American Battery Metals Corporation (ABMC) — FY2019 Form 10-K
Reporting period: Fiscal year ended September 30, 2019; comparative figures are for the year ended September 30, 2018. The filing describes the company as a pre-revenue exploration-stage business. The supplied metadata says “2019 Q4,” but this filing reports a full fiscal year, not a quarterly period.
Business context
ABMC reported plans to explore for lithium-rich brines in Railroad Valley, Nevada, develop lithium extraction technology, and pursue battery recycling. It began drilling an initial test and production hole in May 2019. The filing reports no mineral resources or reserves and no certainty that exploration will lead to production. A battery-recycling process was being developed in fiscal 2020, after the reported year.
Financial performance and liquidity
| Metric | FY2019 / September 30, 2019 | FY2018 / September 30, 2018 |
|---|---|---|
| Revenue | $0 | $0 |
| Operating expenses | $10.487 million | $5.589 million |
| Net loss | $12.625 million; $0.11 per share | $6.048 million; $0.07 per share |
| Cash from (used in) operations | $(3.432) million | $(0.993) million |
| Cash from financing | $3.317 million | $1.117 million |
| Cash | $7,371 | $122,769 |
| Current assets | $57,444 | $308,769 |
| Current liabilities | $4.880 million | $2.741 million |
| Working capital | $(4.822) million | $(2.433) million |
| Total assets | $92,694 | $308,769 |
| Total liabilities | $4.880 million | $2.741 million |
Margins are not meaningful because the company had no revenue. The income statement reports $2.492 million of interest expense and a $218,922 loss from changes in derivative fair value; a $571,962 gain on debt settlement partly offset these costs. The balance sheet included $3.437 million of derivative liabilities and notes payable with a $3.643 million aggregate face value, reported at a much lower carrying value after discounts. No material off-balance-sheet arrangements were reported.
Changes and financing
- Net loss more than doubled year over year. Operating expenses rose about $4.898 million, including higher exploration, management and consulting, payroll, general and administrative, and legal costs. Management and consulting expenses included substantial stock-based compensation.
- Cash used in operations increased by approximately $2.439 million. Financing proceeds were primarily from convertible notes; the company also repaid $1.484 million of notes.
- ABMC issued 26.7 million shares for services, valued at $7.093 million, and 22.4 million shares for note conversions during FY2019. The balance sheet reported 132.7 million common shares outstanding at year-end; the filing reports 166.2 million as of December 20, 2019.
- Many notes carried interest rates of 10%–12% and conversion prices set at discounts to recent trading prices, with some default rates of 22%–24%. These terms can create substantial dilution. Subsequent to year-end, the company reported issuing 28.0 million shares for debt conversions and 5.56 million shares for services.
Outlook, risks and unusual items
- Going concern: The auditor’s report raises substantial doubt about ABMC’s ability to continue as a going concern. The company had no revenue, minimal cash, a large working-capital deficit, and dependence on management support and additional debt or equity financing. The auditor issued an unmodified opinion on the financial statements, with a separate going-concern emphasis.
- Funding and dilution: Management expected to rely on equity sales, debt, or joint-venture partners to fund operations and exploration; it gave no assurance that financing would be available on favorable terms or at all.
- Exploration and permitting: The Railroad Valley project remained unproven, with no reported reserves or resources. Further exploration depends on financing and permitting; the filing’s planned 2020 sampling and drilling timetable is not a production forecast.
- Joint venture: A five-year agreement with CINC Industries requires minimum equipment purchases rising from $1 million by October 2020 to $10 million by October 2023. Failure to meet milestones could forfeit ABMC’s exclusive marketing rights. The filing says the venture had no activity through September 30, 2019.
- Controls and governance: Management concluded disclosure controls and internal control over financial reporting were not effective at year-end. The company reported no audit committee or audit committee financial expert, and no adopted code of ethics.
- Legal matters: Litigation against a former CEO concerning shares the company alleged were improperly issued remained ongoing; a shareholder lawsuit over a restrictive legend was also being defended.
- Unusual compensation: Shares issued for services totaled $7.093 million in reported value, including awards to executives and directors. The filing also describes material management and consulting fees.
Most important facts for investors to verify
- Availability and terms of financing, near-term note maturities, and the potential dilution from discounted-price convertible debt.
- Whether post-year-end share issuances and note conversions are fully reflected in current shares outstanding and potential dilution.
- Exploration results, permitting status, and whether the company can establish economically viable lithium resources or reserves.
- The status and funding obligations of the CINC joint venture and its equipment-purchase milestones.
- Remediation of ineffective financial reporting controls and progress on the disclosed lawsuits.
- The filing gives inconsistent claim descriptions: it refers to 1,300 claims covering just over 30,000 acres in some sections, but 1,040 claims covering over 20,000 acres in another. Confirm the current claim count, acreage, and title status.