Atlas Lithium Corp - Quarter Report: 2018 June (Form 10-Q)

		June 30,				December 31,
		2018				2017
		(Unaudited)				(Audited)
ASSETS
Current assets:
Cash and cash equivalents		$	14,523			$	84,107
Taxes recoverable			23,890				27,846
Inventory			33,352				38,875
Deposits and advances			3,680				4,290
Total current assets			75,445				155,118
Non-current assets:
Property and equipment, net			277,014				365,472
Intangible assets, net			532,897				620,805
Equity investments			150,000				150,000
Total assets		$	1,035,356			$	1,291,395
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable and accrued expenses		$	466,941			$	407,650
Convertible notes payable, net of debt discounts totaling $71,641 and $219,608, respectively			860,443				665,394
Loans payable			47,000				-
Related party notes and other payables, net of debt discounts totaling $445,628 and $0, respectively			166,238				537,183
Total current liabilities			1,540,622				1,610,227
Long term liabilities:
Other noncurrent liabilities			179,088				200,815
Total liabilities			1,719,710				1,811,042
Stockholders' deficit:
Series A preferred stock, $0.001 par value. 10,000,000 shares authorized; 1 share issued and outstanding			1				1
Common stock, $0.001 par value. 950,000,000 shares authorized; 209,283,592 and 121,274,424 shares
issued and outstanding as of June 30, 2018 and December 31, 2017, respectively			209,284				121,274
Additional paid-in capital			46,486,919				45,788,819
Accumulated other comprehensive loss			(606,221	)			(524,819	)
Stock purchase warrants			218,656				218,656
Accumulated deficit			(48,323,195	)			(47,515,131	)
Total Brazil Minerals, Inc. stockholders' deficit			(2,014,556	)			(1,911,200	)
Non-controlling interest			1,330,202				1,391,553
Total stockholders' deficit			(684,354	)			(519,647	)
Total liabilities and stockholders' deficit		$	1,035,356			$	1,291,395

 

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		Three Months Ended June 30,								Six Months Ended June 30,
		2018				2017				2018				2017
Revenue		$	2,385			$	9,058			$	7,300			$	12,454
Cost of revenue			33,216				43,682				69,084				76,877
Gross margin			(30,831	)			(34,624	)			(61,784	)			(64,423	)
Operating expenses:
Professional fees			55,441				67,466				80,282				77,259
General and administrative			66,781				93,659				146,380				154,160
Compensation and related costs			57,753				60,710				118,776				144,349
Stock based compensation			114,256				-				126,756				-
Total operating expenses			294,231				221,835				472,194				375,768
Loss from operations			(325,062	)			(256,459	)			(533,978	)			(440,191	)
Other expense (income):
Interest on promissory notes			39,325				26,691				64,714				51,030
Amortization of debt discounts and other fees			146,393				86,035				270,723				152,346
Other expense (income)			-				45				-				45
Total other expense (income)			185,718				112,771				335,437				203,421
Loss before provision for income taxes			(510,780	)			(369,230	)			(869,415	)			(643,612	)
Provision for income taxes			-				-				-				-
Net loss			(510,780	)			(369,230	)			(869,415	)			(643,612	)
Loss attributable to non-controlling interest			(51,642	)			(10,901	)			(61,351	)			(15,978	)
Net loss attributable to Brazil Minerals, Inc. stockholders		$	(459,138	)		$	(358,329	)		$	(808,064	)		$	(627,634	)
Basic and diluted loss per share
Net loss per share attributable to Brazil Minerals, Inc. common stockholders		$	(0.00	)		$	(0.01	)		$	(0.01	)		$	(0.01	)
Weighted-average number of common shares outstanding:
Basic and diluted			183,998,904				45,795,240				161,380,516				57,396,866
Comprehensive loss:
Net loss		$	(510,780	)		$	(369,230	)		$	(869,415	)		$	(643,612	)
Foreign currency translation adjustment			(104,317	)			(43,249	)			(81,402	)			(5,613	)
Comprehensive loss			(615,097	)			(412,479	)			(950,817	)			(649,225	)
Comprehensive loss attributable to noncontrolling interests			(51,642	)			(10,901	)			(61,351	)			(15,978	)
Comprehensive loss attributable to Brazil Minerals, Inc. stockholders		$	(563,455	)		$	(401,578	)		$	(889,466	)		$	(633,247	)

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		Six Months Ended June 30,
		2018				2017
Cash flows from operating activities of continuing operations:
Net loss		$	(869,415	)		$	(643,612	)
Adjustments to reconcile net loss to cash used in operating activities:
Stock based compensation and services			126,756				-
Amortization of debt discounts			270,723				152,347
Common stock issued in satisfaction of other financing costs			1,050				-
Depreciation and amortization			43,975				40,518
Changes in operating assets and liabilities:
Prepaid expenses			-				(11,498	)
Deposits and advances			-				(4,414	)
Accounts payable and accrued expenses			77,607				47,159
Accrued salary due to officer			100,638				87,500
Other noncurrent liabilities			7,683				2,998
Net cash provided by (used in) operating activities			(240,983	)			(329,002	)
Cash flows from investing activities:
Acquisition of capital assets			(803	)			(6,615	)
Advances to related parties			(1,173	)			-
Net cash provided by (used in) investing activities			(1,976	)			(6,615	)
Cash flows from financing activities:
Loan from officer			(38,214	)			31,857
Net proceeds from sale of common stock			-				24,963
Proceeds from sale of subsidiary common stock to noncontrolling interests			-				9,166
Proceeds from convertible notes payable			130,556				214,460
Proceeds from loans payable			47,000				77,000
Repayment of loans payable			-				(25,000	)
Net cash provided by (used in) financing activities			139,342				332,446
Effect of exchange rates on cash and cash equivalents			34,766				4,765
Net increase (decrease) in cash and cash equivalents			(68,851	)			1,594
Cash and cash equivalents at beginning of period			83,374				6,268
Cash and cash equivalents at end of period		$	14,523			$	7,862
Supplemental disclosure of cash flow information:
Cash paid for interest		$	-			$	-
Cash paid for income taxes		$	-			$	-
Supplemental disclosure of non-cash investing and financing activities:
Shares issued in connection with conversion of debt and accrued interest		$	96,670			$	33,683
Conversion of related party payables into convertible notes payable		$	445,628			$	-
Deferred financing costs accrued in relation to the issuance of debt		$	-			$	10,675
Discount for beneficial conversion features on convertible notes		$	561,633			$	209,980
Shares issued in connection with conversion of debt and accrued interest		$	96,670			$	33,683
Conversion of related party payables into convertible notes payable		$	445,628			$	-
Deferred financing costs accrued in relation to the issuance of debt		$	-			$	10,675
Discount for beneficial conversion features on convertible notes		$	561,633			$	209,980

 

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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, among others. In one of these rights, a mining concession, the Company currently mines diamonds, gold, 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 ("MJL") 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 June 30, 2018 the Company has ownership of approximately 55.4% of the equity of Jupiter Gold. As such, the accounts and results of Jupiter Gold, and its subsidiary MJL, have been included in the Company's consolidated financial statements. See Note 2 for more information.

 

The accompanying unaudited consolidated financial statements have been prepared by the Company without audit pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC"). Certain information and disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States ("GAAP") have been condensed or omitted as allowed by such rules and regulations, and management believes that the disclosures are adequate to make the information presented not misleading. These consolidated financial statements include all of the adjustments, which in the opinion of management are necessary to a fair presentation of financial position and results of operations. All such adjustments are of a normal and recurring nature. Interim results are not necessarily indicative of results for a full year. These consolidated financial statements should be read in conjunction with the audited consolidated financial statements at December 31, 2017 and 2016, as presented in the Company's Form 10-K filed on April 17, 2018 with the SEC.

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. The consolidated financial statements include the accounts of the Company and its subsidiaries. All material intercompany accounts and transactions have been eliminated in consolidation.

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.

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.

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The ability of the Company to continue as a going concern is dependent on the Company generating cash from its operations, the sale of its stock and/or obtaining debt financing. Historically, the Company has funded its operations primarily through the 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 modular processing and recovery plant. 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.

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.

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:

The Company's financial instruments consist of cash and cash equivalents, accounts receivable, taxes recoverable, prepaid expenses, inventory, deposits and other assets, accounts payable, accrued expenses, deferred revenue 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.

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 $64,837 as of June 30, 2018).

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 June 30, 2018 and December 31, 2017, inventory consisted primarily of rough ore stockpiled for further gold and diamonds recovery. During the six months ended June 30, 2018 and 2017, the Company did not record any write downs against the value of its inventory.

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The Company records a receivable for value added taxes recoverable 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 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.

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 June 30, 2018 and December 31, 2017, the Company did not recognize any impairment losses related to mineral properties held.

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.

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.

 

In the first quarter of 2018, the Company adopted the ASU 2016-01, Financial Instruments — Overall (Subtopic 825-10). Under the new guidance, an entity shall no longer use the cost method of accounting as was applied before, but rather it can elect a measurement alternative for equity investments that do not have readily determinable fair values and do not qualify for the practical expedient in ASC 820 to estimate fair value using the NAV per share. Management assessed its investments and concluded that they should be accounted for using measurement alternative. Under this election, the Company measures its investments 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. ASU 2016-01 requires the Company to make a separate election to use the measurement alternative for each eligible investment, and to apply the measurement alternative consistently from period to period until the investment's fair value becomes readily determinable. It further requires that the Company use the prospective method for all equity investments without readily determinable fair values.

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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 and for the six months ended June 30, 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:

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:

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 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.

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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.

 

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 June 30, 2018, the Company's potentially dilutive securities relate to common stock issuable in connection with convertible notes payable, options and warrants.

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.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 840), to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. The amendments in this standard are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, for a public entity. Early adoption of the amendments in this standard is permitted for all entities and the Company must recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach. The Company is currently in the process of evaluating the effect this guidance will have on its financial statements and related disclosures.

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.

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The following table sets forth the components of the Company's property and equipment at June 30, 2018 and December 31, 2017:

For the three and six months ended June 30, 2018 and 2017, the Company recorded depreciation expense of $20,969 and $17,125 and $43,975 and $40,518, respectively.

Intangible assets consist of mining rights are not amortized as the mining rights are perpetual. The carrying value was $532,897 and $620,805 at June 30, 2018 and December 31, 2017, respectively.

 

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.

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NOTE 3 – CONVERTIBLE PROMISSORY NOTES PAYABLE

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 (the "Note") 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 "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 was payable on March 31, 2015 (the "Maturity Date"), which as of the date of this filing 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 June 30, 2018, the Company has accrued interest payable totaling $274,209. 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.

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. 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.

 

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. After six months from issuance, each convertible promissory note is convertible at the option of the holder at a 50% discount to the lowest traded price of the Company's common stock over the previous 20 days. In addition, each note's conversion rate has a floor of $0.0001. Total debt discounts related to the beneficial conversion features of $447,272 were recorded and are being amortized over the life of the notes.

During the six months ended June 30, 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. 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 $116,005 were recorded and are being amortized over the life of the notes.

 

 

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During the six months ended June 30, 2018 and 2017, $270,723 and $152,347 of the discounts were amortized to interest expense, respectively.

During the six months ended June 30, 2018 and 2017, the Company issued 88,009,168 and 5,121,151 shares of common stock upon conversion of $97,720 and $33,682, respectively, in notes payable and accrued interest.

Most of the Company's convertible notes payable contain adjustable conversion terms with significant discounts to market. As of June 30, 2018, the Company's convertible notes are convertible into an aggregate of approximately 573,403,000 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 – STOCKHOLDERS' DEFICIT

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 June 30, 2018, the Company had 950,000,000 common shares authorized with a par value of $0.001 per share.

 

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.

During the six months ended June 30, 2018, the Company issued 88,009,168 shares of common stock upon conversion of $97,720 in convertible notes payable and accrued interest.

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During the six months ended June 30, 2017, the Company issued 1,800,000 shares of common stock for cash proceeds of $28,500. Additionally, the Company issued 5,121,151 shares of common stock upon conversion of $33,682 in convertible notes payable and accrued interest.

See Note 3 for additional discussions of common stock issuances in connection with convertible notes.

 

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 six months ended June 30, 2018, the Company granted options to purchase an aggregate of 11,582,000 shares of common stock to non-management directors. The options were valued at $25,000 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 ($0.0019 to $0.0026), expected dividend yield of 0%, historical volatility calculated at 217%, risk-free interest rate of 1.80%, and an expected term of 5 years.

NOTE 5 – COMMITMENTS AND CONTINGENCIES

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 6 - RELATED PARTY TRANSACTIONS

As of June 30, 2018 and December 31, 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 $582,817 and $502,397, 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 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.

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NOTE 7 - SUBSEQUENT EVENTS

In accordance with FASB ASC 855-10 Subsequent Events, the Company has analyzed its operations subsequent to June 30, 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 for the below:

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Results of Operations

 

During the quarter ended June 30, 2018, we had revenues of $2,385 as compared to revenues of $9,058 during the quarter ended June 30, 2017, a decrease of 73.7%. This decrease is explained partially by the nationwide trucker strike that affected all state and federal highways including the ones near our operations, preventing movement of trucks, and with lack of fuel delivery to gas stations, regular cars were also affected. The Company had an initial production of diamonds and gold from a new locale in its mining concession, and such production had not been sold as of the end of the second quarter.

Our consolidated cost of goods sold during the quarter ended June 30, 2018 was $33,216, consisting entirely of production expenses, as compared to our consolidated cost of goods sold during the quarter ended June 30, 2017 of $43,682, a decrease of 24.0%. This was attributable to improved efficiencies in our mining processes, as well as lesser machinery repair costs.

Our gross loss during the quarter ended June 30, 2018 was $30,831, as compared to our gross loss during the quarter ended June 30, 2017 of $34,624, an increase of 11.0%.

We had an aggregate of $294,231 in operating expenses during the quarter ended June 30, 2018, as compared to an aggregate of $221,835 in operating expenses during the quarter ended June 30, 2017, an increase of 32.6%. This change was due primarily to stock-based compensation of $114,256recorded during the second quarter of 2018.

During the quarter ended June 30, 2018, we had total other expenses of $185,718 as compared to $112,771 during the comparable quarter of 2017, an increase of 64.7%. This change was due primarily to higher interest costs incurred on our promissory notes due to the accrual and payment of stated rates and amortization of debt discounts when compared to the same period in 2017.

During the second quarter of 2018, we experienced a net loss attributable to our common stockholders of $459,138, as compared to a net loss of $358,329 during the second quarter of 2017, an increase of 22.0%.

On a per share basis (both basic and diluted), during the second quarter of 2018, we had net loss per share attributable to our common stockholders of $0.00, as compared to a net loss per share attributable to our common stockholders of $0.01 in the second quarter of 2017.

 

During the six months ended June 30, 2018, we had revenues of $7,300 as compared to revenues of $12,454 during the six months ended June 30, 2017, a decrease of 41.3%. This decrease is explained partially by the nationwide trucker strike that affected all state and federal highways including the ones near our operations, preventing movement of trucks, and with lack of fuel delivery to gas stations, regular cars were also affected. The Company had an initial production of diamonds and gold from a new locale in its mining concession, and such production had not been sold as of the end of the second quarter.

Our consolidated cost of goods sold during the six months ended June 30, 2018 was $69,084, consisting entirely of production expenses, as compared to our consolidated cost of goods sold during the six months ended June 30, 2017 of $76,877, an increase of 25.7%. This was attributable to improved efficiencies in our mining processes, as well as lesser machinery repair costs.

Our gross loss during the six months ended June 30, 2018 was $61,784, as compared to our gross loss during the six months ended June 30, 2017 of $64,423, a decrease of 4.1%.

We had an aggregate of $472,194 in operating expenses during the six months ended June 30, 2018, as compared to an aggregate of $375,768 in operating expenses during the six months ended June 30, 2017, an increase of 25.7%. This change was due primarily to stock-based compensation of $114,256 recorded the second quarter of 2018.

During the six months ended June 30, 2018, we had total other expenses of $335,537 as compared to $203,421 during the comparable six months of 2017, an increase of 64.9%. This change was due primarily to higher interest costs incurred on our promissory notes due to the accrual and payment of stated rates and amortization of debt discounts when compared to the same period in 2017.

During the six months ended June 30, 2018, we experienced a net loss attributable to our common stockholders of $808,064, as compared to a net loss of $627,634 during the six months ended June 30, 2017, an increase of 28.8%.

On a per share basis (both basic and diluted), during the six months ended June 30, 2018, we had net loss per share attributable to our common stockholders of $0.01, as compared to a net loss per share attributable to our common stockholders of $0.01 during the six months ended June 30, 2017.

 

During the six months ended June 30, 2018, our sources of liquidity were derived from revenues, proceeds from debt issued, and proceeds of equity issuance 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 for the remainder of 2018 or in the foreseeable future.

Off-Balance Sheet Arrangements

We currently have no off-balance sheet arrangements.

(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.