NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE
1 – ORGANIZATION, BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
and Description of Business
Brazil
Minerals, Inc. ("Brazil Minerals" or the "Company") was incorporated as Flux Technologies, Corp. under the
laws of the State of Nevada, U.S. on December 15, 2011. The Company changed its management and business on December 18, 2012,
to focus on mineral exploration. Brazil Minerals, through subsidiaries, owns mineral rights in Brazil for gold, diamonds, cobalt,
copper, lithium, manganese, nickel, precious gems (aquamarine, beryl, tourmaline) and sand.
On
July 27, 2016, upon approval by its Board of Directors, the Company sold a 99.99% equity
interest in Mineração Jupiter Ltda (“Mineração Jupiter”) to
Jupiter Gold Corporation ("Jupiter Gold"), a newly created company, in exchange for 4,000,000 shares of the common stock
of Jupiter Gold. On December 16, 2016, the Securities and Exchange Commission ("SEC") declared effective a Registration
Statement filed by Jupiter Gold for the sale of shares in a public offering in the U.S. As of September 30, 2019, the Company
has ownership of approximately 43.1% of the equity of Jupiter Gold. The Company has concluded that Jupiter Gold and its subsidiary
Mineração Jupiter are VIEs in accordance with applicable accounting standards and guidance; and as such, the accounts
and results of Jupiter Gold and Mineração Jupiter have been included
in the Company's consolidated financial statements.
Basis
of Presentation and Principles of Consolidation
The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting
principles generally accepted in the United States of America 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 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, 2019, 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, 2019 and 2018, are not necessarily indicative of the operating results for the full
fiscal year or any future period. These unaudited consolidated financial statements should be read in conjunction with the financial
statements and related notes thereto included in Form 10-K for the fiscal period ended December 31, 2018 filed with the Securities
and Exchange Commission (the “SEC”) on April 15, 2019.
The
consolidated financial statements include the accounts of the Company and its 99.99% owned subsidiary, BMIX Participações
Ltda. ("BMIX Participações"), which includes the accounts of BMIX Participações’ wholly-owned
subsidiary, Mineração Duas Barras Ltda. ("Mineração Duas Barras").
During
the year ended December 31, 2014, BMIX Participações acquired an initial 25% interest in RST Recursos Minerais Ltda.
("RST Recursos Minerais"), and during the first quarter of 2015, it acquired an additional 25% interest in RST Recursos
Minerais, thus bringing its total ownership of RST to 50%. As of March 18, 2015, RST Recursos Minerais has been consolidated within
the Company's financial statements.
On
April 17, 2015, BMIX Participações incorporated Hercules Resources Corporation ("Hercules Resources").
On May 27, 2015, Hercules Resources formalized title to 99.99% of Hercules Brasil Comercio e Transportes Ltda. ("Hercules
Brasil"). Thus, Hercules Brasil is a wholly-owned subsidiary and has been consolidated within the Company's consolidated
financial statements.
On
July 27, 2016, upon approval by its Board of Directors, the Company entered into a stock
purchase and sale agreement pursuant to which HRC transferred its 99.99% equity interest in Mineração Jupiter
to the Company which immediately thereafter sold such equity interest to Jupiter Gold, a
newly created company, in exchange for all of the common stock of Jupiter Gold. On December 16, 2016, the Securities and
Exchange Commission ("SEC") declared effective a Registration Statement filed by JGC for the sale of shares in a public
offering in the U.S. As of September 30, 2019, the Company has ownership of approximately 43.1% of the equity of JGC. The Company
has concluded that Jupiter Gold and its subsidiary, Mineração Jupiter are VIEs in accordance with applicable accounting
standards and guidance; and as such, the accounts and results of Jupiter Gold and Mineração Jupiter have been included
in the Company's consolidated financial statements.
All
material intercompany accounts and transactions have been eliminated in consolidation.
Use
of Estimates
The
preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingencies at the date of the
financial statements and the reported amount of revenues and expenses during the reporting period. Actual results may differ
from those estimates.
Going
Concern
The
consolidated financial statements have been prepared on a going concern basis which contemplates the realization of assets and
the settlement of liabilities in the normal course of business. The Company has limited working capital, has incurred losses in
each of the past two years, and has not yet received material revenues from sales of products or services. These factors create
substantial doubt about the Company's ability to continue as a going concern. The consolidated financial statements do not include
any adjustment that might be necessary if the Company is unable to continue as a going concern.
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. During the nine months ended September 30, 2019 and the year ended December 31,
2018, the Company funded operations primarily through the sale of debt and equity securities and through the receipt of proceeds
from revenues. Management's plan to fund its capital requirements and ongoing operations include an increase in cash received
from sales of gold and rough diamonds recovered from a new mining area for which the Company received the necessary regulatory
permits and has begun ore removal and initial testing runs for mineral recovery. 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.
Fair
Value of Financial Instruments
The
Company follows the guidance of Accounting Standards Codification ("ASC") Topic 820 – Fair Value Measurement and
Disclosure. Fair value is defined as the exit price, or the amount that would be received to sell an asset or paid to transfer
a liability in an orderly transaction between market participants as of the measurement date. The guidance also establishes a
hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable
inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs market participants would
use in valuing the asset or liability and are developed based on market data obtained from sources independent of our Company.
Unobservable inputs are inputs that reflect our Company's assumptions about the factors market participants would use in valuing
the asset or liability. The guidance establishes three levels of inputs that may be used to measure fair value:
|
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•
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Level 1.
Observable inputs such as quoted prices in active markets;
|
|
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•
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Level 2.
Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and
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|
|
•
|
Level 3.
Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.
|
The
Company's financial instruments consist of cash and cash equivalents, accounts receivable, taxes receivable, prepaid expenses,
inventory, deposits and other assets, accounts payable, accrued expenses and convertible notes payable. The carrying amount of
these financial instruments approximates fair value due to either length of maturity or interest rates that approximate prevailing
market rates unless otherwise disclosed in these consolidated financial statements.
Cash
and Cash Equivalents
The
Company considers all highly liquid instruments purchased with a maturity of three months or less to be cash equivalents to the
extent that the funds are not being held for investment purposes. The Company's bank accounts are deposited in FDIC insured institutions.
Funds held in U.S. banks are insured up to $250,000 and funds held in Brazilian banks are insured up to $250,000 Brazilian Reais
(translating into approximately $60,033 as of September 30, 2019).
Inventory
Inventory
for the Company consists of ore stockpile, containing auriferous and diamondiferous gravel, which after processing in a recovery
plant yields diamonds and gold, and is stated at lower of cost or market. No value was placed on sand. The amount of any write-down
of inventories to net realizable value and all losses, are recognized in the period the write-down of loss occurs. At September
30, 2019 and December 31, 2018, inventory consisted primarily of rough ore stockpiled for further gold and diamonds recovery.
During the three and nine months ended September 30, 2019 and 2018, the Company did not record any write downs against the value
of its inventory.
Taxes Receivable
The
Company records a receivable for value added taxes receivable from Brazilian authorities on goods and services
purchased by its Brazilian subsidiaries. The Company intends to recover the taxes through the acquisition of capital equipment
from sellers who accept tax credits as payments.
Property
and Equipment
Property
and equipment are stated at cost. Major improvements and betterments are capitalized. Maintenance and repairs are expensed as
incurred. Depreciation is computed using the straight-line method over the estimated useful life. At the time of retirement or
other disposition of property and equipment, the cost and accumulated depreciation are removed from the accounts and any resulting
gain or loss is reflected in the statements of operations as other gain or loss, net.
The
diamond and gold processing plant and other machinery are depreciated over an estimated useful life of ten years; vehicles are
depreciated over an estimated life of four years; and computer and other office equipment over an estimated useful life of three
years.
Right
of use assets and lease liabilities
In
February 2016, the FASB issued ASU No. 2016-02, "Leases" (ASC 842). The standard requires lessees to recognize almost
all leases on the balance sheet as a ROU asset and a lease liability and requires leases to be classified as either an operating
or a finance type lease. The standard excludes leases of intangible assets or inventory. The standard became effective for the
Company beginning January 1, 2019. The Company adopted ASC 842 using the modified retrospective approach, by applying the new
standard to all leases existing at the date of initial application. Results and disclosure requirements for reporting periods
beginning after January 1, 2019 are presented under ASC 842, while prior period amounts have not been adjusted and continue to
be reported in accordance with our historical accounting under ASC 840. The Company elected the package of practical expedients
permitted under the standard, which also allowed the Company to carry forward historical lease classifications. The Company also
elected the practical expedient related to treating lease and non-lease components as a single lease component for all equipment
leases as well as electing a policy exclusion permitting leases with an original lease term of less than one year to be excluded
from the ROU assets and lease liabilities.
Under
ASC 842, the Company determines if an arrangement is a lease at inception. Right-of-Use ("ROU") assets and liabilities
are recognized at commencement date based on the present value of remaining lease payments over the lease term. For this purpose,
the Company considers only payments that are fixed and determinable at the time of commencement. As most of the Company's leases
do not provide an implicit rate, the Company estimated the incremental borrowing rate in determining the present value of lease
payments. The ROU asset also includes any lease payments made prior to commencement and is recorded net of any lease incentives
received. The Company lease terms may include options to extend or terminate the lease when it is reasonably certain that the
Company will exercise such options.
Operating
leases are included in operating lease right-of-use assets, operating lease liabilities, current and operating lease liabilities,
non-current on the Company's condensed consolidated balance sheets.
As
a result of the adoption of ASC 842 on January 1, 2019, the Company recorded both operating lease ROU assets of $21,292 and operating
lease liabilities of $21,292. As of September 30, 2019, both the operating lease ROU assets and operating lease liabilities totaled
$5,323. The adoption did not impact the Company's beginning retained earnings, or prior year consolidated statements of income
and statements of cash flows.
Mineral
Properties
Costs
of exploration, carrying and retaining unproven mineral lease properties are expensed as incurred. Mineral property acquisition
costs, including licenses and lease payments, are capitalized. Although the Company has taken steps to verify title to mineral
properties in which it has an interest, these procedures do not guarantee the Company's rights. Such properties may be subject
to prior agreements or transfers and title may be affected by undetected defects.
Impairment
losses are recorded on mineral properties used in operations when indicators of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are less than the assets' carrying amount. As of September 30, 2019, and December
31, 2018, the Company did not recognize any impairment losses related to mineral properties held.
Intangible
Assets
For
intangible assets purchased in a business combination, the estimated fair values of the assets received are used to establish
their recorded values. For intangible assets acquired in a non-monetary exchange, the estimated fair values of the assets transferred
(or the estimated fair values of the assets received, if more clearly evident) are used to establish their recorded values, unless
the values of neither the assets received nor the assets transferred are determinable within reasonable limits, in which case
the assets received are measured based on the carrying values of the assets transferred. Valuation techniques consistent with
the market approach, income approach and/or cost approach are used to measure fair value. Intangible assets consist of mineral
rights awarded by the Brazilian national mining department and held by the Company's subsidiaries.
Impairment
of Long-Lived Assets
For
long-lived assets, such as property and equipment and intangible assets subject to amortization, the Company continually monitors
events and changes in circumstances that could indicate carrying amounts of long-lived assets may not be recoverable. When such
events or changes in circumstances are present, the Company assesses the recoverability of long-lived assets by determining whether
the carrying value of such assets will be recovered through undiscounted expected future cash flows. If the total of the future
cash flows is less than the carrying amount of those assets, the Company recognizes an impairment loss based on the excess of
the carrying amount over the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount
or the fair value less costs to sell.
Convertible
Instruments
The
Company evaluates and account for conversion options embedded in convertible instruments in accordance with ASC 815 “Derivatives
and Hedging Activities”.
Applicable
GAAP requires companies to bifurcate conversion options from their host instruments and account for them as free standing derivative
financial instruments according to certain criteria. The criteria include circumstances in which (a) the economic characteristics
and risks of the embedded derivative instrument are not clearly and closely related to the economic characteristics and risks
of the host contract, (b) the hybrid instrument that embodies both the embedded derivative instrument and the host contract is
not re-measured at fair value under other GAAP with changes in fair value reported in earnings as they occur and (c) a separate
instrument with the same terms as the embedded derivative instrument would be considered a derivative instrument.
The
Company accounts for convertible instruments (when it has been determined that the embedded conversion options should not be bifurcated
from their host instruments) by recording, when necessary, discounts to convertible notes for the intrinsic value of conversion
options embedded in debt instruments based upon the differences between the fair value of the underlying common stock at the commitment
date of the note transaction and the effective conversion price embedded in the note. Debt discounts under these arrangements
are amortized over the term of the related debt to their stated date of redemption.
Variable
Interest Entities
The
Company determines at the inception of each arrangement whether an entity in which the Company holds an investment or in which
the Company has other variable interests in is considered a variable interest entity ("VIE"). The Company consolidates
VIEs when it is the primary beneficiary. The primary beneficiary of a VIE is the party that meets both of the following criteria:
(1) has the power to make decisions that most significantly affect the economic performance of the VIE; and (2) has the obligation
to absorb losses or the right to receive benefits that in either case could potentially be significant to the VIE. Periodically,
the Company assesses whether any changes in the interest or relationship with the entity affect the determination of whether the
entity is still a VIE and, if so, whether the Company is the primary beneficiary. If the Company is not the primary beneficiary
in a VIE, the Company accounts for the investment under the equity method or cost method in accordance with the applicable GAAP.
The
Company has concluded that Jupiter Gold and its subsidiary Mineração
Jupiter are VIEs in accordance with applicable accounting standards and guidance; and although the operations of Jupiter Gold
are independent of the Company, through governance rights, the Company has the power to direct the activities that are most significant
to Jupiter Gold. Therefore, the Company concluded that it is the primary beneficiary of the Jupiter Gold.
Revenue
Recognition
On
January 1, 2018, the Company adopted ASC Topic 606, Revenue from Contracts with Customers ("ASC 606"), using the modified
retrospective method applied to those contracts which were not completed as of January 1, 2018. Results for reporting periods
beginning after January 1, 2018 are presented under ASC 606, while prior period amounts are not adjusted and continue to be reported
in accordance with our historic accounting under ASC 605. As of December 31, 2018, the consolidated financial statements were
not materially impacted as a result of the application of Topic 606 compared to Topic 605.
The
Company recognizes revenue under ASC 606, Revenue from Contracts with Customers. The core principle of the new revenue standard
is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that
reflects the consideration to which the company expects to be entitled in exchange for those goods or services. The following
five steps are applied to achieve that core principle:
|
•
|
Step
1: Identify the contract with the customer
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|
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•
|
Step
2: Identify the performance obligations in the contract
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•
|
Step
3: Determine the transaction price
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•
|
Step
4: Allocate the transaction price to the performance obligations in the contract
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|
|
|
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•
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Step
5: Recognize revenue when the company satisfies a performance obligation
|
In
order to identify the performance obligations in a contract with a customer, a company must assess the promised goods or services
in the contract and identify each promised good or service that is distinct. A performance obligation meets ASC 606's definition
of a "distinct" good or service (or bundle of goods or services) if both of the following criteria are met:
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•
|
The
customer can benefit from the good or service either on its own or together with other resources that are readily available
to the customer
|
|
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•
|
The
entity's promise to transfer the good or service to the customer is separately identifiable from other promises in the contract
|
If
a good or service is not distinct, the good or service is combined with other promised goods or services until a bundle of goods
or services is identified that is distinct.
The
transaction price is the amount of consideration to which an entity expects to be entitled in exchange for transferring promised
goods or services to a customer. The consideration promised in a contract with a customer may include fixed amounts, variable
amounts, or both. When determining the transaction price, an entity must consider the effects of all of the following:
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•
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Variable
consideration
|
|
|
|
|
•
|
Constraining
estimates of variable consideration
|
|
|
|
|
•
|
The
existence of a significant financing component in the contract
|
|
|
|
|
•
|
Noncash
consideration
|
|
|
|
|
•
|
Consideration
payable to a customer
|
Variable
consideration is included in the transaction price only to the extent that it is probable that a significant reversal in the amount
of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently
resolved.
The
transaction price is allocated to each performance obligation on a relative standalone selling price basis.
The
transaction price allocated to each performance obligation is recognized when that performance obligation is satisfied, at a point
in time or over time as appropriate.
Costs
of Goods Sold
Included
within costs of goods sold are the costs of cutting and polishing rough diamonds and costs of production such as diesel fuel,
labor, and transportation.
Stock-Based
Compensation
The
Company records stock-based compensation in accordance with ASC Topic 718, Compensation - Stock Compensation. ASC 718 requires
companies to measure compensation cost for stock-based employee compensation at fair value at the grant date and recognize the
expense over the employee's requisite service period. Under ASC 718, volatility is based on the historical volatility of our stock
or the expected volatility of the stock of similar companies. The expected life assumption is primarily based on historical exercise
patterns and employee post-vesting termination behavior. The risk-free interest rate for the expected term of the option is based
on the U.S. Treasury yield curve in effect at the time of grant.
The
Company utilizes the Black-Scholes option-pricing model, which was developed for use in estimating the fair value of options.
Option-pricing models require the input of highly complex and subjective variables including the expected life of options granted
and the expected volatility of our stock price over a period equal to or greater than the expected life of the options. Because
changes in the subjective assumptions can materially affect the estimated value of our employee stock options, it is management's
opinion that the Black-Scholes option-pricing model may not provide an accurate measure of the fair value of our employee stock
options. Although the fair value of employee stock options is determined in accordance with ASC Topic 718 using an option-pricing
model, that value may not be indicative of the fair value observed in a willing buyer/willing seller market transaction.
On
June 20, 2018, the FASB issued ASU 2018-07 which simplifies the accounting for share-based payments granted to nonemployees for
goods and services. Under the ASU, most of the guidance on such payments to nonemployees would be aligned with the requirements
for share-based payments granted to employees. Previously, share-based payment arrangements to nonemployees were accounted for
under ASC 718, while nonemployee share-based payments issued for goods and services were accounted for under ASC 505-50. Before
the amendment, the major difference for the Company (but not limited to) was the determination of measurement date which generally
is the date on which the measurement of equity classified share-based payments becomes fixed. Equity classified share-based payments
for employees was fixed at the time of grant. Equity-classified nonemployee share-based payment awards are no longer measured
at the earlier of the date which a commitment for performance by the counterparty is reached or the date at which the counterparty’s
performance is complete. They are now measured at the grant date of the award which is the same as share-based payments for employees.
The Company adopted the requirements of the new rule as of January 1, 2019, the effective date of the new guidance.
The
Company has adopted a stock plan to attract, retain and motivate its directors, officers, employees, consultants and advisors.
The Company's 2017 stock incentive plan provides for the issuance of up to 25,000,000 common shares for employees, consultants,
directors, and advisors.
Foreign
Currency
The
Company's foreign subsidiaries use a local currency as the functional currency. Resulting translation gains or losses are recognized
as a component of accumulated other comprehensive income. Transaction gains or losses related to balances denominated in a currency
other than the functional currency are recognized in the consolidated statements of operations. Net foreign currency transaction
losses included in the Company's consolidated statements of operations were negligible for all periods presented.
Income
Taxes
The
Company accounts for income taxes in accordance with ASC Topic 740, Income Taxes. ASC 740 requires a company to use the asset
and liability method of accounting for income taxes, whereby deferred tax assets are recognized for deductible temporary differences,
and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between
the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when,
in the opinion of management, it is more likely than not that some portion, or all of, the deferred tax assets will not be realized.
Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment. As
of September 30, 2019 and December 31, 2018, the Company's deferred tax assets had a full valuation allowance.
Under
ASC 740, a tax position is recognized as a benefit only if it is "more likely than not" that the tax position would
be sustained in a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit that is
greater than 50% likely of being realized on examination. For tax positions not meeting the "more likely than not" test,
no tax benefit is recorded. The Company has identified the United States Federal tax returns
as its "major" tax jurisdiction.
On
December 22, 2017, the United States enacted the Tax Cuts and Jobs Act ("TCJA"), which instituted fundamental changes
to the taxation of multinational corporations, including a reduction the U.S. corporate income tax rate to 21% beginning in 2018.
The
TCJA also requires a one-time transition tax on the mandatory deemed repatriation of the cumulative earnings of certain of the
Company's foreign subsidiaries as of December 31, 2017. To determine the amount of this transition tax, the Company must determine
the amount of earnings generated since inception by the relevant foreign subsidiaries, as well as the amount of non-U.S. income
taxes paid on such earnings, in addition to potentially other factors. The Company believes that no such tax will be due since
its Brazilian subsidiaries have, when required, paid taxes locally and that they have incurred a cumulative operating deficit
since inception.
Basic
Income (Loss) Per Share
The
Company computes loss per share in accordance with ASC Topic 260, Earnings per Share, which requires presentation of both basic
and diluted earnings per share on the face of the statement of operations. Basic loss per share is computed by dividing net loss
available to common shareholders by the weighted average number of outstanding common shares during the period. Diluted loss per
share gives effect to all dilutive potential common shares outstanding during the period. As of September 30, 2019, the Company's
potentially dilutive securities relate to common stock issuable in connection with convertible notes payable, options and warrants.
Other
Comprehensive Income
Other
comprehensive income is defined as the change in equity of a business enterprise during a period from transactions and other events
and circumstances from non-owner sources, other than net income and including foreign currency translation adjustments.
Reclassifications
Certain
prior year amounts have been reclassified to conform to the current period presentation. These reclassifications had no impact
on net earnings (loss) or and financial position.
Recent
Accounting Pronouncements
We
have reviewed other recent accounting pronouncements issued to the date of the issuance of these consolidated financial statements,
and we do not believe any of these pronouncements will have a material impact on the Company.
NOTE
2 – COMPOSITION OF CERTAIN FINANCIAL STATEMENT ITEMS
Property
and Equipment
The
following table sets forth the components of the Company's property and equipment at September 30, 2019 and December 31, 2018:
|
|
|
September
30, 2019
|
|
|
December
31, 2018
|
|
|
|
|
Cost
|
|
|
Accumulated
Depreciation
|
|
|
Net
Book
Value
|
|
|
Cost
|
|
|
Accumulated
Depreciation
|
|
|
Net
Book
Value
|
|
|
Capital assets subject
to depreciation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Computers
and office equipment
|
|
$
|
1,519
|
|
|
$
|
(716
|
)
|
|
$
|
803
|
|
|
$
|
1,572
|
|
|
$
|
(769
|
)
|
|
$
|
803
|
|
|
Machinery and equipment
|
|
|
423,169
|
|
|
|
(281,719
|
)
|
|
|
141,450
|
|
|
|
451,310
|
|
|
|
(268,537
|
)
|
|
|
182,773
|
|
|
Vehicles
|
|
|
159,001
|
|
|
|
(116,873
|
)
|
|
|
42,128
|
|
|
|
170,885
|
|
|
|
(110,683
|
)
|
|
|
60,202
|
|
|
Total fixed assets
|
|
$
|
583,689
|
|
|
$
|
(399,308
|
)
|
|
$
|
184,381
|
|
|
$
|
623,767
|
|
|
$
|
(379,989
|
)
|
|
$
|
243,778
|
|
For
the three and nine months ended September 30, 2019, the Company recorded depreciation expense of $22,696 and $43,665, respectively.
For the three and nine months ended September 30, 2018, the Company recorded depreciation expense of $19,426 and $63,401, respectively.
Intangible
Assets
Intangible
assets consist of mining rights are not amortized as the mining rights are perpetual. The carrying value was $493,558
and $530,293 at September 30, 2019 and December 31, 2018, respectively.
Equity
Investments without Readily Determinable Fair Values
On
October 2, 2017, the Company entered into an exchange agreement whereby it issued 25,000,000 shares of its common stock in exchange
for 500,000 shares of Ares Resources Corporation (“Ares Resources”), a related party. The shares were recorded at
$150,000, or $0.006 per share. The shares were valued based upon the lowest market price of the Company's common stock on the
date the agreement.
Under
ASC 825-10, the Company elected to use a measurement alternative for its equity investment that does not have a readily determinable
fair value. As such, the Company measured its investment at cost, less any impairment, plus or minus any changes resulting from
observable price changes in orderly transactions for an identical or similar investment of the same issuer.
The
Company has recognized the cost of its investment in Ares, which is a private company with no readily determinable fair value,
at its cost of $150,000 and accounts for the investment as an equity investment without a readily determinable fair value. The
Company owns less than 5% of the total shares outstanding of Ares Resources.
Accounts
Payable and Accrued Liabilities
|
|
|
September
30, 2019
|
|
December
31, 2018
|
|
Accounts
payable and other accruals
|
|
$
|
162,480
|
|
|
$
|
140,968
|
|
|
Accrued
interest
|
|
|
464,961
|
|
|
|
390,322
|
|
|
Total
|
|
$
|
627,441
|
|
|
$
|
531,290
|
|
NOTE
3 – CONVERTIBLE PROMISSORY NOTES PAYABLE
The
following tables set forth the components of the Company’s convertible debentures as of September 30, 2019 and December
31, 2018:
|
|
|
September
30,
2019
|
|
December
31, 2018
|
|
Convertible
notes payable – fixed conversion price
|
|
$
|
244,000
|
|
|
|
244,000
|
|
|
Convertible notes
payable – variable conversion price
|
|
|
759,929
|
|
|
|
630,923
|
|
|
Less: loan discounts
|
|
|
(223,500
|
)
|
|
|
(8,299
|
)
|
|
Total convertible
notes, net
|
|
$
|
780,429
|
|
|
$
|
866,624
|
|
The
following table sets forth a summary of change in our convertible notes payable for the nine months ended September 30, 2019:
|
|
|
September 30,
2019
|
|
Beginning balance
|
|
$
|
866,624
|
|
|
Amortization of debt discounts associated with convertible debt
|
|
|
66,800
|
|
|
Conversion of convertible note principal into common stock
|
|
|
(166,401
|
)
|
|
Issuance of new convertible notes
|
|
|
282,000
|
|
|
Debt discounts recorded upon issuance of new convertible notes
|
|
|
(282,000
|
)
|
|
Penalties and interest assessed for default on terms
|
|
|
13,406
|
|
|
Total convertible notes, net
|
|
$
|
780,429
|
|
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, 2019, all warrants issued in connection with this note had expired.
The
outstanding principal on the note was payable on March 31, 2015, which as of the date of these financial statements is past due
and in technical default. The Company is in negotiations with the note holder to satisfy, amend the terms or otherwise resolve
the obligation in default. No demand for payment has been made. As a result of the default, the interest rate on the note increased
to 30% per annum. Interest was payable on September 30, 2014 and on the maturity date. As of September 30, 2019, the Company has
accrued interest payable totaling $365,709 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 September
30, 2019, the outstanding principal balance on these notes total $200,144, and all discounts were fully amortized.
During
the year ended December 31, 2017, the Company issued to one noteholder in various transactions $477,609 in convertible promissory
notes with fixed floors and received an aggregate of $454,584 in proceeds. The convertible promissory notes each bear interest
at 8.0% per annum and mature one year from issuance ranging from January to August 2018. After six months from issuance, each
convertible promissory note is convertible at the option of the holder at a 50% discount to the lowest traded price of the Company's
common stock over the previous 20 days. In addition, each note's conversion rate has a floor of $0.0001. Total debt discounts
related to the beneficial conversion features of $447,272 were recorded and are being amortized over the life of the notes. As
of September 30, 2019, the outstanding principal balance on these notes total $148,565, and all discounts were fully amortized.
During
the year ended December 31, 2018, the Company issued to one noteholder in various transactions $137,306 in convertible promissory
notes with fixed floors and received an aggregate of $130,556 in proceeds. The convertible promissory notes each bear interest
at 8.0% per annum and mature one year from issuance ranging from August 2018 to April 2019. After six months from issuance, each
convertible promissory note is convertible at the option of the holder at a 50% discount to the lowest traded price of the Company's
common stock over the previous 20 days. In addition, each note's conversion rate has a floor of $0.0001. Total debt discounts
related to the beneficial conversion features of $122,755 were recorded and are being amortized over the life of the notes. As
of September 30, 2019, the outstanding principal balance on these notes total $129,220, and all discounts were fully amortized.
During
the nine months ended September 30, 2019, the Company issued to one noteholder in various transactions $282,000 in convertible
promissory notes with fixed floors and received an aggregate of $276,000 in proceeds. The convertible promissory notes each bear
interest at 8.0% per annum and mature one year from issuance in July 2020. After six months from issuance, each convertible promissory
note is convertible at the option of the holder at a 50% discount to the lowest traded price of the Company's common stock over
the previous 20 days. In addition, each note's conversion rate has a floor of $0.0001. Total debt discounts related to the beneficial
conversion features of $276,000 and $6,000 for issuance costs were recorded and are being amortized over the life of the notes.
As of September 30, 2019, the outstanding principal balance on these notes total $282,000, and the associated unamortized discounts
totaled $223,500.
While
many of these convertible notes are past their original maturity dates, the Company continues to maintain a favorable relationship
and work with the lender with regard to financing its working capital needs. During the nine months ended, the Company was assessed
$13,406 in penalties and interest as a result of its default on payment by certain maturity dates by the lender. These charges
increased the principal balance outstanding on the notes.
As
of September 30, 2019, the Company has accrued interest payable totaling $96,166 in connection with these variable convertible
notes.
During
the three months ended September 30, 2019 and 2018, the Company issued 150,550,830 and 93,516,097 shares of common stock upon
conversion of $55,425 and $45,000, respectively, in notes payable and accrued interest.
For the nine months ended September 30, 2019 and 2018, the Company issued 460,718,592 and 181,525,265 shares of common stock upon
conversion of $166,401 and $136,275, respectively, in notes payable and accrued interest.
Future
Potential Dilution
Most
of the Company's convertible notes payable contain adjustable conversion terms with significant discounts to market. As of September
30, 2019, the Company's convertible notes are convertible into an aggregate of approximately 558,300,755 shares of common stock.
Due to the variable conversion prices on some of the Company's convertible notes, the number of common shares issuable is dependent
upon the traded price of the Company's common stock.
NOTE
4 – LOANS PAYABLE
During
the year ended December 31, 2018, the Company received bridge loan proceeds of $228,320 from one lender in various transactions.
The loans payable bear interest at 8.0% per annum. The loans are payable upon demand.
During
the nine months ended September 30, 2019, the Company received bridge loan proceeds of $169,100 from one lender in various transactions.
The loans payable bear interest at 8.0% per annum. The loans are payable upon demand.
On
July 8, 2019, the Company repaid $222,112 of bridge loan principal and $17,888 of accrued interest. As of September 30, 2019,
the Company has $175,308 of outstanding principal and $3,086 of accrued interest payable in connection with these loans payable.
NOTE
5 – OTHER NONCURRENT LIABILITIES
Other
noncurrent liabilities are comprised solely of social contributions and other employee-related costs at our operating subsidiaries
located in Brazil. The Company has been funding these amounts upon the termination of a worker or employee. The balance of these
employee related costs as of September 30, 2019 and December 31, 2018 amounted to $181,480 and $188,423, respectively.
NOTE
6 – STOCKHOLDERS' DEFICIT
Authorized
and Amendments
On
March 15, 2018, an amendment of the charter of the Company filed with the Secretary of State of Nevada increased the number of
authorized common shares to 950,000,000 with a par value of $0.001 per share.
On
August 27, 2019, an amendment of the charter of the Company filed with the Secretary of State of Nevada increased the number of
authorized common shares to 1,200,000,000 with a par value of $0.001 per share.
As
of September 30, 2019 and December 31, 2018, the Company had 1,200,000,000 common 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.
Three
and Nine Months Ended September 30, 2019 Transactions
The
Company engaged Noble Capital Markets, Inc. (“Noble”) as a non-exclusive financial advisor in December 2018. During
the three and nine months ended September 30, 2019, the Company received $135,000 and $265,000, respectively, in gross proceeds
from the sale of units consisting of common stock of its subsidiary, Jupiter Gold, and warrants to purchase the Company’s
common stock to accredited investors. In aggregate, the securities the Company sold were 212,000 shares of Jupiter Gold and two-year
warrants to purchase a total of 106,000,000 shares of Brazil Minerals at $0.0012 per share.
Additionally,
the Company received $123,500 in gross proceeds from the sale of 235,584,906 shares of our common stock to accredited investors.
During
the three and nine months ended September 30, 2019, the Company issued 150,550,830 and 460,718,592 shares of common stock upon
conversion of $64,763 and $189,450 in convertible notes payable and accrued interest, respectively.
Three
and Nine Months Ended September 30, 2018 Transactions
During
the three and nine months ended September 30, 2018, the Company issued 93,516,097 and 181,525,265 shares of common stock upon
conversion of $48,045 and $145,766 in convertible notes payable and accrued interest, respectively.
See
Notes 2, 3 and 4 for additional discussions of common stock issuances.
Common
Stock Options
During
the year ended December 31, 2018, the Company granted options to purchase an aggregate of 31,073,000 shares of common stock to
non-management directors. The options were valued at $50,000 in total. The options were valued using the Black-Scholes option
pricing model with the following average assumptions: our stock price on the date of the grant ($0.0010 to $0.0026), expected
dividend yield of 0%, historical volatility calculated between a range of 205.4% to 217.0%, risk-free interest rate between a
range of 1.80% to 2.95%, and an expected term of 5 years.
During
the three and nine months ended September 30, 2019, the Company granted options to purchase an aggregate of 3,470,500 and 29,351,500
shares of common stock to non-management directors, respectively. The options were valued at $12,500 and $37,500 and recorded
as stock-based compensation during the three and nine months ended September 30, 2019. The options were valued using the Black-Scholes
option pricing model with the following average assumptions: our stock price on the date of the grant which ($0.0009 to $0.0037),
expected dividend yield of 0%, historical volatility calculated between a range of 199.2% to 223.2%, risk-free interest rate between
a range of 1.55% to 2.31%, and an expected term of 5 years.
NOTE
7 – COMMITMENTS AND CONTINGENCIES
Operating
Leases
The
Company leases offices in Pasadena, California, U.S., and in the municipality of Olhos D'Agua, Brazil. Such costs are immaterial
to the consolidated financial statements.
NOTE
8 - RELATED PARTY TRANSACTIONS
Chief
Executive Officer
The
following tables set forth the components of the Company’s related party payables as of September 30, 2019 and December
31, 2018:
|
|
|
September
30,
2019
|
|
December
31, 2018
|
|
Salary,
retirement contributions and advances payable to related party
|
|
$
|
—
|
|
|
$
|
224,516
|
|
|
Other amounts due
to (from) related party
|
|
|
(17,646
|
)
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible notes
payable to related party
|
|
$
|
566,743
|
|
|
$
|
445,628
|
|
|
Less: loan discounts
|
|
|
(177,109
|
)
|
|
|
(222,814
|
)
|
|
Total
convertible notes payable to related party, net
|
|
$
|
389,634
|
|
|
$
|
222,814
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
related party payables
|
|
$
|
371,988
|
|
|
$
|
447,330
|
|
As
of September 30, 2019 and December 31, 2018, amounts payable to the Chief Executive Officer for accrued salaries, retirement contributions,
and advances made net of any repayments included within related party payable were $549,097 and $670,144, respectively.
Effective
June 30, 2018, the Company issued a convertible promissory note in the principal amount of $445,628 to its Chief Executive Officer
against a portion of these unpaid compensatory balances. The note bears no interest and is payable on demand. The note is convertible
at the option of the holder at the lower of (i) the average of the five lowest bid prices of the Company's common stock over the
previous 20 trading days or (ii) the lowest price per share at which the Company sold its common stock in a transaction with a
person who is not a manager, officer, or director of the Company during the period from the date hereof until the giving of notice
of the election to convert or the lowest price per share at which a noteholder who is not a manager, officer, or director of the
Company converted any debt of the Company into shares of the Company during the period from the date hereof until the giving of
notice of the election to convert. The note's conversion rate has a floor of $0.0001. Total debt discounts related to the beneficial
conversion features of $445,628 were recorded and are being amortized over a one-year period consistent with the maturity dates
of convertible notes issued to third party holders. As of September 30, 2019, all discounts were fully amortized.
On
April 7, 2019, the Company’s board of directors approved the issuance of a convertible note in the principal amount of $261,631
to its Chief Executive Officer against a portion of these unpaid compensatory balances. The note bears interest at an annual rate
of 6.0% and is payable on demand. The note is convertible at the option of the holder at the lower of (i) $0.00045 or (ii) the
lowest price per share at which a noteholder who is not a manager, officer, or director of the Company converted any debt of the
Company into common stock of the Company during the period from the date hereof until the giving of notice of the election to
convert. Total debt discounts related to the beneficial conversion features of $261,631 were recorded and are being amortized
over a one-year period consistent with the maturity dates of convertible notes issued to third party holders. As of September
30, 2019, there were unamortized debt discounts of $130,816 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.
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, 2019,
there were unamortized debt discounts of $46,293 related to this note.
Investment
in Ares Resources Corporation's Common Stock
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 (“Ares Resources”). Our chief executive officer also serves as an
officer of Ares Resources, 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.
As of September 30, 2019, and December 31, 2018, no change in the value of the Ares common stock was recorded as the recorded
value still approximated fair value.
NOTE
9 - SUBSEQUENT EVENTS
In
accordance with FASB ASC 855-10 Subsequent Events, the Company has analyzed its operations subsequent to September 30, 2019 to
the date these consolidated financial statements were issued, and has determined that it does not have any material subsequent
events to disclose in these consolidated financial statements.