Business context and reporting period
Brazil Minerals, Inc. (the registrant named in the filing) filed this unaudited Form 10-Q for the quarter ended March 31, 2015. The company mines and sells diamonds, gold and sand in Brazil and holds mineral rights. This differs from the requested company, Atlas Lithium Corp; verify that this is the intended filing.
Financial performance and position
| Metric | Q1 2015 / March 31, 2015 | Comparable period / prior year-end |
|---|---|---|
| Revenue | $11,406 | $4,282 in Q1 2014 |
| Gross profit (loss) | $(28,608) | $2,941 in Q1 2014 |
| Operating expenses | $194,238 | $373,832 in Q1 2014 |
| Operating loss | $(222,846) | $(370,891) in Q1 2014 |
| Net income (loss) | $343,868 | $(398,824) in Q1 2014 |
| Operating cash flow | $(177,928) | $249,661 in Q1 2014 |
| Investing cash flow | $(35,525) | $(261,245) in Q1 2014 |
| Financing cash flow | $281,015 | $504,000 in Q1 2014 |
| Cash | $23,538 | $19,776 at December 31, 2014; $665,461 at March 31, 2014 |
| Total assets / liabilities | $1,706,896 / $2,753,221 | $1,350,385 / $3,312,857 at December 31, 2014 |
| Working capital | Negative $2,073,621 | Negative $2,524,092 at December 31, 2014 |
Q1 net income was driven principally by an $885,853 gain on derivative liabilities, not operating profitability. Interest and debt-discount amortization were $57,595 and $261,556, respectively. Current liabilities included $670,064 of convertible notes, $148,058 of notes payable and $717,036 of derivative liabilities; an additional $157,646 of convertible notes was classified long term. The filing reports no income tax provision. Basic and diluted earnings per share were reported as $0.00.
Material changes versus the prior comparable period
Revenue increased, but production expenses rose to $40,014 from $1,341, producing a gross loss instead of a gross profit. Operating expenses fell about 48%, mainly due to lower professional fees and stock-based compensation, reducing the operating loss. Net results swung to income because of the derivative-liability revaluation gain; cash from operations turned negative. Cash was substantially lower than one year earlier.
During the quarter, the company acquired an additional 25% of RST, bringing its ownership to 50%, and began consolidating RST from March 18, 2015. The acquisition added $549,164 to intangible assets compared with year-end, and the company recorded a 50% non-controlling interest. Common shares outstanding rose from 118.6 million at December 31 to 332.2 million at March 31; 209.0 million shares were issued on conversion of notes. The company had 438.0 million shares outstanding on April 30.
Outlook, risks and unusual items
- Going concern: The filing states that recurring losses, limited working capital and lack of material product revenue raise substantial doubt about the company’s ability to continue as a going concern. Management says it expects sufficient capital for at least 12 months, relying on equity sales and debt financing, but acknowledges no assurance of success.
- Management objectives: Eliminate variable-rate convertible debt during 2015 and reach positive cash flow by the end of Q1 2016 or sooner. These are objectives, not guaranteed guidance.
- Debt and dilution: Variable-rate notes convert at discounts to recent trading prices. At quarter-end, convertible notes were potentially convertible into approximately 1.166 billion shares. A separate $244,000 secured note was past due at March 31 and described as in technical default; the filing said no payment demand had been made.
- Funding after quarter-end: Through April 30, the company received $90,500 from common stock and warrant sales and issued 109.1 million shares upon note conversions.
- Operations and exploration: Management reported approval to add sand to a mining concession, an estimated 454,813 tons of superficially available sand in one area, equipment purchases intended to reduce rental costs, and a new sand sales contract with a monthly minimum. April exploration results and a 4.01-carat diamond were preliminary; the filing cautions that exploration indications may not prove repeatable or commercially viable.
- Customer obligations: Customer deposits were $587,268 at quarter-end, primarily tied to future diamond and gravel deliveries. The filing reports no diamond deliveries under the described agreements during Q1 2015.
- Other risks: The company cites mineral discovery and production uncertainty, commodity-market fluctuations, regulation, competition, key-person dependence, weather and infrastructure risks. It reports no off-balance-sheet arrangements.
- Controls: Management said disclosure controls were not effective, while separately concluding internal control over financial reporting was effective. The filing does not reconcile these conclusions.
Most important facts for investors to verify
- Confirm the issuer: the supplied filing is for Brazil Minerals, Inc., not Atlas Lithium Corp.
- Assess near-term liquidity, the going-concern warning, financing needs and the status of the past-due $244,000 note.
- Evaluate dilution from discounted variable-rate conversions, subsequent share issuances and the large potential share count.
- Reconcile the filing’s inconsistent disclosures: January note options are described as covering 40 million shares in one note and 400 million in another; the fixed conversion price is stated as $0.0024 in the financial-statement note and $0.0025 in MD&A.
- Verify the sustainability of results excluding the non-cash derivative gain, and the commercial status of sand sales, diamond delivery obligations and exploration claims.
- Review the stated difference between ineffective disclosure controls and effective internal control over financial reporting.