Atlas Lithium Corp - Quarter Report: 2015 September (Form 10-Q)

As of November 16, 2015 the registrant had 5,845,717,860 shares of common stock, par value $.001 per share, issued and outstanding.

 

Brazil Minerals, Inc. ("BMIX" 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, through subsidiaries, mines and sells diamonds, gold, sand and mortar. The Company, through subsidiaries, owns outright or jointly owns 11 mining concessions and 15 other mineral rights in Brazil, almost all for diamonds and gold. The Company, through subsidiaries, owns a large alluvial diamond and gold processing and recovery plant, a sand processing and mortar plant, and several pieces of earth-moving capital equipment used for mining as well as machines for sand processing and preparation of mortar.

On December 18, 2012, the Company entered into and consummated an acquisition agreement with Brazil Mining, Inc. ("BMI") whereby BMI agreed to transfer to the Company certain mining and exploration rights, in exchange for 35,783,342 shares of the Company. At the same time, the previous sole director surrendered for voluntary cancellation, 99,999,000 shares of common stock of the Company such that, upon the transaction and a simultaneous private placement by the Company of its common stock, BMI owned 51% of the outstanding common stock of the Company. The Company changed its name to Brazil Minerals, Inc. on December 24, 2012.  See Note 2 for additional information.

The consolidated financial statements include the accounts of the Company and its 99.99% subsidiary, BMIX Participações Ltda. ("BMIX Subsidiary"), which at December 31, 2013 owned 55% of Mineração Duas Barras Ltda. ("MDB"). During the year ended December 31, 2014, the BMIX Subsidiary acquired the remaining 45% of MDB. Thus, as of September 30, 2015 and December 31, 2014, MDB is a wholly owned subsidiary and has been consolidated within the Company's financial statements. See Note 2 for additional information.

During the year ended December 31, 2014, the BMIX Subsidiary 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, the BMIX Subsidiary incorporated Hercules Resources Corporation ("HRC"). On May 27, 2015, HRC formalized title to 99.99% of Hercules Brasil Comércio e Transportes Ltda. ("Hercules Brasil"). Thus, as of September 30, 2015, Hercules Brasil is a wholly owned subsidiary and has been consolidated within the Company's financial statements.

All material intercompany accounts and transactions have been eliminated in consolidation.

The 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, and has incurred losses in each of the past two years. These factors create 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.

 

 

 

On January 7, 2014, the Company issued to a family trust a Senior Secured Convertible promissory note in the principal amount of $244,000 (the "Note") and warrants to purchase an aggregate of 488,000 shares of the Company's common stock, par value $0.001 per share at an exercise price of $0.125 per share through December 26, 2018 (the "Warrants"). 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. All principal on the Note is payable on September 30, 2015 (the "Maturity Date"), which as of the date of this filing is past due and in technical default. However, no demands for payment have been made, and the noteholder has communicated his provisional intent to convert to equity for long-term appreciation. Interest was payable on September 30, 2014 and on the Maturity Date. 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 $0.10 of principal and interest converted. A debt discount related to the value of the warrants in the amount of $10,252 was recorded and was being amortized over the life of the note.  During the nine months ended September 30, 2015 and 2014, $1,025 and $6,664 of the discount was amortized to interest expense, respectively. As of September 30, 2015, the discount was fully amortized.

In January 2015, the Company issued four convertible promissory notes totaling $200,000 in proceeds and options to purchase an aggregate of 40,000,000 shares of the Company's common stock at an exercise price of $0.005 per share for a period of three years. The convertible promissory notes incur interest at 10.0% and are due January 30, 2018. The convertible promissory notes are convertible at the option of the holder at a rate of $0.0024 per share. A debt discount related to the relative fair market value of the options in the amount of $22,423 and an implied beneficial conversion features of $22,423 were recorded, totaling $44,846 and are being amortized over the life of the notes.  During the nine months ended September 30, 2015, $17,440 of the discount was amortized to interest expense. As of September 30, 2015, $27,406 of the discount remained. The notes have been reflected as a long-term liability on the accompanying balance sheet.

In January 2015, the Company purchased machinery and equipment from a third party making an initial deposit of $10,910 (R$35,000), issuing notes payable totaling $38,963 (R$125,000) payable in five equal monthly installments starting March 15, 2015 and $43,638 in customer deposits (R$140,000) in which are to be satisfied through sand from MDB's sand deposits. The note payable is convertible into common stock of the Company at the market rate on the date of issuance and thus a beneficial conversion feature was not recorded. The Company is currently renegotiating this contract and has removed approximately $44,000 of machinery and equipment and notes payable/customer deposits. As of September 30, 2015, the deposit had been paid, $2,517 was included within notes payable and $17,169 within customer deposits on the accompany balance sheet.

In June 2015, the Company issued three convertible promissory notes and received an aggregate $100,000 in proceeds. The convertible promissory notes incur interest at 10.0% per annum and are due December 31, 2016. The convertible promissory notes are convertible at the option of the holder at a 40% discount to the average of the five lowest closing prices of the Company's common stock over the previous 20 days. In addition, the notes conversion rate has a ceiling of $0.03 and a floor of $0.000033. A debt discount related to the beneficial conversion feature of $87,720 was recorded and is being amortized over the life of the notes.  During the nine months ended September 30, 2015, the discount was amortized to interest expense. During the three months ended September 30, 2015, the notes were converted into 100 shares of Series B Preferred Stock, see Note 5.

 

During the nine months ended September 30, 2015, the Company issued 3,513,353,474 shares of common stock upon conversion of $1,081,366 in convertible notes payable and accrued interest. In addition, the Company recorded additional interest expense of $158,722 related to true ups of some conversions which required the issuance of additional shares of common stock.

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 nine months ended September 30, 2015, the Company issued convertible notes payable with principal amounts aggregating $302,111 in which proceeds of $271,566 were received. The convertible notes payable incur interest rates ranging from 10.0% to 12.0% per annum with due dates ranging from March 2015 to September 2016.  The convertible notes payable are convertible into common stock of the Company at discounts ranging from 40-50% of either the lowest, or the average of two or three lowest, closing prices or volume-weighted average prices in the 20 days before the conversion date. Due to the variable conversion price, the Company has recorded a derivative liability in connection with the convertible notes payable. The combination of the original issue discount ("OID"), fees paid and allocation to the derivative liabilities resulted in a full discount to the convertible notes payable. The discounts are being amortized over the term of the convertible notes payable.

Including the convertible notes payable discussed in the preceding paragraph, as of September 30, 2015, the Company has $361,963 in principal of notes payable with remaining discounts of $82,702. The convertible notes payable incur interest at rates ranging from 10.0% to 12.0% per annum with due dates ranging from March 2015 to September 2016.  The convertible notes payable are convertible into common shares of the Company at discounts ranging from 35-50% of either the lowest, or the average of two or three of the lowest, closing prices or volume-weighted average prices from 5 to 20 days before the conversion date.  Due to the variable conversion prices of these notes, the Company recorded derivative liabilities in connection with the convertible notes payable. The combination of the OID, fees paid and allocation to the derivative liabilities resulted in a full discount to the convertible notes payable. The discounts are being amortized over the term of the convertible notes payable. During the nine months ended September 30, 2015 and 2014, $619,932 and $309,658 of the discount was amortized to interest expense, respectively. As of September 30, 2015, the unamortized debt discount was $82,702.

Convertible Customer Deposits

In July 2015, as discussed below in Note 6, the Company has provided customers with the option to convert their deposits of diamonds into common stock if the diamonds are not delivered on the scheduled timeline.

Derivative Liabilities

In connection with convertible notes payable the Company records derivative liabilities for the conversion feature. The derivative liabilities are valued on the date of issuance of the convertible note payable and revalued at each reporting period. During the nine months ended September 30, 2015, the Company recorded derivative liabilities of $667,658 based upon the following Black-Scholes option pricing model average assumptions: an exercise price of $0.0015 to $0.00005, our stock price on the date of grant ($0.0033 to $0.0001), expected dividend yield of 0%, expected volatility of 217.53% to 313%, risk free interest rate of 0.12% and an expected term of 0.50 years. Upon initial valuation, the derivative liability exceeded the face value of the convertible note payable of $302,111, a day one loss on derivative liability of $372,878 was recorded.

On September 30, 2015, the derivative liabilities were revalued at $567,740 resulting in a gain of $1,610,207 related to the change in fair market value of the derivative liabilities. The derivative liabilities were revalued using the Black-Scholes option pricing model with the following average assumptions: an exercise price of $0.0007 to $0.000005, our stock price on the date of grant ($0.0011 to $0.0001), expected dividend yield of 0%, expected volatility of 257.77% to 318%, risk-free interest rate of 0.12%, and an expected term of 0.5 years.

 

 

 

 

On April 30, 2014, the Company entered into Subscription Agreements with four investors (the "Buyers"), pursuant to which the Buyers agreed to pay to the Company an aggregate of $500,000 and the Company agreed to deliver to the Buyers from time to time on or before December 31, 2015, polished and GIA-graded diamonds of at least 0.4 carats having a certain aggregate Rappaport value. The Company agreed to pledge with third party collateral agents for the Buyers an aggregate of 8,000,000 shares of its common stock, valued at approximately $800,000 at the time the transaction was consummated, in order to secure the delivery of the diamonds. The number of shares pledged is subject to periodic adjustment as diamonds are delivered and as the market price of the Company's stock may change. As of December 31, 2014, the required reserve was 123,076,923 shares of common stock. On the date of the agreement, the Company reserved for the Buyers or their designees, an aggregate of 3,750,000 shares of the Company's common stock (the "Shares") and two year options to purchase an aggregate of 1,875,000 shares of Common Stock at an exercise price of $0.12 per share, payable in cash to the Company (the "Options"). The fair value of the options was  $57,662 was calculated using the Black-Scholes option pricing model with the following assumptions: our stock price on date of grant ($0.09), expected dividend yield of 0%, expected volatility of 77.56%, risk-free interest rate of 0.11%, and an expected term of 2 years.  The common stock issued was valued at $348,750 based upon the closing market price of the Company's common stock. Since the agreement contained various elements, the Company allocated the $47,544 to the options, $287,552 to the shares issued and $164,904 to deferred revenue based upon the relative fair market value.  In July 2015, the Company extended these agreements until December 31, 2016. Under the new agreements, quarterly the Company is required to deliver diamonds with aggregate Rappaport values ranging from $10,000 to $20,000. If the diamonds are not delivered, then the customer has the option of converting the required value at 50% of market. Due to the variable conversion price, the Company is recording a derivative liability upon each tranche becoming convertible. As of September 30, 2015, total amounts convertible into common stock were $40,000. A total of 200,000,000 in collateral shares were issued for this contract. There were no deliveries under this contract during the nine months ended September 30, 2015.

NOTE 7 - RELATED PARTY TRANSACTIONS

Brazil Mining, Inc. ("BMI")

As of September 30, 2015 and December 31, 2014, amounts due from BMI, a related party through common management, in connection with loans made for operating purposes were $102,614 and $123,691, respectively. During the nine months ended September 30, 2015, BMI transferred equipment with a carrying value of $44,854 to the Company as a partial offset to the amounts due. The Company expects to receive the amount due from BMI within 2016.

Chief Executive Officer ("CEO")

As of September 30, 2015 and December 31, 2014, amounts payable to the Company's CEO for accrued salaries and advances made included within accounts payable and accrued expenses were $12,100 and $12,500, respectively. In addition, the Company owed its CEO $12,089 which was recorded as related party payable on the accompanying balance sheet as of September 30, 2015. As of September 30, 2015, the Company recorded $22,450 within accrued expenses and accounts payable as the Company has the obligation to issue an additional 224,502,271 shares of common stock. See common stock issuances above for disclosure of amounts converted and shares issued.

 

 

F-19

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BRAZIL MINERALS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

Our current primary objectives are twofold: a) to eliminate most, if not all, of the floorless variable-rate convertible debt from our balance sheet, and b) to become a cash flow positive company as soon as possible.

Our progress has been steady: in early 2013, we had 3 mineral rights, and now we have 32 mineral rights. Please refer to the table below. Our product mix has increased from rough diamonds and gold to also include polished diamonds, sand and mortar.

From 2013 to today, we have been taking shape as a holding company owner of different subsidiaries. We now own the following stakes:

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DNPM Mineral Right Number	Subsidiary Title Owner	Location (municipality and state)	Mineral Right Current Status	Area of Mineral Right (in hectares)	Area of Mineral Right (in acres)	Minerals Currently Requested in Mineral Right Document
806.569/1977	MDB	Olhos-d'Água, MG	Mining Concession ("Concessão de Lavra")	170.89	422	diamond, gold, sand
830.797/1982	RST	Bocaiuva & Diamantina, MG	Mining Concession ("Concessão de Lavra")	41.45	102	diamond, gold
830.062/1980	RST	Bocaiuva & Diamantina, MG	Mining Concession ("Concessão de Lavra")	476.42	1,177	diamond, gold
817.734/1968	RST	Diamantina, MG	Mining Concession ("Concessão de Lavra")	2,104.98	5,202	diamond, gold
807.497/1968	RST	Bocaiuva & Diamantina, MG	Mining Concession ("Concessão de Lavra")	476.76	1,178	diamond, gold
003.048/1956	RST	Diamantina, MG	Mining Concession ("Concessão de Lavra")	366.12	905	diamond, gold
003.047/1956	RST	Diamantina, MG	Mining Concession ("Concessão de Lavra")	543.41	1,343	diamond, gold
003.046/1956	RST	Diamantina, MG	Mining Concession ("Concessão de Lavra")	420.61	1,039	diamond, gold
003.045/1956	RST	Bocaiuva & Diamantina, MG	Mining Concession ("Concessão de Lavra")	524.23	1,295	diamond, gold
003.044/1956	RST	Diamantina, MG	Mining Concession ("Concessão de Lavra")	274.42	678	diamond, gold
830.749/1981	RST	Bocaiuva & Diamantina, MG	Mining Concession Application ("Requerimento de Lavra")	239.26	591	diamond, gold
830.746/1981	RST	Bocaiuva & Diamantina, MG	Mining Concession Application ("Requerimento de Lavra")	22.32	55	diamond, gold
830.921/1980	RST	Bocaiuva, MG	Mining Concession Application ("Requerimento de Lavra")	111.63	276	diamond, gold
830.919/1980	RST	Diamantina, MG	Mining Concession Application ("Requerimento de Lavra")	128.75	318	diamond
804.492/1977	RST	Diamantina, MG	Mining Concession Application ("Requerimento de Lavra")	398.92	986	diamond, gold
802.267/1977	RST	Olhos-d'Água, MG	Mining Concession Application ("Requerimento de Lavra")	530.03	1,310	diamond, gold
831.742/1987	RST	Bocaiuva, MG	Mining Concession Application ("Requerimento de Lavra")	118.79	294	diamond
830.998/1984	RST	Diamantina, MG	Mining Concession Application ("Requerimento de Lavra")	295.31	730	diamond
880.239/2009	BMIXP	Borba, AM	Evaluation Permit ("Autorização de Pesquisa")	9,999.11	24,708	gold
831.380/2014	BMIXP	Diamantina, MG	Evaluation Permit ("Autorização de Pesquisa")	556.26	1,375	diamond, gold, gravel, sand
831.398/2014	BMIXP	Olhos-d'Água, MG	Evaluation Permit ("Autorização de Pesquisa")	402.38	994	diamond, gold, gravel, sand
832.052/2006	MDB	Diamantina & Olhos-d'Água, MG	Evaluation Permit ("Autorização de Pesquisa")	397.42	982	diamond, gold
830.899/2013	RST	Diamantina, MG	Evaluation Permit ("Autorização de Pesquisa")	583.85	1,443	diamond, gold
830.898/2013	RST	Diamantina, MG	Evaluation Permit ("Autorização de Pesquisa")	271.38	671	diamond, gold
833.685/2006	RST	Diamantina & Olhos-d'Água, MG	Evaluation Permit ("Autorização de Pesquisa")	52.73	130	diamond, gold
832.109/2005	RST	Bocaiuva & Diamantina, MG	Evaluation Permit ("Autorização de Pesquisa")	467.82	1,156	diamond, gold
832.108/2005	RST	Olhos-d'Água, MG	Evaluation Permit ("Autorização de Pesquisa")	265.83	657	diamond, gold
832.059/2014	BMIXP	Diamantina & Olhos-d'Água, MG	Application for Evaluation ("Requerimento de Pesquisa")	466.01	1,152	diamond, gold, gravel, sand
832.060/2014	BMIXP	Diamantina & Olhos-d'Água, MG	Application for Evaluation ("Requerimento de Pesquisa")	425.54	1,052	diamond, gold, gravel, sand
832.043/2007	RST	Diamantina, MG	Application for Evaluation ("Requerimento de Pesquisa")	7.73	19	diamond
833.938/2006	RST	Diamantina, MG	Application for Evaluation ("Requerimento de Pesquisa")	500.15	1,236	diamond, gold
833.782/2006	RST	Olhos-d'Água, MG	Application for Evaluation ("Requerimento de Pesquisa")	138.68	343	diamond, gold

 

 

 Some significant developments to our business during Q3 2015 were as follows:

(1)

Mineração Duas Barras Ltda. ("MDB") obtained a 4-year renewal of its environmental license of operations ("Licença de Operação"), and it can apply for continuous renewals of such license every four years. On September 8, 2015, MDB's initial renewal application was voted favorably by the COPAM committee, which is made up of representatives from different segments of the local community; the tally was ten votes in favor of our renewal and one abstention. This public vote was held in Montes Claros, state of Minas Gerais, the nearest large city to MDB's mine. We believe that obtaining an environmental license for any mining company in Brazil is a substantial achievement, as the process is a long and detailed, and many studies are required.

(2)

We completed all contractual cash payments for the purchase of our 50% stake in RST, a Brazilian company with 10 mining concessions and 12 other minerals rights, all for diamond and gold. These RST mining concessions are located in the same general area as our MDB diamond and gold recovery plant. Prior to our involvement, the last time RST shares had been acquired by a publicly-traded company occurred in June 2008, when a Canadian issuer contractually agreed to pay US$10.5 million dollars for 100% of RST. Subsequently, and as part of such contractual agreement, this Canadian buyer paid US$2 million to the sellers, but was unable to pay the remainder due to the global financial crisis affecting its situation. RST was not explored by it or other owners since then and its areas have remained essentially untouched.

(3)

We completed preliminary drilling of an area within one of the RST mining concessions (the "RST Initial Area"). It is a dry location, amenable to a potential program of extraction by open surface excavation and removal and transport of the thick white gravel to our diamond and gold processing and recovery plant.

(4)

Beginning in Q3 2015, and continuing after the end of the quarter, we built a dirt road to connect our large diamond and gold recovery plant to the RST Initial Area a few miles away, where we intend to conduct operations for the next several years. Work is currently ongoing on the placement of cement tubes under certain parts of such road, in a few specific areas, to allow for proper drainage during rainfall. This part of Brazil is dry for most of the year, except for the normal rainy period between December and March. Besides the road drainage system, workers are also depositing layers of pebbles and rocks to the road surface to make it sturdier for the expected heavy truckload traffic.

Subsequent to September 30, 2015:

(1)

In November 2015, we filed the necessary documents for further permitting of a 24,708-acre gold area in the state of Amazonas, Brazil. In this filling, we have added the mineral copper, also identifiable in the area. In prior fillings, we have referred to this area as "Borba". It is a mineral right located in the Apui area of Amazonas, a region of the Amazon now well known for gold deposits.

(2)

In November 2015, we filed the necessary documents for further permitting of the second mineral right that belongs to MDB, and which encompasses an area of 982 acres. This mineral right has not been explored before and holds promise for future mining for diamonds and gold. Our technical team encountered in this area a type of gravel locally called "grupiária", which is known for having a lower density concentration of diamonds but yielding much larger stones diamonds when they do occur.

 

 

Results of Operations

Comparison of Three Months Ended September 30, 2015 to Three Months Ended September 30, 2014

We had revenues of $18,326 and $302,401 during the three months ended September 30, 2015 ("Q3 2015") and three months ended September 30, 2014 ("Q3 2014"), respectively. The decrease in revenues for Q3 2015 as compared to Q3 2014 was due to lesser days of processing of gravel in our diamond and gold recovery plant. Going forward, once we begin to process diamondiferous and auriferous gravel from the RST Initial Area, we project our revenues to be materially higher.

Our cost of goods sold in Q3 2015, consisting entirely of production expenses, was $8,573. In Q3 2014, our cost of goods sold was $93,839. The reason that the cost of goods sold decreased in Q3 2015 compared to Q3 2014 is directly related to the decrease in revenues as detailed above.

Our gross profit in Q3 2015 was $9,753 as compared to a gross profit of $208,562 in Q3 2014. This difference was also directly related to the lower revenues in Q3 2015 as compared to Q3 2014.

We had an aggregate of $213,588 in total operating expenses in Q3 2015, a decrease of $128,364 or approximately 38% as compared to the $341,952 in total operating expenses in Q3 2014. The primary reasons for the decrease in total operating expenses in Q3 2015 as compared to Q3 2014 were that stock based compensation decreased from $128,080 to $37,500, professional fees decreased from $62,292 to $21,035, and compensation and related costs decreased from $44,178 to $16,753, which more than offset the increase in general and administrative expenses from $107,402 to $138,300.

Our loss from operations increased from $133,390 in Q3 2014 to $203,835 in Q3 2015. The increase in loss from operations was primarily as a result of the decrease in revenues, which was partially offset by a decrease in total operating expenses.

We had total other income of $153,150 in Q3 2015 as compared to total other expenses of $162,037 in Q3 2014. This change was primarily attributable to the difference between the gain on derivative liabilities of $488,824 in Q3 2015 as compared to $115,577 in Q3 2014.

 

We had net loss of $50,705 in Q3 2015 as compared to a net loss of $336,130 in Q3 2014, a reduction in net loss of $285,425 or approximately 85%.

Comparison of Nine Months Ended September 30, 2015 to Nine Months Ended September 30, 2014

We had revenues of $58,512 and $403,845 during the nine months ended September 30, 2015 and nine months ended September 30, 2014, respectively. This decrease in revenues was primarily due to lesser days of processing of gravel in our recovery plant. Going forward as we expect to begin to run diamondiferous and auriferous gravel from the RST Initial Area, we project the revenues to be materially higher.

Our cost of goods sold during the nine months ended September 30, 2015, consisting entirely of production expenses, was $145,599. During the nine months ended September 30, 2014, our cost of goods sold was $169,729.

Our gross loss during the nine months ended September 30, 2015 was $87,087 as compared to a gross profit of $234,116 during the nine months ended September 30, 2014. This was primarily attributable to lower revenues in the nine months ended September 30, 2015 as compared to the nine months ended September 30, 2014.

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We had an aggregate of $672,409 in total operating expenses in the nine months ended September 30, 2015, a decrease of $554,190 or approximately 45% as compared to the $1,226,599 in total operating expenses in the nine months ended September 30, 2015. There were reductions in all expense areas from the nine months ended September 30, 2014 to the nine months ended September 30, 2015: professional and consulting fees declined from $189,134 to $120,076, general and administrative expenses decreased from $416,945 to $365,836, compensation and related costs were reduced from $138,643 to $65,851, and stock-based compensation was cut from $481,877 to $120,646.

Our loss from operations decreased by $232,987 or approximately 23%, from $992,483 in the nine months ended September 30, 2014 to $759,496 in the nine months ended September 30, 2015. The decrease in loss from operations was primarily as a result of the decrease in total operating expenses, as described above.

We had net loss of $606,183 in the nine months ended September 30, 2015 as compared to a net loss of $1,687,841 in the nine months ended September 30, 2014, a reduction in net loss of $1,081,658 or 64%.

Net cash used in operating activities was $618,864 in the nine months ended September 30, 2015 as compared to net cash provided by operating activities of $69,435 in the nine months ended September 30, 2014, primarily as a result of lower revenues realized in 2015.

Net cash used in investing activities decreased from $1,410,321 in the first nine months ended September 30, 2014 to $33,796 in the nine months ended September 30, 2015, primarily because the acquisitions of stakes in MDB and RST, and in capital assets were 2014 events in far preponderance.

Net cash provided by financing activities increased from $1,427,000 in the nine months ended September 30, 2014 to $932,000 in the nine months ended September 30, 2015, primarily as a result of lower costs requiring less capital.

The effect of the foregoing and other changes in cash flows was that cash and cash equivalents decreased to $141,879 at September 30, 2015 from $114,015 at September 30, 2014.

Liquidity and Capital Resources

At September 30, 2015, we had total current assets of $496,440 compared to total current liabilities of $2,195,941 for a negative working capital of $1,699,501 as compared to total current assets of $1,051,247, total current liabilities of $2,140,783 and a negative working capital of $1,089,536 as of September 30, 2014. In 2015, our principal sources of liquidity have been private placements of equity.

 

The ability of the Company to continue as a going concern is dependent on the Company generating cash from its operations, the sale of its stock, and/or obtaining debt financing. During the nine months ended September 30, 2015, the Company funded operations through the receipt of $983,066 in net proceeds from equity and debt sales. Subsequent to September 30, 2015, the Company has received $31,000 in net proceeds related to sales of equity. Management's plan to fund its capital requirements and ongoing operations include an increase in cash received from sales of diamond and gold derived from mining new areas, and an increase in cash received from mortar and sand sales, all of which are expected to occur. Management's secondary plan to cover any shortfall is selling its equity securities and obtaining debt financing. There can be no assurance the Company will be successful in these efforts.

Off-Balance Sheet Arrangements

We currently have no off-balance sheet arrangements.

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Critical Accounting Policies and Estimates

Our financial instruments consist of cash and cash equivalents, loans to a related party, accrued expenses, and an amount due to a director. The carrying amount of these financial instruments approximates fair value due either to length of maturity or interest rates that approximate prevailing market rates unless otherwise disclosed in our financial statements. If our estimate of the fair value is incorrect at March 31, 2014, 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.

 

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

 

Item 4.  CONTROLS AND PROCEDURES

(a)

Evaluation of Disclosure Controls and Procedures

 

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the design, operation, and effectiveness of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act as of September 30, 2015. On the basis of that evaluation, management concluded that our disclosure controls and procedures designed to provide reasonable assurance that the information required to be disclosed in reports filed or submitted pursuant to the Securities Exchange Act of 1934, as amended (the "Exchange Act") is recorded, processed, summarized, and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission (the "Commission"), and that such information is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer as appropriate, to allow timely decisions regarding required disclosure were not effective for the reasons described in Item 4(b), but we intend to make them effective by the actions described in Item 4(b).

 

(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). Our internal control system is designed to provide reasonable assurance to management and to our Board of Directors regarding the preparation and fair presentation of published financial statements. Our Chief Executive Officer and Chief Financial Officer, conducted an evaluation of the effectiveness of our 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 his evaluation under the framework in Internal Control—Integrated Framework, he concluded that our internal control over financial reporting was effective as of September 30, 2015.

(c)

Changes in Internal Control over Financial Reporting

 

There were no changes in our internal control over financial reporting that occurred in the third quarter of 2015 that materially affected, or would be reasonably likely to materially affect, our internal control over financial reporting.

On August 10, 2015 and September 23, 2015 we issued and sold to Benjamin Khowong 150 million and 450 million shares of our common stock for purchase prices of $30,000 and $25,000, respectively. 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 issued to only one purchaser which represented to the Company that it he an accredited investor and that he was acquiring the shares for investment and could bear the economic risk of the investment.

 

On July 20, 2015, September 21, 2015 and September 28, 2015 we issued to Sainte Valiere, LLC, a limited liability company which is owned by a trust of which Marc Fogassa, our Chairman of the Board, is the sole beneficiary, 8,523,696, 51,346,801 and 55,454,545 shares of our common stock, respectively, in lieu of cash payment of obligations of the Company to Mr. Fogassa. The shares were issued in accordance with an exemption from the registration requirements of the Securities Act under Section 4(a)(2) of the Securities Act by virtue of being offered without employing any means of general solicitation and issued to only one person which represented to the Company that it was acquiring the shares for investment and could bear the economic risk of the investment.

In August and September 2015 we issued to the persons named in the table below the number of shares of our Series B Convertible Preferred Stock set forth opposite their names below in exchange for the promissory notes of the Company in the principal amounts set forth opposite their names in the table below held by such persons. The shares were issued in accordance with an exemption from the registration requirements of the Securities Act under Section 4(a)(2) of the Securities Act by virtue of being offered without employing any means of general solicitation and issued to persons which represented to the Company that they are accredited investors and that they were acquiring the shares for investment and could bear the economic risk of the investment.