Brazil Minerals, Inc. — Form 10-Q Summary
Entity note: The request identifies Atlas Lithium Corp., but the supplied filing is for Brazil Minerals, Inc. This summary reflects the filing provided. Reporting period: three months ended March 31, 2018; filed May 21, 2018. Financial statements are unaudited and in U.S. dollars.
Business context
Brazil Minerals describes itself as a Brazil-focused mineral exploration project generator, with operating gold, diamond, and sand mining activity in Minas Gerais and mineral rights covering several other commodities. It consolidates Jupiter Gold, in which it reported an approximately 55.4% ownership interest. The company reported minimal operating revenue and stated that it had not yet generated material revenue from product or service sales.
Financial performance and liquidity
| Metric | Q1 2018 | Q1 2017 / comparison |
|---|---|---|
| Revenue | $4,915 | $3,396 |
| Cost of revenue | $35,868 | $33,195 |
| Gross loss | $(30,953) | $(29,799) |
| Operating expenses | $177,963 | $153,933 |
| Operating loss | $(208,916) | $(183,732) |
| Interest and debt-discount amortization | $149,719 total other expense | $90,650 |
| Net loss attributable to Brazil Minerals stockholders | $(348,926) | $(269,305) |
| Operating cash flow | $(124,177) | $(175,198) |
| Cash at quarter-end | $26,709 | $50,973 at March 31, 2017 |
Revenue increased 44.7% year over year, which management attributed to more mining days during the rainy season. Cost of revenue rose 8.1%; the filing cites higher diesel prices and additional mining days. Operating expenses increased, including professional fees, general and administrative costs, and $12,500 of stock-based compensation. Higher interest and debt-discount amortization contributed to the larger net loss. Basic and diluted loss per share was reported as $0.00 for Q1 2018, versus $(0.01) in Q1 2017, principally reflecting a higher weighted-average share count.
At March 31, 2018, current assets were $97,382 and current liabilities were $1,716,751, giving working capital of $(1,619,369) and a 0.06:1 current ratio. Total liabilities were $1,919,681, against total assets of $1,206,522; stockholders’ deficit was $(713,159). Convertible-note principal was $901,364 before remaining discounts, with stated interest rates of 8% to 30% and maturities ranging from currently due to September 2018. The balance-sheet carrying value of convertible notes, net of discounts, was $734,499.
Material changes, financing, and dilution
- Common shares outstanding increased from 121,274,424 at December 31, 2017 to 168,155,392 at March 31, 2018. The company issued 46,880,968 shares during the quarter upon conversion of approximately $60,872 of notes and accrued interest.
- The company issued convertible notes with $71,586 principal during Q1 and received approximately $68,826 in proceeds. Notes generally include conversion at a 50% discount to a recent market price, subject to a floor.
- The filing estimates that outstanding convertible notes could convert into approximately 547.8 million shares, with the actual number dependent on the market price. The company increased authorized common shares to 950 million in March 2018.
- A $244,000 secured note issued in 2014 was past due and in technical default; its interest rate had increased to 30%. The company said it was negotiating with the holder, and reported that no payment demand had been made.
- Cash used in investing activities was $1,173; financing activities provided $38,520, primarily from convertible-note proceeds, partly offset by a reported $30,316 loan-from-officer cash outflow.
Outlook, risks, and unusual items
Management identified substantial doubt about the company’s ability to continue as a going concern, citing limited working capital, recurring losses, and the lack of material revenue. It expects to fund operations through revenue, equity sales, and/or debt financing, but gave no assurance those sources will be available. Its operating plan included increasing gold and rough-diamond recovery from a modular plant. No formal financial guidance was provided.
As of May 20, 2018, Jupiter Gold reported gold indications in 11 of 12 holes in its Paracatu drilling campaign; quantitative laboratory analysis was still pending. This is a subsequent-event exploration update, not a reported reserve or established economic deposit. The filing also describes risks from exploration uncertainty, mineral prices, regulation, weather, infrastructure, and access to financing. Management reported no off-balance-sheet arrangements and no material subsequent events other than the drilling update.
Disclosure controls and internal-control statements are not fully consistent: management said disclosure controls were not effective, while describing internal control over financial reporting as effective; a later paragraph says both were effective. The filing also adopted ASC 606 in Q1 2018 and stated that it had no material financial-statement impact.
Important facts for investors to verify
- Confirm that Brazil Minerals, Inc.—not Atlas Lithium Corp.—is the intended issuer and filing.
- Review the going-concern warning, cash runway, near-term debt maturities, defaulted secured note, and ability to obtain financing.
- Assess the potential dilution from variable-price convertible notes and reconcile share issuances, authorized shares, and reported conversion estimates.
- Verify the Paracatu drilling results and subsequent quantitative assays; the filing does not establish reserves or project economics.
- Reconcile the internal-control disclosures and check management’s comparative-period narrative against the financial statements. For example, the MD&A refers to operating expenses versus the “third quarter of 2017,” although the presented comparison is Q1 2017, and its description of cost-of-goods-sold movement conflicts with the reported figures, which increased.
- Reconcile the cash-flow statement’s beginning cash of $83,374 with the December 31, 2017 balance-sheet cash of $84,107; the supplied filing text does not explain the difference.