Brazil Minerals, Inc. — Form 10-Q summary
Period: Three months ended March 31, 2019; filed May 20, 2019. The supplied filing is for Brazil Minerals, Inc. (ticker BMIX), not Atlas Lithium Corp. Amounts below are U.S. dollars unless stated otherwise.
Business context
The company combines mineral-rights exploration with mining gold, diamonds, and sand in Brazil. Its mineral portfolio also includes lithium, cobalt, copper, and other minerals. Brazil Minerals consolidated Jupiter Gold, in which it owned approximately 49.3%, because it determined that it was the primary beneficiary of that variable-interest entity.
Financial performance and liquidity
| Metric | Q1 2019 | Q1 2018 or prior period |
|---|---|---|
| Revenue | $4,793 | $4,915 |
| Cost of revenue / gross loss | $43,237 / $(38,444) | $35,868 / $(30,953) |
| Operating expenses | $255,019 | $177,963 |
| Net loss attributable to Brazil Minerals stockholders | $(404,451) | $(348,926) |
| Cash used in operations | $(136,864) | $(124,177) |
| Cash at period end | $5,596 | $26,709 |
Gross margin was negative in both periods; gross loss widened 24.2%. Operating expenses rose 43.3%, mainly from stock compensation, professional fees, and general and administrative costs. Total other expense was $154,559, largely interest and debt-discount amortization. The company reported no income-tax provision.
At March 31, 2019, current assets were $82,218 and current liabilities were $2,280,590, producing a $2,198,372 working-capital deficit and a 0.04:1 current ratio. Total liabilities were $2,470,776. Current debt included $820,307 of convertible notes, $270,320 of demand loans, and $589,708 of related-party notes and other payables. Financing provided $134,987 in the quarter, including $120,000 from selling Jupiter Gold shares to noncontrolling investors and $42,000 in new loans, partly offset by officer-loan repayments.
Material changes and notable items
- Common shares outstanding increased to 460,518,411 at quarter-end from 332,260,644 at year-end, including 128,257,767 shares issued upon conversion of approximately $60,487 of debt and accrued interest. The filing reports 731,193,342 shares outstanding as of May 17, 2019.
- Convertible notes were convertible into approximately 1.28 billion shares at March 31, 2019; many use variable conversion prices and substantial discounts, creating potentially significant dilution. The company also issued two-year warrants for 48 million shares at $0.0012 in connection with its first-quarter financing.
- The company adopted lease accounting ASC 842 on January 1, 2019, initially recognizing $21,292 in operating lease assets and liabilities; each was $15,969 at quarter-end.
- On April 8, 2019, the company received $100,000 from a restricted-stock sale, a subsequent event.
Outlook, risks, and controls
Management expected the final regulatory permit for a new gold-and-diamond mining area in Brazil in Q2 2019, with mining to follow shortly afterward. It also planned 2019 in-situ studies at its nickel/cobalt/copper and lithium projects. These are expectations, not guaranteed outcomes. The filing states that none of the projects has SEC-defined measured reserves; it also cautions that historical third-party technical studies cited for one concession do not comply with SEC mining disclosure standards.
The company disclosed substantial doubt about its ability to continue as a going concern, citing limited working capital, recurring losses, and immaterial product revenue. Management expected to rely on mining revenue, equity sales, and debt financing, but gave no assurance of success. Risks include exploration and production uncertainty, commodity and market fluctuations, permitting and environmental regulation, and infrastructure or weather disruptions. A 2014 secured convertible note was past due and in technical default; its rate increased to 30%, with $329,109 accrued interest, and the company was negotiating with the holder.
Management reported disclosure controls and procedures were not effective, while stating internal control over financial reporting was effective. The filing also later describes both controls as effective at a reasonable-assurance level, creating an apparent inconsistency to review.
Investor verification checklist
- Confirm the registrant identity and reconcile the reported share count at March 31 with the substantially higher May 17 count, including subsequent issuances and dilution.
- Review note conversion terms, maturity/default status, accrued interest, warrant terms, and the capacity to issue shares given the 950 million authorized-share limit.
- Assess near-term liquidity, related-party obligations, and whether financing or mining cash flows can address the going-concern uncertainty.
- Verify the status and timing of the final mining permit and subsequent commercial production; distinguish exploration indicators from SEC-compliant reserves.
- Reconcile the balance-sheet figures: total assets are shown as $984,664, while total liabilities and stockholders’ deficit are shown as $984,644.
- Clarify the inconsistent statements about disclosure controls and internal control effectiveness.