Filing summary
Entity and period: The supplied filing is Brazil Minerals, Inc.’s Form 10-K for the fiscal year ended December 31, 2019, filed April 14, 2020. It does not identify Atlas Lithium Corp. as the registrant, and it reports annual results rather than a separate 2019 fourth quarter. Confirm that this is the intended filing.
Business context
Brazil Minerals describes a two-part business: building a portfolio of Brazilian mineral rights, potentially for equity or royalty interests, and mining selected areas for diamonds, gold, and industrial sand. Its rights include lithium, rare earths, titanium, iron, nickel, gold, diamonds, and other minerals. In 2019 it expanded its lithium, rare-earth, titanium, iron, and alluvial diamond and gold holdings, and obtained a permit to mine part of an alluvial area. The company reported owning approximately 34.5% of Jupiter Gold in its business overview; the financial-statement note reports approximately 35.4%.
Financial results and liquidity
| Metric | FY 2019 | FY 2018 |
|---|---|---|
| Revenue | $15,393 | $19,716 |
| Cost of revenue | $182,168 | $126,217 |
| Gross loss | $166,775 | $106,501 |
| Operating expenses | $1,097,569 | $1,052,830 |
| Loss from operations | $1,264,344 | $1,159,331 |
| Other expense | $821,537 | $689,341 |
| Net loss attributable to Brazil Minerals shareholders | $1,862,077 | $1,666,200 |
| Operating cash flow | $(791,072) | $(511,313) |
| Cash at year-end | $151,088 | $2,407 |
- Revenue declined 21.9%; cost of revenue rose 44.3%, leaving a gross margin of approximately negative 1,083% in 2019 versus negative 540% in 2018.
- Operating expenses rose 4.2%. Other expense increased 19.2%, including $587,198 of debt-discount amortization and a $67,694 debt-extinguishment loss.
- At December 31, 2019, current assets were $193,777 and current liabilities were $2,154,356: a 0.09 current ratio and a $1,960,579 working-capital deficit. Total liabilities were $2,347,085; stockholders’ deficit was $1,320,644.
- Current liabilities included $824,614 of convertible notes, net of discounts; $209,128 of loans payable; and $482,250 of related-party notes and other payables. A $244,000 senior secured convertible note was past due and in technical default, with accrued interest of $384,009 and a default rate of 30%.
- Financing activities provided $941,852 in 2019, mainly from equity and debt issuance. The company said continuing operations depend on generating cash and successfully raising additional capital.
Changes, outlook, and key risks
- Common shares issued and outstanding at year-end increased to 1,132,435,380 from 332,260,644 a year earlier, reflecting equity sales and debt conversions. The filing separately reports 1,030,599,388 shares outstanding on April 11, 2020; the difference is not explained in the supplied text and should be checked.
- Convertible notes with variable conversion terms could convert into approximately 1.048 billion common shares as of year-end, according to the filing. The company also disclosed 241 million warrants issued in 2019 in connection with Jupiter Gold share sales. Potential dilution is substantial.
- Management expected revenue to increase as new production areas are licensed, but provided no quantified guidance or assurance. Diamond and gold mining is seasonal, with rainy-season operations reduced or stopped from December through April.
- The auditor issued an unqualified opinion on the financial statements but highlighted substantial doubt about the company’s ability to continue as a going concern, citing recurring losses and a net capital deficiency. The statements contain no adjustments for a possible inability to continue.
- The company said it had no SEC Industry Guide 7-compliant mineral reserves. Exploration, permitting, weather, commodity markets, Brazilian regulation, funding availability, and reliance on CEO Marc Fogassa are identified risks.
- As of April 2020, the company reported local operations continuing despite COVID-19, some exploration delays due to municipal restrictions, postponed noncritical spending, and $300,000 raised from equity sales in February and March 2020.
- A November 2019 transaction generated $250,000 for Jupiter Gold shares, warrants to purchase 100 million Brazil Minerals shares at $0.0022 for two years, and a 2% participation in specified transactions involving certain mineral rights. The filing also reports $652,500 of gross proceeds from 2019 Jupiter Gold share-and-warrant sales and $123,500 from Brazil Minerals common-stock sales.
- One Series A preferred share held by the CEO carries 51% of total voting power. The company reported no material legal proceedings and no off-balance-sheet arrangements.
Important facts for investors to verify
- Whether this Brazil Minerals 10-K is the intended filing for Atlas Lithium Corp., and whether the requested period should be fiscal 2019 rather than Q4 alone.
- The year-end versus April 2020 common-share counts, and the full potential dilution from convertible notes, options, and warrants, including their conversion terms and authorized-share capacity.
- The status, maturity, default terms, accrued interest, and negotiations concerning the past-due secured note and other debt obligations.
- The company’s near-term cash needs, post-year-end financing, and ability to raise additional capital given the going-concern warning and operating cash burn.
- The difference between the reported Jupiter Gold ownership percentages and the status and economics of the mineral-rights participation granted in the November transaction.
- Whether new mining permits lead to commercially meaningful production and revenue; the filing reports no SEC-compliant reserves and very low revenue relative to production costs.