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:
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The Company has not had any reports of COVID-19 among its workforce;
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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;
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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;
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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;
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The Company has postponed any expenses which are not critical to it at the moment.
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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.