Filing summary
Entity and period: The supplied filing is Oroplata Resources, Inc.’s unaudited Form 10-Q for the quarter ended June 30, 2018, filed August 14, 2018. It is not identified in the filing as American Battery Technology Co.; investors should verify the issuer and filing match their intended company. The quarter is the company’s fiscal third quarter.
Business context
Oroplata described itself as a start-up lithium exploration company, with no revenue or producing operations. Its subsidiary held claims covering approximately 5,200 acres in Nevada’s Railroad Valley; management said 260 claims were targeted for exploration and expected work to begin in the second or third quarter of 2018. The filing does not clearly state whether that exploration began. The company also reported mineral rights in the Dominican Republic and a planned purchase of an additional 113 Nevada acres, expected to close in the first quarter of 2019.
Financial results and liquidity
- Revenue: None in the three or nine months ended June 30, 2018 or the comparable 2017 periods.
- Quarterly results, per financial statements: Operating expenses were $427,361 and net loss was $483,704, compared with operating expenses of $143,254 and net loss of $235,927 in 2017. Basic and diluted loss per share was $0.01; weighted-average shares were 90.7 million.
- Nine-month results: Operating expenses were $3.72 million and net loss was $3.83 million, compared with $2.02 million and $2.27 million, respectively, in 2017. Loss per share was $0.05 versus $0.04. General and administrative expense was the main reported expense category; the filing attributes much of the increase to shares issued for services and fees.
- Cash flow: Operating activities used $526,230 in the nine months, versus $255,197 in 2017. Financing provided $609,500, primarily from convertible notes; cash rose by $83,270 to $92,411. No investing cash flows were reported.
- Balance sheet and liquidity: At June 30, 2018, cash was $92,411, prepaid expenses $215,500, and total assets $307,911. Current liabilities were $1.93 million, including $735,712 of convertible notes, $537,649 due to related parties, $443,549 of accounts payable and accrued liabilities, and a $209,442 derivative liability. Working capital deficit was $1.62 million, versus $1.27 million at September 30, 2017; stockholders’ deficit was $1.62 million.
- Debt and dilution: The company issued $609,000 of convertible-note principal for cash during the nine months and converted notes and accrued interest into shares. Several notes carry variable conversion prices tied to discounted trading prices; some provide for higher interest or default amounts if unpaid. Common shares outstanding rose from 58.5 million at September 30, 2017 to 92.4 million at June 30, 2018, and were 94.8 million on August 6, 2018.
Changes, outlook, and material risks
- Quarterly operating costs rose substantially year over year; management cited CEO management fees, prepaid director fees, exploration and business-development costs, and higher professional and operating costs. Nine-month interest and accretion expense declined from $234,101 to $99,837.
- The filing states that the company had not earned revenue, had an accumulated deficit of $35.05 million, and depended on management support and further debt or equity financing. It says these conditions raise substantial doubt about the company’s ability to continue as a going concern. No specific revenue or profitability guidance is provided.
- Post-quarter events included additional discounted convertible-note financings and an equity purchase agreement giving an investor the right to buy up to $1.5 million of shares at 75% of a recent VWAP measure. These arrangements could increase financing capacity but also create dilution; the filing does not establish that the full equity amount will be raised.
- The company reported that disclosure controls and procedures were not effective as of June 30, 2018. It also said it was reviewing agreements and share issuances entered into under prior management.
- A lawsuit filed in Nevada seeks return or cancellation of 16 million shares alleged by the company to have been fraudulently issued; one million had already been canceled. The outcome is unresolved.
Important facts to verify
- Confirm that Oroplata Resources, Inc.—rather than American Battery Technology Co.—is the intended issuer.
- Reconcile the quarterly net loss: the financial statements report $483,704, but MD&A states $73,598. The filing text does not provide a clear explanation for this discrepancy.
- Reconcile the MD&A’s reported $248,891 loss on debt settlement with the statements of operations, which do not show that amount as a separate line item.
- Check the status, conversion terms, maturity dates, and potential dilution from convertible notes, including the post-quarter financings and equity purchase agreement.
- Verify whether Nevada exploration commenced as anticipated, and assess available cash and financing needs in light of the going-concern warning.