Business context and reporting period
This is Brazil Minerals, Inc.’s unaudited Form 10-Q for the quarter ended March 31, 2016; the filing does not identify Atlas Lithium Corp. as the registrant. Brazil Minerals and its subsidiaries mine and sell diamonds, gold, sand, and mortar in Brazil, and report interests in 30 mineral rights. The company reported 50% ownership of RST, which it consolidates.
Financial performance and position
| Metric | Q1 2016 | Q1 2015 / prior balance-sheet date |
|---|---|---|
| Revenue | $2,556 | $11,406 |
| Gross loss | $38,153 | $28,608 |
| Operating expenses | $204,856 | $194,238 |
| Operating loss | $243,009 | $222,846 |
| Net income (loss) attributable to Brazil Minerals | $(290,608) | $343,868 |
| Cash used in operations | $163,190 | $177,928 |
| Cash from financing | $122,240 | $281,015 |
Revenue fell 77.6% year over year. The prior-year profit reflected an $885,853 gain on derivative liabilities; Q1 2016 recorded an $81,994 gain. Q1 2016 also included $117,742 of debt-discount amortization and other fees. Cash and cash equivalents were $3,697 at March 31, versus $64,364 at December 31, 2015.
At March 31, total assets were $1.172 million and total liabilities were $1.499 million, leaving a stockholders’ deficit of $326,867. Current assets were $223,471, against balance-sheet current liabilities of $1,364,807; the resulting working-capital deficit was approximately $1.141 million. Convertible notes had $516,380 principal outstanding and $83,177 in remaining discounts; the balance sheet reports current notes net of discount of $472,061 and long-term notes net of discount of $133,736. A $244,000 senior secured note was past maturity and in technical default, though the filing says no payment demand had been made.
Changes, outlook, and risks
- Management attributed low revenue to road preparation, plant maintenance and testing, and an excavator being out of service. It said equipment was operational by the filing date.
- On April 19, 2016, the company received approval to begin mining a new area near its recovery plant and began excavation. The plant’s first run using material from the area was expected around May 20; management expected revenue to increase materially in 2016.
- Management expected mining and product sales to support positive cash flow at some point in 2016, but acknowledged reliance in the interim on equity or debt financing, with no assurance financing would be available on acceptable terms. It anticipated most or all existing convertible debt would convert to equity.
- The filing identifies substantial doubt about the company’s ability to continue as a going concern, citing limited working capital, recent losses, and a lack of material product or service revenue over the prior 12 months. Management’s plans included increased mineral, sand, and mortar sales and, if needed, further equity or debt financing.
- Common shares issued and outstanding were reported as 9,902,204,721 at March 31. Variable-price convertible debt and preferred securities could cause substantial dilution; the filing says potential conversion shares exceeded authorized but unissued common shares.
- Other risks include mineral exploration and production uncertainty, commodity and market fluctuations, regulation, environmental requirements, competition, weather, and infrastructure or government interference. The filing reports no off-balance-sheet arrangements.
Important facts to verify
- Confirm the requested issuer: the supplied filing is for Brazil Minerals, Inc., not Atlas Lithium Corp.
- Reconcile the liquidity discussion: MD&A states current liabilities of $1,325,949 and a $1,102,478 working-capital deficit, while the balance sheet reports current liabilities of $1,364,807, implying a different deficit. MD&A also labels comparative figures as March 31, 2015 although they match December 31, 2015 balance-sheet amounts.
- Reconcile the share count: the filing reports 9.902 billion shares outstanding at March 31, but 8.246 billion as of May 19, 2016; it does not explain the difference in the supplied text.
- Verify funding availability, the status and terms of past-due and variable-conversion notes, and whether the new mining area produced the forecast sales and cash flow.