Filing identity and reporting period
The supplied filing is Brazil Minerals, Inc.’s Form 10-K for the fiscal year ended December 31, 2016, filed June 5, 2017. It is not identified in the filing as an Atlas Lithium Corp. filing, and it reports annual—not standalone fourth-quarter—results. The summary below therefore reflects the filing’s stated registrant and period.
Business context
Brazil Minerals operated through subsidiaries in Brazil, producing or pursuing diamonds, gold, sand, and mortar. At year-end it reported 38 mineral rights: 10 mining concessions, 8 applications for mining concessions, 8 research permits, and 12 research-permit applications. It owned 58% of Jupiter Gold Corporation (JGC), which was consolidated. The company stated it had no mineral reserves compliant with SEC Industry Guide 7.
In 2016, the company formed JGC, received authorization for initial mining in a new area, and deployed the initial portions of a modular gold-and-diamond processing plant. Brazil Minerals operated the JGC-owned plant; it retained all recovered diamonds and half the gold, with JGC entitled to the other half.
Financial performance and liquidity
| Metric | 2016 | 2015 |
|---|---|---|
| Revenue | $13,323 | $63,610 |
| Cost of revenue | $218,245 | $163,149 |
| Gross loss | $204,922 | $99,539 |
| Operating expenses | $1,117,699 | $1,183,257 |
| Loss from operations | $1,322,621 | $1,282,796 |
| Net loss attributable to Brazil Minerals stockholders | $1,588,418 | $1,878,268 |
| Net loss per share, basic and diluted | $0.08 | $0.80 |
| Net cash used in operating activities | $647,406 | $965,918 |
- Revenue fell 79.1%, which management attributed mainly to reduced mining while awaiting deployment of the new processing plant. Production costs rose 33.8%; cost of revenue substantially exceeded revenue in both years.
- Operating expenses declined 5.6%. The reported improvement in attributable net loss was 15.4%; the 2016 consolidated net loss was $1,739,629, including a $151,211 loss attributable to non-controlling interests.
- Cash and cash equivalents were $7,139 at December 31, 2016, down from $64,364. Current assets were $121,572 versus current liabilities of $992,704, producing negative working capital of $871,132 and a 0.12 current ratio.
- Total liabilities were $1,184,095. Current convertible notes, net of discounts, were $349,030; notes had $486,144 aggregate principal and variable conversion terms. A separate $244,000 senior secured note was past due and in technical default, with its rate increased to 30%; accrued interest was $170,439.
- Financing provided $581,277 of cash in 2016, principally through equity and convertible debt. Year-end stockholders’ deficit was $10,507, while Brazil Minerals’ own stockholders’ deficit was $1,339,101.
Changes, outlook, and material risks
- Management said working capital improved from negative $1,142,165 in 2015, primarily because short-term convertible notes and other obligations declined. Common shares outstanding rose from 12,438,783 at year-end 2015 to 64,752,286 at year-end 2016, before the filing’s post-period share information and reverse-split presentation.
- The company eliminated its Series B and Series C preferred stock during 2016 through conversions and exchanges, and reported that most variable-rate convertible debt was converted. One short-term-oriented variable-rate noteholder remained at year-end, according to the business discussion.
- Management expected increased gold and rough-diamond sales from the modular plant to help fund operations, but provided no quantified revenue, earnings, or cash-flow guidance. The filing says the remaining plant portions were deployed in 2017 and that there was no assurance of successful financing or operating plans.
- The independent auditor’s report included a going-concern paragraph: recurring losses, limited working capital, and negative operating cash flow raised substantial doubt about the company’s ability to continue as a going concern. Management cited operating cash generation and further equity or debt sales as funding plans.
- Operating risks include Brazilian mining and environmental permitting delays, seasonal rainy-season disruption, equipment problems, working-capital constraints, commodity and currency exposure, and the absence of SEC-compliant reserves. Management also noted weaker local construction demand during Brazil’s 2014–2016 recession.
- The company disclosed that it had not filed all required Exchange Act reports during the preceding 12 months (the filing’s applicable check box indicates “No”). It stated that management considered disclosure controls and internal control over financial reporting effective; the auditor did not attest to internal controls.
Most important facts to verify
- Confirm the registrant and filing: the supplied text is Brazil Minerals, Inc.’s 2016 Form 10-K, not an Atlas Lithium Corp. filing.
- Reconcile the cash-flow discussion: MD&A says investing activities provided $45,883 in 2016 and $24,762 in 2015, while the cash-flow statement reports cash used of those amounts.
- Review the full debt-note disclosures for the past-due $244,000 note, variable conversion prices, remaining note maturities, and potential dilution; the filing estimates approximately 6.4 million shares issuable on conversion at year-end.
- Assess near-term liquidity and funding needs against $7,139 of year-end cash, negative working capital, and the auditor’s going-concern warning.
- Validate the processing plant’s operating performance and the timing, permitting, and economics of the mineral rights; the filing reports no SEC Industry Guide 7-compliant reserves.
- Check share-count and control disclosures after the 1-for-500 reverse split. The filing states that one Series A preferred share held by the CEO carried 51% of total voting power.