Business context and reporting period
This is Brazil Minerals, Inc.’s unaudited Form 10-Q for the quarter and six months ended June 30, 2019. The request names Atlas Lithium Corp., but the filing identifies Brazil Minerals, Inc. (ticker BMIX) as the registrant; the filing does not identify Atlas Lithium as the reporting company. Brazil Minerals reported mineral exploration and mining activities in Brazil, including gold, diamonds, sand, lithium, nickel, iron, and rare earths. It consolidated Jupiter Gold despite owning approximately 49.1%, citing its status as the primary beneficiary of a variable interest entity.
Financial results and liquidity
| Metric | Three months ended June 30, 2019 | Six months ended June 30, 2019 | Prior-year comparable |
|---|---|---|---|
| Revenue | $5,172 | $9,965 | $2,385 and $7,300 |
| Gross loss | $46,869 | $85,313 | $30,831 and $61,784 |
| Operating expenses | $325,527 | $580,546 | $294,231 and $472,194 |
| Net loss attributable to Brazil Minerals shareholders | $614,527 | $1,018,978 | $459,138 and $808,064 |
| Loss per share | $0.00 | $0.00 | $0.00 and $0.01 |
Gross margins remained negative: revenue was far below cost of revenue. Six-month net loss attributable to company shareholders increased 26.1% year over year. Other expense included $296,521 of debt-discount amortization and $68,015 related to debt extinguishment during the first half.
At June 30, cash was $9,544 and current assets were $82,815. Current liabilities were $2,084,106, yielding a $2,001,291 working-capital deficit and a 0.03 current ratio. Total liabilities were $2,280,293, against a $1,301,915 stockholders’ deficit. Current obligations included $769,397 of convertible notes, $378,600 of loans payable, and $308,796 of related-party notes and payables, net of discounts.
For the six months, operating cash use was $374,323, investing cash use was $78, and financing provided $381,074. Cash increased by $7,170 to $9,544. Financing included $112,500 from common-stock sales and $150,280 in loan proceeds; debt and equity financing remained important sources of liquidity.
Material changes versus the prior comparable period
- First-half revenue rose 38.1%, but cost of revenue rose 37.9%, and gross loss increased 38.1%.
- First-half operating expenses increased 23.0%, principally reflecting compensation, professional fees, and general and administrative costs; lower stock-based compensation partly offset the increase.
- First-half operating cash use increased from $240,983 to $374,323.
- Common shares outstanding rose from 332.3 million at December 31, 2018 to 866.0 million at June 30, 2019, mainly through debt conversions and equity issuance. The filing reports 949.9 million shares outstanding as of August 15, 2019.
Outlook, commentary, risks, and unusual items
- The company said it obtained the final permit for the Pindaíba gold and diamond project in June 2019 and had started mining. Management expected revenue to increase as licensed areas entered production, but provided no quantified guidance.
- Management planned further research on lithium, rare earths, nickel, and iron projects during the second half of 2019. Exploration results and project economics remained uncertain.
- The filing states there is substantial doubt about the company’s ability to continue as a going concern, citing limited working capital, recurring losses, and immaterial product or service revenue. Management relied on future mining receipts and further equity or debt financing; it cautioned there was no assurance these plans would succeed.
- Convertible notes included variable-price conversion terms. The company estimated that its notes could convert into approximately 1.313 billion shares as of June 30, 2019, creating significant potential dilution. A July 2019 stockholder action approved increasing authorized common shares from 950 million to 1.2 billion.
- A 2014 secured convertible note was past due and in technical default; its rate had increased to 30%, with $347,409 accrued interest. Certain other notes were also past maturity, and the company reported default-related penalties and interest.
- The filing describes disclosure controls as not effective, while also stating that internal control over financial reporting was effective. This difference warrants review.
- The company adopted lease accounting ASC 842 in 2019, recognizing $10,646 of lease right-of-use assets and matching lease liabilities at June 30.
Most important facts to verify
- Confirm the intended issuer: this filing is for Brazil Minerals, Inc., not Atlas Lithium Corp.
- Review the going-concern warning, available financing, and ability to fund operations given $9,544 cash and a $2.0 million working-capital deficit.
- Assess dilution from variable-price convertible notes, the substantial share-count increase, and the authorized-share increase.
- Verify the status and terms of past-due or defaulted notes, including the 30% default rate and accrued interest.
- Check reported figures against the source statements: MD&A gives a conflicting current-liability figure of $2,487,073 in one sentence, while the balance sheet reports $2,084,106; the cash-flow statement reports operating cash use of $374,323, despite a typographical error in MD&A; and MD&A’s description of the year-over-year change in first-half other expense conflicts with the financial statements, which show an increase.