TMC the metal company (US:TMC)2021-11-15 13:22Part I - Financial Information Financial Statements Presents unaudited condensed consolidated financial statements for TMC the metals company Inc., reflecting its pre-revenue stage, increased cash, and restatements Condensed Consolidated Balance Sheet Highlights (Unaudited) | Metric | Sep 30, 2021 ($ thousands) | Dec 31, 2020 ($ thousands) | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | 112,640 | 10,096 | | Total Current Assets | 112,779 | 10,225 | | Exploration contracts | 43,150 | 43,150 | | Total Assets | 157,316 | 54,685 | | Liabilities & Equity | | | | Accounts payable and accrued liabilities | 28,343 | 4,316 | | Warrant liability | 11,623 | — | | Total Liabilities | 50,641 | 18,431 | | Total Equity | 106,675 | 36,254 | Condensed Consolidated Statements of Loss (Unaudited) | Metric | Nine months ended Sep 30, 2021 ($ thousands) | Nine months ended Sep 30, 2020 ($ thousands) | | :--- | :--- | :--- | | Exploration expenses | 80,181 | 35,744 | | General and administrative expenses | 41,138 | 3,818 | | Operating loss | 121,319 | 39,562 | | Loss and comprehensive loss | 121,501 | 39,546 | | Loss per share – Basic and diluted | $0.61 | $0.23 | Condensed Consolidated Statements of Cash Flows Highlights (Unaudited) | Metric | Nine months ended Sep 30, 2021 ($ thousands) | Nine months ended Sep 30, 2020 ($ thousands) | | :--- | :--- | :--- | | Net cash used in operating activities | (28,339) | (21,350) | | Net cash used in investing activities | (3,842) | (607) | | Net cash provided by financing activities | 134,701 | 20,348 | | Net change in cash and cash equivalents | 102,520 | (1,609) | - The company has restated its financial statements for the periods ended March 31, 2021, and June 30, 2021, due to a $2.7 million understatement of exploration expenses and accounts payable, and incorrect accounting for stock-based compensation expenses2730 Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's pre-revenue deep-sea minerals exploration, the Business Combination, increased operating losses, and cash sufficiency - The company is a deep-sea minerals exploration firm focused on collecting and processing polymetallic nodules from the CCZ, which contain high grades of nickel, copper, cobalt, and manganese145146 - On September 9, 2021, the company completed its Business Combination with SOAC, receiving gross proceeds of approximately $137.6 million157158 Comparison of Operating Expenses (Three Months Ended Sep 30) | Expense Category | 2021 ($ thousands) | 2020 ($ thousands) | Change (%) | | :--- | :--- | :--- | :--- | | Exploration expenses | 23,848 | 4,556 | 423% | | General & Administrative | 13,334 | 2,192 | 508% | - The increase in exploration expenses for Q3 2021 was primarily driven by $12.9 million accrued for milestone payments to Allseas for the Pilot Mining Test System (PMTS), $2.8 million in higher offshore campaign costs, and a $2.8 million increase in stock-based compensation209 - The increase in G&A expenses for Q3 2021 was mainly due to a $5.3 million rise in stock-based compensation, $2.4 million in professional fees related to the Business Combination and public company costs, and $2.2 million in marketing costs210 - Management believes that the company's cash on hand of $112.6 million as of September 30, 2021, will be sufficient to meet working capital and capital expenditure requirements until at least the third quarter of 2023220222 Quantitative and Qualitative Disclosures About Market Risk The company faces market risks including interest rate, foreign currency, and commodity price fluctuations, with future revenue dependent on metal prices - The company's primary market risks include interest rates, foreign currency, and commodity prices251 - Foreign currency risk arises from transactions in Canadian dollars, Australian dollars, and the Great British Pound, minimized by holding most cash in U.S. dollars255 - Future revenue will be dependent on the sale of products containing nickel, copper, manganese, and cobalt, where a significant price decrease could materially impact the business257 Controls and Procedures Management concluded disclosure controls were ineffective due to two material weaknesses in financial reporting, with a remediation plan underway - Management concluded that disclosure controls and procedures were not effective as of September 30, 2021259 - Two material weaknesses were identified in internal control over financial reporting, related to deficiencies in financial close and reporting controls and the accounting for warrants issued by the SPAC261262263 - A remediation plan is underway, including appointing a new CFO, hiring experienced accounting staff, bringing the accounting function in-house, and implementing more robust controls and processes265266 Part II - Other Information Legal Proceedings Discloses a shareholder class action lawsuit filed on October 28, 2021, alleging false or misleading statements and Exchange Act violations - On October 28, 2021, a shareholder filed a class action lawsuit against the company and executives Gerard Barron and Scott Leonard272 - The lawsuit alleges violations of Section 10(b) and 20(a) of the Exchange Act, citing false or misleading statements about the company's operations and prospects between March 4, 2021, and October 5, 2021272 - The company denies the allegations and plans to vigorously defend against the lawsuit272 Risk Factors Details extensive risks for the pre-commercial deep-sea mineral collection business, covering regulatory, technological, resource, social, and financial uncertainties - Regulatory Risks: The business is subject to significant regulatory uncertainty, as final exploitation regulations from the International Seabed Authority (ISA) have not yet been adopted, with no guarantee of timely or economic exploitation contract grants274277279 - Technology & Operational Risks: The company's collection and processing technology has never been used on a commercial scale, posing risks that equipment may not be adequate, reliable, or economically viable, and the business is highly dependent on strategic partners like Allseas and Maersk302336342 - Resource & Market Risks: Mineral resource estimates are based on limited sampling and may prove inaccurate, and profitability is highly dependent on volatile future market prices of nickel, manganese, copper, and cobalt, which are beyond the company's control299304317 - Social & Environmental Risks: Negative public perception and opposition from environmental groups regarding deep-sea mineral collection could materially impact the business, as the full effects on marine biodiversity are not definitively known, creating uncertainty297326330 - Financial & Public Company Risks: The company has a limited operating history, has not generated revenue, and will require significant additional capital, having identified material weaknesses in its internal financial controls, while outstanding warrants and potential future share issuances could cause significant dilution to shareholders350371380 Unregistered Sales of Equity Securities and Use of Proceeds Confirms no unregistered sales or repurchases of equity securities occurred during the reporting period - The company did not conduct any unregistered sales of equity securities during the reporting period428 - The company did not repurchase any of its equity securities during the three months ended September 30, 2021429 Other Information Summarizes the effect of financial restatements on previously filed unaudited pro forma condensed combined financial information, detailing adjustments Restatement Impact on Pro Forma Balance Sheet (as of June 30, 2021) | Account | As Previously Reported ($) | As Restated ($) | | :--- | :--- | :--- | | Accounts payable and accrued liabilities | 9,609 | 12,272 | | Total liabilities | 43,799 | 46,462 | | Deficit | (255,932) | (257,067) | | Total shareholders' equity | 122,253 | 119,590 | Restatement Impact on Pro Forma Statement of Operations (Six Months Ended June 30, 2021) | Account | As Previously Reported ($) | As Restated ($) | | :--- | :--- | :--- | | Exploration expenses | 57,079 | 58,676 | | General and administrative expenses | 34,756 | 34,294 | | Operating loss | 91,835 | 92,970 | | (Income) loss for the period | 82,862 | 83,997 | Exhibits Lists all exhibits filed or incorporated by reference into the Quarterly Report on Form 10-Q, including corporate governance documents and certifications