Washington, D.C. 20549
Securities registered pursuant to Section
12(g) of the Act: Common Stock, par value $0.001 per share
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or, an emerging growth company. See
the definitions of "large accelerated filer," "accelerated filer", "smaller reporting company", and
"emerging growth company", in Rule 12b-2 of the Exchange Act.
As of June 30, 2018, the last business
day of the Registrant's most recently completed second fiscal quarter, the aggregate market value of the Registrant's common stock
held by non-affiliates (based on the closing sales price of such shares on such date as reported by Nasdaq.com) was approximately
$353,596. For the purpose of this report it has been assumed that all officers and directors of the Registrant, as well as all
stockholders holding 10% or more of the Registrant's stock, are affiliates of the Registrant.
As of April 10, 2019, there were outstanding
462,591,931 shares of the registrant's common stock.
This Annual Report contains forward-looking
statements. Forward-looking statements for Brazil Minerals, Inc. reflect current expectations, as of the date of this Annual Report,
and involve certain risks and uncertainties. Actual results could differ materially from those anticipated in these forward-looking
statements as a result of various factors. Factors that could cause future results to materially differ from the recent results
or those projected in forward-looking statements include, among others: unprofitable efforts resulting not only from the failure
to discover mineral deposits, but also from finding mineral deposits that, though present, are insufficient in quantity and quality
to return a profit from production; market fluctuations; government regulations, including regulations relating to royalties, allowable
production, importing and exporting of minerals, and environmental protection; competition; the loss of services of key personnel;
unusual or infrequent weather phenomena, sabotage, government or other interference in the maintenance or provision of infrastructure
as well as general economic conditions.
PART I
Item 1. Business.
Overview
Brazil Minerals, Inc.
with its subsidiaries ("Brazil Minerals", the "Company", "we", "us", or "our")
has two components to its business model: (1) growing a portfolio of mineral rights in a wide spectrum of strategic and sought-after
minerals, from which equity holdings and/or royalty interests may develop, and (2) mining certain specific areas for gold, diamonds,
and sand. We consolidate our results in this Annual Report.
Our progress
as an exploration project generator has been steady. In early 2013 we owned mineral rights for gold and diamonds. Since then we
have grown several-fold our bank of high-quality mineral properties (the "BMIX Mineral Bank") to currently include mineral
rights for gold, diamonds, cobalt, copper, lithium, manganese, nickel, precious gems (aquamarine, beryl, tourmaline) and sand.
Our first equity
holdings from our exploration project generation strategy is Jupiter Gold Corporation ("Jupiter Gold"). Jupiter Gold
has been a public company since December 16, 2016. We owned approximately 51.7% of Jupiter Gold's common stock as of December 31,
2018 and own 49.3% as of April 10, 2019.
We operate our business
through the following subsidiaries, with percentage ownership as per Exhibit 21.1: BMIX Participações Ltda. ("BMIXP"),
Mineração Duas Barras Ltda. ("MDB"), RST Recursos Minerais Ltda. ("RST"), Hercules Resources
Corporation ("HRC"), Hercules Brasil Comercio e Transportes Ltda. ("HBR"), Jupiter Gold Corporation ("JGC"),
and Mineração Jupiter Ltda ("MJL").
Emerging
Growth Company Status
Until December
31, 2017, we were deemed to be an "emerging growth company" as defined in the Jumpstart Our Business Startups Act of
2012, or JOBS Act. Since our predecessor was incorporated in December 2011 and completed an initial public offering in June 2012,
our status as an emerging growth company expired on December 31, 2017.
Markets
Rough
Diamonds
The market
for our rough diamonds is local and with demand from various buyers. Prices for rough diamond are set globally in U.S. dollars.
Polished
Diamonds
The
market for our polished diamonds is global and with prices normally quoted in U.S dollars. The price of our polished diamonds is
determined by the so-called four C's – color, carat weight, clarity, and cut. We have had many of our polished diamonds certified
and graded at the Gemological Institute of America ("GIA"), which is generally considered the premier analytical laboratory.
The highest color grade our polished diamonds have obtained from GIA has been "E", the 2
nd
highest possible grade (the color scale starts at "D"). The best clarity that our polished
diamonds have obtained from GIA has been "VVS1", the 2
nd
best
clarity possible. The majority of our polished diamonds have been graded F-G for color and VVS2-VS2 for clarity. Their cut has
been round brilliant, and their weight has been between 0.4 and 2.0 carats. The Rapaport valuation of our polished diamonds graded
at GIA has been approximately $3,250 per carat. Rapaport is a diamond service provider that publishes well-known, periodic pricing
valuations for diamonds based on the four C's, as described above.
Gold
The market
for our gold is local with demand from various buyers. The price of our 96%-purity gold bars is determined by the global price
for gold and quoted in U.S. dollars.
Sand
The market
for our sand is local and priced in Brazilian reais. There are various local buyers for our sand, mostly owners of supply stores
that cater to the construction industry. Our sand has been analyzed at a well-regarded analytical laboratory in Brazil and found
to have high silica levels and low organic matter, both characteristics of high-quality sand.
Demand
When we have
diamond and gold for sale, demand for our products has been robust. Demand for our sand is dependent on the health of the Brazilian
economy since it is used in construction projects.
Distribution
We have not
had material issues or bottlenecks with distribution of our products.
Competition
Diamonds, gold
and sand production are difficult fields to penetrate due to regulatory requirements, long wait times for permitting and limited
availability of new resource areas. We have had competition from illegal exploration of sand areas along the Jequitinhonha River,
and we have notified the local authorities concerning such activities.
Seasonality
Our ability
to mine for diamonds and gold is highly seasonal. The local rainy season lasts from December through April during which time open
sky mining is reduced or stopped depending on the severity of the rains and storms. We expect that during this period our revenues
will be substantially lower than during other periods.
Raw Materials
We do not have
any material dependence on any raw material or raw material supplier. All of the raw materials that we need are available from
numerous suppliers and at market-driven prices.
Intellectual Property
None which
is 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 which is their standard practice. We estimate
that it costs $5,000-$10,000 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 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 standard practice for companies in good standing.
We estimate that it costs $20,000-$30,000 annually to maintain compliance with various environmental regulations.
Surface disturbance
from any open pit mining performed by us is in full compliance with its mining plan as approved the local regulatory agencies.
We regularly recuperate areas that have been exploited. 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.
Export
Regulation
The export
of rough diamonds from Brazil complies with the United Nations Kimberley Process certification system of which Brazil is a signatory
country. This system was implemented to prevent entrance to the diamond marketplace of those gems produced in areas where human
exploitation and other specific illicit activities exist. To our knowledge, Brazil was never a jurisdiction that had such issues.
Employees
and Independent Contractors
As
of April 10, 2019, we had 8 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. From inception until December 2012, we were focused in the software business, which
was discontinued when the current management team and business focus began. The Company changed name to Brazil Minerals, Inc. in
December 2012.
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 Exchange Act, as soon as reasonably
practicable after such material is electronically filed with, or furnished to, 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.
Some, but not all, of our operating
risk factors and the risks of any investment in our stock are listed below.
Risks Related to Our Operations
We have a limited operating history.
Investors should evaluate an investment
in us in light of the uncertainties encountered by developing companies in a competitive environment. Our business is dependent
upon the implementation of our business plan. There can be no assurance that our efforts will be successful or that we will ultimately
be able to attain profitability.
Our ability to execute our business
plan depends primarily on the continuation of a favorable mining environment in Brazil.
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.
We do not have any reserves compliant
with SEC Industry Guide 7.
Vaaldiam, the
previous owner of this mining concession, and at that time a publicly-traded Canadian company, performed detailed geological studies
leading to the publication of an NI 43-101 technical report in 2007, with an update in 2008, as required by the rules of the Canadian
securities administrator and filed in SEDAR. The NI 43-101 report describes the existence of mineralized materials amounting to
1,639,200 cubic meters with the following concentrations: 0.16 carats of diamonds per cubic meter and 182 milligrams of gold per
cubic meter. Vaaldiam also submitted a bankable feasibility study to the Brazilian mining department in accordance with local regulations.
The NI 43-101 technical report and the bankable feasibility study were not prepared in accordance with the SEC-sanctioned Industry
Guide 7 for mining companies. Under such regulation, no assertion can be made about reserves and the term "resources"
is not recognized.
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 as an extreme measure seek reorganization.
In these events, the holders of our securities could lose a substantial part or all of their investment.
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 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 over a longer timeframe that is less interesting to short-term
oriented investors.
We depend upon Marc Fogassa, our
Chief Executive Officer and Chairman.
Our success is largely dependent upon
the personal efforts of Marc Fogassa. Currently he is our only management team member 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.
Risks Related to Our Capital Stock
Our Series A Preferred Stock has
the effect of concentrating voting control over us in Marc Fogassa, our Chairman and Chief Executive Officer.
One share of our Series A Preferred
Stock is issued, outstanding and held since 2012 by Marc Fogassa, our Chairman and Chief Executive Officer. 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.
Our 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:
(1)
|
our ability to grow and/or maintain revenue;
|
(2)
|
our ability to achieve profitability;
|
(3)
|
our ability to raise capital when needed;
|
(4)
|
our sales of our common stock;
|
(5)
|
our ability to execute our business plan;
|
(6)
|
our ability to acquire additional mineral properties;
|
(7)
|
legislative, regulatory, and competitive developments; and
|
(8)
|
economic and other 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
particular companies. These market fluctuations may also materially and adversely affect the market price of our common stock.
Because our common stock trades
on the over-the-counter (OTC) market, you may not be able to buy and sell our common stock at optimum prices and you may face liquidity
issues.
The trading of our stock on the OTC
imposes, among others, the following risks:
·
|
Availability of quotes and order information
|
·
|
Liquidity risks
|
·
|
Dealer's spreads
|
Our convertible debt securities
outstanding may adversely affect the market price for our common stock.
To the extent that any remaining convertible
debt securities are converted into our common stock, the existing stockholder percentage ownership will be diluted and any sales
in the public market of the common stock underlying such options may adversely affect prevailing market prices for our common stock.
A similar situation occurs if our outstanding options and warrants are exercised.
We may seek to raise additional
funds, finance acquisitions or develop strategic relationships by issuing capital stock that would dilute your ownership.
We may largely finance our operations
by issuing equity securities, which would 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 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 shares. The holders of any debt securities or instruments we may issue could have rights superior to the rights of
our common stockholders.
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 has traded below $5
and is therefore defined as a "penny stock" under the Securities Exchange Act of 1934, as amended (the "Exchange
Act") and rules of the SEC. The Exchange Act and such penny stock rules generally impose additional sales practice and
disclosure requirements on broker-dealers who sell our securities to persons other than certain accredited investors who are, generally,
institutions with assets in excess of $5,000,000 or individuals with a net worth in excess of $1,000,000 or annual income exceeding
$200,000, or $300,000 jointly with spouse, or in transactions not recommended by the broker-dealer. 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 SEC. Consequently, the
penny stock rules may affect the ability of broker-dealers to make a market in or trade our common stock and may also affect a
stockholder's ability to resell any of our shares in the public markets.
Item 1B.
Unresolved Staff Comments.
None.
Item 2. Properties.
Mineral
Properties
Our mineral
properties are listed in the following table and summarized below.
Brazil Minerals
Project
|
Minerals
|
Location
|
Area (acres)
|
Status
|
Pindaíba Project
|
Gold, Diamonds
|
Minas Gerais, Brazil
|
1,310
|
Pre-Mining
|
Jequitinhonha Valley Project
|
Gold, Diamonds, Sand
|
Minas Gerais, Brazil
|
26,645
|
Mining & Research
|
Montes Claros de
Goiás
Project
|
Cobalt, Copper, Nickel
|
Goiás,
Brazil
|
5,011
|
Research
|
Rubelita Project
|
Lithium, Aquamarine, Beryl,
Tourmaline, Granite, Feldspar
|
Minas Gerais, Brazil
|
288
|
Research
|
The projects owned by our subsidiary Jupiter Gold are summarized
in the table below.
Jupiter Gold
Project Name
|
Minerals
|
Location (state,
country)
|
Area (acres)
|
Status
|
Pindaíba Project
|
Gold royalties*
|
Minas Gerais, Brazil
|
1,310
|
Pre-Mining
|
Paracatu Project
|
Gold
|
Minas Gerais, Brazil
|
773
|
Pre-Mining
|
Crixás
Project
|
Gold
|
Goiás,
Brazil
|
3,068
|
Research
|
Itabira Project
|
Gold
|
Minas Gerais, Brazil
|
4,653
|
Research
|
Amazonas Project
|
Gold
|
Amazonas, Brazil
|
69,330
|
Research
|
Serrita Project
|
Gold
|
Pernambuco, Brazil
|
13,731
|
Research Planning
|
Bahia Project
|
Gold
|
Bahia, Brazil
|
4,757
|
Research Planning
|
Diamantina Project
|
Manganese
|
Minas Gerais, Brazil
|
233
|
Research
|
* Jupiter Gold receives 50% of the
gold produced from the Pindaíba Project.
Item 3. Legal Proceedings.
None which are material.
Item 4. Mine Safety Disclosures.
Not applicable.
PART II
Item 5. Market for Registrant's Common
Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Market Information and Current
Stockholders
Our common
stock is traded under the symbol "BMIX". The following table sets forth, for each of the quarterly periods indicated,
the range of high and low sales prices, in U.S. dollars, for our common stock for each quarter in 2017 and 2018. Prices have been
proportionally adjusted to reflect a 1 for 500 reverse stock split effective January 27, 2017.
|
Year Ended
|
|
Quarters
|
December 31, 2017
|
|
|
High
|
|
Low
|
|
2017
|
|
|
|
|
First (1/1-3/31)
|
|
$
|
0.0500
|
|
|
$
|
0.0100
|
|
Second (4/1-6/30)
|
|
$
|
0.0319
|
|
|
$
|
0.0100
|
|
Third (7/1-9/30)
|
|
$
|
0.0360
|
|
|
$
|
0.0040
|
|
Fourth (10/1-12/31)
|
|
$
|
0.0089
|
|
|
$
|
0.0035
|
|
|
Year Ended
|
|
Quarters
|
December 31, 2018
|
|
|
High
|
|
Low
|
|
2018
|
|
|
|
|
First (1/1-3/31)
|
|
$
|
0.0058
|
|
|
$
|
0.0025
|
|
Second (4/1-6/30)
|
|
$
|
0.0042
|
|
|
$
|
0.0015
|
|
Third (7/1-9/30)
|
|
$
|
0.0042
|
|
|
$
|
0.0008
|
|
Fourth (10/1-12/31)
|
|
$
|
0.0026
|
|
|
$
|
0.0009
|
|
As of April
10, 2019, we had 184 holders of record of our common stock as such term is defined in SEC rules, according to records maintained
by our transfer agent.
Dividends
We have not
paid any cash dividends since inception and do not expect to declare any cash dividends in the foreseeable future.
Equity Compensation
Plan
In 2017, our
Board of Directors approved our 2017 Stock Incentive Plan under which we can offer eligible employees, consultants, and non-employee
directors cash and stock-based compensation and/or incentives to compensate, attract, retain, or reward such individuals. We have
no other equity compensation plan. The table below sets forth certain information as of December 31, 2018 with respect to the 2017
Stock Incentive Plan.
Plan Category
|
|
Number of securities to
be issued upon exercise
of outstanding options,
warrants, and rights
(a)
|
|
|
Weighted-average
exercise price of
outstanding options,
warrants and rights
(b)
|
|
|
Number of securities
remaining available for
future issuance under equity
compensation plans
(excluding securities
reflected in column "(a)")
(c)
|
|
|
|
|
|
|
|
|
|
|
|
Equity compensation plans approved by security holders
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity compensation plans not approved by security holders (2017 Stock Incentive Plan)
|
|
|
25,000,000
|
|
|
$
|
n/a
|
|
|
|
25,000,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
25,000,000
|
|
|
$
|
n/a
|
|
|
|
25,000,000
|
|
Sales of Unregistered Securities
None during the fourth quarter of 2018.
Item 6. Selected Financial Data.
The information to be reported under
this Item is not required of smaller reporting companies.
Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operation.
The following
discussion of our financial condition and results of operations should be read in conjunction with our audited consolidated financial
statements and the notes to those financial statements appearing elsewhere in this Report.
This Annual Report contains forward-looking
statements. Forward-looking statements for Brazil Minerals, Inc. reflect current expectations, as of the date of this Annual Report,
and involve certain risks and uncertainties. Actual results could differ materially from those anticipated in these forward- looking
statements as a result of various factors. Factors that could cause future results to materially differ from the recent results
or those projected in forward-looking statements include, among others: unprofitable efforts resulting not only from the failure
to discover mineral deposits, but also from finding mineral deposits that, though present, are insufficient in quantity and quality
to return a profit from production; market fluctuations; government regulations, including regulations relating to royalties, allowable
production, importing and exporting of minerals, and environmental protection; competition; the loss of services of key personnel;
unusual or infrequent weather phenomena, sabotage, government or other interference in the maintenance or provision of infrastructure
as well as general economic conditions.
Overview
Brazil Minerals, Inc.
with its subsidiaries ("Brazil Minerals", the "Company", "we", "us", or "our")
has two components to its business model: (1) growing a portfolio of mineral rights in a wide spectrum of strategic and sought-after
minerals, from which equity holdings and/or royalty interests will develop, and (2) mining certain specific areas for gold, diamonds,
and sand. We consolidate our results in this Annual Report.
Our progress
as an exploration project generator has been steady. In early 2013 we owned mineral rights for gold and diamonds. Since then we
have grown several-fold our bank of high-quality mineral properties (the "BMIX Mineral Bank") to currently include mineral
rights for gold, diamonds, cobalt, copper, lithium, manganese, nickel, precious gems (aquamarine, beryl, tourmaline) and sand.
Our first equity
holdings from our exploration project generation strategy is Jupiter Gold Corporation ("Jupiter Gold"). Jupiter Gold
has been a public company since December 16, 2016. Brazil Minerals’ ownership of Jupiter Gold’s common stock was 51.7%
as of December 31, 2018 and is 49.3% as of April 10, 2019.
Our mineral
properties are listed in the following table and summarized below.
Brazil Minerals
Project
|
Minerals
|
Location
|
Area (acres)
|
Status
|
Pindaíba Project
|
Gold, Diamonds
|
Minas Gerais, Brazil
|
1,310
|
Pre-Mining
|
Jequitinhonha Valley Project
|
Gold, Diamonds, Sand
|
Minas Gerais, Brazil
|
26,645
|
Mining & Research
|
Montes Claros de
Goiás
Project
|
Cobalt, Copper, Nickel
|
Goiás,
Brazil
|
5,011
|
Research
|
Rubelita Project
|
Lithium, Aquamarine, Beryl,
Tourmaline, Granite, Feldspar
|
Minas Gerais, Brazil
|
288
|
Research
|
The projects owned by our subsidiary Jupiter Gold are summarized
in the table below.
Jupiter Gold
Project Name
|
Minerals
|
Location (state,
country)
|
Area (acres)
|
Status
|
Pindaíba Project
|
Gold royalties*
|
Minas Gerais, Brazil
|
1,310
|
Pre-Mining
|
Paracatu Project
|
Gold
|
Minas Gerais, Brazil
|
773
|
Pre-Mining
|
Crixás
Project
|
Gold
|
Goiás,
Brazil
|
3,068
|
Research
|
Itabira Project
|
Gold
|
Minas Gerais, Brazil
|
4,653
|
Research
|
Amazonas Project
|
Gold
|
Amazonas, Brazil
|
69,330
|
Research
|
Serrita Project
|
Gold
|
Pernambuco, Brazil
|
13,731
|
Research Planning
|
Bahia Project
|
Gold
|
Bahia, Brazil
|
4,757
|
Research Planning
|
Diamantina Project
|
Manganese
|
Minas Gerais, Brazil
|
233
|
Research
|
* Jupiter Gold receives 50% of the
gold produced from the Pindaíba Project.
Brazil Minerals – Projects
Pindaíba Project
Minerals:
|
Gold (50% Brazil Minerals and 50% Jupiter Gold) &
|
|
Diamonds (100% Brazil Minerals)
|
|
|
Location:
|
Olhos-d'Água
, state of Minas Gerais
|
|
|
Area:
|
1,310 acres
|
Highlights:
·
|
Extensive drilling campaign conducted by Brazil Minerals and concluded in Q3 2018.
|
|
|
·
|
35/35 of drill holes were visually positive for gold.
|
|
|
·
|
57% of drill holes had high-probability diamond recovery; a “diamond-rich” zone was identified in the area.
|
|
|
·
|
Results support open-sky mining.
|
|
|
·
|
The target area studied in this drilling campaign is an alluvial plain along the Jequitinhonha River Valley, an area known for placer mining for gold and gem-quality diamonds for over two hundred years.
|
|
|
·
|
Pindaíba is a storied mineral rights area which at one point had thousands of settlers along its river margin prospecting for diamond. Old settler activity is usually a strong indication of robust mineralization.
|
|
|
·
|
Old settler activity does not diminish the recoverable gold and diamonds from Brazil Minerals’ Project, as settlers prospected at the river margin with rudimentary tools and, by law, regulated mining must be done at least 100 meters from the margins of this river.
|
|
|
·
|
A royalty agreement with Jupiter Gold by which Brazil Minerals will use Jupiter Gold’s recovery plant for processing entails that Brazil Minerals will keep 50% of the revenues from gold and 100% of the revenue from diamond with respect to the Pindaíba Project.
|
Figure Above:
Map of Brazil Mineral’s Pindaíba Project
In September 2018,
Brazil Minerals announced the conclusion of an extensive drilling campaign of a portion of the mineral right of the Pindaíba
Project. It was reported that Brazil Minerals drilled 35 holes spaced 30 to 50 meters utilizing a Banka 4-inch drill. All 35 holes
were positive for fine gold as observed by our drilling team, and samples were collected for quantitative geochemical analysis.
The average depth for the auriferous gravel layer was 8 meters and with a thickness between 1.5 to 9.3 meters.
Brazil
Minerals also announced that this extensive drilling campaign yielded alluvial material with a high likelihood for diamonds in
over 57% of the drill holes executed. Further analysis of the campaign’s results and inspection of collected samples indicated
the existence of a diamond-rich zone within the drilled area. Satellite markers for diamonds, such as limonite, rutilite and tourmalinite,
among others, were observed in all samples recovered within this diamond-rich zone.
Jequitinhonha Project
Minerals:
|
Gold, Diamonds, Sand (for construction)
|
|
|
Location:
|
Olhos-d'Água and Diamantina
, state of Minas Gerais
|
|
|
Area:
|
26,645 acres
|
Highlights:
|
·
|
Brazil Minerals owns 9 mining concessions
and 10 pre-mining concessions. A mining concession if the highest level of mineral right title in Brazil. It permits mining in
perpetuity as long as environmental licensing is kept current and mining guidelines are followed.
|
|
·
|
This collection of mineral rights covers
more than 60 miles of mineral rights alongside the banks of the Jequitinhonha River, a well-known area for gold and diamonds for
over 200 years.
|
|
·
|
Gold and diamonds appear together in alluvial
material; mining is open-sky, year-round.
|
Brazil Minerals,
through subsidiaries, has 31 mineral rights for diamond, gold, and sand, on and near the margins of the Jequitinhonha River in
the state of Minas Gerais in Brazil. The Jequitinhonha River valley is a well-known area for diamond and gold production; it has
hosted alluvial production since the 18th century.
One of our
mineral rights, covering 422 acres, is called “Duas Barras”, a mining concession for diamond, gold and sand. Our concession,
awarded by the Brazilian federal government through the Brazilian mining department, is the highest level of mineral right in Brazil.
It permits us to mine in perpetuity provided that environmental licenses are kept current and that mining guidelines are followed.
Figure Above:
Map of Brazil Mineral’s Duas Barras Mining Concession
Mineralization
Vaaldiam, the
previous owner of this mining concession, and at that time a publicly-traded Canadian company, performed detailed geological studies
leading to the publication of an NI 43-101 technical report in 2007, with an update in 2008, as required by the rules of the Canadian
securities administrator and filed in SEDAR. The NI 43-101 report describes the existence of mineralized materials amounting to
1,639,200 cubic meters with the following concentrations: 0.16 carats of diamonds per cubic meter and 182 milligrams of gold per
cubic meter. Vaaldiam also submitted a bankable feasibility study to the Brazilian mining department in accordance with local regulations.
The NI 43-101 technical report and the bankable feasibility study were not prepared in accordance with the SEC-sanctioned Industry
Guide 7 for mining companies. Under such regulation, no assertion can be made about reserves and the term "resources"
is not recognized.
Equipment & Processing
Gold and diamonds are present within
gravel found in alluvial material in our concession area. Following drilling for identification of mineralized areas, we excavate
the chosen perimeters, and gravel is removed and accumulated by excavator and bulldozer working together and later transported
by truck to our recovery unit described below.
Recovery Plants
We have two working recovery plants
for diamonds and gold. Our subsidiary, Jupiter Gold owns a modular recovery plant which utilizes a large centrifuge for recovery,
currently deployed in this concession area. During 2017, this plant was completed, tested and made operational. The plant uses
centrifugation as the primary method of gold separation. Material identified as potentially containing diamonds is retrieved and
further processed in specific high-precision equipment for detection of diamonds, located in our large plant, as described below.
The modular plant is highly cost-effective
and has become our preferred method of gold and diamond recovery. Under an agreement between Brazil Minerals and Jupiter Gold,
this modular plant is solely operated by Brazil Minerals which retains 100% of the diamonds and 50% of the gold recovered from
it, while the other 50% of gold is for the account of Jupiter Gold. Under U.S. GAAP consolidation of financial results for subsidiaries,
any gold revenues obtained by Jupiter Gold are added to the revenues of Brazil Minerals.
Our other plant
at this concession is regarded as the largest such type in Latin America and capable of processing upwards of 45 tons of gravel
per hour of operation. It was acquired when we took over the concession. From the best information we have, this plant cost $2.5
million and was built by South African mining engineers. We utilize the state-of-the-art diamond recovery facilities from this
large plant, following separation of concentrated diamondiferous-yielding material obtained after initial processing in our modular
plant. We also utilize the gold laboratory unit of the large plant for final processing of gold obtained from our modular plant.
Fuel & Water
All of our
equipment at the concession runs on diesel, purchased from multiple local vendors. Our water comes from lagoons that receive water
from the Jequitinhonha River. We do not utilize any chemicals in any processes.
No Chemicals
All of our
processing is based on washing auriferous and diamondiferous gravel with water, then applying physical processes such as sieving,
shaking, followed by centrifugation. Gold and diamonds are heavy substances, allowing separation by such methods. The final step
in diamond recovery uses diffraction differential in light emitted by diamonds versus non-diamonds.
Sand
The mining
concession contains a sand bay from which
in natura
sand is extracted via excavator and sold to truckers. Our sand is of
high-quality and sought after locally for civil construction projects.
Logistics
Our mining
concession is an approximately one and half hour drive from Montes Claros with a population close to 700,000 people, with all needed
services and the regional airport.
Montes Claros
de
Goiás
Project
Minerals:
|
Nickel, Cobalt, Copper
|
|
|
Location:
|
Montes Claros de Goiás, state of Goiás
|
|
|
Area:
|
5,011 acres (2 mineral rights)
|
Highlights:
|
§
|
Our area has a high probability to be
in a continuation of the same geological trend of nearby nickel, cobalt, copper areas.
|
Figures Above: Maps
of Brazil Minerals’
Montes Claros de Goiás
Project mineral rights (2
areas)
Our Montes
Claros de
Goiás Project
consists of two mineral rights for cobalt, copper,
and nickel in the region in and surrounding Montes Claros de
Goiás
, where other
companies have explored for these minerals, and some of the largest Brazilian reserves of nickel are located, according to publicly-available
information.
We
plan to conduct
in-situ
studies of the
Montes Claros de
Goiás
Project
in 2019.
Rubelita
Project
Minerals:
|
Lithium
|
|
|
Location:
|
Rubelita
,
state of Minas Gerais
|
|
|
Area:
|
288 acres
|
Highlights:
·
|
The Rubelita Project is located within a mining district which was extensively researched by CPRM (“Companhia de Pesquisa de Recursos Minerais”), the government-funded Geological Survey of Brazil, and singled out for high levels of lithium mineralization. In this district, the identified lithium deposits are associated with pegmatite formations, and lepidolite, petalite, and spodumene mineralization.
|
|
|
·
|
Our area may also have aquamarine, beryl, tourmaline, granite, and feldspar deposits.
|
Figure Above: Map
of Brazil Minerals’ Rubelita Project mineral right
The
Rubelita
project
consists of a mineral right for lithium, aquamarine, beryl, tourmaline, granite, and feldspar
in the
Salinas district, where other companies have explored for these minerals.
We
plan to conduct
in-situ
studies of the Rubelita
Project
in 2019.
Note: None
of the Brazil Minerals projects currently has “reserves” in accordance with the definition of such term by the SEC.
Jupiter
Gold – Projects
Paracatu
Project
Mineral:
|
Gold
|
|
|
Location:
|
Paracatu, state of Minas Gerais
|
|
|
Area:
|
773 acres
|
|
|
Highlights:
|
|
·
|
Extensive drilling conducted by Jupiter Gold and concluded in Q2 2018.
|
|
|
·
|
18 of 23 drill holes were visually positive for gold and confirmed by geochemical studies performed at an SGS-Geosol laboratory.
|
|
|
·
|
Environmental licensing of the Paracatu Project was obtained in Q4 2018. Awaiting final licensing from the mining department for operation.
|
|
|
·
|
Jupiter Gold’s Paracatu Project is located only 4 miles from the largest gold mine in Brazil, Morro do Ouro (“Gold Hill”), owned and operated by Kinross Gold (NYSE: KGC). Morro do Ouro is a massive open-sky mine within an ore body of 16,000,000 ounces of gold and recent annualized production of 490,000 ounces of gold, according to publicly-available information.
|
Figure
Above: Map of the Paracatu Project mineral right
The Paracatu
Project is comprised of a 773-acre mineral right which is 100% owned by Jupiter Gold, and located within the municipality of Paracatu,
in the northwestern part of the state of Minas Gerais in Brazil, a known area for gold since 1722. This mineral right encompasses
an alluvial plain along the “Córrego do Rico” (“Rich Man Creek” in translation), which drains the
gold deposit located 4 miles upstream known as “Morro do Ouro” (“Gold Hill”), an ore body of 16 million
ounces of gold according to publicly-available reports. The Morro do Ouro open-sky mine is currently owned and operated by Kinross
Gold Corporation (NYSE: KGC) and produces 480,000 ounces of gold annually.
Jupiter Gold’s
geologists had initially planned for an exploratory drilling campaign for the Paracatu Project with six drill holes spaced 100
meters apart. Upon initial drilling, immediate visualization of fine gold in several holes resulted in the decision to expand from
an exploratory to a detailed drilling campaign. A total of 23 holes spaced 25-30 meters were drilled using a Banka 4-inch percussion
rotary drill. Gold was visualized in 18 out of the 23 drill holes executed. Fine gold was observed within gravel at depths varying
from 0.5 meters (app. 20 inches) to 7.8 meters (app. 26 feet). Samples were submitted to the SGS-Geosol laboratory unit in
Belo Horizonte, Brazil, where geochemical analysis was performed by Fire Assay Atomic Absorption protocols, and 18 of 23 drill
holes were confirmed positive for gold.
Crixás
Project
Mineral:
|
Gold
|
|
|
Location:
|
Crixás, state of Goiás
|
|
|
Area:
|
3,068 acres
|
|
|
Highlights:
|
|
·
|
Located 11 miles from 4 active open-sky gold mines owned and operated by AngloGold Ashanti (NYSE: AU) within an ore body with 9,000,000 ounces of gold and annual production of 130,000 ounces.
|
|
|
·
|
Jupiter Gold’s area has a high probability to be in a continuation of the same geological trend.
|
|
|
·
|
This area may also have nickel deposits.
|
Figure
Above: Map of Jupiter Gold’s Crixás Project mineral right
Jupiter Gold’s
Crixás Project consists of a mineral right for gold in this well-known gold district. This area of Brazil was settled in
the 18th century by pioneers searching for gold. Today Crixás is home to the some of the largest gold operations in Brazil,
with large gold mines and projects from AngloGold Ashanti (NYSE: AU). AngloGold Ashanti’s operations in Crixás encompass
three underground and two open sky mines, with an ore body of approximately 9 million ounces of gold and annual production of over
130,000 ounces of gold, according to publicly-available information.
Jupiter
Gold plans to conduct
in-situ
studies of the
Crixás Project
in the second
quarter of 2019.
Itabira
Project
Mineral:
|
Gold
|
|
|
Location:
|
Near Itabira, state of Minas Gerais
|
|
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Area:
|
4,653 acres
|
Highlights:
·
|
In situ geological research planned for Q1 2019.
|
|
|
·
|
Located in the area known as “Iron Quadrangle” with several gold and iron mines.
|
Figure
Above: Map of Jupiter Gold’s Itabira Project mineral right
Jupiter Gold’s
Itabira Project is located within the well-known area in the state of Minas Gerais in Brazil called the "Iron Quandrangle".
This region, known for both iron and gold mining, has excellent logistics and is also close to the state's capital, Belo Horizonte.
The closest larger city to this project is Itabira.
Geological
formations in the Iron Quadrangle are rich and highly complex; gold mines usually begin as open-sky alluvial operations and later
advance underground following primary gold deposits. Several companies have operated gold mines within the Iron Quandrangle, notably
AngloGold Ashanti (NYSE: AU) and Jaguar Mining.
Jupiter
Gold plans to conduct
in-situ
studies of the
Crixás Project
by the third
quarter of 2019.
Amazonas
Project
Mineral:
|
Gold
|
|
|
Ownership:
|
100%
|
|
|
Location:
|
Apuí, state of Amazonas
|
|
|
Area:
|
69,330 acres (3 contiguous mineral rights)
|
Highlights:
|
|
·
|
Apuí is a known gold district in the state of Amazonas.
|
|
|
·
|
The Amazon is a new gold frontier; primary deposits in this region of Brazil are usually sizeable.
|
|
|
·
|
Large gold areas in the Amazon region of Brazil with proven reserves have fetched prices reaching $15 to $160 million in disclosed transactions involving public companies.
|
Figures Above: Maps
of Jupiter Gold’s Amazonas Project mineral rights (3 areas)
Jupiter Gold’s
Amazonas project
consists of three mineral rights for gold
in the Apui
area, a known gold district in the state of Amazonas.
Jupiter
Gold plans to conduct
in-situ
studies of the
Amazonas Project
in 2019.
Serrita
Project
Mineral:
|
Gold
|
|
|
Ownership:
|
100%
|
|
|
Location:
|
Serrita, state of Pernambuco
|
|
|
Area:
|
13,731 acres (3 contiguous mineral rights)
|
|
|
Highlights:
·
|
The Serrita gold district is an area known to host narrow high-grade gold mineralized quartz veins.
|
|
|
·
|
The Brazilian government-funded CPRM (Mineral Resources Research Company) researched this province extensively and confirmed gold mineralization.
|
|
|
·
|
Jupiter Gold’s area may also have copper, manganese, and nickel deposits.
|
Figures Above: Maps
of Jupiter Gold’s Serrita Project mineral rights (3 areas)
Jupiter Gold’s
Serrita Project
consists of three mineral rights for gold
in the Serrita
district, a known gold district in the state of Pernambuco.
Jupiter
Gold plans to conduct
in-situ
studies of the
Serrita Project
in 2019.
Bahia
Project
Mineral:
|
Gold
|
|
|
Ownership:
|
100%
|
|
|
Location:
|
Brotas de Macaúbas
, state of Bahia
|
|
|
Area:
|
4,757 acres
|
Highlights:
·
|
District has areas with known primary gold in quartz veins.
|
Figure
Above: Map of Jupiter Gold’s Bahia Project mineral right
The
Bahia
Project,
held by our subsidiary Jupiter Gold, consists of one mineral rights for gold in a known gold region near the Chapada
Diamantina in the state of Bahia.
Jupiter
Gold plans to conduct
in-situ
studies of the
Bahia Project
in 2019.
Diamantina
Project
Mineral:
|
Manganese
|
|
|
Ownership:
|
100%
|
|
|
Location:
|
Near Diamantina, state of Minas Gerais
|
|
|
Area:
|
233 acres
|
Highlights:
·
|
Geological research completed in Q3 2018 confirmed manganese mineralization.
|
|
|
·
|
Located less than a mile from an area with a prior manganese mine; excellent logistics.
|
|
|
·
|
Brazilian manganese is highly sought after particularly by Asian buyers; Jupiter Gold is undergoing further analysis and this area may have the potential to support sale of manganese ore.
|
Figure
Above: Map of Jupiter Gold’s Diamantina Project mineral right
The Diamantina
Project consists of a mineral right for manganese in the region in and surrounding Diamantina where other companies have explored
for manganese. Manganese has been positively identified by Jupiter Gold’s research team during the third quarter of 2018.
Jupiter Gold intends to further study the area with respect to the potential to mine for manganese.
Jupiter
Gold plans to pursue studies related to economic feasibility of the Diamantina Project in 2019.
Note: None
of the Jupiter Gold projects currently has “reserves” in accordance with the definition of such term by the SEC.
Results
of Operations
Fiscal
Year Ended December 31, 2018 Compared to Fiscal Year Ended December 31, 2017
In 2018, we
had revenues of $19,716, as compared to revenues of $43,253 in 2017, a decrease of 54.4%. The decrease was primarily due to the
fact that we mined a lesser number of months, and opted to wait for the licensing of a new high-quality area for production in
2019 and beyond.
Our consolidated
cost of goods sold in 2018 was $126,217, comprised primarily of labor and fuel expenses, as well as machine maintenance. Our consolidated
cost of goods sold in 2017 was $208,840. The decrease of 39.6% between 2018 and 2017 for the consolidated cost of goods sold is
explained by lesser mining performed.
Our gross margin
in 2018 was ($106,501). By comparison, our gross margin in 2017 was ($165,587). The increase of 35.7% between 2018 and 2017 for
the gross margin is explained by lower cost of goods sold in 2018.
We had an aggregate
of $1,052,830 in operating expense in 2018, as compared to an aggregate of $1,217,217 in operating expenses in 2017, a decrease
of $164,387 or 13.5%. This decrease was mostly due to lower stock-based compensation costs, offset in part by an increase in general
and administrative expenses.
In 2018, we
had total other expenses of $689,341, as compared to $508,103 in total other expenses in 2017, an increase of $181,238 or 35.7%.
This increase was mostly due to higher amortization of debt discounts and other fees, in addition to slightly higher interest expenses
incurred on promissory notes.
In 2018, we
experienced a net loss attributable to Brazil Minerals, Inc. of $1,666,200, as compared to a net loss attributable to Brazil Minerals,
Inc. of $1,691,433 in 2017, a decrease of $25,233 or 1.5%. On a per share basis (both basic and diluted), the 2018 net loss
attributable to Brazil Minerals, Inc. was $0.01 versus $0.02 in 2017.
Liquidity and Capital Resources
As of December
31, 2018, we had total current assets of $63,286 compared to total current liabilities of $2,073,564 for a current ratio of 0.03
to 1 and a working capital deficit of $2,010,278. By comparison, on December 31, 2017, we had total current assets of $155,118
compared to current liabilities of $1,610,227 for a current ratio of 0.10 to 1 and a working capital deficit of $1,455,109. In
both 2018 and 2017, our principal sources of liquidity were issuances of equity and convertible debt.
Net cash used
in operating activities was $511,313 in 2018, as compared to $734,294 in 2017, a decrease of $222,981 or 30.4%. Net cash used in
investing activities was $1,976 in 2018, as compared to $37,985 in 2017, a decline of $36,009 or 94.8%. Net cash provided by financing
activities was $389,274 in 2018, as compared to $852,655 in 2017, a decrease of $463,381 or 54.4%.
During the
year ended December 31, 2018, our sources of liquidity were derived from revenues, proceeds from debt issued, and proceeds of equity
issuances to a subsidiary. Our ability to continue as a going concern is dependent on our ability to generated cash from revenues,
and/or to successfully sell equity and/or debt, all of which provide cash flow for operations. We believe that we will continue
to be successful in these efforts but there can be no assurance. We have no plans for any significant cash acquisitions in the
foreseeable future.
Off-Balance Sheet Arrangements
The Company currently has no off-balance
sheet arrangements.
Critical Accounting Policies and
Estimates
Our financial
instruments consist of cash and cash equivalents, loans payable to a related party, accrued expenses, and an amount due to a director.
The carrying amount of these financial instruments approximates fair value due either to length of maturity or interest rates that
approximate prevailing market rates unless otherwise disclosed in our financial statements. If our estimate of the fair value is
incorrect at December 31, 2018, it could negatively affect our financial position and liquidity and could result in our having
understated our net loss.
Recent Accounting Pronouncements
Our consolidated
financial statements are prepared in accordance with U.S. generally accepted accounting principles. Our significant accounting
policies are described in Note 1 of the financial statements. We have reviewed all recent accounting pronouncements issued to the
date of the issuance of these financial statements, and we do not believe any of these pronouncements will have a material impact
on us.
Item 7A. Quantitative and Qualitative Disclosures About
Market Risk.
The information
to be reported under this Item is not required of smaller reporting companies.
Item 8. Financial Statements and Supplementary Data.
Our financial
statements, including the notes thereto, together with the report from our independent registered public accounting firm are presented
beginning at page F-1.
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure.
None
.
Item 9A. Controls and Procedures.
(a) Evaluation of Disclosure Controls and Procedures
The Company's management, with the participation
of the Company's Principal Executive Officer and Principal Financial Officer, has evaluated the design, operation, and effectiveness
of the Company's disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act
as of December 31, 2018. On the basis of that evaluation, management concluded that the Company's disclosure controls and
procedures are designed, and are effective, to provide reasonable assurance that the information required to be disclosed in reports
filed or submitted pursuant to the Exchange Act is recorded, processed, summarized, and reported within the time periods specified
in the rules and forms of the Commission, and that such information is accumulated and communicated to management, including its
Principal Executive Officer and Principal Financial Officer as appropriate, to allow timely decisions regarding required disclosure.
(b) Management's Report on Internal
Control Over Financial Reporting
Management is responsible for establishing
and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f).
The Company's internal control system is designed to provide reasonable assurance to management and to the Company's Board of Directors
regarding the preparation and fair presentation of published financial statements. Under the supervision and with the participation
of management, including the Company's Principal Executive Officer and Principal Financial Officer, management conducted an evaluation
of the effectiveness of the Company's internal control over financial reporting based on the framework in
Internal Control—Integrated
Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on management's evaluation
under the framework in
Internal Control—Integrated Framework,
management concluded that the Company's internal control
over financial reporting was effective as of December 31, 2018.
This Annual Report does not include
an attestation report of the Company's registered public accounting firm regarding internal control over financial reporting.
Since the Company is a non-accelerated filer, management's report is not subject to attestation by the Company's registered public
accounting firm pursuant to Section 404(b) of the Sarbanes-Oxley Act of 2002. As a result, this Annual Report contains
only management's report on internal controls.
(c)
Changes in Internal
Control over Financial Reporting
There were no changes in the Company's
internal control over financial reporting that occurred in the fourth quarter of 2018 that materially affected, or would be reasonably
likely to materially affect, the Company's internal control over financial reporting.
(d)
Limitations of the
Effectiveness of Internal Controls
The effectiveness of the Company's system
of disclosure controls and procedures and internal control over financial reporting is subject to certain limitations, including
the exercise of judgment in designing, implementing and evaluating the control system, the assumptions used in identifying the
likelihood of future events, and the inability to eliminate fraud and misconduct completely. As a result, there can be no assurance
that the Company's disclosure controls and procedures and internal control over financial reporting will detect all errors or fraud.
However, the Company's control systems have been designed to provide reasonable assurance of achieving their objectives, and the
Company's Principal Executive Officer and Principal Financial Officer have concluded that the Company's disclosure controls and
procedures and internal control over financial reporting are effective at the reasonable assurance level.
The
Company has utilized the 1992 Committee of Sponsoring Organizations of the Treadway Commission's internal control framework.
Item 9B. Other Information.
On April 8, 2019 the Company issued and sold
200,000,000 shares of the Company’s Common Stock for a purchase price of $100,000. The Company did not retain or pay any
commission or other consideration to any person in connection with the sale. The shares were issued in accordance with an exemption
from the registration requirements of the Securities Act of 1933, as amended (the “Securities Act”) under Section 4(a)(2)
of the Securities Act by virtue of being offered without employing any means of general solicitation and being issued to only one
accredited investor which represented to us that he had such knowledge and experience in financial and business matters that he
is capable of evaluating the merits and risks of the prospective investment and was acquiring the shares for investment and could
bear the economic risk of the investment.
The accompanying notes are an integral
part of these consolidated financial statements.
The accompanying notes are an integral
part of these consolidated financial statements.
The accompanying notes are an integral
part of these consolidated financial statements.
The accompanying notes are an integral
part of these consolidated financial statements.
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS
NOTE 1 – ORGANIZATION, BUSINESS
AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Description of
Business
Brazil Minerals, Inc. ("Brazil
Minerals" or the "Company") was incorporated as Flux Technologies, Corp. under the laws of the State of Nevada,
U.S. on December 15, 2011. The Company changed its management and business on December 18, 2012, to focus on mineral exploration.
Brazil Minerals, through subsidiaries, owns mineral rights in Brazil for gold, diamonds, cobalt, copper, lithium, manganese, nickel,
precious gems (aquamarine, beryl, tourmaline) and sand.
On July 27, 2016,
upon
approval by its Board of Directors, the Company sold a 99.99% equity interest in
Mineração Jupiter Ltda
to
Jupiter Gold Corporation ("Jupiter Gold"), a newly created company, in exchange for 4,000,000 shares of the common stock
of Jupiter Gold.
On December 16, 2016, the Securities and Exchange Commission ("SEC") declared effective a Registration
Statement filed by Jupiter Gold for the sale of shares in a public offering in the U.S. As of December 31, 2018, the Company has
ownership of approximately 51.7% of the equity of Jupiter Gold. As such, the accounts and results of Jupiter Gold, and its subsidiary
Mineração Jupiter Ltda, have been included in the Company's consolidated financial statements. See Note 2 for more
information.
Basis of Presentation
The consolidated financial statements
of the Company have been prepared in accordance with generally accepted accounting principles ("GAAP") of the United
States of America and are expressed in United States dollars. For the years ended December 31, 2018 and 2017, the consolidated
financial statements include the accounts of the Company and its 99.99% owned subsidiary, BMIX Participações Ltda.
("BMIXP"), which includes the accounts of BMIXP's wholly-owned subsidiary, Mineração Duas Barras Ltda.
("MDB").
During the year ended December 31, 2014,
BMIXP acquired an initial 25% interest in RST Recursos Minerais Ltda. ("RST"), and during the first quarter of 2015,
it acquired an additional 25% interest in RST, thus bringing its total ownership of RST to 50%. As of March 18, 2015, RST has been
consolidated within the Company's financial statements.
On April 17, 2015, BMIXP incorporated
Hercules Resources Corporation ("HRC"). On May 27, 2015, HRC formalized title to 99.99% of Hercules Brasil Comercio e
Transportes Ltda. ("Hercules Brasil"). Thus, Hercules Brasil is a wholly-owned subsidiary and has been consolidated within
the Company's consolidated financial statements.
On July 27, 2016,
upon
approval by its Board of Directors, the Company entered into a stock purchase and sale agreement pursuant to which HRC transferred
its 99.99% equity interest in
Mineração Jupiter Ltda
("MJL")
to the Company which immediately thereafter sold such equity interest to Jupiter Gold Corporation ("JGC"), a newly created
company, in exchange for all of the common stock of JGC.
On December 16, 2016, the Securities and Exchange Commission ("SEC")
declared effective a Registration Statement filed by JGC for the sale of shares in a public offering in the U.S. As of December
31, 2018, the Company has ownership of approximately 51.7% of the equity of JGC. As such, the accounts and results of JGC and MJL
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.
BRAZIL MINERALS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS
Going Concern
The consolidated financial statements
have been prepared on a going concern basis which contemplates the realization of assets and the settlement of liabilities in the
normal course of business. The Company has limited working capital, has incurred losses in each of the past two years, and has
not yet received material revenues from sales of products or services. These factors create substantial doubt about the Company's
ability to continue as a going concern. The consolidated financial statements do not include any adjustment that might be necessary
if the Company is unable to continue as a going concern.
The ability of the Company to continue
as a going concern is dependent on the Company generating cash from its operations, the sale of its stock and/or obtaining debt
financing. During the year ended December 31, 2018, the Company funded operations primarily through the sale of debt and equity
securities and through the receipt of proceeds from revenues. Management's plan to fund its capital requirements and ongoing operations
include an increase in cash received from sales of gold and rough diamonds recovered from a new mining area that the Company expects
will become operational in 2019. Management's secondary plan to cover any shortfall is selling its equity securities, including
common stock in the Company or common stock in Jupiter Gold that it owns, and obtaining debt financing. There can be no assurance
the Company will be successful in these efforts.
Share Count
All share and per share amounts have
been restated to give effect to a 1-for-500 reverse split of the Company's common stock which became effective on January 27, 2017.
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, 2018 and 2017, the
Company's derivative liabilities were considered a level 2 liability. See Note 4 for a discussion regarding the determination of
the fair market value. The Company does not have any level 3 assets or liabilities.
The Company's financial instruments
consist of cash and cash equivalents, accounts receivable, taxes receivable, prepaid expenses, inventory, deposits and other assets,
accounts payable, accrued expenses and convertible notes payable. The carrying amount of these financial instruments approximates
fair value due to either length of maturity or interest rates that approximate prevailing market rates unless otherwise disclosed
in these consolidated financial statements.
Cash and Cash Equivalents
The Company considers all highly liquid
instruments purchased with a maturity of three months or less to be cash equivalents to the extent that the funds are not being
held for investment purposes. The Company's bank accounts are deposited in FDIC insured institutions. Funds held in U.S. banks
are insured up to $250,000 and funds held in Brazilian banks are insured up to $250,000 Brazilian Reais (translating into approximately
$64,519 as of December 31, 2018).
BRAZIL MINERALS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS
Inventory
Inventory for the Company consists of
ore stockpile, containing auriferous and diamondiferous gravel, which after processing in a recovery plant yields diamonds and
gold, and is stated at lower of cost or market. No value was placed on sand. The amount of any write-down of inventories to net
realizable value and all losses, are recognized in the period the write-down of loss occurs. At December 31, 2018 and 2017, inventory
consisted primarily of rough ore stockpiled for further gold and diamonds recovery. During the years ended December 31, 2018 and
2017, the Company recorded reserves of $0 and $38,875, respectively, against the value of its inventory.
Taxes Receivable
The Company records a receivable for
value added taxes receivable from Brazilian authorities on goods and services purchased by its Brazilian subsidiaries.
The Company intends to recover the taxes through the acquisition of capital equipment from sellers who accept tax credits as payments.
Property and Equipment
Property and equipment are stated at
cost. 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, 2018 and 2017, the
Company did not recognize any impairment losses related to mineral properties held.
Intangible
Assets
For intangible
assets purchased in a business combination, the estimated fair values of the assets received are used to establish their recorded
values. For intangible assets acquired in a non-monetary exchange, the estimated fair values of the assets transferred (or the
estimated fair values of the assets received, if more clearly evident) are used to establish their recorded values, unless the
values of neither the assets received nor the assets transferred are determinable within reasonable limits, in which case the assets
received are measured based on the carrying values of the assets transferred. Valuation techniques consistent with the market approach,
income approach and/or cost approach are used to measure fair value. Intangible assets consist of mineral rights awarded by the
Brazilian national mining department and held by the Company's subsidiaries.
Impairment of Long-Lived Assets
For long-lived
assets, such as property and equipment and intangible assets subject to amortization, the Company continually monitors events and
changes in circumstances that could indicate carrying amounts of long-lived assets may not be recoverable. When such events or
changes in circumstances are present, the Company assesses the recoverability of long-lived assets by determining whether the carrying
value of such assets will be recovered through undiscounted expected future cash flows. If the total of the future cash flows is
less than the carrying amount of those assets, the Company recognizes an impairment loss based on the excess of the carrying amount
over the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or the fair value
less costs to sell.
BRAZIL MINERALS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS
Revenue
Recognition
On January 1, 2018, the
Company adopted ASC Topic 606, Revenue from Contracts with Customers ("ASC 606"), using the modified retrospective method
applied to those contracts which were not completed as of January 1, 2018. Results for reporting periods beginning after January
1, 2018 are presented under ASC 606, while prior period amounts are not adjusted and continue to be reported in accordance with
our historic accounting under ASC 605. As of December 31, 2018, the consolidated financial statements were not materially impacted
as a result of the application of Topic 606 compared to Topic 605.
The Company recognizes
revenue under ASC 606, Revenue from Contracts with Customers. The core principle of the new revenue standard is that a company
should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration
to which the company expects to be entitled in exchange for those goods or services. The following five steps are applied to achieve
that core principle:
|
·
|
Step 1: Identify the contract with the customer
|
|
·
|
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:
|
·
|
Constraining estimates of variable consideration
|
|
·
|
The existence of a significant financing
component in the contract
|
|
·
|
Consideration payable to a customer
|
Variable consideration
is included in the transaction price only to the extent that it is probable that a significant reversal in the amount of cumulative
revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved.
The transaction
price is allocated to each performance obligation on a relative standalone selling price basis.
The transaction
price allocated to each performance obligation is recognized when that performance obligation is satisfied, at a point in time
or over time as appropriate.
Costs
of Goods Sold
Included within
costs of goods sold are the costs of cutting and polishing rough diamonds and costs of production such as diesel fuel, labor, and
transportation.
BRAZIL MINERALS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS
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.
The Company has adopted a stock plan
to attract, retain and motivate its directors, officers, employees, consultants and advisors. The Company's 2017 stock incentive
plan provides for the issuance of up to 25,000,000 common shares for employees, consultants, directors, and advisors.
Foreign Currency
The Company's foreign subsidiaries use
a local currency as the functional currency. Resulting translation gains or losses are recognized as a component of accumulated
other comprehensive income. Transaction gains or losses related to balances denominated in a currency other than the functional
currency are recognized in the consolidated statements of operations. Net foreign currency transaction losses included in the Company's
consolidated statements of operations were negligible for all periods presented.
Income Taxes
The Company accounts for income taxes
in accordance with ASC Topic 740, Income Taxes. ASC 740 requires a company to use the asset and liability method of accounting
for income taxes, whereby deferred tax assets are recognized for deductible temporary differences, and deferred tax liabilities
are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets
and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management,
it is more likely than not that some portion, or all of, the deferred tax assets will not be realized. Deferred tax assets and
liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment. As of December 31, 2018 and
2017, the Company's deferred tax assets had a full valuation allowance.
Under ASC 740, a tax position is recognized
as a benefit only if it is "more likely than not" that the tax position would be sustained in a tax examination being
presumed to occur. The amount recognized is the largest amount of tax benefit that is greater than 50% likely of being realized
on examination. For tax positions not meeting the "more likely than not" test, no tax benefit is recorded.
The
Company has identified the United States Federal tax returns as its "major" tax jurisdiction.
On December 22, 2017, the United States
enacted the Tax Cuts and Jobs Act ("TCJA"), which instituted fundamental changes to the taxation of multinational corporations,
including a reduction the U.S. corporate income tax rate to 21% beginning in 2018.
The TCJA also requires a one-time transition
tax on the mandatory deemed repatriation of the cumulative earnings of certain of the Company's foreign subsidiaries as of December
31, 2017. To determine the amount of this transition tax, the Company must determine the amount of earnings generated since inception
by the relevant foreign subsidiaries, as well as the amount of non-U.S. income taxes paid on such earnings, in addition to potentially
other factors. The Company believes that no such tax will be due since its Brazilian subsidiaries have, when required, paid taxes
locally and that they have incurred a cumulative operating deficit since inception.
BRAZIL MINERALS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS
Basic Income (Loss) Per Share
The Company computes loss per share
in accordance with ASC Topic 260, Earnings per Share, which requires presentation of both basic and diluted earnings per share
on the face of the statement of operations. Basic loss per share is computed by dividing net loss available to common shareholders
by the weighted average number of outstanding common shares during the period. Diluted loss per share gives effect to all dilutive
potential common shares outstanding during the period. As of December 31, 2018, the Company's potentially dilutive securities relate
to common stock issuable in connection with convertible notes payable, options and warrants. As of December 31, 2018, 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. The Company
increased its authorized share count on March 15, 2018 to rectify such situation.
Other
Comprehensive Income
Other comprehensive income is defined
as the change in equity of a business enterprise during a period from transactions and other events and circumstances from non-owner
sources, other than net income and including foreign currency translation adjustments.
Reclassifications
Certain prior year amounts have been reclassified to conform to
the current period presentation. These reclassifications had no impact on net earnings (loss) or and financial position.
Recent Accounting Pronouncements
In February 2016, the FASB issued ASU
2016-02, “Leases (Topic 842)” (“ASC 842”) that amends the accounting guidance on leases for both lessees
and lessors. The new standard establishes a right-of-use (“ROU”) model that requires a lessee to record a ROU asset
and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either
finance or operating, with classification affecting the pattern of expense recognition in the income statement. The FASB also subsequently
issued amendments to the standard, including providing an additional and optional transition method to adopt the new standard,
described below, as well as certain practical expedients related to land easements and lessor accounting. The amendments in this
accounting standard update are effective for the Company on January 1, 2019, with early adoption permitted. The Company will adopt
this accounting standard update effective January 1, 2019.
The accounting standard update originally
required the use of a modified retrospective approach reflecting the application of the standard to leases existing at, or entered
into after, the beginning of the earliest comparative period presented in the financial statements with the option to elect certain
practical expedients. A subsequent amendment to the standard provides an additional and optional transition method that allows
entities to initially apply the new leases standard at the adoption date and recognize a cumulative effect adjustment to the opening
balance of retained earnings in the period of adoption. Consequently, an entity’s reporting for the comparative periods presented
in the financial statements in which it adopts the new leases standard will continue to be in accordance with ASC Topic 840 if
the optional transition method is elected. The Company plans to adopt the standard using the optional transition method with no
restatement of comparative periods and a cumulative effect adjustment, if any, recognized as of the date of adoption. The Company
does not expect that this standard to have a material effect on its consolidated financial statements due to the recognition of
new ROU assets and lease liabilities for lessee activities.
As part of the implementation process,
the Company assessed its lease arrangements and evaluated practical expedient and accounting policy elections to meet the reporting
requirements of this standard. The Company has also evaluated the changes in controls and processes that are necessary to implement
the new standard, and no material changes were required. The new standard provides a number of optional practical expedients in
transition. The Company expects to elect the ‘package of practical expedients’ which permits us not to reassess under
the new standard the prior conclusions about lease identification, lease classification, and initial direct costs. The Company
does not expect to elect the use-of-hindsight or the practical expedient pertaining to land easements; the latter not being applicable
to the Company. Consequently, on adoption, the Company expects to recognize additional operating liabilities ranging from $22,000
to $43,000, with corresponding ROU assets of approximately the same amount based on the present value of the remaining minimum
rental payments under current leasing standards for existing operating leases.
The new standard also provides practical
expedients for an entity’s ongoing accounting. The Company currently expects to elect the short-term lease recognition exemption
for all leases that qualify. As a result, for those leases that qualify, the Company will not recognize ROU assets or lease liabilities,
including for existing short-term leases of those assets in transition. The Company also currently expects to elect the practical
expedient to not separate lease and non-lease components for the majority of its leases as both lessee and lessor.
BRAZIL MINERALS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS
In June 2018, the FASB issued ASU 2018-07,
Compensation - Stock Compensation (Topic 718)
which simplifies certain aspects of the accounting for nonemployee share-based
payment transactions resulting from expanding the scope of Topic 718,
Compensation - Stock Compensation
, to include share-based
payment transactions for acquiring goods and services from nonemployees. Certain areas of the simplification apply only to nonpublic
entities. The amendments specify that Topic 718 applies to all share-based payment transactions in which a grantor acquires goods
or services to be used or consumed in a grantor's own operations by issuing share-based payment awards. The amendments also clarify
that Topic 718 does not apply to share-based payments used to effectively provide (1) financing to the issuer or (2) awards granted
in conjunction with selling goods or services to customers as part of a contract accounted for under Topic 606,
Revenue from
Contracts with Customers
. The amendments of the ASU are effective for public business entities for fiscal years beginning after
December 15, 2018, including interim periods within that fiscal year. Early adoption is permitted. We are currently evaluating
the impact of the adoption of this standard on our consolidated financial statements.
We have reviewed other recent accounting
pronouncements issued to the date of the issuance of these consolidated financial statements, and we do not believe any of these
pronouncements will have a material impact on the Company.
NOTE 2 – COMPOSITION OF CERTAIN
FINANCIAL STATEMENT ITEMS
Property and Equipment
The following table sets forth the components of the Company's
property and equipment at December 31, 2018 and December 31, 2017:
|
|
December 31, 2018
|
|
|
December 31, 2017
|
|
|
|
Cost
|
|
|
Accumulated Depreciation
|
|
|
Net Book
Value
|
|
|
Cost
|
|
|
Accumulated Depreciation
|
|
|
Net Book
Value
|
|
Capital assets subject to depreciation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Computers and office equipment
|
|
$
|
1,572
|
|
|
$
|
(769
|
)
|
|
$
|
803
|
|
|
$
|
901
|
|
|
$
|
(863
|
)
|
|
$
|
38
|
|
Machinery and equipment
|
|
|
451,310
|
|
|
|
(268,537
|
)
|
|
|
182,773
|
|
|
|
520,645
|
|
|
|
(250,067
|
)
|
|
|
270,578
|
|
Vehicles
|
|
|
170,885
|
|
|
|
(110,683
|
)
|
|
|
60,202
|
|
|
|
200,164
|
|
|
|
(105,308
|
)
|
|
|
94,856
|
|
Total fixed assets
|
|
$
|
623,767
|
|
|
$
|
(379,989
|
)
|
|
$
|
243,778
|
|
|
$
|
721,710
|
|
|
$
|
(356,238
|
)
|
|
$
|
365,472
|
|
For the years ended December 31, 2018
and 2017, the Company recorded depreciation expense of $75,346 and $90,040, respectively.
Intangible Assets
Intangible assets consist of mining
rights are not amortized as the mining rights are perpetual. The carrying value was $530,293 and $620,805 at December
31, 2018 and 2017, respectively.
Equity Investments without Readily
Determinable Fair Values
On October 2, 2017, the Company entered
into an exchange agreement whereby it issued 25,000,000 shares of its common stock in exchange for 500,000 shares of Ares Resources
Corporation, a related party. The shares were recorded at $150,000, or $0.006 per share. The shares were valued based upon the
lowest market price of the Company's common stock on the date the agreement.
Under ASC 825-10, the Company elected to use
a measurement alternative for its equity investment that does not have a readily determinable fair value. As such, the Company
measured its investment at cost, less any impairment, plus or minus any changes resulting from observable price changes in orderly
transactions for an identical or similar investment of the same issuer.
The Company has recognized the cost of its investment in Ares, which is a private company with no readily
determinable fair value, at its cost of $150,000 and accounts for the investment as an equity investment without a readily determinable
fair value. The Company owns less than 5% of the total shares outstanding of Ares Resources Corporation.
Accounts Payable and Accrued Liabilities
|
December 31, 2018
|
|
December 31, 2017
|
|
Accounts payable and other accruals
|
|
$
|
140,968
|
|
|
$
|
132,172
|
|
Accrued interest
|
|
|
390,322
|
|
|
|
275,478
|
|
Total
|
|
$
|
531,290
|
|
|
$
|
407,650
|
|
BRAZIL MINERALS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS
NOTE 3 – CONVERTIBLE PROMISSORY NOTES PAYABLE [add
loans payable, table for debt that ties to bs]
The following tables set forth the components
of the Company’s convertible debentures as of December 31, 2018 and December 31, 2017:
|
|
December 31, 2018
|
|
|
December 31, 2017
|
|
Convertible notes payable – fixed conversion price
|
|
$
|
244,000
|
|
|
|
244,000
|
|
Convertible notes payable – variable conversion price
|
|
|
630,923
|
|
|
|
641,003
|
|
Less: loan discounts
|
|
|
(8,299
|
)
|
|
|
(219,609
|
)
|
Total convertible notes, net
|
|
$
|
866,624
|
|
|
$
|
665,394
|
|
The following table sets forth a summary of change in our
convertible notes payable for the years ended December 31, 2018 and 2017:
|
|
December 31, 2018
|
|
|
December 31, 2017
|
|
Beginning balance
|
|
$
|
665,394
|
|
|
|
349,030
|
|
Amortization of debt discounts associated with convertible debt
|
|
|
334,064
|
|
|
|
395,060
|
|
Conversion of convertible note principal into common stock
|
|
|
(148,435
|
)
|
|
|
(78,750
|
)
|
Increase in principal amounts outstanding due to lender adjustments per terms of the note agreements
|
|
|
1,050
|
|
|
|
–
|
|
Issuance of convertible notes payable
|
|
|
137,306
|
|
|
|
477,609
|
|
Loan discounts recorded related to issuance of convertible notes payable
|
|
|
(122,755
|
)
|
|
|
(477,555
|
)
|
Repayment of convertible note principal
|
|
|
(–
|
)
|
|
|
(–
|
)
|
Total convertible notes, net
|
|
$
|
866,624
|
|
|
$
|
665,394
|
|
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, 2018,
all warrants issued in connection with this note had expired.
The outstanding principal on the note
was payable on March 31, 2015, which as of the date of these financial statements is past due and in technical default. The Company
is in negotiations with the note holder to satisfy, amend the terms or otherwise resolve the obligation in default. No demand for
payment has been made. As a result of the default, the interest rate on the note increased to 30% per annum. Interest was payable
on September 30, 2014 and on the maturity date. As of December 31, 2018, the Company has accrued interest payable totaling $310,809
in connection with this note.
Convertible Notes Payable - Variable Conversion Price
At various times to fund operations,
the Company issues convertible notes payable in which the conversion features are variable. In addition, some of these convertible
notes payable have on issuance discounts and other fees withheld.
During the year ended December 31, 2016, the Company issued to one
noteholder, in various transactions, $242,144 in convertible promissory notes with fixed floors and received an aggregate of $232,344
in proceeds. The convertible promissory notes each bear interest at 8.0% per annum and mature one year from issuance ranging from
July to December 2017. After six months from issuance, each convertible promissory note is convertible at the option of the holder
at a 50% discount to the lowest traded price of the Company's common stock over the previous 20 days. In addition, each note's
conversion rate has a floor of $0.0001. Total debt discounts related to the beneficial conversion features of $241,852 were recorded
and are being amortized over the life of the notes. As of December 31, 2018, the outstanding principal balance on these notes total
$200,144.
During the year ended December 31, 2017, the
Company issued to one noteholder in various transactions $477,609 in convertible promissory notes with fixed floors and received
an aggregate of $454,584 in proceeds. The convertible promissory notes each bear interest at 8.0% per annum and mature one year
from issuance ranging from January to August 2018. After six months from issuance, each convertible promissory note is convertible
at the option of the holder at a 50% discount to the lowest traded price of the Company's common stock over the previous 20 days.
In addition, each note's conversion rate has a floor of $0.0001. Total debt discounts related to the beneficial conversion features
of $447,272 were recorded and are being amortized over the life of the notes. As of December 31, 2018, the outstanding principal
balance on these notes total $293,474.
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.
While many of these convertible notes are past
their original maturity dates, the Company continues to maintains a favorable relationship and work with the lender with regard
to financing its working capital needs.
As of December 31, 2018, the Company
has accrued interest payable totaling $79,513 in connection with these variable convertible notes.
During the years ended December 31,
2018 and 2017, $334,064 and $395,060 of the discounts were amortized to interest expense, respectively.
During the years ended December 31,
2018 and 2017, the Company issued 210,986,220 and 29,772,138 shares of common stock upon conversion of $159,023 and
$
84,588,
respectively, in notes payable and accrued interest.
BRAZIL MINERALS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS
Future Potential Dilution
Most of the Company's convertible notes
payable contain adjustable conversion terms with significant discounts to market. As of December 31, 2018, the Company's convertible
notes are convertible into an aggregate of approximately 1,402,052,778 shares of common stock. Due to the variable conversion prices
on some of the Company's convertible notes, the number of common shares issuable is dependent upon the traded price of the Company's
common stock.
NOTE 4 – LOANS PAYABLE
During the year ended December 31, 2018,
the Company bridge loan proceeds aggregating $228,320 from one lender in various transactions. The loans payable bear interest
at 8.0% per annum. The loans are payable upon demand. As of December 31, 2018, the Company has accrued interest payable totaling
$5,751 in connection with these loans payable.
NOTE 5 – OTHER NONCURRENT LIABILITIES
Other noncurrent liabilities are comprised
solely of social contributions and other employee-related costs at our operating subsidiaries located in Brazil. The Company has
been funding these amounts upon the termination of a worker or employee. The balance of these employee related costs as of December
31, 2018 and December 31, 2017 amounted to $188,423 and $200,815, respectively.
NOTE 6 – STOCKHOLDERS' DEFICIT
Authorized and Amendments
The Company filed a 1-for-500 reverse
split with the state of Nevada on December 15, 2016, which became effective on January 27, 2017. On February 15, 2017, the Company
amended its Articles of Incorporation to increase the authorized number of shares of its common stock to 100 million shares. On
October 23, 2017, an amendment of the charter of the Company filed with the Secretary of State of Nevada increased the number of
authorized common shares to 250,000,000.
As of December 31, 2017, the Company
had 250,000,000 common shares authorized with a par value of $0.001 per share.
On March 15, 2018, an amendment of the
charter of the Company filed with the Secretary of State of Nevada increased the number of authorized common shares to 950,000,000.
As of December 31, 2018, the Company
had 950,000,000 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.
Year Ended December 31, 2018 Transactions
During the year ended December 31, 2018,
the Company issued 210,986,220 shares of common stock upon conversion of $159,023 in convertible notes payable and accrued interest.
Year Ended December 31, 2017 Transactions
During
the year ended December 31, 2017,
the Company issued 1,800,000 shares of common stock for cash proceeds of $21,834. Additionally,
the Company issued 29,772,138 shares of common stock upon conversion of $84,588 in convertible notes payable and accrued interest.
BRAZIL MINERALS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS
See Notes 3 and 4 for additional discussions
of common stock issuances.
Common Stock Options
During the
year ended December 31, 2017, the Company granted options to purchase an aggregate of 10,226,100 shares of common stock to non-management
directors. The options were valued at $87,500 in total. The options were valued using the Black-Scholes option pricing model with
the following average assumptions: our stock price on date of grant (range of $0.03 to $0.07), expected dividend yield of 0%, historical
volatility ranging from 221% to 234%, risk-free interest rate of 1.80%, and an expected term of 5.00 years.
During the
year ended December 31, 2018, the Company granted options to purchase an aggregate of 31,073,000 shares of common stock to non-management
directors. The options were valued at $50,000 in total. The options were valued using the Black-Scholes option pricing model with
the following average assumptions: our stock price on the date of the grant ($0.0010 to $0.0026), expected dividend yield of 0%,
historical volatility calculated between a range of 205.4% to 217.0%, risk-free interest rate between a range of 1.80% to 2.95%,
and an expected term of 5 years.
NOTE 7 – COMMITMENTS AND CONTINGENCIES
Operating Leases
The Company leases offices in Pasadena,
California, U.S., and in the municipality of Olhos D'Agua, Brazil. Such costs are immaterial to the consolidated financial statements.
NOTE 8 - RELATED PARTY TRANSACTIONS
Chief Executive Officer
The following tables set forth the components
of the Company’s related party payables as of December 31, 2018 and December 31, 2017:
|
|
December 31, 2018
|
|
|
December 31, 2017
|
|
Salary, retirement contributions and advances payable to related party
|
|
$
|
224,516
|
|
|
$
|
502,397
|
|
Other amounts due to related party
|
|
|
–
|
|
|
|
34,786
|
|
|
|
|
|
|
|
|
|
|
Convertible notes payable to related party
|
|
$
|
445,628
|
|
|
$
|
–
|
|
Less: loan discounts
|
|
|
(222,814
|
)
|
|
|
(–
|
)
|
Total convertible notes payable to related party, net
|
|
$
|
222,814
|
|
|
$
|
–
|
|
|
|
|
|
|
|
|
|
|
Total related party payables
|
|
$
|
447,330
|
|
|
$
|
537,183
|
|
As of December 31, 2018 and 2017, amounts
payable to the Chief Executive Officer for accrued salaries, retirement contributions, and advances made net of any repayments
included within related party payable were $670,144 and $537,183, respectively.
Effective June 30, 2018, the Company
issued a convertible promissory note in the principal amount of $445,628 to its Chief Executive Officer against a portion of these
unpaid compensatory balances. The note bears no interest and is payable on demand. The note is convertible at the option of the
holder at the lower of (i) the average of the five lowest bid prices of the Company's common stock over the previous 20 trading
days or (ii) the lowest price per share at which the Company sold its common stock in a transaction with a person who is not a
manager, officer, or director of the Company during the period from the date hereof until the giving of notice of the election
to convert or the lowest price per share at which a noteholder who is not a manager, officer, or director of the Company converted
any debt of the Company into shares of the Company during the period from the date hereof until the giving of notice of the election
to convert. The note's conversion rate has a floor of $0.0001. Total debt discounts related to the beneficial conversion features
of $445,628 were recorded and are being amortized over a one-year period consistent with the maturity dates of convertible notes
issued to third party holders. As of December 31, 2018, there were unamortized debt discounts of $222,814 related to this note.
BRAZIL MINERALS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS
Investment in Ares Resources Corporation's
Common Stock
On October 2, 2017, the Company entered into
an exchange agreement whereby it issued 25,000,000 shares of its common stock in exchange for 500,000 shares of Ares Resources
Corporation. Our 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. As of December 31, 2018 and 2017, no change in
the value of the Ares common stock was recorded as the recorded value still approximated fair value.
NOTE 9 - SUBSEQUENT EVENTS
In accordance with FASB ASC 855-10 Subsequent
Events, the Company has analyzed its operations subsequent to December 31, 2018 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 as follows:
The Company engaged Noble Capital Markets,
Inc. (“Noble”) as a non-exclusive financial advisor in December 2018. In January 2019, and through the present time,
the Company is engaged, with the assistance of Noble, in a funding campaign though a private placement memorandum. The Company
has received $120,000 in gross proceeds from this private placement initiative to date.
On April 8, 2019, the Brazil Minerals
received proceeds of $100,000 from an accredited investor from a Company directed sale of shares of its common stock.