Argeo AS

Quarterly Report • Nov 10, 2021

Q3 Report 2021

Digitizing the ocean space

Argeo aims to transform the ocean space survey and inspection industry through robotics, sensor, and imaging technology. This is expected to provide an increase in data accuracy, detail, and collection efficiency, as well as a reduced CO2 footprint by reducing the need for large surface vessels. Argeo's markets are in infrastructure, offshore wind, oil & gas inspection as well as deep-water mineral exploration.

Argeo at a glance

Highlights

Business and commercial expansion according to plan

• Presence in North and South Americas with partnerships established for commercial operations
• Established in both West Africa and India with tender activity ongoing in both markets

SeaRaptor AUV's delivery and testing according to plan

• First SeaRaptor "Alpha" to undergo Factory Acceptance Test #1 in December 2021
• Second SeaRaptor "Bravo" building according to plan with delivery in Q1 2022

Recruitment and crew training according to plan

• Nearly 30 people onboarded since Q1, completing 3 AUV crews, operational and technical team
• Onboarding of commercial team ongoing and engaged in project pipeline and backlog building

Strong client interest globally leading to project tendering

• Good client feedback on Argeo's commercial solution with several majors interested
• RFQ submitted globally covering both AUV's and USV's

Attractive Multi Client business development

• Argeo are in a unique position for development of disruptive business models in several verticals
• Several Multi Client (MC) opportunities identified, and project allocation being readied

Finance and income statement for the quarter

• Revenue for Q3 2021 NOK 3.4 million, compared to NOK 0.5 million in 2020
• Cash balance NOK 79 million, end of Q3 2021

Subsequent events?

• Ordered the first commercially available Eelume Inspection and Light Intervention robotics system
• Trial Testing of development version of Argeo AUV "EM Tool Pack" sensor system
• Established local partner in Brazil and India
• Digital Ocean Space project team established (Argeo Digital Twin) and soft funding of NOK 12M received from Innovation Norway and Norwegian Research Council

"Client feedback from our global engagement team is proof we are going in the right direction both in terms of our robotics solutions and our in-house technology development. It is also very encouraging to see the success of our recruitment, proving Argeo is an attractive employer, and the SeaRaptor building process is going according to plan"

CEO Letter

Establishing a new company requires successful recruitment of both young and experienced personnel willing and able to deliver high quality services globally. It is therefore very pleasing to see that Argeo proves to be an attractive employer with most of our onboarding in place for 2022. During the quarter we have presented our solutions and technology to several major customers, it is with interest that our own statement is resounding clearly "change in respect to unmanned, carbon neutral and remote operations will never come from the established service providers, it will come from companies such as Argeo and we welcome it". The commercial team is working on some very exciting new business models introducing a new way of servicing our clients where Argeo is perfectly positioned to lead this change with a more flexible operating model than existing players. Operations and technical support have spent considerable time and effort stabilizing the Hugin system, which is now working well, Q3 operations were conducted flawlessly and without issues as result.

The commercial team recently completed Argeo's first international exhibition at Ocean Business in the UK,

Trond Figenschou Crantz CEO of Argeo

gaining valuable leads and industry contacts. Argeo present at the Geonova/NCS Exploration Deep Sea Minerals conference in Bergen, presenting our Controlled Source Electromagnetic (CSEM) AUV system which will be a crucial tool for DSM exploration over the years to come.

Technology & Engineering

This brings me on to the stellar work by our team in Technology & Engineering. With great efficiency the team has filed three patents for AUV technology solutions which will open exclusive markets for Argeo globally and allow our customers to replace traditional technology with state-of-the-art robotics technology leading to improved safety and significantly reduced CO2 in operations.

HSEQ

Argeos Integrated Management System (IMS) is progressing as planned, with several improvements across departments, technologies, and processes. The Argeo IMS covering Health, Safety, Environment and Quality shall lead to future ISO certification and is implemented in line with the company's global expansion plan.

Business & Operational update

Business update

Strong leads for both our Hugin and SeaRaptor AUV's in the quarter. Results from this expected to materialise already next quarter. Eelume project progressing according to plan with expected delivery of first commercially operated system in Q4 2021.

Operational status

Onboarding of AUV crew for training, operation, and delivery of our new SeaRaptors has been completed in the quarter. Nearly 70% crew utilization for the next quarter will be allocated to the Factory Acceptance Test (FAT) and verification program for the SeaRaptors taking place from December through January 2022. The remaining crew utilization will be allocated for the Hugin system, which we expect to transit to other regions for commencement of a IMR campaign. Revenue impact from the new SeaRaptors can first be expected from medio Q1-2022.

Building and delivery plan for our SeaRaptor 6000 units going according to plan with "Alpha" starting Factory Acceptance Test (FAT) in December 2021.

Robotics and Digital solutions for the ocean space

CABLE INSTALLATION & VERIFICATION

Increase in offshore electrification projects and inter-continental power distribution.

This in turn drives new markets for inspection and maintenance using new and more efficient technologies.

OFFSHORE WIND

Increase investments in renewable sources of energy and favorable government policies: Expected growth with a CAGR 10% during 2021 – 2026 ¹

O&G SURVEY & INSPECTION

Rising number of deep-water activities and a clear directive from majors to replace traditional vessel based IMR solutions with robotics and unmanned solutions. Expected growth with a CAGR 24% during 2021 – 2026 ¹

DEEP SEA MINERALS

Global demand for batteries and metals for the renewable sector is the main growth driver for this market. Expected growth with a CAGR 37% during 2021 – 2026 ¹

Note: 1) Sparebank1 Markets Argeo coverage report

Argeo value proposition through proprietary technology

Outlook

Argeo see demand for its services within the main verticals, Cable, Offshore Wind installations, Oil & Gas IMR and Deep-Sea Minerals.

Argeo have been focusing on technology development primed to open new markets previously not available for AUV's and robotics solutions. The lack of AUV supporting technology has been forcing the customer to continue along the traditional technology route with large and costly traditional operations with high CO2 emissions from operations.

Since our IPO, a total of 40 claims have been filed in several patents allowing our fleet of AUV's to replace old-style ROV solutions with cleaner operations, significant cost savings from a much more efficient data acquisition.

The company's technical subsidiary Argeo Robotics have been working relentlessly in designing, building, and testing our AUV EM Tool pack which will allow several new applications to be carried out autonomously for offshore wind projects, cable installations, verifications, and oil & gas inspections in 2022.

Argeo's specialized Controlled Source Electromagnetic (CSEM) solution will provide our customers and partners unparalleled EM data resolution for

describing, characterizing, and ultimately apprising rear mineral deposits in the end significantly reducing exploration risk of both Seafloor Massive Sulphides and manganese crust.

Our USV (Unmanned Surface Vessel) project is going according to plan and will be ready for commercial operations in Q1 2022, adapted with an Eelume LARS intervention system for offshore wind and general inspection services. Argeo will be perfectly positioned to capture a significant market share driven by our robotics platform, sensor technology and digital echo system.

Argeo expects a continuously growing demand for its services and anticipates increased activity going forward.

However, some planned projects, for Offshore Wind and Infrastructure are delayed hence the revenue for the quarter and expectations full year 2021 is reduced.

Two projects where Argeo was recommended for award has been sliding to the right and may not take place in 2021 at all. This project "white space" has been taken advantage of preparing for 2022 and the delivery of our new vehicles and systems being readied for testing (Q4) and commercial operations Q1-2022.

The field-testing of our AUV "EM Tool pack" is slated for initial trials and model testing in Q1-2022. Early indications so far show good potential for our internal sensor systems and the effect it may have in our markets.

Disruptive technology opening new markets

SENSOR DEVELOPMENT

• ✓ Tailor-made receiver system for AUV (patented) compatible with both SeaRaptor, Hugin and Resident AUV systems
• ✓ Buried cable and pipeline tracking system for Autonomous robotics
• ✓ Electrical and telecom cable verification system
• ✓ Detection of UXO (unexploded ordonnance) for Offshore Wind
• ✓ Cable installation (post survey) and inspection (depth of burial) Integrates with all other AUV sensors and data

AUV CSEM TECHNOLOGY

• ✓ Highest resolution EM data of any commercial system in the market today
• ✓ Works equally well on describing Seafloor Massive Sulfide (SMS) and Manganese crust deposits
• ✓ Integrates perfectly with all of our other AUV sensors
• ✓ Significantly lower cost than traditional vessel EM
• ✓ Real-Time "onboard" AUV processing and coms to surface USV or vessel

ARGEO USV

• ✓ Tailor-made receiver system for AUV (patented) compatible with both SeaRaptor, Hugin and Resident AUV systems
• ✓ Buried cable and pipeline tracking system for Autonomous robotics
• ✓ Electrical and telecom cable verification system
• ✓ Detection of UXO (unexploded ordonnance) for Offshore Wind
• ✓ Cable installation (post survey) and inspection (depth of burial) Integrates with all other AUV sensors and data

ARGEO DIGITAL TWIN

• ✓ Highest resolution EM data of any commercial system in the market today
• ✓ Works equally well on describing Seafloor Massive Sulfide (SMS) and Manganese crust deposits
• ✓ Integrates perfectly with all of our other AUV sensors
• ✓ Significantly lower cost than traditional vessel EM
• ✓ Real-Time "onboard" AUV processing and coms to surface USV or vessel

Argeo Unmanned Subsea Vehicle

Financial review

Revenue:

Revenue for Q3 2021 was NOK 3.4 million, compared to NOK 0.5 million in Q3 2020.

Operating expenses:

Employee expenses for Q3 2021 was NOK 5.2 million, compared to NOK 0.8 million in Q3 2020. Other operating expenses was NOK 5.5 million, up from NOK 0.7 million in Q3 2020. Argeo capitalised NOK 1.4 million as development cost on the digital twin solution in the quarter.

Depreciation was NOK 0.3 million in Q3 2021, compared to NOK 0.2 million in Q3 2020.

Financial items

Net financial expense for Q3 2021 was NOK 0.5 million, compared to NOK 16 thousand in Q3 2020.

Financial expense in Q3 2021 includes NOK 149 thousand (50% share) of loss in the JV with Multiconsult, and NOK 234 thousand in net foreign exchange loss.

Net Profit/ Loss

Net loss for Q3 2021 was NOK 6.4 million compared to a net loss of NOK 1.0 million in Q3 2020.

Balance Sheet

Total non-current assets amounted to NOK 83.0 million at the end of the period. Investments amounted to NOK 39.0 million in Q3 2021, mainly related to advance payments on the two Teledyne SeaRaptors ordered earlier this year.

Free cash and cash equivalents balance was NOK 78.9 million at the end of the quarter, compared to NOK 7.8 million at year end 2020 and NOK 0.8 million at the end of Q3 2020.

Total liabilities at the end of the quarter were NOK 14.0 million, of which NOK 6.3 million is interest bearing.

Shares

Total outstanding shares at 30 September 2021 were 27 441 461.

As per 30 September 2021, a total of 624 772 options, formalised as warrants, are outstanding in connection with a share option program ("Tranche 1 Warrants"). Exercise price is in average NOK 1.46, and the warrants expires at various intervals from 10 February 2024 to 23 December 2025.

In connection with the private placement in April 2021, the Company's general meeting approved the issuance of 3,750,000 new warrants to the existing shareholders of the Company before the private placement ("Tranche 2 Warrants"). A total of 1,875,000 Tranche 2 Warrants can be exercised at NOK 0.10 given a demonstrated share market price appreciation of two times the Subscription Price within the next two years and the remaining 1,875,000 Tranche 2 Warrants can be exercised at NOK 0.10 given a demonstrated share market price appreciation of three times the Subscription Price within a period of 4 years. The Subscription Price in the private placement in April 2021 was NOK 8.20 per share.

Interim consolidated profit and loss

						Full Year
Amounts in NOK	Note	Q3-2021	Q3-2020	YTD 2021	YTD 2020	2020
Operating revenues:
Sales revenue		3 406 080	480 325	14 940 880	4 864 042	11 904 387
Governmental grants		0	0	470 000	480 000	930 000
Total operating revenues		3 406 080	480 325	15 410 880	5 344 042	12 834 387
Operating expenses:
Employee expenses		5 229 589	818 019	11 012 054	1 671 148	2 902 341
Other operating expenses		5 509 099	745 823	15 965 874	3 337 856	6 350 502
Depreciation	1, 2	304 329	233 058	911 294	667 737	972 321
Total operating expenses		11 043 016	1 796 900	27 889 222	5 676 741	10 225 164
Operating profit/(loss)		-7 636 936	-1 316 575	-12 478 342	-332 699	2 609 224
Financial income and expenses:
Income/ (loss) equity investments		-148 802		-195 419	0	0
Financial income		0	0	0	0	1 395
Financial expenses		-126 491	-16 270	-264 782	-38 553	-106 509
Net foreign exchange gain (loss)		-234 284	-235	-27 723	6 476	7 896
Net financial items		-509 577	-16 506	-487 924	-32 078	-97 218
Profit/(loss) before tax		-8 146 514	-1 333 081	-12 966 266	-364 777	2 512 006
Income tax (expense)		1 755 983	293 278	2 806 073	80 251	-506 495
Profit/ (loss) for the period		-6 390 531	-1 039 803	-10 160 193	-284 526	2 005 511

Interim consolidated statement of Financial Position

		September 30,	September 30,	December 31,
Amounts in NOK	Note	2021	2020	2020
ASSETS
Non-current assets
Intangible assets	1	5 782 593	2 527 172	3 570 598
Deferred tax asset		3 116 794	925 760	339 014
Property, plant and equipment	2	68 346 099	711 616	11 564 582
Investment in JV	3	5 754 273	0	0
Total non-current assets		82 999 759	4 164 549	15 474 193
Current assets
Trade receivables		7 725 861	481 656	4 419 219
Other current assets		276 176	66 760	288 786
Cash and cash equivalents		78 954 596	788 252	7 779 692
Total current assets		86 956 633	1 336 668	12 487 697
Total assets		169 956 392	5 501 217	27 961 890
EQUITY
Share capital		2 744 146	610 000	610 000
Share premium		179 381 483	6 780 680	6 780 680
Other equity		-26 121 744	-3 477 611	-1 187 574
Total equity		156 003 885	3 913 069	6 203 106
LIABILITIES
Non-current liabilities
Long term debt	4	6 273 333	720 000	6 693 333
Total non-current liabilities		6 273 333	800 000	6 693 333
Current liabilities
Trade payables		5 598 461	217 349	12 345 080
Other current liabilities		2 080 713	650 799	2 720 371
Total current liabilities		7 679 173	868 148	15 065 451
Total liabilities		13 952 507	1 588 148	21 758 784
Total equity and liabilities		169 956 392	5 501 217	27 961 890

Interim consolidated statement of changes in equity

		Additional	Accumulated
Amounts in NOK	Share capital	paid-in capital	earnings	Total equity
Balance as of 1.1.2021	610 000	6 780 680	-1 187 574	6 203 106
Profit/(loss) for the period	0	0	-10 160 193	-10 160 193
Effect of establish JV	0	50 000	0	50 000
Net proceeds from new
equity	2 134 146	157 776 828	0	159 910 974
Balance as of 30.9.2021	2 744 146	164 607 508	-11 347 767	156 003 886
Balance as of 1.1.2020	610 000	6 780 680	-3 193 084	4 197 596
Profit/(loss) for the period	0	0	2 005 511	2 005 511
Balance as of 31.12.2020	610 000	6 780 680	-1 187 574	6 203 106

Interim consolidated statement of cash flow

						Full Year
Amounts in NOK	Note	Q3-2021	Q3-2020	YTD 2021	YTD 2020	2020
Cash flow from operating activities
Profit/(loss) before tax		-8 146 514	-1 333 081	-12 966 266	-364 777	2 512 006
Depreciation		304 329	233 058	911 294	667 737	972 321
Interest expense		65 523	16 270	203 814	38 553	106 509
Gain/Loss equity investments		148 802	0	195 419	0	0
Change in current assets		4 672 050	1 157 525	-3 294 032	-152 420	-4 312 009
Change current liabilities		-3 383 488	-114 312	-7 386 277	148 562	14 345 865
Net cash from operating activities		-6 339 297	-40 540	-22 336 048	337 656	13 624 692
Cash flow from investing activities
Investment in property, plant and
equipment	2	-37 555 087	0	-68 458 278	-117 335	-11 071 483
Capitalisation of development cost		-1 444 688	-267 194	-2 284 027	-704 657	-1 951 483
Net investment in Joint Venture		0	0	-5 871 402	0	0
Sale AUV to JV		0	0	10 837 500	0	0
Net cash from investing activities		-38 999 775	-267 194	-65 776 207	-821 992	-13 022 966
Cash flow from financing activities
Net proceeds from new equity		0	0	159 910 974	0	0
Proceeds from interest-bearing debt		0	0	0	0	6 000 000
Repayment of interest-bearing debt		-340 000	-80 000	-420 000	-80 000	-106 667
Interest paid		-65 523	-16 270	-203 814	-38 553	-106 509
Net cash flow from financial
activities		-405 523	-96 270	159 287 159	-118 553	5 786 824
Net change in cash and cash
equivalents		-45 744 595	-404 004	71 174 904	-602 890	6 388 550
Cash and cash equivalents begin. of
period		124 699 191	1 192 256	7 779 692	1 391 142	1 391 142
Cash and cash equivalents end of the
period		78 954 596	788 252	78 954 596	788 252	7 779 692

Notes to the unaudited consolidated interim financial statements

General information and basis for the preparation

Argeo AS and its subsidiaries (the "Group", or "Argeo") is a publicly listed company on the Euronext Growth, with ticker symbol ARGEO. Argeo was admitted to trading on Euronext Growth 26 April 2021. Argeo is incorporated and domiciled in Norway.

These interim consolidated financial statements for the third quarter ended 30 September 2021 were prepared in accordance with the Norwegian Accounting Act and Norwegian generally accepted accounting principles for smaller companies. They do not include all of the information required for full annual consolidated financial statements and should be read in conjunction with consolidated financial statements of the Group as at and for the year ended 31 December 2020. These condensed consolidated interim financial statements are unaudited.

The accounting policies applied by the Group in these condensed consolidated interim financial statements are the same as those applied by the Group in its consolidated financial statements as at and for the year ended 31 December 2020.

Note 1. Intangible assets

Amounts in NOK	30.09.2021	30.09.2020	31.12.2020
Cost as of 1.1	4 133 307	2 181 824	2 181 824
Additions	2 831 987	704 657	1 951 483
Cost as of 30.9/ 31.12	6 965 294	2 886 482	4 133 307
Accumulated depreciation 1.1	562 709	0	0
Depreciation	619 992	359 310	562 709
Accumulated depreciation 30.9/ 31.12	1 182 701	359 310	562 709
Net book value 30.9/ 31.12	5 782 593	2 527 173	3 570 598

Intangible assets consist of capitalised cost related to development of a 3D Geological modelling system and Argeos "Digital Twin". Depreciation of the 3D Geological modelling system started in 2020 and is taken over 5 years.

Note 2. Property, plant and equipment

Amounts in NOK	30.09.2021	30.09.2020	31.12.2020
Cost as of 1.1	12 546 109	1 474 627	1 474 627
Additions	67 910 318	117 335	11 071 482
Sale AUV to JV	-10 837 500	0	0
Cost as of 30.9/ 31.12	69 618 928	1 591 962	12 546 109
Accumulated depreciation 1.1	981 528	571 916	571 916
Depreciation	291 302	308 427	409 612
Accumulated depreciation 30.9/ 31.12	1 272 829	880 343	981 528
Net book value 30.9/ 31.12	68 346 099	711 618	11 564 582

Additions in 2021 is mainly related to advance payments on the two AUV's ordered from Teledyne. Additions in 2020 includes the purchase of one Hugin AUV, which was transferred to a joint owned company (50/50) with Multiconsult in January 2021.

Expected useful life is 3 years for office equipment and 3-7 years for field equipment.

Note 3 Investment in JV

Argeo signed in January 2021 an agreement with Multiconsult for strategic cooperation to significantly improve quality for marine surveys and increase construction insight of the seabed conditions for large coastal development projects and offshore structure. As a part of the agreement, the parties have established H1000 JV AS, owned 50/50 by Argeo and Multiconsult. The Hugin AUV purchased by Argeo in 2020 was transferred to this JV in January 2021.

Note 4 Long-term liabilities

Amounts in NOK	Nominal interest	30.09.2021	30.09.2020	31.12.2020
NOK 0.8 million loan	4.95%	573 333	720 000	693 333
NOK 6 million loan	3.95%	5 700 000	0	6 000 000
Total long term debt		6 273 333	720 000	6 693 333

NOK 0.8 million loan

The Group secured in 2019 a NOK 0.8 million loan from Innovasjon Norge, bearing an interest at 4.95%. The loan is secured with machinery and plant in Argeo Survey AS and is repaid over 6 years.

NOK 6 million loan

The Group secured in 2020 a NOK 6 million loan from Innovasjon Norge, bearing an interest at 3.95%. The loan is secured with machinery and plant in Argeo Survey AS, in the shares owned by Argeo Survey in its 50% ownership in H1000 JV AS, and by a parent guarantee from Argeo AS. The loan is repaid over 5.5 years with a 6 month's grace period.

Financial calendar 2022

25th February 2022: Q4 2021 Report

Contacts:

Trond Figenschou Crantz, CEO Email: trond.crantz@argeo.no Phone: +47 976 37 273

Argeo is a company with a mission to transform the ocean surveying and inspection industry by utilizing autonomous surface and underwater robotics solutions. Equipped with unique sensors and advanced digital imaging technology, the Autonomous Underwater Vehicles ("AUVs") will significantly increase efficiency and imaging quality in addition to contribute to significant reduction in CO2 emissions from operations for the global industry in which the Company operates. The Company's highly accurate digital models and digital twin solutions are based on geophysical, hydrographic and geological methods from shallow waters to the deepest oceans for the market segments Infrastructure, Offshore Wind, Oil & Gas and Deep Sea Minerals. Argeo was established in 2017 and has offices in Asker and Tromsø, Norway. Since its incorporation, Argeo has carried out complex projects for some of Norway's largest companies in the field. www.argeo.no