Business Context and Reporting Period
Company: American Battery Metals Corporation (ABMC)
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: September 30, 2020
Business Overview: ABMC is a pre-revenue startup focused on increasing domestic US production of battery metals (lithium, nickel, cobalt, manganese) through exploration, extraction technology development, and battery recycling. The company holds mineral rights in Nevada and operates subsidiaries including LithiumOre Corp. It has no current revenue and relies on debt and equity financing to fund operations.
Key Financial Metrics
| Metric | Q3 2020 | Q3 2019 |
|---|---|---|
| Revenue | $0 | $0 |
| Net Loss | $(3,151,209) | $(2,475,244) |
| Operating Expenses | $2,413,093 | $1,394,637 |
| Cash and Cash Equivalents (End of Period) | $1,292,358 | $7,371 |
| Total Assets | $1,627,240 | $1,161,314 |
| Total Liabilities | $5,022,701 | $6,101,818 |
| Working Capital Deficit | $(3,182,537) | $(4,727,912) |
| Derivative Liability | $2,777,634 | $4,519,654 |
| Convertible Notes Payable (Net) | $1,019,892 | $127,149 |
Material Changes vs. Prior Period
- Net Loss Increase: Net loss increased by approximately $676,000 compared to Q3 2019. This was driven by a $1.58 million increase in share-based compensation for services and higher payroll expenses, partially offset by a significant gain on debt settlement.
- Debt Settlement Gains: The company recorded a $1.61 million gain on the settlement of debt in Q3 2020, compared to $86,187 in the prior year. This resulted from converting and settling convertible notes, which eliminated associated derivative liabilities.
- Derivative Liability Volatility: The loss on the change in fair value of derivative liabilities increased to $773,886 from $62,554 in the prior year due to share price volatility. However, the total derivative liability balance decreased by $1.74 million due to debt settlements.
- Liquidity Improvement: Cash balances increased by $462,434 to $1.29 million, funded by $1.34 million in share subscriptions and $1.075 million in convertible note proceeds, net of repayments.
Outlook, Risks, and Management Commentary
- Going Concern: The filing explicitly states substantial doubt regarding the company's ability to continue as a going concern. The company has an accumulated deficit of $66.36 million and no revenue. Continuation depends on securing future debt or equity financing.
- Capital Raising: Management continues to issue convertible notes and equity to fund operations. During the quarter, the company issued 60.6 million shares from a private placement and raised funds via new convertible notes from entities like GS Capital Partners and Jefferson Street Capital.
- Joint Venture Status: A joint venture with CINC Industries Inc. for lithium extraction technology failed to meet its October 2020 milestone. Management does not believe this agreement will proceed.
- Legal Proceedings: Ongoing litigation against former CEO Craig Alford regarding fraudulently issued shares continues, though delayed by COVID-19 restrictions.
- Internal Controls: Management concluded that disclosure controls and procedures were not effective as of September 30, 2020.
Investor Verification Checklist
- Financing Terms: Verify the specific conversion rates and default interest rates (up to 24%) on the numerous convertible notes issued to various lenders, as these significantly impact future dilution and interest expense.
- Derivative Liability Valuation: Review the assumptions used for the multi-nominal lattice model (volatility 134-235%) to understand the sensitivity of the $2.78 million liability to stock price movements.
- Share Issuance for Services: Confirm the valuation of the $1.58 million in shares issued for consulting services, as this is a major non-cash expense impacting the net loss.
- Land Acquisition: Verify the details of the $900,000 land purchase in Fernley, Nevada, disclosed as a subsequent event, and its impact on future capital requirements.
- Related Party Debt: Review the $378,456 owed to related parties, including accrued management fees to the CEO and directors, to assess potential conflicts or repayment priorities.