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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

 

For the quarterly period ended September 30, 2021

 

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

 

For the transition period from ____________ to ____________

 

Commission File Number 000-55191

 

Brazil Minerals, Inc.

(Exact name of registrant as specified in its charter)

 

Nevada   39-2078861
(State or other jurisdiction of   (IRS Employer
incorporation or organization)   Identification No.)

 

Rua Vereador João Alves Praes, nº 95-A

Olhos D’Água, MG 39398-000, Brazil

(Address of principal executive offices)

 

(833) 661-7900

(Registrant’s telephone number, including area code)

 

Indicate by check mark whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐

 

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.

 

Large accelerated filer ☐ Accelerated filer ☐
Non-accelerated filer ☒ Smaller reporting company ☒
    Emerging growth company ☐

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class   Ticker symbol(s)   Name of each exchange on which registered
Common Stock   BMIX   OTCQB

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

 

APPLICABLE ONLY TO CORPORATE ISSUERS

 

As of November 9, 2021, the registrant had 3,050,699,071 shares of common stock, par value $0.001 per share, issued and outstanding.

 

 

 

 

 

 

TABLE OF CONTENTS

 

    Page
PART I- FINANCIAL INFORMATION  
     
Item 1. Financial Statements  
     
  Condensed Consolidated Balance Sheets as of September 30, 2021 and December 31, 2020 (Unaudited) 3
     
  Condensed Consolidated Statements of Operations and Comprehensive Loss for the Three and Nine Months Ended September 30, 2020 and 2021 (Unaudited) 4
     
  Condensed Consolidated Statements of Changes in Stockholders’ Equity for the Three and Nine Months Ended September 30, 2020 and 2021 (Unaudited) 5
     
  Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2020 and 2021 (Unaudited) 7
     
  Notes to the Condensed Consolidated Financial Statements (Unaudited) 8
     
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations. 16
     
Item 3. Quantitative and Qualitative Disclosures About Market Risk 17
     
Item 4. Controls and Procedures. 18
     
PART II- OTHER INFORMATION 19
     
Item 6. Exhibits 19
     
Signatures 20
     
Exhibits/Certifications  

 

2

 

 

PART I - FINANCIAL INFORMATION

 

Item 1 FINANCIAL STATEMENTS

 

BRAZIL MINERALS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

 

    September 30,     December 31,  
    2021     2020  
             
ASSETS                
Current assets:                
Cash and cash equivalents   $ 18,132     $ 253,598  
Accounts receivable     378       20,106  
Taxes recoverable     16,935       17,726  
Inventory     11,155       11,676  
Deposits and advances     17,893       2,039  
Total current assets     64,493       305,145  
Property and equipment, net     64,320       89,276  
Intangible assets, net     1,336,173       407,467  
Equity investments     150,000       150,000  
Total assets   $ 1,614,986     $ 951,888  
                 
LIABILITIES AND STOCKHOLDERS’ DEFICIT                
Current liabilities:                
Accounts payable and accrued expenses   $ 981,103     $ 652,119  
Convertible notes payable     97,820       872,720  
Loans payable     -       235,308  
Related party notes and other payables     -       566,743  
Total current liabilities     1,078,923       2,326,890  
Other noncurrent liabilities     115,316       121,250  
Total liabilities     1,194,239       2,448,140  
                 
Stockholders’ equity (deficit):                
Series A preferred stock, $0.001 par value. 10,000,000 shares authorized; 1 share issued and outstanding as of September 30, 2021 and December 31, 2020, respectively     1       1  
Series D preferred stock, $0.001 par value. 1,000,000 shares authorized; 214,006 and zero shares as of September 30, 2021 and December 31, 2020, respectively     214       -  
Common stock, $0.001 par value. 3,250,000,000 shares authorized; 3,050,699,071 and 1,997,930,297 shares as of September 30, 2021 and December 31, 2020, respectively     3,050,699       1,997,930  
Additional paid-in capital     50,941,680       47,489,116  
Accumulated other comprehensive loss     (749,421 )     (775,113 )
Accumulated deficit     (54,346,906 )     (52,185,071 )
Total Brazil Minerals, Inc. stockholders’ deficit     (1,103,733 )     (3,473,137 )
Non-controlling interest     1,524,480       1,976,885  
Total stockholders’ equity (deficit)     420,747       (1,496,252 )
Total liabilities and stockholders’ deficit     1,614,986     $ 951,888  

 

The accompanying notes are an integral part of the condensed consolidated financial statements.

 

3

 

 

BRAZIL MINERALS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (UNAUDITED)

 

    Three Months Ended
September 30, 		    Three Months Ended
September 30, 		    Nine Months Ended
September 30, 		    Nine Months Ended
September 30, 		 
    2021     2020     2021     2020  
                         
Revenue   $ 2,984     $ 10,688     $ 9,088     $ 22,254  
Cost of revenue     27,382       26,908       74,476       86,805  
Gross loss     (24,398 )     (16,220 )     (65,388 )     (64,551 )
Operating expenses:                                
Professional fees     150,510       25,665       252,307       99,960  
General and administrative     318,368       160,339       851,525       428,615  
Compensation and related costs     47,272       91,723       227,741       255,021  
Stock based compensation     191,185       25,684       1,228,598       73,918  
Total operating expenses     707,335       303,411       2,560,171       857,514  
Loss from operations     (731,733 )     (319,631 )     (2,625,559 )     (922,065 )
Other expense (income):                                
Interest on promissory notes     77,856       41,182       239,099       133,544  
Amortization of debt discounts and other fees     11,005       12,000       12,839       249,270  
Extinguishment of debt     -       -       224,812       -  
Other expense (income)     (3 )     (215 )     (218 )     75,325  
Total other expense (income)     88,858       52,967       476,532       458,139  
Net loss     (820,591 )     (372,598 )     (3,102,091 )     (1,380,204 )
Loss attributable to non-controlling interest     (201,452 )     (101,395 )     (940,256 )     (270,713 )
Net loss attributable to Brazil Minerals, Inc. stockholders   $ (619,139 )   $ (271,203 )   $ (2,161,835 )   $ (1,109,491 )
                                 
Basic and diluted loss per share                                
Net loss per share attributable to Brazil Minerals, Inc. common stockholders   $ (- )   $ (- )   $ (- )   $ (- )
                                 
Weighted-average number of common shares outstanding:                                
Basic and diluted     2,946,874,985       1,107,338,095       2,659,344,430       1,073,824,015  
                                 
Comprehensive loss:                                
Net loss   $ (820,591 )   $ (372,598 )   $ (3,102,091 )   $ (1,380,204 )
Foreign currency translation adjustment     6,794       36,603       25,498       (154,524 )
Comprehensive loss     (813,797 )     (335,995 )     (3,076,593 )     (1,534,728 )
Comprehensive loss attributable to noncontrolling interests     (185,647 )     (20,814 )     (940,450 )     (190,132 )
Comprehensive loss attributable to Brazil Minerals, Inc. stockholders   $ (628,150 )   $ (315,181 )   $ (2,136,143 )   $ (1,344,596 )

 

The accompanying notes are an integral part of the condensed consolidated financial statements.

 

4

 

 

BRAZIL MINERALS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (UNAUDITED)

 

    Shares     Value     Shares     Value     Shares     Value     Capital     Loss     Deficit     Interests     (Deficit)  
    Series A Preferred Stock     Series D Preferred Stock     Common Stock     Additional
Paid-in 		    Accumulated
Other
Comprehensive 		    Accumulated     Noncontrolling     Total
Stockholders’
Equity 		 
    Shares     Value     Shares     Value     Shares     Value     Capital     Loss     Deficit     Interests     (Deficit)  
                                                                   
Balance, June 30, 2020     1     $ 1       -     $ -       1,387,463,317     $ 1,387,463     $ 47,774,143     $ (772,084 )   $ (51,881,696 )   $ 1,849,734     $ (1,642,439 )
                                                                                         
Issuance of common stock in connection with sales made under private offerings         -             -           -            -       (62,500,000 )     (62,500 )     162,500       -       -       -       100,000  
Conversion of convertible notes and other indebtedness into common stock     -       -       -       -       134,805,534       134,806       (79,890 )     -       -       -       54,916  
Stock based compensation     -       -       -       -       -       -       25,684       -       -       -       25,684  
Change in foreign currency translation     -       -       -       -       -       -       -       (43,978 )     -       8,244       (35,734 )
Sale of Jupiter Gold common stock in connection with equity offerings     -       -       -       -       -       -       -       -       -       125,000       125,000  
Net loss     -       -       -       -       -       -       -       -       (271,203 )     (101,395 )     (372,598 )
                                                                                         
Balance, September 30, 2020     1     $ 1       -     $ -       1,459,768,851     $ 1,459,769     $ 47,882,437     $ (816,062 )   $ (52,152,899 )   $ 1,881,583     $ (1,745,171 )

 

    Series A Preferred Stock     Series D Preferred Stock     Common Stock     Additional
Paid-in 		    Accumulated
Other
Comprehensive 		    Accumulated     Noncontrolling     Total
Stockholders’
Equity 		 
    Shares     Value     Shares     Value     Shares     Value     Capital     Loss     Deficit     Interests     (Deficit)  
                                                                   
Balance, June 30, 2021     1     $ 1       -     $ -       2,925,793,327     $ 2,925,793     $ 49,932,050     $ (740,410 )   $ (53,727,767 )   $ 1,490,677     $ (119,656 )
                                                                                         
Issuance of common stock in connection with sales made under private offerings         -            -       214,006       214       -       -       641,804       -       -       -       642,018  
Issuance of common stock in connection with the exercise of common stock options and warrants     -       -       -       -       26,086,958       26,087       123,913       -       -       -       150,000  
Issuance of common stock in connection with the exercise of common stock options     -       -       -       -       83,863,837       83,864       (83,864 )     -       -       1,950       1,950  
Issuance of common stock in exchange for consulting, professional and other services     -       -       -       -       14,954,949       14,955       136,592       -       -       -       151,547  
Stock based compensation     -       -       -       -       -       -       191,185       -       -       -       191,185  
Change in foreign currency translation     -       -       -       -       -       -       -       (9,011 )     -       15,805       6,794  
Sale of Apollo Resources common stock in connection with equity offerings     -       -       -       -       -       -       -       -       -       217,500       217,500  
Net loss     -       -       -       -       -       -       -       -       (619,139 )     (201,452 )     (820,591 )
                                                                                         
Balance, September 30, 2021     1     $ 1       214,006     $ 214       3,050,699,071     $ 3,050,699     $ 50,941,680     $ (749,421 )   $ (54,346,906 )   $ 1,524,480     $ 420,747  

 

The accompanying notes are an integral part of the condensed consolidated financial statements.

 

5

 

 

BRAZIL MINERALS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (UNAUDITED)

 

    Series A Preferred Stock     Series D Preferred Stock     Common Stock     Additional
Paid-in 		    Accumulated
Other
Comprehensive 		    Accumulated     Noncontrolling     Total
Stockholders’
Equity 		 
    Shares     Value     Shares     Value     Shares     Value     Capital     Loss     Deficit     Interests     (Deficit)  
                                                                   
Balance, December 31, 2019     1     $ 1          -       -       1,132,435,380     $ 1,132,435     $ 47,724,570     $ (580,957 )   $ (51,043,408 )   $ 1,446,715     $ (1,320,644 )
                                                                                                  
Issuance of common stock in connection with sales made under private offerings     -       -       -       -       232,500,000       232,500       87,500       -       -       -       320,000  
Issuance of common stock in exchange for consulting, professional and other services     -       -       -       -       5,666,594       5,667       333       -       -       -       6,000  
Issuance of common stock in connection with share exchange agreement with related party     -       -       -       -       53,947,368       53,947       22,979       -       -       -       76,926  
Issuance of common stock to related parties in lieu of cash for loans payable and other accrued obligations     -       -       -       -       200,000       200       80       -       -       -       280  
Conversion of convertible notes and other indebtedness into common stock     -       -       -       -       235,019,509       235,020       (126,943 )     -       -       -       108,077  
Exchange of common stock for Jupiter Gold common stock     -       -       -       -       (200,000,000 )     (200,000 )     100,000       -       -       100,000       -  
Stock based compensation     -       -       -       -       -       -       73,918       -       -       -       73,918  
Change in foreign currency translation     -       -       -       -       -       -       -       (235,105 )     -       80,581       (154,524 )
Sale of Jupiter Gold common stock in connection with equity offerings     -       -       -       -       -       -       -       -       -       525,000       525,000  
Net loss     -       -       -       -       -       -       -       -       (1,109,491 )     (270,713 )     (1,380,204 )
                                                                                         
Balance, September 30, 2020     1     $ 1       -     $ -       1,459,768,851     $ 1,459,769     $ 47,882,437     $ (816,062 )   $ (52,152,899 )   $ 1,881,583     $ (1,745,171 )

 

    Series A Preferred Stock     Series D Preferred Stock     Common Stock     Additional
Paid-in 		    Accumulated
Other
Comprehensive 		    Accumulated     Noncontrolling     Total
Stockholders’
Equity 		 
    Shares     Value     Shares     Value     Shares     Value     Capital     Loss     Deficit     Interests     (Deficit)  
                                                                   
Balance, December 31, 2020     1     $ 1       -     $ -       1,997,930,297     $ 1,997,930     $ 47,489,116     $ (775,113 )   $ (52,185,071 )   $ 1,976,885     $ (1,496,252 )
                                                                                         
Conversion of related party convertible notes and other indebtedness into Series D preferred stock     -       -       214,006       214       -       -       641,804       -       -       -       642,018  
Issuance of common stock in connection with sales made under private offerings     -       -       -       -       136,219,930       136,220       680,430       -       -       -       816,650  
Issuance of common stock in connection with the exercise of common stock options and warrants     -       -       -       -       396,917,702       396,918       (321,918 )     -       -       70,700       145,700  
Issuance of common stock in exchange for consulting, professional and other services     -       -       -       -       14,954,949       14,955       136,592       -       -       31,845       183,392  
Issuance of common stock warrants in connection with the issuance of convertible debenture(s)     -       -       -       -       -       -       356,827       -       -       -       356,827  
Conversion of convertible notes and other indebtedness into common stock     -       -       -       -       504,676,193       504,676       730,231       -       -       -       1,234,907  
Stock based compensation     -       -       -       -       -       -       1,228,598       -       -       -       1,228,598  
Change in foreign currency translation     -       -       -       -       -       -       -       25,692       -       (194 )     25,498  
Sale of Jupiter Gold common stock in connection with equity offerings     -       -       -       -       -       -       -       -       -       118,000       118,000  
Sale of Apollo Resources common stock in connection with equity offerings     -       -       -       -       -       -       -       -       -       267,500       267,500  
Net income (loss)         -       -       -       -       -       -       -       -       (2,161,835 )     (940,256 )     (3,102,091 )
                                                                                         
Balance, September 30, 2021     1     $ 1       214,006     $ 214       3,050,699,071     $ 3,050,699     $ 50,941,680     $ (749,421 )   $ (54,346,906 )   $ 1,524,480     $ 420,747  

 

The accompanying notes are an integral part of the condensed consolidated financial statements.

 

6

 

 

BRAZIL MINERALS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

For the Nine Months Ended September 30, 2021 and 2020

 

    2021     2020  
    Nine Months Ended September 30,     Nine Months Ended September 30,  
    2021     2020  
             
Cash flows from operating activities:                
Net loss   $ (3,102,091 )   $ (1,380,204 )
Adjustments to reconcile net loss to cash used in operating activities:                
Stock based compensation and services     1,411,990       79,918  
Amortization of debt discounts     12,839       249,270  
Common stock issued in satisfaction of other financing costs     91,996       -  
Convertible debt issued in satisfaction of other financing costs     37,212       18,402  
Preferred stock issued in satisfaction of interest and other financing costs     75,276       -  
Loss on share exchange agreement with related party     -       76,926  
Loss on extinguishment of debt     224,812       -  
Depreciation and amortization     28,128       29,393  
Changes in operating assets and liabilities:                
Accounts receivable     19,238       (30,612 )
Deposits and advances     (16,285 )     2,765  
Accounts payable and accrued expenses     (14,244 )     97,912  
Accrued salary due to officer     30,387       147,643  
Other noncurrent liabilities     (535 )     6,631  
Net cash used in operating activities     (1,231,664 )     (701,956 )
                 
Cash flows from investing activities:                
Acquisition of property and equipment     (6,574 )     (788 )
Acquisition of intangible assets     (265,579 )     (11,940 )
Net cash used in investing activities     (272,153 )     (12,728 )
                 
Cash flows from financing activities:                
Loan from officer     -       (37,296 )
Net proceeds from sale of common stock     891,650       320,000  
Proceeds from sale of subsidiary common stock to noncontrolling interests     456,200       525,000  
Proceeds from convertible notes payable     125,000       -  
Proceeds from loans payable     -       26,180  
Repayment of loans payable     (235,308 )     -  
Net cash provided by financing activities     1,237,542       833,884  
                 
Effect of exchange rates on cash and cash equivalents     422       13,703  
Net increase (decrease) in cash and cash equivalents     (235,466 )     132,903  
Cash and cash equivalents at beginning of period     253,598       151,088  
Cash and cash equivalents at end of period   $ 18,132     $ 283,991  
                 
Supplemental disclosure of cash flow information:                
Cash paid for interest   $ -     $ -  
Cash paid for income taxes   $ -     $ -  
                 
Supplemental disclosure of non-cash investing and financing activities:                
Related party convertible notes payable exchanged for stock   $ 566,743     $ -  
Shares issued in connection with conversion of debt and accrued interest   $ 1,234,907     $ 108,077  
Shares issued in connection with relief of related party payable   $ -     $ 280  
Common stock warrants issued in connection with convertible promissory notes   $ 40,019     $ -  
Acquisition of intangible assets via financing   $

701,694

    $ -  

 

The accompanying notes are an integral part of the condensed consolidated financial statements.

 

7

 

 

BRAZIL MINERALS, INC.

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 September 30, 2021, and the results of operations and cash flows for the periods presented. The results of operations for the three and nine months ended September 30, 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.

 

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.

 

8

 

 

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.

 

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 September 30, 2021 and December 31, 2020:

 

    September 30, 2021     December 31, 2020  
    Cost     Accumulated Depreciation     Net
Book Value 		    Cost     Accumulated Depreciation     Net
Book Value 		 
                                     
Computers and office equipment   $ 3,854     $ (1,597 )   $ 2,257     $ 3,880     $ (573 )   $ 3,307  
Machinery and equipment     341,348       (279,285 )     62,063       348,376       (271,107 )     77,269  
Vehicles     121,731       (121,731 )     –       127,416       (118,716 )     8,700  
Total fixed assets   $ 466,933     $ (402,613 )   $ 64,320     $ 479,672     $ (390,396 )   $ 89,276  

 

For the three and nine months ended September 30, 2021, the Company recorded depreciation expense of $4,518 and $28,126, respectively, and for the three and nine months ended September 30, 2020, the Company recorded depreciation expense of $4,271 and $29,393, respectively.

 

Intangible Assets

 

Intangible assets consist of mining rights are not amortized as the mining rights are perpetual. The carrying value was $1,336,173 and $407,467 at September 30, 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.

 

9

 

 

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.

 

As of September 30, 2021, no change in the value of the Ares common stock was recorded as the recorded value still approximated fair value.

 

Accounts Payable and Accrued Liabilities

 

    September 30, 2021     December 31, 2020  
Accounts payable and other accruals   $ 291,254     $ 327,704  
Mineral rights payable     686,839       –  
Accrued interest     3,010       324,415  
Total   $ 981,103     $ 652,119  

 

NOTE 3 – CONVERTIBLE PROMISSORY NOTES PAYABLE

 

The following tables set forth the components of the Company’s convertible debentures as of September 30, 2021 and December 31, 2020:

 

    September 30,2021     December 31, 2020  
Convertible notes payable – fixed conversion price   $ 129,000       244,000  
Convertible notes payable – variable conversion price     –       628,720  
Discounts on convertible notes payable     (31,180 )     –  
Total convertible notes   $ 97,820     $ 872,720  

 

The following table sets forth a summary of change in our convertible notes payable for the nine months ended September 30, 2021:

 

Beginning balance   $ 872,720  
New issuances of convertible notes payable     399,000  
Lender adjustments for penalties or defaults     37,212  
Debt discounts recorded on new issuances     (44,019 )
Amortization of debt discounts associated with convertible debt     12,839  
Conversion of convertible note principal into common stock     (909,932 )
Repayments of convertible notes payable     (270,000 )
Total convertible notes   $ 97,820  

 

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 September 30, 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.

 

10

 

 

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. On May 6, 2021, the Company issued 86,246,479 shares of common stock upon conversion of $334,986 in convertible notes payable and accrued interest. As of September 30, 2021, the balance of the note was $0.

 

On June 18, 2021, Company issued to one noteholder a $129,000 convertible promissory note for $125,000 in proceeds. The note bears interest at 8.0% per annum and matures one year from issuance on June 18, 2022. After six months from issuance, the note is convertible at the option of the holder at a price of $0.001. A debt discount of $4,000 for issuance costs was recorded and is being amortized over the life of the note.

 

ASC 470-20 requires proceeds from the sale of a debt instrument with stock purchase warrants be allocated to the two elements based on the relative fair values of the debt instrument without the warrants and of the warrants themselves at the time of issuance. In connection with the warrant issuance, the Company allocated an aggregate fair value of $40,019 to the stock warrants and recorded a debt discount which will be amortized to interest expense over the term of the loan using the effective interest method so the debt, at its term, is recorded at its face value. The Company estimated the fair value of this the warrant warrants at date of grant using the Black-Scholes option pricing model using the following inputs: (i) stock price on the date of grant of $0.0122, (ii) the contractual term of the warrant of 4 years, (iii) a risk-free interest rate of 0.89% and (iv) an expected volatility of the price of the underlying common stock of 443.3%.

 

As of September 30, 2021, the outstanding principal balance on the note was $129,000, and the associated unamortized discounts totaled $31,180.

 

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. On April 9, 2021, the Company agreed to settle all outstanding principal and interest on these notes in exchange for common stock and common stock purchase warrants. See settlement disclosure below for more information. As of September 30, 2021, the outstanding principal balance on these notes total $0, 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 nine months ended September 30, 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. On April 9, 2021, the Company agreed to settle all outstanding principal and interest on these notes in exchange for common stock and common stock purchase warrants. See settlement disclosure below for more information. As of September 30, 2021, the outstanding principal balance on these notes total $0, 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 nine months ended September 30, 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. On April 9, 2021, the Company agreed to settle all outstanding principal and interest on these notes in exchange for common stock and common stock purchase warrants. See settlement disclosure below for more information. As of September 30, 2021, the outstanding principal balance on these notes total $0, 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. During the nine months ended September 30, 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 September 30, 2021, the principal balance on these notes was $0, and all discounts were fully amortized.

 

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On April 9, 2021, the Company issued 36,000,000 shares of its common stock upon the conversion of $186,736 and $62,302, respectively, in note principal and accrued interest to settle all outstanding balances with the lender. In connection with the settlement, the Company agreed to issue 15,000,000 common stock purchase warrants with a cashless exercise price of $0.0125. The warrants expire on December 31, 2021. The Company allocated an aggregate fair value of $224,812 to the stock warrants and recorded a loss on the extinguishment of debt. The Company estimated the fair value of this the warrant warrants at date of grant using the Black-Scholes option pricing model using the following inputs: (i) stock price on the date of grant of $0.0158, (ii) the contractual term of the warrant of 0.7 years, (iii) a risk-free interest rate of 0.35% and (iv) an expected volatility of the price of the underlying common stock of 440.5%.

 

On January 19, 2021, the Company issued to one noteholder a $270,000 convertible promissory note. The note bears interest at 8.0% per annum and matures on January 19, 2025. After six months from issuance, the 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. The note’s conversion rate has a floor of $0.0001.

 

On May 7, 2021, the Company repaid $270,000 in note principal and $6,391 in accrued interest to the holder. As of September 30, 2021, the principal balance on the note was $0.

 

Future Potential Dilution

 

As of September 30, 2021, the Company’s convertible note is convertible into an aggregate of approximately 129,000,000 shares of 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. As of September 30, 2021, the balance of these notes was $0.

 

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 September 30, 2021 and December 31, 2020 amounted to $115,316 and $121,250, respectively.

 

NOTE 6 – STOCKHOLDERS’ DEFICIT

 

Authorized

 

As of September 30, 2021, the Company had 3,250,000,000 common shares and 10,000,000 preferred shares authorized with a par value of $0.001 per share.

 


Series A Preferred Stock

 

On December 18, 2012, the Company filed with the Nevada Secretary of State a Certificate of Designations, Preferences and Rights of Series A Convertible Preferred Stock (“Series A Stock”) to designate one share of a new series of preferred stock. The Certificate of Designations, Preferences and Rights of Series A Convertible Preferred Stock provides that for so long as Series A Stock is issued and outstanding, the holders of Series A Stock shall vote together as a single class with the holders of the 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.

 

Series D Preferred Stock

 

On September 14, 2021, the Company filed with the Nevada Secretary of State a Certificate of Designations, Preferences and Rights of Series D Convertible Preferred Stock (“Series D Stock”) to designate 1,000,000 shares of a new series of preferred stock. The Certificate of Designations, Preferences and Rights of Series D Convertible Preferred Stock provides that for so long as Series D Stock is issued and outstanding, the holders of Series D Stock shall have no voting power until such time as the Series D Stock is converted into shares of common stock. One share of Series D Stock is convertible into 10,000 shares of common stock and may be converted at any time at the election of the holder. Holders of the Series D Stock are not entitled to any liquidation preference over the holders of common stock, and are entitled to any dividends or distributions declared by the Company on a pro rata basis.

 

On September 15, 2021, the Company issued 214,006 shares of Series D Stock to Marc Fogassa for the conversion of $566,743 in convertible note principal and $75,276 of interest expense.

 

Nine Months Ended September 30, 2021 Transactions

 

During the nine months ended September 30, 2021, the Company issued 136,219,930 shares of common stock for gross proceeds of $816,650 pursuant to subscription agreements with accredited investors. Additionally, the Company issued 504,676,193 shares of common stock upon conversion of $1,234,906 in convertible notes payable and accrued interest. Further, the Company issued 396,917,702 shares of common stock for net proceeds of $75,000 upon the exercise of 423,816,100 stock options and warrants. Lastly, the Company issued 14,954,949 shares of common stock valued at $183,393 to contractors for services provided.

 

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Nine Months Ended September 30, 2020 Transactions

 

During the nine months ended September 30, 2020, the Company issued 232,500,000 shares of common stock to accredited investors pursuant to subscription agreements for net proceeds of $320,000. Additionally, the Company issued 5,666,594 shares of common stock to non-employees for services rendered. Further, the Company issued 235,019,509 shares of common stock upon conversion of $108,077 in convertible notes payable and accrued interest.

 

Lastly, 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.

 

Stock Options

 

The following table reflects all outstanding and exercisable common stock options at September 30, 2021. All common 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     –       –       –          
Exercised     (117,046,100 )     –       –          
Forfeited     (691,340 )     –       –          
Outstanding and vested, September 30, 2021     2,179,700     $ 0.0300       0.6     $ –  

 

The following table reflects all outstanding and exercisable preferred stock options at September 30, 2021. All preferred stock options immediately vest and are exercisable for a period of 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     –     $ –       –          
Issued     27,000       0.10       9.6          
Exercised     (– )             –       –          
Forfeited     (– )     –       –          
Outstanding and vested, September 30, 2021     27,000     $ 0.10       9.6     $ 2,508,300  

 

During the nine months ended September 30, 2021, the Company granted options to purchase an aggregate of 270,000,000 shares of common stock to officers and non-management directors. The options were valued at $862,216 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 44.8% and 124.4%, risk-free interest rate ranging between 0.9% and 1.75%, and an expected term of 10 years.

 

On September 15, 2021, the Company amended any stock options granted after December 31, 2020 by changing the underlying security issuable under those options from the Company’s common stock to its Series D Stock. The Series D Stock has a par value of $0.001, and each share can convert into 10,000 shares of the Company’s common stock. As such, the Company exchanged options to purchase an aggregate of 270,000,000 shares of common stock for options to purchase an aggregate of 27,000 shares of Series D Stock. The Company did not record any change in value, as computed above using the Black-Scholes option pricing model, as the election resulted in an equal exchange of underlying shares of common stock.

 

See Note 8 – Related Party Transactions for more information related to stock options issued and outstanding for the Company’s subsidiaries Jupiter Gold and Apollo Resources.

 

Common Stock Purchase Warrants

 

Common stock purchase warrants are accounted for as equity in accordance with ASC 480, Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock, Distinguishing Liabilities from Equity.

 

The following table reflects all outstanding and exercisable warrants at September 30, 2021. All warrants are exercisable for a period of nine months to four years from the date of issuance:

 

    Number of Warrants Outstanding     Weighted Average
Exercise Price 		    Weighted Average Contractual
Life (Yrs.) 		 
                   
Outstanding, January 1, 2021     306,770,000     $ 0.0016       0.83  
Warrants issued     123,678,264     $ 0.0134          
Warrants exercised     (306,770,000 )   $

0.0016

         
Warrants forfeited     (– )     $ –          

Outstanding and exercisable, September 30, 2021 		    123,678,265     $ 0.0134       2.65  

 

As of September 30, 2021, the 123,678,265 warrants outstanding has an aggregated intrinsic value of $0.

 

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 September 30, 2021 and December 31, 2020:

 

    September 30, 2021     December 31, 2020  
Convertible notes payable to related party   $ –     $ 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 September 30, 2021, all discounts were fully amortized.

 

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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 September 30, 2021, all discounts were fully amortized.

 

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 September 30, 2021, all discounts were fully amortized.

 

On September 15, 2021, the Company issued 214,006 shares of Series D Stock to Marc Fogassa for the conversion of $566,743 in convertible note principal and $75,276 of interest expense. The conversion rate was modified from $0.0003 per share of common stock to $3.00 per share of Series D Stock due to the change in the underlying security. The Company did not record any dividend or expense as the conversion resulted in an equal exchange of underlying shares of common stock.

 

On March 11, 2020, the Company issued 200,000 shares of its common stock with a fair value of $280, or $0.0014 per share, to its Chief Executive Officer in lieu of cash for loans payable and other accrued obligations.

 

On December 3, 2020, the Company issued 161,636,427 shares of common stock to its Chief Executive Officer in connection with the exercise stock options acquired on February 19, 2019 as described above.

 

Jupiter Gold Corporation

 

During the nine months ended September 30, 2021, Jupiter Gold granted options to purchase an aggregate of 315,000 shares of its common stock to Marc Fogassa at prices ranging between $0.01 to $1.00 per share. The options were valued at $148,853 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 ($0.19 to $1.45), expected dividend yield of 0%, historical volatility calculated between 97.3% and 211.5%, risk-free interest rate between a range of 0.81% to 1.75%, and an expected term between 5 and 10 years. On September 30, 2021, Marc Fogassa exercised 120,000 stock options on a cashless basis and received 20,826 shares of Jupiter Gold common stock. As of September 30, 2021, an aggregate 2,270,000 Jupiter Gold common stock options were outstanding with a weighted average life of 3.1 years at an average exercise price of $0.86 and an aggregated intrinsic value of $489,450.

 

Apollo Resource Corporation

 

During the nine months ended September 30, 2021, Apollo Resources granted options to purchase an aggregate of 150,000 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 between 49.2% and 98.3%, risk-free interest rate between a range of 0.68% to 1.75%, and an expected term between 5 and 10 years. On September 30, 2021, Marc Fogassa exercised 195,000 stock options for cash proceeds of $1,950 and received 195,000 shares of Apollo Resources common stock. As of September 30, 2021, there were no Apollo Resource common stock options outstanding.

 

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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:

 

● The Company has not had any reports of COVID-19 among its workforce;

 

● The Company has been able to continue local operations of the Company in Brazil as they are located in a rural area currently unaffected by any lockdown restrictions implemented elsewhere in Brazil;

 

● Travel between the U.S. and Brazil has essentially ceased; this is mitigated by the use of live streaming video and other methods as needed;

 

● Some exploratory research of some of the Company’s projects have been delayed as certain municipalities in Brazil have unilaterally restricted the entry of outside persons; these actions are being legally challenged by branches of the state administration and the Company is monitoring all new developments;

 

● The Company has postponed any expenses which are not critical to it at the moment.

 

Currency Risk

 

The Company operates primarily in Brazil which exposes it to currency risks. The Company’s business activities may generate intercompany receivables or payables that are in a currency other than the functional currency of the entity. Changes in exchange rates from the time the activity occurs to the time payments are made may result in the Company receiving either more or less in local currency than the local currency equivalent at the time of the original activity.

 

The Company’s condensed consolidated financial statements are denominated in U.S. dollars. Accordingly, changes in exchange rates between the applicable foreign currency and the U.S. dollar affect the translation of each foreign subsidiary’s financial results into U.S. dollars for purposes of reporting in the consolidated financial statements. The Company’s foreign subsidiaries translate their financial results from the local currency into U.S. dollars in the following manner: (a) income statement accounts are translated at average exchange rates for the period; (b) balance sheet asset and liability accounts are translated at end of period exchange rates; and (c) equity accounts are translated at historical exchange rates. Translation in this manner affects the shareholders’ equity account referred to as the foreign currency translation adjustment account. This account exists only in the foreign subsidiaries’ U.S. dollar balance sheets and is necessary to keep the foreign subsidiaries’ balance sheets in agreement.

 

NOTE 10 - SUBSEQUENT EVENTS

 

In accordance with FASB ASC 855-10 Subsequent Events, the Company has analyzed its operations subsequent to September 30, 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.

 

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Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

The following discussion of our financial condition and results of operations should be read in conjunction with our unaudited consolidated financial statements and the notes to those financial statements appearing elsewhere in this Report.

 

This Quarterly Report contains forward-looking statements. Forward-looking statements for Brazil Minerals, Inc. reflect current expectations, as of the date of this Quarterly 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: 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.

 

Description of Business

 

Brazil Minerals is an exploration company with projects in highly strategic minerals, such as lithium, rare earths, titanium, nickel, and cobalt. We own approximately 60% of Apollo Resources Corporation, a company focused on exploration projects in iron, and which is advancing towards operational licensing of its first revenue-producing iron mine. We also own approximately 10% of Jupiter Gold Corporation, a company primarily focused on exploration projects in gold, and which is advancing towards operational licensing of its first revenue-producing quartzite mine.

 

Results of Operations

 

The Three Months Ended September 30, 2021 Compared to the Three Months ended September 30, 2020

 

Revenue for the three months ended September 30, 2021 totaled $2,984, compared to revenue of $10,688 during the three months ended September 30, 2020 representing a decrease of 72.1%. This decreased is mostly explained by our decision to prioritize the exploration and development of higher potential mineral rights. We anticipate that revenues will begin to increase with the licensing of new high-quality areas for production in future periods.

 

Cost of goods sold for the three months ended September 30, 2021 totaled $27,382, as compared to cost of goods sold of $26,908 during the three months ended September 30, 2020 representing an increase of 1.8%. Cost of goods sold is primarily comprised of labor, fuel, and repairs and maintenance on our mining equipment. The increase is explained by increased production activities and mining costs partially attributable to the Company’s exploratory efforts.

 

Gross loss for the three months ended September 30, 2021 was $24,398, compared to gross loss of $16,220 during the three months ended September 30, 2020 representing an increase in gross loss of 50.4%.

 

Operating expenses for the three months ended September 30, 2021 totaled $707,335, compared to operating expenses of $303,411 during the three months ended September 30, 2020 representing an increase of 133.1%. The increase was mostly due to general and administrative expenses related to public company costs and increased financing efforts, and stock-based compensation from issuances of stock options to officers and directors.

 

Other expenses for the three months ended September 30, 2021 totaled $88,858, compared to other expenses of $52,967 during the three months ended September 30, 2020 representing an increase of 67.8%. The Company realized an increase in interest expense on promissory notes due to the settlement during the period ended September 30, 2021. Additionally, the Company recorded a $224,812 loss on the extinguishment of debt related to common stock purchase warrants issued in a settlement with a noteholder during the three months ended September 30, 2021.

 

As a result, we incurred a net loss attributable to our stockholders of $619,139, or $0.00 per share, for the three months ended September 30, 2021, compared to a net loss attributable to our stockholders of $271,203, or $0.00 per share, during the three months ended September 30, 2020.

 

The Nine Months Ended September 30, 2021 Compared to the Nine Months ended September 30, 2020

 

Revenue for the nine months ended September 30, 2021 totaled $9,088, compared to revenue of $22,254 during the nine months ended September 30, 2020 representing a decrease of 59.2%. This decreased is mostly explained by our decision to prioritize the exploration and development of higher potential mineral rights. We anticipate that revenues will begin to increase with the licensing of new high-quality areas for production in future periods.

 

Cost of goods sold for the nine months ended September 30, 2021 totaled $74,476, as compared to cost of goods sold of $86,805 during the nine months ended September 30, 2020 representing a decrease of 14.2%. Cost of goods sold is primarily comprised of labor, fuel, and repairs and maintenance on our mining equipment. The decrease is explained by reduced production activities and mining costs partially attributable to the Company’s exploratory efforts and the risks and uncertainties surrounding COVID-19.

 

Gross loss for the nine months ended September 30, 2021 was $65,388, compared to gross loss of $64,551 during the nine months ended September 30, 2020 representing an increase in gross loss of 1.3%.

 

Operating expenses for the nine months ended September 30, 2021 totaled $2,560,171, compared to operating expenses of $857,514 during the nine months ended September 30, 2020 representing an increase of 198.6%. The increase was mostly due to general and administrative expenses related to public company costs and increased financing efforts, and stock-based compensation from issuances of stock options to officers and directors.

 

Other expenses for the nine months ended September 30, 2021 totaled $476,532, compared to other expenses of $458,139 during the nine months ended September 30, 2020 representing an increase of 4.0%. The Company’s interest expense on promissory notes decreased due to reduced debt levels during the period ended September 30, 2021. Additionally, the Company recorded a $224,812 loss on the extinguishment of debt related to common stock purchase warrants issued in a settlement with a noteholder during the nine months ended September 30, 2021, as compared to a $76,178 loss due to a fair market value adjustment provision included in a share exchange agreement with a related party during the nine months ended September 30, 2020.

 

As a result, we incurred a net loss attributable to our stockholders of $2,161,835, or $0.00 per share, for the nine months ended September 30, 2021, compared to a net loss attributable to our stockholders of $1,109,491, or $0.00 per share, during the nine months ended September 30, 2020.

 

16

 

 

Liquidity and Capital Resources

 

As of September 30, 2021, we had cash and cash equivalents of $18,132 and a working capital deficit of $1,014,430.

 

Net cash used in operating activities totaled $1,201,277 for the nine months ended September 30, 2021, compared to net cash used of $701,956 during the nine months ended September 30, 2020 representing an increase in cash used of $499,321 or 71.1%. Net cash used in investing activities totaled $272,153 for the nine months ended September 30, 2021, compared to net cash used of $12,728 during the nine months ended September 30, 2020 representing an increase in cash used of $259,425 or 2,038.2%. Net cash provided by financing activities totaled $1,237,542 for the nine months ended September 30, 2021, compared to $833,884 during the nine months ended September 30, 2020 representing an increase in cash provided of $434,045 or 52.1%.

 

We have limited working capital, have historically incurred net operating losses, and have not yet received material revenues from the sale of products or services. These factors create substantial doubt about our ability to continue as a going concern.

 

Our primary sources of liquidity have been derived through proceeds from the (i) issuance of debt and (ii) sales of our equity and the equity of one of our subsidiaries. Our ability to continue as a going concern is dependent upon our capability to generate cash flows from operations and successfully raise new capital through debt issuances and sales of our equity. We believe that we will be successful in the execution of our initiatives, but there can be no assurance. We have no plans for any significant cash acquisitions in the foreseeable future.

 

Currency Risk

 

We operate primarily in Brazil which exposes us to currency risks. Our 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 it receiving either more or less in local currency than the local currency equivalent at the time of the original activity.

 

Our 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. Our 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.

 

Off-Balance Sheet Arrangements

 

We currently have no off-balance sheet arrangements.

 

Critical Accounting Policies and Estimates

 

Our financial instruments consist of cash and cash equivalents, loans to a related party, accrued expenses, and an amount due to a director. The carrying amount of these financial instruments approximates fair value due either to length of maturity or interest rates that approximate prevailing market rates unless otherwise disclosed in our financial statements. If our estimate of the fair value is incorrect at September 30, 2021, it could negatively affect our financial position and liquidity and could result in our having understated our net loss.

 

Recent Accounting Pronouncements

 

Our consolidated financial statements are prepared in accordance with U.S. generally accepted accounting principles. Our significant accounting policies are described in Note 1 of the financial statements. We have reviewed all recent accounting pronouncements issued to the date of the issuance of these financial statements, and we do not believe any of these pronouncements will have a material impact on us.

 

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Pursuant to Item 305(e) of Regulation S-K (§ 229.305(e)), the Company is not required to provide the information required by this Item as it is a “smaller reporting company,” as defined by Rule 229.10(f)(1).

 

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Item 4. CONTROLS AND PROCEDURES

 

(a) Evaluation of Disclosure Controls and Procedures

 

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the design, operation, and effectiveness of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act as of September 30, 2021. On the basis of that evaluation, management concluded that our disclosure controls and procedures designed to provide reasonable assurance that the information required to be disclosed in reports filed or submitted pursuant to the Securities Exchange Act of 1934, as amended (the “Exchange Act”) is recorded, processed, summarized, and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission (the “Commission”), and that such information is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer as appropriate, to allow timely decisions regarding required disclosure were effective.

 

(b) Changes in Internal Control over Financial Reporting

 

There were no changes in our internal control over financial reporting that occurred in the third quarter of 2021 that materially affected, or would be reasonably likely to materially affect, our internal control over financial reporting.

 

(c) Limitations of the Effectiveness of Internal Controls

 

The effectiveness of the Company’s system of disclosure controls and procedures and internal control over financial reporting is subject to certain limitations, including the exercise of judgment in designing, implementing and evaluating the control system, the assumptions used in identifying the likelihood of future events, and the inability to eliminate fraud and misconduct completely. As a result, there can be no assurance that the Company’s disclosure controls and procedures and internal control over financial reporting will detect all errors or fraud. However, the Company’s control systems have been designed to provide reasonable assurance of achieving their objectives, and the Company’s Principal Executive Officer and Principal Financial Officer have concluded that the Company’s disclosure controls and procedures and internal control over financial reporting are effective at the reasonable assurance level.

 

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PART II OTHER INFORMATION

 

Item 1. LEGAL PROCEEDINGS

 

None which are material.

 

Item 1A. RISK FACTORS

 

There have been no material changes in the risk factors applicable to us from those identified in the Annual Report on Form 10-K for the period ended December 31, 2020 filed with the Securities and Exchange Commission on March 31, 2021.

 

Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

During the three months ended September 30, 2021, we received an aggregate of $75,000 in gross proceeds from the exercise of cash warrants and sale of our common stock to one institutional investor.

 

All of the above securities were issued in accordance with an exemption from the registration requirements of the Securities Act of 1933, as amended (the “Securities Act”) under Section 4(a)(2) of the Securities Act by virtue of being offered without employing any means of general solicitation and issued to purchasers which represented to us that they are accredited investors and that they were acquiring the securities for investment and could bear the economic risk of the investment.

 

Item 3. DEFAULTS UPON SENIOR SECURITIES

 

None

 

Item 4. MINE SAFETY DISCLOSURES

 

Not applicable.

 

Item 5. OTHER INFORMATION

 

None

 

Item 6. EXHIBITS

 

(a) Exhibits

 

Exhibit

Number

  Description
     
31.1   Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
     
31.2   Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
     
32.1   Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
     
101.INS   Inline XBRL Instance Document
     
101.SCH   Inline XBRL Taxonomy Extension Schema Document
     
101.CAL   Inline XBRL Taxonomy Extension Calculation Linkbase Document
     
101.DEF   Inline XBRL Taxonomy Extension Definition Linkbase Document
     
101.LAB   Inline XBRL Taxonomy Extension Label Linkbase Document
     
101.PRE   Inline XBRL Taxonomy Extension Presentation Linkbase Document
     
104   Cover Page Interactive Data File (embedded within the Inline XBRL document)

 

19

 

 

SIGNATURES

 

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

  BRAZIL MINERALS, INC.
     
  By: /s/ Marc Fogassa
    Marc Fogassa
Date: November 10, 2021   Chief Executive Officer

 

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