Business context and reporting period
The supplied filing is Brazil Minerals, Inc.’s unaudited Form 10-Q for the quarter and six months ended June 30, 2016—not a filing identified as Atlas Lithium Corp. The company reported mining and sales of diamonds, gold, sand and mortar in Brazil, through subsidiaries, and held interests in mineral rights and processing operations. This identity and period discrepancy should be verified before relying on the summary.
Financial results and position
| Metric | Three months ended June 30, 2016 | Six months ended June 30, 2016 |
|---|---|---|
| Revenue | $1,513 | $4,069 |
| Gross loss | $22,610 | $60,763 |
| Operating expenses | $261,825 | $444,181 |
| Net loss attributable to Brazil Minerals | $298,650 | $566,758 |
For the six months, operating cash outflow was $305,673; investing cash flow was zero; and financing cash inflow was $308,823. Foreign-exchange effects reduced cash by $58,536, leaving $8,978 in cash at June 30, compared with $64,364 at year-end 2015.
At June 30, current assets were $168,328 and current liabilities were $1,548,160, producing a working-capital deficit of $1,379,832 and a current ratio of 0.11. Total liabilities were $1,724,491, and stockholders’ deficit was $439,087. Convertible notes had $619,462 in principal and $58,954 in remaining discounts; their reported balance-sheet carrying amounts totaled $564,508. A $244,000 secured convertible note was past due and in technical default, although the filing says no payment demand had been made.
Material changes versus prior comparable periods
- Second-quarter revenue declined 94.7% from $28,780; six-month revenue declined 89.9% from $40,186. Management attributed the decline to permitting and testing a new mining area, which diverted personnel from other operations.
- Second-quarter net loss attributable to the company narrowed from $899,346 to $298,650, mainly because other expense was substantially lower. Six-month attributable net loss increased from $555,478 to $566,758.
- Common shares outstanding rose from 6.219 billion at December 31, 2015 to 9.620 billion at June 30, 2016; the filing reports 9.866 billion outstanding as of August 15. The six-month period included issuance of 2.592 billion shares upon conversion of notes and accrued interest.
- Accrued expenses and accounts payable increased to $823,334 from $471,337. Cash and total current assets fell, while current liabilities increased.
Outlook, risks and unusual items
- Management disclosed substantial doubt about the company’s ability to continue as a going concern, citing limited working capital, recurring losses and immaterial product revenue to date. Continued operations depend on operating cash generation and/or additional equity or debt financing; success is not assured.
- Management expected gold recovery using centrifuges, a third-party royalty arrangement, and sand and mortar sales to improve cash generation. These were plans or early-stage initiatives, not established financial results. The royalty agreement was expected to provide 25% of gross gold and diamond production with essentially no company costs; the third party was expected to begin processing in the third quarter.
- After quarter-end, the company reported gold recovery and sales from centrifuge tests, additional financing proceeds, and the issuance of 907,979,691 common shares upon note conversions. It also reported exchanges of 309 Series B preferred shares and all 200,000 Series C preferred shares for shares and options of subsidiary Jupiter Gold Corporation.
- Variable-price convertible notes, preferred stock and other securities create significant dilution risk. The filing estimates that notes held by holders indicating a desire to convert were convertible into approximately 2.5 billion shares; conversion obligations could exceed authorized but unissued shares. The company said it would increase authorized common shares to 12.5 billion in August 2016.
- Management reported effective disclosure controls and internal control over financial reporting as of June 30, 2016. It noted the addition of a full-time internal resource in Brazil.
The financial statements report six-month total other expense of $75,799, while the MD&A states $275,799. The filing text does not provide a clear explanation for this discrepancy; the reported net loss is $580,743 consolidated and $566,758 attributable to Brazil Minerals.
Key facts for investors to verify
- Confirm the issuer and filing match the intended company: this document names Brazil Minerals, Inc., not Atlas Lithium Corp.
- Reconcile the $75,799 versus $275,799 six-month other-expense figures in the financial statements and MD&A.
- Verify the status, maturity and conversion terms of outstanding notes, including the past-due secured note, and assess potential dilution and authorized-share capacity.
- Assess near-term liquidity, financing needs and the basis for management’s going-concern plans; cash was $8,978 at quarter-end.
- Confirm whether planned centrifuge production, the 25% royalty arrangement and anticipated sand and mortar sales generated material revenue after quarter-end.