. (SOAC)’s Form 10-Q for the quarter ended March 31, 2021—not a 10-Q filed by TMC The Metals Co Inc. SOAC was a blank-check company seeking a business combination; it had not begun operating activities.
On March 4, 2021, SOAC agreed to combine with DeepGreen Metals Inc. The transaction was expected to close in the second quarter of 2021, subject to shareholder approval and other conditions. SOAC also disclosed a proposed $330.3 million PIPE financing, contingent on the combination closing.
Financial results and liquidity
- Revenue: No operating revenue; SOAC expected none before completing a business combination.
- Net income: $31.9 million in Q1 2021, versus a $59,000 net loss in Q1 2020. The 2021 result was driven by a noncash $34.88 million gain from the decrease in warrant liabilities, not operating performance.
- Expenses: General and administrative expenses were $3.01 million, compared with $59,000 in the prior-year quarter. No operating margin is meaningful for this pre-combination SPAC.
- Cash flow: Operating cash outflow was $129,587; cash declined from $1.30 million at year-end 2020 to $1.17 million at March 31, 2021.
- Liquidity: Current assets were $1.37 million and current liabilities $4.76 million, resulting in a $3.39 million working-capital deficit. The $300.1 million Trust Account was principally reserved for a business combination or shareholder redemptions, rather than ordinary operating needs.
- Debt and other liabilities: No Working Capital Loans were outstanding. Total liabilities were $37.3 million, including $22.05 million of warrant liabilities and $10.5 million of deferred underwriting commissions. Shareholders’ equity was negative $35.9 million, with redeemable public shares presented outside permanent equity.
Material changes versus the prior comparable period
Net income rose from a $59,000 loss to $31.9 million of income, primarily because of the warrant fair-value gain; G&A expenses also increased substantially. The warrant liability fell from $56.93 million at December 31, 2020 to $22.05 million at March 31, 2021. Public shares classified as subject to possible redemption increased from 22.7 million to 30.0 million.
On May 24, 2021, SOAC filed an amended 2020 Form 10-K to restate prior financial statements regarding warrant accounting. The filing says the noncash restatement did not affect previously reported cash, total assets, revenue, or cash flows.
Outlook, risks, contingencies, and unusual items
- Management said the limited cash outside the Trust Account and working-capital deficit raised substantial doubt about SOAC’s ability to continue as a going concern through November 8, 2021. Additional sponsor or third-party funding was not assured.
- SOAC had to complete a business combination by November 8, 2021, or wind up and redeem public shares under the stated terms. The proposed DeepGreen transaction and PIPE remained subject to closing conditions.
- A consulting agreement included a $2.65 million fee payable only upon a completed business combination and an accrued termination fee of $1.53 million at March 31, 2021. Deferred underwriting commissions of $10.5 million would be payable only if a business combination closed.
- Management concluded disclosure controls and internal control over financial reporting were ineffective at March 31, 2021, citing a material weakness in accounting for warrants. Remediation efforts were underway, with no assurance they would be successful.
- The filing identified possible negative interest rates on Trust Account investments as a risk that could reduce shareholder redemption proceeds below $10 per share. Management also said the specific impact of COVID-19 was not readily determinable.
- No legal proceedings were reported. The filing states there were no material changes to previously disclosed risk factors apart from the negative-interest-rate risk.
Important facts for investors to verify
- Confirm the issuer: this filing is SOAC’s, not TMC’s; verify whether a TMC filing was intended.
- Check the subsequent status and final terms of the DeepGreen business combination and the $330.3 million PIPE, including shareholder approval and closing conditions.
- Assess funding and going-concern risk using cash available outside the Trust Account, not the Trust Account balance alone.
- Review the warrant-accounting restatement, material weakness, remediation progress, and any later control-effectiveness disclosures.
- Verify potential redemption levels, transaction-related fees, and the effect of any shareholder redemptions on funds available at closing.