TMC The Metals Co Inc. quarterly report, Q2 FY2021

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Business context and reporting period

This is Sustainable Opportunities Acquisition Corp.’s (SOAC) unaudited Form 10-Q for the quarter and six months ended June 30, 2021—not an operating-company filing for TMC The Metals Co. SOAC was a blank-check company that had not begun operations or generated operating revenue. It had agreed to combine with DeepGreen Metals Inc., the proposed transaction that would result in the business now associated with TMC.

Key financial metrics

  • Revenue: None; SOAC had no operating revenue.
  • Results: Q2 2021 net loss was $17.2 million, compared with net income of about $7,000 in Q2 2020. First-half 2021 net income was $14.7 million, versus a $52,000 net loss in first-half 2020. Results were principally affected by noncash warrant fair-value changes: a $13.7 million loss in Q2 and a $21.2 million gain for the first half of 2021.
  • Expenses: General and administrative expense was $3.5 million for Q2 and $6.5 million for the first half of 2021, up from $0.3 million and $0.4 million, respectively, in the 2020 periods.
  • Cash flow and liquidity: Operating activities used $1.0 million in cash in the first half of 2021. June 30 cash was $293,323, and the working capital deficit was $6.86 million. The Trust Account held approximately $300.1 million, restricted for the business-combination or redemption process.
  • Liabilities and equity: Total liabilities were $53.5 million, including a $35.8 million warrant liability and $10.5 million of deferred underwriting commissions. Shareholders’ equity was a deficit of $53.1 million. The filing reports no outstanding Working Capital Loans; it does not describe conventional funded debt.
  • Margins: Not meaningful because SOAC had no operating revenue.

Material changes versus the prior comparable period

First-half general and administrative expense increased substantially from 2020 as SOAC pursued a transaction. The shift to first-half net income from a small loss was driven mainly by the change in warrant liability fair value, rather than operating performance. Cash declined from $1.30 million at December 31, 2020 to $293,323 at June 30, 2021; the working capital deficit and accrued expenses increased.

Outlook, risks, contingencies, and unusual items

  • The March 2021 agreement contemplated a DeepGreen business combination, expected to close in Q3 2021 subject to shareholder approval and other conditions. The proposed transaction included a stated $2.25 billion implied DeepGreen equity value and a contingent $330.3 million PIPE financing.
  • SOAC faced an November 8, 2021 deadline to complete a business combination or redeem public shares and liquidate. Management said additional financing might be needed and warned that its limited cash raised substantial doubt about its ability to continue as a going concern through that deadline.
  • A consulting agreement included a $2.65 million fee payable only if a business combination closed and a termination fee that had accrued to $1.95 million at June 30, 2021.
  • Management reported ineffective disclosure controls and internal control over financial reporting due to a material weakness involving accounting for warrants. Remediation steps had begun but were not yet fully evidenced. Management stated the interim financial statements were fairly presented in all material respects.
  • The filing identified possible negative interest rates on Trust Account investments as a risk to public-share redemption value. It also said the financial impact of COVID-19 was not readily determinable. No legal proceedings or off-balance-sheet arrangements were reported.

Important facts for investors to verify

  1. Confirm the filing entity and distinguish SOAC’s SPAC financial statements from TMC’s later operating-company results.
  2. Check whether the DeepGreen transaction, shareholder approvals, and PIPE financing closed on the expected terms and timing.
  3. Assess public-share redemptions, available transaction cash, and the effect of the $10.5 million deferred underwriting commission.
  4. Review the warrant valuation and the status of remediation of the disclosed material weakness.
  5. Track liquidity and the business-combination deadline; the filing warned that failure to secure financing or complete a transaction could lead to liquidation.