# AMERICAN BATTERY TECHNOLOGY Co (ABAT) FY 2021 MD&A Verbatim Item 7 Management's Discussion and Analysis from AMERICAN BATTERY TECHNOLOGY Co's 10-K for fiscal year 2021. SEC filing source: https://www.sec.gov/Archives/edgar/data/1576873/000149315221025335/form10-k.htm Accession: 0001493152-21-025335 Filing date: 2021-10-13 Report date: 2021-06-30 Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary. Published MD&A gate trimmed front/tail over-capture. Confidence: high Company profile: /company/ABAT/ All MD&A years: /company/ABAT/mda/ Next year: /company/ABAT/mda/fy2022/ (FY 2022) ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS. You should read the following discussion of our financial condition and results of operations in conjunction with the consolidated financial statements and the notes thereto included elsewhere in the Form 10-K. The following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this Form 10-K. 17 RESULTS OF OPERATIONS Working Capital [[GREPCENT_TABLE]] [["","","June 30, 2021","","","June 30, 2020"],["","","$","","","$"],["Current Assets","","","14,135,718","","","","1,067,258"],["Current Liabilities","","","1,822,498","","","","5,795,170"],["Working Capital (Deficit)","","","12,313,220","","","","(4,727,912",")"]] [[/GREPCENT_TABLE]] Cash Flows [[GREPCENT_TABLE]] [["","","Twelve months ended June 30, 2021","","","Nine months ended June 30, 2020"],["","","$","","","$"],["Cash Flows used in Operating Activities","","","(7,756,438",")","","","(3,018,519",")"],["Cash Flows used in Investing Activities","","","(7,083,247",")","","","(3,896",")"],["Cash Flows provided by Financing Activities","","","26,853,263","","","","3,844,968"],["Net Increase in Cash During the Period","","","12,013,578","","","","822,553"]] [[/GREPCENT_TABLE]] Operating Revenues During the twelve months ended June 30, 2021 and nine months ended June 30, 2020, the Company did not earn any revenues. The Company is currently still in its development stage. Operating Expenses and Net Loss During the twelve months ended June 30, 2021, the Company incurred operating expenses of $37,724,330 compared to operating expenses of $4,387,169 during the nine months ended June 30, 2020. The increase in operating expenses was due to an increase in our overall operations during the fiscal year of 2021, highlighted by purchases of various properties and water rights in preparation for the commencement of construction of our lithium-ion battery recycling pilot plant. Our biggest expenditures for the twelve months ended June 30, 2021 were related to labor costs, including consulting fees of $24,133,707 and management fees of $5,017,231 of which the majority of those costs related to share-based compensation. We also saw an increase in payroll expense from $1,346,994 in fiscal year of 2020 to that of $3,409,866 in fiscal year of 2021 due to an increase in the number of staff in our office relating to the growth of our operations. We currently are expecting that we will require more staffing as we continue to grow our business. We also saw an increase in professional fees from $372,186 during the nine months ended June 30, 2020 to $1,239,351 during the twelve months ended June 30, 2021 due to additional legal fees for due diligence and general legal services related to our acquisitions of various land properties and water rights throughout the fiscal year of 2021 as well as an increase in accounting and audit fees related to the increased time and costs incurred in connection therewith. We incurred a net loss attributable to stockholders of $41,864,705 during the twelve months ended June 30, 2021 or a loss of $0.08 per share compared to a net loss attributable to stockholders of $13,318,408 or a loss of $0.05 per share during the nine months ended June 30, 2020. In addition to operating expenses, we incurred finance costs of $422,768, a loss of $19,655,296 relating to the change in the fair value of derivative liabilities during the twelve-month period ended June 30, 2021 as well as $2,915,025 of accretion and interest costs which was offset by a gain on settlement of convertible debt of $18,683,279 from the activity relating to the servicing and settlement of our convertible debentures during that year. During the nine months ended June 30, 2020, we incurred a loss on the change in fair value of derivative liability of $5,863,127 and accretion and interest expense of $4,391,184, which was offset by a gain on settlement of debt of $1,319,326. The increase in other expense during the current year was due to an increase in the number and dollar value of convertible debentures in the fiscal year ended June 30, 2021 compared to that of the prior year and also due to an increase in the activity of convertible debentures as we focused more of our financing activities to raising equity from the issuance of common shares that were buoyed by an appreciation in the market price of our common stock. As we were able to raise funds from the issuance of equity instruments, we used part of the proceeds from the offerings of our common stock to pay down and settle our outstanding convertible debentures that carried discounts to the market price of the Company’s common shares upon conversion as well as high interest rates indicative of the borrowing costs of a development stage company. Moving forward, we believe that the Company is in a much stronger financial position than the fiscal year of 2020 due to a higher cash base and working capital, which will be a key factor as the Company continues its strategic objectives of graduation from the development stage to construction of our battery recycling pilot plant and eventually of production and revenue-earning activities. 18 Liquidity and Capital Resources Cash and Assets As of June 30, 2021, the Company had cash of $12,843,502 and total assets of $21,263,103 compared to cash of $829,924 and total assets of $1,161,314 at June 30, 2020. The increase in cash was due to proceeds received from the sales of our shares of common stock and exercise of share purchase warrants which was offset by an increase in the amount of cash used for our day-to-day operating expenditures as we continue to grow our business. We also continued to build out our core asset base through the strategic acquisitions of various land properties in Nevada and various water rights which will be used in our future production process and will be more cost effective and efficient than sourcing our expected water use through third parties. Liabilities Our liabilities decreased from $6,101,818 at June 30, 2020 to $1,822,498 at June 30, 2021 primarily due to paying down and settling our outstanding convertible debentures during the year of 2021, which carried high interest rates and a significant discount to the market price of our common shares which could cause dilution for our existing shareholders. As of June 30, 2021, we no longer have any outstanding convertible debentures issued and outstanding or derivative liability with respect to conversion features that are held by note holders. This was in comparison to outstanding face value of convertible debentures of $2,211,200, of which $2,084,051 was unamortized discount, and the fair value of derivative liability of $4,519,654 (the fair value of the conversion features within the convertible debentures) held by our convertible note holders at June 30, 2020. As of June 30, 2021, the majority of our liabilities was comprised of accounts payable and accrued liabilities in the aggregate amount of $1,616,852 compared to that of $514,838 at June 30, 2020 and the increase in the amount of $1,102,014 reflected an increase in the Company’s day-to-day operating costs. Most of our trade accounts payable and accrued liabilities are expected to be settled over the next 12 months. Working Capital and Capital Transactions As at June 30, 2021, we have a working capital of $12,313,220 compared to a working capital deficit of $4,727,912 as at June 30, 2020. The strengthening of our working capital was due to our ability to raise significant funding through the issuance of equity instruments which were used to repay our debt financing and continue to fund our growth and strategic objectives as we move closer to construction of our battery recycling pilot plant and, eventually, to production activity. We have 573,267,632 common shares issued and outstanding at June 30, 2021 compared to 365,191,213 common shares issued and outstanding at June 30, 2020. During the twelve months ended June 30, 2021, we issued 69,715,910 common shares from registered and unregistered sales of our common shares, 57,670,677 common shares from the exercise of outstanding share purchase warrants, 34,534,830 common shares as payments for services, including share-based compensation to certain officers and directors of the Company, 22,685,750 common shares for the settlement of convertible debentures, 16,750,000 common shares for share purchase agreements, 5,900,000 common shares for the conversion from certain issued Series C preferred shares, and 69,252 common shares for deposit on real property. Cash flows from Operating Activities During the twelve months ended June 30, 2021, we used $7,756,438 for operating activities compared to use of $3,018,519 for operating activities during the nine months ended June 30, 2020. The increase in cash used for our operating activities is due to an overall increase in our day-to-day operations. Cash flows from Investing Activities During the twelve months ended June 30, 2021, we used $7,083,247 of cash for investing activities including $5,440,087 for the acquisition of land and building properties, and $1,643,160 for acquisition of water rights. During the nine months ended June 30, 2020, we used $3,896 of cash for acquisition of properties and equipment. 19 Cash flows from Financing Activities During the year ended June 30, 2021, we received $26,853,263 of cash from financing activities, which included $25,931,451 from the issuance of common shares from private placements, net of issuance costs of $1,300,000, $1,395,000 from the issuance of convertible debentures, $862,500 from the exercise of share purchase warrants, and was offset by the repayment of convertible debentures in the aggregate amount of $1,295,202. During the nine months ended June 30, 2020, we received $2,600,000 from the issuance of common shares, $2,522,250 of proceeds from issuance of convertible debentures less repayments of $1,533,274, and proceeds of $255,992 from government loans. Liquidity and Capital Resources During the year ended June 30, 2021, the Company has incurred a net loss of $41,760,064 and used cash of $7,756,438 for operating activities. As of June 30, 2021, the Company has an accumulated deficit of $105,073,651. On September 27, 2021, the Company secured approximately $36,925,000 net proceeds to construct and commission the pilot plant, fund operations, and increase research and development activities. The Company believes its recent capital raise, and its current cash holdings will be sufficient to meet its future working capital needs. The Company cannot give assurance that it can increase its cash balances or limit its cash consumption and thus maintain sufficient cash balances for its planned operations. The Company may need to raise additional capital in the future. However, the Company cannot assure that it will be able to raise additional capital on acceptable terms, or at all. Subject to the foregoing, management believes that the Company has sufficient capital and liquidity to fund its operations for at least one year from the date of issuance of the accompanying financial statements. These audited consolidated financial statements do not include any adjustments to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern. Off-Balance Sheet Arrangements As of June 30, 2021, we had no significant off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to stockholders. Future Financings We will continue to rely on equity sales of our common shares to continue to fund our business operations. Issuances of additional shares will result in dilution to existing stockholders. There is no assurance that we will achieve any additional sales of the equity securities or arrange for debt or other financing to fund planned acquisitions and exploration activities. Critical Accounting Policies Our consolidated financial statements and accompanying notes have been prepared in accordance with United States generally accepted accounting principles applied on a consistent basis. The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. We regularly evaluate the accounting policies and estimates that we use to prepare our consolidated financial statements. A complete summary of these policies is included in the notes to our financial statements. In general, management’s estimates are based on historical experience, on information from third party professionals, and on various other assumptions that are believed to be reasonable under the facts and circumstances. Actual results could differ from those estimates made by management. 20 Recently Issued Accounting Pronouncements In August 2020, the FASB issued ASU No. 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40), which simplifies the accounting for convertible instruments. The guidance removes certain accounting models that separate the embedded conversion features from the host contract for convertible instruments, requiring bifurcation only if the convertible debt feature qualifies as a derivative under ASC 815 or for convertible debt issued at a substantial premium. The ASU removes certain settlement conditions required for equity contracts to qualify for the derivative scope exception, permitting more contracts to qualify for it. The ASU is effective for annual reporting periods beginning after December 15, 2021, including interim reporting periods within those annual periods, with early adoption permitted no earlier than the fiscal year beginning after December 15, 2020. The Company has not yet adopted the new pronouncement as of June 30, 2021.