Business Context and Reporting Period
The supplied filing is Brazil Minerals, Inc.’s unaudited Form 10-Q for the quarter and six months ended June 30, 2017—not a filing identified as Atlas Lithium Corp. The company describes a Brazil-focused minerals business, with interests in mining concessions and other mineral rights and operations involving diamonds, gold, sand, and mortar. It reported 37 mineral rights and a modular gold-and-diamond processing plant deployed in early 2017. Brazil Minerals said it retained all diamonds and 50% of recovered gold from the plant; Jupiter Gold Corporation (JGC), which it owned approximately 58%, received the other 50% of gold.
Financial Results and Liquidity
| Metric | Three months ended June 30 | Six months ended June 30 |
|---|---|---|
| Revenue | 2017: $9,058; 2016: $1,513 | 2017: $12,454; 2016: $4,069 |
| Cost of revenue | 2017: $43,682; 2016: $24,123 | 2017: $76,877; 2016: $64,832 |
| Gross loss | 2017: $34,624; 2016: $22,610 | 2017: $64,423; 2016: $60,763 |
| Operating expenses | 2017: $221,835; 2016: $239,325 | 2017: $375,768; 2016: $444,181 |
| Net loss attributable to Brazil Minerals shareholders | 2017: $358,329; 2016: $276,150 | 2017: $627,634; 2016: $566,758 |
| Loss per share | 2017: $0.01; 2016: $0.02 | 2017: $0.01; 2016: $0.03 |
For the six months, operating cash use was $329,002, investing cash use was $6,615, and financing cash provided was $332,446. Cash increased by $1,594 to $7,862, including the effect of exchange rates. Cash was paid for neither interest nor income taxes, according to the cash flow statement.
At June 30, 2017, current assets were $129,240 and current liabilities were $1,326,543, yielding working capital of negative $1,197,303 and a 0.10 current ratio. Total assets were $1,132,937; total liabilities were $1,518,007; and stockholders’ deficit was $385,070. The balance sheet reports convertible notes payable, net of debt discounts, of $468,299, loans payable of $52,000, and related-party payables of $430,788. Accrued interest included in accounts payable and accrued liabilities was $218,058.
Material Changes Versus Prior Period
- Six-month revenue rose 206% year over year, but remained very small relative to production costs; gross loss widened 6%.
- Six-month operating expenses fell 15%, mainly from lower professional fees, general and administrative expenses, and stock-based compensation.
- Six-month other expense rose to $203,421 from $75,799, chiefly reflecting greater amortization of debt discounts and fees. The company reported no derivative liability at June 30, 2017; the prior-year period included a gain from remeasurement of derivative liabilities.
- Six-month shareholder-attributable net loss increased 11%. Common shares outstanding on the balance sheet rose to 71,673,437 from 64,752,286 at December 31, 2016; the filing reports 77,988,838 shares outstanding as of August 11, 2017.
- Management compared working capital with June 30, 2016: the deficit narrowed to $1,197,303 from $1,379,832. This is a year-over-year comparison, distinct from the balance-sheet comparison with December 31, 2016.
Outlook, Risks, and Unusual Items
- Going concern: The filing states that recurring losses, limited working capital, and lack of material product or service revenue raise substantial doubt about the company’s ability to continue as a going concern. Management expected to rely on operating receipts and sales of equity or debt, and said it could also sell shares of JGC it owns. It cautioned that these funding efforts may not succeed.
- Debt and dilution: A $244,000 senior secured convertible note was past due and in technical default; its rate increased to 30%, and the company said it was negotiating with the holder. The filing states that convertible notes could convert into approximately 87.4 million common shares, with conversion amounts for some notes dependent on the market price. It also warns that full exercise or conversion of potentially dilutive securities would exceed authorized but unissued shares.
- Related parties: Amounts payable to the CEO for accrued salary, retirement contributions, and advances were $430,788, up from $310,259 at year-end.
- Operations and risks: Management attributed higher revenue to mining tests, adjustments, and the start of sales, while costs reflected production and mining preparation. Risks include unsuccessful exploration or uneconomic deposits, market fluctuations, regulation, competition, personnel loss, weather, and infrastructure or government interference. No formal numerical guidance was provided.
- Controls: Management said disclosure controls and procedures were not effective as of June 30, citing reasons discussed in the controls section. That section separately says internal control over financial reporting was effective and later characterizes both control systems as effective at a reasonable-assurance level; the filing’s statements are not fully consistent.
- The company reported no material subsequent events and no off-balance-sheet arrangements. It reported no material impairment of mineral properties.
Important Facts for Investors to Verify
- Confirm the issuer: the supplied document names Brazil Minerals, Inc., despite the request metadata identifying Atlas Lithium Corp.
- Review the liquidity and going-concern disclosures, including cash of $7,862, negative working capital, and management’s dependence on new financing or increased sales.
- Verify the status, maturity, default terms, and conversion mechanics of the notes, and assess potential dilution against authorized shares.
- Reconcile the control disclosures and the share-count change between June 30 and August 11, 2017.
- Assess whether the new processing operation can generate revenue sufficient to cover production costs and ongoing expenses; reported revenue remained far below cost of revenue.