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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2021

or

   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from       to       

Commission File Number: 001-39281

TMC THE METALS COMPANY INC.

(Exact name of registrant as specified in its charter)

British Columbia, Canada

    

Not Applicable

 

(State or other jurisdiction of incorporation or organization)

(IRS Employer Identification No.)

595 Howe Street, 10th Floor

    

 

Vancouver, British Columbia

V6C 2T5

(Address of principal executive offices)

(Zip Code)

(574) 252-9333

(Registrant’s telephone number, including area code)

Not applicable

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

    

Trading Symbols(s)

    

Name of each exchange on which registered

 

Common Shares, without par value

TMC

The Nasdaq Stock Market LLC

Redeemable warrants, each whole warrant exercisable for one Common Share, each at an exercise price of $11.50 per share

TMCWW

The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes  No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer 

    

Accelerated filer

    

 

Non-accelerated filer 

Smaller reporting company

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No

As of November 12, 2021, the registrant had 225,259,277 common shares outstanding.

TMC THE METALS COMPANY INC.

FORM 10-Q

For the quarterly period ended September 30, 2021

TABLE OF CONTENTS

    

    

Page

 

Cautionary Note Regarding Forward-Looking Statements

3

Part I

Financial Information

5

Item 1.

Financial Statements

5

Condensed Consolidated Balance Sheets as of September 30, 2021 and December 31, 2020 (Unaudited)

5

Condensed Consolidated Statements of Loss and Comprehensive Loss for the three and nine months ended September 30, 2021 and 2020 (Unaudited)

6

Condensed Consolidated Statements of Changes in Shareholders’ Equity for the three and nine months ended September 30, 2021 and 2020 (Unaudited)

7

Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2021 and 2020 (Unaudited)

9

Notes to Condensed Consolidated Financial Statements (Unaudited)

10

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

36

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

51

Item 4.

Controls and Procedures

52

Part II

Other Information

54

Item 1.

Legal Proceedings

54

Item 1A.

Risk Factors

55

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

83

Item 3.

Defaults Upon Senior Securities

83

Item 4.

Mine Safety Disclosures

83

Item 5.

Other Information

84

Item 6.

Exhibits

85

Signatures

90

2

In this Quarterly Report on Form 10-Q, the terms “we,” “us,” “our,” the “Company” and “TMC” mean TMC the metals company Inc. (formerly Sustainable Opportunities Acquisition Corp.) and our subsidiaries. On September 9, 2021 (the “Closing Date”), Sustainable Opportunities Acquisition Corp. (“SOAC” and after the Business Combination described herein, the “Company”) consummated a business combination (the “Business Combination”) pursuant to the terms of the business combination agreement dated as of March 4, 2021 (the “Business Combination Agreement”) by and among SOAC, 1291924 B.C. Unlimited Liability Company, an unlimited liability company existing under the laws of British Columbia, Canada (“NewCo Sub”), and DeepGreen Metals Inc., a company existing under the laws of British Columbia, Canada (“DeepGreen”). In connection with the Business Combination, SOAC changed its name to “TMC the metals company Inc.” (“TMC”).

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), that relate to future events, our future operations or financial performance, or our plans, strategies and prospects. These statements are based on the beliefs and assumptions of our management team. Although we believe that our plans, intentions and expectations reflected in or suggested by these forward-looking statements are reasonable, we cannot assure that we will achieve or realize these plans, intentions or expectations. Forward-looking statements are inherently subject to risks, uncertainties and assumptions. Generally, statements that are not historical facts, including statements concerning possible or assumed future actions, business strategies, events or performance, are forward-looking statements. These statements may be preceded by, followed by or include the words “believes,” “estimates,” “expects,” “projects,” “forecasts,” “may,” “will,” “should,” “seeks,” “plans,” “scheduled,” “anticipates” or “intends” or the negative of these terms, or other comparable terminology intended to identify statements about the future, although not all forward-looking statements contain these identifying words. The forward-looking statements are based on projections prepared by, and are the responsibility of, the Company’s management. Forward-looking statements contained in this Quarterly Report on Form 10-Q include, but are not limited to, statements about:

our ability to recognize the anticipated benefits of the Business Combination, which may be affected by, among other things, the commercial and technical feasibility of seafloor polymetallic nodule collection and processing;
our and our partners’ development and operational plans, including with respect to the planned uses of polymetallic nodules, where and how nodules will be obtained and processed, the expected environmental, social and governance impacts thereof and our plans to assess these impacts and the timing and scope of these plans;
the supply and demand for battery metals, copper cathode and manganese alloys;
the future prices of battery metals, copper cathode and manganese alloys;
the timing and content of International Seabed Authority’s (“ISA”) final exploitation regulations that will create the legal and technical framework for exploitation of polymetallic nodules in the Clarion Clipperton Zone of the Pacific Ocean (“CCZ”);
government regulation of mineral extraction from the deep seafloor and changes in mining laws and regulations;
technical, operational, environmental, social and governance risks of developing and deploying equipment to collect polymetallic nodules at sea and to process such nodules on land;
environmental risks;
the sources and timing of potential revenue as well as the timing and amount of estimated future production, costs of production, other expenses, capital expenditures and requirements for additional capital;
cash flow provided by operating activities;
the expected activities of our partners under our key strategic relationships;
the sufficiency of our cash on hand to meet our working capital and capital expenditure requirements;
our ability to raise financing in the future;
any litigation to which we are a party;
claims and limitations on insurance coverage;
our plans to mitigate our material weaknesses in our internal control over financial reporting;
the restatement of our quarterly financial statements;
geological, hydrological, metallurgical and geotechnical studies and opinions;
mineral resource estimates;
our status as an emerging growth company, non-reporting Canadian issuer and passive foreign investment company;
infrastructure risks;
dependence on key management personnel and executive officers;

3

political and market conditions beyond our control;
COVID-19 and the impact of the COVID-19 pandemic on our business; and
our financial performance.

These forward-looking statements are based on information available as of the date of this Quarterly Report on Form 10-Q, and current expectations, forecasts and assumptions, and involve a number of judgments, risks and uncertainties. Important factors could cause actual results, performance or achievements to differ materially from those indicated or implied by forward-looking statements such as those described under the caption “Risk Factors” in Item 1A of Part II of this Quarterly Report on Form 10-Q and in other filings that we make with the Securities and Exchange Commission (“SEC”). The risks described under the heading “Risk Factors” are not exhaustive. New risk factors emerge from time to time, and it is not possible to predict all such risk factors, nor can we assess the impact of all such risk factors on our business or the extent to which any factor or combination of factors may cause actual results to differ materially from those contained in any forward-looking statements. Forward-looking statements are not guarantees of performance. You should not put undue reliance on these statements, which speak only as of the date hereof. All forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the foregoing cautionary statements. We undertake no obligations to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

4

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

TMC the metals company Inc.

Condensed Consolidated Balance Sheets

(in thousands of US Dollars, except share amounts)

(Unaudited)

  

As at

As at

September 30

December 31

    

Note

    

2021

    

2020

ASSETS

Current

 

  

 

  

Cash and cash equivalents

 

112,640

 

10,096

Receivables and prepayments

 

139

 

129

 

112,779

 

10,225

Non-current

 

  

 

  

Exploration contracts

 

5,6

 

43,150

 

43,150

Equipment

 

1,387

 

1,310

 

44,537

 

44,460

TOTAL ASSETS

 

157,316

 

54,685

LIABILITIES

 

  

 

  

Current

 

  

 

  

Accounts payable and accrued liabilities

 

6

 

28,343

 

4,316

Deferred acquisition costs

 

5

 

 

3,440

 

28,343

 

7,756

Non-current

 

  

 

  

Deferred tax liability

 

5

 

10,675

 

10,675

Warrant liability

 

8

 

11,623

 

TOTAL LIABILITIES

 

50,641

 

18,431

EQUITY

 

  

 

  

Common shares (unlimited shares, no par value – issued: 224,385,324 (December 31, 2020 – 189,493,593))

 

9

 

284,228

 

154,431

Preferred shares (unlimited share, no par value – issued: nil (December 31, 2020 - 509,459))

 

9

 

 

550

Class A - J Special Shares

9

 

 

Additional paid in capital

 

108,022

 

45,347

Accumulated other comprehensive loss

 

(1,216)

 

(1,216)

Deficit

 

(284,359)

 

(162,858)

TOTAL EQUITY

 

106,675

 

36,254

TOTAL LIABILITIES AND EQUITY

 

157,316

 

54,685

Nature of Operations (Note 1)

Commitments (Note 13)

Subsequent Event (Note 16)

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

5

TMC the metals company Inc.

Condensed Consolidated Statements of Loss and Comprehensive Loss

(in thousands of US Dollars, except share and per share amounts)

(Unaudited)

Three months ended

Nine months ended

    

    

September 30,

September 30,

    

Note

    

2021

    

2020

    

2021

    

2020

Operating expenses

 

  

  

 

  

 

  

 

  

Exploration expenses

 

6,10

23,848

 

4,556

 

80,181

 

35,744

General and administrative expenses

10

13,334

 

2,192

 

41,138

 

3,818

Operating loss

37,182

 

6,748

 

121,319

 

39,562

Other items

  

 

  

 

  

 

  

Change in fair value of warrant liability

 

8

(878)

 

 

(878)

 

Foreign exchange loss

5

 

41

 

57

 

37

Interest expense (income)

7

342

 

(3)

 

1,003

 

(53)

Loss and comprehensive loss for the period

36,651

 

6,786

 

121,501

 

39,546

Loss per share

  

 

  

 

  

 

  

– Basic and diluted

 

11

$

0.18

 

$

0.04

 

$

0.61

 

$

0.23

Weighted average number of common shares outstanding basic and diluted

 

11

205,248,258

 

186,432,173

 

198,092,309

 

175,631,164

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

6

TMC the metals company Inc.

Condensed Consolidated Statements of Changes in Shareholders’ Equity

(in thousands of US Dollars)

(Unaudited)

Common

Preferred

Special

Additional

Accumulated Other

Three months ended September 30, 2021

    

Shares

    

Shares

    

Shares

    

Paid in Capital

    

Comprehensive Loss

    

Deficit

    

Total

June 30, 2021 (restated - Note 2)

188,901

 

550

 

 

72,541

 

(1,216)

 

(247,708)

 

13,068

Exercise of stock options (Note 10)

6,039

 

 

 

(4,366)

 

 

 

1,673

Conversion of debentures (Note 7)

26,503

 

 

 

 

 

 

26,503

Common share options–payments (Note 10)

 

 

 

9,508

 

 

 

9,508

Common shares issued for services

1,248

 

 

 

 

 

 

1,248

Net equity from Business Combination (Note 4)

60,987

 

 

 

30,339

 

 

 

91,326

Conversion of preferred shares to common shares

550

 

(550)

 

 

 

 

 

Loss for the period

 

 

 

 

 

(36,651)

 

(36,651)

September 30, 2021

284,228

 

 

 

108,022

 

(1,216)

 

(284,359)

 

106,675

Common 

Preferred

Special 

Additional 

Accumulated Other 

Three months ended September 30, 2020

    

 Shares

    

 Shares

    

Shares

    

Paid in Capital

    

Comprehensive Loss

    

Deficit

    

Total

June 30, 2020

 

144,065

 

550

 

 

32,294

 

(1,216)

 

(138,987)

 

36,706

Private placements (net of financing costs)

 

8,531

 

 

 

 

 

 

8,531

Common shares to be issued for exploration expenses (Note 6)

 

 

 

 

2,066

 

 

 

2,066

Common share options–payments (Note 10)

 

(74)

 

 

 

1,533

 

 

 

1,459

Loss for the period

 

 

 

 

 

 

(6,786)

 

(6,786)

September 30, 2020

 

152,522

 

550

 

 

35,893

 

(1,216)

 

(145,773)

 

41,976

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

7

TMC the metals company Inc.

Condensed Consolidated Statements of Changes in Shareholders’ Equity

(in thousands of US Dollars)

(Unaudited)

Common

Preferred

Special

Additional 

Accumulated Other

Nine months ended September 30, 2021

    

 Shares

    

 Shares

    

 Shares

    

Paid in Capital

    

 Comprehensive Loss

    

Deficit

    

Total

December 31, 2020

 

154,431

 

550

 

 

45,347

 

(1,216)

 

(162,858)

 

36,254

Exercise of stock options (Note 10)

 

14,297

 

 

 

(10,061)

 

 

 

4,236

Common shares issued for exploration expenses (Note 6)

 

25,664

 

 

 

(12,879)

 

 

 

12,785

Conversion of debentures (Note 7)

 

27,003

 

 

 

 

 

 

27,003

Common share options–payments (Note 10)

 

 

 

 

55,276

 

 

 

55,276

Common shares issued for services

 

1,296

 

 

 

 

 

 

1,296

Net equity from Business Combination (Note 4)

 

60,987

 

 

 

30,339

 

 

 

91,326

Conversion of preferred shares to common shares

 

550

 

(550)

 

 

 

 

 

Loss for the period

 

 

 

 

 

 

(121,501)

 

(121,501)

September 30, 2021

 

284,228

 

 

 

108,022

 

(1,216)

 

(284,359)

 

106,675

Common

Preferred

Special

Additional

Accumulated Other

Nine months ended September 30, 2020

    

Shares 

    

Shares

    

Shares

    

Paid in Capital

    

Comprehensive Loss

    

Deficit

    

Total

December 31, 2019

79,824

550

35,257

(1,216)

(106,227)

8,188

Private placement (net of financing costs)

 

20,374

 

 

 

 

 

 

20,374

Financing cost

(26)

(26)

Common shares issued for acquisition of Tonga Offshore Minerals Limited (Note 5)

28,000

28,000

Common shares to be issued for exploration expenses (Note 6)

 

 

 

 

4,957

 

 

 

4,957

Common share options–payments (Note 10)

 

(396)

 

 

 

2,089

 

 

 

1,693

Common shares issued for services

24,746

(6,410)

18,336

Loss for the period

 

 

 

 

 

 

(39,546)

 

(39,546)

September 30, 2020

 

152,522

 

550

 

 

35,893

 

(1,216)

 

(145,773)

 

41,976

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

8

TMC the metals company Inc.

Condensed Consolidated Statements of Cash Flows

(in thousands of US Dollars)

(Unaudited)

Nine months ended

September 30,

    

Note

    

2021

    

2020

Cash resources provided by (used in)

 

  

  

 

  

Operating activities

 

  

  

 

  

Loss for the period

 

  

(121,501)

 

(39,546)

Items not affecting cash:

 

  

 

Amortization

 

  

324

 

421

Expenses settled in share-based payments

 

6,10

69,357

 

16,653

Interest on convertible debentures

 

7

1,003

 

Change in fair value of warrant liability

 

8

(878)

 

Unrealized foreign exchange

 

  

(31)

 

(1)

Changes in working capital:

 

  

 

Receivables and prepayments

 

  

(8)

 

(65)

Accounts payable and accrued liabilities

 

  

23,395

 

1,188

Net cash used in operating activities

(28,339)

 

(21,350)

Investing activities

 

  

 

  

Acquisition of exploration contract

 

5

(3,440)

 

(607)

Acquisition of equipment

 

  

(402)

 

Net cash used in investing activities

(3,842)

 

(607)

Financing activities

 

  

 

  

Exercise of stock options

 

10

4,236

 

Proceeds from issuance of convertible debentures

 

7

26,000

 

Proceeds from issuance of common shares (net of fees and other costs)

 

9

 

20,348

Proceeds from Business Combination (net of fees and other costs)

4

104,465

Net cash provided by financing activities

134,701

 

20,348

Net change in cash and cash equivalents

 

  

102,520

 

(1,609)

Impact of exchange rate changes on cash and cash equivalents

 

  

24

 

(4)

Cash and cash equivalents – beginning of period

 

  

10,096

 

15,951

Cash and cash equivalents – end of period

 

  

112,640

 

14,338

Supplemental cash flow information (Note 14)

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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TMC the metals company Inc.

Notes to Condensed Consolidated Financial Statements

(in thousands of US Dollars unless otherwise stated, except share and per share amounts)

(Unaudited)

1.Nature of Operations

TMC the metals company Inc. (“TMC” or the “Company”), formerly known as Sustainable Opportunities Acquisition Corporation (“SOAC”), was incorporated as a Cayman Islands exempted company limited by shares on December 18, 2019 and continued as a corporation under the laws of the province of British Columbia, Canada on September 9, 2021. On September 9, 2021, the Company completed its business combination (the “Business Combination”) with DeepGreen Metals Inc. (“DeepGreen”) (Note 4). The Company’s corporate office, registered address and records office is located at 10th floor, 595 Howe Street, Vancouver, British Columbia, Canada, V6C 2T5. The Company’s common shares and warrants to purchase common shares are listed for trading on the Nasdaq Global Select Market (“Nasdaq”) under tickers “TMC” and “TMCWW”, respectively. In connection with closing of the Business Combination, DeepGreen merged with a wholly-owned subsidiary of SOAC and became a wholly-owned subsidiary of the Company. DeepGreen was determined to be the accounting acquirer and therefore, the prior period financial information represents the financial condition and operating results of DeepGreen.

The Company is a deep-sea minerals exploration company focused on the collection, processing and refining of polymetallic nodules found on the seafloor in international waters of the Clarion Clipperton Zone of the Pacific Ocean (“CCZ”), located about 1,300 nautical miles south-west of San Diego, California. These nodules contain high grades of four metals (nickel, copper, cobalt, manganese) critical for the transition to clean energy and infrastructure buildout. The Company is considered to have mining operations and mining properties in accordance with regulations of the U.S. Securities and Exchange Commission (“SEC”).

Exploration and exploitation of seabed minerals in international waters is regulated by the International Seabed Authority (the “ISA”), an intergovernmental organization established in 1994 pursuant to the United Nations Convention on the Law of the Sea (“UNCLOS”). ISA contracts are granted to sovereign states or have to be sponsored by a sovereign state. The Company’s wholly-owned subsidiary, Nauru Ocean Resources Inc. (“NORI”), was granted an exploration contract by the ISA in July 2011 under the sponsorship of the Republic of Nauru (“Nauru”) giving NORI exclusive rights to explore for polymetallic nodules in an area covering 74,830 km2 in the CCZ (“NORI Area”). On March 31, 2020, the Company acquired Tonga Offshore Mining Limited (“TOML”), which was granted an exploration contract by the ISA in January 2012 and has exclusive rights to explore for polymetallic nodules covering an area of 74,713 km2 in the CCZ (“TOML Area”) under the sponsorship of Kingdom of Tonga (“Tonga”). Marawa Research and Exploration Limited (“Marawa”), an entity owned and sponsored by the Republic of Kiribati (“Kiribati”), was granted rights by the ISA to polymetallic nodules exploration in an area of 74,990 km2 in the CCZ (“Marawa Area”). The Company entered into an option agreement with Marawa to purchase such tenements granted to exclusively collect nodules from the Marawa Area in return for a royalty payable to Marawa. The Company is working with its strategic partner, Allseas Group S.A. (“Allseas”), to develop a system to collect, lift and transport nodules from the seafloor to shore and with its strategic partner, Maersk Supply Service A/S (“Maersk”) to undertake resource definition and environmental baseline campaigns.

The realization of the Company’s assets and attainment of profitable operations is dependent upon many factors including, among other things: financing being arranged by the Company to continue operations, development of a nodule collection system for the recovery of polymetallic nodules from the seafloor as well as development of processing technology for the treatment of polymetallic nodules, the establishment of mineable reserves, the commercial and technical feasibility of seafloor polymetallic nodule collection and processing, metal prices, and regulatory approvals and environmental permitting for commercial operations. The outcome of these matters cannot presently be determined because they are contingent on future events.

Since March 2020, several measures have been implemented by the governments in Canada, the United States of America (“US”), Australia, and the rest of the world in the form of office closures and limiting the movement of personnel in response to the increased impact from the novel coronavirus (“COVID-19”). While the impact of COVID-19 has not been significant to the Company’s business operations to date, the current circumstances are dynamic and may negatively impact the Company’s business operations, exploration and development plans, results of operations, financial position, and cash flows.

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TMC the metals company Inc.

Notes to Condensed Consolidated Financial Statements

(in thousands of US Dollars unless otherwise stated, except share and per share amounts)

(Unaudited)

2.Restatement of Previously Issued Quarterly Financial Statements

The Company has restated its financial statements as of and for the three month period ended March 31, 2021, and as of and for the six month period ended June 30, 2021 (the “Affected Periods”) in this Quarterly Report on Form 10-Q.  The restatement resulted from the following items identified while preparing the condensed consolidated financial statements as of and for the three and nine months ended September 30, 2021:

(a) certain invoices for exploration expenses were not appropriately accrued as of June 30, 2021, resulting in a $2.7 million understatement of each of exploration expenses and accounts payable and accrued liabilities as of and for the six month period ended June 30, 2021; and
(b) the Company’s expensing of options granted in the first quarter of 2021 under the Company's Short-Term Incentive Plan (“STIP”) based on the grantee’s historical start date with the Company rather than the grant date of the options on March 4, 2021, as required by US Generally Accepted Accounting Principles (“US GAAP”), resulting in a $1.8 million overstatement of stock-based compensation expenses as of and for the three month period ended March 31, 2021, and $0.3 million understatement and $1.5 million overstatement of stock-based compensation expenses as of and for the six month period ended June 30, 2021, respectively.

Therefore, the Company is restating its financial statements for the Affected Periods (the “Restatement”).

The Company considered the guidance in Accounting Standard Codification (“ASC”) Topic 250, Accounting Changes and Error Corrections, and ASC Topic 250-10-S99-1, Assessing Materiality and ASC Topic 250-10-S99-2, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements, in evaluating whether the Company’s previously issued quarterly financial statements were materially misstated. The Company concluded the items set forth above were not material individually or in the aggregate to the quarterly financial statements presented for the Affected Periods. Therefore, amendments of the previously filed report and registration statements in which such quarterly financial statements were included was not required. The following summarizes the effect of the Restatement on each financial statement line item for each period presented.

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TMC the metals company Inc.

Notes to Condensed Consolidated Financial Statements

(in thousands of US Dollars unless otherwise stated, except share and per share amounts)

(Unaudited)

Condensed Consolidated Balance Sheets

    

    

As at March 31,

    

As at June 30,

 2021

2021

Accounts payable and accrued liabilities

 

As previously reported

 

6,430

 

9,033

 

Adjustments1

 

 

2,663

 

As restated

 

6,430

 

11,696

Total liabilities

 

As previously reported

 

44,075

 

45,869

 

Adjustments1

 

 

2,663

 

As restated

 

44,075

 

48,532

Additional paid in capital

 

As previously reported

 

63,576

 

74,069

 

Adjustments2

 

(1,848)

 

(1,528)

 

As restated

 

61,728

 

72,541

Deficit

 

As previously reported

 

(220,416)

 

(246,573)

 

Adjustments1,2

 

1,848

 

(1,135)

 

As restated

 

(218,568)

 

(247,708)

Total shareholders' equity

 

As previously reported

 

25,631

 

15,731

 

Adjustments1

 

 

(2,663)

 

As restated

 

25,631

 

13,068

1.

Reflects increase of $2.7 million in exploration expenses for the six months ended June 30, 2021 to accrue for certain exploration invoices as at June 30, 2021.

2.

Reflects decrease of $1.8 million and $1.5 million of stock-based compensation expenses for the three months ended March 31, 2021 and six months ended June 30, 2021, respectively.

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TMC the metals company Inc.

Notes to Condensed Consolidated Financial Statements

(in thousands of US Dollars unless otherwise stated, except share and per share amounts)

(Unaudited)

Condensed Consolidated Statements of Loss and Comprehensive Loss

    

    

Three Months Ended

    

Three Months Ended

    

Six Months Ended

March 31, 2021

 June 30, 20214

June 30, 2021

Exploration expenses

 

As previously reported

 

39,364

 

15,372

 

54,736

 

Adjustments1,2

 

(1,257)

 

2,854

 

1,597

 

As restated

 

38,107

 

18,226

 

56,333

General and administrative expenses

 

As previously reported

 

17,955

 

10,311

 

28,266

 

Adjustments3

 

(591)

 

129

 

(462)

 

As restated

 

17,364

 

10,440

 

27,804

Operating loss

 

As previously reported

 

57,319

 

25,683

 

83,002

 

Adjustments1,2,3

 

(1,848)

 

2,983

 

1,135

 

As restated

 

55,471

 

28,666

 

84,137

Loss and comprehensive loss for the period

 

As previously reported

 

57,558

 

26,157

 

83,715

 

Adjustments1,2,3

 

(1,848)

 

2,983

 

1,135

 

As restated

 

55,710

 

29,140

 

84,850

Loss per share - Basic and diluted

 

As previously reported

 

0.30

 

0.13

 

0.43

 

Adjustments1,2,3

 

(0.01)

 

0.02

 

0.01

 

As restated

 

0.29

 

0.15

 

0.44

1. Reflects decrease of $1.3 million for the three months ended March 31, 2021 and increase of $0.2 million and decrease of $1.1 million for the three and six months ended June 30, 2021, respectively, related to stock-based compensation expense.
2. Reflects increase of $2.7 million to accrue for certain exploration invoices for the three and six months ended June 30, 2021.
3. Reflects decrease of $0.6 million for the three months ended March 31, 2021 and increase of $0.1 million and decrease of $0.5 million for the three and six months ended June 30, 2021, respectively, related to stock-based compensation expense.
4. Results for the three month period ended June 30, 2021 have not been previously reported on a standalone basis.

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TMC the metals company Inc.

Notes to Condensed Consolidated Financial Statements

(in thousands of US Dollars unless otherwise stated, except share and per share amounts)

(Unaudited)

Condensed Consolidated Statements of Changes in Equity

    

    

As at March 31,

    

As at June 30,

2021

2021

Additional paid in capital

 

As previously reported

 

63,576

 

74,069

 

Adjustments1

 

(1,848)

 

(1,528)

 

As restated

 

61,728

 

72,541

Deficit

 

As previously reported

 

(220,416)

 

(246,573)

 

Adjustments1,2

 

1,848

 

(1,135)

 

As restated

 

(218,568)

 

(247,708)

Total shareholders' equity

 

As previously reported

 

25,631

 

15,731

 

Adjustments2

 

 

(2,663)

 

As restated

 

25,631

 

13,068

1. Reflects decrease of $1.8 million for the three months ended March 31, 2021 and decrease of $1.5 million for the six months ended June 30, 2021 related to stock-based compensation expense.
2. Reflects increase of $2.7 million to accrue for certain exploration invoices for the six months ended June 30, 2021.

Condensed Consolidated Statements of Cash Flows

    

    

Three Months Ended

    

Six Months Ended

March 31, 2021

June 30, 2021

Loss for the period

 

As previously reported

 

(57,558)

 

(83,715)

 

Adjustments1,2

 

1,848

 

(1,135)

 

As restated

 

(55,710)

 

(84,850)

Expenses settled in share-based payments

 

As previously reported

 

45,059

 

60,128

 

Adjustments1

 

(1,848)

 

(1,528)

 

As restated

 

43,211

 

58,600

Accounts payable and accrued liabilities

 

As previously reported

 

2,114

 

4,719

 

Adjustments2

 

 

2,663

 

As restated

 

2,114

 

7,382

1. Reflects decrease of $1.8 million for the three months ended March 31, 2021 and decrease of $1.5 million for the six months ended June 30, 2021 related to stock-based compensation expense.
2. Reflects increase of $2.7 million to accrue for certain exploration invoices for the six months ended June 30, 2021.

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TMC the metals company Inc.

Notes to Condensed Consolidated Financial Statements

(in thousands of US Dollars unless otherwise stated, except share and per share amounts)

(Unaudited)

3.Summary of Significant Accounting Policies

Basis of Presentation

These unaudited condensed consolidated financial statements are prepared in accordance with US GAAP for interim financial statements. Accordingly, certain information and footnote disclosures required by US GAAP have been condensed or omitted in these unaudited condensed consolidated financial statements pursuant to such rules and regulation. In management’s opinion, these unaudited condensed consolidated interim financial statements include all adjustments of a normal recurring nature necessary for the fair presentation of the Company’s statement of financial position, operating results for the periods presented, comprehensive loss, shareholder’s equity and cash flows for the interim periods, but are not necessarily indicative of the results of operations to be expected for the full year ending December 31, 2021 or for any other period. These unaudited condensed consolidated financial statements should be read in conjunction with the audited annual consolidated financial statements for the year ended December 31, 2020. The Company has applied the same accounting policies as in the prior year, except as disclosed below.

All share and per share amounts have been adjusted to reflect the impact of the Business Combination (Note 4).

Basis of Measurement

These unaudited condensed consolidated financial statements have been prepared under the historical cost convention and are presented in US dollars.

Use of Estimates

The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts in the unaudited condensed consolidated financial statements and the notes thereto. Significant estimates and assumptions reflected in these unaudited condensed consolidated financial statements include, but are not limited to, accounting for the acquisition of TOML, the valuation of common share-based payments, including valuation of the incentive stock options (Note 10) and the common shares issued to Maersk (Notes 6 and 9), as well as the valuation of warrant liability (Note 8). Actual results could differ materially from those estimates.

Fair Value of Financial Instruments

Fair value estimates of financial instruments are made at a specific point in time, based on relevant information about financial markets and specific financial instruments. As these estimates are subjective in nature, involving uncertainties and matters of significant judgment, they cannot be determined with precision. Changes in assumptions can significantly affect estimated fair value.

The Company measures fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the reporting date. In accordance with US GAAP, the Company utilizes a three-tier hierarchy, which prioritizes the inputs used in the valuation methodologies in measuring fair value:

Level 1 - Valuations based on quoted prices in active markets for identical assets or liabilities that an entity has the ability to access.
Level 2 - Valuations based on quoted prices for similar assets or liabilities, quoted prices for identical assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable data for substantially the full term of the assets or liabilities.
Level 3 - Valuations based on inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

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TMC the metals company Inc.

Notes to Condensed Consolidated Financial Statements

(in thousands of US Dollars unless otherwise stated, except share and per share amounts)

(Unaudited)

In some circumstances, the inputs used to measure fair value might be categorized within different levels of the fair value hierarchy. In those instances, the fair value measurement is categorized in its entirety in the fair value hierarchy based on the lowest level input that is significant to the fair value measurement.

There were no transfers between fair value measurement levels during the three and nine months ended September 30, 2021 and 2020.

As of September 30, 2021 and December 31, 2020, the carrying values of cash and cash equivalents, accounts payable and accrued expenses and deferred acquisition costs, approximate their fair values due to the short-term nature of these instruments.

Warrant Liabilities

The Company evaluates all of its financial instruments, including issued share purchase warrants, to determine if such instruments are derivatives or contain features that qualify as embedded derivatives, pursuant to ASC 480, Distinguishing Liability from Equity, and ASC 815, Derivatives and Hedging. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is re-assessed at the end of each reporting period.

Prior to the Business Combination, SOAC issued 15,000,000 common share warrants (“Public Warrants”) as part of the units offered in its initial public offering and, simultaneously with the closing of initial public offering, SOAC issued an aggregate of 9,500,000 private placement common share warrants (“Private Warrants”) in a private placement. For accounting purposes, the Company was considered to have issued the Public and Private Warrants as part of the Business Combination (Note 4).

The Private Warrants were valued using a Black-Scholes model, which resulted in a Level 3 fair value measurement. The primary unobservable input utilized in determining the fair value of the Private Warrants was the expected volatility of the Company’s common shares. The expected volatility was based on consideration of the implied volatility from the Company’s Public Warrants market price.

Recent Accounting Pronouncements Issued and Adopted

Accounting for Debt with Conversion and Other Options

In August 2020, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) 2020-06, “Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivative and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40)”, which simplifies the accounting for convertible instruments by reducing the number of accounting models and requiring that a convertible instrument be accounted for as a single liability measured at amortized cost. Further, ASU 2020-08 amended the earnings per share guidance by requiring the diluted earnings per share calculation for convertible instruments to follow the if-converted method, with the use of the treasury stock method no longer permitted. The ASU 2020-08 is effective for fiscal periods after December 15, 2021, with early adoption permitted, but no earlier than fiscal years and interim periods within those fiscal years, beginning after December 15, 2020. The ASU 2020-08 allows either a modified retrospective method of transition or a fully retrospective method of transition, with any adjustments recognized as an adjustment to the opening balance of deficit. The Company adopted this standard on January 1, 2021. The standard did not have any impact on the Company’s historical financial statements but was applied to recognize the impact of the convertible debentures issued during February 2021 (Note 7).

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TMC the metals company Inc.

Notes to Condensed Consolidated Financial Statements

(in thousands of US Dollars unless otherwise stated, except share and per share amounts)

(Unaudited)

4.Business Combination

On March 4, 2021, SOAC and DeepGreen entered into a business combination agreement (“BCA”) in which SOAC would combine with DeepGreen, relist on the Nasdaq and SOAC would be renamed to TMC. The Business Combination was consummated on September 9, 2021, whereby SOAC acquired all of the outstanding common shares of DeepGreen.

Pursuant to the BCA, shareholders of DeepGreen exchanged their DeepGreen common shares at a ratio of 1.157862 TMC common shares per DeepGreen common share (“Exchange Ratio”) and received approximately 203.9 million TMC common shares and a total of 120.1 million Class A to H special shares (“Special Shares”). Each class of Special Shares automatically convert to TMC common shares if TMC common shares trade at a price on any twenty trading days within any thirty trading day period that is greater than or equal to the specific trigger price for the respective class of Special Share. The trigger prices range from $15 per share to $200 per share. Additionally, existing DeepGreen options were automatically adopted by TMC (the “Rollover Options”) after application of the Exchange Ratio to both the underlying number of common shares and the exercise price. These Rollover Options did not change in value as a result of the Business Combination. The Rollover Options also entitle holders thereof to a pro-rata portion of up to an aggregate of 14.9 million Special Shares if exercised. Lastly, the warrants granted to Allseas to acquire 10 million DeepGreen common shares at a nominal value (the “Allseas Warrant”) have been assumed by TMC and have become warrants to purchase 11.6 million TMC common shares, in accordance with its terms.

Below is a summary of the Special Shares and their respective vesting thresholds, assuming the full amount of Special Shares from Rollover Options are issued:

Special Share Class

    

A

    

B

    

C

    

D

    

E

    

F

    

G

    

H

Share Trigger price ($)

 

15

 

25

 

35

 

50

 

75

 

100

 

150

 

200

Special Shares (million)

 

5

 

10

 

10

 

20

 

20

 

20

 

25

 

25

In connection with the Business Combination, the SOAC sponsors were entitled to additional 0.5 million Class I Special Shares and 0.7 million Class J Special Shares which are convertible to TMC common shares if TMC common shares trade for a price on any twenty trading days within any thirty trading day period that is greater than or equal to $50.00 per share and $12.00 per share, respectively.

The following table reconciles the cash proceeds from the Business Combination:

Cash proceeds from SOAC

    

$

27,328

Cash proceeds from sale of equity securities

 

110,300

Gross cash received by TMC from Business Combination

 

137,628

Less: Transaction costs settled in cash

 

(33,163)

Net contributions from Business Combination

$

104,465

In addition to the amounts above, the Company incurred $8.7 million of transaction costs which were settled by issuance of 873,953 common shares on October 7, 2021. As at September 31, 2021, these transaction costs were offset against proceeds with the unissued shares being recorded in additional paid in capital.

Prior to the Business Combination, SOAC had 30.0 million shares of Class A common stock with a par value of $0.0001 per share (“SOAC Class A Shares”) outstanding and 7.5 million shares of Class B common stock with a par value of $0.0001 per share (“SOAC Class B Shares”) held by Sustainable Opportunities Holdings LLC (the “Sponsor”).

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Notes to Condensed Consolidated Financial Statements

(in thousands of US Dollars unless otherwise stated, except share and per share amounts)

(Unaudited)

In connection with the Business Combination, 27.3 million SOAC Class A Shares were redeemed by public shareholders. On September 9, 2021, each remaining issued and outstanding share of SOAC Class A Shares automatically converted, on a one-for-one basis, into TMC common shares and 6.8 million outstanding shares of SOAC Class B Shares automatically converted, on a one-for-one basis, into TMC common shares and 0.7 million outstanding shares of SOAC Class B Shares converted into Class J Special Shares. The TMC common shares also changed from having a par value of $0.0001 per share to no par value.

The number of TMC common shares issued immediately following the consummation of the Business Combination is summarized as follows:

Number of

Shares by type

    

shares

SOAC Class A shares outstanding prior to the Business Combination

 

30,000,000

Less: Redemption of SOAC Class A shares

 

(27,278,657)

SOAC Class A shares outstanding and converted to TMC common shares

 

2,721,343

Shares issued in the Private Investment in Public Equity (“PIPE”)

 

11,030,000

Conversion of SOAC Class B shares to TMC common shares

 

6,759,000

Shares issued to SOAC and PIPE investors

 

20,510,343

Shares issued to the DeepGreen shareholders

 

203,874,981

Total TMC common shares outstanding at close of Business Combination

 

224,385,324

The Company incurred transaction costs related to the Business Combination of approximately $46.8 million, of which $0.6 million and $4.9 million, incurred prior to the closing of the Business Combination becoming probable, are included in general and administrative expenses on the consolidated statements of loss and other comprehensive loss for the three and nine months ended September 30, 2021, respectively. The remaining $41.9 million of transaction costs were capitalized to common shares on the condensed consolidated balance sheet as of September 30, 2021.

The Business Combination was accounted for as a reverse acquisition with no goodwill or intangible assets being recorded. As SOAC had no operations, the net assets acquired were recorded at their historical cost. Adjustments related to the Business Combination including consideration paid to DeepGreen shareholders and any other adjustments to the eliminate the historical equity of SOAC and recapitalize the equity of DeepGreen were recorded to common shares to reflect the effective issuance of common shares to SOAC and PIPE investors in the Business Combination.

5.TOML Acquisition

On March 31, 2020, the Company entered into an acquisition agreement to acquire the polymetallic nodules business unit of TOML and other entities in the group (the “TOML Group”) from Deep Sea Mining Finance Ltd. (“DSMF”) (the “TOML Acquisition”). Total purchase price of the TOML Acquisition, before transaction costs, was $32.0 million. TOML holds an ISA exploration contract in the CCZ ("TOML Exploration Contract") and some exploration related equipment. The TOML Group also holds various patents and an application right with respect to a prospecting exploration contract in Kiribati.

The purchase price of $32.0 million was settled through initial cash payments in two tranches of $0.25 million each (paid on March 31, 2020 and May 31, 2020, respectively), issuance of 9,005,595 common shares after adjustment for the Exchange Ratio, $0.1 million payment to the ISA on behalf of DSMF and deferred consideration of $3.4 million which was to be paid on January 31, 2021. The common share consideration paid by the Company was valued at $3.11 per common share, after adjustment for the Exchange Ratio, based on the private placements completed by DeepGreen around the time of the TOML Acquisition, for a total of $28.0 million.

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Notes to Condensed Consolidated Financial Statements

(in thousands of US Dollars unless otherwise stated, except share and per share amounts)

(Unaudited)

The Company had the option of settling the deferred consideration in either cash or common shares of the Company at its sole discretion. In January 2021, the arrangement with DSMF was amended to pay the entire deferred consideration with cash. The deferred consideration was fully settled on June 30, 2021.

The Company incurred legal and regulatory fees to complete the acquisition totalling $47 thousand.

The Company determined that the value of TOML Acquisition was substantially concentrated in the TOML Exploration Contract and therefore considered this to be an acquisition of a group of connected assets rather than an acquisition of business. Consequently, the total cost of the transaction was primarily allocated to exploration contracts.

The net assets acquired as part of the TOML Acquisition were as follows:

Net assets acquired

    

$

Cash payments

 

560

Common shares issued (9,005,595 common shares @ $3.11, after adjustment for the Exchange Ratio)

 

28,000

Transaction costs paid

 

47

Deferred consideration

 

3,440

Total acquisition cost

 

32,047

Allocated to:

 

  

Equipment

 

21

Exploration contracts (Note 6)

 

42,701

Deferred tax liability1

(10,675)

Net assets acquired

 

32,047

1. A deferred tax liability was recognized by the Company on acquisition related to differences between the book value and the tax basis of the TOML exploration contract.

6.    Exploration Contracts

Significant Exploration Agreements

NORI Exploration Contract:

The Company’s wholly-owned subsidiary, NORI, was granted the NORI Exploration Contract on July 22, 2011 under the sponsorship of Nauru. The contract application fee was $0.3 million, and provides NORI with exclusive rights to explore for polymetallic nodules in the NORI Area for an initial term of 15 years (renewable for successive five-year periods) subject to complying with the exploration contract terms (Note 13) and provides NORI with the priority right to apply for an exploitation contract to collect polymetallic nodules in the same area.

NORI has a right to renounce, without penalty, in whole or part of its rights in the NORI Area at any time and therefore does not have a fixed commitment with relation to the NORI Exploration Contract (Note 13).

Marawa Agreements:

Marawa was granted the Marawa Exploration Contract on May 30, 2012. The Marawa Exploration Contract provides Marawa with exclusive rights to explore for polymetallic nodules in the Marawa Area for an initial term of 15 years (subject to renewal for successive five-year periods) subject to complying with the exploration contract terms and the priority right to apply for an exploitation contract to collect polymetallic nodules in the same area.

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Notes to Condensed Consolidated Financial Statements

(in thousands of US Dollars unless otherwise stated, except share and per share amounts)

(Unaudited)

On March 17, 2012, the Company’s wholly-owned subsidiary, DeepGreen Engineering Pte. Ltd. (“DGE”), entered into an Option Agreement (“Marawa Option Agreement”) with Marawa and Kiribati. Under the amended Marawa Option Agreement dated October 1, 2013, DGE paid an option fee of $0.3 million to acquire the right to purchase tenements, as may be granted to Marawa by the ISA or any other regulatory body, for the greater of $0.3 million or the value of any amounts owing to DGE by Marawa. The exercise period for the option is a maximum of 40 years after the date of the execution of the amended Marawa Option Agreement.

On October 1, 2013, DGE also entered into a services agreement (“Marawa Services Agreement”) with Marawa and Kiribati, which grants DGE the exclusive right to carry out all exploration and collection in the Marawa Area. Under the Marawa Services Agreement, DGE will pay to the ISA, on behalf of Marawa, the following: $47 thousand annual exploration fees, ISA royalties and taxes, and the ISA exploitation application fee of $0.3 million. In addition, DGE will ensure that the activities carried out in the Marawa Area by DGE and any other service contractor complies with the ISA regulations and any other required regulations.

The Marawa Services Agreement grants DGE the right to recover any and all polymetallic nodules from the Marawa Area by paying Kiribati a royalty per wet tonne of polymetallic nodules collected (adjusted for inflation from October 1, 2013 onwards).

DGE has the right to terminate the Marawa Services Agreement at its sole discretion by giving written notice to Marawa and Kiribati, and such termination shall take effect two months following the date of the termination notice, provided that DGE shall pay to the ISA on behalf of Marawa the fees or payments legally owed to the ISA by Marawa (including the annual ISA exploration fee and ISA royalties and taxes) that are outstanding at the date of termination or that are incurred within 12 months after the date of such termination. There are no other longer-term commitments with respect to the Marawa Option Agreement and the Marawa Services Agreement.

As at September 30, 2021, Marawa had no amounts owing to DGE under the Marawa Services Agreement and no purchase tenements had been granted to Marawa.

TOML Exploration Contract:

TOML was granted the TOML Exploration Contract on January 11, 2012 under the sponsorship of Tonga. The TOML Exploration Contract provides TOML with exclusive rights to explore for polymetallic nodules in the TOML Area for an initial term of 15 years (renewable for successive five-year periods) subject to complying with the exploration contract terms and a priority right to apply for an exploitation contract to collect polymetallic nodules in the same area.

Strategic Partnerships

Marine Vessel Services:

Effective March 15, 2017, the Company entered into a strategic partnership with Maersk to undertake the exploration, environmental baseline and offshore testing required to support development of pre-feasibility studies for economic production of polymetallic nodules from the CCZ.  Under the agreement, Maersk provides marine vessel services and project management services, enabling TMC to undertake the various offshore campaigns to support required pre-feasibility studies. During these offshore campaigns, TMC undertook baseline studies required to complete an Environmental and Social Impact Assessment (“ESIA”), collected nodules for metallurgical test work and collected samples and survey data for resource evaluation. Prior to February 5, 2021, the costs related to the marine vessel use were settled through the issuance of DeepGreen common shares, the number of which was based on a contractual price of $1.08 per common share, after adjustment for the Exchange Ratio. Project management services provided by Maersk for managing these offshore campaigns are paid in cash.

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Notes to Condensed Consolidated Financial Statements

(in thousands of US Dollars unless otherwise stated, except share and per share amounts)

(Unaudited)

Common shares transactions with Maersk since the inception of the strategic partnership were as follows:

Marine vessel

Common

Fair value per

Marine vessel

cost invoiced

shares issued

common share

cost recognized

Year of Service

    

$

    

    

$1

    

$

2017/2018

2,566

 

2,376,396

0.65

1,539

2018

4,594

 

4,255,215

1.51

6,431

2019

5,615

 

5,201,561

3.11

16,173

2019/2020

5,120

 

4,742,615

3.11

14,746

2020/2021 2

4,583

 

4,245,031

6.05

25,664

22,478

20,820,818

64,553

1. The fair value of the common shares was determined based on the private placements completed by DeepGreen around the time of common shares issued to Maersk, including the application of weighted average probability for the closing of the Business Combination. The number of common shares issued was based on a contractual price of $1.08 per common share, after adjustment for the Exchange Ratio.
2. During the nine months ended September 30, 2021, the Company issued 4,245,031 common shares, after adjustment for the Exchange Ratio, to Maersk of which 4,142,270  common shares, after adjustment for the Exchange Ratio, pertained to the marine vessel use during the year ended December 31, 2020. These DeepGreen common shares were recognized at their estimated fair value of $6.05 per common share, after adjustment for the Exchange Ratio (December 31, 2020 - $3.11 per common share, after adjustment for the Exchange Ratio).

As at September 30, 2021, Maersk owned 20.8 million TMC common shares (December 31, 2020 – 16.6 million TMC common shares after adjustment for the Exchange Ratio) which constituted 9.3% (December 31, 2020 – 8.8%) of the total common shares outstanding. Maersk is considered a related party to the Company.

Total cost incurred to Maersk for offshore campaigns during the three and nine months ended September 30, 2021 amounted to $4.8 million and $29.5 million, respectively (three months and nine months ended September 30, 2020 - $2.3 million and $17.9 million, respectively).

On March 4, 2021, the agreement with Maersk was amended whereby all costs incurred on or after February 5, 2021 pertaining to the use of the marine vessel would be paid in cash rather than through issuance of common shares. The amended agreement is in place until January 8, 2022, at which point the parties will negotiate any potential future offshore engagements on a case-by-case basis.

As at September 30, 2021, TMC had outstanding payables to Maersk of $9.3 million (December 31, 2020 - $1.8 million) included within accounts payable and accrued liabilities.

Strategic Alliance with Allseas Pilot Mining Test Project

On March 29, 2019, TMC and Allseas entered into a Strategic Alliance Agreement (“SAA”) with the objective to develop and operate commercial nodule collection systems in the Company’s contract areas. The SAA included the intent to develop and deploy a Pilot Mining Test System (“PMTS”), the successful completion of which would support TMC’s application for an exploitation contract with the ISA. Allseas committed to a fixed price development contract and would own all intellectual property used and generated in the development of the PMTS. Upon successful completion of the PMTS, TMC and Allseas have also agreed to enter into a nodule collection and shipping agreement whereby Allseas would provide commercial services for the collection of the first 200 million metric tonnes of polymetallic nodules on a cost plus 50% profit basis. Under the terms of the SAA, Allseas subscribed for and ultimately received 7.7 million common shares for a total of $20.0 million paid in cash to the Company.

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Notes to Condensed Consolidated Financial Statements

(in thousands of US Dollars unless otherwise stated, except share and per share amounts)

(Unaudited)

On July 8, 2019, as contemplated by the SAA, TMC and Allseas entered into the PMTS agreement (“PMTS Agreement”) which governs the terms, design specifications, procedures, and timetable under which Allseas agreed to complete the PMTS. Under the PMTS Agreement, in exchange for Allseas’ development efforts, upon successful delivery of the PMTS by Allseas, TMC agreed to pay Allseas: (a) $30.0 million in cash and (b) issue 11.6 million common shares.

Contract Amendments

On February 29, 2020, the original PMTS Agreement was amended to recognize the acquisition by Allseas of the Hidden Gem, a former drillship to be converted into a surface production vessel that would first be used as part of PMTS, and later as part of the commercial production system. TMC paid an additional: (a) $10.0 million in cash and (b) $10.0 million by issuing 3.2 million common shares valued at $3.11 per share.

On March 4, 2021 and June 30, 2021, TMC and Allseas further amended the original PMTS Agreement whereby, instead of issuing 11.6 million common shares upon successful delivery of the PMTS, TMC issued the Allseas Warrant. The Allseas Warrant will vest and become exercisable upon successful completion of the PMTS and will expire on September 30, 2026. A maximum of 11.6 million warrants to purchase common shares will vest if the PMTS is completed by September 30, 2023, gradually decreasing to 5.8 million warrants to purchase common shares if the PMTS is completed after September 30, 2025. Since the Allseas Warrant vests upon the achievement of a performance condition, being the completion of the PMTS, under US GAAP, the vesting of the Allseas Warrant was not determined to be probable as at September 30, 2021. No expense or liability has been recorded as at and for the nine month period ended September 30, 2021.

The amendment on March 4, 2021 stipulated that if the market price of the TMC common shares on June 1, 2022 is higher than $12.95 per common share, the aggregate value of the common shares underlying the Allseas Warrant above $150 million as at June 1, 2022 will automatically become a commercial credit from Allseas to TMC equal to the excess value. This commercial credit will be effective on the vesting date of the Allseas Warrant and the Company will be able to exchange this excess value for any future goods and services from Allseas under the nodule collection and shipping contract for one year after commercial production. There can be no assurance that such future goods and services from Allseas will occur.

The 2021 contract amendments also restructured the original $30.0 million lump sum cash payment upon successful delivery of the PMTS to:

$10 million within 10 business days of the closing of the Business Combination and Allseas providing confirmation of placing an order for certain equipment and demonstrating certain progress on construction of the PMTS;
$10 million on the later of (i) January 1, 2022, and (ii) confirmation of successful completion of the North Sea drive test; and
$10 million upon successful completion of the PMTS.

As at September 30, 2021, Allseas has successfully reached the first progress milestone by confirming the order of certain equipment and demonstrating certain progress on construction of the PMTS and the Business Combination was completed.  Accordingly, the first $10 million payment was paid to Allseas on October 5, 2021.

The Company accounts for the first two milestone payments in accordance with ASC 730, Research and Development, as these payments represented progress payments. Accordingly, the Company expenses the payments according to when the services are performed. The research and development related services commenced in July 2019 and are expected to be performed through January 2023. Therefore, the Company records the expense on a straight-line basis over the life of the contract which resulted in total expense of $12.9 million recorded within exploration expenses for the three and nine months ended September 30, 2021. The third milestone payment is determined to be a milestone and is accounted for in accordance with ASC 450, Contingencies. The Company will record the expense and liability when the milestone becomes probable. The Company has not recorded a liability as of September 30, 2021.

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Notes to Condensed Consolidated Financial Statements

(in thousands of US Dollars unless otherwise stated, except share and per share amounts)

(Unaudited)

As at September 30, 2021, Allseas owned 16.2 million TMC common shares (December 31, 2020 – 14.2 million TMC common shares) which constituted 7.2% (December 31, 2020 – 7.5%) of total common shares outstanding.  The total share ownership included 3.2 million shares issued in a private placement in June 2020. Allseas is considered a related party to the Company.

Exploration Expenses

The detail of exploration expenses is as follows:

NORI

Marawa

TOML

For the three months ended

Exploration

Option

Exploration

September 30, 2021

    

General

    

Contract

    

Agreement

    

Contract

    

Total

Exploration labor

 

 

483

 

198

 

168

 

849

Offshore campaigns

 

 

4,352

 

544

 

544

 

5,440

Common share options-based payments (Note 10)

 

 

1,578

 

594

 

860

 

3,032

Amortization

 

 

127

 

 

1

 

128

External consulting

 

10

 

564

 

118

 

112

 

804

Travel, workshop and other

 

 

592

 

27

 

76

 

695

PMTS

 

 

10,244

 

1,376

 

1,280

 

12,900

 

10

 

17,940

 

2,857

 

3,041

 

23,848

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Notes to Condensed Consolidated Financial Statements

(in thousands of US Dollars unless otherwise stated, except share and per share amounts)

(Unaudited)

    

    

    

NORI

    

Marawa

    

TOML

    

    

For the three months ended

Exploration

Option

Exploration

September 30, 2020

General

Contract

Agreement

Contract

Total

Exploration labor

 

 

423

 

181

 

166

 

770

Offshore campaigns

 

 

2,089

 

261

 

261

 

2,611

Common share options-based payments (Note 10)

 

 

148

 

87

 

45

 

280

Amortization

 

 

139

 

 

2

 

141

External consulting

 

17

 

397

 

127

 

150

 

691

Travel, workshop and other

 

 

45

 

9

 

9

 

63

 

17

 

3,241

 

665

 

633

 

4,556

NORI

Marawa

TOML

For the nine months ended

Exploration

Option

Exploration

September 30, 2021

    

General

    

Contract

    

Agreement

    

Contract

    

Total

Exploration labor

 

 

1,330

 

552

 

507

 

2,389

Offshore campaigns

 

 

23,365

 

2,864

 

2,864

 

29,093

Common share options-based payments (Note 10)

 

 

16,680

 

6,925

 

6,972

 

30,577

Amortization

 

 

321

 

-

 

3

 

324

External consulting

 

10

 

2,648

 

538

 

559

 

3,755

Travel, workshop and other

 

 

841

 

120