Brazil Minerals, Inc. — Q1 2020 Form 10-Q
Issuer identification: The filing is for Brazil Minerals, Inc. (ticker BMIX), not Atlas Lithium Corp. It covers the quarter ended March 31, 2020; financial statements are unaudited and in U.S. dollars.
Business context and reporting period
The company holds Brazilian mineral rights, including lithium, rare earths, gold, diamonds and other minerals, and conducts limited gold, diamond and sand mining. It also consolidates Jupiter Gold as a variable interest entity, despite holding approximately 18.88% of its common stock at quarter-end.
Financial performance and liquidity
- Revenue: $2,630, down 45.1% from $4,793 in Q1 2019. Cost of revenue was $29,233, producing a gross loss of $26,603 (versus a $38,444 gross loss); gross margin was negative.
- Operating expenses: $285,742, up 12.1%. Operating loss was $312,345, compared with $293,463.
- Net loss: $592,276, versus $448,022. Loss attributable to Brazil Minerals stockholders was $522,618, versus $404,451. Reported loss per share rounded to $0.00 in both periods.
- Other expense: $279,931, compared with $154,559, including $151,339 of debt-discount amortization, $52,414 of promissory-note interest and a related-party equity exchange loss reported as $76,178 in the income statement.
- Cash flow: Operating activities used $190,647; investing activities used $14,304; financing activities provided $258,291. Cash increased by $42,011 to $193,099.
- Liquidity: Working capital deficit was $2,119,887. Current liabilities were $2,346,085 against current assets of $226,198.
- Debt and equity: Convertible notes, net, were $888,814; loans payable were $209,128; related-party notes and other payables, net, were $570,077. Total liabilities were $2,498,625, and total stockholders’ deficit was $1,591,773.
- Other balance-sheet items: Total assets were $906,852, including $407,311 in intangible mining rights and a $150,000 equity investment.
Changes versus Q1 2019
- Revenue fell, although the gross loss narrowed as cost of revenue declined with reduced production activity.
- Operating expenses increased, primarily from professional fees and general and administrative costs associated with public-company requirements and financing efforts.
- Net loss attributable to stockholders increased by $118,167. Higher debt-discount amortization and interest, along with a related-party exchange loss, contributed to the deterioration.
- Cash used in operations increased by $53,783. Financing cash inflow rose to $258,291, including $300,000 from sales of subsidiary stock to noncontrolling interests, partly offset by a $41,709 officer-loan cash outflow.
Outlook, risks and unusual items
- Management expects revenue may increase as new production areas are licensed, but provides no quantified guidance or timeline.
- The filing says limited working capital, recurring losses and lack of material product or service revenue raise substantial doubt about the company’s ability to continue as a going concern. Continued operations depend on cash generation and raising additional capital; management offers no assurance of success.
- COVID-19 had not been reported among employees, and rural operations continued, but travel between the U.S. and Brazil had largely ceased, some exploration work was delayed by municipal access restrictions, and noncritical spending was postponed.
- Convertible notes include past-due obligations and variable conversion prices. The company estimated that notes could convert into approximately 1.21 billion shares as of March 31, 2020, creating substantial potential dilution. A 2014 senior secured note was past due and in technical default; its interest rate had risen to 30%, with negotiations ongoing and no demand for payment reported.
- The company sold Jupiter Gold shares and warrants, including warrants to purchase 50 million BMIX shares, for $250,000 gross proceeds. It also exchanged 200 million BMIX shares for Jupiter Gold shares and issued 53,947,368 shares in a related-party share-exchange transaction.
- Management reported disclosure controls and procedures as not effective in one section, while another section states that controls were effective at a reasonable-assurance level. Internal control over financial reporting was described as effective.
- No material legal proceedings or material changes to previously disclosed risk factors were reported. The filing states there were no material subsequent events through issuance.
Important facts for investors to verify
- Confirm the issuer: this document identifies Brazil Minerals, Inc., not Atlas Lithium Corp.
- Review the going-concern warning, cash runway, working capital deficit and dependence on new financing.
- Assess convertible-debt terms, past-due obligations, default status and potential dilution; compare March 31 shares outstanding of 1,030,599,388 with 1,060,944,228 reported outstanding as of May 15, 2020.
- Reconcile the related-party exchange loss shown as $76,178 in the income statement with $76,926 in the cash-flow statement and related-party note.
- Clarify management’s inconsistent statements about the effectiveness of disclosure controls.