Business context and reporting period
This is the Form 10-Q for the quarter ended September 30, 2019. The filing identifies the registrant as Brazil Minerals, Inc. (BMIX), not Atlas Lithium Corp.; investors should verify the issuer and filing identity. Brazil Minerals reported mineral interests in Brazil, including lithium, rare earths, titanium, gold and diamonds, and consolidated Jupiter Gold because it concluded it was the VIE’s primary beneficiary despite owning approximately 43.1%.
The company was advancing alluvial gold and diamond operations and exploring strategic-mineral properties. It reported that processing of material at a mining area began in October 2019, after the quarter. No formal financial guidance was provided.
Financial results and liquidity
| Metric | Three months ended September 30 | Nine months ended September 30 |
|---|---|---|
| Revenue | 2019: $6,548; 2018: $21,172 | 2019: $16,513; 2018: $28,472 |
| Gross loss | 2019: $22,908; 2018: $6,057 | 2019: $108,221; 2018: $67,841 |
| Operating expenses | 2019: $257,743; 2018: $279,240 | 2019: $838,289; 2018: $751,434 |
| Net loss | 2019: $466,244; 2018: $513,412 | 2019: $1,573,104; 2018: $1,382,827 |
| Net loss attributable to Brazil Minerals stockholders | 2019: $419,532; 2018: $459,605 | 2019: $1,438,510; 2018: $1,267,669 |
Gross margin remained negative in both periods. Q3 revenue fell 69% year over year; nine-month revenue also fell, although the MD&A incorrectly describes it as an increase. Nine-month cost of revenue rose to $124,734 from $96,313. Nine-month other expense was $626,594, including $435,860 of debt-discount amortization and $68,015 from extinguishment of debt.
For the first nine months, operating cash outflow was $707,656, versus $337,292 in 2018; investing cash outflow was $74; financing cash inflow was $791,714. Cash at September 30 was $73,456, compared with $2,407 at December 31, 2018. Current assets were $136,408 and current liabilities $1,960,489, resulting in a $1,824,081 working-capital deficit and a 0.07 current ratio. Total liabilities were $2,141,969, against total assets of $964,347; stockholders’ deficit was $1,177,622.
Current liabilities included $780,429 of convertible notes, net of discounts, $175,308 of loans payable, and $627,441 of accounts payable and accrued expenses. The company reported 1,079,564,142 common shares outstanding at September 30 and 1,114,158,507 as of November 15. It said its convertible notes could convert into approximately 558.3 million shares, with additional potential dilution from options and warrants.
Material changes, outlook and risks
- Management attributed higher mining costs to preparations for increased activity. Q3 operating expenses declined year over year, but nine-month operating expenses increased; the nine-month net loss attributable to company stockholders widened 13.5%.
- During 2019, the company expanded its lithium rights from 288 to 17,487 acres, added 11,746 acres for rare earths, and reported adding 21,253 acres for titanium in October. It described these assets as exploration-stage projects.
- Management cited increased gold and rough-diamond sales from a newly permitted mining area as its primary plan to fund operations, with equity sales and debt financing as alternatives. It warned that financing efforts might not succeed. The filing states substantial doubt about the company’s ability to continue as a going concern, citing limited working capital, recurring losses and lack of material revenue.
- Risks include uncertain mineral discovery, whether deposits can be profitably produced, market fluctuations, regulation, competition, weather and infrastructure disruption. Some convertible debt was past maturity or in default; the company reported penalties and interest and was negotiating with a secured noteholder. A separate 2014 note was past due and in technical default, with its interest rate increased to 30%; accrued interest was $365,709.
- Related-party exposure includes convertible notes payable to the CEO and a $202,240 debt-for-options exchange, which generated a $68,015 extinguishment loss. One preferred share carries 51% of total voting power while outstanding.
- Management said disclosure controls and procedures were not effective, while separately concluding internal control over financial reporting was effective. No material subsequent events were disclosed.
Most important facts to verify
- Confirm that this BMIX filing is the intended issuer filing: the document names Brazil Minerals, Inc., not Atlas Lithium Corp.
- Reconcile the MD&A’s claim that nine-month revenue increased 42% with the statements, which show a decline from $28,472 to $16,513.
- Check the common-share authorization figures: the balance sheet states 950 million authorized despite more than 1.079 billion shares outstanding; the notes say an August 2019 charter amendment raised authorization to 1.2 billion.
- Review near-term liquidity, going-concern disclosures, overdue/defaulted debt, related-party obligations and the substantial potential dilution from variable-price conversions and warrants.
- Assess whether October processing and exploration results translate into sustained, profitable production; the filing provides no quantified production or revenue forecast.