AMERICAN BATTERY MATERIALS, INC. 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations Forward-Looking Statements Certain statements contained herein constitute “forward-looking statements.” Except for the historical information contained herein, this report contains forward-looking statements (identified by the words “estimate,” “project,” “anticipate,” “plan,” “expect,” “intend,” “believe,” “hope,” “strategy” and similar expressions), which are based on our current expectations and speak only as of the date made. These forward-looking statements are subject to various risks, uncertainties and factors that could cause actual results to differ materially from the results anticipated in the forward-looking statements, including, without limitation, those discussed under Part I, Item 1A “Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022, as filed with the Securities and Exchange Commission on April 21, 2023, and those described herein that could cause actual results to differ materially from the results anticipated in the forward-looking statements, and the following: ● Our limited operating history with our business model; ● The limited financing currently available to us. We may in the near future have a number of obligations that we will be unable to meet without generating additional income or raising additional capital; ● Further cost reductions or curtailment in future operations due to our low cash balance and negative cash flow; ● Our ability to effect a financing transaction to fund our operations which could adversely affect the value of our stock; ● Our limited cash resources may not be sufficient to fund continuing losses from operations; ● The failure of our products and services to achieve market acceptance; ● The inability to compete in our market, especially against established industry competitors with greater market presence and financial resources; and ● The failure to close the proposed Merger Agreement with SGII, as described below, or the failure to successfully integrate our business with SGII upon a closing of the proposed Merger Agreement. Objective The objective of our Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is to provide users of our financial statements with the following: ● A narrative explanation from the perspective of management of our financial condition, results of operations, cash flows, liquidity and certain other factors that may affect future results; ● Useful context to the financial statements; and ● Information that allows assessment of the likelihood that past performance is indicative of future performance. This MD&A is a supplement to, and should be read together with, our financial statements, including notes, referenced elsewhere in this Quarterly Report, and is provided to enhance your understanding of our operations and financial condition. Due to rounding, some parts of this discussion may not sum or calculate precisely to the totals and percentages provided in the tables. The following discussion and analysis provides information that our management believes is relevant to an assessment and understanding of our results of operations and financial condition, and should be read in conjunction with the consolidated financial statements and footnotes that appear elsewhere in this Quarterly Report. Overview and Outlook American Battery Materials, Inc. (the “Company”) is a US based renewable energy company focused on the extraction, refinement and distribution of technical minerals in an environmentally responsible manner. The Company formerly developed, marketed and distributed various self-serve electronic kiosks and mall/airport co-branded islands throughout North America. Due to the nationwide shutdown related to the COVID-19 pandemic, the Company spent a portion of 2020 restructuring and retiring certain corporate debt and obligations, and focusing on implementing a new operational direction. 13 Through the corporate reorganization and repositioning process, the Company found itself with the unique opportunity to expand its management team and acquire mining claims that historically reported high levels of Lithium and other tech minerals. The Company hired and affiliated itself with industry veterans that bring decades of experience, credibility and relationships. On November 5, 2021, the Company acquired the rights to 102 Federal Mining Claims located in the Lisbon Valley of Utah for $100,000. The acquisition was driven by historical mineral data from seven (7) existing wells with brine aquifer access. We have not yet commenced any mining operations, and we are an Exploration Stage Company, as defined in Regulation S-K, Subpart 1300 (“Regulation S-K 1300”). An independent third-party technical report indicated that further investment and development in the claims was warranted, although no determination has been made whether we have any reserves of minerals. Similarly, no determined has been made whether mineralization could be economically and legally produced or extracted. We have no reserves as defined by Regulation S-K 1300. On October 20, 2022 the Company, following receipt of written approval from stockholders acting without a meeting and holding at least the minimum number of votes that would be necessary to authorize or take such action at a meeting, filed an amendment to its Certificate of Incorporation to (i) change the name of the Company to “AMERICAN BATTERY MATERIALS, INC.” (the “Name Change”); and, (ii) increase the total number of authorized shares of the Company’s common stock, par value $0.001 per share, from 600,000,000 to 4,500,000,000 (the “Authorized Share Increase”). The Name Change was processed by FINRA and was effective on May 1, 2023, at which time the Company’s trading symbol was also changed to BLTH. The Authorized Share Increase was effective as of October 20, 2022. On October 20, 2022, in addition to the Name Change and the Authorized Share Increase, the holder of 63.86% of the issued and outstanding shares of stock of the Company entitled to vote took action by written consent and without a meeting, pursuant to Delaware General Corporate Law Section 228, and adopted and approved the following actions: 1. Future amendment of the Company’s Certificate of Incorporation to implement a decrease in the authorized shares of the Company’s Common Stock from 4,500,000,000 to a number of not less than 10,000,000 and not more than 2,000,000,000 (the “Authorized Share Reduction”), at any time prior to October 20, 2023 (the “Anniversary Date”), with the Board having the discretion to determine whether or not the Authorized Share Reduction is to be effected, and if effected, the exact number of the Authorized Share Reduction within the above range. 2. Future amendment of the Company’s Certificate of Incorporation to implement a reverse stock split of the Company’s Common Stock by a ratio of not less than 1-for-10 and not more than 1-for-1,000, (the “Reverse Split”), at any time prior to the Anniversary Date, with the Board having the discretion to determine whether or not the Reverse Split is to be effected, and if effected, the exact ratio for the Reverse Split within the above range. On April 25, 2023, the Company formed Mountain Sage Minerals LLC, a Utah limited liability company, of which it is the 100% owner. The Company will look to expand its holdings in the Lisbon Valley area with the acquisition of additional mineral claims and joint venture opportunities through this new LLC. On June 1, 2023, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Seaport Global Acquisition II Corp., a Delaware corporation (“SGII”), and Lithium Merger Sub, Inc., a Delaware corporation and wholly-owned subsidiary of SGII (“Merger Sub”). SGII is a blank check company, also referred to as a special purpose acquisition company, formed for the purpose of effectuating a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or other similar business combination with one or more businesses. SGII is an early stage and emerging growth company. Pursuant to the Merger Agreement, Merger Sub will merge with and into the Company, with the Company surviving the merger. As a result of the transactions under the Merger Agreement, ABM will become a wholly-owned subsidiary of SGII. The stockholders of ABM will become stockholders of SGII under an exchange ratio in the Merger Agreement. The closing of the transactions under the Merger Agreement is expected to be consummated in 2023, after the required approval by the stockholders of SGII and the fulfillment of certain other conditions. The Merger Agreement was amended on July 14, 2023 (the “Amendment”). Pursuant to the Amendment, the parties agreed to (i) reduce the value of the shares of SGII common stock to be paid as consideration to ABM’s stockholders from $160 million to $120 million; (ii) extend the Merger Agreement’s termination date from August 19, 2023 to February 19, 2024; and, (iii) amend the Merger Agreement to obligate the Company to fund one-half of the additional payment into trust (i.e., $0.015 per share by the Company) that SGII intends to make in connection with an extension to the date by which SGII must complete a business combination. If the Company fails to make any such contribution that is subsequently funded by SGII (each, a “Contribution Shortfall”), then the Company shall issue to SGII’s sponsor a number of shares with value equal to two times the amount of all Contribution Shortfalls either (a) if the transactions under the Merger Agreement close, of the post-business combination company; or, (b) if the transactions under the Merger Agreement do not close, of the Company. 14 The Company has been moving forward with its strategy of employing advanced brine extractive technology methodologies and has been in talks with numerous extraction providers. Selective mineral extraction is clearly the most cost-effective and ESG friendly approach currently available. Technologies are being utilized that can extract the desired minerals and metals from the brine and then re-inject the brines back down into the aquafer. The prospective partners have been provided the analytical results from the technical reports, but will soon provide current results, analytical, geotech modeling, aquifer modeling, recharge, flows, and depth. We will need funding to support continuing operations and support our growth strategy, and we will need to finance operations by offering any combination of equity offerings, debt financing, collaborations, strategic alliances, or other licensing arrangements. There is no assurance we will be able to raise sufficient capital to finance our operations. There is also a risk that the proposed Merger Agreement with SGII, as described below, will not close, or that we will fail to successfully integrate our business with SGII upon a closing of the proposed Merger Agreement. Results of Operations Three Months Ended September 30, 2023 Compared to Three Months Ended September 30, 2022 Revenue For the three months ended September 30, 2023 and 2022, the Company had no revenue. Operating Expenses General and administrative expenses for the three months ended September 30, 2023 were $624,952, an increase of $293,217 or 36%, compared to $331,735 for the three months ended September 30, 2022. The increase in operating expenses was mainly due to an increase in professional fees, mining maintenance fees and stock compensation expenses. In the second quarter of 2022, the Company activated consulting teams to pursue additional land acquisitions, and to begin the State and Federal permitting process for project development work. In addition, the Company initiated construction strategies based on reports from RESPEC, the Company’s engineering partner, for geological modeling and drill entry design and related planning. Fair value of stock issued for note modification During the three months ended September 30, 2023, the Company recorded a fair value of stock issued for note modification of $168,856. No such transactions were noted during the three months ended September 30, 2022. Extension fees due to SPAC Sponsor During the three months ended September 30, 2023, the Company recorded $101,662 of extension fees due to SPAC Sponsor. No such transactions were noted during the three months ended September 30, 2022. Interest Expense Interest expense for the three months ended September 30, 2023, was $47,554, as compared to $175,133 during the three months ended September 30, 2022 due to the conversion of convertible notes payable during the fourth quarter of 2022. Net Loss As a result of the foregoing, the net loss for the three months ended September 30, 2023 was $943,024 as compared to the net loss of $506,868 during the three months ended September 30, 2022. Nine months Ended September 30, 2023 Compared to Nine months Ended September 30, 2022 Revenue For the nine months ended September 30, 2023 and 2022, the Company had no revenue. Operating Expenses General and administrative expenses for the nine months ended September 30, 2023 were $2,165,494, an increase of $1,343,499 or 163%, compared to $821,995 for the nine months ended September 30, 2022. The increase in operating expenses was mainly due to an increase in professional fees, mining maintenance fees and stock compensation expenses. In the second quarter of 2022, the Company activated consulting teams to pursue additional land acquisitions, and to begin the State and Federal permitting process for project development work. 15 In addition, the Company initiated construction strategies based on reports from RESPEC, the Company’s engineering partner, for geological modeling and drill entry design and related planning. Change in Fair Value of Derivative Liabilities During the nine months ended September 30, 2022, the Company recorded a gain on the change in fair value of derivative liabilities of $211,345. The underlying convertible notes were converted during the fourth quarter of 2022, resulting in no derivative liabilities during the nine months ended September 30, 2023. Gain on Settlement of Liabilities During the nine months ended September 30, 2023, the Company recorded a gain on settlement of liabilities of $67,984, consisting of $7,008 in principal and $60,976 in interest forgiven by noteholders. No such transactions were noted during the nine months ended September 30, 2022. Fair value of stock issued for note modification During the nine months ended September 30, 2023, the Company recorded a fair value of stock issued for note modification of $168,856. No such transactions were noted during the nine months ended September 30, 2022. Extension fees due to SPAC Sponsor During the nine months ended September 30, 2023, the Company recorded $101,662 of extension fees due to SPAC Sponsor. No such transactions were noted during the nine months ended September 30, 2022. Interest Expense Interest expense for the nine months ended September 30, 2023 was $94,771, as compared to $537,938 during the nine months ended September 30, 2022 due to the conversion of convertible notes payable during the fourth quarter of 2022. Net Loss As a result of the foregoing, the net loss for the nine months ended September 30, 2023, was $2,462,799 as compared to the net loss of $1,148,558 during the nine months ended September 30, 2022. Liquidity and Capital Resources We require cash to fund our operating expenses and working capital requirements, including outlays for capital expenditures. The accompanying consolidated financial statements have been prepared on a going concern basis. The Company had net loss of $2,462,799 during the nine months ended September 30, 2023, has accumulated losses totaling $20,317,636, and has a working capital deficit of $3,165,242 as of September 30, 2023. These factors, among others, indicate that the Company may be unable to continue as a going concern. The consolidated financial statements do not include any adjustments that might result from the outcome of these uncertainties. Since we acquired our first mining claims in November 2021, we have faced an increasingly challenging liquidity situation that has limited our ability to execute on our operating plan. The Company will need to raise additional financing in order to fund its operations for the next 12 months, and to allow the Company to continue the development of its business plans and satisfy its obligations on a timely basis. Should additional financing not be available, the Company will have to negotiate with its lenders to extend the repayment dates of its indebtedness. There can be no assurance that the Company will be able to successfully restructure its debt obligations in the event it fails to obtain additional financing. Sources of additional capital through various financing transactions or arrangements with third parties may include equity or debt financing, bank loans or revolving credit facilities. We may not be successful in locating suitable financing transactions in the time period required or at all, and we may not obtain the capital we require by other means. Unless we can attract additional investment, our operating as a going concern is in doubt. If we are unable to obtain sufficient amounts of additional capital, we may have to cease filing the required reports and cease operations completely. If we obtain additional funds by selling any of our equity securities or by issuing common stock to pay current or future obligations, the percentage ownership of our stockholders will be reduced, stockholders may experience additional dilution, or the equity securities may have rights preferences or privileges senior to the common stock. 16 Cash Flows from Operating Activities During the nine months ended September 30, 2023, the Company used $1,911,600 of cash in operating activities as a result of the Company’s net loss of $2,462,799, increased by gain on debt settlement of $67,984 and amortization of debt discount of $89,876, and offset by fair value of options issued for note modification of $168,856, share-based compensation of $446,113, and net changes in operating assets and liabilities of $94,090. During the nine months ended September 30, 2022, the Company used $720,338 of cash in operating activities as a result of the Company’s net loss of $1,148,588, offset by share-based compensation of $11,080, change in fair market value of derivative liability of $211,345, and net changes in operating assets and liabilities of $628,515. Cash Flows from Investing Activities During the nine months ended September 30, 2023, the Company expended $106,000 for staking activities related to new federal mining claims located in the Lisbon Valley of Utah. During the nine months ended September 30, 2022, the Company had no investing activities. Cash Flows from Financing Activities During the nine months ended September 30, 2023, financing activities provided $2,314,000, resulting from $2,025,000 in proceeds from convertible notes, $100,000 in proceeds from promissory notes, and $189,000 in proceeds from the exercise of warrants. During the nine months ended September 30, 2022, financing activities provided $765,000, resulting from $590,000 in proceeds from convertible notes, $200,000 in proceeds from promissory notes, and $50,000 in proceeds from issuance of preferred stock, offset by $75,000 in repayments of convertible notes. Off-Balance Sheet Arrangements The Company does not have any off-balance sheet arrangements that have, or are reasonably likely to have, an effect on its financial condition, financial statements, revenues or expenses. Inflation Management continues to evaluate the impact of the existence of inflationary trends on the U.S. economy and the recent increase in interest rates. Although the Company’s operations are influenced by general economic conditions, it does not believe that inflation or rising interest rates had a material effect on its results of operations during the last two years. While it is reasonably possible that such uncertainties, and governmental and societal actions to manage them, could have a negative effect on the Company’s financial position in the future, the specific impact is currently not readily determinable. 17 Critical Accounting Policies The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the United States requires management to make judgments, assumptions and estimates that affect the amounts reported in our consolidated financial statements and accompanying notes. The consolidated financial statements as of September 30, 2023 describe the significant accounting policies and methods used in the preparation of the consolidated financial statements. Actual results could differ from those estimates and be based on events different from those assumptions. Future events and their effects cannot be predicted with certainty; estimating therefore, requires the exercise of judgment. Thus, accounting estimates change as new events occur, as more experience is acquired or as additional information is obtained. The following critical accounting policies are impacted significantly by judgments, assumptions and estimates used in the preparation of our consolidated financial statements: Fair Value of Financial Instruments For certain of the Company’s financial instruments, including cash and equivalents, accounts receivable, accounts payable, accrued liabilities and short-term debt, the carrying amounts approximate their fair values due to their short maturities. ASC Topic 820, “Fair Value Measurements and Disclosures,” requires disclosure of the fair value of financial instruments held by the Company. ASC Topic 825, “Financial Instruments,” defines fair value, and establishes a three-level valuation hierarchy for disclosures of fair value measurement that enhances disclosure requirements for fair value measures. The three levels of valuation hierarchy are defined as follows: ● Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities. The Company considers active markets as those in which transactions for the assets or liabilities occur in sufficient frequency and volume to provide pricing information on an ongoing basis ● Level 2: Quoted prices in markets that are not active, or inputs which are observable, either directly or indirectly, for substantially the full term of the asset or liability. This category includes those derivative instruments that the Company values using observable market data. Substantially all of these inputs are observable in the marketplace throughout the term of the derivative instruments, can be derived from observable data, or supported by observable levels at which transactions are executed in the marketplace. ● Level 3: Measured based on prices or valuation models that require inputs that are both significant to the fair value measurement and less observable from objective sources (i.e. supported by little or no market activity). Level 3 instruments include derivative warrant instruments. The Company does not have sufficient corroborating evidence to support classifying these assets and liabilities as Level 1 or Level 2. Derivative Financial Instruments The Company evaluates its financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded derivatives. Certain warrants issued by the Company contain terms that result in the warrants being classified as derivative liabilities for accounting purposes. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair market value and then is revalued at each reporting date, with changes in fair value reported in the consolidated statement of operations. The Company does not use derivative instruments to hedge exposures to cash flow, market or foreign currency risks. Factors That May Adversely Affect Our Results of Operations Our results of operations may be adversely affected by various factors that could cause economic uncertainty and volatility in the financial markets, many of which are beyond our control. Our business could be impacted by, among other things, downturns in the financial markets or in economic conditions, increases in oil prices, inflation, increases in interest rates, supply chain disruptions, declines in consumer confidence and spending, the ongoing effects of the COVID-19 pandemic, including resurgences and the emergence of new variants, and geopolitical instability, such as the military conflict in the Ukraine. We cannot at this time fully predict the likelihood of one or more of the above events, their duration, or magnitude, or the extent to which they may negatively impact our business. 18 Item 3. Quantitative and Qualitative Disclosures about Market Risk Not required for smaller reporting companies.