American Battery Metals Corporation (ABML) — Form 10-Q
Reporting period: Quarter and nine months ended June 30, 2019; fiscal year ends September 30. The company was a pre-revenue lithium exploration-stage business, focused on lithium deposits in Nevada. It reported 1,300 mining claims covering approximately 26,000 acres in Railroad Valley and said exploration drilling began in spring 2019. The filing describes completion of its first drill/test/production well; further development decisions remained pending.
Financial performance and position
| Metric | Three months ended June 30, 2019 | Nine months ended June 30, 2019 |
|---|---|---|
| Revenue | $0 | $0 |
| Exploration costs | $688,587 | $713,667 |
| General and administrative expense | $785,087 | $8,378,319 |
| Net loss | $1,020,695 | $10,153,706 |
| Loss per share, basic and diluted | $0.01 | $0.09 |
For the nine months, operating cash use was $2,394,695, versus $526,230 in the prior-year period. Financing provided $2,288,616 net: $3,559,750 in convertible-note proceeds less $1,271,134 in note repayments. Cash declined by $106,079 to $16,690.
At June 30, 2019, total assets were $93,225, including cash of $16,690. Current liabilities were $4,546,733, including a $2,982,931 derivative liability and notes payable with a reported carrying value of $366,982, net of discounts. The company disclosed $3,472,100 in face value of convertible notes outstanding. Working capital deficit was $4,488,758; accumulated deficit was $47,419,040. Stockholders’ deficit was $4,453,508.
Changes versus comparable periods
- Quarterly net loss was $1,020,695, compared with $483,707 in the prior-year quarter. Operating expenses rose to $1,473,674 from $427,361; exploration costs and higher G&A were cited as drivers.
- Nine-month net loss increased to $10,153,706 from $3,830,792. Management attributed the increase primarily to greater consulting and management costs, including $6,402,610 of shares issued for services, and increased exploration activity.
- Nine-month interest and accretion expense increased to $1,391,127 from $99,837, largely due to increased convertible borrowing and substantial discounts tied to conversion features.
- Derivative liabilities rose to $2,982,931 from $800,973 at September 30, 2018. The nine-month results included a $156,368 loss from fair-value changes, partly offset by a $485,775 gain on debt settlement. In the quarter, a $787,640 derivative fair-value gain and a $339,302 gain on debt settlement reduced the reported loss.
- Common shares outstanding increased from 93,331,449 at September 30, 2018 to 116,234,968 at June 30, 2019. The filing reports 120,951,208 shares outstanding on August 5, 2019.
Outlook, risks and unusual items
- Going concern: The company had no revenue, a large working-capital deficit and limited cash. Management stated that continued operations depend on management support, identifying investment opportunities, obtaining debt or equity financing, and eventually generating profitable operations. The filing says these conditions raise substantial doubt about the company’s ability to continue as a going concern.
- Funding and dilution risk: Many notes carry conversion prices set at a discount to recent low trading prices; some also have default rates of 15%–24%. Further conversions could materially dilute shareholders. The company relied on repeated note issuance to fund operations.
- Exploration uncertainty: The Railroad Valley lithium target is untested, and management said exploration could take several years; there is no assurance of reserves, commercial production or future revenue. No financial guidance or quantified production outlook was provided.
- Joint venture commitment: Under its five-year CINC Industries agreement, the company is responsible for initial equipment and related costs, leasing, and marketing. The venture has minimum equipment-purchase targets rising from $1 million by October 2020 to $10 million by October 2023; failure to meet them could cost the company exclusive marketing rights.
- Controls and legal matters: Management concluded disclosure controls and procedures were not effective as of June 30, 2019. The filing also describes continuing litigation with a former CEO and a shareholder suit concerning removal of a restrictive legend and damages.
- Management and related-party balances: Related-party amounts due were included in the $593,855 balance-sheet liability. The filing identifies significant accrued management fees and advances payable to current and former officers and directors.
- Subsequent events: In July 2019, the company issued shares for consulting services and converted $326,100 of convertible notes into shares.
Key facts investors should verify
- Current cash runway, near-term funding needs and the availability and terms of additional financing.
- Complete note agreements and outstanding principal, accrued interest, discounts, maturity dates, default terms and conversion mechanics; reconcile these with the reported face value and carrying value of debt.
- Potential dilution from outstanding convertible notes and warrants, and post-quarter share issuances.
- Exploration results, costs and next steps following the reported first well, including whether the project can establish economically recoverable lithium resources.
- Funding obligations and exclusivity milestones under the CINC joint venture.
- Remediation of ineffective disclosure controls, developments in the disclosed litigation, and the status of related-party balances.