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PART
I
Item
1. Business.
Overview
Brazil
Minerals, Inc. (“Brazil Minerals”, the “Company”, “we”, “us”, or “our”) is
a U.S. mineral exploration and mining company with projects and properties in essentially all battery metals to power the Green Energy
Revolution – lithium, rare earths, graphite, nickel, cobalt, and titanium. Our current focus is on developing our hard-rock lithium
project located in a premier pegmatitic district in Brazil – as lithium is essential for batteries in electric vehicles. Additionally,
through subsidiaries, we participate in iron, gold, and quartzite projects. We also own multiple mining concessions for gold, diamond,
and industrial sand.
All
of our mineral projects and properties are located in Brazil and, as of the date of this Report, our mineral rights portfolio
for battery metals includes approximately 60,077 acres (243 km2) for lithium, 30,009 acres (121 km2) for rare earths,
22,050 acres (89 km2) for titanium, 14,507 acres (59 km2) for graphite, and 7,509 acres (30 km2) for
nickel and cobalt. We believe we are among the largest listed companies by size and breadth in exploration projects for strategic
minerals in Brazil, a premier mineral jurisdiction.
We
are primarily focused on advancing and developing our hard-rock lithium project located in the state of Minas Gerais, Brazil, where some
of our high-potential mineral rights are adjacent to or near large lithium deposits that belong to a large, publicly traded competitor.
Our Minas Gerais Lithium Project is our largest endeavor and consists of 44 mineral rights spread over 45,456 acres (184 km2)
and predominantly located within the Brazilian Eastern Pegmatitic Province which has been surveyed by the Brazilian Geological Survey
and is known for the presence of hard rock formations known as pegmatites which contain lithium-bearing minerals such as spodumene and
petalite. In general, lithium derived from pegmatites is less costly to purify for uses in high technology applications than lithium
obtained from brine. Such applications include the battery supply chain for electric vehicles (“EVs”), an area of expected
high growth for the next several decades.
We
believe that we can materially increase our value by the acceleration of our exploratory work and quantification of our lithium mineralization.
Our initial commercial goal is to be able to enter production of lithium-bearing concentrate, a product which is highly sought after
in the battery supply chain for EVs.
We
also have 100%-ownership of early-stage projects and properties in other minerals that are needed in the battery supply chain and high
technology applications such as rare earths, titanium, nickel, and cobalt. Our goal is to become “the Mineral Resources Company
for the Green Energy Revolution”. We believe that the shift from fossil fuels to battery power will yield long-term opportunities
for us not only in lithium but also in such other minerals.
Additionally,
we have 100%-ownership of several mining concessions for gold and diamonds. Historically we have had revenues from mining and selling
gold and diamonds. More recently we have had revenues from mining and selling industrial sand for the local construction industry, which
is at the time of this Annual Report on Form 10-K (this “Report”) our primary source of revenues. Such endeavors have
given us the critical management experience needed to take early-stage projects in Brazil from the exploration phase through successful
licensing from regulators and to revenues.
As
of the date of this Report, we also own 46.17% of the common shares of Apollo Resources Corporation (“Apollo Resources”),
a private company currently primarily focused on the development of its initial iron mine, expected to start operations and revenues
in early 2023.
As
of the date of this Report, we also own approximately 24.56% of Jupiter Gold Corporation (“Jupiter Gold”), a company
focused on the development of gold projects and of a quartzite mine, and whose common shares are quoted on the OTCQB under the symbol
“JUPGF”. The quartzite mine is expected to start operations and revenues in 2022.
The
results of operations from both Apollo Resources and Jupiter Gold are consolidated in our financial statements under US GAAP.
As
the “Mineral Resources Company for the Green Energy Revolution” we are deeply committed to Environmental, Social, and Corporate
Governance (“ESG”) causes. We have an ESG Chief who coordinates our efforts in these important matters. Within the last few
years, we planted more than 6,000 trees of diverse types for the benefit of local populations in areas in which we operate and constructed
over 1,000 small retention walls to preserve and enhance dirt access roads used by such communities. Separately, many of our work needs
have been specifically delegated to firms owned or managed by women and minorities.
LITHIUM
Market
Lithium
is on the list of the 35 minerals considered critical to the economic and national security of the United States, as first published
by the U.S. Department of the Interior on May 18, 2018. In June 2021, the U.S. Department of Energy published a report titled “National
Blueprint for Lithium Batteries 2021-2030” (henceforth, the “NBLB Report”) which was developed by the Federal Consortium
for Advanced Batteries (“FCAB”), a collaboration by the U.S. Departments of Energy, Defense, Commerce, and State. According
to the Report, one of the main goals of this U.S. government effort is to “secure U.S. access to raw materials for lithium batteries.”
In the NBLB Report, Ms. Jennifer M. Granholm, the U.S. Secretary of Energy, states: “Lithium-based batteries power our daily
lives from consumer electronics to national defense. They enable electrification of the transportation sector and provide stationary
grid storage, critical to developing the clean-energy economy.”
The
NBLB Report summarizes as follows the U.S. government’s views on the needs for lithium and the expected growth of the lithium battery
market:
|
● |
“A
robust, secure, domestic industrial base for lithium-based batteries requires access to a reliable supply of raw, refined, and processed
material inputs…” |
|
● |
“The
worldwide lithium battery market is expected to grow by a factor of 5 to 10 in the next decade.” |
Electric
Vehicle Demand
The
growth in electric vehicles (“EVs”) will provide the greatest needs for lithium-based batteries The NBLB Report states: “Bloomberg
projects worldwide sales of 56 million passenger electric vehicles in 2040, of which 17% (about 9.6 million EVs) will be in the U.S.
market.”
The
following graph shows the actual and estimated global annual sales of passenger EVs, including both Battery Electric Vehicles (“BEVs”)
and Plug-in Hybrid Electric Vehicles (“PHEVs”).
Source:
NBLB Report (defined above). Original Source: BloombergNEF Long-Term Electric Vehicle Outlook 2019.
In
a February 2021 report, Canalys, a global technology
market analyst firm, states that global sales of EVs in 2020 increased by 39% year over
year to 3.1 million units. This compares with a sales decline of 14% of the total passenger car market in 2020. Canalys forecasts that
the number of EVs sold will rise to 30 million in 2028 and EVs will represent nearly half of all passenger cars sold globally by 2030.
Bloomberg’s
Long-Term Electric Vehicle Outlook 2021 report states: “The outlook for EV adoption is getting much brighter, due to a combination
of more policy support, further improvements in battery density and cost, more charging infrastructure being built, and rising commitments
from automakers. Passenger EV sales are set to increase sharply in the next few years, rising from 3.1 million in 2020 to 14 million
in 2025. Globally, this represents around 16% of passenger vehicle sales in 2025, but some countries achieve much higher shares. In Germany,
for example, EVs represent nearly 40% of total sales by 2025, while China – the world’s largest auto market – hits
25%.”
Grid
Storage Demand
Regarding
the lithium battery growth derived from grid storage demands, the NBLB Report states: “In addition to the EV market, grid storage
uses of advanced batteries are also anticipated to grow, with Bloomberg projecting total global deployment to reach over 1,095 GW by
2040, growing substantially from 9 GW in 2018;” and “Bloomberg forecasts 3.2 million EV sales in the U.S. for 2028, and
over 200 GW of lithium-ion battery-based grid storage deployed globally by 2028. With an average EV battery capacity of 100 kWh, 320
GWh of domestic lithium-ion battery production capacity will be needed just to meet passenger EV demand. Benchmark Mineral Intelligence
forecasts U.S. lithium-ion battery production capacity of 148 GWh by 2028 less than 50% of projected demand.”
Growth
in Lithium Prices
Directly
relevant to our goal to produce spodumene concentrate for sale, the chart below indicates the price of spodumene concentrate in USD/ton
from February 2019 to February 2022.
Summary
of Our Opportunity
Minas
Gerais Lithium Project
Our
Minas Gerais Lithium Project currently encompasses 44 mineral rights spread over approximately 45,456 acres (184 km2). Several
of our mineral rights are located adjacent to or near mineral rights that belong to a large publicly traded competitor company (“Competitor”)
which has demonstrated through extensive drilling the presence of lithium deposits totaling over 20 million tons, according to its publicly-available
filings. The map below indicates our mineral rights in our Minas Gerais Lithium Project and those mineral rights that belong to the Competitor.
Our
exploratory work to date in some mineral rights in our Minas Gerais Lithium Project, including trenching and drilling with subsequent
geochemical analysis of samples, has determined the existence of hard rock pegmatites with lithium mineralization. Given the proximity
to areas of economically significant lithium deposits from the Competitor, our technical experts believe that one or more areas of our
Minas Gerais Lithium Project may also contain similar lithium deposits.
We
are currently focused on expanding and accelerating
our exploration program leading to the identification and quantitative measurement of our prospective lithium deposits. Our exploratory
program at the Minas Gerais Lithium Project is supervised by two lithium experts which meet the “Qualified Persons” definition
under Regulation S-K 1300.
Northeastern
Brazil Lithium Project
Our
Northeastern Brazil Lithium Project encompasses 7 mineral rights spread over approximately 14,621 acres (59 km2) in the States
of Paraíba and Rio Grande do Norte, both located in Brazil’s Northeastern region. We have identified pegmatites in many
of our areas, and several of our mineral rights are located near to or adjacent to areas known to have spodumene, a lithium-bearing mineral.
We plan to continue to explore our areas to assess as to whether we have any economic deposits.
RARE
EARTHS
Market
The
rare earth elements (“REE”) are on the list of the 35 minerals considered critical to the economic and national security
of the United States as first published by the U.S. Department of the Interior on May 18, 2018. REEs consist of the lanthanide series
(lanthanum, cerium, praseodymium, neodymium, promethium, samarium, europium, gadolinium, terbium, dysprosium, holmium, erbium, thulium,
ytterbium, and lutetium) as well as scandium and yttrium. REEs are classified as “light” and “heavy” based on
atomic number. Light REEs (“LREEs”) are comprised of lanthanum through gadolinium (atomic numbers 57 through 64).
Heavy REEs (“HREEs”) are comprised of terbium through lutetium (atomic numbers 65 through 71) and yttrium (atomic
number 39), which has similar chemical and physical attributes to the HREEs. Neodymium and praseodymium are key critical materials in
the manufacturing of magnets that have the highest magnetic strength among commercially available magnets and enable high energy density
and high energy efficiency in diverse uses. Dysprosium and terbium are key critical materials often added to the magnet alloys to increase
the operating temperature. HREEs tend to be less abundant and more expensive than LREEs.
Summary
of Our Opportunity
We
own seven mineral rights for rare earths totaling approximately 30,009 acres (121 km2). These mineral rights are divided in
two sub-types according to geology: Rare Earths I Properties in the States of Goiás and Tocantins, and Rare Earths II Properties
in the State of Bahia. Several of our mineral rights are located near to or adjacent to areas known to have rare earths deposits. Preliminary
geochemical sampling of some of our areas indicated presence of rare earths. We plan to continue to explore our areas to assess as to
whether we have any economic deposits. Our detailed exploration plans and their associated costs have not been finalized at this time.
TITANIUM
Titanium
is on the list of the 35 minerals considered critical to the economic and national security of the United States as first published by
the U.S. Department of the Interior on May 18, 2018. Titanium can withstand high temperatures and its non-magnetic nature prevents interference
with data storage components. It has widespread use in high-technology and aerospace applications.
Summary
of Our Opportunity
We
own seven mineral rights for titanium totaling approximately 22,050 acres (89 km2). These mineral rights are all located in
the State of Minas Gerais and are referred to as our Titanium Properties. Several of our mineral rights are located near to or adjacent
to areas known to have titanium deposits. We plan to explore our areas to assess as to whether we have any economic deposits. Our
detailed exploration plans and their associated costs have not been finalized at this time.
GRAPHITE
Graphite
is on the list of the 35 minerals considered critical to the economic and national security of the United States as first published by
the U.S. Department of the Interior on May 18, 2018. Graphite is the most used anode in lithium batteries, benefitting from its high
energy and power density. The global need for high-quality, low impurity graphite is directly related to the growth in EV adoption as
discussed above.
Summary
of Our Opportunity
We
own three mineral rights for graphite totaling approximately 14,507 acres (59 km2). These mineral rights are all located in
the State of Minas Gerais and are referred to as our Graphite Properties. All of our mineral rights are located immediately adjacent
to areas known for graphite deposits. We plan to explore our areas to assess as to whether we have any economic deposits. Our detailed
exploration plans and their associated costs have not been finalized at this time.
NICKEL
& COBALT
Nickel
and cobalt are key battery metals needed for the growth phase in EV production. Cobalt is on the list of the 35 minerals considered critical
to the economic and national security of the United States as first published by the U.S. Department of the Interior on May 18, 2018.
In general, the greater the amount of nickel and cobalt, the greater the energy density of an EV battery, a factor that contributes to
the storage of more energy. As a practical example of the importance of nickel and cobalt, EVs whose batteries have a higher energy density
can run more kilometers before a recharge is needed.
Summary
of Our Opportunity
We
own four mineral rights for nickel and cobalt totaling approximately 7,509 acres (30 km2).
These mineral rights are divided in two sub-groups according to geography: Nickel/Cobalt I Properties in the State of Goiás and
Nickel/Cobalt II Properties in the State of Piauí. Several of our mineral rights are located near to or adjacent to areas known
to have nickel and/or cobalt deposits. We plan to explore our areas to assess as to whether we have any economic deposits. Our detailed
exploration plans and their associated costs have not been finalized at this time.
IRON
(though our partial ownership of Apollo Resources Corporation)
Market
Historically,
iron has been an essential metal to human development and economic growth. According to the U.S. Geological Survey, over 98% of mined
iron ore is used in steel manufacturing. Brazil exported over $20 billion in iron ore in 2019 and is the second biggest iron ore producer
and exporter in the world, after Australia. Despite the ongoing COVID-19 pandemic, iron ore prices reached a 6-year high in 2021
primarily fueled by demand from China, the largest importer, while demand from India continues to increase, according to Trading Economics,
a market intelligence firm.
Summary
of Our Opportunity
Our
subsidiary Apollo Resources is focused on iron projects in Brazil. Apollo Resources currently owns 56,290 acres of mineral rights for
iron distributed in six projects, five of which are in early stage while its Iron Quadrangle Project is being advanced towards an iron
mine, expected to begin operations during the fourth quarter of 2022. As its name indicates, this project is located within the well-known
Iron Quadrangle mining district, one of the premier iron producing regions in the world.
Apollo
Resources acquired from a third-party in 2020 for the equivalent of $925,000 the 641-acre mineral right where its Iron Quadrangle Project
is now located. This mineral right sits immediately adjacent to a producing iron mine from a global iron producing company.
During
the first and second quarters of 2021, detailed drilling and trenching under the supervision of iron geologists was carried out in approximately
10% of the mineral right area encompassing the Iron Quadrangle Project.
In
2021, SGS-Geosol, an independent analytical laboratory and technical advisory firm, conducted initial studies on the processing route
for a representative sample of iron ore collected from deeper layers during drilling at the Iron Quadrangle Project. The initial results,
obtained by a combination of crushing and dry magnetic separation, with no water involvement, has been concentration to 64.4% iron. Such
level of iron on a commercial product would constitute what is known in the industry as a “premium” product.
During
2021, Geoline, an independent engineering and environmental licensing consultancy, worked on detailed technical studies, both in “dry”
and “wet” climate seasons of the year, needed to file Apollo Resources’ standard petition to the applicable local regulatory
body for an operation license for an open pit iron mire at its Iron Quadrangle Project.
According
to the aforementioned independent technical report, the primary mineable iron ore at the Iron Quadrangle Project exists on a continual
basis, and almost without interruptions, from the surface down to a level of approximately 150 feet. Apollo Resources’ technical
team believes ore retrieval should be a straightforward process though standard open pit excavation. As of the date of this Report,
Apollo Resources expects to have its first iron ore revenues from its Iron Quadrangle Project mine during the first quarter of 2023.
While selling raw iron ore is the easiest pathway to cash flows, Apollo Resources is also considering verticalization of its business,
and processing of its iron ore to a higher concentration product prior to sale at possibly substantially higher margins. As indicated
by the initial result of 64.4% iron obtained by SGS-Geosol from project samples, there is a possibility of production of a “premium”
iron product.
As
of the date of this Report, Brazil Minerals owns 46.17% of the common shares of Apollo Resources.
QUARTZITE
(though our partial ownership of Jupiter Gold Corporation)
Market
Quartzite
is a very hard rock composed predominantly of an interlocking mosaic of quartz crystals. Recently polished quartzite slabs have become
sought after as a higher-end substitute to granite in kitchen countertops and tiles. Brazil has a flourishing quartzite mining industry
centered in the neighboring the states of Minas Gerais and Espírito Santo with smaller producers being the norm. Each quarry produces
quartzite of different color and texture and therefore stones are unique to their location. Mining is via simple open pit procedures,
not particularly labor intensive, and with the mined product normally prepared as cubes of raw quartzite measuring ten meters in each
diameter. Buyers are normally responsible for the logistics of transporting such raw quartzite blocks from the mine. Buyers for quartzite
mined in Brazil are primarily from four locations: Brazil itself, United States, China, and Italy. It is common for mines to develop
an exclusive selling relationship to a buyer.
Summary
of Our Opportunity
While
our subsidiary Jupiter Gold is primarily focused on gold in Brazil, in one of its mineral rights, measuring 233 acres, a greenfield deposit
of quartzite was identified by its exploration team and became its “Quartzite Project”. The Quartzite Project is in the state
of Minas Gerais in Brazil, in a region known for quartzite mining.
In
2021, Jupiter Gold studied the Quartzite Project with detailed drilling and a preliminary estimate of a quartzite deposit was obtained. In 2021, Yan Taffner Binda, a mining engineer with vast experience in quartzite
who meets the “Qualified Person” criteria under Regulation S-K 1300, prepared the mining plan for an open pit quarry at the
Quartzite Project. An initial mining license from the Brazilian mining department, has been obtained.
In
2021, Geoline, an independent engineering and environmental licensing consultancy, performed the field studies needed to file Jupiter
Gold’s petition to the applicable regulatory body for an operation license. Jupiter Gold’s expectation is to obtain such
approval within the next three to six months, which would allow it to start operations and thereafter revenues in 2022. Jupiter Gold
anticipates that its quartzite quarry will require five on-site full-time employees; expected prices for the type of color and texture
of the quartzite anticipated to be mined range from $1,200 to $2,000 per cubic meter.
As
of the date of this Report, Brazil Minerals owns 24.56% of the common shares of Jupiter Gold.
GOLD
(though our partial ownership of Jupiter Gold Corporation)
Market
Currently
it is estimated that, of the gold being produced, 50% is used in jewelry, 40% in investments, and 10% in industry. Brazil has been a
gold producer for over two hundred years ago. According to the World Gold Council, in 2020 Brazil produced 107 tons of gold and was the
7th largest gold producer country. Minas Gerais was the largest gold producing state
in the country, accounting for around 34% of the gold output that year according to Statista, a market intelligence firm.
Summary
of Our Opportunity
Our
subsidiary Jupiter Gold owns 142,017 acres of mineral rights for gold distributed in seven projects, six of which are in early stage
while one of them, the Alpha Project, has been preliminarily researched and is being developed towards a gold mine. The Alpha Project
is located in the state of Minas Gerais at the eastern edge of the Iron Quadrangle mining district, the number one gold-producing region
in Brazil.
Jupiter
Gold’s 100%-owned Alpha Project encompasses 31,650 acres distributed in twelve mineral rights for gold. Approximately 2% of this
total area has been studied over fifteen years ago by a prior owner, by drilling superficial terrain layers of saprolite and colluvium
and identifying gold in multiple targets.
In 2020, detailed trenching under the supervision
of gold geologists was carried out in approximately 2% of the mineral right area encompassing the Alpha Project. In 2021, Oxford Geoconsultants,
a technical consulting firm with a geologist that meets the “Qualified Person” criteria for gold under Regulation S-K 1300,
released its independent technical report on the project.
In 2021, RCS, a technical consulting
firm with a geologist that meets the “Qualified Person” criteria for gold under Regulation S-K 1300, has indicated that
the gold deposits at the Alpha Project are of greenstone belt type. Further work is ongoing at the Alpha Project to expand the knowledge
of and the measured size of the deposit.
As of the date of this Report, Brazil Minerals owns 24.56% of
the common shares of Jupiter Gold.
ALLUVIAL
GOLD AND DIAMONDS
We
own several mining concessions for gold and diamonds along the banks of the Jequitinhonha River in the State of Minas Gerais, in a region
where gold and diamonds have been mined for more than 200 years.
We
own an alluvial diamond and gold processing plant which was built by the prior owner at an estimated cost of $2.5 million. To the best
of our knowledge, this plant is the largest such type of alluvial recovery plant in Brazil.
We
are not currently engaged in alluvial diamond and gold mining as we are focusing our limited capital and team on lithium and other strategic
minerals because of the exceptional growth drivers for these minerals at the present time.
INDUSTRIAL
SAND
We
mine and sell sand for construction usage from a sand mine located on the banks of the Jequitinhonha River in the State of Minas Gerais.
On
January 19, 2022, Diário Oficial da União (the Brazilian Government’s official
gazette) published the formal authorization for operations at our second sand mine in another one of our mineral rights. Such authorization
permits us to mine and sell sand for the next ten years, after which we can apply for renewal an unlimited number of times. For this
operation, sand retrieval will be by a dredge boat on the river. Since the logistics of this operation are simple and sand is continuously
replaced by the river, this mine could become an attractive source of revenues. We plan to have this new sand mine online during the
second quarter of 2022.
Future
Production and Sales
We
expect the demand for our minerals, once in production, to be facilitated by Brazil’s strong mining tradition and its substantial
annual trade with China, the United States, and the European Union. We intend on utilizing intermediaries for sales as to focus on our
core competencies of exploration and extraction.
Raw
Materials
We
do not have any material dependence on any raw materials or raw material supplier. All of the raw materials that we need are available
from numerous suppliers and at market-driven prices.
Intellectual
Property
We
do not own or license any intellectual property which we consider to be material.
Government
Regulation
Mining
Regulation and Compliance
Mining
regulation in Brazil is carried out by the mining department, a federal entity, and each state in Brazil has an office of this federal
entity. For each mineral right that we own, we file any paperwork related to it in the office of the mining department in the state in
which such mineral right is located. We believe that we maintain a good relationship with the mining department and that our methods
of monitoring are adequate for our current needs.
The
mining department normally inspects our operations once a year via an unannounced visit. We estimate that it costs us $25,000-$50,000
annually to maintain compliance with various mining regulations.
Environmental
Regulation and Compliance
Environmental
regulation in Brazil is carried out by a state-level agency, which may have multiple offices, one for each region of the state. For each
mineral right that we own, we file any paperwork related to it in the local office of the environmental agency that has the applicable
geographical jurisdiction. We believe that we maintain a good relationship with the offices of the environmental agency and believe that
our methods of monitoring are adequate for our current needs.
The
environmental agency normally inspects our operations once every one or two years which is the standard practice for companies in good
standing. We estimate that it costs us $25,000-$50,000 annually to maintain compliance with various environmental regulations.
Surface
disturbance from any open pit mining performed by us is in full compliance with our mining plan as approved by the local regulatory agencies.
We regularly restore areas that have been exploited by us. The current environmental regulations state that after all mining has ceased
(however long that may take), there would still be five years of available time for any necessary recuperation to be performed. Our mining
and recovery processing for diamonds and gold does not use any chemical products. Tests are conducted regularly and there are no records
of groundwater contamination that has occurred to date.
Employees
and Independent Contractors
As
of December 31, 2021, we had the equivalent of 11 full-time employees. We also retain consultants to provide specific services deemed
necessary. We consider our employee relations to be
very good.
Form
and Year of Organization & History to Date
We
were incorporated in the State of Nevada on December 15, 2011 under the name Flux Technologies, Corp. From inception until December 2012,
we were focused on the software business, which was discontinued when the current management team and business focus began.
Legal
Proceedings
We
are not a party to any material legal proceedings.
Available
Information
We
maintain a website at www.brazil-minerals.com. We make available free of charge, through the Public Filings section of the Investors
tab on our website, our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and all amendments
to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (the “Exchange Act”),
as soon as reasonably practicable after such material is electronically filed with, or furnished to, the Securities and Exchange Commission
(the “SEC”). The information on our website is not, and shall not be deemed to be, a part hereof or incorporated into this
or any of our other filings with the SEC.
Our
SEC filings are available from the SEC’s internet website at www.sec.gov which contains reports, proxy and information statements
and other information regarding issuers that file electronically. These reports, proxy statements and other information may also be inspected
and copied at the SEC’s Public Reference Room at 100 F Street, NE, Washington, D.C. 20549.
Item
1A. Risk Factors.
RISK
FACTORS
Investing
in our common stock involves a high degree of risk. You should carefully consider the risks described below, as well as the other information
in this Report, including our financial statements and the related notes thereto and “Management’s Discussion and
Analysis of Financial Condition and Results of Operations,” before deciding whether to invest in our securities. The occurrence
of any of the events or developments described below could harm our business, financial condition, operating results, and growth prospects.
In such an event, the market price of our common stock could decline, and you may lose all or part of your investment. Additional risks
and uncertainties not presently known to us or that we currently deem immaterial also may impair our business operations.
Business
Risks
Our
future performance is difficult to evaluate because we have a limited operating history.
Investors
should evaluate an investment in us considering the uncertainties encountered by developing companies. Although we were incorporated
in 2011, we began to implement our current business strategy in 2016. Our current business strategy is focused on the exploration of
strategic minerals and, through specific subsidiaries, the exploration of iron and gold. While we have had a small amount of revenues
from the sales of gold and diamonds mined by us, and currently have a small amount of revenue from the sale of sand mined by us and for
construction use, we have not realized any revenues to date from the sale of strategic minerals or iron. Our operating cash flow needs
have been financed primarily through debt or equity and not through cash flows derived from our operations. As a result, we have little
historical financial and operating information available to help you evaluate and predict our future performance. There can be no assurance
that our efforts will be successful or that we will ultimately be able to attain profitability.
There
is substantial doubt about our ability to continue as a going concern.
We
have not been profitable and such condition raises substantial doubt about our ability to continue as a going concern. There is uncertainty
regarding our ability to implement our business plan and to grow our business to a greater extent than we can with our existing financial
resources without additional financing. Our long-term future growth and success is dependent upon our ability to raise additional capital
and implement our business plan. There is no assurance that we will be successful in implementing our business plan or that we will be
able to generate sufficient cash from operations, sell securities or borrow funds on favorable terms or at all. Our inability to generate
significant revenue or obtain additional financing could have a material adverse effect on our ability to fully implement our business
plan and grow our business to a greater extent than we can with our existing financial resources.
We
are an exploration stage company, and there is no guarantee that our properties will result in the commercial extraction of mineral deposits.
We
are engaged in the business of exploring and developing mineral properties with the intention of locating economic deposits of minerals.
An economic deposit is a mineral property which can be reasonably expected to generate profits upon extraction and commercialization
of its minerals after considering all costs involved. Our property interests are at the exploration stage. Accordingly, it is unlikely
that we will realize profits in the short term, and we also cannot assure you that we will realize profits in the medium to long term.
Any profitability in the future from our business will be dependent upon development of at least one economic deposit and most likely
further exploration and development of other economic deposits, each of which is subject to numerous risk factors.
Further,
we cannot assure you that, even if an economic deposit of minerals is located, any of our property interests can be commercially mined.
The exploration and development of mineral deposits involves a high degree of financial risk over a significant period which a combination
of careful evaluation, experience and knowledge of management may not eliminate. While discovery of additional ore-bearing deposits may
result in substantial rewards, few properties which are explored are ultimately developed into producing mines. Major expenses may be
required to establish reserves by drilling and to construct mining and processing facilities at a particular site. It is impossible to
ensure that our current exploration programs will result in profitable commercial mining operations. The profitability of our operations
will be, in part, related to the cost and success of its exploration and development programs which may be affected by several factors.
Additional expenditures are required to establish reserves which are sufficient to commercially mine and to construct, complete and install
mining and processing facilities in those properties that are mined and developed.
In
addition, exploration-stage projects like ours have no operating history upon which to base estimates of future operating costs and capital
requirements. Exploration project items, such as any future estimates of reserves, metal recoveries or cash operating costs will to a
large extent be based upon the interpretation of geologic data, obtained from a limited number of drill holes and other sampling techniques,
as well as future feasibility studies. Actual operating costs and economic returns of all exploration projects may materially differ
from the costs and returns estimated, and accordingly our financial condition, results of operations, and cash flows may be negatively
affected.
Because
the probability of an individual prospect ever having reserves is not known, our properties may not contain any reserves, and any funds
spent on exploration and evaluation may be lost.
We
are an exploration stage company, and we have no “reserves” as such term is defined by Industry Guide 7. We cannot assure
you about the existence of economically extractable mineralization at this time, nor about the quantity or grade of any mineralization
we may have found. Because the probability of an individual prospect ever having reserves is uncertain, our properties may not contain
any reserves and any funds spent on evaluation and exploration may be lost. Even if we confirm reserves on our properties, any quantity
or grade of reserves we indicate must be considered as estimates only until such reserves are mined. We do not know with certainty that
economically recoverable minerals exist on our properties. In addition, the quantity of any reserves
may vary depending on commodity prices. Any material change in the quantity or grade of reserves may affect the economic viability of
our properties. Further, our lack of established reserves means that we are uncertain about our ability to generate revenue from our
operations.
We
face risks related to mining, exploration and mine construction, if warranted, on our properties.
Our
level of profitability, if any, in future years will depend to a great degree on prices of minerals set by global markets and whether
our exploration-stage properties can be brought into production. It is impossible to ensure that the current and future exploration programs
and/or feasibility studies on our existing properties will establish reserves. Whether it will be economically feasible to extract a
mineral depends on a number of factors, including, but not limited to: the particular attributes of the deposit, such as size, grade
and proximity to infrastructure; mineral prices; mining, processing and transportation costs; the willingness of lenders and investors
to provide project financing; labor costs and possible labor strikes; and governmental regulations, including, without limitation, regulations
relating to prices, taxes, royalties, land tenure, land use, importing and exporting materials, foreign exchange, environmental protection,
employment, worker safety, transportation, and reclamation and closure obligations. The exact effect of these factors cannot be accurately
predicted, but the combination of these factors may result in us receiving an inadequate return on invested capital.
Our
long-term success will depend ultimately on our ability to achieve and maintain profitability and to develop positive cash flow from
our mining activities.
Our
long-term success, including the recoverability of the carrying values of our assets, our ability to continue with exploration, development
and commissioning and mining activities on our existing projects or to acquire additional projects, will depend ultimately on our ability
to achieve and maintain profitability and to develop positive cash flow from our operations by establishing ore bodies that contain commercially
recoverable minerals and to develop these into profitable mining activities. We cannot assure you that any ore body that we extract mineralized
materials from will result in achieving and maintaining profitability and developing positive cash flow.
We
depend on our ability to successfully access the capital and financial markets. Any inability to access the capital or financial markets
may limit our ability to fund our ongoing operations, execute our business plan or pursue investments that we may rely on for future
growth.
Until
commercial production is achieved from one of our larger projects, we will continue to incur operating and investing net cash outflows
associated with among other things maintaining and acquiring exploration properties, undertaking ongoing exploration activities and the
development of mines. As a result, we rely on access to capital markets as a source of funding for our capital and operating requirements.
We cannot assure you that such additional funding will be available to us on satisfactory terms, or at all.
In order to
finance our current operations and future capital needs, we will require additional funds through the issuance of additional equity and/or
debt securities. We will continue to seek capital through private placement transactions and by utilizing proceeds available under
the Triton Equity Line Agreement. In addition, we intend to sell securities in connection with an uplisting of our common stock to
a U.S. stock exchange. Depending on the type and the terms of any financing we pursue, shareholders’ rights and the value of
their investment in our shares could be reduced. Any additional equity financing will dilute shareholdings, and new or additional debt
financing, if available, may involve restrictions on financing and operating activities. In addition, if we issue secured debt securities,
the holders of the debt would have a claim to our assets that would be prior to the rights of shareholders until the debt is paid. Interest
on such debt securities would increase costs and negatively impact operating results.
If
we are unable to obtain additional financing, as needed, at competitive rates, our ability to fund our current operations and implement
our business plan and strategy will be affected, and we would be required to reduce the scope of our operations and scale back our exploration,
development and mining programs. There is, however, no guarantee that we will be able to secure any additional funding or be able to
secure funding which will provide us with sufficient funds to meet our objectives, which may adversely affect our business and financial
position.
Our
quarterly and annual operating and financial results and our revenue are likely to fluctuate significantly in future periods.
Our
quarterly and annual operating and financial results are difficult to predict and may fluctuate significantly from period to period.
Our revenues, net income and results of operations may fluctuate as a result of a variety of factors that are outside our control including,
but not limited to, lack of sufficient working capital, equipment malfunction and breakdowns, inability to timely find spare machines
or parts to fix the broken equipment, regulatory or licensing delays and severe weather phenomena.
We
may be unable to find sources of funding if and when needed, resulting in the failure of our business.
As
of today, we need additional equity or debt financing beyond our existing cash to operate. This additional financing may not become available and, if available, may not be available on terms that are acceptable to
us. If we do obtain acceptable funding, the terms and conditions of receiving such capital would likely result in further dilution. If
we are not successful in raising capital or sufficient capital, we will have to modify our business plans and substantially reduce or
eliminate operations, or even seek reorganization. In these events, the holders of our securities could lose a substantial part or all
of their investment.
Our
ability to manage growth will have an impact on our business, financial condition and results of operations.
Future
growth may place strains on our financial, technical, operational and administrative resources and cause us to rely more on project partners
and independent contractors, potentially adversely affecting our financial position and results of operations. Our ability to grow will
depend on several factors, including:
|
● |
our
ability to develop existing projects; |
|
● |
our
ability to identify new projects; |
|
● |
our
ability to continue to retain and attract skilled personnel; |
|
● |
our
ability to maintain or enter into relationships with project partners and independent contractors; |
|
● |
the
results of our exploration programs; |
|
● |
the
market prices for our minerals; |
|
● |
our
access to capital; and |
|
● |
our
ability to enter into agreements for the sale of our minerals. |
We
may not be successful in upgrading our technical, operational and administrative resources or increasing our internal resources sufficiently
to provide certain of the services currently provided by third parties, and we may not be able to maintain or enter into new relationships
with project partners and independent contractors on financially attractive terms, if at all. Our inability to achieve or manage growth
may materially and adversely affect our business, results of operations and financial condition.
We
depend upon Marc Fogassa, our Chief Executive Officer and Chairman.
Our
success is largely dependent upon the personal efforts of Marc Fogassa, our Chief Executive Officer and Chairman. Currently he is the
only member of our management team that is fluent and fully conversant in both Portuguese, the language of Brazil, and English. The loss
of the services of Mr. Fogassa would have a material adverse effect on our business and prospects. We maintain key-man life insurance
on the life of Mr. Fogassa. See “Management.”
Our
growth will require new personnel, which we will be required to recruit, hire, train and retain.
Our
ability to recruit and assimilate new personnel will be critical to our performance. We will be required to recruit additional personnel
and to train, motivate and manage employees, which may adversely affect our plans.
Certain
executive officers and directors may be in a position of conflict of interest.
Marc
Fogassa, our Chief Executive and Chairman, also serves as chief executive officer and director of Apollo Resources Corporation (“Apollo
Resources”) and Jupiter Gold Corporation (“Jupiter Gold”). Joel Monteiro, Esq., one of our officers, is a director
in both Apollo Resources and Jupiter Gold. Areli Nogueira, one of our officers, is a director in Jupiter Gold. We have partial equity
ownership in both Apollo Resources and Jupiter Gold. There exists the possibility that one or more of these individuals, or others, may
in the future be in a position of conflict of interest. Any decision made by such persons involving us will be made in accordance with
their duties and obligations to deal fairly and in good faith with us and such other companies. In addition, any such officer or directors
will declare, and refrain from voting on, any matter in which they may have a material interest.
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 Apollo
Resources and Jupiter Gold that it owns, and obtaining debt financing. There can be no assurance the Company will be successful in these
efforts.
Regulatory
and Industry Risks
The
mining industry subjects us to several risks.
In
our operations, we are subject to the risks normally encountered in the mining industry, such as:
|
● |
the
discovery of unusual or unexpected geological formations; |
|
● |
accidental
fires, floods, earthquakes or other natural disasters; |
|
● |
unplanned
power outages and water shortages; |
|
● |
controlling
water and other similar mining hazards; |
|
● |
operating
labor disruptions and labor disputes; |
|
● |
the
ability to obtain suitable or adequate machinery, equipment, or labor; |
|
● |
our
liability for pollution or other hazards; and |
|
● |
other
known and unknown risks involved in the conduct of exploration and operation of mines. |
The
nature of these risks is such that liabilities could exceed any applicable insurance policy limits or could be excluded from coverage.
There are also risks against which we cannot insure or against which we may elect not to insure. The potential costs which could be associated
with any liabilities not covered by insurance, or in excess of insurance coverage, or compliance with applicable laws and regulations
may cause substantial delays and require significant capital outlays, adversely affecting our future earnings and competitive position
and, potentially our financial viability.
Our
mineral projects will be subject to significant governmental regulations.
Mining
activities in Brazil are subject to extensive federal, state, and local laws and regulations governing environmental protection, natural
resources, prospecting, development, production, post-closure reclamation costs, taxes, labor standards and occupational health and safety
laws and regulations, including mine safety, toxic substances and other matters. The costs associated with compliance with such laws
and regulations can be substantial. In addition, changes in such laws and regulations, or more
restrictive interpretations of current laws and regulations by governmental authorities, could result in unanticipated capital expenditures,
expenses, or restrictions on, or suspensions of our operations and delays in the development of our properties.
We
will be required to obtain governmental permits in order to conduct development and mining operations, a process which is often costly
and time-consuming.
We
are required to obtain and renew governmental permits for our exploration activities and, prior to developing or mining any mineralization
that we discover, we will be required to obtain new governmental permits. Obtaining and renewing governmental permits is a complex, costly
and time-consuming process. The timeliness and success of permitting efforts are contingent upon many variables not within our control,
including the interpretation of permit approval requirements administered by the applicable permitting authority. We may not be able
to obtain or renew permits that are necessary to our planned operations or the cost and time required to obtain or renew such permits
may exceed our expectations. Any unexpected delays or costs associated with the permitting process could delay the exploration, development
or operation of our properties, which in turn could materially adversely affect our future revenues and profitability. In addition, key
permits and approvals may be revoked or suspended or may be changed in a manner that adversely affects our activities.
Private
parties, such as environmental activists, frequently attempt to intervene in the permitting process and to persuade regulators to deny
necessary permits or seek to overturn permits that have been issued. Obtaining the necessary governmental permits involves numerous jurisdictions,
public hearings and possibly costly undertakings. These third-party actions can materially increase the costs and cause delays in the
permitting process and could cause us to not proceed with the development or operation of a property. In addition, our ability to successfully
obtain key permits and approvals to explore for, develop, operate and expand operations will likely depend on our ability to undertake
such activities in a manner consistent with the creation of social and economic benefits in the surrounding communities, which may or
may not be required by law. Our ability to obtain permits and approvals and to successfully operate in particular communities may be
adversely affected by real or perceived detrimental events associated with our activities.
Compliance
with environmental regulations and litigation based on environmental regulations could require significant expenditures.
Environmental
regulations mandate, among other things, the maintenance of air and water quality standards, and the rules on land development and reclamation.
They also set forth limitations on the generation, transportation, storage, and disposal of solid and hazardous waste. Environmental
legislation is evolving in a manner that may require stricter standards and enforcement, increased fines and penalties for non-compliance,
more stringent environmental assessments of proposed projects, and a heightened degree of responsibility for mining companies and their
officers, directors and employees. In connection with our current exploration activities or with our prior mining operations, we may
incur environmental costs that could have a material adverse effect on our financial condition and results of operations. Any failure
to remedy an environmental problem could require us to suspend operations or enter into interim compliance measures pending completion
of the required remedy.
Moreover,
governmental authorities and private parties may bring lawsuits based upon damage to property and injury to persons resulting from the
environmental, health and safety impacts of prior and current operations, including operations conducted by other mining companies many
years ago at sites located on properties that we currently own or formerly owned. These lawsuits could lead to the imposition of substantial
fines, remediation costs, penalties and other civil and criminal sanctions. We cannot assure you that any such law, regulation, enforcement
or private claim would not have a material adverse effect on our financial condition, results of operations or cash flows.
Our
operations face substantial regulation of health and safety.
Our
operations are subject to extensive and complex laws and regulations governing worker health and safety across our operating regions
and our failure to comply with applicable legal requirements can result in substantial penalties. Future changes in applicable laws,
regulations, permits and approvals or changes in their enforcement or regulatory interpretation could substantially increase costs to
achieve compliance, lead to the revocation of existing or future exploration or mining rights or otherwise have an adverse impact on
our results of operations and financial position.
Our
mines are inspected on a regular basis by government regulators who may issue citations and orders when they believe a violation has
occurred under local mining regulations. If inspections result in an alleged violation, we may be subject to fines, penalties or sanctions
and our mining operations could be subject to temporary or extended closures.
In
addition to potential government restrictions and regulatory fines, penalties or sanctions, our ability to operate (including the effect
of any impact on our workforce) and thus, our results of operations and our financial position (including because of potential related
fines and sanctions), could be adversely affected by accidents, injuries, fatalities or events detrimental (or perceived to be detrimental)
to the health and safety of our employees, the environment or the communities in which we operate.
Our
operations are subject to extensive environmental laws and regulations.
Our
exploration, development, mining and processing operations are subject to extensive laws and regulations governing land use and the protection
of the environment, which generally apply to air and water quality, protection of endangered, protected or other specified species, hazardous
waste management and reclamation. We have made, and expect to make in the future, significant expenditures to comply with such laws and
regulations. Compliance with these laws and regulations imposes substantial costs and burdens, and can cause delays in obtaining, or
failure to obtain, government permits and approvals which may adversely impact our closure processes and operations.
Increased
global attention or regulation of consumption of water by industrial activities, as well as water quality discharge, and on restricting
or prohibiting the use of cyanide and other hazardous substances in processing activities could similarly have an adverse impact on our
results of operations and financial position due to increased compliance and input costs.
Mineral
prices are subject to unpredictable fluctuations.
Portions
of our revenues may come from the extraction and sale of minerals. The price of minerals may fluctuate widely and is affected by numerous
factors beyond our control, including international, economic and political trends, expectations of inflation, currency exchange fluctuations,
interest rates, global or regional consumptive patterns, speculative activities, increased production due to new extraction developments
and improved extraction and production methods and technological changes in the markets for the end products. The effect of these factors
on the price of minerals, and therefore the economic viability of any of our exploration properties, cannot accurately be predicted.
Country
and Currency Risks
Our
ability to execute our business plan depends primarily on the continuation of a favorable mining environment in Brazil and our ability
to freely sell our minerals.
Mining
operations in Brazil are heavily regulated. Any significant change in mining legislation or other changes in Brazil’s current mining
environment may slow down or alter our business prospects. Further, countries in which we may wish to sell our mined minerals may impose
special taxes, tariffs, or otherwise place limits and controls on consumption of our mined minerals.
The
perception of Brazil by the international community may affect us.
Brazil’s
political environment and its environmental policies, in particular the preservation of the Amazon rain forest, are continuously scrutinized
by the global media. If Brazil’s situation or policies are perceived as being inadequate, we may lose the interest of investor
groups or potential buyers of our minerals, which will have a negative impact on us.
Exposure
to foreign exchange fluctuations and capital controls may adversely affect our costs, earnings and the value of some of our assets.
Our
reporting currency is the U.S. dollar; however, we conduct our business in Brazil utilizing the Brazilian real. A large portion of our
operating expenses are incurred in Brazilian real. An appreciation of the Brazilian real against the U.S. dollar would increase our costs
in U.S. dollar terms. Our consolidated financials are directly impacted by movements in the Brazilian real to U.S. dollar exchange rate.
While
not expected, Brazil may choose to adopt measures to restrict the entry of U.S. dollars or the repatriation of capital across borders.
These measures would have a number of negative effects on us, reducing the immediately available capital that we could otherwise deploy
for investment opportunities or the payment of expenses, and the ability to repatriate any profits.
Common
Stock Risks
Our
common stock price may be volatile.
The
market price of our common stock has been and is likely to continue to be volatile and could fluctuate in price in response to various
factors, many of which are beyond our control, including the following:
|
● |
our
ability to grow revenues; |
|
● |
our
ability to achieve profitability; |
|
● |
our
ability to raise capital when needed; |
|
● |
our
ability to execute our business plan; |
|
● |
legislative,
regulatory, and competitive developments; and |
|
● |
economic
and external factors. |
In
addition, the securities markets have from time-to-time experienced significant price and volume fluctuations that are unrelated to the
operating performance of any company. These market fluctuations may also materially and adversely affect the market price of our common
stock regardless of our actual operations and the results from those operations.
There
is no assurance that an active, liquid and orderly trading market will develop for our common stock or what the market price of our common
stock will be and, as a result, it may be difficult for you to sell your shares of our common stock.
Since
we became a publicly traded company in April 2012, there has been a limited public market for shares of our common stock on the OTCQB. Until our common stock is listed on that market or a broader exchange, we anticipate
that it will remain quoted on the OTCQB. In that venue, investors may find it difficult to obtain accurate quotations as to the market
value of our common stock. In addition, if we fail to meet the criteria set forth in SEC regulations, various requirements would be imposed
by law on broker-dealers who sell our securities to persons other than established customers and accredited investors. Consequently,
such regulations may deter broker-dealers from recommending or selling our common stock, which may further affect liquidity. This could
also make it more difficult to raise additional capital.
We
cannot predict the extent to which investor interest in our Company will lead to the development of a more active trading market on the
OTCQB, whether we will ever meet the initial listing standards of the Nasdaq Capital Market, NYSE American, or other similar national
securities exchange, or how liquid that market might become.
Our
common stock is currently defined as “penny stock” and the rules imposed on the sale of the shares may affect your ability
to resell any shares you may purchase, if at all.
Our
common stock currently trades below $5 and is therefore defined as a “penny stock” under the Securities Exchange Act of 1934
(the “Exchange Act”). The Exchange Act and penny stock rules generally impose additional sales practice and disclosure requirements
on broker-dealers who sell our securities. For transactions covered by the penny stock rules, a broker-dealer must make a suitability
determination for each purchaser and receive the purchaser’s written agreement prior to the sale. In addition, the broker-dealer
must make certain mandated disclosures in penny stock transactions, including the actual sale or purchase price and actual bid and offer
quotations, the compensation to be received by the broker-dealer and certain associated persons, and deliver certain disclosures required
by the Commission. Consequently, the penny stock rules may affect the ability of broker-dealers to make a market in or trade our common
stock and may consequently affect a stockholder’s ability to resell any of our shares in the public markets.
We
do not intend to pay regular future dividends on our common stock and thus stockholders must look to appreciation of our common stock
to realize a gain on their investments.
We
have never paid a dividend and we do not have any plans to pay dividends in the foreseeable future. Our future dividend policy is within
the discretion of our Board of Directors and will depend upon various factors, including future earnings, if any, our capital requirements
and general financial condition, and other factors. Accordingly, stockholders must look solely to appreciation of our common stock to
realize a gain on their investment. This appreciation may not occur or may occur only over a longer timeframe.
We
may seek to raise additional funds, finance acquisitions, or develop strategic relationships by issuing securities that would dilute
your ownership.
We
may largely finance our operations by issuing equity securities, which may materially reduce the percentage ownership of our existing
stockholders. Furthermore, any newly issued securities could have rights, preferences, and privileges senior to those of our existing
common stock. Moreover, any issuances by us of equity securities may be at or below the prevailing market price of our stock and in any
event may have a dilutive impact on ownership interest of existing common stockholders, which could cause the market price of our common
stock to decline. We may also raise additional funds through the incurrence of debt or the issuance or sale of other securities or instruments
senior to our Common Stock. The holders of any debt securities or instruments that we may issue could have rights superior to the rights
of our common stockholders.
Our
Series A Preferred Stock has the effect of concentrating voting control over us in Marc Fogassa, our Chief Executive Officer and Chairman.
One
share of our Series A Preferred Stock is issued, outstanding and held since 2012 by Marc Fogassa, our Chief Executive Officer and Chairman.
The Certificate of Designations, Preferences and Rights of our Series A Convertible Preferred provides that for so long as Series A Preferred
Stock is issued and outstanding, the holders of Series A Preferred Stock shall vote together as a single class with the holders of our
common stock, with the holders of Series A Preferred Stock being entitled to 51% of the total votes on all matters regardless of the
actual number of shares of Series A Preferred Stock then outstanding, and the holders of common stock and any other class or series of
capital stock entitled to vote with the common stock being entitled to their proportional share of the remaining 49% of the total votes
based on their respective voting power. As a result, you may have limited ability to impact our operations and activities.
Marc
Fogassa, our Chief Executive Officer and member of our Board of Directors, owns greater than 50% of the Company’s voting securities,
which will cause us to be deemed a “controlled company” under the rules of Nasdaq or NYSE.
As
a result of his ownership of all issued and outstanding shares of our Series A Preferred Stock, Mr. Fogassa, our Chief Executive Officer
and member of our Board of Directors, holds more than 50% of our voting securities, and as such, we are a “controlled company” under the rules of Nasdaq
or NYSE.
As
a “controlled company,” we may elect to rely on some or all of these exemptions, and we currently intend to take advantage
of all of these exemptions. Accordingly, should the interests of Mr. Fogassa differ from those of other stockholders, the other stockholders
may not have the same protections afforded to stockholders of companies that are subject to all of the Nasdaq or NYSE corporate governance
standards. Even if we do not avail ourselves of these exemptions, our status as a controlled company could make our common stock less
attractive to some investors or otherwise harm our stock price.
Our
stock price may be volatile, and you could lose all or part of your investment.
The trading price of our common stock
may fluctuate substantially and will depend on several factors, including those described in this “Risk Factors” section,
many of which are beyond our control and may not be related to our operating performance. These fluctuations could cause you to lose
all or part of your investment in our securities. Factors that could cause fluctuations in the trading price of our common stock include:
|
● |
changes
to our industry, including demand and regulations; |
|
● |
failure
to achieve commercial extraction of mineral deposits from any of our properties; |
|
● |
absence
of any reserves contained within our properties, and loss of any funds spent on exploration and evaluation; |
|
● |
we
may not be able to compete successfully against current and future competitors; |
|
● |
competitive
pricing pressures; |
|
● |
our
ability to obtain working capital financing as required; |
|
● |
additions
or departures of key personnel; |
|
● |
sales
of our common stock; |
|
● |
our
ability to execute our business plan; |
|
● |
operating
results that fall below expectations; |
|
● |
any
major change in our management; |
|
● |
changes
in accounting standards, procedures, guidelines, interpretations or principals; and |
|
● |
economic,
geo-political and other external factors, particularly within the country of Brazil. |
In
addition, the stock market in general has experienced extreme price and volume fluctuations that have often been unrelated or
disproportionate to the operating performance of those companies. Broad market and industry factors, as well as general economic, political
and market conditions such as recessions or interest rate changes, may seriously affect the market price of our common stock, regardless
of our actual operating performance.
Further,
in the past, following periods of volatility in the overall market and the market prices of particular companies’ securities, securities
class action litigations have often been instituted against these companies. Litigation of this type, if instituted against us, could
result in substantial costs and a diversion of our management’s attention and resources. Any adverse determination in any such
litigation or any amounts paid to settle any such actual or threatened litigation could require that we make significant payments.
You
will experience dilution as a result of future equity offerings.
We
may in the future offer additional shares of our common stock or other securities convertible into or exchangeable for our common stock.
Although no assurances can be given that we will consummate a future financing, in the event we do, or in the event we sell shares of
common stock or other securities convertible into shares of our common stock in the future, additional and potentially substantial dilution
will occur.
We
have not paid cash dividends in the past and do not expect to pay dividends in the future. Any return on investment will likely be limited
to the value of our common stock.
We
have never paid cash dividends on our common stock and do not anticipate doing so in the foreseeable future. The payment of dividends
on our common stock will depend on earnings, financial condition and other business and economic factors affecting us at such time as
our board of directors may consider relevant. If we do not pay dividends, our common stock may be less valuable because a return on your
investment will only occur if our stock price appreciates.
Since
we do not anticipate paying any cash dividends on our capital stock in the foreseeable future, stock price appreciation, if any, will
be your sole source of gain.
We
currently intend to retain all of our future earnings, if any, to finance the growth and development of our business. In addition, the
terms of any future debt agreements may preclude us from paying dividends. As a result, appreciation, if any, in the market price of
our common stock will be your sole source of gain for the foreseeable future.
We
may need additional capital, and we may be unable to obtain such capital in a timely manner or on acceptable terms, or at all. Furthermore,
our future capital needs may require us to sell additional equity or debt securities that may dilute our stockholders or introduce covenants
that may restrict our operations or our ability to pay dividends.
To
grow our business and remain competitive, we may require additional capital from time to time for our daily operation. Our ability to obtain additional capital is subject to a variety of uncertainties, including:
|
● |
our
market position and competitiveness in our industry; |
|
● |
our
ability to prove reserves in each of our properties and, ultimately, commence commercial extraction on each of our properties; |
|
● |
our
future profitability, overall financial condition, results of operations and cash flows; and |
|
● |
economic,
political and other conditions in the U.S., Brazil and other international jurisdictions. |
We
may be unable to obtain additional capital in a timely manner or on acceptable terms or at all. In addition, our future capital needs
and other business reasons could require us to sell additional equity or debt securities or obtain a credit facility. The sale of additional
equity or equity-linked securities could dilute our stockholders. The incurrence of indebtedness would result in increased debt service
obligations and could result in operating and financing covenants that would restrict our operations or our ability to pay dividends
to our stockholders.
Our
existing stockholders have substantial influence over our company and their interests may not be aligned with the interests of our other
stockholders, which may discourage, delay or prevent a change in control of our company, which could deprive our stockholders of an opportunity
to receive a premium for their securities.
As
of the date of this Report, certain stockholders control the voting power in us, including management. As a result, these stockholders
have substantial influence over our business, including decisions regarding mergers, consolidations and the sale of all or substantially
all of our assets, election of directors and other significant corporate actions. This concentration of ownership may discourage, delay
or prevent a change in our control, which could deprive our stockholders of an opportunity to receive a premium for their shares as part
of any contemplated sale of our Company and may reduce the price of our common stock.
Item
1B. Unresolved Staff Comments.
None.
Item
2. Properties.
Mineral
Properties
Our
lithium projects are listed in the following table with respective maps below.
Mineral |
|
Name |
|
Location
in Brazil |
|
Total
Area
(acres) |
|
Lithium |
|
Minas
Gerais Lithium Project |
|
State
of Minas Gerais |
|
|
45,456 |
|
Lithium |
|
Northeastern
Brazil Lithium Project |
|
States
of Paraíba and Rio Grande do Norte |
|
|
14,621 |
|
Our
other strategic minerals properties are listed in the following table with respective maps below.
Mineral(s) |
|
Name |
|
Location
in Brazil |
|
Total
Area
(acres) |
|
Rare
Earths |
|
Rare
Earths I Properties |
|
States
of Goiás and Tocantins |
|
|
11,001 |
|
Rare
Earths |
|
Rare
Earths II Properties |
|
State
of Bahia |
|
|
19,009 |
|
Titanium |
|
Titanium
Properties |
|
State
of Minas Gerais |
|
|
22,050 |
|
Graphite |
|
Graphite
Properties |
|
State
of Minas Gerais |
|
|
14,507 |
|
Nickel,
Cobalt |
|
Nickel/Cobalt
I Properties |
|
State
of Goiás |
|
|
5,961 |
|
Nickel,
Cobalt |
|
Nickel/Cobalt
II Properties |
|
State
of Piauí |
|
|
1,548 |
|
Our
alluvial gold and diamonds, and industrial sand properties are listed in the following table with respective maps below.
Mineral(s) |
|
Name |
|
Location
in Brazil |
|
Total
Area
(acres) |
|
Alluvial
Gold and Diamonds |
|
Alluvial
Gold and Diamonds Mine |
|
State
of Minas Gerais |
|
|
23,088 |
|
Industrial
Sand |
|
Industrial
Sand Mine I & Mine II |
|
State
of Minas Gerais |
|
|
1,128 |
|
Maps
of Our Properties
Map
Above: Minas Gerais Lithium Project
Map
Above: Northeastern Brazil Lithium Project
Map
Above: Rare Earths I Properties
Map
Above: Rare Earths II Properties
Map
Above: Titanium Properties
Map
Above: Graphite Properties
Map
Above: Nickel/Cobalt I Properties
Map
Above: Nickel/Cobalt II Properties
Map
Above: Titanium Properties
Map
Above: Alluvial Gold and Diamond Properties
Map
Above: Industrial Sand Properties
Item
3. Legal Proceedings.
We
are not a party to any material legal proceedings.
Item
4. Mine Safety Disclosures.
Not
applicable.
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
consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States
of America (“U.S. GAAP”) and are expressed in United States dollars. For the years ended December 31, 2021 and 2020, the
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 46.17% equity interest in Apollo Resources Corporation (“Apollo
Resources”) and its subsidiary Mineração Apollo, Ltda.; and its 24.56% 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 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 Apollo Resources and 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:
Level
1. Observable inputs such as quoted prices in active markets;
Level
2. Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and
Level
3. Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.
As
of December 31, 2021, and 2020, the Company’s derivative liabilities were considered a level 2 liability. See Note 3 for a discussion
regarding the determination of the fair market value. The Company does not have any level 3 assets or liabilities.
The
Company’s financial instruments consist of cash and cash equivalents, accounts receivable, taxes receivable, prepaid expenses,
deposits and other assets, accounts payable, accrued expenses and convertible notes payable. The carrying amount of these financial instruments
approximates fair value due to either length of maturity or interest rates that approximate prevailing market rates unless otherwise
disclosed in these consolidated financial statements.
Cash
and Cash Equivalents
The
Company considers all highly liquid instruments purchased with a maturity of three months or less to be cash equivalents to the extent
that the funds are not being held for investment purposes. The Company’s bank accounts are deposited in FDIC insured institutions.
Funds held in U.S. banks are insured up to $250,000 and funds held in Brazilian banks are insured up to R$250,000 Brazilian Reais (translating
into approximately $44,799 as of December 31, 2021).
Accounts
Receivable
Accounts
receivable are customer obligations due under normal trade terms which are recorded at net realizable value. The Company establishes
an allowance for doubtful accounts based on management’s assessment of the collectability of trade receivables. A considerable
amount of judgment is required in assessing the amount of the allowance. The Company makes judgments about the creditworthiness of each
customer based on ongoing credit evaluations and monitors current economic trends that might impact the level of credit losses in the
future. If the financial condition of the customers were to deteriorate, resulting in their inability to make payments, a specific allowance
will be required.
Recovery
of bad debt amounts previously written off is recorded as a reduction of bad debt expense in the period the payment is collected. If
the Company’s actual collection experience changes, revisions to its allowance may be required. After all attempts to collect a
receivable have failed, the receivable is written off against the allowance.
Inventory
Inventory
for the Company consisted 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. During fiscal 2021, management refocused
on our hard-rock lithium project and wrote off the balance of our unprocessed auriferous and diamondiferous gravel for $135,656 included
in the cost of revenue, and $0 as at December 31, 2020.
Taxes
Receivable
The
Company records a receivable for value added taxes receivable from Brazilian authorities on goods and services purchased by its Brazilian
subsidiaries. The Company intends to recover the taxes through the acquisition of capital equipment from sellers who accept tax credits
as payments.
Property
and Equipment
Property
and equipment are stated at cost, net of accumulated depreciation. Major improvements and betterments are capitalized. Maintenance and
repairs are expensed as incurred. Depreciation is computed using the straight-line method over the estimated useful life. At the time
of retirement or other disposition of property and equipment, the cost and accumulated depreciation are removed from the accounts and
any resulting gain or loss is reflected in the statements of operations as other gain or loss, net.
The
diamond and gold processing plant and other machinery are depreciated over an estimated useful life of ten years; vehicles are depreciated
over an estimated life of four years; and computer and other office equipment over an estimated useful life of three years.
Mineral
Properties
Costs
of exploration, carrying and retaining unproven mineral lease properties are expensed as incurred. Mineral property acquisition costs,
including licenses and lease payments, are capitalized. Although the Company has taken steps to verify title to mineral properties in
which it has an interest, these procedures do not guarantee the Company’s rights. Such properties may be subject to prior agreements
or transfers and title may be affected by undetected defects.
Impairment
losses are recorded on mineral properties used in operations when indicators of impairment are present and the undiscounted cash flows
estimated to be generated by those assets are less than the assets’ carrying amount. As of December 31, 2021 and 2020, 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 Intangible Assets with Indefinite Useful Lives
The
Company accounts for intangible assets in accordance with Accounting Standards Codification (“ASC”) 350, Intangibles –
Goodwill and Other (“ASC 350”). ASC 350 requires that intangible assets with indefinite useful lives no longer be amortized,
but instead be evaluated for impairment at least annually. On an annual basis, in the fourth quarter of the fiscal year, management reviews
intangible assets with indefinite useful lives for impairment by first assessing qualitative factors to determine whether the existence
of events or circumstances makes it more-likely-than-not that the fair value of an intangible asset is less than its carrying amount.
If it is determined that it is more-likely-than-not that the fair value of an intangible asset is less than its carrying amount, the
intangible asset is further tested for impairment by comparing the carrying amount to its estimated fair value using a discounted cash
flow. Impairment, if any, is measured as the amount by which an indefinite-lived intangible asset’s carrying amount exceeds its
fair value.
Application
of impairment tests requires significant management judgment, including the determination of fair value of each indefinite-lived intangible
asset. Judgment applied when performing the qualitative analysis includes consideration of macroeconomic, industry and market conditions,
overall financial performance of the entity, composition, or strategy changes affecting the recoverability of asset groups. Judgments
applied when performing the quantitative analysis includes estimating future cash flows, determining appropriate discount rates and making
other assumptions. Changes in these judgments, estimates and assumptions could materially affect the determination of fair value for
each indefinite-lived intangible asset.
Impairment
of Long-Lived Assets
For
long-lived assets, such as property and equipment and intangible assets subject to amortization, the Company continually monitors events
and changes in circumstances that could indicate carrying amounts of long-lived assets may not be recoverable. When such events or changes
in circumstances are present, the Company assesses the recoverability of long-lived assets by determining whether the carrying value
of such assets will be recovered through undiscounted expected future cash flows. If the total of the future cash flows is less than
the carrying amount of those assets, the Company recognizes an impairment loss based on the excess of the carrying amount over the fair
value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or the fair value less costs to sell.
Convertible
Instruments
The
Company evaluates and account for conversion options embedded in convertible instruments in accordance with ASC 470-20, “Debt with
Conversion and Other Options”.
Applicable
GAAP requires companies to bifurcate conversion options from their host instruments and account for them as free-standing derivative
financial instruments according to certain criteria. The criteria include circumstances in which (a) the economic characteristics and
risks of the embedded derivative instrument are not clearly and closely related to the economic characteristics and risks of the host
contract, (b) the hybrid instrument that embodies both the embedded derivative instrument and the host contract is not re-measured at
fair value under other GAAP with changes in fair value reported in earnings as they occur and (c) a separate instrument with the same
terms as the embedded derivative instrument would be considered a derivative instrument.
The
Company accounts for convertible instruments (when it has been determined that the embedded conversion options should not be bifurcated
from their host instruments) by recording, when necessary, discounts to convertible notes for the intrinsic value of conversion options
embedded in debt instruments based upon the differences between the fair value of the underlying common stock at the commitment date
of the note transaction and the effective conversion price embedded in the note. Debt discounts under these arrangements are amortized
over the term of the related debt to their stated date of redemption.
Variable
Interest Entities
The
Company determines at the inception of each arrangement whether an entity in which the Company holds an investment or in which the Company
has other variable interests in is considered a variable interest entity. The Company consolidates VIEs when it is the primary beneficiary.
The primary beneficiary of a VIE is the party that meets both of the following criteria: (1) has the power to make decisions that most
significantly affect the economic performance of the VIE; and (2) has the obligation to absorb losses or the right to receive benefits
that in either case could potentially be significant to the VIE. Periodically, the Company assesses whether any changes in the interest
or relationship with the entity affect the determination of whether the entity is still a VIE and, if so, whether the Company is the
primary beneficiary. If the Company is not the primary beneficiary in a VIE, the Company accounts for the investment under the equity
method or cost method in accordance with the applicable GAAP.
The
Company has concluded that Apollo Resources, Jupiter Gold and their subsidiaries are VIEs
in accordance with applicable accounting standards and guidance; and although the operations of Apollo Resources and Jupiter Gold are
independent of the Company, through governance rights, the Company has the power to direct the activities that are most significant to
Apollo Resources and Jupiter Gold. Therefore, the Company concluded that it is the primary beneficiary of both Apollo Resources and Jupiter
Gold.
Revenue
Recognition
The
Company recognizes revenue under ASC Topic 606, Revenue from Contracts with Customers (“ASC 606”). The core principle of
the new revenue standard is that a company should recognize revenue to depict the transfer of promised goods or services to customers
in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. The
following five steps are applied to achieve that core principle:
|
● |
Step
1: Identify the contract with the customer |
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|
|
|
● |
Step
2: Identify the performance obligations in the contract |
|
|
|
|
● |
Step
3: Determine the transaction price |
|
|
|
|
● |
Step
4: Allocate the transaction price to the performance obligations in the contract |
|
|
|
|
● |
Step
5: Recognize revenue when the company satisfies a performance obligation |
In
order to identify the performance obligations in a contract with a customer, a company must assess the promised goods or services in
the contract and identify each promised good or service that is distinct. A performance obligation meets ASC 606’s definition of
a “distinct” good or service (or bundle of goods or services) if both of the following criteria are met:
|
● |
The
customer can benefit from the good or service either on its own or together with other resources
that are readily available to the customer |
|
|
|
|
● |
The
entity’s promise to transfer the good or service to the customer is separately identifiable
from other promises in the contract (i.e., 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:
|
● |
Variable
consideration |
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|
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Constraining
estimates of variable consideration |
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The
existence of a significant financing component in the contract |
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Non-cash
consideration |
|
|
|
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● |
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. Equity classified share-based payments for employees was fixed at the time of grant. Equity-classified
nonemployee share-based payment awards are measured at the grant date of the award which is the same as share-based payments for employees.
The Company adopted the requirements of the new rule as of January 1, 2019, the effective date of the new guidance.
Foreign
Currency
The
Company’s foreign subsidiaries use a local currency as the functional currency. Resulting translation gains or losses are recognized
as a component of accumulated other comprehensive income. Transaction gains or losses related to balances denominated in a currency other
than the functional currency are recognized in the consolidated statements of operations. Net foreign currency transaction losses included
in the Company’s consolidated statements of operations were negligible for all periods presented.
Income
Taxes
The
Company accounts for income taxes in accordance with ASC Topic 740, Income Taxes. ASC 740 requires a company to use the asset and liability
method of accounting for income taxes, whereby deferred tax assets are recognized for deductible temporary differences, and deferred
tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts
of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management,
it is more likely than not that some portion, or all of, the deferred tax assets will not be realized. Deferred tax assets and liabilities
are adjusted for the effects of changes in tax laws and rates on the date of enactment. As of December 31, 2021 and 2020, 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 December 31, 2021, the Company’s potentially dilutive securities
relate to common stock issuable in connection with convertible notes payable, options and warrants. As of December 31, 2021, if all holders
of preferred stock, convertible notes payable, options and warrants exercised their right to convert their securities to common stock,
the common stock issuable would be in excess of the Company’s authorized, but unissued shares of common stock.
Other
Comprehensive Income
Other
comprehensive income is defined as the change in equity of a business enterprise during a period from transactions and other events and
circumstances from non-owner sources, other than net income and including foreign currency translation adjustments.
Reclassifications
Certain
prior year amounts have been reclassified to conform to the current period presentation. These reclassifications had no impact on net
earnings (loss) or financial position.
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 December 31, 2021 and 2020:
SCHEDULE
OF PROPERTY AND EQUIPMENT
| |
December
31, 2021 | | |
December
31, 2020 | |
| |
Cost | | |
Accumulated
Depreciation | | |
Net
Book Value | | |
Cost | | |
Accumulated
Depreciation | | |
Net
Book Value | |
Capital assets subject to depreciation: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Computers and office equipment | |
$ | 3,880 | | |
$ | (2,778 | ) | |
$ | 1,063 | | |
$ | 3,880 | | |
$ | (573 | ) | |
$ | 3,307 | |
Machinery and equipment | |
| 334,253 | | |
| (281,489 | ) | |
| 52,764 | | |
| 348,376 | | |
| (271,107 | ) | |
| 77,269 | |
Vehicles | |
| 118,653 | | |
| (118,653 | ) | |
| - | | |
| 127,416 | | |
| (118,716 | ) | |
| 8,700 | |
Total fixed assets | |
$ | 456,747 | | |
$ | (402,920 | ) | |
$ | 53,827 | | |
$ | 479,672 | | |
$ | (390,396 | ) | |
$ | 89,276 | |
For
the years ended December 31, 2021, and 2020, the Company recorded depreciation expense of $37,328 and $47,765, respectively recorded
in general and administrative expense.
Intangible
Assets
Intangible
assets consist of mining rights are not amortized as the mining rights are perpetual. The carrying value was $1,302,440 and $407,467
at December 31, 2021 and 2020, respectively. There was no impairment recorded as at December 31, 2021 or 2020.
Equity
Investments without Readily Determinable Fair Values
On
October 2, 2017, the Company entered into an exchange agreement whereby it issued 25,000,000 shares of its common stock in exchange for
500,000 shares of Ares Resources Corporation. The Company’s chief executive officer also serves as an officer of Ares Resources
Corporation, thus making it a related party under common ownership and control. The shares were recorded at $150,000, or $0.006 per share.
The shares were valued based upon the lowest market price of the Company’s common stock on the date the agreement.
On
March 11, 2020, the Company issued 53,947,368 shares of common stock to Lancaster Brazil Fund pursuant to an addendum to the share exchange
agreement dated September 28, 2018. The Company recorded a loss on exchange of equity with a related party of $76,926 representing the
fair value of the additional shares of common stock issued.
Under
ASC 321-10, the Company elected to use a measurement alternative for its equity investment that does not have a readily determinable
fair value. As such, the Company measured its investment at cost, less any impairment, plus or minus any changes resulting from observable
price changes in orderly transactions for an identical or similar investment of the same issuer. The Company owns less than 5% of the
total shares outstanding of Ares Resources Corporation.
As
of December 31, 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
SCHEDULE
OF ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
| |
December
31, | | |
December
31, | |
Accounts
Payable and Accrued Liabilities | |
2021 | | |
2020 | |
Accounts payable and other accruals | |
$ | 310,047 | | |
$ | 327,704 | |
Mineral rights payable | |
| 672,601 | | |
| - | |
Accrued interest | |
| 5,590 | | |
| 324,415 | |
Total | |
$ | 988,237 | | |
$ | 652,119 | |
NOTE
3 – CONVERTIBLE PROMISSORY NOTES PAYABLE
The
following tables set forth the components of the Company’s convertible debentures as of December 31, 2021 and 2020:
SCHEDULE OF CONVERTIBLE DEBENTURES
| |
December
31, | | |
December
31, | |
| |
2021 | | |
2020 | |
Convertible notes payable –
fixed conversion price | |
$ | - | | |
$ | 244,000 | |
Convertible notes payable – variable
conversion price | |
| - | | |
| 628,720 | |
Less: loan discounts | |
| - | | |
| - | |
Total convertible
notes, net | |
$ | - | | |
$ | 872,720 | |
The
following table sets forth a summary of change in our convertible notes payable for the years ended December 31, 2021 and 2020:
SUMMARY OF CHANGE IN CONVERTIBLE NOTES PAYABLE
| |
December
31, | | |
December
31, | |
| |
2021 | | |
2020 | |
Beginning balance | |
$ | 872,720 | | |
$ | 824,614 | |
Issuance of convertible notes payable | |
| 399,000 | | |
| - | |
Lender adjustments for penalties or defaults | |
| 37,212 | | |
| - | |
Debt discounts recorded related to issuance
of convertible notes payable | |
| (44,019 | ) | |
| - | |
Amortization of debt discounts associated
with convertible debt | |
| 44,019 | | |
| 153,000 | |
Increase in principal amounts outstanding
due to lender adjustments per terms of the note agreements | |
| - | | |
| 22,314 | |
Conversion of convertible note principal
into common stock | |
| (1,038,932 | ) | |
| (127,208 | ) |
Repayments of convertible
notes payable | |
| (270,000 | ) | |
| - | |
Total convertible
notes, net | |
$ | - | | |
$ | 872,720 | |
Convertible
Notes Payable - Fixed Conversion Price
On
January 7, 2014, the Company issued to a family trust a senior secured convertible promissory note in the principal amount, and received
gross proceeds, of $244,000 and warrants to purchase an aggregate of 488,000 shares of the Company’s common stock at an exercise
price of $62.50 per share through December 26, 2018. The Company received gross proceeds of $244,000 for the sale of such securities.
The outstanding principal of the note bears interest at the rate of 12% per annum. The note is convertible at the option of the holder
into common stock of the Company at a conversion rate of one share for each $50.00 of principal and interest converted. As of December
31, 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.
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 December 31, 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%.
During the year ended December 31, 2021, Company issued 19,034,442 shares of common stock upon conversion of $129,000 in principal and
$4,241.10 in accrued interest. As of December 31, 2021, the balance of the note was $0, and all discounts were fully amortized.
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 December 31, 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 six months ended June 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 December 31, 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 six months ended June 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 December 31, 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 six months ended
June 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 December 31, 2021, the principal balance on these notes was $0, and all discounts were fully
amortized.
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%. As of December
31, 2021 the 15,000,000 warrants expired.
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 December 31, 2021, the
principal balance on the note was $0.
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 December 31, 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 December 31, 2021 and 2020 amounted to $108,926 and $121,250, respectively.
NOTE
6 – STOCKHOLDERS’ DEFICIT
Authorized
and Amendments
As
of December 31, 2021, the Company had 3,250,000,000 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.
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 $75,275 of interest expense.
Year
Ended December 31, 2021 Transactions
During
the year ended December 31, 2021, the Company issued 174,019,679 shares of common stock for gross proceeds of $941,009 pursuant to subscription
agreements with accredited investors. Additionally, the Company issued 523,710,635 shares of common stock upon conversion of $1,362,988
in convertible notes payable and accrued interest. Further, the Company issued 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 16,600,539 shares of common stock valued at $165,534
to contractors for services provided.
Year
Ended December 31, 2020 Transactions
During
the year ended December 31, 2020, the Company received $320,000 in gross proceeds from the sale of 415,000,000 shares of its common stock
to accredited investors. Additionally, the Company issued 5,000,000 shares of common stock to an accredited investor pursuant to a subscription
agreement dated April 18, 2018 for which the funds were received in a prior period.
During
the year ended December 31, 2020, the Company issued 32,565,515 shares of common stock valued at $43,658 to non-employees for services
rendered. Additionally, the Company issued 397,145,607 shares of common stock upon conversion of $164,820 in convertible notes payable
and accrued interest.
During
the year ended December 31, 2020, the Company exchanged 200,000,000 shares of common stock returned by an accredited investor for 150,000
shares of Jupiter Gold’s common stock held as an investment by the Company. The Company used the quoted fair value of each entity’s
common stock on the dates of exchange to determine the exchange ratio.
See
Note 8 – Related Party Transactions for additional disclosures of common stock issuances.
Common
Stock Options
During
the year ended December 31, 2021, the Company granted options to purchase common stock to officers and non-management directors. The
options were valued using the Black-Scholes option pricing model with the following average assumptions:
SCHEDULE
OF BLACK-SCHOLES OPTION PRICING MODEL WITH AVERAGE ASSUMPTIONS
| |
December
31 2021 | | |
December
31 2020 | |
Expected volatility | |
| 44.8%
– 124.4 | % | |
| 199.2%
- 223.2 | % |
Risk-free interest
rate | |
| 0.9%
– 1.75 | % | |
| 0.28%
- 0.38 | % |
Stock price on date
of grant | |
| $0.0004
- $0.008 | | |
| $0.0009
- $0.0014 | |
Dividend
yield | |
| 0.00 | % | |
| 0.00 | % |
Expected
term | |
| 10
years | | |
| 5
- 10 years | |
SCHEDULE OF OUTSTANDING AND EXERCISABLE OPTIONS
| |
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 | |
| 2,981,079 | | |
| 0.0010 | | |
| – | | |
| | |
Exercised | |
| (117,046,100 | ) | |
| – | | |
| – | | |
| | |
Expired | |
| (252,000 | ) | |
| 0.065 | | |
| | | |
| | |
Forfeited | |
| (691,340 | ) | |
| 0.058 | | |
| – | | |
| | |
Outstanding and vested, December 31,
2021 | |
| 4,908,779 | | |
$ | 0.011 | | |
| 2.74 | | |
$ | 19,675 | |
The
following table reflects all outstanding and exercisable preferred stock options as at December 31, 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 | |
| 36,000 | | |
| 0.10 | | |
| 9.44 | | |
| | |
Outstanding and vested, December 31,
2021 | |
| 36,000 | | |
$ | 0.10 | | |
| 9.44 | | |
$ | 2,732,400 | |
The
options were valued at $1,104,364 in total.
During
the year ended December 31, 2020, the Company granted options to purchase an aggregate of 43,915,500 shares of common stock to non-management
directors. The options were valued using the Black-Scholes option pricing model with the following average assumptions: our stock price
on the date of the grant which ranged between $0.0009 and $0.0014, expected dividend yield of 0.0%, historical volatility calculated
between 135.35% and 221.07%, risk-free interest rate between 0.28% and 0.38%, and an expected term of 5 years. The options were valued
at $50,000 in total.
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.
Stock
Purchase Warrants
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 December 31, 2021. All warrants are exercisable for a period of
nine months to four years from the date of issuance:
SCHEDULE OF WARRANT ACTIVITY
| |
Number
of Warrants Outstanding | | |
Weighted
Average Exercise Price | | |
Weighted Average Contractual
Life (Yrs.) | |
Outstanding, January 1, 2021 | |
| 306,770,000 | | |
$ | 0.0016 | | |
| | |
Warrants issued | |
| 319,701,820 | | |
| 0.0153 | | |
| | |
Warrants exercised | |
| (306,770,000 | ) | |
| 0.0016 | | |
| | |
Warrants expired | |
| (15,000,000 | ) | |
| 0.0125 | | |
| | |
Outstanding and vested, December 31,
2021 | |
| 304,701,820 | | |
$ | 0.0153 | | |
| 1.97 | |
As
of December 31, 2021, the warrants outstanding has an aggregated intrinsic value of $0.
NOTE
7 – COMMITMENTS AND CONTINGENCIES
Rental
Commitment
The
rents office space as its principal executive offices in Pasadena, California for approximately $5,750 on a month-to-month basis. The
Company also rents 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 December 31, 2021 and 2020:
SCHEDULE
OF RELATED PARTY TRANSACTIONS
| |
31-Dec-21 | | |
31-Dec-20 | |
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 December 31, 2021, all discounts were fully amortized.
On
April 7, 2019, the Company’s board of directors approved the issuance of a convertible note in the principal amount of $261,631
to its Chief Executive Officer against a portion of these unpaid compensatory balances. The note bears interest at an annual rate of
6.0% and is payable on demand. The note is convertible at the option of the holder at the lower of (i) $0.00045 or (ii) the lowest price
per share at which a noteholder who is not a manager, officer, or director of the Company converted any debt of the Company into common
stock of the Company during the period from the date hereof until the giving of notice of the election to convert. Total debt discounts
related to the beneficial conversion features of $261,631 were recorded and are being amortized over a one-year period consistent with
the maturity dates of convertible notes issued to third party holders. As of December 31, 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 December 31, 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 year ended December 31, 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 200.6%,
risk-free interest rate between a range of 0.81% to 1.75%, and an expected term between 5 and 10 years. As of December 31, 2021, an aggregate
2,270,000 Jupiter Gold common stock options were outstanding with a weighted average life of 3.11 years at an average exercise price
of $0.93 and an aggregated intrinsic value of $402,800.
Apollo
Resource Corporation
During
the year ended December 31, 2021, Apollo Resources granted options to purchase an aggregate of 135,000 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 ($4.00 to $5.00), expected dividend yield of 0%, historical volatility calculated between 49.2% and 98.3%, risk-free
interest rate between a range of 0.92% to 1.75%, and an expected term of 10 years. As of December 31, 2021, the options were fully exercised.
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 December 31, 2021 to the date
these consolidated financial statements were issued, and has determined that it does not have any material subsequent events to disclose
in these consolidated financial statements , except for these:
a) On March 16, 2022, the Company terminated the
Consulting Services Agreement previously entered into with Jason Baybutt, Chief Operating Officer of Pubco Reporting Solutions, who,
prior to the termination of the Consulting Services Agreement, served as the Company’s Chief Financial Officer, Principal Accounting
Officer, and Treasurer since December 29, 2021. On March 16, 2022, the Company appointed Gustavo Pereira de Aguiar, age 39, as the Company’s
Chief Financial Officer, Principal Accounting Officer, and Treasurer. From 2016 until March 15, 2022, Mr. Aguiar was the Controller of
Jaguar Mining, Inc., a Canadian publicly traded company with two producing gold mines in the state of Minas Gerais in Brazil and current
market capitalization of approximately $270 million. From 2013 to 2016, Mr. Aguiar was Controller at Grupo Orguel, an enterprise in the
construction equipment rental sector in Brazil which received funding from Carlyle, a U.S. private equity group, and from 2010 to 2013,
Mr. Aguiar worked at Mirabella Mineração, which at the time was developing
its nickel project in the state of Bahia in Brazil. From 2006 to 2010, Mr. Aguiar was an auditor with Deloitte in Brazil. Mr. Aguiar
has undergraduate degrees in Business Administration and in Accounting from Universidade FUMEC in Brazil. He has an executive MBA and
further post-graduate education in finance from Fundação Dom Cabral in Brazil.
Mr. Aguiar is fluent in Portuguese and English and is a licensed accountant in Brazil.
b) On March 21, 2021, the Company filed with the
Secretary of State of Nevada the Certficate of Amendment to the Company’s Articles of Incorporation to increase the number of authorized
shares of common stock issuable by the Company from 3,250,000,000 to 4,000,000,000.