AMERICAN BATTERY TECHNOLOGY Co quarterly report, Q2 FY2024

Business context and reporting period

American Battery Technology Company (ABTC) filed this unaudited Form 10-Q for its fiscal second quarter and six months ended December 31, 2023. The company is developing domestic battery-metal resources, extraction processes and lithium-ion battery recycling. It began operating its first recycling facility in October 2023 and says it had not generated significant revenue as of December 31, 2023.

Financial performance and position

Gross margin and operating margin are not meaningful because the filing reports no significant revenue. For the six months, research and development expense was $5.30 million, general and administrative expense was $7.26 million, and exploration expense was $2.05 million. Stock-based compensation was approximately $5.76 million.

At December 31, cash was $7.65 million, total assets $88.87 million, total liabilities $22.30 million, and stockholders’ equity $66.57 million. Current assets of $11.57 million were below current liabilities of $22.30 million, resulting in a $10.73 million working-capital deficiency. The balance sheet reports notes payable at a net carrying value of $16.27 million; disclosed principal outstanding was $19.68 million. The company had an accumulated deficit of $176.50 million.

Material changes versus prior comparable periods

• Six-month net loss increased to $16.52 million from $8.63 million; quarterly net loss increased to $9.29 million from $6.20 million.
• Six-month operating expenses rose to $14.61 million from $8.76 million, primarily reflecting higher research and development, exploration and general and administrative costs.
• Cash used in operations was broadly unchanged year over year, while financing provided $23.61 million, principally from debt and equity transactions.
• Cash increased to $7.65 million from $2.32 million at June 30, 2023. Property, plant and equipment rose to $63.95 million from $29.95 million, including the acquisition of the commercial-scale recycling facility.
• Government grant funding increased to approximately $1.7 million from $0.4 million for the six-month periods; the company recorded about $1.2 million as an offset to R&D costs and $0.5 million as an offset to fixed assets.

Outlook, risks, contingencies and unusual items

The filing provides no quantified revenue or earnings guidance. Management prioritizes ramping the recycling facility, developing lithium extraction and refining projects, and advancing exploration. Once fully ramped, the recycling facility is described as having capacity to process approximately 20,000 metric tons of battery materials annually. The company’s DOE awards include projects with total budgets of $115.5 million for a proposed lithium hydroxide refinery and $20.0 million for advanced recycling technologies; grant reimbursements cover eligible costs, subject to award terms, and are not equivalent to unrestricted funding.

Management states that substantial doubt exists about the company’s ability to continue as a going concern for the 12 months following issuance of the financial statements. Continued operations depend on profitable operations or additional financing. The company warns it may fail to maintain financial covenants under its note agreement, potentially triggering default and acceleration; the notes also require at least $5.0 million in cash and cash equivalents. Further equity financing could dilute existing shareholders.

The company issued up to $51.0 million of senior secured convertible notes, had received $25.0 million and repaid $5.4 million, and reported $19.68 million principal outstanding at period end. The notes are described as zero-coupon, secured and contractually maturing September 1, 2025. However, the debt maturity schedule lists the principal under December 31, 2024, and the balance sheet classifies the notes as current; investors should verify the applicable maturity and classification. The company also sold 3.11 million shares under its Tysadco agreement for reported proceeds of $15.8 million, including $1.5 million received in January 2024. After quarter end, it issued another 2.21 million shares for net proceeds of $6.5 million.

Other notable matters include a one-for-fifteen reverse stock split in September 2023 and a January 2024 discrimination charge filed with the Nevada Equal Rights Commission. Management reported that disclosure controls and internal control over financial reporting were ineffective as of December 31, 2023, citing a material weakness in segregation of accounting duties; it expected to remediate this weakness by June 30, 2024, with no assurance of timely remediation. The filing states there were no other material changes to previously disclosed risk factors and no significant off-balance-sheet arrangements.

Important facts for investors to verify

• Whether the company can ramp recycling operations, generate revenue and meet operating and project milestones.
• Cash runway, access to further financing, grant reimbursement timing, covenant compliance and the minimum-cash requirement.
• The convertible notes’ contractual maturity, current classification, outstanding principal, conversion/redemption provisions and potential dilution.
• Progress toward remediating the segregation-of-duties material weakness and the effectiveness of financial reporting controls.
• Terms, eligible-cost requirements and funding availability for the DOE grants, and the company’s ability to fund its share of project costs.
• Developments in the discrimination charge and any other litigation or contingencies.