Washington, D.C. 20549
Securities registered pursuant to Section
12(g) of the Act: Common Stock, par value $0.001 per share
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or, an emerging growth company. See
the definitions of "large accelerated filer," "accelerated filer", "smaller reporting company", and
"emerging growth company", in Rule 12b-2 of the Exchange Act.
Indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Act). Yes ☐ No ☑
As of June 30, 2019, the last business day
of the Registrant's most recently completed second fiscal quarter, the aggregate market value of the Registrant's common stock
held by non-affiliates (based on the closing sales price of such shares on such date as reported by otcmarkets.com) was approximately
$703,150. For the purpose of this report it has been assumed that all officers and directors of the Registrant, as well as all
stockholders holding 10% or more of the Registrant's stock, are affiliates of the Registrant.
As of April 11, 2020, there were outstanding
1,030,599,388 shares of the registrant's common stock.
This Annual Report contains forward-looking
statements. Forward-looking statements for Brazil Minerals, Inc. reflect current expectations, as of the date of this Annual Report,
and involve certain risks and uncertainties. Actual results could differ materially from those anticipated in these forward-looking
statements as a result of various factors. Factors that could cause future results to materially differ from the recent results
or those projected in forward-looking statements include, among others: unprofitable efforts resulting not only from the failure
to discover mineral deposits, but also from finding mineral deposits that, though present, are insufficient in quantity and quality
to return a profit from production; market fluctuations; government regulations, including regulations relating to royalties, allowable
production, importing and exporting of minerals, and environmental protection; competition; the loss of services of key personnel;
unusual or infrequent weather phenomena, sabotage, government or other interference in the maintenance or provision of infrastructure
as well as general economic conditions.
The accompanying notes are an integral part
of these consolidated financial statements.
The accompanying notes are an integral part
of these consolidated financial statements.
The accompanying notes are an integral part
of these consolidated financial statements.
The accompanying notes are an integral part
of these consolidated financial statements.
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, 2019 and 2018, the consolidated financial
statements include the accounts of the Company and its 99.99% owned subsidiary, BMIX Participações Ltda. ("BMIXP"),
which includes the accounts of BMIXP's wholly-owned subsidiary, Mineração Duas Barras Ltda. ("MDB").
During the year ended December 31, 2014, BMIXP
acquired an initial 25% interest in RST Recursos Minerais Ltda. ("RST"), and during the first quarter of 2015, it acquired
an additional 25% interest in RST, thus bringing its total ownership of RST to 50%. As of March 18, 2015, RST has been consolidated
within the Company's financial statements.
On April 17, 2015, BMIXP incorporated Hercules
Resources Corporation ("HRC"). On May 27, 2015, HRC formalized title to 99.99% of Hercules Brasil Comercio e Transportes
Ltda. ("Hercules Brasil"). Thus, Hercules Brasil is a wholly-owned subsidiary and has been consolidated within the Company's
consolidated financial statements.
On July 27, 2016, upon
approval by its Board of Directors, the Company sold a 99.99% equity interest in Mineração Jupiter Ltda to
Jupiter Gold Corporation ("Jupiter Gold"), a newly created company, in exchange for 4,000,000 shares of the common stock
of Jupiter Gold. On December 16, 2016, the Securities and Exchange Commission ("SEC") declared effective a Registration
Statement filed by JGC for the sale of shares in a public offering in the U.S. As of December 31, 2019, the Company has ownership
of approximately 35.4% of the equity of Jupiter Gold. The Company has concluded that Jupiter Gold and its subsidiary Mineração
Jupiter are variable interest entities (“VIE”) in accordance with applicable accounting standards and guidance. As
such, the accounts and results of Jupiter Gold and Mineração Jupiter have been included in the Company's 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 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.
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 Company's 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, 2019 and 2018, the Company's
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 Company's 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 Company's 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 $62,024 as of December
31, 2019).
BRAZIL MINERALS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
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, 2019 and 2018, inventory consisted primarily
of rough ore stockpiled for further gold and diamonds recovery. During the years ended December 31, 2019 and 2018, the Company
recorded write-downs of $17,166 and $0, 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.
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.
Right of Use Assets and Lease Liabilities
In February 2016, the
FASB issued ASU No. 2016-02, "Leases" (ASC 842). The standard requires lessees to recognize almost all leases on the
balance sheet as a ROU asset and a lease liability and requires leases to be classified as either an operating or a finance type
lease. The standard excludes leases of intangible assets or inventory. The standard became effective for the Company beginning
January 1, 2019. The Company adopted ASC 842 using the modified retrospective approach, by applying the new standard to all leases
existing at the date of initial application. Results and disclosure requirements for reporting periods beginning after January
1, 2019 are presented under ASC 842, while prior period amounts have not been adjusted and continue to be reported in accordance
with our historical accounting under ASC 840. The Company elected the package of practical expedients permitted under the standard,
which also allowed the Company to carry forward historical lease classifications. The Company also elected the practical expedient
related to treating lease and non-lease components as a single lease component for all equipment leases as well as electing a policy
exclusion permitting leases with an original lease term of less than one year to be excluded from the ROU assets and lease liabilities.
Under ASC 842, the
Company determines if an arrangement is a lease at inception. Right-of-Use ("ROU") assets and liabilities are recognized
at commencement date based on the present value of remaining lease payments over the lease term. For this purpose, the Company
considers only payments that are fixed and determinable at the time of commencement. As most of the Company's leases do not provide
an implicit rate, the Company estimated the incremental borrowing rate in determining the present value of lease payments. The
ROU asset also includes any lease payments made prior to commencement and is recorded net of any lease incentives received. The
Company lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise
such options.
BRAZIL MINERALS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Operating leases are
included in operating lease right-of-use assets, operating lease liabilities, current and operating lease liabilities, non-current
on the Company's condensed consolidated balance sheets.
As a result of the
adoption of ASC 842 on January 1, 2019, the Company recorded both operating lease ROU assets of $21,292 and operating lease liabilities
of $21,292. The adoption did not impact the Company's beginning retained earnings, or prior year consolidated statements of income
and statements of cash flows. For the year ended December 31, 2019, the Company incurred $23,015 in operating lease costs.
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 Company's 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, 2019 and 2018, 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 Company's subsidiaries.
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 Jupiter
Gold and its subsidiary Mineração Jupiter are VIEs in accordance with applicable accounting standards and
guidance; and although the operations of Jupiter Gold are independent of the Company, through governance rights, the Company has
the power to direct the activities that are most significant to Jupiter Gold. Therefore, the Company concluded that it is the primary
beneficiary of the 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 606's 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 entity's promise to transfer the good or service to the customer is separately identifiable from other promises in the contract (i.e.,
|
BRAZIL MINERALS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
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.
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 employee's 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 management's 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.
BRAZIL MINERALS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
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.
Foreign Currency
The Company's 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 Company's 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, 2019 and 2018, the Company's 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 Company's 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.
BRAZIL MINERALS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
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, 2019, the Company's potentially dilutive securities relate to common stock
issuable in connection with convertible notes payable, options and warrants. As of December 31, 2019, 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 Company's 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.
Recent Accounting Pronouncements
In December 2019, the FASB issued ASU 2019-12,
Income Taxes (Topic 740), which enhances and simplifies various aspects of the income tax accounting guidance, including requirements
such as tax basis step-up in goodwill obtained in a transaction that is not a business combination, ownership changes in investments,
and interim-period accounting for enacted changes in tax law. The amendment will be effective for public companies with fiscal
years beginning after December 15, 2020; early adoption is permitted. The Company is evaluating the impact of this amendment on
its consolidated financial statements.
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
We have reviewed other recent accounting pronouncements
issued to the date of the issuance of these consolidated financial statements, and we do not believe any of these pronouncements
will have a material impact on the Company.
NOTE 2 – COMPOSITION OF CERTAIN FINANCIAL
STATEMENT ITEMS
Property and Equipment, Net
The following table sets forth the components of the Company's property
and equipment at December 31, 2019 and December 31, 2018:
BRAZIL MINERALS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|
|
December 31, 2019
|
|
December 31, 2018
|
|
|
Cost
|
|
Accumulated Depreciation
|
|
Net Book
Value
|
|
Cost
|
|
Accumulated Depreciation
|
|
Net Book
Value
|
Capital assets subject to depreciation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Computers and office equipment
|
|
$
|
2,144
|
|
|
$
|
(739
|
)
|
|
$
|
1,405
|
|
|
$
|
1,572
|
|
|
$
|
(769
|
)
|
|
$
|
803
|
|
Machinery and equipment
|
|
|
435,659
|
|
|
|
(298,845
|
)
|
|
|
136,814
|
|
|
|
451,310
|
|
|
|
(268,537
|
)
|
|
|
182,773
|
|
Vehicles
|
|
|
164,275
|
|
|
|
(129,692
|
)
|
|
|
34,583
|
|
|
|
170,885
|
|
|
|
(110,683
|
)
|
|
|
60,202
|
|
Total fixed assets
|
|
$
|
602,078
|
|
|
$
|
(429,276
|
)
|
|
$
|
172,802
|
|
|
$
|
623,767
|
|
|
$
|
(379,989
|
)
|
|
$
|
243,778
|
|
For the years ended December 31, 2019 and 2018,
the Company recorded depreciation expense of $63,457 and $75,346, respectively.
Intangible Assets
Intangible assets consist of mining rights
are not amortized as the mining rights are perpetual. The carrying value was $509,862 and $530,293 at December 31,
2019 and 2018, 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, a related party. 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.
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 has recognized the cost of its
investment in Ares, which is a private company with no readily determinable fair value, at its cost of $150,000 and accounts for
the investment as an equity investment without a readily determinable fair value. The Company owns less than 5% of the total shares
outstanding of Ares Resources Corporation.
Accounts Payable and Accrued Liabilities
|
|
December 31, 2019
|
|
December 31, 2018
|
Accounts payable and other accruals
|
|
$
|
141,916
|
|
|
$
|
140,968
|
|
Accrued interest
|
|
|
496,448
|
|
|
|
390,322
|
|
Total
|
|
$
|
638,364
|
|
|
$
|
531,290
|
|
BRAZIL MINERALS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE
3 – CONVERTIBLE PROMISSORY NOTES PAYABLE
The following tables set forth the components
of the Company’s convertible debentures as of December 31, 2019 and December 31, 2018:
|
|
December 31, 2019
|
|
December 31, 2018
|
|
|
|
|
|
|
|
|
|
Convertible notes payable – fixed conversion price
|
|
$
|
244,000
|
|
|
|
244,000
|
|
Convertible notes payable – variable conversion price
|
|
|
733,614
|
|
|
|
630,923
|
|
Less: loan discounts
|
|
|
(153,000
|
)
|
|
|
(8,299
|
)
|
Total convertible notes, net
|
|
$
|
824,614
|
|
|
$
|
866,624
|
|
The following table sets forth a summary of change in our
convertible notes payable for the years ended December 31, 2019 and 2018:
|
|
December 31, 2019
|
|
|
December 31, 2018
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
$
|
866,624
|
|
|
|
665,394
|
|
Amortization of debt discounts associated with convertible debt
|
|
|
137,300
|
|
|
|
334,064
|
|
Conversion of convertible note principal into common stock
|
|
|
(198,291
|
)
|
|
|
(148,435
|
)
|
Increase in principal amounts outstanding due to lender adjustments per terms of the note agreements
|
|
|
18,981
|
|
|
|
1,050
|
|
Issuance of convertible notes payable
|
|
|
282,000
|
|
|
|
137,306
|
|
Loan discounts recorded related to issuance of convertible notes payable
|
|
|
(282,000
|
)
|
|
|
(122,755
|
)
|
Repayment of convertible note principal
|
|
|
(–
|
)
|
|
|
(–
|
)
|
Total convertible notes, net
|
|
$
|
824,614
|
|
|
$
|
866,624
|
|
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 December 31, 2019, 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. As of December 31, 2019, the Company has accrued interest payable totaling $384,009 in connection
with this note.
BRAZIL MINERALS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
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 December 31, 2019, the outstanding principal
balance on these notes total $184,394, 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. As of December 31, 2019, the outstanding principal
balance on these notes total $138,000, 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. As of December 31, 2019, the outstanding principal
balance on these notes total $129,220, and all discounts were fully amortized.
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. As of September 30, 2019, the outstanding
principal balance on these notes total $282,000, and the associated unamortized discounts totaled $153,000.
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 December 31, 2019, the Company has accrued
interest payable totaling $105,432 in connection with these variable convertible notes.
During the years ended December 31, 2019 and
2018, $137,300 and $334,064 of the discounts were amortized to interest expense, respectively.
During the years ended December 31, 2019 and
2018, the Company issued 501,802,789 and 210,986,220 shares of common stock upon conversion of $228,598 and $159,023,
respectively, in notes payable and accrued interest.
BRAZIL MINERALS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Future Potential Dilution
Most of the Company's convertible notes payable
contain adjustable conversion terms with significant discounts to market. As of December 31, 2019, the Company's convertible notes
are convertible into an aggregate of approximately 1,048,019,643 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
During the years ended December 31, 2019 and
2018, the Company received bridge loan proceeds aggregating $202,920 and $228,320, 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, 2019 and 2018, the principal
balance outstanding on the loans payable totaled $209,128 and $228,320, respectively, and the Company accrued interest payable
totaling $7,007 and $5,751, 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, 2019 and December 31, 2018 amounted to $192,729 and $188,423, respectively.
NOTE 6 – STOCKHOLDERS' DEFICIT
Authorized and Amendments
As of December 31, 2019, the Company had 1,200,000,000
common shares authorized with a par value of $0.001 per share.
BRAZIL MINERALS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
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.
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 Company’s 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.
Additionally, 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.
Year Ended December 31, 2018 Transactions
During
the year ended December 31, 2018, the Company issued 210,986,220 shares of common stock upon conversion of $159,023 in convertible
notes payable and accrued interest.
See Note 3 for additional discussions of common
stock issuances.
Common Stock Options
During the year ended
December 31, 2018, the Company granted options to purchase an aggregate of 31,073,000 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 ($0.0010 to $0.0026), expected dividend yield of 0%,
historical volatility calculated between a range of 205.4% to 217.0%, risk-free interest rate between a range of 1.80% to 2.95%,
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.
BRAZIL MINERALS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7 – COMMITMENTS AND CONTINGENCIES
Operating Leases
The Company leases offices in Pasadena, California,
U.S., and 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 Company’s related party payables as of December 31, 2019 and December 31, 2018:
|
|
December 31, 2019
|
|
December 31, 2018
|
Salary, retirement contributions and advances payable to related party
|
|
$
|
11,777
|
|
|
$
|
224,516
|
|
|
|
|
|
|
|
|
|
|
Convertible notes payable to related party
|
|
$
|
566,743
|
|
|
$
|
445,628
|
|
Less: loan discounts
|
|
|
(96,270
|
)
|
|
|
(222,814
|
)
|
Total convertible notes payable to related party, net
|
|
$
|
470,473
|
|
|
$
|
222,814
|
|
|
|
|
|
|
|
|
|
|
Total related party payables
|
|
$
|
482,250
|
|
|
$
|
447,330
|
|
As of December 31, 2019 and 2018, amounts payable
to the Chief Executive Officer for accrued salaries, retirement contributions, and advances made net of any repayments included
within related party payable were $578,520 and $670,144, respectively.
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 December 31, 2019, 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 December 31, 2019, there were unamortized debt discounts of $65,408 related
to this note.
BRAZIL MINERALS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
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.
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, 2019, there were unamortized debt discounts of $30,862
related to this note.
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 Company’s 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.
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 April 11, 2020:
|
·
|
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;
|
|
·
|
On February 12, 2020 and March 16, 2020, the Company received proceeds from the sale of its equity
totaling $300,000 from two accredited investors, and is in continuing discussions with several other sources.
|
NOTE 10 - SUBSEQUENT EVENTS
In accordance with FASB ASC 855-10 Subsequent
Events, the Company has analyzed its operations subsequent to December 31, 2019 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.