Business context and reporting period
Brazil Minerals, Inc. (ticker BMIX; the filing identifies the registrant as Brazil Minerals, not Atlas Lithium Corp.) filed this unaudited Form 10-Q for the quarter ended June 30, 2020. The company holds Brazilian mineral rights and conducts limited mining of gold, diamonds and sand; its exploration portfolio includes lithium and other minerals.
Financial results and liquidity
| Metric | Three months ended June 30, 2020 | Six months ended June 30, 2020 |
|---|---|---|
| Revenue | $8,936 | $11,566 |
| Gross loss | $21,728 | $48,331 |
| Operating expenses | $268,361 | $554,103 |
| Net loss | $415,330 | $1,007,606 |
| Net loss attributable to Brazil Minerals stockholders | $315,670 | $838,288 |
Revenue remained very small relative to costs, and gross margin was negative. The company reported basic and diluted loss per share as $0.00, reflecting rounding.
- At June 30, cash was $327,358; current assets were $375,401 versus current liabilities of $2,512,397, producing a reported working-capital deficit of $2,136,996.
- Total liabilities were $2,660,693, against total assets of $1,018,254. Stockholders’ deficit was $1,642,439.
- For the first half, operating cash outflow was $460,751; investing outflow was $13,138; financing inflow was $605,510. Cash increased by $176,270 to $327,358.
- Current debt included $938,470 of convertible notes, $235,308 of loans payable, and $684,731 of related-party notes and other payables.
Changes versus the prior comparable period
Second-quarter revenue rose 72.8% from $5,172, while cost of revenue fell 41.1%; the gross loss narrowed from $46,869 to $21,728. Operating expenses declined 17.6%, and the stockholders’ attributable net loss narrowed from $614,527 to $315,670. For the first half, revenue was $11,566 versus $9,965; attributable net loss improved to $838,288 from $1,018,978. Operating cash use increased 23.1% year over year.
Cash rose from $151,088 at December 31, 2019, supported by equity and subsidiary-share sales and borrowing. Common shares outstanding increased from 1,132,435,380 at year-end to 1,387,463,317 at June 30. During the first half, the company sold 290 million shares for $220,000 and issued 100,213,975 shares to convert approximately $53,160 of notes and accrued interest.
Outlook, risks and unusual items
- Management states that limited working capital, recurring losses and lack of material product or service revenue create substantial doubt about the company’s ability to continue as a going concern. Continued operations depend on generating cash and raising additional debt or equity; management offers no assurance of success.
- No quantified financial guidance is provided. Management expects revenue may increase as new areas are licensed for production.
- COVID-19 had not been reported among the workforce and local rural operations continued, but travel between the United States and Brazil had largely ceased, some exploration was delayed by municipal entry restrictions, and noncritical spending was postponed.
- A 2014 secured convertible note with $244,000 principal was past due and in technical default; its interest rate increased to 30%, with $420,609 accrued interest. Management said it was negotiating with the holder and that no demand for payment had been made. Separately, management described working with a lender on other notes past original maturity.
- Variable-price convertible notes could convert into approximately 1.766 billion shares at June 30, subject to market prices, a material potential dilution risk. One share of Series A preferred stock carries 51% of total voting power while outstanding.
- First-half results included a $76,926 loss associated with a related-party share exchange (MD&A cites $76,178 for a fair-value adjustment). Foreign-currency translation reduced equity by $191,127.
- The company reported no legal proceedings, no off-balance-sheet arrangements, and no material changes to previously disclosed risk factors. Management concluded disclosure controls and internal control over financial reporting were effective.
Important facts for investors to verify
- Confirm the registrant’s identity and relationship, if any, to Atlas Lithium Corp.; this filing is for Brazil Minerals, Inc.
- Review the going-concern warning, near-term obligations, and status of the past-due secured note and other matured debt.
- Assess financing needs, cash burn, and the terms and dilution potential of variable-conversion notes and future equity issuance.
- Reconcile the filing’s share-authorization disclosures: the balance sheet reports 1.55 billion authorized shares, while a note states 1.2 billion at June 30 and says authorization rose to 1.55 billion on July 16.
- Check the related-party exchange loss amounts, which differ between the financial statements and MD&A, and assess the impact of COVID-19 restrictions on exploration and production plans.