Brazil Minerals, Inc. — Form 10-Q for Q2 2013
Issuer note: The filing identifies the registrant as Brazil Minerals, Inc. (formerly Flux Technologies, Corp.), not Atlas Lithium Corp. It covers the quarter and six months ended June 30, 2013, and was signed August 12, 2013.
Business context and period
Brazil Minerals had shifted from a technology business to mineral exploration and production. It reported a 55% interest in Brazilian diamond-and-gold operator Mineração Duas Barras Ltda. and remained an exploration-stage company. The 2012 comparison periods largely predate the change in business, so management cautions that comparisons are not meaningful.
Financial performance and position
| Metric | Q2 2013 | Six months ended June 30, 2013 |
|---|---|---|
| Revenue | $145,619 | $151,382 |
| Cost of goods sold | $82,921 | $82,921 |
| Gross profit / margin | $62,698 / 43.1% | $68,461 / 45.2% |
| Operating loss | $(153,461) | $(398,747) |
| Stock-based compensation expense | $1,009,400 | $1,009,400 |
| Net loss | $(1,191,578) | $(1,368,403) |
Q2 2012 revenue was zero and net loss was $1,340; first-half 2012 revenue was zero and net loss was $6,052. The 2013 net loss included $1.009 million of non-cash option compensation for 2.6 million options granted to directors and officers. The filing’s six-month operating-expense total is inconsistent with its listed expense lines and stated operating loss; the loss and detailed figures are shown as reported.
At June 30, cash was $360,733, down from $863,189 at year-end. Current assets were $947,551 and current liabilities $87,805, giving reported working capital of $860,880. Total assets were $2.534 million, total liabilities $87,805, and stockholders’ equity $2.446 million. Debt was minimal: $180 was due to a director, with no material long-term debt reported.
Operating cash use was $461,746 and investing cash use was $194,920 in the first half; financing provided $154,210. Ending cash was $360,733. The filing reports no cash interest or income-tax payments. Cash deposits exceeded the $250,000 insured limit.
Changes and notable transactions
- Brazil Minerals recorded its first production revenue: Q2 revenue rose from $5,763 in Q1, principally from diamond and gold sales at Duas Barras.
- On April 30, the company acquired the economic and voting interests associated with Brazil Mining’s 55% Duas Barras stake, issuing 1,000,000 shares valued at $580,000. The acquisition included $1.090 million in net assets and recognized $490,228 of non-controlling interest.
- The former $800,000 related-party loan to Brazil Mining was converted into an interest in mineral production rights after the company exercised its option in January.
- Accounts receivable included $5,763 due from Brazil Mining. Six-month management fees paid to Brazil Mining were $191,263.
Outlook, risks, and contingencies
Management said available capital should fund operations for at least six months, but anticipated needing additional working capital and financing for potential acquisitions or investments. It identified risks including unsuccessful or uneconomic mineral exploration, commodity-market fluctuations, regulation and environmental requirements, competition, key-personnel loss, weather, infrastructure disruption, and general economic conditions. No off-balance-sheet arrangements were reported; commitments for the existing office arrangements were described as immaterial.
- Management expected water removal at a promising Duas Barras site to enable access to gravel for processing in the second half of 2013, potentially improving production volumes or quality. These were expectations, not established results.
- Duas Barras received a Brazilian federal export license on July 17, 2013. Management expected access to international buyers could improve diamond pricing; it also planned to begin polishing some diamonds in Q4 2013.
- A July 30 post-quarter agreement gave the subsidiary the right to earn up to 75% of a vanadium, titanium, and iron project, with staged research and payments of approximately US$382,000 plus approximately US$55,000 in company stock. Reported sample assays were described as promising; project economics and development outcomes were not established.
- Management reported gold was confirmed at the Borba project, but said sampling was not representative of the extensive property and further work was being assessed.
- The company reported no material subsequent events other than the project agreement, and stated disclosure controls were effective as of June 30.
Key facts for investors to verify
- Confirm the issuer identity and corporate history: this is a Brazil Minerals filing, not an Atlas Lithium filing.
- Reconcile the six-month operating-expense total against the detailed expense lines and reported operating loss.
- Review Duas Barras ownership, acquisition accounting, production records, and the distinction between the company’s consolidated revenue and the operation’s reported sales volumes.
- Assess cash runway, future financing needs, related-party management fees, and the terms and funding obligations of the post-quarter mineral-project agreement.
- Validate the reported assay and diamond-quality claims, export-market pricing assumptions, and the risks of converting exploration potential into profitable production.