The accompanying
notes are an integral part of the consolidated financial statements.
The accompanying notes are an
integral part of the consolidated financial statements.
The accompanying notes are an integral
part of the consolidated financial statements.
The accompanying notes are an
integral part of the 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 March 31, 2019, the Company has ownership
of approximately 49.3% of the equity of Jupiter Gold. The Company has concluded that Jupiter Gold Corporation and its subsidiary,
Mineração Jupiter Ltda are VIEs in accordance with applicable accounting standards and guidance; and as such, the
accounts and results of JGC and MJL have been included in the Company's consolidated financial statements.
Basis of Presentation and Principles
of Consolidation
The accompanying unaudited consolidated financial
statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim
financial statements and with the instructions to Form 10-Q and Article 8 of Regulation S-X of the United States Securities and
Exchange Commission (“SEC”). and are expressed in United States dollars. In the opinion of the Company’s management,
the accompanying unaudited consolidated financial statements contain all the adjustments necessary (consisting only of normal recurring
accruals) to present the financial position of the Company as of March 31, 2019, and the results of operations and cash flows for
the periods presented. The results of operations for the three months ended March 31, 2019 and 2018, are not necessarily indicative
of the operating results for the full fiscal year or any future period. These unaudited consolidated financial statements should
be read in conjunction with the financial statements and related notes thereto included in Form 10-K for the fiscal period ended
December 31, 2018 filed with the Securities and Exchange Commission (the “SEC”) on April 15, 2019.
The consolidated financial statements include
the accounts of the Company and its 99.99% owned subsidiary, BMIX Participações Ltda. ("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 March 31,
2019, the Company has ownership of approximately 49.3% of the equity of JGC. The Company has concluded that Jupiter Gold Corporation
and its subsidiary, Mineração Jupiter Ltda are VIEs in accordance with applicable accounting standards and guidance;
and 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 three months ended March 31, 2019 and the year ended December 31, 2018, the Company funded operations primarily
through the sale of debt and equity securities and through the receipt of proceeds from revenues. Management's plan to fund its
capital requirements and ongoing operations include an increase in cash received from sales of gold and rough diamonds recovered
from a new mining area 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.
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.
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.
BRAZIL MINERALS, INC.
NOTES TO THE 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
$64,157 as of March 31, 2019).
Inventory
Inventory for the Company consists of
ore stockpile, containing auriferous and diamondiferous gravel, which after processing in a recovery plant yields diamonds and
gold, and is stated at lower of cost or market. No value was placed on sand. The amount of any write-down of inventories to net
realizable value and all losses, are recognized in the period the write-down of loss occurs. At March 31, 2019 and December 31,
2018, inventory consisted primarily of rough ore stockpiled for further gold and diamonds recovery. During the three months ended
March 31, 2019 and 2018, the Company did not record any write downs against the value of its inventory.
Taxes Receivable
The Company records a receivable for
value added taxes receivable from Brazilian authorities on goods and services purchased by its Brazilian subsidiaries.
The Company intends to recover the taxes through the acquisition of capital equipment from sellers who accept tax credits as payments.
Property and Equipment
Property and equipment are stated at
cost. Major improvements and betterments are capitalized. Maintenance and repairs are expensed as incurred. Depreciation is computed
using the straight-line method over the estimated useful life. At the time of retirement or other disposition of property and equipment,
the cost and accumulated depreciation are removed from the accounts and any resulting gain or loss is reflected in the statements
of operations as other gain or loss, net.
The diamond and gold processing plant
and other machinery are depreciated over an estimated useful life of ten years; vehicles are depreciated over an estimated life
of four years; and computer and other office equipment over an estimated useful life of three years.
Right of use assets and lease
liabilities
In February
2016, the FASB issued ASU No. 2016-02, "Leases" (ASC 842). The standard requires lessees to recognize almost all leases
on the balance sheet as an ROU asset and a lease liability and requires leases to be classified as either an operating or a finance
type lease. The standard excludes leases of intangible assets or inventory. The standard became effective for the Company beginning
January 1, 2019. The Company adopted ASC 842 using the modified retrospective approach, by applying the new standard to all leases
existing at the date of initial application. Results and disclosure requirements for reporting periods beginning after January
1, 2019 are presented under ASC 842, while prior period amounts have not been adjusted and continue to be reported in accordance
with our historical accounting under ASC 840. The Company elected the package of practical expedients permitted under the standard,
which also allowed the Company to carry forward historical lease classifications. The Company also elected the practical expedient
related to treating lease and non-lease components as a single lease component for all equipment leases as well as electing a policy
exclusion permitting leases with an original lease term of less than one year to be excluded from the ROU assets and lease liabilities.
BRAZIL MINERALS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS
Under
ASC 842, the Company determines if an arrangement is a lease at inception. Right-of-Use ("ROU") assets and
liabilities are recognized at commencement date based on the present value of remaining lease payments over the lease term.
For this purpose, the Company considers only payments that are fixed and determinable at the time of commencement. As most of
the Company's leases do not provide an implicit rate, the Company estimated the incremental borrowing rate in determining the
present value of lease payments. The ROU asset also includes any lease payments made prior to commencement and is recorded
net of any lease incentives received. The Company lease terms may include options to extend or terminate the lease when it is
reasonably certain that the Company will exercise such options.
Operating leases
are included in operating lease right-of-use assets, operating lease liabilities, current and operating lease liabilities, non-current
on the Company's condensed consolidated balance sheets.
As a result of the
adoption of ASC 842 on January 1, 2019, the Company recorded both operating lease ROU assets of $21,292 and operating lease liabilities
of $21,292. As of March 31, 2019, both the operating lease ROU assets and operating lease liabilities totaled $15,969. The adoption
did not impact the Company's beginning retained earnings, or prior year consolidated statements of income and statements of cash
flows.
Mineral Properties
Costs of exploration,
carrying and retaining unproven mineral lease properties are expensed as incurred. Mineral property acquisition costs, including
licenses and lease payments, are capitalized. Although the Company has taken steps to verify title to mineral properties in which
it has an interest, these procedures do not guarantee the Company's rights. Such properties may be subject to prior agreements
or transfers and title may be affected by undetected defects.
Impairment
losses are recorded on mineral properties used in operations when indicators of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are less than the assets' carrying amount. As of March 31, 2019 and December 31,
2018, the Company did not recognize any impairment losses related to mineral properties held.
Intangible
Assets
For intangible
assets purchased in a business combination, the estimated fair values of the assets received are used to establish their recorded
values. For intangible assets acquired in a non-monetary exchange, the estimated fair values of the assets transferred (or the
estimated fair values of the assets received, if more clearly evident) are used to establish their recorded values, unless the
values of neither the assets received nor the assets transferred are determinable within reasonable limits, in which case the assets
received are measured based on the carrying values of the assets transferred. Valuation techniques consistent with the market approach,
income approach and/or cost approach are used to measure fair value. Intangible assets consist of mineral rights awarded by the
Brazilian national mining department and held by the Company's subsidiaries.
Impairment of Long-Lived Assets
For long-lived
assets, such as property and equipment and intangible assets subject to amortization, the Company continually monitors events and
changes in circumstances that could indicate carrying amounts of long-lived assets may not be recoverable. When such events or
changes in circumstances are present, the Company assesses the recoverability of long-lived assets by determining whether the carrying
value of such assets will be recovered through undiscounted expected future cash flows. If the total of the future cash flows is
less than the carrying amount of those assets, the Company recognizes an impairment loss based on the excess of the carrying amount
over the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or the fair value
less costs to sell.
BRAZIL MINERALS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS
Convertible Instruments
The Company evaluates and account for conversion
options embedded in convertible instruments in accordance with ASC 815 “
Derivatives and Hedging Activities
”.
Applicable GAAP requires companies to bifurcate
conversion options from their host instruments and account for them as free standing derivative financial instruments according
to certain criteria. The criteria include circumstances in which (a) the economic characteristics and risks of the embedded derivative
instrument are not clearly and closely related to the economic characteristics and risks of the host contract, (b) the hybrid instrument
that embodies both the embedded derivative instrument and the host contract is not re-measured at fair value under other GAAP with
changes in fair value reported in earnings as they occur and (c) a separate instrument with the same terms as the embedded derivative
instrument would be considered a derivative instrument.
The Company accounts for convertible instruments
(when it has been determined that the embedded conversion options should not be bifurcated from their host instruments) by recording,
when necessary, discounts to convertible notes for the intrinsic value of conversion options embedded in debt instruments based
upon the differences between the fair value of the underlying common stock at the commitment date of the note transaction and the
effective conversion price embedded in the note. Debt discounts under these arrangements are amortized over the term of the related
debt to their stated date of redemption.
Variable Interest Entities
The Company determines at the inception of
each arrangement whether an entity in which the Company holds an investment or in which the Company has other variable interests
in is considered a variable interest entity ("VIE"). The Company consolidates VIEs when it is the primary beneficiary.
The primary beneficiary of a VIE is the party that meets both of the following criteria: (1) has the power to make decisions that
most significantly affect the economic performance of the VIE; and (2) has the obligation to absorb losses or the right to receive
benefits that in either case could potentially be significant to the VIE. Periodically, the Company assesses whether any changes
in the interest or relationship with the entity affect the determination of whether the entity is still a VIE and, if so, whether
the Company is the primary beneficiary. If the Company is not the primary beneficiary in a VIE, the Company accounts for the investment
under the equity method or cost method in accordance with the applicable GAAP.
The Company has concluded that
Jupiter
Gold Corporation
and its subsidiary, Mineração Jupiter Ltda are VIEs in accordance with applicable accounting
standards and guidance; and although the operations of Jupiter Gold are independent of the Company, through governance rights,
the Company has the power to direct the activities that are most significant to Jupiter Gold. Therefore, the Company concluded
that it is the primary beneficiary of the Jupiter Gold.
Revenue
Recognition
On January 1, 2018,
the Company adopted ASC Topic 606, Revenue from Contracts with Customers ("ASC 606"), using the modified retrospective
method applied to those contracts which were not completed as of January 1, 2018. Results for reporting periods beginning after
January 1, 2018 are presented under ASC 606, while prior period amounts are not adjusted and continue to be reported in accordance
with our historic accounting under ASC 605. As of December 31, 2018, the consolidated financial statements were not materially
impacted as a result of the application of Topic 606 compared to Topic 605.
BRAZIL MINERALS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS
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.,
|
BRAZIL MINERALS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS
If a good or service
is not distinct, the good or service is combined with other promised goods or services until a bundle of goods or services is identified
that is distinct.
The transaction
price is the amount of consideration to which an entity expects to be entitled in exchange for transferring promised goods or services
to a customer. The consideration promised in a contract with a customer may include fixed amounts, variable amounts, or both. When
determining the transaction price, an entity must consider the effects of all of the following:
·
|
Variable consideration
|
|
|
·
|
Constraining estimates of variable consideration
|
|
|
·
|
The existence of a significant financing component in the contract
|
|
|
·
|
Noncash consideration
|
|
|
·
|
Consideration payable to a customer
|
Variable consideration
is included in the transaction price only to the extent that it is probable that a significant reversal in the amount of cumulative
revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved.
The transaction
price is allocated to each performance obligation on a relative standalone selling price basis.
The transaction
price allocated to each performance obligation is recognized when that performance obligation is satisfied, at a point in time
or over time as appropriate.
Costs
of Goods Sold
Included within
costs of goods sold are the costs of cutting and polishing rough diamonds and costs of production such as diesel fuel, labor, and
transportation.
Stock-Based Compensation
The Company records stock-based compensation
in accordance with ASC Topic 718, Compensation - Stock Compensation. ASC 718 requires companies to measure compensation cost for
stock-based employee compensation at fair value at the grant date and recognize the expense over the employee's requisite service
period. Under ASC 718, volatility is based on the historical volatility of our stock or the expected volatility of the stock of
similar companies. The expected life assumption is primarily based on historical exercise patterns and employee post-vesting termination
behavior. The risk-free interest rate for the expected term of the option is based on the U.S. Treasury yield curve in effect at
the time of grant.
The Company utilizes the Black-Scholes
option-pricing model, which was developed for use in estimating the fair value of options. Option-pricing models require the input
of highly complex and subjective variables including the expected life of options granted and the expected volatility of our stock
price over a period equal to or greater than the expected life of the options. Because changes in the subjective assumptions can
materially affect the estimated value of our employee stock options, it is management's opinion that the Black-Scholes option-pricing
model may not provide an accurate measure of the fair value of our employee stock options. Although the fair value of employee
stock options is determined in accordance with ASC Topic 718 using an option-pricing model, that value may not be indicative of
the fair value observed in a willing buyer/willing seller market transaction.
On June 20, 2018, the FASB issued ASU 2018-07
which simplifies the accounting for share-based payments granted to nonemployees for goods and services. Under the ASU, most of
the guidance on such payments to nonemployees would be aligned with the requirements for share-based payments granted to employees.
Previously, share-based payment arrangements to nonemployees were accounted for under ASC 718, while nonemployee share-based payments
issued for goods and services were accounted for under ASC 505-50. Before the amendment, the major difference for the Company (but
not limited to) was the determination of measurement date which generally is the date on which the measurement of equity classified
share-based payments becomes fixed. Equity classified share-based payments for employees was fixed at the time of grant. Equity-classified
nonemployee share-based payment awards are no longer measured at the earlier of the date which a commitment for performance by
the counterparty is reached or the date at which the counterparty’s performance is complete. They are now measured at the
grant date of the award which is the same as share-based payments for employees. The Company adopted the requirements of the new
rule as of January 1, 2019, the effective date of the new guidance.
BRAZIL MINERALS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS
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 March 31, 2019 and December
31, 2018, the Company's deferred tax assets had a full valuation allowance.
Under ASC 740, a tax position is recognized
as a benefit only if it is "more likely than not" that the tax position would be sustained in a tax examination being
presumed to occur. The amount recognized is the largest amount of tax benefit that is greater than 50% likely of being realized
on examination. For tax positions not meeting the "more likely than not" test, no tax benefit is recorded.
The
Company has identified the United States Federal tax returns as its "major" tax jurisdiction.
On December 22, 2017, the United States
enacted the Tax Cuts and Jobs Act ("TCJA"), which instituted fundamental changes to the taxation of multinational corporations,
including a reduction the U.S. corporate income tax rate to 21% beginning in 2018.
The TCJA also requires a one-time transition
tax on the mandatory deemed repatriation of the cumulative earnings of certain of the Company's foreign subsidiaries as of December
31, 2017. To determine the amount of this transition tax, the Company must determine the amount of earnings generated since inception
by the relevant foreign subsidiaries, as well as the amount of non-U.S. income taxes paid on such earnings, in addition to potentially
other factors. The Company believes that no such tax will be due since its Brazilian subsidiaries have, when required, paid taxes
locally and that they have incurred a cumulative operating deficit since inception.
Basic Income (Loss) Per Share
The Company computes loss per share
in accordance with ASC Topic 260, Earnings per Share, which requires presentation of both basic and diluted earnings per share
on the face of the statement of operations. Basic loss per share is computed by dividing net loss available to common shareholders
by the weighted average number of outstanding common shares during the period. Diluted loss per share gives effect to all dilutive
potential common shares outstanding during the period. As of March 31, 2019, the Company's potentially dilutive securities relate
to common stock issuable in connection with convertible notes payable, options and warrants.
BRAZIL MINERALS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS
Other
Comprehensive Income
Other comprehensive income is defined
as the change in equity of a business enterprise during a period from transactions and other events and circumstances from non-owner
sources, other than net income and including foreign currency translation adjustments.
Reclassifications
Certain prior year amounts have been reclassified to conform
to the current period presentation. These reclassifications had no impact on net earnings (loss) or and financial position.
Recent Accounting Pronouncements
We have reviewed other recent accounting
pronouncements issued to the date of the issuance of these consolidated financial statements, and we do not believe any of these
pronouncements will have a material impact on the Company.
NOTE 2 – COMPOSITION OF CERTAIN
FINANCIAL STATEMENT ITEMS
Property and Equipment
The following table sets forth the components of the Company's
property and equipment at December 31, 2018 and December 31, 2017:
|
|
March 31, 2019
|
|
|
December 31, 2018
|
|
|
|
Cost
|
|
|
Accumulated Depreciation
|
|
|
Net Book
Value
|
|
|
Cost
|
|
|
Accumulated Depreciation
|
|
|
Net Book
Value
|
|
Capital assets subject to depreciation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Computers and office equipment
|
|
$
|
1,568
|
|
|
$
|
(765
|
)
|
|
$
|
803
|
|
|
$
|
1,572
|
|
|
$
|
(769
|
)
|
|
$
|
803
|
|
Machinery and equipment
|
|
|
449,036
|
|
|
|
(278,617
|
)
|
|
|
170,419
|
|
|
|
451,310
|
|
|
|
(268,537
|
)
|
|
|
182,773
|
|
Vehicles
|
|
|
169,924
|
|
|
|
(116,025
|
)
|
|
|
53,899
|
|
|
|
170,885
|
|
|
|
(110,683
|
)
|
|
|
60,202
|
|
Total fixed assets
|
|
$
|
620,528
|
|
|
$
|
(395,407
|
)
|
|
$
|
225,121
|
|
|
$
|
623,767
|
|
|
$
|
(379,989
|
)
|
|
$
|
243,778
|
|
BRAZIL MINERALS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS
For the three months ended March 31,
2019 and 2018, the Company recorded depreciation expense of $17,881 and $23,006, respectively.
Intangible Assets
Intangible assets consist of mining
rights are not amortized as the mining rights are perpetual. The carrying value was $527,325 and $530,293 at March
31, 2019 and December 31, 2018, respectively.
Equity Investments without Readily
Determinable Fair Values
On October 2, 2017, the Company entered
into an exchange agreement whereby it issued 25,000,000 shares of its common stock in exchange for 500,000 shares of Ares Resources
Corporation, 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
|
|
March 31, 2019
|
|
December 31, 2018
|
Accounts payable and other accruals
|
|
$
|
159,230
|
|
|
$
|
140,968
|
|
Accrued interest
|
|
|
425,056
|
|
|
|
390,322
|
|
Total
|
|
$
|
584,286
|
|
|
$
|
531,290
|
|
NOTE 3 – CONVERTIBLE PROMISSORY NOTES PAYABLE
The following tables set forth the components
of the Company’s convertible debentures as of March 31, 2019 and December 31, 2018:
|
|
March 31,
2019
|
|
|
December 31, 2018
|
|
Convertible notes payable – fixed conversion price
|
|
$
|
244,000
|
|
|
|
244,000
|
|
Convertible notes payable – variable conversion price
|
|
|
576,307
|
|
|
|
630,923
|
|
Less: loan discounts
|
|
|
(–
|
)
|
|
|
(8,299
|
)
|
Total convertible notes, net
|
|
$
|
820,307
|
|
|
$
|
866,624
|
|
BRAZIL MINERALS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS
The following table sets forth a summary of change in our
convertible notes payable for the three months ended March 31, 2019:
|
|
March 31,
2019
|
|
Beginning balance
|
|
$
|
866,624
|
|
Amortization of debt discounts associated with convertible debt
|
|
|
8,299
|
|
Conversion of convertible note principal into common stock
|
|
|
(54,616
|
)
|
Total convertible notes, net
|
|
$
|
820,307
|
|
Convertible Notes Payable - Fixed
Conversion Price
On January 7, 2014, the Company issued
to a family trust a senior secured convertible promissory note in the principal amount, and received gross proceeds, of $244,000
and warrants to purchase an aggregate of 488,000 shares of the Company's common stock at an exercise price of $62.50 per share
through December 26, 2018. The Company received gross proceeds of $244,000 for the sale of such securities. The outstanding principal
of the note bears interest at the rate of 12% per annum. The note is convertible at the option of the holder into common stock
of the Company at a conversion rate of one share for each $50.00 of principal and interest converted. As of March 31, 2019, all
warrants issued in connection with this note had expired.
The outstanding principal on the note
was payable on March 31, 2015, which as of the date of these financial statements is past due and in technical default. The Company
is in negotiations with the note holder to satisfy, amend the terms or otherwise resolve the obligation in default. No demand for
payment has been made. As a result of the default, the interest rate on the note increased to 30% per annum. Interest was payable
on September 30, 2014 and on the maturity date. As of March 31, 2019, the Company has accrued interest payable totaling $329,109
in connection with this note.
Convertible Notes Payable - Variable Conversion Price
At various times to fund operations,
the Company issues convertible notes payable in which the conversion features are variable. In addition, some of these convertible
notes payable have on issuance discounts and other fees withheld.
During the year ended December 31, 2016,
the Company issued to one noteholder, in various transactions, $242,144 in convertible promissory notes with fixed floors and received
an aggregate of $232,344 in proceeds. The convertible promissory notes each bear interest at 8.0% per annum and mature one year
from issuance ranging from July to December 2017. After six months from issuance, each convertible promissory note is convertible
at the option of the holder at a 50% discount to the lowest traded price of the Company's common stock over the previous 20 days.
In addition, each note's conversion rate has a floor of $0.0001. Total debt discounts related to the beneficial conversion features
of $241,852 were recorded and are being amortized over the life of the notes. As of March 31, 2019, the outstanding principal balance
on these notes total $200,144, and all discounts were fully amortized.
During the year ended December 31, 2017,
the Company issued to one noteholder in various transactions $477,609 in convertible promissory notes with fixed floors and received
an aggregate of $454,584 in proceeds. The convertible promissory notes each bear interest at 8.0% per annum and mature one year
from issuance ranging from January to August 2018. After six months from issuance, each convertible promissory note is convertible
at the option of the holder at a 50% discount to the lowest traded price of the Company's common stock over the previous 20 days.
In addition, each note's conversion rate has a floor of $0.0001. Total debt discounts related to the beneficial conversion features
of $447,272 were recorded and are being amortized over the life of the notes. As of March 31, 2019, the outstanding principal balance
on these notes total $238,858, and all discounts were fully amortized.
BRAZIL MINERALS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS
During the year ended December 31, 2018,
the Company issued to one noteholder in various transactions $137,306 in convertible promissory notes with fixed floors and received
an aggregate of $130,556 in proceeds. The convertible promissory notes each bear interest at 8.0% per annum and mature one year
from issuance ranging from August 2018 to April 2019. After six months from issuance, each convertible promissory note is convertible
at the option of the holder at a 50% discount to the lowest traded price of the Company's common stock over the previous 20 days.
In addition, each note's conversion rate has a floor of $0.0001. Total debt discounts related to the beneficial conversion features
of $122,755 were recorded and are being amortized over the life of the notes. As of March 31, 2019, the outstanding principal balance
on these notes total $137,306, and all discounts were fully amortized.
While many of these convertible notes
are past their original maturity dates, the Company continues to maintains a favorable relationship and work with the lender with
regard to financing its working capital needs.
As of March 31, 2019, the Company has
accrued interest payable totaling $85,169 in connection with these variable convertible notes.
During the three months ended March
31, 2019 and 2018, $8,299 and $124,330 of the discounts were amortized to interest expense, respectively.
During the three months ended March 31, 2019
and 2018, the Company issued 128,257,767 and 46,880,968 shares of common stock upon conversion of $60,487 and
$
60,872,
respectively, in notes payable and accrued interest.
Future Potential Dilution
Most of the Company's convertible notes payable
contain adjustable conversion terms with significant discounts to market. As of March 31, 2019, the Company's convertible notes
are convertible into an aggregate of approximately 1,280,683,889 shares of common stock. Due to the variable conversion prices
on some of the Company's convertible notes, the number of common shares issuable is dependent upon the traded price of the Company's
common stock.
NOTE 4 – LOANS PAYABLE
During the year ended December 31, 2018,
the Company received bridge loan proceeds of $228,320 from one lender in various transactions. The loans payable bear interest
at 8.0% per annum. The loans are payable upon demand.
During the three months ended March
31, 2019, the Company received bridge loan proceeds of $42,000 from one lender in various transactions. The loans payable bear
interest at 8.0% per annum. The loans are payable upon demand.
As of March 31, 2019, the Company has
accrued interest payable totaling $10,778 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 March
31, 2019 and December 31, 2018 amounted to $190,186 and $188,423, respectively.
BRAZIL MINERALS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS
NOTE 6 – STOCKHOLDERS' DEFICIT
Authorized and Amendments
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 March 31, 2019 and 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.
Three Months Ended March 31, 2019
Transactions
During the three months ended March
31, 2019, the Company issued 128,257,767 shares of common stock upon conversion of $60,487 in convertible notes payable and accrued
interest.
Three Months Ended March 31, 2018
Transactions
During the three months ended March
31, 2018, the Company issued 46,880,968 shares of common stock upon conversion of $60,872 in convertible notes payable and accrued
interest.
See Notes 2, 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.
BRAZIL MINERALS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS
During the
year ended December 31, 2018, the Company granted options to purchase an aggregate of 31,073,000 shares of common stock to non-management
directors. The options were valued at $50,000 in total. The options were valued using the Black-Scholes option pricing model with
the following average assumptions: our stock price on the date of the grant ($0.0010 to $0.0026), expected dividend yield of 0%,
historical volatility calculated between a range of 205.4% to 217.0%, risk-free interest rate between a range of 1.80% to 2.95%,
and an expected term of 5 years.
During the
three months ended March 31, 2019, the Company granted options to purchase an aggregate of 11,628,000 shares of common stock to
non-management directors. The options were valued at $12,500 in total. The options were valued using the Black-Scholes option pricing
model with the following average assumptions: our stock price on the date of the grant which was $0.0011, expected dividend yield
of 0%, historical volatility calculated as 202.4%, risk-free interest rate of 2.31%, and an expected term of 5 years.
NOTE 7 – COMMITMENTS AND CONTINGENCIES
Operating Leases
The Company leases offices in Pasadena,
California, U.S., and in the municipality of Olhos D'Agua, Brazil. Such costs are immaterial to the consolidated financial statements.
NOTE 8 - RELATED PARTY TRANSACTIONS
Chief Executive Officer
The following tables set forth the components
of the Company’s related party payables as of March 31, 2019 and December 31, 2018:
|
|
March 31,
2019
|
|
|
December 31, 2018
|
|
Salary, retirement contributions and advances payable to related party
|
|
$
|
255,487
|
|
|
$
|
224,516
|
|
Other amounts due to related party
|
|
|
–
|
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
Convertible notes payable to related party
|
|
$
|
445,628
|
|
|
$
|
445,628
|
|
Less: loan discounts
|
|
|
(111,407
|
)
|
|
|
(222,814
|
)
|
Total convertible notes payable to related party, net
|
|
$
|
334,221
|
|
|
$
|
222,814
|
|
|
|
|
|
|
|
|
|
|
Total related party payables
|
|
$
|
589,708
|
|
|
$
|
447,330
|
|
As of March 31, 2019 and December 31, 2018,
amounts payable to the Chief Executive Officer for accrued salaries, retirement contributions, and advances made net of any repayments
included within related party payable were $701,115 and $670,144, respectively.
BRAZIL MINERALS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS
Effective June 30, 2018, the Company
issued a convertible promissory note in the principal amount of $445,628 to its Chief Executive Officer against a portion of these
unpaid compensatory balances. The note bears no interest and is payable on demand. The note is convertible at the option of the
holder at the lower of (i) the average of the five lowest bid prices of the Company's common stock over the previous 20 trading
days or (ii) the lowest price per share at which the Company sold its common stock in a transaction with a person who is not a
manager, officer, or director of the Company during the period from the date hereof until the giving of notice of the election
to convert or the lowest price per share at which a noteholder who is not a manager, officer, or director of the Company converted
any debt of the Company into shares of the Company during the period from the date hereof until the giving of notice of the election
to convert. The note's conversion rate has a floor of $0.0001. Total debt discounts related to the beneficial conversion features
of $445,628 were recorded and are being amortized over a one-year period consistent with the maturity dates of convertible notes
issued to third party holders. As of March 31, 2019, there were unamortized debt discounts of $111,407 related to this note.
Investment in Ares Resources Corporation's
Common Stock
On October 2, 2017, the Company entered
into an exchange agreement whereby it issued 25,000,000 shares of its common stock in exchange for 500,000 shares of Ares Resources
Corporation. 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 March 31, 2019 and December 31, 2018, no
change in the value of the Ares common stock was recorded as the recorded value still approximated fair value.
NOTE 9 - SUBSEQUENT EVENTS
In accordance
with FASB ASC 855-10 Subsequent Events, the Company has analyzed its operations subsequent to March 31, 2019 to the date these
consolidated financial statements were issued, and has determined that it does not have any material subsequent events to disclose
in these consolidated financial statements, except as described below:
On April 8, 2019, we received proceeds of $100,000 from an accredited investor from a direct sale of shares of our restricted common
stock.