The accompanying notes are an integral part
of the condensed consolidated financial statements.
The accompanying notes are an integral part
of the condensed consolidated financial statements.
The accompanying notes are an integral part
of the condensed consolidated financial statements.
The accompanying notes are an integral part
of the condensed consolidated financial statements.
NOTES TO THE
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 – ORGANIZATION, BUSINESS AND
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Description of Business
Brazil Minerals, Inc. ("Brazil Minerals"
or the "Company") was incorporated as Flux Technologies, Corp. under the laws of the State of Nevada, U.S. on December
15, 2011. The Company changed its management and business on December 18, 2012, to focus on mineral exploration. Brazil Minerals,
through subsidiaries, owns mineral rights in Brazil for gold, diamonds, lithium, rare earths, titanium, iron, nickel, and sand.
Basis of Presentation and Principles
of Consolidation
The accompanying unaudited condensed consolidated
financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America
(“U.S. GAAP”) for interim financial statements and with the instructions to Form 10-Q and Article 8 of Regulation S-X
of the United States Securities and Exchange Commission (“SEC”) and are expressed in United States dollars. In the
opinion of the Company’s management, the accompanying unaudited condensed consolidated financial statements contain all the
adjustments necessary (consisting only of normal recurring accruals) to present the financial position of the Company as of March
31, 2021, and the results of operations and cash flows for the periods presented. The results of operations for the three months
ended March 31, 2021 and 2020, are not necessarily indicative of the operating results for the full fiscal year or any future period.
These unaudited condensed consolidated financial statements should be read in conjunction with the financial statements and related
notes thereto included in Form 10-K for the fiscal year ended December 31, 2020 filed with the Securities and Exchange Commission
(the “SEC”) on March 31, 2021.
The condensed consolidated financial statements
include the accounts of the Company; its 99.99% owned subsidiary, BMIX Participações Ltda. (“BMIXP”),
which includes the accounts of BMIXP’s wholly-owned subsidiary, Mineração Duas Barras Ltda. (“MDB”),
and BMIXP’s 50% owned subsidiary, RST Recursos Minerais Ltda. (“RST”); its 99.99% owned subsidiary, Hercules
Resources Corporation (“HRC”), which includes the accounts of HRC’s wholly-owned subsidiary, Hercules Brasil
Comercio e Transportes Ltda. (“Hercules Brasil”); its 30.1% equity interest in Apollo Resources Corporation (“Apollo
Resources”) and its subsidiary Mineração Apollo, Ltda.; and its 10.0% equity interest in Jupiter Gold Corporation
(“Jupiter Gold”), which includes the accounts of Jupiter Gold’s wholly-owned subsidiary, Mineração
Jupiter Ltda. The Company has concluded that Apollo Resources, Jupiter Gold and their subsidiaries are variable interest entities
(“VIE”) in accordance with applicable accounting standards and guidance. As such, the accounts and results of Apollo
Resources, Jupiter Gold and their subsidiaries have been included in the Company’s condensed consolidated financial statements.
All material intercompany accounts and transactions
have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements in
conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingencies at the date of the financial statements and the reported
amount of revenues and expenses during the reporting period. Actual results may differ from those estimates.
BRAZIL MINERALS, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 – ORGANIZATION, BUSINESS AND
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Going Concern
The condensed consolidated financial statements
have been prepared on a going concern basis which contemplates the realization of assets and the settlement of liabilities in the
normal course of business. The Company has limited working capital, has incurred losses in each of the past two years, and has
not yet received material revenues from sales of products or services. These factors create substantial doubt about the Company's
ability to continue as a going concern. The consolidated financial statements do not include any adjustment that might be necessary
if the Company is unable to continue as a going concern.
The ability of the Company to continue as a
going concern is dependent on the Company generating cash from its operations, the sale of its stock and/or obtaining debt financing.
Historically, the Company has funded its operations primarily through the issuance of debt and equity securities. Management's
plan to fund its capital requirements and ongoing operations include the generation of revenue from its mining operations and projects.
Management's secondary plan to cover any shortfall is selling its equity securities, including common stock in the Company, or
common stock in Jupiter Gold that it owns, and obtaining debt financing. There can be no assurance the Company will be successful
in these efforts.
Recent Accounting Pronouncements
The Company has implemented all new accounting
pronouncements that are in effect and that may impact its financial statements and does not believe that there are any other new
pronouncements that have been issued that might have a material impact on its financial position or results of operations except
as noted below:
In August 2020, the FASB issued ASU No. 2020-06, Debt
- Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity’s Own Equity
(Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity. ASU 2020-06 will simplify
the accounting for convertible instruments by reducing the number of accounting models for convertible debt instruments and convertible
preferred stock. Limiting the accounting models will result in fewer embedded conversion features being separately recognized from
the host contract as compared with current GAAP. Convertible instruments that continue to be subject to separation models are (1)
those with embedded conversion features that are not clearly and closely related to the host contract, that meet the definition
of a derivative, and that do not qualify for a scope exception from derivative accounting and (2) convertible debt instruments
issued with substantial premiums for which the premiums are recorded as paid-in capital. ASU 2020-06 also amends the guidance for
the derivatives scope exception for contracts in an entity’s own equity to reduce form-over-substance-based accounting conclusions.
ASU 2020-06 will be effective January 1, 2024, for the Company. Early adoption is permitted, but no earlier than January 1, 2021,
including interim periods within that year. The Company is evaluating the effect of the adoption of ASU 2020-06 on the consolidated
financial statements, but currently does not believe ASU 2020-06 will have a significant impact on the Company’s accounting
for its convertible debt instruments. The effect will largely depend on the composition and terms of the financial instruments
at the time of adoption.
In February 2020, the FASB issued ASU 2020-02, Financial
Instruments-Credit Losses (Topic 326) and Leases (Topic 842) - Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin
No. 119 and Update to SEC Section on Effective Date Related to Accounting Standards Update No. 2016-02, Leases (Topic 842), which
amends the effective date of the original pronouncement for smaller reporting companies. ASU 2016-13 and its amendments will be
effective for the Company for interim and annual periods in fiscal years beginning after December 15, 2022. The Company believes
the adoption will modify the way the Company analyzes financial instruments, but it does not anticipate a material impact on results
of operations. The Company is in the process of determining the effects adoption will have on its consolidated financial statements.
BRAZIL MINERALS, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 – COMPOSITION OF CERTAIN FINANCIAL
STATEMENT ITEMS
Property and Equipment
The following table sets forth the components of the Company's property
and equipment at March 31, 2021 and December 31, 2020:
|
|
March 31, 2021
|
|
December 31, 2020
|
|
|
Cost
|
|
Accumulated Depreciation
|
|
Net Book
Value
|
|
Cost
|
|
Accumulated Depreciation
|
|
Net Book
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Computers and office equipment
|
|
$
|
3,830
|
|
|
$
|
(1,573
|
)
|
|
$
|
2,257
|
|
|
$
|
3,880
|
|
|
$
|
(573
|
)
|
|
$
|
3,307
|
|
Machinery and equipment
|
|
|
321,864
|
|
|
|
(257,870
|
)
|
|
|
63,994
|
|
|
|
348,376
|
|
|
|
(271,107
|
)
|
|
|
77,269
|
|
Vehicles
|
|
|
116,220
|
|
|
|
(112,417
|
)
|
|
|
3,803
|
|
|
|
127,416
|
|
|
|
(118,716
|
)
|
|
|
8,700
|
|
Total fixed assets
|
|
$
|
441,914
|
|
|
$
|
(371,860
|
)
|
|
$
|
70,054
|
|
|
$
|
479,672
|
|
|
$
|
(390,396
|
)
|
|
$
|
89,276
|
|
For the three months ended March 31, 2021 and
2020, the Company recorded depreciation expense of $12,090 and $13,746, respectively.
Intangible Assets
Intangible assets consist of mining rights
are not amortized as the mining rights are perpetual. The carrying value was $1,275,781 and $407,467 at March 31,
2021 and December 31, 2020, respectively.
Equity Investments without Readily Determinable
Fair Values
On October 2, 2017, the Company entered into
an exchange agreement whereby it issued 25,000,000 shares of its common stock in exchange for 500,000 shares of Ares Resources
Corporation. The Company’s chief executive officer also serves as an officer of Ares Resources Corporation, thus making it
a related party under common ownership and control. The shares were recorded at $150,000, or $0.006 per share. The shares were
valued based upon the lowest market price of the Company’s common stock on the date the agreement.
On March 11, 2020, the Company issued 53,947,368
shares of common stock to Lancaster Brazil Fund pursuant to an addendum to the share exchange agreement dated September 28, 2018.
The Company recorded a loss on exchange of equity with a related party of $76,926 representing the fair value of the additional
shares of common stock issued.
Under ASC 321-10, the Company elected to use
a measurement alternative for its equity investment that does not have a readily determinable fair value. As such, the Company
measured its investment at cost, less any impairment, plus or minus any changes resulting from observable price changes in orderly
transactions for an identical or similar investment of the same issuer. The Company owns less than 5% of the total shares outstanding
of Ares Resources Corporation.
BRAZIL MINERALS, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 – COMPOSITION OF CERTAIN FINANCIAL
STATEMENT ITEMS (CONTINUED)
Accounts Payable and Accrued Liabilities
|
|
March 31, 2021
|
|
December 31, 2020
|
Accounts payable and other accruals
|
|
$
|
1,161,257
|
|
|
$
|
327,704
|
|
Accrued interest
|
|
|
208,864
|
|
|
|
324,415
|
|
Total
|
|
$
|
1,370,121
|
|
|
$
|
652,119
|
|
During the three months ended March 31, 2021, the Company acquired
certain mineral (iron) rights for which approximately $834,000 remains payable.
NOTE 3 – CONVERTIBLE PROMISSORY NOTES PAYABLE
The following tables set forth the components
of the Company’s convertible debentures as of March 31, 2021 and December 31, 2020:
|
|
March 31,
2021
|
|
December 31, 2020
|
Convertible notes payable – fixed conversion price
|
|
$
|
197,124
|
|
|
|
244,000
|
|
Convertible notes payable – variable conversion price
|
|
|
460,360
|
|
|
|
628,720
|
|
Total convertible notes
|
|
$
|
657,484
|
|
|
$
|
872,720
|
|
The following table sets forth a summary of change in our convertible
notes payable for the three months ended March 31, 2021:
|
|
March 31,
2021
|
Beginning balance
|
|
$
|
872,720
|
|
Conversion of convertible note principal into common stock
|
|
|
(526,072
|
)
|
Increase in principal amounts outstanding due to lender adjustments per terms of the note agreements
|
|
|
40,836
|
|
Issuance of convertible notes payable
|
|
|
270,000
|
|
Total convertible notes
|
|
$
|
657,484
|
|
Convertible Notes Payable - Fixed Conversion
Price
On January 7, 2014, the Company issued to a
family trust a senior secured convertible promissory note in the principal amount, and received gross proceeds, of $244,000 and
warrants to purchase an aggregate of 488,000 shares of the Company's common stock at an exercise price of $62.50 per share through
December 26, 2018. The Company received gross proceeds of $244,000 for the sale of such securities. The outstanding principal of
the note bears interest at the rate of 12% per annum. The note is convertible at the option of the holder into common stock of
the Company at a conversion rate of one share for each $50.00 of principal and interest converted. As of March 31, 2021, all warrants
issued in connection with this note had expired.
The outstanding principal on the note was
payable on March 31, 2015, which as of the date of these financial statements is past due and in technical default. The Company
is in negotiations with the note holder to satisfy, amend the terms or otherwise resolve the obligation in default. No demand
for payment has been made. As a result of the default, the interest rate on the note increased to 30% per annum. Interest was
payable on September 30, 2014 and on the maturity date. In December 2020, the lender agreed to reduce the interest rate from the
default rate of 30% to the stated rate of 10% retroactively. As a result, the Company recorded gain of $238,151 from the relief
of interest expense to other income.
BRAZIL MINERALS, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 – CONVERTIBLE PROMISSORY NOTES PAYABLE (CONTINUED)
On February 3, 2021, the Company issued 20,000,000
shares of common stock upon conversion of $80,000 in convertible notes payable and accrued interest. As of March 31, 2021, the
balance of the note was $197,124 and the accrued interest payable totaled $142,062 in connection with this note.
Convertible Notes Payable - Variable Conversion Price
At various times to fund operations, the Company
issues convertible notes payable in which the conversion features are variable. In addition, some of these convertible notes payable
have on issuance discounts and other fees withheld.
During the year ended December 31, 2016, the
Company issued to one noteholder, in various transactions, $242,144 in convertible promissory notes with fixed floors and received
an aggregate of $232,344 in proceeds. The convertible promissory notes each bear interest at 8.0% per annum and mature one year
from issuance ranging from July to December 2017. After six months from issuance, each convertible promissory note is convertible
at the option of the holder at a 50% discount to the lowest traded price of the Company’s common stock over the previous
20 days. In addition, each note’s conversion rate has a floor of $0.0001. Total debt discounts related to the beneficial
conversion features of $241,852 were recorded and are being amortized over the life of the notes. As of March 31, 2021, the outstanding
principal balance on these notes total $115,500, and all discounts were fully amortized.
During the year ended December 31, 2017, the
Company issued to one noteholder in various transactions $477,609 in convertible promissory notes with fixed floors and received
an aggregate of $454,584 in proceeds. The convertible promissory notes each bear interest at 8.0% per annum and mature one year
from issuance ranging from January to August 2018. After six months from issuance, each convertible promissory note is convertible
at the option of the holder at a 50% discount to the lowest traded price of the Company’s common stock over the previous
20 days. In addition, each note’s conversion rate has a floor of $0.0001. Total debt discounts related to the beneficial
conversion features of $447,272 were recorded and are being amortized over the life of the notes. During the three months ended
March 31, 2021, the Company issued 182,872,798 shares of its common stock upon the conversion of $50,000 and $ 14,004, respectively,
in note principal and accrued interest. As of March 31, 2021, the outstanding principal balance on these notes total $52,000, and
all discounts were fully amortized.
During the year ended December 31, 2018, the
Company issued to one noteholder in various transactions $137,306 in convertible promissory notes with fixed floors and received
an aggregate of $130,556 in proceeds. The convertible promissory notes each bear interest at 8.0% per annum and mature one year
from issuance ranging from August 2018 to April 2019. After six months from issuance, each convertible promissory note is convertible
at the option of the holder at a 50% discount to the lowest traded price of the Company’s common stock over the previous
20 days. In addition, each note’s conversion rate has a floor of $0.0001. Total debt discounts related to the beneficial
conversion features of $122,755 were recorded and are being amortized over the life of the notes. During the three months ended
March 31, 2021, the Company issued 23,118,645 shares of its common stock upon the conversion of $118,996 and $27,496, respectively,
in note principal and accrued interest. As of March 31, 2021, the outstanding principal balance on these notes total $22,860, and
all discounts were fully amortized.
BRAZIL MINERALS, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 – CONVERTIBLE PROMISSORY NOTES PAYABLE (CONTINUED)
During the year ended December 31, 2019, the
Company issued to one noteholder in various transactions $282,000 in convertible promissory notes with fixed floors and received
an aggregate of $276,000 in proceeds. The convertible promissory notes each bear interest at 8.0% per annum and mature one year
from issuance in July 2020. After six months from issuance, each convertible promissory note is convertible at the option of the
holder at a 50% discount to the lowest traded price of the Company’s common stock over the previous 20 days. In addition,
each note’s conversion rate has a floor of $0.0001. Total debt discounts related to the beneficial conversion features of
$276,000 and $6,000 for issuance costs were recorded and are being amortized over the life of the notes. During the three months
ended March 31, 2021, the Company issued 156,438,271 shares of its common stock upon the conversion of $310,200 and $40,186, respectively,
in note principal and accrued interest. As of March 31, 2021, the principal balance on these notes was $0, and all discounts were
fully amortized.
While many of these convertible notes are past
their original maturity dates, the Company continues to maintains a favorable relationship and work with the lender with regard
to financing its working capital needs. As of March 31, 2020, the Company has accrued interest payable totaling $66,802 in connection
with these variable convertible notes. During the three months ended March 31, 2021 and 2020, $0 and $70,500 of the discounts were
amortized to interest expense, respectively.
Future Potential Dilution
Most of the Company's convertible notes payable
contain adjustable conversion terms with significant discounts to market. As of March 31, 2021, the Company's convertible notes
are convertible into an aggregate of approximately 14,938,261 shares of common stock. Due to the variable conversion prices on
some of the Company's convertible notes, the number of common shares issuable is dependent upon the traded price of the Company's
common stock.
NOTE 4 – LOANS PAYABLE
As of December 31, 2020, the Company had
$235,308 in principal outstanding from bridge loans. The loans payable bear interest at 8.0% per annum and are payable upon
demand. In February 2021, the Company repaid the full principal balance of $235,308 and accrued interest of $24,654.
NOTE 5 – OTHER NONCURRENT LIABILITIES
Other noncurrent liabilities are comprised
solely of social contributions and other employee-related costs at our operating subsidiaries located in Brazil. The Company has
been funding these amounts upon the termination of a worker or employee. The balance of these employee related costs as of March
31, 2021 and December 31, 2020 amounted to $110,278 and $121,250, respectively.
NOTE 6 – STOCKHOLDERS' DEFICIT
Authorized and Amendments
As of March 31, 2021, the Company had 3,250,000,000
common shares authorized with a par value of $0.001 per share.
BRAZIL MINERALS, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 – STOCKHOLDERS' DEFICIT (CONTINUED)
Series A Preferred Stock
On December 18, 2012, the Company filed with
the Nevada Secretary of State a Certificate of Designations, Preferences and Rights of Series A Convertible Preferred Stock ("Series
A Stock") to designate one share of a new series of preferred stock. The Certificate of Designations, Preferences and Rights
of Series A Convertible Preferred Stock provides that for so long as Series A Stock is issued and outstanding, the holders of Series
A Stock shall vote together as a single class with the holders of the Company's Common Stock, with the holders of Series A Stock
being entitled to 51% of the total votes on all such matters regardless of the actual number of shares of Series A Stock then outstanding,
and the holders of Common Stock are entitled to their proportional share of the remaining 49% of the total votes based on their
respective voting power.
Three Months Ended March 31, 2021 Transactions
During the three months ended March 31, 2021,
the Company issued 40,541,666 shares of common stock for gross proceeds of $266,500 pursuant to subscription agreements with accredited
investors. Additionally, the Company issued 382,429,714 shares of common stock upon conversion of $640,883 in convertible notes
payable and accrued interest. Lastly, during the three months ended March 31, 2021, the Company issued 131,675,682 shares of common
stock upon the cashless exercise of 141,000,000 warrants.
Three Months Ended March 31, 2020 Transactions
During the three months ended March 31, 2020, the Company issued
5,000,000 shares of common stock to an accredited investor pursuant to a subscription agreement dated April 18, 2018 for which
the funds were received in a prior period. The Company issued 5,666,594 shares of common stock to non-employees for services rendered.
The Company issued 33,350,046 shares of common stock upon conversion of $23,532 in convertible notes payable and accrued interest.
Additionally, during the three months ended March 31, 2020, the
Company exchanged 200,000,000 shares of common stock returned by an accredited investor for 150,000 shares of Jupiter Gold’s
common stock held as an investment by the Company. The Company used the quoted fair value of each entity’s common stock on
the dates of exchange to determine the exchange ratio.
See Note 8 – Related Party Transactions
for additional disclosures of common stock issuances.
Common Stock Options
During the three months ended March 31, 2021,
the Company granted options to purchase an aggregate of 90,000,000 shares of common stock to officers and non-management directors.
The options were valued at $369,768 in total. The options were valued using the Black-Scholes option pricing model with the following
average assumptions: our stock price on the date of the grant which ranged from $0.0004 to $0.008, expected dividend yield of 0.0%,
historical volatility calculated between 79.0% and 124.4%, risk-free interest rate ranging between 0.9% and 1.4%, and an expected
term of 10 years.
The following table reflects all outstanding
and exercisable options at March 31, 2021. All stock options immediately vest and are exercisable for a period of five to
ten years from the date of issuance.
|
|
Number of Options Outstanding and Vested
|
|
Weighted Average Exercise Price
|
|
Remaining Contractual Life (Years)
|
|
|
Aggregated Intrinsic Value
|
|
Outstanding, January 1, 2021
|
|
|
119,917,140
|
|
$
|
0.0025
|
|
|
3.6
|
|
|
|
|
Issued
|
|
|
90,000,000
|
|
|
0.0000
|
|
|
9.8
|
|
|
|
|
Exercised
|
|
|
(–
|
)
|
|
–
|
|
|
–
|
|
|
|
|
Forfeited
|
|
|
(313,340
|
)
|
|
–
|
|
|
–
|
|
|
|
|
Outstanding and Vested, March 31, 2021
|
|
|
209,603,800
|
|
$
|
0.0014
|
|
|
6.2
|
|
$
|
3,402,341
|
|
As of March 31, 2020, the Company had 209,603,800
common stock options outstanding with a weighted average life of 6.2 years at an average exercise price of $0.0014.
BRAZIL MINERALS, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7 – COMMITMENTS AND CONTINGENCIES
Operating Leases
The Company leases office space as its principal
executive offices in Pasadena, California for approximately $5,750 on a month-to-month basis. The Company also leases office space
in the municipality of Olhos D’Agua, Brazil. Such costs are immaterial to the condensed consolidated financial statements.
NOTE 8 - RELATED PARTY TRANSACTIONS
Chief Executive Officer
The following tables set forth the components
of the Company’s related party payables as of March 31, 2021 and December 31, 2020:
|
|
March 31, 2021
|
|
December 31, 2020
|
Convertible notes payable to related party
|
|
$
|
566,743
|
|
|
$
|
566,743
|
|
|
|
|
|
|
|
|
|
|
Effective June 30, 2018, the Company issued
a convertible promissory note in the principal amount of $445,628 to its Chief Executive Officer against a portion of these unpaid
compensatory balances. The note bears no interest and is payable on demand. The note is convertible at the option of the holder
at the lower of (i) the average of the five lowest bid prices of the Company's common stock over the previous 20 trading days or
(ii) the lowest price per share at which the Company sold its common stock in a transaction with a person who is not a manager,
officer, or director of the Company during the period from the date hereof until the giving of notice of the election to convert
or the lowest price per share at which a noteholder who is not a manager, officer, or director of the Company converted any debt
of the Company into shares of the Company during the period from the date hereof until the giving of notice of the election to
convert. The note's conversion rate has a floor of $0.0001. Total debt discounts related to the beneficial conversion features
of $445,628 were recorded and are being amortized over a one-year period consistent with the maturity dates of convertible notes
issued to third party holders. As of March 31, 2021, all discounts were fully amortized.
On April 7, 2019, the Company’s board
of directors approved the issuance of a convertible note in the principal amount of $261,631 to its Chief Executive Officer against
a portion of these unpaid compensatory balances. The note bears interest at an annual rate of 6.0% and is payable on demand. The
note is convertible at the option of the holder at the lower of (i) $0.00045 or (ii) the lowest price per share at which a noteholder
who is not a manager, officer, or director of the Company converted any debt of the Company into common stock of the Company during
the period from the date hereof until the giving of notice of the election to convert. Total debt discounts related to the beneficial
conversion features of $261,631 were recorded and are being amortized over a one-year period consistent with the maturity dates
of convertible notes issued to third party holders. As of March 31, 2021, there were unamortized debt discounts of $15,431 related
to this note.
On April 7, 2019, the Company’s board
of directors approved the exchange, initiated by a formal notice of conversion dated February 19, 2019, of $202,240 of convertible
note principal due to its Chief Executive Officer for five-year stock options to purchase 224,711,111 shares of Brazil Minerals
at an exercise price of $0.00001 and 505,600 shares of common stock of Jupiter Gold at an exercise price of $0.001. Per the terms
of the convertible note agreement, the conversion notification permitted the holder, at his election, to receive either an issuance
of 224,711,111 shares of Brazil Minerals and 505,600 shares of Jupiter Gold, or an issuance of stock options to purchase the same
numbers of shares at a nominal exercise price. The options were valued at $270,255 in total. The options were valued using the
Black-Scholes option pricing model with the following average assumptions: our stock price on date of grant of $0.0012, expected
dividend yield of 0%, historical volatility ranging from 230.1% to 1,271.2%, risk-free interest rate of 2.50%, and an expected
term of 5.00 years. In connection with the exchange, the Company recorded a loss on the extinguishment of debt totaling $68,015.
BRAZIL MINERALS, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 - RELATED PARTY TRANSACTIONS (CONTINUED)
On June 30, 2019, the Company’s board
of directors approved the issuance of a convertible note in the principal amount of $61,724 to its Chief Executive Officer against
a portion of these unpaid compensatory balances. The note bears interest at an annual rate of 6.0% and is payable on demand. The
note is convertible at the option of the holder at the lower of (i) $0.0003 or (ii) the lowest price per share at which a noteholder
who is not a manager, officer, or director of the Company converted any debt of the Company into common stock of the Company during
the period from the date hereof until the giving of notice of the election to convert. Total debt discounts related to the beneficial
conversion features of $61,724 were recorded and are being amortized over a one-year period consistent with the maturity dates
of convertible notes issued to third party holders. As of December 31, 2020, there were unamortized debt discounts of $30,862 related
to this note.
On March 11, 2020, the Company issued 200,000
shares of its common stock with a fair value of $280, or $0.0014 per share, to its Chief Executive Officer in lieu of cash for
loans payable and other accrued obligations.
On December 3, 2020, the Company issued 161,636,427
shares of common stock to its Chief Executive Officer in connection with the exercise stock options acquired on February 19, 2019
as described above.
Jupiter Gold Corporation
On February 12, 2020, the Company sold 900,000
shares of Jupiter Gold common stock that it held as an investment, 180,500 warrants to purchase up to 180,500 shares of Jupiter
Gold common stock at $0.60 per share, and 50,000,000 warrants to purchase up to 50,000,000 shares of Brazil Minerals common stock
at $0.0015 per share for gross proceeds of $250,000 to an accredited investor.
On February 14, 2020, the Company loaned $225,000
to Jupiter Gold in the form of a convertible promissory note. The note bears interest at 6.0% per annum and matures on December
31, 2023. As an inducement to enter into the transaction, the Company received 67,000 warrants to purchase up to 67,000 shares
of Jupiter Gold common stock at a price of $0.60 per share. At any time after issuance, the note is convertible at the option of
the holder at a rate of one share of Jupiter Gold common stock for each $0.60 of loan principal. The impact of transaction on the
Company’s accounts was eliminated in consolidation. On February 15, 2020, the Company converted the promissory note in return
for 375,000 shares of Jupiter Gold common stock.
During the three months ended March 31, 2021,
Jupiter Gold granted options to purchase an aggregate of 105,000 shares of its common stock to Marc Fogassa at prices ranging between
$0.01 to $1.00 per share. The options were valued at $124,549 and recorded to stock-based compensation. The options were valued
using the Black-Scholes option pricing model with the following average assumptions: the Company’s stock price on the date
of the grant ($0.95 to $1.45), expected dividend yield of 0%, historical volatility calculated at 97.3%, risk-free interest rate
between a range of 0.92% to 1.41%, and an expected term between 5 and 10 years.
As of March 31, 2020, Jupiter Gold had 2,400,000
common stock options outstanding with a weighted average life of 2.6 years at an average exercise price of $0.96 and an aggregated intrinsic value of $686,909.
Apollo Resource Corporation
During the three months ended March 31, 2021,
Apollo Resources granted options to purchase an aggregate of 105,000 shares of its common stock to Marc Fogassa at a price of $0.01
per share. The options were valued at $217,129 and recorded to stock-based compensation. The options were valued using the Black-Scholes
option pricing model with the following average assumptions: the Company’s stock price on the date of the grant ($0.10 to
$4.00), expected dividend yield of 0%, historical volatility calculated at 49.2%, risk-free interest rate between a range of 0.68%
to 1.41%, and an expected term between 5 and 10 years.
As of March 31, 2020, Jupiter Gold had 105,000 common stock options
outstanding with a weighted average life of 9.7 years at an average exercise price of $0.01 and an aggregated intrinsic value of
$419,030.
BRAZIL MINERALS, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 - RELATED PARTY TRANSACTIONS (CONTINUED)
Investment in Ares Resources Corporation's
Common Stock
On October 2, 2017, the Company entered into
a share exchange agreement with Ares Resources Corporation. The Company’s chief executive officer also serves as an officer
of Ares Resources Corporation, thus making it a related party under common ownership and control. Refer to “Note 2 –
Composition of Certain Financial Statement Items” for additional information.
On March 11, 2020, the Company issued 53,947,368
shares of common stock to Lancaster Brazil Fund pursuant to an addendum to the share exchange agreement dated September 28, 2018.
The Company recorded a loss on exchange of equity with a related party of $76,926 representing the fair value of the additional
shares of common stock issued.
As of March 31, 2021, no change in the value
of the Ares common stock was recorded as the recorded value still approximated fair value.
NOTE 9 – RISKS AND UNCERTAINTIES
In light of the SEC's Division of Corporate
Finance Disclosure Guidance Topic Number 9, dated March 25, 2020, on the impact of COVID-19, the Company notes the following as
of May 20, 2021:
|
·
|
The Company has not had any reports of COVID-19 among its workforce;
|
|
·
|
The Company has been able to continue local operations of the Company in Brazil as they are located in a rural area currently unaffected by any lockdown restrictions implemented elsewhere in Brazil;
|
|
·
|
Travel between the U.S. and Brazil has essentially ceased; this is mitigated by the use of live streaming video and other methods as needed;
|
|
·
|
Some exploratory research of some of the Company’s projects have been delayed as certain municipalities in Brazil have unilaterally restricted the entry of outside persons; these actions are being legally challenged by branches of the state administration and the Company is monitoring all new developments;
|
|
·
|
The Company has postponed any expenses which are not critical to it at the moment.
|
Currency Risk
The Company operates primarily in Brazil which
exposes it to currency risks. The Company’s business activities may generate intercompany receivables or payables that are
in a currency other than the functional currency of the entity. Changes in exchange rates from the time the activity occurs to
the time payments are made may result in the Company receiving either more or less in local currency than the local currency equivalent
at the time of the original activity.
The Company’s condensed consolidated
financial statements are denominated in U.S. dollars. Accordingly, changes in exchange rates between the applicable foreign currency
and the U.S. dollar affect the translation of each foreign subsidiary’s financial results into U.S. dollars for purposes
of reporting in the consolidated financial statements. The Company’s foreign subsidiaries translate their financial results
from the local currency into U.S. dollars in the following manner: (a) income statement accounts are translated at average exchange
rates for the period; (b) balance sheet asset and liability accounts are translated at end of period exchange rates; and (c) equity
accounts are translated at historical exchange rates. Translation in this manner affects the shareholders’ equity account
referred to as the foreign currency translation adjustment account. This account exists only in the foreign subsidiaries’
U.S. dollar balance sheets and is necessary to keep the foreign subsidiaries’ balance sheets in agreement.
BRAZIL MINERALS, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10 - SUBSEQUENT EVENTS
In accordance with FASB ASC 855-10 Subsequent
Events, the Company has analyzed its operations subsequent to March 31, 2021 to the date these consolidated financial statements
were issued, and has determined that it does not have any material subsequent events to disclose in these consolidated financial
statements, except for the following:
1) On April 9, 2021, GW Holdings Group, LLC
converted approximately $270,000 in past-due convertible debt into 36,000,000 shares of our common stock.
2) On April 12, 2021, we filed with the Securities
and Exchange Commission a Form 8-K disclosing the following change in our Bylaws: “The Corporation is prohibited from
issuing to a third-party any convertible loan, note, or debt in which the conversion price decreases if the price of the common
stock of the Corporation decreases.”
3) On March 10, 2021, we had sent to the Heather
U. Baines and Lloyd McAdams AB Living Trust dated 8-1-2001 (the “Trust”) the required 60-day notice of redemption (the
“Notice of Redemption”) of the Senior Secured Convertible Promissory Note dated January 8, 2014 from Brazil Minerals,
Inc. to the order of the Trust (the “Promissory Note”). Based upon the date that the Notice of Redemption was given,
we would have been entitled to repurchase the Promissory Note and extinguish it on May 9, 2021. On May 6, 2021, the Trust informed
us of its decision to convert the outstanding principal and accrued interest of the Promissory Note into 86,246,479 of our common
shares.
4) On May 6, 2021, we informed GW Holdings
Group LLC (“GW”) of its intention to pay off the entire principal and accrued interest on a convertible note in the
original principal amount of $270,000 (the “Convertible Note”). On May 7, 2021, we paid $276,391 to GW by wire transfer
to complete the payoff.
After the transactions stated above in items
1, 3, and 4, we have no outstanding investor debt on our books.
Report
of Independent Registered Public Accounting Firm
To the shareholders
and the board of directors of Brazil Minerals, Inc.
Opinion on the
Financial Statements
We have audited the
accompanying consolidated balance sheets of Brazil Minerals, Inc. (the "Company") as of December 31, 2020 and 2019, the
related consolidated statements of operations and comprehensive loss, stockholders' equity (deficit), and cash flows for each of
the two years in the period ended December 31, 2020, and the related notes (collectively referred to as the "financial statements").
In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of
December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the two years in the period ended
December 31, 2020, in conformity with accounting principles generally accepted in the United States.
Going Concern Uncertainty
The accompanying financial
statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial
statements, the Company has suffered recurring losses from operations and has a net capital deficiency that raise substantial doubt
about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in
Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These financial statements
are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements
based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States)
("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities
laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits
in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company
is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of
our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing
an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such
opinion.
Our audits included
performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud,
and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding
the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and
significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe
that our audits provide a reasonable basis for our opinion.
Critical Audit
Matter
The critical audit
matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated
or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the
consolidated financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication
of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole,
and we are not, by communicating the critical audit matter below, providing separate opinions on the critical audit matter or on
the accounts or disclosures to which they relate.
Valuation of long-lived
assets
As described in the
Note 1 to the financial statements, the Company continually monitors events and changes in circumstances that could indicate carrying
amounts of long-lived assets, including property and equipment and definite-life intangible assets, may not be recoverable. In
addition, the Company review the impairment of indefinite-life intangible assets at least annually, or more frequent when impairment
indicators are present. As of December 31, 2020, carrying value of property and equipment and intangible assets were $89,726 and
$407,467, respectively.
Auditing the valuation of long-lived assets
involved complex judgment due to the significant estimation required in determining the recoverability or fair value of the long-lived
assets. Specifically, the cash flow forecasts were sensitive to significant assumptions about future market and economic conditions.
Significant assumptions used in the Company’s fair value estimates included sales volume, pricing, cost of labor, marketing
spending, general and administrative expenses, tax rates, as applicable.
We obtained an understanding of the controls
over the Company’s annual impairment assessments for long-lived assets and tested the future cash flows of the long-lived
assets based on our risk assessments. Our audit procedures included, among others, comparing significant inputs to observable third
party and industrial sources, and evaluating the reasonableness of management’s projected financial information by comparing
to observable average market prices of the Company’s products. We reviewed most recent available technical reports about
the Company’s mineral projects. We performed sensitivity analyses of significant assumptions to evaluate the change in the
cash flow or fair value of the long-lived assets and assessed the historical accuracy of management’s estimates. We also
assessed the Company’s disclosure of its annual impairment assessments included in Note 1.
/s/ BF Borgers CPA
PC
We have served as
the Company's auditor since 2015.
Lakewood, Colorado
March 31, 2021
BRAZIL
MINERALS, INC.
|
CONSOLIDATED
BALANCE SHEETS
|
AS
OF DECEMBER 31, 2020 AND 2019
|
|
|
December 31,
|
|
December 31,
|
|
|
2020
|
|
2019
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
253,598
|
|
|
$
|
151,088
|
|
Accounts receivable, net
|
|
|
20,106
|
|
|
|
—
|
|
Taxes recoverable
|
|
|
17,726
|
|
|
|
22,853
|
|
Inventory
|
|
|
11,676
|
|
|
|
15,054
|
|
Deposits and advances
|
|
|
2,039
|
|
|
|
4,782
|
|
Total current assets
|
|
|
305,145
|
|
|
|
193,777
|
|
Property and equipment, net
|
|
|
89,276
|
|
|
|
172,802
|
|
Intangible assets, net
|
|
|
407,467
|
|
|
|
509,862
|
|
Equity investments
|
|
|
150,000
|
|
|
|
150,000
|
|
Total assets
|
|
$
|
951,888
|
|
|
$
|
1,026,441
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ DEFICIT
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses
|
|
$
|
652,119
|
|
|
$
|
650,141
|
|
Convertible notes payable, net of debt discounts totaling $0 and $153,000, respectively
|
|
|
872,720
|
|
|
|
824,614
|
|
Loans payable
|
|
|
235,308
|
|
|
|
209,128
|
|
Related party notes and other payables, net of debt discounts totaling $0 and $96,270, respectively
|
|
|
566,743
|
|
|
|
470,473
|
|
Total current liabilities
|
|
|
2,326,890
|
|
|
|
2,154,356
|
|
Other noncurrent liabilities
|
|
|
121,250
|
|
|
|
192,729
|
|
Total liabilities
|
|
|
2,448,140
|
|
|
|
2,347,085
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ deficit:
|
|
|
|
|
|
|
|
|
Series A preferred stock, $0.001 par value. 10,000,000 shares authorized; 1 share issued and outstanding as of December 31, 2020 and 2019, respectively
|
|
|
1
|
|
|
|
1
|
|
Common stock, $0.001 par value. 2,500,000,000 shares authorized; 1,997,930,297 and 1,132,435,380 shares issued and outstanding as of December 31, 2020 and 2019, respectively
|
|
|
1,997,930
|
|
|
|
1,132,435
|
|
Additional paid-in capital
|
|
|
47,489,116
|
|
|
|
47,724,570
|
|
Accumulated other comprehensive loss
|
|
|
(775,113
|
)
|
|
|
(580,957
|
)
|
Accumulated deficit
|
|
|
(52,185,071
|
)
|
|
|
(51,043,408
|
)
|
Total Brazil Minerals, Inc. stockholders’ deficit
|
|
|
(3,473,137
|
)
|
|
|
(2,767,359
|
)
|
Non-controlling interest
|
|
|
1,976,885
|
|
|
|
1,446,715
|
|
Total stockholders’ deficit
|
|
|
(1,496,252
|
)
|
|
|
(1,320,644
|
)
|
Total liabilities and stockholders’ deficit
|
|
|
951,888
|
|
|
$
|
1,026,441
|
|
The
accompanying notes are an integral part of these consolidated financial statements.
BRAZIL
MINERALS, INC.
|
CONSOLIDATED
STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
|
FOR
THE YEARS ENDED DECEMBER 31, 2020 AND 2019
|
|
|
Year Ended
December 31,
|
|
Year Ended
December 31,
|
|
|
2020
|
|
2019
|
Revenue
|
|
$
|
23,446
|
|
|
$
|
15,393
|
|
Cost of revenue
|
|
|
129,943
|
|
|
|
182,168
|
|
Gross loss
|
|
|
(106,497
|
)
|
|
|
(166,775
|
)
|
Operating expenses:
|
|
|
|
|
|
|
|
|
Professional fees
|
|
|
170,071
|
|
|
|
134,770
|
|
General and administrative
|
|
|
551,584
|
|
|
|
489,877
|
|
Compensation and related costs
|
|
|
329,044
|
|
|
|
306,827
|
|
Stock based compensation
|
|
|
124,357
|
|
|
|
166,095
|
|
Total operating expenses
|
|
|
1,175,056
|
|
|
|
1,097,569
|
|
Loss from operations
|
|
|
(1,281,553
|
)
|
|
|
(1,264,344
|
)
|
Other expense (income):
|
|
|
|
|
|
|
|
|
Interest on promissory notes
|
|
|
178,043
|
|
|
|
167,551
|
|
Amortization of debt discounts and other fees
|
|
|
249,270
|
|
|
|
587,198
|
|
Extinguishment of debt
|
|
|
—
|
|
|
|
67,694
|
|
Forgiveness of accrued interest payable on note payable
|
|
|
(238,151
|
)
|
|
|
—
|
|
Loss on share exchange agreement with related party
|
|
|
76,926
|
|
|
|
—
|
|
Other expense (income)
|
|
|
(1,606
|
)
|
|
|
(906
|
)
|
Total other expense (income)
|
|
|
264,482
|
|
|
|
821,537
|
|
Loss before provision for income taxes
|
|
|
(1,546,035
|
)
|
|
|
(2,085,881
|
)
|
Provision for income taxes
|
|
|
—
|
|
|
|
—
|
|
Net loss
|
|
|
(1,546,035
|
)
|
|
|
(2,085,881
|
)
|
Loss attributable to non-controlling interest
|
|
|
(404,372
|
)
|
|
|
(223,804
|
)
|
Net loss attributable to Brazil Minerals, Inc. stockholders
|
|
$
|
(1,141,663
|
)
|
|
$
|
(1,862,077
|
)
|
|
|
|
|
|
|
|
|
|
Basic and diluted loss per share
|
|
|
|
|
|
|
|
|
Net loss per share attributable to Brazil Minerals, Inc. common stockholders
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
Weighted-average number of common shares outstanding:
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
|
1,271,251,526
|
|
|
|
802,114,793
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss:
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(1,546,035
|
)
|
|
$
|
(2,085,881
|
)
|
Foreign currency translation adjustment
|
|
|
(134,914
|
)
|
|
|
(14,852
|
)
|
Comprehensive loss
|
|
|
(1,680,949
|
)
|
|
|
(2,100,733
|
)
|
Comprehensive loss attributable to noncontrolling interests
|
|
|
(345,130
|
)
|
|
|
(223,804
|
)
|
Comprehensive loss attributable to Brazil Minerals, Inc. stockholders
|
|
$
|
(1,335,819
|
)
|
|
$
|
(1,876,929
|
)
|
The
accompanying notes are an integral part of these consolidated financial statements.
BRAZIL
MINERALS, INC.
|
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS EQUITY (DEFICIT)
|
FOR
THE YEARS ENDED DECEMBER 31, 2020 AND 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
Total
|
|
|
Series
A
|
|
|
|
|
|
Additional
|
|
Other
|
|
|
|
|
|
Stockholders’
|
|
|
Preferred
Stock
|
|
Common
Stock
|
|
Paid-in
|
|
Comprehensive
|
|
Accumulated
|
|
Noncontrolling
|
|
Equity
|
|
|
Shares
|
|
Value
|
|
Shares
|
|
Value
|
|
Capital
|
|
Loss
|
|
Deficit
|
|
Interests
|
|
(Deficit)
|
Balance, December 31, 2018
|
|
|
1
|
|
|
$
|
1
|
|
|
|
332,260,644
|
|
|
$
|
332,260
|
|
|
$
|
46,771,464
|
|
|
$
|
(566,105
|
)
|
|
$
|
(49,181,331
|
)
|
|
$
|
1,369,081
|
|
|
$
|
(1,274,630
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock in connection with sales made under private offerings
|
|
|
—
|
|
|
|
—
|
|
|
|
235,584,906
|
|
|
|
235,585
|
|
|
|
(112,085
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
123,500
|
|
Issuance of common stock in connection with the exercise of common stock options
|
|
|
—
|
|
|
|
—
|
|
|
|
61,000,000
|
|
|
|
61,000
|
|
|
|
(60,590
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
410
|
|
Issuance of common stock in exchange for consulting, professional and other services
|
|
|
—
|
|
|
|
—
|
|
|
|
1,787,041
|
|
|
|
1,787
|
|
|
|
2,540
|
|
|
|
—
|
|
|
|
—
|
|
|
|
5,000
|
|
|
|
9,327
|
|
Issuance of common stock options in lieu of cash for extinguishment of convertible notes with related party
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
269,934
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
269,934
|
|
Conversion of convertible debenture(s) and other indebtedness into common stock
|
|
|
—
|
|
|
|
—
|
|
|
|
501,802,789
|
|
|
|
501,803
|
|
|
|
(273,205
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
228,598
|
|
Recognition of beneficial conversion features related to convertible debentures
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
599,355
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
599,355
|
|
Stock based compensation
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
166,095
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
166,095
|
|
Change in foreign currency translation
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(14,852
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(14,852
|
)
|
Sale of Jupiter Gold common stock in connection with equity offerings
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
260,689
|
|
|
|
260,689
|
|
Issuance of common stock purchase warrants in connection with sales of Jupiter Gold common stock
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
361,062
|
|
|
|
—
|
|
|
|
—
|
|
|
|
35,749
|
|
|
|
396,811
|
|
Net loss
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(1,862,077
|
)
|
|
|
(223,804
|
)
|
|
|
(2,085,881
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2019
|
|
|
1
|
|
|
$
|
1
|
|
|
|
1,132,435,380
|
|
|
$
|
1,132,435
|
|
|
$
|
47,724,570
|
|
|
$
|
(580,957
|
)
|
|
$
|
(51,043,408
|
)
|
|
$
|
1,446,715
|
|
|
$
|
(1,320,644
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock in connection with sales made under private offerings
|
|
|
—
|
|
|
|
—
|
|
|
|
420,000,000
|
|
|
|
420,000
|
|
|
|
(100,000
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
320,000
|
|
Issuance of common stock in connection with the exercise of common stock options
|
|
|
—
|
|
|
|
—
|
|
|
|
161,636,427
|
|
|
|
161,636
|
|
|
|
(161,636
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Issuance of common stock in exchange for consulting, professional and other services
|
|
|
—
|
|
|
|
—
|
|
|
|
32,565,515
|
|
|
|
32,566
|
|
|
|
11,092
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
43,658
|
|
Issuance of common stock in connection with share exchange agreement with related party
|
|
|
—
|
|
|
|
—
|
|
|
|
53,947,368
|
|
|
|
53,947
|
|
|
|
22,979
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
76,926
|
|
Issuance of common stock to related parties in lieu of cash for loans payable and other accrued obligations
|
|
|
—
|
|
|
|
—
|
|
|
|
200,000
|
|
|
|
200
|
|
|
|
80
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
280
|
|
Conversion of convertible debenture(s) and other indebtedness into common stock
|
|
|
—
|
|
|
|
—
|
|
|
|
397,145,607
|
|
|
|
397,146
|
|
|
|
(232,326
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
164,820
|
|
Exchange of common stock for Jupiter Gold common stock
|
|
|
—
|
|
|
|
—
|
|
|
|
(200,000,000
|
)
|
|
|
(200,000
|
)
|
|
|
100,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
100,000
|
|
|
|
—
|
|
Stock based compensation
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
124,357
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
124,357
|
|
Change in foreign currency translation
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(194,156
|
)
|
|
|
—
|
|
|
|
59,242
|
|
|
|
(134,914
|
)
|
Sale of Jupiter Gold common stock in connection with equity offerings
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
525,000
|
|
|
|
525,000
|
|
Sale of Apollo Resources common stock in connection with equity offerings
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
250,300
|
|
|
|
250,300
|
|
Net loss
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(1,141,663
|
)
|
|
|
(404,372
|
)
|
|
|
(1,546,035
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2020
|
|
|
1
|
|
|
$
|
1
|
|
|
|
1,997,930,297
|
|
|
$
|
1,997,930
|
|
|
$
|
47,489,116
|
|
|
$
|
(775,113
|
)
|
|
$
|
(52,185,071
|
)
|
|
$
|
1,976,885
|
|
|
$
|
(1,496,252
|
)
|
The
accompanying notes are an integral part of these consolidated financial statements.
BRAZIL
MINERALS, INC.
|
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
FOR
THE YEARS ENDED DECEMBER 31, 2020 AND 2019
|
|
|
Year Ended
December 31,
|
|
|
Year Ended
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Cash flows from operating activities of continuing operations:
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(1,546,035
|
)
|
|
$
|
(2,085,881
|
)
|
Adjustments to reconcile net loss to cash used in operating activities:
|
|
|
|
|
|
|
|
|
Stock based compensation and services
|
|
|
168,015
|
|
|
|
175,422
|
|
Forgiveness of accrued interest payable on note payable
|
|
|
(238,151
|
)
|
|
|
—
|
|
Amortization of debt discounts
|
|
|
249,270
|
|
|
|
587,198
|
|
Convertible debt issued in satisfaction of other financing costs
|
|
|
22,314
|
|
|
|
18,981
|
|
Loss on share exchange agreement with related party
|
|
|
76,926
|
|
|
|
—
|
|
Loss on extinguishment of debt
|
|
|
—
|
|
|
|
67,694
|
|
Depreciation and amortization
|
|
|
47,765
|
|
|
|
63,457
|
|
Provision for excess or obsolete inventory
|
|
|
—
|
|
|
|
17,166
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(30,432
|
)
|
|
|
488
|
|
Deposits and advances
|
|
|
1,698
|
|
|
|
(1,285
|
)
|
Accounts payable and accrued expenses
|
|
|
84,776
|
|
|
|
140,555
|
|
Accrued salary due to officer
|
|
|
195,786
|
|
|
|
213,322
|
|
Other noncurrent liabilities
|
|
|
(28,713
|
)
|
|
|
11,811
|
|
Net cash provided by (used in) operating activities
|
|
|
(996,781
|
)
|
|
|
(791,072
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
Acquisition of capital assets
|
|
|
(1,902
|
)
|
|
|
(677
|
)
|
Increase in intangible assets
|
|
|
(11,741
|
)
|
|
|
—
|
|
Net cash provided by (used in) investing activities
|
|
|
(13,643
|
)
|
|
|
(677
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
Repayment of loans from officer
|
|
|
(16,931
|
)
|
|
|
(96,366
|
)
|
Net proceeds from sale of common stock
|
|
|
320,000
|
|
|
|
123,910
|
|
Proceeds from sale of subsidiary common stock to noncontrolling interests
|
|
|
775,300
|
|
|
|
657,500
|
|
Proceeds from convertible notes payable
|
|
|
—
|
|
|
|
276,000
|
|
Proceeds from loans payable
|
|
|
26,180
|
|
|
|
202,920
|
|
Repayment of loans payable
|
|
|
—
|
|
|
|
(222,112
|
)
|
Net cash provided by (used in) financing activities
|
|
|
1,104,549
|
|
|
|
941,852
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rates on cash and cash equivalents
|
|
|
8,385
|
|
|
|
(1,422
|
)
|
Net increase (decrease) in cash and cash equivalents
|
|
|
102,510
|
|
|
|
148,681
|
|
Cash and cash equivalents at beginning of period
|
|
|
151,088
|
|
|
|
2,407
|
|
Cash and cash equivalents at end of period
|
|
$
|
253,598
|
|
|
$
|
151,088
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
—
|
|
|
$
|
8,568
|
|
Cash paid for income taxes
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of non-cash investing and financing activities:
|
|
|
|
|
|
|
|
|
Related party convertible note payable exchanged for stock options
|
|
$
|
—
|
|
|
$
|
202,240
|
|
Shares issued in connection with conversion of debt and accrued interest
|
|
$
|
164,820
|
|
|
$
|
228,598
|
|
Shares issued in connection with relief of related party payable
|
|
$
|
280
|
|
|
$
|
—
|
|
Conversion of related party payables into convertible notes payable
|
|
$
|
—
|
|
|
$
|
323,355
|
|
Discount for beneficial conversion features on convertible notes
|
|
$
|
—
|
|
|
$
|
276,000
|
|
The
accompanying notes are an integral part of these consolidated financial statements.
BRAZIL
MINERALS, INC.
|
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
|
|
NOTE
1 – ORGANIZATION, BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
and Description of Business
Brazil
Minerals, Inc. (Brazil Minerals or the Company) was incorporated as Flux Technologies, Corp. under the
laws of the State of Nevada, U.S. on December 15, 2011. The Company changed its management and business on December 18, 2012,
to focus on mineral exploration. Brazil Minerals, through subsidiaries, owns mineral rights in Brazil for gold, diamonds, lithium,
rare earths, titanium, iron, nickel, and sand.
Basis
of Presentation
The
consolidated financial statements of the Company have been prepared in accordance with generally accepted accounting principles
(GAAP) of the United States of America and are expressed in United States dollars. For the years ended December 31,
2020 and 2019, the consolidated financial statements include the accounts of the Company; its 99.99% owned subsidiary, BMIX Participações
Ltda. (BMIXP), which includes the accounts of BMIXPs wholly-owned subsidiary, Mineração Duas Barras
Ltda. (MDB), and BMIXPs 50% owned subsidiary, RST Recursos Minerais Ltda. (RST); its 99.99% owned
subsidiary, Hercules Resources Corporation (HRC), which includes the accounts of HRCs wholly-owned subsidiary, Hercules
Brasil Comercio e Transportes Ltda. (Hercules Brasil); its 30.1% equity interest in Apollo Resources Corporation (Apollo
Resources) and its subsidiary Mineração Apollo, Ltda.; and its 10.6% equity interest in Jupiter Gold Corporation
(Jupiter Gold), which includes the accounts of Jupiter Golds wholly-owned subsidiary, Mineração Jupiter
Ltda. The Company has concluded that Apollo Resources, Jupiter Gold and their subsidiaries are variable interest entities (VIE)
in accordance with applicable accounting standards and guidance. As such, the accounts and results of Apollo Resources, Jupiter
Gold and their subsidiaries have been included in the Companys consolidated financial statements.
All
material intercompany accounts and transactions have been eliminated in consolidation.
Use
of Estimates
The
preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingencies at the date of the
financial statements and the reported amount of revenues and expenses during the reporting period. Actual results may differ
from those estimates.
Going
Concern
The
consolidated financial statements have been prepared on a going concern basis which contemplates the realization of assets and
the settlement of liabilities in the normal course of business. The Company has limited working capital, has incurred losses in
each of the past two years, and has not yet received material revenues from sales of products or services. These factors create
substantial doubt about the Companys ability to continue as a going concern. The consolidated financial statements do not include
any adjustment that might be necessary if the Company is unable to continue as a going concern.
BRAZIL
MINERALS, INC.
|
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
|
|
Fair
Value of Financial Instruments
The
Company follows the guidance of Accounting Standards Codification (ASC) Topic 820 – Fair Value Measurement and
Disclosure. Fair value is defined as the exit price, or the amount that would be received to sell an asset or paid to transfer
a liability in an orderly transaction between market participants as of the measurement date. The guidance also establishes a
hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable
inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs market participants would
use in valuing the asset or liability and are developed based on market data obtained from sources independent of our Company.
Unobservable inputs are inputs that reflect our Companys assumptions about the factors market participants would use in valuing
the asset or liability. The guidance establishes three levels of inputs that may be used to measure fair value:
Level 1.
Observable inputs such as quoted prices in active markets;
Level 2.
Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and
Level 3.
Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.
As
of December 31, 2020 and 2019, the Companys derivative liabilities were considered a level 2 liability. See Note 4 for a discussion
regarding the determination of the fair market value. The Company does not have any level 3 assets or liabilities.
The
Companys financial instruments consist of cash and cash equivalents, accounts receivable, taxes receivable, prepaid expenses,
deposits and other assets, accounts payable, accrued expenses and convertible notes payable. The carrying amount of these financial
instruments approximates fair value due to either length of maturity or interest rates that approximate prevailing market rates
unless otherwise disclosed in these consolidated financial statements.
Cash
and Cash Equivalents
The
Company considers all highly liquid instruments purchased with a maturity of three months or less to be cash equivalents to the
extent that the funds are not being held for investment purposes. The Companys bank accounts are deposited in FDIC insured institutions.
Funds held in U.S. banks are insured up to $250,000 and funds held in Brazilian banks are insured up to $250,000 Brazilian Reais
(translating into approximately $48,107 as of December 31, 2020).
Accounts
Receivable
Accounts
receivable are customer obligations due under normal trade terms which are recorded at net realizable value. The Company establishes
an allowance for doubtful accounts based on managements assessment of the collectability of trade receivables. A considerable
amount of judgment is required in assessing the amount of the allowance. The Company makes judgments about the creditworthiness
of each customer based on ongoing credit evaluations and monitors current economic trends that might impact the level of credit
losses in the future. If the financial condition of the customers were to deteriorate, resulting in their inability to make payments,
a specific allowance will be required.
Recovery
of bad debt amounts previously written off is recorded as a reduction of bad debt expense in the period the payment is collected.
If the Companys actual collection experience changes, revisions to its allowance may be required. After all attempts to
collect a receivable have failed, the receivable is written off against the allowance.
Inventory
Inventory
for the Company consists of ore stockpile, containing auriferous and diamondiferous gravel, which after processing in a recovery
plant yields diamonds and gold, and is stated at lower of cost or market. No value was placed on sand. The amount of any write-down
of inventories to net realizable value and all losses, are recognized in the period the write-down of loss occurs. At December
31, 2020 and 2019, inventory consisted primarily of rough ore stockpiled for further gold and diamonds recovery. During the years
ended December 31, 2020 and 2019, the Company recorded write-downs of $0 and $17,166, respectively, against the value of its inventory.
Taxes Receivable
The
Company records a receivable for value added taxes receivable from Brazilian authorities on goods and services
purchased by its Brazilian subsidiaries. The Company intends to recover the taxes through the acquisition of capital equipment
from sellers who accept tax credits as payments.
BRAZIL
MINERALS, INC.
|
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
|
|
Property
and Equipment
Property
and equipment are stated at cost, net of accumulated depreciation. Major improvements and betterments are capitalized. Maintenance
and repairs are expensed as incurred. Depreciation is computed using the straight-line method over the estimated useful life.
At the time of retirement or other disposition of property and equipment, the cost and accumulated depreciation are removed from
the accounts and any resulting gain or loss is reflected in the statements of operations as other gain or loss, net.
The
diamond and gold processing plant and other machinery are depreciated over an estimated useful life of ten years; vehicles are
depreciated over an estimated life of four years; and computer and other office equipment over an estimated useful life of three
years.
Mineral
Properties
Costs
of exploration, carrying and retaining unproven mineral lease properties are expensed as incurred. Mineral property acquisition
costs, including licenses and lease payments, are capitalized. Although the Company has taken steps to verify title to mineral
properties in which it has an interest, these procedures do not guarantee the Companys rights. Such properties may be subject
to prior agreements or transfers and title may be affected by undetected defects.
Impairment
losses are recorded on mineral properties used in operations when indicators of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are less than the assets carrying amount. As of December 31, 2020 and 2019, the
Company did not recognize any impairment losses related to mineral properties held.
Intangible
Assets
For
intangible assets purchased in a business combination, the estimated fair values of the assets received are used to establish
their recorded values. For intangible assets acquired in a non-monetary exchange, the estimated fair values of the assets transferred
(or the estimated fair values of the assets received, if more clearly evident) are used to establish their recorded values, unless
the values of neither the assets received nor the assets transferred are determinable within reasonable limits, in which case
the assets received are measured based on the carrying values of the assets transferred. Valuation techniques consistent with
the market approach, income approach and/or cost approach are used to measure fair value. Intangible assets consist of mineral
rights awarded by the Brazilian national mining department and held by the Companys subsidiaries.
Impairment of
Intangible Assets with Indefinite Useful Lives
The Company accounts
for intangible assets in accordance with Accounting Standards Codification (“ASC”) 350, Intangibles – Goodwill
and Other (“ASC 350”). ASC 350 requires that intangible assets with indefinite useful lives no longer be amortized,
but instead be evaluated for impairment at least annually. On an annual basis, in the fourth quarter of the fiscal year, management
reviews intangible assets with indefinite useful lives for impairment by first assessing qualitative factors to determine whether
the existence of events or circumstances makes it more-likely-than-not that the fair value of an intangible asset is less than
its carrying amount. If it is determined that it is more-likely-than-not that the fair value of an intangible asset is less than
its carrying amount, the intangible asset is further tested for impairment by comparing the carrying amount to its estimated fair
value using a discounted cash flow. Impairment, if any, is measured as the amount by which an indefinite-lived intangible asset’s
carrying amount exceeds its fair value.
Application of impairment
tests requires significant management judgment, including the determination of fair value of each indefinite-lived intangible
asset. Judgment applied when performing the qualitative analysis includes consideration of macroeconomic, industry and market
conditions, overall financial performance of the entity, composition, or strategy changes affecting the recoverability of asset
groups. Judgments applied when performing the quantitative analysis includes estimating future cash flows, determining appropriate
discount rates and making other assumptions. Changes in these judgments, estimates and assumptions could materially affect the
determination of fair value for each indefinite-lived intangible asset.
Impairment
of Long-Lived Assets
For
long-lived assets, such as property and equipment and intangible assets subject to amortization, the Company continually monitors
events and changes in circumstances that could indicate carrying amounts of long-lived assets may not be recoverable. When such
events or changes in circumstances are present, the Company assesses the recoverability of long-lived assets by determining whether
the carrying value of such assets will be recovered through undiscounted expected future cash flows. If the total of the future
cash flows is less than the carrying amount of those assets, the Company recognizes an impairment loss based on the excess of
the carrying amount over the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount
or the fair value less costs to sell.
Convertible
Instruments
The
Company evaluates and account for conversion options embedded in convertible instruments in accordance with ASC 470-20, Debt
with Conversion and Other Options.
Applicable
GAAP requires companies to bifurcate conversion options from their host instruments and account for them as free-standing derivative
financial instruments according to certain criteria. The criteria include circumstances in which (a) the economic characteristics
and risks of the embedded derivative instrument are not clearly and closely related to the economic characteristics and risks
of the host contract, (b) the hybrid instrument that embodies both the embedded derivative instrument and the host contract is
not re-measured at fair value under other GAAP with changes in fair value reported in earnings as they occur and (c) a separate
instrument with the same terms as the embedded derivative instrument would be considered a derivative instrument.
BRAZIL
MINERALS, INC.
|
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
|
|
The
Company accounts for convertible instruments (when it has been determined that the embedded conversion options should not be bifurcated
from their host instruments) by recording, when necessary, discounts to convertible notes for the intrinsic value of conversion
options embedded in debt instruments based upon the differences between the fair value of the underlying common stock at the commitment
date of the note transaction and the effective conversion price embedded in the note. Debt discounts under these arrangements
are amortized over the term of the related debt to their stated date of redemption.
Variable
Interest Entities
The
Company determines at the inception of each arrangement whether an entity in which the Company holds an investment or in which
the Company has other variable interests in is considered a variable interest entity. The Company consolidates VIEs when it is
the primary beneficiary. The primary beneficiary of a VIE is the party that meets both of the following criteria: (1) has the
power to make decisions that most significantly affect the economic performance of the VIE; and (2) has the obligation to absorb
losses or the right to receive benefits that in either case could potentially be significant to the VIE. Periodically, the Company
assesses whether any changes in the interest or relationship with the entity affect the determination of whether the entity is
still a VIE and, if so, whether the Company is the primary beneficiary. If the Company is not the primary beneficiary in a VIE,
the Company accounts for the investment under the equity method or cost method in accordance with the applicable GAAP.
The
Company has concluded that Apollo Resources, Jupiter Gold and their subsidiaries
are VIEs in accordance with applicable accounting standards and guidance; and although the operations of Apollo Resources and
Jupiter Gold are independent of the Company, through governance rights, the Company has the power to direct the activities that
are most significant to Apollo Resources and Jupiter Gold. Therefore, the Company concluded that it is the primary beneficiary
of both Apollo Resources and Jupiter Gold.
Revenue
Recognition
The
Company recognizes revenue under ASC Topic 606, Revenue from Contracts with Customers (ASC 606). The core principle
of the new revenue standard is that a company should recognize revenue to depict the transfer of promised goods or services to
customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods
or services. The following five steps are applied to achieve that core principle:
|
●
|
Step
1: Identify the contract with the customer
|
|
●
|
Step
2: Identify the performance obligations in the contract
|
|
●
|
Step
3: Determine the transaction price
|
|
●
|
Step
4: Allocate the transaction price to the performance obligations in the contract
|
|
●
|
Step
5: Recognize revenue when the company satisfies a performance obligation
|
In
order to identify the performance obligations in a contract with a customer, a company must assess the promised goods or services
in the contract and identify each promised good or service that is distinct. A performance obligation meets ASC 606s definition
of a distinct good or service (or bundle of goods or services) if both of the following criteria are met:
|
●
|
The
customer can benefit from the good or service either on its own or together with other resources that are readily available to
the customer
|
|
●
|
The
entitys promise to transfer the good or service to the customer is separately identifiable from other promises in the contract
(i.e.,
|
If
a good or service is not distinct, the good or service is combined with other promised goods or services until a bundle of goods
or services is identified that is distinct.
BRAZIL
MINERALS, INC.
|
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
|
|
The
transaction price is the amount of consideration to which an entity expects to be entitled in exchange for transferring promised
goods or services to a customer. The consideration promised in a contract with a customer may include fixed amounts, variable
amounts, or both. When determining the transaction price, an entity must consider the effects of all of the following:
|
●
|
Constraining
estimates of variable consideration
|
|
●
|
The
existence of a significant financing component in the contract
|
|
●
|
Consideration
payable to a customer
|
Variable
consideration is included in the transaction price only to the extent that it is probable that a significant reversal in the amount
of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently
resolved.
The
transaction price is allocated to each performance obligation on a relative standalone selling price basis.
The
transaction price allocated to each performance obligation is recognized when that performance obligation is satisfied, at a point
in time or over time as appropriate.
Costs
of Goods Sold
Included
within costs of goods sold are the costs of cutting and polishing rough diamonds and costs of production such as diesel fuel,
labor, and transportation.
Stock-Based
Compensation
The
Company records stock-based compensation in accordance with ASC Topic 718, Compensation - Stock Compensation. ASC 718 requires
companies to measure compensation cost for stock-based employee compensation at fair value at the grant date and recognize the
expense over the employees requisite service period. Under ASC 718, volatility is based on the historical volatility of our stock
or the expected volatility of the stock of similar companies. The expected life assumption is primarily based on historical exercise
patterns and employee post-vesting termination behavior. The risk-free interest rate for the expected term of the option is based
on the U.S. Treasury yield curve in effect at the time of grant.
The
Company utilizes the Black-Scholes option-pricing model, which was developed for use in estimating the fair value of options.
Option-pricing models require the input of highly complex and subjective variables including the expected life of options granted
and the expected volatility of our stock price over a period equal to or greater than the expected life of the options. Because
changes in the subjective assumptions can materially affect the estimated value of our employee stock options, it is managements
opinion that the Black-Scholes option-pricing model may not provide an accurate measure of the fair value of our employee stock
options. Although the fair value of employee stock options is determined in accordance with ASC Topic 718 using an option-pricing
model, that value may not be indicative of the fair value observed in a willing buyer/willing seller market transaction.
On
June 20, 2018, the FASB issued ASU 2018-07 which simplifies the accounting for share-based payments granted to nonemployees for
goods and services. Under the ASU, most of the guidance on such payments to nonemployees would be aligned with the requirements
for share-based payments granted to employees. Equity classified share-based payments for employees was fixed at the time of grant.
Equity-classified nonemployee share-based payment awards are measured at the grant date of the award which is the same as share-based
payments for employees. The Company adopted the requirements of the new rule as of January 1, 2019, the effective date of the
new guidance.
BRAZIL
MINERALS, INC.
|
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
|
|
Foreign
Currency
The
Companys foreign subsidiaries use a local currency as the functional currency. Resulting translation gains or losses are recognized
as a component of accumulated other comprehensive income. Transaction gains or losses related to balances denominated in a currency
other than the functional currency are recognized in the consolidated statements of operations. Net foreign currency transaction
losses included in the Companys consolidated statements of operations were negligible for all periods presented.
Income
Taxes
The
Company accounts for income taxes in accordance with ASC Topic 740, Income Taxes. ASC 740 requires a company to use the asset
and liability method of accounting for income taxes, whereby deferred tax assets are recognized for deductible temporary differences,
and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between
the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when,
in the opinion of management, it is more likely than not that some portion, or all of, the deferred tax assets will not be realized.
Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment. As
of December 31, 2020 and 2019, the Companys deferred tax assets had a full valuation allowance.
Under
ASC 740, a tax position is recognized as a benefit only if it is more likely than not that the tax position would
be sustained in a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit that is
greater than 50% likely of being realized on examination. For tax positions not meeting the more likely than not test,
no tax benefit is recorded. The Company has identified the United States Federal tax
returns as its major tax jurisdiction.
On
December 22, 2017, the United States enacted the Tax Cuts and Jobs Act (TCJA), which instituted fundamental changes
to the taxation of multinational corporations, including a reduction the U.S. corporate income tax rate to 21% beginning in 2018.
The
TCJA also requires a one-time transition tax on the mandatory deemed repatriation of the cumulative earnings of certain of the
Companys foreign subsidiaries as of December 31, 2017. To determine the amount of this transition tax, the Company must determine
the amount of earnings generated since inception by the relevant foreign subsidiaries, as well as the amount of non-U.S. income
taxes paid on such earnings, in addition to potentially other factors. The Company believes that no such tax will be due since
its Brazilian subsidiaries have, when required, paid taxes locally and that they have incurred a cumulative operating deficit
since inception.
Basic
Income (Loss) Per Share
The
Company computes loss per share in accordance with ASC Topic 260, Earnings per Share, which requires presentation of both basic
and diluted earnings per share on the face of the statement of operations. Basic loss per share is computed by dividing net loss
available to common shareholders by the weighted average number of outstanding common shares during the period. Diluted loss per
share gives effect to all dilutive potential common shares outstanding during the period. As of December 31, 2020, the Companys
potentially dilutive securities relate to common stock issuable in connection with convertible notes payable, options and warrants.
As of December 31, 2020, if all holders of preferred stock, convertible notes payable, options and warrants exercised their right
to convert their securities to common stock, the common stock issuable would be in excess of the Companys authorized, but unissued
shares of common stock.
Other
Comprehensive Income
Other
comprehensive income is defined as the change in equity of a business enterprise during a period from transactions and other events
and circumstances from non-owner sources, other than net income and including foreign currency translation adjustments.
Reclassifications
Certain prior year amounts have been reclassified
to conform to the current period presentation. These reclassifications had no impact on net earnings (loss) or and financial position.
BRAZIL
MINERALS, INC.
|
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
|
|
Recent
Accounting Pronouncements
The
Company has implemented all new accounting pronouncements that are in effect and that may impact its financial statements and
does not believe that there are any other new pronouncements that have been issued that might have a material impact on its financial
position or results of operations except as noted below:
In
August 2020, the FASB issued ASU No. 2020-06, Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives
and Hedging - Contracts in Entitys Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in
an Entitys Own Equity. ASU 2020-06 will simplify the accounting for convertible instruments by reducing the number
of accounting models for convertible debt instruments and convertible preferred stock. Limiting the accounting models will result
in fewer embedded conversion features being separately recognized from the host contract as compared with current GAAP. Convertible
instruments that continue to be subject to separation models are (1) those with embedded conversion features that are not clearly
and closely related to the host contract, that meet the definition of a derivative, and that do not qualify for a scope exception
from derivative accounting and (2) convertible debt instruments issued with substantial premiums for which the premiums are recorded
as paid-in capital. ASU 2020-06 also amends the guidance for the derivatives scope exception for contracts in an entitys
own equity to reduce form-over-substance-based accounting conclusions. ASU 2020-06 will be effective January 1, 2024, for the
Company. Early adoption is permitted, but no earlier than January 1, 2021, including interim periods within that year. The Company
is evaluating the effect of the adoption of ASU 2020-06 on the consolidated financial statements, but currently does not believe
ASU 2020-06 will have a significant impact on the Companys accounting for its convertible debt instruments. The effect
will largely depend on the composition and terms of the financial instruments at the time of adoption.
In
February 2020, the FASB issued ASU 2020-02, Financial Instruments-Credit Losses (Topic 326) and Leases (Topic 842) - Amendments
to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 119 and Update to SEC Section on Effective Date Related to Accounting
Standards Update No. 2016-02, Leases (Topic 842), which amends the effective date of the original pronouncement for smaller
reporting companies. ASU 2016-13 and its amendments will be effective for the Company for interim and annual periods in fiscal
years beginning after December 15, 2022. The Company believes the adoption will modify the way the Company analyzes financial
instruments, but it does not anticipate a material impact on results of operations. The Company is in the process of determining
the effects adoption will have on its consolidated financial statements.
NOTE
2 – COMPOSITION OF CERTAIN FINANCIAL STATEMENT ITEMS
Property
and Equipment, Net
The
following table sets forth the components of the Companys property and equipment at December 31, 2020 and December 31, 2019:
|
|
December 31, 2020
|
|
|
December 31, 2019
|
|
|
|
Cost
|
|
|
Accumulated
Depreciation
|
|
|
Net Book
Value
|
|
|
Cost
|
|
|
Accumulated
Depreciation
|
|
|
Net Book
Value
|
|
Capital assets subject to depreciation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Computers and office equipment
|
|
$
|
3,880
|
|
|
$
|
(573
|
)
|
|
$
|
3,307
|
|
|
$
|
2,144
|
|
|
$
|
(739
|
)
|
|
$
|
1,405
|
|
Machinery and equipment
|
|
|
348,376
|
|
|
|
(271,107
|
)
|
|
|
77,269
|
|
|
|
435,659
|
|
|
|
(298,845
|
)
|
|
|
136,814
|
|
Vehicles
|
|
|
127,416
|
|
|
|
(118,716
|
)
|
|
|
8,700
|
|
|
|
164,275
|
|
|
|
(129,692
|
)
|
|
|
34,583
|
|
Total fixed assets
|
|
$
|
479,672
|
|
|
$
|
(390,396
|
)
|
|
$
|
89,276
|
|
|
$
|
602,078
|
|
|
$
|
(429,276
|
)
|
|
$
|
172,802
|
|
For
the years ended December 31, 2020 and 2019, the Company recorded depreciation expense of $47,765 and $63,457, respectively.
Intangible
Assets
Intangible
assets consist of mining rights are not amortized as the mining rights are perpetual. The carrying value was $407,467
and $509,862 at December 31, 2020 and 2019, respectively.
BRAZIL
MINERALS, INC.
|
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
|
|
Equity
Investments without Readily Determinable Fair Values
On
October 2, 2017, the Company entered into an exchange agreement whereby it issued 25,000,000
shares of its common stock in exchange for 500,000 shares of Ares Resources Corporation. The Company’s chief executive officer
also serves as an officer of Ares Resources Corporation, thus making it a related party under common ownership and control. The
shares were recorded at $150,000, or $0.006 per share. The shares were valued based upon the lowest market price of the Company’s
common stock on the date the agreement.
On
March 11, 2020, the Company issued 53,947,368 shares of common stock to Lancaster Brazil Fund pursuant to an addendum to the share
exchange agreement dated September 28, 2018. The Company recorded a loss on exchange of equity with a related party of $76,926
representing the fair value of the additional shares of common stock issued.
Under
ASC 321-10, the Company elected to use a measurement alternative for its equity investment that does not have a readily determinable
fair value. As such, the Company measured its investment at cost, less any impairment, plus or minus any changes resulting from
observable price changes in orderly transactions for an identical or similar investment of the same issuer. The Company owns less
than 5% of the total shares outstanding of Ares Resources Corporation.
Accounts
Payable and Accrued Liabilities
|
|
December 31, 2020
|
|
|
December 31, 2019
|
|
Accounts payable and other accruals
|
|
$
|
327,704
|
|
|
$
|
153,693
|
|
Accrued interest
|
|
|
324,415
|
|
|
|
496,448
|
|
Total
|
|
$
|
652,119
|
|
|
$
|
650,141
|
|
NOTE
3 – CONVERTIBLE PROMISSORY NOTES PAYABLE
The
following tables set forth the components of the Companys convertible debentures as of December 31, 2020 and December 31,
2019:
|
|
December 31, 2020
|
|
|
December 31, 2019
|
|
Convertible notes payable – fixed conversion price
|
|
$
|
244,000
|
|
|
|
244,000
|
|
Convertible notes payable – variable conversion price
|
|
|
628,720
|
|
|
|
733,614
|
|
Less: loan discounts
|
|
|
(—
|
)
|
|
|
(153,000
|
)
|
Total convertible notes, net
|
|
$
|
872,720
|
|
|
$
|
824,614
|
|
The
following table sets forth a summary of change in our convertible notes payable for the years ended December 31, 2020 and 2019:
|
|
December 31, 2020
|
|
|
December 31, 2019
|
|
Beginning balance
|
|
$
|
824,614
|
|
|
|
866,624
|
|
Amortization of debt discounts associated with convertible debt
|
|
|
153,000
|
|
|
|
137,300
|
|
Conversion of convertible note principal into common stock
|
|
|
(127,208
|
)
|
|
|
(198,291
|
)
|
Increase in principal amounts outstanding due to lender adjustments per terms of the note agreements
|
|
|
22,314
|
|
|
|
18,981
|
|
Issuance of convertible notes payable
|
|
|
—
|
|
|
|
282,000
|
|
Loan discounts recorded related to issuance of convertible notes payable
|
|
|
(—
|
)
|
|
|
(282,000
|
)
|
Total convertible notes, net
|
|
$
|
872,720
|
|
|
$
|
824,614
|
|
BRAZIL
MINERALS, INC.
|
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
|
|
Convertible
Notes Payable - Fixed Conversion Price
On
January 7, 2014, the Company issued to a family trust a senior secured convertible promissory note in the principal amount, and
received gross proceeds, of $244,000 and warrants to purchase an aggregate of 488,000 shares of the Companys common stock at
an exercise price of $62.50 per share through December 26, 2018. The Company received gross proceeds of $244,000 for the sale
of such securities. The outstanding principal of the note bears interest at the rate of 12% per annum. The note is convertible
at the option of the holder into common stock of the Company at a conversion rate of one share for each $50.00 of principal and
interest converted. As of December 31, 2020, all warrants issued in connection with this note had expired.
The
outstanding principal on the note was payable on March 31, 2015, which as of the date of these financial statements is past due
and in technical default. The Company is in negotiations with the note holder to satisfy, amend the terms or otherwise resolve
the obligation in default. No demand for payment has been made. In December 2020, the lender agreed to reduce the interest rate
from the default rate of 30% to the stated rate of 10% retroactively. As a result, the Company recorded gain of $238,151 from
the relief of interest expense to other income. Interest was payable on September 30, 2014 and on the maturity date. As of December
31, 2020, the Company has accrued interest payable totaling $170,258 in connection with this note.
Convertible
Notes Payable - Variable Conversion Price
At
various times to fund operations, the Company issues convertible notes payable in which the conversion features are variable.
In addition, some of these convertible notes payable have on issuance discounts and other fees withheld.
During
the year ended December 31, 2016, the Company issued to one noteholder, in various transactions, $242,144 in convertible promissory
notes with fixed floors and received an aggregate of $232,344 in proceeds. The convertible promissory notes each bear interest
at 8.0% per annum and mature one year from issuance ranging from July to December 2017. After six months from issuance, each convertible
promissory note is convertible at the option of the holder at a 50% discount to the lowest traded price of the Company’s
common stock over the previous 20 days. In addition, each note’s conversion rate has a floor of $0.0001. Total debt discounts
related to the beneficial conversion features of $241,852 were recorded and are being amortized over the life of the notes. During
the year ended December 31, 2020, the Company issued 238,500,335 shares of its common stock upon the conversion of $75,783 and $23,519,
respectively, in note principal and accrued interest. As of December 31, 2020, the outstanding principal balance on these notes
total $115,500, and all discounts were fully amortized.
During the year ended December 31, 2017, the
Company issued to one noteholder in various transactions $477,609 in convertible promissory notes with fixed floors and received
an aggregate of $454,584 in proceeds. The convertible promissory notes each bear interest at 8.0% per annum and mature one year
from issuance ranging from January to August 2018. After six months from issuance, each convertible promissory note is convertible
at the option of the holder at a 50% discount to the lowest traded price of the Company’s common stock over the previous
20 days. In addition, each note’s conversion rate has a floor of $0.0001. Total debt discounts related to the beneficial
conversion features of $447,272 were recorded and are being amortized over the life of the notes. During the year ended December
31, 2020, the Company issued 158,645,272 shares of its common stock upon the conversion of $51,425 and $ 14,097,
respectively, in note principal and accrued interest. As of December 31, 2020, the outstanding principal balance on these notes
total $102,000, and all discounts were fully amortized.
During
the year ended December 31, 2018, the Company issued to one noteholder in various transactions $137,306 in convertible promissory
notes with fixed floors and received an aggregate of $130,556 in proceeds. The convertible promissory notes each bear interest
at 8.0% per annum and mature one year from issuance ranging from August 2018 to April 2019. After six months from issuance, each
convertible promissory note is convertible at the option of the holder at a 50% discount to the lowest traded price of the Companys
common stock over the previous 20 days. In addition, each notes conversion rate has a floor of $0.0001. Total debt discounts
related to the beneficial conversion features of $122,755 were recorded and are being amortized over the life of the notes. As
of December 31, 2020, the outstanding principal balance on these notes total $129,220, and all discounts were fully amortized.
During
the year ended December 31, 2020, the Company issued to one noteholder in various transactions $282,000 in convertible promissory
notes with fixed floors and received an aggregate of $276,000 in proceeds. The convertible promissory notes each bear interest
at 8.0% per annum and mature one year from issuance in July 2020. After six months from issuance, each convertible promissory
note is convertible at the option of the holder at a 50% discount to the lowest traded price of the Companys common stock over
the previous 20 days. In addition, each notes conversion rate has a floor of $0.0001. Total debt discounts related to the beneficial
conversion features of $276,000 and $6,000 for issuance costs were recorded and are being amortized over the life of the notes.
As of December 31, 2020, the outstanding principal balance on these notes total $282,000, and all discounts were fully amortized.
BRAZIL
MINERALS, INC.
|
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
|
|
While
many of these convertible notes are past their original maturity dates, the Company continues to maintain a favorable relationship
and work with the lender with regard to financing its working capital needs.
As
of December 31, 2020, the Company has accrued interest payable totaling $128,904 in connection with these variable convertible
notes.
During
the years ended December 31, 2020 and 2019, $153,000 and $137,300 of the discounts were amortized to interest expense, respectively.
During
the years ended December 31, 2020 and 2019, the Company issued 397,145,607 and 501,802,789 shares of common stock upon conversion
of $164,815 and $228,598, respectively, in notes payable and accrued interest.
Future
Potential Dilution
Most
of the Companys convertible notes payable contain adjustable conversion terms with significant discounts to market. As of December
31, 2020, the Companys convertible notes are convertible into an aggregate of approximately 1,499,154,286 shares of common stock.
Due to the variable conversion prices on some of the Companys convertible notes, the number of common shares issuable is dependent
upon the traded price of the Companys common stock.
NOTE
4 – LOANS PAYABLE
During
the years ended December 31, 2020 and 2019, the Company received bridge loan proceeds aggregating $26,180 and $202,920, respectively,
from one lender in various transactions. The loans payable bear interest at 8.0% per annum. The loans are payable upon demand.
On
July 8, 2019, the Company repaid $222,112 of bridge loan principal and $17,888 of accrued interest.
As
of December 31, 2020 and 2019, the principal balance outstanding on the loans payable totaled
$235,308 and $209,128, respectively, and the Company accrued interest payable totaling $25,253 and $7,007, respectively, in connection
with the loans payable.
NOTE
5 – OTHER NONCURRENT LIABILITIES
Other
noncurrent liabilities are comprised solely of social contributions and other employee-related costs at our operating subsidiaries
located in Brazil. The Company has been funding these amounts upon the termination of a worker or employee. The balance of these
employee related costs as of December 31, 2020 and December 31, 2019 amounted to $121,250 and $192,729, respectively.
NOTE
6 – STOCKHOLDERS DEFICIT
Authorized
and Amendments
As
of December 31, 2020, the Company had 2,000,000,000 common shares authorized with a par value of $0.001 per share. On January
11, 2021, the Company amended its charter filed with the Secretary of State of Nevada to increase the number of authorized common
shares to 2,500,000,000 with a par value of $0.001 per share.
Series
A Preferred Stock
On
December 18, 2012, the Company filed with the Nevada Secretary of State a Certificate of Designations, Preferences and Rights
of Series A Convertible Preferred Stock (Series A Stock) to designate one share of a new series of preferred stock.
The Certificate of Designations, Preferences and Rights of Series A Convertible Preferred Stock provides that for so long as Series
A Stock is issued and outstanding, the holders of Series A Stock shall vote together as a single class with the holders of the
Companys Common Stock, with the holders of Series A Stock being entitled to 51% of the total votes on all such matters regardless
of the actual number of shares of Series A Stock then outstanding, and the holders of Common Stock are entitled to their proportional
share of the remaining 49% of the total votes based on their respective voting power.
BRAZIL
MINERALS, INC.
|
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
|
|
Year
Ended December 31, 2020 Transactions
During
the year ended December 31, 2020, the Company received $320,000 in gross proceeds from the sale of 415,000,000 shares of its common
stock to accredited investors. Additionally, the Company issued 5,000,000 shares of common stock to an accredited investor pursuant
to a subscription agreement dated April 18, 2018 for which the funds were received in a prior period.
During
the year ended December 31, 2020, the Company issued 32,565,515 shares of common stock valued at $43,658 to non-employees for
services rendered. Additionally, the Company issued 397,145,607 shares of common stock upon conversion of $164,820 in convertible
notes payable and accrued interest.
During
the year ended December 31, 2020, the Company exchanged 200,000,000 shares of common stock returned by an accredited investor
for 150,000 shares of Jupiter Golds common stock held as an investment by the Company. The Company used the quoted fair
value of each entitys common stock on the dates of exchange to determine the exchange ratio.
See Note
8 – Related Party Transactions for additional disclosures of common stock issuances.
Year
Ended December 31, 2019 Transactions
During
the year ended December 31, 2019, the Company received $652,500 in gross proceeds from the sale of units consisting of common
stock of its subsidiary, Jupiter Gold, and warrants to purchase the Companys common stock to accredited investors. In aggregate,
the securities the Company sold were 846,828 shares of Jupiter Gold and two-year warrants to purchase a total of 241,000,000 shares
of Brazil Minerals at prices ranging from $0.0012 to $0.004 per share.
During
the year ended December 31, 2019, the Company received $5,000 in gross proceeds from the sale of 10,000 shares of Jupiter Gold
common stock to an accredited investor.
During
the year ended December 31, 2019, the Company received $123,500 in gross proceeds from the sale of 235,584,906 shares of our common
stock to accredited investors.
During
the year ended December 31, 2019, the Company issued 501,802,789 shares of common stock upon conversion of $228,598 in convertible
notes payable and accrued interest.
During
the year ended December 31, 2019, the Company issued 1,787,041 shares of common stock valued at $4,327 in exchange for consulting,
professional and other services. Additionally, the Company issued 5,492 shares of Jupiter Gold common stock valued at $5,000 in
exchange for consulting, professional and other services.
Common
Stock Options
During
the year ended December 31, 2020, the Company granted options to purchase an aggregate of 43,915,500 shares of common stock to
non-management directors. The options were valued at $50,000 in total. The options were valued using the Black-Scholes option
pricing model with the following average assumptions: our stock price on the date of the grant which ranged between $0.0009 and
$0.0014, expected dividend yield of 0.0%, historical volatility calculated between 135.35% and 221.07%, risk-free interest rate
between 0.28% and 0.38%, and an expected term of 5 years.
During
the year ended December 31, 2019, the Company granted options to purchase an aggregate of 37,285,500 shares of common stock to
non-management directors. The options were valued at $50,000 in total. The options were valued using the Black-Scholes option
pricing model with the following average assumptions: our stock price on the date of the grant which ($0.0009 to $0.0037), expected
dividend yield of 0%, historical volatility calculated between a range of 199.2% to 223.2%, risk-free interest rate between a
range of 1.55% to 2.31%, and an expected term of 5 years.
As of December 31,
2020, the Company had 119,917,140 common stock options outstanding with a weighted average life of 3.6 years at an average exercise
price of $0.0025.
See Note 8
– Related Party Transactions for additional common stock option disclosures.
BRAZIL
MINERALS, INC.
|
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
|
|
NOTE
7 – COMMITMENTS AND CONTINGENCIES
Operating
Leases
The
Company leases office space as its principal executive offices in Pasadena,
California for approximately $5,750 on a month-to-month basis. The Company also leases
office space in the municipality of Olhos D’Agua, Brazil. Such costs are immaterial to the consolidated financial statements.
NOTE
8 - RELATED PARTY TRANSACTIONS
Chief
Executive Officer
The
following tables set forth the components of the Companys related party payables as of December 31, 2020 and December 31,
2019:
|
|
December 31, 2020
|
|
|
December 31, 2019
|
|
Convertible notes payable to related party
|
|
$
|
566,743
|
|
|
$
|
566,743
|
|
Less: loan discounts
|
|
|
(—
|
)
|
|
|
(96,270
|
)
|
Total convertible notes payable to related party, net
|
|
$
|
566,743
|
|
|
$
|
470,473
|
|
|
|
|
|
|
|
|
|
|
Total related party payables
|
|
$
|
566,743
|
|
|
$
|
470,473
|
|
Effective
June 30, 2018, the Company issued a convertible promissory note in the principal amount of $445,628 to its Chief Executive Officer
against a portion of these unpaid compensatory balances. The note bears no interest and is payable on demand. The note is convertible
at the option of the holder at the lower of (i) the average of the five lowest bid prices of the Companys common stock over the
previous 20 trading days or (ii) the lowest price per share at which the Company sold its common stock in a transaction with a
person who is not a manager, officer, or director of the Company during the period from the date hereof until the giving of notice
of the election to convert or the lowest price per share at which a noteholder who is not a manager, officer, or director of the
Company converted any debt of the Company into shares of the Company during the period from the date hereof until the giving of
notice of the election to convert. The notes conversion rate has a floor of $0.0001. Total debt discounts related to the beneficial
conversion features of $445,628 were recorded and are being amortized over a one-year period consistent with the maturity dates
of convertible notes issued to third party holders. As of December 31, 2020, all discounts were fully amortized.
On
April 7, 2019, the Companys board of directors approved the issuance of a convertible note in the principal amount of $261,631
to its Chief Executive Officer against a portion of these unpaid compensatory balances. The note bears interest at an annual rate
of 6.0% and is payable on demand. The note is convertible at the option of the holder at the lower of (i) $0.00045 or (ii) the
lowest price per share at which a noteholder who is not a manager, officer, or director of the Company converted any debt of the
Company into common stock of the Company during the period from the date hereof until the giving of notice of the election to
convert. Total debt discounts related to the beneficial conversion features of $261,631 were recorded and are being amortized
over a one-year period consistent with the maturity dates of convertible notes issued to third party holders. As of December 31,
2020, all discounts were fully amortized.
On
April 7, 2019, the Companys board of directors approved the exchange, initiated by a formal notice of conversion dated
February 19, 2019, of $202,240 of convertible note principal due to its Chief Executive Officer for five-year stock options to
purchase 224,711,111 shares of Brazil Minerals at an exercise price of $0.00001 and 505,600 shares of common stock of Jupiter
Gold at an exercise price of $0.001. Per the terms of the convertible note agreement, the conversion notification permitted the
holder, at his election, to receive either an issuance of 224,711,111 shares of Brazil Minerals and 505,600 shares of Jupiter
Gold, or an issuance of stock options to purchase the same numbers of shares at a nominal exercise price. The options were valued
at $270,255 in total. The options were valued using the Black-Scholes option pricing model with the following average assumptions:
our stock price on date of grant of $0.0012, expected dividend yield of 0%, historical volatility ranging from 230.1% to 1,271.2%,
risk-free interest rate of 2.50%, and an expected term of 5.00 years. In connection with the exchange, the Company recorded a
loss on the extinguishment of debt totaling $68,015.
BRAZIL
MINERALS, INC.
|
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
|
|
On
June 30, 2019, the Companys board of directors approved the issuance of a convertible note in the principal amount of $61,724
to its Chief Executive Officer against a portion of these unpaid compensatory balances. The note bears interest at an annual rate
of 6.0% and is payable on demand. The note is convertible at the option of the holder at the lower of (i) $0.0003 or (ii) the
lowest price per share at which a noteholder who is not a manager, officer, or director of the Company converted any debt of the
Company into common stock of the Company during the period from the date hereof until the giving of notice of the election to
convert. Total debt discounts related to the beneficial conversion features of $61,724 were recorded and are being amortized over
a one-year period consistent with the maturity dates of convertible notes issued to third party holders. As of December 31, 2020,
there were unamortized debt discounts of $30,862 related to this note.
On
March 11, 2020, the Company issued 200,000 shares of its common stock with a fair value of $280, or $0.0014 per share, to its
Chief Executive Officer in lieu of cash for loans payable and other accrued obligations.
On December 3, 2020, the Company issued 161,636,427
shares of common stock to its Chief Executive Officer in connection with the exercise stock options acquired on February 19, 2019
as described above.
Jupiter
Gold Corporation
During
the year ended December 31, 2019, Jupiter Gold granted options to purchase an aggregate of 360,000 shares of its common stock
to Marc Fogassa at a price of $1.00 per share. The options were valued at $116,095 and recorded to stock-based compensation. The
options were valued using the Black-Scholes option pricing model with the following average assumptions: the Companys stock
price on the date of the grant ($0.275 to $1.125), expected dividend yield of 0%, historical volatility calculated between a range
of 63.1%, risk-free interest rate between a range of 1.39% to 2.56%, and an expected term of 5 years.
On
February 12, 2020, the Company sold 900,000 shares of Jupiter Gold common stock that it held as an investment, 180,500 warrants
to purchase up to 180,500 shares of Jupiter Gold common stock at $0.60 per share, and 50,000,000 warrants to purchase up to 50,000,000
shares of Brazil Minerals common stock at $0.0015 per share for gross proceeds of $250,000 to an accredited investor.
On
February 14, 2020, the Company loaned $225,000 to Jupiter Gold in the form of a convertible promissory note. The note
bears interest at 6.0% per annum and matures on December 31, 2023. As an inducement to enter into the transaction, the Company
received 67,000 warrants to purchase up to 67,000 shares of Jupiter Gold common stock at a price of $0.60 per share. At any time
after issuance, the note is convertible at the option of the holder at a rate of one share of Jupiter Gold common stock for each
$0.60 of loan principal. The impact of transaction on the Company’s accounts was eliminated in consolidation. On February
15, 2020, the Company converted the promissory note in return for 375,000 shares of Jupiter Gold common stock.
During the year ended December 31, 2020, Jupiter
Gold granted options to purchase an aggregate of 375,000 shares of its common stock to Marc Fogassa at prices ranging between $0.01
to $1.04 per share. The options were valued at $74,357 and recorded to stock-based compensation. The options were valued using
the Black-Scholes option pricing model with the following average assumptions: the Company’s stock price on the date of the
grant ($0.30 to $0.53), expected dividend yield of 0%, historical volatility calculated between a range of 63.1%, risk-free interest
rate between a range of 0.21% to 1.69%, and an expected term of 5 years.
As of December 31, 2020, Jupiter Gold had 2,295,000
common stock options outstanding with a weighted average life of 2.5 years at an average exercise price of $1.00.
Investment
in Ares Resources Corporations Common Stock
On
October 2, 2017, the Company entered into a share exchange agreement with Ares Resources
Corporation. The Company’s chief executive officer also serves as an officer of Ares Resources Corporation, thus making it
a related party under common ownership and control. Refer to “Note 2 – Composition of Certain Financial Statement Items”
for additional information.
On
March 11, 2020, the Company issued 53,947,368 shares of common stock to Lancaster Brazil Fund pursuant to an addendum to the share
exchange agreement dated September 28, 2018. The Company recorded a loss on exchange of equity with a related party of $76,926
representing the fair value of the additional shares of common stock issued.
As
of December 31, 2020, no change in the value of the Ares common stock was recorded as the recorded value still approximated fair
value.
BRAZIL
MINERALS, INC.
|
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
|
|
NOTE
9 – RISKS AND UNCERTAINTIES
In
light of the SECs Division of Corporate Finance Disclosure Guidance Topic Number 9, dated March 25, 2020, on the impact of COVID-19,
the Company notes the following as of March 31, 2021:
|
●
|
The
Company has not had any reports of COVID-19 among its workforce;
|
|
●
|
The
Company has been able to continue local operations of the Company in Brazil as they are located in a rural area currently unaffected
by any lockdown restrictions implemented elsewhere in Brazil;
|
|
●
|
Travel
between the U.S. and Brazil has essentially ceased; this is mitigated by the use of live streaming video and other methods as
needed;
|
|
●
|
Some
exploratory research of some of the Companys projects have been delayed as certain municipalities in Brazil have unilaterally
restricted the entry of outside persons; these actions are being legally challenged by branches of the state administration and
the Company is monitoring all new developments;
|
|
●
|
The
Company has postponed any expenses which are not critical to it at the moment.
|
Currency
Risk
The
Company operates primarily in Brazil which exposes it to currency risks. The Companys business activities may generate
intercompany receivables or payables that are in a currency other than the functional currency of the entity. Changes in exchange
rates from the time the activity occurs to the time payments are made may result in the Company receiving either more or less
in local currency than the local currency equivalent at the time of the original activity.
The
Companys consolidated financial statements are denominated in U.S. dollars. Accordingly, changes in exchange rates between
the applicable foreign currency and the U.S. dollar affect the translation of each foreign subsidiarys financial results
into U.S. dollars for purposes of reporting in the consolidated financial statements. The Companys foreign subsidiaries
translate their financial results from the local currency into U.S. dollars in the following manner: (a) income statement accounts
are translated at average exchange rates for the period; (b) balance sheet asset and liability accounts are translated at end
of period exchange rates; and (c) equity accounts are translated at historical exchange rates. Translation in this manner affects
the shareholders equity account referred to as the foreign currency translation adjustment account. This account exists
only in the foreign subsidiaries U.S. dollar balance sheets and is necessary to keep the foreign subsidiaries balance
sheets in agreement.
NOTE
10 - SUBSEQUENT EVENTS
In
accordance with FASB ASC 855-10 Subsequent Events, the Company has analyzed its operations subsequent to December 31, 2020 to
the date these consolidated financial statements were issued, and has determined that it does not have any material subsequent
events to disclose in these consolidated financial statements.