Filing summary
Issuer and period: The supplied filing is Brazil Minerals, Inc.’s unaudited Form 10-Q for the quarter and nine months ended September 30, 2015—not an Atlas Lithium Corp. filing. The summary below reflects the filing’s stated issuer.
Business context
Brazil Minerals operated through subsidiaries in Brazil, with interests in diamond, gold, sand and mortar businesses. It reported 50% ownership of RST, 100% of Mineração Duas Barras (MDB), and 100% of Hercules Brasil. During the quarter, MDB obtained a four-year environmental-license renewal; the company also completed payments for its RST stake and reported preliminary drilling and road work to connect an RST area to MDB’s processing plant.
Financial results and liquidity
| Metric | Q3 2015 | Q3 2014 | Nine months 2015 | Nine months 2014 |
|---|---|---|---|---|
| Revenue | $18,326 | $302,401 | $58,512 | $403,845 |
| Gross profit (loss) | $9,753 | $208,562 | ($87,087) | $234,116 |
| Operating expenses | $213,588 | $341,952 | $672,409 | $1,226,599 |
| Operating loss | ($203,835) | ($133,390) | ($759,496) | ($992,483) |
| Net loss attributable to Brazil Minerals | ($50,705) | ($336,130) | ($606,183) | ($1,687,841) |
Revenue fell sharply, which management attributed to fewer days of gravel processing. Lower operating expenses partly offset weaker revenue. Reported other income included a $488,824 Q3 gain and a $1,237,329 nine-month gain from remeasuring derivative liabilities; these noncash gains materially reduced reported net losses. Debt-discount amortization was $962,507 for the nine months.
For the nine months, operating cash flow was negative $618,864, investing cash flow was negative $33,796, and financing cash flow was positive $932,060. Cash was $114,015 at September 30, 2015, versus $19,776 at December 31, 2014. Current assets were $496,440. The balance sheet reports current liabilities of $2,095,941, implying negative working capital of $1,599,501; the MD&A instead gives current liabilities of $2,195,941 and negative working capital of $1,699,501. The filing text does not reconcile this discrepancy.
Balance-sheet liabilities included $610,174 of current convertible notes, $18,712 of long-term convertible notes, and $567,740 of derivative liabilities. A $244,000 secured convertible note matured September 30, 2015 and was described as past due and in technical default; the holder had made no payment demand and had indicated provisional intent to convert it to equity. The company disclosed approximately 4.7 billion shares issuable upon conversion of notes, before other potential dilution. Common shares outstanding were 4.62 billion at September 30 and 5.85 billion as of November 16, 2015.
Changes, outlook and risks
- Nine-month revenue declined about 86% year over year, while operating expenses fell about 45%. The nine-month net loss narrowed, but cash used in operations increased from the prior-year period.
- Management said it expected revenue to rise materially once gravel from the RST Initial Area was processed, and expected increased diamond, gold, mortar and sand sales. The filing provides no quantified forecast or assurance these plans will succeed.
- The company stated that limited working capital and recurring losses raised substantial doubt about its ability to continue as a going concern. It depended on operating cash generation, equity sales and/or debt financing; management said there could be no assurance financing or operating plans would succeed. It reported $983,066 of net proceeds from equity and debt sales during the nine months and $31,000 of equity proceeds afterward.
- Diamond-delivery agreements were extended to December 31, 2016. If scheduled deliveries are missed, customers may convert specified amounts into common stock at 50% of market; amounts convertible at September 30 were $35,158 and $40,000 under the two agreements. The arrangements also involve pledged collateral shares.
- Variable-price convertible debt and Series B preferred stock carry substantial potential dilution. Series B conversion terms provide a 40% discount to specified market prices, subject to a ceiling and floor. Subsequent to quarter-end, the company issued 682,833,872 common shares in note conversions and increased authorized common shares to seven billion.
- Management identified risks including mineral exploration and production uncertainty, commodity and market fluctuations, Brazilian regulation and environmental requirements, infrastructure and weather disruptions, competition, and dependence on key personnel. The filing also says disclosure controls were not effective, while management concluded internal control over financial reporting was effective.
Important facts for investors to verify
- Confirm issuer identity: the supplied filing names Brazil Minerals, Inc., not Atlas Lithium Corp.
- Reconcile the filing’s conflicting current-liability, working-capital and cash figures against the financial statements and MD&A.
- Check the status of the matured $244,000 note, other debt maturities, and any defaults or creditor actions.
- Assess cash runway, subsequent financing, and whether planned RST production and mortar/sand sales generated the projected cash and revenue.
- Quantify fully diluted shares, including variable-price notes, Series B preferred stock, options, warrants and customer conversion rights.
- Review diamond delivery performance, collateral-share requirements, and the consequences of any missed delivery schedules.
- Evaluate the going-concern disclosure and the reported weakness in disclosure controls when considering the reliability and timeliness of future reporting.